Natural Resource Partners Spreads Assets, to Buy VantaCore - Analyst Blog

Natural Resource Partners L.P. ( NRP ) 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 step further.

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 ( CNX ) 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 plc ( GLNCY ) and Alliance Resource Partners LP ( ARLP ). Glencore sports a Zacks Rank #1 (Strong Buy) while Alliance Resource Partners LP has a Zacks Rank #2 (Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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