Operator
Thank you for standing by. My name is Kathleen and I will be your conference operator today. At this time, I would like to welcome everyone to the Natural Resource Partners LP Second Quarter 2025 Earnings Conference Call. All lines have been placed on view to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. And if you would like to withdraw your question, press the star one again. Thank you. I would now like to turn the call over to Tiffany Samis, Investor Relations. Please go ahead.
Thank you. Good morning and welcome to the Natural Resource Partners second quarter 2025 conference call. Today's call is being webcast and a replay will be available on our website. Joining me today are Craig Nunez, President and Chief Operating Officer, Chris Azoulas, Chief Financial Officer, and Kevin Craig, Executive Vice President. Some of our comments today may include forward-looking statements reflecting NRP's views about future events. These matters involve risks and uncertainties that could cause our actual results to materially differ from our forward-looking statements. These risks are discussed in NRP's Form 10 and other Securities and Exchange Commission filings. We undertake no obligation to revise or update publicly any forward-looking statements for any reason. Our comments today also include non-GAAP financial measures. Additional details and reconciliations to the most directly comparable GAAP measures are included in our second quarter press release, which can be found on our website. I would like to remind everyone that we do not intend to discuss the operations or outlook for any particular coal lessee or detailed market fundamentals. Now, I would like to turn the call over to Craig Nunez, our President and Chief Operating Officer.
Thank you, Tiffany, and good morning, everyone. NRP generated 46 million dollars of free cash flow in the second quarter of 2025 and 203 million dollars of free cash flow over the last 12 months this was achieved while the prices for our three key commodities metallurgical coal thermal coal and soda ash traded at or near our estimates of operators cost of production with prices for coal and soda ash trading at cyclical lows and many operators struggling to remain profitable we are quite pleased with the partnership's ability to generate robust levels of free cash flow the goal of our deleveraging strategy established 10 years ago was to achieve a cost and capital structure that would allow us to generate substantial cash flow and earn competitive rates of profit throughout commodity price cycles we believe the partnership's performance is evidence of success in that regard While previous commodity price declines posed risks to NRP solvency, this newfound financial strength has allowed us to continue making steady progress on our deleveraging strategy through this downturn. Based on our current free cash flow run rate, we are on track to pay off substantially all debt by the middle of next year and be in a position to substantially increase unit holder distributions starting next August. Metallurgical and thermal coal markets remain under pressure due to soft demand for steel, cheap natural gas, and relatively high coal inventories. We believe many operators are operating at razor-thin margins, selling coal at or near their cost of production, while some operators are likely underwater at these prices. We would not be surprised to see supply rationalization emerge across the industry in the coming quarters. NRP has been in the coal royalty business a long time, and we are veterans of commodity price cycles. The current environment has the classic hallmarks of a coal market downturn. Excess supply, soft demand, and lack of identifiable catalysts to turn the market around. But there is one aspect of the current environment that is different from what we have observed in the past. Namely, we believe many operators across the U.S. are in better financial shape than in previous downturns. They tend to have more conservative capital structures, better cost structures, and limited near-term reclamation and pension liabilities. We believe this fact bodes well for the industry in general, which should have better financial flexibility to manage through this. The NRP is generating more free cash flow than in previous cyclical troughs. This is one beneficial impact for us from the post-COVID inflationary surge. As the marginal cost of production for coal has risen, the break-even coal sales prices for operators have also increased. As a royalty owner, we benefit from higher sales prices without having to bear the risk and burden of our operators' higher costs of production. The soda ash market also remains significantly oversupplied, which has driven sales prices below the cost of production for most producers, and in some regions, we believe prices are at or below even the variable cost of production. While we believe this price environment is unsustainable long-term, we have not yet seen meaningful supply rationalizations necessary to rebalance the market. It is our view that it will likely take several years for demand to grow and or supply to rationalize sufficiently for the market to reach a price equilibrium consistent with historical norms. We expect distributions from Shishijam, Wyoming, to remain at historically low levels, potentially zero, for the foreseeable future. We continue to hold an optimistic view of the long-term fundamentals of the sodash market in general and about our investment in Shishijam, Wyoming, in particular. as it benefits from being one of the world's lowest-cost producers. We have no significant progress to report on our carbon-neutral initiatives over the last quarter. The general market for most C&I activities is stagnant, as political, regulatory, and market uncertainties pose significant hurdles for developers contemplating large capital investments for carbon-neutral projects. to summarize the collective market for our three key commodities is as negative as it's ever been despite this the partnership continues to generate robust levels of free cash flow that are being used to pay down debt based on free cash flow run run rates currently we expect to pay off substantially all of our debt in the coming months and be in a position to significantly increase unit holder distribution starting next august with that i will turn it over Chris.
Thank you, Craig. In the second quarter of 2025, NRP generated 34 million of net income and 46 million of both operating and free cash flow. Our mineral rights segment generated 40 million of net income and 46 million of operating and free cash flow. When compared to the prior year second quarter, our mineral rights segment net income decreased 13 million while operating in free cash flow each decreased 11 million these decreases were primarily due to weaker coal markets resulting in lower metallurgical and thermal coal sales prices regarding our second quarter 2025 met thermal coal royalty mix metallurgical coal made up approximately 70 percent of our coal royalty revenues and 55 percent of our coal royalty sales volumes Our soda ash segment generated $3 million of net income and $5 million of operating in free cash flow during the second quarter of 2025. Net income decreased by $1 million compared to the prior year's second quarter, while operating in free cash flow each decreased by $3 million. These decreases were due to lower sales prices driven by weak glass demand from the construction and automobile markets and the influx of new natural soda ash supply from China. We expect prices and our distributions received from Sysijam to remain at these lower levels until demand rebounds or there is a significant supply response, most likely from higher-cost synthetic production. Moving to our corporate and financing segment, Q2 2025 net income, operating cash flow, and free cash flow all improved to $2 million as compared to the prior year period due to less debt outstanding, resulting in lower interest costs and less cash paid for interest. Regarding our quarterly distributions, in May of 2025, we paid the first quarter distribution of $0.75 per common unit, and today we announced the second quarter 2025 distribution of $0.75 per common unit that will be paid later this month. And with that, I'll turn the call over to Kathleen, our operator, for questions.
Operator
Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. And if you would like to withdraw your question, simply press the star 1 again. If you are called upon to ask your question and listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Again, please press star 1 to join the queue. Your first question comes from the line of David Speer of NITR Capital Management. Please go ahead.
Hi, how are you guys? Good morning. Good morning. Given all the weakness in the different areas, whether it be coal or soda, at the point at which you guys get to debt-free, Are there any realistic opportunities to pick up additional royalty assets or soda ash assets? I mean, just, you know, it seems like given the weakness you're seeing, that could be a possibility.
Let's just talk about first the mineral rights market, the market for mineral rights around the country. It's a very fragmented market with many different owners that own many different types of mineral interests. it's not a very well-organized market, so transactions have to be done on a one-off type basis. So there's always possibilities to find those types of investments. But generally speaking, there's not very much trading activity that takes place in those. So it's not something that's very common.
But is that something that was off the table given the priority of the lever and then And once, you know, that has been paid off, then you could possibly look at some acquisitions on a non-levered basis.
Well, I'll tell you, I'll tell you that once that we achieve what we think of as our version of a fortress balance sheet, our three priorities for cash are going to be, number one, unit holder distributions, number two, unit repurchases at material discounts, our estimates of intrinsic value, Number three, opportunistic investments, as you speak of, where we can acquire assets that fall within our circle of confidence, I guess I'd say, at bargain prices.
Got it. I appreciate that. And then outside of the carbon neutral initiatives, are there any other opportunities across your land, whether it be rare earths or some other type of mineral or commodity that's not really there right now that might be a possibility in the future?
I believe the answer to that question is yes, but I do not know that the answer to that question is yes. We like to think that we own, through our vast footprint, literally thousands, if not hundreds of thousands of call options on greatness. Areas that may have value at some point in time in a different economic environment or when a new mineral is found or a new deposit is found. but I cannot say right now that there is anything we're looking at specifically.
Okay. All right. I appreciate it, guys. Thank you so much.
Operator
Your next question comes from the line of John Mason of Aegis Companies. Please go ahead.
Thanks for taking my call. Quarters ago about sort of when you guys are thinking about sort of the next phase of capital returns, and I know you mentioned that the debt doesn't need to go to zero necessarily, but you're going to focus on the highest cost that i think it's been like that was like in q3 last year um so are you guys thinking basically like the opco credit facility you want to get to zero or how are you guys thinking about it in terms of the timing yes yes all right that's very helpful thank you sure thank you and that concludes our q a session i will now turn the conference back over to craig ninis for closing remarks thank you very much um and thank you all of you for
participating in our call. We look forward to talking to you next week or next quarter and we thank you for supporting NRP.
Operator
Ladies and gentlemen, that concludes today's call. Thank you everyone for joining. You may now disconnect.
