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Warrior Met Coal announces 2Q17 results

Published by , Editorial Assistant
World Coal,

Warrior Met Coal, Inc. has announced results for the second quarter ended 30 June, 2017. Warrior is the leading dedicated US based producer and exporter of high quality metallurgical (met) coal for the global steel industry.

“Our mining operations have continued to grow as we move closer to achieving the nameplate production capacity in our two mines”.

Warrior reported second quarter 2017 net income of US$129.9 million, or US$2.46 per diluted share, compared to US$108.3 million, or US$2.06 per diluted share, in the first quarter of 2017. Excluding certain transaction costs related to the company’s initial public offering, Adjusted Net Income was US$132.9 million, or US$2.52 per diluted share, in the second quarter of 2017. The company reported Adjusted EBITDA of US$188.5 million in the second quarter of 2017, a 39% increase over the first quarter. During the second quarter of 2017, the market for high quality premium metallurgical coal was very volatile with global supply disruptions and the benchmark pricing system being replaced by an indexation methodology. Warrior was able to capitalise on this market volatility with respect to both sales volumes and pricing as its second quarter net realised selling prices were 103% of the second quarter of 2017 industry average index price. Warrior's price realisation reflects its high quality premium product and unique go-to-market strategy.

“Warrior’s highly successful second quarter validates our value proposition as the only publicly traded ‘pure-play’ hard coking coal operator in the US,” commented Walt Scheller, CEO of Warrior. “Robust sales volume growth in a strong price environment resulted in a 167% increase in our free cash flow compared to the first quarter. We believe our ability to significantly grow our sales while maintaining our exceptionally low cost structure will enable us to carry forward this strong performance over the remainder of the year.”

Operating results

Warrior continued to make progress in the ramp up of mining operations toward its historical annual production level of approximately 8.0 million short t. The company produced 1.9 million short t of met coal in the second quarter of 2017, which represented an increase of 18% over the first quarter of 2017. “Our mining operations have continued to grow as we move closer to achieving the nameplate production capacity in our two mines,” added Mr. Scheller. “As we continue to refine and improve our operations, I believe Warrior has a great opportunity to increase production profitably in response to market demand and generate significant free cash flow.”

Additional financial results

Total revenues were US$363.4 million for the second quarter of 2017, including US$351.8 million in mining revenues, which consisted of met coal sales of 1.9 million short t at an average selling price of US$181.14 per short t. Sales volume increased 72% over the second quarter of 2016 and increased 55% for the first six months of 2017 over the same period in 2016.

Cost of sales for the second quarter of 2017 were US$160.2 million, or 44.1% of total revenues, and includes mining costs, transportation and royalty costs. Cash cost of sales (free-on-board port) per short t decreased by US$11.53 to US$82.22 in the second quarter compared to the first quarter of 2017. Selling, general and administrative expenses for the second quarter of 2017 were US$8.7 million, or 2.4% of total revenues. Depreciation and depletion costs for the second quarter of 2017 were US$19.7 million, or 5.4% of total revenues. Transaction and other costs associated with the company’s initial public offering decreased to US$3.8 million for the second quarter of 2017. Warrior incurred interest expense of US$0.6 million and recognised income tax expense of US$32.8 million for the second quarter of 2017.

Cash flow and liquidity

The company generated strong cash flows from operating activities in the second quarter of 2017 of US$161.4 million. Net working capital decreased by US$12.8 million from the first quarter of 2017. Capital expenditures for the second quarter 2017 were US$16.9 million, resulting in free cash flow of US$144.5 million, which was US$90.3 million higher than in the first quarter. Cash flows used in financing activities were US$3.4 million for the second quarter of 2017.

The company’s available liquidity as of the end of the quarter was US$255.8 million, consisting of cash and cash equivalents of US$155.8 million and US$100.0 million available under its Asset-Based Revolving Credit Agreement.

Factors that may affect outlook include:

  • Hard coking coal index pricing.
  • Number of longwall operation moves and timing of those moves between quarters. The following are the expected longwall moves for the remainder of 2017: 3Q - 1 move, 4Q - 2 moves.
  • Excludes transaction or other non-recurring costs.
  • The company does not provide reconciliations of its outlook for cash cost of sales (free-on-board port) to cost of sales in reliance on the unreasonable efforts exception provided for under Item 10(e)(1)(i)(B) of Regulation S-K. The company is unable, without unreasonable efforts, to forecast certain items required to develop the meaningful comparable GAAP cost of sales. These items typically include non-cash asset retirement obligation accretion expenses, mine idling expenses and other non-recurring indirect mining expenses that are difficult to predict in advance in order to include a GAAP estimate.

    Use of non-GAAP financial measures

    This release contains the use of certain U.S. non-GAAP (Generally Accepted Accounting Principles) financial measures. These non-GAAP financial measures are provided as supplemental information for financial measures prepared in accordance with GAAP. Management believes that these non-GAAP financial measures provide additional insights into the performance of the company, and they reflect how management analyses company performance and compares that performance against other companies. These non-GAAP financial measures may not be comparable to other similarly titled measures used by other entities. The definition of these non-GAAP financial measures and a reconciliation of non-GAAP to GAAP financial measures is provided in the financial tables section of this release.

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