Core Natural Resources, Inc. quarterly report, Q1 FY2021

Filing summary

Entity and period: The supplied filing is CONSOL Energy Inc.’s unaudited Form 10-Q for the quarter ended March 31, 2021—not a filing for Core Natural Resources, Inc. Investors should verify the issuer before relying on this summary. Amounts below are U.S. dollars; financial statement amounts are in millions unless noted.

Business context

CONSOL produces Appalachian Basin coal, principally through the Pennsylvania Mining Complex (PAMC), and operates the CONSOL Marine Terminal at the Port of Baltimore. It is also developing the Itmann Mine. In December 2020, CONSOL completed its merger with CONSOL Coal Resources, making that business an indirect wholly owned subsidiary; the transaction was accounted for as an equity transaction, not a business combination gain or loss.

Financial performance and liquidity

Coal revenue increased to $285.5 million from $255.5 million. Sales rose to 6.9 million tons from 5.9 million, while average revenue per ton fell to $41.39 from $43.16. Average cash cost per ton declined to $24.44 from $32.41; reported average cash margin per ton improved to $16.95 from $10.75. Freight revenue and expense each rose to $27.0 million from $3.1 million and largely offset one another.

Cash and cash equivalents were $91.2 million at March 31, versus $50.9 million at year-end 2020. Total assets were $2.52 billion and total liabilities $1.94 billion. Current assets of $336.7 million were below current liabilities of $371.2 million. The company reported $645 million of total debt and finance lease obligations. The $400 million revolving facility had no borrowings, $145.7 million of letters of credit, and $254.3 million of unused capacity. Its receivables facility had no borrowing capacity available at quarter-end: eligible receivables supported about $25.2 million against $25.5 million of letters of credit.

Material changes and unusual items

• Improved demand and shipments, higher production, and lower unit costs drove stronger PAMC results; production was 7.0 million tons versus 6.0 million.
• Cash from operations increased by $26.6 million year over year. Investing cash outflow narrowed, mainly due to lower capital spending and $8.5 million of proceeds from asset sales. Financing cash outflow was $31.9 million, including debt and lease payments.
• Q1 2020 included $10.8 million of customer contract buyout income and a $16.8 million gain on debt extinguishment, compared with $0 and $0.7 million, respectively, in Q1 2021. Q1 2021 also included an $8.2 million gain on asset sales.
• Q1 2021’s diluted share count reflects the shares issued in the December 2020 CCR merger; reported basic weighted-average shares were 34.2 million versus 26.0 million in Q1 2020.

Outlook, risks and contingencies

Management expected PAMC sales of approximately 22–24 million tons in 2021, average cash cost of coal sold of $27–$29 per ton, and 2021 capital expenditures of $100–$125 million excluding Itmann. Contracted volumes as of May 4, 2021 were 20.5 million tons for 2021 and 5.6 million for 2022. These are management estimates, not guarantees; the filing says it cannot reconcile the cash-cost guidance to a GAAP measure because certain items are uncertain.

Management reported that coal demand had recovered from the COVID-19-related 2020 trough, but warned that renewed disruption, reduced demand, customer force majeure claims, or collection delays could harm results, cash flow, liquidity, and covenant compliance. Other cited risks include coal-price volatility, reliance on major customers, operational and transportation disruptions, environmental and reclamation obligations, and tighter or more expensive insurance and surety markets. The company said it was in compliance with its financial covenants at March 31, 2021; reported covenant ratios were 1.37 first-lien gross leverage, 1.97 total net leverage, and 1.88 fixed-charge coverage.

Subsequent events included issuance of $75 million of tax-exempt solid-waste disposal revenue bonds on April 13, 2021, at an initial 9.0% rate for a seven-year term-rate period, to fund refuse-area expansion. On April 28, the board increased the stock-and-debt repurchase authorization to $320 million and extended it through December 31, 2022; approximately $132 million remained available as of May 4. The company repurchased no shares in Q1 and spent $9.3 million to retire $10.2 million face amount of second-lien notes.

Potential liabilities warrant attention: CONSOL estimated annual servicing costs of certain Coal Act and black-lung liabilities at $10–$20 million for the next ten years. It estimated its obligation for the UMWA Combined Benefit Fund and 1992 Benefit Plan at approximately $56.0 million. Accruals for pending claims were described as immaterial, but the company said future aggregate losses could be material and could not be reasonably estimated. Two retiree-benefit cases had been tried in February 2021 with no ruling reported in the filing.

Investor verification priorities

• Confirm that CONSOL Energy Inc., rather than Core Natural Resources, Inc., is the intended issuer and that the quarter ended March 31, 2021 is the intended period.
• Check subsequent coal shipments, realized pricing, contracted volumes, and whether the 2021 sales and cash-cost outlook was achieved.
• Review debt maturities, interest costs, covenant headroom, letters of credit, and liquidity after the $75 million bond issuance and planned capital spending.
• Assess the status and potential financial impact of retiree-benefit litigation, Coal Act and black-lung obligations, environmental commitments, and surety-bond requirements.
• Separate recurring operating performance from prior-year contract buyout and debt-extinguishment gains and current-period asset-sale gains; also note that Adjusted EBITDA and per-ton cost and margin measures are non-GAAP.