Signature Sponsor
Ramaco Resources, Inc. Reports Fourth Quarter 2020 Financial Results


February 19, 2021 - Ramaco Resources, Inc. (NASDAQ: METC) ("Ramaco Resources" or the "Company") has reported a quarterly net loss of $4.7 million, or $0.11 per diluted share for the three months ended December 31, 2020, as compared to net income of $1.9 million or $0.05 per diluted share for the three months ended December 31, 2019.

The Company's adjusted earnings before interest, taxes, depreciation, amortization and equity-based compensation expenses ("Adjusted EBITDA") was ($1.4) million for the three months ended December 31, 2020, and $18.5 million for the year ended 2020, as compared with $9.0 million of Adjusted EBITDA for the three months ended December 31, 2019 and $55.4 million for the year ended 2019. The Company for calendar 2020 had a net loss of $4.9 million, and net income of $24.9 million for the year ended 2019.

Fourth Quarter 2020 Summary

Year Over Year Quarterly Comparison

Overall sales of Company produced tons in the fourth quarter of 2020 were 515,000 tons, up from 420,000 tons in the fourth quarter of 2019. Cash margins on Company produced coal were $4 per ton in the fourth quarter of 2020, down 87% from the same period of 2019, primarily due to lower realized pricing, attributable to large declines on the various metallurgical coal indices.  

Sequential Quarter Comparison

Overall sales volumes of 515,000 Company produced tons in the fourth quarter of 2020 were up 20% from the third quarter of 2020. The improvement was the result of increased spot sales into primarily export markets completed during the fourth quarter. However, as previously disclosed, in the second quarter of 2020 we received force majeure notices from two customers for cancellation of orders for over 200,000 tons. The majority of these tons were resold into the spot market in the fourth quarter of 2020 at lower than originally contracted prices, which negatively affected our margins due to weak metallurgical coal indices in the period.

Our cash margins on Company produced coal declined 56% in the fourth quarter of 2020 from the third quarter of 2020. This decline was caused primarily by higher costs at our Elk Creek operations. Overall Company cash costs per ton sold on produced coal were $76 per ton in the fourth quarter of 2020, compared to $69 per ton in the third quarter of 2020. Cash costs on Company produced coal at Elk Creek were $76 per ton sold in the fourth quarter of 2020 compared to $67 per ton in the third quarter of 2020. There were a number of unique non-recurring circumstances at Elk Creek in the fourth quarter. Our 2Gas mine ran into sandstone intrusions, and our Stonecoal mine had two roof falls, both negatively impacting operations. When combined with a one-time inventory revaluation of roughly 35,000 tons, and COVID-19 related cost increases, these events accounted for the cost increase at Elk Creek in the fourth quarter of 2020 compared to the third quarter of 2020. We do not anticipate these issues to persist in 2021.

Other income was $0.5 million in the fourth quarter of 2020, as compared to $1.7 million mostly from PPP related income in the third 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, in late April we elected to recall 182 workers at our Elk Creek complex who had been furloughed in part of March and April. In the second and third quarters of 2020 collectively, we used the PPP proceeds for eligible payroll and other expenses totaling $8.4 million. We have applied for forgiveness with the SBA through KeyBank. Our forgiveness request has been approved in full by KeyBank, and a decision by the SBA is expected within the next two months.

Additional Financial Results

At December 31, 2020, the Company had liquidity of $22.0 million, consisting of $5.3 million of cash on hand plus $16.7 million of availability under its revolving credit facility.  At December 31, 2020, the Company had net debt of $12.2 million. In the fourth quarter of 2020, we had a number of shipments moved to later dates due to customer-related issues, some of which were moved into 2021, negatively impacting year-end 2020 liquidity. All anticipated December 2020 shipments now have been shipped. As of January 31, 2021, we had no borrowings under our $30.0 million revolving credit facility for the first time since late 2018.

Capital expenditures for 2020 totaled $24.8 million, and decreased by 46% as compared to $45.7 million for the year ended 2019. Fourth quarter 2020 capital expenditures were $4.2 million. Second half 2020 capital expenditures were $6.7 million, which were 27% of the full-year 2020 total. Second half capital expenditures were mainly limited to maintenance capital requirements, given the Company's previously announced pause in most growth capital. As disclosed last quarter, we began development spend at the company's low volatile Triad Mine in the fourth quarter of 2020, and have largely completed development under the announced $1.5 million budget. We produced first coal from Triad in January 2021.

The Company's effective tax rate for 2020 was approximately 20%, excluding a $1.8 million income tax benefit associated with the recognition of other income for the anticipated PPP Loan forgiveness. Actual cash taxes paid in 2020 were less than $20,000. Ramaco also expects to continue to pay minimal taxes for the foreseeable future due to tax loss carryforwards.

Outlook and Comment

Randall Atkins, Ramaco Resources' Chairman and Chief Executive Officer remarked, "While 2020 is a year that none of us want to repeat, I am incredibly proud of what Ramaco managed to safely accomplish in the middle of an unprecedented global pandemic. We are perhaps the only public coal company that ended the year with roughly the same level of liquidity compared to where we started, without either diluting our equity or pledging our mining operations against secured debt. Given the Company's solid liquidity position, and better visibility into the improving world metallurgical coal markets, the Board of Directors earlier this week authorized us to resume our balanced production growth and its related capital spending. To that end, the Board approved the completion of the low-vol Berwind slope, as well as starting the new mid-vol Big Creek surface mine at the Knox Creek complex. As we noted on Wednesday, we will spend approximately $18 million over two years on these properties. At full production, these two mines are expected to produce almost one million new tons per year and increase our overall capacity by roughly 50%, to approximately 3 million tons of low-cost production. The mines will have a material positive impact on our future earning capacity. They will also provide additional near-term tonnage in 2021 to sell into these strengthening markets. This should provide us with up to 2.4 million tons of production this year and increase into 2022 and 2023 as Berwind fully ramps up."

Atkins continued, "When we made the decision to pause our growth capital spending early in the second quarter of 2020, we had just received force majeure notices from our two largest customers, and major uncertainty existed in the market. Though these force majeure notices ultimately cost Ramaco over $6 million in 2020 EBITDA, we are seeing a much different response out of our customers today. Earlier this month, U.S. hot rolled coil steel prices hit above $1,200 per ton for the first time on record. At the same time, as of January 31, U.S. steel service centers had their second lowest months of supply on hand over the past 40 years. Simply put, the same customers who caused us disruption in 2020 are now seeking more tons, at materially higher pricing than just a few months ago."

Atkins finished, "From a macro perspective, we are excited about the market prospects for our commodity. U.S. metallurgical coal indices are up well over 50% above their 2020 COVID-induced lows, while steel prices are near all-time highs. Governments around the world are increasing money supply at the fastest rates ever seen, on the back of massive proposed global fiscal stimulus packages aimed at consumption and infrastructure. We believe this macro environment provides extremely positive and unique market conditions for both near and medium-term growth in metallurgical coal demand. These positive macro trends have now directly translated into much stronger fixed price and index-based sales booked in early 2021. This strengthening demand landscape is dramatically contrasted against very negative supply-constraining conditions. To name but a few would include challenges in securing coal-related financing, ESG issues, regulatory and permitting challenges, and the thermal coal overhang in ARO and related legacy liabilities which impact many of our peers. In summary, I am proud that we managed to endure an unprecedented 2020, emerging with perhaps a few battle scars, but a lot of lessons learned. We now look forward to the imminent resumption of Ramaco's originally projected growth trajectory to over 4 million tons of production in a strengthening market and the prospect of
generating meaningful free cash flow."

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