Note: This is an earnings call transcript. Content may contain errors.
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Date
Tuesday, Nov. 4, 2025, at 9 a.m. ET
Call participants
- President and Chief Operating Officer — Craig W. Nunez
- Chief Financial Officer — Christopher J. Zolas
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Risks
- Soda ash international prices are below cash production costs for most producers, with management stating, “We are in a generational bear market for soda ash, and there will be more pain to bear before the situation improves.”
- No near-term catalysts for improvement in coal or soda ash markets, as Nunez said, “coal and soda ash prices are down, and we do not see near-term catalysts for market improvement.”
- None of the company’s 3.5 million acres of CO2 sequestration pore space are under lease following recent lease terminations by Occidental Petroleum (OXY 1.78%) and Exxon Mobil (XOM 0.66%) due to industry-wide economic barriers.
- Management cautioned that “the longer we slog through the depths of bear markets for all three of our key commodities, the greater the likelihood that some event occurs that pushes that timing back.”
Takeaways
- Free cash flow — $42 million in free cash flow generated in 2025 and $190 million in free cash flow generated over the last twelve months despite depressed commodity prices.
- Net income — $31 million in net income in 2025 on a consolidated basis, with the mineral rights segment contributing $44 million in operating cash flow in 2025.
- Debt reduction — Nearly $130 million of debt retired over the last twelve months, leaving $70 million outstanding as of quarter-end.
- Segment performance — mineral rights — Operating cash flow and free cash flow each declined by $9 million year-over-year in Q3 2025 due to weaker metallurgical coal markets, while net income was flat compared to the prior year third quarter.
- Segment performance — soda ash — Net income declined by $11 million, and operating and free cash flow each declined by $6 million in Q3 2025 compared to the prior year third quarter due to lower international sales prices and oversupply.
- Metallurgical coal royalty mix — Approximately 70% of coal royalty revenues and 50% of royalty sales volume in Q3 2025 were from metallurgical coal.
- Shisha Jam Wyoming distributions — No distributions received this quarter; prior $8 million was received in the first half of 2025; management does not expect distributions to resume for the foreseeable future.
- Quarterly distribution — Announced a Q3 2025 common unit distribution of 75¢, matching the prior quarter.
- Lithium leasing activity — Active leasing in the Smackover formation for lithium production to multiple lessees, but management does not disclose lease terms or revenue specifics.
- Oil and gas royalties — Drilling activity has picked up in the Haynesville, where most rights are held, but resulting revenues are not material to overall financial results.
- Capital allocation priorities — Once a “fortress balance sheet” is achieved (no permanent debt, $30 million minimum cash), priorities are: 1) unitholder distributions, 2) opportunistic unit repurchases at “material discounts,” according to Craig W. Nunez, and 3) select acquisitions.
Summary
Management emphasized that, despite ongoing challenges in all core markets, Natural Resource Partners L.P. (NRP 1.78%) continues to generate significant free cash flow and make progress on debt reduction. The company confirmed it is actively leasing acreage in the Smackover formation for lithium production, though details remain private. No further distributions from Shisha Jam Wyoming are expected until a meaningful recovery in soda ash demand or significant market supply rationalization occurs.
- No portion of the company’s 3.5 million acres of CO2 sequestration pore space remains under lease, following recent exits by Occidental Petroleum and Exxon Mobil.
- Management’s strategic outlook remains conservative, with future distribution increases and capital allocation pacing dependent on market recovery, as “the greater the likelihood that some event occurs that pushes that timing back” the longer bear conditions persist.
- The plan to reach a “fortress balance sheet” hinges on retiring all permanent debt and maintaining $30 million in cash alongside an undrawn revolver.
Industry glossary
- Fortress balance sheet: Management’s term for a balance sheet with no permanent debt and at least $30 million in cash, enabling flexible capital allocation.
- Shisha Jam Wyoming: NRP’s soda ash production investment, recognized as one of the world’s lowest-cost producers within the segment.
- CO2 sequestration pore space: Subsurface geologic formations leased or owned for the injection and long-term storage of carbon dioxide to reduce atmospheric emissions.
- Smackover formation: A geologic formation in southern Arkansas and northeast Texas known for lithium brine and hydrocarbon resources, target for mineral leasing.
Full Conference Call Transcript
Craig Nunez, our President and Chief Operating Officer.
Craig W. Nunez: Thanks, Tiffany. And good morning, everyone. NRP generated $42 million of free cash flow in the 2025 and $190 million of free cash flow over the last twelve months. We continue to generate substantial free cash flow despite significant headwinds for all three of our key commodities: metallurgical coal, thermal coal, and soda ash. Metallurgical coal markets are challenged by slowing global growth and soft steel demand. Thermal coal markets are struggling with muted demand, caused by mild weather, cheap natural gas, slowing global growth, and renewable energy adoption.
While the prospects for a more accommodating regulatory environment and increased electricity demand from data centers have increased market optimism for thermal coal, we have not yet seen any material support for prices or demand. While we acknowledge that these factors offer the potential for a more bullish long-term outlook, we will continue to manage the partnership in accordance with the thesis that North American thermal coal remains in long-term secular decline until we see evidence to the contrary. As we have seen previously, we believe most coal operators are struggling to make money, with most producing at razor-thin margins and a growing number operating at a loss.
We are seeing this play out in the announced results of publicly traded companies and recent bankruptcies of several smaller producers. While we have not identified a catalyst to turn the market around, we continue to believe that the vast majority of our lessees are in better financial shape than in previous downturns. We believe these factors, combined with our relatively robust free cash flow generating capability, solid and improving capital structure, and conservative management philosophy, position us well for navigating a very difficult coal market. The soda ash market remains oversupplied due to capacity additions and slowing global growth. International prices are below cash production costs for most producers.
While we were early to share publicly our concerns regarding the potential for the supply-demand imbalances now plaguing the market, the depth and potential duration of the current downturn is more significant than we initially expected. We are in a generational bear market for soda ash, and there will be more pain to bear before the situation improves. If there is a silver lining to the cloud hanging over the soda ash market, it is that this dynamic is unsustainable in the long term. We expect producers will rationalize supply at some point, but we do not know when or how that will occur. Rebalancing supply and demand will likely take several years before prices return to levels enjoyed historically.
As one of the world’s lowest-cost producers, Shisha Jam Wyoming continues to navigate this downturn well. In addition to aggressively managing costs and inventories, Shisha Jam is maintaining its focus on safety and system integrity, two areas that are sometimes overlooked during periods of challenging financial results. Our soda ash investment is a long-term asset with durable competitive advantages that will produce an essential global commodity for many years in the future. We are quite pleased that our managing partner is committed to maintaining the long-term integrity of our shared asset, even when near-term financial performance is down.
We did not receive a distribution from Shisha Jam this quarter after receiving $8 million in distributions during the first half of the year. While we expect Shisha Jam Wyoming to remain profitable through the downturn, we do not expect it to resume distributions for the foreseeable future, with cash retained used for investment in safety and system integrity. The carbon-neutral industry continues to struggle. Oxy notified us during the quarter that it was dropping its subsurface CO2 sequestration lease on 65,000 acres of pore space we own in Polk County, Texas. You will recall that Exxon dropped its CO2 sequestration lease on 75 acres we own in Baldwin County, Alabama last year.
As of now, none of our 3.5 million acres of CO2 sequestration pore space is under lease. You have heard me describe these sequestration rights as out-of-the-money call options on greatness. They cost us nothing to hold, they never expire, and we benefit if the market for CO2 sequestration goes up. I do not believe our leases were dropped due to any problems associated with our specific acreage. On the contrary, I think the locations leased to Oxy and Exxon are some of the highest quality CO2 pore space in the Gulf Coast. The entire CO2 sequestration industry remains burdened by high capital and operating costs, insufficient inadequate revenue streams, and the lack of a consistent regulatory framework.
These factors have created formidable economic barriers that operators are either unable or unwilling to overcome. Our call options on sequestration pore space will remain out of the money until and unless these industry challenges are resolved. In conclusion, coal and soda ash prices are down, and we do not see near-term catalysts for market improvement. Our coal lessees are operating at or near their cost of production, and our soda ash investment is experiencing the lowest international sales price in decades. Despite this, NRP continues to generate robust free cash flow and make progress toward our goal of retiring all outstanding debt.
Over the past twelve months, we have retired nearly $130 million of debt with only $70 million of debt remaining as of the end of the quarter. We continue to believe that we will be in a position to increase unitholder distributions in August. However, I caution that the longer we slog through the depths of bear markets for all three of our key commodities, the greater the likelihood that some event occurs that pushes that timing back. Rest assured, however, that we will continue to manage the partnership with a conservative mindset in order to protect your investment and be best prepared for negative events that may arise.
And with that, I will turn it over to Chris to cover the financials.
Christopher J. Zolas: Thank you, Craig. In 2025, NRP generated $31 million of net income, $41 million of operating cash flow, and $42 million of free cash flow. Of these consolidated amounts, our mineral rights segment generated $41 million of net income, $44 million of operating cash flow, and $45 million of free cash flow. When compared to the prior year third quarter, our mineral rights segment net income remained flat while operating and free cash decreased $9 million. Decreases were primarily due to weaker metallurgical coal markets resulting in lower sales prices. Regarding our third quarter 2025 met thermal coal royalty mix, metallurgical coal made up approximately 70% of our coal royalty revenues and 50% of our coal royalty sales volume.
For our soda ash segment, net income decreased by $11 million compared to the prior year third quarter, while operating and free cash flow each decreased by $6 million. These decreases were primarily due to lower international sales prices driven by weakened glass demand from the construction and automobile markets, combined with new natural soda ash supply from China. We did not receive a distribution from Shisha Jam Wyoming in 2025 and do not expect distributions from Shisha Jam Wyoming to resume until soda ash demand rebounds or there is a more significant supply response to this weakened market, most likely from higher-cost synthetic production.
Moving to our Corporate and Financing segment, Q3 2025 net income improved $3 million and operating cash flow and free cash flow each improved $2 million as compared to the prior year period, due to significantly less debt outstanding resulting in lower interest costs and less cash paid for interest. We use the free cash flow generated from our business segment to repay $32 million of debt during the third quarter, over $70 million through the first nine months of 2025, and we remain on track to accomplish our deleveraging goals next year.
Regarding our quarterly distributions, in August 2025, we paid the second quarter distribution of 75¢ per common unit, and today, we announced the third quarter 2025 distribution of 75¢ per common unit that will be paid later this month. And with that, I will turn the call back over to our operator for questions.
Operator: As a reminder, to ask a question, simply press star one on your telephone keypad. Again, that is star one to ask a question. The first question comes from the line of Dan Adler. Please go ahead.
Dan Adler: Hi. This is Dan Adler. Thank you for all you are doing for shareholders. My question revolves around leasing for lithium mining in this macro region. And if you could provide any information on acreage that has been leased or potential for revenue from that leasing? Thank you.
Craig W. Nunez: Thank you for your call, Dan, and for your question. Yes, we are active in leasing acreage in the Smackover formation for lithium production to multiple lessees. We do not comment on terms of leases and that type of thing. I will say that the activity in the area has varied from robust to lukewarm at various periods over the last several years. But yes, we are active in the Smackover in Southern Arkansas and in Northeast Texas.
Dan Adler: Thank you.
Craig W. Nunez: You bet.
Operator: Our next question comes from the line of David Spier with Nitter Capital. Please go ahead.
David Spier: Hi. Good morning.
Craig W. Nunez: Morning.
David Spier: Just first a bit of a housekeeping question. Just given the passive nature of the partnership, just the operating and maintenance expense, what goes into those expenses? And is there any ability, given the environment, to reduce the expense line?
Christopher J. Zolas: Sure. You know, salaries and compensation is a big part of that. We also have a variety of other general corporate costs, insurance, legal, accounting. So there is a variety of general corporate type of costs that flow in there.
David Spier: Those are not in general and administrative expenses. I am talking about the operating and maintenance expense line.
Christopher J. Zolas: Sure. We also have those same kinds of expenses in the operating expense for the mineral rights segment. But there are also things such as property taxes, which is a big one, and royalty expenses as well. We have some royalty costs as well that go in there.
Craig W. Nunez: We have a zero-based budgeting approach so that every year the goal is to make total costs as low as possible rather than simply look at increases of cost from year to year. So I will not say that we do not sharpen our pencil whenever times are lean because we do. But the reality is we sharpen our pencil all the time, and we have long-term cost management bills that we follow.
David Spier: Got it. And then just a general quick question. Regarding the company’s mineral rights, are the majority of the company’s mineral rights specific to certain minerals, or are they general subsurface rights where all the opportunities exist on anything that comes out of the ground? Some better insight there would be helpful.
Craig W. Nunez: It is generally for specific minerals.
David Spier: Understood. And then so with that, are there any opportunities given the growing demand or interest in natural gas? Are there any additional production opportunities that might be arising that you did not previously think existed over the past year?
Craig W. Nunez: I am not sure I understand your question. You referred to higher-cost natural gas plays that the company has mineral rights on that, in the past few years, did not seem like a possibility for production. Where now these plays are in the money and there is increased interest from producers.
David Spier: In other words, call options moving in the money is what you are describing.
Craig W. Nunez: Yes. The vast majority of our oil and gas mineral rights are in the Haynesville in North Central and West Central Northwest Louisiana. And that is a pretty active basin right now. And so I would say drilling has picked up a bit in the Haynesville. And to the extent that it does, we benefit from that. I will say that those numbers, those production amounts, and those revenues that we can receive from oil and gas minerals, they are not as material to the partnership.
David Spier: Got it. And then just regarding capital allocation, looking at the cash on hand and the debt outstanding, it seems like you are one, maybe two quarters away from being in a net cash position. Is that the right way to look at it?
Craig W. Nunez: You are looking at it correctly. As we have said, we believe that we will be in a position where we will have the vast majority of our remaining debt paid down and be able to increase distributions in the third quarter next year. That is the plan, and that is the forecast. The issue comes in with as we continue in this difficult market, are there going to be things that will happen that will change that? We do not know that there will be, but we are just warning everybody there could be.
David Spier: Got it. Okay. Understood. I appreciate it.
Craig W. Nunez: You bet. Thanks for your questions.
Operator: Our next question comes from the line of Ken Ackerman. Please go ahead.
Ken Ackerman: Hi. Kenny Ackerman. Question again regarding capital allocation. I mean, you guys retired the warrants, retired substantial amounts of debt, almost all of it, as was just discussed. What would be the criteria to start unit repurchases? Or, I mean, what are the thoughts surrounding that? I know this is the first time this has been asked, but just considering everything closer and closer to a net cash position. I mean, is there anything that would inspire you guys to repurchase your units, or is there anything prohibiting it? I know there is one large owner of the partnership. Just did not know if unit repurchases were even possible.
Craig W. Nunez: So let us think of it instead of thinking about being in a net cash position, let us think about how we as the company think about our balance sheet and what signals we look forward to being able to deploy cash in some way other than just paying down debt. We are looking to establish what we define as an NRP fortress balance sheet. And to us, that means two things. It means, number one, no permanent debt in the capital structure. And permanent debt, we define as debt that we do not have the ability or intent to repay prior to maturity with internally generated cash.
And then in addition to no permanent debt, we want to have $30 million of cash on the balance sheet. And that also means at the same time that we will have our revolving credit facility in place. Once we are in that position, we feel that we have what we believe is a fortress balance sheet, and then we can feel free to allocate capital as we see best. And what are our priorities for allocating capital? Number one, unitholder distributions. Number two, unit repurchases at material discounts to our estimates of intrinsic value.
And number three, if they come along, opportunistic acquisitions where we can acquire assets that are within our circle of competence at what we consider to be bargain prices. And there are no impediments to us being able to buy back units other than can we acquire them for a price that we think is a sufficient enough discount to our estimates of intrinsic value to want to do it.
Ken Ackerman: Got it. Makes total sense. And just one follow-up. Can you give any color around what you consider intrinsic value? I mean, just what would the company consider intrinsic value just to get a decent sense of what would qualify for unit repurchases?
Craig W. Nunez: No, we are not going to guide on that. Sorry about that. I would encourage you to go back and read our unitholder letters that are published each spring with the annual report with the 10-K, especially this most recent one. But each one of them talks about how we think in terms of intrinsic value and the process we use to value the company. Because intrinsic value per unit is a very important component of all of our management decisions that we make. And so we have explained in writing how we go about doing that. We just do not tell you exactly what our assumptions are and what we think.
Ken Ackerman: Thank you for the answers.
Craig W. Nunez: Sure thing.
Operator: Our next question comes from the line of Neil Patel with Sawgrass Beach. Please go ahead.
Neil Patel: Thank you. Hey, everyone. Congrats on the progress, especially with the debt pay down to $70 million. It has been quite the journey over the last ten years. Thanks for the comments on thermal coal. I had a question on that. It seems that every day we are hearing more about data center CapEx being at just very extreme levels. I understand you are not seeing that demand come through to your thermal coal assets yet. But if that does, next year, is there infrastructure and capacity in place for the producers on your thermal coal properties to scale up? Or would that require a lot of additional CapEx on their side? Thank you.
Craig W. Nunez: Good question. And I do not know that we completely know the answer to your question because, as you know, our operators are our operators. We do not operate, and they do not necessarily share everything with us. But I can give you my educated guess on it, my best judgment. I do believe that if the increased power demand from data centers that is forecast to result from all of the CapEx that is now planned over the next five, ten years, I do believe there will have to be material amounts of capital invested in the thermal coal infrastructure, both to bring new production online and to process it.
I do not know what those dollars are, and I do not know to the extent that capital would involve mines that are on NRP or on other acreage elsewhere in North America. Does that help?
Neil Patel: Yep. Absolutely. Thank you.
Craig W. Nunez: Thank you.
Operator: And with no further questions in queue, I will turn the call back over to Craig Nunez for closing remarks.
Craig W. Nunez: Thank you, operator, and thank you, everyone, for joining our call today. Thank you for your questions. And you know, as I look over the list of participants here, the vast majority of you have been with us for quite a while. So thank you for your support over the years. And we look forward to talking to you next quarter.
Christopher J. Zolas: Take care.
Operator: Thank you again for joining us today. This does conclude today’s presentation. You may now disconnect.
