RHINO RESOURCE PARTNERS L.P. Unless the context clearly indicates otherwise, references in this report to "we," "our," "us" or similar terms refer toRhino Resource Partners LP and its subsidiaries. References to "our general partner" refer toRhino GP LLC , the general partner ofRhino Resource Partners LP . The following discussion of the historical financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and notes thereto presented in this Quarterly Report on Form 10-Q as well as the audited consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year endedDecember 31, 2019 and the section "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in such Annual Report on Form 10-K. In addition, this discussion includes forward looking statements that are subject to risks and uncertainties that may result in actual results differing from statements we make. Please read the section "Cautionary Note Regarding Forward Looking Statements". In addition, factors that could cause actual results to differ include those risks and uncertainties discussed in Part I, Item 1A. "Risk Factors" also included in our Annual Report on Form 10-K for
the year endedDecember 31, 2019 . OnSeptember 6, 2019 , we entered into an Asset Purchase Agreement withAlliance Coal, LLC ("Buyer") and Alliance Resource Partners, L.P. ("Buyer Parent") pursuant to which we agreed to sell to Buyer all of the real property, permits, equipment and inventory and certain other assets associated with the Pennyrile mining complex ("Pennyrile"). The transaction was completed inMarch 2020 . OnSeptember 6, 2019 , we also entered into an Asset Purchase Agreement with the Buyer and Buyer Parent for the sale and assignment of certain coal supply agreements associated with Pennyrile. The transaction was completed during the third quarter of 2019. Our unaudited condensed consolidated statements of operation have been retrospectively adjusted to reclassify Pennyrile operating results to discontinued operations for the three months endedMarch 31, 2020 and 2019. COVID-19 To date, the current and anticipated economic impact of the COVID-19 pandemic, including the actions of governments and countries here inthe United States and around the world designed to decrease the spread of the virus, have caused significant declines in demand for met and steam coal. In response to this reduced demand and to the significant health threats to our employees, onMarch 20, 2020 , we temporarily idled production at several of our mines. We have since restarted production at the majority of our operations. We will continue to monitor conditions to ensure the health and welfare of our employees. The idling of the coal production activities did not affect our ability to fulfill current customer commitments, as loading and shipping crews remained in place to ship coal from existing inventories. If the impact of the COVID-19 pandemic, including the significant decrease in economic activity, continue for an extended period of time or worsen, it could further reduce the demand for met and steam coal, which would have a material adverse effect on our business, financial condition, cash flows and results
of
operations.
In addition, while our business operations have not been significantly
restricted by the response to the COVID-19 pandemic from various governmental
agencies, which exempt or exclude essential critical infrastructure businesses
from various restrictions they impose (other than encouraging remote work where
possible), the spread of COVID-19 has caused us to modify our business practices
(including requiring remote working where possible, restricting employee travel
and congregation of onsite personnel, and increased frequency of cleaning
schedules), and we may take further actions as may be required by government
authorities or that we determine are in the best interests of our employees,
customers or other stakeholders or the communities in which we operate. Such
measures may disrupt our normal operations, and there is no certainty that such
measures will be sufficient to mitigate the risks posed by COVID-19 or will not
adversely impact our business or results of operations.
26
Overview
Through a series of transactions completed in the first quarter of 2016, Royal
Energy Resources, Inc. ("Royal") acquired a majority ownership and control of us
and 100% ownership of our general partner.
We are a diversified coal producing limited partnership formed in Delaware that
is focused on coal and energy related assets and activities. We produce, process
and sell high quality coal of various steam and metallurgical grades. We market
our steam coal primarily to electric utility companies as fuel for their steam
powered generators. Customers for our metallurgical coal are primarily steel and
coke producers who use our coal to produce coke, which is used as a raw material
in the steel manufacturing process
We have a geographically diverse asset base with coal reserves located in
Central Appalachia , Northern Appalachia and the Western Bituminous region. As of
December 31, 2019 , we controlled an estimated 277.6 million tons of proven and
probable coal reserves, consisting of an estimated 171.1 million tons of steam
coal and an estimated 106.5 million tons of metallurgical coal. In addition, as
of December 31, 2019 , we controlled an estimated 190.7 million tons of
non-reserve coal deposits.
We operate underground and surface mines located in Kentucky , Ohio , Virginia ,
West Virginia and Utah . The number of mines that we operate may vary from time
to time depending on a number of factors, including the demand for and price of
coal, depletion of economically recoverable reserves and availability of
experienced labor.
Our principal business strategy is to safely, efficiently and profitably produce
and sell both steam and metallurgical coal from our diverse asset base in order
to resume, and, over time, increase our quarterly cash distributions. In
addition, we intend to continue to expand and potentially diversify our
operations through strategic acquisitions, including the acquisition of
long-term, cash generating natural resource assets. We believe that such assets
will allow us to grow our cash available for distribution and enhance stability
of our cash flow.
For the three months ended March 31, 2020 , we generated revenues from continuing
operations of approximately $37.5 million and a net loss from continuing
operations of $9.9 million . For the three months ended March 31, 2020 , we
produced approximately 0.7 million tons of coal from continuing operations and
sold approximately 0.6 million tons of coal from continuing operations, of which
approximately 75% were sold pursuant to supply contracts.
Current Liquidity and Outlook
As of March 31, 2020 , our available liquidity was $1.3 million . We also have a
delayed draw term loan commitment in the amount of $22 million contingent upon
the satisfaction of certain conditions precedent specified in our Financing
Agreement discussed below.
On December 27, 2017 , we entered into a Financing Agreement (the "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"), which provides us with a
multi-draw loan in the original aggregate principal amount of $80 million . The
total principal amount is divided into a $40 million commitment, the conditions
for which were satisfied at the execution of the Financing Agreement and a $40
million additional commitment that was contingent upon the satisfaction of
certain conditions precedent specified in the Financing Agreement. As of March
31, 2020 , we had utilized $18 million of the $40 million additional commitment,
which results in $22 million of the additional commitment remaining. The
Financing Agreement initially had a termination date of December 27, 2020 , which
was amended to December 27, 2022 . For more information about our Financing
Agreement, please read "- Liquidity and Capital Resources-Financing Agreement."
Beginning in the later part of the third quarter of 2019, we have experienced
significantly weaker market demand and have seen prices move lower for the
qualities of met and steam coal we produce. This downward price trend has been
exacerbated by the recent coronavirus pandemic. In response to this reduced
demand and to the significant health threats to our employees, on March 20,
2020 , we temporarily idled production at several of our mines. We have since
restarted production at the majority of our operations. We will continue to
monitor conditions to ensure the health and welfare of our employees. The idling
of the coal production activities did not affect our ability to fulfill current
customer commitments, as loading and shipping crews remained in place to ship
coal from existing inventories.
27
If we continue to experience weak demand and prices continue to lower for our
met and steam coal, we may not be able to continue to give the required
representations or meet all of the covenants and restrictions included in our
Financing Agreement. If we violate any of the covenants or restrictions in our
Financing Agreement, including the fixed-charge coverage ratio, some or all of
our indebtedness may become immediately due and payable, and our Lenders may not
be willing to make any loans under the additional commitment available under our
Financing Agreement. If we are unable to give a required representation or we
violate a covenant or restriction, then we will need a waiver from our Lenders
under our Financing Agreement, or they may declare an event of default and,
after applicable specified cure periods, all amounts outstanding under the
Financing Agreement would become immediately due and payable. Although we
believe our Lenders are well secured under the terms of our Financing Agreement,
there is no assurance that the Lenders would agree to any such waiver. Failure
to obtain financing or to generate sufficient cash flow from operations could
cause us to further curtail our operations and reduce spending and alter our
business plan. We are currently considering alternatives to address our
liquidity and balance sheet issues, such as selling additional assets or seeking
merger opportunities, and depending on the urgency of our liquidity constraints,
we may be required to pursue such an option at an inopportune time.
As of March 31, 2020 , we were unable to demonstrate that we have sufficient
liquidity to operate our business over the next twelve months from the filing
date of this Form 10-Q and thus substantial doubt is raised about our ability to
continue as a going concern. Our independent registered public accounting firm
included an emphasis paragraph with respect to our ability to continue as a
going concern in its report on our consolidated financial statements for the
year ended December 31, 2019 . The presence of the going concern emphasis
paragraph in our auditors' report may have an adverse impact on our relationship
with third parties with whom we do business, including our customers, vendors,
lenders and employees, making it difficult to raise additional financing to the
extent needed to conduct normal operations. As a result, our business, results
of operations, financial condition and prospects could be materially adversely
affected.
We continue to take measures, including the suspension of cash distributions on
our common and subordinated units and cost and productivity improvements, to
enhance and preserve our liquidity so that we can fund our ongoing operations
and necessary capital expenditures and meet our financial commitments and debt
service obligations.
We are currently exploring alternatives for other sources of capital for ongoing
liquidity needs and transactions to enhance its ability to comply with its
financial covenants. As disclosed on the Form 8-K filed with the SEC on March
27, 2020 , we have engaged legal and financial advisors to assist us in
evaluating our strategic options. We are working to improve our operating
performance and our cash, liquidity and financial position. This includes
pursuing the sale of non-strategic surplus assets, continuing to drive cost
improvements across the company, continuing to negotiate alternative payment
terms with creditors, and obtaining waivers of going concern and financial
covenant violations under our Financing Agreement, or alternatively, pursuing a
court-supervised reorganization under Chapter 11 and related financing needs.
Recent Developments
Financing Agreement
OnMarch 2, 2020 , we entered into a sixth amendment (the "Sixth Amendment") to the Financing Agreement. The Sixth Amendment, among other things, provides a consent by the Lenders to a$3.0 million term loan from the delayed draw term loan commitment and increased the exit fee payable by us to the Lenders upon the maturity date (or earlier termination or acceleration date) by 1.0% to a total exit fee of 8.0%. For more information about our Financing Agreement, please read "- Liquidity and Capital Resources-Financing Agreement." 28
OnSeptember 6, 2019 , we entered into an Asset Purchase Agreement (the "Pennyrile APA") withAlliance Coal, LLC ("Buyer") and Alliance Resource Partners, L.P. ("Buyer Parent") pursuant to which we sold to Buyer all of the real property, permits, equipment and inventory and certain other assets associated with Pennyrile in exchange for approximately$3.7 million , subject to certain adjustments. The final adjustments included us retaining certain equipment originally included in the assets to be sold to the Buyer, which resulted in a$0.3 million favorable adjustment to the impairment loss originally recorded by us in the third quarter of 2019 and a decrease in the final purchase price paid by the Buyer. The transaction was completed in March of 2020 and we received cash consideration of$3.0 million .
Coal Supply Asset Purchase Agreement
OnSeptember 6, 2019 , we entered into an Asset Purchase Agreement with the Buyer and Buyer Parent for the sale and assignment of certain coal supply agreements associated with Pennyrile (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 transactions contemplated by the Coal Supply APA closed upon the execution thereof.
Blackjewel Assignment Agreement
OnAugust 14, 2019 , our wholly owned subsidiaryJewell Valley Mining LLC , entered into a general assignment and assumption agreement and bill of sale (the "Assignment Agreement") withBlackjewel 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 , andCumberland 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 assets that are subject of the Assignment Agreement consist of three underground mines inVirginia 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 our option. We resumed mining operations at two of the mines in the fourth quarter of 2019. Settlement Agreement
OnJune 28, 2019 , we entered into a settlement agreement with a third party which allows the third party to maintain certain pipelines pursuant to designated permits at ourCentral Appalachia operations. The agreement required the third party to pay us$7.0 million in consideration. We received$4.2 million onJuly 3, 2019 and the balance of$2.8 million onJanuary 2, 2020 . We recorded a gain of$6.9 million during the second quarter of 2019 related to this settlement agreement. Distribution Suspension Pursuant to our limited partnership agreement, our common units accrue arrearages every quarter when the distribution level is below the minimum level of$4.45 per unit. Beginning with the quarter endedJune 30, 2015 and continuing through the quarter endedMarch 31, 2020 , we have suspended the cash distribution on our common units. For each of the quarters endedSeptember 30, 2014 ,December 31, 2014 andMarch 31, 2015 , we announced cash distributions per common unit at levels lower than the minimum quarterly distribution. We have not paid any distribution on our subordinated units for any quarter after the quarter endedMarch 31, 2012 . As ofMarch 31, 2020 , we had accumulated arrearages of$965.7 million .
Factors That Impact Our Business
Our results of operations in the near term could be impacted by a number of factors, including (1) our ability to fund our ongoing operations and necessary capital expenditures, (2) the availability of transportation for coal shipments, (3) poor mining conditions resulting from geological conditions or the effects of prior mining, (4) equipment problems at mining locations, (5) adverse weather conditions and natural disasters or (6) the availability and costs of key supplies and commodities such as steel, diesel fuel and explosives. 29
On a long-term basis, our results of operations could be impacted by, among other factors, (1) our ability to fund our ongoing operations and necessary capital expenditures, (2) changes in governmental regulation, (3) the availability and prices of competing electricity-generation fuels, (4) the world-wide demand for steel, which utilizes metallurgical coal and can affect the demand and prices of metallurgical coal that we produce, (5) our ability to secure or acquire high-quality coal reserves and (6) our ability to find buyers for coal under favorable supply contracts. We have historically sold a majority of our coal through long-term supply contracts, although we have starting selling a larger percentage of our coal under short-term and spot agreements. As ofMarch 31, 2020 , we had commitments under supply contracts to deliver annually scheduled base quantities of coal as follows: Year Tons Number of customers 2020 (Q2-Q4) 1,366,138 12 2021 400,000 3 2022 250,000 2
Certain of the contracts have sales price adjustment provisions, subject to certain limitations and adjustments, based on a variety of factors and indices.
Results of Operations Segment Information As ofMarch 31, 2020 , we have three reportable business segments:Central Appalachia ,Northern Appalachia andRhino Western . Additionally, we have an Other category that includes our ancillary businesses. OurCentral Appalachia segment consists of three mining complexes:Tug River ,Rob Fork and Jewell Valley, which, as ofMarch 31, 2020 , together included five underground mines, three surface mines and four preparation plants and loadout facilities in easternKentucky ,Virginia and southernWest Virginia . OurNorthern Appalachia segment consists of theHopedale mining complex and theLeesville field. TheHopedale mining complex, located in northernOhio , includes one underground mine and one preparation plant and loadout facility as ofMarch 31, 2020 . OurRhino Western segment includes one underground mine in the Western Bituminous region at ourCastle Valley mining complex inUtah .
Evaluating Our Results of Operations
Our management uses a variety of non-GAAP financial measurements to analyze our performance, including (1) Adjusted EBITDA, (2) coal revenues per ton and (3) cost of operations per ton.
Adjusted EBITDA. The discussion of our results of operations below includes references to, and analysis of, our segments' Adjusted EBITDA results. 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. Adjusted EBITDA is used by management primarily as a measure of our segments' operating performance. 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, our calculation may not be comparable to similarly titled measures of other companies. Please read "-Reconciliations of Adjusted EBITDA" for reconciliations of Adjusted EBITDA to net income/(loss) by segment for
each of the periods indicated. Coal Revenues Per Ton. Coal revenues per ton represents coal revenues divided by tons of coal sold. Coal revenues per ton is a key indicator of our effectiveness in obtaining favorable prices for our product. 30
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. Management uses this measurement as a key indicator of the efficiency of operations. Summary. (Unless otherwise specified, the following discussion of the results of operations for the three months endedMarch 31, 2020 and 2019 excludes operating results relating to Pennyrile. The Pennyrile operating results are recorded as discontinued operations in our unaudited condensed consolidated statements
of operations.)
The following table sets forth certain information regarding our revenues,
operating expenses, other income and expenses, and operational data for the
three months ended
Three Months Ended March 31, Increase/(Decrease)
2020 2019 $ % *
(in millions, except per ton data and %)
Statement of Operations
Data:
Coal revenues $ 37.3 $ 44.9 $ (7.6 ) (16.8 )%
Other revenues 0.2 0.8 (0.6 ) (79.2 )%
Total revenues 37.5 45.7 (8.2 ) (18.0 )%
Costs and expenses:
Cost of operations
(exclusive of DD&A shown
separately below) 36.1 40.2 (4.1 ) (10.2 )%
Freight and handling
costs 1.0 1.2 (0.2 ) (9.9 )%
Depreciation, depletion
and amortization 3.9 3.5 0.4 13.1 %
Selling, general and
administrative (exclusive
of DD&A shown separately
above) 4.2 2.7 1.5 52.9 %
Loss on sale/disposal of
assets 0.1 0.2 (0.1 ) (71.8 )%
Loss from operations (7.8 ) (2.1 ) (5.7 ) 279.5 %
Interest expense and
other (2.1 ) (1.7 ) (0.4 ) 21.8 %
Interest income and other - - - n/a
Total interest and other
(income) expense (2.1 ) (1.7 ) (0.4 ) 21.8 %
Net (loss) from
continuing operations (9.9 ) (3.8 ) (6.1 ) 163.1 %
Net (loss) from
discontinued operations (0.1 ) (3.5 ) 3.4 (97.8 )%
Net (loss) $ (10.0 ) $ (7.3 ) (2.7 ) 37.2 %
Total tons sold (in
thousands except %) 645.8 748.0 (102.2 ) (13.7 )%
Coal revenues per ton $ 57.78 $ 59.97 $ (2.19 ) (3.7 )%
Cost of operations per
ton $ 55.94 $ 53.76 $ 2.18 4.1 %
Other Financial Data
Adjusted EBITDA from
continuing operations $ (3.9 ) $ 2.1 $ (6.0 ) (284.2 )%
Adjusted EBITDA from
discontinued operations $ (0.4 ) $ (1.5 ) $ 1.1 (71.0 )%
Adjusted EBITDA $ (4.3 ) $ 0.6 $ (4.9 ) (754.2 )%
* Percentages and per ton amounts are calculated based on actual amounts and not
the rounded amounts presented in this table.
Three Months Ended
Revenues. Our coal revenues for the three months endedMarch 31, 2020 decreased by approximately$7.6 million , or 16.8%, to approximately$37.3 million from approximately$44.9 million for the three months endedMarch 31, 2019 . Coal revenues per ton was$57.78 for the three months endedMarch 31, 2020 , a decrease of$2.19 or 3.7%, from$59.97 per ton for the three months endedMarch 31, 2019 . The decrease in coal revenues was primarily the result of fewer tons sold at ourCentral Appalachia operations due to ongoing weak market demand for our steam and metallurgical coal. The decrease in coal revenues per ton was due to a larger mix of lower price coal sold during the three months endedMarch 31, 2020 compared to the same period in 2019. Cost of Operations. Total cost of operations decreased by$4.1 million or 10.2% to$36.1 million for the three months endedMarch 31, 2020 as compared to$40.2 million for the three months endedMarch 31, 2019 . Our cost of operations per ton was$55.94 for the three months endedMarch 31, 2020 , an increase of$2.18 , or 4.1%, from the three months endedMarch 31, 2019 . The decrease in total cost of operations was primarily due to fewer tons produced and sold from ourCentral Appalachia operations during the first quarter of 2020 compared to the same period in 2019. We also temporarily idled production activities at many of our mining operations in response to the coronavirus pandemic duringMarch 2020 . Freight and Handling. Total freight and handling cost decreased to$1.0 million for the three months endedMarch 31, 2020 from approximately$1.2 million for the three months endedMarch 31, 2019 . The decrease in freight and handling costs was primarily the result of fewer export sales that require us to pay railroad transportation to the port of export during the first quarter of 2020. Depreciation, Depletion and Amortization ("DD&A"). Total DD&A expense for the three months endedMarch 31, 2020 was$3.9 million as compared to$3.5 million for the three months endedMarch 31, 2019 . For the three months endedMarch 31, 2020 , our depreciation expense was$3.2 million and for the three months endedMarch 31, 2019 it was$2.5 million . The increase in depreciation expense was primarily the result of additional equipment placed in service at our Jewell Valley operation. For the three months endedMarch 31, 2020 and 2019, our depletion expense was$0.3 million and$0.4 million , respectively. The decrease in the depletion expense was primarily due to the decrease in tons of coal sold during the first quarter of 2020 compared to the same period in 2019.
For the three months ended
Selling, General and Administrative. SG&A expense for the three months endedMarch 31, 2020 increased to$4.2 million as compared to$2.7 million for the three months endedMarch 31, 2019 as we experienced an increase in corporate legal and outside professional expenses. Interest Expense. Interest expense for the three months endedMarch 31, 2020 increased to$2.1 million as compared to$1.7 million for the three months endedMarch 31, 2019 . This increase was primarily due to a higher average outstanding debt balance during the three months endedMarch 31, 2020 compared to the same period in 2019.
Net Income/Loss. Net loss was$9.9 million for the three months endedMarch 31, 2020 compared to net loss of$3.8 million for the three months endedMarch 31, 2019 . The increase in net loss was primarily due to the decrease in coal revenue and an increase in SG&A as discussed above. Adjusted EBITDA. Adjusted EBITDA from continuing operations decreased by$6.0 million for the three months endedMarch 31, 2020 to$(3.9) million from$2.1 million for the three months endedMarch 31, 2019 . The decrease was primarily due to the increase in net loss for the three months endedMarch 31, 2020 as discussed above. Including net loss from discontinued operations of approximately$0.1 million , our net loss was$10.0 million and Adjusted EBITDA was$(4.3) million for the three months endedMarch 31, 2020 . Including net loss from discontinued operations of approximately$3.5 million , which related to Pennyrile, our net loss was$7.3 million and Adjusted EBITDA was$0.6 million for the three months endedMarch 31, 2019 . Please read "-Reconciliations of Adjusted EBITDA" for reconciliations of Adjusted EBITDA to net income/(loss) on a segment basis. 31 Segment Results
The following tables set forth certain information regarding our revenues,
operating expenses, other income and expenses, and operational data by
reportable segment for the three months ended
Central Appalachia Three months ended March 31, Increase/(Decrease)
2020 2019 $ % *
(in millions, except per ton data and %)
Coal revenues $ 21.2 $ 30.1 $ (8.9 ) (29.5 )%
Freight and handling
revenues - - - n/a
Other revenues 0.1 0.3 (0.2 ) (83.1 )%
Total revenues 21.3 30.4 (9.1 ) (30.1 )%
Coal revenues per ton $ 77.86 $ 77.29 $ 0.57 0.7 %
Cost of operations
(exclusive of
depreciation, depletion
and amortization shown
separately below) 24.0 26.6 (2.6 ) (9.7 )%
Freight and handling
costs 0.3 0.7 (0.4 ) (48.4 )%
Depreciation, depletion
and amortization 2.4 1.9 0.5 (26.4 )%
Selling, general and
administrative costs 0.1 0.1 - 75.9 %
Cost of operations per
ton $ 88.27 $ 68.37 $ 19.90 29.1 %
Net (loss)/income from
continuing operations (5.6 ) 1.2 (6.8 ) (577.4 )%
Adjusted EBITDA from
continuing operations (3.2 ) 3.1 (6.3 ) (205.3 )%
Tons sold (in thousands
except %) 272.4 389.3 (116.9 ) (30.0 )%
* Percentages and per ton amounts are calculated based on actual amounts and not
the rounded amounts presented in this table. Tons of coal sold in ourCentral Appalachia segment decreased by approximately 30.0% for the three months endedMarch 31, 2020 compared to the three months endedMarch 31, 2019 primarily due to weakness in the met and steam coal markets, which has resulted in some of our customers pushing out shipments to a future date. We also had some uncontracted tons inCentral Appalachia and we were unable to sell the coal on the spot market due to weak market demand. Coal revenues decreased by approximately$8.9 million , or 29.5%, to approximately$21.2 million for the three months endedMarch 31, 2020 from approximately$30.1 million for the three months endedMarch 31, 2019 . The decrease in coal revenues was due to a decrease in tons sold from ourCentral Appalachia operations during the first quarter of 2020 compared to 2019. Coal revenues per ton for ourCentral Appalachia segment increased by$0.57 , or 0.7%, to$77.86 per ton for the three months endedMarch 31, 2020 as compared to$77.29 for the three months endedMarch 31, 2019 . The increase in coal revenues per ton was primarily due to a higher mix of met coal tons sold during the three months endedMarch 31, 2020 compared to 2019. Cost of operations decreased by$2.6 million , or 9.7%, to$24.0 million for the three months endedMarch 31, 2020 from$26.6 million for the three months endedMarch 31, 2019 . The decrease in cost of operations was primarily due to fewer tons produced and sold during the third quarter of 2020 compared to the same period in 2019. Our cost of operations per ton of$88.27 for the three months endedMarch 31, 2020 increased 29.1% compared to$68.37 per ton for the three months endedMarch 31, 2019 . Cost of operations per ton increased as fixed costs were allocated to fewer tons sold from ourCentral Appalachia operations during the first quarter of 2020. 32
Total freight and handling cost was$0.3 million for the three months endedMarch 31, 2020 , which was a decrease of$0.4 million from the three months endedMarch 31, 2019 . The decrease in freight and handling costs was primarily the result of fewer export sales during the first quarter of 2020 that require us to pay railroad transportation to the port of export. For ourCentral Appalachia segment, net loss was approximately$5.6 million for the three months endedMarch 31, 2020 compared to net income of$1.2 million for the three months endedMarch 31, 2019 . The decrease in net income was primarily the result of the decrease in revenue resulting from fewer sales during the first quarter of 2020 compared to the same period in 2019. Central Appalachia Overview of Results by Product. Additional information for theCentral Appalachia segment detailing the types of coal produced and sold, premium high-vol met coal and steam coal for the three months endedMarch 31, 2020 and 2019, is presented below. Note that ourNorthern Appalachia andRhino Western segments currently produce and sell only steam coal. Increase (In thousands, except per ton Three months ended Three months ended (Decrease) data and %) March 31, 2020 March 31, 2019 %* Met coal tons sold 161.6 149.1 8.4 % Steam coal tons sold 110.8 240.2 (53.9 )% Total tons sold 272.4 389.3 (30.0 )% Met coal revenue $ 15,808 $ 16,698 (5.3 )% Steam coal revenue $ 5,405 $ 13,389 (59.6 )% Total coal revenue $ 21,213 $ 30,087 (29.5 )% Met coal revenues per ton $ 97.82 $ 111.98 (12.7 )% Steam coal revenues per ton $ 48.77 $ 55.75 (12.5 )% Total coal revenues per ton $ 77.86 $ 77.29 0.8 % Met coal tons produced 140.0 122.5 14.3 % Steam coal tons produced 142.3 308.8 (53.9 )% Total tons produced 282.3 431.3 (34.5 )% Northern Appalachia Three months ended March 31, Increase/(Decrease) 2020 2019 $ % * (in millions, except per ton data and %) Coal revenues $ 7.4 $ 6.1$ 1.3 22.2 % Freight and handling revenues - - - n/a Other revenues 0.1 0.5 (0.4 ) (81.4 )% Total revenues 7.5 6.6 0.9 13.5 % Coal revenues per ton$ 50.26 $ 50.19 $ 0.07 0.1 % Cost of operations (exclusive of depreciation, depletion and amortization shown separately below) 6.3 6.8 (0.5 ) (7.8 )% Freight and handling costs 0.7 0.5 0.2 44.8 % Depreciation, depletion and amortization 0.5 0.4 0.1 29.9 % Selling, general and administrative costs - - - n/a Cost of operations per ton$ 42.77 $ 56.60 $ (13.83 ) (24.4 )% Net (loss) from continuing operations - (1.1 ) 1.1 (97.7 )% Adjusted EBITDA from continuing operations 0.5 (0.7 ) 1.2 (170.5 )% Tons sold (in thousands except %) 147.5 120.8 26.7 22.0 %
* Percentages and per ton amounts are calculated based on actual amounts and not
the rounded amounts presented in this table. 33
For ourNorthern Appalachia segment, tons of coal sold increased by approximately 22.0% for the three months endedMarch 31, 2020 compared to the three months endedMarch 31, 2019 as we experienced increased demand for coal from this region. Coal revenues were approximately$7.4 million for the three months endedMarch 31, 2020 , an increase of approximately$1.3 million , or 22.2%, from approximately$6.1 million for the three months endedMarch 31, 2019 . The increase in coal revenues was primarily due to the increase in tons of coal sold from ourHopedale operations during the first quarter of 2020. Coal revenues per ton were relatively flat at$50.26 for the three months endedMarch 31, 2020 as compared to$50.19 for the three months endedMarch 31, 2019 . Cost of operations decreased by$0.5 million , or 7.8%, to$6.3 million for the three months endedMarch 31, 2020 from$6.8 million for the three months endedMarch 31, 2019 . Our cost of operations per ton was$42.77 for the three months endedMarch 31, 2020 , a decrease of$13.83 , or 24.4%, compared to$56.60 for the three months endedMarch 31, 2019 . Cost of operations per ton decreased primarily as the result of fixed costs being allocated to more tons sold from ourHopedale operation in the first quarter of 2020 compared to the same period in 2019 as well as improved mining conditions in the first quarter of 2020. Net loss in ourNorthern Appalachia segment was$26,000 for the three months endedMarch 31, 2020 compared to net loss of$1.1 million for the three months endedMarch 31, 2019 . The decrease in net loss was primarily due to the increase in coal sales revenue during the current period. Rhino Western Three months ended March 31, Increase/(Decrease) 2020 2019 $ % * (in millions, except per ton data and %) Coal revenues $ 8.7 $ 8.7 $ - (0.2 )% Freight and handling revenues - - - n/a Other revenues - - - n/a Total revenues 8.7 8.7 - (0.2 )% Coal revenues per ton$ 38.47 $ 36.61 $ 1.86 5.1 % Cost of operations (exclusive of depreciation, depletion and amortization shown separately below) 6.5 7.2 (0.7 ) (10.6 )% Freight and handling costs - - - n/a Depreciation, depletion and amortization 1.0 1.1 (0.1 ) (11.1 )% Selling, general and administrative costs - - - n/a Cost of operations per ton$ 28.58 $ 30.35 $ (1.77 ) (5.8 )% Net income/(loss) from continuing operations 1.2 (0.3 ) 1.5 (469.6 )% Adjusted EBITDA from continuing operations 2.2 1.5 0.7 52.8 % Tons sold (in thousands except %) 225.9 237.9 (12.0 ) (5.0 )%
* Percentages and per ton amounts are calculated based on actual amounts and not
the rounded amounts presented in this table. 34
Tons of coal sold from ourRhino Western segment decreased by approximately 5.0% for the three months endedMarch 31, 2020 compared to the same period in 2019 primarily due to a decrease in demand for coal from this region. Coal revenues remained flat at approximately$8.7 million for the three months endedMarch 31, 2020 and 2019. Coal revenues per ton for ourRhino Western segment increased by$1.86 or 5.10% to$38.47 per ton for the three months endedMarch 31, 2020 as compared to$36.61 per ton for the three months endedMarch 31, 2019 . The increase in coal revenues per ton was primarily due to higher contracted sale prices. Cost of operations decreased by$0.7 million , or 10.6%, to$6.5 million for the three months endedMarch 31, 2020 from$7.2 million for the three months endedMarch 31, 2019 . Our cost of operations per ton was$28.58 for the three months endedMarch 31, 2020 , a decrease of$1.77 , or 5.8%, compared to$30.35 for the three months endedMarch 31, 2019 . Total cost of operations decreased for the three months endedMarch 31, 2020 compared to the same period in 2019 due to a decrease in operating costs at ourCastle Valley mine operation. Net income in ourRhino Western segment was$1.2 million for the three months endedMarch 31, 2020 , compared to a net loss of$0.3 million for the three months endedMarch 31, 2019 . This increase in net income was primarily the result of an increase in our contracted sale prices for tons sold at ourCastle Valley operation and lower operating costs during the first quarter of 2020. Other Three months ended March 31, Increase/(Decrease) 2020 2019 $ % * (in millions, except per ton data and %) Coal revenues $ - $ - n/a n/a Freight and handling revenues - - n/a n/a Other revenues - - n/a n/a Total revenues - - - n/a Coal revenues per ton** n/a n/a n/a n/a Cost of operations (exclusive of depreciation, depletion and amortization shown separately below) (0.7 ) (0.4 ) (0.3 ) (48.1 )% Freight and handling costs - - - n/a Depreciation, depletion and amortization - 0.1 (0.1 ) (100.0 )% Selling, general and administrative costs 4.1 2.6 1.5 54.5 % Cost of operations per ton** n/a n/a n/a n/a Net (loss) from continuing operations (5.5 ) (3.6 ) (1.9 ) (55.7 )% Adjusted EBITDA from continuing operations (3.4 ) (1.8 ) (1.6 ) 97.0 % Tons sold (in thousands except %) n/a n/a n/a n/a
* Percentages and per ton amounts are calculated based on actual amounts and not
the rounded amounts presented in this table.
** The Other category includes results for our ancillary businesses. The
activities performed by these ancillary businesses do not directly relate to
coal production. As a result, coal revenues and coal revenues per ton are not
presented for the Other category. Cost of operations presented for our Other
category includes costs incurred by our ancillary businesses. As a result,
cost per ton measurements are not presented for this category. 35
For the Other category, we had net loss of$5.5 million for the three months endedMarch 31, 2020 as compared to net loss of$3.6 million for the three months endedMarch 31, 2019 . The increase in net loss was primarily the result of an increase to selling, general and administrative costs during the first quarter of 2020 compared to the same period in 2019.
Reconciliations of Adjusted EBITDA
The following tables present reconciliations of Adjusted EBITDA to the most
directly comparable GAAP financial measures for each of the periods indicated:
Central Northern Rhino Illinois
Three months ended March 31,
2020 Appalachia Appalachia Western Basin Other Total
(in millions)
Net (loss)/income from
continuing operations $ (5.6 ) $ - $ 1.2 $ -$ (5.5 ) $ (9.9 ) Plus: DD&A 2.4 0.5 1.0 - - 3.9 Interest expense - - - - 2.1 2.1 EBITDA from continuing operations†$ (3.2 ) $ 0.5 $ 2.2 $ -$ (3.4 ) $ (3.9 ) Adjusted EBITDA from continuing operations (3.2 ) 0.5 2.2 - (3.4 ) (3.9 ) Plus: Adjusted EBITDA from discontinued operations - -
- (0.4 ) - (0.4 ) Adjusted EBITDA$ (3.2 ) $ 0.5 $ 2.2 $ (0.4 ) $ (3.4 ) $ (4.3 ) Central Northern Rhino Illinois Three months ended March 31, 2019 Appalachia Appalachia Western Basin Other Total (in millions) Net income/(loss) from continuing operations$ 1.2 $ (1.1 ) $
(0.3 ) $ -$ (3.6 ) $ (3.8 ) Plus: - DD&A 1.9 0.4 1.1 - 0.1 3.5 Interest expense - - - - 1.7 1.7 EBITDA from continuing operations†$ 3.1 $ (0.7 ) $ 0.8 $ -$ (1.8 ) $ 1.4 Plus: Loss from sale of non-core asset (1) - - 0.7 - - 0.7 Adjusted EBITDA from continuing operations†$ 3.1 $ (0.7 ) $ 1.5 $ -$ (1.8 ) $ 2.1 Plus: Adjusted EBITDA from discontinued operations - - - (1.5 ) - (1.5 ) Adjusted EBITDA$ 3.1 $ (0.7 ) $ 1.5 $ (1.5 ) $ (1.8 ) $ 0.6 36 For the Three Months Ended March 31, 2020 2019 (in millions)
Net cash (used in)/provided by operating activities $ (3.0 ) $ 0.5
Plus:
Interest expense 2.1 1.7 Adjustment on impairment of assets (1) 0.3 -
Less:
Decrease in net operating assets 2.1 0.7 Amortization of advance royalties 0.1 0.4 Amortization of debt discount - 0.1 Amortization of debt issuance costs 0.8 0.5 Loss on sale of assets - 0.2 Loss on retirement of advance royalties - 0.1 Accretion on asset retirement obligations 0.4 0.3 EBITDA† (4.0 ) (0.1 ) Plus: Loss from sale of non-core assets (2) - 0.7 Less: Adjustment on impairment of assets (1) (0.3 ) - Adjusted EBITDA (4.3 ) 0.6 Less: Adjusted EBITDA from discontinued operations (0.4 ) (1.5 ) Adjusted EBITDA from continuing operations $ (3.9 )
$ 2.1
(1) During the three months ended
APA. The final adjustments included us retaining certain equipment
originally included in the assets to be sold to the Buyer, which resulted in
a
recorded by us in the third quarter of 2019.
(2) During the three months ended
in western
that resulted in losses of approximately
that we chose to monetize despite the loss incurred. We believe that the
isolation and presentation of this specific item to arrive at Adjusted
EBITDA is useful because it enhances investors' understanding of how we
assess the performance of our business. We believe the adjustment of thisitem provides investors with additional information that they can utilize in
evaluating our performance. Additionally, we believe the isolation of this
item provides investors with enhanced comparability to prior and future
periods of our operating results.
† Calculated based on actual amounts and not the rounded amounts presented in this table.
Liquidity and Capital Resources
Liquidity As ofMarch 31, 2020 , our available liquidity was$1.3 million . We also have a delayed draw term loan commitment in the amount of$22 million contingent upon the satisfaction of certain conditions precedent specified in the Financing Agreement. OnDecember 27, 2017 , we entered into a Financing Agreement, which provides us with a multi-draw term loan in the original aggregate principal amount of$80 million , subject to the terms and conditions set forth in the Financing Agreement. The total principal amount was divided into a$40 million commitment, the conditions of which were satisfied at the execution of the Financing Agreement (the "Effective Date Term Loan Commitment") and a$40 million additional commitment that was contingent upon the satisfaction of certain conditions precedent specified in the Financing Agreement ("Delayed Draw Term Loan Commitment"). As ofMarch 31, 2020 , we had utilized$18 million of the$40 million additional commitment, which results in$22 million of the additional commitment remaining. The Financing Agreement initially had a termination date ofDecember 27, 2020 , which was amended toDecember 27, 2022 . Please read below for more information about our Financing Agreement. Our business is capital intensive and requires substantial capital expenditures for purchasing, upgrading and maintaining equipment used in developing and mining our reserves, as well as complying with applicable environmental and mine safety laws and regulations. Our principal liquidity requirements are to finance current operations, fund capital expenditures, including acquisitions from time to time, and service our debt. Historically, our sources of liquidity included cash generated by our operations, cash available on our balance sheet and issuances of equity securities. Our ability to access the capital markets on economic terms in the future will be affected by general economic conditions, the domestic and global financial markets, our operational and financial performance, the value and performance of our equity securities, prevailing commodity prices and other macroeconomic factors outside of our control. Failure to maintain financing or to generate sufficient cash flow from operations could cause us to significantly reduce our spending and to alter our short- or long-term business plan. 37 Beginning in the later part of the third quarter of 2019, we have experienced significantly weaker market demand and have seen prices move lower for the qualities of met and steam coal we produce. This downward price trend has been exacerbated by the recent coronavirus pandemic. In response to this reduced demand and to the significant health threats to our employees, onMarch 20, 2020 , we temporarily idled production at several of our mines. We have since restarted production at the majority of our operations. We will continue to monitor conditions to ensure the health and welfare of our employees. The idling of the coal production activities did not affect our ability to fulfill current customer commitments, as loading and shipping crews remained in place to ship coal from existing inventories. If we continue to experience weak demand and prices continue to lower for our met and steam coal, we may not be able to continue to give the required representations or meet all of the covenants and restrictions included in our Financing Agreement. If we violate any of the covenants or restrictions in our Financing Agreement, including the fixed-charge coverage ratio, some or all of our indebtedness may become immediately due and payable, and our Lenders may not be willing to make any loans under the additional commitment available under our Financing Agreement. If we are unable to give a required representation or we violate a covenant or restriction, then we will need a waiver from our Lenders under our Financing Agreement, or they may declare an event of default and, after applicable specified cure periods, all amounts outstanding under the Financing Agreement would become immediately due and payable. Although we believe our Lenders are well secured under the terms of our Financing Agreement, there is no assurance that the Lenders would agree to any such waiver. Failure to obtain financing or to generate sufficient cash flow from operations could cause us to further curtail our operations and reduce spending and alter our business plan. We are currently considering alternatives to address our liquidity and balance sheet issues, such as selling additional assets or seeking merger opportunities, and depending on the urgency of our liquidity constraints, we may be required to pursue such an option at an inopportune time. As ofMarch 31, 2020 , we were unable to demonstrate that we have sufficient liquidity to operate our business over the next twelve months from the date of filing this Form 10-Q and thus substantial doubt is raised about our ability to continue as a going concern. Our independent registered public accounting firm included an emphasis paragraph with respect to our ability to continue as a going concern in its report on our consolidated financial statements for the year endedDecember 31, 2019 . The presence of the going concern emphasis paragraph in our auditors' report may have an adverse impact on our relationship with third parties with whom we do business, including our customers, vendors, lenders and employees, making it difficult to raise additional financing to the extent needed to conduct normal operations. As a result, our business, results of operations, financial condition and prospects could be materially adversely affected.
We evaluated our Financing Agreement atMarch 31, 2020 to determine whether the debt liability should be classified as a long-term or current liability on our unaudited condensed consolidated statements of financial position. We determined that we were in violation of certain debt covenants in the Financing Agreement as ofMarch 31, 2020 and the Lenders were unwilling to grant a waiver to us for these events of default as of the filing date of this Form 10-Q. The Financing Agreement contains negative covenants that restrict our ability to, among other things, permit the trailing nine month fixed charge coverage ratio of us and our subsidiaries to be less than 1.20 to 1.00. The Financing Agreement also requires us to receive an annual unqualified audit opinion from our external audit firm that does not include an emphasis paragraph on our ability to continue as a going concern. As ofMarch 31, 2020 , our fixed charge coverage ratio was less than 1.20 to 1.00 and our annual report on Form 10-K for 2019 includes an audit opinion from our external auditors that includes an emphasis paragraph regarding our ability to continue as a going concern. Based upon these covenant violations, our debt liability is currently callable by the Lenders and the debt liability is classified as current. Debt issuance costs related to the debt liability have also been classified as current. However, since we are currently in negotiations with our Lenders, we have not changed the amortization period of these costs. Included in debt costs are the exit fees described below, which absent a waiver, are also callable with the accompanying debt as ofMarch 31, 2020 . 38 We continue to take measures, including the suspension of cash distributions on our common and subordinated units and taking steps to improve productivity and control costs, to enhance and preserve our liquidity so that we can fund our ongoing operations and necessary capital expenditures and meet our financial commitments and debt service obligations. Cash Flows
Net cash used in operating activities was$3.0 million for the three months endedMarch 31, 2020 as compared to net cash provided by operating activities of$0.5 million for the three months endedMarch 31, 2019 . This decrease in cash provided by operating activities was the result of a higher net loss during the three months endedMarch 31, 2020 . Net cash provided by investing activities was$4.2 million for the three months endedMarch 31, 2020 as compared to net cash provided by investing activities of$1.7 million for the three months endedMarch 31, 2019 . The increase in cash provided by investing activities was primarily due to an increase in proceeds from the sale of assets during the three months endedMarch 31, 2020 compared to the same period in 2019. Net cash provided by financing activities was$0.4 million for the three months endedMarch 31, 2020 and net cash used in financing activities was$4.2 million for the three months endedMarch 31, 2019 . Net cash provided by financing activities for the three months endedMarch 31, 2020 was primarily attributable to proceeds from our Financing Agreement. Net cash used in financing activities for the three months endedMarch 31, 2019 was primarily attributable to repayments on our Financing Agreement and by the payment of the distribution on the Series A preferred units. Capital Expenditures Our mining operations require investments to expand, upgrade or enhance existing operations and to meet environmental and safety regulations. Maintenance capital expenditures are those capital expenditures required to maintain our long-term operating capacity. For example, maintenance capital expenditures include expenditures associated with the replacement of equipment and coal reserves, whether through the expansion of an existing mine or the acquisition or development of new reserves, to the extent such expenditures are made to maintain our long-term operating capacity. Expansion capital expenditures are those capital expenditures that we expect will increase our operating capacity over the long term. Examples of expansion capital expenditures include the acquisition of reserves, acquisition of equipment for a new mine or the expansion of an existing mine to the extent such expenditures are expected to expand our long-term operating capacity. Actual maintenance capital expenditures for the three months endedMarch 31, 2020 were approximately$0.9 million . This amount was primarily used to rebuild, repair or replace older mining equipment. Expansion capital expenditures for the three months endedMarch 31, 2020 were approximately$0.7 million , which were primarily related to development costs at our Blackjewel mine.
Series A Preferred Unit Purchase Agreement
OnDecember 30, 2016 , we entered into a Series A Preferred Unit Purchase Agreement ("Preferred Unit Agreement") withWeston Energy LLC ("Weston") and Royal. Under the Preferred Unit Agreement, Weston and Royal agreed to purchase 1,300,000 and 200,000, respectively, of Series A preferred units representing limited partner interests in us at a price of$10.00 per Series A preferred unit. The Series A preferred units have the preferences, rights and obligations set forth in our Fourth Amended and Restated Agreement of Limited Partnership, which is described below. In exchange for the Series A preferred units, Weston and Royal paid cash of$11.0 million and$2.0 million , respectively, to us and Weston assigned to us a$2.0 million note receivable from Royal originally datedSeptember 30, 2016 . Through a series of transactions, Weston now owns all of the Series A preferred units. 39
Fourth Amended and Restated Partnership Agreement of Limited Partnership
OnDecember 30, 2016 , our general partner entered into the Fourth Amended and Restated Agreement of Limited Partnership of the Partnership ("Amended and Restated Partnership Agreement") to create, authorize and issue the Series
A preferred units.
The holders of the Series A preferred units are entitled to receive annual distributions equal to the greater of (i) 50% of the CAM Mining free cash flow (as defined below) and (ii) an amount equal to the number of outstanding Series A preferred units multiplied by$0.80 . "CAM Mining free cash flow" is defined in our partnership agreement as (i) the total revenue of ourCentral Appalachia business segment, minus (ii) the cost of operations (exclusive of depreciation, depletion and amortization) for ourCentral Appalachia business segment, minus (iii) an amount equal to$6.50 , multiplied by the aggregate number of met coal and steam coal tons sold by us from ourCentral Appalachia business segment. If we fail to pay any or all of the distributions in respect of the Series A preferred units, such deficiency will accrue until paid in full and we will not be permitted to pay any distributions on our partnership interests that rank junior to the Series A preferred units, including our common units. We will have the option to convert the outstanding Series A preferred units at any time on or after the time at which the amount of aggregate distributions paid in respect of each Series A preferred unit exceeds$10.00 per unit. Each Series A preferred unit will convert into a number of common units equal to the quotient (the "Series A Conversion Ratio") of (i) the sum of$10.00 and any unpaid distributions in respect of such Series A Preferred Unit divided by (ii) 75% of the volume-weighted average closing price of the common units for the preceding 90 trading days (the "VWAP"); provided however, that the VWAP will be capped at a minimum of$2.00 and a maximum of$10.00 . OnDecember 31, 2021 , all outstanding Series A preferred units will convert into common units at the then applicable Series A Conversion Ratio. During the first quarter of 2019, we paid$3.2 million to the holders of Series A preferred units for distributions earned for the year endedDecember 31, 2018 . We have accrued$1.2 million for distributions to holders of the Series A preferred units for the year endedDecember 31, 2019 and$0.3 million for the three months endedMarch 31, 2020 . Financing Agreement
OnDecember 27, 2017 , we entered into a Financing Agreement, which provides us with a multi-draw term loan in the original aggregate principal amount of$80 million , subject to the terms and conditions set forth in the Financing Agreement. The total principal amount was divided into a$40 million commitment, the conditions of which were satisfied at the execution of the Financing Agreement and a$40 million additional commitment that was contingent upon the satisfaction of certain conditions precedent specified in the Financing Agreement. As ofMarch 31, 2020 , we had utilized$18 million of the$40 million additional commitment, which results in$22 million of the additional commitment remaining. The Financing Agreement contains negative covenants that restrict our ability to, among other things: (i) incur liens or additional indebtedness or make investments or restricted payments, (ii) liquidate or merge with another entity, or dispose of assets, (iii) change the nature of their respective businesses; (iv) make capital expenditures in excess, or, with respect to maintenance capital expenditures, lower than, specified amounts, (v) incur restrictions on the payment of dividends, (vi) prepay or modify the terms of other indebtedness, (vii) permit the Collateral Coverage Amount to be less than the outstanding principal amount of the loans outstanding under the Financing Agreement or (viii) permit the trailing nine month Fixed Charge Coverage Ratio of the Partnership and its subsidiaries to be less than 1.20 to 1.00. The Lenders are entitled to certain fees, including: (i) 1.50% per annum of the unused Delayed Draw Term Loan Commitment for as long as such commitment exists, (ii) for the 12-month period following the execution of the Financing Agreement, a make-whole amount ("Make-Whole Amount") equal to the interest and unused Delayed Draw Term Loan Commitment fees that would have been payable but for the occurrence of certain events, including among others, bankruptcy proceedings or the termination of the Financing Agreement by the Partnership, and (iii) audit and collateral monitoring fees and origination and exit fees. CommencingDecember 31, 2018 , the principal for each loan made under the Financing Agreement is payable on a quarterly basis in an amount equal to$375,000 per quarter. All remaining unpaid principal and accrued and unpaid interest is due on the loan termination date. The Financing Agreement originally had a termination date ofDecember 27, 2020 , which was amended toDecember 27, 2022 . Loans made pursuant to the Financing Agreement are secured by substantially
all of our assets. 40
We entered into various amendments and consents to the Financing Agreement
during 2018 and 2019, which (a) increased the original lender exit fee ("Exit
Fee") of 3.0% to 7.0% as of December 31, 2019 . The Exit Fee is applied to the
principal amount of the loans made under the Financing Agreement that is payable
on the earliest of (i) the final maturity date of the Financing Agreement, (ii)
the termination date of the Financing Agreement, (iii) the acceleration of the
obligations under the Financing Agreement for any reason, including, without
limitation, acceleration in accordance with Section 9.01 of the Financing
Agreement, including as a result of the commencement of an insolvency proceeding
and (iv) the date of any refinancing of the term loan under the Financing
Agreement, (b) modified certain definitions and concepts to account for our 2019
acquisition of properties from Blackjewel, (c) permitted the 2019 disposition of
the Pennyrile mining complex, (d) required us to pay a $1.0 million consent fee
related to the Pennyrile sale (paid March 2020 ), (e) allowed us to sell certain
real property in Western Colorado and adjusted the timing for remittance to the
Lender of the sale proceeds, (f) provided $15.0 million in additional terms
loans under the Delayed Draw Term Loan Commitment feature of the Financing
Agreement, (g) revised the definition of the Make-Whole Amount under the
Financing Agreement to extend the date of the Make-Whole Amount period to
December 31, 2021 and (h) extended the termination date of the Financing
Agreement to December 27, 2022 .
On March 3, 2020 , we entered into the Sixth Amendment to the Financing
Agreement, which among other things, provided us with a $3.0 million term loan
under the Delayed Draw Term Loan Commitment feature of the Financing Agreement
and increased the Exit Fee payable to the Lenders upon the maturity date (or
earlier termination or acceleration date) by 1.0% to a total of 8.0%.
The following table presents the loan balances and applicable interest rates for
each term loan made under the Financing Agreement as of
Loan Date Loan Balance Interest rate*
(in millions)
12/27/2017 $ 27.2 10.99 %
8/16/2019 $ 5.0 11.20 %
9/16/2019 $ 5.0 10.86 %
3/3/2020 $ 3.0 11.52 %
* Variable interest rate of Libor plus 10.0%
Off-Balance Sheet Arrangements
In the normal course of business, we are a party to off-balance sheet arrangements that include guarantees and financial instruments with off-balance sheet risk, such as bank letters of credit and surety bonds. No liabilities related to these arrangements are reflected in our unaudited condensed consolidated balance sheet, and we do not expect any material adverse effects on our financial condition, results of operations or cash flows to result from these off-balance sheet arrangements. Federal and state laws require us to secure certain long-term obligations related to mine closure and reclamation costs. We typically secure these obligations by using surety bonds, an off-balance sheet instrument. The use of surety bonds is less expensive for us than the alternative of posting a 100% cash bond or a bank letter of credit. We then provide cash collateral to secure our surety bonding obligations in an amount up to a certain percentage of the aggregate bond liability that we negotiate with the surety companies. To the extent that surety bonds become unavailable, we would seek to secure our reclamation obligations with letters of credit, cash deposits or other suitable forms of collateral. As ofMarch 31, 2020 , we had$7.9 million in cash collateral held by third-parties of which$3.0 million serves as collateral for approximately$41.3 million in surety bonds outstanding that secure the performance of our reclamation obligations. The other$4.9 million serves as collateral for our self-insured workers' compensation program. Of the$41.3 million in surety bonds, approximately$0.4 million relates to surety bonds forDeane Mining, LLC , which have not been transferred or replaced by the buyer ofDeane Mining LLC as was agreed to by the parties as part of the transaction. We can provide no assurances that a surety company will underwrite the surety bonds of the purchaser ofDeane Mining LLC , nor are we aware of the actual amount of reclamation at any given time. Further, if there was a claim under these surety bonds prior to the transfer or replacement of such bonds by the buyer ofDeane Mining, LLC , we may be responsible to the surety company for any amounts it pays in respect of such claim. While the buyer is required to indemnify us for damages, including reclamation liabilities, pursuant to the agreements governing the sales of this entity, we may not be successful in obtaining any indemnity or any amounts received may be inadequate. 41
Certain surety bonds forSands Hill Mining LLC had not been transferred or replaced by the buyer ofSands Hill Mining LLC as was agreed to when we soldSands Hill Mining LLC to the buyer inNovember 2017 . OnJuly 9, 2019 , we entered into an agreement with a third party for the replacement of our existing surety bond obligations with respect toSands Hill Mining LLC . We agreed to pay the third party$2.0 million to assume our surety bond obligations related toSands Hill Mining LLC . At the time of closing, the third party delivered to us confirmation from its surety underwriter evidencing the release and removal of us, our affiliates and guarantors, from the surety bond obligations and all related obligations under our bonding agreements related toSands Hill Mining LLC , which includes a release of all applicable collateral for the surety bond obligations. Further, such confirmation from the surety underwriter was specifically provided for their acceptance of the third party as a replacement obligor.
We had no letters of credit outstanding as of
Critical Accounting Policies and Estimates
Our financial statements are prepared in accordance with accounting principles that are generally accepted inthe United States . The preparation of these financial statements requires management to make estimates and judgments that affect the reported amount of assets, liabilities, revenues and expenses as well as the disclosure of contingent assets and liabilities. Management evaluates its estimates and judgments on an on-going basis. Management bases its estimates and judgments on historical experience and other factors that are believed to be reasonable under the circumstances. Nevertheless, actual results may differ from the estimates used and judgments made. The accounting policies and estimates that we have adopted and followed in the preparation of our consolidated financial statements are fully described in our Annual Report on Form 10-K for the year endedDecember 31, 2019 . We adopted ASU 2016-02- Leases (Topic 842) and all related clarification standards onJanuary 1, 2019 using the transition method to apply the standard prospectively. The standard had a material impact on our unaudited condensed consolidated statements of financial position, but did not have an impact on our unaudited condensed consolidated statements of operations. Please refer to Note 7 of the notes to the unaudited condensed consolidated financial statements for further discussion of the standard and the related disclosures. There have been no other significant changes in these policies and estimates as ofMarch 31, 2020
Recent Accounting Pronouncements
Refer to Part-I- Item 1. Financial Statements, Note 2 of the notes to the unaudited condensed consolidated financial statements for a discussion of recent accounting pronouncements. There are no known future impacts or material changes or trends of new accounting guidance beyond the disclosures provided in Note 2.
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