Alpha Metallurgical Resources, Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020; filed March 15, 2021. The company changed its name from Contura Energy, Inc. effective February 1, 2021, and its NYSE ticker changed from CTRA to AMR on February 4. Amounts below are in U.S. dollars.
Business context
Alpha mines and markets metallurgical (met) and thermal coal, primarily from Central Appalachia operations in Virginia and West Virginia. At year-end it reported Met and CAPP–Thermal segments, 23 active mines, and 623.5 million tons of reserves. Its strategic focus is met coal. The December 2020 sale of its Pennsylvania Cumberland operations accelerated its exit from thermal coal; former Northern Appalachia and Powder River Basin results are reported as discontinued operations.
Financial performance and liquidity
| Metric | FY2020 | FY2019 |
|---|---|---|
| Continuing-operations revenue | $1.416 billion | $2.001 billion |
| Coal revenue | $1.413 billion | $1.996 billion |
| Loss from continuing operations | $241.5 million | $219.6 million |
| Loss from discontinued operations | $205.4 million | $96.7 million |
| Consolidated net loss | $446.9 million | $316.3 million |
| Operating cash flow | $129.2 million | $131.9 million |
| Capital expenditures | $154.0 million | $192.4 million |
| Cash, cash equivalents and restricted cash at year-end | $244.6 million | $347.7 million |
- Coal sales fell 9.6% to 15.5 million tons. Coal revenue declined 29.2%, reflecting lower volumes and weaker met pricing. Average non-GAAP coal realization fell 23.3% to $76.95 per ton.
- GAAP coal margin was negative $42.2 million, versus positive $93.1 million in 2019. Management’s non-GAAP coal margin was $161.0 million, or $10.38 per ton, down from $350.9 million, or $20.46 per ton. These non-GAAP measures exclude specified costs and should not be treated as GAAP results.
- Met sales volume was 13.1 million tons, up 1.1%, but met realization declined 28.8% to $80.90 per ton; Met Adjusted EBITDA fell 61.9% to $120.3 million. CAPP–Thermal volume fell 42.2% to 2.4 million tons; segment Adjusted EBITDA was $9.9 million, down 17.8%.
- Year-end cash and cash equivalents were $139.2 million; the remainder of reported cash and restricted cash was restricted. Gross debt was approximately $599.6 million, including $553.4 million principal on the term loan, which matures in June 2024 and carried a 9.00% rate at year-end. The $225 million ABL facility had no unused capacity at year-end; $123.1 million of letters of credit were outstanding.
- Current assets were $510.1 million and current liabilities $259.1 million, including discontinued-operation balances. The company reported compliance with debt covenants at year-end. It stated cash on hand, operating cash flow and expected tax refunds should cover requirements for the next 12 months, while warning that continued weak markets could cause further losses and cash outflows.
Material changes and unusual items
- In December 2020 Alpha sold Cumberland for approximately $50.0 million of consideration—$20.0 million cash and $30.0 million in surety-bonding collateral—and recorded a $36.1 million loss. The collateral is not equivalent to cash proceeds.
- FY2020 long-lived asset impairment totaled $228.6 million, including $81.0 million in continuing operations and $147.6 million in discontinued operations. Continuing-operations asset impairment and restructuring expense was $83.9 million. In 2019, the company recorded a $124.4 million goodwill impairment.
- Reported operating cash flow remained positive despite the net loss, in part because of substantial noncash impairment and depreciation adjustments and working-capital movements. Investing cash outflow was $210.0 million; financing cash outflow was $22.4 million.
- The company received $66.1 million of accelerated AMT credit refunds under the CARES Act. Separately, it reported a $64.2 million federal NOL carryback tax receivable and $5.2 million associated interest receivable, which could potentially be withheld or offset by the federal government due to claims in the predecessor’s bankruptcy.
- The DCMWC required $65.7 million in collateral for reauthorization to self-insure certain black-lung obligations, compared with approximately $2.6 million previously provided. Alpha appealed the determination; an adverse outcome could require additional letters of credit or third-party insurance and reduce liquidity.
Outlook, management commentary and risks
- As of March 11, 2021, management expected approximately 14 million Met tons of 2021 sales, with 56% priced at an average realized price of $80.68 per ton. It expected 1.5 million CAPP–Thermal tons, 100% priced at $57.57 per ton. These are sales commitments and pricing figures, not earnings guidance.
- Management described improving met-coal prices and spot interest entering 2021, while emphasizing continued uncertainty from COVID-19 and difficulty forecasting customer demand. It was reducing thermal production and matching output to sales. Planned 2021 capital expenditures were $75 million to $95 million.
- Key risks include volatile met-coal prices and steel demand; customer and export-market concentration (top 10 customers represented 63% of 2020 revenue; exports were 64% of coal revenue); COVID-19 effects; customer credit; transportation dependence; environmental and permitting requirements; reclamation and employee-benefit obligations; and access to financing, surety bonds and insurance.
- Reclamation liabilities were $165.1 million on the balance sheet, with estimated undiscounted closure costs of $496.4 million. The independent auditor identified valuation of the asset-retirement obligation as a critical audit matter. Management reported effective disclosure controls and internal control over financial reporting; the auditor did not provide an internal-control attestation.
Investor verification priorities
- Reconcile the 2020 cash position, restricted collateral, ABL borrowing-base availability and subsequent collateral movements; verify the status of the $65.7 million black-lung collateral appeal.
- Confirm collection and timing of the $64.2 million NOL carryback receivable and associated interest, and review the IRS examination and potential setoff exposure.
- Assess 2021 contracted Met pricing, remaining unpriced volumes, actual shipment levels and whether the stated sales commitments translate into positive margins and cash flow.
- Review the Cumberland sale’s $30.0 million surety collateral, remaining back-to-back coal supply commitments, and completion of permit and bond transfers.
- Evaluate impairment assumptions, reserve economics, reclamation estimates, pension and black-lung funding needs, and the company’s ability to maintain required surety bonds and refinancing access.