We retain our Neutral recommendation on Natural Resource Partners L.P. (NRP). The mineral reserve properties owner currently holds a Zacks Rank #4 (Sell).
Why the Reiteration?
The partnership’s earnings in the first quarter of 2013 surpassed the Zacks Consensus Estimate but fell short of the year-ago figure. This was primarily due to lower coal royalty revenues.
The reiteration takes into consideration stringent environmental legislations adopted by the U.S. which will continue to impact pure coal plays like Natural Resource. In this context, renewable energy sources are steadily gaining ground which could threaten the partnership’s prospects.
In addition, an increase in transportation cost would affect Natural Resource’s competitive edge and create margin pressure.
However, reviving natural gas prices would provide an avenue for steam coal markets to regain momentum. This will certainly boost the confidence of lessees to reopen their mines, thereby benefiting Natural Resource.
Furthermore, the partnership’s unconventional investments like interest acquisition in OCI Wyoming looks well-timed given the projected 3.8% climb in soda ash demand in 2013 led by Asia, the Middle East and Africa. Natural Resource will also profit from the improving global steel market fundamentals that will propel its metallurgical coal operations.
Nonetheless, the risk of losing lessees by Natural Resource in a dull U.S. economy cannot be denied. Natural Resource’s business will also be affected by the Obama Climate Plan which called for a gradual reduction in coal-based operations.
Another coal play equally affected by the plan is Arch Coal Inc. (ACI).
Other Stocks to Consider
However, other coal industry players looking good at the moment are Zacks Ranked #1 (Strong Buy) Alliance Resource Partners LP (ARLP) and Zacks Ranked #2 (Buy) Hallador Energy Company (HNRG).
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