A misunderstood mineral rights royalty company generating 67% profit margins and 10%+ free cash flow yields, hidden behind the 'coal company' label that keeps most investors away
John Huber
Saber Capital Management
“John Huber: 'The best investments are often found in places where most investors refuse to look. NRP is a world-class royalty business hiding behind a coal company label.'”
The Business
- Natural Resource Partners is a mineral rights royalty company owning interests across 13 US states, primarily in Appalachia and the Illinois Basin
- Revenue comes from coal royalties, oil and gas royalties, aggregate (sand/gravel) royalties, and other mineral rights — a diversified royalty stream
- The company operates as an MLP (master limited partnership) with ~minimal employees, functioning as a pass-through entity for royalty income
- FY2025: $202M revenue, $136M net income, $166M free cash flow with 67% profit margins
Why They Own It
“John Huber: 'The best investments are often found in places where most investors refuse to look. NRP is a world-class royalty business hiding behind a coal company label.'”
- NRP owns mineral rights across 13 states — a diversified royalty business, not just a coal company, with oil, gas, aggregates, and timber revenue growing
- Profit margins of 67% reflect the royalty model: NRP collects payments with minimal operating costs and no production risk
- FY2025: $202M revenue, $136M net income, $166M free cash flow — generating a 10%+ FCF yield at current market cap
- The coal stigma and MLP structure keep institutional investors away, creating persistent mispricing that Huber exploits
- Management is actively converting from an MLP to a corporation, which would broaden the investor base and close the valuation discount
What the investor sees
NRP trades at approximately $118/share with a market cap of ~$1.6B, or roughly 10x earnings and yielding 10%+ in free cash flow. Huber's thesis is that the market applies a permanent coal discount to NRP despite the company being a diversified mineral royalty business. As coal revenue gradually declines, oil/gas and aggregate royalties are growing, but the market hasn't re-rated the stock to reflect this transition.
Financial Snapshot
$202M
revenue FY2025
$136M
net income
$10.04
eps
$166M
free cash flow
67%
profit margin
~10%
fcf yield
Millions across 13 states
mineral acres
~$118
stock price
The Moat
- Perpetual mineral rights — NRP's rights never expire and generate royalties regardless of who operates the mines or wells
- Zero production risk — as a royalty owner, NRP bears no drilling costs, mining costs, or commodity price risk on production
- Diversified mineral base — coal, oil, gas, aggregates, and timber royalties provide revenue diversification beyond coal
- Geographic diversification — mineral rights across 13 states reduce single-region concentration risk
- Extremely low operating costs — minimal employees and overhead create one of the highest margin businesses in the resource sector
What Could Go Wrong
Secular coal decline — coal demand is declining as utilities switch to natural gas and renewables, reducing coal royalty revenue
MLP structure complexity — the limited partnership structure deters many institutional investors and creates tax complexity
Small market cap and illiquidity — limited trading volume can make it difficult to build or exit positions
Environmental and regulatory risk — stricter environmental regulations could further accelerate coal mine closures
Distribution uncertainty — as an MLP, distributions can be cut if cash flow declines
Catalysts
- MLP-to-corporation conversion would broaden the investor base and potentially trigger re-rating
- Growing oil/gas and aggregate royalties diversifying away from coal dependency
- Special distributions returning excess cash to unitholders at a 10%+ yield
- Increased natural gas demand from AI data centers benefiting NRP's gas royalties
- Potential mineral rights acquisitions expanding the royalty base
In Their Own Words
“John Huber: 'I look for businesses that generate high returns on capital with durable competitive advantages. Mineral rights are perpetual — the royalties flow regardless of who operates the mines.'”
“John Huber: 'The market often confuses an industry in decline with a company in decline. NRP's royalty model means it profits from any activity on its mineral rights, and the rights last forever.'”