Thank you. Good morning, and welcome to the Natural Resource Partners second quarter 2023 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 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 coal lessee or detailed market fundamentals. 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 $82 million of free cash flow in the second quarter and $308 million of free cash flow over the last year.

Our strong financial performance enabled us to make further progress toward our goal of retiring our long-term debt and preferred equity, which we believe will in turn maximize future free cash flow available for common unitholders. During the second quarter, we permanently retired $81 million of our 12% preferred equity increasing our total preferred equity retirement for the year to $128 million and lowering our outstanding balance of preferred equity to $122 million.

Following this redemption, our total obligations, which includes debt, preferred equity and warrants decreased over 10% since last earnings call down to about $385 million as of today. Moving to our Mineral Rights business.

While metallurgical coal prices declined during the second quarter and were well off the record levels seen in 2022, our Mineral Rights segment generated a solid $56 million of free cash flow during the quarter. We continue to believe that the supply-demand balance for met coal will remain well supported for the foreseeable future primarily due to long-term demand trends and the lack of investment in new met supply.

Thermal coal prices also weakened in the second quarter due to relatively mild winter weather and inventories at many coal-fired power stations increased significantly as a result. While we believe North American thermal coal will face near-term headwinds and continue its long-term secular decline.

We also believe underinvestment in new sources of thermal coal production will likely provide price support at levels that are relatively strong when compared to historical norms. We continue to see significant index price movement across the coal markets quarter-over-quarter and year-over-year, but believe the strides taken to delever and derisk our business over the years position us well to generate robust free cash flow despite market volatility.

Our soda ash investment in Sisecam Wyoming continues to be an important source of free cash flow generation as NRP receives $32 million in distributions this quarter from Sisecam Wyoming due to strong realized sales prices and early payment of the second quarter distribution normally received in the third quarter. Softening soda ash demand coupled with new capacity from China has recently caused a significant drop in spot prices, which is likely to weigh on results for Sisecam Wyoming in the second half of the year.

Despite these near-term pricing pressures, we believe the long-term fundamentals of the soda ash industry remain favorable. Sisecam Wyoming is well-positioned with its low cost of production and strong balance sheet.

Turning to our carbon-neutral initiatives. We remain focused on exploring opportunities to expand our carbon-neutral portfolio with the goal of monetizing our assets through lease transactions for permanent underground CO2 sequestration, forest sequestration and the generation of electricity using geothermal wind and solar energy.

Additionally, we continue to evaluate other potential opportunities in the carbon-neutral space which may include soil and grassland sequestration, lithium production and methane destruction credits. We believe our potential long-term future cash flows related to carbon-neutral initiatives could be significant all while requiring no capital investment by NRP.

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 $81 million of operating cash flow and $70 million of net income.

Our Mineral Rights segment generated operating cash flow of $55 million, free cash flow of $56 million and net income of $53 million in the second quarter of 2023. When compared to the prior year quarter, segment net income and free cash flow decreased $17 million and $15 million respectively, primarily due to the lower metallurgical sales prices.

Although metallurgical pricing has declined over the past year, it remains relatively strong compared to historic norms. And we believe the many challenges operators face to increase production and sales that include transportation and logistics, labor and limited access to capital should provide ongoing price support.

In regard to our met thermal coal royalty revenue mix, metallurgical coal made up 70% of our coal royalty revenues and 55% of our coal royalty sales volumes for the second quarter of 2023. Moving to our Soda Ash business segment.

Net income in the second quarter of 2023 was $27 million as compared to $15 million in the prior year period. This $12 million increase was primarily driven by strong soda ash demand and higher sales prices.

Free cash flow from our Soda Ash business segment, in the second quarter of 2023, increased $22 million as compared to the prior year period. This increase was due to two main factors: the timing of distributions received from Sisecam Wyoming and the improved operating performance driven by higher sales prices.

Regarding the timing, during the second quarter of this year, we received an $11 million quarterly distribution related to the first quarter performance and a $21 million distribution related to the second quarter's performance. In the past, we received quarterly distributions from Sisecam Wyoming approximately two months following the end of each quarter.

Shifting to our Corporate and Financing segment. Costs for the second quarter of 2023 were $9 million compared to $17 million in the prior year period.

This $8 million cost decrease was primarily due to lower interest expense in 2023 from our continued deleveraging and having less debt outstanding. In addition to this cost decrease, our Corporate and Financing segment free cash flow in the second quarter of 2023 improved $12 million as compared to the prior year period as a result of less cash paid for interest.

In addition to debt repayment, we continue to make progress on the redemption of our preferred equity. As Craig mentioned, in the second quarter, we're able to permanently retire an additional $81 million of our preferred units at par with cash, bringing our total preferred unit redemptions to $128 million and lowering the outstanding amount of preferred units to $122 million.

We will save over $15 million annually in preferred unit distributions with these redemptions. Finally, regarding our quarterly distributions, in May of this year, we paid a first quarter distribution of $0.75 per common unit and $6.1 million cash distribution to our preferred unitholders.

And this morning, we announced the second quarter distribution of $0.75 per common unit and $3.65 million cash distribution to our preferred unitholders. With that, I'll turn the call back over to our operator for questions.

Yes. I saw there was a decrease in production in the Illinois Basin.

I just -- could you give a little color on that?

Sure. We'd be happy to.

And what happened there in the Illinois Basin was there was a -- as a part of the mine plan, there was -- they were temporarily off of our coal and part of their mine plan as they go on and back off of our coal. And just during that period they were temporarily off of our coal for that period which -- and it's not uncommon.

Great. Thank you.

Yes. Thanks for taking my question.

I just had -- I was curious about the -- I know I've seen this before and I actually think I've asked about it. But could you kind of explain the non -- I believe it's a non-cash charge related to the paydown of the preferred securities.

I was just wondering if you could give us a little bit of explanation for that.

Sure. This is Chris.

Happy to do that. Yes.

Yes absolutely. And what's happening there is that's the difference between the par value that we're paying for the preferred units and the book value that we have them -- when we recorded them back in 2017.

And when we entered into the preferred units, there were also warrants associated with those preferred units. And so the $250 million we received back in 2017 on our balance sheet that $250 million is allocated to both the preferred units and the warrants.

And so, when we redeem our preferred units the amount of cash we pay is more than the book value that is being taken off and that was allocated to those preferred units. So there's no impact to the income statement.

It's on the balance sheet. And there is an impact to the earnings per unit that's calculated and allocated to the common unitholders.

Okay. Great.

That makes sense. So what are the priorities?

Obviously this has just been a tremendous paydown of diluted securities over the past couple of years. It looks like it's going to leave a tremendous amount of ability to pay distributions and not all that long from now.

What are the priorities for paying that down? Is anything changing?

I think you surprised me a little bit with the magnitude of the paydown of preferred securities this year. I think it went above 33%.

So how is that -- what's the thinking there for the next six months or maybe even beyond that?

This is Craig. Good question.

We intend to continue to pay down our preferred and debt as rapidly as we can to the extent we can borrow on our credit revolver at a lower cost than the 12% on the preferreds and to the extent that we can have the preferred holders waive the make-whole premium, which is called a MOIC, M-O-I-C, so that we're able to buy those bonds back at par. If we can replace 12% obligations with something more like 7% or 8% obligations, we're going to do that as much as we can and then immediately begin paying down the revolver with cash that we generate as well.

And our goal is to pay down the preferreds, the bank revolver and then of course continue paying down our private placement notes, which are on an amortization schedule and also by the time they settle in first quarter of 2025, settle our warrants that are outstanding. We're going to want to get rid of all of those obligations as soon as we possibly can.

Great. Yeah, I think that's what's kind of remarkable about this is how rapidly that's been able to occur.

Do you know what the M-O-I-C is now?

Yeah I do. It's in -- it's roughly -- Chris I think it's around 10% or so.

Is it right now?

That's correct.

Is it 10%? Something like that?

No, that's correct Craig.

Yes. It's enough.

It's just enough right now that you don't want to -- it's not attractive to borrow on the credit facility to pay them back now. The implied return that you receive on paying a premium over par is just not attractive yet.

But that MOIC goes down each time we make a preferred distribution. And so by the time we get to first quarter of next year or second quarter of next year, it will be such that the MOIC is nonexistent anymore.

So when you buy it -- when you buy off the preferreds, you get to 12% implied return essentially guaranteed return even if the preferred holders do not waive the MOIC. There's no need for them to because it doesn't exist anymore.

Great. Okay.

Well, I think me and I think many of the unitholders are very happy with the strategy you guys have done and we see it as creating a tremendous amount of value for the unitholders. So please keep it up and thanks for doing a great job.

Well, those are kind words. Really appreciate it.

I think that there needs to be equal thanks that go back to our unitholders. We don't have a lot of turnover, so most of our unitholders have been with us a long time.

And you all know that this has been a very long-term strategy. This has been going on since 2015 where we turned over a -- turned to a new page in our book.

And we have been steadfast resolute in this strategy. We do believe that given the commodity exposures that we have in our business, given the fact that we are nonoperators in the assets we have so we have limited levers that we can pull to enhance performance, et cetera.

And given the pressures that face capital sourcing for fossil fuels in general, but in particular companies that have large exposures to thermal and/or met coal, we think this is the most prudent approach. We derisk, delever the balance sheet and then we have commodity price exposure and we have volume exposure.

And we think that in that situation, we're going to receive the best valuation in the market. We also think we'll have the most stability of free cash flow that we possibly can.

And all the free cash flow will essentially be attributable to common unitholders and available for common unitholder purposes. So thanks for the kind words but also thank you to all on this call that have been with us and patient with us all these years.

Great. Thanks.

Can you hear me? Hello, can you hear me?

This is actually Andrew Shirley [ph]. Thanks for taking the question.

If you pay down your entire preferred and have less than 1x leverage, I mean is there any reason why you can't reinstate a more full payout ratio in the first half of 2024 prior to taking debt down to zero?

There's no legal reason. There's no contractual reason that we could not do that, but that is not our strategy.

Our strategy is to eliminate all of these obligations we have the preferreds, the debt and settle our warrants before such time as we begin to raise the distributions or look at consider raising the distributions. And the reason for that is that we have learned firsthand that it would be imprudent for a company such as ours with our business profile to rely at all on sourcing capital from banks or from capital markets to fund our business in the future.

So when you can no longer rely on rolling forward or refinancing your credit obligations, you have to assume that you operate with no permanent debt in your capital structure. So we want to clean everything up, stay on the same path we've been on now for quite a while.

And once we have the capital structure fully clean, then we will evaluate capital deployment strategies. It's not going to be too long in the grand scheme of things, we see light at the end of the tunnel.

But early 2024, is too soon. Because remember even when we take out those preferreds, we're simply switching the obligation from preferred units to debt.

So that's our philosophy. And when we look at it, we think in the long run on a risk-adjusted basis this is going to maximize value for common unitholders.

Okay. Fair enough.

And I mean I guess I assume that over the next couple of quarters the preferred -- the remaining balance of the preferred could get taken out by free cash flow even after the distribution you're already paying. But I don't mean to split hairs on that so that there wouldn't be any incremental debt.

But just a question on the warrants. Is there any mechanism to settle the warrants and -- or even at the expiration of the warrants?

How do you expect to settle those warrants?

Well, the warrants are basically -- the fate of the warrant is in large part in the hands of the warrant holders. They get to choose when they want to exercise.

Now, once they make that election then we have a choice of how to settle those warrants. We can either settle them by delivering them units or we can settle them by paying them the value of the in-the-money options of those units.

So to the extent the market price of the unit is higher than the exercise price of the warrants we can pay that differential in cash, if we want to. If we -- and so our decision on that will be -- when we are given a notice to exercise warrants by the warrant holders, our decision on that will be to determine number one, do we have the liquidity to pay in cash versus issuing units; and number two what do we believe the intrinsic value of the units are?

And is the intrinsic value of the unit materially higher than what the market value of the unit is? And if it is, then we would want to settle in cash as well.

So if the units are less than the intrinsic value in our view and if we have the liquidity, we'll settle in cash. If both of those items are not satisfied then we would settle by issuing units.

Just for frame of reference, we did have an exercise of one tranche of units back in 2021 end of 2021. We chose to settle those units with the payment of cash.

Okay. One last question.

Thank you for that detail. If I -- regarding your CO2 efforts, you signed a couple of agreements and had some upfront payments I think.

And is there a time when you expect that you have visibility to receive recurring revenue from those CO2 deals?

In theory, there will be. This is a great question.

It's one that I don't think anyone can answer, not just anyone in our team, but anyone in the industry. This is our view.

These -- if the CO2 sequestration business develops, as a business, globally, if it becomes a functioning viable business that has many players that are emitters that are capturing their emissions. It has developers that are capturing emissions of others and then being paid a fee to handle transport and then sequester the CO2 underground.

If that happens, if the industry truly develops which will take years to do, I would guess, three, four, five or more years to develop if they develop, we believe that these two projects that we have with Oxy and with Denbury which is now Denbury Exxon we believe these projects will reach a point in time when there will be visibility and actually very predictable income from that could be quite material. But there's -- it's a bit of a conditional probability as to whether we'll receive that type of income, because the first thing that has to happen is, the industry has to develop.

Now, I do know that from what's been announced publicly that both Exxon and Oxy are -- or excuse me, Denbury and Oxy are both aggressively moving forward with their build-out of their CO2 sequestration activities. And they are active on our projects.

But it's -- we really have to see the industry evolve, in order for these projects. And what I think will be other projects on the other 3.3 million acres we own of CO2 sequestration acreage in the Gulf Coast.

I call these, -- some of our call options on greatness. They cost us nothing to maintain.

We actually get paid a nice small, -- a small, but nice amounts of money by the operators to keep these leases. And if the industry doesn't play out then they may not play out either.

But if the industry plays out, they could be quite significant to the company to NRP and it could be great. So there are call options on greatness that are currently out of the money if you -- if that analogy resonates with you.

It does. Thank you.

And I noticed as you point out there that Denbury and Oxy as a percent of your acreage, it's a very small percentage. And are those potentially just the tip of the iceberg, or are those the best locations and therefore the lowest-hanging fruit, or could it be again...

So I would say that, those are two of our better locations, but we have a number of others, like it. And the tip of the iceberg question is interesting because, if the industry takes off, when you look at our acreage that we have.

And you can look on a map on our website. And you can see the acreage we have it's all in the places that you want acreage to be.

It has the right geology. It has the right geographic location meaning, it's close to emission sources.

And when you combine that with the legal ownership we have which means that, in every state in the United States it is unclear it's ambiguous as to what property owner has the right to grant to a lessee, the right to store CO2 in the subsurface. There's questions as to whether it's the mineral rights owner, maybe it's the water rights owner and then -- or maybe it's the surface owner.

And in most places, there are not large contiguous tracks of acreage. When I say large, I mean, thousands of acres square -- excuse me thousands of square -- I mean hundreds of square miles or tens of square miles.

There's very few places where there are large contiguous tracks of acreage that are owned in fee, which means the owner owns all the rights from surface to the center of the earth. And therefore clearly is the one with the right to do it.

Our 3.5 million acres where we have the sequestration right, is rather unique, because in our deeds we have the specific right to sequester in the subsurface and to use the surface that is necessary to exercise those subsurface rights, which means that for example, an operator, and we've had this happen already twice, is able to achieve with the stroke -- single stroke of the pen, close to 100 square miles of contiguous acreage where they have both the absolute right to sequester the carbon. So, we think that if this industry as a whole develops and moves forward -- as perhaps Exxon may think it does, because of these large investments they've been making in carbon neutral initiatives as Oxy apparently feels they do because of all the investments, they're making and then Denbury as well.

If the industry develops, we think that more and more of our acreage is going to become attractive and will be likely sources of sequestration of CO2. But there's a lot of ifs in there that we're unable to predict and frankly, the developers who are putting all the capital out, are unable to predict right now.

But it is -- we are well positioned if in fact and we're unique, in the nature of our ownership. We are well positioned and unique, if this industry develops.

So we're watching it and cheering everybody on and hoping that it moves in the money.

And very lastly, on the Denbury and Oxy deals, I'm sure you guys have kind of penciled back of the envelope what it maybe could be, if it gets going in a couple of years out. I mean what amount of dollars, are you thinking even if it's a wide range those deals might generate in terms of terms of what…

We have done that, but I'd say, it's a lot more than penciled it in, before we did it. I -- we just can't -- I can't give you that guidance.

We're just not going to step out on that limb. My lawyer would kick me in the shin, if I did it, but it is material.

Okay. Thank you very much.

You bet. Good questions.

Thank you very much. Really, I want to express again, what we talked about earlier here.

Thank you to all of you, who have been with us for a long time. We've been through some difficult times.

We're not completely at the -- out of the tunnel, that we entered into eight-plus years ago, but we see light at the end of the tunnel. And we are looking forward to achieving all the goals we set out to achieve, what seems like a long time ago now.

Appreciate everyone's support. Appreciate your participation in the call, your questions and look forward to continuing to do business, with you in the future.

So thank you, everyone and talk to you next quarter.