Natural Resource Partners LP, which leases coal reserves to miners, may see lower royalties as its clients find it increasingly difficult to obtain permits to mine, its chief operating officer said.

The Houston-based company does not operate any mines but is vulnerable to the ups and downs in the broader coal market as it receives royalty payments on each ton of coal produced and sold by its lessees.

Of the big picture issues we have had, there has been a tremendous delay in giving permits to mine coal and that is beginning to have a significant impact on the amount of coal that is being produced, COO Nick Carter told Reuters in an interview.

Revenue for the company, which leases its reserves to almost all public coal companies in the United States, barring a few western operators, comes directly from the topline figure of its lessees, he said.

If their sales are affected either by the amount of coal that is sold or the price at which it is sold, that is going to impact the royalty they pay, Carter added.

Besides the production cuts that the recession has forced upon coal producers, environmentalists have moved the courts against the use of explosives to blast the surface above the coal and the poisoning of streams, resulting from the storage of the residue in the valleys.

Production cutbacks are just a fact of life in a market like this... the other things that concern us relate to the permitting issues that have been brought forward by the U.S. Environment Protection Agency, the Army Corp of Engineers and the issues that this administration is raising against mining coal, Carter said.

These protests have gained momentum since the Obama Administration came into power, Carter said, referring to climate change being one of the top priorities for the U.S. President.

If the courts rule in favor of the activists, producers are not going to be able to get permits, the mines will close and they will not be able to produce the coal they have been deriving access to mine, he said, implying dire consequences for coal companies.

The industry is not only concerned about the closure of the mountaintop and surface mines, but also anxious about the numerous jobs that will be lost in the process, Carter said.

The COO also said the company, whose thermal coal reserves account for 75 percent of its property, is closely monitoring the electric utility industry to see whether coal would continue to be used as a source for generating electricity, as the industry reviews the use of other alternative fuels for the same.

PROWLING FOR MORE MET COAL RESERVES

The company, which has spent over $1 billion in about 37 acquisitions till date, is leaving no stone unturned in a bid to add more assets to its portfolio.

We're as busy as we could possibly be, Carter said.

Carter also said the company is looking at met coal reserves, saying he is a firm believer in its value and expects a shortage in produce once the crisis is over.

The production of metallurgical (steelmaking) coal will always be sold at a higher price than steam coal...and if we get a percentage of the sales price, we're better off owning met coal than we would with steam coal, he said.

The company is betting on the Illinois basin due to the numerous scrubbers, or desulphurization systems, that have been installed in the power plants there.

But does the company face a threat from its lessees who might also take advantage of the cheap valuation in the markets to buy their own mines?

We have not seen competition from producing companies in the acquisitions that we have looked at, Carter said.

The company said it lessees did not prefer to use their cash to buy long-term assets if they could find a company like Natural Resource who would buy the assets, he added.

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