NPR(NRP) - 2021 Q4 - Annual Report

PART I Business and Properties Natural Resource Partners L.P. operates through Mineral Rights and Soda Ash segments, focusing on mineral property leasing for royalties and a non-controlling interest in soda ash production - The company's business is organized into two primary operating segments: Mineral Rights and Soda Ash[26][27] 2021 Revenue by Segment (in thousands) | Segment | Amount (in thousands) | % of Total | | :--- | :--- | :--- | | Mineral Rights | $194,493 | 90% | | Soda Ash | $21,871 | 10% | | Total | $216,364 | 100% | Mineral Rights Segment The Mineral Rights segment manages 13 million acres of mineral interests, generating royalties primarily from coal, and is strategically expanding into carbon sequestration and renewable energy initiatives - The company renamed its 'Coal Royalty and Other' segment to 'Mineral Rights' to reflect a focus on leveraging assets for the transitional energy economy, including carbon sequestration[32][33] Coal Sales Volumes (in thousands of tons) | Year | Thermal | Metallurgical | Total | | :--- | :--- | :--- | :--- | | 2021 | 14,571 | 13,208 | 27,779 | | 2020 | 6,686 | 10,080 | 16,766 | | 2019 | 11,605 | 12,139 | 23,744 | - NRP executed its first carbon neutral project in Q4 2021, selling 1.1 million carbon offset credits for $13.8 million from West Virginia forestland[66] - In February 2022, NRP executed a CO2 Sequestration Agreement with Denbury Inc. for a potential sequestration site on approximately 75,000 acres in Alabama, with an estimated storage potential of over 300 million metric tons[68] Soda Ash Segment The Soda Ash segment holds a 49% non-controlling interest in Sisecam Wyoming, a major natural soda ash producer, facing challenges like deca stockpile depletion by 2024 and evaluating capacity expansion - NRP owns a 49% non-controlling equity interest in Sisecam Wyoming, a trona ore mining and soda ash production business[70] - In December 2021, the operating partner, Ciner Resources LP, was renamed Sisecam Resources LP after Sisecam Chemicals USA Inc. acquired a majority interest[71] - Sisecam Wyoming anticipates its deca stockpiles will be exhausted by 2024, potentially reducing annual production by approximately 200,000 short tons if capacity is not replaced[75] Regulation and Environmental Matters The company's property operations are subject to extensive environmental and mine safety regulations, impacting coal demand and increasing lessee costs, with regulatory changes and lawsuits posing ongoing risks - The company's lessees are responsible for compliance with all applicable laws and reclamation costs, while NRP does not bear ordinary operating costs or direct exposure to most environmental and labor risks[38][91] - Clean Air Act regulations, including CSAPR and MATS, have increased costs for coal-fired power plants, reducing coal's share of power generation and negatively impacting NRP's coal revenues[94] - In January 2021, the D.C. Circuit Court vacated the Affordable Clean Energy (ACE) Rule, remanding it to the EPA for further consideration[96] Risk Factors The company faces significant business, structural, and taxation risks, including price volatility, lessee dependence, potential bankruptcies, and adverse impacts from tax law changes on unitholders - Cash distributions are not guaranteed and are restricted by debt agreements, requiring specific leverage tests to increase quarterly distributions on common units above $0.45 per quarter[114][116] - The company has significant revenue concentration from a few coal lessees, with Foresight accounting for approximately 17% and Alpha for approximately 23% of total revenues in 2021[130] - Climate change regulations and unfavorable financial institution policies regarding fossil fuels pose significant risks, potentially reducing coal demand and affecting capital access or insurance[134][136] - Unitholders face significant tax risks, including paying taxes on income without cash distributions and the potential for the partnership to be treated as a corporation, which would substantially reduce distributable cash[168][176] PART II Market for Registrant's Common Equity, Related Unitholder Matters and Issuer Purchases of Equity Securities NRP's common units trade on the NYSE under 'NRP', with approximately 9,740 holders as of March 2022, and the company maintains a 2017 Long-Term Incentive Plan for equity compensation - NRP's common units are listed on the NYSE under the trading symbol 'NRP'[200] - As of December 31, 2021, 230,226 securities remained available for future issuance under the company's equity compensation plans[202] Management's Discussion and Analysis of Financial Condition and Results of Operations In 2021, NRP generated $121.8 million in operating cash flow and $235.5 million in liquidity, driven by improved metallurgical coal markets and carbon offset credit sales, leading to a 54% revenue increase and improved leverage 2021 Financial Highlights by Segment (in thousands) | Segment | Revenues & Other Income | Net Income (Loss) | Adjusted EBITDA | | :--- | :--- | :--- | :--- | | Mineral Rights | $194,493 | $143,412 | $167,613 | | Soda Ash | $21,871 | $21,702 | $11,101 | | Corporate & Financing | $0 | $(56,212) | $(17,360) | | Total | $216,364 | $108,902 | $161,354 | - The company generated $123.0 million of free cash flow in 2021 and ended the year with $235.5 million of liquidity, including $135.5 million in cash and $100 million in borrowing capacity[216] - The consolidated leverage ratio fell to 2.7x at December 31, 2021, enabling the company to redeem all paid-in-kind preferred units for $19.6 million in cash[217] Financial Statements and Supplementary Data Consolidated financial statements for 2021 show a significant turnaround with net income of $108.9 million, a 54% revenue increase to $216.4 million, and a strengthened balance sheet with increased assets and decreased liabilities Consolidated Statement of Comprehensive Income (Loss) Highlights (in thousands) | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Total revenues and other income | $216,364 | $140,320 | | Income (loss) from operations | $147,778 | $(43,851) | | Net income (loss) | $108,902 | $(84,819) | | Basic Net income (loss) per common unit | $6.14 | $(9.20) | Consolidated Balance Sheet Highlights (in thousands) | Metric | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Total current assets | $162,781 | $117,192 | | Total assets | $953,823 | $921,877 | | Total current liabilities | $64,385 | $61,372 | | Total liabilities | $513,891 | $549,016 | | Total partners' capital | $256,024 | $204,524 | Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2021, a conclusion affirmed by an unqualified opinion from Ernst & Young LLP - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of December 31, 2021[437] - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2021, based on the COSO framework[438] PART III Directors and Executive Officers of the Managing General Partner and Corporate Governance The company is managed by the officers and directors of GP Natural Resource Partners LLC, with Corbin J. Robertson, Jr. as Chairman and CEO, and its Board of Directors includes independent committees and governance guidelines - As a master limited partnership, NRP does not directly employ management but reimburses affiliates of its managing general partner for services[454] - The Board of Directors has determined that Messrs. Claro, Navarre, Smith, and Vecellio are independent directors[471] Executive Compensation As a smaller reporting company, NRP's 2021 executive compensation included salaries, cash bonuses, and phantom unit awards vesting upon a change in control, with CEO Corbin J. Robertson, Jr. receiving $2.98 million 2021 Summary Compensation Table | Name and Principal Position | Salary ($) | Bonus ($) | Stock Awards ($) | Total ($) | | :--- | :--- | :--- | :--- | :--- | | Corbin J. Robertson, Jr. (CEO) | — | 2,037,340 | 946,909 | 2,984,249 | | Craig W. Nunez (President & COO) | 515,000 | 885,800 | 717,032 | 2,135,232 | | Christopher J. Zolas (CFO) | 365,000 | 502,240 | 412,549 | 1,297,189 | - None of the named executive officers have employment agreements; phantom unit awards vest upon a change in control, death, or disability[495] Security Ownership of Certain Beneficial Owners and Management As of March 1, 2022, key beneficial owners of common units include Corbin J. Robertson, Jr. (19.8%), while Blackstone Inc. (57%) and GoldenTree Asset Management, LP (43%) hold the Class A Convertible Preferred Units Beneficial Ownership of Common Units (as of March 1, 2022) | Name of Beneficial Owner | Common Units | Percentage | | :--- | :--- | :--- | | Corbin J. Robertson, Jr. | 2,478,742 | 19.8% | | Western Pocahontas Corporation | 1,739,007 | 13.9% | | Western Pocahontas Properties LP | 1,727,986 | 13.8% | | The Goldman Sachs Group, Inc. | 1,112,356 | 8.9% | | JPMorgan Chase & Co. | 1,028,351 | 8.2% | Beneficial Ownership of Preferred Units | Name of Beneficial Owner | Preferred Units | Percentage | | :--- | :--- | :--- | | Blackstone Inc. | 142,500 | 57% | | GoldenTree Asset Management, LP | 107,500 | 43% | Certain Relationships and Related Transactions, and Director Independence The company engages in numerous related-party transactions, primarily with entities controlled by its CEO, governed by an omnibus agreement, and its partnership agreement addresses conflicts of interest, including those arising from preferred unitholder board representation - An omnibus agreement restricts general partner affiliates, including the WPP Group, from competing with NRP in 'restricted business' activities, subject to a $75 million fair market value cap[509][511] - In February 2020, NRP waived the $75 million cap to allow Pocahontas Royalties, controlled by Mr. Robertson, Jr., to acquire mineral rights after NRP declined participation[519][520] - The partnership agreement allows the general partner to resolve conflicts of interest, deeming resolutions 'fair and reasonable' if approved by the conflicts committee, on favorable terms, or fair to the partnership considering all relationships[536] Principal Accountant Fees and Services Ernst & Young LLP served as the independent auditor for 2021 and 2020, with the Audit Committee pre-approving all services, and total fees were approximately $1.17 million in 2021 and $1.29 million in 2020 Accountant Fees (in thousands) | Fee Type | 2021 | 2020 | | :--- | :--- | :--- | | Audit Fees | $757,450 | $785,750 | | Tax Fees | $412,500 | $505,915 | PART IV Exhibits, Financial Statement Schedules This section lists financial statements, schedules, and exhibits filed with the Form 10-K, including partnership and debt agreements, incentive plans, CEO/CFO certifications, and Sisecam Wyoming LLC's financial statements - The financial statements of Sisecam Wyoming LLC, required under Regulation S-X, are included as Exhibit 99.1[570] - Exhibits filed with the report include key governance documents, debt agreements, the Master Amendment with Foresight, and management compensation plans[571][572][574]