We came across a bullish thesis on Natural Resource Partners L.P. (NRP) on Substack by Pound the Rock Investing. In this article, we will summarize the bulls’ thesis on NRP. Natural Resource Partners L.P. (NRP)’s share was trading at $106 as of March 27th. NRP’s trailing P/E was 9.34 according to Yahoo Finance.
Natural Resource Partners (NRP) is a coal royalty business with a highly attractive valuation, disciplined management, and robust cash flow generation. The company operates as a royalty model, owning mineral rights across 13 million acres in the U.S., with 70% of its revenue coming from metallurgical coal, which remains essential for global steelmaking. Unlike coal producers that face operational risks and high capital expenditures, NRP benefits from a low-cost structure that results in 90% free cash flow margins, making it one of the most capital-efficient business models available. With long-term leases providing predictable income and decades of reserves in the ground, NRP is well-positioned for sustained cash flow generation.
Despite its strong fundamentals, NRP remains deeply undervalued due to investor reluctance toward coal-related businesses and its Master Limited Partnership (MLP) structure, which adds complexity for some investors. However, the global demand for coal remains robust, with consumption reaching record highs in 2024, and metallurgical coal continuing to see long-term demand. The company’s management, led by Chairman and CEO Corbin Robertson, has a track record of disciplined capital allocation, and their incentives are aligned with unitholders. Past missteps, including failed diversification efforts and excessive leverage before 2016, contributed to NRP’s discounted valuation. However, the company has since undergone a remarkable transformation, aggressively paying down debt and eliminating dilutive securities. Within the next 1–1.5 years, NRP is on track to be debt-free, at which point it can shift to distributing nearly all of its free cash flow to unitholders.
This transition represents a fundamental shift in NRP’s investment profile. With no interest payments or debt overhang, the company has the potential to return its entire market cap to investors within 5–7 years. Even if coal prices decline, NRP’s lack of leverage ensures its free cash flow remains resilient, providing downside protection.
Beyond its core coal royalty business, NRP holds significant hidden value in two underappreciated assets: its 49% stake in Sisecam Wyoming, a world-class low-cost producer of natural soda ash, and its extensive land holdings, which are uniquely positioned for carbon capture utilization and storage (CCUS) initiatives. Sisecam Wyoming operates in the Green River Basin, home to the world’s highest-purity trona ore deposits, with an annual production capacity of 2.5 million tons and over 50 years of reserves. While soda ash demand is projected to grow at 4% annually over the next decade, the industry is currently facing pricing pressure due to Chinese oversupply and weak global construction markets. As a result, NRP’s annual royalty distributions from Sisecam have been significantly reduced, but the long-term value remains intact. A 2023 transaction valued NRP’s stake at approximately $500 million—around 35% of NRP’s current market cap—highlighting the substantial embedded value yet to be recognized by the market. While a sale of this asset may not be imminent, it represents a meaningful future monetization opportunity.
NRP’s carbon sequestration potential represents another underappreciated source of value. The global carbon capture industry is attracting massive investment, with Wood Mackenzie estimating $150 billion in capital deployment this decade. NRP is uniquely positioned to benefit due to its vast land portfolio and exclusive sequestration rights, both of which are critical for large-scale carbon capture projects. The company has already secured long-term agreements with Occidental Petroleum and a subsidiary of ExxonMobil for Direct Air Capture (DAC) projects, providing cash payments with no associated costs to NRP. Occidental alone plans to develop up to 20 DAC facilities on NRP’s land, with each facility capable of capturing 1 million metric tons of carbon annually. Based on NRP’s estimated $1–2 royalty per metric ton, this could generate an additional $20–40 million in annual free cash flow, with substantial long-term expansion potential.
Even without assigning value to a recovery in Sisecam or the full monetization of its carbon capture assets, NRP remains a high-margin, cash-generating business with significant durability. The company benefits from long-term royalty agreements, minimal capital expenditures, and a management team that has demonstrated operational resilience. With a combination of strong core business, hidden asset value, and multiple upside catalysts, NRP presents an asymmetric risk/reward opportunity that remains highly compelling for investors.
Natural Resource Partners L.P. (NRP) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 7 hedge fund portfolios held NRP at the end of the fourth quarter which was 5 in the previous quarter. While we acknowledge the risk and potential of NRP as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than NRP but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.