PR Newswire | Aug 6, 2020 04:06PM EDT

08/06 15:05 CDT

Ramaco Resources, Inc. Reports Second Quarter 2020 Financial Results LEXINGTON, Ky., Aug. 6, 2020

LEXINGTON, Ky., Aug. 6, 2020 /PRNewswire/ --

* Net income was $2.7 million (EPS of $0.06) and adjusted EBITDA was $10.8 million in the second quarter of 2020. First half 2020 net income was $4.6 million (EPS of $0.11), and first half 2020 adjusted EBITDA was $19.2 million. * As of June 30, liquidity was $31.8 million, despite a first half 2020 inventory build of $10.2 million. We expect this build to be a source of cash in the second half of 2020. * Post June 30, Ramaco has boosted its international presence in two areas. First, we entered into an exclusive marketing arrangement with Australian-based Square Resources to market our metallurgical coal into the growing Asian steel markets. Second, we signed a deal to ship our first test cargo of metallurgical coal to Brazil.

Ramaco Resources, Inc. (NASDAQ: METC) ("Ramaco Resources" or the "Company") today reported quarterly net income of $2.7 million, or $0.06 per diluted share for the three months ended June 30, 2020, as compared to $10.6 million or $0.26 per diluted share for the three months ended June 30, 2019. The Company's adjusted earnings before interest, taxes, depreciation, amortization and equity-based compensation expenses ("Adjusted EBITDA") was $10.8 million for the three months ended June 30, 2020, as compared with $19.1 million for the three months ended June 30, 2019.

Key operational and financial metrics are presented below:



Key Metrics

2Q20 1Q20 Change2Q19 Change1H20 1H19 Change

Sales of Company Produced Tons ('000) 362 416 -13% 499 -27% 778 942 -17%

Revenue ($mm) $36.4$41.9-13% $65.8-45% $78.3$123.2-36%

Cost of Sales ($mm) $30.1$30.9-3% $43.2-30% $61.1$84.2 -27%

Pricing of Company Produced ($/Ton) $91 $93 -2% $116 -22% $92 $110 -16%

Cash Cost of Sales - Company Produced ($/Ton)$74 $67 10% $71 4% $70 $69 1%

Cash Margins on Company Produced ($/Ton) $17 $26 -35% $45 -62% $22 $41 -46%

Net Income ($mm) $2.7 $2.0 35% $10.6-75% $4.6 $17.5 -74%

Adjusted EBITDA ($mm) $10.8$8.4 28% $19.1-43% $19.2$32.8 -41%

Capex ($mm) $9.1 $8.9 2% $11.5-21% $18.0$19.7 -9%

Diluted Earnings per Share $0.06$0.0520% $0.26-77% $0.11$0.43 -74%



Second Quarter 2020 Summary

Year over Year Quarterly Comparison

Overall sales of Company produced tons in the second quarter of 2020 were 362,000 tons, down from 499,000 tons in the second quarter of 2019. Cash margins on Company produced coal were $17 per ton in the second quarter of 2020, down 62% from the same period of 2019, because of lower realized pricing, on the back of large declines on the various metallurgical coal indices.

Sequential Quarter Comparison

Overall sales volumes of Company produced tons in the second quarter of 2020 were down 13% from the first quarter of 2020. The decline was precipitated by the deterioration in the macroeconomic conditions as a result of the impact of COVID-19. This in turn has manifested itself in declines in commodity prices, including metallurgical coal prices, and significant weakening in the domestic and international demand for steel. As previously disclosed, we received force majeure notices from two customers. This could adversely affect up to 12% of our total contracted sales volumes for 2020. We continue to work with these customers to preserve the value of these contracts.

Our cash margins on Company produced coal declined 35% in the sequential period. This decline was caused primarily by lower realized pricing and higher mining costs. Overall Company cash costs per ton sold on total produced coal were $74 per ton in the second quarter of 2020, compared to $67 in the first quarter of 2020. Cash costs on Company produced coal at Elk Creek were $72 per ton sold in the second quarter of 2020 compared to $61 in the first quarter of 2020. Second quarter mine cash costs were adversely impacted by the limited mine production in April as a result of the previously disclosed mine furlough that month, which caused fixed costs to get spread out across fewer tons. Mine cash costs at Elk Creek in May and June averaged $64 per ton sold. In those months the mines were operating at closer to normal rates, although given the slowdown in overall demand, they were still below first quarter 2020 levels.

Other income came in at $8.5 million in the second quarter of 2020, which compared to $1.2 million in the first quarter of 2020. On April 20, 2020, we received $8.4 million in loan proceeds from the SBA Paycheck Protection Program (PPP). Based upon receipt of this funding, we elected to recall approximately 200 workers at our Elk Creek complex who had been furloughed in March. In the second quarter, we used the PPP proceeds for eligible payroll expenses, lease, interest and utility payments totaling $7.3 million. We have since used the balance of loan proceeds for similar purposes. We anticipate that the $8.4 million amount of the PPP Loan principal will be forgiven, together with accrued interest thereon. Accordingly, we have recognized $7.3 million as other income in the second quarter.

Additional Financial Results

At June 30, 2020, the Company had $9.8 million of cash on hand plus $22.0 million of availability under its revolving credit facility, (which had $8.0 million drawn) and net debt of $11.1 million. In the second quarter, we also borrowed an additional $13.2 million under two credit facilities, including the PPP Loan facility mentioned above, in order to further improve our liquidity. Securing this funding was key to limiting the length of the employee furlough period in April, as well as retaining a greater number of employees and maintaining payroll.

In the second quarter of 2020, our three largest working capital items caused an $8.3 million increase in use of cash compared to the first quarter of 2020, due to a $2.0 million increase in inventory, $1.4 million increase in accounts receivable, and $4.9 million decrease in accounts payable. Year to date, inventories have been a $10.2 million use of cash, as they have increased 67% during that time. We anticipate this trend should reverse in the second half of 2020, especially in the fourth quarter.

In the first six months of 2020, the Company recorded an income tax expense of $1.4 million, including $435 thousand as a discrete item associated with stock-based compensation. The effective tax rate for the six months ended June 30, 2020, excluding this discrete item, was 16%. Actual cash taxes paid in 2020 are anticipated to be less than $10 thousand. Ramaco also expects to continue to pay minimal taxes for the foreseeable future due to tax loss carryforwards.

Capital expenditures totaled $18.0 million for the six months ended June 30, 2020, including $9.1 million in the second quarter of 2020. Approximately, two-thirds of total capital in the second quarter related to both the Berwind mine and the Elk Creek plate press projects. A large portion of this was incurred during the first quarter of 2020, but paid in the second quarter of 2020, and the plate press project is now complete.

Looking forward, we are now at maintenance capital expenditure levels both on a cash and an accrual basis, and would expect third quarter 2020 capital expenditures to come in roughly two-thirds below second quarter 2020 levels, and in-line with our historical guidance of $6-7 per ton maintenance capital expenditure levels.

The following summarizes key sales, production and financial metrics for the periods noted:



Three months ended Six months ended

June 30,March 31,June 30,June 30,June 30,

In thousands, except per ton amounts 2020 2020 2019 2020 2019



Sales Volume

Company 362 416 499 778 942

Purchased - - 26 - 61

Total 362 416 525 778 1,003



Company Production

Elk Creek Mining Complex 337 452 423 789 864

Berwind Development Deep 53 66 53 119 85 Mine

Total 390 518 476 908 949



Company Financial Metrics (a)

Average revenue per ton $ 91 $ 93 $116 $92 $110

Average cash costs of coal 74 67 71 70 69 sold

Average cash margin per ton$ 17 $ 26 $45 $22 $41



Elk Creek Financial Metrics (a)

Average revenue per ton $ 90 $ 92 $115 $91 $109

Average cash costs of coal 72 61 66 66 65 sold

Average cash margin per ton$ 18 $ 31 $49 $25 $44



Purchased Coal Financial Metrics (a)

Average revenue per ton $ - $ - $124 $- $126

Average cash costs of coal - - 123 - 114 sold

Average cash margin per ton$ - $ - $1 $- $12



Capital Expenditures $ 9,119$ 8,900 $11,538$18,019$19,737



^(a) Excludes transportation.

Outlook and Comment

Randall Atkins, Ramaco Resources' Executive Chairman remarked, "We are all sailing in uncharted waters. Given the uncertainties of operating in today's unprecedented conditions, I am incredibly proud of what Ramaco has managed to accomplish in the first half of 2020. With first half 2020 adjusted EBITDA of over $19 million, we were fortunate to show results which comfortably exceeded many of our larger peers. This is a testament to the entire team at Ramaco working under trying market conditions. We also recognize that the PPP Loan program and the treatment of that facility as other income was a critical component of this second quarter's positive results. Despite these promising earnings, in order to maintain the discipline of keeping prudent liquidity levels, we had to recently make some difficult personnel decisions in July with regard to our workforce levels and on capital spending. We have always maintained that our two most important objectives are to keep our workforce safe, and to conservatively protect our liquidity on our balance sheet. As a result, all discretionary capital spending remains suspended, until there is more market clarity."

Atkins also noted that, "While there is continued uncertainty in the market, we see some signs for emerging medium-term optimism. First, U.S. steel capacity utilization is currently at 59%, largely due to several blast furnaces restarting, as automotive plants resume production, after bottoming at 51% in early May. Second, on the world stage the forward pricing curve for metallurgical coal suggests a roughly 25% increase by the first quarter of 2021 to $135 per ton as compared to $107 per ton today. Global steel demand outside of China has also begun to recover. Third, turning to China, temporary port restrictions continue to provide a near record $50 per ton arbitrage per Platts, when comparing Chinese domestic versus international met coal prices. Chinese steel production also seems to have fully rebounded from the COVID-19 slowdown, and appears on pace for yet another record year. We continue to expect a further decline in the production levels of higher cost North American met coal suppliers, given both the twin headwinds of lower market pricing and lack of available liquidity. We expect these trends to remain unabated. Ultimately they should lead to a more balanced supply/demand dynamic moving forward. To that end, we are excited to have begun to explore some new export sales in both the markets of South America, as well as Asia. Specifically, I would point to the recently announced marketing arrangement with Australian-based Square Resources who is helping introduce our coals into these faster growing Far Eastern steel markets."

Michael Bauersachs, Ramaco Resources' President and CEO commented, "Echoing Randy's comments, in July, we agreed to ship our first test cargo of metallurgical coal to Brazil, which is a market where we see excellent medium- to long-term potential in both high and low volatile coals. We will continue to focus on growing our international footprint, in-line with our plans to expand production as price and market demand normalizes."

Bauersachs continued, "As we have expressed before, we continue to position ourselves for production growth once there is more market clarity. Our near-term efforts have been to better align our production levels to our contracted sales. At Berwind, we have substantially cut production due to corresponding reductions by our customers for that coal as well as our development mining having reached the point where the inter-seam slope is to be developed. We are physically now at the point where, when the market dictates, we can hit the "go" button on our Berwind slope project, and within 6 months be in the more prolific Pocahontas #4 low vol seam with its annualized baseline capacity of 750,000 tons of low vol production. We are additionally reviewing the potential development of an adjacent but shorter-life Pocahontas #4 reserve which could function as a bridge until the main Berwind Pocahontas #4 reserve is fully activated. While not a long-term solution, this adjacent reserve provides a lower capital low volatile option during these difficult market conditions. We expect to make decisions on positioning all of our low volatile reserves in the coming months, dependent on market conditions."

Committed 2020 Sales Volume ^(a)

(In thousands, except per ton amounts)



VolumeAverage Price

Domestic, fixed priced 1.1 $ 95

Export, fixed priced 0.4 $ 90

Total, fixed priced 1.5 $ 93

Indexed priced 0.1

Total committed tons 1.6



(a) Amounts include no purchased coal and no thermal coal by-product. Totals may not add due to rounding. As previously disclosed, we received force majeure notices from two customers, which could adversely affect up to 12% of the total contracted sales volumes shown above.

About Ramaco Resources, Inc.

Ramaco Resources, Inc. is an operator and developer of high-quality, low cost metallurgical coal in southern West Virginia, southwestern Virginia and southwestern Pennsylvania. Its executive offices are in Lexington, Kentucky, with operational offices in Charleston, West Virginia. The Company has five active mines within two mining complexes at this time.

News and additional information about Ramaco Resources, including filings with the Securities and Exchange Commission, are available at http://www.ramacoresources.com. For more information, contact investor relations at (859) 244-7455.

Earnings Conference Call

Ramaco Resources will hold its quarterly conference call and webcast at 11:00 AM Eastern Time (ET) on Friday, August 7, 2020. An accompanying slide deck will be available at https://www.ramacoresources.com/investors-center/events-calendar/ immediately before the conference call.

The conference call can be accessed by calling (844) 852-8392 domestically or (703) 639-1226 internationally. The webcast for this release will be accessible by visiting https://edge.media-server.com/mmc/p/bze4oub8.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Certain statements contained in this news release constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements represent Ramaco Resources' expectations or beliefs concerning guidance, future events, anticipated revenue, costs and expectations regarding operating results, and it is possible that the results described in this news release will not be achieved. These forward-looking statements are subject to risks, uncertainties and other factors, many of which are outside of Ramaco Resources' control, which could cause actual results to differ materially from the results discussed in the forward-looking statements. These factors include, without limitation, risks related to the impact of the COVID-19 global pandemic, unexpected delays in our current mine development activities, failure of our sales commitment counterparties to perform, increased government regulation of coal in the United States or internationally, or further decline of demand for coal in export markets and underperformance of the railroads. Any forward-looking statement speaks only as of the date on which it is made, and, except as required by law, Ramaco Resources does not undertake any obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. New factors emerge from time to time, and it is not possible for Ramaco Resources to predict all such factors. When considering these forward-looking statements, you should keep in mind the risk factors and other cautionary statements found in Ramaco Resources' filings with the Securities and Exchange Commission ("SEC"), including its Annual Report on Form 10-K and Quarterly Report on Form 10-Q. The risk factors and other factors noted in Ramaco Resources' SEC filings could cause its actual results to differ materially from those contained in any forward-looking statement.

Ramaco Resources, Inc.

Consolidated Statements of Operations



Three months ended June 30, Six months ended June 30,

In thousands, except per share 2020 2019 2020 2019 amounts



Revenue $36,374 $65,761 $78,310 $123,221



Costs and expenses

Cost of sales (exclusive of items 30,134 43,219 61,069 84,225 shown separately below)

Asset retirement obligation 159 128 300 256 accretion

Depreciation and 5,341 4,822 10,343 8,938 amortization

Selling, general 5,039 4,703 9,756 8,664 and administrative

Total costs and 40,673 52,872 81,468 102,083 expenses

Operating income (4,299) 12,889 (3,158) 21,138 (loss)

Other income 8,504 194 9,714 492

Interest expense, (293) (302) (572) (609) net

Income before tax 3,912 12,781 5,984 21,021

Income tax expense 1,260 2,168 1,370 3,525

Net income $2,652 $10,613 $4,614 $17,496



Earnings per common share

Basic earnings per $0.06 $0.26 $0.11 $0.43 share

Diluted earnings $0.06 $0.26 $0.11 $0.43 per share



Basic weighted average shares 42,704 40,869 42,232 40,737 outstanding

Diluted weighted average shares 42,704 40,965 42,232 40,810 outstanding



Ramaco Resources, Inc.

Consolidated Balance Sheets



In thousands, except share amounts June 30, 2020December 31, 2019



Assets

Current assets

Cash and cash equivalents $9,759 $ 5,532

Accounts receivable 15,801 19,256

Inventories 25,455 15,261

Prepaid expenses and other 3,160 4,274

Total current assets 54,175 44,323



Property, plant and equipment, net 183,145 178,202

Advanced coal royalties 3,832 3,271

Other assets 949 1,017

Total Assets $242,101 $ 226,813



Liabilities and Stockholders' Equity

Liabilities

Current liabilities

Accounts payable $8,236 $ 10,663

Accrued expenses 12,752 11,740

Deferred income 1,139 -

Asset retirement obligations 702 19

Current portion of long-term debt 4,914 3,333

Other 94 656

Total current liabilities 27,837 26,411



Asset retirement obligations 14,220 14,586

Long-term debt, net 15,901 9,614

Deferred tax liability 6,635 5,265

Other long-term liabilities 975 854

Total liabilities 65,568 56,730



Commitments and contingencies - -



Stockholders' Equity

Preferred stock, $0.01 par value - -

Common stock, $0.01 par value 426 410

Additional paid-in capital 156,777 154,957

Retained earnings 19,330 14,716

Total stockholders' equity 176,533 170,083

Total Liabilities and Stockholders' Equity$242,101 $ 226,813

Ramaco Resources, Inc.

Statement of Cash Flows



Six months ended June 30,

In thousands 2020 2019



Cash flows from operating activities

Net income $4,614 $17,496

Adjustments to reconcile net income to net cash from operating activities:

Accretion of asset retirement obligations 300 256

Depreciation and amortization 10,343 8,938

Amortization of debt issuance costs 29 28

Stock-based compensation 2,029 1,954

Other income - PPP Loan (7,305) -

Deferred income taxes 1,370 3,429

Changes in operating assets and liabilities:

Accounts receivable 3,455 (15,370)

Prepaid expenses and other current assets 1,229 1,467

Inventories (10,194) (2,408)

Other assets and liabilities (372) 67

Accounts payable 323 (4,121)

Accrued expenses 1,012 1,295

Net cash from operating activities 6,833 13,031



Cash flow from investing activities:

Purchases of property, plant and equipment (18,019) (19,737)



Cash flows from financing activities

Proceeds from PPP Loan 8,444 -

Proceeds from borrowings 29,443 44,300

Repayment of borrowings (21,604) (38,800)

Repayments of financed insurance payable (562) (287)

Restricted stock surrendered for withholding (193) - taxes payable

Net cash from financing activities 15,528 5,213



Net change in cash and cash equivalents and 4,342 (1,493) restricted cash

Cash and cash equivalents and restricted cash, 6,865 7,380 beginning of period

Cash and cash equivalents and restricted cash, $11,207 $5,887 end of period



Reconciliation of Non-GAAP Measure

Adjusted EBITDA

Adjusted EBITDA is used as a supplemental non-GAAP financial measure by management and external users of our financial statements, such as industry analysts, investors, lenders and rating agencies. We believe Adjusted EBITDA is useful because it allows us to more effectively evaluate our operating performance.

We define Adjusted EBITDA as net income plus net interest expense, equity-based compensation, depreciation and amortization expenses and any transaction related costs. Its most comparable GAAP measure is net income. A reconciliation of net income to Adjusted EBITDA is included below. Adjusted EBITDA is not intended to serve as an alternative to U.S. GAAP measures of performance and may not be comparable to similarly-titled measures presented by other companies.



Three months ended June 30, Six months ended June 30,

(In thousands) 2020 2019 2020 2019



Reconciliation of Net Income to Adjusted EBITDA

Net income $ 2,652 $ 10,613 $ 4,614 $ 17,496

Depreciation and 5,341 4,822 10,343 8,938 amortization

Interest expense, 293 302 572 609 net

Income taxes 1,260 2,168 1,370 3,525

EBITDA 9,546 17,905 16,899 30,568

Stock-based 1,106 1,060 2,029 1,954 compensation

Accretion of asset retirement 159 128 300 256 obligation

Adjusted EBITDA $ 10,811 $ 19,093 $ 19,228 $ 32,778



Non-GAAP revenue and cash cost per ton

Non-GAAP revenue per ton (FOB mine) is calculated as coal sales revenue less transportation costs, divided by tons sold. Non-GAAP cash cost per ton sold is calculated as cash cost of coal sales less transportation costs, divided by tons sold. We believe revenue per ton (FOB mine) and cash cost per ton provides useful information to investors as these enable investors to compare revenue per ton and cash cost per ton for the Company against similar measures made by other publicly-traded coal companies and more effectively monitor changes in coal prices and costs from period to period excluding the impact of transportation costs which are beyond our control. The adjustments made to arrive at these measures are significant in understanding and assessing the Company's financial condition. Revenue per ton sold (FOB mine) and cash cost per ton are not measures of financial performance in accordance with U.S. GAAP and therefore should not be considered as an alternative to revenue and cost of sales under U.S. GAAP. The tables below show how we calculate non-GAAP revenue and cash cost per ton:

Non-GAAP revenue per ton



Three months ended June 30, 2020Three months ended June 30, 2019

Company Purchased Company Purchased

(In thousands, except per ton Produced Coal Total Produced Coal Total amounts)



Revenue $36,374 $ - $36,374 $62,516 $ 3,245 $65,761

Less: Adjustments to reconcile to Non-GAAP revenue (FOB mine)

Transportation (3,454) - (3,454) (4,695) (42) (4,737)costs

Non-GAAP revenue$32,920 $ - $32,920 $57,821 $ 3,203 $61,024 (FOB mine)

Tons sold 362 - 362 499 26 525

Revenue per ton $91 $ - $91 $116 $ 124 $116 sold (FOB mine)



Three months ended March 31, 2020

Company Purchased

(In thousands, except per ton amounts) Produced Coal Total



Revenue $41,936 $ - $41,936

Less: Adjustments to reconcile to Non-GAAP revenue (FOB mine)

Transportation costs (3,106) - (3,106)

Non-GAAP revenue (FOB mine) $38,830 $ - $38,830

Tons sold 416 - 416

Revenue per ton sold (FOB mine) $93 $ - $93



Six months ended June 30, 2020 Six months ended June 30, 2019

Company Purchased Company Purchased

(In thousands, except per tonProduced Coal Total Produced Coal Total amounts)



Revenue $78,310 $ - $78,310 $115,216 $8,005 $123,221

Less: Adjustments to reconcile to Non-GAAP revenue (FOB mine)

Transportation (6,560) - (6,560) (11,715) (372) (12,087)costs

Non-GAAP revenue (FOB $71,750 $ - $71,750 $103,501 $7,633 $111,134 mine)

Tons sold 778 - 778 942 61 1,003

Revenue per ton sold (FOB $92 $ - $92 $110 $126 $111 mine)

Non-GAAP cash cost per ton



Three months ended June 30, 2020Three months ended June 30, 2019

Company Purchased Company Purchased

(In thousands, except per tonProduced Coal Total Produced Coal Total amounts)



Cost of sales $30,134 $ - $30,134 $40,003 $ 3,216 $43,219

Less: Adjustments to reconcile to Non-GAAP cash cost of sales

Transportation (3,181) - (3,181) (4,694) (43) (4,737)costs

Non-GAAP cash $26,953 $ - $26,953 $35,309 $ 3,173 $38,482 cost of sales

Tons sold 362 - 362 499 26 525

Cash cost per $74 $ - $74 $71 $ 123 $73 ton sold



Three months ended March 31, 2020

Company Purchased

(In thousands, except per ton amounts) Produced Coal Total



Cost of sales $30,935 $ - $30,935

Less: Adjustments to reconcile to Non-GAAP cash cost of sales

Transportation costs (3,126) - (3,126)

Non-GAAP cash cost of sales $27,809 $ - $27,809

Tons sold 416 - 416

Cash cost per ton sold $67 $ - $67



Six months ended June 30, 2020 Six months ended June 30, 2019

Company Purchased Company Purchased

(In thousands, except per tonProduced Coal Total Produced Coal Total amounts)



Cost of sales $61,069 $ - $61,069 $76,915 $7,310 $84,225

Less: Adjustments to reconcile to Non-GAAP cash cost of sales

Transportation (6,307) - (6,307) (11,647) (372) (12,019)costs

Non-GAAP cash $54,762 $ - $54,762 $65,268 $6,938 $72,206 cost of sales

Tons sold 778 - 778 942 61 1,003

Cash cost per $70 $ - $70 $69 $114 $72 ton sold

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SOURCE Ramaco Resources, Inc.