Ramaco Resources, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. The filing was signed March 31, 2022. Ramaco is a U.S. metallurgical-coal operator and developer, with properties in West Virginia, Virginia and Pennsylvania; its common stock trades as METC.
Business context and operating performance
Ramaco sold 2.286 million tons in 2021, including 2.239 million company-produced tons. Sales were split approximately 51% to North American markets and 49% to export markets, excluding Canada. Three customers represented about 58% of revenue. The company reported 39.16 million clean recoverable reserve tons and 768.77 million measured-and-indicated resource tons; resources are not reserves and are not necessarily economically recoverable.
Financial results
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $283.4 million | $168.9 million |
| Operating income (loss) | $39.5 million | $(19.1) million |
| Net income (loss) | $39.8 million | $(4.9) million |
| Diluted EPS | $0.90 | $(0.12) |
| Adjusted EBITDA | $79.0 million | $18.5 million |
| Cash from operating activities | $53.3 million | $13.3 million |
| Capital expenditures | $29.5 million | $24.8 million |
Revenue increased about 68%, reflecting higher realized pricing and sales volumes as metallurgical-coal and steel markets recovered. Company-produced coal realized $108 per ton FOB mine versus $85 in 2020; company-produced cash cost was about $70 per ton versus $72. Operating margin was approximately 14% and net margin approximately 14%; Adjusted EBITDA margin was approximately 28% (non-GAAP).
Investing cash outflow was $59.6 million, including $30.1 million for the Amonate acquisition; financing cash inflow was $22.4 million. Cash and cash equivalents were $21.9 million at year-end. Reported available liquidity was $61.0 million, including $39.1 million available on the revolving facility. Current assets were $86.8 million and current liabilities $46.7 million.
Reported debt at year-end was $43.4 million carrying value, including $32.4 million net carrying value of the 9% Senior Notes; financing lease obligations added $8.1 million. The $40 million revolving facility had no borrowings outstanding. The company reported compliance with its credit agreement covenants.
Material changes and significant items
- Berwind development resumed in 2021 and reached the Pocahontas No. 4 seam; the company expects ramp-up in 2022. Ramaco acquired the adjacent Amonate assets for approximately $30 million, including an idled 1.3-million-ton-per-year preparation plant.
- Other income included a $5.4 million Employee Retention Tax Credit in 2021. FY2020 included $8.4 million of PPP loan forgiveness income; the SBA confirmed full forgiveness in July 2021.
- Ramaco issued $34.5 million of 9% Senior Notes due 2026 and expanded its revolving credit availability to $40 million. Interest expense rose to $2.6 million from $1.2 million.
- Mineral reserve totals fell to 39.16 million tons from 257 million reported for 2020, primarily because of the new Regulation S-K Subpart 1300 classification and disclosure requirements, with other effects including acquisitions, prices and production. The resource total is a different category and should not be treated as reserves.
- In February 2022, the board increased the planned annual base dividend from $10 million to $20 million. Also in February, a subsidiary agreed to acquire Ramaco Coal, LLC, a related party, for $65 million: $5 million at closing and $60 million in deferred payments due by December 31, 2023.
Outlook, risks and contingencies
At year-end, the company had forward sales commitments for 1.8 million tons in 2022 at an average realizable price reported as approximately $187–$188 per ton FOB mine, mostly fixed-price North American contracts. Management planned 2022 capital expenditures of $65–$85 million, including work to refurbish the Amonate plant, and described a medium-term goal of approximately 5 million annual clean tons, subject to market conditions, permits and capital availability. Elk Creek plant capacity upgrades were expected to be completed in 2023.
- Results remain exposed to volatile metallurgical-coal prices, steel demand, short-duration sales contracts, customer concentration and customer credit risk. COVID-19 effects and supply-chain or transportation constraints could disrupt production, deliveries and costs.
- Permitting, environmental and mine-safety requirements, reclamation obligations, equipment availability, development delays and capital needs may constrain growth. The company operates in one geographic region and relies on rail and processing infrastructure.
- On March 4, 2022, a court reduced the jury award in the Elk Creek silo-insurance case from approximately $32.7 million to $1.8 million, including prejudgment interest. Ramaco was considering its options, including appeal. Management said no pending litigation was expected to have a material adverse effect.
- A contractor employee died in an underground accident at Berwind on February 28, 2022; authorities and the company were investigating.
- Management identified a material weakness in IT general controls, including user access and segregation of duties, and said remediation was underway. Management concluded the financial statements were fairly presented; the auditor did not issue an internal-control effectiveness opinion.
Important facts for investors to verify
- Whether 2022 contracted pricing and volumes are realized, and whether the planned production ramp and $65–$85 million capital program remain on schedule and within budget.
- How the Amonate plant refurbishment and acquired reserves contribute to output, costs and liquidity; confirm the terms and funding of the related-party $65 million transaction.
- Customer concentration, receivable collections and the sensitivity of margins and cash flow to coal prices and transportation costs.
- Debt repayment capacity, the 9% notes’ interest burden, revolving-facility availability, covenants, and cash available after capital spending and dividends.
- Progress in remediating the IT-controls material weakness and any findings from the Berwind fatality investigation.
- Final outcome of the silo-insurance litigation and the economic value of the company’s reported reserves, resources and development plans.