Ramaco Resources, Inc. — Q1 2017 Form 10-Q
Reporting period: Three months ended March 31, 2017. The unaudited results include the historical operations of Ramaco Development, LLC, the accounting predecessor, before the February 8, 2017 reorganization and IPO; the prior-year quarter had no coal operations or revenue.
Business context and financial performance
Ramaco produces and sells metallurgical coal in Central and Northern Appalachia. Commercial mining began in January 2017. Q1 sales included coal mined at the Alma Mine and coal purchased from third parties; the company also processed coal for third parties.
| Metric | Q1 2017 | Q1 2016 |
|---|---|---|
| Coal sales revenue | $9.85 million | None |
| Coal processing revenue | $1.69 million | None |
| Total revenue | $11.54 million | None |
| Operating loss | $(3.18) million | $(3.83) million |
| Net loss | $(3.09) million | $(3.83) million |
| Pro forma loss per share | $(0.10) | $(0.17) |
| Operating cash flow | $(6.19) million | $0.45 million |
| Capital expenditures paid | $11.45 million | $1.83 million |
Coal sales and processing costs totaled $10.85 million, leaving $0.69 million of gross margin, approximately 6.0% of revenue. This excludes other operating expenses, depreciation and amortization, accretion, professional fees, and selling, general and administrative costs. The company reported $3.29 million in selling, general and administrative expense, including $2.15 million of accelerated equity-compensation expense related to the IPO. No income tax benefit was recorded.
Liquidity, debt, and capital
At March 31, 2017, cash was $13.97 million, short-term investments were $59.65 million, and long-term investments were $5.20 million. Management reported available liquidity of $78.9 million, comprising cash and investments. Current assets were $78.44 million and current liabilities were $14.82 million.
The company had no note payable at quarter-end. IPO proceeds were used in part to repay the approximately $10.7 million Ramaco Carbon, LLC note in full. The company received approximately $47.7 million after underwriting discounts and commissions, or approximately $43.7 million net of offering expenses paid directly by the company. Financing cash flow was $30.83 million, including IPO proceeds, repayments, offering costs, and distributions.
Investing cash outflow was $15.86 million, reflecting property, plant and equipment purchases and net purchases of investment securities. Net cash increased by $8.77 million to $13.97 million during the quarter. The filing reports a $10.42 million asset retirement obligation; reclamation bonds outstanding were approximately $4.8 million.
Changes, outlook, and risks
- Revenue began with commercial production in January 2017; Q1 2016 had no mining or processing revenue. The prior period’s $3.34 million of total expenses included $3.09 million of costs associated with an abandoned offering, while Q1 2017 included $2.15 million of IPO-related accelerated compensation.
- Property, plant and equipment increased to $63.71 million from $46.43 million, including growth in construction in process and mine development. The company acquired approximately 14,762 acres of coal properties for $125,000, plus an overriding royalty on certain production.
- Management estimated approximately $136 million of spending through 2022 to develop current projects, including approximately $94 million through December 31, 2018. It believed available cash and investments, together with operating cash flow, would fund planned capital and operating needs through 2022.
- Construction contracts included $27.8 million for the Elk Creek preparation plant, loadout and related facilities, with $11.8 million remaining to be billed, and $4.5 million for a railroad spur, with $1.0 million remaining. Completion was scheduled for the second half of 2017.
- Management highlighted coal-price volatility, short-term sales contracting, steel-industry demand, development delays and cost overruns, reserve-estimation uncertainty, and regulatory, environmental, operational, and transportation risks. Cyclone Debbie disrupted Australian supply and lifted spot prices, which management said had begun returning toward pre-disruption levels; Ramaco’s small production footprint limited its ability to benefit from spot-price swings.
- The company stated there were no material changes to previously disclosed risk factors, no material off-balance-sheet arrangements, and no pending litigation expected to have a material adverse effect. No environmental liabilities were recognized. Management reported disclosure controls were effective and no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether initial production and sales at Alma can scale and generate positive operating cash flow, given the small reported gross margin and cash used in operations.
- Progress, remaining funding needs, and schedule for Elk Creek construction and the broader $136 million development program.
- Coal contract pricing, customer concentration, sales volumes, and exposure to metallurgical-coal and steel-market volatility.
- Liquidity available for operations and capital spending, including the composition, maturities, and market value of the investment portfolio.
- Reclamation obligations, surety-bond requirements, permits, and any changes in reserve estimates or environmental exposure.
- The MD&A contains inconsistent figures for Adjusted EBITDA and one comparative net-loss reference; consult the financial statements and reconciliation before relying on those amounts.