Ramaco Resources, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Ramaco develops and operates metallurgical coal mines in Appalachia. Unless noted otherwise, financial amounts below are in millions of dollars.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $76.4 | $39.5 | $195.9 | $117.8 |
| Operating income (loss) | $8.8 | $(7.6) | $17.0 | $(10.7) |
| Net income (loss) | $7.0 | $(4.8) | $21.1 | $(0.2) |
| Adjusted EBITDA | $17.8 | $0.6 | $47.4 | $19.9 |
| Operating cash flow | Not stated for quarter | Not stated for quarter | $37.8 | $0.9 |
Q3 revenue rose 94%, reflecting 50% more tons sold and a 35% increase in revenue per ton (FOB mine) to $105. The company sold 644,000 tons. Q3 cash cost per ton (FOB mine) was $72, versus $69 a year earlier. For the nine-month period, tons sold increased 45% to 1.75 million, revenue per ton rose 13% to $98, and cash cost per ton declined to $68 from $70.
Q3 operating margin was approximately 11.5% and net margin approximately 9.2%, calculated from reported figures. Nine-month operating margin was approximately 8.7% and net margin approximately 10.8%.
Financial position and liquidity
- At September 30, cash and cash equivalents were $46.7; restricted cash was another $1.0. Working capital was approximately $57.2, based on current assets of $102.5 and current liabilities of $45.3.
- Operating cash flow for the first nine months was $37.8; capital expenditures were $17.6, primarily for mine development and infrastructure. Working capital movements had a net negative cash impact of $11.7.
- The company reported $27.1 of unused revolving-credit availability at quarter-end; the revolver had no balance outstanding. The October 29 amendment subsequently increased the facility to $40 million and extended maturity to December 31, 2024.
- Debt included $34.5 principal of 9% senior notes due 2026, a $4.2 term-loan balance, $2.6 equipment-loan balance, and approximately $0.8 and $1.0 on two additional equipment loans. Financing-lease obligations were $7.9. The company said it was in compliance with credit-agreement covenants at quarter-end.
Material changes and unusual items
- Results improved sharply versus 2020 as sales volumes and coal pricing recovered. Management attributed the prior-year weakness largely to the effects of COVID-19.
- In July, Ramaco issued $34.5 million of 9% senior notes, receiving proceeds net of $2.4 million in offering costs. Interest expense increased year over year, in part because of the notes.
- Nine-month 2021 other income included $5.4 million from the CARES Act Employee Retention Tax Credit. The company did not expect to qualify for the credit in Q4. In 2020, other income included $8.4 million for anticipated PPP-loan forgiveness; full forgiveness was approved in July 2021.
- Q3 sales to the three largest customers represented approximately 64% of revenue; those customers also represented approximately 63% of receivables at quarter-end.
Outlook, contingencies, and risks
- Management described improving metallurgical-coal demand and stronger steel prices and said it expected favorable market conditions to continue into the next quarter. It did not provide formal earnings guidance.
- For the remainder of 2021, performance obligations included approximately 0.5 million tons at an average fixed price of $84 per ton, plus 0.1 million tons under index-based pricing.
- After quarter-end, Ramaco reported 2022 domestic contracts for 1.67 million tons at an average price of roughly $196 per short ton FOB mine, about 54% of projected 2022 production of 3.1 million tons. Its longer-term plan is to grow production toward approximately 5 million clean tons, subject to markets, permits, and capital deployment.
- After quarter-end, the company agreed to acquire certain assets for $30 million, with closing expected in mid-November 2021 subject to customary conditions. The board also authorized quarterly dividends beginning in Q1 2022; the amount had not yet been set.
- A jury awarded Ramaco $7.7 million in compensatory damages and $25.0 million for inconvenience and aggravation in its insurance dispute over the Elk Creek silo failure. The verdict was not final and could face post-trial motions or appeal; no gain was recognized as of September 30, 2021.
- Other exposures include $4.6 million of contingent take-or-pay transportation commitments and $15.8 million of reclamation bonding requirements supported by surety bonds. Management cited transportation availability, customer payment timing, equipment costs, mine-development delays, and coal-market conditions as potential liquidity risks.
- Management reported no material change in the risk factors disclosed in its 2020 Form 10-K and no material off-balance-sheet arrangements. Disclosure controls were assessed as effective.
Important facts for investors to verify
- Whether the strong 2022 contracted price and volume translate into realized revenue, production, and cash flow.
- Customer concentration, receivables collection, and exposure to changes in metallurgical-coal pricing and export demand.
- The timing, funding, and expected contribution of the $30 million asset acquisition, alongside mine-development capital needs.
- The final outcome and collectability of the insurance verdict, which was not recorded as an asset or gain at quarter-end.
- The eventual dividend amount and sustainability, and the company’s ability to service 9% notes and other debt while funding operations and growth.
- Adjusted EBITDA and per-ton figures are non-GAAP measures; review the filing’s reconciliations and definitions when comparing them with other companies.