Natural Resource Partners L.P. reported first quarter 2022 results as follows:
"Strong demand for metallurgical coal, thermal coal, and soda ash continues to drive robust financial performance in our business segments,” stated Craig Nunez, NRP’s president and chief operating officer. “NRP generated $52 million of free cash flow in the first quarter of 2022 and $152 million over the last twelve months, representing increases of 120% and 85% respectively over the comparable prior periods."
Mr. Nunez, continued, "In light of the Partnership’s substantial free cash flow generation, solid liquidity and positive outlook for its business lines, we plan to accelerate our deleveraging and return additional cash to common unitholders. We are pleased to announce that the board of directors of our general partner approved an increase in our common unit distribution from $0.45 to $0.75 as it relates to the first quarter of 2022."
NRP's liquidity was $235.6 million at March 31, 2022, consisting of $135.6 million of cash and $100.0 million of borrowing capacity available under its revolving credit facility.
The cash distribution of $0.75 per common unit is to be paid on May 24, 2022 to unitholders of record on May 17, 2022. In addition, the board declared a $7.5 million cash distribution on the preferred units. Future distributions on NRP's common and preferred units will be determined on a quarterly basis by the board of directors. The board of directors considers numerous factors each quarter in determining cash distributions, including profitability, cash flow, debt service obligations, market conditions and outlook, estimated unitholder income tax liability and the level of cash reserves that the board determines is necessary for future operating and capital needs.
Mineral Rights net income for the first quarter of 2022 increased $42.5 million as compared to the prior year period. Free cash flow for the first quarter increased $21.7 million as compared to the prior year period. These increases were primarily due to stronger metallurgical coal demand and pricing in 2022. Approximately 80% of coal royalty revenues and approximately 50% of coal royalty sales volumes were derived from metallurgical coal in the first quarter of 2022.
Metallurgical coal prices reached record levels during the first quarter of 2022 driven by strong demand for steel and a relatively subdued supply response for coking coal which has yet to reach pre-pandemic production levels due to labor shortages and global supply chain interruptions. Despite the negative impact on steel production resulting from COVID-19 lockdowns in China, NRP expects the supply-demand balance for metallurgical coal to remain tight for the foreseeable future and should provide further support for domestic and international prices.
Thermal coal demand and pricing remains strong due to the increased demand for electricity and constrained growth in thermal coal production. Labor shortages, global supply chain interruptions, and environmental and political pressures are limiting the ability of operators to increase thermal coal production to meet domestic and international demand. In addition, higher natural gas prices and boycotts on Russian coal caused by the war in Ukraine are further amplifying the tightness in thermal coal markets. Due to these factors, the near-term outlook for thermal coal prices is positive.
As announced previously, in the first quarter NRP executed on its first subsurface carbon dioxide ("CO2") sequestration transaction by granting Denbury the right to develop a world-class subsurface CO2 sequestration project on 75,000 acres of underground pore space NRP owns in southwest Alabama with the potential to store over 300 million metric tons of CO2. This project, if developed, will be the first subsurface CO2 sequestration project on the approximately 3.5 million acres where NRP owns the rights to sequester CO2 underground across the United States. While the timing and likelihood of additional cash flows being realized from further subsurface carbon dioxide sequestration opportunities, or other transitional energy opportunities such as the generation of electricity using geothermal, solar and wind energy 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 by NRP.
Soda Ash net income in the first quarter of 2022 increased $12.8 million as compared to the prior year period primarily as a result of increased sales prices. Free cash flow in the first quarter of 2022 increased $9.3 million as compared to the prior year period due to Sisecam Wyoming reinstating its regular quarterly cash distributions beginning in the fourth quarter of 2021. Strong demand growth for soda ash, driven by global secular trends including the investments in renewable energy, the electrification of the global auto fleet, and urbanization, coupled with constrained soda ash supply in part due to COVID-19 flash lockdowns in China have allowed Sisecam Wyoming to successfully pass on input cost inflation resulting in improved financial results in the first quarter of 2022.
Corporate and Financing
Corporate and Financing costs in the first quarter were relatively flat as compared to the prior year period. Free cash flow in the first quarter of 2022 decreased $2.4 million as compared to the prior year period primarily due to an increase in incentive compensation paid out in the first quarter of 2022 as a result of improved operating results in 2021, partially offset by lower cash paid for interest as a result of less debt outstanding.
As noted earlier, NRP declared a first quarter 2022 cash distribution of $0.75 per common unit of NRP, an increase compared to $0.45 paid last quarter, and a $7.5 million cash distribution on the preferred units. The decision to increase common unit distributions was based on the Partnership’s substantial free cash flow generation, solid liquidity and positive outlook for its business lines, coupled with higher expected common unitholder income tax liability for 2022 resulting from the Partnership’s improved financial performance.