Core Natural Resources, Inc. quarterly report, Q2 FY2021

Business context and reporting period

The supplied filing is CONSOL Energy Inc.’s unaudited Form 10-Q for the quarter ended June 30, 2021; it does not identify Core Natural Resources, Inc. as the registrant. CONSOL operated the Pennsylvania Mining Complex (PAMC), the CONSOL Marine Terminal, and development activities including the Itmann Mine. The filing compares Q2 and first-half 2021 with the corresponding 2020 periods.

Financial results and position

Amounts below are in millions of dollars unless otherwise noted. Revenue and other income includes items beyond revenue from customer contracts.

Metric	Q2 2021	Q2 2020	Six months 2021	Six months 2020
Revenue from customer contracts	$303.2	$121.3	$634.0	$396.4
Total revenue and other income	$287.2	$162.6	$629.3	$453.8
Net income (loss) attributable to CONSOL stockholders	$4.2	$(18.0)	$30.6	$(15.6)
Adjusted EBITDA (non-GAAP)	$84.4	$34.2	$191.1	$97.2
Cash from operating activities	Not separately stated	Not separately stated	$172.6	$46.7

Q2 income before tax was a loss of $4.7 million, while an income tax benefit of $8.9 million resulted in net income of $4.2 million.
Q2 coal shipments were 5.9 million tons, 55% exported. Average revenue per ton was $44.02; average cash cost per ton was $28.02, giving a $16.00 average cash margin per ton. These per-ton measures are non-GAAP or derived operating ratios.
At June 30, cash and cash equivalents were $146.7 million, with an additional $53.5 million of restricted cash associated with the PEDFA financing. Total assets were $2.56 billion and total liabilities were $1.97 billion.
Management reported approximately $701 million of total long-term debt and finance lease obligations, including current maturities. The company had no revolver borrowings and $253.1 million of unused capacity; $146.9 million of letters of credit were outstanding. The receivables facility had no borrowings and only $0.4 million of available capacity.
Operating cash flow less capital expenditures was approximately $115.2 million for the first half (calculated from reported cash flow and capital expenditures; this is not a company-presented free-cash-flow measure).

Material changes versus the prior comparable period

Customer-contract revenue rose sharply, led by export coal. Coal revenue was $259.8 million in Q2 versus $102.3 million; first-half coal revenue was $545.4 million versus $357.8 million.
Management attributed higher sales and production principally to recovering demand after the 2020 COVID-19 downturn, when longwalls at Bailey and Enlow Fork were temporarily idled. First-half tons sold increased to 12.7 million from 8.2 million.
First-half average cash cost per ton fell to $26.09 from $30.55, while average revenue per ton eased to $42.60 from $43.34. Average cash margin per ton increased to $16.51 from $12.79.
First-half operating cash flow increased by $126 million, which management attributed primarily to a $94 million increase in Adjusted EBITDA and working-capital movements.
Q2 2021 included $20.4 million of unrealized losses on API2 coal derivatives. The prior-year periods included $30.1 million of Q2 and $41.0 million of first-half customer contract buyout income, which did not recur.
First-half interest expense increased partly because of the new $75 million PEDFA bonds. The company also spent $14.2 million to retire $15.2 million of 11% second-lien notes and made a required approximately $5 million Term Loan B repayment.

Outlook, commentary, risks and unusual items

2021 guidance was PAMC sales of approximately 23.5–25.0 million tons, average cash cost of coal sold of $27–$28 per ton, and capital expenditures of $160–$180 million, including Itmann. Management stated it could not reconcile the cash-cost guidance to a GAAP measure because of uncertain items.
As of August 3, 2021, contracted positions were 24.6 million tons for 2021 and 10.9 million tons for 2022. Management described domestic demand and export markets as stronger, while noting exposure to coal-price and export-market volatility.
Itmann was expected to reach full production after preparation-plant construction planned for completion in the second half of 2022. Management projected more than 900,000 tons of annual low-vol coking coal, plus third-party processing capacity of 750,000–1 million tons annually. Remaining project spending was estimated at $65–$70 million in the business outlook; the risk-factor disclosure cited $65–$75 million over the next 12–18 months.
The company issued $75 million of PEDFA bonds at a 9% initial fixed rate for seven years to support the PAMC coarse-refuse disposal project. The bonds have a stated 2051 maturity and mandatory purchase in 2028.
Management reported compliance with credit-facility financial covenants at June 30, 2021. Covenant headroom and limits tighten over time; the filing gives actual ratios of 1.14 first-lien gross leverage, 1.70 total net leverage, and 1.89 fixed-charge coverage.
Risks highlighted include renewed COVID-related demand or logistics disruption, customers invoking force majeure, coal-price and alternative-fuel volatility, reliance on major customers and export markets, insurance and surety availability and cost, environmental and mine-safety obligations, and successful, timely completion of Itmann.
Legal matters include retiree-benefit litigation and potential Coal Act/black-lung-related liabilities. Management said recorded pending-claim accruals were immaterial, but future aggregate losses could be material and could not be reasonably estimated. A former parent sought indemnification concerning a UMWA pension-plan information request; no claim against CONSOL or assessed former-parent liability was reported at filing.
Management said disclosure controls were effective and there were no material changes to internal control over financial reporting during the quarter.

Important facts for investors to verify

Confirm the registrant identity: this source is CONSOL Energy Inc., not Core Natural Resources, Inc.
Reconcile reported debt and finance-lease totals across the MD&A and balance-sheet disclosures, and review debt maturities, interest rates, collateral, and covenant requirements.
Track realized versus unrealized results from the 2.0 million metric tons of 2022 API2 hedges, alongside remaining uncontracted 2022 sales exposure.
Monitor delivery against 2021 sales, cash-cost and capital-spending guidance, and the revised Itmann scope, schedule, remaining cost, and expected third-party processing economics.
Review restricted-cash use and the capacity actually available under the receivables facility, which was nearly fully allocated to letters of credit.
Assess developments in retiree-benefit litigation, indemnification demands, environmental and reclamation commitments, and surety-bond and insurance availability.