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Ouch, NRP Just Fell 17%

My NRP coal partnership got blasted to the tune of 17% after announcing the coal market continued to weaken in 2013, against their expectation. In response to the weak sales of power production and metallurgical coal, NRP’s board announced a 36% reduction in distributions.

This hurts, as I guessed that $20 would average the low mark in the name. Clearly, I was wrong.

I am not selling NRP, though (not yet, at least). My primary reason for buying into NRP was more predicated on coal being a very inexpensive sector to get exposure to and the medium term unlikelihood that the US or global economies will be able to pivot away from coal quickly.

I’ll ride this out for a little bit and see where it goes. There’s been long speculation that NRP may have to cut its distribution, because their debt level is high and their board has ambitious goals to diversify their royalty stream into a variety of commodities, such as raw materials for glass or gas and oil.

The board has reaffirmed they don’t think the partnership is at risk of violating bond covenants, and I think the five year forecast distribution is more likely to contain upside surprises.

NRP is sinking me ~1.5%, which is actually being generously offset by gains elsewhere. NRP was a smaller position than, say, CCJ or BAS. For the day, I am down just ~.5% so far. But we’ll see if NRP doesn’t bleed out hard into the close

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Bought Half Position – NRP

An old play, NRP, is back in my books today for $19.71. I added this at 5% of assets, keeping it small.

The play is on coal prices. Natural gas prices have increased and are no longer rock bottom. And, life in America has not changed that much. Obama and his EPA army of extremists notwithstanding, coal consumption is set to increase in America this year. And attempts to mess with that will cost everyone dearly.

I’m not going with a full position because I understand how much this administration hates coal. But, I don’t really think there’s anything they can do about it.

NRP is an LMLP and pays out a very large dividend while I wait. They’ve had problems, naturally, from competition with natural gas. However, they’ve been moving steadily to diversify their royalty revenues, and I think coal will surprise to the upside, as it becomes clear the industry is still essential to American interests.

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