NRP's Headway for Illinois Buyout - Analyst Blog

Natural Resource Partners L.P. (NRP) made its fourth -- out of the planned seven -- purchase of coal reserves at the Deer Run mine in Illinois. The company bought these new reserves from Colt LLC, an affiliate of the Cline Group, for $70 million.

The Deer Run mine located near Hillsboro in Montgomery and Bond Counties, Illinois, has the potential to produce roughly 8 to 10 million tons per year when the longwall is in full production. The estimated life of the mine is expected to exceed 20 years. The coal reserves at the mine are leased to the mining company Hillsboro Energy, an affiliate of the Cline Group.

Natural Resource indicated that the construction of the new longwall mine is well underway. The company expects to start longwall production in early 2012. Going forward, Natural Resource expects net income from the mine to exceed $40 million per year from the mine.

This acquisition is part of Natural Resource's plan to acquire about 200 million tons of reserves in Illinois. To date, Natural Resource has paid $175 million of the $255 million slated for the acquisition. The said acquisition of the Deer Run mine was funded from the partnership's credit facility.

Meeting of certain milestones relating to the new mine's construction is expected to influence Natural Resource's future acquisitions under the plan. The partnership anticipates completing additional acquisitions worth $65 million in 2011 and $15 million in 2012.

Houston, Texas-based Natural Resource Partners L.P. 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 - Appalachian, the Illinois Basin and the Powder River Basin.

Over the years, the partnership has demonstrated solid expansion through its inorganic growth strategy. We believe this strategy offers visible upside potential to unit holders in the long term. Additionally, we expect Natural Resource Partners' cash generating ability, sizeable cash position and strong balance sheet to allow the partnership to carry out its planned distribution increases and give it greater  financial flexibility for acquisitions.

Natural Resource Partners currently has a short term Zacks #1 Rank (Strong Buy). The company is favorably positioned compared to its Zacks #3 Rank (short term Hold) peers - CONSOL Energy Inc. (CNX) and Peabody Energy Corp. (BTU). We maintain our long term Outperform rating on the stock.

 
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