Thank you. Good morning and welcome to the Natural Resource Partners' second 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 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 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 $64 million of free cash flow in the second quarter, which when combined with the $52 million generated in Q1 resulted in the best start to a year in the history of the partnership.

Performance over the last 12 months has been equally impressive with our business generating $202 million of free cash flow. While inflationary pressures, weakening demand in China, the war in Ukraine, and slowing global economic growth, pose increasing risks to our business, we believe the supply/demand balance for met coal, thermal coal, and soda ash will remain well-supported relative to historical norms for the foreseeable future.

We expect continued strong performance for the partnership in the second half of the year. In line with our long-term strategy, we are taking advantage of this opportunity to make significant progress toward our goal of becoming debt-free and redeeming our preferred stock, which will in turn maximize future free cash flow available for common unitholders.

With the retirement of $118 million of debt in the second quarter, our leverage ratio ended Q2 at 1.2 times, a dramatic improvement from 4.6 times just 12 months ago. We remain committed to de-levering and de-risking the partnership in the month ahead and have already retired an additional $39 million of debt so far in the third quarter.

Metallurgical coal prices remain high by historical standards and had been quite volatile in recent months, with benchmark prices down from record highs said earlier in the year. Slower global economic growth and falling demand for steel, particularly from China, are the key drivers behind the decline.

With trade flow disruptions from the war in Ukraine and the ongoing Chinese import ban of Australian coals injecting additional uncertainty and volatility in the global markets. After years of underinvestment in new capacity, met producers continue to have difficulty bringing additional supplies online to replace material operations.

And historically, high thermal coal prices are pulling lower quality met coal into the thermal market, providing additional support to met coal pricing. We believe the supply/demand balance for met coal will remain well supported for the foreseeable future, albeit with continued price volatility.

Thermal coal markets continue to benefit from strong electric power demand and constrained growth in thermal coal supplies. Operators continue to struggle with labor shortages, supply chain disruptions, logistical challenges, and pressure from governments, regulators, activists, and financial institutions, limiting their ability to increase thermal production to meet demand.

The war in Ukraine and boycott of Russian coal exports are forcing European buyers to source coal from other regions, providing further support for U.S. thermal producers.

We expect these factors to keep thermal prices and demand elevated for the foreseeable future. Our investment in Sisecam Wyoming continues to benefit from historically high export soda ash prices.

Though global soda ash demand has weakened modestly over the last month in response to slowing global economic growth, the industry remains supply constrained due to primarily to lingering COVID effects in China, a force majeure event at a competitor in Green River, Wyoming, and ongoing delays with shipping and logistics. Higher soda ash prices have more than offset cost inflation, resulting in higher margins and cash flow.

We continue to believe the long-term outlook for Sisecam remains favorable, given secular trends of renewable energy, the electrification of the global auto fleet, and urbanization. We continue working to identify opportunities on our large acreage footprint to capitalize on the transitional energy economy.

As you'll recall, we announced our first forest CO2 sequestration transaction in the fourth quarter of last year, and our first subsurface CO2 sequestration lease in the first quarter of this year. Consistent with our royalty business model, we anticipate little to no capital investment will be required of NRP related to these opportunities.

And with that, I'll turn the call over to Chris to cover our financial results.

Thank you, Craig and good morning, everyone. During the second quarter, we generated $63 million of operating cash flow and $67 million of net income.

Our Mineral Rights segment generated $70 million of our operating cash flow and $69 million of our net income in the second quarter. When compared to the prior quarter segment, free cash flow and net income improved $39 million and $4 million respectively, primarily driven by stronger demand and pricing for metallurgical coal, which made up approximately 45% of our total coal royalty sales volumes and 75% of our coal royalty revenues during the second quarter 2022.

Moving to our Soda Ash business segment, net income in the second quarter of 2022 was $15 million. This was a $12 million improvement compared to the prior year quarter, primarily driven by higher international sales prices.

Free cash flow from our Soda Ash business segment in the second quarter 2023 improve $10 million as compared to the prior year period due to Sisecam, Wyoming, reinstating its regularly -- its regular quarterly cash distributions beginning in the fourth quarter of 2021. Shifting to our Corporate and Financing segment, during the second quarter, we used free cash flow that had been generated from our Mineral Rights and Soda Ash business segments to retire early 118 million of our 9.125% bonds to 2025 at a weighted average price of 102.275%, a discount to the current redemption price of $104.563%.

So far, in the third quarter of 2022, we've retired an additional 39 million of the bonds, resulting in total redemptions of 157 million of these bonds, which will save us approximately $14 million in annual interest savings. We plan to strategically take advantage of our strong free cash flow generation to continue de-leveraging and de-risking the partnership.

Our Corporate and Financing segment costs for the second quarter 2022 increased $4 million as compared to the prior quarter, primarily due to costs associated with early extinguishment of debt. This increase was partially offset by lower interest expense as a result of less debt outstanding compared to the prior quarter.

Corporate and Financing segment free cash flow improved $1 million as compared to the prior year quarter, primarily due to lower cash paid for interest because of less debt we had outstanding. Regarding distributions, in May of 2022, the partnership paid a quarterly cash distribution of $0.75 per common unit and a quarterly cash distribution of $7.5 million to our preferred unit holders.

And today, we announced distributions of $0.75 for common unit and $7.5 million of cash to our preferred unitholders to be paid later this month. And with that, I'll turn the call back over to the operator for questions.

Hi, guys, this is Amer. Good morning Craig and Chris.

Great quarter. My question is, how should we think about the balance sheet?

You guys are paying down debt aggressively, is it now pretty much set in stone that you want to get rid of debt and basically have an equity capitalization?

Good morning and thanks for your question. First of all, I would say -- this is Craig, I'd say nothing is set in stone, per se, but we are -- we see no change to the strategy that we've had now for going on five years, we've been quite clear on that.

We're going to use our internally generated cash flow really for three things. Number one, we attempt to provide distributions to our unitholders that are sufficient to cover their tax liabilities and that result from the taxable income generated at the partnership.

But then, we want to use the remainder of our free cash generated to pay down debt. And then at some point, we're going to start tackling the preferred as well.

In this environment, in the trends that we see with respect to capital availability for companies that have exposure to fossil fuels, such as us, we do not want to be relying in the future on the capital markets or -- for funding. And so we want to eliminate those refinancing risks.

We also believe that by deploying excess cash to pay-off the bonds and to pay-off preferred, we are essentially earning a risk-free return on our money that ranges from 9% to 12% based on the stated coupon rates on those securities. So, for the foreseeable future, that is our objective is continue to make sure our unitholders receive a distribution that provides for their tax liabilities at a minimum, and then we're going to still aggressively pay down debt and eventually tackle the preferreds.

And the goal being that we will be a debt-free and preferred-free company at a point down the road, at which point, we believe that there will be significant additional cash available for common unitholders.

That's great. My second question is regarding carbon sequestration.

I know you've received -- if I'm correct, $14 million so far. Are there any additional payments that you expect?

Or was that a one-time deal for now? And you'll see how it goes and whatever cash flow generation occurs maybe in the foreseeable future from it?

I'm sorry, I didn't quite understand. What were you asking about?

Carbon sequestration?

So, we have -- we've done two carbon sequestration transactions to-date. The first was a transaction where we agreed to sequester carbon in some forest lands that we own in West Virginia, for which we received just about $14 million last fall.

And so that was a one-time transaction with respect to the $14 million. And however, that forest that we have will continue to grow and mature.

We do expect that over time, we will have the opportunity to sequester -- agree with counterparties to sequester more carbon on that forest land, and we will be able to receive additional income in the future. But that -- as the forest grows and sequesters more CO2, however, we don't expect to receive payments on -- in the range of the $14 million that we received before probably payments that are considerably less than that maybe 5% or 10% of that on an annual basis.

But that is dependent of course on the development of the carbon markets and the prices for carbon credits that are -- they're quite volatile.

Got it. I understand.

Thank you very much. That's all I have.

Thanks for your questions.

Craig and hello, Chris. Could you -- just going back to Amer's question about sort of the sequence of tackling the preferred, excuse me, retiring the debt and tackling the preferred, in your mind, does all of the debt have to be gone before you tackle the preferred?

And then in order to tackle the preferred, is it simply calling it or is there some other option? And what's the current call price on the preferred?

Sure, I'll take -- this is Craig, I'll take a stab at it and then let Chris chime in as well. By the way, good to hear from you.

So, we have stated for years now that our goal was to pay our debt to zero, then hit the preferreds. But we've also pointed out that there could come a point in time when our leverage becomes so low, that it might make sense to go tackle the preferred because the preferreds have a 12% coupon and our Parentco bonds, for example, have only a 9.125% coupon.

So, we are we are continually evaluating whether to tackle the preferreds or today [ph] or whether to buy bonds. So, every time we make a decision to buy a bond back, we were comparing that to buying the preferreds.

And that relates to the second question you asked, which -- the follow-on part, which was what is the cost of buying the preferred now and that's an important factor in our decision. There is a redemption premium, is one way to think of it, associated with the preferreds.

And just like there's a call premium associated with calling bonds, there's a redemption period premium with the preferreds. And it's quite sizable, at present.

Currently, today, it's about 20%. So, if we were to buy back the -- we were to redeem the preferreds by providing notice to the preferred holders that we wanted to redeem a portion of their preferreds, they would be required to sell it back to us.

But we'd have to pay them the par amount plus about 20% premium on top of that. And so when you compare that to the market value of our Parentco bonds, as an example, or the call premium of our Parentco bonds, say in -- at the end of October, when it drops down to 102.5, I believe it is, and you do the math, it actually is more attractive at this point in time to buy down bonds, than it is preferreds just from a mathematical standpoint.

Additionally, you have the qualitative benefit that bonds can default if your business turns out and you'll be in a default, and it can put you -- it can undermine your business. Our preferreds have no events of default in the middle.

So, they are true equity securities and they give us tremendous flexibility, we can just stop paying those distributions on the preferreds if we have to. Now, we certainly, at this point in our life evolution, we don't envision being in that type of a situation, but there's a qualitative benefit to having them as well.

Now, that redemption premium on the preferreds drops over time. Every quarter, when we make a distribution to the preferred unitholders, it gets credited against that redemption premium.

So, each quarter that 20% -- what is now 20% premium will drop and this next quarter, I believe it drops to perhaps 17%, and the quarter after that, it will drop a little bit further. So, there's a point at which you come in the not-too-distant future where there's a crossover, as I like to call it, where it actually does get economically more attractive or at least as attractive to buyback the preferred as the Parentco bond.

And then the real key is the qualitative factors that you have to weigh is whether you want to retire back a debt instrument or whether you want to retire as events the default or whether you want to buyback a preferred, which gives you significant equity flexibility. And then as far as the mechanics that you asked with the preferreds it is -- is simply providing them a notice that we plan to redeem portions of their preferreds.

There are minimum amounts we have to redeem, I believe it's $25 million increments, all that's in our -- in the documents that are filed as record in our filings. But it's a pretty straightforward simple process.

We've not redeemed any preferreds yet, except for pick amounts that we had picked in earlier years that we later retained, but it's pretty straightforward. Chris, do you have anything to add on that?

No, I think you hit all the high notes on the preferreds. I think the only other thing just to answer your questions, Mark, on our bonds.

The current redemption price on our bonds is 104.563% at par. And as Craig alluded to that call premium drops in half at the end of October this year to 102.28% at par.

Okay, no, that's -- thank you. Just to kind of make it as simple as possible as a 12%.

preferred dividend, would it be accurate then that each quarter the redemption price drops by 3%?

That -- I think this is decent rule of thumb, yes.

Okay, good enough for my purposes. I guess curious if there's anything -- can you pay any more than $0.75 on the common given the -- whatever limitations are in the preferred and the bonds or any other limitations?

At the current time, our leverage ratios and all of the credit metrics and statistics that we have to satisfy in order to have flexibility with distributions under the preferred documents have been -- are being met. So, we don't have limitations per se on what we can pay out in distributions, Chris?

Any other comments on that?

That's exactly right.

Okay, well, good. Good.

Can you just make any comments on the sort of the underlying business in terms of leasing activity? Are you -- is there anything going on or is pretty much everything lease, then you're just sort of waiting for people to produce?

Is anything being turned over, anything being turned back? Can you just give us any color on that?

Sure. And I think when you -- I think Mark, your question is primarily directed to the coal space and--

Yes, of course.

It's interesting, but I have a comment outside the coal space regarding this question I'd like to make, too. But with regard to coal leases, no, we really don't have any new leases being put in place.

We have a lot of lease amendments that are always going on with so many assets that we have, so many properties, so many lessees, there's always amendments that you're making the leases, and you may put a new lease and to replace that one, et cetera. But we're not seeing any -- we don't have any company coming to us and saying, hey, we want to put in a new coal mine.

And I think that's insightful because unlike operators, we've told you in the past, we really don't have as much insight into the markets and the trials and tribulations of the actual coal mining operation, because we're just the lessor. But since we have such a broad -- I'd say massive footprint in the coal space with our acreage, and such a view of a breadth of operators just across that the whole coal patch, we are able to see that the practical effect -- impact of the difficulty operators are having getting people and sourcing capital.

We're just not seeing based on the activity -- the lack of new activity on our acreage, we're just not seeing that there's new supply coming on to meet the demand and the higher prices that we've seen over this last year. And that is something that is different from every other cycle in the past.

And until operators are able to source capital -- we hear this from all of our lessees, until they're able to get new capital to expand new mines. And in some cases, when they have the capital because maybe they've gone through bankruptcy or they've run their business very well and they have no leverage to speak of, and they're generating a lot of free cash flow.

A lot of times those are public companies and they have their public investors tell them we don't want to putting in in new capacity. So, we're not seeing new supply coming on online.

I do want to say though, with respect to this question on our carbon neutral initiatives, we are seeing significant amount of activity with multiple numerous developers would want to be developers for CO2 sequestration subsurface. We are having significant discussions with counterparties regarding our acreage footprint on that regard, and we hope to duplicate the transaction that we announced earlier this year with Denbury in the future with others.

But this is a -- that's a whole new world's brand new environment. The Denbury deal was probably the first of its kind ever, but certainly one of the first of the CO2 sequestration transactions of any scale -- of that type of scale.

So, that's my comments. Kevin, do you have anything to add on the coal leasing -- and?

No, Craig, I think you covered that very well.

All right. Can you remind me Craig, when -- I don't remember, when do you expect to get money from Denbury?

Well, we've not -- we were under agreement not to disclose the terms of that. So, I'd prefer not to.

So, we're not allowed to tell you about the early payments we received, et cetera. I will say, though, that it's fair to say that the development of that nature will likely take anywhere from three to five years before you will have what I will call first production -- first injection.

So, you start receiving monies from injection. There are, of course, bonus payments and rental payments that we receive before production, but -- so I don't want to get into the details of that.

That's fine. Thanks.

And just--

I think it's fair to say to give you clarity on that, I would say you want to assume you got to look out five years before you start -- before the potential for what I will call, I don't know, if material is the right word, or significant potential cash flows is the right word. But it--

All good. I assume that you're not contemplating doing any more deals, where you basically finance infrastructure, is that correct?

That's correct.

Craig, it's good to get caught up. Thanks very much.

Thank you, Mark. Take care.

Thank you, operator. And I'd like to thank everyone for participating in the call today.

It's -- we're firing on all cylinders, right now. It's a good time in the business.

Everyone in the sector is in coal sector and the soda ash space is doing well now. Rising tide has lifted all boats.

So, it's a nice time to be invested in NRP. But I do want to thank all of you that have been with us for quite a while, it's been a significant journey here over the last seven years that we've had together and a number of you that are on this call and that we'll be reading the transcripts later, I know have been stakeholders in NRP throughout that entire time and you've re-upped at times when you've had the opportunity to do so.

I'm glad to see that things are paying off for you now, and I hope that you will continue to stick with us and -- because I do think the future is bright for NRP. And I think we are very well-positioned for whatever comes next with the evolution of the global economy and the transitional energy economy.

So, with that, thank you and look forward to speaking with everyone next quarter. Thank you, operator.