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EX-32.2 - EXHIBIT 32.2 - NATURAL RESOURCE PARTNERS LPa2020q1exhibit322.htm
EX-32.1 - EXHIBIT 32.1 - NATURAL RESOURCE PARTNERS LPa2020q1exhibit321.htm
EX-31.2 - EXHIBIT 31.2 - NATURAL RESOURCE PARTNERS LPa2020q1exhibit312.htm
EX-31.1 - EXHIBIT 31.1 - NATURAL RESOURCE PARTNERS LPa2020q1exhibit311.htm

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2020 or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
 
 
 
Commission file number: 001-31465
 
nrplogoa31.gif
NATURAL RESOURCE PARTNERS L.P.
 
(Exact name of registrant as specified in its charter)
 
Delaware
 
35-2164875
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
1201 Louisiana Street, Suite 3400
Houston, Texas 77002
(Address of principal executive offices)
(Zip Code)
(713) 751-7507
(Registrant’s telephone number, including area code) 
 
 
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Common Units representing limited partner interests
 
NRP
 
New York Stock Exchange
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definition of "accelerated filer", "large accelerated filer", "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
¨
Accelerated Filer
 
ý
Non-accelerated Filer
¨  (Do not check if a smaller reporting company)
Smaller Reporting Company
 
¨
 
 
Emerging Growth Company
 
¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  ý
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.  Yes  ¨    No  ¨
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
 



NATURAL RESOURCE PARTNERS, L.P.
TABLE OF CONTENTS





i


PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
NATURAL RESOURCE PARTNERS L.P.
CONSOLIDATED BALANCE SHEETS
 
March 31,
 
December 31,
(In thousands, except unit data)
2020
 
2019
ASSETS
(Unaudited)
 
 
Current assets
 
 
 
Cash and cash equivalents
$
100,506

 
$
98,265

Accounts receivable, net
34,113

 
30,869

Prepaid expenses and other, net
1,166

 
1,244

Current assets of discontinued operations

 
1,706

Total current assets
$
135,785

 
$
132,084

Land
24,008

 
24,008

Mineral rights, net
603,208

 
605,096

Intangible assets, net
17,607

 
17,687

Equity in unconsolidated investment
261,224

 
263,080

Long-term contract receivable, net
34,816

 
36,963

Other assets, net
6,774

 
6,989

Total assets
$
1,083,422

 
$
1,085,907

LIABILITIES AND CAPITAL
 
 
 
Current liabilities
 
 
 
Accounts payable
$
1,272

 
$
1,179

Accrued liabilities
6,004

 
8,764

Accrued interest
9,376

 
2,316

Current portion of deferred revenue
6,021

 
4,608

Current portion of long-term debt, net
45,767

 
45,776

Current liabilities of discontinued operations

 
65

Total current liabilities
$
68,440

 
$
62,708

Deferred revenue
54,065

 
47,213

Long-term debt, net
454,110

 
470,422

Other non-current liabilities
4,804

 
4,949

Total liabilities
$
581,419

 
$
585,292

Commitments and contingencies (see Note 12)
 
 
 
Class A Convertible Preferred Units (250,000 units issued and outstanding at $1,000 par value per unit; liquidation preference of $1,500 per unit)
$
164,587

 
$
164,587

Partners’ capital
 
 
 
Common unitholders’ interest (12,261,199 units issued and outstanding at March 31, 2020 and December 31, 2019)
$
273,847

 
$
271,471

General partner’s interest
3,305

 
3,270

Warrant holders’ interest
66,816

 
66,816

Accumulated other comprehensive loss
(3,617
)
 
(2,594
)
Total partners’ capital
$
340,351

 
$
338,963

Non-controlling interest
(2,935
)
 
(2,935
)
Total capital
$
337,416

 
$
336,028

Total liabilities and capital
$
1,083,422


$
1,085,907

The accompanying notes are an integral part of these consolidated financial statements.

1

NATURAL RESOURCE PARTNERS L.P.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)

 
For the Three Months Ended March 31,
(In thousands, except per unit data)
2020
 
2019
Revenues and other income
 
 
 
Coal royalty and other
$
31,433

 
$
49,502

Transportation and processing services
2,509

 
5,601

Equity in earnings of Ciner Wyoming
6,272

 
11,682

Gain on asset sales and disposals

 
256

Total revenues and other income
$
40,214


$
67,041

 
 
 
 
Operating expenses
 
 
 
Operating and maintenance expenses
$
5,202

 
$
8,360

Depreciation, depletion and amortization
2,012

 
4,392

General and administrative expenses
3,913

 
4,350

Total operating expenses
$
11,127

 
$
17,102

 
 
 
 
Income from operations
$
29,087

 
$
49,939

 
 
 
 
Interest expense, net
$
(10,308
)
 
$
(14,174
)
 
 
 
 
Net income from continuing operations
$
18,779

 
$
35,765

Loss from discontinued operations

 
(46
)
Net income
$
18,779

 
$
35,719

Less: income attributable to preferred unitholders
(7,500
)
 
(7,500
)
Net income attributable to common unitholders and general partner
$
11,279

 
$
28,219

 
 
 
 
Net income attributable to common unitholders
$
11,053

 
$
27,655

Net income attributable to the general partner
226

 
564

 
 
 
 
Income from continuing operations per common unit (see Note 4)
 
 
 
Basic
$
0.90

 
$
2.26

Diluted
0.52

 
1.75

 
 
 
 
Net income per common unit (see Note 4)
 
 
 
Basic
$
0.90

 
$
2.26

Diluted
0.52

 
1.75

 
 
 
 
Net income
$
18,779

 
$
35,719

Comprehensive income (loss) from unconsolidated investment and other
(1,023
)
 
1,005

Comprehensive income
$
17,756

 
$
36,724

The accompanying notes are an integral part of these consolidated financial statements.

2

NATURAL RESOURCE PARTNERS L.P.
CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL
(Unaudited)


 
Common Unitholders
 
General Partner
 
Warrant Holders
 
Accumulated
Other
Comprehensive Loss
 
Partners' Capital Excluding Non-Controlling Interest
 
Non-Controlling Interest
 
Total Capital
 
(In thousands)
Units
 
Amounts
 
Balance at December 31, 2019
12,261

 
$
271,471

 
$
3,270

 
$
66,816

 
$
(2,594
)
 
$
338,963

 
$
(2,935
)
 
$
336,028

Cumulative effect of adoption of accounting standard (see Note 15)

 
(3,833
)
 
(78
)
 

 

 
(3,911
)
 

 
(3,911
)
Net income (1)

 
18,403

 
376

 

 

 
18,779

 

 
18,779

Distributions to common unitholders and general partner

 
(5,517
)
 
(113
)
 

 

 
(5,630
)
 

 
(5,630
)
Distributions to preferred unitholders

 
(7,350
)
 
(150
)
 

 

 
(7,500
)
 

 
(7,500
)
Unit-based awards amortization and vesting

 
673

 

 

 

 
673

 

 
673

Comprehensive loss from unconsolidated investment and other

 

 

 

 
(1,023
)
 
(1,023
)
 

 
(1,023
)
Balance at March 31, 2020
12,261

 
$
273,847

 
$
3,305

 
$
66,816

 
$
(3,617
)
 
$
340,351

 
$
(2,935
)
 
$
337,416

 
 
 
 
 
(1)
Net income includes $7.5 million attributable to preferred unitholders that accumulated during the period, of which $7.35 million is allocated to the common unitholders and $0.15 million is allocated to the general partner.
 
Common Unitholders
 
General Partner
 
Warrant Holders
 
Accumulated
Other
Comprehensive
Loss
 
Partners' Capital Excluding Non-Controlling Interest
 
Non-Controlling Interest
 
Total Capital
 
(In thousands)
Units
 
Amounts
 
Balance at December 31, 2018
12,249

 
$
355,113

 
$
5,014

 
$
66,816

 
$
(3,462
)
 
$
423,481

 
$
(2,935
)
 
$
420,546

Net income (1)

 
35,005

 
714

 

 

 
35,719

 

 
35,719

Distributions to common unitholders and general partner

 
(5,513
)
 
(112
)
 

 

 
(5,625
)
 

 
(5,625
)
Distributions to preferred unitholders

 
(7,350
)
 
(150
)
 

 

 
(7,500
)
 

 
(7,500
)
Issuance of unit-based awards
12

 
486

 

 

 

 
486

 

 
486

Unit-based awards amortization and vesting

 
399

 

 

 

 
399

 

 
399

Comprehensive income from unconsolidated investment and other

 

 
10

 

 
1,005

 
1,015

 

 
1,015

Balance at March 31, 2019
12,261

 
$
378,140

 
$
5,476

 
$
66,816

 
$
(2,457
)
 
$
447,975

 
$
(2,935
)
 
$
445,040

 
 
 
 
 
(1)
Net income includes $7.5 million attributable to preferred unitholders that accumulated during the period, of which $7.35 million is allocated to the common unitholders and $0.15 million is allocated to the general partner.
The accompanying notes are an integral part of these consolidated financial statements.

3

NATURAL RESOURCE PARTNERS L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)



 
For the Three Months Ended March 31,
(In thousands)
2020
 
2019
Cash flows from operating activities
 
 
 
Net income
$
18,779

 
$
35,719

Adjustments to reconcile net income to net cash provided by operating activities of continuing operations:
 
 
 
Depreciation, depletion and amortization
2,012

 
4,392

Distributions from unconsolidated investment
7,105

 
9,800

Equity earnings from unconsolidated investment
(6,272
)
 
(11,682
)
Gain on asset sales and disposals

 
(256
)
Loss from discontinued operations

 
46

Bad debt expense
(190
)
 
10

Unit-based compensation expense
729

 
901

Amortization of debt issuance costs and other
448

 
1,796

Change in operating assets and liabilities:
 
 
 
Accounts receivable
(5,073
)
 
(4,937
)
Accounts payable
93

 
(616
)
Accrued liabilities
(2,861
)
 
(6,164
)
Accrued interest
7,060

 
(10,033
)
Deferred revenue
8,265

 
4,534

Other items, net
60

 
(678
)
Net cash provided by operating activities of continuing operations
$
30,155

 
$
22,832

Net cash provided by operating activities of discontinued operations
1,706

 
121

Net cash provided by operating activities
$
31,861

 
$
22,953

 
 
 
 
Cash flows from investing activities
 
 
 
Proceeds from asset sales and disposals
$

 
$
256

Return of long-term contract receivable
272

 
441

Net cash provided by investing activities of continuing operations
$
272

 
$
697

Net cash used in investing activities of discontinued operations
(66
)
 
(390
)
Net cash provided by investing activities
$
206

 
$
307

 
 
 
 
Cash flows from financing activities
 
 
 
Debt repayments
$
(16,696
)
 
$
(86,468
)
Distributions to common unitholders and general partner
(5,630
)
 
(5,625
)
Distributions to preferred unitholders
(7,500
)
 
(7,500
)
Contributions from (to) discontinued operations
1,640

 
(269
)
Debt issuance costs and other

 
10

Net cash used in financing activities of continuing operations
$
(28,186
)
 
$
(99,852
)
Net cash provided by (used in) financing activities of discontinued operations
(1,640
)
 
269

Net cash used in financing activities
$
(29,826
)
 
$
(99,583
)
 
 
 
 
Net increase (decrease) in cash and cash equivalents
$
2,241

 
$
(76,323
)
Cash and cash equivalents at beginning of period
98,265

 
206,030

Cash and cash equivalents at end of period
$
100,506

 
$
129,707

 
 
 
 
Supplemental cash flow information:
 
 
 
Cash paid during the period for interest
$
3,039

 
$
23,422

The accompanying notes are an integral part of these consolidated financial statements.

4

NATURAL RESOURCE PARTNERS L.P.
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 Ciner Wyoming LLC ("Ciner 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, 2019 and notes thereto included in the Partnership's Annual Report on Form 10-K, which was filed with the SEC on February 27, 2020.
Recently Adopted Accounting Standards
Credit Losses
On January 1, 2020, the Partnership adopted ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326), and all the related amendments ("the new credit loss standard"). The Partnership recognized a $3.9 million cumulative effect of adoption in the opening balance of partners' capital on January 1, 2020 as a result of the adoption of the new credit loss standard. See Note 15. Credit Losses for more information.

5

NATURAL RESOURCE PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(Unaudited)


2.    Revenues from Contracts with Customers
The following table presents the Partnership's Coal Royalty and Other segment revenues by major source:
 
 
For the Three Months Ended March 31,
(In thousands)
 
2020
 
2019
Coal royalty revenues
 
$
19,102

 
$
32,131

Production lease minimum revenues
 
802

 
2,700

Minimum lease straight-line revenues
 
3,809

 
3,316

Property tax revenues
 
1,599

 
1,433

Wheelage revenues
 
2,204

 
1,415

Coal overriding royalty revenues
 
1,322

 
3,975

Lease amendment revenues
 
843

 
771

Aggregates royalty revenues
 
576

 
1,464

Oil and gas royalty revenues
 
1,103

 
1,719

Other revenues
 
73

 
578

Coal royalty and other revenues (1)
 
$
31,433

 
$
49,502

Transportation and processing services revenues (2)
 
2,509

 
5,601

Total coal royalty and other segment revenues
 
$
33,942

 
$
55,103

 
 
 
 
 
(1)
Coal royalty and other revenues from contracts with customers as defined under ASC 606.
(2)
Transportation and processing services revenues from contracts with customers as defined under ASC 606 was $1.2 million and $2.9 million for the three months ended March 31, 2020 and 2019, respectively. The remaining transportation and processing services revenues of $1.3 million and $2.7 million for the three months ended March 31, 2020 and 2019, 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 and Note 16. Leases for more information.
The following table details the Partnership's Coal Royalty and Other segment receivables and liabilities resulting from contracts with customers:
 
 
March 31,
 
December 31,
(In thousands)
 
2020
 
2019
Receivables
 
 
 
 
Accounts receivable, net
 
$
30,726

 
$
27,915

Prepaid expenses and other, net (1)
 
249

 
90

 
 
 
 
 
Contract liabilities
 
 
 
 
Current portion of deferred revenue
 
$
6,021

 
$
4,608

Deferred revenue
 
54,065

 
47,213

 
 
 
 
 
(1)
Prepaid expenses and other, net includes notes receivable from contracts with customers.

6

NATURAL RESOURCE PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(Unaudited)


The following table shows the activity related to the Partnership's Coal Royalty and Other segment deferred revenue:
 
For the Three Months Ended March 31,
(In thousands)
2020
 
2019
Balance at beginning of period (current and non-current)
$
51,821

 
$
52,553

Increase due to minimums and lease amendment fees
17,153

 
11,877

Recognition of previously deferred revenue
(8,888
)
 
(7,343
)
Balance at end of period (current and non-current)
$
60,086

 
$
57,087


The Partnership's non-cancelable annual minimum payments due under the lease terms of its coal and aggregates royalty and overriding royalty leases are as follows as of March 31, 2020 (in thousands):
Lease Term (1)
 
Weighted Average Remaining Years
 
Annual Minimum Payments (2)
0 - 5 years
 
2.6
 
$
15,036

5 - 10 years
 
5.9
 
14,802

10+ years
 
13.8
 
30,587

Total
 
9.1
 
$
60,425

 
 
 
 
 
(1)
Lease term does not include renewal periods.
(2)
Annual minimum payments do not include $5.0 million from a coal infrastructure lease that is accounted for as a financing transaction. See Note 14. Financing Transaction for more information.
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 during the three months ended March 31, 2020 and 2019 as a result of accumulated preferred unit distributions earned during the period.

The following table shows the distributions declared and paid to common and preferred unitholders during the three months ended March 31, 2020 and 2019, respectively:
 
 
Common Units
 
Preferred Units
Date Paid
 
Period Covered by Distribution
 
Distribution per Unit
 
Total Distribution (1)
(In thousands)
 
Distribution per Unit
 
Total Distribution
(In thousands)
February 2020
 
October 1 - December 31, 2019
 
$
0.45

 
$
5,630

 
$
30.00

 
$
7,500

 
 
 
 
 
 
 
 
 
 
 
February 2019
 
October 1 - December 31, 2018
 
$
0.45

 
$
5,625

 
$
30.00

 
$
7,500

 
 
 
 
 
(1)
Totals include the amount paid to NRP's general partner in accordance with the general partner's 2% general partner interest.

7

NATURAL RESOURCE PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(Unaudited)


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 months ended March 31, 2020 and 2019 included 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 the dilutive effect of the warrants for the three months ended March 31, 2019 includes both the net settlement of warrants to purchase 1.75 million common units with 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. The calculation of diluted net income per common unit for the three months ended March 31, 2020 did 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 March 31,
(In thousands, except per unit data)
2020
 
2019
Allocation of net income
 
 
 
Net income from continuing operations
$
18,779

 
$
35,765

Less: income attributable to preferred unitholders
(7,500
)
 
(7,500
)
Net income from continuing operations attributable to common unitholders and general partner
$
11,279

 
$
28,265

Less: net income from continuing operations attributable to the general partner
(226
)
 
(565
)
Net income from continuing operations attributable to common unitholders
$
11,053


$
27,700

 
 
 
 
Net loss from discontinued operations
$

 
$
(46
)
Add: net loss from discontinued operations attributable to the general partner

 
1

Net loss from discontinued operations attributable to common unitholders
$

 
$
(45
)
 
 
 
 
Net income
$
18,779

 
$
35,719

Less: income attributable to preferred unitholders
(7,500
)
 
(7,500
)
Net income attributable to common unitholders and general partner
$
11,279

 
$
28,219

Less: net income attributable to the general partner
(226
)
 
(564
)
Net income attributable to common unitholders
$
11,053


$
27,655

 
 
 
 
Basic net income (loss) per common unit
 
 
 
Weighted average common units—basic
12,261

 
12,255

Basic net income from continuing operations per common unit
$
0.90

 
$
2.26

Basic net loss from discontinued operations per common unit
$

 
$

Basic net income per common unit
$
0.90

 
$
2.26


8

NATURAL RESOURCE PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(Unaudited)


 
For the Three Months Ended March 31,
(In thousands, except per unit data)
2020
 
2019
Diluted income (loss) per common unit
 
 
 
Weighted average common units—basic
12,261

 
12,255

Plus: dilutive effect of preferred units
23,187

 
6,664

Plus: dilutive effect of warrants

 
1,096

Weighted average common units—diluted
35,448

 
20,015

 
 
 
 
Net income from continuing operations
$
18,779

 
$
35,765

Less: diluted net income from continuing operations attributable to the general partner
(376
)
 
(715
)
Diluted net income from continuing operations attributable to common unitholders
$
18,403

 
$
35,050

 
 
 
 
Diluted net loss from discontinued operations attributable to common unitholders
$

 
$
(45
)
 
 
 
 
Net income
$
18,779

 
$
35,719

Less: diluted net income attributable to the general partner
(376
)
 
(714
)
Diluted net income attributable to common unitholders
$
18,403

 
$
35,005

 
 
 
 
Diluted net income from continuing operations per common unit
$
0.52

 
$
1.75

Diluted net loss from discontinued operations per common unit
$

 
$

Diluted net income per common unit
$
0.52

 
$
1.75

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:
Coal Royalty and Other—consists primarily of coal royalty properties and coal-related transportation and processing assets. Other assets include industrial mineral royalty properties, aggregates royalty properties, oil and gas royalty properties and timber. The Partnership's coal reserves are primarily located in Appalachia, the Illinois Basin and the Northern Powder River Basin in the United States. The Partnership's industrial minerals and aggregates properties are located in various states across the United States. The Partnership's oil and gas royalty assets are primarily located in Louisiana and its timber assets are primarily located in West Virginia.
Soda Ash—consists of the Partnership's 49% non-controlling equity interest in Ciner Wyoming, a trona ore mining operation and soda ash refinery in the Green River Basin of Wyoming. Ciner Resources LP, the Partnership's operating partner, mines the trona, processes it into soda ash, and distributes the soda ash 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.

9

NATURAL RESOURCE PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(Unaudited)


The following table summarizes certain financial information for each of the Partnership's business segments:
 
 
Operating Segments
 
 
 
 
(In thousands)
 
Coal Royalty and Other
 
Soda Ash
 
Corporate and Financing
 
Total
For the Three Months Ended March 31, 2020
 
 
 
 
 
 
 
 
Revenues
 
$
33,942

 
$
6,272

 
$

 
$
40,214

Operating and maintenance expenses
 
5,186

 
16

 

 
5,202

Depreciation, depletion and amortization
 
2,012

 

 

 
2,012

General and administrative expenses
 

 

 
3,913

 
3,913

Interest expense, net
 

 

 
10,308

 
10,308

Net income (loss) from continuing operations
 
26,744

 
6,256

 
(14,221
)
 
18,779

 
 
 
 
 
 
 
 
 
For the Three Months Ended March 31, 2019
 
 
 
 
 
 
 
 
Revenues
 
$
55,103

 
$
11,682

 
$

 
$
66,785

Gain on asset sales and disposals
 
256

 

 

 
256

Operating and maintenance expenses
 
8,360

 

 

 
8,360

Depreciation, depletion and amortization
 
4,392

 

 

 
4,392

General and administrative expenses
 

 

 
4,350

 
4,350

Interest expense, net
 

 

 
14,174

 
14,174

Net income (loss) from continuing operations
 
42,607

 
11,682

 
(18,524
)
 
35,765

Loss from discontinued operations
 

 

 

 
(46
)
6.    Equity Investment
The Partnership accounts for its 49% investment in Ciner Wyoming using the equity method of accounting. Activity related to this investment is as follows:

 
For the Three Months Ended March 31,
(In thousands)
 
2020
 
2019
Balance at beginning of period
 
$
263,080

 
$
247,051

Income allocation to NRP’s equity interests
 
7,493

 
12,894

Amortization of basis difference
 
(1,221
)
 
(1,212
)
Other comprehensive income (loss)
 
(1,023
)
 
1,003

Distribution
 
(7,105
)
 
(9,800
)
Balance at end of period

$
261,224

 
$
249,936

The following table represents summarized financial information for Ciner Wyoming as derived from their respective unaudited financial statements for the three months ended March 31, 2020 and 2019:
 
For the Three Months Ended March 31,
(In thousands)
2020
 
2019
Net sales
$
114,423

 
$
130,436

Gross profit
21,417

 
34,102

Net income
15,292

 
26,315


10

NATURAL RESOURCE PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(Unaudited)


7.    Mineral Rights, Net
The Partnership’s mineral rights consist of the following:
 
March 31, 2020
 
December 31, 2019
(In thousands)
Carrying Value
 
Accumulated Depletion
 
Net Book Value
 
Carrying Value
 
Accumulated Depletion
 
Net Book Value
Coal properties
$
981,352

 
$
(422,042
)
 
$
559,310

 
$
981,352

 
$
(420,448
)
 
$
560,904

Aggregates properties
41,486

 
(13,474
)
 
28,012

 
41,486

 
(13,357
)
 
28,129

Oil and gas royalty properties
12,395

 
(8,064
)
 
4,331

 
12,395

 
(7,887
)
 
4,508

Other
13,156

 
(1,601
)
 
11,555

 
13,156

 
(1,601
)
 
11,555

Total mineral rights, net
$
1,048,389

 
$
(445,181
)
 
$
603,208

 
$
1,048,389

 
$
(443,293
)
 
$
605,096

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 $1.9 million and $3.5 million for the three months ended March 31, 2020 and 2019, respectively.
The Partnership's recorded zero impairment expense during the three months ended March 31, 2020. 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 March 31, 2020 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 we currently estimate, an impairment charge may be recognized in future periods.

11

NATURAL RESOURCE PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(Unaudited)


8.    Debt, Net
The Partnership's debt consists of the following:
 
March 31,
 
December 31,
(In thousands)
2020
 
2019
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")
$
300,000

 
$
300,000

Opco debt:
 
 
 
Revolving credit facility
$

 
$

Senior Notes
 
 
 
5.05% with semi-annual interest payments in January and July, with annual principal payments in July, due July 2020
$
6,780

 
$
6,780

5.55% with semi-annual interest payments in June and December, with annual principal payments in June, due June 2023
9,458

 
9,458

4.73% with semi-annual interest payments in June and December, with annual principal payments in December, due December 2023
24,016

 
24,016

5.82% with semi-annual interest payments in March and September, with annual principal payments in March, due March 2024
50,738

 
63,423

8.92% with semi-annual interest payments in March and September, with annual principal payments in March, due March 2024
16,047

 
20,059

5.03% with semi-annual interest payments in June and December, with annual principal payments in December, due December 2026
79,945

 
79,945

5.18% with semi-annual interest payments in June and December, with annual principal payments in December, due December 2026
20,375

 
20,375

Total Opco Senior Notes
$
207,359

 
$
224,056

Total debt at face value
$
507,359

 
$
524,056

Net unamortized debt issuance costs
(7,482
)
 
(7,858
)
Total debt, net
$
499,877

 
$
516,198

Less: current portion of long-term debt
(45,767
)
 
(45,776
)
Total long-term debt, net
$
454,110

 
$
470,422

NRP LP Debt
2025 Senior Notes
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 and NRP Finance have 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.

12

NATURAL RESOURCE PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(Unaudited)


The 2025 Senior Notes are the senior unsecured obligations of NRP and NRP Finance. The 2025 Senior Notes rank equal in right of payment to all existing and future senior unsecured debt of NRP and NRP Finance 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 and NRP Finance 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. None of NRP's subsidiaries guarantee the 2025 Senior Notes. As of March 31, 2020, NRP and NRP Finance were in compliance with the terms of the Indenture relating to their 2025 Senior Notes.
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 NRP Trona LLC. As of March 31, 2020 and December 31, 2019, Opco was in compliance with the terms of the financial covenants contained in its debt agreements.
Opco Credit Facility
In April 2019, the Partnership entered into the Fourth Amendment (the “Fourth Amendment”) to the Opco Credit Facility (the "Opco Credit Facility"). The Fourth Amendment extended the term of the Opco Credit Facility until April 2023. Lender commitments under the Opco Credit Facility remain at $100.0 million. The Opco Credit Facility contains financial covenants requiring Opco to maintain:
A leverage ratio of consolidated indebtedness to EBITDDA (as defined in the Opco Credit Facility) not to exceed 4.0x; provided, however, that if the Partnership increases its quarterly distribution to its common unitholders above $0.45 per common unit, the maximum leverage ratio under the Opco Credit Facility will permanently decrease from 4.0x to 3.0x; and
a fixed charge coverage ratio of consolidated EBITDDA to consolidated fixed charges (consisting of consolidated interest expense and consolidated lease expense) of not less than 3.5 to 1.0.
During the three months ended March 31, 2020 and 2019, the Partnership did not have any borrowings outstanding under the Opco Credit Facility and had $100 million in available borrowing capacity at both March 31, 2020 and December 31, 2019.
The Opco Credit Facility is collateralized and secured by liens on certain of Opco’s assets with carrying values of $398.7 million and $399.7 million classified as mineral rights, net and other assets, net on the Partnership’s Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019, 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 March 31, 2020 and December 31, 2019, the Opco Senior Notes had cumulative principal balances of $207.4 million and $224.1 million, respectively. Opco made mandatory principal payments of $16.7 million during the three months ended March 31, 2020 and $86.5 million during the three months ended March 31, 2019, which included a $49.3 million pre-payment as a result of the sale of the Partnership's construction aggregates business.
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 March 31, 2020.

13

NATURAL RESOURCE PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(Unaudited)


9.    Fair Value Measurements
Fair Value of Financial Assets and Liabilities
The Partnership’s financial assets and liabilities consist of cash and cash equivalents, 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 amount and estimated fair value of the Partnership's debt and contract receivable:
 
 
 
March 31, 2020
 
December 31, 2019
(In thousands)
Fair Value Hierarchy Level
 
Carrying
Value
 
Estimated
Fair Value
 
Carrying
Value
 
Estimated
Fair Value
Debt:
 
 
 
 
 
 
 
 
 
NRP 2025 Senior Notes
1
 
$
294,353

 
$
209,250

 
$
294,084

 
$
269,250

Opco Senior Notes (1)
3
 
205,524

 
144,633

 
222,114

 
201,090

Opco Credit Facility
3
 

 

 

 

 
 
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
 
Contract receivable (current and long-term) (2)
3
 
$
36,747

 
$
27,692

 
$
38,945

 
$
33,460

 
 
 
 
 
(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 70% of par value at March 31, 2020.
(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 March 31, 2020.
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 March 31, 2020 and December 31, 2019.

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 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.

14

NATURAL RESOURCE PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(Unaudited)


Direct general and administrative expenses charged to the Partnership by QMC and WPPLP are included on the Partnership's Consolidated Statement of Comprehensive Income as follows:
 
 
For the Three Months Ended March 31,
(In thousands)
 
2020
 
2019
Operating and maintenance expenses
 
$
1,623

 
$
1,635

General and administrative expenses
 
898

 
963

The Partnership had accounts payable to QMC of $0.4 million and $0.1 million to WPPLP on its Consolidated Balance Sheets as of both March 31, 2020 and December 31, 2019.
During the three months ended March 31, 2020 and 2019, the Partnership recognized $0.1 million and $3.0 million in operating and maintenance expenses, respectively, on its Consolidated Statements of Comprehensive Income related to an overriding royalty agreement with WPPLP. At December 31, 2019, the Partnership had $0.1 million of accounts payable to WPPLP related to this agreement.
Industrial Minerals Group LLC
Corbin J. Robertson, III, a Director of GP Natural Resource Partners LLC, owns a minority ownership interest in Industrial Minerals Group LLC (“Industrial Minerals”), which, through its subsidiaries, leases two of NRP's coal royalty properties in Central Appalachia. Coal royalty related revenues from Industrial Minerals totaled $1.6 million and $0.2 million for the three months ended March 31, 2020 and 2019, respectively. The Partnership had accounts receivable from Industrial Minerals of $2.6 million and $0.7 million on its Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019, respectively.
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 March 31,
 
 
2020
 
2019
(In thousands)
 
Revenues
 
Percent
 
Revenues
 
Percent
Foresight Energy (1)
 
$
8,661

 
22
%
 
$
16,191

 
24
%
Contura Energy (1)
 
8,571

 
21
%
 
11,111

 
17
%
 
 
 
 
 
(1)
Revenues from Foresight Energy and Contura Energy are included within the Partnership's Coal Royalty and Other segment.

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.
In November 2019, the District Court of Harris County, Texas, 157th Judicial District, issued a ruling in the contingent consideration payment dispute that Anadarko Holding Company and its subsidiary, Big Island Trona Company (together, "Anadarko") brought against NRP in July 2017. The Trial Court ruled in NRP’s favor in all respects and ordered that Anadarko take nothing. Anadarko did not appeal the trial court ruling, and accordingly this lawsuit was concluded in the first quarter of 2020 with no liability to the Partnership.

15

NATURAL RESOURCE PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(Unaudited)


13.    Unit-Based Compensation
The Partnership's unit-based awards granted in 2020 and 2019 were valued using the closing price of NRP's units as of the grant date. The grant date fair value of these awards granted during the three months ended March 31, 2020 and 2019 were $3.5 million and $5.2 million, respectively. Total unit-based compensation expense associated with these awards was $0.7 million and $0.9 million for the three months ended March 31, 2020 and 2019, 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 March 31, 2020 is $5.8 million, which is to be recognized over a weighted average period of 2.3 years. The unamortized cost associated with unvested outstanding awards as of December 31, 2019 was $3.5 million.
A summary of the unit activity in the outstanding grants during 2020 is as follows:
(In thousands)
Common Units
 
Weighted Average Exercise Price
Outstanding at January 1, 2020
157

 
$
37.48

Granted
203

 
$
17.20

Fully vested and issued

 
$

Forfeitures

 
$

Outstanding at March 31, 2020
360

 
$
26.08

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 Energy. The infrastructure at the Sugar Camp mine is leased to a subsidiary of Foresight Energy 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.
The following table shows certain amounts related to the Partnership's Sugar Camp lease through 2032:
 
March 31,
 
December 31,
(In thousands)
2020
 
2019
Accounts receivable, net
$
804

 
$
540

Contract receivable, net (current and long-term)
36,747

 
38,945

Unearned income
21,120

 
21,889

Projected remaining payments, net
$
58,671

 
$
61,374


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.


16

NATURAL RESOURCE PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(Unaudited)


As of March 31, 2020, NRP recorded the following current expected credit loss (“CECL”) related to its receivables:
(In thousands)
 
Gross
 
CECL Allowance
 
Net
Short-term receivables
 
$
36,276

 
$
(1,914
)
 
$
34,362

Long-term contract receivable
 
36,442

 
(1,626
)
 
34,816

Total
 
$
72,718

 
$
(3,540
)
 
$
69,178


NRP recorded $(0.4) million in operating and maintenance expenses on its Consolidated Statement of Comprehensive Income related to a decrease in CECL allowance during the three months ended March 31, 2020.

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 specialist to pursue recovery of defaulted receivables.

16.    Leases
Lessee Accounting
As of March 31, 2020, the Partnership had one operating lease for an office building that is owned by WPPLP. On January 1, 2019, the Partnership entered into a new lease of the building with a five-year base term and five additional five-year renewal options. Upon lease commencement and as of March 31, 2020, the Partnership was reasonably certain to exercise all renewal options included in the lease and capitalized the right-of-use asset and corresponding lease liability on its Consolidated Balance Sheets using the present value of the future lease payments over 30 years. The Partnership's right-of-use asset and lease liability included within other assets and other non-current liabilities, respectively, on its Consolidated Balance Sheets totaled $3.5 million at both December 31, 2019 and March 31, 2020. During the three months ended March 31, 2020 and 2019, the Partnership incurred total operating lease expenses of $0.1 million included in both operating and maintenance expenses and general and administrative expenses on its Consolidated Statements of Comprehensive Income.
The following table details the maturity analysis of the Partnership's operating lease liability and reconciles the undiscounted cash flows to the operating lease liability included on its Consolidated Balance Sheet:
Remaining Annual Lease Payments (In thousands)
 
As of March 31, 2020
2020
 
$
362

2021
 
483

2022
 
483

2023
 
483

2024
 
483

After 2024
 
11,597

Total lease payments (1)
 
$
13,891

Less: present value adjustment (2)
 
(10,387
)
Total operating lease liability
 
$
3,504

 
 
 
 
 
(1)
The remaining lease term of the Partnership's operating lease is 28.75 years.
(2)
The present value of the operating lease liability on the Partnership's Consolidated Balance Sheets was calculated using a 13.5% discount rate which represents the Partnership's estimated incremental borrowing rate under the lease. As the Partnership's lease does not provide an implicit rate, the Partnership estimated the incremental borrowing rate at the time the lease was entered into by utilizing the rate of the Partnership's secured debt and adjusting it for factors that reflect the profile of borrowing over the 30-year expected lease term.

17

NATURAL RESOURCE PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(Unaudited)


Lessor Accounting
The Partnership owns loadout and other transportation assets at the Partnership's Macoupin property in the Illinois Basin which is operated by Foresight Energy. The infrastructure at the Macoupin property is leased to a subsidiary of Foresight Energy and is accounted for as an operating lease under ASC 842. The lease with Macoupin expires in January 2108. From the inception of this lease in 2009 through January 2039, the lease provides that the Partnership is entitled to variable lease payments in the form of throughput fees determined based on the amount of coal transported and processed utilizing the Partnership's assets. These fees are included in transportation and processing services revenues on the Partnership's Consolidated Statements of Comprehensive Income and were $1.0 million and $1.2 million in the three months ended March 31, 2020 and 2019, respectively. After January 2039, the lease provides that the Partnership is entitled to an annual rent of $10 thousand per year in place of the variable lease payments.
17.    Subsequent Events
The following represents material events that have occurred subsequent to March 31, 2020 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 April 2020, NRP announced it would suspend the common unit distribution and would pay-in-kind one-half of the preferred unit distribution with respect to the first quarter of 2020.







18


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following review of operations for the three month periods ended March 31, 2020 and 2019 should be read in conjunction with our consolidated financial statements and the notes to consolidated financial statements included in this Form 10-Q and with the consolidated financial statements, notes to consolidated financial statements and management’s discussion and analysis included in the Natural Resource Partners L.P. Annual Report on Form 10-K for the year ended December 31, 2019.
As used herein, unless the context otherwise requires: "we," "our," "us" and the "Partnership" refer to Natural Resource Partners L.P. and, where the context requires, our subsidiaries. References to "NRP" and "Natural Resource Partners" refer to Natural Resource Partners L.P. only, and not to NRP (Operating) LLC or any of Natural Resource Partners L.P.’s subsidiaries. References to "Opco" refer to NRP (Operating) LLC, a wholly owned subsidiary of NRP, and its subsidiaries. NRP Finance Corporation ("NRP Finance") is a wholly owned subsidiary of NRP and a co-issuer with NRP on the 9.125% senior notes due 2025 (the "2025 Senior Notes").
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
Statements included in this 10-Q may constitute forward-looking statements. In addition, we and our representatives may from time to time make other oral or written statements which are also forward-looking statements. Such forward-looking statements include, among other things, statements regarding: the effects of the global COVID-19 pandemic; our business strategy; our liquidity and access to capital and financing sources; our financial strategy; prices of and demand for coal, trona and soda ash, and other natural resources; estimated revenues, expenses and results of operations; projected production levels by our lessees; Ciner Wyoming LLC’s ("Ciner Wyoming's") trona mining and soda ash refinery operations; distributions from our soda ash joint venture; the impact of governmental policies, laws and regulations, as well as regulatory and legal proceedings involving us, and of scheduled or potential regulatory or legal changes; and global and U.S. economic conditions.
These forward-looking statements speak only as of the date hereof and are made based upon our current plans, expectations, estimates, assumptions and beliefs concerning future events impacting us and involve a number of risks and uncertainties. We caution that forward-looking statements are not guarantees and that actual results could differ materially from those expressed or implied in the forward-looking statements. You should not put undue reliance on any forward-looking statements. See "Item 1A. Risk Factors" included in this Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2019 for important factors that could cause our actual results of operations or our actual financial condition to differ.
NON-GAAP FINANCIAL MEASURES
Adjusted EBITDA
Adjusted EBITDA is a non-GAAP financial measure that we define as net income from continuing operations less equity earnings from unconsolidated investment, net income attributable to non-controlling interest and gain on reserve swap; plus total distributions from unconsolidated investment, interest expense, net, debt modification expense, loss on extinguishment of debt, depreciation, depletion and amortization and asset impairments. Adjusted EBITDA should not be considered an alternative to, or more meaningful than, net income or loss, net income or loss attributable to partners, operating income, cash flows from operating activities or any other measure of financial performance presented in accordance with GAAP as measures of operating performance, liquidity or ability to service debt obligations. There are significant limitations to using Adjusted EBITDA as a measure of performance, including the inability to analyze the effect of certain recurring items that materially affect our net income (loss), the lack of comparability of results of operations of different companies and the different methods of calculating Adjusted EBITDA reported by different companies. In addition, Adjusted EBITDA presented below is not calculated or presented on the same basis as Consolidated EBITDA as defined in our partnership agreement or Consolidated EBITDDA as defined in Opco's debt agreements. For a description of Opco's debt agreements, see Note 8. Debt, Net in the Notes to Consolidated Financial Statements included herein as well as in "Item 8. Financial Statements and Supplementary Data—Note 12. Debt, Net" in our Annual Report on Form 10-K for the year ended December 31, 2019. Adjusted EBITDA is a supplemental performance measure used by our management and by external users of our financial statements, such as investors, commercial banks, research analysts and others to assess the financial performance of our assets without regard to financing methods, capital structure or historical cost basis.


19


Distributable Cash Flow
Distributable cash flow ("DCF") represents net cash provided by (used in) operating activities of continuing operations plus distributions from unconsolidated investment in excess of cumulative earnings, proceeds from asset sales and disposals, including sales of discontinued operations, and return of long-term contract receivables; less maintenance capital expenditures and distributions to non-controlling interest. DCF is not a measure of financial performance under GAAP and should not be considered as an alternative to cash flows from operating, investing or financing activities. DCF may not be calculated the same for us as for other companies. In addition, DCF presented below is not calculated or presented on the same basis as distributable cash flow as defined in our partnership agreement, which is used as a metric to determine whether we are able to increase quarterly distributions to our common unitholders. DCF is a supplemental liquidity measure used by our management and by external users of our financial statements, such as investors, commercial banks, research analysts and others to asses our ability to make cash distributions and repay debt.
Free Cash Flow
Free cash flow ("FCF") represents  net cash provided by (used in) operating activities of continuing operations plus distributions from unconsolidated investment in excess of cumulative earnings and return of long-term contract receivables; less maintenance and expansion capital expenditures, cash flow used in acquisition costs classified as financing activities and distributions to non-controlling interest. FCF is calculated before mandatory debt repayments. FCF is not a measure of financial performance under GAAP and should not be considered as an alternative to cash flows from operating, investing or financing activities. FCF may not be calculated the same for us as for other companies. FCF is a supplemental liquidity measure used by our management and by external users of our financial statements, such as investors, commercial banks, research analysts and others to assess our ability to make cash distributions and repay debt.
Introduction
The following discussion and analysis presents management's view of our business, financial condition and overall performance. Our discussion and analysis consists of the following subjects:
Executive Overview
Results of Operations
Liquidity and Capital Resources
Off-Balance Sheet Transactions
Related Party Transactions
Summary of Critical Accounting Estimates
Recent Accounting Standards

20


Executive Overview
We are a diversified natural resource company engaged 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 own a non-controlling 49% interest in Ciner Wyoming LLC ("Ciner Wyoming"), a trona ore mining and soda ash production business. Our common units trade on the New York Stock Exchange under the symbol "NRP." Our business is organized into two operating segments:
Coal Royalty and Other—consists primarily of coal royalty properties and coal-related transportation and processing assets. Other assets include industrial mineral royalty properties, aggregates royalty properties, oil and gas royalty properties and timber. Our coal reserves are primarily located in Appalachia, the Illinois Basin and the Northern Powder River Basin in the United States. Our industrial minerals and aggregates properties are located in various states across the United States, our oil and gas royalty assets are primarily located in Louisiana and our timber assets are primarily located in West Virginia.
Soda Ash—consists of our 49% non-controlling equity interest in Ciner Wyoming, a trona ore mining and soda ash production business located in the Green River Basin of Wyoming. Ciner Resources LP, our operating partner, mines the trona, processes it into soda ash, and distributes the soda ash both domestically and internationally into the glass and chemicals industries.
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.
The global COVID-19 pandemic continues to affect businesses across the world. We continue to employ remote work protocols and are conducting business as usual despite the pandemic. While the COVID-19 pandemic did not have a material impact on our first quarter results, we are starting to see the effects of the declining demand for steel, electricity and soda ash on our business. We expect reduced demand will continue and that our results will be negatively impacted in the coming months. Although we are unable to predict the severity or duration of the impact on our business, we currently have approximately $200 million of liquidity. In addition, our $300 million of parent company notes does not mature until 2025. Accordingly, we believe we are well-positioned to manage through the downturn.
Our financial results by segment for the three months ended March 31, 2020 are as follows:
 
 
Operating Segments
 
 
 
(In thousands)
 
Coal Royalty and Other
 
Soda Ash
 
Corporate and Financing
 
Total
Revenues and other income
 
$
33,942

 
$
6,272

 
$

 
$
40,214

Net income (loss) from continuing operations
 
$
26,744

 
$
6,256

 
$
(14,221
)
 
$
18,779

Adjusted EBITDA (1)
 
$
28,756

 
$
7,089

 
$
(3,913
)
 
$
31,932

 
 
 
 
 
 
 
 
 
Cash flow provided by (used in) continuing operations
 
 
 
 
 
 
 
 
Operating activities
 
$
30,556

 
$
7,089

 
$
(7,490
)
 
$
30,155

Investing activities
 
$
272

 
$

 
$

 
$
272

Financing activities
 
$

 
$

 
$
(28,186
)
 
$
(28,186
)
Distributable cash flow (1)
 
$
30,828

 
$
7,089

 
$
(7,490
)
 
$
30,361

Free cash flow (1)
 
$
30,828

 
$
7,089

 
$
(7,490
)
 
$
30,427

 
 
 
 
 
(1)
See "—Results of Operations" below for reconciliations to the most comparable GAAP financial measures.

21


Current Results/Market Commentary
Coal Royalty and Other Business Segment

Our lessees sold 4.5 million tons of coal from our properties in the first quarter of 2020 and we derived approximately 65% of our coal royalty revenues and approximately 60% of our coal royalty sales volumes from metallurgical coal during the three months ended March 31, 2020. Revenues and other income in the first quarter of 2020 were lower by $21.4 million and distributable cash flow and free cash flow were $12.8 million and $12.5 million lower, respectively, as compared to the prior year period. This decrease is primarily a result of a weakened market for metallurgical coal as compared to the prior year period due to a decline in global steel demand. As a result, both sales volumes and prices for metallurgical coal sold were lower in the first quarter of 2020 compared to the prior year period. In addition, weaker domestic and export thermal coal markets compared to the prior year period resulted in lower revenue from our thermal coal properties. Domestic and export thermal coal markets remained challenged by lower utility demand, continued low natural gas prices and the secular shift to renewable energy.
A number of mines on NRP's properties have been temporarily idled as our coal lessees face not only reduced demand but workforce safety concerns and supply chain disruptions due to the COVID-19 pandemic. NRP believes that lessees who have idled mines will continue to sell coal from inventory, which should result in continued royalty payments to NRP over the near term. However, the pandemic has compounded already weak coal pricing and demand, and even those lessees who continue to operate are seeing significant negative impacts on their businesses.
Additionally, NRP's largest lessee, Foresight Energy, filed for bankruptcy in March 2020 and has continued to operate since the filing. In its bankruptcy filings, Foresight disclosed that it intends to restructure its finances in a plan process. Foresight entered into agreements with its pre-petition lenders to support its restructuring plan process. In addition, Foresight reached agreement with certain of its other key contract counterparties, including NRP, to enter into amendments to the counterparties’ agreements such that Foresight will be able to implement its restructuring plan. In its bankruptcy filings, Foresight announced its intention to continue to operate the Sugar Camp, Williamson, and Hillsboro mining complexes. While Foresight’s filings announced the idling of the Macoupin mine, Foresight recommenced longwall production at its lower-cost Hillsboro mine during the first quarter. NRP expects that any adverse impacts from the idling of the Macoupin mine will be partially offset by benefits from the increased production at the Hillsboro mine. Foresight’s ability to operate profitably and emerge from bankruptcy will continue to be impacted by weakened demand for thermal coal and the global COVID-19 pandemic.
Soda Ash Business Segment

Ciner Wyoming's results are primarily affected by the global supply of and demand for soda ash, which in turn directly impacts the prices Ciner Wyoming and other producers charge for its products. Demand for soda ash in the United States is driven in a large part by economic growth and activity levels in the end markets that the glass-making industry serve, such as the automotive and construction industries. Because the United States is a well-developed market for soda ash, we expect that domestic supply of and demand for soda ash will remain stable for the near future. Soda ash demand in international markets has continued to grow in conjunction with GDP. We expect that future global economic growth will positively influence global demand and pricing, which will likely result in increased exports, primarily from the United States, Turkey and to a limited extent, from China, the largest suppliers of soda ash to international markets.

Revenues and other income in the first quarter of 2020 were lower by $5.4 million compared to the prior year quarter primarily due to lower international demand that resulted in lower international soda ash pricing and volumes sold.

Ciner Wyoming started to see the impact of COVID-19 on its operations towards the end of the first quarter in the form of slowing global demand and downward pricing pressure, and while Ciner Wyoming believes this did not have a material adverse effect on its first quarter results it will have a negative impact on subsequent quarters. The extent and duration to which COVID-19 will impact demand is highly uncertain and cannot be predicted with confidence at this time. Ciner Wyoming has focused on safety during this pandemic and is actively managing the business to maintain cash flow and believes it has enough liquidity to meet its anticipated liquidity requirements.

Ciner Wyoming has announced that it will commence a significant capacity expansion capital project soon that it intends to fund in part by reinvesting cash that would otherwise be distributed to its partners. Prior to COVID-19, plans were for NRP to receive approximately $25 million to $28 million of annual cash distributions from Ciner Wyoming until the project is completed. However, due to the COVID-19 pandemic we are unable to predict the ultimate impact that it may have on future distributions we receive. We believe that we will benefit over the long-term from increased productivity and cash distributions from Ciner Wyoming’s operations following completion of this capital project.

22


Business Outlook

We expect the challenges described above to continue to negatively impact our results. NRP continues to maintain strong cash balances and liquidity, and efforts to de-lever and de-risk the Partnership over the past five years have prepared NRP to operate through this downturn.
Results of Operations
First Three Months of 2020 and 2019 Compared
Revenues and Other Income
The following table includes our revenues and other income by operating segment:
 
 
For the Three Months Ended March 31,
 
Decrease
 
Percentage
Change
Operating Segment (In thousands)
 
2020
 
2019
 
Coal Royalty and Other
 
$
33,942

 
$
55,359

 
$
(21,417
)
 
(39
)%
Soda Ash
 
6,272

 
11,682

 
(5,410
)
 
(46
)%
Total
 
$
40,214

 
$
67,041

 
$
(26,827
)
 
(40
)%
The changes in revenues and other income is discussed for each of the operating segments below:

23


Coal Royalty and Other
The following table presents coal sales volumes, coal royalty revenue per ton and coal royalty revenues by major coal producing region, the significant categories of other revenues and other income:
 
For the Three Months Ended March 31,
 
Increase
(Decrease)
 
Percentage
Change
(In thousands, except per ton data)
2020
 
2019
 
Coal sales volumes (tons)
 
 
 
 
 
 
 
Appalachia
 
 
 
 
 
 
 
Northern
327

 
859

 
(532
)
 
(62
)%
Central
2,933

 
3,422

 
(489
)
 
(14
)%
Southern
222

 
348

 
(126
)
 
(36
)%
Total Appalachia
3,482

 
4,629

 
(1,147
)
 
(25
)%
Illinois Basin
505

 
560

 
(55
)
 
(10
)%
Northern Powder River Basin
527

 
856

 
(329
)
 
(38
)%
Total coal sales volumes
4,514

 
6,045

 
(1,531
)
 
(25
)%
 
 
 
 
 
 
 
 
Coal royalty revenue per ton
 
 
 
 
 
 
 
Appalachia
 
 
 
 
 
 
 
Northern
$
1.81

 
$
4.71

 
$
(2.90
)
 
(62
)%
Central
4.83

 
6.03

 
(1.20
)
 
(20
)%
Southern
4.16

 
8.61

 
(4.45
)
 
(52
)%
Illinois Basin
4.35

 
4.77

 
(0.42
)
 
(9
)%
Northern Powder River Basin
4.13

 
2.61

 
1.52

 
58
 %
Combined average coal royalty revenue per ton
4.44

 
5.39

 
(0.95
)
 
(18
)%
 
 
 
 
 
 
 
 
Coal royalty revenues
 
 
 
 
 
 
 
Appalachia
 
 
 
 
 
 
 
Northern
$
593

 
$
4,045

 
$
(3,452
)
 
(85
)%
Central
14,173

 
20,644

 
(6,471
)
 
(31
)%
Southern
923

 
2,997

 
(2,074
)
 
(69
)%
Total Appalachia
15,689

 
27,686

 
(11,997
)
 
(43
)%
Illinois Basin
2,199

 
2,670

 
(471
)
 
(18
)%
Northern Powder River Basin
2,177

 
2,231

 
(54
)
 
(2
)%
Unadjusted coal royalty revenues
20,065


32,587


(12,522
)
 
(38
)%
Coal royalty adjustment for minimum leases
(963
)
 
(456
)
 
(507
)
 
(111
)%
Total coal royalty revenues
$
19,102


$
32,131

 
$
(13,029
)
 
(41
)%
 
 
 
 
 
 
 
 
Other revenues
 
 
 
 
 
 
 
Production lease minimum revenues
$
802

 
$
2,700

 
$
(1,898
)
 
(70
)%
Minimum lease straight-line revenues
3,809

 
3,316

 
493

 
15
 %
Property tax revenues
1,599

 
1,433

 
166

 
12
 %
Wheelage revenues
2,204

 
1,415

 
789

 
56
 %
Coal overriding royalty revenues
1,322

 
3,975

 
(2,653
)
 
(67
)%
Lease amendment revenues
843

 
771

 
72

 
9
 %
Aggregates royalty revenues
576

 
1,464

 
(888
)
 
(61
)%
Oil and gas royalty revenues
1,103

 
1,719

 
(616
)
 
(36
)%
Other revenues
73

 
578

 
(505
)
 
(87
)%
Total other revenues
$
12,331

 
$
17,371

 
$
(5,040
)
 
(29
)%
Coal royalty and other
$
31,433

 
$
49,502

 
$
(18,069
)
 
(37
)%
Transportation and processing services revenues
2,509

 
5,601

 
(3,092
)
 
(55
)%
Gain on asset sales and disposals