November 7, 2019 - Rhino Resource Partners LP (RHNO) (“Rhino” or the “Partnership”) has announced its financial and operating results for the quarter ended September 30, 2019. For the quarter, the Partnership reported a net loss of $51.7 million and Adjusted EBITDA of ($5.8) million, compared to a net loss of $4.5 million and Adjusted EBITDA of $4.2 million in the third quarter of 2018. Approximately $38.6 million of asset impairment charges related to the sale of Pennyrile impacted the net loss for the quarter ended September 30, 2019. Diluted net loss per common unit was $3.63 for the quarter compared to diluted net loss per common unit of $0.40 for the third quarter of 2018. Total revenues for the quarter were $42.3 million, with coal sales generating $41.8 million of the total, compared to total revenues of $60.0 million and coal revenues of $59.3 million in the third quarter of 2018. (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 September 30, 2019.

Rick Boone, President and Chief Executive Officer of Rhino’s general partner, stated, “Our financial results for the third quarter were adversely impacted by the most recent downturn in the coal markets. Demand was weak and spot prices fell compared to earlier quarters in 2019. In some instances, customers under our sales contracts did not take scheduled deliveries during the quarter. In addition, the spot market demand in Central Appalachia softened dramatically and when combined with less contracted sales being delivered, our coal inventory levels increased during the third quarter, which resulted in lower cash flow from operations. We have taken corrective measures to reduce work schedules and right-size the workforce at our Central Appalachia operations in response to the weak market demand and to better manage our inventory levels.

Our Castle Valley operation continued to perform very well in the quarter. This operation continues to maintain low costs and demand for coal from this complex was very strong during the quarter as they provided positive EBITDA results in the period. For 2020, we have contracted for over 600,000 tons of coal sales from Castle Valley and we believe that our coal production will be fully sold for this operation for next year.

At our Hopedale operation in Northern Appalachia, we completed the construction of the new airshaft during the third quarter, which will allow for improved production and lower mining costs at this operation moving forward. During the quarter, we experienced adverse mining conditions as we continued to advance in the new 7-seam area of the mine. We encountered sandstone intrusions in the coal seam as we advanced toward the center of the reserve area where core hole data shows more favorable mining conditions. The sandstone intrusions led to lower coal production and coal sales, while also resulting in higher costs. We expect to advance past the adverse conditions in the fourth quarter, which we believe will result in improved productivity and financial results for this operation going forward.

We are rehabilitating our new Jewell Valley operations in Virginia to begin production in the fourth quarter. We have been replacing conveyor belts, belt structure and refurbishing equipment at the underground mines we acquired out of bankruptcy from Blackjewel. The primary customer for the met coal from these operations will purchase a vast majority of the coal once production resumes.

The closure and sale of the Pennyrile operations was a very difficult decision as it impacted the entire Pennyrile workforce and their families. The market pressures on the Illinois Basin resulted in lower selling prices and necessitated that we make the tough decision to dispose of this operation. I want to extend my personal thanks to every Pennyrile employee for their outstanding service while employed at this operation.

Our Rhino organization has maintained its commitment to providing a safe working environment for our employees by keeping safety as the top priority at all of our operations. Our safety-first culture is continually promoted by our employees as part of our core principles at Rhino.

We believe the steps taken at our Central Appalachia operations will help stabilize the operations and will result in maintaining manageable inventory levels during the downturn in the market. The positive results of our Castle Valley complex and the startup of our Jewell Valley operations should also contribute positive cash flow to Rhino as we move through the fourth quarter. At Hopedale, once we advance the mine into the heart of the reserve we expect the geological conditions to improve, resulting in improved financial results for this operation.”

Coal Operations Update

Central Appalachia

    - Sales volume was 338,000 tons in the quarter versus 525,000 tons in the prior year and 395,000 tons in the prior quarter. The decrease in sales volume compared to the prior year was primarily due to the softening in the met and steam coal markets, which resulted in some of our customers pushing out shipments to a future date. There were also some uncontracted tons of coal in Central Appalachia that the Partnership was unable to sell on the spot market due to weak market demand.
    - Coal revenues were $25.0 million, versus $43.9 million in the prior year and $35.2 million in the prior quarter. Coal revenues per ton in the quarter were $74.12 versus $83.59 in the prior year and $89.08 in the prior quarter. Metallurgical coal revenue per ton in the quarter was $96.75 versus $113.17 in the prior year and $112.26 in the prior quarter. Steam coal revenue in the quarter was $56.56 per ton versus $53.64 in the prior year and $57.89 in the prior quarter. The decrease in coal revenues was due to fewer met and steam coal tons sold during the third quarter of 2019 compared to the other periods. The decrease in coal revenues per ton was primarily due to a decrease in the sale price for met tons sold during the third quarter of 2019 compared to the prior periods.
    - Cost of operations per ton in the quarter was $68.25 versus $60.75 in the prior year and $82.07 in the prior quarter. Cost of operations per ton increased from the prior quarter as fewer tons were sold from the Central Appalachia operations resulting in fixed costs being allocated to fewer tons sold during the current period.

Rhino Western

    - Sales volume was 270,000 tons versus 292,000 tons in the prior year and 224,000 tons in the prior quarter. The increase in coal sales from the prior quarter was due to an increase in demand for tons sold from the Castle Valley operation.
    - Coal revenues were $10.6 million versus $10.2 million in the prior year and $8.4 million in the prior quarter. Coal revenues per ton in the quarter were $39.26 versus $35.06 in the prior year and $37.62 in the prior quarter. Total coal revenues per ton increased during the current quarter due to higher contracted prices for coal sold from this region compared to the prior periods.
    - Cost of operations per ton was $29.67 versus $31.35 in the prior year and $26.32 in the prior quarter. The cost of operations per ton decreased during the current quarter compared to the prior year as we experienced lower operating costs at the Castle Valley operation.

Northern Appalachia

    - Sales volume was 131,000 tons versus 119,000 tons in the prior year and 172,000 in the prior quarter as the Partnership saw an increase in demand for coal from this region compared to the prior year.
    - Coal revenues were $6.2 million versus $5.2 million in the prior year and $8.4 million in the prior quarter. Coal revenues per ton were $47.35 compared to $44.05 in the prior year and $48.63 in the prior quarter. The increase in coal revenues and coal revenues per ton was primarily due to an increase in tons sold from our Hopedale operation and higher contracted sale prices for the tons sold during the third quarter of 2019 compared to the same period in 2018.
    - Cost of operations per ton was $61.88 compared to $53.33 in the prior year and $49.91 in the prior quarter. The increase in the cost of operations per ton was primarily due to additional expense incurred as we encountered some adverse geological conditions at our Hopedale operation during the third quarter of 2019 compared to the prior year.

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.

As of September 30, 2019, the Partnership is still in the process of hiring qualified personnel to operate the Virginia assets purchased from Blackjewel. The Partnership has hired several well qualified miners who were previously employed by Blackjewel. The Partnership is also still refurbishing the Virginia assets to what the Partnership considers an acceptable operating condition before resuming mining operations at these locations. The Partnership plans to resume mining operations at one of the Virginia mines in the fourth quarter of 2019.

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 sold to Buyer all of the real property, permits, equipment and inventory and certain other assets associated with its Pennyrile mine complex, as well as the buyers’ assumption of the Pennyrile reclamation obligation, in exchange for approximately $3.7 million, subject to certain adjustments.

Pursuant to the Pennyrile APA, the Partnership retains liability for certain employee claims, subsidence claims arising from pre-closing mining operations, MSHA liabilities and certain other matters. The Pennyrile APA also provides that the Buyer shall have the right to conduct diligence on the Pennyrile mine complex and may contest the fair market value of the purchased assets or the estimate of the costs of the assumed liabilities following such diligence investigation. In the event the Buyer does contest such amounts, the parties will attempt to resolve the dispute and to the extent they cannot, will submit the matter to a third party to make a final determination with respect to such matters, and will adjust the purchase price accordingly.

The parties have made customary representations, warranties and covenants in the Pennyrile APA. The closing of the transactions contemplated by the Asset Purchase Agreement are subject to a number of closing conditions, including, among others, the performance of applicable covenants and accuracy of representations and warranties and absence of material adverse changes in the condition of the Pennyrile mine complex. Subject to the satisfaction of closing conditions, the transactions contemplated by the Pennyrile APA are expected to close in the fourth quarter of 2019. The Partnership recorded an impairment loss of $38.6 million associated with the sale of the Pennyrile assets during the third quarter of 2019.

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 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 transaction contemplated by the Coal Supply APA closed upon the execution thereof.

Financing Agreement

On August 16, 2019, the Partnership entered into a fourth amendment (the “Fourth Amendment”) to the Partnership’s 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”). The Fourth Amendment provides a $5.0 million term loan provided by the Lenders to the Partnership under the delayed draw feature of the financing agreement.

On September 6, 2019, the Partnership entered into a fifth amendment (the “Fifth Amendment”) to the financing agreement. The Fifth Amendment (i) extends the maturity of the financing agreement to December 27, 2022, (ii) provides a $5.0 million term loan provided by the Lenders to the Partnership under the delayed draw feature of the financing agreement, (iii) extends the period by which an applicable premium payable to the Lenders will be calculated to December 31, 2021, (iv) modifies certain definitions and concepts to account for the Partnership’s recent acquisition of properties from Blackjewel, (v) permits the disposition of the Pennyrile mining complex and (viii) provides for the payment of additional fees to the Lenders, including a consent fee of $1.0 million, an amendment fee of $825,000 and an increase in the lender exit fee of 1.00% to a total exit fee of 7.00% of the amount of term loans made under the financing agreement that is payable at final maturity of the financing agreement.

Capital Expenditures

    - Maintenance capital expenditures for the third quarter were approximately $2.7 million.
    - Expansion capital expenditures for the third quarter were approximately $3.7 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 September 30, 2019 included:

    - Adjusted EBITDA from continuing operations of ($2.9) million and net loss from continuing operations of $8.4 million compared to Adjusted EBITDA from continuing operations of $5.5 million and net loss from continuing operations of $1.2 million in the third quarter of 2018. The decrease in Adjusted EBITDA from continuing operations was primarily due to the decrease in net income for the third quarter of 2019 resulting from the decrease in coal revenue. Including net loss from discontinued operations of approximately $43.3 million, which related to the assets sold at our Pennyrile operation in September 2019, our net loss was $51.7 million and Adjusted EBITDA was ($5.8) million for the three months ended September 30, 2019. Including net loss from discontinued operations of approximately $3.3 million, which relates to Pennyrile, our net loss was $4.5 million and Adjusted EBITDA was $4.2 million for the three months ended September 30, 2018.
    - Basic and diluted net loss per common unit from continuing operations of $0.60 compared to basic and diluted net loss per common unit from continuing operations of $0.17 for the third quarter of 2018.
    - Coal sales from continuing operations were approximately 739,000 tons, which was a decrease of 21.1% compared to the third quarter of 2018.
    - Total revenues and coal revenues from continuing operations of $42.2 million and $41.8 million, respectively, compared to $60.0 million and $59.3 million, respectively, for the same period of 2018.
    - Coal revenues per ton from continuing operations of $56.61 compared to $63.41 for the third quarter of 2019, a decrease of 10.7% as we experienced a decrease in contracted sale prices for coal sold from the Central Appalachia operations during the third quarter of 2019.
    - Cost of operations from continuing operations of $38.4 million compared to $47.1 million for the same period of 2018 due to fewer tons produced and sold from the Central Appalachia operations during the third quarter of 2019.
    - Cost of operations per ton from continuing operations of $51.97 compared to $50.29 for the third quarter of 2018, an increase of 3.3%.

            
Total coal revenues from continuing operations decreased approximately 29.5% primarily due to fewer tons sold from the Central Appalachia operations during the third quarter of 2019. Total cost of operations from continuing operations decreased by 18.4% during the third quarter of 2019 primarily due to fewer tons of coal sold from the Central Appalachia operations in the third quarter of 2019 compared to the same period in 2018.

Results for the nine months ended September 30, 2019 included:

    - Adjusted EBITDA from continuing operations of $7.4 million and net loss from continuing operations of $9.2 million compared to Adjusted EBITDA from continuing operations of $14.7 million and net loss from continuing operations of $3.0 million in the third quarter of 2018. Adjusted EBITDA from continuing operations decreased period over period primarily due to the increase in net loss from continuing operations during the first nine months of 2019. The decrease in net loss from continuing operations was primarily due to a decrease in tons of coal sold and an increase in operating costs at several of the operations for labor, contract services and equipment maintenance compared to the same period in 2018. Including net loss from discontinued operations of approximately $49.6 million, which related to the assets sold at our Pennyrile operation in September 2019, our net loss was $58.8 million and Adjusted EBITDA, which excludes the impairment loss, was $2.3 million for the nine months ended September 30, 2019. Including net loss from discontinued operations of approximately $7.4 million, which also relates to Pennyrile, our net loss was $10.4 million and Adjusted EBITDA was $13.2 million for the nine months ended September 30, 2018.
    - Basic and diluted net loss per common unit from continuing operations of $0.71 compared to basic and diluted net loss per common unit from continuing operations of $0.34 for the third quarter of 2018.
    - Coal sales from continuing operations were 2.3 million tons, which was a decrease of 7.5% compared to the third quarter of 2018.
    - Total revenues and coal revenues from continuing operations of $140.5 million and $138.7 million, respectively, compared to $144.5 million and $142.6 million, respectively, for the same period of 2018.
    - Coal revenues per ton from continuing operations of $60.88 compared to $57.89 for the nine months ended September 30, 2018, an increase of 5.2% as we experienced an increase in contracted sale prices across all segments during the first nine months of 2019.
    - Cost of operations from continuing operations of $124.7 million compared to $120.9 million for the same period of 2018 due to the increase in costs at several of the operations for labor, contract services and equipment maintenance.
    - Cost of operations per ton from continuing operations of $54.72 compared to $49.08 for the nine months ended September 30, 2018, an increase of 11.5%. The increase was primarily the result of increases in cost of operations as discussed above.

Total coal revenues from continuing operations decreased year-over-year by approximately 2.8% resulting from the decrease in tons of coal sold during the first nine months of 2019 compared to the same period in 2018. Total cost of operations increased by 3.1% during the first nine months of 2019 primarily due to an increase in costs such as labor, contract services and equipment maintenance at several segments during the nine months ended September 30, 2019.

For financial figures, click here.