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

 

 

November 7, 2018 - Rhino Resource Partners LP (OTCQB: RHNO) (“Rhino” or the “Partnership”) announced today its financial and operating results for the quarter ended September 30, 2018. For the quarter, the Partnership reported a net loss of $4.5 million and Adjusted EBITDA of $4.2 million, compared to net income of $1.7 million and Adjusted EBITDA of $7.9 million in the third quarter of 2017. Diluted net loss per common unit was $0.40 for the quarter compared to diluted net loss per common unit of zero for the third quarter of 2017. Total revenues for the quarter were $72.6 million, with coal sales generating $71.9 million of the total, compared to total revenues of $56.7 million and coal revenues of $56.3 million in the third quarter of 2017. 

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, 2018.

Rick Boone, President and Chief Executive Officer of Rhino’s general partner, stated, “During the current quarter, we experienced modest improvements in rail service, which contributed to increased sales particularly for our export coal orders. On the cost side, we experienced an escalation of steel prices that increased our roof support costs as well as increases in fuel pricing, both of which affected our margins. Looking ahead to 2019, coal pricing has improved across all our business segments for both met and thermal coal. We have over 85% of our 2019 coal production contracted at prices exceeding our 2018 benchmark. In particular, met coal prices have improved both domestically and internationally. In addition, we have seen thermal coal pricing improve in our CAPP and NAPP segments year-over-year as well. As we prepare to move into 2019, we believe there will be additional opportunities to market any uncontracted coal on the spot market for prices that could exceed our current contracted pricing. With the improved coal prices, we expect margins to improve as we maintain strong cost controls in our mining operations.

Despite the ongoing robust coal market demand, we again experienced delays in rail service late in the third quarter due to weather conditions that temporarily closed east coast export terminals, which impacted our financial results for the quarter versus our expectations. We also experienced substantial demurrage costs in the third quarter from shipments that were delayed due to previous rail constraints from weather conditions experienced earlier in the year. In addition, our Pennyrile operation experienced adverse geological conditions during the third quarter that adversely affected their financial results. At Castle Valley, we also incurred increased costs as we began to transition our coal mining operations to an adjacent coal seam at this location. Rail service has improved substantially in the past couple of weeks and we have relocated our mining areas at Pennyrile to improve our future production at this location. We also expect cost at Castle Valley to improve as we complete our transition to the adjacent mining area. With reliable rail service and improved pricing for 2019, we believe next year’s financial performance will be very strong for Rhino.

At our Central Appalachia operations, we are contracted for substantially all of our coal production in the fourth quarter of 2018 with the remainder expected to be sold on the currently tight spot market. In Central Appalachia, approximately 72% of our full-year 2019 thermal and met coal production has been contracted at increased prices compared to this year. Our Pennyrile, Castle Valley and Hopedale operations are substantially sold out for 2019 at prices that are above our current year levels, while we continue to fulfill our fourth quarter, fully contracted positions at these locations. In addition, we have executed long-term contracts with various utility customers for thermal coal for 2020 at both Pennyrile and Castle Valley.

We continue to focus on providing a safe working environment for all of our employees that is exemplified by our outstanding safety record. Our commitment to being responsible environmental stewards was recently recognized as our CAM Mining operating subsidiary in eastern Kentucky received the “2018 KY Excellence in Reclamation Award” during the governor’s conference on energy and the environment. We are proud of the employees that achieved this award and the excellence they have shown in their post-mine reclamation work.

We expect continued strong market demand, reliable rail service and increased year-over-year prices at all of our operations to provide positive financial results for 2019, which will bring value to our unitholders.”

Coal Operations Update

Central Appalachia

-- Coal revenues were $43.9 million, versus $27.9 million in the prior year and $28.1 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. Coal revenues per ton in the quarter were $83.59 versus $73.02 in the prior year and $67.05 in the prior quarter. The increase was primarily due to the higher contracted prices for our met coal sold from this region. Metallurgical coal revenue per ton in the quarter was $113.17 versus $92.93 in the prior year and $98.12 in the prior quarter. Steam coal revenue in the quarter was $53.64 per ton versus $51.82 in the prior year and $49.41 in the prior quarter. Sales volume was 525,000 tons in the quarter versus 382,000 tons in the prior year and 419,000 tons in the prior quarter. -- Cost of operations per ton in the quarter was $60.75 versus $54.73 in the prior year and $55.69 in the prior quarter. The increase in cost of operations 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. -- Demurrage costs related to met coal export orders of approximately $0.9 million were recognized in freight and handling costs in the current quarter.

Pennyrile

-- Sales volume was 319,000 tons, versus 316,000 tons in the prior year and 347,000 tons in the prior quarter. The decrease in tons sold in the third quarter of 2018 versus the second quarter was primarily the result of adverse geological conditions encountered at our Pennyrile mining complex during the third quarter of 2018. -- For the third quarter, coal revenues per ton decreased to $39.22 compared to $47.37 in the prior year and $39.22 in the prior quarter. The decrease from the prior year was due to a decrease in contracted prices. -- Cost of operations per ton was $43.00 versus $41.40 in the prior year and $38.86 in the prior quarter. The increase in cost of operations per ton was primarily the result of the adverse geological conditions discussed above.

Rhino Western

-- Coal revenues per ton in the quarter were $35.06 versus $37.53 in the prior year and $35.86 in the prior quarter. Coal revenues per ton decreased year-over-year due to lower contracted prices for coal sold from our Castle Valley operation. -- Sales volume was 293,000 tons versus 242,000 tons in the prior year and 241,000 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 $31.35 versus $27.48 in the prior year and $31.44 in the prior quarter. The cost of operations per ton increased during the current quarter compared to the prior year as we began to transition our coal mining operation at Castle Valley to an adjacent coal seam at this operation.

Northern Appalachia

-- Sales volume was 119,000 tons, versus 106,000 tons in the prior year and 96,000 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 third quarter, coal revenues per ton was $44.05 versus $41.38 in the prior year and $40.79 in the prior quarter. The increase was primarily due to higher contracted prices for tons sold from our Hopedale complex compared to the same period in 2017. -- Cost of operations per ton was $53.33 compared to $46.73 in the prior year and $58.40 in the prior quarter. The increase in cost of operations per ton was primarily the result of an increase in maintenance costs and costs for outside services. We also encountered difficult geological conditions in some areas of the mine at the Hopedale operation.

Capital Expenditures

-- Maintenance capital expenditures for the third quarter were approximately $3.4 million. -- Expansion capital expenditures for the third quarter were approximately $1.1 million.

Sales Commitments

Evaluating Financial Results

Rhino management uses a variety of non-GAAP financial measurements to analyze the Partnership’s performance, including (1) Adjusted EBITDA, (2) coal revenues per ton and (3) cost of operations per ton.

Adjusted EBITDA. Adjusted EBITDA represents net income before deducting interest expense, income taxes and depreciation, depletion and amortization, while also excluding certain non-cash and/or non-recurring items including provision for doubtful accounts. Adjusted EBITDA is used by management primarily as a measure of the operating performance of the Partnership’s segments. Adjusted EBITDA should not be considered an alternative to net income, income from operations, cash flows from operating activities or any other measure of financial performance or liquidity presented in accordance with GAAP. Because not all companies calculate Adjusted EBITDA identically, the Partnership’s calculation may not be comparable to similarly titled measures of other companies. (Refer to “Reconciliations of Adjusted EBITDA” included later in this release for reconciliations of Adjusted EBITDA to the most directly comparable GAAP financial measures).

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, 2018 included:

-- Adjusted EBITDA from continuing operations of $4.2 million and net loss from continuing operations of $4.5 million compared to Adjusted EBITDA from continuing operations of $8.2 million and net income from continuing operations of $2.1 million in the third 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 $0.4 million, total net income for the three months ended September 30, 2017 was $1.7 million while Adjusted EBITDA was $7.9 million. The Partnership did not incur a gain or loss from discontinued operations for the third quarter of 2018. -- Basic and diluted net loss per common unit from continuing operations of $0.40 compared to basic and diluted net income per common unit from continuing operations of $0.03 for the third quarter of 2017. -- Coal sales were 1.3 million tons, which was an increase of 20.1% compared to the third quarter of 2017, primarily due to increased sales from the Central Appalachia and Rhino Western mining operations. -- Total revenues and coal revenues from continuing operations of $72.6 million and $71.9 million, respectively, compared to $56.7 million and $56.3 million, respectively, for the same period of 2017. -- Coal revenues per ton of $57.25 compared to $53.86 for the third quarter of 2017, an increase of 6.3% primarily due to the increase in contracted sale prices for tons sold from the Central Appalachia segment. -- Cost of operations from continuing operations of $60.8 million compared to $44.8 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 third quarter of 2018. We also experienced a cost increase for diesel fuel, contract services and equipment maintenance at the Central Appalachia mining operations during the current period. -- Cost of operations per ton from continuing operations of $48.43 compared to $42.83 for the third quarter of 2017, an increase of 13.1%.

Total coal revenues from continuing operations increased approximately 27.7% and coal revenues per ton increased approximately 6.3% period-over-period primarily due to higher contracted prices for tons sold during the third quarter of 2018 compared to the same period in 2017. Total cost of production from continuing operations increased by 35.8% during the third quarter of 2018 primarily due to an increase of $11.0 million in total cost of operations in Central Appalachia, which was 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 nine months ended September 30, 2018 included:

-- Adjusted EBITDA from continuing operations of $13.2 million and net loss from continuing operations of $10.4 million compared to Adjusted EBITDA from continuing operations of $19.9 million and net income from continuing operations of $0.7 million in the first nine months of 2017. Adjusted EBITDA from continuing operations decreased period to period primarily due to the decrease in net income at the Pennyrile and Central Appalachia operations. Net loss was positively impacted by the $6.5 million gain recognized on the sale of Mammoth Inc. shares during the first half of 2018. -- Basic and diluted net loss per common unit from continuing operations of $0.86 compared to basic and diluted net loss per common unit from continuing operations of $0.24 for the first nine months of 2017. -- Coal sales were 3.4 million tons, which was an increase of 13.7% compared to the first nine months of 2017, primarily due to increased sales from the Central Appalachia operations. -- Total revenues and coal revenues of $182.3 million and $180.4 million, respectively, compared to $162.9 million and $161.8 million, respectively, for the same period of 2017. -- Coal revenues per ton of $52.58 compared to $53.63 for the first nine months of 2017, a decrease of 2.0% primarily due to lower contracted prices at the Pennyrile mining operation. -- Cost of operations from continuing operations of $160.0 million compared to $132.9 million for the same period of 2017 as production was increased in the Central Appalachia region to meet the increased demand for met and steam coal during the first nine months of 2018. -- Cost of operations per ton from continuing operations of $46.65 compared to $44.06 for the first nine months of 2017, an increase of 5.9%, which was primarily the result of increases in diesel fuel, contract services and equipment maintenance at our Central Appalachia operations during the period.

Total coal revenues increased approximately 11.5% period-over-period primarily due to an increase in met and steam coal tons sold in Central Appalachia as the Partnership experienced increased demand for met and steam coal from this region during the period. Coal revenues per ton decreased by 2.0% resulting from lower contracted prices for tons sold from the Pennyrile operation in the Illinois Basin compared to the same period of 2017. Total cost of production increased by 20.4% due to an increase of $22.4 million in total cost of operations at our Central Appalachia operations as demand for met and steam coal from this region increased during the nine months ended September 30, 2018.

Segment Information

The Partnership produces and markets coal from surface and underground mines in Kentucky, West Virginia, Ohio and Utah. For the quarter ended September 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.

Additional information for the Central Appalachia segment detailing the types of coal produced and sold, premium high-vol met coal and steam coal, is presented below. Note that the Partnership’s Northern Appalachia, Rhino Western and Illinois Basin segments currently produce and sell only steam coal.

About Rhino Resource Partners LP

 

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. 

 

To read the full third quarter results with financial figures included, click here.