Greystone Capital Management LLC

$NRP is starting to look interesting. This is a cheap coal (80% met coal) royalty business that has been on a deleveraging path for the last 10 years. The company will likely pay off its remaining debt this year and begin paying dividends. Considering that it trades at less than 4x FCF (ex. stake in soda ash biz), the start of dividend payouts should be a meaningful catalyst. Based on my estimates, there’s about 60% upside in this setup, even assuming $150M in norm. FCF ($220-230m last year), a level the company has almost never reached. During the low met coal pricing years (2015–16 and 2019), distributable cash flow from the coal business was between $187M and $214M, so $150M is a pretty conservative assumption. I’m capitalizing it at a 10% yield, which is more than reasonable given the quality of the royalty stream operations. This also excludes the COVID-affected years when distributable cash flow dropped to trough levels of $130M. Why is the company cheap? There are several reasons for NRP’s undervaluation. For one, it’s structured as an MLP, which by default limits the pool of interested investors. Additionally, coal remains an unloved industry among larger funds, so it’s no surprise the company trades at these levels. On top of that, we’re currently in a low coal and soda ash pricing environment due to weaker Chinese demand. Despite this, NRP operates a royalty business with minimum payment commitments and limited exposure to global pricing and volume volatility. As a result, even a highly conservative normalized FCF estimate of $150M seems to more than compensate for the majority of these supply and demand-side risks. The company owns 13m acres of mineral rights across various parts of the U.S., primarily for coal, most of which is metallurgical coal. These properties are leased for 5 to 40 years to some of the lowest-cost producers in the world. The mineral rights business generates about 80–85% of the company’s total distributable cash flow, with the remainder coming from its soda ash business. Leading up to 2016, the previous management team pursued an aggressive M&A strategy and took on significant leverage. When coal prices collapsed in 2016, the company nearly went bankrupt. The CEO was removed, and new management pivoted to a strategy focused on debt reduction and selling off non-core assets. To survive the debt burden, the company was also forced to issue preferred equity and warrants, though these later became an overhang. Last year, all of the preferreds and warrants were finally eliminated. Now, with just a minimal amount of debt remaining (= to 1y of FCF), the company is positioned to start issuing dividends. Finally, insiders own nearly 25% of the stock, so they’re well-incentivized to pursue buybacks or significantly higher dividend payouts.

We reached 50 subscribers. I’m extending a lifetime 20% discount for the next 25 subs. The discount link is in the post below.

I wrote about some interesting ideas for 2025 and beyond (below). This may become a recurring post. Businesses discussed: $AT.L $CVEO $SYZ.TO $MCCK $BILD $TIC

I’m excited to announce that after five years of managing Separate Accounts, we have launched a commingled investment fund, Greystone Capital Partners LP, which is now accepting subscriptions from accredited investors. As of today, with the exception of large institutional accounts, I will no longer be onboarding individual separate account clients.