Ramaco Resources, Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019; comparisons are with Q1 2018 unless stated otherwise. Financial statement amounts are in millions of dollars, except per-share data and tonnage. Ramaco develops and operates metallurgical coal mines in Appalachia and reported production of more than 470,000 clean tons.
Financial performance and position
- Revenue: $57.5 million, up 2.7%. Domestic coal revenue rose to $36.6 million from $23.6 million, while export revenue declined to $20.9 million from $32.3 million.
- Profitability: Operating income was $8.3 million versus $5.6 million; net income was $6.9 million versus $5.3 million; diluted EPS was $0.17 versus $0.13. Calculated operating and net margins were approximately 14.4% and 12.0%, respectively, compared with 10.0% and 9.4% in Q1 2018. Adjusted EBITDA, a non-GAAP measure, was $13.7 million versus $9.2 million.
- Costs: Cost of sales decreased to $41.0 million from $44.3 million. Produced-coal cash cost was approximately $68 per ton versus $65; purchased-coal cash cost was approximately $108 per ton versus $90. Depreciation and amortization increased to $4.1 million from $2.4 million, and SG&A increased to $4.0 million from $3.4 million.
- Cash flow: Operating cash flow was negative $5.9 million versus positive $3.4 million, primarily reflecting changes in operating assets and liabilities, including receivables and payables. Investing cash use was $8.2 million, including $8.2 million in capital expenditures. Financing provided $9.1 million. Cash declined $5.0 million to $1.9 million. Operating cash flow less reported capital expenditures was negative $14.1 million.
- Liquidity and debt: Reported liquidity was $21.4 million at March 31, including cash and expected revolver availability. The company had $8.3 million of term-loan principal outstanding and $10.5 million drawn on its revolving facility; balance-sheet current and long-term debt totaled approximately $18.7 million. The facility matures November 2, 2021. The company reported compliance with its covenants.
- Balance sheet: Total assets were $206.7 million, stockholders’ equity $148.9 million, and asset retirement obligations $12.9 million. Accounts receivable was $27.3 million, up from $10.7 million at year-end 2018.
Material changes and operating developments
- Company-produced coal sales revenue increased, while third-party purchased-coal sales volume fell to 35,000 tons from 119,000. Total tons sold declined to 478,000 from 522,000. Total FOB-mine revenue per ton, a non-GAAP measure, rose to $105 from $93.
- At Elk Creek, following a partial failure of one of three raw-coal storage silos in November 2018, a permanent bypass conveyance system was completed in February. It operated at greater than 80% of processing capacity. Rehabilitation of the remaining silos was expected to finish in Q2 2019, restoring full prep-plant capacity.
- The company began implementing a plate press at Elk Creek, which management said would improve impoundment use and extend the current refuse and impoundment footprint’s life to around 20 years.
- The company adopted the new lease accounting standard on January 1, 2019, recognizing $0.3 million of right-of-use assets and lease liabilities at quarter-end.
Outlook, risks, and contingencies
- Management planned to complete development of remaining projects and grow production to more than 4.0 million clean tons over the next three to four years, depending on capital deployment. It stated that current cash, operating cash flow, and revolver availability were expected to fund current capital and operating plans; it may reduce capital spending or seek debt, equity, or other funding if cash flows prove insufficient.
- Management described metallurgical coal markets as strong in Q1, with economic growth supporting international coking-coal prices. It said steel tariffs had little apparent impact to date but that longer-term effects remained uncertain. No specific earnings or revenue guidance was provided.
- Key liquidity risks cited include rail and other transportation availability, customer payment timing, equipment cost overruns, mine-development delays, and adverse metallurgical-coal markets. Forward-looking statements also identify commodity prices, permitting and regulatory requirements, operating and geologic risks, weather, customer concentration, and counterparty performance.
- Three customers represented approximately 55% of Q1 revenue; their receivables were approximately 28% of total receivables at quarter-end. Take-or-pay transport and export-terminal commitments totaled approximately $2.7 million through March 31, 2020.
- Reclamation bonding requirements were $12.7 million, supported by surety bonds. The company reported no accrued amounts for routine litigation or claims and no pending matter believed likely to have a material adverse effect. No material off-balance-sheet arrangements or material changes to previously disclosed risk factors were reported.
- Management said disclosure controls were effective and reported no significant changes in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether Elk Creek silo rehabilitation was completed as expected in Q2 2019 and whether full processing capacity and production targets were achieved.
- Whether receivables were collected on schedule and operating cash flow recovered after the quarter’s working-capital outflow.
- How sales mix, realized coal prices, and produced-coal costs per ton affected margins in subsequent periods.
- Available borrowing capacity, covenant headroom, debt repayment requirements, and funding needs for planned mine development.
- Exposure to the three major customers, export-market pricing, transportation commitments, and reclamation obligations.