Kathy Roberts - Vice President of Investor Relations. Craig Nunez - President and Chief Operating Officer Chris Zolas - Chief Financial Officer Kevin Craig - Executive Vice President of our Coal Division Perry Donahoo - CEO of Construction Aggregates

Mark Levin - Seaport Global Paul Forward - Stifel

Thank you, Teresa. Good morning, everyone, and welcome to Natural Resource Partners’ Third Quarter 2017 Conference Call.

Today's call is being webcast and a replay will be available on our website for seven days. Joining me today are Craig Nunez, President and Chief Operating Officer; Chris Zolas, Chief Financial Officer; Kevin Craig, Executive Vice President of our Coal Division; and Perry Donahoo, CEO of our Construction Aggregates business.

Some of our comments today may include forward-looking statements reflecting NRP's views about future events. These matters involve risk 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 for the year ended December 31, 2016, and other SEC filings. We undertake no obligation to revise or update publicly any forward-looking statements for any reasons.

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 2017 press release, which can be found on our website.

I would also like to remind everyone that we do not intend to discuss the operations or outlook for any particular co-lessee or discuss pricing or sales with respect to our construction aggregates operations. 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, Kathy, and welcome everyone to our quarterly call. Let me begin by saying that in 2015 we made a very difficult decision to reduce our common unit distribution and we said at that time that we will work hard to pay down debt, extend near-term debt maturities and improve our liquidity.

Since that time, we have reduced our debt by $617 million and lowered our debt to EBITDA ratio from a peak of 5.3 times to 3.8 times. We have extended our 2018 debt maturities out to 2020 and 2022, and our current liquidity is strong as we have more than sufficient cash and available borrowing capacity to comfortably manage the working capital needs of our business.

We have accomplished all of this while paying a distribution of $1.80 per unit, per year, and we currently have a distribution coverage ratio of 5.3 times. In other words, we have done what we said what we were going to do.

While we have made significant progress today, we still have more work ahead of us. We intend to continue strengthening our balance sheet and maintain sufficient liquidity to provide a margin of safety for prudent business operations.

Our goal is to achieve a leverage ratio over time, defined as debt to EBITDA of less than 3 times, while maintaining minimum liquidity of $100 million, which may consist of a combination of cash and/or available borrowing capacity. As for our current operating performance, NRP continues to generate substantial amounts of cash.

Distributable cash flow over the 12 months ended September 30 was $118 million, which equates the 39% of our equity market cap at yesterday's closing price of just under $25 per unit. We also generated $223 million of EBITDA over the last 12 months, which equates to 16% of total enterprise value; or said other way, we’re currently trading at an enterprise value of the EBITDA multiple of less than 6.3 times.

Our coal segment consists of royalty interest in long-life mines with over 1.7 billion tons of reserves across three producing basins with a reserves to production ratio of more than 50 years. Royalty payments are among the highest priority expenses for coal operators, as evidenced by our ability to collect essentially all receivables throughout the recent industry downturn.

Our royalty arrangements provide us with downside protection in the form of minimum payments plus upside exposure to price and volume. Our coal segment continues to benefit from higher metrological prices in Appalachia, which have pulled back from the peaks reached earlier this year but have stabilized at levels above those experience in the recent downturn.

Approximately 60% of our coal royalty revenue in the third quarter was from meteorological coal. Based on production levels and net pricing in the third quarter, we estimate that every $10 increase in the seaborne coal price would result in a $2.5 million increase in NRP annual revenue and cash flow.

It’s also worth noting that the regulatory environment or our coal is improving as well, as the Trump administration works to roll back regulations on coal producers and power generators, including efforts to refill the claim power plant. Our soda ash investment in Ciner Wyoming provides NRP and ownership interest in one of the lowest-cost trona mining and soda ash refining operations in the world.

This investment continues to pay divided and is well position to remain one of the world’s leadings producers of soda ash for decades to come. During the third quarter of 2017, we realized international prices for soda ash particularly in Asia and modestly higher domestic prices compared to last year.

Construction aggregates, the smallest of our three divisions, consist of four separate operations from Louisiana to West Virginia that have long-life reserves and leading positions in the local markets they serve. We have realized solid performance at the Louisiana sand and gravel operations and the Tennessee paving and marine terminal businesses this year.

These operations have offset lower demand for our products from Appalachian E&P customer and decreased construction activity at the Fort Campbell army base in Clarksville, Tennessee. With those opening remarks, I will now turn it over to Chris to review the financial performance.

Chris?

Thank you, Craig, and good morning, everyone. Before jumping into our results, I would like to point out that while we continue to adjust certain GAAP numbers for comparative purposes, there are few other of these adjusting items as we move further way from our Q1 recapitalization transaction.

Please refer to our press release for complete list and reconciliation of these adjustments. With that, let's review our results.

Our third quarter results substantially improved compared to prior year levels. We generated Q3 net income of $26.1 million and net income attributable to common unitholders and a general partner of $18.4 million.

Including the effect of the adjustments, our net income attributable to common unitholders and a general partner compared to Q3 of 2016 increased $4.3 million or 31%. This improvement was primarily driven by the strength in coal environment, increased production in profit from our construction aggregates business and lower interest expense.

In addition, we generate $58.1 million of adjusted EBITDA and $28.9 million DCF during the third quarter. Excluding the impact cash proceeds from asset sales and timing differences on interest payments as a result of our Q1 recapitalization transactions, DCF increased 16% compared to Q3 of 2016.

In comparison of the prior quarter our results remains essentially flat, which reflects the steady performances from our coal royalty, soda ash and aggregate businesses in 2017. Basic and diluted earnings for the quarter were $1.48 per common unit and $1.07 per common unit respectively.

I would like to point out that the diluted earnings per unit assumes the immediate conversion of NRP’s preferred units into common units and the net settlement of the warrants in common units. However, we have the ability to redeem the preferred units in cash and to net settle the warrants for cash.

Next I would like to review the Q3 results for each of our business segments and the key drivers of our performance. Beginning with our coal royalty segment, operating income for the quarter was $38 million, adjusted EBITDA was $43.3 million and DCF was $44.8 million.

Including the effect of the adjustments, operating income increased 26% compared Q3 of 2016. In addition, DCF increased 26% and adjusted EBITDA increased 6% compared to Q3 of 2016, excluding the impact from asset sales.

These results were driven primarily by the improved market for metallurgical coal compared to Q3 of 2016, evidenced by 17% increase in production from our properties in Appalachian and a 45% to 65% increase in our royalty revenue per ton in this region. However, this improved performance from our properties in Appalachian compared to Q3 of 2016 was partially offset by lower production and coal royalty revenues from our Illinois basin property due to a temporary relocation of certain productions, [indiscernible] However, this decrease in coal royalty revenue in the Illinois basin was partially offset by a $2.4 million increase in overriding royalty revenue in this region compared to Q3 of 2016.

In addition, an increase in our coal royalty revenue per ton from the Illinois basin in Q3 of 2017 also helped offset the impact of the reduced production from our properties in this region. Our third quarter 2017 coal royalty segment performance remained essentially flat compared to second quarter.

Moving to our second business segments, Soda Ash. We received $12.25 million cash distributions from a 49% investment in Ciner Wyoming during the period, which is unchanged from the previous period and from Q3 of 2016.

Our $9 million equity in earnings from Ciner Wyoming declined 16% in Q3 of 2017, compared to the prior year due to a temporary production issue. However, our third quarter 2017 equity in earnings from Ciner Wyoming increased 7% compared to the second quarter as a result of progress made to improve the production efficiency at the facility.

For our third and final operating business segment, Construction Aggregates, operating income for the quarter was $3.3 million, adjusted EBITDA was $6.4 million and DCF was $1.3 million. While operating performance in Q3 of 2017 remained essentially flat compared to the second quarter, performance improved compared to the third quarter of 2016 as a result of increased production in sales volumes, higher margins on road construction and asphalt paving projects and increased marine terminal activity.

DCF was lower in Q3 of 2017 due to temporary timing differences on cash received and payment that we expect to reverse during the remainder of the year. As for our Corporate and Financing segment, total costs in Q3 of 2017 were $23.8 million, which includes $20 million of interest expense.

While these amounts were in line with our previous quarter total corporate and financing cost increase 14% compared to the same period last year due to lower interest expense and lower legal and consulting fees compared to amounts incurred in Q3 of 2016 in connection with our recapitalization transaction. We incurred $1.2 million of capital expenditures in the third quarter of 2017 compared to 2.9 million in Q2 and $0.5 million in Q3 of 2016.

We ended the third quarter of 2017 with $121.2 million of cash and $111 million of available borrowing capacity on our OpCo bank facility. On October 2, 2017, we repaid the remaining $94.4 million of 2018 bonds as far.

During 2017 to-date, we reduced our debt $292.2 million. We paid $5.5 million of distributions to our common unitholders in the third quarter of 2017 or $0.45 per common unit.

We also paid $3.8 million in cash and issued 3,769 additional preferred units to our preferred unitholders during Q3 of 2017. With that, I'd like to turn the call back over to the operator for questions.

A couple of quick questions. One is, you referenced to the three times on debt target.

Once you get to that level, which I assume you will, is that the level at which we or investors should at least think about distribution raises entering into the picture.

Hi, Mark. This is Craig.

Hope you are doing well. That target is clearly a target.

Once we reach that, everything is one the table. Our primary focus is going to be enhancing unitholder value, and we will consider everything we can do to do that and clearly distribution increase is going to be high on that list.

Craig, is that something you think can be achieved at some point in 2018 whether the middle or the end of the year, that meaning getting to that 3X started?

Yes, Mark. We’re – again observe our policy we had here for the last two years, we’re just not giving forward guidance.

Okay, fair enough. No, I appreciate that.

I would encourage you to look at the numbers that we’ve provided you, and we referenced what we have done over the last 12 months, you have also seen what's happened over the last two quarters with respect to our operating performance post recap, and if you look at those, the most – it looks like our business is somewhat stabilized over the last six months and you can do your own math and draw your own conclusions on that.

Sure. No, I appreciate that.

And then I know -- hopefully this is not touching into the world of guidance, but it would at least be directionally helpful just as we try to think about putting our models together. For example, looking at the Illinois basin for -- you guys did 2 million tons of production, or there was 2 million tons of production on your properties in Q1, but then less than 800,000 in both Q2 and Q3.

And I think you numerated one of the factors that went into that in Q3. And then if you look at Northern App, for example, you did 1.2 million tons in Q1 and then less than 300,000 tons in Q2 and Q3.

So any help, again, without asking for guidance, but you can imagine that’s a huge, huge disparity and can impact the numbers pretty significantly given the wide deltas. Can you at least give us some idea of how to think about royalty production, not specific to your company but just in the region as we look forward?

Well, you're right. It does border on giving guidance, but maybe I can give you a few points to ponder here.

First of all, with respect to Illinois basin, I would encourage you to always make sure you look at the production levels and the coal royalty revenue from Illinois basin in conjunction with the overriding revenue line, because to a certain extent, as we’ve described earlier, Chris talked about earlier, as royalty -- as production has fallen in Illinois basin in that one particular line, there has been a corresponding increase in overriding royalty revenue that offset that in part. So I would make sure that when you look at Illinois basin, you look at those two together.

With respect to Appalachian, we don't have forward guidance. I will tell you that it is my belief that the -- if you take that trend that you are pointing out in Appalachian and look back over more years, go back five years, you will see it's been a very pronounced downward trend, but it does appear so that may be flattening out.

So without given a forecast, I think my estimate is that it’s likely we are going to see as more of a stabilizing pattern in that trend. But I'm not going to give guidance on that.

I don't have clear view.

Last question. You mentioned, I think, in your prepared remarks, every $10 change in net prices is $2.5 million of revenues and/or cash flow.

What -- off of what basis? Off of what net coal base are you referring and off of what revenue or cash flow base you are referring?

I'm just trying to baseline it, so I can think about it.

Sure. We are using the seaborne coking price, which is around $170 or so today.

And so if you use $10 delta off of that, it’s a $2.5 million revenue impact to us.

Just wanted a follow up on Mark’s questions. I think in the lines of Appalachian volumes, obviously they were up year-on-year pretty significantly, but the trend over the last couple of quarters to sequentially has been down.

And I was just wondering, as you look at the 4.3 million tons of volumes in Appalachian in the third quarter, it was down from 4.8 million. Could you talk a little bit about -- I mean, was the decline due to kind of individual mine issues?

Or was it rail service? Was just a seasonal component to it?

Can you talk about why you have the sequential decline even though it was obviously up nicely year-on-year?

This is Kevin Craig. I think on the items you really mentioned, all come into play.

We did have some operational issues. Certain mines have impacted, I would categorize, geological issues, have impacted production.

Also you have the rail transportation issues earlier in the quarter, but albeit we see now that those seem to be – the transportation issues seem to be working themselves out and on the improving trend. I would note that the significant operational issue has been resolved.

Okay, so the rails were certainly one of the factors that seems to be improving. Can you talk about any other limitations on your less feasibility to kind of match the market with increasing volumes if the market looking for them?

I am thinking particularly in net coal of Appalachia.

Again this is Kevin Craig. I really cannot give any specific comments on what our various operators are doing to either increase production and match it to the orders.

I really don’t have a comment on that.

Thank you, Teresa, we will conclude our call for today. And if you have further questions, please give me a call.

Thanks you, everyone, for joining us. Thank you for your support of NRP, and we look forward to speaking with you next month.

Have a good day.