On Nov 19, 2013, we maintained our Neutral recommendation on Natural Resource Partners L.P. (NRP). The Houston-based mineral reserve properties owner currently carries a Zacks Rank #4 (Sell).
Why the Reiteration?
Natural Resource Partners delivered lackluster earnings in the third quarter 2013 due to the lingering metallurgical (met) coal supply glut in the global market. The reiteration takes into account the partnership’s escalating operating costs and pressing regulatory obligations. The Obama Climate plan will pose severe challenges to coal production in the coming years. This might lower production by lessees thereby deterring the partnership’s growth prospects.
However, Natural Resource Partners’ focus on the development of its low-cost and profitable mines in the Illinois basin will lend significant stability to the revenue stream. The partnership spent $330 million on acquisitions in the third quarter 2013 to diversify its revenue base.
It has inked an agreement to buy non-operating oil and gas interests in the Williston Basin of North Dakota including additional assets from the Bakken play from Sundance Energy. We believe these strategic steps will support the partnership's growth momentum.
In addition, the projected 3.3% increase in world steel utilization in 2014 as per the World Steel Association will drive Natural Resource Partners’ met coal sales. Furthermore, Natural Resource Partners’ favorable cash flow position will allow the partnership to maintain regular distribution payments.
Nevertheless, an increase in transportation cost and dependence on a few customers might act as growth deterrents for the partnership’s business.
Other Stocks to Consider
Well-positioned industry players at present are Zacks Ranked #2 (Buy) Alpha Natural Resources, Inc. (ANR) and SunCoke Energy Partners, L.P. (SXCP) and MGE Energy Inc. (MGEE).
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