Good morning and welcome to the Natural Resource Partners Quarterly Earnings Conference Call. My name is Nora and I will be facilitating the audio portion of today's interactive broadcast. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be a question and answer session. [Operator Instructions] This event also features streaming audio which allows you to listen to the show through your PC speakers. For those of you on the stream, please take note of the options available in your event console. At this time, I would like to turn the show over to speaker, Tiffany Sammis, Natural Resource Partner of Investor Relations. Ma’am, please go ahead.

Thank you. Good morning and welcome to the Natural Resource Partners' second quarter 2019 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 of Coal. Some of our comments today may include forward-looking statements, reflecting NRP's views about future events. These matters involve risks and uncertainties that can 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 reconciliations to the most directly comparable GAAP measures are included in our second quarter 2019 press release, which can be found on our website. I would like to remind everyone that we do not intend to discuss the operations or outlook for any particular coal lessee or get into detailed market fundamentals. In addition, I refer you to Ciner Resources' public disclosures and commentary for specific questions regarding our soda ash business segment. Now I would like to turn the call over to Craig Nunez, our President and Chief Operating Officer.

Thank you, Tiffany, and welcome everyone to our quarterly call. I am pleased to announce that NRP continues to generate significant amount of cash and are on attractive returns on capital excluding dis co-ops and one-time beneficial items we recorded $161 million of free cash flow over last 12 months and our consolidated return on capital employed over the same period was 16% with the coal segment coming in at 16.7 and soda ash returning 18.4. These results have allowed us to add $70 million to common unit holders' equity and payout nearly $33 million of common distributions over the last year. Our cash flow cushion which is the free cash flow remaining after mandatory debt amortizations of our private placement notes, payments or preferred dividends and the current common unit distribution was $26 million over the same period. Looking ahead fall in coal prices are likely to put pressure on our coal lessees in the coming months. While the impact of falling prices has not yet impacted our results we believe it’s because most of our lessees have been selling coal at higher prices locked in during the fourth quarter of last year. We also believe most of these sales contracts will be coming up for renewal between now and at the end of the year at which time sales prices were likely be reset at lower levels. However, we expect the negative impact of these adjustments on us to be somewhat muted by the minimum payment provisions in our leases that provide us with some downside price protection. The current coal price environment together with continuing transportation and logistical challenges as well as limited access to capital are taking a toll on some of our lessees. Three of our lessees Blackjewel, Blackhawk and Cambrian have declared bankruptcy since…

Thank you Craig and good morning everyone. I'd like to start with a recap of the refinancing transactions we completed in the second quarter that provide us with significant additional time to execute further deleveraging and manage our business through commodity price volatility. First, we extended all $100 million for our bank facility's committed borrowing capacity from 2020 to 2023. Second, we issued $300 million of new nine and one eight percent parent company bonds to 2025 and use of net proceeds along with cash on hand to redeem all $346 million of our 10.5% parent company bonds to 2022. In addition to the benefit of expended maturities, lowering both the principal and interest rate on our parent company bonds, we decreased our annual interest expense by $9 million. In terms of the impact of these refinancings had on our second quarter results, we reported a $29 million loss on extinguishment of debt of which $18 million related to cash we've paid to call the 10.5% bonds and $11 million related to non-cash write-offs of unamortized debt issuance and debt discount costs. With that being said, I'll move to our second quarter financial results. During the second quarter, we generated $53 million of operating cash flow and $54 million of free cash flow driven by strong royalty cash collections and steady overall performance from our coal royalty segment. Second quarter net income was $19 million, which includes the $29 million loss on extinguishment of debt related to our Q2 refinancings. Basic and diluted earnings per common unit for the second quarter were $0.95 and $0.87, respectively. I'll next move on to our segment results. Our coal royalty segment continues to perform well our lessee sold a total of 7 million tons of coal from our properties and our coal sales…

[Operator Instructions]. Thank you. Your first question comes from the line of Mark Levin of Seaport Global. Your line is now open.

Great. Thank you very much. I appreciate it. Just a couple of questions. First, more modeling related. I think you referenced in your remarks to production lease minimums, seems like where we missed relative to estimates or relative to what you guys reported was a big, big difference in the other revenue and particular the production lease minimum revenue line item, which jumped significantly quarter-over-quarter. May be you can provide some more color around that jump and then how to think about modeling that line item going forward. Thank you.

Sure. Thanks Mark. This is Chris. You're absolutely right. There was a big jump in production lease minimum revenues and as I said on the call, that was driven by lessee forfeitures of their recoupable balances that occurred in the second quarter, primarily driven by lease terminations and that's really the big driver for that amount, that's not something that's I think is really forecast on a regular basis, and if you look at our prior quarter amount that's something that's probably more of a sustained normal rate for that line item.

Got it. That's very helpful. In terms of leverage looks like you guys are 2.6 times, again, many kudos for driving that down as you have over the last several years, really, really a great job. But I'm just curious, where do you stop, if you stop. So, if you got 2.6 times is one turn on the right number, is one and half turns, is no lever I mean how do you guys ultimately see what the capital structure should look like over the next few years?

Mark, this is Craig. How you are doing? It's good to talk to you. We don't have a long-term target for debt to capital structure just yet but it is well below the 2.6 level where we are now. We have a couple of outstanding items out there that we want to get through. We still have some litigation that's outstanding that we want to get out that behind us and we also want to see what happens after with volatility in the coal markets these days and what happens after re-contracting in the back half of this year and as we get into 2020 to see what the environment is like.

Now that makes sense. And related to the point you made about some of your lessees, you know that have filed for bankruptcy and one of them will be out soon and producing but I guess several of the others a little bit more squishy. Can you maybe remind us; A, what the contribution was production-wise from those companies that are in bankruptcy. And then secondly, maybe a quick history course, because as you referenced you had a number of lessees over the years go through the bankruptcy process. Can you maybe talk about how the courts have dealt with, those company's contracts with you as they went through their bankruptcies?

Sure. First of all, we aren't going to comment as we have said before Mark on specific lessees and the contribution we received from specific lessees. I will tell you thought that while all the bankruptcies combined that we referred to there is a relatively modest reduction in our cash flows that we anticipate. It’s not a material impact to us, we also don’t believe that there is any hit to the long term earning power of those assets we think they’re going to generate the same run rate they did before so I don’t think there's any adjustments that needs to be made for that. As far as the process of going through bankruptcies what has tended to happen in the past is that our leases are either accepted or rejected as they go through the bankruptcy process and if they are accepted they tend to they’re accepted as is. So there’s no modifications, reductions to those leases etcetera. And what has actually happened is that in I would say the majority and that’s roughly of a majority of bankruptcies where our leases are assumed we actually are able to receive improved terms in one form of fashion even it’s just assignment fees that type of thing that are a one-time hit, one-time benefits for us. The times when the leases would not be assumed is when typically when the operation on that lease is not profitable for the operator and so from our view the decision of what the assessment of whether the lease is going to continue to operate, whether it’s going to be assumed or not assumed typically falls on the economic viability of that operation on that lease. If an operator be it the bankrupt operator that may be emerging from liquidate or from reorganization or anther operator can actually make money by operating that lease it typically continues to operate and we continue to get paid, if it’s not a viable operation, if it’s losing money at the operating level regardless of the capital structure of the lessee then that operation normally shuts down and goes away and that lease is rejected.

That makes sense that's a good explanation. One more from me I'm sorry…

Mark, let me add to that also I would say that over the last five years we’ve been through quite a number of lessee bankruptcies here I mean it’s substantial number of lessee bankruptcies here and that through that time I would suggest that never say never but I think it’s unlikely that there are many operations that we have currently operating on NRP properties that are unprofitable for the lessees at the present time because most of those were shaken out during the carnage of the last down cycle.

That makes perfect sense. Two last quick ones from me one is a major Eastern Rail has or seems to be putting up for sale of some of its properties I won’t ask you to comment specifically on that situation but is there a point at which you guys would consider actually getting bigger in terms of your coal reserve position or are we thinking more along the line of just discontinuing to, just shrink the debt balances and improve the cash cushion?

Well Mark our primary focus is to continue to improve the capital structure because we think that’s the least risky, best risk adjusted way I think to improve the value over time. Now that being said, as a coal mineral owner we are in a somewhat unique position and there could be I think if an opportunity came along to acquire a coal mineral write that was synergistic with what we had and we were in a unique position to add value and perhaps accelerate our deleveraging process by buying attractive assets. I think we would consider everything and anything. However, the primary focus continues to be what has been for the last three years and that is -- four years and that to improve the financial profile of the business.

Now that makes sense. And then final, final, final question, which is, any color on you can provide in terms of -- a frequent question sometimes is around minimum royalty payments and any way to quantify in a given year what a good minimum base is to think about, I mean just worse, worse, worse case scenario, which hopefully will never come into play, but if it did, is there any sort of financial color you can provide around like the floors at which minimums provide you guys from a cash flow perspective?

Well, generally -- I’ll give you some guidance here -- or not guidance per se, but generally we don't receive any minimums of -- to speak of on the met side because met pricing is above the minimum threshold at our leases. So we are receiving market prices so to speak on those. So, we're really talking about the thermal side of the business right now, and we do receive -- we do have a number of minimums there that are in place that are what I'll call, in the money. And so what I think you’re really asking is, of those minimums how much are actually in the money and kicking in, what's the amount of deficiency payments that we're actually receiving, because we have that minimum provision in our contracts? And that number is roughly in today's price environment -- today's thermal price environment, $20 million, $25 million.

Got it. That's like on an annualized basis?

Correct.

And Mark, just to add a little color to that, we do have a footnote in our 10-Q, we have a revenue footnote and it’s Footnote 2 in our 10-Q and we actually disclose there the total amount of minimums we have for all our lease contracts and kind of break it out in buckets of five year increments. So, the total amount there is just about $74 million of total annual minimums we have with all of our lessees.

Okay. That's perfect. That's exactly what I was looking for. And are there any -- there are a lot of new met projects that are being talked about or discussed. Are there any new met projects that are on NRP land that could conceivably add to your met volume over the next few years?

Mark, this is Kevin Craig. No, not a brand new met project.

Okay.

There are some expansions, continuations of operations and one in particular coming off adverse coal back on dollars but not what you would think of as a new greenfield lien of sight.

[Operator Instructions]. We have a question from [Steve Berman], an individual investor. Your line is now open.

The minimums, are they principally tied to the thermal side as opposed to the met coal or are they in both segments?

We have them on both segments, both met and thermal. But the current price environment in the met market means that the market prices are above where the minimums are set. So, the minimums are not kicking in and we are not receiving deficiency payments on the met side right now.

Okay. So when you said you would expect the pricing of coal will be going down, you’re implying it’s going to be on the met side, right?

We think -- both met and thermal benchmarks have fallen quite significantly here year-to-date. So we think there will be lower prices on met and thermal.

I see, okay. And I'm sure this is obvious to industry experts like the last person that spoke. But what are the key driving forces in the pricing of these various coal markets? Obviously, there’s a lot of things but just simplistically what are the -- what’s causing the downward swing in prices?

So this is Kevin Craig. A number of factors go into it, obviously. If you start at the macro level, economic growth on thermal side, electric generation, both domestic and internationally, if you look at our export market, we compete around the world with coals such as Australian coals going into China, so you have currency exchange rates to play a role, demand from China, India, international players. On the met side in particular, demand for steel worldwide, steel plant utilization rates and I'm thinking particularly of both our domestic steel plant utilization rates, European market and then your Asian markets are really the key drivers to get back to your supply demand dynamics.

So the industrial slowdown that supposedly taking place in China, is -- do you feel that is directly impacting the pricing of your product?

My opinion is not to-date, you’ve seen met coal being imported into China year-over-year at a very consistent rate. So in steel production out of China or in China has grown year-over-year. So there are certainly other factors that drive the macro market and you can’t look at any one data point. It’s really a number of points that drive the worldwide demand.

Okay. So basically you seem to be implying that the current payout is sustainable even though you want to reduce your leverage further and have some things that still need to be done. Is that a fair assessment with the current yield?

When you say current payout, you mean our current common distribution rate?

Yes.

We’re not going to give specific guidance on that. However, I will tell you that even during the carnage of the last downturn in the coals market, we were quite focused on maintaining the distribution at the current level because we realized that our investors have to pay income tax on the -- their pro rata share of the income we earn. And unlike most MLPs we actually do generate taxable income that flows through to our equity holders. So we are quite focused on maintaining the current common distribution.

There are no further questions at this time. I would like to turn the call over back to speaker, Craig Nunez. Please go ahead sir.

Thank you very much. And I'd like to thank everyone for participating in our call today and thank you for your interest in NRP and continued support. We look forward to talking to you again soon. Have a great day.

This concludes today's conference call. You may now all disconnect.