November 5, 2019 - CONSOL Coal Resources LP (NYSE: CCR) (the "Partnership") today reported financial and operating results for the quarter ended September 30, 2019.
Third Quarter 2019 Results Include:
"The third quarter is typically our weakest quarter of the year; however, I am pleased to announce that the PAMC delivered record third quarter production this year," said Jimmy Brock, Chief Executive Officer of CONSOL Coal Resources GP LLC, the general partner of the Partnership. "This strong performance was underscored by our contracted position and the continued desirability of our product, which the equity markets failed to recognize. Furthermore, we were able to grow our total revenue by 3% this quarter compared to the year-ago period, despite major coal price indices suffering double-digit declines."
"This has been an increasingly tough year for our industry as commodity markets have been challenging. The good news is that we have positioned ourselves to weather this storm. On the revenue front, we moved early to contract our coal and are now 82% contracted for 2020 at attractive prices compared to the current market. This gives our operations team good visibility as we plan our production schedule heading into 2020."
Sales & Marketing
Our marketing team shipped 1.62 million tons of coal during the third quarter of 2019 at an average revenue per ton of $46.59, compared to 1.56 million tons at an average revenue per ton of $47.21 in the year-ago period. Our coal revenue improved by $1.7 million compared to the year-ago period, despite a 20% lower average PJM West day-ahead power price, a 42% lower average API 2 prompt month coal price and a 19% lower average Henry Hub natural gas spot price in the third quarter of 2019 versus the third quarter of 2018. This revenue improvement was largely driven by a modest increase in sales volume and our robust contracted position, which significantly reduced the variability in our average revenue per ton.
During the quarter, we were successful in securing additional coal sales contracts for 2020 and 2021, bringing our contracted positions to 82% and 36%, respectively, assuming a 6.75 million ton annual run rate. Additionally, during the second quarter of 2019, one of our longwalls also transitioned to a new lower sulfur region of the reserves with improved mining conditions. We believe the resulting improvement in coal quality should help increase the domestic and export marketability of the PAMC product, including access to new markets.
According to the U.S. Energy Information Administration, inventories at domestic utilities stood at approximately 111 million tons at the end of August, which is slightly higher compared to year-ago levels. While low natural gas and power prices weighed on broader coal demand, we continued to ship all the coal we produced during the third quarter, highlighting the quality and resilience of our customer base.
On the export front, API 2 spot prices for thermal coal delivered to Europe have been volatile throughout 2019. After a 44% decline in the first half of 2019, API 2 prompt month prices rebounded by 23% during the third quarter of 2019. Our revenues were largely unaffected due to our previously disclosed export contract, which runs through December 2020 and has fixed volumes with collared prices that nets us a floor price per ton above $45.52. It is also important to note that the forward curve for API 2 is in contango and currently sits around $70 per ton in 2021.
Supply rationalization is another positive trend we are seeing in the marketplace. Globally, several unhedged coal producers are scaling back their thermal coal output. We are also noticing similar trends on the metallurgical coal front, where producers are idling high-cost operations or slowing expansion projects due to recent softer prices and declining access to capital. As we head into 2020, we will remain market-driven and operate our mines in line with our contracted position and opportunities to capture market share.
CCR achieved a record-high third quarter production of 1.62 million tons, which compares to 1.59 million tons in the third quarter of 2018. The slight increase in coal production was due to the impact of one fewer longwall move in third quarter of 2019 versus the prior year period.
During the third quarter of 2019, our operations team overcame several non-typical challenges including a roof fall and equipment breakdowns. These geological and equipment-related issues resulted in higher mine maintenance and project expenses. Accordingly, we saw slight cost increases compared to year-ago levels. Total costs during the third quarter were $70.4 million compared to $66.7 million in the year-ago quarter. Average cash cost of coal sold per ton1 was $32.78 compared to $30.88 in the year-ago quarter.
During the third quarter of 2019, CCR generated net cash provided by operating activities of $20.4 million and distributable cash flow1 of $9.2 million, yielding a distribution coverage ratio1 of 0.6x. During the quarter, our net cash provided by operating activities was impacted by lower net income offset by an improvement in working capital. Our distribution coverage ratio calculation is based on quarterly estimated maintenance capital expenditures of $8.9 million, while our actual cash maintenance capital expenditures for the third quarter were $11.3 million. Based on our current outlook for the coal markets and a year-to-date distribution coverage ratio1 of 1.0x, the board of directors of the general partner has elected to pay a cash distribution of $0.5125 per unit to all limited partner unitholders and the holder of the general partner interest. As previously announced on October 30, 2019, the distribution to all unitholders of the Partnership will be made on November 15, 2019, to such holders of record at the close of business on November 11, 2019.
This press release is intended to be a qualified notice to nominees as provided for under Treasury Regulation Section 1.1446-4(b). Brokers and nominees should treat one hundred percent (100.0%) of CONSOL Coal Resources LP's distributions to non-U.S. investors as being attributed to income that is effectively connected with a United States trade or business. Accordingly, CONSOL Coal Resources LP's distributions to non-U.S. investors are subject to federal income tax withholding at the highest applicable effective tax rate. Nominees, and not CONSOL Coal Resources LP, are treated as withholding agents responsible for withholding on the distributions received by them on behalf of foreign investors.
2019 Guidance and Outlook
Based on our year-to-date results, current contracted position, estimated prices and production plans, we are maintaining our previously announced guidance ranges for 2019:
1 "adjusted EBITDA", "distribution coverage ratio", "distributable cash flow", "average cash cost of coal sold per ton", "average cash margin per ton sold" and "net leverage ratio" are non-GAAP financial measures, which are reconciled to the most directly comparable GAAP financial measures immediately below the caption "Reconciliation of Non-GAAP Financial Measures."
2 CCR is unable to provide a reconciliation of adjusted EBITDA guidance to net income or average cash cost of coal sold per ton guidance to total costs, the most comparable financial measures calculated in accordance with GAAP, due to the unknown effect, timing and potential significance of certain income statement items.