Rhino Resource Partners LP Announces Second Quarter 2018 Financial and Operating Results

 

 

August 9, 2018 - Rhino Resource Partners LP (OTCQB: RHNO) (“Rhino” or the “Partnership”) has announced its financial and operating results for the quarter ended June 30, 2018.  For the quarter, the Partnership reported a net loss of $3.0 million and Adjusted EBITDA of $4.6 million, compared to a net loss of $0.3 million and Adjusted EBITDA of $6.9 million in the second quarter of 2017. Diluted net loss per common unit was $0.23 for the quarter compared to diluted net loss per common unit of $0.08 for the second quarter of 2017. Total revenues for the quarter were $54.9 million, with coal sales generating $54.2 million of the total, compared to total revenues of $54.7 million and coal revenues of $54.3 million in the second quarter of 2017. (Refer to “Reconciliations of Adjusted EBITDA” included later in this release for reconciliations to the most directly comparable GAAP financial measures).

The Partnership continued the suspension of the cash distribution for its common units for the current quarter. No distributions have been declared for common or subordinated units for the quarter ended June 30, 2018.

Rick Boone, President and Chief Executive Officer of Rhino’s general partner, stated, “Market demand across all our operating basins remained strong during the quarter. Even though market demand was keen during the quarter, we continued experiencing delays in rail service which impacted our financial results for the quarter.  Several early solicitations for both domestic met and thermal coal for 2019 have been received, which we believe is a positive sign for 2019 business, and some thermal solicitations have been multi-year proposals. This potential domestic business coupled with our direct relationships with international met coal customers provides us with the potential to grow our coal sales and production that can provide us with potential financial upside for the remainder of 2018 and beyond.

As mentioned earlier, we continued to experience delays in rail shipments in the second quarter as the railroads attempted to catch up on the backlog of shipments caused by adverse winter weather conditions earlier in the year. The delays in rail service greatly affected our export shipments which in turn led to an adverse impact of our financial results during the second quarter. We have seen improved rail service in July as nearly all expected rail shipments were loaded during the month. The continuation of improved rail service is expected to substantially improve our financial results in the second half of this year.

Our Rob Fork processing facility as well as the Tug Fork prep plant both received safety awards during the second quarter of 2018 and we are proud of the employees that achieved these awards. These awards are another example of our continued focus on providing a safe working environment for all of our employees.

At our Central Appalachia operations, we have fully contracted for all of our 2018 thermal coal production and we have a minimal amount of 2018 met coal remaining to be booked. We continue to execute various spot sales with international met coal customers at attractive prices and have reached an agreement with one international customer on a multi-year met coal contract.  We have also been negotiating with domestic utility and industrial customers for thermal coal sales for 2019 and 2020.  Both our Pennyrile and Castle Valley operations are sold out for 2018. In addition, we have contracted with various utility customers for thermal coal in 2019 and 2020 at both Pennyrile and Castle Valley. We are currently negotiating with multiple utilities and industrial customers for two to three year term contracts. In Northern Appalachia, our Hopedale operation is sold out for the remainder of 2018 and we recently reached an agreement with a local utility on a 2019 sales contract for 420,000 tons per year that will be finalized in the next few weeks. This agreement provides Hopedale with a solid baseload contract for next year and current negotiations with other potential customers support our expectation that Hopedale will be fully contracted for 2019. 

Continued strong market demand and sustained prices for our met coal should provide positive financial results during the second half of 2018, which brings value to our unitholders.”

Coal Operations Update

Central Appalachia

• Coal revenues were $28.1 million, versus $25.6 million in the prior year and $30.9 million in the prior quarter. The increase in revenue from the prior year was primarily due to the increase in demand for met and steam coal tons sold from this basin. However, the upside of increased production and sales in Central Appalachia and realization of coal revenues was limited due to ongoing rail transportation constraints that pushed several tons of met coal shipments to be delayed into early third quarter of 2018. Coal revenues per ton in the quarter were $67.05 versus $66.42 in the prior year and $67.43 in the prior quarter. The increase was primarily due to the higher contracted prices for our met coal from this region. Metallurgical coal revenue per ton in the quarter was $98.12 versus $83.45 in the prior year and $90.58 in the prior quarter.  Steam coal revenue in the quarter was $49.41 per ton versus $51.11 in the prior year and $47.43 in the prior quarter. Sales volume was 419,000 tons in the quarter versus 386,000 tons in the prior year and 458,000 tons in the prior quarter. 

 

• Cost of operations per ton in the quarter was $55.69 versus $53.05 in the prior year and $58.67 in the prior quarter. The increase in cost per ton from the prior year was primarily due to the increase in the price of diesel fuel, contract services and equipment maintenance in the current quarter. 

 

Pennyrile

• Pennyrile’s long-term sales contracts have committed sales of 1.3 million tons for full-year 2018, which represents Rhino’s total capacity at current production levels.

 

• Sales volume was 347,000 tons, versus 357,000 tons in the prior year and 300,000 tons in the prior quarter. The increase in sales tons in the second quarter of 2018 versus the first quarter was due to shipping constraints in the first quarter as high water levels delayed barge shipments in the first quarter of 2018.

 

• For the second quarter, coal revenues per ton decreased to $39.22 compared to $49.30 in the prior year and $38.67 in the prior quarter. The decrease from the prior year was due to a decrease in contract prices.

 

• Cost of operations per ton was $38.86 versus $40.85 in the prior year and $40.01 in the prior quarter. The decrease in cost of operations per ton was primarily due to a decrease in operating expenses during the current quarter.

 

Rhino Western

• Coal revenues per ton in the quarter were $35.86 versus $38.31 in the prior year and $35.95 in the prior quarter. Coal revenues per ton decreased year-over-year due to lower contracted prices for coal from our Castle Valley operation.

 

• Sales volume was 241,000 tons versus 229,000 tons in the prior year and 224,000 tons in the prior quarter. The increase in coal sales from the prior periods was due to an increase in customer demand for coal sold from our Castle Valley operation.

 

• Cost of operations per ton was $31.44 versus $29.13 in the prior year and $26.87 in the prior quarter. The increase in the cost of operations per ton was the result of higher operating costs. 

 

Northern Appalachia

• Sales volume was 96,000 tons, versus 55,000 tons in the prior year and 90,000 tons in the prior quarter. Sales were higher period-over-period due to increased sales volumes from our Hopedale operation as we experienced increased demand for coal from the Northern Appalachia region. 

 

• For the second quarter, coal revenues per ton was $40.79 versus $42.49 in the prior year $41.14 in the prior quarter. The decrease was primarily due to lower contracted prices for tons sold from our Hopedale complex compared to the same period in 2017. 

 

• Cost of operations per ton was $58.40 compared to $66.94 in the prior year and $57.21 in the prior quarter. The increase from the prior quarter was primarily due to an increase in maintenance costs and costs for outside services at our Hopedale operation.

 

Capital Expenditures

• Maintenance capital expenditures for the second quarter were approximately $4.4 million.

 

• Expansion capital expenditures for the second quarter were approximately $2.5 million.

Coal Revenues Per Ton. Coal revenues per ton sold represents coal revenues divided by tons of coal sold. Coal revenues per ton is a key indicator of Rhino’s effectiveness in obtaining favorable prices for the Partnership’s 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. Rhino management uses this measurement as a key indicator of the efficiency of operations.

Overview of Financial Results

Results for the three months ended June 30, 2018 included:

• Adjusted EBITDA from continuing operations of $4.6 million and net loss from continuing operations of $3.0 million compared to Adjusted EBITDA from continuing operations of $7.0 million and a net income from continuing operations of $0.6 million in the second quarter of 2017. Adjusted EBITDA decreased period over period primarily due to the decrease in net income at our Pennyrile mining operation in western Kentucky.  Including net loss from discontinued operations of approximately $0.3 million, total net income for the three months ended June 30, 2017 was $0.3 million while Adjusted EBITDA was $6.9 million. We did not incur a gain or loss from discontinued operations for the second quarter of 2018.

 

• Basic and diluted net loss per common unit from continuing operations of $0.23 compared to basic and diluted net loss per common unit from continuing operations of $0.06 for the second quarter of 2017. 

 

• Coal sales were 1.1 million tons, which was an increase of 7.5% compared to the second quarter of 2017, primarily due to increased sales from the Central Appalachia and Northern Appalachia mining operations.

 

• Total revenues and coal revenues from continuing operations of $54.9 million and $54.2 million, respectively, compared to $54.7 million and $54.3 million, respectively, for the same period of 2017.

 

• Coal revenues per ton of $49.19 compared to $52.92 for the second quarter of 2017, a decrease of 7.1% primarily due to the decrease in contracted sale prices for tons sold. 

 

• Cost of operations from continuing operations of $49.6 million compared to $44.9 million for the same period of 2017 as production was increased in the Central Appalachia region to meet the increase demand for met and steam coal during the second quarter of 2018.  We also experienced a cost increase for diesel fuel, contract services and equipment maintenance at our Central Appalachia mining operations during the current period.

 

• Cost of operations per ton from continuing operations of $44.97 compared to $43.81 for the second quarter of 2017, an increase of 2.6%.  

 

Total coal revenues from continuing operations decreased approximately 0.1% and coal revenues per ton decreased approximately 7.1% period-over-period primarily due to lower contracted prices for tons sold during the second quarter of 2018 compared to the same period in 2017. In addition, the increase in production and sales tons and realization of our coal revenues was limited during the second quarter due to ongoing rail transportation constraints that caused met and steam coal shipments from our Central Appalachia and Northern Appalachia operations to be delayed into the third quarter of 2018. Total cost of production from continuing operations increased by 10.3% during the second quarter of 2018 primarily due to an increase of $2.8 million in total cost of operations in Central Appalachia, which was also the result of increased production in Central Appalachia due to the increase in demand for met and steam coal from this region. 

Results for the six months ended June 30, 2018 included:

• Adjusted EBITDA from continuing operations of $9.0 million and net loss from continuing operations of $5.9 million compared to Adjusted EBITDA from continuing operations of $11.7 million and a net loss from continuing operations of $1.4 million in the first six months of 2017. Adjusted EBITDA from continuing operations decreased period to period primarily due to the decrease in net income at our Pennyrile mining operation.

 

• Basic and diluted net loss per common unit from continuing operations of $0.45 compared to basic and diluted net loss per common unit from continuing operations of $0.28 for the first six months of 2017. 

 

• Coal sales were 2.2 million tons, which was an increase of 10.3% compared to the first six months of 2017, primarily due to increased sales from Central Appalachia operations.

 

• Total revenues and coal revenues of $109.7 million and $108.5 million, respectively, compared to $106.2 million and $105.6 million, respectively, for the same period of 2017.

 

• Coal revenues per ton of $49.88 compared to $53.51 for the first six months of 2017, a decrease of 6.8% due to lower contracted prices.

 

• Cost of operations from continuing operations of $99.3 million compared to $88.2 million for the same period of 2017 as production was increased in the Central Appalachia region to meet the increase demand for met and steam coal during the first six months of 2018.

 

• Cost of operations per ton from continuing operations of $45.62 compared to $44.71 for the first six months of 2017, an increase of 2.0%.  

 

Total coal revenues increased approximately 2.8% period-over-period primarily due to an increase in met and steam coal tons sold in Central Appalachia as we saw increased demand for met and steam coal from this region during the period. However, the increase in production and sales tons and realization of our coal revenues was limited during the first six months of 2018 due to adverse weather conditions in the first quarter of 2018 that affected coal shipments as well as ongoing rail transportation constraints that caused some met and steam coal shipments from our Central Appalachia and Northern Appalachia operations to be delayed into the third quarter of 2018.  Coal revenues per ton decreased by 6.8% resulting from lower contracted prices for tons sold from our Pennyrile operation in the Illinois Basin compared to the same period of 2017. Total cost of production increased by 12.5% and the cost of production per ton increased by 2.0% during the first six months of 2018. Both increases were primarily due to an increase of $11.4 million in total cost of operations in Central Appalachia, which was the result of increased production in Central Appalachia as demand for met and steam coal increased in this region. 


Segment Information

The Partnership produces and markets coal from surface and underground mines in Kentucky, West Virginia, Ohio and Utah. For the quarter ended June 30, 2018, the Partnership had four reportable business segments: Central Appalachia, Northern Appalachia, Rhino Western and Illinois Basin. Additionally, the Partnership has an Other category that includes its ancillary businesses.

Rhino Resource Partners LP is a diversified energy limited partnership that is focused on coal and energy related assets and activities, including energy infrastructure investments.  Rhino produces metallurgical and steam coal in a variety of basins throughout the United States.