Natural Resource Partners Q1 2026 Earnings Call - Soda Ash Crisis Masks Strong Coal Cash Flow

Conference Moderator, Conference Call Operator, Natural Resource Partners: Hello, everyone. Thank you for joining us, and welcome to Natural Resource Partners’ first quarter 2026 earnings conference call. After today’s prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. I will now hand the conference over to Tiffany Sammis, Investor Relations. Tiffany, please go ahead.

Tiffany Sammis, Investor Relations, Natural Resource Partners: Thank you. Good morning, and welcome to the Natural Resource Partners’ first quarter 2026 conference call. Today’s call is being webcast, and a replay will be available on our website. Joining me today are Craig Nunez, President and Chief Operating Officer; Chris Zolas, Chief Financial Officer; and Kevin Craig, Executive Vice President. Some of our comments today may include forward-looking statements reflecting NRP’s views about future events. These matters involve risks and uncertainties that could cause our actual results to materially differ from our forward-looking statements. These risks are discussed in NRP’s Form 10-K and other Securities and Exchange Commission filings. We undertake no obligation to revise or update publicly any forward-looking statements for any reason. Our comments today also include non-GAAP financial measures.

Additional details and reconciliation to the most directly comparable GAAP measures are included in our tend to discuss the operations or outlook for any particular coal lessee or detailed market fundamentals. Now, I would like to turn the call over to Craig Nunez, our President and Chief Operating Officer.

Craig Nunez, President and Chief Operating Officer, Natural Resource Partners: Thank you, Tiffany, and good morning, everyone. I would like to start off by apologizing in advance for my voice. I’m a little under the weather today, and I will do my best to speak clearly so you’ll be able to understand me. NRP generated $34 million of free cash flow in the first quarter of 2026 and $167 million of free cash flow over the last 12 months before accounting for the $39 million capital investment we made into our soda ash business during the quarter. metallurgical and thermal coal producers continue to operate in challenging conditions, while soda ash producers are struggling amid what is arguably the most significant global supply glut in a generation. To date, we have not experienced any material impact on our mineral rights segment from the war in Iran.

However, the closure of the Strait of Hormuz has caused some European countries to look at delaying coal plant phase-outs to ensure power security, similar to ongoing discussions in the U.S. U.S. metallurgical coal prices are realizing a modest benefit from increased demand for safe haven domestically produced steel. At the same time, sharply higher diesel and shipping costs are compressing producer margins, and any slowdown in global industrial activity resulting from elevated energy prices could put downward pressure on steel demand and metallurgical coal pricing. There is another second-order effect worth noting. Higher oil prices may also lead to increased U.S. oil production and greater volumes of associated natural gas. Given the limits of LNG export capacity, a portion of this gas may become stranded domestically, placing downward pressure on North American natural gas prices and, in turn, on thermal coal demand and pricing.

Commodity markets have a way of solving one problem by creating another. In the soda ash market, higher energy and transportation costs, combined with war-related slowdowns in construction activity, particularly across Asia, have worsened condition for an industry already burdened by oversupply. While lower-cost U.S. producers may ultimately gain market share as higher-cost competitors struggle, we have not yet seen clear evidence of this shift. In short, the war in Iran has taken an already difficult outlook for soda ash and made it worse. Despite these headwinds, NRP continues to generate substantial cash flow and remains on track with our deleveraging strategy. Although outstanding debt increased to $73 million during the quarter as we funded the $39 million investment in Sisecam Wyoming, we subsequently reduced debt to $60 million by quarter end and have paid it down to $45 million as of today.

Our objective is straightforward: pay off debt so that more cash can ultimately flow to unitholders. Before the conflict in Iran, both metallurgical and thermal coal markets were showing early signs of stabilization. While we cannot say with confidence that coal prices have reached a cyclical bottom, there are indications that the worst may be behind us. Looking ahead, my primary concern remains our soda ash business. Despite being one of the lowest cost producers globally, Sisecam Wyoming is currently struggling to generate positive free cash flow. While we were early to call for a soda ash downturn, I underestimated both its severity and duration. Our prior stress testing did not envision a decline of this magnitude. Had you asked me a year ago whether we would be making a capital infusion earlier this year, I would have said no.

We are re-evaluating our assumptions regarding global soda ash markets in general and Sisecam Wyoming in particular. Recent events have demonstrated that even low-cost producers like us are not immune to prolonged adverse conditions. Since acquiring our interest in Sisecam Wyoming 13 years ago, NRP has received half of a billion dollars in distributions so far. Annual distributions have ranged widely from a low of -$39 million to a high of $81 million, averaging roughly $38 million per year. As of today, those distributions already received have already delivered to NRP an 11% compound annualized return and a 1.6 to 1 multiple on our investment. Those calculations assign zero residual value for our interest in Sisecam Wyoming. In reality, the reserve information filed with our Form 10-K indicates that at current production levels, Sisecam Wyoming has approximately 50 years of remaining reserves.

Simply extrapolating historical average distributions over the 50-year remaining reserve life would equate to roughly $1.9 billion of potential future distributions to NRP, an unusually long runway for a natural resource asset and an important component of NRP’s intrinsic value. While our internal evaluation of our interest in Sisecam Wyoming is more detailed than that, incorporating projected pricing, costs, capital expenditures, and the time value of money through discounted cash flow and internal rate of return calculations, these high-level numbers give you an idea of our view of the economic characteristics of that investment. Before turning it over to Chris to cover the financial results, I’d like to leave you with three key takeaways. Number one, NRP’s financial health is not dependent on the success of Sisecam Wyoming.

Our balance sheet is strong, liquidity is ample, and free cash flow generation is exceptionally robust at this stage in the commodity price cycle. Preserving this hard-earned financial strength is our top priority. Number 2, we remain on track to increase NRP unit holder distributions this year, but continue to caution that challenging environments for all 3 of our key commodities, particularly soda ash, increase the likelihood that some event or combination of events could push that timing back. I expect we will increase distributions in November, but will not be surprised if something happens to cause that to be delayed. We will continue to update you each quarter with our latest thinking.

number 3, decisions to invest additional capital in Sisecam Wyoming will be evaluated through the same lens we would apply to all investments, maximizing NRP’s intrinsic value per unit while maintaining a conservative bias and an appropriate margin of safety. Put simply, every dollar invested is a dollar that cannot be distributed to NRP unit holders today, and that trade-off must be justified by compelling returns on capital and the expectation of higher unit holder distributions in the future. For those of you who are new to NRP, I refer you to the unit holder letters in our annual reports for more information on our investment philosophy and approach to capital allocation. With that, I’ll turn it over to Chris now to cover the financials.

Chris Zolas, Chief Financial Officer, Natural Resource Partners: Thank you, Craig. For 2026, NRP generated $20 million of net income and $33 million of operating cash flow. NRP’s free cash flow in the first quarter of 2026 was negative $5 million, which takes into account the $39 million capital investment into Sisecam Wyoming. Of these consolidated amounts, our mineral rights segment generated $34 million of net income, $42 million of operating cash flow, and $43 million of free cash flow in the first quarter. When compared to the prior year first quarter, mineral rights segment net income decreased $12 million and operating cash flow and free cash flow each decreased $1 million. The decrease in net income was primarily due to lower metallurgical and thermal coal sales volumes as compared to the prior year period and increased depletion rates at certain thermal properties.

The declines in operating and free cash flow were also primarily due to lower metallurgical and thermal coal sales volumes, partially offset by higher recoupments of prior period minimum payments in the first quarter of 2025 compared to the first quarter of this year. Regarding our met thermal coal royalty mix, metallurgical coal made up approximately 65% of our coal royalty revenues and 45% of coal royalty sales volumes in the first quarter of 2026. For our soda ash segment, net income for the first quarter decreased $12 million compared to the prior year quarter. This decrease was driven by lower sales prices and volumes due to the oversupplied international soda ash market and weakened demand for flat glass. Operating cash flow decreased $3 million and free cash flow decreased $42 million when compared to the prior year period.

These decreases were due to not receiving a distribution in the first quarter of 2026 as compared to receiving $3 million of distributions in the first quarter of 2025. In addition, free cash flow was further impacted by the $39 million capital investment made in Sisecam Wyoming in the first quarter of 2026. In March of this year, NRP and Sisecam Wyoming’s managing partner made a capital investment into Sisecam Wyoming and NRP’s pro rata share was this $39 million. NRP does not expect distributions from Sisecam Wyoming to resume until soda ash market demand rebounds or there is a significant supply response to this weakened market. Moving to our Corporate and Financing segment, Q1 2026 net income, operating cash flow, and free cash flow each improved $3 million as compared to the prior year period.

These improvements to the corporate and financing segment were due to less debt outstanding resulting in lower interest costs and less cash paid for interest. Regarding our quarterly distributions, in February this year, we paid the fourth quarter distribution of $0.75 per common unit. In March, we paid a special cash distribution of $0.12 per common unit to help cover unit holder tax liabilities associated with owning NRP’s units in 2025. Today, we announced our first quarter distribution of $0.75 per common unit to be paid later this month. With that, I’ll turn the call over to our operator for questions.

Conference Moderator, Conference Call Operator, Natural Resource Partners: We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device, and please stand by while we compile the Q&A roster. Our first question comes from the line of Steven Balsam with Yellow Gate Investment Management. Steven, your line is now open.

Steven Balsam, Analyst, Yellow Gate Investment Management: Hi. Good morning, everyone. Can you discuss the minus $7.8 million loss on the equity and earnings in the soda ash segment? Was that a cash loss? Did it include interest? Maybe if you could just give a little bit more detail on that.

Chris Zolas, Chief Financial Officer, Natural Resource Partners: Sure. No, that was net. That was our proportionate share of their net income during the first quarter. That was their operating results. That includes all cash and non-cash amounts. That’s the US GAAP number.

Steven Balsam, Analyst, Yellow Gate Investment Management: Right. Understood. Thanks. That means that, you know, total loss would’ve been double that. I guess I’m trying to get a sense of whether that included any impairments or whether that was, if sort of represented by, you know I guess maybe if you, if you have an idea, I know it comes from the financial statements, what the gross loss would’ve been like.

Chris Zolas, Chief Financial Officer, Natural Resource Partners: Yeah. We have a footnote in our 10-Q that you’ll see later.

here today, that will disclose anything significant. There was no significant one-time items that were in the net income amount.

Steven Balsam, Analyst, Yellow Gate Investment Management: Okay, thanks. I’ll take a look for that. Also saw that the coal sales volumes this quarter were down about 20%-21% versus the prior year. Also down versus the fourth quarter. You know, just my quick look, it looks like Illinois Basin was down a lot, Northern Powder River and Gulf Coast. Was that anything there that, you know, that you see going forward? Do you have a sense of, you know, obviously you guys don’t have, you know, the production forecast, but do you have a sense of was there anything in particular going on there? Or what you think would, what things should look like for the year ahead?

Craig Nunez, President and Chief Operating Officer, Natural Resource Partners: As you know, we don’t talk about any less lessees particularly, and when we talk about Illinois Basin, we only have one lessee. We didn’t see it. There was not a systemic problem in Illinois Basin that resulted in lower production. It was a really an issue of mining on adjacent land that was not owned, had minerals that were not owned by us, during the period, and you’ll see that happen sometimes. You’ll see our production volumes drop and increase rather dramatically from period to period as the operator moves from adjacent property onto us and back off of us again.

Steven Balsam, Analyst, Yellow Gate Investment Management: Got it. Nothing, nothing systematic.

Craig Nunez, President and Chief Operating Officer, Natural Resource Partners: Correct.

Steven Balsam, Analyst, Yellow Gate Investment Management: Great. Just one last, another financial statement question. A quick one is in the cash flow statements, for cash flows from financing, there was $8.6 million spent during the quarter, just say on other items net. Can you talk about what that was?

Chris Zolas, Chief Financial Officer, Natural Resource Partners: Sure. The biggest item there is taxes associated with equity awards. So when we settle equity awards, they get net settled, those taxes get paid by NRP.

Craig Nunez, President and Chief Operating Officer, Natural Resource Partners: That happens every first quarter.

Steven Balsam, Analyst, Yellow Gate Investment Management: Got it. Okay. I guess that’s also just the payables or probably also just, you know, catching up with whether bonuses or other payments from the prior end of the prior year. One last quick question is, just noticed there’s a, you know, non-cash, but there was a major increase in depreciation. I think you mentioned that there was increased depletion rates in certain thermal coal. Is anything else? The number went from $4 million to $7.6 million this quarter.

Chris Zolas, Chief Financial Officer, Natural Resource Partners: Yeah. You picked up on it. I mean, that’s exactly right. We continually do evaluations of our economic tons estimates that drive that depletion calculation, and as we get information from our operators and our lessees about their future mine plans, it can cause some adjustments to our those estimates of economic tons and that’s what happened last year.

Steven Balsam, Analyst, Yellow Gate Investment Management: Got it.

Chris Zolas, Chief Financial Officer, Natural Resource Partners: there.

Steven Balsam, Analyst, Yellow Gate Investment Management: Great

Chris Zolas, Chief Financial Officer, Natural Resource Partners: I just wanna add there, you noticed there wasn’t any associated impairment that was recorded as a result of those adjustments.

Craig Nunez, President and Chief Operating Officer, Natural Resource Partners: Again, that’s something that fluctuates from time to time. Your estimated reserve qualities will go up, they’ll go down, and as they do, it affects your depletion rate each year on your financial statements and on your tax returns.

Steven Balsam, Analyst, Yellow Gate Investment Management: Got it. Right. Thanks for clarifying that. I’ll go back in the queue in case there are other questions. Thank you.

Conference Moderator, Conference Call Operator, Natural Resource Partners: Our next question comes from the line of David Spier with Nitor Capital Management. David, your line is now open.

David Spier, Analyst, Nitor Capital Management: Hi. Regarding the Soda Ash JV, as following the contribution, how much debt now remains at the JV?

Craig Nunez, President and Chief Operating Officer, Natural Resource Partners: $60 million.

David Spier, Analyst, Nitor Capital Management: $60 million in total, not to NRP share?

Craig Nunez, President and Chief Operating Officer, Natural Resource Partners: Correct.

David Spier, Analyst, Nitor Capital Management: Got it. Earlier when you mentioned you’re, you know, potentially reevaluating the Soda Ash business, is it possible to further elaborate on, you know, potential options?

Craig Nunez, President and Chief Operating Officer, Natural Resource Partners: Well, let me tell you what I mean by reevaluating. You know, those of you who follow us for a long time, you know that we are very focused on scenario testing, stress testing our business, trying to evaluate every possible thing or combination that could undermine our results. We do the same thing on soda ash. You know, quite frankly, the environment that we find ourselves in now is one that is worse than we had envisioned in our stress testing. We have gone back to the drawing board and said, "Okay, let’s start from scratch," because since this scenario, this market situation has fallen outside of what we had envisioned was realistically possible, we may need to correct our thinking. We’re just reevaluating everything along those lines.

As far as what are the possible scenarios going forward with respect to Sisecam Wyoming, two reasons I don’t have a lot of meat to give you on that. The first is that we don’t yet know what the operator of the venture is going to do. They are working, they’re evaluating, they’re making up their decisions of what they would like to propose as a plan going forward. The second thing is, you know, this is a very competitive market that we’re in the global soda ash business right now, even more competitive now than during normal times.

I don’t wanna elaborate too much on the possible avenues that the operator may be considering because it could give competitors information that would not be helpful for them, for us, for them to have.

David Spier, Analyst, Nitor Capital Management: I’d still imagine even in the current depressed environment, it’s the, you know, the partnership’s view that this, you know, the JV is still a large component of the, you know, of the company’s value right now.

Craig Nunez, President and Chief Operating Officer, Natural Resource Partners: It is our view that this is a world-class asset that has a very long life to it with very significant cash generating potential in the future that’s going through a very difficult time right now.

David Spier, Analyst, Nitor Capital Management: All right.

Craig Nunez, President and Chief Operating Officer, Natural Resource Partners: Yeah. Yeah. I mean, look, the concern that we have, that you should have, I think, that everyone should have is, are there signals here that this asset has lost the investment characteristics that attracted us to it in the first place? Has it, is the future going to be materially worse than the past? You know, this asset’s been operating for over 60 years, and is the next 50 gonna be materially worse than the last 60? Are we unrealistically clinging to bright memories of the past, allowing ourselves to be misled into making more investments into the future that shouldn’t be made? We’re trying to be very careful that we don’t fall into that trap.

David Spier, Analyst, Nitor Capital Management: Got it. All right. I appreciate it. Thank you.

Craig Nunez, President and Chief Operating Officer, Natural Resource Partners: You bet.

Conference Moderator, Conference Call Operator, Natural Resource Partners: We have reached the end of the Q&A session. I will now turn the call back to Craig Nunez for closing remarks.

Craig Nunez, President and Chief Operating Officer, Natural Resource Partners: Thank you very much, operator, and thank you everyone for your participation on the call and the questions. I wish you a very good day and look forward to speaking to you on our next call.

Conference Moderator, Conference Call Operator, Natural Resource Partners: This concludes today’s call. Thank you for attending. You may now disconnect.