Natural Resource Partners L.P.
) is further diversifying its existing asset base by acquiring
VantaCore Partners LP, a privately held limited partnership
involved in the construction materials industry, for $205 million.
Natural Resource Partners primarily owned coal reserves, which it
leased out to various operators in exchange of royalty payments.
The master limited partnership gradually acquired oil and natural
gas and other mineral reserves and also leased out those assets for
royalty. The proposed acquisition of VantaCore Partners LP will
take Natural Resource Partners' quest to diversify its asset base a
The decision to invest its funds in industries other than coal
could be attributable to the increasing regulatory pressure both on
coal production and usage. Since Natural Resource Partners
generates revenues primarily through royalty payments, lower coal
production by the operators in the wake of increasing regulation
and lower demand is affecting its top line.
In fact, the partnership benefited from its strategy to diversify
its business into other asset classes. In the second quarter,
other-than-coal revenues more than offset the decline in revenues
from coal assets. Since the partnership has already started to reap
the benefits from its investment in other industries, the decision
to acquire this construction company does not come as a surprise.
VantaCore will continue to operate as a wholly owned subsidiary of
Natural Resource Partners. The acquisition is expected to close in
the fourth quarter of 2014, subject to fulfillment of customary
closing conditions. The acquired assets are expected to immediately
boost earnings and cash flow of the partnership.
Including the proposed acquisition, the partnership has nearly
invested $550 million in non-coal assets since Jan 2013. Recently,
the U.S. Environmental Protection Agency (:EPA) has proposed a
Clean Power Plan, the primary objective of which is to cut down
emissions from existing coal-fired power plants by 30% over the
2005 to 2030 time frame. The approval of the plan will delve a hard
blow to the already sluggish thermal coal market recovery. The met
coal market on the other hand is mired by oversupply concerns.
Natural Resource Partners which currently holds a Zacks Rank# 3
(Hold) could therefore invest more funds in non-coal assets going
forward. Since the coal industry recovery is as yet uncertain,
another prominent coal operator CONSOL Energy (
) divested nearly 50% of its coal assets and instead parked its
capital in the booming natural gas business.
Other better-ranked players in the coal industry include Glencore
) and Alliance Resource Partners LP (
). Glencore sports a Zacks Rank #1 (Strong Buy) while
Alliance Resource Partners LP has a Zacks Rank #2 (Buy).
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