Ramaco Resources, Inc. — Q3 2017 Form 10-Q
Business context and reporting period. This unaudited quarterly report covers the three and nine months ended September 30, 2017. Ramaco develops and produces metallurgical coal in Appalachia; commercial production began in January 2017. The February 2017 IPO and corporate reorganization, and the start of commercial mining, limit comparability with 2016.
Financial performance and position
| Metric | Q3 2017 | Nine months 2017 |
|---|---|---|
| Revenue | $14.4 million | $37.0 million |
| Operating loss | $6.3 million | $13.2 million |
| Net loss | $6.2 million | $12.8 million |
| Loss per share | $0.16 | $0.35 |
| Adjusted EBITDA (non-GAAP) | $(5.0) million | Approximately $(9.0) million |
- Q3 revenue comprised $14.4 million of coal sales; the company sold 100,992 tons of its own coal and 55,767 tons of third-party coal. Coal sales cost was $14.8 million, exceeding sales revenue by about $0.3 million.
- Nine-month revenue included $34.8 million in coal sales and $2.2 million in third-party processing. Coal sales cost was $35.6 million; processing costs were $2.2 million.
- At September 30, cash and cash equivalents were $9.3 million and short-term investments were $19.9 million, or $29.1 million of stated available liquidity. Current assets were $37.2 million and current liabilities $17.2 million.
- Debt was zero at quarter-end; the company repaid its related-party note using IPO proceeds. Total liabilities were $27.9 million, including $11.9 million of asset retirement obligations.
- Nine-month operating cash flow was negative $12.5 million; investing cash flow was negative $12.7 million, including $53.3 million of property and equipment purchases; financing cash flow was positive $29.3 million. Cash increased $4.1 million to $9.3 million.
- Property, plant and equipment, net, rose to $103.0 million from $46.4 million at year-end 2016, reflecting development spending. No income tax benefit was recorded; management expected a tax loss and a valuation allowance against related net operating loss carryforwards.
Changes, outlook and risks
- Compared with Q3 2016, revenue shifted from third-party coal processing to coal sales, but net loss widened from $1.5 million to $6.2 million. Higher selling, general and administrative expense, operating costs, and depreciation reflected a growing organization and active mining. Nine-month 2017 results also include $2.5 million of equity-based compensation.
- The Elk Creek preparation plant became operational in late October 2017, after the quarter. Management said delays to the plant and loadout had caused lost sales and higher trucking and third-party processing costs. As of September 30, two Elk Creek mines were operating and three other mines were under development.
- Management estimated approximately $136 million of spending through 2022 to develop current projects, with about $85 million invested through September 30. It believed cash and investments, together with operating cash flow, would fund plans through 2020. Future funding could include debt or equity, asset sales, or a short-term credit facility.
- Coal pricing is volatile, and sales contracts are generally short-term. Management cited sensitivity to steel demand, global supply and demand, Chinese policy, currency movements, and the possibility of renewed supply or lower demand. Delays, cost overruns, permitting, operations, transportation and equipment availability also pose risks.
- Commitments and contingencies include $12.2 million of reclamation bonds and $1.7 million remaining to be billed under a $27.8 million plant and loadout construction contract. No environmental liabilities were recognized. Management reported no material pending legal matters and no material change in previously disclosed risk factors.
- The board has a policy of considering cash dividends, but amounts depend on liquidity needs; the filing gives no specific dividend guidance. Management expects revenue recognition guidance adopted in 2018 to have no significant impact, while its assessment was ongoing.
Important facts for investors to verify
- Whether the Elk Creek plant’s startup improved production, sales volumes, and unit costs after quarter-end.
- Cash burn, remaining development commitments, and the assumptions supporting liquidity through 2020.
- Coal sales pricing, contract coverage, and whether coal sales margins improve as company facilities replace third-party processing and trucking.
- Reclamation obligations, bond requirements, permitting status, and potential project cost overruns.
- The exact nine-month Adjusted EBITDA figure: the filing’s narrative and reconciliation differ slightly; both indicate a loss of approximately $9.0 million.