While MLPs have surged since February, fewer than a dozen have registered positive total returns for the trailing 12-month period. Only five have double-digit returns during that time. One of the MLPs from the latter category is a name that has never been mentioned in this column before — Ciner Resources (NYSE: CINR). You may be familiar with its previous incarnation, OCI Resources (OCIR), which in 2015 was sold to Atlanta-based Ciner Chemical Corporation.

Ciner is unique in the MLP sector as one of the world’s largest producers of natural soda ash. Soda ash is a key raw material used in the production of glass, chemicals and detergents. The partnership owns a controlling 51% interest in Ciner Wyoming, which is one of the largest producers of soda ash in the world, serving a global market from a facility in the Green River Basin. The facility mines trona, which is a sodium carbonate compound that is processed into either soda ash or baking soda. Wyoming has the world’s largest trona deposit, supplying about 90% of the nation’s soda ash. This mineral is Wyoming’s top export and is shipped to markets around the globe.

In the U.S., per capita consumption of soda ash is nearly 40 pounds per person per year. Global growth is projected to average 3.3% annually over the next decade. Ciner Resources produces about 4 million short tons of trona per year, and its estimated proven and probable trona reserves would last approximately 67 years at the recent production rate.

Ciner Resources has more than 80 domestic customers in industries making flat glass, container glass, detergents, chemicals, paper and other consumer and industrial products. Last year some 62% of domestic sales were made to customers with whom Ciner has done business for more than a decade.

Net sales of $486.4 million rose 4.6% in 2015, while adjusted EBITDA at $133.9 million was up 11.1% over the prior year. Earnings per unit of $2.58 increased 15.7% over the prior year. Distributable cash flow was $55.7 million, up 4.9% from 2014 and provided a distribution coverage of 1.27x.

Ciner declared a fourth-quarter distribution of $0.5575 per unit, an increase of 4.9% in a year’s time. Last week Ciner released first-quarter results, and reported a further 1.2% increase in the distribution from the immediately prior quarter, to $0.564 per unit. This most recent distribution translates into an annualized yield of 8.2%. The coverage ratio, however, fell to 1.11x for the quarter.

Should the distribution continue to grow, CINR’s general partner, Ciner Resource Partners LLC, does have incentive distribution rights (“IDRs”), paid according to the following schedule:

Given the volatility of the energy space, this seemingly boring business line may provide an appealing alternative for MLP investors looking for stable income. It is one of only a handful of MLPs that escaped the carnage in the broader energy sector relatively unscathed, but it is unlikely to appeal to investors looking for more potential upside.  

(Follow Robert Rapier on Twitter, LinkedIn, or Facebook.)

Portfolio Update

Cloudy Forecast for Delek Logistics

While refining stocks have tanked egregiously so far this year, the logistics affiliates most refiners have spun off have shown relative resilience, outperforming the MLP sector on the whole.

The good fortune was largely warranted, since the refinery logistics providers have no direct commodity exposure. Their overwhelming dependence on the sponsors whose refineries they serve is somewhat mitigated by long-term, fixed-fee contracts that typically include inflation-linked escalators.

But that doesn’t mean this niche is immune from the wider trends, and the quarterly results reported last week by Delek Logistics (NYSE: DKL) provide a good example.

On the face of it, there wasn’t much cause for complaint: distributable cash flow increased 22%, providing 1.19x coverage for a payout hiked 15% year-over-year.

But wholesale fuel marketing profits in West Texas continued to shrink on lower demand amid the slowdown in Permian Basin drilling.

More crucially, the Paline pipeline in Eastern Texas, which accounted for 19% of the profit margin in the most recent quarter, is now expected to lose the bulk of that cash flow after June as one shipping contract expires and another continues at a reduced rate before expiring in December. That’s almost certainly driven by the surrounding region’s diminishing crude output.

Making up for some of that will be two new crude pipelines coming online later this year, both joint ventures in which DKL’s sponsor Delek Holdings (NYSE: DK) is an anchor shipper. Delek is also planning to sell to Delek Logistics some or all of its retail assets, comprised of 355 filling stations and convenience stores across the Southeast.

The parent company has fallen on cyclical hard times like all the refiners, its share price dropping from $40 in July to the current $14. Delek’s refining profits got squeezed in the first quarter with a key crack spread only half as wide as a year earlier, though margins have perked up over the last month. It needs cash to complete the buyout of another refiner, so DKL will likely need to sell a lot of equity to pay for all those gas stations. The prices of such assets have soared to record highs over the past year as low gas prices boost traffic and merchandise sales.

Such a sale wouldn’t necessarily be an immediate negative for DKL, in fact it might initially boost its distribution coverage since it will likely borrow some of the purchase price. And while one can legitimately worry that DKL will overpay, it’s not exactly news that intramural asset sales — known as dropdowns — usually favor the selling sponsor.

Those risks are fairly reflected in what is now an 8.7% yield, after the unit price slid 10% the day of the report and has lost more ground since. That’s an attractive rate for a payout that’s still growing rapidly and is largely secured with fixed-price sponsor contracts.

But we’d defer any buying at least until the aftermath of the next big equity offering. Growth  pick DKL is downgraded to Hold and removed from the Best Buys list.   

— Igor Greenwald