NACCO INDUSTRIES, INC. Management's Discussion and Analysis of Financial Condition and Results of
Operations contains forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements are based upon
management's current expectations and are subject to various uncertainties and
changes in circumstances. Important factors that could cause actual results to
differ materially from those described in these forward-looking statements are
set forth below under the heading "Forward-Looking Statements."
Management's Discussion and Analysis of Financial Condition and Results of
Operations include
The Company also has unallocated items not directly attributable to a reportable
segment which are not included as part of the measurement of segment operating
profit, primarily administrative costs related to public company reporting
requirements, the financial results of the Company's mitigation banking
business, Mitigation Resources of North America® ("MRNA"), and
As of
All financial statement line items below operating profit (other income, including interest expense and interest income, the provision for income taxes and net income) are presented and discussed within this Form 10-Q on a consolidated basis.
The Company has continued to operate as an essential business during the COVID-19 pandemic because it supports critical infrastructure industries. The Company has procedures to limit the exposure of employees to the spread of COVID-19. The extent to which COVID-19 impacts the Company going forward will depend on numerous factors and future developments that remain uncertain.
The Company's operating segments are further described below:
Coal Mining Segment
The Coal Mining segment operates surface coal mines under long-term contracts
with power generation companies and activated carbon producers pursuant to a
service-based business model. Coal is surface-mined in
During the six months ended
The contract mining agreement between Camino Real and its customer,
Camino Real issued a Notice of Payment Default on
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additional costs incurred through the
As of
Coteau, Coyote, Falkirk, MLMC and Sabine supply lignite coal for power generation. Bisti supplies sub-bituminous coal for power generation. Caddo Creek and Demery supply lignite coal for the production of activated carbon. Each of these mines deliver their coal production to adjacent or nearby power plants, synfuels plants or activated carbon processing facilities under long-term supply contracts. Each operating mine is the exclusive supplier of coal to its customers' facilities.
This segment has a strong history of customer retention due to the long-term nature of its contracts and the proximity of the Company's mines to its customers' facilities. The operating mines' contract expiration dates range from 2022 through 2045. The contract that expires in 2022 may be extended for three additional periods of five years each, or until 2037, at the Company's option.
On
As noted in the announcement, GRE is willing to consider opportunities to sell
At all operating coal mines other than MLMC, the Company is paid a management
fee per ton of coal or heating unit (MMBtu) delivered. Each contract specifies
the indices and mechanics by which fees change over time, generally in line with
broad measures of
All operating coal mines other than MLMC meet the definition of a variable
interest entity ("VIE"). In each case, NACCO is not the primary beneficiary of
the VIE as it does not exercise financial control; therefore, NACCO does not
consolidate the results of these operations within its financial statements.
Instead, these contracts are accounted for as equity method investments. The
income before income taxes associated with these VIE's is reported as Earnings
of unconsolidated operations on the Consolidated Statements of Operations and
the Company's investment is reported on the line Investments in Unconsolidated
Subsidiaries in the Consolidated Balance Sheets. The mines that meet the
definition of a VIE are referred to collectively as the "Unconsolidated
Subsidiaries." For tax purposes, the Unconsolidated Subsidiaries are included
within the NACCO consolidated
Camino Real previously met the definition of a variable interest entity of which the Company was not the primary beneficiary and therefore NACCO did not consolidate Camino Real's results of operations within its financial statements.
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The Notice of Payment Default and subsequent termination of the contract mining
agreement resulted in a reconsideration event, which required reassessment of
the Company's VIE conclusion. As a result of this reconsideration, Camino Real
is no longer a VIE and its financial position is consolidated within NACCO's
financial statements as of
The MLMC contract is the only operating coal contract in which the Company is
responsible for all operating costs, capital requirements and final mine
reclamation; therefore, MLMC is consolidated within NACCO's financial
statements. MLMC sells coal to its customer at a contractually agreed-upon price
which adjusts monthly, primarily based on changes in the level of established
indices which reflect general
MLMC delivers coal to the Red Hills Power Plant in
Centennial Natural Resources ("Centennial"), located in
The coal reserves at Coteau, Falkirk, Coyote, MLMC and Centennial are owned or controlled by the Company. The coal reserves at all other mines are owned or controlled by the respective mine's customer.
The Company performs contemporaneous reclamation activities at each mine in the normal course of operations. Under all of the Unconsolidated Subsidiaries' contracts, the customer has the obligation to fund final mine reclamation activities. Under certain contracts, the Unconsolidated Subsidiary holds the mine permit and is therefore responsible for final mine reclamation activities. To the extent the Unconsolidated Subsidiary performs such final reclamation, it is compensated for providing those services in addition to receiving reimbursement from customers for costs incurred.
The contracts under which certain of the Unconsolidated Subsidiaries operate provide that, under certain conditions, including default, the customer(s) involved may elect or be obligated to acquire the assets (subject to the liabilities) or the capital stock of the Coal Mining subsidiary for an amount effectively equal to book value. The Company does not know of any conditions of default that currently exist.
NAMining Segment
The NAMining segment provides value-added contract mining and other services for
producers of aggregates, lithium and other minerals. The segment is a primary
platform for the Company's growth and diversification outside of the coal
industry. NAMining provides contract mining services for independently owned
mines and quarries, creating value for its customers by performing the mining
aspects of its customers' operations. This allows customers to focus on their
areas of expertise: materials handling and processing, product sales and
distribution. NAMining operates primarily at limestone quarries in
Minerals Management Segment
The Minerals Management segment promotes the development of the Company's gas,
oil and coal reserves, generating income primarily from royalty-based lease
payments from third parties. The Company's gas, oil and undeveloped coal
reserves are located in
The majority of the Company's existing reserves were acquired as part of its historical coal mining operations. The Minerals Management segment derives income primarily by entering into contracts with third-party operators, granting them the rights to
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explore, produce and sell natural resources in exchange for royalty payments based on the lessees' sales of natural gas and, to a lesser extent, oil and coal. Specialized employees in the Minerals Management segment also provide surface and mineral acquisition and lease maintenance services related to Company operations.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Refer to the discussion of the Company's Critical Accounting Policies and
Estimates as disclosed on pages 30 through 32 in the Company's Annual Report on
Form 10-K for the year ended
CONSOLIDATED FINANCIAL SUMMARY
The results of operations for NACCO were as follows for the three and six months endedJune 30 : THREE MONTHS SIX MONTHS 2020 2019 2020 2019 Revenues: Coal Mining$ 21,573 $ 22,570 $ 42,501 $ 39,320 NAMining 12,048 10,728 23,672 21,503 Minerals Management 1,987 8,242 7,228 20,928 Unallocated Items 327 131 353 674 Eliminations (580 ) (319 ) (755 ) (976 ) Total revenue$ 35,355 $ 41,352 $ 72,999 $ 81,449 Operating profit (loss): Coal Mining$ 7,498 $ 7,262 $ 14,683 $ 17,269 NAMining 544 (450 ) 1,275 (385 ) Minerals Management 510 6,789 4,777 18,458 Unallocated Items (4,158 ) (4,732 ) (8,718 ) (9,866 ) Eliminations 88 292 45 58 Total operating profit$ 4,482 $ 9,161 $ 12,062 $ 25,534 Interest expense 330 222 733 453 Interest income (129 ) (581 ) (530 ) (1,134 ) Income from other unconsolidated affiliates (79 ) (323 ) (212 ) (645 ) Closed mine obligations 390 330 824 696 Gain on equity securities (1,512 ) (261 ) (316 ) (959 ) Other, net (102 ) 11 (117 ) 22 Other (income) expense, net (1,102 ) (602 ) 382 (1,567 ) Income before income tax (benefit) provision 5,584 9,763 11,680 27,101 Income tax (benefit) provision (466 ) 1,788 (536 ) 4,108 Net income$ 6,050 $ 7,975 $ 12,216 $ 22,993 Effective income tax rate (8.3 )% 18.3 % (4.6 )% 15.2 %
The components of the change in revenues and operating profit are discussed below in "Segment Results."
Second Quarter of 2020 Compared with Second Quarter of 2019 and First Six Months of 2020 Compared with First Six Months of 2019
Other expense (income), net
Interest expense increased in the second quarter and the first six months of
2020 compared with the 2019 periods by
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Interest income decreased in the second quarter and the first six months of 2020
compared with the 2019 periods by
Income from other unconsolidated affiliates represents the financial results of
NoDak. NoDak operated and maintained a coal drying system at a customer's power
plant. The NoDak contract expired on
Gain on equity securities represents changes in the market price of invested assets reported at fair value. The change in the gains during the second quarter of 2020 and the first six months of 2020 compared with the gains during the 2019 periods was due to higher returns on invested assets during the second quarter of 2020 but lower returns on invested assets in the first quarter of 2020. See Note 6 to the Unaudited Condensed Consolidated Financial Statements for further discussion of equity securities.
Income Taxes
The Company evaluates and updates its estimated annual effective income tax rate on a quarterly basis based on current and forecasted operating results and tax laws. Consequently, based upon the mix and timing of actual earnings compared to projections of earnings between entities that benefit from percentage depletion and those that do not, the effective tax rate may vary quarterly. The quarterly income tax provision is generally comprised of tax expense on income or a benefit on a loss at the most recent estimated annual effective income tax rate, adjusted for the effect of discrete items.
On
LIQUIDITY AND CAPITAL RESOURCES OF NACCO
Cash Flows
The following tables detail NACCO's changes in cash flow for the six months
ended
2020 2019 Change
Operating activities:
Net cash (used for) provided by operating activities $ (12,489 ) $ 22,088 $ (34,577 ) Investing activities: Expenditures for property, plant and equipment (12,799 ) (5,967 ) (6,832 ) Other
(1,845 ) 15 (1,860 )
Net cash used for investing activities (14,644 ) (5,952 ) (8,692 )
Cash flow before financing activities $ (27,133 ) $ 16,136 $ (43,269 ) The
The change in net cash used for investing activities was primarily attributable to an increase in expenditures for property, plant and equipment at the NAMining and Coal Mining segments.
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2020 2019 Change
Financing activities:
Net additions to long-term debt and revolving
credit agreement $ 3,479 $ 895 $ 2,584
Cash dividends paid (2,690 ) (2,480 ) (210 )
Purchase of treasury shares (1,002 ) (1,385 ) 383
Net cash used for financing activities $ (213 ) $ (2,970 ) $ 2,757 The change in net cash used for financing activities was primarily due to increased borrowings during the first six months of 2020 compared with the first six months of 2019.
Financing Activities
Financing arrangements are obtained and maintained at the NACoal level. NACCO has not guaranteed any borrowings of NACoal. The borrowing agreements at NACoal allow for the payment to NACCO of dividends and advances under certain circumstances. Dividends (to the extent permitted by NACoal's borrowing agreement) and management fees are the primary sources of cash for NACCO and enable the Company to pay dividends to stockholders.
The Company believes funds available from cash on hand, the NACoal Facility and operating cash flows will provide sufficient liquidity to meet its operating needs and commitments arising during the next twelve months and until the expiration of the NACoal Facility.
NACoal has an unsecured revolving line of credit of up to
The NACoal Facility has performance-based pricing, which sets interest rates
based upon NACoal achieving various levels of debt to EBITDA ratios, as defined
in the NACoal Facility. Borrowings bear interest at a floating rate plus a
margin based on the level of debt to EBITDA ratio achieved. The applicable
margins, effective
The NACoal Facility contains restrictive covenants, which require, among other
things, NACoal to maintain a maximum debt to EBITDA ratio of 3.00 to 1.00 and an
interest coverage ratio of not less than 4.00 to 1.00. The NACoal Facility
provides the ability to make loans, dividends and advances to NACCO, with some
restrictions based on maintaining a maximum debt to EBITDA ratio of 2.00 to
1.00, or if greater than 2.00 to 1.00, a Fixed Charge Coverage Ratio of 1.10 to
1.00, in conjunction with maintaining unused availability thresholds of
borrowing capacity, as defined in the NACoal Facility, of
Capital Expenditures
Expenditures for property, plant and equipment were
In the Coal Mining segment, elevated levels of expected capital expenditures through 2021 are primarily related to spending at MLMC as it develops a new mine area. In the Minerals Management segment, capital expenditures in 2020 are primarily for the acquisition of mineral interests and other purchases. In the NAMining segment, capital expenditures in 2020 are primarily for the acquisition, relocation and refurbishment of draglines.
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Capital Structure
NACCO's consolidated capital structure is presented below:
JUNE 30 DECEMBER 31
2020 2019 Change
Cash and cash equivalents $ 95,546 $ 122,892 $ (27,346 )
Other net tangible assets 216,637 174,465 42,172
Intangible assets, net 36,333 37,902 (1,569 )
Net assets 348,516 335,259 13,257
Total debt (28,423 ) (24,943 ) (3,480 )
Bellaire closed mine obligations (20,822 ) (20,924 ) 102
Total equity $ 299,271 $ 289,392 $ 9,879
Debt to total capitalization 9% 8% 1%
The increase in other net tangible assets was primarily due to payments made for
deferred compensation and accrued incentive compensation as well as an increase
in accounts receivable at
Contractual Obligations, Contingent Liabilities and Commitments
Since
SEGMENT RESULTS
COAL MINING SEGMENT
FINANCIAL REVIEW
Tons of coal delivered by the Coal Mining segment were as follows for the three
and six months ended
THREE MONTHS SIX MONTHS
2020 2019 2020 2019
Unconsolidated operations 6.0 6.9 13.6 15.5
Consolidated operations 0.8 0.9 1.6 1.5
Total tons delivered 6.8 7.8 15.2 17.0
The results of operations for the Coal Mining segment were as follows for the
three and six months ended
THREE MONTHS SIX MONTHS
2020 2019 2020 2019
Revenues $ 21,573 $ 22,570 $ 42,501 $ 39,320
Cost of sales 19,861 21,254 41,135 37,178
Gross profit 1,712 1,316 1,366 2,142Earnings of unconsolidated operations(a) 12,800 13,529 27,827 29,310 Selling, general and administrative expenses 6,222 6,714 12,941 12,685 Amortization of intangible assets
792 881 1,569 1,528
Gain on sale of assets - (12 ) - (30 )
Operating profit $ 7,498 $ 7,262 $ 14,683 $ 17,269 (a) See Note 7 to the Unaudited Condensed Consolidated Financial Statements for a discussion of the Company's unconsolidated subsidiaries, including summarized financial information.
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Second Quarter of 2020 Compared with Second Quarter of 2019
Revenues decreased 4.4% in the second quarter of 2020 compared with the second quarter of 2019 due to a reduction in tons delivered. This was partially offset by an increase in the per ton sales price at MLMC. The sales price at MLMC is index-based and includes adjustments for coal quality and reimbursable costs.
The following table identifies the components of change in operating profit for the second quarter of 2020 compared with the second quarter of 2019:
Operating Profit
2019 $ 7,262
Increase (decrease) from:
Selling, general and administrative expenses 492
Gross profit 396
Amortization of intangibles 89
Earnings of unconsolidated operations (729 )
Net gain on sale of assets (12 )
2020 $ 7,498
Operating profit increased
The decrease in earnings of unconsolidated operations was mainly due to lower
customer demand at Sabine, Bisti and Camino, partially offset by an increase in
customer demand at Coyote Creek and Falkirk. Sabine delivers coal to
First Six Months of 2020 Compared with First Six Months of 2019
Revenues increased 8.1% in the first six months of 2020 compared with the first
six months of 2019 due to an increase in MLMC's sales price and tons delivered.
The sales price at MLMC is index-based and includes adjustments for coal quality
and reimbursable costs. MLMC delivers coal to the Red Hills Power Plant, which
supplies electricity to
The following table identifies the components of change in operating profit for the first six months of 2020 compared with the first six months of 2019:
Operating Profit
2019 $ 17,269
Increase (decrease) from:
Earnings of unconsolidated operations (1,483 )
Gross profit (776 )
Selling, general and administrative expenses (256 )
Amortization of intangibles (41 )
Net gain on sale of assets (30 )
2020 $ 14,683
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Operating profit decreased
The decrease in earnings of unconsolidated operations was mainly due to lower customer demand, primarily at Sabine, Camino and Bisti, partially offset by an increase in customer demand at Coyote Creek and Falkirk. For more information about the unconsolidated operations, see the Second Quarter discussion above.
The decrease in gross profit was primarily due to an increase in the cost per ton delivered at MLMC, including the recognition of a portion of costs previously capitalized into inventory. The increase in selling, general and administrative expenses was primarily attributable to higher outside service fees partially offset by lower employee-related expenses.
NORTH AMERICAN MINING ("NAMining") SEGMENT
FINANCIAL REVIEW
Tons of limestone delivered by the NAMining segment were as follows for the
three and six months ended
THREE MONTHS SIX MONTHS
2020 2019 2020 2019
Unconsolidated operations 2.2 2.5 4.4 4.4 Consolidated operations 8.6 9.3 18.9 19.1 Total tons delivered 10.8 11.8 23.3 23.5
The results of operations for the NAMining segment were as follows for the three
and six months ended
THREE MONTHS SIX MONTHS
2020 2019 2020 2019
Revenues $ 12,048 $ 10,728 $ 23,672 $ 21,503
Cost of sales 11,408 10,473 21,989 20,473
Gross profit 640 255 1,683 1,030Earnings of unconsolidated operations(a) 978 614 1,954 1,103 Selling, general and administrative expenses 1,321 1,326 2,609 2,525 Gain on sale of assets
(247 ) (7 ) (247 ) (7 )
Operating profit (loss) $ 544 $ (450 ) $ 1,275 $ (385 ) (a) See Note 7 to the Unaudited Condensed Consolidated Financial Statements for a discussion of the Company's unconsolidated subsidiaries, including summarized financial information.
Second Quarter of 2020 Compared with Second Quarter of 2019
Despite a reduction in tons delivered, revenues increased 12.3% in the second
quarter of 2020 compared with the second quarter of 2019 primarily due to new
operations added since
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The following table identifies the components of change in operating profit (loss) for the second quarter of 2020 compared with the second quarter of 2019:
Operating Profit (Loss)
2019 $ (450 )
Increase (decrease) from:
Gross profit 385
Earnings of unconsolidated operations 364
Net gain on sale of assets 240
Selling, general and administrative expenses 5
2020 $ 544
Operating profit increased
First Six Months of 2020 Compared with First Six Months of 2019
Despite a reduction in tons delivered, revenues increased 10.1% in the first six
months of 2020 compared with the first six months of 2019 primarily due to new
operations added since
The following table identifies the components of change in operating profit (loss) for the first six months of 2020 compared with the first six months of 2019:
Operating Profit (Loss)
2019 $ (385 )
Increase (decrease) from:
Earnings of unconsolidated operations 851
Gross profit 653
Net gain on sale of assets 240
Selling, general and administrative expenses (84 )
2020 $ 1,275
Operating profit increased
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Table of Contents MINERALS MANAGEMENT SEGMENT FINANCIAL REVIEW
The results of operations for the Minerals Management segment were as follows
for the three and six months ended
THREE MONTHS SIX MONTHS
2020 2019 2020 2019
Revenues $ 1,987 $ 8,242 $ 7,228 $ 20,928
Cost of sales 558 1,262 1,256 2,088
Gross profit 1,429 6,980 5,972 18,840Selling, general and administrative expenses 919 191 1,195 382 Operating profit
$ 510 $ 6,789 $ 4,777 $ 18,458
Revenues and operating profit decreased in the three and six months ended
UNALLOCATED ITEMS AND ELIMINATIONS
FINANCIAL REVIEW
Unallocated Items and Eliminations were as follows for the three and six months
ended
THREE MONTHS SIX MONTHS
2020 2019 2020 2019
Operating loss
Operating loss decreased in the three and six months ended
Coal Mining Outlook In the second half and for the full year of 2020, the Company expects coal deliveries and Coal Mining operating profit to decrease from the respective prior year periods.
In the prior year fourth quarter, the Company recorded a
In the second half of 2020, earnings at MLMC are expected to be comparable to the second half of 2019. An anticipated improvement in customer demand resulting from an expected increase in the dispatch of the customer's power plant is expected to be offset by an increase in the cost per ton delivered. If customer demand at MLMC decreases from expected levels, it could unfavorably affect the Company's 2020 earnings outlook.
Excluding the unfavorable 2019 mine reclamation adjustment, 2020 full-year operating profit is expected to decrease from 2019 due to a reduction in earnings at the unconsolidated mining operations and the expected increase in operating expenses. Operating expenses are expected to increase moderately for the full year.
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Changes in dispatch, including changes due to historically low natural gas prices and the continued increase in renewable generation, particularly wind, could reduce customer demand below anticipated levels which would unfavorably affect the Company's second half and full-year 2020 outlook.
Capital expenditures are expected to be approximately
On
As mentioned above, the contract between Camino Real and DRCP was unexpectedly
terminated effective
NAMining Outlook In the second half and full year of 2020, NAMining expects limestone deliveries to increase modestly from the respective prior year periods.
NAMining expects operating profit in the second half of 2020 to improve over the second half of 2019, but decrease significantly from the first half of 2020. Operating profit is expected to benefit from earnings associated with new limestone mining contracts and favorable changes in the mix of customer requirements. Full-year 2020 operating profit is expected to increase significantly over 2019.
Capital expenditures are expected to be approximately
In 2019, NAMining's subsidiary,
Minerals Management Outlook The Minerals Management segment derives income from royalty-based leases under which lessees make payments to the Company based on their sale of natural gas and, to a lesser extent, oil, natural gas liquids and coal, extracted primarily by third parties. The 2019 results included a substantial increase in royalty income, particularly in the first half of 2019, generated by a large number of new gas wells put into commission during 2018 and early 2019. Given expected lower natural gas prices, fewer expected new wells and the natural production decline that occurs early in the life of a well, full-year 2020 royalty income is expected to decrease and be substantially lower than 2019 levels. While royalty income is expected to decrease in the second half of 2020 compared with the second half of 2019, the rate of decrease is expected to be substantially lower than the decrease in the first half of 2020 because prior year income significantly decreased between the first and the second halves of the year. Natural gas pricing declines and reduced business activity due to the COVID-19 pandemic have resulted in higher-than-average natural gas inventory market levels. A sustained decline in natural gas prices could unfavorably affect the Company's outlook.
Decline rates for individual wells can vary due to factors like well depth, well length, formation pressure and facility design. In addition, royalty income can fluctuate favorably or unfavorably in response to a number of factors outside of the Company's control, including the number of wells being operated by third parties, fluctuations in commodity prices (primarily natural gas), fluctuations in production rates associated with operator decisions, regulatory risks, the Company's lessees' willingness and
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ability to incur well-development and other operating costs, and changes in the availability and continuing development of infrastructure.
Minerals Management capital expenditures are expected to total approximately
Consolidated Outlook
NACCO expects a significant decrease in full-year 2020 consolidated net income
compared with 2019, primarily due to the substantial decrease in operating
profit at Minerals Management in the first half of 2020, the anticipated
reduction in earnings at the Coal Mining segment and the absence of
In 2020, cash flow before financing activities is expected to be a use of cash
due to significant capital expenditures and payments made in the first half of
the year related to deferred compensation and other payroll liabilities.
Consolidated capital expenditures are expected to be approximately
Significant uncertainties exist regarding the COVID-19 pandemic, including the extent of economic disruption it may cause in the future. While the Company's operations to date have not been materially affected by the pandemic, future developments, which are highly uncertain and unpredictable, could change the Company's status significantly and rapidly, and could have a material adverse effect on the Company's operations, supply chain and customers. The extent to which COVID-19 may adversely impact the Company depends on many factors, including but not limited to the extent of new outbreaks as communities reopen, the extent to which additional lockdowns may be needed, the nature of the government public health guidelines and the public's adherence to those guidelines, the success of businesses reopening, and the timing for proven treatments and vaccines for COVID-19. Even after the COVID-19 pandemic has subsided, the Company may experience material adverse effects due to a resulting decline in economic activity. Additionally, concerns over the economic impact of COVID-19 have caused extreme volatility in financial and other capital markets and may continue to adversely impact NACCO's stock price.
One of the Company's core strategies is to pursue activities which can strengthen the resiliency of its existing coal mining operations. The Company works to drive down coal production costs and maximize efficiencies and operating capacity at mine locations to help customers with management fee contracts be more competitive. This benefits both customers and the Company's Coal Mining segment, as fuel cost is the major driver for power plant dispatch. Increased power plant dispatch drives increased demand for coal by the Coal Mining segment's customers, just as lower dispatch reduces demand.
The Company continues to evaluate opportunities to expand its coal mining
business, however opportunities are likely to be very limited. Low natural gas
prices and growth in renewable energy sources, such as wind and solar, could
continue to unfavorably affect the amount of electricity dispatched from
coal-fired power plants. The political and regulatory environment is not
generally receptive to development of new coal-fired power generation projects
which would create opportunities to build and operate new coal mines. However,
the Company does continue to seek out and pursue opportunities where it can
apply its management fee business model to replace legacy operators of existing
surface coal mining operations in
The Company is focused on building a strong portfolio of affiliated businesses
for diversification. NAMining continues to expand the scope of its business
development activities to grow and diversify by targeting potential customers
who require a broad range of minerals and materials. NAMining also continues to
leverage the Company's core mining skills to expand the range of contract mining
services provided, in addition to providing comprehensive mining services to
operate entire mines when appropriate, as is the case at the new lithium project
in
The Company's efforts to grow and diversify the Minerals Management segment
includes evaluating acquisitions of additional mineral interests or similar
investments in the energy industry. The Company's primary initial focus will be
on diversifying acquisitions of mineral interests with a balance of near-term
cash flow yields and upside potential from future development. During the second
quarter of 2020, the Company's subsidiary,
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Mitigation Resources of North America® was formed to create and sell stream and wetland mitigation credits and provide services to those engaged in permittee-responsible mitigation. This business has achieved several early successes and is positioned for additional growth.
The Company is leveraging its core mining skills to develop a strong and diverse portfolio of service-based businesses operating in the mining and natural resources industries. The Company is also committed to maintaining a conservative capital structure while it grows and diversifies without unnecessary risk. Ultimately, diversified strategic growth is the key to increasing free cash flow available to continue to re-invest in and expand the businesses. The Company also continues to maintain the highest levels of customer service and operational excellence, with an unwavering focus on safety and environmental stewardship.
FORWARD-LOOKING STATEMENTS
The statements contained in this Form 10-Q that are not historical facts are
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These
forward-looking statements are made subject to certain risks and uncertainties,
which could cause actual results to differ materially from those presented.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof. The Company undertakes no
obligation to publicly revise these forward-looking statements to reflect events
or circumstances that arise after the date hereof. Among the factors that could
cause plans, actions and results to differ materially from current expectations
are, without limitation: (1) changes to or termination of a long-term mining
contract, or a customer default under a contract, including any actions taken
related to
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changes in mining permit requirements or delays in obtaining mining permits that could affect deliveries to customers, (7) weather conditions, extended power plant outages, liquidity events or other events that would change the level of customers' coal or aggregates requirements, (8) weather or equipment problems that could affect deliveries to customers, (9) failure or delays by the Company's lessees in achieving expected production of natural gas and other hydrocarbons; the availability and cost of transportation and processing services in the areas where the Company's oil and gas reserves are located; federal and state legislative and regulatory initiatives relating to hydraulic fracturing; and the ability of lessees to obtain capital or financing needed for well development operations, (10) changes in the costs to reclaim mining areas, (11) costs to pursue and develop new mining and value-added service opportunities, (12) delays or reductions in coal or aggregates deliveries, (13) changes in the prices of hydrocarbons, particularly diesel fuel, natural gas and oil, and (14) increased competition, including consolidation within the coal and aggregates industries.
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