Ramaco Resources, Inc. — FY 2019 Form 10-K
Reporting period: Year ended December 31, 2019; filed February 20, 2020. The filing is an annual report, not a standalone fourth-quarter filing. Quarterly figures below are unaudited. Ramaco is an Appalachian metallurgical-coal producer and developer, with 242 million tons of reported reserves and operations or projects at Elk Creek, Berwind, Knox Creek and RAM Mine.
Financial and operating performance
| Metric | FY 2019 | FY 2018 |
|---|---|---|
| Revenue | $230.2 million | $227.6 million |
| Operating income | $29.5 million | $24.1 million |
| Net income | $24.9 million | $25.1 million |
| Adjusted EBITDA (non-GAAP) | $55.4 million | $42.2 million |
| Cash from operations | $42.4 million | $36.2 million |
| Capital expenditures | $45.7 million | $48.1 million |
| Cash and cash equivalents at year-end | $5.5 million | $7.0 million |
| Total debt at year-end | $12.9 million | $9.5 million |
Gross profit was $67.7 million, or approximately 29.4% of revenue; operating margin was approximately 12.8% and net margin approximately 10.8%. Operating cash flow less capital expenditures was negative $3.3 million. Year-end current assets were $44.3 million versus current liabilities of $26.4 million. Management reported available liquidity of $21.8 million, including $16.7 million available under the revolving facility. The company was in compliance with debt covenants. No cash dividends had been declared or paid.
- Coal sold declined to 1.95 million tons from 2.15 million. Company-produced sales rose to 1.872 million tons from 1.721 million; purchased-coal sales fell to 78,000 tons from 427,000.
- Company-produced coal revenue was $219.9 million, up from $179.1 million; third-party purchased-coal revenue fell to $10.3 million from $48.5 million. North American markets represented 75% of 2019 sales and export markets 25%.
- Company-produced realized revenue per ton, FOB mine, increased to $109 from $92. Cash cost per produced ton increased to $73 from $63; management attributed the higher cost partly to Berwind development and lingering effects of the 2018 Elk Creek silo failure.
- Operating income and Adjusted EBITDA improved, but net income was slightly lower, mainly reflecting income tax expense of $5.2 million versus $0.1 million in 2018. The 2019 effective tax rate was 17.2%.
- At year-end, two customers represented about 42% of revenue and 58% of accounts receivable, creating customer concentration exposure.
Quarterly and material period comparisons
Fourth-quarter 2019 revenue was $45.6 million, gross profit $12.4 million, operating income $1.9 million and net income $1.9 million. Fourth-quarter 2018 figures were $44.2 million, $9.2 million, $2.0 million and $3.4 million, respectively. Annual revenue increased modestly, while annual net income was nearly flat; lower purchased-coal volumes and higher company-produced sales drove a substantial change in sales mix. Export revenue declined to $66.0 million from $106.1 million, while domestic revenue rose to $164.3 million from $121.4 million.
Outlook, risks and unusual items
- Management targeted production growth to 4–4.5 million clean tons by 2023, subject to market conditions, permits and additional capital. Berwind was expected to reach commercial production in late 2020; RAM Mine was scheduled for initial production in 2022, subject to permitting and market conditions.
- For 2020, the company had fixed-price forward contracts for 1.5 million tons at an average realizable price of $93.29 per ton FOB mine, below its 2019 realized company-produced price. It expected 2020 capital expenditures of $25–30 million.
- Management said metallurgical-coal markets weakened significantly in 2019 amid Chinese port restrictions, global economic concerns and U.S.-China trade tensions. Prices had rebounded from recent lows, but the emerging coronavirus outbreak was causing uncertainty and modest commodity-price declines as of the filing date.
- The Elk Creek preparation plant returned to full processing capacity in mid-2019 after a November 2018 silo failure. The insurer disputed coverage; Ramaco sued in August 2019 seeking a coverage determination. The filing reports no amount accrued for this claim and no other pending litigation expected by management to materially affect the company.
- Key exposures include volatile coal prices and short-duration sales contracts; steel-industry demand and customer credit; permitting, environmental, reclamation and mine-safety requirements; development delays and cost overruns; transport and equipment disruptions; and dependence on a single Appalachian region. The company also disclosed related-party mineral leases and royalty payments.
- Year-end contractual obligations included $38.5 million of minimum royalties, $14.6 million of discounted asset-retirement obligations and $1.1 million of take-or-pay commitments. Reclamation surety bonds outstanding were approximately $13.1 million.
Most important facts for investors to verify
- Whether Berwind reached commercial production on schedule and whether planned production growth can be funded within the stated capital and liquidity outlook.
- How 2020 contracted pricing and volumes compare with realized production costs, particularly as coal markets and customer demand change.
- Whether the insurer dispute over the Elk Creek silo loss is resolved and whether any recovery is recognized.
- Customer concentration, receivable collection and ongoing access to the $16.7 million of reported revolver availability.
- Reserve estimates, permitting progress, reclamation obligations and the economics of the acquired Knox Creek permits and McDonald reserves. The filing states the McDonald lease was entered into in January 2020; its added reserves are excluded from the year-end reserve table.
- The audit opinion was unqualified. Management concluded disclosure controls and internal control over financial reporting were effective; the external auditor did not audit internal-control effectiveness, consistent with the company’s emerging-growth-company status.