Item 2.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in our Annual Report, as well as the financial statements and related notes appearing elsewhere in this Quarterly Report. The following discussion contains forward-looking statements that reflect our future plans, estimates, beliefs and expected performance. The forward-looking statements are dependent upon events, risks and uncertainties that may be outside our control. We caution you that our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences are discussed elsewhere in this Quarterly Report, particularly in the “Cautionary Note Regarding Forward-Looking Statements” and in our Annual Report under the heading “Item 1A. Risk Factors,” all of which are difficult to predict. In light of these risks, uncertainties and assumptions, the forward-looking events discussed may not occur. We do not undertake any obligation to publicly update any forward-looking statements except as otherwise required by applicable law.
Overview
Our revenue producing activities consist principally of the sale of coal we produce and coal we purchase from third parties for our own account. We began commercial production of coal in January 2017. Starting as new mine projects, we developed and opened four mines through the first nine months of 2018 at our Elk Creek mining complex. This includes our surface mine, which utilizes both the contour and highwall mining methods. We completed construction of the preparation plant and rail loadout facility at Elk Creek in February of 2018. We also began development mining in late 2017 at our Berwind property.
Results for our third quarter of 2018 reflect continued steady sales volumes. During the third quarter of 2018, we sold 0.6 million tons of metallurgical coal, including 0.1 million tons of purchased low volatile metallurgical coal. Of this, 57% was sold in domestic markets and 43% was sold in export markets, principally to Europe. Our third quarter revenues decreased $3.1 million or 5% from the second quarter of 2018. Revenues per ton sold (FOB mine) for our produced coal declined slightly to approximately $90 per ton in the third quarter as compared to $91 per ton in the second quarter of 2018.
Global steel production remains strong with continued growth in metallurgical demand from Europe and Asia. Our price realizations were lower in the third quarter of 2018 as compared with the second quarter of 2018. Sequentially, cash costs of approximately $65 per ton for our produced coal increased from approximately $56 per ton in the second quarter of 2018. This increase in cost per ton reflects less favorable geologic conditions at the No. 2 Gas mine and the Eagle mine during the third quarter of 2018. At the No. 2 Gas mine we encountered and have mined through an area containing approximately two feet of sandstone parting within the coal seam during the quarter, which decreased productivity and increased cost. This area was largely mined through by the end of September 2018, with production returning to expected levels. Our Eagle mine encountered an area of lower recovery due to in-seam rock. This resulted in higher transportation and processing costs as well as lower production rates. Mining concluded in this area and the section was moved during the month of September. The Company also had fewer operating days in third quarter than in the second quarter due to scheduled vacation periods during the third quarter.
In March 2018, President Trump signed a proclamation imposing a 25% global tariff on imports of certain steel products, effective March 31, 2018. Generally, we are experiencing signs of some increase in domestic demand for metallurgical coal as a result of the proclamations. Our export customers also include foreign steel producers who may be negatively affected by the tariffs to the extent their production is imported into the U.S. Some countries have also threatened retaliatory tariffs on U.S. products including metallurgical coal. At this time, it is too early to know the impact these tariffs will have on longer-term demand or pricing, if any.
Our capital expenditures totaled approximately $39.9 million during the first nine months of 2018. We expect to end the year with total 2018 capital expenditures beyond the higher end of our previous guidance of $40 million, due in part to repair and related infrastructure expense at our Elk Creek complex due to the partial structural failure of one of our storage silos. As of the date of this report, the Company is still evaluating the full impact of this event.
The Company is in the process of evaluating the structural integrity of the damaged silo, and similar evaluations will be conducted on the other two silos at Elk Creek. All three silos were previously existing on the Elk Creek property when it was acquired by Ramaco in 2012, and were subsequently linked into the newly constructed preparation plant and loadout facility, which was completed in late 2017. The damaged storage silo holds approximately two thousand raw tons of coal. The other two contiguous silos together hold approximately an additional one thousand five hundred raw tons of coal. We currently have over 350,000 tons of additional raw coal storage stockpiles at Elk Creek and are in the process of expanding storage areas.
The significance of the Elk Creek silo failure is that the silo system served as the conduit for delivery of coal to the preparation plant through various conveying belts and equipment. Given damage to the silo system, the Company will now plan to build an alternative conveying system off of existing infrastructure to the preparation plant. The Company, at this time, does not have an exact estimate of the time that this construction will take.
There were no personnel related accidents as a result of the structural failure at the silo. Upon confirmation of the failure, Ramaco personnel idled the Elk Creek preparation plant, and placed a safety zone around the areas that could potentially be impacted from a more severe failure. As of the date of this report, the Company does not have an estimated time frame for the resumption of processing or shipping coal from the Elk Creek infrastructure and is unable to predict the overall impact that the incident will have on the Company’s business and future results of operations.
As of November 7, 2018, the Company has notified all of its Elk Creek coal customers of its declaration of force majeure to the remaining 2018 coal contract obligations due to the aforementioned partial structural failure of one of the silos at our Elk Creek complex. It is not anticipated at this time that any 2019 coal sales will be affected or a declaration of force majeure will be needed with respect to 2019 commitments.
A review of our insurance policies has provided us with comfort that we have sufficient coverages to address potential gaps in our coal sales, as well as to cover costs necessary to restore our processing capability. We have provided notice to our insurer of the damaged silo and we believe that we have sufficient business interruption and replacement coverages.
Results of Operations
|
|
Three months ended
September 30,
|
|
|
Nine months ended
September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Consolidated statement of operations data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
62,165,738
|
|
|
$
|
14,404,979
|
|
|
$
|
183,386,943
|
|
|
$
|
37,016,753
|
|
Cost and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales (exclusive of items shown separately below)
|
|
|
49,406,271
|
|
|
|
16,525,352
|
|
|
|
141,597,265
|
|
|
|
39,146,225
|
|
Other operating costs and expenses
|
|
|
—
|
|
|
|
111,668
|
|
|
|
—
|
|
|
|
225,658
|
|
Asset retirement obligation accretion
|
|
|
123,468
|
|
|
|
101,276
|
|
|
|
370,403
|
|
|
|
303,829
|
|
Depreciation and amortization
|
|
|
3,347,777
|
|
|
|
867,967
|
|
|
|
8,740,659
|
|
|
|
1,334,983
|
|
Selling, general and administrative
|
|
|
3,484,395
|
|
|
|
3,141,237
|
|
|
|
10,607,793
|
|
|
|
9,241,880
|
|
Total cost and expenses
|
|
|
56,361,911
|
|
|
|
20,747,500
|
|
|
|
161,316,120
|
|
|
|
50,252,575
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
5,803,827
|
|
|
|
(6,342,521
|
)
|
|
|
22,070,823
|
|
|
|
(13,235,822
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and dividend income
|
|
|
23,155
|
|
|
|
75,130
|
|
|
|
26,389
|
|
|
|
291,901
|
|
Other income
|
|
|
1,036,418
|
|
|
|
31,869
|
|
|
|
2,038,426
|
|
|
|
150,104
|
|
Interest expense
|
|
|
(589,199
|
)
|
|
|
(21
|
)
|
|
|
(1,006,118
|
)
|
|
|
(22,841
|
)
|
Income (loss) before taxes
|
|
|
6,274,201
|
|
|
|
(6,235,543
|
)
|
|
|
23,129,520
|
|
|
|
(12,816,658
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
62,873
|
|
|
|
—
|
|
|
|
1,448,479
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
6,211,328
|
|
|
$
|
(6,235,543
|
)
|
|
$
|
21,681,041
|
|
|
$
|
(12,816,658
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
11,006,176
|
|
|
$
|
(5,021,402
|
)
|
|
$
|
35,160,488
|
|
|
$
|
(8,981,566
|
)
|
Three Months Ended
September
30
, 201
8
Compared to Three Months Ended
September
30
, 201
7
Revenues
. Our revenues include sales to customers of Company produced coal and coal purchased from third parties. We include amounts billed by us for transportation to our customers within revenues and transportation costs incurred within cost of sales. Coal sales information is summarized as follows:
|
|
Three months ended September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
Increase
|
|
Company Produced
|
|
|
|
|
|
|
|
|
|
|
|
|
Coal sales revenue
|
|
$
|
51,963,193
|
|
|
$
|
8,007,743
|
|
|
$
|
43,955,450
|
|
Tons sold
|
|
|
509,918
|
|
|
|
100,992
|
|
|
|
408,926
|
|
Purchased from Third Parties
|
|
|
|
|
|
|
|
|
|
|
|
|
Coal sales revenue
|
|
$
|
10,202,545
|
|
|
$
|
6,397,236
|
|
|
$
|
3,805,309
|
|
Tons sold
|
|
|
89,935
|
|
|
|
55,767
|
|
|
|
34,168
|
|
Coal sales in the third quarter of 2018 were approximately $47.8 million higher than in the third quarter of 2017 due to substantially higher volumes sold and higher realized prices.
Cost of sales.
Our cost of sales totaled $49.4 million for the three months ended September 30, 2018 as compared with $16.5 million for the same period in 2017.
The total cash cost per ton sold (FOB mine) for the third quarter of 2018 was approximately $65 for our produced coal and approximately $97 for coal we purchased from third parties. The $65 cash costs per ton in the third quarter of 2018 were down from approximately $85 in the third quarter of 2017. The difference was primarily due to the higher cost of processing our coal at third party facilities in 2017, before completion of our own prep plant facilities.
Other operating costs and expenses.
This includes costs and expenses which are not directly related to a specific mining operation. It typically includes general land management costs and some permit and license fees. The Company did not incur any of these costs in the three months ended September 30, 2018.
Asset retirement obligation accretion.
Asset retirement obligation accretion was $0.1 million in both of the three-month periods ended September 30, 2018 and 2017.
Depreciation and amortization.
Our depreciation and amortization costs for the third quarter of 2018 were $3.3 million as compared with $0.9 million for the third quarter of 2017. Increased depreciation and amortization costs result from our significantly expanded operations over the past year.
Selling, general and administrative.
Selling, general and administrative expenses were $3.5 million for the quarter ended September 30, 2018 as compared with $3.1 million for the same period in 2017. This increase reflected the growth of our organization as we began producing and selling coal.
Interest and dividend income.
Interest and dividend income decreased by approximately $0.1 million in the three months ended September 30, 2018 as compared with the prior year period.
Other income.
Other income increased by $1.0 million for the three months ended September 30, 2018 as compared with the same period in 2017. This increase was primarily driven by an increase in third-party royalty income and rail rebates received during the third quarter of 2018.
Interest expense.
Interest expense increased by $0.6 million in the three months ended September 30, 2018 as compared with the prior year period. This was driven by the increase in the Company’s outstanding debt during the current year.
Income tax expense.
For the three months ended September 30, 2018, we recognized income tax expense of $0.1 million, or an effective income tax rate of 1.0%. Our estimated full year effective tax rate for 2018 is comprised of the expected statutory tax expense offset by changes in valuation allowance and tax benefits for percentage depletion. Cash taxes paid for 2018 are expected to be less than $0.4 million. Significant depletion and depreciation expense and utilization of net operating loss carryforwards combine to substantially reduce our expected cash taxes.
We did not recognize any income tax expense or benefit for the three months ended September 30, 2017 because tax losses incurred for the year were fully offset by a valuation allowance against deferred tax assets.
Nine
Months Ended
September
3
0
, 2018 Compared to
Nine
Months Ended
September
30
, 2017
Revenues
. Our revenues include sales to customers of Company produced coal and coal purchased from third parties. We include amounts billed by us for transportation to our customers within revenues and transportation costs incurred within cost of sales. Coal sales information is summarized as follows:
|
|
Nine months ended September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
Increase
|
|
Company Produced
|
|
|
|
|
|
|
|
|
|
|
|
|
Coal sales revenue
|
|
$
|
145,736,255
|
|
|
$
|
16,183,334
|
|
|
$
|
129,552,921
|
|
Tons sold
|
|
|
1,405,839
|
|
|
|
210,151
|
|
|
|
1,195,688
|
|
Purchased from Third Parties
|
|
|
|
|
|
|
|
|
|
|
|
|
Coal sales revenue
|
|
$
|
37,650,688
|
|
|
$
|
18,595,745
|
|
|
$
|
19,054,943
|
|
Tons sold
|
|
|
331,296
|
|
|
|
130,685
|
|
|
|
200,611
|
|
Coal sales in the nine months ended September 30, 2018 were approximately $148.6 million higher than in the nine months ended September 30, 2017 due to substantially higher volumes sold and higher realized prices on company produced coal. In the nine months ended September 30, 2017, we also recognized $2.2 million of revenue for the processing of coal for third parties. We ceased processing third-party coal in April 2017 and have no current plans to begin those operations again.
Cost of sales.
Our cost of sales totaled $141.6 million for the nine months ended September 30, 2018 as compared with $39.1 million for the same period in 2017. Cost of sales for the nine months ended September 30, 2017 includes $1.7 million of costs associated with the processing of coal for third parties.
The total cash cost per ton sold (FOB mine) for the nine months ended September 30, 2018 was approximately $62 for our produced coal and approximately $95 for coal we purchased from third parties. Cash costs per ton for our produced coal during the nine months ended September 30, 2018 was down from approximately $80 during the nine months ended September 30, 2017. Our cost of sales in the nine months ended September 30, 2017 reflect the costs incurred at our first two operating mines, the Alma Mine and the Eagle Mine, which began commercial mining activities in that period. We also encountered third-party processing costs and increased trucking costs while awaiting the completion of our own processing facilities during the 2017 period.
Other operating costs and expenses.
This includes costs and expenses which are not directly related to a specific mining operation. It typically includes general land management costs and some permit and license fees. The Company did not incur any of these costs during the nine months ended September 30, 2018.
Asset retirement obligation accretion.
Asset retirement obligation accretion was approximately $0.4 million during the nine months ended September 30, 2018, compared to $0.3 million in the nine months ended September 30, 2017.
Depreciation and amortization.
Our depreciation and amortization costs for the nine months ended September 30, 2018 were $8.7 million as compared with $1.3 million for the nine months ended September 30. 2017. Increased depreciation and amortization costs resulted from our significantly expanded operations over the past year.
Selling, general and administrative.
Selling, general and administrative expenses were $10.6 million during the nine months ended September 30, 2018 as compared with $9.2 million for the same period in 2017. The total for the nine months ended September 30, 2017 includes $2.1 million of equity-based compensation expense for the accelerated vesting of stock options which became fully vested upon our initial public offering. Equity-based compensation expense for the nine months ended September 30, 2018 totaled $1.9 million. The increase exclusive of the change in equity-based compensation expense reflected the growth of our organization as we began producing and selling coal.
Interest and dividend income.
Interest and dividend income decreased by $0.3 million in the nine months ended September 30, 2018 as compared with the prior year period. This decrease was primarily due to interest earned on investment securities held by the Company during the 2017 period, which did not recur during the 2018 period.
Other income.
Other income was $2.0 million for the nine months ended September 30, 2018 as compared with $0.2 million for the same period in 2017. This increase was primarily driven by an increase in third-party royalty income and rail rebates during the nine months ended September 30, 2018.
Interest expense.
Interest expense increased by $1.0 million during the nine months ended September 30, 2018 as compared with the prior year period. This increase was driven by the increase in the Company’s outstanding debt during the current period.
Income tax expense.
For the nine months ended September 30, 2018, we recognized income tax expense of $1.4 million, or an effective income tax rate of 6.3%. Our estimated full year effective tax rate for 2018 is comprised of the expected statutory tax expense offset by changes in valuation allowance and tax benefits for percentage depletion. Cash taxes paid for 2018 are expected to be less than $0.4 million. Significant depletion and depreciation expense and utilization of net operating loss carryforwards combine to substantially reduce our expected cash taxes.
We did not recognize any income tax expense or benefit for the nine months ended September 30, 2017 because tax losses incurred for the year were fully offset by a valuation allowance against deferred tax assets.
Non-GAAP Financial Measures
Adjusted EBITDA
Adjusted EBITDA is used as a supplemental non-GAAP financial measure by management and external users of our financial statements, such as industry analysts, investors, lenders and rating agencies. We believe Adjusted EBITDA is useful because it allows us to more effectively evaluate our operating performance.
We define Adjusted EBITDA as net income (loss) plus net interest expense, equity-based compensation, depreciation and amortization expenses and any transaction related costs. A reconciliation of income (loss), net of income taxes, to Adjusted EBITDA is included below. Adjusted EBITDA is not intended to serve as an alternative to U.S. GAAP measures of performance and may not be comparable to similarly-titled measures presented by other companies. The table below shows how we calculate Adjusted EBITDA:
|
|
Three months ended
September 30,
|
|
|
Nine months ended
September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of Net Income (Loss) to Adjusted EBITDA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
6,211,328
|
|
|
$
|
(6,235,543
|
)
|
|
$
|
21,681,041
|
|
|
$
|
(12,816,658
|
)
|
Depreciation and amortization
|
|
|
3,347,777
|
|
|
|
867,967
|
|
|
|
8,740,659
|
|
|
|
1,334,983
|
|
Interest expense (income), net
|
|
|
566,044
|
|
|
|
(75,109
|
)
|
|
|
979,729
|
|
|
|
(269,060
|
)
|
Income taxes
|
|
|
62,873
|
|
|
|
—
|
|
|
|
1,448,479
|
|
|
|
—
|
|
EBITDA
|
|
|
10,188,022
|
|
|
|
(5,442,685
|
)
|
|
|
32,849,908
|
|
|
|
(11,750,735
|
)
|
Equity-based compensation
|
|
|
694,686
|
|
|
|
320,007
|
|
|
|
1,940,177
|
|
|
|
2,465,340
|
|
Accretion of asset retirement obligation
|
|
|
123,468
|
|
|
|
101,276
|
|
|
|
370,403
|
|
|
|
303,829
|
|
Adjusted EBITDA
|
|
$
|
11,006,176
|
|
|
$
|
(5,021,402
|
)
|
|
$
|
35,160,488
|
|
|
$
|
(8,981,566
|
)
|
Non-GAAP revenue per ton
Non-GAAP revenue per ton (FOB mine) is calculated as coal sales revenues less transportation costs, divided by tons sold. We believe revenue per ton (FOB mine) provides useful information to investors as it enables investors to compare revenue per ton generated by the Company against similar measures made by other publicly-traded coal companies and more effectively monitor changes in coal prices from period to period excluding the impact of transportation costs which are beyond our control. The adjustments made to arrive at these measures are significant in understanding and assessing the Company’s financial condition. Revenue per ton sold (FOB mine) is not a measure of financial performance in accordance with U.S. GAAP and therefore should not be considered as an alternative to revenues under U.S. GAAP. The table below shows how we calculate Non-GAAP revenue per ton:
|
|
Three Months Ended September 30, 2018
|
|
|
Three Months Ended September 30, 2017
|
|
|
|
Company Produced
|
|
|
Purchased
Coal
|
|
|
Total
|
|
|
Company Produced
|
|
|
Purchased
Coal
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
51,963,193
|
|
|
$
|
10,202,545
|
|
|
$
|
62,165,738
|
|
|
$
|
8,007,743
|
|
|
$
|
6,397,236
|
|
|
$
|
14,404,979
|
|
Less: Adjustments to reconcile to Non-GAAP revenues (FOB mine)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transportation costs
|
|
|
6,185,300
|
|
|
|
1,090,911
|
|
|
|
7,276,211
|
|
|
|
2,430,458
|
|
|
|
636,248
|
|
|
|
3,066,706
|
|
Non-GAAP revenues (FOB mine)
|
|
$
|
45,777,893
|
|
|
$
|
9,111,634
|
|
|
$
|
54,889,527
|
|
|
$
|
5,577,285
|
|
|
$
|
5,760,988
|
|
|
$
|
11,338,273
|
|
Tons sold
|
|
|
509,918
|
|
|
|
89,935
|
|
|
|
599,853
|
|
|
|
100,992
|
|
|
|
55,767
|
|
|
|
156,759
|
|
Revenues per ton sold (FOB mine)
|
|
$
|
89.78
|
|
|
$
|
101.31
|
|
|
$
|
91.50
|
|
|
$
|
55.23
|
|
|
$
|
103.30
|
|
|
$
|
72.33
|
|
|
|
Nine Months Ended September 30, 2018
|
|
|
Nine Months Ended September 30, 2017
|
|
|
|
Company Produced
|
|
|
Purchased
Coal
|
|
|
Total
|
|
|
Company Produced
|
|
|
Purchased
Coal
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
(a)
|
|
$
|
145,736,255
|
|
|
$
|
37,650,688
|
|
|
$
|
183,386,943
|
|
|
$
|
16,183,334
|
|
|
$
|
18,595,745
|
|
|
$
|
34,779,079
|
|
Less: Adjustments to reconcile to Non-GAAP revenues (FOB mine)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transportation costs
|
|
|
18,172,910
|
|
|
|
4,282,576
|
|
|
|
22,455,486
|
|
|
|
4,774,631
|
|
|
|
1,947,207
|
|
|
|
6,721,838
|
|
Non-GAAP revenues (FOB mine)
|
|
$
|
127,563,345
|
|
|
$
|
33,368,112
|
|
|
$
|
160,931,457
|
|
|
$
|
11,408,703
|
|
|
$
|
16,648,538
|
|
|
$
|
28,057,241
|
|
Tons sold
|
|
|
1,405,839
|
|
|
|
331,296
|
|
|
|
1,737,135
|
|
|
|
210,151
|
|
|
|
130,685
|
|
|
|
340,836
|
|
Revenues per ton sold (FOB mine)
|
|
$
|
90.74
|
|
|
$
|
100.72
|
|
|
$
|
92.64
|
|
|
$
|
54.29
|
|
|
$
|
127.39
|
|
|
$
|
82.32
|
|
(a) The nine months ended September 30, 2017 exclude coal processing revenue of $2.2 million.
|
Non-GAAP cash cost per ton sold
Non-GAAP cash cost per ton sold is calculated as cash cost of coal sales less transportation costs, divided by tons sold. We believe cash cost per ton sold provides useful information to investors as it enables investors to compare the cash cost per ton by the Company against similar measures made by other publicly-traded coal companies and more effectively monitor changes in coal cost from period to period excluding the impact of transportation costs which are beyond our control. The adjustments made to arrive at these measures are significant in understanding and assessing the Company’s financial condition. Cash cost per ton sold is not a measure of financial performance in accordance with U.S. GAAP and therefore should not be considered as an alternative to cost of sales under U.S. GAAP. The table below shows how we calculate Non-GAAP cash cost per ton:
|
|
Three Months Ended September 30, 2018
|
|
|
Three Months Ended September 30, 2017
|
|
|
|
Company Produced
|
|
|
Purchased
Coal
|
|
|
Total
|
|
|
Company Produced
|
|
|
Purchased
Coal
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
$
|
39,583,647
|
|
|
$
|
9,822,624
|
|
|
$
|
49,406,271
|
|
|
$
|
10,965,519
|
|
|
$
|
5,559,833
|
|
|
$
|
16,525,352
|
|
Less: Adjustments to reconcile to Non-GAAP cash cost of coal sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transportation costs
|
|
|
6,226,914
|
|
|
|
1,116,231
|
|
|
|
7,343,145
|
|
|
|
2,430,458
|
|
|
|
636,248
|
|
|
|
3,066,706
|
|
Non-GAAP cash cost of coal sales
|
|
$
|
33,356,733
|
|
|
$
|
8,706,393
|
|
|
$
|
42,063,126
|
|
|
$
|
8,535,061
|
|
|
$
|
4,923,585
|
|
|
$
|
13,458,646
|
|
Tons sold
|
|
|
509,918
|
|
|
|
89,935
|
|
|
|
599,853
|
|
|
|
100,992
|
|
|
|
55,767
|
|
|
|
156,759
|
|
Cash cost per ton sold
|
|
$
|
65.42
|
|
|
$
|
96.81
|
|
|
$
|
70.12
|
|
|
$
|
84.51
|
|
|
$
|
88.29
|
|
|
$
|
85.86
|
|
|
|
Nine Months Ended September 30, 2018
|
|
|
Nine Months Ended September 30, 2017
|
|
|
|
Company Produced
|
|
|
Purchased
Coal
|
|
|
Total
|
|
|
Company Produced
|
|
|
Purchased
Coal
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
(a)
|
|
$
|
105,804,845
|
|
|
$
|
35,792,420
|
|
|
$
|
141,597,265
|
|
|
$
|
21,606,662
|
|
|
$
|
15,844,113
|
|
|
$
|
37,450,775
|
|
Less: Adjustments to reconcile to Non-GAAP cash cost of coal sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transportation costs
|
|
|
18,738,116
|
|
|
|
4,415,770
|
|
|
|
23,153,886
|
|
|
|
4,774,631
|
|
|
|
1,947,207
|
|
|
|
6,721,838
|
|
Non-GAAP cash cost of coal sales
|
|
$
|
87,066,729
|
|
|
$
|
31,376,650
|
|
|
$
|
118,443,379
|
|
|
$
|
16,832,031
|
|
|
$
|
13,896,906
|
|
|
$
|
30,728,937
|
|
Tons sold
|
|
|
1,405,839
|
|
|
|
331,296
|
|
|
|
1,737,135
|
|
|
|
210,151
|
|
|
|
130,685
|
|
|
|
340,836
|
|
Cash cost per ton sold
|
|
$
|
61.93
|
|
|
$
|
94.71
|
|
|
$
|
68.18
|
|
|
$
|
80.09
|
|
|
$
|
106.34
|
|
|
$
|
90.16
|
|
(a) The nine months ended September 30, 2017 excludes cost of sales related to coal processing of $1.7 million.
|
Liquidity and Capital Resources
Our primary source of cash is proceeds from the sale of our coal production to customers. Our primary uses of cash include the cash costs of coal production, capital expenditures, royalty payments and other operating expenditures.
Cash flow information is as follows:
|
|
Nine months ended September 30,
|
|
|
|
2018
|
|
|
2017
|
|
Consolidated statement of cash flow data:
|
|
|
|
|
|
|
|
|
Cash flows from operating activities
|
|
$
|
20,473,486
|
|
|
$
|
(12,521,430
|
)
|
Cash flows from investing activities
|
|
|
(34,683,141
|
)
|
|
|
(12,704,054
|
)
|
Cash flows from financing activities
|
|
|
13,757,897
|
|
|
|
29,291,926
|
|
Net change in cash and cash equivalents
|
|
$
|
(451,758
|
)
|
|
$
|
4,066,442
|
|
Cash flows from operating activities during the nine months ended September 30, 2018 increased from the nine months ended September 30, 2017 principally due to increases in our earnings. Significantly increased operations in the first nine months of 2018 required a greater investment in working capital.
Net cash used in investing activities was $34.7 million for the nine months ended September 30, 2018 as compared with $12.7 million for the same period of 2017. Our capital expenditures totaled $39.9 million and $53.3 million in the 2018 and 2017 periods, respectively. During the nine months ended September 30, 2017, we purchased $14.9 million of investment securities. We received proceeds of $5.2 million from maturing investment securities during the 2018 period, as compared with net proceeds from investment securities of $55.5 million in the 2017 period.
Cash flows from financing activities were $13.8 million for the nine months ended September 30, 2018, which was primarily due to net short-term borrowings of $15.5 million, partially offset by repayments on borrowings and insurance financing of $1.7 million. Cash flows from financing activities were $29.3 million for the nine months ended September 30, 2017, which was primarily due to net proceeds from our initial public offering of $46.0 million, partially offset by repayments on borrowings and insurance financing of $11.3 million and distributions to owners of $5.4 million.
Indebtedness
In February 2018, we borrowed $6.0 million under a short-term note from an unrelated third-party lender in order to manage accounts receivable. The note is secured by a portion of our mobile mining equipment (“the Equipment Note”). Interest accrues monthly at 8.5% or 30-day LIBOR plus 6.9%, whichever is greater. The outstanding principal balance is due on December 31, 2018 but may be prepaid without penalty at any time. During the nine months ended September 30, 2018, we repaid $1.0 million under the Equipment Note. As of September 30, 2018, the outstanding principal balance was $5.0 million. The Equipment Note was repaid on November 5, 2018 with proceeds from the Credit Facility discussed below.
In May 2018, we borrowed $3.0 million from Ramaco Coal, LLC, a related party secured by certain inventory. Interest accrues monthly at 10.0%. The outstanding principal balance is due on December 15, 2018 but may be prepaid without penalty at any time. As of September 30, 2018, the outstanding principal balance was $3.0 million. This note was repaid on November 5, 2018 with proceeds from the Credit Facility discussed below.
In June 2018, we borrowed an additional $7.0 million under a short-term note from the same unrelated equipment lender in order to manage accounts receivable (the “Additional Equipment Note”). The Additional Equipment Note is also secured by the same mobile mining equipment as the Equipment Note. Interest accrues monthly at 8.5% or 30-day LIBOR plus 6.9%, whichever is greater. The outstanding principal balance is due on December 31, 2018 but may be prepaid without penalty at any time. We anticipate securing a comprehensive asset base credit facility before the maturity of the Additional Equipment Note. As of September 30, 2018, the outstanding principal balance was $7.0 million. The Additional Equipment Note was repaid on November 5, 2018 with proceeds from the Credit Facility discussed below.
On November 2, 2018 the Company entered into a Credit and Security Agreement (the “Credit Facility”) with KeyBank National Association. The Credit Facility consists of a $10.0 million term loan (the “Term Loan”) and up to $30.0 million revolving line of credit, including $1.0 letter of credit availability (the “Revolving Credit Facility”). The Company intends to use the Credit Facility to refinance the existing Equipment Note, Additional Equipment Note and the note due to Ramaco Coal, LLC, and provide working capital. The Credit Facility has a maturity date of November 2, 2021. For additional information on this Credit Facility, see Note 11 of the Notes to Unaudited Condensed Consolidated Financial Statements included in Item 1 of Part I in this Quarterly Report on Form 10-Q.
Liquidity
As of September 30, 2018, our available cash was $5.5 million. We expect to fund our capital and liquidity requirements with cash on hand, borrowings discussed above and projected cash flow from operations. Factors that could adversely impact our future liquidity and ability to carry out our capital expenditure program include the following:
|
●
|
Timely delivery of our product by rail and other transportation carriers;
|
|
●
|
Timely payment of accounts receivable by our customers;
|
|
●
|
Cost overruns in our purchases of equipment needed to complete our mine development plans;
|
|
●
|
Delays in completion of development of our various mines which would reduce the coal we would have available to sell and our cash flow from operations; and
|
|
●
|
Adverse changes in the metallurgical coal markets that would reduce the expected cash flow from operations.
|
Capital Requirements
Our primary use of cash currently includes capital expenditures for mine development and for ongoing operating expenses. During the first nine months of 2018, our capital expenditures totaled approximately $40 million.
Management believes that current cash on hand, cash flow from operations, and availability under the Revolving Credit Facility will be sufficient to meet its current capital expenditure and operating plans.
If future cash flows are insufficient to meet our liquidity needs or capital requirements, we may reduce our expected level of capital expenditures and/or fund a portion of our capital expenditures through the issuance of debt or equity securities, the entry into debt arrangements or from other sources, such as asset sales.
Off-Balance Sheet Arrangements
As of September 30, 2018, we had no material off-balance sheet arrangements.