Ramaco Resources, Inc. — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. Ramaco operates and develops metallurgical coal mines in Appalachia. The unaudited results reflect a sharp market downturn during the COVID-19 pandemic.
Financial performance and liquidity
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $36.4 million | $65.8 million | $78.3 million | $123.2 million |
| Operating income (loss) | ($4.3 million) | $12.9 million | ($3.2 million) | $21.1 million |
| Net income | $2.7 million | $10.6 million | $4.6 million | $17.5 million |
| Adjusted EBITDA | $10.8 million | $19.1 million | $19.2 million | $32.8 million |
| Diluted EPS | $0.06 | $0.26 | $0.11 | $0.43 |
- Q2 revenue fell 42% year over year; net income declined 75% and Adjusted EBITDA declined 43%. Management attributed the declines primarily to lower coal prices and sales volumes.
- Q2 coal sold was 362,000 tons versus 525,000 tons in the prior-year period. FOB-mine revenue per ton was $91 versus $116; cash cost per ton was $74 versus $73. For the first half, sales were 778,000 tons versus 1.003 million, revenue per ton was $92 versus $111, and cash cost per ton was $70 versus $72.
- Q2 other income included $7.3 million of anticipated PPP loan forgiveness, materially supporting reported net income. Forgiveness had not yet been finalized.
- Six-month operating cash flow was $6.8 million, capital spending was $18.0 million, and net cash from financing activities was $15.5 million. Cash and cash equivalents were $9.8 million at June 30; the company reported another $1.4 million in restricted cash.
- Balance-sheet funded debt was approximately $20.8 million, compared with $12.9 million at year-end 2019. Debt included $8.0 million outstanding on the revolver, an $8.3 million term-loan balance, and a $4.5 million equipment-loan balance. Revolver availability was $22.0 million; the company was in compliance with debt covenants.
- Current assets were $54.2 million and current liabilities were $27.8 million at June 30, 2020.
Material changes and operating developments
- COVID-19-related weakness in global steel and metallurgical coal demand reduced spot sales and prices and contributed to increased inventories. Two customers delayed or curtailed contracted purchases, potentially affecting up to 12% of 2020 contracted sales volumes.
- The company furloughed 203 Elk Creek employees for two weeks in April, later recalled workers using PPP proceeds, reduced certain executive salaries by 30%, and partially closed the Berwind development mine in July, affecting approximately 44 jobs. It also reduced or deferred non-essential capital spending.
- For the remainder of 2020, outstanding commitments included approximately 0.8 million tons at an average fixed price of $93 per ton and 0.1 million tons under index-based pricing. Of the fixed-price volume, 0.2 million tons at $91 per ton could be delayed or not shipped.
- Longer-term, management described a plan to grow production to more than 4–4.5 million clean tons, subject to market conditions, permitting, and capital deployment. This is a strategic target, not a near-term production forecast.
Outlook, risks, and contingencies
- Management said cash on hand, operating cash flow, and available credit were expected to support current operating and capital plans, while acknowledging substantial uncertainty from the pandemic. Further spending reductions, mine idling, furloughs, or other financing could be considered.
- Key risks include further customer curtailments, weaker coal prices and demand, customer concentration, transportation and supply disruptions, and delays or cost overruns in mine development. Two customers represented 50% of first-half revenue and approximately 45% of accounts receivable at June 30.
- The $8.4 million PPP loan was recognized as a government grant in substance; $7.3 million was recorded as other income and $1.1 million remained deferred. The company expected full forgiveness but noted that eligibility and forgiveness could be challenged or affected by evolving SBA guidance. The filing warns of potential legal costs and civil or criminal penalties if eligibility certifications were found deficient.
- Contingent rail and export-terminal take-or-pay liabilities were $4.1 million, expiring March 31, 2021, and decline as contracted services are used. The company also reported an ongoing insurance coverage lawsuit over the 2018 Elk Creek silo failure; trial was scheduled to begin December 8, 2020. Management reported no accrual for litigation matters.
Most important facts for investors to verify
- Whether customer delays, force majeure, or material-adverse-change notices result in lost or rescheduled contracted sales, and the effect on realized prices, volume, and inventory.
- Whether the PPP loan is forgiven in full and whether any SBA review or challenge affects the accounting or liquidity.
- Cash generation after capital expenditures, use of the remaining revolver availability, and debt service as operating conditions evolve.
- Progress on mine development and planned production, including the impact of the Berwind partial closure and any further operating reductions.
- Outcome of the insurer dispute and exposure under take-or-pay commitments and other reclamation or operating contingencies.