One of the first things Kevin noticed when he started his summer
internship with National Resources Partners (NYSE:NRP) was their use
of “base case/worst case/best case” scenarios when evaluating
opportunities to purchase mineral rights (mainly coal) for
properties through the United States. The major sources
of uncertainty for most of NRP’s investments were the future prices
of coal and production levels (as a percentage of predicted
production), and the three chosen scenarios often reflected a single
price for coal throughout the entire future of a project.
This assumption left them with models that were unable to
distinguish among proposals involving future contingencies.
In addition to introducing the firm to Crystal
Ball™, Kevin incorporated a relatively simple times series model of
coal prices (with extensions to account for variation in price by
type of coal) into their project evaluation simulation model.
The more sophisticated models not only gave NRP a more complete
picture of risk, they also allowed for the evaluation of project
terms involving contingent contracts.
Kevin’s work received the following praise from
Kevin J. Craig, VP-Business Development:
“The model Kevin put together using crystal
ball to account for uncertainties in the coal business was useful
and informative for Natural Resource Partners. Using historic data
to create a future forecast for the price of coal and production
volumes will help us to evaluate acquisitions and other projects