Contura Announces Second Quarter 2019 Results
August 14, 2019 - Contura Energy, Inc. (CTRA), a leading U.S. coal supplier, today reported results for the second quarter ending June 30, 2019.
"Our strong second quarter performance reflects Contura's upside potential as the nation's leading metallurgical coal producer, and I believe that we are well positioned for continued future success," said chairman and chief executive officer, David Stetson. "While our operations made great strides in bringing costs down across the board over the past quarter, we still have work to do and remain acutely focused on continued cost improvement."
Contura reported net income from continuing operations of $24.3 million, or $1.25 per diluted share, for the second quarter 2019. In the first quarter 2019, the company had net income from continuing operations of $8.0 million or $0.41 per diluted share. The company reported a net loss from discontinued operations related to the Blackjewel bankruptcy proceedings of $138.0 million in the second quarter. The company reported a net loss from discontinued operations of $1.2 million in the first quarter.
Total adjusted EBITDA was $140.8 million for the second quarter, compared with $83.4 million in the first quarter.
Coal revenues in the second quarter for Central Appalachia - Met (CAPP - Met) coal were $372.9 million, CAPP - Thermal revenues totaled $73.5 million, and Northern Appalachia (NAPP) coal revenues totaled $76.2 million. Comparatively, in the first quarter 2019, CAPP - Met revenues were $345.8 million, CAPP - Thermal revenues were $57.3 million, and NAPP revenues were $70.9 million.
CAPP - Met coal shipments for the second quarter 2019 were 3.1 million tons at an average per-ton realization of $121.85, compared to 2.8 million tons at $123.68 per ton in the first quarter. CAPP - Thermal coal shipments totaled 1.2 million tons in the second quarter, at an average price of $61.83 per ton, up from 1.0 million tons at $57.78 per ton in the first quarter. Contura shipped 1.7 million tons of NAPP coal during the second quarter at an average per-ton realization of $43.64, an increase of 0.1 million tons with an average price of $42.89 from the first quarter 2019.
In the Trading & Logistics (T&L) segment, second quarter coal volumes were similar to first quarter at 0.4 million tons and the segment generated $11.7 million of margin during the quarter, compared with $10.4 million in the first quarter.
Cost of coal sales in CAPP - Met for the quarter averaged $85.02 per ton, down from $92.90 per ton in the first quarter. The cost of produced coal sold was $82.38 per ton compared with $87.96 per ton in the first quarter 2019. The cost of produced coal sold excludes the impact from purchased coal, coal inventory fair value adjustment and idle costs. Besides benefiting from increased shipment volume, the primary drivers of lower CAPP - Met costs were labor & benefits, which improved by approximately $3.50 per ton; lower expense associated with purchased coal, which benefited the cost of coal sales per ton by approximately $2.00; and lower expenses related to mine supplies and repairs & maintenance, each reducing costs by approximately $1.00 per ton, respectively. The cost of coal sales for the CAPP - Met segment includes idle costs of $0.82 per ton.
NAPP costs of $31.28 per ton benefited from increased production volume. NAPP costs include idle costs of $0.42 per ton. In the first quarter 2019, NAPP cost of coal sales averaged $40.49 per ton. CAPP - Thermal cost of coal sales was $51.93 per ton in the second quarter, down from $65.61 per ton in the first quarter. The second quarter cost of coal sales for CAPP - Thermal includes $0.47 of idle costs per ton. The cost of produced coal sold was $51.34 per ton, excluding the impact from purchased coal, coal inventory fair value adjustment and idle costs. CAPP - Thermal cost improvement was largely driven by improved performance at the Mammoth Slabcamp mine, which was impacted by infrastructure issues in the first quarter. The Slabcamp mine resumed full production on April 22.
Selling, general and administrative (SG&A) expenses for the second quarter 2019 were $14.8 million compared with $21.0 million in the first quarter. The second quarter 2019 SG&A, excluding non-cash stock compensation adjustment, was $15.9 million. The first quarter 2019 SG&A included non-cash stock compensation expense of $3.7 million, one-time expenses of $0.9 million and a qualified non-elective 401(k) contribution of $0.7 million, and excluding these items SG&A was $15.7 million. Depreciation, depletion and amortization was $62.8 million during the second quarter 2019 compared with $61.3 million in the first quarter 2019.
Liquidity and Capital Resources
Cash provided by operating activities for the second quarter 2019, including discontinued operations, was $102.5 million, and capital expenditures for the second quarter were $42.8 million. Working capital was essentially unchanged from the first quarter. In the prior period, the cash provided by operating activities was $14.6 million and capital expenditures were $41.1 million.
At the end of June 2019, Contura had $249.6 million in unrestricted cash, an increase of $67.6 million in the second quarter, and $292.1 million in restricted cash, deposits and long-term investments. Total long-term debt, including the current portion of long-term debt as of June 30, 2019, was approximately $609.4 million. At the end of the quarter, the company had total liquidity of $435.1 million, including cash and cash equivalents of $249.6 million and $185.5 million of unused commitments available under the Asset-Based Revolving Credit Facility. As of June 30, 2019, the company had no borrowings and $39.5 million in letters of credit outstanding under the Asset-Based Revolving Credit Facility.
David Stetson Appointed CEO, Elected Board Chair
Subsequent to the quarter end, the company appointed David Stetson as its CEO and a member of the board of directors, effective July 29, 2019. On August 12, 2019, he was elected chairman of the board. Mr. Stetson, who previously served on Contura's board of directors from November 2018 through April 2019, brings extensive and diverse industry experience to the role, having most recently served as chairman of the board of directors and chief executive officer of both ANR, Inc. and Alpha Natural Resources Holdings, Inc. (together, Alpha) from July 2016 until Alpha's merger with Contura in November 2018.
Prior to leading Alpha, Mr. Stetson held a number of executive leadership positions with various energy companies including Trinity Coal Corporation, American Resources Offshore, Inc., and Lexington Coal Company. Concurrent with Mr. Stetson's appointment, interim co-chief executive officers Andy Eidson and Mark Manno returned to their respective, prior roles with the company as executive vice president and chief financial officer, and as executive vice president, chief administrative & legal officer and secretary.
Blackjewel Asset Bid Update
On July 1, 2019, Blackjewel, L.L.C. (Blackjewel or the debtor) announced that it and certain affiliated entities had filed voluntary petitions for reorganization under Chapter 11 of the Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of West Virginia.
On July 25, 2019, Contura announced that one or more of its subsidiaries (together, Contura) would seek to serve as the stalking horse purchaser for certain assets offered for sale through Blackjewel's bankruptcy proceedings. Specifically, Contura would acquire substantially all of the assets of the Belle Ayr and Eagle Butte thermal coal mines in the Powder River Basin (PRB) in Campbell County, Wyoming, including related facilities and equipment (Western Assets), as well as substantially all of the assets of the S-7 Surface metallurgical coal mine, (commonly referred to as the Pax Surface mine) in Fayette County, West Virginia, including related facilities and equipment (Pax Assets). As part of an auction process, Contura's bid was accepted by the debtor and subsequently approved by the U.S. Bankruptcy Court on August 6, pending resolution of the U.S. government's outstanding objection to the sale and the entry of a final order by the Court. Since that time, Contura has been in diligent discussions with the debtor and the relevant federal agencies, though no agreement has yet been reached.
On June 17, 2019, the company completed a new, 5-year $561.8 million second lien facility to refinance its existing Term Loan B. The interest rate is LIBOR plus 700bps for the two years after closing and increasing to LIBOR plus 800 bps thereafter, with a LIBOR floor of 2.00%. The terms of the new facility offer more flexibility for Contura to return capital to shareholders by allowing for an unlimited restricted payments basket while the company's total leverage is 3.0x or less.
2019 Full-Year Guidance
The company is lowering its total 2019 coal shipments guidance to a range of 23.9 million to 25.6 million tons, from the previously announced range of 24.6 million to 26.7 million tons. CAPP - Met coal guidance is reduced to a range of 11.5 million to 12.0 million tons, from 12.2 million to 12.8 million tons due to softer market conditions, especially in Europe and South America. In the T&L segment, as a result of strong first half shipments we are increasing guidance to a range of 1.3 million to 1.7 million tons, from 1.0 million to 1.5 million tons. NAPP shipments are expected to remain between 6.8 million and 7.2 million tons in 2019. The guidance range for CAPP - Thermal shipments is lowered to 4.3 million to 4.7 million tons, from 4.6 million to 5.2 million tons.
As of August 5, 2019, 72 percent of the midpoint of anticipated 2019 CAPP - Met shipments were committed and priced at an average expected per-ton realization of $124.46, with an additional 22 percent committed and priced based on various indices. There was an adjustment in the CAPP - Met and CAPP - Thermal mix, which resulted in CAPP - Met committed and priced average to decline slightly, while increasing the average committed and priced CAPP - Thermal realization with no overall revenue impact. Our newly committed and priced CAPP - Met contracts were at an average of $123.19 per ton from May 7, 2019 to August 5, 2019. Based on the midpoint of guidance, 100 percent of anticipated 2019 NAPP coal shipments were committed and priced at an average expected per-ton realization of $43.06. The CAPP - Thermal segment is 98 percent committed at the midpoint of expected shipments at an average price of $58.61 per ton.
Contura is maintaining its guidance for 2019 CAPP - Met cost of coal sales per ton at $83.00 to $87.00 and CAPP - Thermal costs at $52.00 and $57.00 per ton. NAPP cost estimates remain in the range of $34.00 to $37.00 per ton. Costs related to the company's idle operations are now expected to be between $16 million and $20 million for the full-year 2019 compared with our previous guidance of $26 million to $30 million.
The margin from Contura's T&L platform is expected to average between $8.00 to $12.00 per ton for the full-year 2019, as previously announced.
Contura's SG&A guidance is increased from a range of $50 million to $60 million to a range of $60 million to $65 million, excluding one-time and non-recurring items and stock compensation. The main drivers of the SG&A revision are higher than expected professional fees and an enhanced retention program. Capital expenditure guidance is unchanged in the range of $170 million to $190 million. Depreciation, depletion and amortization for 2019 is expected to be between $240 million and $270 million. As a result of the recent term loan refinancing, the company now expects 2019 cash interest expense to be between $45 million and $49 million.
To read the full results with financial figures included, click here.