Natural Resource Partners LP (NRP), Rhino Resource Partners, L.P. (RNO), Walter Energy, Inc. (WLT): Debt Could Slow This Coal Company’s Diversification Efforts

Walter Energy, Inc. (NYSE:WLT) is projecting coal volumes to be down about 6% year over year. Couple that with price weakness in the met market and the company’s weak first half is going to turn into a weak 2013. Natural Resource Partners isn’t in that boat. A near 20% increase in coal production at its mines in the first half helped mitigate a nearly 25% drop in its per ton royalty payments. And, perhaps more notable, the 15% growth in revenues at its non-coal-royalty businesses left the top line down just 1% year over year.

Diversification is good
So the good news is that Natural Resource Partners LP (NYSE:NRP) diversification efforts clearly look to be working. On the other hand, those efforts could be set to slow if coal markets don’t perk up. And the best laid plans don’t always pan out. PVR Partners LP (NYSE:PVR) is a great example.

The partnership has been moving away from its coal royalty business for years, using it as the building block for a shift into natural gas infrastructure. This transition sets the company up to benefit as natural gas increasingly competes with coal for base load electricity generation. It’s clearly a good strategic move to be in a position to benefit no matter which fuel source wins.

However, this year has been tough on PVR Partners LP (NYSE:PVR). It’s coal business has been performing generally in line with expectations, but results at its pipeline operations have been weak. Although the partnership expects to meet its pipeline volume targets by the end of the year, it is taking longer than expected to ramp up. That could present investors with a buying opportunity, however, since the shares have sold off about 20% since the middle of July and now yield nearly 9.5%.

Still, PVR Partners LP (NYSE:PVR)’s troubles in its “new” business highlight the risks inherent to a changing business profile. While Natural Resource Partners’ “new” businesses appear to be doing just fine, that clearly isn’t a guaranteed result. With debt at relatively high levels, investors should be paying increasing attention to how well Natural Resource Partners’ non-coal businesses are running.

The article Debt Could Slow This Coal Company’s Diversification Efforts originally appeared on Fool.com and is written by Reuben Brewer.

Reuben Brewer has positions in Rhino Resource Partners and Natural Resource Partners. The Motley Fool has no position in any of the stocks mentioned.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.