Ramaco Resources, Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. Ramaco operates metallurgical coal mines in Appalachia and is developing Wyoming rare-earth and coal-based carbon initiatives. Amounts below are in U.S. dollars; financial statement figures are in millions unless noted.
Financial results and liquidity
| Metric | Q2 2023 | Q2 2022 | First half 2023 | First half 2022 |
|---|---|---|---|---|
| Revenue | $137.5 | $138.7 | $303.8 | $293.5 |
| Operating income | $10.0 | $42.7 | $41.9 | $95.6 |
| Net income | $7.6 | $33.3 | $32.8 | $74.8 |
| Adjusted EBITDA (non-GAAP) | $30.0 | $57.9 | $78.3 | $121.9 |
| Net margin | 5.5% | 24.0% | 10.8% | 25.5% |
- Q2 sales volume rose 23% to 715,000 tons, but revenue per ton fell 19% to $192; FOB-mine revenue per ton fell 23% to $165. First-half volume rose 26% to 1.472 million tons, while revenue per ton declined 18% to $206.
- Cost of sales increased 29% in Q2 and 33% in the first half. Management cited higher volume and inflationary pressure; total cost per ton rose 6% in Q2 and 5% year to date.
- Cash provided by operations was $49.6 for the first half, down from $109.3. Capital expenditures were $48.0; cash and cash equivalents ended June at $33.9, down from $35.6 at year-end.
- At June 30, total debt was $142.4, including $33.1 of senior notes; cash was $33.9. The revolving facility had $67.5 outstanding and $28.9 of remaining availability after borrowing-base limits. The company reported compliance with its covenants.
- Current assets were $177.8 and current liabilities $142.1. The filing reports $0.9 of restricted cash separately within other current assets.
Material changes and notable developments
- Results weakened sharply year over year: Q2 net income fell about 77% and first-half net income about 56%. Management attributed lower earnings and Adjusted EBITDA primarily to lower coal-sale margins driven by pricing.
- Export sales increased to 69% of first-half sales from 49% a year earlier, increasing exposure to index-based pricing. Export revenue was $210.4 in the first half, versus $142.9 in 2022.
- On June 21, the company distributed Class B tracking stock to existing common shareholders, creating Class A and Class B shares. Class B is intended to reflect CORE assets’ performance, but CORE is not a separate legal entity and Class B holders remain exposed to the company’s overall liabilities. The board retains broad discretion over asset and expense attribution, dividends, and possible conversion of Class B into Class A.
- The board declared a subsequent quarterly dividend of $0.125 per Class A share and a first $0.165 per Class B share, payable September 15, 2023. The Class B dividend was based on 20% of Q2 CORE royalty and infrastructure revenue; future dividends remain discretionary.
- In July, Ramaco repaid $11.0 of revolving borrowings using operating cash.
Outlook, risks, and contingencies
- No formal production, revenue, or earnings guidance is provided. Management reported that U.S. metallurgical coal spot pricing was down more than 20% in Q3 to date versus the first-half average; Q2 index pricing was also down about 10% in Q3 to date. Continued weakness could pressure future revenue.
- At June 30, fixed-price contracts covered about 0.9 million tons at an average $198 per ton, excluding freight, generally for delivery in the second half of 2023; another 0.7 million tons were subject to index-based pricing.
- Key risks include coal-price volatility, inflation and operating costs, transportation capacity and expense, customer payment timing and concentration, mine-development delays, permitting and safety, and the availability of capital. Three customers represented about 61% of accounts receivable.
- Remaining take-or-pay rail and export-terminal commitments totaled $36.0, mostly associated with a five-year contract. No contingent liability was recorded for these arrangements. Reclamation and performance surety bonds totaled approximately $26.1.
- A Fourth Circuit decision on July 20 reinstated a $7.7 jury verdict in the company’s insurance dispute, awarded attorney fees to be determined, and remanded the inconvenience-and-aggravation damages amount for a new trial. Defendants petitioned for rehearing on August 3; the petition was pending. No gain was recorded.
- The Berwind No. 1 mine, idled after a July 2022 methane ignition with no injuries or fatalities, restarted production in Q1 2023. Wyoming rare-earth exploration and carbon-product development continue; the exploration target is not a mineral resource or reserve.
Most important facts for investors to verify
- Whether coal prices and realized revenue per ton stabilize, and how much of the contracted volume is fixed-price versus index-linked.
- Whether cost per ton, production growth, working capital, and capital spending support cash generation as margins decline.
- Debt, revolver availability, covenant compliance, and the company’s ability to meet acquisition-related payments and take-or-pay commitments.
- The Class B tracking stock’s dividend calculation and the practical effects of the board’s discretion over CORE attribution, dividends, and conversion rights.
- Developments in the insurance litigation, including rehearing and any subsequent damages award; none was recognized in the reported financial statements.