Good morning. My name is Charlie and I will be your conference operator today. At this time, I would like to welcome everyone to the Natural Resource Partners L.P. First Quarter 2021 Earnings Call. [Operator Instructions] Thank you. Tiffany Sammis, Manager of Investor Relations, you may begin your conference.

Good morning and welcome to the Natural Resource Partners first quarter 2021 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 statement 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 first quarter 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 detailed market fundamentals. In addition, I refer you to general 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 good morning all. NRP continues to operate under CDC guidelines, government-imposed rules and company remote work protocols. Our people are safe and the partnership is conducting business as usual. We continue to be pleased with the performance of our business segments as they emerge from the negative impact of the COVID-19 pandemic. Demand for metallurgical coal and soda ash is growing, providing support for our cash flow. While we expect COVID-19 factors to remain a major wildcard for the global economy for the foreseeable future, we remain cautiously optimistic that the worst for our business lines is behind us. Furthermore, we are quite pleased with the partnership’s demonstrated ability to generate free cash flow, continue paying down debt and maintain strong liquidity throughout the crisis, and we expect these trends to continue. Over the last 12 months, a period that captures the depths of the pandemic, we generated a noteworthy $82 million of free cash flow and paid off $46 million of debt. Even our cash flow cushion, which is the free cash flow remaining after paying our private placement debt amortizations and distributions on our common and preferred units, held up well during the depths of the pandemic, falling negative by only $3.7 million. We continue to focus on and maintain robust liquidity and ended the quarter with $197 million of total liquidity consisting of $97 million of cash and $100 million of unused borrowing capacity. Metallurgical and thermal coal markets continued to recover from the impact of the COVID-19 pandemic, and we expect this will benefit our lessees going forward. The ongoing trade dispute between China and Australia appears to have benefited U.S. met producers as Chinese manufacturers realigned supply chains to procure met coal from other regions. Thermal coal demand continues to stabilize…

Thank you, Craig and good morning everyone. During the first quarter of 2021, we generated $23 million of operating cash flow and $8 million of net income. Moving to our segment results, our Core Royalty and Other segment generated $26 million of Q1 operating cash flow and $20 million of first quarter net income. Operating cash flow was $4 million lower compared to the prior year quarter, primarily as a result of certain lease amendment fee payments we received in the first quarter of 2020. Excluding the impact from these lease amendment fees we received last year, total segment operating cash flow was consistent with the prior year quarter. Our first quarter net income was $6 million lower compared to the prior year quarter, primarily as a result of increased non-cash expenses that included $4 million asset impairment expense due to lease termination and $3 million increased depletion expense due to increased coal production sales at certain properties with a higher depletion rate. Total remaining segment costs remained relatively flat compared to the prior year quarter as increases in certain costs such as bad debt expense, transportation and processing and insurance were offset by controllable cost reductions implemented from our 2020 cost savings initiatives. Metallurgical coal made up approximately 40% of our total coal royalty sales volumes and approximately 50% of our coal royalty revenue during the first quarter of 2021. Moving to soda ash, our second business segment, our soda ash segment’s net income in the first quarter of 2021 was lower by $4 million as compared to the previous year quarter, primarily driven by lower sales prices. As Craig mentioned earlier, while the quarterly distribution from Ciner Wyoming remains suspended in order to provide greater financial flexibility as a result of the impacts of COVID-19, in March of…

[Operator Instructions] Our first question comes from Amer Tiwana of Imperial Capital. Your line is open. Please go ahead.

Hi, guys. How are you?

Good morning.

Good morning. So, the question I have is big picture. I know you guys don’t really control the assets in these instances. But what is your sort of sense of how 2021 would play out? I think you guys said near-term leverage is going to go up a little bit but then should start to decline going forward. I’m trying to get a sense of if I look historically, you were generating close to $200 million of EBITDA and pretty significant free cash flow generation at that level. In order to get back to those levels, I mean, can we get to that run-rate by the end of the year or just trying to get a sense of how the business is going to continue to improve, what kind of trajectory should we expect?

This is Craig. I will take a first stab at that. Of course, we don’t give guidance so I will have to stay shy of that, but I can give you the big picture overview. We had $82 million of free cash flow over the preceding 12 months ending March 31. That included, as you know, the – all of the bad quarters of the pandemic, the depths of the pandemic. I would expect that it’s going to take a while if you look on a 12-month rolling basis for those depths of the pandemic to roll through this rolling 12-month period. And we think that both the soda ash business and the coal business, met and thermal, are going to do better in 2021 – continue to do better in 2021. So I think you’re going to continue to see that run rate grow. I can’t give you guidance as to specifically what it’s going to be at what particular point in time in the future, but I do think we will continue to see that the run-rate that we are generating cash grow. Chris, do you have any comments on that?

No. I agree with that, Craig.

The next question I have is you have a substantial amount of cash on your books and obviously the liquidity is pretty good as well. Do you prefer to keep cash on the books? I mean, can we pay down some debt with it? I mean, just trying to gauge how – like use of cash and how much cash do you want to keep on the book?

We are always looking for opportunities to deploy the cash in productive ways. And in our case, with our primary focus on de-levering and de-risking the business for the last 5 years that has involved paying down debt. We are sensitive though as we pay down debt about two things. Number one, and most importantly, we want to make sure that we have adequate liquidity to take into account any unexpected urgent needs that come about. The pandemic was a great example. We were quite happy we entered into the pandemic with the liquidity and the cash balance that we had. Also along those lines, when we are contemplating the use of the cash we have, we have to take into account the ability that we may have to access capital if we end up using all of our cash. And there is quite a – we are – we have talked previously in calls about our concerns about our ability to access capital from the credit or equity markets. So we are going to err on the side of caution with respect to our liquidity. The second factor that we consider when we think about paying down debt is the cost of it. Is there a call premium we have to pay? Is there a make-whole premium we have to pay or can we buy to the discount? And when we feel that we have adequate liquidity and we feel that we can buy debt back at an attractive price, we will do it.

Got it. Thank you. That’s all I have.

Thank you.

There are no further questions at this stage. So, I will hand the call back over to Craig.

Well, thank you very much, Charlie. And I would like to thank everyone for participating in our call and thank you for your continued support of NRP and have a great day. This call is ended. Take care.

Ladies and gentlemen, this concludes today’s call. Thank you for joining. You may now disconnect your lines.