Investor Meetings
Boston, MA
October 8-9, 2008
Forward Looking Statement
The statements made by representatives of Natural Resource Partners L.P. (“NRP”)
during the course of this presentation that are not historical facts are forwardlooking statements. Although NRP believes that the assumptions underlying these
statements are reasonable, investors are cautioned that such forward-looking
statements are inherently uncertain and necessarily involve risks that may affect
NRP’s business prospects and performance, causing actual results to differ from
those discussed during the presentation.
Such risks and uncertainties include, by way of example and not of limitation:
general business and economic conditions; decreases in demand for coal; changes
in our lessees’ operating conditions and costs; changes in the level of costs related
to environmental protection and operational safety; unanticipated geologic
problems; problems related to force majeure; potential labor relations problems;
changes in the legislative or regulatory environment; and lessee production cuts.
These and other applicable risks and uncertainties have been described more fully in
NRP’s 2007 Annual Report on Form 10-K. NRP undertakes no obligation to publicly
update any forward-looking statements, whether as a result of new information or
future events.
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The Global Coal Markets and their Impact on NRP
3
Current Coal Market
• Coal prices have significantly increased in 2008
• U.S. coal pricing with global coal
• World economic indicators point toward significant global coal demand
and a supply shortfall
– In spite of slowdown in worldwide economies, current U.S. production cannot meet demand
– Additional coal plants are being constructed daily in many countries around the world
– New Plants under construction could increase consumption by ~ 1 billion tons per year
• Bodes well for U.S. coal industry and NRP
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Coal – Fastest Growing Fuel in the World
For the
Straight Year –
Coal is the fastest growing
5th
5%
major fuel in the World
3%
Global Coal Consumption for
2%
2007 of 4.5% was well above
the ten year average of 3.2%
Chinese share of world energy
consumption growth in 2007 –
52%
2007
4%
1%
0%
-1%
-2%
-3%
Nuclear
Oil
Natural
Gas
Coal
Source: BP Statistical Review of World Energy June 2008
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Global Coal Consumption – Last Five Years
MM tonnes
2000
Global Coal Consumption
increased 32% between 2002
and 2007
•China increased ~ 84%
2002
1800
2007
1600
1400
1200
•India increased ~ 37%
1000
800
600
Coal consumption has increased in
every market around the globe
except for the Middle East
400
200
0
N or t h
S . & C e nt .
Eur ope &
M i ddl e
Ame r i c a
Ame r i c a
Eur oa si a
Ea st
Af r ica
A si a
Pacif ic
Source: BP Statistical Review of World Energy June 2008
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Coal is on the Move
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Global Demand and the Domestic Coal Markets
• China doubled its annual coal production between 2000 and 2007
– Still cannot keep up with demand within China
– Has gone from exporter to importer of coal
– Taxes raised in 2008 to discourage exports
• China, India, East Asia and Europe importing coal
– Freight rates give U.S. coal into Europe an advantage
– Weakness in the U.S. dollar compared to Euro
• Problems in global coal deliveries creates extremely tight coal market
– Australian infrastructure issues still exist
– Power shortages due to lack of infrastructure in South Africa causes mines to shut down
periodically
• Currently - no excess production in U.S. market
• Increasing exports boosting U.S. domestic coal prices
• Swing coals that were being sold into steam market are now going into met market
causing shortages in the steam market
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Exports Increasing
• U.S. exports increasing – up 19% in 2007 over 2006 and rising
– metallurgical coal at average price of ~ $89 per ton in 2007
– steam coal at average price of ~$48 per ton in 2007
• Exports forecasted to increase by approximately 48% in 2008 over 2007
– Steam exports forecasted to increase by approximately 73%
– Met exports forecasted to increase by approximately 28%
• Exports 2007
– Canada and Mexico ~ 35%
– Overseas ~65%
Source: EIA and COALCAST
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Spot Steam Coal Price Comparisons
Oct 3,
2008
1 month
ago
M/M
Year End
2007
Year to
date
CAPP
Big Sandy Rail
12,500/1.2
$130.00
$130.00
-
$56.25
131%
CAPP
Barge
NYMEX - spec
105.00
104.00
1%
54.25
94%
NAPP
Pittsburgh
Seam 2.5 lbs
140.50
148.00
(5%)
62.50
125%
Illinois Basin
Barge 11,800
89.00
91.00
(2%)
36.00
147%
PRB 8800
12.40
9.00
38%
12.15
2%
Source: Argus Coal Weekly
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NRP Stands to Benefit
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NRP Investment Considerations
A Proxy for the Coal Industry
•
Landholding company
–
Lease reserves to coal mining companies
–
Receive royalty on production based on a % of the gross selling price
•
2.1 billion tons of coal reserves (22% metallurgical and 78% steam)
•
66 lessees produce approximately 5% of U.S. production from NRP’s 191 leases
•
Three major coal producing regions in eleven states
•
2008 estimated production: 59 million tons to 65 million tons
•
Coal royalty accounts for approximately 78% of NRP’s revenue stream
Continue to Diversify Income Stream
•
Coal Infrastructure and Transportation
•
Aggregate Royalties
•
Oil and Gas Royalties, Timber, Wheelage and other
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NRP - 25% of U.S. Metallurgical Coal Production
• 2007 U.S. Met Production ~ 52 million tons
– Exports 32.2 million tons at an average price of ~$89/ton
• 2007 NRP Met Production ~ 13 million tons
• NRP Met Production First Half 2008
– 26% of NRP’s total production and 36% of NRP’s coal royalty revenue
– 15 Lessees of which 8 are public companies
• 22% of NRP’s 2.1 billion tons of reserves are metallurgical
• NRP is highly leveraged to movements in metallurgical coal prices
Source: EIA and NRP
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Historical Performance
Increasing revenue stream provides for growing distributions
Distributable Cash Flow
In $millions
In $millions
Total Revenues
Actual
Midpoint of guidance
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Increased Quarterly Distributions
 Increased distributions last 20 consecutive quarters, 101% overall
Distributions
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Acquisition Opportunities
• Active acquisition pipeline
• Right to acquire 3 billion tons of reserves from Cline Resources
– Cline currently in the permitting process on three mines in the Illinois Basin
– Recently received permit for the Gatling Ohio reserves
• Our sponsor owns over 20 billion tons of currently non-producing coal
that must be offered to NRP when any property reaches a value of $10
million
– Currently working on projects in both Montana and North Dakota
• Agreement with Taggart on coal preparation plants and coal handling
facilities
• Recently increased efforts on Aggregate acquisitions
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Where are we going next?
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Short Term Outlook for Coal Markets
• World dynamics that would need to change to see significantly lower coal
prices
– China and India economies would need to slow significantly
– Infrastructure problems in both Australia and South Africa need to be resolved
– Much stronger dollar
– Lower freight rates
– Lower fuel, steel and labor costs
• Met prices for 2008, 2009 and 2010 are well positioned to remain strong
• Global demand and U.S. exports will continue to place upward pressure
on domestic coal prices
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Long Term Outlook for the Coal Markets
• Strong demand next few years
• EIA expects total U.S. electricity sales to increase 50% by 2030
• EIA expects U. S. coal fueled electricity to gain additional market share
over the next 25 years growing to approximately 54% by 2030 from 49%
today
• Developing nations around the globe are looking to coal to supply their
energy needs creating increasing demand
Source: EIA – Energy Information Agency and NRP
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Investment Highlights
• NRP to benefit from robust coal market
– Significantly increased prices for both steam and metallurgical coal
– Approximately 26% of first half 08 production was metallurgical
– Highly leveraged to Appalachian and Illinois Basin price increases
– While spot prices have retracted from their highs, still significantly above year
end 2007 prices – bodes well for rollover of lessees’ contracts in 2009
• Nearer term acquisition opportunities
– Aggregates
– Infrastructure
• Long term built in growth opportunities associated with Cline Resources
and our sponsors
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