The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
Nature of Business
Natural Resource Partners L.P. (the "Partnership") engages principally in the business of owning, managing and leasing a diversified portfolio of mineral properties in the United States, including interests in coal and other natural resources and owns a non-controlling 49% interest in Sisecam Wyoming LLC ("Sisecam Wyoming"), a trona ore mining and soda ash production business. The Partnership is organized into two operating segments further described in Note 5. Segment Information. As used in these Notes to Consolidated Financial Statements, the terms "NRP," "we," "us" and "our" refer to Natural Resource Partners L.P. and its subsidiaries, unless otherwise stated or indicated by context.
Principles of Consolidation and Reporting
The accompanying unaudited Consolidated Financial Statements of the Partnership have been prepared in accordance with generally accepted accounting principles in the United States of America ("GAAP") for interim financial information and with Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. These financial statements should be read in conjunction with the financial statements for the year ended December 31, 2021 and notes thereto included in the Partnership's Annual Report on Form 10-K, which was filed with the SEC on March 15, 2022.
2. Revenues from Contracts with Customers
The following table presents the Partnership's Mineral Rights segment revenues by major source:
| | | For the Three Months Ended September 30, | | | For the Nine Months Ended September 30, | |
| (In thousands) | | 2022 | | | 2021 | | | 2022 | | | 2021 | |
| Coal royalty revenues | | $ | 52,381 | | | $ | 32,432 | | | $ | 170,775 | | | $ | 66,095 | |
| Production lease minimum revenues | | | 1,885 | | | | 3,235 | | | | 3,542 | | | | 10,241 | |
| Minimum lease straight-line revenues | | | 4,778 | | | | 4,808 | | | | 14,235 | | | | 15,773 | |
| Carbon neutral initiative revenues (1) | | | 8,600 | | | | — | | | | 8,600 | | | | — | |
| Property tax revenues | | | 1,360 | | | | 1,466 | | | | 4,527 | | | | 4,522 | |
| Wheelage revenues | | | 2,977 | | | | 1,964 | | | | 11,073 | | | | 5,589 | |
| Coal overriding royalty revenues | | | 1,367 | | | | 757 | | | | 2,307 | | | | 3,592 | |
| Lease amendment revenues | | | 759 | | | | 1,519 | | | | 2,450 | | | | 3,159 | |
| Aggregates royalty revenues | | | 884 | | | | 429 | | | | 2,691 | | | | 1,339 | |
| Oil and gas royalty revenues | | | 6,170 | | | | 1,154 | | | | 10,890 | | | | 3,420 | |
| Other revenues | | | 218 | | | | 120 | | | | 705 | | | | 692 | |
| Royalty and other mineral rights revenues | | $ | 81,379 | | | $ | 47,884 | | | $ | 231,795 | | | $ | 114,422 | |
| Transportation and processing services revenues (2) | | | 5,969 | | | | 2,171 | | | | 15,377 | | | | 6,545 | |
| Total Mineral Rights segment revenues | | $ | 87,348 | | | $ | 50,055 | | | $ | 247,172 | | | $ | 120,967 | |
| (1) | Included within carbon neutral initiative revenues are payments that are recognized at a point in time upon satisfaction of NRP's performance obligation. |
| (2) | Transportation and processing services revenues from contracts with customers as defined under ASC 606 was $4.9 million and $1.2 million for the three months ended September 30, 2022 and 2021, respectively, and $12.9 million and $3.7 million for the nine months ended September 30, 2022 and 2021, respectively. The remaining transportation and processing services revenues of $1.1 million and $0.9 million for the three months ended September 30, 2022 and 2021, respectively, and $2.5 million and $2.8 million for the nine months ended September 30, 2022 and 2021, respectively, related to other NRP-owned infrastructure leased to and operated by third-party operators accounted for under other guidance. See Note 14. Financing Transaction for more information. |
The following table details the Partnership's Mineral Rights segment receivables and liabilities resulting from contracts with customers:
| | | September 30, | | | December 31, | |
| (In thousands) | | 2022 | | | 2021 | |
| Receivables | | | | | | | | |
| Accounts receivable, net | | $ | 30,991 | | | $ | 22,277 | |
| Other current assets, net (1) | | | 874 | | | | 769 | |
| Other long-term assets, net (2) | | | 75 | | | | 250 | |
| | | | | | | | | |
| Contract liabilities | | | | | | | | |
| Current portion of deferred revenue | | $ | 8,886 | | | $ | 11,817 | |
| Deferred revenue | | | 35,882 | | | | 50,045 | |
| (1) | Other current assets, net includes short-term notes receivables from contracts with customers. |
| (2) | Other long-term assets, net includes long-term lease amendment fee receivables from contracts with customers. |
NATURAL RESOURCE PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
The following table shows the activity related to the Partnership's Mineral Rights segment deferred revenue:
| | | For the Nine Months Ended | |
| | | September 30, | |
| (In thousands) | | 2022 | | | 2021 | |
| Balance at beginning of period (current and non-current) | | $ | 61,862 | | | $ | 61,554 | |
| Increase due to minimums and lease amendment fees | | | 11,309 | | | | 6,411 | |
| Recognition of previously deferred revenue | | | (28,403 | ) | | | (8,532 | ) |
| Balance at end of period (current and non-current) | | $ | 44,768 | | | $ | 59,433 | |
The Partnership's non-cancelable annual minimum payments due under the lease terms of its coal and aggregates royalty leases are as follows as of September 30, 2022 (in thousands):
| Lease Term (1) | | Weighted Average Remaining Years | | | Annual Minimum Payments | |
| 0 - 5 years | | 2.4 | | | $ | 22,229 | |
| 5 - 10 years | | 3.8 | | | | 7,517 | |
| 10+ years | | 12.8 | | | | 27,221 | |
| Total | | 7.5 | | | $ | 56,967 | |
| (1) | Lease term does not include renewal periods. |
3. Common and Preferred Unit Distributions
The Partnership makes cash distributions to common and preferred unitholders on a quarterly basis, subject to approval by the Board of Directors of GP Natural Resource Partners LLC (the "Board of Directors"). NRP recognizes both common unit and preferred unit distributions on the date the distribution is declared.
Distributions made on the common units and the general partner's general partner ("GP") interest are made on a pro-rata basis in accordance with their relative percentage interests in the Partnership. The general partner is entitled to receive 2% of such distributions.
Income available to common unitholders and the general partner is reduced by preferred unit distributions that accumulated during the period. NRP reduced net income available to common unitholders and the general partner by $7.5 million and $8.0 million during the three months ended September 30, 2022 and 2021, respectively, and $22.5 million and $23.5 million during the nine months ended September 30, 2022 and 2021, respectively, as a result of accumulated preferred unit distributions earned during the period.
The following table shows the cash distributions declared and paid to common and preferred unitholders during the nine months ended September 30, 2022 and 2021, respectively:
| | | | | Cash Distributions | | Paid-in-kind Distributions |
| | | | | Common Units | | Preferred Units |
| | | | | | | Total Distribution (1) | | | | Total Distribution | | Total Distribution |
| Month Paid | | Period Covered by Distribution | | Distribution per Unit | | (In thousands) | | Distribution per Unit | | (In thousands) | | (In units) |
| 2022 | | | | | | | | | | | | | | | | |
| February 2022 | | October 1 - December 31, 2021 | | $ | 0.45 | | $ | 5,672 | | $ | 30.00 | | $ | 7,500 | | — |
| May 2022 | | January 1 - March 31, 2022 | | | 0.75 | | | 9,570 | | | 30.00 | | | 7,500 | | — |
| August 2022 | | April 1 - June 30, 2022 | | | 0.75 | | | 9,571 | | | 30.00 | | | 7,500 | | — |
| | | | | | | | | | | | | | | | | |
| 2021 | | | | | | | | | | | | | | | | |
| February 2021 | | October 1 - December 31, 2020 | | $ | 0.45 | | $ | 5,630 | | $ | 15.00 | | $ | 3,806 | | 3,806 |
| May 2021 | | January 1 - March 31, 2021 | | | 0.45 | | | 5,672 | | | 15.00 | | | 3,864 | | 3,864 |
| August 2021 | | April 1 - June 30, 2021 | | | 0.45 | | | 5,671 | | | 15.00 | | | 3,921 | | 3,921 |
| (1) | Totals include the amount paid to NRP's general partner in accordance with the general partner's 2% general partner interest. |
NATURAL RESOURCE PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
4. Net Income Per Common Unit
Basic net income per common unit is computed by dividing net income, after considering income attributable to preferred unitholders and the general partner’s general partner interest, by the weighted average number of common units outstanding. Diluted net income per common unit includes the effect of NRP's preferred units, warrants, and unvested unit-based awards if the inclusion of these items is dilutive.
The dilutive effect of the preferred units is calculated using the if-converted method. Under the if-converted method, the preferred units are assumed to be converted at the beginning of the period, and the resulting common units are included in the denominator of the diluted net income per unit calculation for the period being presented. Distributions declared in the period and undeclared distributions on the preferred units that accumulated during the period are added back to the numerator for purposes of the if-converted calculation. The calculation of diluted net income per common unit for the three and nine months ended September 30, 2022 and 2021 includes the assumed conversion of the preferred units.
The dilutive effect of the warrants is calculated using the treasury stock method, which assumes that the proceeds from the exercise of these instruments are used to purchase common units at the average market price for the period. The calculation of diluted net income per common unit for the three and nine months ended September 30, 2022 includes the net settlement of warrants to purchase 0.75 million common units at a strike price of $22.81 and the net settlement of warrants to purchase 2.25 million common units with a strike price of $34.00 whereas the calculation of diluted net income per common unit for the three and nine months ended September 30, 2021 does not include the net settlement of warrants to purchase 1.75 million common units at a strike price of $22.81 or the net settlement of warrants to purchase 2.25 million common units with a strike price of $34.00 because the impact would have been anti-dilutive.
The following tables reconcile the numerator and denominator of the basic and diluted net income per common unit computations and calculates basic and diluted net income per common unit:
| | | For the Three Months Ended September 30, | | | For the Nine Months Ended September 30, | |
| (In thousands, except per unit data) | | 2022 | | | 2021 | | | 2022 | | | 2021 | |
| Allocation of net income | | | | | | | | | | | | | | | | |
| Net income | | $ | 74,555 | | | $ | 29,498 | | | $ | 205,274 | | | $ | 53,261 | |
| Less: income attributable to preferred unitholders | | | (7,500 | ) | | | (7,961 | ) | | | (22,500 | ) | | | (23,530 | ) |
| Net income attributable to common unitholders and the general partner | | $ | 67,055 | | | $ | 21,537 | | | $ | 182,774 | | | $ | 29,731 | |
| Less: net income attributable to the general partner | | | (1,341 | ) | | | (431 | ) | | | (3,655 | ) | | | (595 | ) |
| Net income attributable to common unitholders | | $ | 65,714 | | | $ | 21,106 | | | $ | 179,119 | | | $ | 29,136 | |
| | | | | | | | | | | | | | | | | |
| Basic net income per common unit | | | | | | | | | | | | | | | | |
| Weighted average common units—basic | | | 12,506 | | | | 12,351 | | | | 12,476 | | | | 12,332 | |
| Basic net income per common unit | | $ | 5.25 | | | $ | 1.71 | | | $ | 14.36 | | | $ | 2.36 | |
| | | | | | | | | | | | | | | | | |
| Diluted net income per common unit | | | | | | | | | | | | | | | | |
| Weighted average common units—basic | | | 12,506 | | | | 12,351 | | | | 12,476 | | | | 12,332 | |
| Plus: dilutive effect of preferred units | | | 6,210 | | | | 13,835 | | | | 6,210 | | | | 13,835 | |
| Plus: dilutive effect of warrants | | | 807 | | | | — | | | | 759 | | | | — | |
| Plus: dilutive effect of unvested unit-based awards | | | 195 | | | | 188 | | | | 204 | | | | 144 | |
| Weighted average common units—diluted | | | 19,718 | | | | 26,374 | | | | 19,649 | | | | 26,311 | |
| | | | | | | | | | | | | | | | | |
| Net income | | $ | 74,555 | | | $ | 29,498 | | | $ | 205,274 | | | $ | 53,261 | |
| Less: income attributable to preferred unitholders | | | — | | | | — | | | | — | | | | — | |
| Diluted net income attributable to common unitholders and the general partner | | $ | 74,555 | | | $ | 29,498 | | | $ | 205,274 | | | $ | 53,261 | |
| Less: diluted net income attributable to the general partner | | | (1,491 | ) | | | (589 | ) | | | (4,105 | ) | | | (1,065 | ) |
| Diluted net income attributable to common unitholders | | $ | 73,064 | | | $ | 28,909 | | | $ | 201,169 | | | $ | 52,196 | |
| | | | | | | | | | | | | | | | | |
| Diluted net income per common unit | | $ | 3.71 | | | $ | 1.10 | | | $ | 10.24 | | | $ | 1.98 | |
NATURAL RESOURCE PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
5. Segment Information
The Partnership's segments are strategic business units that offer distinct products and services to different customers in different geographies within the U.S. and that are managed accordingly. NRP has the following two operating segments:
Mineral Rights—consists of mineral interests and other subsurface rights across the United States. NRP's ownership provides critical inputs for the manufacturing of steel, electricity and basic building materials, as well as opportunities for carbon sequestration and renewable energy. The Partnership is working to strategically redefine its business as a key player in the transitional energy economy in the years to come.
Soda Ash—consists of the Partnership's 49% non-controlling equity interest in Sisecam Wyoming, a trona ore mining operation and soda ash refinery in the Green River Basin of Wyoming. Sisecam Wyoming mines trona and processes it into soda ash that is sold both domestically and internationally to the glass and chemicals industries.
Direct segment costs and certain other costs incurred at the corporate level that are identifiable and that benefit the Partnership's segments are allocated to the operating segments accordingly. These allocated costs generally include salaries and benefits, insurance, property taxes, legal, royalty, information technology and shared facilities services and are included in operating and maintenance expenses on the Partnership's Consolidated Statements of Comprehensive Income.
Corporate and Financing includes functional corporate departments that do not earn revenues. Costs incurred by these departments include interest and financing, corporate headquarters and overhead, centralized treasury, legal and accounting and other corporate-level activity not specifically allocated to a segment and are included in general and administrative expenses on the Partnership's Consolidated Statements of Comprehensive Income.
The following table summarizes certain financial information for each of the Partnership's business segments:
| | | Operating Segments | | | | | | | | | |
| (In thousands) | | Mineral Rights | | | Soda Ash | | | Corporate and Financing | | | Total | |
| For the Three Months Ended September 30, 2022 | | | | | | | | | | | | | | | | |
| Revenues | | $ | 87,348 | | | $ | 14,556 | | | $ | — | | | $ | 101,904 | |
| Gain on asset sales and disposals | | | 354 | | | | — | | | | — | | | | 354 | |
| Operating and maintenance expenses | | | 7,867 | | | | 31 | | | | — | | | | 7,898 | |
| Depreciation, depletion and amortization | | | 6,850 | | | | — | | | | — | | | | 6,850 | |
| General and administrative expenses | | | — | | | | — | | | | 4,518 | | | | 4,518 | |
| Asset impairments | | | 812 | | | | — | | | | — | | | | 812 | |
| Other expenses, net | | | — | | | | — | | | | 7,625 | | | | 7,625 | |
| Net income (loss) | | | 72,173 | | | | 14,525 | | | | (12,143 | ) | | | 74,555 | |
| | | | | | | | | | | | | | | | | |
| For the Three Months Ended September 30, 2021 | | | | | | | | | | | | | | | | |
| Revenues | | $ | 50,055 | | | $ | 6,672 | | | $ | — | | | $ | 56,727 | |
| Gain on asset sales and disposals | | | 68 | | | | — | | | | — | | | | 68 | |
| Operating and maintenance expenses | | | 8,278 | | | | 76 | | | | — | | | | 8,354 | |
| Depreciation, depletion and amortization | | | 5,182 | | | | — | | | | — | | | | 5,182 | |
| General and administrative expenses | | | — | | | | — | | | | 4,052 | | | | 4,052 | |
| Asset impairments | | | 57 | | | | — | | | | — | | | | 57 | |
| Other expenses, net | | | — | | | | — | | | | 9,652 | | | | 9,652 | |
| Net income (loss) | | | 36,606 | | | | 6,596 | | | | (13,704 | ) | | | 29,498 | |
| | | | | | | | | | | | | | | | | |
| For the Nine Months Ended September 30, 2022 | | | | | | | | | | | | | | | | |
| Revenues | | $ | 247,172 | | | $ | 44,036 | | | $ | — | | | $ | 291,208 | |
| Gain on asset sales and disposals | | | 699 | | | | — | | | | — | | | | 699 | |
| Operating and maintenance expenses | | | 25,884 | | | | 105 | | | | — | | | | 25,989 | |
| Depreciation, depletion and amortization | | | 16,565 | | | | — | | | | — | | | | 16,565 | |
| General and administrative expenses | | | — | | | | — | | | | 14,037 | | | | 14,037 | |
| Asset impairments | | | 874 | | | | — | | | | — | | | | 874 | |
| Other expenses, net | | | — | | | | — | | | | 29,168 | | | | 29,168 | |
| Net income (loss) | | | 204,548 | | | | 43,931 | | | | (43,205 | ) | | | 205,274 | |
| | | | | | | | | | | | | | | | | |
| For the Nine Months Ended September 30, 2021 | | | | | | | | | | | | | | | | |
| Revenues | | $ | 120,967 | | | $ | 11,246 | | | $ | — | | | $ | 132,213 | |
| Gain on asset sales and disposals | | | 243 | | | | — | | | | — | | | | 243 | |
| Operating and maintenance expenses | | | 18,945 | | | | 131 | | | | — | | | | 19,076 | |
| Depreciation, depletion and amortization | | | 15,145 | | | | — | | | | — | | | | 15,145 | |
| General and administrative expenses | | | — | | | | — | | | | 11,550 | | | | 11,550 | |
| Asset impairments | | | 4,116 | | | | — | | | | — | | | | 4,116 | |
| Other expenses, net | | | 24 | | | | — | | | | 29,284 | | | | 29,308 | |
| Net income (loss) | | | 82,980 | | | | 11,115 | | | | (40,834 | ) | | | 53,261 | |
NATURAL RESOURCE PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
6. Equity Investment
The Partnership accounts for its 49% investment in Sisecam Wyoming using the equity method of accounting. Activity related to this investment is as follows:
| |
|
For the Three Months Ended September 30, |
|
|
For the Nine Months Ended September 30, |
|
| (In thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
| Balance at beginning of period |
|
$ |
280,300 |
|
|
$ |
266,433 |
|
|
$ |
276,004 |
|
|
$ |
262,514 |
|
| Income allocation to NRP’s equity interests |
|
|
15,732 |
|
|
|
7,989 |
|
|
|
47,601 |
|
|
|
15,060 |
|
| Amortization of basis difference |
|
|
(1,176 |
) |
|
|
(1,317 |
) |
|
|
(3,565 |
) |
|
|
(3,814 |
) |
| Other comprehensive income (loss) |
|
|
289 |
|
|
|
4,204 |
|
|
|
(1,179 |
) |
|
|
7,469 |
|
| Distribution |
|
|
(10,339 |
) |
|
|
— |
|
|
|
(34,055 |
) |
|
|
(3,920 |
) |
| Balance at end of period |
|
$ |
284,806 |
|
|
$ |
277,309 |
|
|
$ |
284,806 |
|
|
$ |
277,309 |
|
The following table represents summarized financial information for Sisecam Wyoming as derived from their respective unaudited financial statements for the three and nine months ended September 30, 2022 and 2021:
| |
|
For the Three Months Ended September 30, |
|
|
For the Nine Months Ended September 30, |
|
| (In thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
| Net sales |
|
$ |
190,450 |
|
|
$ |
135,648 |
|
|
$ |
542,955 |
|
|
$ |
384,129 |
|
| Gross profit |
|
$ |
39,679 |
|
|
|
23,530 |
|
|
|
119,723 |
|
|
|
50,317 |
|
| Net income |
|
$ |
32,105 |
|
|
|
16,304 |
|
|
|
97,144 |
|
|
|
30,734 |
|
7. Mineral Rights, Net
The Partnership’s mineral rights consist of the following:
| | | September 30, 2022 | | | December 31, 2021 | |
| (In thousands) | | Carrying Value | | | Accumulated Depletion | | | Net Book Value | | | Carrying Value | | | Accumulated Depletion | | | Net Book Value | |
| Coal properties | | $ | 666,604 | | | $ | (265,031 | ) | | $ | 401,573 | | | $ | 670,650 | | | $ | (253,503 | ) | | $ | 417,147 | |
| Aggregates properties | | | 8,674 | | | | (3,310 | ) | | | 5,364 | | | | 8,747 | | | | (2,975 | ) | | | 5,772 | |
| Oil and gas royalty properties | | | 12,354 | | | | (9,479 | ) | | | 2,875 | | | | 12,354 | | | | (9,115 | ) | | | 3,239 | |
| Other | | | 13,151 | | | | (1,612 | ) | | | 11,539 | | | | 13,151 | | | | (1,612 | ) | | | 11,539 | |
| Total mineral rights, net | | $ | 700,783 | | | $ | (279,432 | ) | | $ | 421,351 | | | $ | 704,902 | | | $ | (267,205 | ) | | $ | 437,697 | |
Depletion expense related to the Partnership’s mineral rights is included in depreciation, depletion and amortization on its Consolidated Statements of Comprehensive Income and totaled $6.4 million and $4.6 million for the three months ended September 30, 2022 and 2021, respectively, and $15.5 million and $13.8 million for the nine months ended September 30, 2022 and 2021, respectively.
During the three and nine months ended September 30, 2022 the Partnership recorded $0.8 million and $0.9 million of asset impairments, respectively. During the three months ended September 30, 2021, the Partnership did not have any material asset impairments and during the nine months ended September 30, 2021, the Partnership recorded $4.1 million of expense primarily due to a lease termination that resulted in the full impairment of a coal property. The Partnership has developed procedures to evaluate its long-lived assets for possible impairment periodically or whenever events or changes in circumstances indicate an asset's net book value may not be recoverable. Potential events or circumstances include, but are not limited to, specific events such as a reduction in economically recoverable reserves or production ceasing on a property for an extended period. This analysis is based on historic, current and future performance and considers both quantitative and qualitative information. While the Partnership's impairment evaluation as of September 30, 2022 incorporated an estimated impact of the global COVID-19 pandemic, there is significant uncertainty as to the severity and duration of this disruption. If the impact is worse than current estimates, an additional impairment charge may be recognized in future periods.
NATURAL RESOURCE PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
8. Debt, Net
The Partnership's debt consists of the following:
| | | September 30, | | | December 31, | |
| (In thousands) | | 2022 | | | 2021 | |
| NRP LP debt: | | | | | | | | |
| 9.125% senior notes, with semi-annual interest payments in June and December, due June 2025, issued at par ("2025 Senior Notes") | | $ | 121,396 | | | $ | 300,000 | |
| Opco debt: | | | | | | | | |
| Revolving credit facility | | $ | — | | | $ | — | |
| Senior Notes | | | | | | | | |
| 5.55% with semi-annual interest payments in June and December, with annual principal payments in June, due June 2023 | | $ | 2,366 | | | $ | 4,730 | |
| 4.73% with semi-annual interest payments in June and December, with annual principal payments in December, due December 2023 | | | 12,008 | | | | 12,008 | |
| 5.82% with semi-annual interest payments in March and September, with annual principal payments in March, due March 2024 | | | 25,368 | | | | 38,053 | |
| 8.92% with semi-annual interest payments in March and September, with annual principal payments in March, due March 2024 | | | 8,023 | | | | 12,035 | |
| 5.03% with semi-annual interest payments in June and December, with annual principal payments in December, due December 2026 | | | 57,104 | | | | 57,104 | |
| 5.18% with semi-annual interest payments in June and December, with annual principal payments in December, due December 2026 | | | 14,554 | | | | 14,554 | |
| Total Opco Senior Notes | | $ | 119,423 | | | $ | 138,484 | |
| Total debt at face value | | $ | 240,819 | | | $ | 438,484 | |
| Net unamortized debt issuance costs | | | (2,096 | ) | | | (4,939 | ) |
| Total debt, net | | $ | 238,723 | | | $ | 433,545 | |
| Less: current portion of long-term debt | | | (89,989 | ) | | | (39,102 | ) |
| Total long-term debt, net | | $ | 148,734 | | | $ | 394,443 | |
NRP LP Debt
2025 Senior Notes
In October 2022, NRP redeemed the outstanding $121.4 million 2025 Senior Notes at a redemption price of 102.281% of the principal amount plus accrued and unpaid interest, utilizing cash on hand and $70 million in borrowings under its recently extended credit facility. The $51.4 million of 2025 Senior Notes redeemed using cash on hand is classified as current portion of long-term debt, net on the Consolidated Balance Sheets at September 30, 2022. As of the date of this report, there are no 2025 Senior Notes outstanding. The following describes the terms of the 2025 Senior Notes prior to their redemption.
The 2025 Senior Notes were issued under an Indenture dated as of April 29, 2019 (the "2025 Indenture"), bear interest at 9.125% per year and mature on June 30, 2025. Interest is payable semi-annually on June 30 and December 30. NRP has the option to redeem the 2025 Senior Notes, in whole or in part, at any time on or after October 30, 2021, at the redemption prices (expressed as percentages of principal amount) of 104.563% for the 12-month period beginning October 30, 2021, 102.281% for the 12-month period beginning October 30, 2022, and thereafter at 100.000%, together, in each case, with any accrued and unpaid interest to the date of redemption. Furthermore, before October 30, 2021, NRP may on any one or more occasions redeem up to 35% of the aggregate principal amount of the 2025 Senior Notes with the net proceeds of certain public or private equity offerings at a redemption price of 109.125% of the principal amount of 2025 Senior Notes, plus any accrued and unpaid interest, if any, to the date of redemption, if at least 65% of the aggregate principal amount of the 2025 Senior Notes issued under the 2025 Indenture remains outstanding immediately after such redemption and the redemption occurs within 180 days of the closing date of such equity offering. In the event of a change of control, as defined in the 2025 Indenture, the holders of the 2025 Senior Notes may require us to purchase their 2025 Senior Notes at a purchase price equal to 101% of the principal amount of the 2025 Senior Notes, plus accrued and unpaid interest, if any. The 2025 Senior Notes were issued at par. During the three and nine months ended September 30, 2022, NRP retired $60.5 million and $178.6 million, respectively of its 2025 Senior Notes. These notes were purchased on the open market at a weighted average price of 102.750% and 102.436% for the three and nine months ended September 30, 2022, a discount to the redemption price at the time of 104.563%. Included in loss on extinguishment of debt on the Partnership's Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2022 are $1.7 million and $4.4 million, respectively, of call premium and fees and the write off of $0.6 million and $2.0 million, respectively, of debt issuance costs.
The 2025 Senior Notes are the senior unsecured obligations of NRP. The 2025 Senior Notes rank equal in right of payment to all existing and future senior unsecured debt of NRP and senior in right of payment to any of NRP's subordinated debt. The 2025 Senior Notes are effectively subordinated in right of payment to all future secured debt of NRP to the extent of the value of the collateral securing such indebtedness and are structurally subordinated in right of payment to all existing and future debt and other liabilities of our subsidiaries, including the Opco Credit Facility and each series of Opco’s existing senior notes. "Opco" refers to NRP (Operating) LLC, a wholly owned subsidiary of NRP, and its subsidiaries. None of NRP's subsidiaries guarantee the 2025 Senior Notes. As of September 30, 2022 and December 31, 2021, NRP was in compliance with the terms of the Indenture relating to their 2025 Senior Notes.
NATURAL RESOURCE PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
Opco Debt
All of Opco’s debt is guaranteed by its wholly owned subsidiaries and is secured by certain of the assets of Opco and its wholly owned subsidiaries, other than BRP LLC and NRP Trona LLC. As of September 30, 2022 and December 31, 2021, Opco was in compliance with the terms of the financial covenants contained in its debt agreements.
Opco Credit Facility
In August 2022, the Partnership entered into the Fifth Amendment (the "Fifth Amendment) to the Opco Credit Facility (the "Opco Credit Facility"). The Fifth Amendment extended the term of the Opco Credit Facility until August 2027. Lender commitments under the Opco Credit Facility increased to $130.0 million. The Opco Credit Facility contains financial covenants requiring Opco to maintain:
| | • | A leverage ratio of consolidated indebtedness to EBITDDA (in each case as defined in the Opco Credit Facility) not to exceed 3.0x; provided, and |
| | • | an interest coverage ratio of consolidated EBITDDA to the sum of consolidated interest expense and consolidated lease expense (in each case as defined in the Opco Credit Facility) of not less than 3.5 to 1.0. |
During the three and nine months ended September 30, 2022 and 2021, the Partnership did not have any borrowings outstanding under the Opco Credit Facility and had $130.0 million and $100.0 million in available borrowing capacity at September 30, 2022 and December 31, 2021, As mentioned above, in October 2022, NRP borrowed $70 million under the credit facility to redeem the outstanding 2025 Senior Notes.
The Opco Credit Facility is collateralized and secured by liens on certain of Opco’s assets with carrying values of $331.2 million and $345.0 million classified as mineral rights, net and other long-term assets, net on the Partnership’s Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021, respectively.
Opco Senior Notes
Opco has issued several series of private placement senior notes (the "Opco Senior Notes") with various interest rates and principal due dates. As of September 30, 2022 and December 31, 2021, the Opco Senior Notes had cumulative principal balances of $119.4 million and $138.5 million, respectively. Opco made mandatory principal payments of $19.1 million during the nine months ended September 30, 2022 and 2021.
The 8.92% Opco Senior Notes also provides that in the event that Opco’s leverage ratio of consolidated indebtedness to consolidated EBITDDA (as defined in the Note Purchase Agreements) exceeds 3.75 to 1.00 at the end of any fiscal quarter, then in addition to all other interest accruing on these notes, additional interest in the amount of 2.00% per annum shall accrue on the notes for the two succeeding quarters and for as long thereafter as the leverage ratio remains above 3.75 to 1.00. Opco has not exceeded the 3.75 to 1.00 ratio at the end of any fiscal quarter through September 30, 2022.
9. Fair Value Measurements
Fair Value of Financial Assets and Liabilities
The Partnership’s financial assets and liabilities consist of cash and cash equivalents, a contract receivable and debt. The carrying amounts reported on the Consolidated Balance Sheets for cash and cash equivalents approximate fair value due to their short-term nature. The Partnership uses available market data and valuation methodologies to estimate the fair value of its debt and contract receivable.
The following table shows the carrying value and estimated fair value of the Partnership's debt and contract receivable:
| | | | | September 30, 2022 | | | December 31, 2021 | |
| | | Fair Value | | Carrying | | | Estimated | | | Carrying | | | Estimated | |
| (In thousands) | | Hierarchy Level | | Value | | | Fair Value | | | Value | | | Fair Value | |
| Debt: | | | | | | | | | | | | | | | | | | |
| NRP 2025 Senior Notes | | 1 | | $ | 120,199 | | | $ | 124,165 | | | $ | 296,236 | | | $ | 300,000 | |
| Opco Senior Notes (1) | | 3 | | | 118,524 | | | | 122,146 | | | | 137,309 | | | | 138,484 | |
| Opco Credit Facility | | 3 | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | |
| Assets: | | | | | | | | | | | | | | | | | | |
| Contract receivable, net (current and long-term) (2) | | 3 | | $ | 31,948 | | | $ | 25,144 | | | $ | 33,612 | | | $ | 26,010 | |
| (1) | The fair value of the Opco Senior Notes are estimated by management using quotations obtained for the NRP 2025 Senior Notes on the closing trading prices near period end, which were at 102% and 100% of par value at September 30, 2022 and December 31, 2021, respectively. All 2025 Senior Notes were redeemed in October 2022. |
| (2) | The fair value of the Partnership's contract receivable is determined based on the present value of future cash flow projections related to the underlying asset at a discount rate of 15% at September 30, 2022 and December 31, 2021. |
NRP has embedded derivatives in the preferred units related to certain conversion options, redemption features and the change of control provision that are accounted for separately from the preferred units as assets and liabilities at fair value on the Partnership's Consolidated Balance Sheets. Level 3 valuation of the embedded derivatives are based on numerous factors including the likelihood of the event occurring. The embedded derivatives are revalued quarterly and changes in their fair value would be recorded in other expenses, net on the Partnership's Consolidated Statements of Comprehensive Income. The embedded derivatives had zero value as of September 30, 2022 and December 31, 2021.
NATURAL RESOURCE PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
10. Related Party Transactions
Affiliates of our General Partner
The Partnership’s general partner does not receive any management fee or other compensation for its management of NRP. However, in accordance with the partnership agreement, the general partner and its affiliates are reimbursed for services provided to the Partnership and for expenses incurred on the Partnership’s behalf. Employees of Quintana Minerals Corporation ("QMC") and Western Pocahontas Properties Limited Partnership ("WPPLP"), affiliates of the Partnership, provide their services to manage the Partnership's business. QMC and WPPLP charge the Partnership the portion of their employee salary and benefits costs related to their employee services provided to NRP. These QMC and WPPLP employee management service costs are presented as operating and maintenance expenses and general and administrative expenses on the Partnership's Consolidated Statements of Comprehensive Income. NRP also reimburses overhead costs incurred by its affiliates, including Quintana Infrastructure Development ("QID"), to manage the Partnership's business. These overhead costs include certain rent, information technology, administration of employee benefits and other corporate services incurred by or on behalf of the Partnership’s general partner and its affiliates and are presented as operating and maintenance expenses and general and administrative expenses on the Partnership's Consolidated Statements of Comprehensive Income.
Direct general and administrative expenses charged to the Partnership by QMC, WPPLP and QID are included on the Partnership's Consolidated Statement of Comprehensive Income as follows:
| | | For the Three Months Ended September 30, | | | For the Nine Months Ended September 30, | |
| (In thousands) | | 2022 | | | 2021 | | | 2022 | | | 2021 | |
| Operating and maintenance expenses | | $ | 1,687 | | | $ | 1,661 | | | $ | 5,044 | | | $ | 4,913 | |
| General and administrative expenses | | | 1,195 | | | | 1,185 | | | | 3,660 | | | | 3,486 | |
The Partnership had accounts payable on its Consolidated Balance Sheets of $0.4 million to QMC at both September 30, 2022 and December 31, 2021 and $1.0 million and $0.9 million to WPPLP at September 30, 2022 and December 31, 2021, respectively.
During the three months ended September 30, 2022 and 2021, the Partnership recognized $2.2 million and $0.9 million, respectively, in operating and maintenance expenses on its Consolidated Statements of Comprehensive Income related to an overriding royalty agreement with WPPLP. These amounts were $6.5 million and $2.1 million during the nine months ended September 30, 2022 and 2021, respectively.
Corbin J. Robertson, Jr. owns 85% of the general partner of Great Northern Properties Limited Partnership ("GNP"), a privately held company primarily engaged in owning and managing mineral properties and surface leases. As of September 30, 2022 and December 31, 2021 the Partnership had $0.0 million and $0.1 million, respectively, of accounts receivable from GNP included in accounts receivable, net on its Consolidated Balance Sheets related to amounts collected for surface leases that belong to NRP.
11. Major Customers
Revenues from customers that exceeded 10 percent of total revenues for any of the periods presented below are as follows:
| |
|
For the Three Months Ended September 30, |
|
|
For the Nine Months Ended September 30, |
|
| |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
| (In thousands) |
|
Revenues |
|
|
Percent |
|
|
Revenues |
|
|
Percent |
|
|
Revenues |
|
|
Percent |
|
|
Revenues |
|
|
Percent |
|
| Foresight Energy Resources LLC ("Foresight") (1) (2) |
|
$ |
19,334 |
|
|
|
19 |
% |
|
$ |
8,552 |
|
|
|
15 |
% |
|
$ |
47,081 |
|
|
|
16 |
% |
|
$ |
25,686 |
|
|
|
19 |
% |
| Alpha Metallurgical Resources, Inc. (1) |
|
$ |
21,000 |
|
|
|
21 |
% |
|
$ |
12,854 |
|
|
|
23 |
% |
|
$ |
81,638 |
|
|
|
28 |
% |
|
$ |
29,748 |
|
|
|
23 |
% |
| (1) |
Revenues from Foresight and Alpha Metallurgical Resources, Inc. are included within the Partnership's Mineral Rights segment. |
| (2) |
Revenues from Foresight in 2021 were fixed as a result of the lease amendment the Partnership entered into with Foresight pursuant to which Foresight agreed to pay NRP fixed cash payments to satisfy all obligations arising out of the existing various coal mining leases and transportation infrastructure fee agreements between the Partnership and Foresight. Revenues from Foresight in 2022 represent traditional royalty and minimum payments. |
12. Commitments and Contingencies
NRP is involved, from time to time, in various legal proceedings arising in the ordinary course of business. While the ultimate results of these proceedings cannot be predicted with certainty, Partnership management believes these ordinary course matters will not have a material effect on the Partnership’s financial position, liquidity or operations.
NATURAL RESOURCE PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
13. Unit-Based Compensation
The Partnership's unit-based awards granted in 2022 and 2021 were valued using the closing price of NRP's common units as of the grant date. The grant date fair value of these awards granted during the nine months ended September 30, 2022 and 2021 were $7.9 million and $3.8 million, respectively. Total unit-based compensation expense associated with these awards was $1.4 million and $1.1 million for the three months ended September 30, 2022 and 2021, respectively, and $4.2 million and $2.8 million for the nine months ended September 30, 2022 and 2021, respectively, and is included in general and administrative expenses and operating and maintenance expenses on the Partnership's Consolidated Statements of Comprehensive Income. The unamortized cost associated with unvested outstanding awards as of September 30, 2022 is $7.6 million, which is to be recognized over a weighted average period of 2.0 years. The unamortized cost associated with unvested outstanding awards as of December 31, 2021 was $3.3 million.
A summary of the unit activity in the outstanding grants during 2022 is as follows:
| (In thousands) |
|
Common Units |
|
|
Weighted Average Grant Date Fair Value per Common Unit |
|
| Outstanding at January 1, 2022 |
|
411 |
|
|
$23.00 |
|
| Granted |
|
208 |
|
|
$38.29 |
|
| Fully vested and issued |
|
(233 |
) |
|
$26.74 |
|
| Outstanding at September 30, 2022 |
|
386 |
|
|
$28.96 |
|
14. Financing Transaction
The Partnership owns rail loadout and associated infrastructure at the Sugar Camp mine in the Illinois Basin operated by a subsidiary of Foresight. The infrastructure at the Sugar Camp mine is leased to a subsidiary of Foresight and is accounted for as a financing transaction (the "Sugar Camp lease"). The Sugar Camp lease expires in 2032 with renewal options for up to 80 additional years. Minimum payments are $5.0 million per year through the end of the lease term. The Partnership is also entitled to variable payments in the form of throughput fees determined based on the amount of coal transported and processed utilizing the Partnership's assets. In the event the Sugar Camp lease is renewed beyond 2032, payments become a fixed $10 thousand per year for the remainder of the renewed term.
15. Credit Losses
The Partnership is exposed to credit losses through collection of its short-term trade receivables resulting from contracts with customers and a long-term receivable resulting from a financing transaction with a customer. The Partnership records an allowance for current expected credit losses on these receivables based on the loss-rate method. NRP assessed the likelihood of collection of its receivables utilizing historical loss rates, current market conditions that included the estimated impact of the global COVID-19 pandemic, industry and macroeconomic factors, reasonable and supportable forecasts and facts or circumstances of individual customers and properties. Examples of these facts or circumstances include, but are not limited to, contract disputes or renegotiations with the customer and evaluation of short and long-term economic viability of the contracted property. For its long-term contract receivable, management reverts to the historical loss experience immediately after the reasonable and supportable forecast period ends.
As of September 30, 2022 and December 31, 2021, NRP had the following current expected credit loss (“CECL”) allowance related to its receivables and long-term contract receivable:
| |
|
September 30, 2022 |
|
|
December 31, 2021 |
|
| (In thousands) |
|
Gross |
|
|
CECL Allowance |
|
|
Net |
|
|
Gross |
|
|
CECL Allowance |
|
|
Net |
|
| Receivables |
|
$ |
39,692 |
|
|
$ |
(4,018 |
) |
|
$ |
35,674 |
|
|
$ |
28,869 |
|
|
$ |
(3,312 |
) |
|
$ |
25,557 |
|
| Long-term contract receivable |
|
|
30,631 |
|
|
|
(1,061 |
) |
|
|
29,570 |
|
|
|
32,497 |
|
|
|
(1,126 |
) |
|
|
31,371 |
|
| Total |
|
$ |
70,323 |
|
|
$ |
(5,079 |
) |
|
$ |
65,244 |
|
|
$ |
61,366 |
|
|
$ |
(4,438 |
) |
|
$ |
56,928 |
|
NRP recorded $0.0 million and $0.5 million in operating and maintenance expenses on its Consolidated Statements of Comprehensive Income related to the change in the CECL allowance during the three months ended September 2022 and 2021, respectively, and $0.6 million and $(0.2) million during the nine months ended September 30, 2022 and 2021, respectively.
NRP has procedures in place to monitor its ongoing credit exposure through timely review of counterparty balances against contract terms and due dates, account and financing receivable reconciliation, bankruptcy monitoring, lessee audits and dispute resolution. The Partnership may employ legal counsel or collection specialists to pursue recovery of defaulted receivables.
NATURAL RESOURCE PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
16. Subsequent Events
The following represents material events that have occurred subsequent to September 30, 2022 through the time of the Partnership’s filing of its Quarterly Report on Form 10-Q with the SEC:
Common Unit and Preferred Unit Distributions
In November 2022, the Board of Directors declared a distribution of $0.75 per common unit with respect to the third quarter of 2022. The Board of Directors also declared a distribution on NRP's preferred units with respect to the third quarter of 2022 totaling $7.5 million in cash.
Redemption of 2025 Senior Notes
In October 2022, NRP redeemed the outstanding $121.4 million 2025 Senior Notes at a redemption price of 102.281% of the principal amount plus accrued and unpaid interest, utilizing cash on hand and $70 million in borrowings under its recently extended credit facility. The fourth quarter 2022 Consolidated Statement of Comprehensive Income will include a $3.9 million loss on extinguishment of debt associated with the redemption.