Natural Resource Partners L.P. (NRP) reported fourth quarter and full year 2021 results, noting net income of $55.64 million for the quarter and $109.00 million for the year.
“Strong demand for metallurgical coal, thermal coal and soda ash in the fourth quarter produced one of the best quarters in terms of free cash flow generation in the Partnership’s history,” stated Craig Nunez, NRP’s president and chief operating officer. “While COVID-19 remains a risk factor for the global economy, we expect to generate robust free cash flow in the months ahead and plan to continue using that cash to pay down debt, solidify our capital structure and maintain common unit distributions.”
Nunez continued, “We also closed our first carbon sequestration transaction in the fourth quarter, receiving $13.8 million in exchange for agreeing to sequester 1.1 million tonnes of carbon dioxide (CO2) in our West Virginia forestland. We announced our second carbon sequestration transaction earlier this quarter after granting Denbury the right to develop a world-class subsurface CO2 sequestration project on 75,000 acres of underground pore space we control in southwest Alabama, which Denbury believes has the potential to store more than 300 million tonnes of CO2. We expect this project, if developed, to be the first of what will potentially be numerous subsurface carbon sequestration projects conducted on the approximately 3.5 million acres where we own the rights to sequester CO2 underground across the United States. These projects have the potential to provide important benefits to the environment and add significant value to NRP over the coming years.”
NRP’s liquidity was $235.5 million at December 31, 2021, consisting of $135.5 million of cash and $100.0 million of borrowing capacity available under its revolving credit facility.
NRP has changed the name of its Coal Royalty and Other business segment to Mineral Rights. This name change highlights NRP’s vast mineral ownership interests as well as its intensifying focus on leveraging the partnership’s asset footprint across the United States, including subsurface carbon sequestration rights, to become a key player in the transitional energy economy for the years to come. There has been no change to the composition of this reportable business segment or the structure of NRP’s internal organization in connection with this name change.
Mineral Rights net income for the fourth quarter and full year of 2021 increased $38.1 million and $183.6 million, respectively, as compared to the prior-year periods. Free cash flow for the fourth quarter and full year of 2021 increased $34.1 million and $35.1 million, respectively, as compared to the prior year periods.
These increases were primarily due to stronger metallurgical coal demand and pricing in 2021 and $13.8 million of cash received in the fourth quarter of 2021 from the forestland carbon sequestration transaction. In addition, full year 2021 net income improved due to $130.8 million of higher asset impairments recorded in 2020. Approximately 75% of coal royalty revenues and approximately 55% of coal royalty sales volumes were derived from metallurgical coal in the fourth quarter of 2021.
Metallurgical coal markets have rebounded significantly from the lows seen in 2020 to record high pricing and the outlook remains strong as steel demand driven by global economic recovery is more than offsetting challenges related to the COVID-19 pandemic.
Domestic and export thermal coal markets have also significantly improved from the lows seen in 2020, however NRP did not have meaningful sensitivity to thermal coal price movements in 2021 since the substantial majority of NRP’s thermal cash flows were fixed pursuant to a contract with Foresight Energy that went into effect as it emerged from bankruptcy in 2020.
That contract expired at the end of 2021 and NRP began receiving traditional royalty payments in January 2022. While NRP may benefit from improved thermal coal demand and pricing in the near term, thermal coal markets still face the long-term challenges presented by competition from natural gas and the secular shift to renewable energy.
In addition, NRP continues to identify alternative revenue sources across its large portfolio of land, mineral and timber assets. The types of opportunities include the sequestration of carbon dioxide underground and in standing forests, and the generation of electricity using geothermal, solar and wind energy. While the timing and likelihood of additional cash flows being realized from further activities is uncertain, NRP believes its large ownership footprint throughout the United States will provide additional opportunities to create value in this regard with minimal capital investment.
In December, a publicly-traded Turkish conglomerate, Sisecam, acquired a majority stake in the managing partner of Sisecam Wyoming LLC, the business formerly known as Ciner Wyoming LLC. Sisecam brings extensive experience and knowledge to NRP’s soda ash partnership given its soda ash operating experience in Turkey, Bulgaria and Europe, as well as its container and flat glass manufacturing around the world. NRP looks forward to working with Sisecam to build on the significant value realized by the soda ash partnership with the Ciner Group, which continues to own a minority stake in the partnership.
Soda ash net income in the fourth quarter and full year of 2021 increased $5.1 million and $11.2 million, respectively, as compared to the prior-year period as demand and pricing for soda ash continues to improve globally from the lows caused by the COVID-19 pandemic.
As a result of the soda ash segment’s improved performance, Sisecam Wyoming reinstated regular quarterly cash distributions in the fourth quarter of 2021, which were previously suspended since the third quarter of 2020. Accordingly, free cash flow in the fourth quarter of 2021 increased $7.3 million as compared to the prior year period, but decreased $2.9 million for the full year of 2021 as compared to the prior year due to the regular quarterly cash distributions being suspended until the fourth quarter of 2021.