Business context and reporting period
This is CONSOL Energy Inc.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2019, filed November 5, 2019. The filing identifies CONSOL Energy (NYSE: CEIX), not Core Natural Resources, Inc.; verify that this is the intended filing. CONSOL’s principal business is the Pennsylvania Mining Complex (PAMC), alongside the CONSOL Marine Terminal and other coal assets.
Financial performance
Amounts below are U.S. dollars in millions, except per-share and per-ton data.
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Total revenue and other income | $333.3 | $324.2 | $1,088.3 | $1,149.8 |
| Net income | $7.0 | $9.1 | $76.2 | $132.8 |
| Net income attributable to CONSOL shareholders | $4.3 | $5.7 | $62.1 | $113.3 |
| Basic EPS | $0.16 | $0.20 | $2.27 | $4.04 |
| Cash from operations | Not provided quarterly in the excerpt | $223.2 | $330.3 | |
| Capital expenditures | Not provided quarterly in the excerpt | $131.5 | $96.9 |
- Q3 coal revenue was $301.5 million versus $294.8 million; nine-month coal revenue was $984.7 million versus $1,016.5 million. Nine-month coal sales were 20.6 million tons versus 20.7 million.
- Reported average cash margin per ton, a non-GAAP measure, was $13.81 in Q3 versus $16.33; for nine months it was $16.68 versus $20.24. Average cash cost per ton rose to $32.78 in Q3 from $30.88, and to $31.16 for nine months from $28.87.
- Q3 earnings before tax were $9.4 million; nine-month earnings before tax were $75.9 million. The nine-month effective tax rate was (0.3)%, primarily reflecting excess percentage depletion and discrete tax benefits.
Liquidity, debt, and capital allocation
- At September 30, cash and cash equivalents were $133.3 million; restricted cash was $1.5 million. Current assets of $357.1 million were below current liabilities of $411.2 million.
- Operating cash flow declined to $223.2 million from $330.3 million. Investing used $129.5 million, mainly capital spending; financing used $223.8 million. Cash and restricted cash fell by $130.1 million from the start of the year.
- Total debt and finance lease obligations were approximately $747 million, including current obligations. The $400 million revolving facility had no borrowings and $326.3 million of unused capacity after letters of credit. The $100 million receivables facility had no borrowings and no unused capacity after letters of credit.
- Debt refinancing in March lowered borrowing margins and extended facility maturities. CONSOL repaid approximately $110 million on its Term Loan B under the excess-cash-flow requirement, repurchased $35.0 million of second-lien notes, and recorded $25.4 million of debt-extinguishment losses for the nine months.
- Credit covenants were met at quarter-end: first-lien gross leverage 1.15x, total net leverage 1.78x, and fixed-charge coverage 1.46x. The minimum coverage requirement was 1.10x; leverage limits step down in March 2020.
Changes, outlook, risks, and unusual items
- Nine-month shareholder-attributable income fell to $62.1 million from $113.3 million, with lower coal revenue and per-ton pricing, higher cash costs, and a $25.4 million debt-extinguishment charge. Lower interest expense partly offset these factors.
- Management reported record Q3 PAMC production of 6.5 million tons. Production benefited from one fewer longwall move, partly offset by adverse geology and operating delays. Roof fall, equipment breakdowns, rebuilds, and longwall overhauls increased costs.
- Management expected 2019 capital needs of $155–$185 million, including Itmann, airshaft, belt-system, and refuse-disposal projects. Itmann construction began in the second half of 2019; full production was expected in 2021, at more than 600,000 tons annually. Coal sales were contracted at 82% for 2020 and 36% for 2021, assuming annual sales of 27 million tons (position as of November 5, 2019).
- The company repurchased 1.72 million shares for the nine months, including 1.37 million in Q3; the Q3 repurchase cost was approximately $23 million. The authorized repurchase program had a $200 million aggregate limit and was scheduled to end June 30, 2020. No CONSOL common dividend was assured; payment was subject to board discretion, covenants, and financial results.
- Key exposures include coal-price and demand volatility, reliance on major customers, mine safety and operational/geological disruptions, transportation and environmental regulation, legacy employee and reclamation obligations, and interest-rate risk. The company had $754.7 million of letters of credit, surety bonds, and guarantees/other commitments; management expected these to expire without funding, but noted aggregate future legal losses could be material and were not reasonably estimable.
- In the Fitzwater and Casey retiree-benefits cases, class certification was denied on October 15, 2019; individual claims remain. Management said it intended to defend the matters. Operating lease accounting added $77.4 million of right-of-use assets and $82.2 million of liabilities at quarter-end; management said the change did not significantly affect earnings or cash flow.
Important facts for investors to verify
- Confirm the intended issuer: the supplied filing is CONSOL Energy Inc., not Core Natural Resources, Inc.
- Review realized coal pricing, cash cost per ton, and whether the Q3 cost pressures persist; compare contracted volumes and pricing exposure with the 2020–2021 outlook.
- Assess cash generation against capital spending, debt service, any future excess-cash-flow sweep, and the $155–$185 million 2019 capital forecast.
- Track covenant headroom as leverage limits tighten in March 2020, alongside liquidity available after letters of credit and securitization commitments.
- Monitor Itmann construction and commissioning, unresolved individual retiree-benefit claims, and potential funding of environmental, reclamation, and employee-related commitments.