Item
1. Financial Statements (Unaudited)
RHINO
RESOURCE PARTNERS LP
UNAUDITED
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(In
thousands)
|
|
March
31,
|
|
|
December
31,
|
|
|
|
2020
|
|
|
2019
|
|
ASSETS
|
|
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
1,281
|
|
|
$
|
112
|
|
Restricted
cash
|
|
|
475
|
|
|
$
|
-
|
|
Accounts
receivable
|
|
|
10,703
|
|
|
|
14,149
|
|
Receivable-other
|
|
|
-
|
|
|
|
2,800
|
|
Inventories
|
|
|
15,607
|
|
|
|
15,664
|
|
Advance
royalties, current portion
|
|
|
1
|
|
|
|
3
|
|
Prepaid
expenses and other
|
|
|
1,919
|
|
|
|
2,169
|
|
Total
current assets
|
|
|
29,986
|
|
|
|
34,897
|
|
PROPERTY, PLANT AND
EQUIPMENT:
|
|
|
|
|
|
|
|
|
At
cost, including coal properties, mine development and construction costs
|
|
|
361,511
|
|
|
|
353,809
|
|
Less
accumulated depreciation, depletion and amortization
|
|
|
(260,575
|
)
|
|
|
(251,466
|
)
|
Net
property, plant and equipment
|
|
|
100,936
|
|
|
|
102,343
|
|
Operating lease right-of-use
assets (net)
|
|
|
10,341
|
|
|
|
11,145
|
|
Advance royalties,
net of current portion
|
|
|
262
|
|
|
|
119
|
|
Deposits - Workers’
Compensation and Surety Programs
|
|
|
7,943
|
|
|
|
7,943
|
|
Other non-current assets
|
|
|
31,941
|
|
|
|
31,590
|
|
Non-current
assets held for sale
|
|
|
-
|
|
|
|
6,510
|
|
TOTAL
|
|
$
|
181,409
|
|
|
$
|
194,547
|
|
LIABILITIES
AND EQUITY
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
30,270
|
|
|
$
|
28,627
|
|
Accrued
expenses and other
|
|
|
11,369
|
|
|
|
13,207
|
|
Accrued
preferred distributions
|
|
|
1,500
|
|
|
|
1,200
|
|
Current
portion of operating lease liabilities
|
|
|
3,195
|
|
|
|
3,267
|
|
Current
portion of long-term debt-net of unamortized debt issuance costs (NOTE 10)
|
|
|
36,781
|
|
|
|
34,244
|
|
Current
portion of asset retirement obligations
|
|
|
420
|
|
|
|
420
|
|
Current
liabilities held for sale
|
|
|
-
|
|
|
|
4,827
|
|
Total
current liabilities
|
|
|
83,535
|
|
|
|
85,792
|
|
NON-CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
Long-term
debt, net
|
|
|
855
|
|
|
|
1,160
|
|
Asset
retirement obligations, net of current portion
|
|
|
20,560
|
|
|
|
20,171
|
|
Operating
lease liabilities, net of current portion
|
|
|
6,741
|
|
|
|
7,465
|
|
Other
non-current liabilities
|
|
|
44,293
|
|
|
|
44,244
|
|
Total
non-current liabilities
|
|
|
72,449
|
|
|
|
73,040
|
|
Total
liabilities
|
|
|
155,984
|
|
|
|
158,832
|
|
COMMITMENTS AND CONTINGENCIES
(NOTE 15)
|
|
|
|
|
|
|
|
|
PARTNERS’ CAPITAL:
|
|
|
|
|
|
|
|
|
Limited
partners
|
|
|
4,958
|
|
|
|
15,205
|
|
General
partner
|
|
|
8,329
|
|
|
|
8,372
|
|
Preferred
partners
|
|
|
15,000
|
|
|
|
15,000
|
|
Investment
in Royal common stock (NOTE 13)
|
|
|
(4,126
|
)
|
|
|
(4,126
|
)
|
Common
unit warrants
|
|
|
1,264
|
|
|
|
1,264
|
|
Total
partners’ capital
|
|
|
25,425
|
|
|
|
35,715
|
|
TOTAL
|
|
$
|
181,409
|
|
|
$
|
194,547
|
|
See
notes to unaudited condensed consolidated financial statements.
RHINO
RESOURCE PARTNERS LP
UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In
thousands, except per unit data)
|
|
Three
Months Ended March 31,
|
|
|
|
2020
|
|
|
2019
|
|
REVENUES:
|
|
|
|
|
|
|
|
|
Coal
sales
|
|
$
|
37,314
|
|
|
$
|
44,863
|
|
Other
revenues
|
|
|
182
|
|
|
|
874
|
|
Total
revenues
|
|
|
37,496
|
|
|
|
45,737
|
|
COSTS AND EXPENSES:
|
|
|
|
|
|
|
|
|
Cost
of operations (exclusive of depreciation, depletion and amortization shown separately below)
|
|
|
36,123
|
|
|
|
40,213
|
|
Freight
and handling costs
|
|
|
1,040
|
|
|
|
1,155
|
|
Depreciation,
depletion and amortization
|
|
|
3,949
|
|
|
|
3,491
|
|
Selling,
general and administrative (exclusive of depreciation, depletion and amortization shown separately above)
|
|
|
4,160
|
|
|
|
2,722
|
|
(Gain)
on sale/disposal of assets, net
|
|
|
63
|
|
|
|
222
|
|
Total
costs and expenses
|
|
|
45,335
|
|
|
|
47,803
|
|
LOSS
FROM OPERATIONS
|
|
|
(7,839
|
)
|
|
|
(2,066
|
)
|
INTEREST
AND OTHER (EXPENSE)/INCOME:
|
|
|
|
|
|
|
|
|
Interest
expense and other
|
|
|
(2,072
|
)
|
|
|
(1,701
|
)
|
Total
interest and other (expense)
|
|
|
(2,072
|
)
|
|
|
(1,701
|
)
|
NET LOSS BEFORE INCOME
TAXES FROM CONTINUING OPERATIONS
|
|
|
(9,911
|
)
|
|
|
(3,767
|
)
|
INCOME
TAXES
|
|
|
-
|
|
|
|
-
|
|
NET LOSS FROM CONTINUING
OPERATIONS
|
|
|
(9,911
|
)
|
|
|
(3,767
|
)
|
DISCONTINUED OPERATIONS
(NOTE 4)
|
|
|
|
|
|
|
|
|
Loss
from discontinued operations
|
|
|
(79
|
)
|
|
|
(3,512
|
)
|
NET
LOSS
|
|
$
|
(9,990
|
)
|
|
$
|
(7,279
|
)
|
|
|
|
|
|
|
|
|
|
General partner’s
interest in net (loss):
|
|
|
|
|
|
|
|
|
Net
loss from continuing operations
|
|
$
|
(43
|
)
|
|
$
|
(17
|
)
|
Net
loss from discontinued operations
|
|
|
-
|
|
|
|
(15
|
)
|
General
partner’s interest in net loss
|
|
$
|
(43
|
)
|
|
$
|
(32
|
)
|
Common unitholders’
interest in net (loss):
|
|
|
|
|
|
|
|
|
Net
loss from continuing operations
|
|
$
|
(9,351
|
)
|
|
$
|
(3,725
|
)
|
Net
loss from discontinued operations
|
|
|
(72
|
)
|
|
|
(3,216
|
)
|
Common
unitholders’ interest in net loss:
|
|
$
|
(9,423
|
)
|
|
$
|
(6,941
|
)
|
Subordinated unitholders’
interest in net loss:
|
|
|
|
|
|
|
|
|
Net
(loss) from continuing operations
|
|
$
|
(817
|
)
|
|
$
|
(325
|
)
|
Net
(loss) from discontinued operations
|
|
|
(7
|
)
|
|
|
(281
|
)
|
Subordinated
unitholders’ interest in net loss:
|
|
$
|
(824
|
)
|
|
$
|
(606
|
)
|
Preferred unitholders’
interest in net income:
|
|
|
|
|
|
|
|
|
Net
income from continuing operations
|
|
$
|
300
|
|
|
$
|
300
|
|
Net
income from discontinued operations
|
|
|
-
|
|
|
|
-
|
|
Preferred
unitholders’ interest in net income
|
|
$
|
300
|
|
|
$
|
300
|
|
Net (loss)/income per
limited partner unit, basic:
|
|
|
|
|
|
|
|
|
Common
units:
|
|
|
|
|
|
|
|
|
Net
loss per unit from continuing operations
|
|
$
|
(0.72
|
)
|
|
$
|
(0.28
|
)
|
Net
loss per unit from discontinued operations
|
|
|
-
|
|
|
|
(0.25
|
)
|
Net
loss per common unit, basic
|
|
$
|
(0.72
|
)
|
|
$
|
(0.53
|
)
|
Subordinated
units
|
|
|
|
|
|
|
|
|
Net
loss per unit from continuing operations
|
|
$
|
(0.72
|
)
|
|
$
|
(0.28
|
)
|
Net
loss per unit from discontinued operations
|
|
|
-
|
|
|
|
(0.25
|
)
|
Net
loss per subordinated unit, basic
|
|
$
|
(0.72
|
)
|
|
$
|
(0.53
|
)
|
Preferred
units
|
|
|
|
|
|
|
|
|
Net
income per unit from continuing operations
|
|
$
|
0.20
|
|
|
$
|
0.20
|
|
Net
income per unit from discontinued operations
|
|
|
-
|
|
|
|
-
|
|
Net
income per preferred unit, basic
|
|
$
|
0.20
|
|
|
$
|
0.20
|
|
Net
(loss)/income per limited partner unit, diluted:
|
|
|
|
|
|
|
|
|
Common
units
|
|
|
|
|
|
|
|
|
Net
loss per unit from continuing operations
|
|
$
|
(0.72
|
)
|
|
$
|
(0.28
|
)
|
Net
loss per unit from discontinued operations
|
|
|
-
|
|
|
|
(0.25
|
)
|
Net
loss per common unit, diluted
|
|
$
|
(0.72
|
)
|
|
$
|
(0.53
|
)
|
Subordinated
units
|
|
|
|
|
|
|
|
|
Net
loss per unit from continuing operations
|
|
$
|
(0.72
|
)
|
|
$
|
(0.28
|
)
|
Net
loss per unit from discontinued operations
|
|
|
-
|
|
|
|
(0.25
|
)
|
Net
loss per subordinated unit, diluted
|
|
$
|
(0.72
|
)
|
|
$
|
(0.53
|
)
|
Preferred
units
|
|
|
|
|
|
|
|
|
Net
income per unit from continuing operations
|
|
$
|
0.20
|
|
|
$
|
0.20
|
|
Net
income per unit from discontinued operations
|
|
|
-
|
|
|
|
-
|
|
Net
income per preferred unit, diluted
|
|
$
|
0.20
|
|
|
$
|
0.20
|
|
|
|
|
|
|
|
|
|
|
Weighted average number
of limited partner units outstanding, basic:
|
|
|
|
|
|
|
|
|
Common
units
|
|
|
13,078
|
|
|
|
13,098
|
|
Subordinated
units
|
|
|
1,143
|
|
|
|
1,144
|
|
Preferred
units
|
|
|
1,500
|
|
|
|
1,500
|
|
Weighted average number
of limited partner units outstanding, diluted:
|
|
|
|
|
|
|
|
|
Common
units
|
|
|
13,078
|
|
|
|
13,098
|
|
Subordinated
units
|
|
|
1,143
|
|
|
|
1,144
|
|
Preferred
units
|
|
|
1,500
|
|
|
|
1,500
|
|
See
notes to unaudited condensed consolidated financial statements.
RHINO RESOURCE PARTNERS LP
UNAUDITED CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL
FOR THE THREE MONTHS ENDED MARCH 31, 2020 and 2019
(In thousands)
|
|
Limited
Partners
|
|
|
General
|
|
|
Preferred
|
|
|
|
|
|
Total
|
|
|
|
Common
|
|
|
Subordinated
|
|
|
Partner
|
|
|
Partner
|
|
|
|
|
|
Partners’
|
|
|
|
Units
|
|
|
Capital
|
|
|
Units
|
|
|
Capital
|
|
|
Capital
|
|
|
Capital
|
|
|
Other
|
|
|
Capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE
- December 31, 2019
|
|
|
13,078
|
|
|
$
|
(52,921
|
)
|
|
|
1,143
|
|
|
$
|
68,126
|
|
|
$
|
8,372
|
|
|
$
|
15,000
|
|
|
$
|
(2,862
|
)
|
|
$
|
35,715
|
|
Net
(loss)/income
|
|
|
-
|
|
|
|
(9,423
|
)
|
|
|
-
|
|
|
|
(824
|
)
|
|
|
(43
|
)
|
|
|
300
|
|
|
|
-
|
|
|
|
(9,990
|
)
|
Preferred
partner distribution earned
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(300
|
)
|
|
|
-
|
|
|
|
(300
|
)
|
BALANCE - March
31, 2020
|
|
|
13,078
|
|
|
$
|
(62,344
|
)
|
|
|
1,143
|
|
|
$
|
67,302
|
|
|
$
|
8,329
|
|
|
$
|
15,000
|
|
|
$
|
(2,862
|
)
|
|
$
|
25,425
|
|
|
|
|
Limited Partners
|
|
|
General
|
|
|
Preferred
|
|
|
|
|
|
Total
|
|
|
|
Common
|
|
|
Subordinated
|
|
|
Partner
|
|
|
Partner
|
|
|
|
|
|
Partners’
|
|
|
|
Units
|
|
|
Capital
|
|
|
Units
|
|
|
Capital
|
|
|
Capital
|
|
|
Capital
|
|
|
Other
|
|
|
Capital
|
|
BALANCE - December
31, 2018
|
|
|
13,098
|
|
|
$
|
39,324
|
|
|
|
1,144
|
|
|
$
|
76,181
|
|
|
$
|
8,792
|
|
|
$
|
15,000
|
|
|
$
|
(2,862
|
)
|
|
$
|
136,435
|
|
Net
(loss)/income
|
|
|
-
|
|
|
|
(6,941
|
)
|
|
|
-
|
|
|
|
(606
|
)
|
|
|
(32
|
)
|
|
|
300
|
|
|
|
-
|
|
|
|
(7,279
|
)
|
Preferred
distribution earned
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(300
|
)
|
|
|
-
|
|
|
|
(300
|
)
|
BALANCE - March
31, 2019
|
|
|
13,098
|
|
|
$
|
32,383
|
|
|
|
1,144
|
|
|
$
|
75,575
|
|
|
$
|
8,760
|
|
|
$
|
15,000
|
|
|
$
|
(2,862
|
)
|
|
$
|
128,856
|
|
See
notes to unaudited condensed consolidated financial statements.
RHINO
RESOURCE PARTNERS LP
UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In
thousands)
|
|
Three
Months Ended March 31,
|
|
|
|
2020
|
|
|
2019
|
|
CASH FLOWS FROM OPERATING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net
(loss)
|
|
$
|
(9,990
|
)
|
|
$
|
(7,279
|
)
|
Adjustments
to reconcile net (loss) to net cash (used in)/provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation,
depletion and amortization
|
|
|
3,949
|
|
|
|
5,549
|
|
Accretion
on asset retirement obligations
|
|
|
389
|
|
|
|
319
|
|
Amortization
of advance royalties
|
|
|
3
|
|
|
|
407
|
|
Amortization
of debt issuance costs
|
|
|
755
|
|
|
|
516
|
|
Amortization
of debt discount
|
|
|
35
|
|
|
|
105
|
|
Loss
on retirement of advance royalties
|
|
|
-
|
|
|
|
112
|
|
Loss
on sale/disposal of assets—net
|
|
|
63
|
|
|
|
655
|
|
(Gain)
on sale of Mammoth shares
|
|
|
-
|
|
|
|
(433
|
)
|
Asset
impairment adjustment
|
|
|
(343
|
)
|
|
|
-
|
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
4,110
|
|
|
|
(1,855
|
)
|
Inventories
|
|
|
56
|
|
|
|
(4,847
|
)
|
Advance
royalties
|
|
|
(144
|
)
|
|
|
(677
|
)
|
Prepaid
expenses and other assets
|
|
|
196
|
|
|
|
537
|
|
Accounts
payable
|
|
|
(962
|
)
|
|
|
6,463
|
|
Accrued
expenses and other liabilities
|
|
|
(1,090
|
)
|
|
|
977
|
|
Asset
retirement obligations
|
|
|
-
|
|
|
|
(15
|
)
|
Net
cash (used in)/provided by operating activities
|
|
|
(2,973
|
)
|
|
|
534
|
|
CASH FLOWS FROM INVESTING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
Additions
to property, plant, and equipment
|
|
|
(1,623
|
)
|
|
|
(2,001
|
)
|
Proceeds
from sales of property, plant, and equipment
|
|
|
-
|
|
|
|
1,401
|
|
Proceeds
from pipeline settlement
|
|
|
2,800
|
|
|
|
-
|
|
Proceeds
from sale of Pennyrile assets
|
|
|
3,000
|
|
|
|
-
|
|
Proceeds
from sale of Mammoth shares
|
|
|
-
|
|
|
|
2,304
|
|
Net
cash provided by investing activities
|
|
|
4,177
|
|
|
|
1,704
|
|
CASH FLOWS FROM FINANCING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
Repayments
on long-term debt
|
|
|
(375
|
)
|
|
|
(375
|
)
|
Repayments
on other debt
|
|
|
(1,034
|
)
|
|
|
(522
|
)
|
Repayments
on finance leases
|
|
|
(1
|
)
|
|
|
(1
|
)
|
Proceeds
from financing agreement
|
|
|
3,000
|
|
|
|
-
|
|
Payments
of debt issuance costs
|
|
|
(1,150
|
)
|
|
|
(101
|
)
|
Preferred
distributions paid
|
|
|
-
|
|
|
|
(3,210
|
)
|
Net
cash provided by/(used in) financing activities
|
|
|
440
|
|
|
|
(4,209
|
)
|
NET (DECREASE) IN CASH,
CASH EQUIVALENTS
|
|
|
1,644
|
|
|
|
(1,971
|
)
|
CASH, CASH EQUIVALENTS
AND RESTRICTED CASH—Beginning of period
|
|
|
112
|
|
|
|
6,172
|
|
CASH, CASH EQUIVALENTS
AND RESTRICTED CASH—End of period
|
|
$
|
1,756
|
|
|
$
|
4,201
|
|
|
|
|
|
|
|
|
|
|
Summary Statement of
Financial Position:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,281
|
|
|
$
|
4,201
|
|
Restricted cash
|
|
|
475
|
|
|
|
-
|
|
|
|
$
|
1,756
|
|
|
$
|
4,201
|
|
See
notes to unaudited condensed consolidated financial statements.
RHINO
RESOURCE PARTNERS LP
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS
OF MARCH 31, 2020 AND DECEMBER 31, 2019 AND FOR THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019
1.
BASIS OF PRESENTATION AND ORGANIZATION
Basis
of Presentation and Principles of Consolidation. The accompanying unaudited interim financial statements include the accounts
of Rhino Resource Partners LP and its subsidiaries (the “Partnership”). Intercompany transactions and balances have
been eliminated in consolidation.
Upon
an evaluation of the effects on the Partnership from the weakness of the metallurgical and steam coal markets, which have been
further negatively impacted from the effects of the COVID-19 pandemic, the Partnership determined that it may not have sufficient
liquidity to operate its business over the next twelve months from the date of filing this Form 10-Q. Thus, substantial doubt
is raised about the Partnership’s ability to continue as a going concern. Our independent registered public accounting firm
included an emphasis paragraph with respect to our ability to continue as a going concern in its report on the Partnership’s
consolidated financial statements for the year ended December 31, 2019. The financial statements do not include any adjustments
relating to the recoverability and classification of asset carrying amounts or the amount of and classification of liabilities
that may result should the Partnership be unable to continue as a going concern. Failure to generate sufficient cash flow from
operations could cause us to further curtail our operations and reduce spending and alter our business plan. We may also be required
to consider other options, such as selling additional assets or seeking merger opportunities, and depending on the urgency of
our liquidity constraints, we may be required to pursue such an option at an inopportune time.
The
Partnership continues to take measures, including the suspension of cash distributions on its common and subordinated units and
cost and productivity improvements, to enhance and preserve our liquidity in order to fund our ongoing operations and necessary
capital expenditures to meet our financial commitments and debt service obligations.
The
Partnership is currently exploring alternatives for other sources of capital for ongoing liquidity needs and transactions to enhance
its ability to comply with its financial covenants. As disclosed on the Partnership’s Form 8-K filed with the SEC on March
27, 2020, the Partnership has engaged legal and financial advisors to assist it in evaluating its strategic options. The Partnership
is working to improve its operating performance and its cash, liquidity and financial position. This includes pursuing the sale
of non-strategic surplus assets, continuing to drive cost improvements across the company, continuing to negotiate alternative
payment terms with creditors, and obtaining waivers of going concern and financial covenant violations under our financing agreement,
or alternatively, pursuing a court-supervised reorganization under Chapter 11 and related financing needs.
Debt
Classification — The Partnership evaluated its financing agreement at March 31, 2020 to determine whether the debt
liability should be classified as a long-term or current liability on the Partnership’s unaudited condensed consolidated
statements of financial position. The Partnership determined that it was in violation of certain debt covenants in the financing
agreement as of March 31, 2020 and the lenders were unwilling to grant a waiver to the Partnership for these events of default
as of the filing date of this Form 10-Q. The financing agreement contains negative covenants that restrict the Partnership’s
ability to, among other things, permit the trailing nine month fixed charge coverage ratio of the Partnership and its subsidiaries
to be less than 1.20 to 1.00. The financing agreement also requires the Partnership to receive an annual unqualified audit opinion
from its external audit firm that does not include an emphasis paragraph on the Partnership’s ability to continue as a going
concern. As of March 31, 2020, Rhino’s fixed charge coverage ratio was less than 1.20 to 1.00 and the Partnership’s
annual report on Form 10-K for 2019 included an audit opinion from its external auditors that included an emphasis paragraph regarding
the Partnership’s ability to continue as a going concern. Based upon these covenant violations, the Partnership’s
debt liability is currently callable by the lenders and is classified as current as of March 31, 2020 and December 31, 2019.
Debt
issuance costs related to the debt liability are also classified as current. However, since the Partnership is currently in negotiations
with its lender, the Partnership has not changed the amortization period of these costs. Included in debt costs are the exit fees
described further in Note 10, which absent a waiver, are also callable with the accompanying debt as of March 31, 2020. (Please
read Note 10 for additional discussion of the Partnership’s financing agreement).
Cash,
Cash Equivalents and Restricted Cash. The Partnership considers all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents. Restricted cash is combined with cash and cash equivalents on the unaudited
condensed consolidated statement of cash flows.
Unaudited
Interim Financial Information. The accompanying unaudited interim financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information. The condensed consolidated statement of financial
position as of March 31, 2020, condensed consolidated statements of operations for the three months ended March 31, 2020 and 2019,
consolidated statements of partners’ capital for the three months ended March 31, 2020 and 2019 and the condensed consolidated
statements of cash flows for the three months ended March 31, 2020 and 2019 include all adjustments that the Partnership considers
necessary for a fair presentation of the financial position, partners’ capital, operating results and cash flows for the
periods presented. The condensed consolidated statement of financial position as of December 31, 2019 was derived from audited
financial statements, but does not include all disclosures required by accounting principles generally accepted in the United
States of America (“U.S.”). The Partnership filed its Annual Report on Form 10-K for the year ended December 31, 2019
with the Securities and Exchange Commission (“SEC”), which included all information and notes necessary for such presentation.
The results of operations for the interim periods are not necessarily indicative of the results to be expected for the year or
any future period. These unaudited interim financial statements should be read in conjunction with the audited financial statements
included in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2019 filed with the SEC.
Organization.
Rhino Resource Partners LP is a Delaware limited partnership formed on April 19, 2010 to acquire Rhino Energy LLC (the
“Operating Company”). The Operating Company and its wholly owned subsidiaries produce and market coal from surface
and underground mines in Kentucky, Ohio, Virginia, West Virginia and Utah. The majority of sales are made to electric utilities,
coal brokers, domestic and non-U.S. steel producers and other coal-related organizations in the United States. In addition, the
Partnership continues its sales focus to U.S. export customers through brokers and direct end-user relationships.
Through
a series of transactions completed in the first quarter of 2016, Royal Energy Resources, Inc. (“Royal”) acquired a
majority ownership and control of the Partnership and 100% ownership of the Partnership’s general partner. The Partnership’s
common units trade on the OTCQB Marketplace under the ticker symbol “RHNO.”
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND GENERAL
Revenue
Recognition. Most of the Partnership’s revenues are generated under coal sales contracts with electric utilities,
coal brokers, domestic and non-U.S. steel producers, industrial companies or other coal-related organizations. Revenue is recognized
and recorded when shipment or delivery to the customer has occurred, prices are fixed or determinable, control has passed in accordance
with the terms of the sales agreement and collectability is reasonably assured. Under the typical terms of these agreements, control
transfers to the customers at the mine or port, when the coal is loaded on the rail, barge, truck or other transportation source
that delivers coal to its destination. Advance payments received are deferred and recognized in revenue as coal is shipped and
title passes.
Freight
and handling costs paid directly to third-party carriers and invoiced separately to coal customers are recorded as freight and
handling costs and freight and handling revenues, respectively. Freight and handling costs billed to customers as part of the
contractual per ton revenue of customer contracts is included in coal sales revenue.
Other
revenues generally consist of coal royalty revenues, coal handling and processing revenues, rebates and rental income. With respect
to other revenues recognized in situations unrelated to the shipment of coal, the Partnership carefully reviews the facts and
circumstances of each transaction and does not recognize revenue until the following criteria are met: persuasive evidence of
an arrangement exists, delivery has occurred or services have been rendered, the seller’s price to the buyer is fixed or
determinable and collectability is reasonably assured.
Debt
Issuance Costs. Debt issuance costs reflect fees incurred to obtain financing and are amortized (included in interest
expense) using the straight-line method over the life of the related debt, which approximates the effective interest method. Debt
issuance costs are presented as a direct deduction from long-term debt as of March 31, 2020 and December 31, 2019. The effective
interest rate for the three months ended March 31, 2020 was 20.58% and 21.93% for the three months ended March 31, 2019.
Recently
Issued Accounting Standards. On March 12, 2020, the FASB issued ASU 2020-04, Reference Rate Reform (“ASC
848”): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments in ASC 848 provide
optional expedients and exceptions for applying generally accepted accounting principles (GAAP) to contracts, hedging relationships,
and other transactions affected by reference rate reform if certain criteria are met. The amendments in ASC 848 apply only to
contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued
because of reference rate reform. The expedients and exceptions provided by the amendments do not apply to contract modifications
made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as
of December 31, 2022 that an entity has elected certain optional expedients for and that are retained through the end of the hedging
relationship. The Partnership is currently evaluating this guidance.
In
August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework-Changes to the Disclosure
Requirements for Fair Value Measurement. The amendments in ASU 2018-13 revise the disclosure requirements for fair value measurements.
These changes are to be applied prospectively for only the most recent interim or annual period present in the year of adoption.
The Partnership adopted ASU 2018-13 during the first quarter of 2020. The adoption of ASU 2018-13 did not have a material impact
on the Partnership’s unaudited condensed consolidated financial statements.
In
July 2017, the FASB issued ASU 2017-11, “Earnings Per Share (Topic 260): Distinguishing Liabilities from Equity (Topic
480), I. Derivatives and Hedging (Topic 815): Accounting for Certain Financial Instruments with Down Round Features and II. Replacement
of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily
Redeemable Noncontrolling Interests with a Scope Exception.” Part I of ASU 2017-11 will result in freestanding equity-linked
financial instruments, such as warrants, and conversion options in convertible debt or preferred stock to no longer be accounted
for as a derivative liability at fair value as a result of the existence of a down round feature. For freestanding equity-classified
financial instruments, the amendments require entities that present earnings per share (EPS) in accordance with Topic 260 to recognize
the effect of the down round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available
to common shareholders in basic EPS. The amendments in Part II recharacterize the indefinite deferral of certain provisions of
Topic 480 that now are presented as pending content in the Codification. The amendments in Part II do not require any transition
guidance as the amendments do not have an accounting effect. The amendments in ASU 2017-11 were effective on January 1, 2020,
and the Part I amendments must be applied retrospectively. Early application is permitted. The Partnership early adopted ASU 2017-11,
which did not have any material impact.
3.
ACQUISITION
Blackjewel
Assignment Agreement
On
August 14, 2019, Jewell Valley Mining LLC (“Jewell Valley”), a wholly owned subsidiary of the Partnership, entered
into a general assignment and assumption agreement and bill of sale (the “Assignment Agreement”) with Blackjewel L.L.C.,
Blackjewel Holdings L.L.C., Revelation Energy Holdings, LLC, Revelation Management Corp., Revelation Energy, LLC, Dominion Coal
Corporation, Harold Keene Coal Co. LLC, Vansant Coal Corporation, Lone Mountain Processing LLC, Powell Mountain Energy, LLC, and
Cumberland River Coal LLC (together, “Blackjewel”) to purchase certain assets from Blackjewel for cash consideration
of $850,000 plus an additional royalty of $250,000 that is payable within one year from the date of the purchase, as well as the
assumption of associated reclamation obligations. The transaction costs associated with the Assignment Agreement were $103,577.
The assets that are subject of the Assignment Agreement consist of three underground mines in Virginia that were actively producing
coal prior to Blackjewel’s filing for relief under Chapter 11 of the United States Bankruptcy Code, along with a preparation
plant, rail loadout facility, related mineral and surface rights and infrastructure and certain purchase contracts to be assumed
at Jewell Valley’s option.
The
Partnership resumed mining at two of the three Jewell Valley mines during the fourth quarter of 2019. The operating results for
Jewell Valley is reported as part of the Partnership’s Central Appalachia business segment. The Partnership reviewed the
appropriate guidance within ASU 2017-01, Business Combinations (Topic 805) and determined that this transaction was an
asset purchase.
The
Assignment Agreement was funded by borrowings from the Partnership’s delayed draw feature of the financing agreement. Please
refer to Note 10 for additional details of the financing agreement. The following table summarizes the assets acquired and liabilities
assumed as of the acquisition date:
|
|
(in
thousands)
|
|
Property,
plant and equipment
|
|
$
|
3,853
|
|
Land
|
|
|
378
|
|
Asset
retirement obligation
|
|
|
(2,596
|
)
|
Net
assets acquired
|
|
$
|
1,635
|
|
Initial cash consideration
|
|
$
|
850
|
|
Mineral cure payments
|
|
|
431
|
|
Transaction
costs
|
|
|
104
|
|
Cash consideration
|
|
|
1,385
|
|
Royalty
payable
|
|
|
250
|
|
Total
consideration
|
|
$
|
1,635
|
|
4.
DISCONTINUED OPERATIONS
Pennyrile
Asset Purchase Agreement
On
September 6, 2019, the Partnership and Alliance Coal, LLC (“Buyer”) and Alliance Resource Partners, L.P. (“Buyer
Parent”) entered into an Asset Purchase Agreement (the “Pennyrile APA”) pursuant to which the Partnership agreed
to sell to the Buyer all of the real property, permits, equipment and inventory and certain other assets associated with its Pennyrile
mine complex, as well as the buyer’s assumption of the Pennyrile reclamation obligation, in exchange for approximately $3.7
million, subject to certain adjustments. The final adjustments included the Partnership retaining certain equipment originally
included in the assets to be sold to the Buyer, which resulted in a $0.3 million favorable adjustment to the impairment loss originally
recorded by the Partnership in the third quarter of 2019 and a decrease in the final purchase price paid by the Buyer. The transaction
was completed in March of 2020 and the Partnership received cash consideration of $3.0 million.
Coal
Supply Asset Purchase Agreement
On
September 6, 2019, the Partnership, the Buyer and the Buyer Parent entered into an Asset Purchase Agreement for the sale and assignment
of certain coal supply agreements associated with the Pennyrile mine complex (the “Coal Supply APA”) in exchange for
approximately $7.3 million. The Coal Supply APA included customary representations of the parties thereto and indemnification
for losses arising from the breaches of such representations and for liabilities arising during the period in which the relevant
parties were not party to the coal supply agreements. The transactions contemplated by the Coal Supply APA closed upon the execution
thereof.
Discontinued
Operations
The
Pennyrile operating results for the months ended March 31, 2020 and 2019 are recorded as discontinued operations on the Partnership’s
unaudited condensed consolidated statements of operations. The current and non-current assets and liabilities previously related
to Pennyrile have been reclassified to the appropriate held for sale categories on the Partnership’s unaudited condensed
consolidated statement of financial position at December 31, 2019. The footnotes to the consolidated statement of financial position
have been adjusted accordingly.
Major
assets and liabilities of discontinued operations for Pennyrile Energy LLC as of March 31, 2020 and December 31, 2019 are summarized
as follows:
|
|
March
31, 2020
|
|
|
December
31, 2019
|
|
|
|
(in thousands)
|
|
Carrying
amount of major classes of assets included as part
of discontinued operations:
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
-
|
|
|
$
|
-
|
|
Accounts
receivable
|
|
|
-
|
|
|
|
-
|
|
Accounts
receivable-other
|
|
|
-
|
|
|
|
-
|
|
Inventories
|
|
|
-
|
|
|
|
-
|
|
Advance
royalties
|
|
|
-
|
|
|
|
-
|
|
Prepaid
expenses and other
|
|
|
-
|
|
|
|
-
|
|
Total
current assets of the disposal group classified as held for sale in the statement of financial position
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment (net)
|
|
$
|
-
|
|
|
$
|
6,510
|
|
Advance
royalties, net of current portion
|
|
|
-
|
|
|
|
-
|
|
Other
non-current assets
|
|
|
-
|
|
|
|
-
|
|
Total
non-current assets of the disposal group classified as held for sale in the statement of financial position
|
|
$
|
-
|
|
|
$
|
6,510
|
|
|
|
|
|
|
|
|
|
|
Carrying
amount of major classes of liabilities included as part
of discontinued operations:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
-
|
|
|
$
|
2,117
|
|
Accrued
expenses and other
|
|
|
-
|
|
|
|
510
|
|
Asset
retirement obligations, current portion
|
|
|
-
|
|
|
|
2,200
|
|
Total
current liabilities of the disposal group classified as held for sale in the statement of financial position
|
|
$
|
-
|
|
|
$
|
4,827
|
|
|
|
|
|
|
|
|
|
|
Asset
retirement obligations, net of current portion
|
|
$
|
-
|
|
|
$
|
-
|
|
Total
non-current liabilities of the disposal group classified as held for sale in the statement of financial position
|
|
$
|
-
|
|
|
$
|
-
|
|
Major
components of net loss from discontinued operations for Pennyrile Energy LLC for three months ended March 31, 2020 and 2019 are
summarized as follows:
|
|
Three
Months Ended March 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(in thousands)
|
|
Major
line items constituting loss from discontinued operations for the Pennyrile Energy LLC disposal:
|
|
|
|
|
|
|
|
|
Coal
sales
|
|
$
|
-
|
|
|
$
|
13,000
|
|
Total
revenues
|
|
|
-
|
|
|
|
13,000
|
|
|
|
|
|
|
|
|
|
|
Cost of operations (exclusive of
depreciation, depletion and amortization shown
separately below)
|
|
|
422
|
|
|
|
14,433
|
|
Depreciation,
depletion and amortization
|
|
|
-
|
|
|
|
2,058
|
|
Selling,
general and administrative (exclusive of depreciation, depletion and amortization shown separately above)
|
|
|
-
|
|
|
|
21
|
|
Asset
impairment adjustment
|
|
|
(343
|
)
|
|
|
-
|
|
Total
costs, expenses and other
|
|
|
79
|
|
|
|
16,512
|
|
(Loss) from discontinued
operations before income taxes
|
|
|
(79
|
)
|
|
|
(3,512
|
)
|
Income
taxes
|
|
|
-
|
|
|
|
-
|
|
Net
(loss) from discontinued operations
|
|
$
|
(79
|
)
|
|
$
|
(3,512
|
)
|
Cash
Flows. The depreciation, depletion and amortization amounts for Pennyrile for each period presented are listed in the
previous table. The Pennyrile capital expenditures for the three months ended March 31, 2019 were $0.3 million. The Partnership
recorded a $0.3 million favorable adjustment to asset impairment expense during the first quarter of 2020 as discussed above.
Pennyrile did not have any material investing items for any periods presented.
5.
PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid
expenses and other current assets as of March 31, 2020 and December 31, 2019 consisted of the following:
|
|
March
31,
|
|
|
December
31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(in thousands)
|
|
Other prepaid
expenses
|
|
$
|
851
|
|
|
$
|
657
|
|
Prepaid insurance
|
|
|
709
|
|
|
|
1,163
|
|
Prepaid leases
|
|
|
66
|
|
|
|
56
|
|
Supply
inventory
|
|
|
293
|
|
|
|
293
|
|
Total
|
|
$
|
1,919
|
|
|
$
|
2,169
|
|
Receivable-other
On
June 28, 2019, the Partnership entered into a settlement agreement with a third party which allowed the third party to maintain
certain pipelines pursuant to designated permits at our Central Appalachia operations. The agreement required the third party
to pay the Partnership $7.0 million in consideration. The Partnership received $4.2 million on July 3, 2019 and the balance of
$2.8 million on January 2, 2020. At December 31, 2019, the $2.8 million receivable was recorded in Receivable –Other on
the Partnership’s consolidated statements of financial position. A gain of $6.9 million was recorded on the Partnership’s
unaudited condensed consolidated statements of operations during the second quarter of 2019.
Investment-securities
The
Partnership acquired 568,794 shares of Mammoth Energy Services, Inc. (NASDAQ: TUSK) (“Mammoth Inc.”) through a series
of transactions in years prior to 2018. As of December 31, 2018, the Partnership owned 104,100 shares of Mammoth Inc., which were
recorded at fair market value as a current asset on the Partnership’s unaudited condensed consolidated statements of financial
position. During the first quarter of 2019, the Partnership sold its 104,100 shares for net consideration of approximately $2.3
million. A gain of $0.4 million was recorded on the Partnership’s unaudited condensed consolidated statements of operations
during the first quarter of 2019.
6.
PROPERTY, PLANT AND EQUIPMENT
Property,
plant and equipment, including coal properties and mine development and construction costs, as of March 31, 2020 and December
31, 2019 are summarized by major classification as follows:
|
|
|
|
March
31,
|
|
|
December
31,
|
|
|
|
Useful
Lives
|
|
2020
|
|
|
2019
|
|
|
|
|
|
(in thousands)
|
|
Land and
land improvements
|
|
|
|
$
|
7,223
|
|
|
$
|
7,293
|
|
Mining and other equipment
and related facilities
|
|
2 - 20 Years
|
|
|
260,309
|
|
|
|
250,912
|
|
Mine development costs
|
|
1 - 15 Years
|
|
|
41,262
|
|
|
|
40,768
|
|
Coal properties
|
|
1 - 15 Years
|
|
|
41,464
|
|
|
|
41,466
|
|
Construction
work in process
|
|
|
|
|
11,253
|
|
|
|
13,370
|
|
Total
|
|
|
|
|
361,511
|
|
|
|
353,809
|
|
Less
accumulated depreciation, depletion and amortization
|
|
|
|
|
(260,575
|
)
|
|
|
(251,466
|
)
|
Net
|
|
|
|
$
|
100,936
|
|
|
$
|
102,343
|
|
Depreciation
expense for mining and other equipment and related facilities, depletion expense for coal properties, amortization expense for
mine development costs and amortization expense for asset retirement costs for the three months ended March 31, 2020 and 2019
was as follows:
|
|
March
31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(in thousands)
|
|
Depreciation
expense-mining and other equipment and related facilities
|
|
$
|
3,255
|
|
|
$
|
2,503
|
|
Depletion expense for
coal properties
|
|
|
307
|
|
|
|
406
|
|
Amortization expense
for mine development costs
|
|
|
369
|
|
|
|
516
|
|
Amortization
expense for asset retirement costs
|
|
|
18
|
|
|
|
66
|
|
Total
|
|
$
|
3,949
|
|
|
$
|
3,491
|
|
7.
LEASES
The
Partnership leases various mining, transportation and other equipment under operating and finance leases. The leases have remaining
lease terms of 1 year to 8 years, some of which include options to extend the leases for up to 15 years. The Partnership determines
if an arrangement is a lease at inception. Some of the leases include both lease and non-lease components which are accounted
for as a single lease component as the Partnership has elected the practical expedient to combine these components for all leases.
Operating leases are included in operating lease right-of-use (“ROU”) assets, current liabilities and non-current
liabilities. Finance leases are included in property, plant and equipment, current liabilities and long-term liabilities.
ROU
assets represent the Partnership’s right to use an underlying asset for the lease term and lease liabilities represent the
Partnership’s obligation to make lease payments related to the lease. Operating lease ROU assets and liabilities are recognized
at commencement date based on the present value of lease payments over the lease term. The Partnership utilizes the implicit rate
in the lease, if determinable, at the commencement date of the lease to determine the present value of the lease payments. If
the implicit rate is not determinable, the Partnership utilizes its incremental borrowing rate at the commencement date of the
lease to determine the present value of the lease payments. The Partnership’s lease terms may include options to extend
or terminate the lease when it is reasonably certain that the Partnership will exercise the option. Lease expense for lease payments
is recognized on a straight-line basis over the lease term.
Supplemental
information related to leases was as follows:
|
|
Three
Months Ended March 31, 2020
|
|
|
Year
Ended December 31, 2019
|
|
|
|
(in thousands)
|
|
|
|
|
Operating
leases
|
|
|
|
|
|
|
|
|
Operating
lease right-of use assets
|
|
$
|
10,341
|
|
|
$
|
11,145
|
|
|
|
|
|
|
|
|
|
|
Operating lease liabilities-current
|
|
$
|
3,195
|
|
|
$
|
3,267
|
|
Operating
lease liabilities-long-term
|
|
|
6,741
|
|
|
|
7,465
|
|
Total
operating lease liabilities
|
|
$
|
9,936
|
|
|
$
|
10,732
|
|
|
|
|
|
|
|
|
|
|
Finance
leases
|
|
|
|
|
|
|
|
|
Property. Plant and
Equipment, gross
|
|
$
|
10
|
|
|
$
|
10
|
|
Accumulated
depreciation
|
|
|
(6
|
)
|
|
|
(4
|
)
|
Total
Property, Plant and Equipment, net
|
|
$
|
4
|
|
|
$
|
6
|
|
|
|
|
|
|
|
|
|
|
Finance lease obligation
- current portion
|
|
$
|
5
|
|
|
$
|
4
|
|
Finance
lease obligation - noncurrent portion
|
|
|
-
|
|
|
|
1
|
|
Total
finance lease obligation
|
|
$
|
5
|
|
|
$
|
5
|
|
Weighted
Average Discount Rates and Lease Terms
|
|
March
31, 2020
|
|
|
March
31, 2019
|
|
|
|
|
|
|
|
|
Weighted Average Discount Rate
|
|
|
|
|
|
|
|
|
Operating
leases
|
|
|
7.0
|
%
|
|
|
7.0
|
%
|
Finance leases
|
|
|
7.0
|
%
|
|
|
7.0
|
%
|
|
|
|
|
|
|
|
|
|
Weighted Average Lease Term
|
|
|
|
|
|
|
|
|
Operating leases
|
|
|
4.79
years
|
|
|
|
5.4
years
|
|
Finance leases
|
|
|
1.03
years
|
|
|
|
2.1
years
|
|
Supplemental
cash flow information related to leases was as follows:
|
|
Three
Months Ended March 31, 2020
|
|
|
Three
Months Ended March 31, 2019
|
|
|
|
(in thousands)
|
|
Cash paid for amounts included in the measurement
of lease liabilities:
|
|
|
|
|
|
|
Operating
cash flows for operating leases
|
|
$
|
974
|
|
|
$
|
977
|
|
Operating
cash flows for finance leases
|
|
$
|
-
|
|
|
$
|
-
|
|
Financing
cash flows for finance leases
|
|
$
|
1
|
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
Right-of-use assets
obtained in exchange for lease obligations:
|
|
|
|
|
|
|
|
|
Operating
leases
|
|
$
|
-
|
|
|
$
|
13,896
|
|
Finance
leases
|
|
$
|
-
|
|
|
$
|
10
|
|
Maturities
of lease liabilities are as follows:
|
|
|
Operating
leases
|
|
|
Finance
leases
|
|
|
|
|
(in thousands)
|
|
2020
(excluded the three months ended March 31, 2020
|
|
|
$
|
3,769
|
|
|
$
|
5
|
|
2021
|
|
|
|
2,635
|
|
|
|
-
|
|
2022
|
|
|
|
1,382
|
|
|
|
-
|
|
2023
|
|
|
|
906
|
|
|
|
-
|
|
2024
|
|
|
|
912
|
|
|
|
|
|
Thereafter
|
|
|
|
2,097
|
|
|
|
-
|
|
Total
lease payments
|
|
|
|
11,701
|
|
|
|
5
|
|
Less:
imputed interest
|
|
|
|
(1,765
|
)
|
|
|
-
|
|
Total
|
|
|
$
|
9,936
|
|
|
$
|
5
|
|
The
components of lease expense were as follows:
|
|
March
31, 2020
|
|
|
March
31, 2019
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
Operating
lease cost
|
|
$
|
981
|
|
|
$
|
983
|
|
|
|
|
|
|
|
|
|
|
Finance lease cost:
|
|
|
|
|
|
|
|
|
Amortization
of right-of-use assets
|
|
$
|
1
|
|
|
$
|
1
|
|
Interest
on lease liabilities
|
|
|
-
|
|
|
|
-
|
|
Total
finance lease cost
|
|
$
|
1
|
|
|
$
|
1
|
|
8.
OTHER NON-CURRENT ASSETS
Other
non-current assets as of March 31, 2020 and December 31, 2019 consisted of the following:
|
|
March
31,
|
|
|
December
31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(in thousands)
|
|
Deposits
and other
|
|
$
|
1,463
|
|
|
$
|
1,058
|
|
Due (to) Rhino GP
|
|
|
(147
|
)
|
|
|
(93
|
)
|
Non-current
receivable
|
|
|
30,625
|
|
|
|
30,625
|
|
Total
|
|
$
|
31,941
|
|
|
$
|
31,590
|
|
Non-current
receivable. The non-current receivable balance of $30.6 million as of March 31, 2020 and December 31, 2019 consisted of
the amount due from the Partnership’s workers’ compensation insurance providers for potential claims against the Partnership
that are the primary responsibility of the Partnership, which are covered under the Partnership’s insurance policies. The
$30.6 million is also included in the Partnership’s accrued workers’ compensation benefits liability balance, which
is included in the other non-current liabilities section of the Partnership’s unaudited condensed consolidated statements
of financial position. The Partnership presents this amount on a gross asset and liability basis since a right of setoff does
not exist per the accounting guidance in ASC Topic 210, Balance Sheet. This presentation has no impact on the Partnership’s
results of operations or cash flows.
9.
ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued
expenses and other current liabilities as of March 31, 2020 and December 31, 2019 consisted of the following:
|
|
March
31,
|
|
|
December
31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(in thousands)
|
|
Payroll,
bonus and vacation expense
|
|
$
|
1,117
|
|
|
$
|
1,881
|
|
Non-income taxes
|
|
|
2,399
|
|
|
|
2,067
|
|
Royalty expenses
|
|
|
2,541
|
|
|
|
2,513
|
|
Accrued interest
|
|
|
98
|
|
|
|
375
|
|
Health claims
|
|
|
1,091
|
|
|
|
1,167
|
|
Workers’ compensation
& pneumoconiosis
|
|
|
2,500
|
|
|
|
2,500
|
|
Other
|
|
|
1,623
|
|
|
|
2,704
|
|
Total
|
|
$
|
11,369
|
|
|
$
|
13,207
|
|
10.
DEBT
Debt
as of March 31, 2020 and December 31, 2019 consisted of the following:
|
|
March
31,
|
|
|
December
31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(in thousands)
|
|
Note payable
-Financing Agreement
|
|
$
|
44,813
|
|
|
$
|
41,398
|
|
Note payable-other
debt
|
|
|
2,021
|
|
|
|
3,054
|
|
Finance lease obligation
|
|
|
5
|
|
|
|
5
|
|
Net unamortized debt
issuance costs
|
|
|
(8,817
|
)
|
|
|
(8,632
|
)
|
Net
unamortized original issue discount
|
|
|
(386
|
)
|
|
|
(421
|
)
|
Total
|
|
|
37,636
|
|
|
|
35,404
|
|
Less
current portion
|
|
|
(36,781
|
)
|
|
|
(34,244
|
)
|
Long-term
debt
|
|
$
|
855
|
|
|
$
|
1,160
|
|
The
balance of the financing agreement and related debt issuance costs have been classified as a current liability as of March 31,
2020 and December 31, 2019 (please read Note 1 for further discussion).
Other
Debt. Other debt consisting of equipment and insurance financing was approximately $2.0 million and $3.1 million
as of March 31, 2020 and December 31, 2019, respectively.
Financing
Agreement
On
December 27, 2017, the Partnership entered into a Financing Agreement (the “Financing Agreement”) with Cortland Capital
Market Services LLC, as Collateral Agent and Administrative agent, CB Agent Services LLC, as Origination Agent and the parties
identified as Lenders therein (the “Lenders”), pursuant to which the Lenders agreed to provide the Partnership with
a multi-draw term loan in the original aggregate principal amount of $80 million, subject to the terms and conditions set forth
in the Financing Agreement. The total principal amount was divided into a $40 million commitment, the conditions of which were
satisfied at the execution of the Financing Agreement (the “Effective Date Term Loan Commitment”) and a $40 million
additional commitment that was contingent upon the satisfaction of certain conditions precedent specified in the Financing Agreement
(“Delayed Draw Term Loan Commitment”). As of March 31, 2020, the Partnership had utilized $18 million of the $40 million
additional commitment, which results in $22 million of the additional commitment remaining. The Financing Agreement contains negative
covenants that restrict the Partnership’s ability to, among other things: (i) incur liens or additional indebtedness or
make investments or restricted payments, (ii) liquidate or merge with another entity, or dispose of assets, (iii) change the nature
of their respective businesses; (iv) make capital expenditures in excess, or, with respect to maintenance capital expenditures,
lower than, specified amounts, (v) incur restrictions on the payment of dividends, (vi) prepay or modify the terms of other indebtedness,
(vii) permit the Collateral Coverage Amount to be less than the outstanding principal amount of the loans outstanding under the
Financing Agreement or (viii) permit the trailing nine month Fixed Charge Coverage Ratio of the Partnership and its subsidiaries
to be less than 1.20 to 1.00.
The
Lenders are entitled to certain fees, including: (i) 1.50% per annum of the unused Delayed Draw Term Loan Commitment for as long
as such commitment exists, (ii) for the 12-month period following the execution of the Financing Agreement, a make-whole amount
(“Make-Whole Amount”) equal to the interest and unused Delayed Draw Term Loan Commitment fees that would have been
payable but for the occurrence of certain events, including among others, bankruptcy proceedings or the termination of the Financing
Agreement by the Partnership, and (iii) audit and collateral monitoring fees and origination and exit fees. Commencing December
31, 2018, the principal for each loan made under the Financing Agreement is payable on a quarterly basis in an amount equal to
$375,000 per quarter. All remaining unpaid principal and accrued and unpaid interest is due on the loan termination date. The
Financing Agreement originally had a termination date of December 27, 2020, which was amended to December 27, 2022. Loans made
pursuant to the Financing Agreement are secured by substantially all of the Partnerships’ assets.
The
Partnership entered into various amendments and consents to the Financing Agreement during 2018 and 2019, which (a) increased
the original lender exit fee (“Exit Fee”) of 3.0% to 7.0% as of December 31, 2019. The Exit Fee is applied to the
principal amount of the loans made under the Financing Agreement that is payable on the earliest of (i) the final maturity date
of the Financing Agreement, (ii) the termination date of the Financing Agreement, (iii) the acceleration of the obligations under
the Financing Agreement for any reason, including, without limitation, acceleration in accordance with Section 9.01 of the Financing
Agreement, including as a result of the commencement of an insolvency proceeding and (iv) the date of any refinancing of the term
loan under the Financing Agreement, (b) modified certain definitions and concepts to account for the Partnership’s 2019
acquisition of properties from Blackjewel, (c) permitted the 2019 disposition of the Pennyrile mining complex, (d) required the
Partnership to pay a $1.0 million consent fee related to the Pennyrile sale (paid March 2020), (e) allowed the Partnership to
sell certain real property in Western Colorado and adjusted the timing for remittance to the Lender of the proceeds from the sales,
(f) provided $15.0 million in additional terms loans under the Delayed Draw Term Loan Commitment feature of the Financing Agreement,
(g) revised the definition of the Make-Whole Amount under the Financing Agreement to extend the date of the Make-Whole Amount
period to December 31, 2021 and (h) extended the termination date of the Financing Agreement to December 27, 2022.
On
March 3, 2020, the Partnership entered into a sixth amendment (the “Sixth Amendment”) to the Financing Agreement originally
executed on December 27, 2017 with the Lenders. The Sixth Amendment, among other things, provided a consent by the Origination
Agent to a $3.0 million term loan under the Delayed Draw Term Loan Commitment feature of the Financing Agreement and increased
the Exit Fee payable by the Partnership to the Lenders by 1.0% to a total of 8.0% (payment terms discussed above).
The
following table presents the loan balances and applicable interest rates for each term loan made under the Financing Agreement
as of March 31, 2020:
Loan Date
|
|
Loan Balance
|
|
|
Interest rate*
|
|
|
|
(in millions)
|
|
|
|
|
12/27/2017
|
|
$
|
27.2
|
|
|
|
10.99
|
%
|
8/16/2019
|
|
$
|
5.0
|
|
|
|
11.20
|
%
|
9/16/2019
|
|
$
|
5.0
|
|
|
|
10.86
|
%
|
3/3/2020
|
|
$
|
3.0
|
|
|
|
11.52
|
%
|
|
|
|
|
|
|
|
|
|
* Variable interest rate of Libor plus 10.0%
|
|
11.
ASSET RETIREMENT OBLIGATIONS
The
changes in asset retirement obligations for the three months ended March 31, 2020 and the year ended December 31, 2019 are as
follows:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(in thousands)
|
|
Balance at beginning of period (including current portion)
|
|
$
|
20,591
|
|
|
$
|
17,581
|
|
Accretion expense
|
|
|
389
|
|
|
|
1,341
|
|
Adjustments to the liability from annual recosting and other
|
|
|
-
|
|
|
|
(823
|
)
|
Jewell Valley LLC acquisition
|
|
|
-
|
|
|
|
2,596
|
|
Reclassification to held for sale
|
|
|
-
|
|
|
|
(38
|
)
|
Liabilities settled
|
|
|
-
|
|
|
|
(66
|
)
|
Balance at end of period
|
|
|
20,980
|
|
|
|
20,591
|
|
Less current portion of asset retirement obligation
|
|
|
(420
|
)
|
|
|
(420
|
)
|
Long-term portion of asset retirement obligation
|
|
$
|
20,560
|
|
|
$
|
20,171
|
|
12.
EMPLOYEE BENEFITS
401(k)
Plans
The
Operating Company sponsors a defined contribution savings plans for all employees. Under the defined contribution savings plan,
the Operating Company matches voluntary contributions of participants up to a maximum contribution based upon a percentage of
a participant’s salary with an additional matching contribution possible at the Partnership’s discretion. The expense
under these plans for the three months ended March 31, 2020 and 2019 is included in Cost of operations and Selling, general and
administrative expense in the Partnership’s unaudited condensed consolidated statements of operations and was as follows:
|
|
Three Months Ended March 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(in thousands)
|
|
401(k) plan expense
|
|
$
|
391
|
|
|
$
|
343
|
|
13.
PARTNERS’ CAPITAL
Common
Unit Warrants
In
December 2017, the Partnership entered into a warrant agreement with certain parties that are also parties to the Financing Agreement
discussed above. The warrant agreement included the issuance of a total of 683,888 warrants for common units (“Common Unit
Warrants”) of the Partnership at an exercise price of $1.95 per unit, which was the closing price of the Partnership’s
common units on the OTC market as of December 27, 2017. The Common Unit Warrants have a five year expiration date. The Common
Unit Warrants and the Partnership’s common units after exercise are both transferable, subject to applicable US securities
laws. The Common Unit Warrant exercise price is $1.95 per unit, but the price per unit will be reduced by future common unit distributions
and other further adjustments in price included in the warrant agreement for transactions that are dilutive to the amount of the
Partnership’s common units outstanding. The warrant agreement includes a provision for a cashless exercise where the warrant
holders can receive a net number of common units. Per the warrant agreement, the warrants are detached from the Financing Agreement
and fully transferable. The Partnership analyzed the Common Unit Warrants in accordance with the applicable accounting literature
and concluded the Common Unit Warrants should be classified as equity. The Partnership allocated the $40.0 million proceeds from
the Financing Agreement between the Common Unit Warrants and the Financing Agreement based upon their relative fair values. The
allocation based upon relative fair values resulted in approximately $1.3 million being recorded for the Common Unit Warrants
in the Partner’s Capital equity section and a corresponding reduction in Long-term debt, net on the Partnership’s
unaudited condensed consolidated statements of financial position.
Series
A Preferred Units
On
December 30, 2016, the general partner entered into the Fourth Amended and Restated Agreement of Limited Partnership of the Partnership
(“Amended and Restated Partnership Agreement”) to create, authorize and issue the Series A preferred units.
The
Series A preferred units rank senior to all classes or series of equity securities of the Partnership with respect to distribution
rights and rights upon liquidation. The holders of the Series A preferred units are entitled to receive annual distributions equal
to the greater of (i) 50% of the CAM Mining free cash flow (as defined below) and (ii) an amount equal to the number of outstanding
Series A preferred units multiplied by $0.80. “CAM Mining free cash flow” is defined in the Amended and Restated Partnership
Agreement as (i) the total revenue of the Partnership’s Central Appalachia business segment, minus (ii) the cost of operations
(exclusive of depreciation, depletion and amortization) for the Partnership’s Central Appalachia business segment, minus
(iii) an amount equal to $6.50, multiplied by the aggregate number of coal tons sold by the Partnership from its Central Appalachia
business segment. If the Partnership fails to pay any or all of the distributions in respect of the Series A preferred units,
such deficiency will accrue until paid in full and the Partnership will not be permitted to pay any distributions on its Partnership
interests that rank junior to the Series A preferred units, including its common units. The Series A preferred units will be liquidated
in accordance with their capital accounts and upon liquidation will be entitled to distributions of property and cash in accordance
with the balances of their capital accounts prior to such distributions on equity securities that rank junior to the Series A
preferred units.
The
Series A preferred units vote on an as-converted basis with the common units, and the Partnership is restricted from taking certain
actions without the consent of the holders of a majority of the Series A preferred units, including: (i) the issuance of additional
Series A preferred units, or securities that rank senior or equal to the Series A preferred units; (ii) the sale or transfer of
CAM Mining or a material portion of its assets; (iii) the repurchase of common units, or the issuance of rights or warrants to
holders of common units entitling them to purchase common units at less than fair market value; (iv) consummation of a spin off;
(v) the incurrence, assumption or guaranty of indebtedness for borrowed money in excess of $50.0 million except indebtedness relating
to entities or assets that are acquired by the Partnership or its affiliates that is in existence at the time of such acquisition
or (vi) the modification of CAM Mining’s accounting principles or the financial or operational reporting principles of the
Partnership’s Central Appalachia business segment, subject to certain exceptions.
The
Partnership has the option to convert the outstanding Series A preferred units at any time on or after the time at which the amount
of aggregate distributions paid in respect of each Series A preferred unit exceeds $10.00 per unit. Each Series A preferred unit
will convert into a number of common units equal to the quotient (the “Series A Conversion Ratio”) of (i) the sum
of $10.00 and any unpaid distributions in respect of such Series A Preferred Unit divided by (ii) 75% of the volume-weighted average
closing price of the common units for the preceding 90 trading days (the “VWAP”); provided however, that the VWAP
will be capped at a minimum of $2.00 and a maximum of $10.00. On December 31, 2021, all outstanding Series A preferred units will
convert into common units at the then applicable Series A Conversion Ratio.
During
the first quarter of 2019, the Partnership paid $3.2 million to the holders of Series A preferred units for distributions earned
for the year ended December 31, 2018. The Partnership accrued approximately $1.2 million for distributions to holders of the Series
A preferred units for the year ended December 31, 2019 and approximately $0.3 million for the three months ended March 31, 2020.
Investment
in Royal Common Stock
On
September 1, 2017, Royal elected to convert certain obligations to the Partnership totaling $4.1 million to shares of Royal common
stock. Royal issued 914,797 shares of its common stock to the Partnership at a conversion price of $4.51 per share. The price
per share was equal to the outstanding balance multiplied by seventy-five percent (75%) of the volume-weighted average closing
price of Royal’s common stock for the 90 days preceding the date of conversion (“Royal VWAP”), subject to a
minimum Royal VWAP of $3.50 and a maximum Royal VWAP of $7.50. The Partnership recorded the $4.1 million conversion as Investment
in Royal common stock in the Partners’ Capital section of the Partnership’s unaudited condensed consolidated statements
of financial position since Royal does not have significant economic activity apart from its investment in the Partnership.
Accumulated
Distribution Arrearages
Pursuant
to the Partnership’s partnership agreement, the Partnership’s common units accrue arrearages every quarter when the
distribution level is below the minimum level of $4.45 per unit. Beginning with the quarter ended June 30, 2015 and continuing
through the quarter ended March 31, 2020, the Partnership has suspended the cash distribution on its common units. For each of
the quarters ended September 30, 2014, December 31, 2014 and March 31, 2015, the Partnership announced cash distributions per
common unit at levels lower than the minimum quarterly distribution. The Partnership has not paid any distribution on its subordinated
units for any quarter after the quarter ended March 31, 2012. As of March 31, 2020, the Partnership had accumulated arrearages
of $965.7 million.
14.
EARNINGS PER UNIT (“EPU”)
The
following table presents a reconciliation of the numerators and denominators of the basic and diluted EPU calculations for the
periods ended March 31, 2020 and 2019:
Three Months Ended March 31, 2020
|
|
General
Partner
|
|
|
Common Unitholders
|
|
|
Subordinated Unitholders
|
|
|
Preferred Unitholders
|
|
|
|
|
(in thousands, except per unit data)
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Interest in net (loss)/income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss)/income from continuing operations
|
|
$
|
(43
|
)
|
|
$
|
(9,351
|
)
|
|
$
|
(817
|
)
|
|
$
|
300
|
|
Net (loss) from discontinued operations
|
|
|
-
|
|
|
|
(72
|
)
|
|
|
(7
|
)
|
|
|
-
|
|
Total interest in net (loss)/income
|
|
$
|
(43
|
)
|
|
$
|
(9,423
|
)
|
|
$
|
(824
|
)
|
|
$
|
300
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average units used to compute basic EPU
|
|
|
n/a
|
|
|
|
13,078
|
|
|
|
1,143
|
|
|
|
1,500
|
|
Weighted average units used to compute diluted EPU
|
|
|
n/a
|
|
|
|
13,078
|
|
|
|
1,143
|
|
|
|
1,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss)/income per limited partner unit, basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss)/income per unit from continuing operations
|
|
|
n/a
|
|
|
$
|
(0.72
|
)
|
|
$
|
(0.72
|
)
|
|
$
|
0.20
|
|
Net (loss) per unit from discontinued operations
|
|
|
n/a
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Net (loss)/income per common unit, basic
|
|
|
n/a
|
|
|
$
|
(0.72
|
)
|
|
$
|
(0.72
|
)
|
|
$
|
0.20
|
|
Net (loss)/income per limited partner unit, diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss)/income per unit from continuing operations
|
|
|
n/a
|
|
|
$
|
(0.72
|
)
|
|
$
|
(0.72
|
)
|
|
|
0.20
|
|
Net (loss) per unit from discontinued operations
|
|
|
n/a
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Net (loss)/income per common unit, diluted
|
|
|
n/a
|
|
|
$
|
(0.72
|
)
|
|
$
|
(0.72
|
)
|
|
|
0.20
|
|
Three Months Ended March 31, 2019
|
|
General Partner
|
|
|
Common Unitholders
|
|
|
Subordinated Unitholders
|
|
|
Preferred Unitholders
|
|
|
|
(in thousands, except per unit data)
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
Interest in net (loss)/income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss)/income from continuing operations
|
|
$
|
(17
|
)
|
|
$
|
(3,725
|
)
|
|
$
|
(325
|
)
|
|
$
|
300
|
|
Net (loss) from discontinued operations
|
|
|
(15
|
)
|
|
|
(3,216
|
)
|
|
|
(281
|
)
|
|
|
-
|
|
Total interest in net (loss)/income
|
|
$
|
(32
|
)
|
|
$
|
(6,941
|
)
|
|
$
|
(606
|
)
|
|
|
300
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average units used to compute basic EPU
|
|
|
n/a
|
|
|
|
13,098
|
|
|
|
1,144
|
|
|
|
1,500
|
|
Weighted average units used to compute diluted EPU
|
|
|
n/a
|
|
|
|
13,098
|
|
|
|
1,144
|
|
|
|
1,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss)/income per limited partner unit, basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss)/income per unit from continuing operations
|
|
|
n/a
|
|
|
$
|
(0.28
|
)
|
|
$
|
(0.28
|
)
|
|
$
|
0.20
|
|
Net (loss) per unit from discontinued operations
|
|
|
n/a
|
|
|
|
(0.25
|
)
|
|
|
(0.25
|
)
|
|
|
-
|
|
Net (loss)/income per common unit, basic
|
|
|
n/a
|
|
|
$
|
(0.53
|
)
|
|
$
|
(0.53
|
)
|
|
$
|
0.20
|
|
Net (loss)/income per limited partner unit, diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss)/income per unit from continuing operations
|
|
|
n/a
|
|
|
$
|
(0.28
|
)
|
|
$
|
(0.28
|
)
|
|
$
|
0.20
|
|
Net (loss) per unit from discontinued operations
|
|
|
n/a
|
|
|
|
(0.25
|
)
|
|
|
(0.25
|
)
|
|
|
-
|
|
Net (loss)/income per common unit, diluted
|
|
|
n/a
|
|
|
$
|
(0.53
|
)
|
|
$
|
(0.53
|
)
|
|
$
|
0.20
|
|
Diluted
EPU gives effect to all dilutive potential common units outstanding during the period using the treasury stock method. Diluted
EPU excludes all dilutive potential units calculated under the treasury stock method if their effect is anti-dilutive. Since the
Partnership incurred net losses for three months ended March 31, 2020 and 2019, all potential dilutive units were excluded from
the diluted EPU calculation for these periods because when an entity incurs a net loss in a period, potential dilutive units shall
not be included in the computation of diluted EPU since their effect will always be anti-dilutive. There were 683,888 potential
dilutive common units related to the Common Unit Warrants as discussed in Note 13 for the three months ended March 31, 2020 and
2019.
15.
COMMITMENTS AND CONTINGENCIES
Coal
Sales Contracts and Contingencies—As of March 31, 2020, the Partnership had commitments under sales contracts to
deliver annually scheduled base quantities of coal as follows:
Year
|
|
|
Tons
|
|
|
Number of customers
|
|
|
|
|
|
|
|
|
|
|
2020 (Q2-Q4)
|
|
|
|
1,366,138
|
|
|
|
12
|
|
|
2021
|
|
|
|
400,000
|
|
|
|
3
|
|
|
2022
|
|
|
|
250,000
|
|
|
|
2
|
|
Some
of the contracts have sales price adjustment provisions, subject to certain limitations and adjustments, based on a variety of
factors and indices.
Purchased
Coal Expenses—The Partnership incurs purchased coal expense from time to time related to coal purchase contracts.
In addition, the Partnership incurs expense from time to time related to coal purchased on the over-the-counter market (“OTC”).
Purchase coal expense from coal purchase contracts or expense from OTC purchases for the three months ended March 31, 2020 and
2019 was as follows:
|
|
Three Months Ended March 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(in thousands)
|
|
Purchased coal expense
|
|
$
|
120
|
|
|
$
|
-
|
|
OTC expense
|
|
$
|
-
|
|
|
$
|
-
|
|
Leases—The
Partnership leases/rents various mining, transportation and other equipment under operating lease or rental agreements.
Please read Note 7 for additional discussion of leases. The Partnership also leases coal reserves under agreements that call
for royalties to be paid as the coal is mined. Lease/rental and royalty expense for the three months ended March 31, 2020
and 2019 are included in Cost of operations in the Partnership’s unaudited condensed consolidated statements of operations
and was as follows:
|
|
Three Months Ended March 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(in thousands)
|
|
Lease/rental expense
|
|
$
|
1,103
|
|
|
$
|
1,161
|
|
Royalty expense
|
|
$
|
2,447
|
|
|
$
|
3,035
|
|
Guarantees/Indemnifications
and Financial Instruments with Off-Balance Sheet Risk— In the normal course of business, the Partnership is a party
to certain guarantees and financial instruments with off-balance sheet risk, such as bank letters of credit and performance or
surety bonds. No liabilities related to these arrangements are reflected in the unaudited consolidated statements of financial
position. The Partnership had no outstanding letters of credit at March 31, 2020. The Partnership had outstanding surety bonds
with third parties of $41.3 million as of March 31, 2020 to secure reclamation and other performance commitments, which are secured
by $3.0 million in cash collateral on deposit with the Partnership’s surety bond provider. Of the $41.3 million in surety
bonds, approximately $0.4 million relates to surety bonds for Deane Mining, LLC, which have not been transferred or replaced by
the buyer of Deane Mining LLC as was agreed to by the parties as part of the transaction. The Partnership can provide no assurances
that a surety company will underwrite the surety bonds of the purchaser of Deane Mining LLC, nor is the Partnership aware of the
actual amount of reclamation at any given time. Further, if there was a claim under these surety bonds prior to the transfer or
replacement of such bonds by the buyer of Deane Mining, LLC, the Partnership may be responsible to the surety company for any
amounts it pays in respect of such claim. While the buyer is required to indemnify the Partnership for damages, including reclamation
liabilities, pursuant to the agreements governing the sales of this entity, the Partnership may not be successful in obtaining
any indemnity or any amounts received may be inadequate.
Certain
surety bonds for Sands Hill Mining LLC had not been transferred or replaced by the buyer of Sands Hill Mining LLC as was agreed
to when the Partnership sold Sands Hill Mining LLC to the buyer in November 2017. On July 9, 2019, the Partnership entered into
an agreement with a third party for the replacement of the Partnership’s existing surety bond obligations with respect to
Sands Hill Mining LLC. The Partnership agreed to pay the third party $2.0 million to assume the Partnership’s surety bond
obligations related to Sands Hill Mining LLC. At the time of closing, the third party delivered to the Partnership confirmation
from its surety underwriter evidencing the release and removal of the Partnership, its affiliates and guarantors, from the surety
bond obligations and all related obligations under the Partnership’s bonding agreements related to Sands Hill Mining LLC,
which includes a release of all applicable collateral for the surety bond obligations. Further, such confirmation from the surety
underwriter was specifically provided for their acceptance of the third party as a replacement obligor.
16.
MAJOR CUSTOMERS
The
Partnership had sales or receivables from the following major customers that in each period equaled or exceeded 10% of revenues:
|
|
March 31, 2020
Receivable
Balance
|
|
|
December 31,
2019 Receivable
Balance
|
|
|
Three Months
Ended March 31,
2020 Sales
|
|
|
Three Months Ended
March 31, 2019
Sales
|
|
|
|
(in thousands)
|
|
Javelin Global
|
|
$
|
2,095
|
|
|
$
|
1,007
|
|
|
$
|
12,270
|
|
|
$
|
12,911
|
|
Haverhill North Coke Co.
|
|
$
|
2,628
|
|
|
$
|
1,335
|
|
|
$
|
5,191
|
|
|
$
|
-
|
|
17.
REVENUE
The
majority of the Partnership’s revenues are generated under coal sales contracts. Coal sales accounted for approximately
99.0% of the Partnership’s total revenues for the three months ended March 31, 2020 and 2019. Other revenues generally consist
of coal royalty revenues, coal handling and processing revenues, rebates and rental income, which accounted for approximately
1.0% of the Partnership’s total revenues for the three months ended March 31, 2020 and 2019.
The
majority of the Partnership’s coal sales contracts have a single performance obligation (shipment or delivery of coal according
to terms of the sales agreement) and as such, the Partnership is not required to allocate the contract’s transaction price
to multiple performance obligations. All of the Partnership’s coal sales revenue is recognized when shipment or delivery
to the customer has occurred, the title or risk of loss has passed in accordance with the terms of the coal sales agreement, prices
are fixed or determinable and collectability is reasonably assured. With respect to other revenues recognized in situations unrelated
to the shipment of coal, the Partnership carefully reviews the facts and circumstances of each transaction and does not recognize
revenue until the following criteria are met: persuasive evidence of an arrangement exists, delivery has occurred or services
have been rendered, the seller’s price to the buyer is fixed or determinable and collectability is reasonably assured.
In
the tables below, the Partnership has disaggregated its revenue by category for each reportable segment as required by ASC Topic
606.
The
following table disaggregates revenue by type for each reportable segment for the three months ended March 31, 2020:
|
|
Central Appalachia
|
|
|
Northern Appalachia
|
|
|
Rhino Western
|
|
|
Other
|
|
|
Total Consolidated
|
|
|
|
(in thousands)
|
|
Coal sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steam coal
|
|
$
|
5,405
|
|
|
$
|
7,409
|
|
|
$
|
8,692
|
|
|
$
|
-
|
|
|
$
|
21,506
|
|
Met coal
|
|
|
15,808
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
15,808
|
|
Other revenue
|
|
|
54
|
|
|
|
103
|
|
|
|
-
|
|
|
|
25
|
|
|
|
182
|
|
Total
|
|
$
|
21,267
|
|
|
$
|
7,512
|
|
|
$
|
8,692
|
|
|
$
|
25
|
|
|
$
|
37,496
|
|
The
following table disaggregates revenue by type for each reportable segment for the three months ended March 31, 2019:
|
|
Central Appalachia
|
|
|
Northern Appalachia
|
|
|
Rhino Western
|
|
|
Other
|
|
|
Total Consolidated
|
|
|
|
(in thousands)
|
|
Coal sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steam coal
|
|
$
|
13,389
|
|
|
$
|
6,065
|
|
|
$
|
8,711
|
|
|
$
|
-
|
|
|
$
|
28,165
|
|
Met coal
|
|
|
16,698
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
16,698
|
|
Other revenue
|
|
|
320
|
|
|
|
554
|
|
|
|
-
|
|
|
|
-
|
|
|
|
874
|
|
Total
|
|
$
|
30,407
|
|
|
$
|
6,619
|
|
|
$
|
8,711
|
|
|
$
|
-
|
|
|
$
|
45,737
|
|
18.
FAIR VALUE MEASUREMENTS
The
Partnership determines the fair value of assets and liabilities based on the exchange price that would be received for an asset
or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an
orderly transaction between market participants. The fair values are based on assumptions that market participants would use when
pricing an asset or liability, including assumptions about risk and the risks inherent in valuation techniques and the inputs
to valuations. The fair value hierarchy is based on whether the inputs to valuation techniques are observable or unobservable.
Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Partnership’s
assumptions of what market participants would use.
The
fair value hierarchy includes three levels of inputs that may be used to measure fair value as described below:
Level
One - Quoted prices for identical instruments in active markets.
Level
Two - The fair value of the assets and liabilities included in Level 2 are based on standard industry income approach models that
use significant observable inputs.
Level
Three - Unobservable inputs significant to the fair value measurement supported by little or no market activity.
In
those cases when the inputs used to measure fair value meet the definition of more than one level of the fair value hierarchy,
the lowest level input that is significant to the fair value measurement in its totality determines the applicable level in the
fair value hierarchy.
The
book values of cash and cash equivalents, accounts receivable and accounts payable are considered to be representative of their
respective fair values because of the immediate short-term maturity of these financial instruments. The fair value of the Partnership’s
Financing Agreement was determined based upon a market approach and approximates the carrying value March 31, 2020. The fair value
of the Partnership’s Financing Agreement is a Level 2 measurement.
19.
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash
payments for interest were $1.3 million and $1.1 million for the three months ended March 31, 2020 and 2019, respectively.
The
unaudited condensed consolidated statement of cash flows for the three months ended March 31, 2020 and 2019 excludes approximately
$5.9 million and $1.4 million, respectively, of property, plant and equipment additions which are recorded in Accounts payable.
20.
SEGMENT INFORMATION
The
Partnership primarily produces and markets coal from surface and underground mines in Kentucky, Virginia, West Virginia, Ohio
and Utah. The Partnership sells primarily to electric utilities in the United States as well as coal brokers, domestic and non-U.S.
steel producers, industrial companies or other coal-related organizations.
As
of March 31, 2020, the Partnership had three reportable business segments: Central Appalachia, Northern Appalachia and Rhino Western.
Additionally, the Partnership has an Other category that includes its ancillary businesses.
The
Partnership has not provided disclosure of total expenditures by segment for long-lived assets, as the Partnership does not maintain
discrete financial information concerning segment expenditures for long lived assets, and accordingly such information is not
provided to the Partnership’s chief operating decision maker. The information provided in the following tables represents
the primary measures used to assess segment performance by the Partnership’s chief operating decision maker.
Reportable
segment results of operations for the three months ended March 31, 2020 are as follows (Note: “DD&A” refers to
depreciation, depletion and amortization):
|
|
Central Appalachia
|
|
|
Northern Appalachia
|
|
|
Rhino Western
|
|
|
Other
|
|
|
Total Consolidated
|
|
|
|
(in thousands)
|
|
Total revenues
|
|
$
|
21,267
|
|
|
$
|
7,512
|
|
|
$
|
8,692
|
|
|
$
|
25
|
|
|
$
|
37,496
|
|
DD&A
|
|
|
2,401
|
|
|
|
530
|
|
|
|
973
|
|
|
|
45
|
|
|
|
3,949
|
|
Interest expense
|
|
|
-
|
|
|
|
-
|
|
|
|
39
|
|
|
|
2,033
|
|
|
|
2,072
|
|
Net (loss)/income
|
|
$
|
(5,647
|
)
|
|
$
|
(26
|
)
|
|
$
|
1,209
|
|
|
$
|
(5,447
|
)
|
|
$
|
(9,911
|
)
|
Reportable
segment results of operations for the three months ended March 31, 2019 are as follows:
|
|
Central Appalachia
|
|
|
Northern Appalachia
|
|
|
Rhino Western
|
|
|
Other
|
|
|
Total Consolidated
|
|
|
|
(in thousands)
|
|
Total revenues
|
|
$
|
30,407
|
|
|
$
|
6,619
|
|
|
$
|
8,711
|
|
|
$
|
-
|
|
|
$
|
45,737
|
|
DD&A
|
|
|
1,901
|
|
|
|
408
|
|
|
|
1,094
|
|
|
|
88
|
|
|
|
3,491
|
|
Interest expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,701
|
|
|
|
1,701
|
|
Net income/(loss)
|
|
$
|
1,183
|
|
|
$
|
(1,123
|
)
|
|
$
|
(327
|
)
|
|
$
|
(3,500
|
)
|
|
$
|
(3,767
|
)
|
20.
SUBSEQUENT EVENTS
On
April 22, 2020, the Partnership, entered into a promissory note evidencing an unsecured $10.0 million loan under the Paycheck
Protection Program (the “PPP Loan”). The Paycheck Protection Program (or “PPP”) was established under
the recently congressionally approved Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and is
administered by the U.S. Small Business Administration. The PPP Loan to the Partnership is being made through Blue Ridge Bank,
N.A. (the “Lender”).
The
PPP Loan has a two year term and bears interest at a rate of 1.000% per annum. Principal and interest payments are deferred for
six (6) months from the date of the PPP Loan and will commence monthly thereafter. Under the terms of the CARES Act, PPP Loan
recipients can apply for and be granted forgiveness for all or a portion of loans granted under the PPP. Such forgiveness will
be determined, subject to limitations, based on the use of loan proceeds for payroll costs and mortgage interest, rent or utility
costs and the maintenance of employee staffing levels and compensation levels. No assurance is provided that the Partnership will
obtain forgiveness of the PPP Loan in whole or in part.
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Unless
the context clearly indicates otherwise, references in this report to “we,” “our,” “us” or
similar terms refer to Rhino Resource Partners LP and its subsidiaries. References to “our general partner” refer
to Rhino GP LLC, the general partner of Rhino Resource Partners LP.
The
following discussion of the historical financial condition and results of operations should be read in conjunction with our unaudited
condensed consolidated financial statements and notes thereto presented in this Quarterly Report on Form 10-Q as well as the audited
consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December
31, 2019 and the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations”
included in such Annual Report on Form 10-K.
In
addition, this discussion includes forward looking statements that are subject to risks and uncertainties that may result in actual
results differing from statements we make. Please read the section “Cautionary Note Regarding Forward Looking Statements”.
In addition, factors that could cause actual results to differ include those risks and uncertainties discussed in Part I, Item
1A. “Risk Factors” also included in our Annual Report on Form 10-K for the year ended December 31, 2019.
On
September 6, 2019, we entered into an Asset Purchase Agreement with Alliance Coal, LLC (“Buyer”) and Alliance Resource
Partners, L.P. (“Buyer Parent”) pursuant to which we agreed to sell to Buyer all of the real property, permits, equipment
and inventory and certain other assets associated with the Pennyrile mining complex (“Pennyrile”). The transaction
was completed in March 2020. On September 6, 2019, we also entered into an Asset Purchase Agreement with the Buyer and Buyer Parent
for the sale and assignment of certain coal supply agreements associated with Pennyrile. The transaction was completed during
the third quarter of 2019. Our unaudited condensed consolidated statements of operation have been retrospectively adjusted to
reclassify Pennyrile operating results to discontinued operations for the three months ended March 31, 2020 and 2019.
COVID-19
To
date, the current and anticipated economic impact of the COVID-19 pandemic, including the actions of governments and countries
here in the United States and around the world designed to decrease the spread of the virus, have caused significant declines
in demand for met and steam coal. In response to this reduced demand and to the significant health threats to our employees, on
March 20, 2020, we temporarily idled production at several of our mines. We have since restarted production at the majority of
our operations. We will continue to monitor conditions to ensure the health and welfare of our employees. The idling of the coal
production activities did not affect our ability to fulfill current customer commitments, as loading and shipping crews remained
in place to ship coal from existing inventories.
If
the impact of the COVID-19 pandemic, including the significant decrease in economic activity, continue for an extended period
of time or worsen, it could further reduce the demand for met and steam coal, which would have a material adverse effect on our
business, financial condition, cash flows and results of operations.
In
addition, while our business operations have not been significantly restricted by the response to the COVID-19 pandemic from various
governmental agencies, which exempt or exclude essential critical infrastructure businesses from various restrictions they impose
(other than encouraging remote work where possible), the spread of COVID-19 has caused us to modify our business practices (including
requiring remote working where possible, restricting employee travel and congregation of onsite personnel, and increased frequency
of cleaning schedules), and we may take further actions as may be required by government authorities or that we determine are
in the best interests of our employees, customers or other stakeholders or the communities in which we operate. Such measures
may disrupt our normal operations, and there is no certainty that such measures will be sufficient to mitigate the risks posed
by COVID-19 or will not adversely impact our business or results of operations.
Overview
Through
a series of transactions completed in the first quarter of 2016, Royal Energy Resources, Inc. (“Royal”) acquired a
majority ownership and control of us and 100% ownership of our general partner.
We
are a diversified coal producing limited partnership formed in Delaware that is focused on coal and energy related assets and
activities. We produce, process and sell high quality coal of various steam and metallurgical grades. We market our steam coal
primarily to electric utility companies as fuel for their steam powered generators. Customers for our metallurgical coal are primarily
steel and coke producers who use our coal to produce coke, which is used as a raw material in the steel manufacturing process
We
have a geographically diverse asset base with coal reserves located in Central Appalachia, Northern Appalachia and the Western
Bituminous region. As of December 31, 2019, we controlled an estimated 277.6 million tons of proven and probable coal reserves,
consisting of an estimated 171.1 million tons of steam coal and an estimated 106.5 million tons of metallurgical coal. In addition,
as of December 31, 2019, we controlled an estimated 190.7 million tons of non-reserve coal deposits.
We
operate underground and surface mines located in Kentucky, Ohio, Virginia, West Virginia and Utah. The number of mines that we
operate may vary from time to time depending on a number of factors, including the demand for and price of coal, depletion of
economically recoverable reserves and availability of experienced labor.
Our
principal business strategy is to safely, efficiently and profitably produce and sell both steam and metallurgical coal from our
diverse asset base in order to resume, and, over time, increase our quarterly cash distributions. In addition, we intend to continue
to expand and potentially diversify our operations through strategic acquisitions, including the acquisition of long-term, cash
generating natural resource assets. We believe that such assets will allow us to grow our cash available for distribution and
enhance stability of our cash flow.
For
the three months ended March 31, 2020, we generated revenues from continuing operations of approximately $37.5 million and a net
loss from continuing operations of $9.9 million. For the three months ended March 31, 2020, we produced approximately 0.7 million
tons of coal from continuing operations and sold approximately 0.6 million tons of coal from continuing operations, of which approximately
75% were sold pursuant to supply contracts.
Current
Liquidity and Outlook
As
of March 31, 2020, our available liquidity was $1.3 million. We also have a delayed draw term loan commitment in the amount of
$22 million contingent upon the satisfaction of certain conditions precedent specified in our Financing Agreement discussed below.
On
December 27, 2017, we entered into a Financing Agreement (the “Financing Agreement”) with Cortland Capital Market
Services LLC, as Collateral Agent and Administrative agent, CB Agent Services LLC, as Origination Agent and the parties identified
as Lenders therein (the “Lenders”), which provides us with a multi-draw loan in the original aggregate principal amount
of $80 million. The total principal amount is divided into a $40 million commitment, the conditions for which were satisfied at
the execution of the Financing Agreement and a $40 million additional commitment that was contingent upon the satisfaction of
certain conditions precedent specified in the Financing Agreement. As of March 31, 2020, we had utilized $18 million of the $40
million additional commitment, which results in $22 million of the additional commitment remaining. The Financing Agreement initially
had a termination date of December 27, 2020, which was amended to December 27, 2022. For more information about our Financing
Agreement, please read “— Liquidity and Capital Resources—Financing Agreement.”
Beginning
in the later part of the third quarter of 2019, we have experienced significantly weaker market demand and have seen prices move
lower for the qualities of met and steam coal we produce. This downward price trend has been exacerbated by the recent coronavirus
pandemic. In response to this reduced demand and to the significant health threats to our employees, on March 20, 2020, we temporarily
idled production at several of our mines. We have since restarted production at the majority of our operations. We will continue
to monitor conditions to ensure the health and welfare of our employees. The idling of the coal production activities did not
affect our ability to fulfill current customer commitments, as loading and shipping crews remained in place to ship coal from
existing inventories.
If
we continue to experience weak demand and prices continue to lower for our met and steam coal, we may not be able to continue
to give the required representations or meet all of the covenants and restrictions included in our Financing Agreement. If we
violate any of the covenants or restrictions in our Financing Agreement, including the fixed-charge coverage ratio, some or all
of our indebtedness may become immediately due and payable, and our Lenders may not be willing to make any loans under the additional
commitment available under our Financing Agreement. If we are unable to give a required representation or we violate a covenant
or restriction, then we will need a waiver from our Lenders under our Financing Agreement, or they may declare an event of default
and, after applicable specified cure periods, all amounts outstanding under the Financing Agreement would become immediately due
and payable. Although we believe our Lenders are well secured under the terms of our Financing Agreement, there is no assurance
that the Lenders would agree to any such waiver. Failure to obtain financing or to generate sufficient cash flow from operations
could cause us to further curtail our operations and reduce spending and alter our business plan. We are currently considering
alternatives to address our liquidity and balance sheet issues, such as selling additional assets or seeking merger opportunities,
and depending on the urgency of our liquidity constraints, we may be required to pursue such an option at an inopportune time.
As
of March 31, 2020, we were unable to demonstrate that we have sufficient liquidity to operate our business over the next twelve
months from the filing date of this Form 10-Q and thus substantial doubt is raised about our ability to continue as a going concern.
Our independent registered public accounting firm included an emphasis paragraph with respect to our ability to continue as a
going concern in its report on our consolidated financial statements for the year ended December 31, 2019. The presence of the
going concern emphasis paragraph in our auditors’ report may have an adverse impact on our relationship with third parties
with whom we do business, including our customers, vendors, lenders and employees, making it difficult to raise additional financing
to the extent needed to conduct normal operations. As a result, our business, results of operations, financial condition and prospects
could be materially adversely affected.
We
continue to take measures, including the suspension of cash distributions on our common and subordinated units and cost and productivity
improvements, to enhance and preserve our liquidity so that we can fund our ongoing operations and necessary capital expenditures
and meet our financial commitments and debt service obligations.
We
are currently exploring alternatives for other sources of capital for ongoing liquidity needs and transactions to enhance its
ability to comply with its financial covenants. As disclosed on the Form 8-K filed with the SEC on March 27, 2020, we have engaged
legal and financial advisors to assist us in evaluating our strategic options. We are working to improve our operating performance
and our cash, liquidity and financial position. This includes pursuing the sale of non-strategic surplus assets, continuing to
drive cost improvements across the company, continuing to negotiate alternative payment terms with creditors, and obtaining waivers
of going concern and financial covenant violations under our Financing Agreement, or alternatively, pursuing a court-supervised
reorganization under Chapter 11 and related financing needs.
Recent
Developments
Financing
Agreement
On
March 2, 2020, we entered into a sixth amendment (the “Sixth Amendment”) to the Financing Agreement. The Sixth Amendment,
among other things, provides a consent by the Lenders to a $3.0 million term loan from the delayed draw term loan commitment and
increased the exit fee payable by us to the Lenders upon the maturity date (or earlier termination or acceleration date) by 1.0%
to a total exit fee of 8.0%. For more information about our Financing Agreement, please read “— Liquidity and Capital
Resources—Financing Agreement.”
Pennyrile
Mine Complex (“Pennyrile”) Asset Purchase Agreement
On
September 6, 2019, we entered into an Asset Purchase Agreement (the “Pennyrile APA”) with Alliance Coal, LLC (“Buyer”)
and Alliance Resource Partners, L.P. (“Buyer Parent”) pursuant to which we sold to Buyer all of the real property,
permits, equipment and inventory and certain other assets associated with Pennyrile in exchange for approximately $3.7 million,
subject to certain adjustments. The final adjustments included us retaining certain equipment originally included in the assets
to be sold to the Buyer, which resulted in a $0.3 million favorable adjustment to the impairment loss originally recorded by us
in the third quarter of 2019 and a decrease in the final purchase price paid by the Buyer. The transaction was completed in March
of 2020 and we received cash consideration of $3.0 million.
Coal
Supply Asset Purchase Agreement
On
September 6, 2019, we entered into an Asset Purchase Agreement with the Buyer and Buyer Parent for the sale and assignment of
certain coal supply agreements associated with Pennyrile (the “Coal Supply APA”) in exchange for approximately $7.3
million. The Coal Supply APA includes customary representations of the parties thereto and indemnification for losses arising
from the breaches of such representations and for liabilities arising during the period in which the relevant parties were not
party to the coal supply agreements. The transactions contemplated by the Coal Supply APA closed upon the execution thereof.
Blackjewel
Assignment Agreement
On
August 14, 2019, our wholly owned subsidiary Jewell Valley Mining LLC, entered into a general assignment and assumption agreement
and bill of sale (the “Assignment Agreement”) with Blackjewel L.L.C., Blackjewel Holdings L.L.C., Revelation Energy
Holdings, LLC, Revelation Management Corp., Revelation Energy, LLC, Dominion Coal Corporation, Harold Keene Coal Co. LLC, Vansant
Coal Corporation, Lone Mountain Processing LLC, Powell Mountain Energy, LLC, and Cumberland River Coal LLC (together, “Blackjewel”)
to purchase certain assets from Blackjewel for cash consideration of $850,000 plus an additional royalty of $250,000 that is payable
within one year from the date of the purchase, as well as the assumption of associated reclamation obligations. The assets that
are subject of the Assignment Agreement consist of three underground mines in Virginia that were actively producing coal prior
to Blackjewel’s filing for relief under Chapter 11 of the United States Bankruptcy Code, along with a preparation plant,
rail loadout facility, related mineral and surface rights and infrastructure and certain purchase contracts to be assumed at our
option. We resumed mining operations at two of the mines in the fourth quarter of 2019.
Settlement
Agreement
On
June 28, 2019, we entered into a settlement agreement with a third party which allows the third party to maintain certain pipelines
pursuant to designated permits at our Central Appalachia operations. The agreement required the third party to pay us $7.0 million
in consideration. We received $4.2 million on July 3, 2019 and the balance of $2.8 million on January 2, 2020. We recorded a gain
of $6.9 million during the second quarter of 2019 related to this settlement agreement.
Distribution
Suspension
Pursuant
to our limited partnership agreement, our common units accrue arrearages every quarter when the distribution level is below the
minimum level of $4.45 per unit. Beginning with the quarter ended June 30, 2015 and continuing through the quarter ended March
31, 2020, we have suspended the cash distribution on our common units. For each of the quarters ended September 30, 2014, December
31, 2014 and March 31, 2015, we announced cash distributions per common unit at levels lower than the minimum quarterly distribution.
We have not paid any distribution on our subordinated units for any quarter after the quarter ended March 31, 2012. As of March
31, 2020, we had accumulated arrearages of $965.7 million.
Factors
That Impact Our Business
Our
results of operations in the near term could be impacted by a number of factors, including (1) our ability to fund our ongoing
operations and necessary capital expenditures, (2) the availability of transportation for coal shipments, (3) poor mining conditions
resulting from geological conditions or the effects of prior mining, (4) equipment problems at mining locations, (5) adverse weather
conditions and natural disasters or (6) the availability and costs of key supplies and commodities such as steel, diesel fuel
and explosives.
On
a long-term basis, our results of operations could be impacted by, among other factors, (1) our ability to fund our ongoing operations
and necessary capital expenditures, (2) changes in governmental regulation, (3) the availability and prices of competing electricity-generation
fuels, (4) the world-wide demand for steel, which utilizes metallurgical coal and can affect the demand and prices of metallurgical
coal that we produce, (5) our ability to secure or acquire high-quality coal reserves and (6) our ability to find buyers for coal
under favorable supply contracts.
We
have historically sold a majority of our coal through long-term supply contracts, although we have starting selling a larger percentage
of our coal under short-term and spot agreements. As of March 31, 2020, we had commitments under supply contracts to deliver annually
scheduled base quantities of coal as follows:
Year
|
|
|
Tons
|
|
|
Number of customers
|
|
|
|
|
|
|
|
|
|
|
2020 (Q2-Q4)
|
|
|
|
1,366,138
|
|
|
|
12
|
|
|
2021
|
|
|
|
400,000
|
|
|
|
3
|
|
|
2022
|
|
|
|
250,000
|
|
|
|
2
|
|
Certain
of the contracts have sales price adjustment provisions, subject to certain limitations and adjustments, based on a variety of
factors and indices.
Results
of Operations
Segment
Information
As
of March 31, 2020, we have three reportable business segments: Central Appalachia, Northern Appalachia and Rhino Western. Additionally,
we have an Other category that includes our ancillary businesses. Our Central Appalachia segment consists of three mining complexes:
Tug River, Rob Fork and Jewell Valley, which, as of March 31, 2020, together included five underground mines, three surface mines
and four preparation plants and loadout facilities in eastern Kentucky, Virginia and southern West Virginia. Our Northern Appalachia
segment consists of the Hopedale mining complex and the Leesville field. The Hopedale mining complex, located in northern Ohio,
includes one underground mine and one preparation plant and loadout facility as of March 31, 2020. Our Rhino Western segment includes
one underground mine in the Western Bituminous region at our Castle Valley mining complex in Utah.
Evaluating
Our Results of Operations
Our
management uses a variety of non-GAAP financial measurements to analyze our performance, including (1) Adjusted EBITDA, (2) coal
revenues per ton and (3) cost of operations per ton.
Adjusted
EBITDA. The discussion of our results of operations below includes references to, and analysis of, our segments’
Adjusted EBITDA results. Adjusted EBITDA represents net income before deducting interest expense, income taxes and depreciation,
depletion and amortization, while also excluding certain non-cash and/or non-recurring items. Adjusted EBITDA is used by management
primarily as a measure of our segments’ operating performance. Adjusted EBITDA should not be considered an alternative to
net income, income from operations, cash flows from operating activities or any other measure of financial performance or liquidity
presented in accordance with GAAP. Because not all companies calculate Adjusted EBITDA identically, our calculation may not be
comparable to similarly titled measures of other companies. Please read “—Reconciliations of Adjusted EBITDA”
for reconciliations of Adjusted EBITDA to net income/(loss) by segment for each of the periods indicated.
Coal
Revenues Per Ton. Coal revenues per ton represents coal revenues divided by tons of coal sold. Coal revenues per
ton is a key indicator of our effectiveness in obtaining favorable prices for our product.
Cost
of Operations Per Ton. Cost of operations per ton sold represents the cost of operations (exclusive of depreciation,
depletion and amortization) divided by tons of coal sold. Management uses this measurement as a key indicator of the efficiency
of operations.
Summary.
(Unless otherwise specified, the following discussion of the results of operations for the three months ended March 31, 2020 and
2019 excludes operating results relating to Pennyrile. The Pennyrile operating results are recorded as discontinued operations
in our unaudited condensed consolidated statements of operations.)
The
following table sets forth certain information regarding our revenues, operating expenses, other income and expenses, and operational
data for the three months ended March 31, 2020 and 2019:
|
|
Three Months Ended March 31,
|
|
|
Increase/(Decrease)
|
|
|
|
2020
|
|
|
2019
|
|
|
$
|
|
|
% *
|
|
|
|
(in millions, except per ton data and %)
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coal revenues
|
|
$
|
37.3
|
|
|
$
|
44.9
|
|
|
$
|
(7.6
|
)
|
|
|
(16.8
|
)%
|
Other revenues
|
|
|
0.2
|
|
|
|
0.8
|
|
|
|
(0.6
|
)
|
|
|
(79.2
|
)%
|
Total revenues
|
|
|
37.5
|
|
|
|
45.7
|
|
|
|
(8.2
|
)
|
|
|
(18.0
|
)%
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of operations (exclusive of DD&A shown separately below)
|
|
|
36.1
|
|
|
|
40.2
|
|
|
|
(4.1
|
)
|
|
|
(10.2
|
)%
|
Freight and handling costs
|
|
|
1.0
|
|
|
|
1.2
|
|
|
|
(0.2
|
)
|
|
|
(9.9
|
)%
|
Depreciation, depletion and amortization
|
|
|
3.9
|
|
|
|
3.5
|
|
|
|
0.4
|
|
|
|
13.1
|
%
|
Selling, general and administrative (exclusive of DD&A shown separately above)
|
|
|
4.2
|
|
|
|
2.7
|
|
|
|
1.5
|
|
|
|
52.9
|
%
|
Loss on sale/disposal of assets
|
|
|
0.1
|
|
|
|
0.2
|
|
|
|
(0.1
|
)
|
|
|
(71.8
|
)%
|
Loss from operations
|
|
|
(7.8
|
)
|
|
|
(2.1
|
)
|
|
|
(5.7
|
)
|
|
|
279.5
|
%
|
Interest expense and other
|
|
|
(2.1
|
)
|
|
|
(1.7
|
)
|
|
|
(0.4
|
)
|
|
|
21.8
|
%
|
Interest income and other
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
n/a
|
|
Total interest and other (income) expense
|
|
|
(2.1
|
)
|
|
|
(1.7
|
)
|
|
|
(0.4
|
)
|
|
|
21.8
|
%
|
Net (loss) from continuing operations
|
|
|
(9.9
|
)
|
|
|
(3.8
|
)
|
|
|
(6.1
|
)
|
|
|
163.1
|
%
|
Net (loss) from discontinued operations
|
|
|
(0.1
|
)
|
|
|
(3.5
|
)
|
|
|
3.4
|
|
|
|
(97.8
|
)%
|
Net (loss)
|
|
$
|
(10.0
|
)
|
|
$
|
(7.3
|
)
|
|
|
(2.7
|
)
|
|
|
37.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total tons sold (in thousands except %)
|
|
|
645.8
|
|
|
|
748.0
|
|
|
|
(102.2
|
)
|
|
|
(13.7
|
)%
|
Coal revenues per ton
|
|
$
|
57.78
|
|
|
$
|
59.97
|
|
|
$
|
(2.19
|
)
|
|
|
(3.7
|
)%
|
Cost of operations per ton
|
|
$
|
55.94
|
|
|
$
|
53.76
|
|
|
$
|
2.18
|
|
|
|
4.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Financial Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA from continuing operations
|
|
$
|
(3.9
|
)
|
|
$
|
2.1
|
|
|
$
|
(6.0
|
)
|
|
|
(284.2
|
)%
|
Adjusted EBITDA from discontinued operations
|
|
$
|
(0.4
|
)
|
|
$
|
(1.5
|
)
|
|
$
|
1.1
|
|
|
|
(71.0
|
)%
|
Adjusted EBITDA
|
|
$
|
(4.3
|
)
|
|
$
|
0.6
|
|
|
$
|
(4.9
|
)
|
|
|
(754.2
|
)%
|
*
|
Percentages
and per ton amounts are calculated based on actual amounts and not the rounded amounts presented in this table.
|
Three
Months Ended March 31, 2020 Compared to Three Months Ended March 31, 2019
Revenues.
Our coal revenues for the three months ended March 31, 2020 decreased by approximately $7.6 million, or 16.8%, to approximately
$37.3 million from approximately $44.9 million for the three months ended March 31, 2019. Coal revenues per ton was $57.78 for
the three months ended March 31, 2020, a decrease of $2.19 or 3.7%, from $59.97 per ton for the three months ended March 31, 2019.
The decrease in coal revenues was primarily the result of fewer tons sold at our Central Appalachia operations due to ongoing
weak market demand for our steam and metallurgical coal. The decrease in coal revenues per ton was due to a larger mix of lower
price coal sold during the three months ended March 31, 2020 compared to the same period in 2019.
Cost
of Operations. Total cost of operations decreased by $4.1 million or 10.2% to $36.1 million for the three months ended
March 31, 2020 as compared to $40.2 million for the three months ended March 31, 2019. Our cost of operations per ton was $55.94
for the three months ended March 31, 2020, an increase of $2.18, or 4.1%, from the three months ended March 31, 2019. The decrease
in total cost of operations was primarily due to fewer tons produced and sold from our Central Appalachia operations during the
first quarter of 2020 compared to the same period in 2019. We also temporarily idled production activities at many of our mining
operations in response to the coronavirus pandemic during March 2020.
Freight
and Handling. Total freight and handling cost decreased to $1.0 million for the three months ended March 31, 2020 from
approximately $1.2 million for the three months ended March 31, 2019. The decrease in freight and handling costs was primarily
the result of fewer export sales that require us to pay railroad transportation to the port of export during the first quarter
of 2020.
Depreciation,
Depletion and Amortization (“DD&A”). Total DD&A expense for the three months ended March 31, 2020
was $3.9 million as compared to $3.5 million for the three months ended March 31, 2019.
For
the three months ended March 31, 2020, our depreciation expense was $3.2 million and for the three months ended March 31, 2019
it was $2.5 million. The increase in depreciation expense was primarily the result of additional equipment placed in service at
our Jewell Valley operation.
For
the three months ended March 31, 2020 and 2019, our depletion expense was $0.3 million and $0.4 million, respectively. The decrease
in the depletion expense was primarily due to the decrease in tons of coal sold during the first quarter of 2020 compared to the
same period in 2019.
For
the three months ended March 31, 2020 and 2019 our amortization expense was $0.4 million and $0.6 million, respectively. The decrease
was primarily the result of decreased production during the first quarter of 2020.
Selling,
General and Administrative. SG&A expense for the three months ended March 31, 2020 increased to $4.2 million as compared
to $2.7 million for the three months ended March 31, 2019 as we experienced an increase in corporate legal and outside professional
expenses.
Interest
Expense. Interest expense for the three months ended March 31, 2020 increased to $2.1 million as compared to $1.7
million for the three months ended March 31, 2019. This increase was primarily due to a higher average outstanding debt balance
during the three months ended March 31, 2020 compared to the same period in 2019.
Net
Income/Loss. Net loss was $9.9 million for the three months ended March 31, 2020 compared to net loss of $3.8 million
for the three months ended March 31, 2019. The increase in net loss was primarily due to the decrease in coal revenue and an increase
in SG&A as discussed above.
Adjusted
EBITDA. Adjusted EBITDA from continuing operations decreased by $6.0 million for the three months ended March 31, 2020
to $(3.9) million from $2.1 million for the three months ended March 31, 2019. The decrease was primarily due to the increase
in net loss for the three months ended March 31, 2020 as discussed above. Including net loss from discontinued operations of approximately
$0.1 million, our net loss was $10.0 million and Adjusted EBITDA was $(4.3) million for the three months ended March 31, 2020.
Including net loss from discontinued operations of approximately $3.5 million, which related to Pennyrile, our net loss was $7.3
million and Adjusted EBITDA was $0.6 million for the three months ended March 31, 2019. Please read “—Reconciliations
of Adjusted EBITDA” for reconciliations of Adjusted EBITDA to net income/(loss) on a segment basis.
Segment
Results
The
following tables set forth certain information regarding our revenues, operating expenses, other income and expenses, and operational
data by reportable segment for the three months ended March 31 2020 and 2019:
Central Appalachia
|
|
Three months ended March 31,
|
|
|
Increase/(Decrease)
|
|
|
|
2020
|
|
|
2019
|
|
|
$
|
|
|
% *
|
|
|
|
(in millions, except per ton data and %)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coal revenues
|
|
$
|
21.2
|
|
|
$
|
30.1
|
|
|
$
|
(8.9
|
)
|
|
|
(29.5
|
)%
|
Freight and handling revenues
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
n/a
|
|
Other revenues
|
|
|
0.1
|
|
|
|
0.3
|
|
|
|
(0.2
|
)
|
|
|
(83.1
|
)%
|
Total revenues
|
|
|
21.3
|
|
|
|
30.4
|
|
|
|
(9.1
|
)
|
|
|
(30.1
|
)%
|
Coal revenues per ton
|
|
$
|
77.86
|
|
|
$
|
77.29
|
|
|
$
|
0.57
|
|
|
|
0.7
|
%
|
Cost of operations (exclusive of depreciation, depletion and amortization shown separately below)
|
|
|
24.0
|
|
|
|
26.6
|
|
|
|
(2.6
|
)
|
|
|
(9.7
|
)%
|
Freight and handling costs
|
|
|
0.3
|
|
|
|
0.7
|
|
|
|
(0.4
|
)
|
|
|
(48.4
|
)%
|
Depreciation, depletion and amortization
|
|
|
2.4
|
|
|
|
1.9
|
|
|
|
0.5
|
|
|
|
(26.4
|
)%
|
Selling, general and administrative costs
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
-
|
|
|
|
75.9
|
%
|
Cost of operations per ton
|
|
$
|
88.27
|
|
|
$
|
68.37
|
|
|
$
|
19.90
|
|
|
|
29.1
|
%
|
Net (loss)/income from continuing operations
|
|
|
(5.6
|
)
|
|
|
1.2
|
|
|
|
(6.8
|
)
|
|
|
(577.4
|
)%
|
Adjusted EBITDA from continuing operations
|
|
|
(3.2
|
)
|
|
|
3.1
|
|
|
|
(6.3
|
)
|
|
|
(205.3
|
)%
|
Tons sold (in thousands except %)
|
|
|
272.4
|
|
|
|
389.3
|
|
|
|
(116.9
|
)
|
|
|
(30.0
|
)%
|
*
|
Percentages
and per ton amounts are calculated based on actual amounts and not the rounded amounts presented in this table.
|
Tons
of coal sold in our Central Appalachia segment decreased by approximately 30.0% for the three months ended March 31, 2020 compared
to the three months ended March 31, 2019 primarily due to weakness in the met and steam coal markets, which has resulted in some
of our customers pushing out shipments to a future date. We also had some uncontracted tons in Central Appalachia and we were
unable to sell the coal on the spot market due to weak market demand.
Coal
revenues decreased by approximately $8.9 million, or 29.5%, to approximately $21.2 million for the three months ended March 31,
2020 from approximately $30.1 million for the three months ended March 31, 2019. The decrease in coal revenues was due to a decrease
in tons sold from our Central Appalachia operations during the first quarter of 2020 compared to 2019. Coal revenues per ton for
our Central Appalachia segment increased by $0.57, or 0.7%, to $77.86 per ton for the three months ended March 31, 2020 as compared
to $77.29 for the three months ended March 31, 2019. The increase in coal revenues per ton was primarily due to a higher mix of
met coal tons sold during the three months ended March 31, 2020 compared to 2019.
Cost
of operations decreased by $2.6 million, or 9.7%, to $24.0 million for the three months ended March 31, 2020 from $26.6 million
for the three months ended March 31, 2019. The decrease in cost of operations was primarily due to fewer tons produced and sold
during the third quarter of 2020 compared to the same period in 2019. Our cost of operations per ton of $88.27 for the three months
ended March 31, 2020 increased 29.1% compared to $68.37 per ton for the three months ended March 31, 2019. Cost of operations
per ton increased as fixed costs were allocated to fewer tons sold from our Central Appalachia operations during the first quarter
of 2020.
Total
freight and handling cost was $0.3 million for the three months ended March 31, 2020, which was a decrease of $0.4 million from
the three months ended March 31, 2019. The decrease in freight and handling costs was primarily the result of fewer export sales
during the first quarter of 2020 that require us to pay railroad transportation to the port of export.
For
our Central Appalachia segment, net loss was approximately $5.6 million for the three months ended March 31, 2020 compared to
net income of $1.2 million for the three months ended March 31, 2019. The decrease in net income was primarily the result of the
decrease in revenue resulting from fewer sales during the first quarter of 2020 compared to the same period in 2019.
Central
Appalachia Overview of Results by Product. Additional information for the Central Appalachia segment detailing the types
of coal produced and sold, premium high-vol met coal and steam coal for the three months ended March 31, 2020 and 2019, is presented
below. Note that our Northern Appalachia and Rhino Western segments currently produce and sell only steam coal.
(In thousands, except per ton data and %)
|
|
Three months ended March 31, 2020
|
|
|
Three months ended March 31, 2019
|
|
|
Increase
(Decrease)
%*
|
|
Met coal tons sold
|
|
|
161.6
|
|
|
|
149.1
|
|
|
|
8.4
|
%
|
Steam coal tons sold
|
|
|
110.8
|
|
|
|
240.2
|
|
|
|
(53.9
|
)%
|
Total tons sold
|
|
|
272.4
|
|
|
|
389.3
|
|
|
|
(30.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Met coal revenue
|
|
$
|
15,808
|
|
|
$
|
16,698
|
|
|
|
(5.3
|
)%
|
Steam coal revenue
|
|
$
|
5,405
|
|
|
$
|
13,389
|
|
|
|
(59.6
|
)%
|
Total coal revenue
|
|
$
|
21,213
|
|
|
$
|
30,087
|
|
|
|
(29.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Met coal revenues per ton
|
|
$
|
97.82
|
|
|
$
|
111.98
|
|
|
|
(12.7
|
)%
|
Steam coal revenues per ton
|
|
$
|
48.77
|
|
|
$
|
55.75
|
|
|
|
(12.5
|
)%
|
Total coal revenues per ton
|
|
$
|
77.86
|
|
|
$
|
77.29
|
|
|
|
0.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Met coal tons produced
|
|
|
140.0
|
|
|
|
122.5
|
|
|
|
14.3
|
%
|
Steam coal tons produced
|
|
|
142.3
|
|
|
|
308.8
|
|
|
|
(53.9
|
)%
|
Total tons produced
|
|
|
282.3
|
|
|
|
431.3
|
|
|
|
(34.5
|
)%
|
Northern Appalachia
|
|
Three months ended March 31,
|
|
|
Increase/(Decrease)
|
|
|
|
2020
|
|
|
2019
|
|
|
$
|
|
|
% *
|
|
|
|
(in millions, except per ton data and %)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coal revenues
|
|
$
|
7.4
|
|
|
$
|
6.1
|
|
|
$
|
1.3
|
|
|
|
22.2
|
%
|
Freight and handling revenues
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
n/a
|
|
Other revenues
|
|
|
0.1
|
|
|
|
0.5
|
|
|
|
(0.4
|
)
|
|
|
(81.4
|
)%
|
Total revenues
|
|
|
7.5
|
|
|
|
6.6
|
|
|
|
0.9
|
|
|
|
13.5
|
%
|
Coal revenues per ton
|
|
$
|
50.26
|
|
|
$
|
50.19
|
|
|
$
|
0.07
|
|
|
|
0.1
|
%
|
Cost of operations (exclusive of depreciation, depletion and amortization shown separately below)
|
|
|
6.3
|
|
|
|
6.8
|
|
|
|
(0.5
|
)
|
|
|
(7.8
|
)%
|
Freight and handling costs
|
|
|
0.7
|
|
|
|
0.5
|
|
|
|
0.2
|
|
|
|
44.8
|
%
|
Depreciation, depletion and amortization
|
|
|
0.5
|
|
|
|
0.4
|
|
|
|
0.1
|
|
|
|
29.9
|
%
|
Selling, general and administrative costs
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
n/a
|
|
Cost of operations per ton
|
|
$
|
42.77
|
|
|
$
|
56.60
|
|
|
$
|
(13.83
|
)
|
|
|
(24.4
|
)%
|
Net (loss) from continuing operations
|
|
|
-
|
|
|
|
(1.1
|
)
|
|
|
1.1
|
|
|
|
(97.7
|
)%
|
Adjusted EBITDA from continuing operations
|
|
|
0.5
|
|
|
|
(0.7
|
)
|
|
|
1.2
|
|
|
|
(170.5
|
)%
|
Tons sold (in thousands except %)
|
|
|
147.5
|
|
|
|
120.8
|
|
|
|
26.7
|
|
|
|
22.0
|
%
|
*
|
Percentages
and per ton amounts are calculated based on actual amounts and not the rounded amounts presented in this table.
|
For
our Northern Appalachia segment, tons of coal sold increased by approximately 22.0% for the three months ended March 31, 2020
compared to the three months ended March 31, 2019 as we experienced increased demand for coal from this region.
Coal
revenues were approximately $7.4 million for the three months ended March 31, 2020, an increase of approximately $1.3 million,
or 22.2%, from approximately $6.1 million for the three months ended March 31, 2019. The increase in coal revenues was primarily
due to the increase in tons of coal sold from our Hopedale operations during the first quarter of 2020. Coal revenues per ton
were relatively flat at $50.26 for the three months ended March 31, 2020 as compared to $50.19 for the three months ended March
31, 2019.
Cost
of operations decreased by $0.5 million, or 7.8%, to $6.3 million for the three months ended March 31, 2020 from $6.8 million
for the three months ended March 31, 2019. Our cost of operations per ton was $42.77 for the three months ended March 31, 2020,
a decrease of $13.83, or 24.4%, compared to $56.60 for the three months ended March 31, 2019. Cost of operations per ton decreased
primarily as the result of fixed costs being allocated to more tons sold from our Hopedale operation in the first quarter of 2020
compared to the same period in 2019 as well as improved mining conditions in the first quarter of 2020.
Net
loss in our Northern Appalachia segment was $26,000 for the three months ended March 31, 2020 compared to net loss of $1.1 million
for the three months ended March 31, 2019. The decrease in net loss was primarily due to the increase in coal sales revenue during
the current period.
Rhino Western
|
|
Three months ended March 31,
|
|
|
Increase/(Decrease)
|
|
|
|
2020
|
|
|
2019
|
|
|
$
|
|
|
% *
|
|
|
|
(in millions, except per ton data and %)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coal revenues
|
|
$
|
8.7
|
|
|
$
|
8.7
|
|
|
$
|
-
|
|
|
|
(0.2
|
)%
|
Freight and handling revenues
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
n/a
|
|
Other revenues
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
n/a
|
|
Total revenues
|
|
|
8.7
|
|
|
|
8.7
|
|
|
|
-
|
|
|
|
(0.2
|
)%
|
Coal revenues per ton
|
|
$
|
38.47
|
|
|
$
|
36.61
|
|
|
$
|
1.86
|
|
|
|
5.1
|
%
|
Cost of operations (exclusive of depreciation, depletion and amortization shown separately below)
|
|
|
6.5
|
|
|
|
7.2
|
|
|
|
(0.7
|
)
|
|
|
(10.6
|
)%
|
Freight and handling costs
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
n/a
|
|
Depreciation, depletion and amortization
|
|
|
1.0
|
|
|
|
1.1
|
|
|
|
(0.1
|
)
|
|
|
(11.1
|
)%
|
Selling, general and administrative costs
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
n/a
|
|
Cost of operations per ton
|
|
$
|
28.58
|
|
|
$
|
30.35
|
|
|
$
|
(1.77
|
)
|
|
|
(5.8
|
)%
|
Net income/(loss) from continuing operations
|
|
|
1.2
|
|
|
|
(0.3
|
)
|
|
|
1.5
|
|
|
|
(469.6
|
)%
|
Adjusted EBITDA from continuing operations
|
|
|
2.2
|
|
|
|
1.5
|
|
|
|
0.7
|
|
|
|
52.8
|
%
|
Tons sold (in thousands except %)
|
|
|
225.9
|
|
|
|
237.9
|
|
|
|
(12.0
|
)
|
|
|
(5.0
|
)%
|
*
|
Percentages
and per ton amounts are calculated based on actual amounts and not the rounded amounts presented in this table.
|
Tons
of coal sold from our Rhino Western segment decreased by approximately 5.0% for the three months ended March 31, 2020 compared
to the same period in 2019 primarily due to a decrease in demand for coal from this region.
Coal
revenues remained flat at approximately $8.7 million for the three months ended March 31, 2020 and 2019. Coal revenues per ton
for our Rhino Western segment increased by $1.86 or 5.10% to $38.47 per ton for the three months ended March 31, 2020 as compared
to $36.61 per ton for the three months ended March 31, 2019. The increase in coal revenues per ton was primarily due to higher
contracted sale prices.
Cost
of operations decreased by $0.7 million, or 10.6%, to $6.5 million for the three months ended March 31, 2020 from $7.2 million
for the three months ended March 31, 2019. Our cost of operations per ton was $28.58 for the three months ended March 31, 2020,
a decrease of $1.77, or 5.8%, compared to $30.35 for the three months ended March 31, 2019. Total cost of operations decreased
for the three months ended March 31, 2020 compared to the same period in 2019 due to a decrease in operating costs at our Castle
Valley mine operation.
Net
income in our Rhino Western segment was $1.2 million for the three months ended March 31, 2020, compared to a net loss of $0.3
million for the three months ended March 31, 2019. This increase in net income was primarily the result of an increase in our
contracted sale prices for tons sold at our Castle Valley operation and lower operating costs during the first quarter of 2020.
Other
|
|
Three months ended March 31,
|
|
|
Increase/(Decrease)
|
|
|
|
2020
|
|
|
2019
|
|
|
$
|
|
|
% *
|
|
|
|
(in millions, except per ton data and %)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coal revenues
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
n/a
|
|
|
|
n/a
|
|
Freight and handling revenues
|
|
|
-
|
|
|
|
-
|
|
|
|
n/a
|
|
|
|
n/a
|
|
Other revenues
|
|
|
-
|
|
|
|
-
|
|
|
|
n/a
|
|
|
|
n/a
|
|
Total revenues
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
n/a
|
|
Coal revenues per ton**
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
Cost of operations (exclusive of depreciation, depletion and amortization shown separately below)
|
|
|
(0.7
|
)
|
|
|
(0.4
|
)
|
|
|
(0.3
|
)
|
|
|
(48.1
|
)%
|
Freight and handling costs
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
n/a
|
|
Depreciation, depletion and amortization
|
|
|
-
|
|
|
|
0.1
|
|
|
|
(0.1
|
)
|
|
|
(100.0
|
)%
|
Selling, general and administrative costs
|
|
|
4.1
|
|
|
|
2.6
|
|
|
|
1.5
|
|
|
|
54.5
|
%
|
Cost of operations per ton**
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
Net (loss) from continuing operations
|
|
|
(5.5
|
)
|
|
|
(3.6
|
)
|
|
|
(1.9
|
)
|
|
|
(55.7
|
)%
|
Adjusted EBITDA from continuing operations
|
|
|
(3.4
|
)
|
|
|
(1.8
|
)
|
|
|
(1.6
|
)
|
|
|
97.0
|
%
|
Tons sold (in thousands except %)
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
*
|
Percentages
and per ton amounts are calculated based on actual amounts and not the rounded amounts presented in this table.
|
|
|
**
|
The
Other category includes results for our ancillary businesses. The activities performed by these ancillary businesses do not
directly relate to coal production. As a result, coal revenues and coal revenues per ton are not presented for the Other category.
Cost of operations presented for our Other category includes costs incurred by our ancillary businesses. As a result, cost
per ton measurements are not presented for this category.
|
For
the Other category, we had net loss of $5.5 million for the three months ended March 31, 2020 as compared to net loss of $3.6
million for the three months ended March 31, 2019. The increase in net loss was primarily the result of an increase to selling,
general and administrative costs during the first quarter of 2020 compared to the same period in 2019.
Reconciliations
of Adjusted EBITDA
The
following tables present reconciliations of Adjusted EBITDA to the most directly comparable GAAP financial measures for each of
the periods indicated:
|
|
Central
|
|
|
Northern
|
|
|
Rhino
|
|
|
Illinois
|
|
|
|
|
|
|
|
Three months ended March 31, 2020
|
|
Appalachia
|
|
|
Appalachia
|
|
|
Western
|
|
|
Basin
|
|
|
Other
|
|
|
Total
|
|
|
|
(in millions)
|
|
Net (loss)/income from continuing operations
|
|
$
|
(5.6
|
)
|
|
$
|
-
|
|
|
$
|
1.2
|
|
|
$
|
-
|
|
|
$
|
(5.5
|
)
|
|
$
|
(9.9
|
)
|
Plus:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DD&A
|
|
|
2.4
|
|
|
|
0.5
|
|
|
|
1.0
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3.9
|
|
Interest expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2.1
|
|
|
|
2.1
|
|
EBITDA from continuing operations†
|
|
$
|
(3.2
|
)
|
|
$
|
0.5
|
|
|
$
|
2.2
|
|
|
$
|
-
|
|
|
$
|
(3.4
|
)
|
|
$
|
(3.9
|
)
|
Adjusted EBITDA from continuing operations
|
|
|
(3.2
|
)
|
|
|
0.5
|
|
|
|
2.2
|
|
|
|
-
|
|
|
|
(3.4
|
)
|
|
|
(3.9
|
)
|
Plus: Adjusted EBITDA from discontinued operations
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(0.4
|
)
|
|
|
-
|
|
|
|
(0.4
|
)
|
Adjusted EBITDA
|
|
$
|
(3.2
|
)
|
|
$
|
0.5
|
|
|
$
|
2.2
|
|
|
$
|
(0.4
|
)
|
|
$
|
(3.4
|
)
|
|
$
|
(4.3
|
)
|
|
|
Central
|
|
|
Northern
|
|
|
Rhino
|
|
|
Illinois
|
|
|
|
|
|
|
|
Three months ended March 31, 2019
|
|
Appalachia
|
|
|
Appalachia
|
|
|
Western
|
|
|
Basin
|
|
|
Other
|
|
|
Total
|
|
|
|
(in millions)
|
|
Net income/(loss) from continuing operations
|
|
$
|
1.2
|
|
|
$
|
(1.1
|
)
|
|
$
|
(0.3
|
)
|
|
$
|
-
|
|
|
$
|
(3.6
|
)
|
|
$
|
(3.8
|
)
|
Plus:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
DD&A
|
|
|
1.9
|
|
|
|
0.4
|
|
|
|
1.1
|
|
|
|
-
|
|
|
|
0.1
|
|
|
|
3.5
|
|
Interest expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1.7
|
|
|
|
1.7
|
|
EBITDA from continuing operations†
|
|
$
|
3.1
|
|
|
$
|
(0.7
|
)
|
|
$
|
0.8
|
|
|
$
|
-
|
|
|
$
|
(1.8
|
)
|
|
$
|
1.4
|
|
Plus: Loss from sale of non-core asset (1)
|
|
|
-
|
|
|
|
-
|
|
|
|
0.7
|
|
|
|
-
|
|
|
|
-
|
|
|
|
0.7
|
|
Adjusted EBITDA from continuing operations†
|
|
$
|
3.1
|
|
|
$
|
(0.7
|
)
|
|
$
|
1.5
|
|
|
$
|
-
|
|
|
$
|
(1.8
|
)
|
|
$
|
2.1
|
|
Plus: Adjusted EBITDA from discontinued operations
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1.5
|
)
|
|
|
-
|
|
|
|
(1.5
|
)
|
Adjusted EBITDA
|
|
$
|
3.1
|
|
|
$
|
(0.7
|
)
|
|
$
|
1.5
|
|
|
$
|
(1.5
|
)
|
|
$
|
(1.8
|
)
|
|
$
|
0.6
|
|
|
|
For the Three Months Ended March 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(in millions)
|
|
Net cash (used in)/provided by operating activities
|
|
$
|
(3.0
|
)
|
|
$
|
0.5
|
|
Plus:
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
2.1
|
|
|
|
1.7
|
|
Adjustment on impairment of assets (1)
|
|
|
0.3
|
|
|
|
-
|
|
Less:
|
|
|
|
|
|
|
|
|
Decrease in net operating assets
|
|
|
2.1
|
|
|
|
0.7
|
|
Amortization of advance royalties
|
|
|
0.1
|
|
|
|
0.4
|
|
Amortization of debt discount
|
|
|
-
|
|
|
|
0.1
|
|
Amortization of debt issuance costs
|
|
|
0.8
|
|
|
|
0.5
|
|
Loss on sale of assets
|
|
|
-
|
|
|
|
0.2
|
|
Loss on retirement of advance royalties
|
|
|
-
|
|
|
|
0.1
|
|
Accretion on asset retirement obligations
|
|
|
0.4
|
|
|
|
0.3
|
|
EBITDA†
|
|
|
(4.0
|
)
|
|
|
(0.1
|
)
|
Plus: Loss from sale of non-core assets (2)
|
|
|
-
|
|
|
|
0.7
|
|
Less: Adjustment on impairment of assets (1)
|
|
|
(0.3
|
)
|
|
|
-
|
|
Adjusted EBITDA
|
|
|
(4.3
|
)
|
|
|
0.6
|
|
Less: Adjusted EBITDA from discontinued operations
|
|
|
(0.4
|
)
|
|
|
(1.5
|
)
|
Adjusted EBITDA from continuing operations
|
|
$
|
(3.9
|
)
|
|
$
|
2.1
|
|
|
(1)
|
During
the three months ended March 31, 2020, we finalized the Pennyrile APA. The final adjustments included us retaining certain equipment
originally included in the assets to be sold to the Buyer, which resulted in a $0.3 million favorable adjustment to the impairment
loss originally recorded by us in the third quarter of 2019.
|
|
|
|
|
(2)
|
During
the three months ended March 31, 2019, we sold parcels of land owned in western Colorado for proceeds less than our carrying
value of the land that resulted in losses of approximately $0.7. This land is a non-core asset that we chose to monetize despite
the loss incurred. We believe that the isolation and presentation of this specific item to arrive at Adjusted EBITDA is useful
because it enhances investors’ understanding of how we assess the performance of our business. We believe the adjustment
of this item provides investors with additional information that they can utilize in evaluating our performance. Additionally,
we believe the isolation of this item provides investors with enhanced comparability to prior and future periods of our operating
results.
|
†
Calculated based on actual amounts and not the rounded amounts presented in this table.
Liquidity
and Capital Resources
Liquidity
As
of March 31, 2020, our available liquidity was $1.3 million. We also have a delayed draw term loan commitment in the amount of
$22 million contingent upon the satisfaction of certain conditions precedent specified in the Financing Agreement.
On
December 27, 2017, we entered into a Financing Agreement, which provides us with a multi-draw term loan in the original aggregate
principal amount of $80 million, subject to the terms and conditions set forth in the Financing Agreement. The total principal
amount was divided into a $40 million commitment, the conditions of which were satisfied at the execution of the Financing Agreement
(the “Effective Date Term Loan Commitment”) and a $40 million additional commitment that was contingent upon the satisfaction
of certain conditions precedent specified in the Financing Agreement (“Delayed Draw Term Loan Commitment”). As of
March 31, 2020, we had utilized $18 million of the $40 million additional commitment, which results in $22 million of the additional
commitment remaining. The Financing Agreement initially had a termination date of December 27, 2020, which was amended to December
27, 2022. Please read below for more information about our Financing Agreement.
Our
business is capital intensive and requires substantial capital expenditures for purchasing, upgrading and maintaining equipment
used in developing and mining our reserves, as well as complying with applicable environmental and mine safety laws and regulations.
Our principal liquidity requirements are to finance current operations, fund capital expenditures, including acquisitions from
time to time, and service our debt. Historically, our sources of liquidity included cash generated by our operations, cash available
on our balance sheet and issuances of equity securities. Our ability to access the capital markets on economic terms in the future
will be affected by general economic conditions, the domestic and global financial markets, our operational and financial performance,
the value and performance of our equity securities, prevailing commodity prices and other macroeconomic factors outside of our
control. Failure to maintain financing or to generate sufficient cash flow from operations could cause us to significantly reduce
our spending and to alter our short- or long-term business plan.
Beginning
in the later part of the third quarter of 2019, we have experienced significantly weaker market demand and have seen prices move
lower for the qualities of met and steam coal we produce. This downward price trend has been exacerbated by the recent coronavirus
pandemic. In response to this reduced demand and to the significant health threats to our employees, on March 20, 2020, we temporarily
idled production at several of our mines. We have since restarted production at the majority of our operations. We will continue
to monitor conditions to ensure the health and welfare of our employees. The idling of the coal production activities did not
affect our ability to fulfill current customer commitments, as loading and shipping crews remained in place to ship coal from
existing inventories.
If
we continue to experience weak demand and prices continue to lower for our met and steam coal, we may not be able to continue
to give the required representations or meet all of the covenants and restrictions included in our Financing Agreement. If we
violate any of the covenants or restrictions in our Financing Agreement, including the fixed-charge coverage ratio, some or all
of our indebtedness may become immediately due and payable, and our Lenders may not be willing to make any loans under the additional
commitment available under our Financing Agreement. If we are unable to give a required representation or we violate a covenant
or restriction, then we will need a waiver from our Lenders under our Financing Agreement, or they may declare an event of default
and, after applicable specified cure periods, all amounts outstanding under the Financing Agreement would become immediately due
and payable. Although we believe our Lenders are well secured under the terms of our Financing Agreement, there is no assurance
that the Lenders would agree to any such waiver. Failure to obtain financing or to generate sufficient cash flow from operations
could cause us to further curtail our operations and reduce spending and alter our business plan. We are currently considering
alternatives to address our liquidity and balance sheet issues, such as selling additional assets or seeking merger opportunities,
and depending on the urgency of our liquidity constraints, we may be required to pursue such an option at an inopportune time.
As
of March 31, 2020, we were unable to demonstrate that we have sufficient liquidity to operate our business over the next twelve
months from the date of filing this Form 10-Q and thus substantial doubt is raised about our ability to continue as a going concern.
Our independent registered public accounting firm included an emphasis paragraph with respect to our ability to continue as a
going concern in its report on our consolidated financial statements for the year ended December 31, 2019. The presence of the
going concern emphasis paragraph in our auditors’ report may have an adverse impact on our relationship with third parties
with whom we do business, including our customers, vendors, lenders and employees, making it difficult to raise additional financing
to the extent needed to conduct normal operations. As a result, our business, results of operations, financial condition and prospects
could be materially adversely affected.
We
evaluated our Financing Agreement at March 31, 2020 to determine whether the debt liability should be classified as a long-term
or current liability on our unaudited condensed consolidated statements of financial position. We determined that we were in violation
of certain debt covenants in the Financing Agreement as of March 31, 2020 and the Lenders were unwilling to grant a waiver to
us for these events of default as of the filing date of this Form 10-Q. The Financing Agreement contains negative covenants that
restrict our ability to, among other things, permit the trailing nine month fixed charge coverage ratio of us and our subsidiaries
to be less than 1.20 to 1.00. The Financing Agreement also requires us to receive an annual unqualified audit opinion from our
external audit firm that does not include an emphasis paragraph on our ability to continue as a going concern. As of March 31,
2020, our fixed charge coverage ratio was less than 1.20 to 1.00 and our annual report on Form 10-K for 2019 includes an audit
opinion from our external auditors that includes an emphasis paragraph regarding our ability to continue as a going concern. Based
upon these covenant violations, our debt liability is currently callable by the Lenders and the debt liability is classified as
current.
Debt
issuance costs related to the debt liability have also been classified as current. However, since we are currently in negotiations
with our Lenders, we have not changed the amortization period of these costs. Included in debt costs are the exit fees described
below, which absent a waiver, are also callable with the accompanying debt as of March 31, 2020.
We
continue to take measures, including the suspension of cash distributions on our common and subordinated units and taking steps
to improve productivity and control costs, to enhance and preserve our liquidity so that we can fund our ongoing operations and
necessary capital expenditures and meet our financial commitments and debt service obligations.
Cash
Flows
Net
cash used in operating activities was $3.0 million for the three months ended March 31, 2020 as compared to net cash provided
by operating activities of $0.5 million for the three months ended March 31, 2019. This decrease in cash provided by operating
activities was the result of a higher net loss during the three months ended March 31, 2020.
Net
cash provided by investing activities was $4.2 million for the three months ended March 31, 2020 as compared to net cash provided
by investing activities of $1.7 million for the three months ended March 31, 2019. The increase in cash provided by investing
activities was primarily due to an increase in proceeds from the sale of assets during the three months ended March 31, 2020 compared
to the same period in 2019.
Net
cash provided by financing activities was $0.4 million for the three months ended March 31, 2020 and net cash used in financing
activities was $4.2 million for the three months ended March 31, 2019. Net cash provided by financing activities for the three
months ended March 31, 2020 was primarily attributable to proceeds from our Financing Agreement. Net cash used in financing activities
for the three months ended March 31, 2019 was primarily attributable to repayments on our Financing Agreement and by the payment
of the distribution on the Series A preferred units.
Capital
Expenditures
Our
mining operations require investments to expand, upgrade or enhance existing operations and to meet environmental and safety regulations.
Maintenance capital expenditures are those capital expenditures required to maintain our long-term operating capacity. For example,
maintenance capital expenditures include expenditures associated with the replacement of equipment and coal reserves, whether
through the expansion of an existing mine or the acquisition or development of new reserves, to the extent such expenditures are
made to maintain our long-term operating capacity. Expansion capital expenditures are those capital expenditures that we expect
will increase our operating capacity over the long term. Examples of expansion capital expenditures include the acquisition of
reserves, acquisition of equipment for a new mine or the expansion of an existing mine to the extent such expenditures are expected
to expand our long-term operating capacity.
Actual
maintenance capital expenditures for the three months ended March 31, 2020 were approximately $0.9 million. This amount was primarily
used to rebuild, repair or replace older mining equipment. Expansion capital expenditures for the three months ended March 31,
2020 were approximately $0.7 million, which were primarily related to development costs at our Blackjewel mine.
Series
A Preferred Unit Purchase Agreement
On
December 30, 2016, we entered into a Series A Preferred Unit Purchase Agreement (“Preferred Unit Agreement”) with
Weston Energy LLC (“Weston”) and Royal. Under the Preferred Unit Agreement, Weston and Royal agreed to purchase 1,300,000
and 200,000, respectively, of Series A preferred units representing limited partner interests in us at a price of $10.00 per Series
A preferred unit. The Series A preferred units have the preferences, rights and obligations set forth in our Fourth Amended and
Restated Agreement of Limited Partnership, which is described below. In exchange for the Series A preferred units, Weston and
Royal paid cash of $11.0 million and $2.0 million, respectively, to us and Weston assigned to us a $2.0 million note receivable
from Royal originally dated September 30, 2016. Through a series of transactions, Weston now owns all of the Series A preferred
units.
Fourth
Amended and Restated Partnership Agreement of Limited Partnership
On
December 30, 2016, our general partner entered into the Fourth Amended and Restated Agreement of Limited Partnership of the Partnership
(“Amended and Restated Partnership Agreement”) to create, authorize and issue the Series A preferred units.
The
holders of the Series A preferred units are entitled to receive annual distributions equal to the greater of (i) 50% of the CAM
Mining free cash flow (as defined below) and (ii) an amount equal to the number of outstanding Series A preferred units multiplied
by $0.80. “CAM Mining free cash flow” is defined in our partnership agreement as (i) the total revenue of our Central
Appalachia business segment, minus (ii) the cost of operations (exclusive of depreciation, depletion and amortization) for our
Central Appalachia business segment, minus (iii) an amount equal to $6.50, multiplied by the aggregate number of met coal and
steam coal tons sold by us from our Central Appalachia business segment. If we fail to pay any or all of the distributions in
respect of the Series A preferred units, such deficiency will accrue until paid in full and we will not be permitted to pay any
distributions on our partnership interests that rank junior to the Series A preferred units, including our common units.
We
will have the option to convert the outstanding Series A preferred units at any time on or after the time at which the amount
of aggregate distributions paid in respect of each Series A preferred unit exceeds $10.00 per unit. Each Series A preferred unit
will convert into a number of common units equal to the quotient (the “Series A Conversion Ratio”) of (i) the sum
of $10.00 and any unpaid distributions in respect of such Series A Preferred Unit divided by (ii) 75% of the volume-weighted average
closing price of the common units for the preceding 90 trading days (the “VWAP”); provided however, that the VWAP
will be capped at a minimum of $2.00 and a maximum of $10.00. On December 31, 2021, all outstanding Series A preferred units will
convert into common units at the then applicable Series A Conversion Ratio.
During
the first quarter of 2019, we paid $3.2 million to the holders of Series A preferred units for distributions earned for the year
ended December 31, 2018. We have accrued $1.2 million for distributions to holders of the Series A preferred units for the year
ended December 31, 2019 and $0.3 million for the three months ended March 31, 2020.
Financing
Agreement
On
December 27, 2017, we entered into a Financing Agreement, which provides us with a multi-draw term loan in the original aggregate
principal amount of $80 million, subject to the terms and conditions set forth in the Financing Agreement. The total principal
amount was divided into a $40 million commitment, the conditions of which were satisfied at the execution of the Financing Agreement
and a $40 million additional commitment that was contingent upon the satisfaction of certain conditions precedent specified in
the Financing Agreement. As of March 31, 2020, we had utilized $18 million of the $40 million additional commitment, which results
in $22 million of the additional commitment remaining. The Financing Agreement contains negative covenants that restrict our ability
to, among other things: (i) incur liens or additional indebtedness or make investments or restricted payments, (ii) liquidate
or merge with another entity, or dispose of assets, (iii) change the nature of their respective businesses; (iv) make capital
expenditures in excess, or, with respect to maintenance capital expenditures, lower than, specified amounts, (v) incur restrictions
on the payment of dividends, (vi) prepay or modify the terms of other indebtedness, (vii) permit the Collateral Coverage Amount
to be less than the outstanding principal amount of the loans outstanding under the Financing Agreement or (viii) permit the trailing
nine month Fixed Charge Coverage Ratio of the Partnership and its subsidiaries to be less than 1.20 to 1.00.
The
Lenders are entitled to certain fees, including: (i) 1.50% per annum of the unused Delayed Draw Term Loan Commitment for as long
as such commitment exists, (ii) for the 12-month period following the execution of the Financing Agreement, a make-whole amount
(“Make-Whole Amount”) equal to the interest and unused Delayed Draw Term Loan Commitment fees that would have been
payable but for the occurrence of certain events, including among others, bankruptcy proceedings or the termination of the Financing
Agreement by the Partnership, and (iii) audit and collateral monitoring fees and origination and exit fees. Commencing December
31, 2018, the principal for each loan made under the Financing Agreement is payable on a quarterly basis in an amount equal to
$375,000 per quarter. All remaining unpaid principal and accrued and unpaid interest is due on the loan termination date. The
Financing Agreement originally had a termination date of December 27, 2020, which was amended to December 27, 2022. Loans made
pursuant to the Financing Agreement are secured by substantially all of our assets.
We
entered into various amendments and consents to the Financing Agreement during 2018 and 2019, which (a) increased the original
lender exit fee (“Exit Fee”) of 3.0% to 7.0% as of December 31, 2019. The Exit Fee is applied to the principal amount
of the loans made under the Financing Agreement that is payable on the earliest of (i) the final maturity date of the Financing
Agreement, (ii) the termination date of the Financing Agreement, (iii) the acceleration of the obligations under the Financing
Agreement for any reason, including, without limitation, acceleration in accordance with Section 9.01 of the Financing Agreement,
including as a result of the commencement of an insolvency proceeding and (iv) the date of any refinancing of the term loan under
the Financing Agreement, (b) modified certain definitions and concepts to account for our 2019 acquisition of properties from
Blackjewel, (c) permitted the 2019 disposition of the Pennyrile mining complex, (d) required us to pay a $1.0 million consent
fee related to the Pennyrile sale (paid March 2020), (e) allowed us to sell certain real property in Western Colorado and adjusted
the timing for remittance to the Lender of the sale proceeds, (f) provided $15.0 million in additional terms loans under the Delayed
Draw Term Loan Commitment feature of the Financing Agreement, (g) revised the definition of the Make-Whole Amount under the Financing
Agreement to extend the date of the Make-Whole Amount period to December 31, 2021 and (h) extended the termination date of the
Financing Agreement to December 27, 2022.
On
March 3, 2020, we entered into the Sixth Amendment to the Financing Agreement, which among other things, provided us with a $3.0
million term loan under the Delayed Draw Term Loan Commitment feature of the Financing Agreement and increased the Exit Fee payable
to the Lenders upon the maturity date (or earlier termination or acceleration date) by 1.0% to a total of 8.0%.
The
following table presents the loan balances and applicable interest rates for each term loan made under the Financing Agreement
as of March 31, 2020:
Loan Date
|
|
Loan Balance
|
|
|
Interest rate*
|
|
|
|
|
(in millions)
|
|
|
|
|
|
12/27/2017
|
|
$
|
27.2
|
|
|
|
10.99
|
%
|
8/16/2019
|
|
$
|
5.0
|
|
|
|
11.20
|
%
|
9/16/2019
|
|
$
|
5.0
|
|
|
|
10.86
|
%
|
3/3/2020
|
|
$
|
3.0
|
|
|
|
11.52
|
%
|
|
|
|
|
|
|
|
|
|
* Variable interest rate of Libor plus 10.0%
|
|
Off-Balance
Sheet Arrangements
In
the normal course of business, we are a party to off-balance sheet arrangements that include guarantees and financial instruments
with off-balance sheet risk, such as bank letters of credit and surety bonds. No liabilities related to these arrangements are
reflected in our unaudited condensed consolidated balance sheet, and we do not expect any material adverse effects on our financial
condition, results of operations or cash flows to result from these off-balance sheet arrangements.
Federal
and state laws require us to secure certain long-term obligations related to mine closure and reclamation costs. We typically
secure these obligations by using surety bonds, an off-balance sheet instrument. The use of surety bonds is less expensive for
us than the alternative of posting a 100% cash bond or a bank letter of credit. We then provide cash collateral to secure our
surety bonding obligations in an amount up to a certain percentage of the aggregate bond liability that we negotiate with the
surety companies. To the extent that surety bonds become unavailable, we would seek to secure our reclamation obligations with
letters of credit, cash deposits or other suitable forms of collateral.
As
of March 31, 2020, we had $7.9 million in cash collateral held by third-parties of which $3.0 million serves as collateral for
approximately $41.3 million in surety bonds outstanding that secure the performance of our reclamation obligations. The other
$4.9 million serves as collateral for our self-insured workers’ compensation program. Of the $41.3 million in surety bonds,
approximately $0.4 million relates to surety bonds for Deane Mining, LLC, which have not been transferred or replaced by the buyer
of Deane Mining LLC as was agreed to by the parties as part of the transaction. We can provide no assurances that a surety company
will underwrite the surety bonds of the purchaser of Deane Mining LLC, nor are we aware of the actual amount of reclamation at
any given time. Further, if there was a claim under these surety bonds prior to the transfer or replacement of such bonds by the
buyer of Deane Mining, LLC, we may be responsible to the surety company for any amounts it pays in respect of such claim. While
the buyer is required to indemnify us for damages, including reclamation liabilities, pursuant to the agreements governing the
sales of this entity, we may not be successful in obtaining any indemnity or any amounts received may be inadequate.
Certain
surety bonds for Sands Hill Mining LLC had not been transferred or replaced by the buyer of Sands Hill Mining LLC as was agreed
to when we sold Sands Hill Mining LLC to the buyer in November 2017. On July 9, 2019, we entered into an agreement with a third
party for the replacement of our existing surety bond obligations with respect to Sands Hill Mining LLC. We agreed to pay the
third party $2.0 million to assume our surety bond obligations related to Sands Hill Mining LLC. At the time of closing, the third
party delivered to us confirmation from its surety underwriter evidencing the release and removal of us, our affiliates and guarantors,
from the surety bond obligations and all related obligations under our bonding agreements related to Sands Hill Mining LLC, which
includes a release of all applicable collateral for the surety bond obligations. Further, such confirmation from the surety underwriter
was specifically provided for their acceptance of the third party as a replacement obligor.
We
had no letters of credit outstanding as of March 31, 2020.
Critical
Accounting Policies and Estimates
Our
financial statements are prepared in accordance with accounting principles that are generally accepted in the United States. The
preparation of these financial statements requires management to make estimates and judgments that affect the reported amount
of assets, liabilities, revenues and expenses as well as the disclosure of contingent assets and liabilities. Management evaluates
its estimates and judgments on an on-going basis. Management bases its estimates and judgments on historical experience and other
factors that are believed to be reasonable under the circumstances. Nevertheless, actual results may differ from the estimates
used and judgments made.
The
accounting policies and estimates that we have adopted and followed in the preparation of our consolidated financial statements
are fully described in our Annual Report on Form 10-K for the year ended December 31, 2019. We adopted ASU 2016-02- Leases (Topic
842) and all related clarification standards on January 1, 2019 using the transition method to apply the standard prospectively.
The standard had a material impact on our unaudited condensed consolidated statements of financial position, but did not have
an impact on our unaudited condensed consolidated statements of operations. Please refer to Note 7 of the notes to the unaudited
condensed consolidated financial statements for further discussion of the standard and the related disclosures. There have been
no other significant changes in these policies and estimates as of March 31, 2020
Recent
Accounting Pronouncements
Refer
to Part-I— Item 1. Financial Statements, Note 2 of the notes to the unaudited condensed consolidated financial statements
for a discussion of recent accounting pronouncements. There are no known future impacts or material changes or trends of new accounting
guidance beyond the disclosures provided in Note 2.