Business context and reporting period
This is Contura Energy, Inc.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2020, filed November 9, 2020. The filing describes a U.S. producer of metallurgical and thermal coal operating in Central and Northern Appalachia. The supplied filing is for Contura Energy, Inc.; it does not identify the registrant as Alpha Metallurgical Resources, Inc.
Results were affected by weak coal markets and COVID-19-related demand disruption. The company temporarily idled most operations for about 30 days beginning in April; by May 4, sites had returned to nearly normal staffing and capacity with additional precautions.
Financial performance and condition
Amounts below are in millions of dollars unless stated otherwise.
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Total revenue | $400.7 | $525.9 | $1,283.0 | $1,791.2 |
| Operating income (loss) | $(49.0) | $(26.2) | $(296.9) | $58.5 |
| Net income (loss) | $(68.6) | $(68.5) | $(346.7) | $(175.4) |
| Operating cash flow | Not provided separately | Not provided separately | $73.0 | $137.6 |
| Capital expenditures | $27.8 | $60.3 | $118.9 | $144.2 |
- Q3 coal revenue fell 23.7% year over year; total revenue declined 23.8%. Tons sold fell 4.0%, while the company’s average non-GAAP coal realization fell 22.0%, to $62.38 per ton from $79.98.
- Q3 GAAP coal margin was negative $29.1 million. The company reported non-GAAP coal margin of $39.7 million, or $7.17 per ton; these company-defined non-GAAP measures are not substitutes for GAAP results.
- Q3 Adjusted EBITDA was $19.7 million, down from $40.0 million. Nine-month Adjusted EBITDA was $96.8 million, compared with $264.2 million.
- Nine-month results included $221.5 million of asset impairment and restructuring expense, including about $199.0 million of long-lived asset impairments and $22.5 million of restructuring costs. Nine-month net loss also reflected operating weakness and a $92.8 million increase in the deferred-tax valuation allowance.
- At September 30, cash and cash equivalents were $161.4 million; restricted cash was an additional $131.2 million, of which $124.1 million was long-term. Current assets were $586.3 million and current liabilities $292.3 million.
- Long-term debt carrying value was $597.5 million, including $44.9 million current and $552.7 million long-term. The term loan carried a 9.00% interest rate at quarter-end. Total stockholders’ equity was $343.0 million, down from $696.1 million at year-end 2019.
- Cash, cash equivalents and restricted cash declined $55.1 million during the first nine months. Operating cash flow of $73.0 million was below capital expenditures of $118.9 million; investing cash use was $124.8 million.
Material changes versus comparable periods
- Nine-month revenue declined 28.4%, and coal volume sold fell 10.4%. The principal pressures were lower met-coal realizations and reduced thermal-coal sales volumes.
- Nine-month operating results swung from $58.5 million of operating income to a $296.9 million loss, largely reflecting 2020 impairments and restructuring as well as lower coal revenue.
- Nine-month net loss nearly doubled year over year. The 2019 comparison included $164.1 million of discontinued-operation losses; there were no discontinued operations in 2020.
- Operating cash flow fell by $64.5 million year over year. Capital expenditures also declined, by $25.3 million.
- Debt included a new $57.5 million ABL draw in March 2020; the company repaid $12.4 million of ABL borrowings during Q3 and another $15.0 million in October.
Outlook, management commentary and risks
- Management said it believed available cash, operating cash generation and expected tax refunds would cover working capital, planned capital expenditures, debt service, acquisition-related payments and reclamation obligations for the 12 months following issuance. It also warned that continued weak markets could produce further operating losses and cash outflows, and that additional financing might not be available on acceptable terms or at all.
- Management expected approximately 14 million net tons of 2021 metallurgical coal sales from CAPP–Met; about four million net tons had been contracted to domestic customers. The filing gives no comprehensive earnings or revenue guidance.
- Management reported volatile export markets, customer force-majeure notices and deferrals, but said the overall effect on Q3 met-coal sales volume and production had been limited. It noted signs of improving steel production and possible domestic thermal-price support if natural gas prices and winter conditions were favorable.
- The company decided not to build a new refuse impoundment at Cumberland; production there was expected to cease at the end of 2022. It was marketing the property and negotiating with a potential buyer, but had no definitive sale agreement. A West Virginia underground mine and preparation plant were idled.
- The ABL borrowing base and covenant limitations reduced borrowing availability; the filing said there was no remaining unused ABL capacity at September 30. The company reported compliance with debt covenants and was not in an ABL Liquidity Period at quarter-end.
- The Department of Labor’s black-lung self-insurance reauthorization required $65.7 million of collateral, versus approximately $2.6 million previously provided. Contura appealed; an unsuccessful appeal could require additional collateral or third-party insurance and materially reduce liquidity.
- Contura disclosed $349.8 million of surety bonds and $113.5 million of collateral supporting reclamation obligations. Reduced surety availability or increased collateral demands could pressure liquidity. Credit rating downgrades in 2020 and negative outlooks were also cited as potential constraints on financing and collateral access.
- Expected CARES Act AMT-credit refunds were $68.3 million in total; $66.1 million was recorded as a current receivable at September 30. The filing also describes a separate NOL carryback refund claim and the possibility that the federal government could assert a right of setoff against refunds and credits.
- Other key risks include COVID-19 and coal-price uncertainty, customer credit and contract performance, environmental and mine-safety regulation, reclamation liabilities, and the ability to obtain permits and financing.
Important facts for investors to verify
- Confirm the issuer identity: this filing names Contura Energy, Inc., not Alpha Metallurgical Resources, Inc.
- Track realized coal prices, sales volumes, customer deferrals and force-majeure claims, especially in met coal markets.
- Assess cash generation against capital expenditures, debt service and reclamation obligations, including the actual timing and receipt of expected tax refunds.
- Monitor ABL availability, borrowing-base and fixed-charge covenant requirements, and the company’s ability to refinance or repay debt.
- Follow the black-lung collateral appeal, surety-bond availability and collateral requirements, and any Cumberland sale developments.
- Distinguish GAAP losses from management’s non-GAAP coal-margin and Adjusted EBITDA measures, and assess whether impairments, restructuring charges or forecast assumptions change.