Good morning. My name is Gina, I will be your conference operator today. At this time, I would like to welcome everyone to the Natural Resource Partners L.P. Third Quarter 2022 Earnings Conference Call. 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] Tiffany Sammis, you may begin your conference.

Thank you. Good morning, and welcome to the Natural Resource Partners Third Quarter 2022 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 reconciliations to the most directly comparable GAAP measures are included in our third 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 co-lessee or detailed market fundamentals. In addition, I refer you to Sisecam 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, everyone. NRP generated $83 million of free cash flow in the third quarter and has produced $199 million of free cash flow in the first nine months of the year, resulting in the best start to a year in the history of the partnership. We have seized this opportunity to accelerate our plan to become debt-free and redeem all of our preferred units. Year-to-date through today, we have paid off $319 million of debt, including all of our higher cost public bonds that were due to mature in just over two years. $249 million of this debt has been permanently retired with cash on hand, with the remainder temporarily refinanced under our lower-cost five-year revolving credit facility established in August. Our leverage ratio now stands at 0.6x, down from 4.6x just 16 months ago. We look forward to becoming debt-free as our business continues to generate cash. We have paid out $24 million of common unitholder distributions through the first three quarters, which is a 46% increase over the same period a year-ago. We believe it is important to provide meaningful distributions to common unitholders while continuing to delever and derisk the partnership. Proof of our commitment to this principle is the fact that we have paid common distributions for every quarter in the 20 years since the partnership's public debut with the exception of one quarter in the depths of the COVID-19 pandemic. We entered into our second subsurface CO2 sequestration transaction during the third quarter with a lease to a subsidiary of Occidental for 65,000 acres of pore space we control in Southeast Texas. This acreage has the potential to store at least 500 million metric tons of carbon dioxide, and we look forward to the opportunity to benefit from OXY's capabilities…

Thank you, Craig, and good morning, everyone. During the third quarter, we generated $82 million of operating cash flow and $75 million of net income. Before getting into our third quarter business segment results, I'd like to add a little color to the light at the end of the tunnel Craig mentioned earlier. With the new five-year revolving credit facility we executed in the third quarter of 2022, we increased our borrowing capacity from $100 million to $130 million and now have revolving credit available to us that does not mature until 2027. In addition to providing us with significant liquidity, this new credit facility enabled us to accelerate the full repayment of our 2025 senior notes earlier this week and will also allow us to accelerate the repayment of our preferred units. Moving to our business segment results. Our Mineral Rights segment generated $76 million of our operating cash flow and $72 million of our net income in the third quarter. When compared to the prior year quarter, segment free cash flow and net income improved $42 million and $36 million, respectively, primarily driven by stronger demand in pricing for metallurgical coal. Metallurgical coal made up 65% of our coal royalty revenues and 40% of our total coal royalty sales volumes during the third quarter of 2022. Moving to our Soda Ash business segment results. Net income in the third quarter of 2022 was $15 million. This was an $8 million improvement compared to the prior year quarter, primarily as a result of higher international sales prices. Free cash flow from our Soda Ash business segment in third quarter of 2022 improved $10 million as compared to the prior year period due to Sisecam Wyoming reinstating its regular quarterly cash distributions beginning in the fourth quarter of last year.…

[Operator Instructions] Your first question comes from the line of George Burmann, CL Securities. Your line is open.

Great. Thanks for taking my call. Congratulations to a very good quarter. I've got one quick question. Could you detail for us the exact terms of the preferred shares and what interest or dividend that you're paying on those and if they're convertible and at what price? Thank you.

Chris?

Sure. I'll take that. Yes, so we do have this disclosure of the terms of our preferred units in our filing. So if you want to see some more details of the terms of those preferred units, our 10-K or our quarterly filings would be a great place to check in the footnotes. But I can tell you, we have – they require – there's a 12% coupon, and there is no maturity date. They are perpetual. And they are preferred equity and the liquidation price is 1.85x, which decreases as we continue to pay preferred unit distributions. So as we are continuing to pay preferred unit distributions, that premium to redeem those units increases over time.

Okay. So the redemption price is reduced by the payments you make on those preferreds?

Exactly.

Okay. Then I have one quick question on Sisecam. I understand that the Turkish majority owner last year tried to acquire the rest of the company. Where do those negotiations stand? Or are you considering selling a position of that because it's a minority position?

This is Craig. I believe you're referring to the fact that Sisecam Resources, which is our partner in Sisecam Wyoming, is attempting to buy out the units that are held by the public of Sisecam Resources that it does not already own. They're trying to take the public entity private. That does not involve the Sisecam Wyoming entity that we own interest in. That's a transaction that's taking place between our – the various owners of our partner in Sisecam Wyoming, and we're not involved in that in any way.

Okay. So there is no worries about you being taken out.

No.

Okay. Great. Well, good luck for the future. I think we've got a long ways to go with the stock price appreciation after the 1-for-10 reverse split, but we're definitely going in the right direction.

Thank you very much for your support and your call.

Your next question comes from the line of Mark Zand. Your line is open.

Hi, Craig and hi, Chris. I'm sorry to ask, but sort of following up, can you just go over what the decrease of the premium is on the preferred, what the sort of the rate is? Like where do you wind up, let's say, in 2025? When do you get to par? I apologize for not remembering.

No. Sure thing. I'll take this one, and good morning, Mark. Thanks for the call. So right now, the premium is about 20%. And one way to look at it each time we pay a quarterly distribution, that premium drops about 3% each quarter.

So – and that's 12% per year. And if you're at 20%, does that mean that you're at par in one and three quarter years?

That sounds about right.

Yes.

Okay. And at some point, maybe you'd even pay the premium, I would think. Is that reasonable or not?

It's possible.

Yes. Okay. All right. That's great. And again, congratulations. Is there any sense on if you were to look at CO2 sequestration, can you put a dollar number at all on what you would get paid per ton of CO2 sequestered?

We do have provisions in the agreements that we have with our two lessees that specify what our payments would be, but we are under nondisclosure obligations with them, but I can frame it for you this way. We did a timber sequestration transaction where we sold credits last year in exchange for sequestering carbon and timber that we owned in Appalachia. We received about $13 per metric ton of CO2. And that's not a direct comparison of what one would expect to receive for sequestration subsurface because in that situation, the timber had already grown over the last multiple decades. It was in place. The buyer of the credits did not have to put any capital at work – to work in order to capture the CO2. So with subsurface CO2 sequestration, the parties that would pay us for the use of our pore space will have significant capital expenditures they will have to make. But I think – so it's going to be something much less than the market value of the credits that we would receive. But I would suspect that if you used a couple of dollars a ton, that's probably a good guesstimate at this time, simply because the industry is so new, and that's a relatively [indiscernible] number.

No, that makes sense. And then I didn't study the press release. But can you tell me what was that you got in terms of upfront payments or you expect to get?

Well, we're not allowed to – again, we're not allowed to disclose that because of confidentiality. Now the reality is in our press release and in our financials, you can go to our Mineral Rights revenue breakout. And we did aggregate our carbon-neutral initiatives income in the quarter and year-to-date. So you can see that there. But we can't tell you about specific contracts.

Okay. And then any kind of movement on coal leasing? Has there been any kind of sort of shifting of activity that you would think would lead to increase in production?

Kevin, do you want to answer that?

Sure, and thanks for the question. We have seen during the quarter the creation of a new lease in the metallurgical space. So we're seeing some movement there. But overall, you see the limitation still in place on ramping up production in both met and thermal impacted by labor force, access to capital and other. But we were successful in signing or modifying a lease in the met space during the quarter.

Okay. Thank you. Good to get caught up.

Thanks, Mark. Good to talk you each quarter.

Thank you.

[Operator Instructions] Mr. Burmann has asked another question.

Hello, can you hear me.

We hear you now.

Has there been any movement on the oil and gas? I saw you had some oil and gas royalty revenues there. Any of your properties possibly open for possibilities there?

We do have oil and gas royalties, as you can see from our financial statements. And they are a small part of our business with higher oil and natural gas prices that we have seen over the last 18 months. There has been increased drilling activity on the acreage that we hold. That is primarily in the Haynesville Shale of North Central Louisiana. Those wells tend to come on at fairly high rates of production and they quickly drop off. So it's not – there's no way to tell how much drilling is going to take place and how much new production is going to come on, but we have had a pickup in drilling and have had a pickup in cash flows here over the course of the last year.

Okay. Great. And then maybe one last question. Are you – would you contemplate maybe repurchasing some of your common shares?

I'm sorry, could you repeat that question, please?

Would you consider repurchasing some of the common shares in the market since the preferreds have a 20% premium still on them?

We are – as we've said previously, our long-term plan is to pay down all of the debt – outstanding debt of the partnership and then to pay down our preferreds. We don't intend to pay a premium on the preferreds. When you look at our cash-generating capability, it will still be sometime before we will have finished paying off the debt and the preferreds. And to buy back common units currently, while we still have debt outstanding would actually cause the leverage ratio of the company to increase, all things being equal, which is not the direction we're trying to go at the moment.

Thank you.

You bet. Thanks for your questions.

There are no further questions at this time. Craig Nunez, I turn the call back over to you.

Thank you, operator. Thanks, everyone, for joining us today. Thank you for the questions. Thanks for your support of NRP. We've been traveling a long road here in our delever and derisk strategy. And it looks as though we're coming to the end of the tunnel, as we said earlier. So thank you for being with us, and we look forward to working with you in the future. Have a good day, and talk to you next quarter.

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