Natural Resource Partners signals potential distribution increase as debt nears full repayment amid challenging coal and soda ash markets

Earnings Call Insights: Natural Resource Partners (NRP) Q3 2025

MANAGEMENT VIEW

* Craig Nunez, President & COO, reported that NRP generated $42 million of free cash flow in Q3 2025 and $190 million over the last 12 months, continuing to deliver substantial free cash flow despite significant headwinds in metallurgical coal, thermal coal, and soda ash markets.
* Nunez explained that metallurgical coal markets face challenges from slowing global growth and soft steel demand, while thermal coal demand remains muted due to mild weather, cheap natural gas, and renewable energy adoption. He stated, “While we acknowledge that these factors offer the potential for a more bullish long-term outlook, we will continue to manage the partnership in accordance with the thesis that North American thermal coal remains in long-term secular decline until we see evidence to the contrary.”
* Nunez also highlighted a “generational bear market for soda ash,” citing oversupply and slowing global growth as key drivers, and described the market downturn as more significant than initially expected.
* Regarding the carbon-neutral industry, Nunez revealed, “Oxy notified us during the quarter that it was dropping its subsurface CO2 sequestration lease on 65,000 acres of floor space we own in Polk County, Texas... As of now, none of our 3.5 million acres of CO2 sequestration pore space is under lease.”
* Nunez emphasized progress on deleveraging, stating, “Over the past 12 months, we have retired nearly $130 million of debt with only $70 million of debt remaining as of the end of the quarter.” He added, “We continue to believe that we will be in a position to increase unitholder distributions in August.”
* CFO Christopher Zolas reported, “In the third quarter of 2025, NRP generated $31 million of net income, $41 million of operating cash flow and $42 million of free cash flow.” Zolas further noted that the Mineral Rights segment generated $41 million of net income, $44 million of operating cash flow and $45 million of free cash flow, with decreases primarily due to weaker metallurgical coal markets.

OUTLOOK

* Nunez reiterated, “We continue to believe that we will be in a position to increase unitholder distributions in August. However, I caution that the longer we slog through the depths of bear markets for all 3 of our key commodities, the greater the likelihood that some event occurs that pushes that timing back.”
* Nunez also stated, “We do not expect [Sisecam Wyoming] to resume distributions for the foreseeable future,” citing the ongoing soda ash market downturn.
* There was no explicit numerical guidance for EPS or revenue, nor were there analyst estimates available for comparison.

FINANCIAL RESULTS

* NRP generated $31 million of net income, $41 million of operating cash flow, and $42 million of free cash flow for the quarter. The Mineral Rights segment contributed $41 million of net income, $44 million of operating cash flow and $45 million of free cash flow.
* Compared to the prior year third quarter, Mineral Rights segment net income was flat, while operating and free cash flow each decreased $9 million. Zolas attributed these declines to weaker metallurgical coal markets and lower sales prices.
* The soda ash segment saw a net income decrease of $11 million compared to the prior year, with operating and free cash flow each down $6 million, due to lower international sales prices driven by weak glass demand and new supply from China.
* NRP repaid $32 million of debt during the quarter and over $70 million during the first nine months of 2025.
* The company announced a Q3 distribution of $0.75 per common unit, consistent with the prior quarter.

Q&A

* Dan Adler asked about leasing for lithium mining in the Smackover region; Nunez confirmed, “We are active in leasing acreage in the Smackover formation for lithium production to multiple lessees,” but declined to discuss specific terms.
* David Spier inquired about operating and maintenance expenses and cost controls; Zolas explained, “Salaries and compensation is a big part... We also have a variety of other general corporate costs, insurance, legal, accounting... property taxes, which is a big one and royalty expenses as well.” Nunez added, “We have a zero-based budgeting approach... the goal is to make the total cost as low as possible.”
* Spier also asked about the nature of mineral rights and opportunities from natural gas production. Nunez clarified, “It is generally for specific minerals,” and added that most oil and gas mineral rights are in the Haynesville, with some increased drilling activity but limited material revenue impact.
* Spier questioned capital allocation as NRP nears a net cash position. Nunez responded, “We believe that we will be in a position where we will have the majority... of our remaining debt paid down and be able to increase distributions in the third quarter next year.”
* Ken Ackerman asked about the criteria for starting unit repurchases. Nunez stated, “We’re looking to establish what we define as an NRP fortress balance sheet,” prioritizing no permanent debt and $30 million cash on the balance sheet. He outlined capital allocation priorities as unitholder distributions, unit repurchases at material discounts, and opportunistic acquisitions.
* Neil Patel asked if increased data center demand could drive thermal coal. Nunez responded, “I do believe there will have to be material amounts of capital invested in the thermal coal infrastructure... to bring new production online and to process it and transport it,” but did not specify amounts or timing.

SENTIMENT ANALYSIS

* Analyst tone was neutral to slightly positive, with questions focusing on cost controls, capital allocation, and asset leasing, and little evidence of skepticism or pressing concerns.
* Management maintained a cautious but confident tone in prepared remarks and Q&A, emphasizing a conservative approach and debt reduction. Nunez’s language included, “We continue to manage the partnership with a conservative mindset in order to protect your investment.”
* Compared to the previous quarter, analyst and management sentiment remained steady, with cautious optimism about deleveraging and future distributions but continued acknowledgment of market headwinds.

QUARTER-OVER-QUARTER COMPARISON

* Management guidance on potential distribution increases remained consistent with the previous quarter, but the tone grew more cautious about the timing due to ongoing market weaknesses.
* The company continued to stress deleveraging, reporting $70 million of remaining debt versus “substantially all debt” expected to be paid off by the middle of next year in the prior quarter.
* Analysts shifted from questions about acquisition opportunities to more detailed inquiries on cost controls, mineral rights, and capital allocation as debt nears full repayment.
* Management’s confidence in cash flow and the fortress balance sheet strategy remained unchanged, though they reinforced the absence of near-term market catalysts.

RISKS AND CONCERNS

* Management identified continued pressure in metallurgical coal, thermal coal, and soda ash markets, with no near-term catalyst for improvement.
* Nunez noted, “Our coal lessees are operating at or near their cost of production, and our soda ash investment is experiencing the lowest international sales prices in decades.”
* The company faces discontinued distributions from its soda ash investment and has no active CO2 sequestration leases after Oxy and Exxon dropped their agreements.
* Management stressed maintaining a conservative approach and “zero-based budgeting” to mitigate financial risk.

FINAL TAKEAWAY

NRP continues to generate strong free cash flow and make progress on its deleveraging strategy despite persistent headwinds across its key commodities. Management remains committed to a conservative approach, highlighting a potential increase in unitholder distributions when debt targets are met, though they caution that the timing may shift if challenging market conditions persist. The company’s focus on cost control, capital allocation, and maintaining a fortress balance sheet positions it to manage ongoing uncertainty and prepare for future opportunities as market dynamics evolve.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/nrp/earnings/transcripts]

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