Alpha Metallurgical Resources, Inc. — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; comparisons are with 2020. This is an annual filing, not a standalone fourth-quarter report. The company, formerly Contura Energy, changed its name and ticker to Alpha Metallurgical Resources (NYSE: AMR) in February 2021.
Business context
Alpha is a Central Appalachian coal producer focused strategically on metallurgical coal for steelmaking, with thermal coal mainly as a by-product or from remaining thermal operations. At year-end it reported 20 active mines, eight preparation and load-out facilities, a 65% interest in Dominion Terminal Associates, and 351.1 million tons of proven and probable reserves, including 335.8 million tons of met reserves. The former Pennsylvania NAPP operations are reported as discontinued operations following their 2020 sale.
Financial and operating performance
| Metric | 2021 | 2020 |
|---|---|---|
| Total revenue | $2.259 billion | $1.416 billion |
| Operating income (loss) | $357.1 million | $(170.7) million |
| Net income (loss) | $288.8 million | $(446.9) million |
| Net income (loss) from continuing operations | $286.9 million | $(241.5) million |
| Adjusted EBITDA (non-GAAP) | $532.8 million | $83.4 million |
| Net cash provided by operating activities | $174.9 million | $129.2 million |
| Capital expenditures | $83.3 million | $154.0 million |
| Coal tons sold | 16.839 million | 15.513 million |
Coal revenue rose 59.4%, while total tons sold rose 8.5%. Met segment sales volume increased 19.1% to 15.569 million tons; its non-GAAP sales realization rose 42.4% to $115.18 per ton. Consolidated GAAP coal margin was $423.8 million, versus a $42.2 million loss in 2020; non-GAAP coal margin was $601.4 million, or $35.71 per ton, versus $161.0 million, or $10.38 per ton. These non-GAAP measures are company-defined and should be considered alongside GAAP results.
At December 31, 2021, cash and cash equivalents were $81.2 million, total liquidity was $115.2 million (including $34.0 million of ABL availability), and gross debt before discounts and issuance costs was $454.7 million. The term loan bore a 10.0% rate and matures in June 2024. The company reported $182.6 million of cash, cash equivalents and restricted cash in its cash flow reconciliation; significant amounts are restricted or pledged as collateral. Total assets were $1.858 billion, total liabilities $1.311 billion, and stockholders’ equity $546.9 million.
Material changes and unusual items
- Results rebounded sharply from 2020, when the company recorded substantial operating losses and $228.6 million of long-lived asset impairments. The 2021 impairment and restructuring line was a net credit of $0.6 million.
- Coal prices strengthened substantially in 2021, particularly in the second half. Management attributed improved met results to higher pricing and greater volume amid tight supply and stronger demand; costs also rose, including supplies, maintenance, royalties, taxes, and wages.
- Cash from operations increased, but receivables rose materially and working capital absorbed cash. Financing cash outflow included debt repurchases and principal prepayments; capital expenditures were below 2020 levels.
- During 2021, Alpha repaid the remaining Lexington Coal Company note and water-treatment obligation, and repurchased or prepaid term-loan principal. It made a further $150 million voluntary term-loan prepayment in the first quarter of 2022.
- The company received a $64.2 million federal tax refund and $5.4 million of related interest in August 2021. The tax benefit reflected, among other factors, a reduction in the valuation allowance; $172.9 million of valuation allowance remained at year-end.
Outlook, liquidity, and risks
Management said cash on hand and expected operating cash flow should cover working capital, anticipated capital spending, debt service, acquisition-related payments, and reclamation needs for the next 12 months and the reasonably foreseeable future, while cautioning that this outlook depends on uncertain market and operating assumptions. The company expected 2022 capital expenditures of $160 million to $190 million, citing inflation in labor and supplies and modernization projects. As of February 25, 2022, reported 2022 sales commitments included 14.5 million met tons at 39% priced and 1.0 million thermal tons at 100% priced; these are commitments, not formal earnings guidance.
Management planned further deleveraging subject to continued coal-market strength and available liquidity. On March 4, 2022, after year-end, the board authorized a share repurchase program of up to $150 million, which is discretionary and subject to liquidity, debt-agreement restrictions, market conditions, and other factors. The remaining thermal operation, Slabcamp, was expected to mine out and cease operations in summer 2022.
Key risks include met-coal and steel-market volatility, customer and export-market concentration, reliance on rail and other transport providers, inflation and labor availability, mine safety and geologic conditions, permitting and environmental regulation, climate-related pressures on coal demand and access to financing, and the ability to maintain surety bonds. The company’s top ten customers accounted for 64% of 2021 revenue; exports represented 76% of coal revenue. The largest customer represented 13% of total revenue.
A significant contingent liquidity issue is the Department of Labor’s proposed $65.7 million collateral requirement for self-insurance of certain black-lung obligations, compared with approximately $2.6 million previously provided. Alpha appealed and, in February 2022, offered to allocate an additional $10 million; no appeal ruling had been issued by the filing date. An unfavorable outcome could require additional letters of credit or third-party insurance and further collateral, reducing liquidity. Other substantial obligations include $164.2 million of recorded reclamation liabilities and $131.2 million of cash collateral, restricted investments, and deposits disclosed for various obligations. The independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting; valuation of asset retirement obligations was identified as a critical audit matter.
Important facts for investors to verify
- Whether strong 2021 met-coal pricing and margins persist, and how contract pricing and volumes develop.
- Current unrestricted liquidity after the first-quarter 2022 debt prepayment, planned capital spending, collateral needs, and any share repurchases.
- The outcome and timing of the black-lung self-insurance collateral appeal and the resulting security requirement.
- Progress against the 2022 sales commitments and the planned Slabcamp closure, including any related costs or liabilities.
- How reclamation, pension, workers’ compensation, and black-lung obligations and associated collateral evolve.
- Whether reserve estimates, customer concentration, transport availability, permitting, or input-cost pressures materially change.