Rhino Resource Partners Announces Third Quarter 2013 Financial And Operating Results

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.

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

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