On Dec 5, 2014, we issued an updated research report on Natural Resource Partners LP (NRP). The partnership’s efforts to expand its unconventional asset base through systematic acquisitions are appreciable.
This is enabling the partnership to diversify its revenue stream away from coal. Recovery in domestic thermal and international met coal demand has at best been tepid this year. Moreover, increasing exposure to fluctuating oil and natural gas prices are putting margins under pressure.
Houston, TX-based Natural Resource Partners’ third-quarter earnings were in line with the Zacks Consensus Estimate but revenues surpassed the same primarily on the back of higher other-than-coal revenues.
Natural Resource Partners’ business is also low risk as it does not operate any of the assets it owns, but leases them to operators for a royalty or fee. Locking in contracts that guarantee minimum payments also helps the partnership to consistently generate cash even if the coal-producing properties face problems.
The partnership is well positioned to meet increasing customer demand with its assets in strategic locations in the Illinois Basin, Appalachia and western U.S. The partnership expects the demand for coal at the Illinois Basin to increase 42% by 2020.
In addition, its asset diversification initiative is yielding positive results. The partnership’s acquisition of VantaCore specializing in the construction materials industry and non-operated working interests in oil and gas properties in the Bakken/Three Forks play have further expanded its assets into the non-coal business.
However, if the new proposal of the U.S. Environmental Protection Agency (EPA) to lower carbon emission is implemented without any revisions will certainty discourage the production of power from the fossil fuel and thereby lower demand for coal. Moreover, as the Cline Group and affiliates and Alpha Natural Resources, Inc. (ANR) constitute the major part of the partnership’s revenues, dependence on a few customers runs concentration risk.
Natural Resource Partners currently holds a Zacks Rank #2 (Buy).
Other Stocks to Consider
Other well-ranked stocks in the coal industry include SunCoke Energy Inc. (SXC), Foresight Energy LP (FELP). While SunCoke sports a Zacks Rank #1 (Strong Buy), Foresight carries a Zacks Rank #2.
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