Ramaco Resources, Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. The filing also reports unaudited fourth-quarter results. Amounts below are in U.S. dollars unless noted.
Business context
Ramaco operates and develops metallurgical coal properties in West Virginia, Virginia and Pennsylvania. Its four principal properties are Elk Creek, Berwind, Knox Creek and RAM Mine; reported reserves totaled 262 million clean recoverable tons. The company sold 1.75 million tons in 2020, with 71% sold in North America and 29% exported, excluding Canada. Three customers represented approximately 70% of annual revenue.
Key financial metrics
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $168.9 million | $230.2 million |
| Gross profit (revenue less cost of sales) | $23.4 million; 13.9% margin | $67.7 million; 29.4% margin |
| Operating income (loss) | $(19.1) million | $29.5 million |
| Net income (loss) | $(4.9) million | $24.9 million |
| Adjusted EBITDA | $18.5 million | $55.4 million |
| Cash from operating activities | $13.3 million | $42.4 million |
| Capital expenditures | $24.8 million | $45.7 million |
| Cash and cash equivalents at year-end | $5.3 million | $5.5 million |
| Total debt at year-end | $17.5 million | $12.9 million |
Company-produced coal realized approximately $85 per ton FOB mine in 2020 versus $109 in 2019; cash cost was approximately $72 per ton versus $73. Net loss included a $3.5 million income-tax benefit. Other income of $11.9 million included $8.4 million recognized for anticipated forgiveness of the Paycheck Protection Program (PPP) loan.
Fourth quarter 2020: Revenue was $51.1 million, gross profit $2.4 million, operating loss $8.4 million and net loss $4.7 million. Fourth-quarter revenue was higher than in the first three quarters, but gross profit and operating results weakened through the year.
Year-end liquidity was reported as $22.0 million, including cash and availability under the revolving credit facility. The company had $16.7 million of remaining facility availability and reported compliance with debt covenants. It has never paid a cash dividend.
Changes versus the prior period
- Revenue declined 27% year over year; total tons sold fell from 1.95 million to 1.75 million.
- Adjusted EBITDA declined 67%, primarily reflecting lower realized prices and volumes. Operating results shifted from profit to loss.
- Operating cash flow fell by approximately $29.1 million. Capital expenditures decreased by approximately $20.9 million.
- Debt increased by approximately $4.5 million. Cash cost per ton for company-produced coal edged down by about $1.
- COVID-19-related customer delays or curtailments affected approximately 200,000 tons, which the company placed in the lower-priced spot market. Berwind development was suspended and operating furloughs were implemented.
Outlook, risks and unusual items
- At December 31, 2020, fixed-price 2021 sales commitments covered 1.3 million tons at an average realizable price of $84 per ton FOB mine; a further 0.3 million tons were under index-based contracts. Management anticipated greater spot-market exposure in 2021.
- Management estimated 2021 capital expenditures of approximately $15 million, potentially higher depending on market conditions. In February 2021, the board approved resuming Berwind slope development and developing the Big Creek mine. The filing gives separate project spending and production targets; timing and execution remain subject to market and operating conditions.
- Management’s longer-term plan is to grow annual production to more than 4–4.5 million clean tons, subject to market conditions, permits and capital. Berwind production was expected to begin by late 2021 and ramp up in 2022; Big Creek production was targeted for late 2021. These are forward-looking expectations, not guarantees.
- The PPP forgiveness application had been approved by KeyBank but remained under SBA review. The company recognized $8.4 million of other income based on its expectation of full forgiveness; SBA approval was not assured.
- A lawsuit seeking insurance coverage for the 2018 Elk Creek silo failure was scheduled for trial beginning June 29, 2021. The plant’s full processing capacity had been restored in 2019. Management stated that it did not consider pending litigation, disputes or claims to be material to the financial statements.
- Principal risks include volatile metallurgical coal and steel markets, customer concentration and potential contract curtailments, COVID-19 impacts, project execution and financing needs, permitting and environmental regulation, transportation constraints, and reliance on surety and other financial assurance. The company also disclosed related-party leases and potential conflicts involving affiliated parties.
- The independent auditor issued an unqualified opinion on the financial statements. Management concluded that disclosure controls and internal control over financial reporting were effective; the company was not required to obtain an auditor attestation of internal controls.
Investor verification priorities
- Confirm the status and accounting treatment of PPP loan forgiveness, including the SBA’s final decision.
- Track 2021 realized pricing, sales volumes, spot-market exposure and customer contract performance, particularly among the three largest customers.
- Assess whether Berwind, Big Creek and RAM Mine permitting, capital spending and production milestones are achieved as planned.
- Review liquidity, debt maturities, facility availability and covenant compliance alongside planned capital expenditures and required royalties.
- Monitor the Elk Creek insurance litigation and any resulting recovery, and review the associated related-party lease arrangements.