Business Context and Reporting Period
Company: Ramaco Resources, Inc. (formerly Ramaco Development, LLC)
Reporting Period: Fiscal year ended December 31, 2016
Business Overview: Ramaco is an operator and developer of high-quality, low-cost metallurgical coal in southern West Virginia, southwestern Virginia, and southwestern Pennsylvania. The company holds a portfolio of four long-lived projects: Elk Creek, Berwind, RAM Mine, and Knox Creek. While initial production commenced in late December 2016, commercial production and revenue generation began in January 2017. The company completed its Initial Public Offering (IPO) on February 8, 2017, listing on the NASDAQ Global Select Market under the symbol "METC."
Key Financial Metrics (Year Ended Dec 31, 2016)
| Metric | Value (in thousands) |
|---|---|
| Total Revenue | $5,216 |
| Net Loss | $(7,515) |
| Operating Loss | $(7,529) |
| Cash Flow from Operating Activities | $(3,861) |
| Cash Flow from Investing Activities | $(77,463) |
| Cash Flow from Financing Activities | $85,527 |
| Total Assets | $119,209 |
| Total Liabilities | $35,421 |
| Cash and Cash Equivalents | $5,197 |
| Short-term Investments | $55,238 |
| Asset Retirement Obligations (ARO) | $10,129 (Total) |
Note: Revenue consisted of $2.2 million from coal sales (purchased from third parties) and $3.0 million from coal processing services. The company had no revenue from its own mining operations in 2016.
Material Changes vs. Prior Period
- Revenue Generation: The company generated $5.2 million in revenue in 2016, compared to zero revenue in 2015. This was driven by the acquisition of the Knox Creek facility in July 2016, which allowed for third-party coal processing and sales.
- Net Loss Expansion: Net loss increased significantly to $7.5 million in 2016 from $2.3 million in 2015. This was primarily due to a $3.1 million charge for professional fees related to an abandoned private equity offering and increased general and administrative expenses ($3.1 million vs. $0.9 million) due to personnel additions and insurance costs.
- Capital Expenditures: Cash used in investing activities surged to $77.5 million in 2016 from $3.5 million in 2015, largely due to the purchase of $64.8 million in investment securities and the acquisition of the Knox Creek facility.
- Liquidity Position: Cash and investments increased from $1.0 million in 2015 to $60.4 million in 2016, funded primarily by the issuance of Series A preferred units ($83.7 million net proceeds).
Guidance, Outlook, Risks, and Unusual Items
Outlook and Guidance
The company expects to incur significant capital expenditures until development is complete, estimating approximately $133.0 million required through 2022 to fully develop current projects. Management believes current cash and investments are sufficient to meet capital expenditure and operating plans through 2020. Commercial production from the first mines began in January 2017.
Material Risks
- Development Delays: Properties have not yet been fully developed into producing mines. Delays in permitting, construction, or equipment availability could materially harm operations.
- Customer Concentration: In 2016, two customers accounted for approximately 93% of total revenue.
- Commodity Price Volatility: Metallurgical coal prices are highly volatile. The company does not expect long-term sales contracts and will be exposed to market pricing fluctuations.
- Regulatory and Environmental: Operations are subject to stringent federal and state regulations (SMCRA, Clean Air Act, Clean Water Act). Changes in regulations or permit denials could restrict operations.
- Internal Controls: The company identified a material weakness in internal control over financial reporting related to the capitalization of fixed assets and mine development costs prior to December 31, 2015. Management has taken steps to remediate this by hiring additional finance personnel.
Unusual Items
- Abandoned Offering Costs: The company expensed $3.1 million in professional fees in 2016 related to a planned private offering that was not pursued.
- Related Party Transactions: Substantially all mining properties are leased from affiliates (Ramaco Carbon, LLC). A $10.6 million promissory note to Ramaco Carbon, LLC was outstanding at year-end but was repaid in February 2017 using IPO proceeds.
Investor Verification Checklist
- Permitting Status: Verify the status of pending permits for the Berwind and RAM Mine projects, which are critical for future production.
- Customer Contracts: Confirm the renewal or replacement of contracts with the two major customers that comprised 93% of 2016 revenue.
- Capital Expenditure Schedule: Monitor the $133 million capital requirement through 2022 against actual cash burn and revenue generation post-IPO.
- Internal Control Remediation: Review subsequent filings to confirm the material weakness in internal controls has been fully remediated.
- Coal Price Sensitivity: Assess the impact of current metallurgical coal spot prices on the economic recoverability of the company's reserves.