Natural Resource Partners (NYSE:NRP)
continues to find itself in a tough spot. Utilities have significantly
curtailed their use of thermal coal from Appalachia, met coal prices
continue to scrape bottom, oil prices are well below the levels
contemplated when the partnership diversified into petroleum, and
aggregates and soda ash just aren't profitable enough to fill the gap.
Like so many others in the coal space, conservation of liquidity and
living to fight another day have become paramount and Natural Resource
Partners has slashed its payout to preserve capital.
In my
opinion, expectations of a recovery in utility demand for App coal is
unrealistic and met coal may likewise never be what it once was. I
believe the growth in NRP's aggregates business can partially fill the
gap over time and the oil/gas business is a wildcard with upside
potential, but NRP is unlikely to be in a position to raise its
distribution for several years. A yield above 9% doesn't look bad today,
but investors can find similar opportunities at Alliance Resource Partners (NASDAQ:ARLP) and OCI Resources LP (NYSE:OCIR)
and arguably higher quality. I do think NRP's shares look pretty beaten
up and the distribution should be well-covered even with no recovery in
coal, but the coal sector has certainly been teaching the lesson over
the last couple of years that conditions can always get worse.
Read the full article:
Natural Resource Partners Will Likely See Things Get Worse Before Any Turnaround
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