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Press release from PR Newswire

Rhino Resource Partners Announces Third Quarter 2013 Financial And Operating Results

Thursday, October 31, 2013

Rhino Resource Partners Announces Third Quarter 2013 Financial And Operating Results

07:00 EDT Thursday, October 31, 2013

LEXINGTON, Ky., Oct. 31, 2013 /PRNewswire/ -- Rhino Resource Partners LP (NYSE: RNO) ("Rhino" or the "Partnership") announced today its financial and operating results for the quarter ended September 30, 2013. For the quarter, the Partnership reported Adjusted EBITDA of $15.7 million and net income of $2.9 million, compared to Adjusted EBITDA of $21.3 million and net income of $8.9 million in the third quarter of 2012.  Diluted earnings per common unit were $0.10 for the quarter compared to $0.31 for the third quarter of 2012.  Total revenues for the quarter were $71.1 million, with coal sales generating $59.6 million of the total.  (Refer to "Reconciliations of Adjusted EBITDA" included later in this release for reconciliations to the most directly comparable GAAP financial measures).

On October 21, 2013, the Partnership announced a cash distribution of $0.445 per common unit, or $1.78 per unit on an annualized basis.  This distribution will be paid on November 14, 2013 to all common unitholders of record as of the close of business on November 1, 2013.  No distribution will be paid on the subordinated units.

Chris Walton, President and Chief Executive Officer of Rhino's general partner, stated "Our results showed a substantial improvement over the 2013 second quarter due to lower operating costs and improved realizations company-wide, and in particular in Central Appalachia.  In addition, we benefitted from reduced losses at Rhino Eastern due to improved costs and the transition to the Eagle #3 mine and our Utica Shale oil and gas investment contributed about $1.6 million of revenue in the quarter.  The development of the Pennyrile mine continues to progress on schedule.  We were pleased to place 1.265 million of our common units during the quarter, as we used the proceeds from the offering to reduce our debt, which provides further liquidity to develop Pennyrile and our Utica Shale oil and gas investment.

At our coal operations, we continue to focus on safety while controlling operating costs.  Our per ton costs remain relatively flat year-to-year and decreased quarter-to-quarter despite lower production levels.  We are fully sold out in 2014 at our Hopedale and Castle Valley operations.  We are seeing some spot activity in Central Appalachia in both met coal and steam coal, and we are in discussions now to place our 2014 met coal tonnage.  Our growth capital outlays continue to be in the Utica Shale and on the Pennyrile development.

The development of the Pennyrile property in western Kentucky is accelerating and the project continues to be on schedule with production on target for mid-2014.  In addition to our initial 800,000 ton contract, we are in discussions regarding test burns which should lead to additional sales.  We anticipate this project will generate long term, stable and predictable cash flows similar to our Hopedale and Castle Valley operations once it is at full production.

In the Utica Shale, we had a total of 14 gross wells spud during the third quarter of 2013.

With three quarters of actual results completed, we have narrowed the range of our full year 2013 guidance we provided in February.  We plan to provide full year 2014 guidance when we announce our 2013 fourth quarter results, as we have done in the past."

Further, Walton stated "At Rhino Eastern we continue to make good progress developing the Eagle #3 mine and we expect mining at the Eagle #1 mine to be completed by the end of 2013, which should help to reduce costs at Rhino Eastern going forward.  Our portion of the losses at Rhino Eastern joint venture were significantly lower than in the second quarter of 2013, and we expect further improvements as we transition to the Eagle #3 mine.

Finally, I'd like to thank Dave Zatezalo for his services as President and CEO of Rhino.  I believe Dave left us with a strong and safe foundation to build upon and I look forward to continuing to work with him as he takes over as Chairman."

Coal Operations Update

Pennyrile

  • The slope construction is progressing well and the air shaft construction continues to advance according to plan.
  • Production remains on target to begin in mid-2014.
  • Pennyrile's Riveredge mine is expected to be a significant cash flow provider once production is ramped up in late 2014.
  • The initial five year sales contract with a regional utility customer for 800,000 tons per year provides a solid base for this operation while discussions continue with additional customers.
  • Large contiguous fully permitted, proven reserve of 32.5 million tons located on the navigable Green River in western Kentucky, with unique low cost access to large customer base, including export markets.

Northern Appalachia

  • For the third quarter, year over year coal revenues per ton increased $4.92 to $60.14 while cost of operations costs per ton rose by $4.21 to $43.88. 
  • Sales volume was 296,000 tons, versus 483,000 tons in the prior year and 314,000 tons in the prior quarter.  The year over year decline was primarily due to contract expirations at Sands Hill.  Hopedale remains sold out through 2014.
  • Sands Hill reduced its production to align with committed sales and we continue to pursue additional sales opportunities.  Limestone sales were relatively flat during the quarter.

Rhino Western

  • Coal revenues per ton in the quarter increased to $40.17 versus $35.15 in the prior year and $40.24 in the prior quarter.  Cost of operations was $31.83 versus $22.45 in the prior year and $32.85 in the prior quarter.  Sales volume was 241,000 tons versus 302,000 tons in the prior year and 235,000 tons in the prior quarter.
  • While taking advantage of inquiries for spot sales of coal from Castle Valley, Rhino is essentially sold out in 2014.

Central Appalachia

  • Coal revenues per ton were $82.05 versus $89.78 in the prior year and $80.42 in the prior quarter.  Metallurgical coal revenues per ton were $82.21 versus $113.23 in the prior year and $88.87 in the prior quarter.  Steam revenues were $81.96 per ton versus $81.02 in the prior year and $75.72 in the prior quarter.  The quarter over quarter improvement was primarily due to the sale of less low quality steam coal.  
  • Cost of operations per ton in the quarter was $64.53 versus $75.21 in the prior year and $70.56 in the prior quarter.  The quarter over quarter improvement was primarily due to better mining conditions at both our underground and surface mines.  Sales volume was 391,000 tons in the quarter versus 519,000 in the prior year and 363,000 tons in the prior quarter.  Rhino has maintained its inventories at low levels and continues to focus on unit costs.
  • Rhino continues to make limited spot met sales and steam sales at both the Tug River and Rob Fork complexes while working on placing its 2014 met coal tonnage.

Eastern Met

  • Coal revenues per ton were $110.11 versus $175.72 in the prior year and $106.71 in the prior quarter.  Cost of operations per ton was $115.18 versus $119.26 in the prior year and $146.92 in the prior quarter. Sales volumes were 62,000 tons versus 93,000 tons in the prior year and 72,000 tons in the prior quarter.   
  • Eagle #3 mine began production in the third quarter of 2012.  While Eagle #3 is expected to have a capacity of 490,000 tons per year, activity is substantially below that level due to limited contracted sales and low spot prices.

Oil and Gas

  • Utica Shale Joint Activities with Gulfport Energy
    • Rhino co-invested with Wexford Capital and Gulfport Energy ("Gulfport"), with Gulfport acting as the operator, and Rhino currently has a 5% interest in a portfolio of approximately 146,000 gross acres (7,300 net acres), with additional commitments to increase the portfolio to 154,000 gross acres (7,700 net acres).
    • A total of 14 gross wells were spud during the third quarter of 2013.
    • Rhino proportionate share of revenue from the producing wells totaled approximately $1.6 million in the third quarter and approximately $3.1 million year-to-date.
  • Utica Shale Owned Acreage ? In September 2013, Rhino closed on an agreement with a third party to sell the oil and natural gas mineral rights for approximately 57 acres the Partnership owns in the Utica Shale for approximately $0.6 million.

Capital Expenditures

  • Maintenance capital expenditures for the third quarter were approximately $5.3 million.
  • Expansion capital expenditures for the third quarter were approximately $11.9 million, which consisted primarily of Rhino's continuing investment in the Utica Shale and the initial development of Pennyrile, along with other internal development projects.

Sales Commitments

The table below displays Rhino's committed steam coal sales for the periods indicated.

Q4 2013

Year 2014

Year 2015

Year 2016

Avg Price

Tons

Avg Price

Tons

Avg Price

Tons

Avg Price

Tons

Northern Appalachia/Illinois Basin*

$   60.03

255,101

$   58.45

1,414,946

$   53.55

1,496,000

$   48.25

800,000

Rhino Western

$   40.60

243,000

$   42.32

864,000

$   41.50

300,000

$   41.50

300,000

Central Appalachia

$   86.14

289,700

$   83.63

384,000

$           -

-

$           -

-

Total

$   63.64

787,801

$   56.85

2,662,946

$   51.54

1,796,000

$   46.41

1,100,000

* Includes Pennyrile tons

Evaluating Financial Results

Rhino management uses a variety of financial measurements to analyze the Partnership's performance, including (1) Adjusted EBITDA, (2) coal revenues per ton and (3) cost of operations per ton.

Adjusted EBITDA.  Adjusted EBITDA represents net income before deducting interest expense, income taxes and depreciation, depletion and amortization, including Rhino's proportionate share of these expense items from its Rhino Eastern LLC joint venture, while also excluding certain non-cash and/or non-recurring items. Adjusted EBITDA is used by management primarily as a measure of the Partnership's operating performance. Because not all companies calculate Adjusted EBITDA identically, the Partnership's calculation may not be comparable to similarly titled measures of other companies. Adjusted EBITDA should not be considered an alternative to net income, income from operations, cash flows from operating activities or any other measure of financial performance or liquidity presented in accordance with GAAP.  (Refer to "Reconciliations of Adjusted EBITDA" included later in this release for reconciliations of Adjusted EBITDA to the most directly comparable GAAP financial measures).

Coal Revenues Per Ton.  Coal revenues per ton sold represents coal revenues divided by tons of coal sold. Coal revenues per ton is a key indicator of Rhino's effectiveness in obtaining favorable prices for the Partnership's product.

Cost of Operations Per Ton.  Cost of operations per ton sold represents the cost of operations (exclusive of depreciation, depletion and amortization) divided by tons of coal sold. Rhino management uses this measurement as a key indicator of the efficiency of operations.

Overview of Financial Results

Results for the three months ended September 30, 2013 included:

  • Adjusted EBITDA of $15.7 million and net income of $2.9 million compared to Adjusted EBITDA of $21.3 million and net income of $8.9 million in the third quarter of 2012. The 2013 and 2012 figures include $0.8 million of net loss and $1.8 million of net income, respectively, from the Partnership's joint venture, Rhino Eastern LLC, which also contributes to the Partnership's consolidated Adjusted EBITDA. 
  • Basic and diluted net income per common unit of $0.10 compared to $0.31 for the third quarter of 2012. 
  • Coal sales were 0.9 million tons compared to 1.3 million for the third quarter of 2012.
  • Total revenues and coal revenues of $71.1 million and $59.6 million, respectively, compared to $93.6 million and $83.9 million, respectively, for the same period of 2012.
  • Coal revenues per ton of $64.18 compared to $64.33 for the third quarter of 2012, a decrease of 0.2%. 
  • Cost of operations of $50.4 million compared to $69.4 million for the same period of 2012. 
  • Cost of operations per ton of $54.31 compared to $53.19 for the third quarter of 2012, an increase of 2.1%.  

Total coal revenues decreased approximately 29.0% due to a decrease in tons sold and lower selling prices resulting from the ongoing weakness in the met and steam coal markets.  Coal revenues per ton decreased primarily because of lower prices for metallurgical coal sold in the third quarter of 2013 compared to the same period of 2012.  Total dollars spent on cost of operations decreased year to year due to decreased production from weakness in the met and steam coal markets.  Rhino experienced increased cost of operations per ton during the quarter as a result of increased per ton costs incurred in Northern Appalachia associated with reducing production volumes at Sands Hill along with higher roof support costs at Hopedale.  In addition, Rhino experienced increased per ton costs at its Castle Valley mine due to the sequence of mining where more higher cost advance mining was performed during the third quarter of 2013 compared to more lower cost retreat mining that was performed in same period of 2012.  These increases in per ton costs were partially offset by a decrease in Central Appalachia's cost of operations per ton.

Results for the nine months ended September 30, 2013 included:

  • Adjusted EBITDA of $47.4 million and net income of $8.6 million compared to Adjusted EBITDA of $68.6 million and net income of $30.8 million for the first nine months of 2012. The 2013 and 2012 figures include $4.1 million of net loss and $6.2 million of net income, respectively, from the Partnership's joint venture, Rhino Eastern LLC, which also contributes to the Partnership's consolidated Adjusted EBITDA. 
  • Basic and diluted net income per common unit of $0.30 compared to $1.09 for the first nine months of 2012. 
  • Coal sales were 2.8 million tons compared to 3.5 million for the first nine months of 2012.
  • Total revenues and coal revenues of $212.7 million and $184.0 million, respectively, compared to $265.5 million and $225.7 million, respectively, for the same period of 2012.
  • Coal revenues per ton of $64.63 compared to $64.70 for the first nine months of 2012, a decrease of 0.1%. 
  • Cost of operations of $156.9 million compared to $186.7 million for the same period of 2012. 
  • Cost of operations per ton of $55.13 compared to $53.51 for the first nine months of 2012, an increase of 3.0%.  

Total coal revenues decreased approximately 18.5% primarily due to a decrease in tons sold from ongoing weakness in the met and steam coal markets.  Coal revenues per ton remained primarily flat year to year as higher selling prices for Northern Appalachia steam coal were offset by lower prices for metallurgical coal sold from Central Appalachia.  Total dollars spent on cost of operations decreased year to year due to decreased production from weakness in the met and steam coal markets.  Cost of operations per ton increased because of the same factors discussed for the third quarter. Year to date net income for 2013 was negatively impacted by approximately $1.0 million due to the write-off of a continuous miner that was damaged at one of our Central Appalachia underground mines in the first quarter, but 2013 year to date net income and Adjusted EBITDA were also positively impacted by $10.5 million from the sale of the 20% royalty interest on Rhino's owned Utica Shale property.  Year to date net income and Adjusted EBITDA for 2012 were positively impacted by $7.4 million in total lease bonus payments received on Rhino's owned Utica Shale property.

Segment Information

The Partnership produces and markets coal from surface and underground mines in Kentucky, West Virginia, Ohio and Utah.  Through its Elk Horn subsidiary, the Partnership also leases coal reserves to third parties in exchange for royalty revenues.  For the quarter ended September 30, 2013, the Partnership had four reportable business segments: Central Appalachia (includes results for Elk Horn), Northern Appalachia, Rhino Western and Eastern Met (comprised solely of a joint venture with Patriot Coal Corporation).  Additionally, the Partnership reports an Other category that is comprised of the Partnership's ancillary businesses, including its oil and gas investments.

The Partnership accounts for the Rhino Eastern joint venture under the equity method. Under the equity method of accounting, only limited information (net income) is presented in the Partnership's consolidated financial statements.  The Partnership has presented additional financial and operating details of the Rhino Eastern joint venture toward the end of this section.

(In millions, except per ton data and %)

Third Quarter 2013

Third Quarter 2012

 % Change*

3Q13 /

3Q12

Year to Date 2013

Year to Date 2012

% Change* 2013 / 2012

Central Appalachia

Coal revenues

$32.1

$46.6

(31.2%)

$98.8

$117.8

(16.1%)

Total revenues

$37.9

$51.4

(26.3%)

$114.0

$135.6

(15.9%)

Coal revenues per ton*

$82.05

$89.78

(8.6%)

$84.15

$91.69

(8.2%)

Cost of operations

$25.2

$39.0

(35.4%)

$79.5

$93.9

(15.3%)

Cost of operations per ton*

$64.53

$75.21

(14.2%)

$67.71

$73.11

(7.4%)

Tons produced

0.409

0.443

(7.8%)

1.232

1.341

(8.1%)

Tons sold

0.391

0.519

(24.7%)

1.175

1.284

(8.6%)

Northern Appalachia

Coal revenues

$17.8

$26.7

(33.2%)

$56.5

$77.2

(26.9%)

Total revenues

$20.0

$30.0

(33.3%)

$62.2

$94.3

(34.1%)

Coal revenues per ton*

$60.14

$55.22

8.9%

$58.79

$54.85

7.2%

Cost of operations

$13.0

$19.2

(32.1%)

$40.9

$57.7

(29.1%)

Cost of operations per ton*

$43.88

$39.67

10.6%

$42.59

$40.99

3.9%

Tons produced

0.296

0.492

(39.8%)

0.953

1.423

(33.0%)

Tons sold

0.296

0.483

(38.7%)

0.959

1.407

(31.8%)

Rhino Western

Coal revenues

$9.7

$10.6

(8.8%)

$28.7

$30.7

(6.6%)

Total revenues

$9.7

$10.6

(8.8%)

$28.7

$30.8

(6.7%)

Coal revenues per ton*

$40.17

$35.15

14.3%

$40.31

$38.58

4.5%

Cost of operations

$7.7

$6.8

13.2%

$22.9

$20.6

11.6%

Cost of operations per ton*

$31.83

$22.45

41.8%

$32.21

$25.78

24.9%

Tons produced

0.241

0.322

(25.0%)

0.661

0.782

(15.4%)

Tons sold

0.241

0.302

(20.2%)

0.712

0.797

(10.6%)

Other**

Coal revenues

n/a

n/a

n/a

n/a

n/a

n/a

Total revenues

$3.5

$1.6

121.4%

$7.8

$4.8

63.1%

Coal revenues per ton

n/a

n/a

n/a

n/a

n/a

n/a

Cost of operations

$4.5

$4.4

3.1%

$13.6

$14.5

(6.7%)

Cost of operations per ton

n/a

n/a

n/a

n/a

n/a

n/a

Total

Coal revenues

$59.6

$83.9

(29.0%)

$184.0

$225.7

(18.5%)

Total revenues

$71.1

$93.6

(24.0%)

$212.7

$265.5

(19.9%)

Coal revenues per ton*

$64.18

$64.33

(0.2%)

$64.63

$64.70

(0.1%)

Cost of operations

$50.4

$69.4

(27.3%)

$156.9

$186.7

(15.9%)

Cost of operations per ton*

$54.31

$53.19

2.1%

$55.13

$53.51

3.0%

Tons produced

0.946

1.257

(24.7%)

2.846

3.546

(19.7%)

Tons sold

0.928

1.304

(28.8%)

2.846

3.488

(18.4%)

Eastern Met 100% Basis ****

Coal revenues

$6.8

$16.3

(58.2%)

$20.6

$49.1

(58.0%)

Total revenues

$6.9

$16.3

(57.9%)

$20.7

$49.1

(57.9%)

Coal revenues per ton*

$110.11

$175.72

(37.3%)

$111.88

$186.08

(39.9%)

Cost of operations

$7.1

$11.1

(35.6%)

$25.2

$31.6

(20.4%)

Cost of operations per ton*

$115.18

$119.26

(3.4%)

$136.66

$119.80

14.1%

Net income/(loss)

($1.5)

$3.6

(143.2%)

($8.0)

$12.3

(165.3%)

Partnership's portion of net income/(loss)

($0.8)

$1.8

(143.2%)

($4.1)

$6.2

(165.3%)

Tons produced***

0.064

0.078

(18.7%)

0.143

0.283

(49.5%)

Tons sold***

0.062

0.093

(33.3%)

0.184

0.264

(30.2%)

* Percentages, totals and per ton amounts are calculated based on actual amounts and not the rounded amounts presented in this table.

 

** The Other category includes results for Rhino's ancillary businesses and oil and natural gas investments. The activities performed by these ancillary businesses do not directly relate to coal production. As a result, coal revenues, coal revenues per ton and cost of operations per ton are not presented for this category.

 

*** Rhino Eastern currently produces and sells only premium mid-vol met coal.

**** Eastern Met includes the financial data for the Rhino Eastern joint venture in which the Partnership has a 51% membership interest and for which the Partnership serves as manager.  The Partnership's consolidated revenue and costs do not include any portion of the revenue or costs of Rhino Eastern since the Partnership accounts for this operation under the equity method.  The Partnership only records its proportionate share of net income of Rhino Eastern as a single item in its financial statements, but the Partnership believes the presentation of these items for Rhino Eastern provides additional insight into how this operation contributes to the overall performance of the Partnership.

Additional information for the Central Appalachia segment detailing the types of coal produced and sold, premium high-vol met coal and steam coal, is presented below.  Note that the Partnership's Northern Appalachia and Rhino Western segments currently produce and sell only steam coal.

 

(In thousands, except per ton data and %)**

Third Quarter 2013

Third Quarter 2012

% Change* 3Q13 / 3Q12

Year to Date 2013

Year to Date

2012

% Change* 2013 / 2012

Met coal tons sold

138.5

141.2

(2.0%)

450.2

345.4

30.3%

Steam coal tons sold

252.3

378.0

(33.2%)

724.4

939.1

(22.9%)

Total tons sold

390.8

519.2

(24.7%)

1,174.6

1,284.5

(8.6%)

Met coal revenue

$11,382

$15,991

(28.8%)

$41,700

$44,276

(5.8%)

Steam coal revenue

$20,681

$30,622

(32.5%)

$57,140

$73,508

(22.3%)

Total coal revenue

$32,063

$46,613

(31.2%)

$98,840

$117,784

(16.1%)

Met coal revenues per ton

$82.21

$113.23

(27.4%)

$92.63

$128.17

(27.7%)

Steam coal revenues per ton

$81.96

$81.02

1.2%

$78.88

$78.28

0.8%

Total coal revenues per ton

$82.05

$89.78

(8.6%)

$84.15

$91.69

(8.2%)

Met coal tons produced

160.4

106.4

50.9%

450.1

389.6

15.5%

Steam coal tons produced

248.2

336.6

(26.3%)

782.4

951.7

(17.8%)

Total tons produced

408.6

443.0

(7.8%)

1,232.5

1,341.3

(8.1%)

* Percentages are calculated based on actual amounts and not the rounded amounts presented in this table.

 

** Excludes data for the Rhino Eastern mining complex located in West Virginia for which the Partnership has a 51% membership interest and serves as manager.

Guidance

For the full year 2013, Rhino currently anticipates the following:

Re-Forecasted 2013 Guidance

Previous 2013 Guidance

Coal Operations

Oil and Gas

Total

Coal Operations

Oil and Gas

Total

For:

(in millions)

(in millions)

Adjusted EBITDA

$45 - $50

$15 - $20

$60 - $70

$50 - $60

$10 - $20

$60 - $80

Maintenance Capital Expenditures

$10 - $15

-

$10 - $15

$10 - $15

-

$10 - $15

Expansion Capital Expenditures

$18 - $21

$21 - $24

$39 - $45

$16 - $19

$15 - $20

$31 - $39

Interest Expense

-

-

$7 - $8

-

-

$7

Cash Available for Distribution

-

-

$43 - $47

-

-

$43 - $58

Production*

3.7 - 4.0

-

3.7 - 4.0

3.7 - 4.3

-

3.7 - 4.3

Sales*

3.7 - 4.0

-

3.7 - 4.0

3.7 - 4.3

-

3.7 - 4.3

* Guidance for production tons and sale tons includes 51% of expected activity from Rhino Eastern

Third Quarter 2013 Financial and Operational Results Conference Call

Rhino's third quarter 2013 financial and operational results conference call is scheduled for today at 11:00 am Eastern time. Participants should call 866-510-0712 (United States/Canada) or 617-597-5380 (International) and utilize the confirmation code 82873319.  A live broadcast of the earnings conference call will also be available via the Internet at www.rhinolp.com under 'Investor Relations'.

A telephonic replay will be available for anyone unable to participate in the live call. To access the replay, call 888-286-8010 (United States/Canada) or 617-801-6888 (International) and enter confirmation code 66872119. The recording will be available from 2:00 pm (ET) on Thursday, October 31, 2013 through Thursday, November 7, 2013 at 11:59 pm (ET).

The webcast will be archived on the site for one year.

About Rhino Resource Partners LP 

Rhino Resource Partners LP is a growth-oriented limited partnership.  Rhino produces metallurgical and steam coal in a variety of basins throughout the United States, leases coal through its Elk Horn subsidiary, and owns oil and gas acreage in the Utica and Cana Woodford areas.  

About Wexford Capital LP

Rhino's general partner, Rhino GP LLC, is an affiliate of Wexford Capital LP ("Wexford").  Wexford is an SEC registered investment advisor with over $4.1 billion of assets under management.  Wexford has particular expertise in the energy/natural resources sector with actively managed investments in coal, oil and gas exploration and production, energy services and related sectors.  Through Wexford's extensive portfolio of energy, resource and related investments, it sees an extensive flow of potential new investment opportunities, many which could be suitable for Rhino.  Although Wexford has no obligation to provide such investment opportunities to Rhino, it has made available several of these investments to Rhino and expects to be in a position to continue to selectively source and underwrite for Rhino new coal, energy and related investment opportunities.

Additional information regarding Rhino and Wexford is available on their respective web sites ? RhinoLP.com and Wexford.com.

Forward Looking Statements

Except for historical information, statements made in this press release are "forward-looking statements." All statements, other than statements of historical facts, included in this press release that address activities, events or developments that Rhino expects, believes or anticipates will or may occur in the future are forward-looking statements, including the statements and information included under the heading "Coal Operations Update," "Oil and Gas," and "Guidance." These forward-looking statements are based on Rhino's current expectations and beliefs concerning future developments and their potential effect on Rhino's business, operating results, financial condition and similar matters.  While management believes that these forward-looking statements are reasonable as and when made, there can be no assurance that future developments affecting Rhino will turn out as Rhino anticipates.  Whether actual results and developments in the future will conform to expectations is subject to significant risks, uncertainties and assumptions, many of which are beyond Rhino's control or ability to predict. Therefore, actual results and developments could materially differ from Rhino's historical experience, present expectations and what is expressed, implied or forecast in these forward-looking statements.  Important factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, the following: decline in coal prices, which depend upon several factors such as the supply of domestic and foreign coal, the demand for domestic and foreign coal, governmental regulations, price and availability of alternative fuels for electricity generation and prevailing economic conditions; increased competition in global coal markets and declines in demand for coal; current and future environmental laws and regulations which could materially increase operating costs or limit Rhino's ability to produce and sell coal; extensive government regulation of mine operations, especially with respect to mine safety and health, which imposes significant actual and potential costs; difficulties in obtaining and/or renewing permits necessary for operations; a variety of operating risks, such as unfavorable geologic conditions, natural disasters, mining and processing equipment unavailability, failures and unexpected maintenance problems and accidents, including fire and explosions from methane; fluctuations in transportation costs or disruptions in transportation services could increase competition or impair Rhino's ability to supply coal; a shortage of skilled labor; increases in raw material costs, such as steel, diesel fuel and explosives; Rhino's ability to acquire replacement coal reserves that are economically recoverable; inaccuracies in Rhino's estimates of coal reserves and non-reserve coal deposits; existing and future laws and regulations regulating the emission of sulfur dioxide and other compounds could affect coal consumers and as a result reduce demand for coal; federal and state laws restricting the emissions of greenhouse gases; Rhino's ability to acquire or failure to maintain, obtain or renew surety bonds used to secure obligations to reclaim mined property; Rhino's dependence on a few customers and its ability to find and retain customers under favorable supply contracts; changes in consumption patterns by utilities away from the use of coal, such as resulting from low natural gas prices; disruption in supplies of coal produced by contractors operating Rhino's mines; defects in title in properties that Rhino owns or losses of any of Rhino's leasehold interests; increased labor costs or work stoppages; the ability to retain and attract senior management and other key personnel; and assumptions underlying reclamation and mine closure obligations are materially inaccurate.

In addition to the foregoing, Rhino's business, financial condition, results of operations and cash available for distribution could be adversely affected by factors relating to, or resulting from, the Elk Horn acquisition. Such factors would include the failure to realize the anticipated benefits of the Elk Horn acquisition; a material change in Elk Horn management's estimated coal reserves and non-reserve coal deposits; exposure of the lessees' mining operations to the same risks and uncertainties that Rhino faces as a mine operator; ability of the lessees to effectively manage their operations on the leased properties; ability of the lessees to satisfy customer contracts with coal from properties other than Elk Horn's properties; and incorrect reporting of royalty revenue by lessees.

Other factors that could cause Rhino's actual results to differ from its projected results are described in its filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. 

Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof.  Rhino undertakes no obligation to publicly update or revise any forward-looking statements after the date they are made, whether as a result of new information, future events or otherwise, unless required by law.

RHINO RESOURCE PARTNERS LP

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

AS OF SEPTEMBER 30, 2013 AND DECEMBER 31, 2012

(in thousands)

September 30,

December 31,

2013

2012

ASSETS

CURRENT ASSETS:

Cash and cash equivalents

$            1,077

$               461

Accounts  receivable, net of allowance

25,704

33,560

Inventories

18,339

18,743

Prepaid expenses and other

4,875

4,510

Total current assets

49,995

57,274

Net property, plant & equipment, incl coal properties, mine development and construction costs

466,171

463,960

Investment in unconsolidated affiliates

20,577

23,659

Other non-current assets

15,404

14,565

TOTAL

$        552,147

$        559,458

LIABILITIES AND EQUITY

CURRENT LIABILITIES:

Accounts payable

$          17,630

$          18,030

Current portion of long-term debt

1,025

2,350

Accrued expenses and other

22,327

24,660

Total current liabilities

40,982

45,040

NON-CURRENT LIABILITIES:

Long-term debt

153,232

161,199

Asset retirement obligations

32,582

30,748

Other non-current liabilities

17,295

16,829

Total non-current liabilities

203,109

208,776

Total liabilities

244,091

253,816

COMMITMENTS AND CONTINGENCIES

PARTNERS' CAPITAL:

Limited partners

295,574

292,791

General partner

11,160

11,420

Accumulated other comprehensive income

1,322

1,431

Total partners' capital

308,056

305,642

TOTAL

$        552,147

$        559,458

RHINO RESOURCE PARTNERS LP

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per unit data)

Three Months

Nine Months

Ended September 30,

Ended September 30,

2013

2012

2013

2012

REVENUES:

Coal sales

$        59,569

$        83,902

$      183,946

$      225,683

Other revenues

11,519

9,673

28,715

39,772

Total revenues

71,088

93,575

212,661

265,455

COSTS AND EXPENSES:

Cost of operations (exclusive of depreciation, depletion and amortization)

50,409

69,369

156,899

186,659

Freight and handling costs

341

1,521

894

4,583

Depreciation, depletion and amortization

10,471

10,065

31,262

30,912

Selling, general and administrative (exclusive of depreciation, depletion and amortization)

4,678

4,654

15,161

15,039

(Gain) loss on sale/disposal of assets?net

(609)

(1,185)

(10,301)

(2,176)

Total costs and expenses

65,290

84,424

193,915

235,017

INCOME FROM OPERATIONS

5,798

9,151

18,746

30,438

INTEREST AND OTHER INCOME (EXPENSE):

Interest expense and other

(2,069)

(2,105)

(5,848)

(5,889)

Interest income and other

-

15

-

91

Equity in net income (loss) of unconsolidated affiliates

(852)

1,815

(4,300)

6,206

Total interest and other income (expense)

(2,921)

(275)

(10,148)

408

INCOME BEFORE INCOME TAXES

2,877

8,876

8,598

30,846

NET INCOME

$          2,877

$          8,876

$          8,598

$        30,846

General partner's interest in net income

$               58

$             177

$             172

$             617

Common unitholders' interest in net income

$          1,629

$          4,806

$          4,671

$        16,709

Subordinated unitholders' interest in net income

$          1,190

$          3,893

$          3,755

$        13,520

Net income per limited partner unit, basic:

Common units

$            0.10

$            0.31

$            0.30

$            1.09

Subordinated units

$            0.10

$            0.31

$            0.30

$            1.09

Net income per limited partner unit, diluted:

Common units

$            0.10

$            0.31

$            0.30

$            1.09

Subordinated units

$            0.10

$            0.31

$            0.30

$            1.09

Distributions paid per limited partner unit (1)

$          0.445

$          0.445

$          1.335

$          1.405

Weighted average number of limited partner units outstanding, basic:

Common units

15,609

15,332

15,422

15,322

Subordinated units

12,397

12,397

12,397

12,397

Weighted average number of limited partner units outstanding, diluted:

Common units

15,621

15,333

15,430

15,327

Subordinated units

12,397

12,397

12,397

12,397

(1) No distributions were paid on the subordinated units for the three months ended September 30, 2013 and 2012, June 30, 2013 and 2012, and March 31, 2013.

 

Reconciliations of Adjusted EBITDA

The following tables present reconciliations of Adjusted EBITDA to the most directly comparable GAAP financial measures for each of the periods indicated (note: DD&A refers to depreciation, depletion and amortization).  Rhino management believes the presentation of Adjusted EBITDA that includes the proportionate share of DD&A and interest expense for Rhino Eastern is appropriate since the Partnership's portion of Rhino Eastern's net income that is recognized as a single line item in its financial statements is affected by these expense items.  Since Rhino does not reflect these proportionate expense items of DD&A and interest expense in its consolidated financial statements, management believes that the adjustment for these expense items in the Adjusted EBITDA calculation is more representative of how management reviews the results of the Partnership and provides investors with additional information that they can use to evaluate Rhino's results.

 

($ in millions)

Third Quarter 2013

Third Quarter 2012

Year to Date 2013

Year to Date 2012

 Year Ending 2013 (est midpoint)

Net income

$                2.9

$                8.9

$                8.6

$              30.8

$        14.5

Plus:

Depreciation, depletion and amortization (DD&A)

10.5

10.0

31.3

30.9

42.0

Interest expense

2.1

2.1

5.8

5.9

7.5

EBITDA*

$              15.4

$              21.0

$              45.7

$              67.7

$        64.0

Plus: Rhino Eastern DD&A-51%

0.3

0.3

0.7

0.8

1.0

Plus: Rhino Eastern interest expense-51%

-

-

-

0.1

-

Plus: Non-cash write-off of mining equipment (1)

-

-

1.0

-

-

Adjusted EBITDA*

$              15.7

$              21.3

$              47.4

$              68.6

$        65.0

* Totals may not foot due to rounding

(1) During the first quarter of 2013, Rhino incurred a non-cash expense of approximately $1.0 million due to the write-off of a continuous miner that was damaged at one of the Partnership's underground mines in Central Appalachia. Management believes that the isolation and presentation of this specific item to arrive at Adjusted EBITDA is useful because it enhances investors' understanding of how management assesses the performance of Rhino's business. Management believes the adjustment of this item provides investors with additional information that they can utilize in evaluating Rhino's performance. Additionally, management believes the isolation of this item provides investors with enhanced comparability to prior and future periods of Rhino's operating results.

 

Three Months Ended Sept 30,

Nine Months Ended Sept 30,

($ in millions)

2013

2012

2013

2012

Net cash provided by operating activities

$              11.1

$              24.7

$              40.2

$              58.0

Plus:

Increase in net operating assets

3.2

-

-

0.9

Gain on sale of assets

0.6

0.8

10.3

1.8

Amortization of deferred revenue

0.4

0.3

1.1

0.9

Amortization of actuarial gain

-

0.1

0.1

0.2

Interest expense

2.1

2.1

5.8

5.9

Equity in net income of unconsolidated affiliate

-

1.8

-

6.2

Less:

Decrease in net operating assets

-

7.7

4.0

-

Accretion on interest-free debt

-

0.1

0.1

0.2

Amortization of advance royalties

0.1

-

0.1

0.1

Amortization of debt issuance costs

0.3

0.3

0.9

0.8

Equity-based compensation

0.2

0.2

0.6

0.7

Loss on retirement of advanced royalties

-

0.1

-

0.1

Accretion on asset retirement obligations

0.6

0.4

1.8

1.3

Distributions from unconsolidated affiliate

-

-

-

3.0

Equity in net loss of unconsolidated affiliates

0.8

-

4.3

-

EBITDA

$              15.4

$              21.0

$              45.7

$              67.7

Plus: Rhino Eastern DD&A-51%

0.3

0.3

0.7

0.8

Plus: Rhino Eastern interest expense-51%

-

-

-

0.1

Plus: Non-cash write-off of mining equipment (1)

-

-

1.0

-

Adjusted EBITDA

$              15.7

$              21.3

$              47.4

$              68.6

(1) During the first quarter of 2013, Rhino incurred a non-cash expense of approximately $1.0 million due to the write-off of a continuous miner that was damaged at one of the Partnership's underground mines in Central Appalachia. Management believes that the isolation and presentation of this specific item to arrive at Adjusted EBITDA is useful because it enhances investors' understanding of how management assesses the performance of Rhino's business. Management believes the adjustment of this item provides investors with additional information that they can utilize in evaluating Rhino's performance. Additionally, management believes the isolation of this item provides investors with enhanced comparability to prior and future periods of Rhino's operating results.

 

SOURCE Rhino Resource Partners LP

For further information: Investor Contacts: Scott Morris, +1 859.519.3622, smorris@rhinolp.com

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