SISECAM RESOURCES LP You should read the following management's discussion and analysis of financial condition and results of operations in conjunction with the historical unaudited condensed consolidated financial statements, and notes thereto, included elsewhere in this Report.
Cautionary Statements Regarding Forward-Looking Statements
This Report contains, and our other public filings and oral and written statements by us and our management may include, statements that constitute "forward-looking statements" within the meaning ofthe United States securities laws. Forward-looking statements include the information concerning our possible or assumed future results of operations, reserve estimates, business strategies, financing plans, competitive position, potential growth opportunities, potential operating performance, the effects of competition and the effects of future legislation or regulations. Forward-looking statements include all statements that are not historical facts and may be identified by the use of forward-looking terminology such as the words "believe," "expect," "plan," "intend," "anticipate," "estimate," "predict," "forecast," "project," "potential," "continue," "may," "will," "could," "should" or the negative of these terms or similar expressions. Examples of forward-looking statements include, but are not limited to, statements concerning cash available for distribution and future distributions, if any, and such distributions are subject to the approval of the board of directors of our general partner and will be based upon circumstances then existing. We have based our forward-looking statements on management's beliefs and assumptions and on information currently available to us. Forward-looking statements involve risks, uncertainties and assumptions. You are cautioned not to place undue reliance on any forward-looking statements. Actual results may vary materially. You should also understand that it is not possible to predict or identify all such factors and should not consider the following list to be a complete statement of all potential risks and uncertainties. Factors that could cause our actual results to differ materially from the results contemplated by such forward-looking statements and, therefore, affect our ability to distribute cash to unitholders, include:
•the market prices for soda ash in the markets in which we sell;
•the volume of natural and synthetic soda ash produced worldwide;
•domestic and international demand for soda ash in the flat glass, container glass, detergent, chemical and paper industries in which our customers operate or serve; •the freight costs we pay to transport our soda ash to customers or various delivery points and recent disruptions in the global supply chain and overall port congestion;
•the cost of electricity and natural gas used to power our operations;
•the amount of royalty payments we are required to pay to our lessors and licensor and the duration of our leases and license;
•political disruptions in the markets we or our customers serve, including any changes in trade barriers;
•our relationships with our customers and our sales agent's ability to renew contracts on favorable terms to us;
•the creditworthiness of our customers;
•a cybersecurity event;
•the impact of war on the global economy, energy supplies and raw materials;
•the short and long term impact of the COVID-19 pandemic, including the impact of mandated quarantines in theU.S. and abroad and other COVID-19 related government orders pertaining to or otherwise affecting our employees, suppliers, customers, supply chains and operations and the ultimate effectiveness of vaccines and related programs on new variants of the virus;
•the impact of the CoC Transaction and the ANSAC exit and our transition to the utilization of our global distribution network;
•regulatory action affecting the supply of, or demand for, soda ash, our ability to mine trona ore, our transportation logistics, our operating costs or our operating flexibility;
•new or modified statutes, regulations, governmental policies and taxes or their interpretations; and
•prevailing
25
--------------------------------------------------------------------------------•the outcome of the non-binding proposal made by Sisecam Chemicals to acquire all of our issued and outstanding common units not already owned by Sisecam Chemicals or its affiliates.
In addition, the actual amount of cash we will have available for distribution will depend on other factors, some of which are beyond our control, including, among other things:
•the level and timing of capital expenditures we make;
•the level of our operating, maintenance and general and administrative expenses, including reimbursements to our general partner for services provided to us;
•the cost of acquisitions, if any;
•our debt service requirements and other liabilities;
•fluctuations in our working capital needs;
•our ability to borrow funds and access capital markets;
•restrictions on distributions contained in debt agreements to which Sisecam Wyoming is a party;
•the amount of cash reserves established by our general partner; and
•other business risks affecting our cash levels.
These factors should not be construed as exhaustive and we urge you to carefully consider the risks described in this Report, our most recent Annual Report on Form 10-K for the year endedDecember 31, 2021 filed with theSEC onMarch 15, 2022 (the "2021 Annual Report") and subsequent reports filed with theUnited States Securities and Exchange Commission (the "SEC"). You may obtain these reports from theSEC's website at www.sec.gov. All forward-looking statements included in this Report are expressly qualified in their entirety by these cautionary statements. Unless required by law, we undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise.
References
References in this Quarterly Report on Form 10-Q ("Report") to the
"Partnership," "SIRE," "we," "our," "us," or like terms refer to Sisecam
Resources LP and its subsidiary, Sisecam Wyoming LLC , which is the consolidated
subsidiary of the Partnership and referred to herein as "Sisecam Wyoming."
Sisecam Chemicals Resources LLC ("Sisecam Chemicals") is 60% owned by Sisecam
Chemicals USA Inc. ("Sisecam USA ") and 40% owned by Ciner Enterprises Inc.
("Ciner Enterprises "). References to "our general partner" or "Sisecam GP" refer
to Sisecam Resource Partners LLC , the general partner of Sisecam Resources LP
and a direct wholly-owned subsidiary of Sisecam Chemicals Wyoming LLC ("SCW
LLC "), which is a direct wholly-owned subsidiary of Sisecam Chemicals. Sisecam
USA is a direct wholly-owned subsidiary of Türkiye ?i?e ve Cam Fabrikalari A.?,
a Turkish corporation ("?i?ecam Parent"), which is an approximately 51%-owned
subsidiary of Turkiye Is Bankasi Turkiye Is Bankasi ("Isbank"). ?i?ecam Parent
is a global company operating in soda ash, chromium chemicals, flat glass, auto
glass, glassware glass packaging and glass fiber sectors. ?i?ecam Parent was
founded in 1935, is based in Turkey and is one of the largest industrial
publicly-listed companies on the Istanbul exchange. With production facilities
in four continents and in 14 countries, Sisecam Parent is one of the largest
glass and chemicals producers in the world. Ciner Enterprises Inc. is a direct
wholly-owned subsidiary of WE Soda Ltd. , a U.K. Corporation ("WE Soda"). WE Soda
is a direct wholly-owned subsidiary of KEW Soda Ltd. , a U.K. corporation ("KEW
Soda"), which is a direct wholly-owned subsidiary of Akkan Enerji ve Madencilik
Anonim ?irketi ("Akkan"). Akkan is directly and wholly owned by Turgay Ciner ,
the Chairman of the Ciner Group ("Ciner Group "), a Turkish conglomerate of
companies engaged in energy and mining (including soda ash mining), media and
shipping markets. All of our soda ash processed is sold to various domestic and
international customers.
Overview
We are a Delaware limited partnership formed by SCW LLC to own a 51.0%
membership interest in, and to operate the trona ore mining and soda ash
production business of Sisecam Wyoming. Sisecam Wyoming is currently one of the
world's largest producers of soda ash, serving a global market from its facility
in the Green River Basin of Wyoming . Our facility has been in operation for more
than 50 years.
Recent Developments
Take Private Proposal
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On July 6, 2022 , the board of directors of our general partner received a
non-binding offer letter from Sisecam Chemicals to acquire all of our issued and
outstanding common units not already owned by Sisecam Chemicals or its
affiliates in exchange for $17.90 in cash per issued and outstanding publicly
held common unit of the Partnership, which represents the thirty day volume
weighted average price per common unit, as of July 5, 2022 (the "Proposal"). The
board of directors of our general partner has delegated authority to review,
evaluate and negotiate the Proposal to its conflicts committee. The conflicts
committee continues to evaluate the Proposal. The proposed transaction is
subject to a number of contingencies, including the approval of the conflicts
committee of the board of directors of our general partner, and the satisfaction
of any conditions to the consummation of a transaction set forth in any
definitive agreement concerning the transaction. There can be no assurance that
such definitive documentation will be executed or that any transaction will
materialize on the terms described above or at all.
Quarterly Distribution
Our general partner has considerable discretion in determining the amount of available cash, the amount of distributions and the decision to make any distribution. Although our partnership agreement requires that we distribute all of our available cash quarterly, there is no guarantee that we will make quarterly cash distributions to our unitholders, and we have no legal obligation to do so. In connection with the CoC Transaction, the new controlling ownership of our general partner continues to refine the financial, liquidity, capital expenditures and distribution strategy for the Partnership. The new controlling ownership is committed to maintaining a disciplined financial policy with a conservative capital structure that considers amongst other things current and anticipated investments and economic uncertainties. OnJuly 29, 2022 , the Partnership declared a cash distribution approved by the board of directors of its general partner. The cash distribution for the second quarter of 2022 of 0.50 per unit will be paid onAugust 23, 2022 to unitholders of record onAugust 10, 2022 . See Part I, Item 1, Financial Statements - Note 13, "Subsequent Events", for more information We intend to pay a sustainable quarterly distribution to unitholders of record over time, to the extent we have sufficient cash from our operations after establishment of cash reserves and payment of fees and expenses, including payments to our general partner and its affiliates. There is no guarantee that we will make quarterly cash distributions to our unitholders, however, and other than as set forth in our partnership agreement, we do not have a legal obligation to do so.
Factors Affecting Our Results of Operations
Soda Ash Supply and Demand
Our net sales, earnings and cash flow from operations are primarily affected by the global supply of, and demand for, soda ash, which, in turn, directly impacts the prices that we and other producers charge for our products. Historically, long-term demand for soda ash inthe United States has been driven in large part by general economic growth and activity levels in the end-markets that the glass-making industry serves, such as the automotive and construction industries. Long-term soda ash demand in international markets has grown in conjunction with Gross Domestic Product. We expect that over the long-term, future global economic growth will positively influence global demand, which will likely result in increased exports, primarily fromthe United States ,Turkey and to a limited extent, fromChina , the largest suppliers of soda ash to international markets. Supply chain disruption, however, continues to have acute impacts to the demand of select customers.
Sales Mix
We will adjust our sales mix based upon what is the best margin opportunity for
the business between domestic and international. Our operations have been and
continue to be sensitive to fluctuations in freight and shipping costs and
changes in international prices, which have historically been more volatile than
domestic prices. Our gross profit will be impacted by the mix of domestic and
international sales as a result of changes in logistics costs and our average
selling prices.
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--------------------------------------------------------------------------------International Export Capabilities
As previously disclosed, Sisecam Chemicals, an affiliate of the Partnership, terminated its membership in ANSAC effectiveDecember 31, 2020 . As ofJanuary 1, 2021 , Sisecam Chemicals began managing the Partnership's export sales and marketing efforts. In connection with the settlement agreement with ANSAC, Sisecam Chemicals continued to sell, at substantially lower volumes, product to ANSAC for export sales purposes in 2021 and the six months endedJune 30, 2022 , with a fixed rate per ton selling, general and administrative expense. In connection with the settlement agreement with ANSAC, there remains minor sales commitments to ANSAC in 2022 where Sisecam Chemicals will continue to sell, at substantially lower volumes than 2021, product to ANSAC for export sales purposes, with a fixed rate per ton selling, general and administrative expense. The ANSAC exit allowed Sisecam Chemicals to improve access to customers and gain control over placement of its sales in the international marketplace beginning in 2021. This enhanced view of the global market allows Sisecam Chemicals to better understand supply/demand fundamentals thus allowing better decision making for its business. Sisecam Chemicals continues to optimize its distribution network leveraging strengths of existing distribution partners while expanding as our business requires in certain target areas. Although ANSAC has historically been our largest customer, the impact of Sisecam Chemicals' exit from ANSAC on our net sales, net income and liquidity was limited. With a low-cost position and improved access to international customers and control over placement of its sales in the international marketplace and logistics, we have adequately replaced these net sales made under the former agreement with ANSAC. Energy Costs One of the primary impacts to our profitability is our energy costs. Because we depend upon natural gas and electricity to power our trona ore mining and soda ash processing operations, our net sales, earnings and cash flow from operations are sensitive to changes in the prices we pay for these energy sources. Due to the historic volatility of natural gas prices, we expect to continue to hedge a portion of our forecasted natural gas purchases to mitigate volatility. The Partnership has a natural gas-fired turbine co-generation facility that is capable of providing roughly one-third of our electricity and steam demands at our mine in theGreen River Basin and that mitigates the Partnership's exposure to volatile energy costs. In a normal production environment, the facility is expected to provide us over 180.0 million kWh of electricity annually. 28 --------------------------------------------------------------------------------
How We Evaluate Our Business
Productivity of Operations
Our soda ash production volume is primarily dependent on the following three factors: (1) operating rate, (2) quality of our mined trona ore and (3) recovery rates. Operating rate is a measure of utilization of the effective production capacity of our facility and is determined in large part by productivity rates and mechanical on-stream times, which is the percentage of actual run times over the total time scheduled. We implement two planned outages of our mining and surface operations each year, typically in the second and third quarters. During these outages, which are scheduled to last approximately one week each, we repair and replace equipment and parts. Periodically, we may experience minor unplanned outages or unplanned extensions to planned outages caused by various factors, including equipment failures, power outages or service interruptions. The quality of our mine ore, which we refer to as our "ore grade," is determined by measuring the trona ore recovered as a percentage of the deposit, which includes both trona ore and insolubles. Plant recovery rates are generally determined by calculating the soda ash produced divided by the sum of the soda ash produced plus soda ash that is not recovered from the process. All of these factors determine the amount of trona ore we require to produce one short ton of soda ash and liquor, which we refer to as our "ore to ash ratio." Our ore to ash ratio was 1.61 :1.0 and 1.58: 1.0 for the three and six months endedJune 30, 2022 , respectively, and 1.52: 1.0 and 1.58: 1.0 for the three and six months endedJune 30, 2021 , respectively.
Freight and Logistics
The soda ash industry is logistics intensive and involves careful management of freight and logistics costs. These freight costs make up a large portion of the total delivered cost to the customer. Delivery costs to most domestic customers and ANSAC primarily relate to rail freight services. Some domestic customers may elect to arrange their own freight and logistic services. Delivered costs to non-ANSAC international customers primarily consists of both rail freight services to the port of embarkation and the additional ocean freight to the port of disembarkation. Sisecam Chemicals enters into contracts with one railroad company for the majority of the domestic rail freight services that the Partnership receives and the related freight and logistics costs are allocated to the Partnership. For the six months endedJune 30, 2022 and 2021, the Partnership shipped over 90% of our soda ash to our customers initially via a single rail line owned and controlled by the railroad company. The Partnership's plant receives rail service exclusively from the railroad company and shipments by rail accounted for over 50% and over 60% of our total freight costs for three months endedJune 30, 2022 and 2021, respectively, and over 50% and over 60% of our total freight costs for six months endedJune 30, 2022 and 2021, respectively. The decrease in the percentage of freight that is related to the railroad company is due primarily to the increased ocean freight in the six months endedJune 30, 2022 of direct international sales and their respective delivery locations. If Sisecam Chemicals does not ship at least a significant portion of our soda ash production on the railroad company's rail line during a twelve-month period, it must pay the railroad company a shortfall payment under the terms of our transportation agreement. The Partnership assists the majority of its domestic customers in arranging their freight services. During 2021 and the six months endedJune 30, 2022 , Sisecam Chemicals had no shortfall payments and does not expect to make any such payments in the future. Sisecam Chemicals renewed its agreement with the railroad company inOctober 2021 , which expires onDecember 31, 2025 .Net Sales Net sales include the amounts we earn on sales of soda ash. We recognize revenue from our sales when we satisfy the performance obligation defined in the contract with the customer. The performance obligation is typically met when goods are delivered to the carrier for shipment, which is the point at which the customer has the ability to direct the use of and obtain substantially all remaining benefits from the asset. The time at which delivery and transfer of title occurs is the point when the product leaves our facilities for domestic customers, the point when the product reaches the port of loading for ANSAC sales, and the point when the product is placed on a vessel for other international customers, thereby rendering our performance obligation fulfilled. Substantially all of our sales are derived from sales of soda ash, which we sell through our exclusive sales agent, Sisecam Chemicals. A small amount of our sales is derived from sales of production purge, which is a by-product liquor solution containing soda ash that is produced during the processing of trona ore. For the purposes of our discussion below, we include these transactions in domestic sales of soda ash and in the volume of domestic soda ash sold. Sales prices for international sales may include the cost of rail freight to the port of embarkation and the cost of ocean freight to the port of disembarkation for import by the customer.
Cost of Products Sold
Expenses relating to employee compensation, energy, including natural gas and
electricity, royalties and maintenance materials constitute the greatest
components of cost of products sold. These costs generally increase in line with
increases in sales volume.
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Energy. A major item in our cost of products sold is energy, comprised primarily
of natural gas and electricity. We primarily use natural gas to fuel our
above-ground processing operations, including the heating of calciners, and we
use electricity to power our underground mining operations, including our
continuous mining machines, or continuous miners, and shuttle cars. The monthly
Northwest Pipeline Rocky Mountain Index natural gas settlement prices, over the
past five years, have ranged between $1.29 and $8.80 . The average monthly
Northwest Pipeline Rocky Mountain Index natural gas settlement prices for the
three months ended June 30, 2022 and 2021 were $6.69 and $2.71 MMBtu,
respectively and for the six months ended June 30, 2022 and 2021 were $6.23 and
$2.86 MMBtu, respectively. The Partnership has a natural gas-fired turbine
co-generation facility that provides roughly one-third of our electricity and
steam demands at our mine in the Green River Basin . In order to mitigate the
risk of gas price fluctuations, the Partnership expects to continue to hedge a
portion of its forecasted natural gas purchases by entering into physical or
financial gas hedges generally ranging between 20% and 80% of our expected
monthly gas requirements, on a sliding scale, for approximately the next three
years.
Employee Compensation. See Part I, Item 1. Financial Statements - Note 6, "Employee Compensation" for information on the various benefit plans offered and administered by Sisecam Chemicals.
Royalties. The Partnership pays royalties to theState of Wyoming , theU.S. Bureau of Land Management andSweetwater Royalties LLC . The royalties are calculated based upon a percentage of the value of soda ash and related products sold at a certain stage in the mining process. These royalty payments may be subject to a minimum domestic production volume from ourGreen River Basin facility. We are also obligated to pay annual rentals to our lessors and licensor regardless of actual sales. In addition, we pay a production tax toSweetwater County , and trona severance tax to theState of Wyoming that is calculated based on a formula that utilizes the volume of trona ore mined and the value of the soda ash produced. The royalty rates we pay to our lessors and licensor may change upon our renewal or renegotiation of such leases and license. OnJune 28, 2018 , Sisecam Wyoming amended its License Agreement, datedJuly 18, 1961 (the "License Agreement"), with a predecessor in interest toSweetwater Royalties LLC , to, among other things, (i) extend the term of the License Agreement toJuly 18, 2061 and for so long thereafter as Sisecam Wyoming continuously conducts operations to mine and remove sodium minerals from the licensed premises in commercial quantities; and (ii) set the production royalty rate for each sale of sodium mineral products produced from ore extracted from the licensed premises at eight percent (8%) of the net sales of such sodium mineral products. Any increase in the royalty rates we are required to pay to our lessors and licensor, or any failure by us to renew any of our leases and license, could have a material adverse impact on our results of operations, financial condition or liquidity, and, therefore, may affect our ability to distribute cash to unitholders. OnDecember 11, 2020 , the Secretary of the Interior authorized an industry-wide royalty reduction from currently set rates by establishing a 2% federal royalty rate for a period of ten years for all existing and future federal soda ash or sodium bicarbonate leases. This change by the Secretary of the Interior reduced the rates on our mineral leases with theU.S. Government from 6% to 2% as ofJanuary 1, 2021 and for the following ten years. Our estimated proven and probable trona reserve includes a significant amount from leases with theU.S. Government . See the sections entitled "Leases and License" and "Trona Resources and Trona Reserves" set forth under Item 1. Business in our 2021 Annual Report for additional information on leases.
Selling, General and Administrative Expenses
Selling, general and administrative expenses incurred by our affiliates on our behalf are allocated to us based on the time the employees of those companies spend on our business and the actual direct costs they incur on our behalf. The Partnership has a Services Agreement (the "Services Agreement"), with our general partner and Sisecam Chemicals. Pursuant to the Services Agreement, Sisecam Chemicals has agreed to provide the Partnership with certain corporate, selling, marketing, and general and administrative services, in return for which the Partnership has agreed to pay Sisecam Chemicals an annual management fee, subject to quarterly adjustments, and reimburse Sisecam Chemicals for certain third-party costs incurred in connection with providing such services. In addition, under the agreement governing Sisecam Wyoming, Sisecam Wyoming reimburses us for employees who operate our assets and for support provided to Sisecam Wyoming. Effective as of the end of day onDecember 31, 2020 , Sisecam Chemicals exited ANSAC. As ofJanuary 1, 2021 , Sisecam Chemicals began managing the Partnership's sales and marketing efforts for exports. In connection with the settlement agreement with ANSAC, Sisecam Chemicals continued to sell, at substantially lower volumes, product to ANSAC for export sales purposes in 2021 and the six months endedJune 30, 2022 , with a fixed rate per ton selling, general and administrative expense. In connection with the settlement agreement with ANSAC, there remains minor sales commitments to ANSAC in 2022 where Sisecam Chemicals will continue to sell, at substantially lower volumes than 2021, product to ANSAC for export sales purposes, with a fixed rate per ton selling, general and administrative expense. Through in part the Partnership's affiliates, the Partnership has amongst other things: (i) obtained its own international customer sales arrangements, (ii) obtained third-party export port services, and (iii) chartered and executed its own international product delivery. 30 --------------------------------------------------------------------------------
Second Quarter 2022 Financial Highlights:
•Net sales of$189.1 million increased 56.7% from the prior-year second quarter; year-to-date net sales of$352.5 million increased 41.9% over the prior year for the same period. This increase is primarily attributable to a sales price increase of 45.7% and the sales volume increase of 7.5% for the three months endedJune 30, 2022 compared to the three months endedJune 30, 2021 . The higher sales price and volume were due to strong demand in the domestic and international markets. •Soda ash volume produced increased 1.7% from the prior-year second quarter, and soda ash volume sold increased 7.5% from the prior-year second quarter; year-to-date soda ash volume produced increased 31.1% from the prior-year, and soda ash volume sold decreased 2.3% from the prior-year for the same period. During the first quarter of 2021, the Partnership experienced an increase in international sales volume associated with the initial impact of direct sales to international customers subsequent to ourDecember 31, 2020 ANSAC exit. •Net income of$31.2 million increased$24.4 million from the prior-year second quarter; year-to-date net income of$63.0 million increased$50.6 million over the prior year for the same period. The increases are primarily due to higher average sales price partly offset by inflationary impact on operating costs. •Adjusted EBITDA of$40.1 million increased 146.0% from the prior-year second quarter; year-to-date Adjusted EBITDA of$79.5 million increased 148.4% over the prior year for the same period. This increase is primarily attributable to the operating income increase.
•Basic earnings per unit of
•Net cash provided by operating activities of$24.7 million decreased$0.1 million over prior-year second quarter; year-to-date net cash provided by operating activities of$32.4 million increased$14.0 million over the prior year in the same period. •Distributable cash flow of$16.1 million increased 973.3% compared to the prior-year second quarter; year-to-date distributable cash flow of$31.2 million increased 403.2% over the prior year for the same period. 31
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Results of Operations
A discussion and analysis of the factors contributing to our results of operations is presented below for the periods and as of the dates indicated. The financial statements, together with the following information, are intended to provide investors with a reasonable basis for assessing our historical operations, but should not serve as the only criteria for predicting our future performance.
The following table sets forth our results of operations for the three and six
months ended
Three Months Ended June 30, Six Months Ended June 30,
(In millions, except for operating and other data
section) 2022 2021 2022 2021
Net sales $ 189.1 $ 120.7 $ 352.5 $ 248.5
Operating costs and expenses:
Cost of products sold 141.6 99.1 259.0 205.7
Depreciation, depletion and amortization expense 7.2 7.7 13.7 16.4
Selling, general and administrative
expenses-affiliates 4.1 4.2 9.5 7.8
Selling, general and administrative expenses-others 3.6 1.4 4.8 3.4
Total operating costs and expenses 156.5 112.4 287.0 233.3
Operating income 32.6 8.3 65.5 15.2
Interest expense (1.4) (1.5) (2.5) (2.8)
Total other expense, net (1.4) (1.5) (2.5) (2.8)
Net income 31.2 6.8 63.0 12.4
Net income attributable to noncontrolling interest 15.8 3.9 31.9 7.1
Net income attributable to
$ 2.9 $ 31.1 $ 5.3 Operating and Other Data: Trona ore consumed (thousands of short tons) 1,076.1 998.5 2,133.3 2,065.4 Ore to ash ratio(1) 1.61 :1.0 1.52: 1.0 1.58: 1.0 1.58: 1.0 Ore grade(2) 86.7 % 86.4 % 86.7 % 85.7 % Soda ash volume produced (thousands of short tons) 668.4 656.6 1,346.2 1,304.7 Soda ash volume sold (thousands of short tons) 698.9 650.2 1,338.8 1,370.1 Adjusted EBITDA(3)$ 40.1 $ 16.3 $ 79.5 $ 32.0 (1)Ore to ash ratio expresses the number of short tons of trona ore needed to produce one short ton of soda ash and liquor and includes our deca rehydration recovery process. In general, a lower ore to ash ratio results in lower costs and improved efficiency. (2)Ore grade is the percentage of raw trona ore that is recoverable as soda ash free of impurities. A higher ore grade will produce more soda ash than a lower ore grade. (3)For a discussion of the non-GAAP financial measure Adjusted EBITDA, please read "Non-GAAP Financial Measures" of this Management's Discussion and Analysis. 32 --------------------------------------------------------------------------------
Analysis of Results of Operations
The following table sets forth a summary of net sales, sales volumes and average sales price, and the percentage change between the periods.
Three Months Ended June 30, Six Months Ended June 30, Percent Increase/(Decrease)
(Dollars in millions, except for 2022 2021 2022 2021 QTD YTD average sales price data) Net sales: Domestic$ 79.0 $ 70.5 $ 148.5 $ 136.8 12.1% 8.6% International 110.1 50.2 204.0 111.7 119.3% 82.6% Total net sales$ 189.1 $ 120.7 $ 352.5 $ 248.5 56.7% 41.9% Sales volumes (thousands of short tons): Domestic 344.7 329.5 658.0 644.9 4.6% 2.0% International 354.2 320.7 680.8 725.2 10.4% (6.1)% Total soda ash volume sold 698.9 650.2 1,338.8 1,370.1 7.5%
(2.3)%
Average sales price (per short ton) (1) Domestic$ 229.18 $ 213.96 $ 225.68 $ 212.13 7.1% 6.4% International$ 310.84 $ 156.53 $ 299.65 $ 154.03 98.6% 94.5% Average$ 270.57 $ 185.64 $ 263.30 $ 181.37 45.7% 45.2% Percent of net sales: Domestic net sales 41.8 % 58.4 % 42.1 % 55.1 % (28.4)% (23.6)% International net sales 58.2 % 41.6 % 57.9 % 44.9 % 39.9%
29.0%
Total percent of net sales 100.0 % 100.0 % 100.0 % 100.0 % Percent of sales volumes: Domestic volume 49.3 % 50.7 % 49.1 % 47.1 % (2.8)% 4.2% International volume 50.7 % 49.3 % 50.9 % 52.9 % 2.8% (3.8)% Total percent of volume sold 100.0 % 100.0 %
100.0 % 100.0 %
(1) Average sales price per short ton is computed as net sales divided by volumes sold.
Three Months Ended
Consolidated Results
Net sales. Net sales increased by 56.7% to$189.1 million for the three months endedJune 30, 2022 from$120.7 million for the three months endedJune 30, 2021 , primarily driven by an increase in international average sales price of 98.6% because the prices are generally negotiated on a quarterly basis with improving supply and demand fundamentals recognized for soda ash in the global market and particularly inAsia . Domestic average price also increased by 7.1% due to customer mix while also factoring in the overall annual market price increase as the market has experienced fundamental improvements. The higher sales price and volume were due to strong demand in the domestic and international markets. See "How We Evaluate Our Business -Net Sales " section for further information. Cost of products sold. Cost of products sold, including depreciation, depletion and amortization expense and freight costs, increased by 39.3% to$148.8 million for the three months endedJune 30, 2022 from$106.8 million for the three months endedJune 30, 2021 , which was primarily due to increases in freight cost, more specifically due to significant ocean freight cost increases impacted by recent global supply chain constraints as well as price increases in fuel. Selling, general and administrative expenses. Our selling, general and administrative expenses increased 37.5% to$7.7 million for the three months endedJune 30, 2022 , compared to$5.6 million for the three months endedJune 30, 2021 . The increase was primarily due to the loss on disposal of assets for the three months endedJune 30, 2022 compared to three months endedJune 30, 2021 . Operating income. As a result of the foregoing, operating income increased by approximately 293% to$32.6 million for the three months endedJune 30, 2022 from a$8.3 million operating income for the three months endedJune 30, 2021 . The increase was due to higher net sales resulting from the higher average price for international customers. 33 -------------------------------------------------------------------------------- Net income. As a result of the foregoing, net income increased by approximately 359% to$31.2 million for the three months endedJune 30, 2022 , from$6.8 million for the three months endedJune 30, 2021 . The increase was due to higher net sales resulting from the higher average price for international customers.
Six Months Ended
Consolidated Results
Net sales. Net sales increased by 41.9% to$352.5 million for the six months endedJune 30, 2022 from$248.5 million for the six months endedJune 30, 2021 , primarily driven by an increase in the average sales price by 45.2% due to both international and domestic higher demand. Additionally, the sales volume in the six months endedJune 30, 2021 , includes significant international sales volumes in the first quarter of 2021 associated with the initial impact of direct sales to international customers subsequent to the Partnership'sDecember 31,2020 ANSAC exit. See How "We Evaluate Our Business -Net Sales " section for further information. Cost of products sold. Cost of products sold, including depreciation, depletion and amortization expense and freight costs, increased by 22.8% to$272.7 million for the six months endedJune 30, 2022 from$222.1 million for the six months endedJune 30, 2021 , which was primarily due to inflationary costs including ocean freight costs and energy costs. Selling, general and administrative expenses. Our selling, general and administrative expenses increased 27.7% to$14.3 million for the six months endedJune 30, 2022 , compared to$11.2 million for the six months endedJune 30, 2021 . The increase was primarily due to the loss on disposal of assets in the three months endedJune 30, 2022 . Operating income. As a result of the foregoing, operating income increased by 330.9% to$65.5 million for the six months endedJune 30, 2022 from$15.2 million for the six months endedJune 30, 2021 . During the six months endedJune 30, 2022 , sales price has increased significantly and sales volume increased due to the strong demand in the international and domestic markets. Net income. As a result of the foregoing, net income increased by 408.1% to$63.0 million for the six months endedJune 30, 2022 , from$12.4 million for the six months endedJune 30, 2021 . During the six months endedJune 30, 2022 , sales price has increased significantly and sales volume increased due to the strong demand in the international and domestic markets.
Liquidity and Capital Resources
Sources of liquidity include cash generated from operations and borrowings under credit facilities and capital calls from partners. We use cash and require liquidity primarily to finance and maintain our operations, fund capital expenditures for our property, plant and equipment, make cash distributions to holders of our partnership interests, pay the expenses of our general partner and satisfy obligations arising from our indebtedness. Our ability to meet these liquidity requirements will depend primarily on our ability to generate cash flow from operations.
Our sources of liquidity include:
•cash generated from our operations of which we had cash on hand of
•approximately$120.0 million ($225.0 million , less$105.0 million outstanding), was available for borrowing and undrawn under the Sisecam Wyoming Credit Facility (as defined herein) as ofJune 30, 2022 (during the six months endedJune 30, 2022 , we made repayments on the Sisecam Wyoming Credit Facility of$55.5 million , offset by borrowings of$90.5 million ). We continue to analyze all aspects of our spending in order to maintain liquidity at levels we believe are necessary in order to satisfy cash requirements over the next twelve months and beyond. We are closely reviewing maintenance capital expenditures at ourWyoming facility to adequately maintain the physical assets. In addition, we are subject to business and operational risks that could adversely affect our cash flow, access to borrowings under the Sisecam Wyoming Credit Facility, and ability to make monthly installment payments under the Sisecam Wyoming Equipment Financing Arrangement. Our ability to satisfy debt service obligations, to fund planned capital expenditures, to make acquisitions and to make distributions will depend upon our future operating performance, which, in turn, will be affected by prevailing economic conditions, our business and other factors, some of which are beyond our control. We expect our ongoing working capital and capital expenditures to be funded by cash generated from operations and borrowings under the Sisecam Wyoming Credit Facility. The amount, timing and classification of any such capital expenditures could affect the amount of cash that is available to be distributed to our unitholders. We intend to pay a quarterly distribution to unitholders of record, to the extent we have sufficient cash from our operations after establishment of cash reserves, funding of any acquisitions and expansion capital expenditures, paying debt obligations and payment of fees and expenses, including payments to our general partner and its affiliates. See Part I, Item 2, Overview, "Recent Developments," for more information.
Working Capital Requirements
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Working capital is the amount by which current assets exceed current
liabilities. Our working capital requirements have been, and will continue to
be, primarily driven by changes in accounts receivable and accounts payable,
which generally fluctuate with changes in volumes, contract terms and market
prices of soda ash in the normal course of our business. Other factors impacting
changes in accounts receivable and accounts payable could include the timing of
collections from customers and payments to suppliers and supplier cost
inflation, as well as the level of spending for maintenance and growth capital
expenditures. A material adverse change in operations or available financing
under the Sisecam Wyoming Credit Facility could impact our ability to fund our
requirements for liquidity and capital resources. Historically, we have not made
working capital borrowings to finance our operations. As of June 30, 2022 , we
had a working capital balance of $180.9 million as compared to a working capital
balance of $134.2 million as of December 31, 2021 . The primary driver for the
increase in our working capital balance was due to a higher accounts receivable
balance as of June 30, 2022 than December 31, 2021 primarily as a result of
119.3% higher international sales in the six months ended June 30, 2022 compared
to the six months ended June 30, 2021 .
Financial Assurance Regulatory Updates by the
Our operations are subject to oversight by theLand Quality Division of Wyoming Department of Environmental Quality ("WDEQ"). Our principal mine permit issued by the Land Quality Division, requires the Partnership to provide financial assurances for our reclamation obligations for the estimated future cost to reclaim the area of our processing facility, surface pond complex and on-site sanitary landfill. The Partnership provides such assurances through a third-party surety bond (the "Surety Bond"). According to the annual recalculation and submittal, the Surety Bond amount was$41.8 million atJune 30, 2022 andDecember 31, 2021 . The amount of such assurances that we are required to provide is subject to change upon annual recalculation according toDepartment of Environmental Quality's Guideline 12, annual site inspection and subsequent evaluation/approval by the WDEQ's Land Quality Division. For a discussion of risks in connection with future legislation relating to such financial assurances that could affect our business, financial condition and liquidity, see Part I, Item 1A, "Risk Factors - Risks Inherent in our Business and Industry - Our inability to acquire, maintain or renew financial assurances related to the reclamation and restoration of mining property could have a material adverse effect on our business, financial condition and results of operations." in our 2021 Annual Report.
Capital Expenditures
Our operations require investments to expand, upgrade or enhance existing operations and to meet evolving environmental and safety regulations. We distinguish between maintenance and expansion capital expenditures. Maintenance capital expenditures (including expenditures for the replacement, improvement or expansion of existing capital assets) are made to maintain, over the long-term, our operating income or operating capacity. Examples of maintenance capital expenditures are expenditures to upgrade and replace mining equipment and to address equipment integrity, safety and environmental laws and regulations. Our maintenance capital expenditures do not include actual or estimated capital expenditures for replacement of our trona reserves. Expansion capital expenditures are incurred for acquisitions or capital improvements made to increase, over the long-term, our operating income or operating capacity. Examples of expansion capital expenditures include the acquisition and/or construction of complementary assets to grow our business and to expand existing facilities, such as projects that increase production from existing facilities or reduce costs, to the extent such capital expenditures are expected to increase our long-term operating capacity or operating income.
The table below summarizes our capital expenditures, on an accrual basis:
Three Months Ended June 30, Six Months Ended June 30,
(In millions) 2022 2021 2022 2021
Capital Expenditures:
Maintenance $ 7.1 $ 8.5 $ 14.3 $ 16.0
Expansion 0.1 0.2 0.1 0.5
Total 7.2 $ 8.7 $ 14.4 $ 16.5
In connection with the acquisition by Sisecam Chemicals USA Inc. ("Sisecam USA ")
of 60% of Sisecam Chemicals Resources LLC , Sisecam USA , the new controlling
owner, is evaluating all the expansion plans for the Partnership. As we evaluate
investment opportunities, we intend to maintain our disciplined financial policy
with a conservative capital structure.
Impact from Inflation
The impact of inflation has become significant in recent months and in theU.S. economy and may increase our cost to acquire or replace properties, plant and equipment. Inflation may also increase our costs of labor and supplies. To the extent permitted by competition, regulation and existing agreements, we pass along increased costs to our customers in the form of higher selling prices, and we expect to continue this practice. While we continue to navigate through an inflationary cost environment, we remain confident in the initiatives we are taking to enhance the sales pricing structures, manage the cost efficiencies and secure critical supplies. 35 --------------------------------------------------------------------------------
Cash Flows Discussion
The following is a summary of cash provided by or used in each of the indicated
types of activities:
Six Months Ended June 30,
(In millions) 2022 2021 Percent Increase/(Decrease)
Cash provided by (used in):
Operating activities $ 32.4 $ 18.4 76.1 %
Investing activities $ (15.0) $ (17.1) (12.3) %
Financing activities $ (16.7) $ 0.7 (2,485.7) %
Operating Activities
Our operating activities during the six months ended
•an increase of 408.1% in net income of
•an offset by$35.5 million more cash used in working capital during the six months endedJune 30, 2022 , compared to the six months endedJune 30, 2021 . The increase of the cash used in working capital period over period was primarily due to a higher accounts receivable balance atJune 30, 2022 primarily due to higher international sales during six months endedJune 30, 2022 as compared to the six months endedJune 30, 2021 .
Investing Activities
We used cash flows of$15.0 million in investing activities during the six months endedJune 30, 2022 , compared to$17.1 million used during the six months endedJune 30, 2021 , for capital projects as described in "Capital Expenditures" above. Financing Activities Cash used in financing activities of$16.7 million during the six months endedJune 30, 2022 decreased as compared to$0.7 million of cash provided by financing activities in the prior-year same period cash provided by financing activities, largely due to larger distributions to general partner and noncontrolling interest during the six months endedJune 30, 2022 compared to the six months endedJune 30, 2021 . Borrowings under the Sisecam Wyoming Credit Facility were at variable interest rates. As of and for the three months ended (Dollars in millions) June 30, 2022 Short-term borrowings from banks: Outstanding amount at period end $ 105.0 Weighted average interest rate at period end(1) 3.03 % Average daily amount outstanding for the period $ 125.6 Weighted average daily interest rate for the period(1) 2.75 % Maximum month-end amount outstanding during the period $ 150.5 (1) Weighted average interest rates set forth in the table above include the impacts of our interest rate swap contracts designated as cash flow hedges. As ofJune 30, 2022 , the interest rate swap contracts had an aggregate notional value of$37.5 million . 36 --------------------------------------------------------------------------------
Debt
See Part I, Item 1, Financial Statements - Note 4, "Debt" for more information regarding the Partnership's debt obligations and related disclosures.
Material Cash Requirements
During the six months endedJune 30, 2022 , there were no material changes with respect to the material cash requirements disclosed under the Section "Material Cash Requirements" in our 2021 Annual Report other than as described below.
-In the six months ended
-In the six months endedJune 30, 2022 , the Partnership executed ocean freight contracts with annual minimum commitments of$16.5 million and$6.8 million in 2023 and 2024, respectively.
Critical Accounting Policies and Estimates
During the three months endedJune 30, 2022 , there were no material changes with respect to the critical accounting policies and estimates disclosed in our 2021 Annual Report.
Recently Issued Accounting Standards
There are no issued but not yet effective accounting standards with a material impact to the Partnership.
Non-GAAP Financial Measures We report our financial results in accordance with generally accepted accounting principles inthe United States ("GAAP"). We also present the non-GAAP financial measures of: •Adjusted EBITDA;
•Distributable cash flow; and
•Distribution coverage ratio.
We define Adjusted EBITDA as net income (loss) plus net interest expense, income tax, depreciation, depletion and amortization, equity-based compensation expense and certain other expenses that are non-cash charges or that we consider not to be indicative of ongoing operations. Distributable cash flow is defined as Adjusted EBITDA less net cash paid for interest, maintenance capital expenditures and income taxes, each as attributable toSisecam Resources LP . The Partnership may fund expansion-related capital expenditures with borrowings under existing credit facilities such that expansion-related capital expenditures will have no impact on cash on hand or the calculation of cash available for distribution. In certain instances, the timing of the Partnership's borrowings and/or its cash management practices will result in a mismatch between the period of the borrowing and the period of the capital expenditure. In those instances, the Partnership adjusts designated reserves (as provided in the partnership agreement) to take account of the timing difference. Accordingly, expansion-related capital expenditures have been excluded from the presentation of cash available for distribution. Distributable cash flow will not reflect changes in working capital balances. We define distribution coverage ratio as the ratio of distributable cash flow as of the end of the period to cash distributions payable with respect to such period. Adjusted EBITDA is a non-GAAP supplemental financial measure that management and external users of our consolidated financial statements, such as industry analysts, investors, lenders and rating agencies, may use to assess the Partnership's operating performance and liquidity. Adjusted EBITDA may provide an operating performance comparison to other publicly traded partnerships in our industry, without regard to historical cost basis or financing methods. Adjusted EBITDA may also be used to assess the Partnership's liquidity including such things as the ability of our assets to generate sufficient cash flows to make distributions to our unitholders and our ability to incur and service debt and fund capital expenditures.
Distributable cash flow and distribution coverage ratio are non-GAAP supplemental financial measures that management and external users of our consolidated financial statements, such as industry analysts, investors, lenders and rating agencies, may use to assess the Partnership's liquidity, including:
•the ability of our assets to generate sufficient cash flow to make distributions to our unitholders; and
•our ability to incur and service debt and fund capital expenditures.
We believe that the presentation of Adjusted EBITDA provides useful information
to our investors in assessing our financial conditions, results of operations
and liquidity. Distributable cash flow and distribution coverage ratio provide
useful information to
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investors in assessing our liquidity. The GAAP measures most directly comparable
to Adjusted EBITDA is net income and net cash provided by operating activities.
The GAAP measure most directly comparable to distributable cash flow and
distribution coverage ratio is net cash provided by operating activities. Our
non-GAAP financial measures of Adjusted EBITDA, distributable cash flow and
distribution coverage ratio should not be considered as alternatives to GAAP net
income, operating income, net cash provided by operating activities, or any
other measure of financial performance or liquidity presented in accordance with
GAAP. Adjusted EBITDA and distributable cash flow have important limitations as
analytical tools because they exclude some, but not all items that affect net
income and net cash provided by operating activities. Investors should not
consider Adjusted EBITDA, distributable cash flow and distribution coverage
ratio in isolation or as a substitute for analysis of our results as reported
under GAAP. Because Adjusted EBITDA, distributable cash flow and distribution
coverage ratio may be defined differently by other companies, including those in
our industry, our definition of Adjusted EBITDA, distributable cash flow and
distribution coverage ratio may not be comparable to similarly titled measures
of other companies, thereby diminishing its utility.
The table below presents a reconciliation of the GAAP financial measures of net
income and net cash provided by operating activities to the non-GAAP financial
measures of Adjusted EBITDA and distributable cash flow:
Three Months Ended June 30, Six Months Ended June 30,
(In millions, except per unit data) 2022 2021 2022 2021
Reconciliation of net income to Adjusted EBITDA attributable to
$ 31.2 $ 6.8 $ 63.0 $ 12.4 Add backs: Depreciation, depletion and amortization expense 7.2 7.7 13.7 16.4 Interest expense, net 1.4 1.5 2.5 2.8
Equity-based compensation expense, net of forfeitures 0.3
0.3 0.3 0.4
Adjusted EBITDA 40.1 16.3 79.5 32.0
Less: Adjusted EBITDA attributable to noncontrolling interest
19.9 8.3 39.6 16.3
Adjusted EBITDA attributable to
8.0 39.9 15.7
Reconciliation of net cash from operating activities to Adjusted EBITDA and distributable cash flow attributable to
Sisecam Resources LP :
Net cash provided by operating activities $ 24.7 $ 24.8 $ 32.4 $ 18.4
Add/(less):
Amortization of long-term loan financing (0.1) (0.1) (0.2) (0.3)
Net change in working capital 15.7 (9.6) 46.8 11.3
Interest expense, net 1.4 1.5 2.5 2.8
Other non-cash items and loss on disposal of assets, net (1.6)
(0.3) (2.0) (0.2) Adjusted EBITDA 40.1 16.3 79.5 32.0
Less: Adjusted EBITDA attributable to noncontrolling interest
19.9 8.3 $ 39.9 16.3
Adjusted EBITDA attributable to
8.0 39.9 15.7
Less: Cash interest expense, net attributable to
0.6 0.7 1.1 1.2
Less: Maintenance capital expenditures attributable to
3.5 5.8 7.6 8.3
Distributable cash flow attributable to Sisecam
Resources LP $ 16.1 Cash distribution declared per unit$ 0.50 $ -$ 1.00 $ - Total distributions to unitholders and general partner$ 10.1 $ -$ 20.2 $ - Distribution coverage ratio 1.60 N/A 1.54 N/A 38
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