Ramaco Resources, Inc. — 2018 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2018. The filing also presents unaudited quarterly data, including fourth-quarter 2018. Financial statements were audited; the auditor did not express an opinion on internal control over financial reporting.
Business context
Ramaco develops and operates metallurgical coal mines in Appalachia. Its principal producing complex is Elk Creek; Berwind is in development, Knox Creek supports processing and purchased-coal sales, and the Pennsylvania RAM Mine was planned for production in 2021. The company reported 248 million clean recoverable tons of reserves and 1.8 million clean tons produced in 2018. It sold 2.1 million tons, including approximately 0.4 million purchased tons.
Financial and operating results
| Metric | FY 2018 | FY 2017 |
|---|---|---|
| Revenue | $227.6 million | $61.0 million |
| Operating income (loss) | $24.1 million | $(15.9) million |
| Net income (loss) | $25.1 million | $(15.4) million |
| Diluted EPS | $0.62 | $(0.41) |
| Adjusted EBITDA (non-GAAP) | $42.2 million | $(9.3) million |
| Operating cash flow | $36.0 million | $(8.8) million |
| Capital expenditures | $48.1 million | $75.0 million |
- Revenue was entirely from coal sales in 2018; domestic sales were $121.4 million and export sales $106.1 million. Five customers generated about 63% of revenue.
- Company-produced coal sales were 1.721 million tons at $179.1 million revenue; purchased coal sales were 0.427 million tons at $48.5 million. FOB mine cash costs were approximately $63 per produced ton and $95 per purchased ton; total was $69 per ton.
- Calculated operating margin was approximately 10.6% and net margin approximately 11.0%. Gross profit, defined in quarterly data as revenue less cost of sales, was $51.0 million for the year.
- Cash and cash equivalents were $7.0 million at year-end; current assets were $35.0 million and current liabilities $29.8 million. Reported available liquidity, including undrawn revolver availability, was $33.4 million.
- Year-end debt included a $9.6 million term loan principal balance ($9.5 million carrying value); $5.0 million was current. The $30 million revolving facility had no amount drawn at year-end. Total assets were $188.2 million and equity $141.1 million.
Material changes and fourth-quarter performance
- Compared with 2017, annual coal sales volume rose from 0.6 million to 2.1 million tons, and revenue increased about 273%. Ramaco moved from a net loss to profitability and positive operating cash flow as production expanded.
- Produced-coal sales increased to 1.721 million tons from 0.372 million; completed preparation and load-out infrastructure contributed to lower produced-coal cash costs, down from $73 to $63 per ton.
- Fourth-quarter 2018 revenue was $44.2 million, gross profit $9.2 million, operating income $2.0 million and net income $3.4 million. Revenue and operating income were lower than in each of the first three 2018 quarters.
- Capital expenditures declined from $75.0 million in 2017 to $48.1 million in 2018. Investing cash use was $42.9 million, while financing provided $7.9 million; cash increased by $1.0 million year over year.
Outlook, risks and unusual items
- Management targeted production of more than 4.0 million clean tons over the next three to four years, subject to capital deployment. It planned $35–$40 million of 2019 capital expenditures and said cash, operating cash flow and revolver availability were expected to fund current plans.
- As of February 2019, the company reported approximately 2.0 million tons of 2019 sales commitments, about 90% of estimated sales volume. Approximately 1.5 million tons were committed domestically at an average fixed price of $113; roughly 100,000 export tons at $122; and 350,000 tons at index-based prices. The filing does not clearly specify the price unit in this commitment disclosure.
- A November 2018 partial failure of an Elk Creek raw-coal silo idled the preparation plant for about three weeks. Temporary bypass systems restored processing to over 80% of capacity; rehabilitation of the remaining silos was expected in the second quarter of 2019. The insurer disputed coverage, leaving the extent of recovery uncertain. Customer force-majeure notices were accepted or resolved, with no material sales impact reported.
- Other income rose to $2.5 million, primarily from third-party royalties and rail rebates. 2018 included $0.1 million of income-tax expense; management reversed its prior deferred-tax valuation allowance based on expected realization of tax assets.
- Key risks include metallurgical-coal price volatility and short-duration contracts; steel-industry and customer concentration; mine development, operating and transportation disruptions; permitting and environmental requirements (including opposition to the RAM Mine permit); reclamation and financial-assurance costs; and related-party leases and governance conflicts. Management reported no pending litigation expected to materially affect results.
- The company had never declared or paid cash dividends. Management’s growth and liquidity expectations are forward-looking, not a guarantee of results.
Important facts for investors to verify
- Progress, cost and timing of Elk Creek silo rehabilitation, insurance coverage and any remaining customer shipment obligations.
- Actual 2019 committed and delivered tons, realized pricing, index exposure and customer collections; five customers represented 72% of year-end receivables.
- Whether production growth and the $35–$40 million 2019 capital program can be funded while maintaining liquidity and meeting debt covenants and maturities.
- Permitting and development status for RAM Mine and Berwind, and whether reserve estimates and planned production remain economically viable at prevailing coal prices.
- Potential effects of environmental rules, reclamation obligations, surety requirements and related-party royalty arrangements on costs and available cash.