The year-ago quarter’s net income attributable to limited partners of 19 cents per unit excluded a property write-off due to mine closures. Including the write-off, net income attributable to limited partners was 7 cents per unit. Compared with this, the current quarter’s net income attributed to limited partners posted a growth of 443%.
Revenue
Total revenue was a record $79.6 million, soaring 34% year over year driven mainly by increases in the realized prices for coal. With coal production remaining flat year over year at 11.8 million tons, both coal royalty revenues and average coal royalty revenues upped 25% to a respective $57.8 million and a record $4.91.
Total Appalachian region posted a 30% year-over-year growth to reach $49.5 million of coal royalty revenues. The Northern Powder River Basin was the only region where core royalty revenues declined 17% to $1.5 million.
Costs
Operating costs were $27.6 million in the quarter, a 31% improvement from $40 million in the year-ago quarter mainly due to lower depreciation, depletion and amortization expense realized in the second quarter of 2010.
The year-ago quarter, however, included a one-time write-off of $8.2 million associated with a closed mine and the reported second-quarter figure included $1.2 million for costs associated with the formation of a venture with International Paper Co. (IP). Excluding these items, operating costs improved 28% to $28.8 million.
Financial Position and Acquisitions
During the quarter, Natural Resource Partners issued 4,576,700 units for $112.5 million. The proceeds were utilized to repay $74 million of outstanding balance on its credit facility and the balance was used for acquisitions.
Natural Resource Partners completed four acquisitions in the quarter to the tune of $72.7 million. Of this amount, $66.5 million was paid during the quarter. Since the end of the quarter $2.7 million has been paid and $3.5 million remains outstanding.
Of the acquisitions, the major investment of $42.5 million was in a new venture with International Paper to own, manage and develop more than 7 million mineral acres formerly owned by the latter. The remaining three acquisitions included aggregate properties in California and Georgia and the construction of a limestone processing facility in Indiana for a combined purchase price of $30.2 million.
As of June 30, 2010, Natural Resource Partners had cash and cash equivalents of $78.4 million up from $62.8 million as of March 31, 2010. The company generated cash flows of $71.7 million from operating activities in the quarter, up from $57.1 million in the year-ago quarter.
Natural Resource Partners’ distributable cash flow increased 30% year over year to $63.8 million driven by a hike in revenues.
Market Condition
The coal markets have reportedly improved from last year. Even though, metallurgical coal prices increased substantially in the first half of the year, it has stabilized at prices approximately twice that of the year-ago period.
The steam coal stockpiles at utilities are significantly lower as cold winter and the hot summer weather experienced so far in the coal consuming regions of the country have led to lower stockpiles at the utilities and increased demand.
Demand for steam coal has been on the rise domestically. Although growth in demand for metallurgical coal has slowed somewhat recently, it is at higher levels than last year. Utilizations at steel mills have improved domestically and there has been strong demand globally.
Outlook
Driven by record revenues year to date, Natural Resource Partners upped its revenue guidance range to $265-$295 million from its previous range of $235-$285 million. The coal production guidance has been narrowed down to 42-48 million tons from the previous 41-50 million tons. Coal royalty revenues are guided in the range of $195-$210 million in place of its previous guidance of $175-$205 million.
Houston-based Natural Resource Partners is a master limited partnership that is principally engaged in the business of owning and managing mineral reserve properties. The company owns coal reserves and coal handling and transportation infrastructure in the three major coal producing regions of the United States - Appalachia, the Illinois Basin and the Powder River Basin . In addition, the partnership owns and manages aggregate reserves in Arizona , Texas , West Virginia and Washington.
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