Ramaco Resources, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Ramaco operates and develops metallurgical coal properties in Appalachia and completed acquisitions of Ramaco Coal and Maben Coal during 2022. Financial amounts below are USD millions unless otherwise noted.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $136.9 | $76.4 | $430.5 | $195.9 |
| Operating income | $36.7 | $8.8 | $132.3 | $17.0 |
| Net income | $26.9 | $7.0 | $101.7 | $21.1 |
| Diluted EPS | $0.60 | $0.16 | $2.27 | $0.48 |
| Adjusted EBITDA | $50.7 | $17.8 | $172.6 | $47.4 |
- Revenue increased 79% in Q3 and 120% year to date. Management attributed the improvement chiefly to higher coal prices following stronger metallurgical coal demand. FOB-mine revenue per ton rose to $202 in Q3 from $105 and to $217 year to date from $98.
- Coal sold was 608,000 tons in Q3, down 6% year over year due to rail constraints; year-to-date volume was 1.8 million tons, broadly in line with 2021. Cash cost per ton rose to $99 in Q3 from $72 and to $106 year to date from $68, reflecting inflation and higher costs.
- Approximate operating margin was 26.8% in Q3 versus 11.5% a year earlier; net margin was 19.6% versus 9.2%. These are calculated from reported revenue and income figures.
- Operating cash flow was $158.8 for the first nine months, compared with $37.8 in 2021. Investing cash outflow was $111.8, including $91.4 of capital expenditures and acquisition payments; financing cash outflow was $21.9, including $15.0 of dividends. Inventory growth used $24.2 of cash.
Balance sheet, debt and liquidity
- At September 30, cash and cash equivalents were $46.6; restricted cash was an additional $1.3. Current assets were $142.0 and current liabilities $150.4, a current ratio of approximately 0.94.
- Total assets were $562.1 and stockholders’ equity $298.7. Reported debt included $45.0 of Ramaco Coal deferred purchase financing, $21.0 of Maben acquisition financing and $34.5 principal of 9% senior notes due 2026. The company also had $17.0 drawn on its revolving facility at quarter-end, plus term and equipment borrowings. The revolver borrowing was repaid in October 2022.
- The revolver had $22.6 of availability at September 30 and matures in December 2024. The company reported compliance with its financial covenants. Management said cash, expected operating cash flow and available credit were expected to fund operating and capital needs.
Changes, outlook and material items
- Ramaco Coal was acquired in April for approximately $65 million, including $55 million deferred financing at 9%; Maben Coal was acquired in September for approximately $30 million, partly funded by a $21 million loan. The acquisitions expanded controlled metallurgical coal deposits and related assets.
- Capital spending increased substantially, primarily for growth projects at the Berwind and Elk Creek complexes. Management did not provide formal earnings or production guidance. Outstanding fixed-price sales obligations were about 0.5 million tons for the remainder of 2022 at an average $197 per ton and 1.4 million tons for 2023 at $198 per ton; additional contracted tons had index-based pricing.
- A methane ignition occurred at the Berwind complex on July 10. There were no injuries, but investigation and regulatory oversight remained ongoing; the affected area had not been inspected, damages and a restart plan were undetermined, and no loss was accrued. Production is expected to be affected for an indeterminate period.
- Q3 other expense included a $1.0 million charitable contribution to the Ramaco Foundation. Nine-month other income included a $2.1 million mineral-rights gain; 2021 results included a $5.4 million employee-retention tax credit. The company also disclosed a $5.4 million contingent take-or-pay transportation obligation and a pending appeal concerning an insurance dispute; no amount for that litigation was recorded.
- Management cited rail availability, customer payment timing, cost overruns, mine-development delays, coal-market conditions, inflation and geopolitical disruption as potential risks. The company reported no meaningful direct financial exposure to Russia or Ukraine. Four customers represented approximately 56% of Q3 revenue.
Important facts for investors to verify
- Berwind investigation findings, estimated damage, restart timing and resulting production impact.
- Post-quarter repayment of the $17.0 million revolver borrowing and the repayment schedule and liquidity effects of acquisition financing.
- Whether rail constraints ease and whether higher coal prices can offset rising cash costs per ton.
- Acquisition execution, development spending and progress against contracted volumes and prices.
- Customer concentration, take-or-pay transportation exposure, and the outcome of the insurance-claim appeal.