•Unitholders may be subject to limitations on their ability to deduct interest expense we incur.
•Tax-exempt entities face unique tax issues from owning common units that may result in adverse tax consequences to them.
•Non-U.S. unitholders will be subject to U.S. federal income taxes and withholding from owning our common units.
•If the IRS contests the U.S. federal income tax positions we take, the market for our common units may be adversely impacted.
•The IRS may challenge our treatment of purchasers of our common units as having the same tax benefits.
•The IRS may challenge that we prorate our items of income, gain, loss and deduction between transferors and transferees of our units based upon the ownership of units on the first day of each month, instead of the date a particular unit is transferred.
•A unitholder whose common units are the subject of a securities loan may be considered as having disposed of them.
•The IRS may challenge certain valuation methodologies we have adopted in determining a unitholder’s allocations of income, gain, loss and deduction.
•As a result of investing in our common units, our unitholders may become subject to state and local taxes.
Risks Inherent in our Business and Industry
We may not have sufficient cash from operations following the establishment of cash reserves and payment of fees and expenses, including cost reimbursements to our general partner and its affiliates, to enable us to pay any quarterly distribution on our units.
In an effort to achieve greater financial and liquidity flexibility during the COVID-19 pandemic, on August 3, 2020, each of the members of the board of managers of Ciner Wyoming approved a suspension of quarterly distributions to its members. In addition, effective August 3, 2020, in connection with the quarterly distribution for the quarter ended June 30, 2020, each of the members of the board of directors of our general partner approved a suspension of quarterly distributions to our unitholders.
Each of the board of managers of Ciner Wyoming and the board of directors of our general partner approved the continuation of the suspension of quarterly distributions to the members of Ciner Wyoming and our unitholders, as applicable, for each of the quarters ended September 30, 2020 and December 31, 2020 during the COVID-19 pandemic. In March 2021, the board of managers of Ciner Wyoming approved a special $8.0 million distribution to, amongst other things, provide the Partnership with funds to retire the Ciner Resources Credit Facility.
Management and the board of directors of our general partner will continue to evaluate, on a quarterly basis, whether it is appropriate to reinstate a distribution to our unitholders, which will be dependent in part on our cash reserves, liquidity, total debt levels and anticipated capital expenditures.
At this time, we are unable to predict the ultimate impact that COVID-19 may have on our business, future results of operations, financial position, cash flows or ability to make distributions to unitholders. The extent to which our operations may be impacted by the COVID-19 pandemic will depend largely on future developments, which are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning the severity of the outbreak and actions by local, state, federal or international government authorities to contain the outbreak or treat its impact. Furthermore, the impacts of a potential worsening of global economic conditions and the continued disruptions to and volatility in the financial markets remain unknown. While we have begun to see signs of recovery, including the approval and limited distribution of several COVID-19 vaccines and generally with some of our customers and industries, primarily in the form of government re-openings and increasing orders these recoveries are very fluid. We are actively managing the business to maintain cash flow, and we believe we have enough liquidity to meet our anticipated liquidity requirements. During the year ended December 31, 2020, we incurred $2.4 million in net costs directly related to COVID-19 primarily in the form of costs related to employee safety and retention and additional inventory storage and logistics costs during the COVID-19 pandemic. In the first quarter of 2020, we started to see the impact of COVID-19 on our operations in the form of slowing global demand and downward pricing pressure. We experienced quarter over quarter sales volume fluctuations of 35.7% decline, 26.7% increase, and 9.5% increase in the second quarter, the third quarter, and the fourth quarter of 2020, respectively. At this time, we cannot predict the duration or the scope of the COVID-19 pandemic and its impact on our operations, and the potential negative financial impact to our results cannot be reasonably estimated but could be material. We may continue to not have sufficient cash each quarter to pay a distribution due to the impact of Covid-19.
The amount of cash we can distribute on our units principally depends upon the amount of cash we generate from our operations, which will fluctuate from quarter to quarter based on several factors, some of which are beyond our control, including, among other things:
•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;
•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 short and long-term impact of the COVID-19 pandemic, including the impact of government orders on our employees, suppliers, customers and operations;
•the impact of the ANSAC Early Exit Agreement (as defined below) and our transition to the utilization of Ciner Group’s global distribution network for some of our export operations beginning on January 1, 2021;
•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 U.S. and international economic conditions and foreign exchange rates.
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;
•fluctuationsRisks Inherent in our working capital needs;
•our ability to borrow fundsBusiness and access capital markets;
•restrictions on distributions contained in debt agreements to which we, Ciner Wyoming or our affiliates are a party;
•the amount of cash reserves established by our general partner; and our ability to reinstate distributions in the future; and
•other business risks affecting our cash levels.Industry
Soda ash prices have been and in the future may be volatile, and lower soda ash prices will negatively affect our financial position and results of operations.
Our only product is soda ash, and the market price of soda ash directly affects the profitability of our operations. If the market price for soda ash declines, our revenue may decrease. Historically, the global market and, to a lesser extent, the domestic market for soda ash have been volatile, and those markets are likely to remain volatile in the future. In the past, we have reduced production to mitigate the impact of low soda ash prices. Volatility in soda ash prices can make it difficult to predict the cash we may have on hand at any given time, and a prolonged period of low soda ash prices may materially and adversely affect our financial position, liquidity (including our borrowing capacity under the Ciner$225.0 million senior secured revolving credit facility to which Sisecam Wyoming is a party (as amended, the “Sisecam Wyoming Credit Facility)Facility”)), ability to finance planned capital expenditures and results of operations.
Prices for soda ash may fluctuate in response to relatively minor changes in the supply of and demand for soda ash, market uncertainty and other factors beyond our control. These factors include, among other things:
•overall economic conditions;
•additional supply from suppliers selling into markets that we serve, including potential additional soda ash from affiliates of the Ciner Group;Partnership;
•the level of customer demand, including in the glassmaking industry;
•changes to our customer relationships and customer sales as a result of Ciner Corp’s expected termination as a member of ANSAC as of the ANSAC termination date;CoC Transaction (as defined below);
•the level of production and exports of soda ash globally;
•the level of production of materials used to produce soda ash, including trona ore or synthetic materials, globally;
•the cost of energy consumed in the production of soda ash, including the price of natural gas and electricity;
•the impact of our competitors changing their prices or increasing their capacity, exports and /or imports as applicable;
•domestic and foreign governmental relations, regulations and taxes; and
•political conditions or hostilities and unrest in regions where we export soda ash.
A substantial portion of our costs are attributable to transportation and freight costs. Increases in freight costs could increase our costs significantly and adversely affect our results of operations.
Most soda ash is sold inclusive of transportation costs, which make up a substantial portion of the total delivered cost to the customer. We transport our soda ash by rail and/or truck and, for exports, ocean vessel. As a result, our business and financial results are sensitive to increases in rail freight, trucking and ocean vessel rates. Increases in transportation costs, including increases resulting from emission control requirements, port taxes and fluctuations in the price of fuel, could make soda ash a less competitive product for glass manufacturers when compared to glass substitutes or recycled glass, or could make our soda ash less competitive than soda ash produced by competitors that have other means of transportation or are located closer to their customers. Our rail freight rates may increase year-over-year. Also, we may be unable to pass on our freight and other transportation costs in full because market prices for soda ash are generally determined by supply and demand forces.
A significant portion of our international sales of soda ash has been to ANSAC, a U.S. export cooperative, and therefore adverse developments at ANSAC could adversely affect our financial and operations.
We, along with two other U.S. trona-based soda ash producers, utilized ANSAC as our exclusive export vehicle for sales to customers in all countries excluding Canada, South Africa and members of the European Community and European Free Trade Area until December 31, 2020. Although Ciner Corp’s membership in ANSAC terminated at the end of the day on such date, Ciner Corp and ANSAC reached an agreement, which includes sales commitments to ANSAC in 2021 and 2022 where Ciner Corp will continue to sell, at substantially lower volumes, product to ANSAC for export sales purposes, with a fixed rate per ton selling, general and administrative expense, and will also purchase a limited amount of export logistics services in 2021. Because ANSAC makes sales to its end customers directly and then allocates a portion of such sales to each member, we had, and will continue to have in the near-term, direct access to ANSAC’s customers but no direct control over the credit or other terms ANSAC extended to its customers. As a result, we were, and will continue to be in the near-term, vulnerable to ANSAC’s customer relationships and the credit and other terms ANSAC extends to its customers. Any adverse change in ANSAC’s customer relationships, while Ciner Corp continues to make sales to ANSAC, could have had a direct impact on ANSAC’s ability to make sales and our ability to make sales to ANSAC. In addition, to the extent ANSAC extends credit or other favorable terms to its end customers and those customers subsequently default under sales contracts or otherwise fail to perform, we would have no direct recourse against them. In connection with the settlement agreement with ANSAC, there are sales commitments to ANSAC in 2021 and 2022 where Ciner Corp will continue to sell, at substantially lower volumes, product to ANSAC for export sales purposes, with a fixed rate per ton selling, general and administrative expense, and will also purchase a limited amount of export logistics services in 2021.
For more information about ANSAC, see Item 1, “Business—Customers” and “Risk Factors-Risks Inherent in our Business and Industry- “A significant portion of our historical international sales of soda ash has been to ANSAC, and therefore, Ciner Corp’s termination of its membership in ANSAC could adversely affect our ability to compete in certain international markets, materially adversely impact our business, results of operations and financial condition and limit our ability to make distributions to our unitholders.”
A significant portion of our historical international sales of soda ash has been to ANSAC, and therefore, Ciner Corp’s termination of its membership in ANSAC could adversely affect our ability to compete in certain international markets, materially adversely impact our business, results of operations and financial condition and limit our ability to make distributions to our unitholders.
Although Ciner Corp’s membership in ANSAC terminated at the end of the day on December 31, 2020, Ciner Corp and ANSAC reached an agreement that we would continue selling tons, at substantially lower volumes to ANSAC and partner therewith on limited logistics services for a limited period of time. ANSAC has historically been our largest customer for the years ended December 31, 2020, 2019 and 2018, accounting for 45.4%, 60.4% and 52.0%, respectively, of our net sales. As a result of the termination of Ciner Corp’s membership in ANSAC, we cannot be assured that we will retain existing foreign customers or secure new foreign customers or the related logistics arrangements on favorable terms, if at all, after the ANSAC termination date, which could materially adversely impact our business, results of operations and financial condition and limit our ability to make distributions to our unitholders.
An increase in natural gas prices, or an interruption in our natural gas supply, would negatively impact our competitive cost position when compared to other foreign and domestic soda ash producers.
We rely on natural gas as the main energy source in our soda ash production process, and therefore the cost of natural gas is a significant component of the total production cost for our soda ash. The monthly Northwest Pipeline Rocky Mountain Index natural gas settlement prices, over the past five years, have ranged between $1.29 and $5.70.$6.34. For the years ended December 31, 2021, 2020, and 2019, the average monthly Northwest Pipeline Rocky Mountain Index natural gas settlement prices were $3.90, $2.07, and $2.59 per MMBtu, respectively. Furthermore, the price of natural gas could increase as a result of reduced domestic drilling and production activity. Drilling and production operations are subject to extensive federal, state, local and foreign laws and government regulations concerning, among other things, emissions of pollutants and greenhouse gases, hydraulic fracturing, and the handling of natural gas and other substances used in connection with natural gas operations, such as drilling fluids and wastewater. In addition, natural gas operations are subject to extensive federal, state and local taxation. More stringent legislation,
regulation or taxation of natural gas drilling activity in the United States could directly curtail such activity or increase the cost of drilling, resulting in reduced levels of drilling activity and therefore increased natural gas prices.
Any material increase in natural gas prices could adversely impact our operations by making us less competitive with other soda ash producers who do not use natural gas as a key input. If U.S. natural gas prices were to increase to a level where foreign soda ash producers were able to improve their competitive position on a unit cost basis, this would negatively affect our competitive cost position.
All of our operations are conducted at one facility. Any adverse developments at our facility could have a material adverse effect on our results of operations and therefore our ability to make cash distributions to our unitholders.
Because all of our operations are conducted at a single facility, an event such as an explosion, substantial gas leak such as methane, fire, equipment malfunction or severe weather conditions that adversely affect our facility could significantly disrupt our trona mining or soda ash production operations and our ability to supply soda ash to our customers. For example, in the fourth quarter of 2016, MSHA required us to make temporary operational modifications, which caused us to lose a significant amount of ore production. While Ciner Enterprises or itsour affiliates maintainsmaintain business interruption insurance on our behalf, our policy includes a time element deductible, per occurrence, and is subject to customary limitations and exclusions. Any sustained disruption in our ability to meet our obligations under our sales agreements could have a material adverse effect on our results of operations and therefore our ability to distribute cash to unitholders.
Due to our lack of product diversification, adverse developments in the soda ash industry would adversely affect our results of operations and our ability to make cash distributions to our unitholders.
We rely exclusively on the revenues generated from the production and sale of soda ash. An adverse development in the market for soda ash in U.S. or foreign markets would have a significantly greater impact on our operations and cash available for distribution to our unitholders than it would on other companies that have a more diverse asset and product base. Some of the soda ash producers with which we compete sell a more diverse range of products to broader markets.
For the year ended December 31, 2020, approximately 96.6%2021, over 90% of our soda ash was shipped via rail, and we rely on one rail line to service our facility under a contract that expires in 2021.2025. Interruptions of service on this rail line could adversely affect our results of operations and our ability to make cash distributions to our unitholders.
For the year ended December 31, 2020,2021, we shipped approximately 96.6%over 90% of our soda ash from our facility on a single rail line owned and controlled by Union Pacific. Our current transportation contract with Union Pacific expires on December 31, 2021. There can be no assurance that this contract will be renewed on terms favorable to us or at all.2025. For the year ended December 31, 20202021 and 2019,2020, we assisted the majority of our domestic customers in arranging their freight services. Rail operations are subject to various risks that may result in a delay or lack of service at our facility, including mechanical problems, extreme weather conditions, work stoppages, labor strikes, terrorist attacks and operating hazards. Moreover, if Union Pacific’s financial condition were adversely affected, it could decide to cease or suspend service to our facility. If we are unable to ship soda ash by rail, it would be impracticable to ship all of our soda ash by truck and it would be cost-prohibitive to construct a rail connection to the closest alternative rail line that is approximately 135 miles from our facility. Any delay or failure in the rail services on which we rely could have a material adverse effect on our financial condition and results of operations and our ability to make distributions to our unitholders. Moreover, if we do not ship at least a significant portion of our soda ash production on the Union Pacific rail line during a twelve-month period, we must pay Union Pacific a shortfall payment under the terms of our transportation agreement. During the years ended December 31, 20202021 and 2019,2020, we had no shortfall payments under the transportation agreement.
A significant portion of the demand for soda ash comes from glass manufacturers and other industrial end users whose businesses can be adversely affected by economic downturns.
A significant portion of the demand for soda ash comes from glass manufacturers and other industrial customers. Companies that operate in the industries that glass manufacturers serve, including the automotive, construction and glass container industries, may experience significant fluctuations in demand for their own end products because of economic conditions, changes in consumer demand, or increases in raw material and energy costs. In addition, many large end users of soda ash depend upon the availability of credit on favorable terms to make purchases of raw materials such as soda ash. As interest rates increase or if our customers’ creditworthiness deteriorates, this credit may be expensive or difficult to obtain. If these customers cannot obtain credit on favorable terms, they may be forced to reduce their purchases of soda ash. These and other factors may lead some customers to purchase less under or seek renegotiation or cancellation of their existing arrangements with us, which could have a material adverse effect on our results of operations and our ability to distribute cash to unitholders.
If the percentage of our international sales increases as a percentage of total sales, our gross margin could decrease and the average trade credit payment period of our customers could increase, which could adversely affect our financial position and our ability to distribute cash to our unitholders.
For the year ended December 31, 2020,2021, our international sales of soda ash as a percentage of total sales was 46.8%48.8%. Our gross margin for international sales ishas historically been lower than our gross margin for domestic sales most of the time because
our average price of soda ash sold internationally ishas historically been lower than our average price of soda ash sold domestically. Lower margins could adversely affect our financial position and our ability to distribute cash to our unitholders.
We typically receive payment for our domestic sales quicker than we receive payment for our international sales. Therefore, an increase in our international sales and a decrease in domestic sales would extend the average time period for our receipt of payment for our soda ash, which could expose us to greater credit risk from our customers, increase our working capital requirements and negatively affect the amount of cash available for distribution to our unitholders.
Our deca stockpiles will be substantially depleted by 2024 and our production rates will decline by approximately 200,000 short tons per year if we do not make further investments.
In 2024, our deca stockpiles will be substantially depleted. WeIn connection with the CoC Transaction, we are evaluating ourwhether and when to pursue a potential Green River Expansion Project at the site that willcould offset this decline as well as provide additional soda ash production above our current rates. We cannot guarantee that any such investments will be executed successfully, or in a timely manner or if at all to enable us to maintain our current rates of production.
Ciner Corp,Sisecam Chemicals, on our behalf, typically enters into contracts and arrangements with our customers that have terms of one to three years, and our customers are not obligated to purchase any specific amount of soda ash from us.
The terms of our customer contracts vary, including by geography. Most of our domestic contracts have terms of one to three years. We understand that ANSAC’s customer contract terms also vary by region.Our international contracts are typically for one year or less. Moreover, some of our customer contracts are not exclusive dealing and almost none are take-or-pay arrangements. Additionally, we may lose a customer for any number of reasons, including as a result of a merger or acquisition, the selection of another provider of soda ash, Ciner Corp’s termination from ANSAC as of the ANSAC termination date, business failure or bankruptcy of the customer or dissatisfaction with our performance or pricing. Loss of any of our major customers could adversely affect our business, results of operations and cash flow.
Increased use of glass substitutes and recycled glass may affect demand for soda ash, which could adversely affect our results of operations.
Increased use of glass substitutes or recycled glass in the container industry could have a material adverse effect on our results of operations and financial condition. Container glass production is one of the principal end markets for soda ash. Competition from increased use of glass substitutes, such as plastic and recycled glass, has had a negative effect on demand for soda ash. Demand for soda ash by the U.S. glass container industry has generally declined over the last ten years. However, international demand for glass containers is growing at close to GDPWorld Gross Domestic Product rate. We believe that the use of containers made with alternative materials such as plastic and aluminum will continue to negatively affect the growth in domestic demand for soda ash in the U.S.
We are exposed to trade credit risk in the ordinary course of our business activities.
We extend credit to our customers as a normal part of our business and as such are subject to the credit risk of our customers, including the risk of loss resulting from nonpayment or nonperformance. Standard industry contract terms are net 30 days from the date of shipment for domestic U.S. customers and 120-150 days from the date of shipment for international customers. We have experienced nonperformance by our customers and counterparties in the past, and we may take reserves for accounts more than 90 days past due. Some of our customers and counterparties may be highly leveraged and subject to their own operating and regulatory risks. Our credit procedures and policies maydo not be adequate to eliminate customer credit risk and we may not adequately assess the creditworthiness of existing or future customers. In addition, even if our procedures work properly,as designed, our customers may experience unanticipated deterioration of their creditworthiness. Material nonpayment or nonperformance by our customers could have a material adverse effect on our financial condition and results of operations and on our ability to distribute cash to our unitholders.
We face intense competition, including from companies that have capital resources greater than ours and that have more diversified operations.
We face competition from a number of soda ash producers in the United States, Europe and Asia, some of which have greater market share and greater financial, production and other resources than we do. Some of our competitors are diversified global corporations that have many lines of business. For example, the Ciner Group isour affiliates are in the early stages of entering into agreements and evaluating opportunities that may result in producing new soda ash from one or more separate facilities in the U.S. in the future which may increase competition if developed. Some of our competitors have greater capital resources and may be in a better position to withstand a long termlong-term deterioration in the soda ash market. Other competitors, even if smaller in size, may have greater experience and stronger relationships in their local markets. Competitive pressures could make it more difficult for us to retain our existing customers and attract new customers, which could have a material adverse effect on our business, financial
condition, results of operations and ability to distribute cash to our unitholders. Competition could also intensify the negative impact of factors that decrease demand for soda ash in the markets we serve, such as adverse economic conditions, weather, higher fuel costs and taxes or other governmental or regulatory actions that directly or indirectly increase the cost or limit the use of soda ash. In
addition, China is the largest producer of synthetic soda ash in the world and historically has exported only a small percentage of its production. If Chinese producers, which we believe are supported by government subsidies, and other producers were to begin producing significantly more quantities of soda ash than are produced today then the supply of soda ash in the global market could materially increase and put downward pressure on pricing.
Unfavorable economic conditions may reduce demand for our products, which could adversely affect our results of operations.
Worldwide soda ash demand correlates to global economic growth. Worsening economic conditions or factors that negatively affect the economic health of the United States and other parts of the world into which we or ANSAC sellssell soda ash could reduce our revenues and adversely affect our results of operations. For example, during the COVID-19 pandemic in 2020, global economic growth and soda ash demand slowed and we experienced adverse results that resulted in our board of directors approving a suspension of our quarterly distribution for each of the quarters ended June 30, 2020, September 30, 2020, December 31, 2020, March 31, 2021, and June 30, 2021. We believe that deterioration of economic conditions or a prolonged period of economic weakness would have an adverse impact on our results of operations, business and financial condition, as well as our ability to distribute cash to our unitholders.
Our reserve and resource data are estimates based on assumptions that may be inaccurate and are based on existing economic and operating conditions that may change in the future, which could materially and adversely affect the quantities and value of our reserves.reserves and resources.
Our reserve and resource estimates may vary substantially from the actual amounts of minerals we are be able to recover economically from our reserves. There are numerous uncertainties inherent in estimating quantities of reserves and resources, including many factors beyond our control. Estimates of reserves and resources necessarily depend upon a number of variables and assumptions, any one of which may, if incorrect, result in an estimate that varies considerably from actual results. These factors and assumptions relate to, among other aspects:
•future prices of soda ash, mining and production costs, capital expenditures and transportation costs;
•future mining technology and processes;
•the effects of regulation by governmental agencies; and
•geologic and mining conditions, which may not be identified by available exploration data and may differ from our experiences in areas where we currently mine.
Please read Item 1, “Business-Trona“Business-Summary of Trona Resources and Trona Reserves” for more information including pertinent additional assumptions regarding our reserve estimates in this Report. Actual production, revenue and expenditures with respect to our reserves will likely vary from our estimates, and these variations may be material.
Provisions in, and the consequences of an event of default including the Facilities Agreement Default, under, the Facilities Agreement could limit our ability to grow the business, restrict our operational and financial flexibility and result in a change of control.
On August 1, 2018, Ciner Enterprises, the entity that indirectly owns and controls the Partnership, refinanced its existing credit agreement and entered into a new facilities agreement, to which WE Soda and Ciner Enterprises (as borrowers), and KEW Soda, WE Soda, WE Soda Kimya Yatırımları Anonim Şirketi, Ciner Kimya Yatırımları Sanayi ve Ticaret Anonim Şirketi, Ciner Enterprises, Ciner Holdings and Ciner Corp (as original guarantors and together with the borrowers, the “Ciner Obligors”), are parties (as amended and restated or otherwise modified, the “Facilities Agreement”), and certain related finance documents. The Facilities Agreement expires on August 1, 2025.
Even though neither we nor Ciner Wyoming are a party or a guarantor under the Facilities Agreement while any amounts are outstanding under the Facilities Agreement we will be indirectly affected by certain affirmative and restrictive covenants that apply to WE Soda and its subsidiaries (which include us). Besides the customary covenants and restrictions, the Facilities Agreement includes provisions that, without a waiver or amendment approved by lenders, whose commitments are more than 66-2/3% of the total commitments under the Facilities Agreement to undertake such action, would (i) prevent certain transactions (including loans) with our affiliates, including such transactions that could reasonably be expected to materially and adversely affect the interests of certain finance parties, (ii) restrict the ability to amend our limited partnership agreement or the general partner’s limited liability company agreement or our other constituency documents if such amendment could reasonably be expected to materially and adversely affect the interests of the lenders to the Facilities Agreement, (iii) restrict the amount of our capital expenditures if certain ratios are not achieved by the Ciner Obligors thereunder and (iv) prevent actions that enable certain restrictions or prohibitions on our ability to upstream cash (including via distributions) to the borrowers under the Facilities Agreement. Based on the Ciner Obligors’ applicable ratios at December 31, 2020, the Partnership’s expansion capital expenditures are prohibited until the Ciner Obligors’ applicable ratios are at specified levels pursuant to the Facilities Agreement.
In addition, Ciner Enterprises’ ownership in Ciner Holdings is subject to a lien under the Facilities Agreement, which enables the lenders under the Facilities Agreement to foreclose on such collateral and take control of Ciner Holdings, which controls the general partner of the Partnership, if any of the borrowers or guarantors under the Facilities Agreement are unable to satisfy its respective obligations under the Facilities Agreement.
Furthermore, the consequences of an event of default under the Facilities Agreement may, directly or indirectly, negatively affect our operations, and those of Ciner Wyoming. In connection with the event of default (the “Facilities Agreement Default”) under the Facilities Agreement that arose in February 2021, (i) we terminated our credit facility and repaid in full our obligations thereunder and (ii) Ciner Wyoming amended its existing credit agreements to modify the related definitions of change of control in order to prevent an event of default thereunder that could have otherwise resulted from the Facilities Agreement lenders foreclosing on certain equity interests in Ciner Holdings (the “Equity Default Remedy”) as a remedy for the Facilities Agreement Default, or as a remedy for future events of default under the Facilities Agreement, as amended. Although exercise of the Equity Default Remedy no longer directly triggers an event of default under Ciner Wyoming’s credit agreements, such remedy may still provide the lenders under the Facilities Agreement with the authority and ability to effectuate a change of control.
Any debt instruments that Ciner Enterprises or any of its affiliates enter into in the future, including any amendments to the Facilities Agreement or the related finance documents, may include additional or more restrictive limitations, or consequences of events of defaults, that may impact our ability to conduct our business. These additional restrictions and potential consequences of events of default could adversely affect our ability to finance our future operations or capital needs or engage in, expand or pursue our business activities.
Each of Ciner Holdings and Ciner Corp, the sole member of Ciner Holdings, which is in turn the sole member of our general partner, is a guarantor under, and its respective equity interests in us and Ciner Holdings are pledged as collateral under, the Facilities Agreement; if any of the Ciner Obligors is unable to meet its obligations under the Facilities Agreement, or is declared bankrupt, the lenders under the Facilities Agreement may gain control of the sole member of our general partner and force us to liquidate or, in the case of bankruptcy, our partnership may be dissolved.
Ciner Holdings, the sole member of our general partner, is a guarantor under the Facilities Agreement, and Ciner Corp, the sole member of Ciner Holdings, is also a guarantor thereunder. Ciner Corp’s membership interests in Ciner Holdings and Ciner Holdings’ limited partnership interests in us are subject to a lien under the Facilities Agreement. If any of the Ciner Obligors is unable to satisfy its obligations under the Facilities Agreement, or declares bankruptcy, and the lenders foreclose on the applicable collateral, the lenders would own the sole member of our general partner, and effectively all of its assets, which include 100% of the membership interest in the general partner. In such event, the lenders would own and control our general partner, the entity that controls our management and operation. Pursuant to such ownership, the lenders could force us to liquidate. Please read the risks factors in this Report, including the discussion under the following risk factors: “Restrictions in the agreements governing Ciner Wyoming Credit Facility and the Ciner Wyoming Equipment Financing Arrangement, could limit its operations, and therefore ours, and adversely affect our business, financial condition, results of operations and ability to make quarterly cash distributions to our unitholders.”
Restrictions in the agreements governing Ciner Wyoming’s indebtedness, including the Ciner Wyoming Credit Facility and the Ciner Wyoming Equipment Financing Arrangement, could limit its operations, and therefore ours, and adversely affect our business, financial condition, results of operations and ability to make quarterly cash distributions to our unitholders.
Ciner Wyoming is party to a $225.0 million senior secured revolving credit facility (as amended, the “Ciner Wyoming Credit Facility”), and an equipment financing arrangement (the “Ciner Wyoming Equipment Financing Arrangement”) with Banc of America Leasing & Capital, LLC, as lender (the “Equipment Financing Lender”) including a Master Loan and Security Agreement, dated as of March 25, 2020 (as amended to date, the “Master Agreement”) and an Equipment Security Note Number 001, dated as of March 25, 2020 (the “Initial Secured Note”), which provides the terms and conditions for the debt financing of certain equipment related to Ciner Wyoming’s new natural gas-fired turbine co-generation facility that became operational in March 2020.
The Ciner Wyoming Credit Facility contains various covenants and restrictive provisions that limit (subject to certain exceptions) Ciner Wyoming’s ability to
•make distributions on or redeem or repurchase its units;
•incur or guarantee additional debt;
•make certain investments and acquisitions;
•incur certain liens or permit them to exist;
•enter into certain types of transactions with affiliates of Ciner Wyoming;
•merge or consolidate with another company; and
•transfer, sell or otherwise dispose of assets.
Furthermore, the Ciner Wyoming Credit Facility requires compliance with quarterly maintenance of a leverage ratio and an interest coverage ratio. For more information please read Part II, Item 8, “Financial Statements and Supplementary Data—Note 9—Debt—Ciner Wyoming Credit Facility.”
The Ciner Wyoming Credit Facility contains customary events of default for similar transactions, including (i) failure to make required payments, (ii) failure to comply with covenants and financial ratios, (iii) the occurrence of a change of control, (iv) the institution of insolvency or similar proceedings and (v) the occurrence of a default under any other material indebtedness. Upon the occurrence and during the continuation of an event of default, subject to the terms and conditions of the Ciner Wyoming Credit Facility, all of the outstanding commitments under such facility may be terminated and any outstanding principal of the Ciner Wyoming Credit Facility’s debt, together with accrued and unpaid interest, may be declared immediately due and payable.
In connection with the Facilities Agreement Default, Ciner Wyoming entered into a Third Amendment to the Ciner Wyoming Credit Facility (the “Third Amendment”) in order to prevent an event of default thereunder that could have otherwise resulted from the Facilities Agreement lenders exercising the Equity Default Remedy as a remedy for the Facilities Agreement Default, or a future event of default under the Facilities Agreement, as amended. Such amendment (i) modified the definition of change of control; (ii) reduced the leverage ratio to 3:00 to 1.00 for the quarter ended June 30, 2021 and each fiscal quarter thereafter; and (iii) added a covenant that any borrowings under the Wyoming Credit Facility are secured by substantially all of Ciner Wyoming’s personal property, subject to certain exclusions.
Under the Ciner Wyoming Credit Facility (as amended), a change of control is triggered if (i) Ciner Corp and its wholly-owned subsidiaries, cease to own all of the equity interests that are entitled to vote for, or cease to have the ability to elect a majority of, the board of directors (or similar governing body) of Ciner Resource Partners LLC; (ii) Ciner Corp and its wholly-owned subsidiaries cease to own all of the general partner interests of, or cease to be and perform the functions of the general partner of, Ciner Resources LP; or (iii) Ciner Resources LP, Ciner Corp and its wholly-owned subsidiaries in the aggregate cease to own at least 50.1% of the economic interests in Ciner Wyoming or ceases to have the ability to elect a majority of the members of Ciner Wyoming’s board of managers; provided, the foregoing will not constitute a change of control if caused solely as a result of a foreclosure of the equity pledged under the Facilities Agreement due to an event of default thereunder.
With respect to the Ciner Wyoming Equipment Financing Arrangement, in order to secure the payment and performance of Ciner Wyoming’s obligations thereunder and other debt obligations owed by Ciner Wyoming to the Equipment Financing Lender, Ciner Wyoming granted to the Equipment Financing Lender a continuing security interest in all of Ciner Wyoming’s right, title and interest in and to the Equipment (as defined in the Master Agreement) and certain related collateral. The Ciner Wyoming Equipment Financing Arrangement (1) incorporates all covenants of in the Ciner Wyoming Credit Facility, now or hereinafter existing, or in any applicable replacement credit facility accepted in writing by the Equipment Financing Lender, that are based upon a specified level or ratio relating to assets, liabilities, indebtedness, rentals, net worth, cash flow, earnings, profitability, or any other accounting-based measurement or test, and (2) includes customary events of default subject to applicable grace periods, including, among others, (i) payment defaults, (ii) certain mergers or changes in control of Ciner Wyoming, (iii) cross defaults with certain other indebtedness (a) to which the Equipment Financing Lender is a party or (b) to third parties in excess of $10 million, and (iv) the commencement of certain insolvency proceedings or related events identified in the Master Agreement. Upon the occurrence of an event of default, in its discretion, the Equipment Financing Lender may exercise certain remedies, including, among others, the ability to accelerate the maturity of any equipment note such that all amounts thereunder will become immediately due and payable, to take possession of the Equipment identified in any equipment note, and to charge Ciner Wyoming a default rate of interest on all then outstanding or thereafter incurred obligations under the Ciner Wyoming Equipment Financing Arrangement. In connection with the Third Amendment to the Ciner Wyoming Credit Facility described above, Ciner Wyoming entered into a second amendment to the Master Agreement (the “Second Amendment to the Master Agreement”) for the similar purpose of modifying the applicable definition of change of control in order to prevent a potential event of default thereunder.
The provisions of the Ciner Wyoming Credit Facility and the Ciner Wyoming Equipment Financing Arrangement may affect Ciner Wyoming’s ability to obtain future financing and pursue attractive business opportunities and flexibility in planning for, and reacting to, changes in business conditions. In addition, Ciner Wyoming’s failure to comply with the provisions of the Ciner Wyoming Credit Facility could result in an event of default, which could enable its lenders, subject to the terms and conditions thereof, to terminate all outstanding commitments and declare any outstanding principal of that debt, together with accrued and unpaid interest, to be immediately due and payable. If the payment of the Ciner Wyoming Credit Facility’s debt is accelerated, the assets of Ciner Wyoming may be insufficient to repay such debt in full. As a result, our results of operations and, therefore, our ability to distribute cash to unitholders, could be materially and adversely affected, and our unitholders could experience a partial or total loss of their investment. Please read Part II, Item 8, “Financial Statements and Supplementary Data—Note 9—Debt—Ciner Wyoming Credit Facility” for more information.
A cyber-attack on or other failure of our technology infrastructure could affect our business and assets, and have a material adverse effect on our financial condition, results of operations and cash flows.
We are becoming increasingly dependent on our technology infrastructure and certain critical information systems which process, transmit and store electronic information, including information we use to safely and effectively operate our respective assets and businesses.business. These information systems include data network and telecommunications, internet access, our websites, and various computer hardware equipment and software applications, including those that are critical to the safe operation of our soda ash production facility and other facilities and assets that we utilize. We have invested, and expect to continue to invest, significant time, manpower and capital in our technology infrastructure and information systems. These information systems are subject to damage or interruption from a number of potential sources including natural disasters, software viruses or other malware, power failures, cybersecurity threats to gain unauthorized access to sensitive information, cyber-attacks, which may render data systems unusable, and physical threats to the security of our assets and infrastructure or third-party facilities and infrastructure.
Additionally, our business is highly dependent on financial, accounting and other data processing systems. We process a large number of transactions on a daily basis and rely upon the proper functioning of computer systems. Furthermore, we rely on information systems across our operations, including the management of supply chain and various other processes and transactions. As a result, a disruption on any information systems at our soda ash production facility or other facilities and assets that we utilize, may cause disruptions to our operations and have a material adverse effect on our financial condition, results of operations and cash flows.
The potential for such security threats or system failures has subjected our operations to increased risks that could have a material adverse effect on our business. To the extent that these information systems are under our control, we have implemented measures such as virus protection software, vulnerability scans, 24/7 monitoring of network services and operating ERP,enterprise resource planning, payroll, and logistics systems in the cloud. However, security measures for information systems cannot be
guaranteed to be failsafe and implemented measures may not prevent delays or other complications that could arise from an information systems failure. If a key system was hacked or otherwise interfered with by an unauthorized user, or was to fail or experience unscheduled downtime for any reason, even if only for a short period, or any compromise of our data security or our inability to use or access these information systems at critical points in time could unfavorably impact the timely and efficient operation of our business, damage our reputation and subject us to additional costs and liabilities.
Cyber-attacks against us or others in our industry could result in additional regulations, and U.S. government warnings have indicated that infrastructure assets may be specifically targeted by certain groups. These attacks include, without limitation, malicious software, ransomware, attempts to gain unauthorized access to data, and other electronic security breaches. These attacks may be perpetrated by state-sponsored groups, “hacktivists”, criminal organizations or private individuals (including employee malfeasance). Current efforts by the federal government, such as the Strengthening the Cybersecurity of Federal Networks and Critical Infrastructure executive order, and any potential future regulations could lead to increased regulatory compliance costs, insurance coverage cost or capital expenditures. We cannot predict the potential impact to our business, the soda ash production industry or certain infrastructure facilities, assets and services upon which we rely resulting from additional regulations.
Further, our business interruption insurance may not compensate us adequately for losses that may occur. We do not carry insurance specifically for cybersecurity events; however, certain of our insurance policies may allow for coverage for a cyber-event resulting in ensuing property damage from an otherwise insured peril. If we were to incur a significant liability for which we were not fully insured, it could have a material adverse effect on our financial position, results of operations and cash flows. In addition, the proceeds of any such insurance may not be paid in a timely manner and may be insufficient if such an event were to occur.
Our business may continue to be adversely affected by the coronavirus (“COVID-19”)COVID-19 outbreak or the outbreak of other contagious diseases.
Public health epidemics, pandemics or outbreaks of contagious diseases could adversely impact our business. On March 11, 2020,For example, the World Health Organization declaredimpact of the ongoing COVID-19 a pandemic that included(including the Delta and Omicron variants), continue to cause certain disruptions and volatility to the economy throughout the world, including the United States. The impact of COVID-19, includingStates and markets to which our products have historically been exported, affecting changes in consumer behavior, pandemic fears and market downturns, and restrictions on business and individual activities, has created significant volatility in the global economy and led to reduced economic activity.activities. There have been extraordinary actions taken by international, federal, state, and local public health and governmental authorities to contain and combat the outbreak and spread of COVID-19 in regions throughout the world, including travel bans, quarantines, “stay-at-home” orders, and similar mandates for many individuals to substantially restrict daily activities and for many businesses to curtail or cease normal operations. In late December 2020, vaccines for COVID-19 started becoming available on a limited basis.
The extent to which COVID-19 will continue to impact our future financial condition, results of operations, liquidity and ability to make distributions to unitholders will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the outbreak, new information that may emerge concerning the severity of the COVID-19 outbreak and government mandated actions, requests or orders taken to contain the spread of COVID-19 or treat its
impact, among others. In particular, the outbreak and any preventative or protective actions that governments, the Partnership or its affiliates or customers, or third parties upon which we rely for essential supplies or logistics services may take in respect of the COVID-19 outbreak, may result in a period of operational disruption and a potential reduction in the availability of our workforce. COVID-19 could also have a material impact across a variety of our customers and customer segments, which could have a negative impact on the demand for our products.
In addition, the COVID-19 outbreak may continue to impact our ability to timely develop and execute, or to ultimately realize the expected benefits from, our potential Green River Expansion Project (if undertaken), due to, among other things, a decline in the worldwide demand for soda ash, the cost or availability of debt financing or reduced cash flows from our operations to fund the project or any inability to procure the services, materials and equipment necessary to complete the project. For example, the COVID-19 outbreak has already impacted our revenue due to decreased demand for soda ash and contributed to our decision to suspend our distribution to our unitholders. Further, a prolonged period of disruption in worldwide economic and financial markets could constrain our available sources of liquidity to fund our operations, negatively impact our ability to service our financial obligations to lenders under our credit facilities and financing arrangements and pay distributions to our unitholders.
Any resulting financial impacts to the Partnership as a result of COVID-19, or other similar outbreaks of contagious diseases, including impacts to our results of operations, liquidity and ability to make distributions to our unitholders, are not reasonably estimable and cannot be predicted with confidence, but could be material.
The extent to which the COVID-19 pandemic may directly or indirectly impact the future financial condition, results of operations and liquidity of certain members of the Ciner Group (“Ciner Group”), including WE Soda, Ciner Enterprises, Ciner Wyoming Holding Co. (“Ciner Holdings”) and Ciner Resource Partners LLC (our “general partner”), are uncertain and cannot be predicted with confidence, but could have a material adverse effect on our business, financial condition, results of operations and limit our ability to make distributions to unitholders.
The extent to which COVID-19 may directly or indirectly impact the future financial condition, results of operations and liquidity of certain members of Ciner Group, including WE Soda, Ciner Enterprises, Ciner Holdings and our general partner, will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including, without limitation, the duration of the outbreak, new information that may emerge concerning the severity of the COVID-19 outbreak and government mandated actions, requests or orders taken to contain the spread of COVID-19 or treat its impact. In response to the impact of the COVID-19 pandemic, WE Soda and Ciner Enterprises (collectively, the “FA Borrowers”) and certain other guarantors under the Facilities Agreement, including Ciner Holdings, the sole member of our general partner, and Ciner Resources Corporation (“Ciner Corp”), the sole member of Ciner Holdings, entered into the Amendment and Restatement Facilities Agreement dated as of July 24, 2020 as further amended on August 31, 2020 and February 11, 2021 (as amended, the “Facilities Agreement”). In February 2021, the Ciner Obligors experienced the Facilities Agreement Default, which in turn caused (i) Ciner Wyoming to enter into the Third Amendment to the Ciner Wyoming Credit Facility and the Second Amendment to the Master Agreement and (ii) us to terminate our credit facility and repay in full our obligations thereunder.
Regardless, the lenders under the Facilities Agreement may still exercise the Equity Foreclosure Remedy in response to certain other events of default thereunder. Pursuant to such resulting ownership, the lenders could force us to liquidate, or we and Ciner Wyoming may otherwise experience a material adverse effect on our business, financial condition, results of operations and limited ability to make distributions to unitholders.
If we are not able to renew our leases and licenses, it will have a material adverse effect on us. Under the terms of our subsurface mining leases, we are required to make minimum royalty payments or annual rentals, and the royalty rates we are required to pay may change with little or no notice to us.
All of our reserves are held under leases with the State of Wyoming and the U.S. Bureau of Land Management and a license with Sweetwater Royalties LLC. As of December 31, 2020,2021, none of our leases covering our acreage are scheduledexpire prior to expire until 2027.
If we are not able to renew our leases, it will have a material adverse effect on our results of operations and cash available for distribution to unitholders. Each of those leases and the license requires that minimum royalties or annual rentals be paid regardless of production levels. If our operations do not meet production goals, then it could have an adverse effect on our ability to pay cash distributions due to the ongoing requirement to pay minimum royalty payments despite a lack of production and the corresponding net sales.
The royalty rates we pay to our lessors may change upon our renewal of such leases. Any increase in the royalty rates we are required to pay to our lessors, or any failure by us to renew any of our leases, 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.
Defects in title or loss of any leasehold interests in our properties could limit our ability to conduct mining operations on these properties or result in significant unanticipated costs.
All of our trona reserves are leased or licensed. A title defect in our leased, licensed or owned property or the loss of any lease or license upon expiration of its term, upon a default or otherwise could adversely affect our ability to mine the associated reserves and/or process the trona that we mine. In some cases, we rely on title information or representations and warranties provided by our lessors, licensor or grantor. We cannot rely on any such representations or warranties with respect to the surface land on which our facility is located because we acquired the surface land in 1991 by quitclaim deed. We have no title insurance for our interests in this property. Any challenge to our title or leasehold interests could delay our operations and could ultimately result in the loss of some or all of our interest in the property. From time to time we also may be in default with respect to leases or the license for properties on which we have mining operations. In such events, we may have to close down or alter significantly the sequence of such mining operations, which may adversely affect our future soda ash production and future revenues. If we mine on property that we do not own, lease or license, we could incur liability for such mining and be subject to regulatory sanction and penalties. Also, in any such case, the investigation and resolution of title issues would divert management’s time from our business, and our results of operations could be adversely affected. As a result, our results of operations, business and financial condition, as well as our ability to pay distributions to our unitholders may be materially adversely affected.
We may not achieve the acquisition component of our growth strategy.
Acquisitions are a component of our growth strategy. We can offer no assurance that we will be able to identify any acquisition opportunities, that we will be able to grow our business through acquisitions, or that any assets or business we acquire will perform in accordance with our expectations or that our assessment concerning the value, strengths and weaknesses of assets or business acquired will prove to be correct. We have not made any acquisitions in the past, and there are currently a limited number of producers in North America with businesses similar to ours and potentially legal and regulatory hurdles, such as extensive evaluation under antitrust laws to determine whether the acquisition would be permissible. In connection with future acquisitions, if any, we may incur debt and contingent liabilities, increased interest expense and amortization expense and significant charges relative to integration costs. In addition, our financial condition and results of operations would be adversely affected if we overpay for acquisitions.
Acquisitions involve a number of special risks, including:
•unforeseen difficulties extending internal control over financial reporting and performing the required assessment at the newly acquired business or assets;
•potential adverse short-term effects on operating results through increased costs or otherwise;
•diversion of management’s attention and failure to recruit new, and retain existing, key personnel of the acquired business or assets;
•failure to implement infrastructure, logistics and systems integration successfully; and
•the risks inherent in the systems of the acquired business and risks associated with unanticipated events or liabilities, any of which could have a material adverse effect on our business, financial condition and results of operations.
Mining development, exploration and processing operations pose numerous hazards and uncertainties that may negatively affect our business.
Mining and processing operations involve many hazards and uncertainties, including, among other things:
•seismic activity;
•ground failures;
•industrial accidents;
•environmental contamination or leakage, including gas leaks;
•fires and explosions;
•unusual and unexpected rock formations or water conditions;
•flooding and periodic interruptions due to inclement or hazardous weather conditions or other acts of nature; and
•mechanical equipment failure and facility performance problems.
These occurrences could damage or destroy our properties or production facilities, or result in personal injury or wrongful death claims, environmental damage to our properties or the properties of others, delays in, or prohibitions on, mining or processing, increased production costs, asset write downs, monetary losses and legal liability, which could have an adverse effect
on our results of operations and financial condition. In particular, underground mining and related processing activities present inherent risks of injury to persons and damage to equipment. Our insurance policies provide limited coverage for some of these risks but will not fully cover these risks. Please read “Risk Factors—Risks Inherent in our Business and Industry—Our business is subject to inherent risk, including risk relating to natural disasters, and our insurance coverage for such risks may not be adequate or available to us. If an accident or event occurs that is not fully insured, it could materially affect our business.” Significant mine accidents could occur, potentially resulting in a mine shutdown or leading to liabilities, which could have a material adverse effect on our results of operations, financial condition and cash flows.
We may be unable to obtain, maintain or renew permits necessary for our operations, which could impair our ability to conduct our operations and limit our ability to make distributions to unitholders.
Our facility and operations require us to obtain a number of permits that impose strict regulations on various environmental and operational matters in connection with mining trona ore and producing soda ash. These include permits issued by various federal, state and local agencies and regulatory bodies. The permitting rules, and the interpretations of these rules, are complex, change frequently and are subject to discretionary interpretations by our regulators, all of which may make compliance difficult or impractical and may impair our existing operations or the development of future facilities. The public, including non-governmental organizations, environmental groups and individuals, have certain statutory rights to comment upon and submit objections to requested permits and environmental impact statements prepared in connection with applicable regulations and otherwise engage in the permitting process, including bringing citizen’s lawsuits to challenge the issuance or renewal of permits, the validity of environmental impact statements or the performance of mining activities. If permits are not issued or renewed in a timely fashion or at all or are conditioned in a manner that restricts our ability to conduct our operations economically, our cash flows may decline, which could limit our ability to distribute cash to unitholders.
Equipment upgrades, equipment failures and deterioration of assets may lead to production curtailments, shutdowns or additional expenditures.
Our operations depend upon critical equipment that require scheduled upgrades and maintenance and may suffer unanticipated breakdowns or failures. As a result, our mining operations and processing may be interrupted or curtailed, which could have a material adverse effect on our results of operations.
As our mine ages and we deplete our trona reserves, in order to maintain current production rates overin the next one to five years,near term, we expect to need to utilize a two seam mining technique, which could increase our mining costs.cost slightly for the relevant portion of the production. In addition, our maintenance capital expenditures do not include actual or estimated capital expenditures for replacement of our trona reserves.
In addition, assets critical to our trona ore mining and soda ash production operations may deteriorate due to wear and tear or otherwise sooner than we currently estimate. Such deterioration may result in additional maintenance spending and additional capital expenditures. If these assets do not generate the amount of future cash flows that we expect, and we are not able to procure replacement assets in an economically feasible manner, our future results of operations may be materially and adversely affected.
If any of the equipment on which we depend were severely damaged or were destroyed by fire, abnormal wear and tear, flooding, or otherwise, we may be unable to replace or repair it in a timely manner or at a reasonable cost, which would impact our ability to produce and ship soda ash, which would have a material adverse effect on our results of operations, financial condition and our ability to distribute cash to our unitholders.
We may record impairment charges on our assets, including our reserves, that would adversely impact our results of operations and financial condition.
We are required to perform impairment tests on our assets, including our trona reserves, whenever events or changes in circumstances modify the estimated useful life of or estimated future cash flows from an asset that would indicate that the carrying
amount of such asset may not be recoverable or whenever management’s plans change with respect to such asset. An impairment in one period may not be reversed in a later period even if prices increase. If we are required to recognize impairment charges in the future, our results of operations and financial condition may be materially and adversely affected.
A shortage of skilled workers could reduce our labor productivity and increase our costs, which could negatively affect our business.
Our mining and processing operations require personnel with specialized skills and experience. Our ability to be productive and profitable will depend upon our ability to employ and retain skilled workers. If we experience shortages of skilled workers in the future, our labor costs and overall productivity could be materially and adversely affected. If our labor costs increase or if we experience materially increased health and benefits costs, our results of operations could be materially and adversely affected.
We also depend on good relationships with our workforce generally. Any disruption in our relationships with our personnel, including as a result of potential union organizing activities, work actions or other labor issues, could substantially affect our operations and results.
Severe weather conditions could have a material adverse impact on our business.
Our business could be materially adversely affected by severe weather conditions. Severe weather conditions may affect our mining and processing operations by resulting in weather-related damage to our facility and equipment or impact our ability to transport soda ash from our facility. In addition, severe weather conditions could hinder our operations by causing us to halt or delay our operations, which could have a material adverse effect on our results of operations and financial condition.
Our business is subject to inherent risk, including risk relating to natural disasters, and our insurance coverage for such risks may not be adequate or available to us. If an accident or event occurs that is not fully insured, it could materially affect our business.
We are covered by insurance policies maintained by Ciner Enterprises or its affiliates.our affiliates on our behalf. These insurance policies provide limited coverage for some, but not all, of the potential risks and liabilities associated with our business. For some risks, we do not obtainmaintain insurance or are covered by Ciner Enterprises’, or its affiliates’, policies if we believe the cost of available insurance is excessive relative to the risks presented. As a result of market conditions, premiums and deductibles for certain insurance policies can increase substantially, and certain types of insurance may become unavailable or available only for reduced amounts of coverage. As a result, we may not be able to renew our or itsapplicable existing insurance policies or procure other desirable insurance on commercially reasonable terms, if at all. In addition, we cannot insure against certain environmental, safety and pollution risks. Even where insurance coverage applies, insurers may contest their obligations to make payments. Our insurance coverage may not be adequate to cover us against losses we incur, and coverage under these policies may be depleted or may not be available to us to the extent that we otherwise exhaust its coverage limits. Our results of operations, and therefore our ability to distribute cash to unitholders, could be materially and adversely affected by losses and liabilities from uninsured or under-insured events, as well as by delays in the payment of insurance proceeds or the failure by insurers to make payments.
We also may incur costs and liabilities resulting from claims for damages to property or injury to persons arising from our operations. We must compensate employees for work-related injuries. If we do not make adequate provision for our workers’ compensation liabilities, such claims could harm our future operating results. If we are required to pay for these fines, costs and liabilities, our financial condition, results of operations, and therefore our ability to distribute cash to unitholders, could be adversely affected.
We may be subject to litigation, the disposition of which could have a material adverse effect on our results of operations.
The nature of our operations exposes us to possible litigation claims, including disputes with customers and providers of shipping services. Some of the lawsuits may seek fines or penalties and damages in large amounts or seek to restrict our business activities. Because of the uncertain nature of litigation and coverage decisions, we cannot predict the outcome of these matters or whether insurance claims may mitigate any damages to us. Litigation is very costly, and the costs associated with prosecuting and defending litigation matters could have a material adverse effect on our results of operations.
Expansion or improvement of our existing facilities may not result in revenue increases and will be subject to regulatory, environmental, political, legal and economic risks, which could adversely affect our results of operations and financial condition.
One of the ways we may grow our business is through the expansion or improvement of our existing facility. The construction of additions or modifications to our existing facility involve numerous regulatory, environmental, political, legal and economic uncertainties that are beyond our control. Such expansion or improvement projects may also require the expenditure of significant amounts of capital, and financing may not be available on economically acceptable terms or at all. For example,If we are currently expecting capital expenditures over the next several quarters that are materially higher than have been incurred by Ciner Wyoming in recent years in orderundertake
expansion or improvement projects, including if we determine to undertake expansion and infrastructure improvements, includingproceed with the Green River Expansion Project, that are expected to increase our soda ash production levels. If we continue toor undertake these expansionother or improvement projects or undertake additional expansion or improvement projects, any such projects may not be completed on schedule, at the budgeted cost, or at all. Moreover, our revenue may not increase immediately upon the expenditure of funds on a particular project. As a result, we may not be able to realize our expected investment return, which could adversely affect our results of operations and financial condition.
We conduct our operations through a joint venture, which subjects us to additional risks that could have a material adverse effect on our financial condition and results of operations.
The Partnership is a holding company that conducts its primary operations through CinerSisecam Wyoming, a joint venture with an affiliate of NRP. The amount of cash CinerSisecam Wyoming can distribute to the Partnership depends primarily on cash flows generated from CinerSisecam Wyoming’s operations, which may fluctuate depending on, among other things, revenues it receives and costs it incurs, including for capital expenditure projects undertaken by CinerSisecam Wyoming.
We may also enter into other joint venture arrangements with third parties in the future. NRP has, and these third parties may have, obligations that are important to the success of the joint venture, such as the obligation to pay their share of capital and other costs of the joint venture. The performance of these third-party obligations, including the ability of our joint venture partner in CinerSisecam Wyoming, to satisfy their respective obligations, is outside our control. If these parties do not satisfy their obligations under the arrangement, our business may be adversely affected.
Our joint venture arrangement may involve risks not otherwise present without such partner, including, for example:
•our joint venture partner shares certain blocking rights over transactions between CinerSisecam Wyoming and its affiliates, including us and potential arrangements between us and Sisecam Chemicals, Ciner CorpEnterprises and/or Sisecam USA and Ciner Wyoming after the ANSAC termination date regarding Ciner Corp’stheir respective affiliates, including Sisecam Chemicals’ ability to market our soda ash directly into international markets that are currently being served by ANSAC;markets;
•our joint venture partner may propose changes to our capital expenditure programs;
•our joint venture partner may take actions contrary to our instructions or requests or contrary to our policies or objectives;
•although we control CinerSisecam Wyoming, we owe contractual duties to CinerSisecam Wyoming and its other owners, which may conflict with our interests and the interests of our unitholders; and
•disputes between us and our joint venture partner may result in delays, litigation or operational impasses.
The risks described above or any failure to continue our joint venture or to resolve disagreements with our joint venture partner could adversely affect our ability to transact the business that is the subject of such joint venture, which would, in turn, negatively affect our financial condition, results of operations and ability to distribute cash to our unitholders.
Our level of indebtedness may increase, reducing our financial flexibility.
In the future, we may incur significant indebtedness in order to make future acquisitions or to develop or expand our facilities and mining capabilities. Our level of indebtedness could affect our operations in several ways, including:
•a significant portion of our cash flows could be used to service our indebtedness;
•a high level of debt would increase our vulnerability to general adverse economic and industry conditions;
•the covenants contained in the agreements governing our outstanding indebtedness will limit our ability to borrow additional funds, dispose of assets, pay distributions and make certain investments;
•a high level of debt may place us at a competitive disadvantage compared to our competitors that are less leveraged, and therefore may be able to take advantage of opportunities that our indebtedness would prevent us from pursuing;
•our debt covenants may also affect our flexibility in planning for, and reacting to, changes in the economy and our industry; and
•a high level of debt may impair our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, distributions or for general corporate or other purposes.
A high level of indebtedness increases the risk that we may default on our debt obligations. Our ability to meet our debt obligations and to reduce our level of indebtedness depends on our future performance. General economic conditions and financial, business and other factors affect our operations and our future performance. Many of these factors are beyond our control. We may not be able to generate sufficient cash flows to pay the interest on our debt, and future working capital, borrowings or equity financing may not be available to pay or refinance such debt. Factors that will affect our ability to raise cash through an offering of our units or a refinancing of our debt include financial market conditions, the value of our assets and our performance at the time we need capital.
We are subject to stringent environmental laws and regulations that may expose us to significant costs and liabilities.
Our operations are subject to stringent and complex federal, state and local environmental laws and regulations that govern the discharge of materials into the environment or otherwise relate to environmental protection. Examples of these laws include:
•the federal Clean Air Act and analogous state laws that impose obligations related to air emissions;
•the CERCLA or the Superfund law, and analogous state laws that regulate the cleanup of hazardous substances that may be or have been released at properties currently or previously owned or operated by us or at locations to which our wastes are or have been transported for disposal;
•the federal Water Pollution Control Act, or the Clean Water Act, and analogous state laws that regulate discharges from our facilities into state and federal waters, including wetlands and the Green River;
•the RCRA, and analogous state laws that impose requirements for the storage, treatment and disposal of solid and hazardous waste from our facilities;
•the Endangered Species Act, or ESA; and
•the Toxic Substances Control Act, or TSCA, and analogous state laws that impose requirements on the use, storage and disposal of various chemicals and chemical substances at our facility.
These laws and regulations may impose numerous obligations that are applicable to our operations, including the acquisition of permits to conduct regulated activities, the incurrence of capital or operating expenditures to limit or prevent releases of materials from our facility, and the imposition of substantial liabilities and remedial obligations for pollution resulting from our
operations. Numerous governmental authorities, such as the U.S. Environmental Protection Agency, or the EPA, and analogous state agencies, have the power to enforce compliance with these laws and regulations and the permits issued under them, oftentimes requiring difficult and costly corrective actions. Failure to comply with these laws, regulations and permits may result in the assessment of administrative, civil and criminal penalties, the imposition of remedial obligations and the issuance of injunctions limiting or preventing some or all of our operations. In addition, we may experience a delay in obtaining or be unable to obtain required permits or regulatory authorizations, which may cause us to lose potential and current customers, interrupt our operations and limit our growth and revenue. In addition, future changes in environmental or other laws may result in additional compliance expenditures that have not been pre-funded and which could adversely affect our business and results of operations and our ability to make cash distributions to our unitholders.
There is a risk that we may incur costs and liabilities in connection with our operations due to historical industry operations and waste disposal practices, our handling of wastes and potential emissions and discharges related to our operations. Private parties, including the owners of the properties on which we operate, may have the right to pursue legal actions to require remediation of contamination or enforce compliance with environmental requirements as well as to seek damages for personal injury or property damage. For example, an accidental release from our facility could subject us to substantial liabilities arising from environmental cleanup and restoration costs, claims made by neighboring landowners and other third parties for personal injury and property damage and fines or penalties for related violations of environmental laws or regulations. In addition, changes in environmental laws occur frequently, and any such changes that result in more stringent and costly waste handling, storage, transport, disposal or remediation requirements could have a material adverse effect on our operations or financial position. We may not be able to recover all or any of these costs from insurance. Please read Item 1, “Business—Environmental Matters” for more information.
The adoption of climate change legislation or enhanced scrutiny on environmental matters at the global, federal, state or local level could result in increased operating costs and reduced demand for the soda ash we produce.
Many nations have agreed to limit emissions of “greenhouse gases,” or GHGs, pursuant to the United Nations Framework Convention on Climate Change, also known as the “Kyoto Protocol.” Methane, a primary component of natural gas, and carbon dioxide, a by-product of the burning of coal, oil, natural gas and refined petroleum products, are GHGs regulated by the Kyoto Protocol. The United States signed, but did not ratify, the Kyoto Protocol. In August 2015, the Obama administration announced the Clean Power Plan (the “CPP”), which sets limits on GHG emissions from power plants. Further, in December 2015, the United States was one of 195 countries to sign the so-called Paris Agreement.Agreement, committing to work towards addressing climate change and agreeing to a monitoring and review process for greenhouse gas emissions. The Paris Agreement came into effect in November 2016. However, in June 2017,Although the Trump administration announced plans to withdrawUnited States withdrew from the Paris Agreement.Agreement in November 2020, the United States officially rejoined the Paris Agreement in February 2021 following the change in Presidential administrations and may in the future choose to join other international agreements targeting greenhouse gas emissions. In addition, in January 2021, President TrumpBiden issued an executive order directing all federal agencies to review and take action to address any federal regulations, orders, guidance documents, policies, and any similar agency actions promulgated during the prior administration that may be inconsistent with the current administration’s policies and to confront the climate crisis. President Biden also issued an executive order on promoting energy independence and economic growth. The EPA then issued a report covering plans on how to implement the president’s executive order including plans to review and possibly repeal all greenhouse-gas related regulations, including the CPP. On July 8, 2019, the EPA finalized the Affordable Clean Energy rule (the “ACE”). The ACE repeals the CPP and replaces the CPP with the ACE. Regulatory uncertainty remains as challenges have been filed in district court.solely targeting climate change.
The U.S. Congress has from time to time considered adopting legislation to reduce emissions of GHGs, and almost one-half of the states have already taken legal measures to reduce emissions of GHGs, primarily through the planned development of GHG emission inventories and/or regional GHG “cap and trade” programs. Although the U.S. Congress has not adopted such legislation at this time, many states continue to pursue regulations to reduce GHG emissions. Most of these cap and trade programs work by requiring major sources of emissions, such as electric power plants, or major producers of fuels, such as refineries and
natural gas processing plants, to acquire and surrender emission allowances corresponding with their annual emissions of GHGs. These programs work by reducing the number of allowances available for purchase each year until the overall GHG emission reduction goal is achieved. As the number of GHG emission allowances declines each year, the cost or value of allowances is expected to escalate significantly. Restrictions on GHG emissions that may be imposed in various states could adversely affect the soda ash industry.
In addition, there has been public discussion that climate change may be associated with extreme weather conditions, such as more intense hurricanes, thunderstorms, tornados and snow or ice storms, as well as rising sea levels. Another possible consequence of climate change is increased volatility in seasonal temperatures. Some studies indicate that climate change could cause some areas to experience temperatures substantially colder than their historical averages. Extreme weather conditions can interfere with our production and increase our costs, and damage resulting from extreme weather may not be fully insured. However, at this time, we are unable to determine the extent to which climate change may lead to increased storm or weather hazards affecting our operations.
Enhanced scrutiny on environmental matters and increasing public expectations on companies to address climate change may result in increased costs, changed demand for our soda ash, increased regulations and litigation and adverse impacts on our unit price and access to capital.
We are subject to strict laws and regulations regarding employee and process safety, and failure to comply with these laws and regulations could have a material adverse effect on our results of operations, financial condition and ability to distribute cash to unitholders.
We are subject to a number of federal and state laws and regulations related to safety, including the Occupational Safety and Health Administration, or OSHA, the Mine Safety and Health Administration, or MSHA, and comparable state statutes, the purposes of which are to protect the health and safety of workers. In addition, OSHA requires that we maintain information about hazardous materials used or produced in our operations and that we provide this information to employees, state and local governmental authorities, and local residents. Failure to comply with OSHA and MSHA requirements and related state regulations, including general industry standards and record keeping requirements, and to monitor and control occupational exposure to regulated substances, could have a material adverse effect on our results of operations, financial condition and ability to make cash distributions if we are subjected to significant penalties, fines or compliance costs, including any shutdown of one or more of our miners or the shutdown of our mine.
The amount of cash we have available for distribution to holders of our units depends primarily on our cash flow and not solely on profitability, which may prevent us from making cash distributions during periods when we record net income.
The amount of cash we have available for distribution depends primarily upon our cash flow, including cash flow from reserves and working capital or other borrowings, and not solely on profitability, which will be affected by non-cash items. As a result, we may pay cash distributions during periods when we record net losses for financial accounting purposes and may not pay cash distributions during periods when we record net income.
Failure to maintain effective quality control systems at our mining, processing and production facilities could have a material adverse effect on our business and operations.
The performance and quality of our products are critical to the success of our business. These factors depend significantly on the effectiveness of our quality control systems, which, in turn, depends on a number of factors, including the design of our quality control systems, our quality-training program and our ability to ensure that employees who operate our assets adhere to our quality control policies and guidelines. Any significant failure or deterioration of our quality control systems could have a material adverse effect on our business, financial condition and results of operations.
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.
Mining operations are generally obligated under federal, state and local laws to restore property in accordance with regulatory standards and an approved reclamation plan after it has been mined, and generally must also maintain financial assurances, such as surety bonds, to secure such obligations. To fulfill the financial assurances requirement, the WDEQ historically allowed us to “self-bond,” which commits us to pay directly for reclamation costs rather than obtaining a traditional surety bond. In May 2019, the State of Wyoming enacted legislation that limits our and other mine operators’ ability to self-bond and required us to seek other acceptable financial instruments to provide alternate assurances for our reclamation obligations by November 2020.
We provided such alternate assurances by timely securing a third-party surety bond effective October 15, 2020 (the “Surety Bond”) for the then-applicable full self-bond amount. After we secured the Surety Bond, the Self-Bond Agreementself-bond agreement was terminated. As of December 31, 2020, the amount of our Surety Bond was $36.2 million (for the 2018 operating year), which increased to $41.8 million (for the 2019 operating year) effective March 1, 2021.2021 and the required Surety Bond amount was $41.8 million (for the 2020 operating year) effective January 7, 2022. As of the date of this Report, the impact on our net income and liquidity due to securing the Surety Bond is immaterial and we anticipate that to continue to be the case. The amount of such assurances that we are required to provide is subject to change upon periodic re-evaluation by the WDEQ’s Land Quality Division.
Our inability to secure financial assurances satisfactory to WDEQ could subject us to fines and penalties as well as the revocation of our operating permits. Such inability could result from a variety of factors, including:
•the State of Wyoming’s future decision to require mining operations to maintain surety bonds or other types of financial assurances;
•continued increases in the amount of required financial assurance;
•the lack of availability, high expense, or unreasonable terms of financial assurances;
•the ability of future financial assurance counterparties to require collateral; and
•the exercise by financial assurance counterparties of any rights to refuse to renew the financial assurance instruments.
Our inability to acquire, maintain, or renew necessary 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.
Federal or state regulatory agencies have the authority to order certain of our mines to be temporarily or permanently closed under certain circumstances, which could materially and adversely affect our ability to meet our customers’ demands.
Federal or state regulatory agencies have the authority under certain circumstances following significant health and safety incidents, to order a mine to be temporarily or permanently closed. If this occurred, we may also be required to incur significant operating or capital expenditures to re-open the mine. In the event that these agencies order the closing of our Green River Basin facility, our soda ash sales contracts generally permit us to issue force majeure notices which suspend our obligations to deliver soda ash under these contracts. However, our customers may challenge our issuances of force majeure notices. If these challenges are successful, we may have to purchase soda ash from third-party sources, if it is available, to fulfill these obligations, incur capital expenditures to re-open the mine and/or negotiate settlements with the customers, which may include price reductions, the reduction of commitments, the extension of time for delivery or the termination of customers’ contracts. Any of these actions could have a material adverse effect on our business and results of operations.
Risks Related to Our Indebtedness and Liquidity
We may not have sufficient cash from operations following the establishment of cash reserves and payment of fees and expenses, including cost reimbursements to our general partner and its affiliates, to enable us to pay any quarterly distribution on our units.
We may not have sufficient available cash each quarter to pay the quarterly distribution at the current distribution level of $0.65 per unit, or $2.60 per unit on an annualized basis or at all. For example, in an effort to achieve greater financial and liquidity flexibility during the COVID-19 pandemic, our board of directors approved a suspension of quarterly distributions to our unitholders for each of the quarters ended June 30, 2020, September 30, 2020, December 31, 2020, March 31, 2021, and June 30, 2021. In order to pay the quarterly distribution at the current distribution level, we will require available cash of approximately $13 million per quarter, or $52 million per year, based on the number of common and general partner units currently outstanding.
The amount of cash we can distribute on our units principally depends upon the amount of cash we generate from our operations, which will fluctuate from quarter to quarter based on several factors, some of which are beyond our control, including, among other things:
•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;
•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 short and long-term impact of the COVID-19 pandemic (including existing or future variants), including the impact of government orders on our employees, suppliers, customers and operations;
•the impact of the CoC Transaction and our transition to the utilization of our own 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 and our operating flexibility;
•new or modified statutes, regulations, governmental policies and taxes or their interpretations; and
•prevailing U.S. and international economic conditions and foreign exchange rates.
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.
Restrictions in the agreements governing Sisecam Wyoming’s indebtedness, including the Sisecam Wyoming Credit Facility and the Sisecam Wyoming Equipment Financing Arrangement, could limit its operations, and therefore ours, and adversely affect our business, financial condition, results of operations and ability to make quarterly cash distributions to our unitholders.
Sisecam Wyoming is party to a $225.0 million senior secured revolving credit facility (as amended, the “Sisecam Wyoming Credit Facility”), with each of the lenders listed on the respective signature pages thereof and Bank of America, N.A., as administrative agent, swing line lender and letter of credit issuer, and an equipment financing arrangement (the “Ciner Wyoming Equipment Financing Arrangement”) with Banc of America Leasing & Capital, LLC, as lender (the “Equipment Financing Lender”) including a Master Loan and Security Agreement, dated as of March 25, 2020 (as amended to date, the “Master Agreement”) and an Equipment Security Note Number 001, dated as of March 25, 2020 (the “Initial Secured Note”), and an Equipment Security Note Number 002, dated as of December 17, 2021 (the “Second Secured Note”), which provides the terms and conditions for the debt financing of certain equipment related to Sisecam Wyoming’s new natural gas-fired turbine co-generation facility that became operational in March 2020 and certain other equipment related to Ciner Wyoming’s operations.
The Sisecam Wyoming Credit Facility provides, among other things:
•a sublimit up to $40.0 million for the issuance of standby letters of credit and a sublimit up to $20.0 million for swingline loans;
•an accordion feature that enables Sisecam Wyoming to increase the revolving borrowings under the Sisecam Wyoming Credit Facility by up to an additional $250.0 million (subject to certain conditions);
•in addition to the aforementioned revolving borrowings, an ability to incur up to $225 million of additional term loan facility indebtedness to finance Sisecam Wyoming’s capacity expansion capital expenditures; (subject to certain conditions);
•a pledge by Sisecam Wyoming of substantially all of Sisecam Wyoming’s assets (subject to certain exceptions), including: (i) all present and future shares of any subsidiaries of Sisecam Wyoming (whether now existing or hereafter created) and (ii) all personal property of Sisecam Wyoming (subject to certain conditions);
•contains various covenants and restrictive provisions that limit (subject to certain exceptions) Sisecam Wyoming’s ability to: (i) incur certain liens or permit them to exist; (ii) incur or guarantee additional indebtedness; (iii) make certain investments and acquisitions related to Sisecam Wyoming’s operations in Wyoming; (iv) merge or consolidate with another company; (v) transfer, sell or otherwise dispose of assets, (vi) make distributions; (vii) change the nature of Sisecam Wyoming’s business; and (viii) enter into certain transactions with affiliates;
•a requirement to maintain a quarterly consolidated leverage ratio of not more than 3.25:1:00; provided, however, subject to certain conditions, Sisecam Wyoming shall have the ability to increase the maximum consolidated leverage ratio to 3.75:1.00 for a year while Sisecam Wyoming is undertaking capacity expansion capital expenditures;
•a requirement to maintain a quarterly consolidated interest coverage ratio of not less than 3.00:1.00; and
•customary events of default including (i) failure to make payments required under the Sisecam Wyoming Credit Facility, (ii) events of default resulting from failure to comply with covenants and financial ratios, (iii) the occurrence of a voluntary change of control, as a result of which Sisecam Wyoming is directly or indirectly controlled by persons or entities not currently directly or indirectly controlling Sisecam Wyoming, (iv) the institution of insolvency or similar proceedings against Sisecam Wyoming, and (v) the occurrence of a cross default under any other material indebtedness Sisecam Wyoming may have. Upon the occurrence of an event of default, in their discretion, the Sisecam Wyoming Credit Facility lenders may exercise certain remedies, including, among others, accelerating the maturity of any outstanding loans, accrued and unpaid interest and all other amounts owing and payable such that all amounts thereunder will become immediately due and payable, and if not timely paid upon such acceleration, to charge Sisecam Wyoming a default rate of interest on all amounts outstanding under the Sisecam Wyoming Credit Facility.
For more information please read Part II, Item 8, “Financial Statements and Supplementary Data—Note 9—Debt—Sisecam Wyoming Credit Facility.”
With respect to the Sisecam Wyoming Equipment Financing Arrangement, in order to secure the payment and performance of Sisecam Wyoming’s obligations thereunder and other debt obligations owed by Sisecam Wyoming to the Equipment Financing Lender, Sisecam Wyoming granted to the Equipment Financing Lender a continuing security interest in all of Sisecam Wyoming’s right, title and interest in and to the Equipment (as defined in the Master Agreement) and certain related collateral. The Sisecam Wyoming Equipment Financing Arrangement (1) incorporates all covenants in the Sisecam Wyoming Credit Facility, now or hereinafter existing, or in any applicable replacement credit facility accepted in writing by the Equipment Financing Lender, that are based upon a specified level or ratio relating to assets, liabilities, indebtedness, rentals, net worth, cash flow, earnings, profitability, or any other accounting-based measurement or test, and (2) includes customary events of default subject to applicable grace periods, including, among others, (i) payment defaults, (ii) certain mergers or changes in control of Sisecam Wyoming, (iii) cross defaults with certain other indebtedness (a) to which the Equipment Financing Lender is a party or (b) to third parties in excess of $10 million, and (iv) the commencement of certain insolvency proceedings or related events identified in the Master Agreement. Upon the occurrence of an event of default, in its discretion, the Equipment Financing Lender may exercise certain remedies, including, among others, the ability to accelerate the maturity of any equipment note such that all amounts thereunder will become immediately due and payable, to take possession of the Equipment identified in any equipment note, and to charge Sisecam Wyoming a default rate of interest on all then outstanding or thereafter incurred obligations under the Sisecam Wyoming Equipment Financing Arrangement.
The provisions of the Sisecam Wyoming Credit Facility and the Sisecam Wyoming Equipment Financing Arrangement may affect Sisecam Wyoming’s ability to obtain future financing and pursue attractive business opportunities and flexibility in planning for, and reacting to, changes in business conditions. In addition, Sisecam Wyoming’s failure to comply with the provisions of the Sisecam Wyoming Credit Facility could result in an event of default, which could enable its lenders, subject to the terms and conditions thereof, to terminate all outstanding commitments and declare any outstanding principal of that debt, together with accrued and unpaid interest, to be immediately due and payable. If the payment of the Sisecam Wyoming Credit Facility’s debt is accelerated, the assets of Sisecam Wyoming may be insufficient to repay such debt in full. As a result, our results of operations and, therefore, our ability to distribute cash to unitholders, could be materially and adversely affected, and our unitholders could experience a partial or total loss of their investment. Please read Part II, Item 8, “Financial Statements and Supplementary Data—Note 9—Debt—Sisecam Wyoming Credit Facility” for more information.
Our level of indebtedness may increase, reducing our financial flexibility.
In the future, we may incur significant indebtedness in order to make future acquisitions or to develop or expand our facilities and mining capabilities. Our level of indebtedness could affect our operations in several ways, including:
•a significant portion of our cash flows could be used to service our indebtedness;
•a high level of debt would increase our vulnerability to general adverse economic and industry conditions;
•the covenants contained in the agreements governing our outstanding indebtedness will limit our ability to borrow additional funds, dispose of assets, pay distributions and make certain investments;
•a high level of debt may place us at a competitive disadvantage compared to our competitors that are less leveraged, and therefore may be able to take advantage of opportunities that our indebtedness would prevent us from pursuing;
•our debt covenants may also affect our flexibility in planning for, and reacting to, changes in the economy and our industry; and
•a high level of debt may impair our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, distributions or for general corporate or other purposes.
A high level of indebtedness increases the risk that we may default on our debt obligations. Our ability to meet our debt obligations and to reduce our level of indebtedness depends on our future performance. General economic conditions and financial, business and other factors affect our operations and our future performance. Many of these factors are beyond our control. We may not be able to generate sufficient cash flows to pay the interest on our debt, and future working capital, borrowings or equity financing may not be available to pay or refinance such debt. Factors that will affect our ability to raise cash through an offering of our units or a refinancing of our debt include financial market conditions, the value of our assets and our performance at the time we need capital.
The amount of cash we have available for distribution to holders of our units depends primarily on our cash flow and not solely on profitability, which may prevent us from making cash distributions during periods when we record net income.
The amount of cash we have available for distribution depends primarily upon our cash flow, including cash flow from reserves and working capital or other borrowings, and not solely on profitability, which will be affected by non-cash items. As a result, we may pay cash distributions during periods when we record net losses for financial accounting purposes and may not pay cash distributions during periods when we record net income.
Risks Inherent in an Investment in Us
The CoC Transaction could significantly and adversely affect our results of operations because of difficulties related to integration, the achievement of synergies and other challenges.
•On December 21, 2021, Sisecam Chemicals USA Inc. (“Sisecam USA”) acquired from Ciner Enterprises Inc. (“Ciner Enterprises”) a 60% interest in Sisecam Chemicals Resources LLC (formerly known as Ciner Resources Corporation) (“Sisecam Chemicals”), an entity indirectly owning approximately 72% limited partner interest in the Partnership, as well as its 2% general partner interest and related incentive distribution rights, with Ciner Enterprises Inc. retaining a 40% interest in Sisecam Chemicals (the “CoC Transaction”). Prior to the completion of the CoC Transaction, Sisecam Chemicals was solely controlled and operated by Ciner Group, and there can be no assurances that Sisecam Chemicals, and its owners Sisecam USA and Ciner Enterprises (or their respective successors), will operate in a manner that allows for the achievement of substantial benefits to us. Further, it is possible that there could be a loss of our key customers, disruption of our ongoing businesses or unexpected issues, higher than expected costs and an integration process that takes longer than originally anticipated. Potential difficulties that may be encountered in the integration process include, among others:
•not retaining existing customer or logistics relationships or commercial arrangements, including in the Ciner Group’s global logistics network;
•difficulty obtaining new customer or logistics relationships and the terms of new commercial arrangements related thereto;
•not realizinganticipatedoperatingsynergies;
•integratingpersonnelfromthe two companiesand the loss of key employees;
•potential unknown liabilities and unforeseen expenses or delays associated with and following the completionof the CoC Transaction;
•integratingrelationshipswith customers,vendors and businesspartners; and
•the disruption of, or the loss of momentum in our ongoing business or inconsistencies instandards,controls,proceduresand policies.
•In addition, at times the attention of certain members of our management and resources may be focused on integration of Sisecam Chemicals and diverted from our day-to-day business operations, which may disrupt our ongoing business.
Sisecam Chemicals, which is owned by Sisecam USA and Ciner Enterprises, indirectly owns and controls our general partner, which has sole responsibility for conducting our business and managing our operations. Our general partner and its affiliates and related parties, including Sisecam Chemicals, Sisecam USA and Ciner Enterprises, have conflicts of interest with us and
our unitholders and limited duties to us and our unitholders, and they may favor their own interests to the detriment of us and our unitholders.
Sisecam Chemicals, which is owned 60% by Sisecam USA and 40% by Ciner Enterprises, indirectly owns and controls our general partner and the owners of Sisecam Chemicals have agreed that (i) Sisecam USA and Ciner Holdings willEnterprises have a right to designate six directors and four directors, respectively, to the board of directors of Sisecam Chemicals, (ii) the board of directors of our general partner shall consist of six designees from Sisecam USA, two designees from Ciner Enterprises and three independent directors for as long as our general partner is legally required to appoint allsuch independent directors and (iii) our right to appoint four managers to the board of managers of Ciner Wyoming shall be comprised of three designees from Sisecam USA and one designee from Ciner Enterprises. In turn, the directors of our general partner who in turn will appoint all of our general partner’s officers. Although our general partner has a duty to manage us in a manner that is beneficial to us and our unitholders, the executive officers and directors of our general partner who are appointed to represent Sisecam USA or Ciner Enterprises have a fiduciary duty to manage our general partnerperform their duties in a manner beneficial to Sisecam USA or Ciner Enterprises.Enterprises, respectively. Therefore, conflicts of interest willcould arise between Sisecam Chemicals, Sisecam USA, Ciner Enterprises or any of itstheir respective affiliates, including our general partner, on the one hand, and us or any of our unitholders, on the other hand. In resolving these conflicts of interest, our general partner may favor its own interests and the interests of its affiliatesSisecam Chemicals, Sisecam USA and Ciner Enterprises over the interests of our common unitholders. These conflicts include, among others, the following situations:
•neither our partnership agreement nor any other agreement requires Sisecam Chemicals, Sisecam USA or Ciner Enterprises to pursue a business strategy that favors us, and the directors and officers of Sisecam USA and Ciner Enterprises have a fiduciary duty to make these decisions in the best interests of Ciner Enterprises,the stockholders of their respective companies, which may be contrary to our interests. Sisecam USA or Ciner Enterprises may choose to shift the focus of itstheir respective investment and growth to areas not served by our assets;
•our general partner is allowed to take into account the interests of parties other than us, such as Sisecam Chemicals, Sisecam USA and Ciner Enterprises, in exercising certain rights under our partnership agreement, which may effectively limit its duty to our unitholders;
•all of the officers and fiveeight of the directors of our general partner are also officers and/or directors of Ciner Corp, a subsidiary ofeither Sisecam Chemicals, Sisecam USA and/or Ciner Enterprises or othertheir respective affiliates of Ciner Enterprises (such entities, excluding our general partner, us and Ciner Wyoming (“other Ciner Group affiliates”)) and will owe fiduciary duties to such other Ciner Group affiliates. The officers of our general partner willtheir respective companies. These individuals may also devote some or a significant amount of their time to the businessbusinesses of such otherSisecam USA, Ciner GroupEnterprises or their affiliates and will be compensated by such other Ciner Group affiliatesparties accordingly;
•our partnership agreement replaces the fiduciary duties that would otherwise be owed by our general partner with contractual standards governing its duties, limits our general partner’s liabilities and restricts the remedies available to our unitholders for actions that, without such limitations, might constitute breaches of fiduciary duty;
•except in limited circumstances, our general partner has the power and authority to conduct our business without unitholder approval;
•our largest customer is ANSAC, of which our affiliate,dispute may arise under any commercial agreements between us and Şişecam LLC, Sisecam USA and/or Ciner Corp, through the end of day on December 31, 2020, was one of three current members,Enterprises and certain officers of our general partner were and have been board members of ANSAC;their respective affiliates;
•Sisecam Chemicals, Sisecam USA and Ciner Enterprises and itstheir respective other affiliates are not limited in their ability to compete with us and may directly or indirectly compete with us for acquisition opportunities and customers. For example, we face competition from Sisecam USA and its affiliates and Ciner Group’s trona-based soda ash production in Turkey and prospective soda ash production in the U.S. through a new joint venture between Imperial Natural Resources Trona Mining Inc. and a third partyamong affiliates of both Sisecam USA and Ciner Corp, our sales agent for soda ash, acts as sales agent for soda ash imports by Ciner Group to the U.S. While the Partnership’s international strategy subsequent to Ciner Corp’s departure from ANSAC includes utilizing Ciner Corp and leveraging the distributor network established by Ciner Group, the Ciner Group is not required to provide these services nor is it prohibited from competing against the Partnership;Enterprises ;
•our general partner determines the amount and timing of asset purchases and sales, borrowings, issuances of additional partnership securities and the level of reserves, each of which can affect the amount of cash that we distribute to our unitholders;
•our general partner determines the amount and timing of any capital expenditure and whether a capital expenditure is classified as a maintenance capital expenditure, which reduces operating surplus, or an expansion or investment capital expenditure, which does not reduce operating surplus. Our partnership agreement does not set a limit on the amount of
maintenance capital expenditures that our general partner may determine to be necessary or appropriate. Please read Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Capital Expenditures” for a discussion regarding when a capital expenditure constitutes a maintenance capital expenditure or an expansion capital expenditure. This determination can affect the amount of cash that is distributed to our unitholders;
•our general partner may cause us to borrow funds to pay cash distributions, even if the purpose or effect of the borrowing is to make incentive distributions;
•our partnership agreement permits us to classify up to $20.0 million as operating surplus, even if it is generated from asset sales, non-working capital borrowings or other sources that would otherwise constitute capital surplus. This cash may be used to fund distributions or to our general partner in respect of the incentive distribution rights;
•our general partner generally determines which costs incurred by it and its affiliates are reimbursable by us;
•our partnership agreement does not restrict our general partner from causing us to pay our general partner or its affiliates for any services rendered to us or from entering into additional contractual arrangements with its affiliates on our behalf;
•our general partner intends to limit its liability regarding our contractual and other obligations;
•our general partner may exercise its right to call and purchase our common units if it and its affiliates own more than 80% of the common units;
•our general partner controls the enforcement of obligations that it and its affiliates owe to us, including Ciner Corp’sSisecam Chemicals’ obligations under the ServiceServices Agreement and its commercial agreement with us;
•our general partner decides whether to retain separate counsel, accountants or others to perform services for us;
•our general partner may transfer its incentive distribution rights without unitholder approval; and
•our general partner may elect to cause us to issue common units to it in connection with a resetting of the target distribution levels related to our general partner’s incentive distribution rights without the approval of the conflicts committee of the board of directors of our general partner or the unitholders. Any such election may result in lower distributions to the common unitholders in certain situations.
We currently do not have a majority of independent directors on the board of directors of our general partner, which could create conflicts of interests and pose a risk from a corporate governance perspective.
Ciner Holdings, an entity indirectly controlled byPursuant to the global Ciner Group, has the ability to, among other things, (i) appoint all directors toSisecam Chemicals Operating Agreement, the board of directors of our general partner (ii) set the numbershall consist of six designees from Sisecam USA, two designees from Ciner Enterprises and three independent directors on the board of directors offor as long as our general partner subjectis legally required to the limitations set forth in our general partner’s governing documents, and (iii) fill any newly created
directorships or vacancies on the board of directors of our general partner.appoint such independent directors. As a publicly traded limited partnership, the NYSE rules do not require, and the board of directors of our general partner does not currently have, a majority of independent directors or a compensation committee or a nominating and corporate governance committee comprised of independent directors-.directors. In addition, while our partnership agreement permits our general partner to seek review by the conflicts committee comprised of independent directors of matters involving conflicts of interest between our general partner or any of its affiliates, on the one hand, and us, our partners and any of our subsidiaries, on the other hand, our general partner is not required or obligated to seek conflicts committee approval for any such matter. As a result, the lack of control of the independent directors on the board of directors of our general partner may create the potential for conflicts of interest and deprive us of the benefits of having entirely independent director approval of various decisions. Accordingly, unitholders do not have the same protections afforded to equity holders of entities that have a board of directors comprised of a majority of independent directors or are otherwise subject to all of the NYSE corporate governance requirements.
Operating performance and current and anticipated capital needs, including investments in expansion capital expenditures and acquisitions, may affect the amount distributed to unitholders.
We intend to pay a quarterly distribution to our unitholders to the extent we have sufficient cash from our operations after establishment of cash reserves, which may include current and anticipated expansion capital expenditures and acquisitions. We continueIn connection with the CoC Transaction, our management is evaluating whether and when to develop plans and execute the early phases for a potential new Green River Expansion Project that we believe willcould increase production levels up to approximately 3.5 million tons of soda ash per year. We
have recently conducted the initial basic design, secured certain related permits and are currently evaluating and pursuing the related permits and detailed cost analysis pursuant to the basic design. ThisIf we decide to proceed with this project, it will require capital expenditures materially higher than have been recently incurred by CinerSisecam Wyoming.To maintain a disciplined financial policy and what we believe is a conservative capital structure, we intend tomay pay for the investment should we decide to proceed with it in part through cash generated by the business and in part through debt.
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 or at any other rate, and we have no legal obligation to do so.
InFor example, in an effort to achieve greater financial and liquidity flexibility during the COVID-19 pandemic, on August 3, 2020, each of the members of theour board of managers of Ciner Wyoming approved a suspension of quarterly distributions to its members. In addition, effective August 3, 2020, in connection with the quarterly distribution for the quarter ended June 30, 2020, each of the members of the board of directors of our general partner approved a suspension of quarterly distributions to our unitholders.
Each ofunitholders for the board of managers of Ciner Wyoming and the board of directors of our general partner approved the continuation of the suspension of quarterly distributions to the members of Ciner Wyoming and our unitholders, as applicable,quarter ended June 30, 2020, that continued for each of the quarters ended September 30, 2020, and December 31, 2020, as the COVID-19 pandemic continues. In March 31, 2021, the board of managers of Ciner Wyoming approved a special $8.0 million distribution to, amongst other things, provide the Partnership with funds to retire the Ciner Resources Credit Facility.
Management and the board of directors of our general partner will continue to evaluate, on a quarterly basis, whether it is appropriate to reinstate a distribution to our unitholders, which will be dependent in part on our cash reserves, liquidity, total debt levels and anticipated capital expenditures.June 30, 2021.
To the extent we issue additional units in connection with any acquisitions or expansion capital expenditures, the payment of distributions on those additional units may increase the risk that we will be unable to maintain or increase our per unit distribution level. There are no limitations in our partnership agreement on our ability to issue additional units, including units ranking senior to the common units. The incurrence of additional commercial borrowings or other debt to finance our growth strategy will increase our interest expense, which, in turn, may impact the cash that we have available to distribute to our unitholders.
Our partnership agreement does not contain a requirement for us to pay distributions to our unitholders, and we do not guarantee that we will pay the minimum quarterly distribution (as defined in our partnership agreement) or any distribution on the units in any quarter.
Our partnership agreement does not contain a requirement for us to pay distributions to our unitholders, and we do not guarantee that we will pay any distribution on the units in any quarter. For example, in an effort to achieve greater financial and liquidity flexibility during the COVID-19 pandemic, our board of directors approved a suspension of quarterly distributions to our unitholders for the quarter ended June 30, 2020, that continued for each of the quarters ended September 30, 2020, December 31, 2020, March 31, 2021, and June 30, 2021.
Our partnership agreement replaces our general partner’s fiduciary duties to holders of our common units with contractual standards governing its duties.
Our partnership agreement contains provisions that eliminate and replace the fiduciary standards to which our general partner would otherwise be held by Delaware law regarding fiduciary duty and replacereplaces those duties with several different contractual standards. For example, our partnership agreement permits our general partner to make a number of decisions in its individual capacity, as opposed to in its capacity as our general partner, free of any duties to us and our unitholders other than the implied contractual covenant of good faith and fair dealing, which means that a court will enforce the reasonable expectations of the partners where the language in the partnership agreement does not provide for a clear course of action. This provision entitles our general partner to consider only the interests and factors that it desires and relieves it of any duty or obligation to give any consideration to any interest of, or factors affecting, us, our affiliates or our limited partners. Examples of decisions that our general partner may make in its individual capacity include:
•how to allocate business opportunities among us and its affiliates;
•whether to exercise its limited call right or assign it to one of its affiliates;
•whether to seek approval of the resolution of a conflict of interest by the conflicts committee of the board of directors of our general partner;
•how to exercise its voting rights with respect to the units it owns;
•whether to exercise its registration rights;
•whether to elect to reset target distribution levels;
•whether to transfer the incentive distribution rights or any units it owns to a third party; and
•whether or not to consent to any merger, consolidation or conversion of the partnership or amendment to the partnership agreement.
By purchasing a common unit, a unitholder is treated as having consented to the provisions in the partnership agreement, including the provisions discussed above.
Our partnership agreement restricts the remedies available to holders of our units for actions taken by our general partner that might otherwise constitute breaches of fiduciary duty.
Our partnership agreement contains provisions that restrict the remedies available to unitholders for actions taken by our general partner that might otherwise constitute breaches of fiduciary duty under Delaware law regarding fiduciary duty. For example, our partnership agreement provides that:
•whenever our general partner, the board of directors of our general partner or any committee thereof (including the conflicts committee) makes a determination or takes, or declines to take, any other action in their respective capacities, our general partner, the board of directors of our general partner and any committee thereof (including the conflicts committee), as applicable, is required to make such determination, or take or decline to take such other action, in good faith, meaning that it subjectively believed that the decision was in the best interests of our partnership, and, except as specifically provided by our partnership agreement, will not be subject to any other or different standard imposed by our partnership agreement, Delaware law, or any other law, rule or regulation, or at equity;
•our general partner will not have any liability to us or our unitholders for a decision made in its capacity as a general partner so long as such decisions are made in good faith;
•our general partner and its officers and directors will not be liable for monetary damages to us or our limited partners resulting from any act or omission unless there has been a final and non-appealable judgment entered by a court of competent jurisdiction determining that our general partner or its officers and directors, as the case may be, acted in bad faith or engaged in fraud or willful misconduct or, in the case of a criminal matter, acted with knowledge that the conduct was criminal; and
•our general partner will not be in breach of its obligations under the partnership agreement or its duties to us or our limited partners if a transaction with an affiliate or the resolution of a conflict of interest is:
◦approved by the conflicts committee of the board of directors of our general partner, although our general partner is not obligated to seek such approval;
◦approved by the vote of a majority of the outstanding common units, excluding any common units owned by our general partner and its affiliates;
◦determined by the board of directors of our general partner to be on terms no less favorable to us than those generally being provided to or available from unrelated third parties; orparties.
◦determined by the board of directors of our general partner to be fair and reasonable to us, taking into account the totality of the relationships among the parties involved, including other transactions that may be particularly favorable or advantageous to us.
In connection with a situation involving a transaction with an affiliate or a conflict of interest, any determination by our general partner or the conflicts committee must be made in good faith. If an affiliate transaction or the resolution of a conflict of interest is not approved by our common unitholders or the conflicts committee and the board of directors of our general partner determines that the resolution or course of action taken with respect to such affiliate transaction or conflict of interest satisfies either of the standards set forth in the third and fourth bullets above, then it will be presumed that, in making its decision, the board of directors acted in good faith, and in any proceeding brought by or on behalf of any limited partner or the partnership challenging such determination, the person bringing or prosecuting such proceeding will have the burden of overcoming such presumption.
Our general partner and its indirect equityholders, including Sisecam USA and Ciner Enterprises, and other affiliates of our general partner are not restricted in their ability to compete with us.
Our partnership agreement provides that our general partner will be restricted from engaging in any business activities other than acting as our general partner and those activities incidental to its ownership of interests in us. Affiliates of our general partner, and its other indirect equity owners, including Sisecam USA and Ciner Enterprises and itstheir respective other subsidiaries and affiliates, are not prohibited from owning assets or engaging in businesses that compete directly or indirectly with us. Sisecam USA and Ciner Enterprises and their respective other Ciner Groupsubsidiaries and affiliates may make investments in and purchases of entities that acquire, own and operate other soda ash producing assets and that may compete with us. For example,
As a result, under the Ciner Group is in the early stagescircumstances described above, each of entering into agreements and evaluating opportunities that may result in producing new soda ash from one Sisecam Chemicals, Sisecam USA and/or more separate facilities in the U.S. in the future which may increase competition if developed. Ciner Enterprises and such other Ciner Group affiliates will be under no obligationtheir respective related parties have the ability to make any acquisition opportunities available to us. Moreover, while Ciner Enterprisesconstruct or such other Ciner Group affiliates may offer us the opportunity to buy additionalacquire assets from it, it is under no contractual obligation to accept any offer we might makethat directly compete with respect to such opportunity.
our assets. Pursuant to the terms of our partnership agreement, the doctrine of corporate opportunity, or any analogous doctrine, does not apply to our
general partner or any of its affiliates, including its executive officers and directors and Sisecam USA and/or Ciner Enterprises and such other Ciner Group affiliates.Enterprises. Any such person or entity that becomes aware of a potential transaction, agreement, arrangement or other matter that may be an opportunity for us will not have any duty to communicate or offer such opportunity to us. Any such person or entity will not be liable to us or to any limited partner for breach of any fiduciary duty or other duty by reason of the fact that such person or entity pursues or acquires such opportunity for itself, directs such opportunity to another person or entity or does not communicate such opportunity or information to us. This may create actual and potential conflicts of interest between us and affiliates of our general partner and result in less than favorable treatment of us and our common unitholders.
Our general partner, or any transferee holding a majority of the incentive distribution rights, may elect to cause us to issue common units to it in connection with a resetting of the minimum quarterly distribution (as defined in our partnership agreement) and target distribution levels related to its incentive distribution rights, without the approval of the conflicts committee of our general partner or the holders of our common units. This election could result in lower distributions to holders of our common units in certain situations.
The holder or holders of a majority of the incentive distribution rights, which is initially our general partner, have the right, at any time when there are no subordinated units outstanding and it has received incentive distributions at the highest level to which it is entitled (48.0%) for each of the prior four consecutive fiscal quarters (and the amount of each such distribution did not exceed adjusted operating surplus for each such quarter), to reset the minimum quarterly distribution and the initial target distribution levels at higher levels based on our cash distribution at the time of the exercise of the reset election. Following such a reset election, the minimum quarterly distribution will be reset to an amount equal to the average cash distribution per unit for the two fiscal quarters immediately preceding the reset election (such amount is referred to as the “reset minimum quarterly distribution”), and the target distribution levels will be reset to correspondingly higher levels based on percentage increases above the reset minimum quarterly distribution. Our general partner has the right to transfer the incentive distribution rights at any time, in whole or in part, and any transferee holding a majority of the incentive distribution rights will have the same rights as our general partner with respect to resetting target distributions.
In the event of a reset of our minimum quarterly distribution and target distribution levels, our general partner will be entitled to receive, in the aggregate, a number of common units equal to that number of common units that would have entitled the holder of such units to an aggregate quarterly cash distribution in the two-quarter period prior to the reset election equal to the distribution to our general partner on the incentive distribution rights in the quarter prior to the reset election prior two quarters. Our general partner will also be issued the number of general partner units necessary to maintain its general partner interest in us that existed immediately prior to the reset election (approximately 2.0%). We anticipate that our general partner would exercise this reset right to facilitate acquisitions or internal growth projects that would not be sufficiently accretive to cash distributions per
common unit without such conversion. However, our general partner or a transferee could also exercise this reset election at a time when it is experiencing, or expects to experience, declines in the cash distributions it receives related to its incentive distribution rights and may, therefore, desire to be issued common units rather than retain the right to receive incentive distributions based on target distribution levels that are less certain in the then-current business environment. This risk could increase if our incentive distribution rights have been transferred to a third-party. As a result, a reset election may cause our common unitholders to experience dilution in the amount of cash distributions that they otherwise would have received had we not issued new common units to our general partner in connection with resetting the target distribution levels.
Holders of our common units have limited voting rights and are not entitled to appoint our general partner or its directors, which could reduce the price at which our common units will trade.
Unlike the holders of common stock in a corporation, unitholders have only limited voting rights on matters affecting our business and, therefore, limited ability to influence management’s decisions regarding our business. Unitholders will have no right on an annual or ongoing basis to appoint our general partner or its board of directors. ThePursuant to the Sisecam Chemicals Operating Agreement, the board of directors of our general partner including theshall consist of six designees from Sisecam USA, two designees from Ciner Enterprises and three independent directors is chosen entirely by Ciner Holdingsfor as a result of its ownership inlong as our general partner is legally required to appoint such independent directors, and not by our unitholders. As a result of these limitations, the secondary market price at which the common units will trade could decline because of the absence or reduction of a takeover premium in the trading price. Unlike publicly traded corporations, we will not conduct annual meetings of our unitholders to appoint directors or to conduct other matters routinely conducted at annual meetings of stockholders of corporations. Our partnership agreement also contains provisions limiting the ability of unitholders to call meetings or to acquire information about our operations, as well as other provisions limiting the unitholders’ ability to influence the manner or direction of management.
Even if holders of our common units are dissatisfied, they cannot initially remove our general partner without its consent.
If our unitholders are dissatisfied with the performance of our general partner, they will have limited ability to remove our general partner. The vote of the holders of at least 66-2/3% of all outstanding common units voting together as a single class is required to remove our general partner. As of March 10, 2021, Ciner Holdings2022, SCW LLC owned 14,551,000 common units, which constitutes an aggregate of 73.6%73.5% of the common units in us.
Our general partner interest or the control of our general partner may be transferred to a third party without unitholder consent.
Our general partner may transfer its general partner interest to a third party in a merger or in a sale of all or substantially all of its assets or otherwise without the consent of our unitholders. Furthermore, our partnership agreement does not restrict the ability of Sisecam Chemicals, Sisecam USA, Ciner Enterprises or, another entity that controls Ciner Enterprises,any such entity, to transfer or otherwise dispose of the corresponding indirect ownership interest in our general partner to a third party. In such a situation, the new owner of our general partner wouldcould be in a position to replace the board of directors and executive officers of our general partner with its own designees and thereby exert significant control over the decisions taken by the board of directors and executive officers of our general partner. This effectively permits a “change of control” without the vote or consent of our unitholders. For example, in connection with the CoC Transaction, Ciner Enterprises transferred a 60% interest in our U.S. sponsor to Sisecam USA, and Ciner Enterprises and Sisecam agreed that Sisecam shall have the right to designate six directors to our board of directors.
The incentive distribution rights held by our general partner, or indirectly held by Ciner Enterprises,Sisecam Chemicals, may be transferred to a third party without unitholder consent.
Our general partner or Ciner Enterprisesits equityholders may transfer the incentive distribution rights to a third party at any time without the consent of our unitholders. If Ciner EnterprisesSisecam Chemicals transfers the incentive distribution rights to a third party but retains its ownership interest in our general partner, our general partner may not have the same incentive to grow our partnership and increase quarterly distributions to unitholders over time as it would if Ciner EnterprisesSisecam Chemicals had retained ownership of the incentive distribution rights. For example, a transfer of incentive distribution rights by Ciner EnterprisesSisecam Chemicals could reduce the likelihood of Ciner EnterprisesSisecam Chemicals accepting offers made by us to purchase assets owned by it, as it would have less of an economic incentive to grow our business, which in turn would impact our ability to grow our asset base.
Our general partner has a limited call right that may require unitholders to sell their common units at an undesirable time or price.
If at any time our general partner and its affiliates own more than 80% of the common units, our general partner will have the right, which it may assign to any of its affiliates or to us, but not the obligation, to acquire all, but not less than all, of the common units held by unaffiliated persons at a price equal to the greater of (1) the average of the daily closing price of the common units over the 20 trading days preceding the date three days before notice of exercise of the call right is first mailed and (2) the highest per-unit price paid by our general partner or any of its affiliates for common units during the 90-day period preceding the date such notice is first mailed. We refer to this right in this Report as the limited call right. As a result, unitholders may be required to sell their common units at an undesirable time or price and may receive no return or a negative return on their investment. Unitholders may also incur a tax liability upon a sale of their units. Our general partner is not obligated to obtain a
fairness opinion regarding the value of the common units to be repurchased by it upon exercise of the limited call right. There is no restriction in our partnership agreement that prevents our general partner from issuing additional common units and exercising its limited call right. If our general partner exercised its limited call right, the effect would be to take us private and, if the units were subsequently deregistered, we would no longer be subject to the reporting requirements of the Exchange Act. As of March 10, 2021, Ciner Holdings2022, SCW LLC owned an aggregate of 73.6%73.5% of our common units.
We may issue additional units, including units ranking senior to common units, without unitholder approval, which would dilute existing unitholder ownership interests.
Our partnership agreement does not limit the number of additional limited partner interests we may issue at any time without the approval of our unitholders. Any additional partnership interests that we issue may be senior to the common units in right of distribution, liquidation and voting. The issuance of additional common units or other equity interests of equal or senior rank will have the following effects:
•our existing unitholders’ proportionate ownership interest in us will decrease;
•the amount of cash available for distribution on each unit may decrease;
•because the amount payable to holders of incentive distribution rights is based on a percentage of the total cash available for distribution, the distributions to holders of incentive distribution rights will increase even if the per unit distribution on common units remains the same;
•the ratio of taxable income to distributions may increase;
•the relative voting strength of each previously outstanding unit may be diminished;
•the market price of the common units may decline;
•the amounts available for distributions to our common unitholders may be reduced or eliminated; and
•the claims of the common unitholders to our assets in the event of our liquidations may be subordinated.
Our general partner intends to limit its liability regarding our obligations.
Our general partner intends to limit its liability under contractual arrangements so that the counterparties to such arrangements have recourse only against our assets, and not against our general partner or its assets. Our general partner may therefore cause us to incur indebtedness or other obligations that are nonrecourse to our general partner. Our partnership agreement permits our general partner to limit its liability, even if we could have obtained more favorable terms without the limitation on liability. In addition, we are obligated to reimburse or indemnify our general partner to the extent that it incurs obligations on our behalf. Any such reimbursement or indemnification payments would reduce the amount of cash otherwise available for distribution to our unitholders.
Our partnership agreement restricts the voting rights of unitholders owning 20% or more of our common units.
Our partnership agreement restricts unitholders’ voting rights by providing that any units held by a person or group that owns 20% or more of any class of units then outstanding, other than our general partner and its affiliates, their transferees and persons who acquired such units with the prior approval of the board of directors of our general partner, cannot vote on any matter.
Cost reimbursements due to our general partner and its affiliates for services provided to us or on our behalf will reduce our earnings and therefore our ability to distribute cash to our unitholders. The amount and timing of such reimbursements will be determined by our general partner.
Prior to making any distribution on the common units, we will reimburse our general partner and its affiliates for all expenses they incur and payments they make on our behalf. Our partnership agreement does not set a limit on the amount of expenses for which our general partner and its affiliates may be reimbursed. These expenses include salary, bonus, incentive compensation and other amounts paid to persons who perform services for us or on our behalf pursuant to the Services Agreement and expenses allocated to us by our general partner or its affiliates. Our partnership agreement provides that our general partner will determine in good faith the expenses that are allocable to us, including those allocated to us pursuant to the Services Agreement. The reimbursement of expenses and payment of fees, if any, to our general partner and its affiliates will reduce our earnings and therefore our ability to distribute cash to our unitholders.
Your liability may not be limited if a court finds that unitholder action constitutes control of our business.
A general partner of a partnership generally has unlimited liability for the obligations of the partnership, except for those contractual obligations of the partnership that are expressly made without recourse to the general partner. Our partnership is organized under Delaware law, and we conduct business primarily in Wyoming and Georgia. The limitations on the liability of holders of limited partner interests for the obligations of a limited partnership have not been clearly established in some jurisdictions. You could be liable for any and all of our obligations as if you were a general partner if a court or government agency were to determine that:
•we were conducting business in a state but had not complied with that particular state’s partnership statute; or
•your right to act with other unitholders to remove or replace the general partner, to approve some amendments to our partnership agreement or to take other actions under our partnership agreement constitute “control” of our business.
Unitholders may have liability to repay distributions and in certain circumstances may be personally liable for the obligations of the partnership.
Under certain circumstances, unitholders may have to repay amounts wrongfully returned or distributed to them. Under Section 17-607 of the Delaware Revised Uniform Limited Partnership Act, we may not make a distribution to our unitholders if the distribution would cause our liabilities to exceed the fair value of our assets. Delaware law provides that, for a period of three years from the date of the impermissible distribution, limited partners who received a distribution and who knew at the time of such distribution that it violated Delaware law will be liable to the limited partnership for the distribution amount. Transferees of common units are liable both for the obligations of the transferor to make contributions to the partnership that were known to the transferee at the time of transfer and for those obligations that were unknown if the liabilities could have been determined from the partnership agreement. Liabilities to partners on account of their partnership interests and liabilities that are non-recourse to the partnership are not counted for purposes of determining whether a distribution is permitted.
The New York Stock Exchange does not require a publicly-traded partnership like us to comply with certain of its corporate governance requirements.
Our common units are listed on the NYSE under the symbol “CINR.“SIRE.” Because we are a publicly-traded partnership, the NYSE does not require us to have a majority of independent directors on our general partner’s board of directors or to establish a compensation committee or a nominating and corporate governance committee. Accordingly, unitholders do not have the same protections afforded to certain corporations that are subject to all of the NYSE corporate governance requirements.
The market price of our common units could be adversely affected by sales of substantial amounts of our common units in the public markets, including sales by our existing unitholders.
Under our partnership agreement, we have agreed to register for resale under the Securities Act and applicable state securities laws any common units or other limited partner interests proposed to be sold by our general partner or any of its affiliates or their assignees if an exemption from the registration requirements of the Securities Act is not otherwise available. These registration rights continue for two years following any withdrawal or removal of our general partner. The sale or disposition of a substantial number of our common units in the public markets could have a material adverse effect on the price of our common units or could impair our ability to obtain capital through an offering of equity securities. We do not know whether any such sales would be made in the public market or in private placements, nor do we know what impact such potential or actual sales would have on our unit price in the future.
Our unitholders who fail to furnish certain information requested by our general partner or who our general partner, upon receipt of such information, determines are not eligible citizens are not entitled to receive distributions or allocations of income or loss on their common units and their common units will be subject to redemption.
Our general partner may require each limited partner to furnish information about his nationality, citizenship or related status. If a limited partner fails to furnish information about his nationality, citizenship or other related status within 30 days after a request for the information or our general partner determines after receipt of the information that the limited partner is not an eligible citizen, the limited partner may be treated as a non-citizen assignee. A non-citizen assignee does not have the right to direct the voting of his units and may not receive distributions in kind upon our liquidation. Furthermore, we have the right to redeem all of the common units of any holder that is not an eligible citizen or fails to furnish the requested information. The redemption price will be paid in cash or by delivery of a promissory note, as determined by our general partner.
Changes in accounting standards issued by the Financial Accounting Standards Board (“FASB”) could have a material effect on our balance sheet, revenue and results of operations, and could require a significant expenditure of time, attention and resources, especially by senior management.
Our accounting and financial reporting policies conform to Generally Accepted Accounting Principles in the U.S., which are periodically revised and/or expanded. The application of accounting principles is also subject to varying interpretations over time. Accordingly, we are required to adopt new or revised accounting standards or comply with revised interpretations that are issued from time to time by various parties, including accounting standard setters and those who interpret the standards, such as the Financial Accounting Standards Board and the Securities and Exchange Commission and our independent registered public accounting firm. Such new financial accounting standards may result in significant changes that could adversely affect our financial condition and results of operations.
Refer to Note 2 “Summary of Significant Accounting Policies - Recently Issued Accounting Pronouncements” of the Notes to the Consolidated Financial Statements for further discussion of these new accounting standards, including the implementation status and potential impact to our consolidated financial statements.
Tax Risks to Common Unitholders
Our tax treatment depends on our status as a partnership for U.S. federal income tax purposes, as well as our not being subject to a material amount of entity-level taxation by individual states. If the Internal Revenue Service (“IRS”) were to treat us as a corporation for U.S. federal income tax purposes or we were otherwise subject to a material amount of entity-level taxation, then our ability to distribute cash to our unitholders could be substantially reduced.
The anticipated after-tax economic benefit of an investment in our common units depends largely on our being treated as a partnership for U.S. federal income tax purposes. Despite the fact that we are organized as a limited partnership under Delaware law, we will be treated as a corporation for U.S. federal income tax purposes unless we satisfy a “qualifying income” requirement. Based upon our current operations, we believe we satisfy the qualifying income requirement. Failing to meet the qualifying income requirement or a change in current law could cause us to be treated as a corporation for U.S. federal income tax purposes or otherwise subject us to taxation as an entity.
If we were treated as a corporation for U.S. federal income tax purposes, we would pay U.S. federal income tax on our taxable income at the corporate tax rate and we would also likely pay additional state and local income taxes at varying rates. Distributions to our unitholders would generally be taxed again as corporate distributions, which would be taxable as dividends for
U.S. federal income tax purposes to the extent paid out of our current or accumulated earnings and profits as determined for U.S. federal income tax purposes, and no income, gains, losses, deductions or credits recognized by us would flow through to our unitholders. Because tax would be imposed upon us as a corporation, our cash available for distribution to our unitholders would be substantially reduced.
At the state level, several states have been evaluating ways to subject partnerships to entity-level taxation through the imposition of state income, franchise or other forms of taxation. Imposition of a material amount of any of these taxes in the jurisdictions in which we own assets or conduct business could substantially reduce the cash available for distribution to our unitholders.
If we were treated as a corporation for U.S. federal income tax purposes or otherwise subjected to a material amount of entity-level taxation, there would be a material reduction in the anticipated cash flow and after-tax return to our unitholders, likely causing a substantial reduction in the value of our common units.
Our partnership agreement provides that if a law is enacted or existing law is modified or interpreted in a manner that subjects us to taxation as a corporation or otherwise subjects us to entity-level taxation for U.S. federal, state or local income tax purposes, the target distribution amounts may be adjusted to reflect the impact of that law on us.
The tax treatment of publicly traded partnerships or an investment in our common units could be subject to potential legislative, judicial or administrative changes and differing interpretations, possibly on a retroactive basis.
The present U.S. federal income tax treatment of publicly traded partnerships, including us, or an investment in our common units may be modified by administrative, legislative or judicial changes or differing interpretations at any time. For example, from time to time, members of Congress have proposed and considered substantive changes to the existing U.S. federal income tax laws that would affect publicly traded partnerships, including elimination of partnership tax treatment for publicly traded partnerships.
The Tax Cuts and Jobs Act of 2017 provided for certain changes to the taxation of individuals, including, a reduction in the maximum marginal income tax rate for individuals and a new individual deduction relating to certain income from partnerships. Although the legislation did not impact our treatment as a partnership for U.S. federal income tax purposes, many of the provisions in the legislation, including the reduction in individual income tax rates and the deduction related to certain income from partnerships, were temporary and, without additional legislation, would sunset on December 31, 2025. In addition, the Treasury Department has issued, and in the future may issue, regulations interpreting those laws that affect publicly traded partnerships. We believe the income that we treat as qualifying satisfies the requirements under current regulations. However, there
can be no assurance that there will not be further changes to U.S. federal income tax laws or the Treasury Department’s interpretation of the qualifying income rules in a manner that could impact our ability to qualify as a partnership for U.S. federal income tax purposes in the future.
We are unable to predict whether additional legislation or any other tax-related proposals will ultimately be enacted. Any modification to the U.S. federal income tax laws may be applied retroactively and could make it more difficult or impossible to meet the exception for certain publicly traded partnerships to be treated as partnerships for U.S. federal income tax purposes. Any such change could negatively impact the value of an investment in our common units.
Unitholders are required to pay taxes on their respective shares of our income even if they do not receive any cash distributions from us.
Each unitholder is treated as a partner to whom we will allocate taxable income even if the unitholder does not receive any cash distributions from us. Unitholders are required to pay U.S. federal income taxes and, in some cases, state and local income taxes, on their respective shares of our taxable income, whether or not they receive cash distributions from us. Our unitholders may not receive cash distributions from us equal to their respective shares of our taxable income or even equal to the actual tax due from them with respect to that income.
Tax gain or loss on the disposition of our common units could be more or less than expected.
If our unitholders sell their common units, they will recognize a gain or loss equal to the difference between the amount realized and their tax basis in those common units. Because distributions in excess of their allocable share of our net taxable income result in a decrease in their tax basis in their common units, the amount, if any, of such prior excess distributions with respect to the units they sell will, in effect, become taxable income to them if they sell such units at a price greater than their tax basis in those units, even if the price they receive is less than their original cost. Furthermore, a substantial portion of the amount realized, whether or not representing gain, may be taxed as ordinary income due to potential recapture of depreciation, depletion or certain other expense deductions and certain other items. In addition, because the amount realized includes a unitholder’s share of our liabilities, if they sell their units, they may incur a tax liability in excess of the amount of cash they receive from the sale.
Unitholders may be subject to limitations on their ability to deduct interest expense we incur.
Our ability to deduct business interest expense will beis limited for federal income tax purposes to an amount equal to the sum of our business interest income and 30%a specified percentage of our “adjusted taxable income” during the taxable year computed without regard to any business interest income or expense, and in the case of taxable years beginning before 2022, any deduction allowable
for depreciation, amortization, or depletion. In 2020 only, due to legislation passed with the CARES Act, the adjusted taxable income (ATI) limitation was 50%. Business interest expense that we are not entitled to fully deduct will be allocated to each unitholder as excess business interest and can be carried forward by the unitholder to successive taxable years and used to offset any excess taxable income allocated by us to the unitholder. Any excess business interest expense allocated to a unitholder will reduce the unitholder’s tax basis in its partnership interest in the year of the allocation even if the expense does not give rise to a deduction to the unitholder in that year.
Tax-exempt entities face unique tax issues from owning common units that may result in adverse tax consequences to them.
Investment in common units by tax-exempt entities, such as employee benefit plans and individual retirement accounts, or “IRAs”,“IRAs,” raises issues unique to them. For example, virtually all of our income allocated to organizations that are exempt from U.S. federal income tax, including IRAs and other retirement plans, will be unrelated business taxable income and will be taxable to them. Tax-exempt entities with multiple unrelated trades or businesses cannot aggregate losses from one unrelated trade or business to offset income from another to reduce total unrelated business taxable income. As a result, it may not be possible for tax-exempt entities to utilize losses from an investment in us to offset unrelated business taxable income from another unrelated trade or business and vice versa. Tax-exempt entities should consult a tax advisor before investing in our common units.
Non-U.S. unitholders will be subject to U.S. federal income taxes and withholding with respect to income and gain from owning our common units.
Non-U.S. persons are generally taxed and subject to U.S. federal income tax filing requirements on income effectively connected with a U.S. trade or business. Income allocated to our unitholders and any gain from the sale of our units will generally be considered to be “effectively connected” with a U.S. trade or business. As a result, distributions to a non-U.S. unitholder will be subject to withholding at the highest applicable effective tax rate and a non-U.S. unitholder who sells or otherwise disposes of a common unit will also be subject to federal income tax on the gain realized from the sale or disposition of that unit.
The Tax Cuts and Jobs Act of 2017 also imposes a federal income tax withholding obligation of 10% ofMoreover, the amount realized upon a non-U.S. person’s sale or exchangetransferee of an interest in a partnership that is engaged in a U.S.United States trade or business. However, applicationbusiness is generally required to withhold 10% of this withholding rule to dispositionsthe “amount realized” by the transferor unless the transferor certifies that it is not a non-U.S. person. While the determination of a partner’s “amount realized” generally includes any decrease of a partner’s share of the partnership’s liabilities, Treasury Regulations provide that the “amount realized” on a transfer of an interest in a publicly traded partnership, interests has been suspended bysuch as our common units, will generally be the IRS
until regulations or other guidance have been issued. It is not clear when or if such regulations or guidancegross proceeds paid to the broker effecting the applicable transfer on behalf of the transferor, and thus will be issued.determined without regard to any decrease in that partner’s share of a publicly traded partnership’s liabilities. The Treasury Regulations and recent guidance from the IRS further provide that withholding on a transfer of an interest in a publicly traded partnership will not be imposed on a transfer that occurs prior to January 1, 2023, and after that date, if effected through a broker, the obligation to withhold is imposed on the transferor’s broker. Non-U.S. persons should consult a tax advisor before investing in our common units.
If the IRS contests the U.S. federal income tax positions we take, the market for our common units may be adversely impacted and our cash flow available for distribution to our unitholders might be substantially reduced.
The IRS may adopt positions that differ from the conclusions of our counsel or from the positions we take, and the IRS’s position may ultimately be sustained. It may be necessary to resort to administrative or court proceedings to sustain some or all of our counsel’s conclusions or the positions we take and such positions may not ultimately be sustained. A court may not agree with some or all of our counsel’s conclusions or the positions we take. Any contest by the IRS may materially and adversely impact the market for our common units and the price at which they trade. In addition, our costs of any contest with the IRS will be borne indirectly by our unitholders and our general partner because the costs will reduce our distributable cash flow.
Pursuant to legislation applicable for partnership tax years beginning after 2017, if the IRS makes audit adjustments to our partnership tax returns, it may assess and collect any taxes (including any applicable penalties and interest) resulting from such audit adjustments directly from us. To the extent possible under these rules our general partner may elect to either pay the taxes (including any applicable penalties and interest) directly to the IRS in the year in which the audit is completed or, if we are eligible, issue a revised information statement to each current and former unitholder with respect to an audited and adjusted partnership tax return. Although our general partner may elect to have our current and former unitholders take such audit adjustment into account and pay any resulting taxes (including applicable penalties or interest) in accordance with their interests in us during the tax year under audit, there can be no assurance that such election will be practical, permissible or effective in all circumstances. If we make payments of taxes and any penalties and interest directly to the IRS in the year in which the audit is completed, our cash available for distribution to our unitholders might be substantially reduced, in which case our current unitholders may bear some or all of the tax liability resulting from such audit adjustment, even if the unitholders did not own units in us during the tax year under audit.
We treat each purchaser of our common units as having the same tax benefits without regard to the actual common units purchased. The IRS may challenge this treatment, which could adversely affect the value of the common units.
Because we cannot match transferors and transferees of common units, our depreciation, depletion and amortization positions may not conform to all aspects of existing Treasury Regulations. A successful IRS challenge to those positions could
adversely affect the amount of tax benefits available to our unitholders. It also could affect the timing of these tax benefits or the amount of gain from the sale of common units and could have a negative impact on the value of our common units or result in audit adjustments to a unitholder’s tax returns.
We prorate our items of income, gain, loss and deduction between transferors and transferees of our units based upon the ownership of our units on the first day of each month, instead of on the basis of the date a particular unit is transferred. The IRS may challenge this treatment, which could change the allocation of items of income, gain, loss and deduction among our unitholders.
We generally prorate our items of income, gain, loss and deduction between transferors and transferees of our common units based upon the ownership of our common units on the first day of each month, instead of on the basis of the date a particular common unit is transferred. Although Treasury Regulations allow publicly traded partnerships to use a similar monthly simplifying convention to allocate tax items among transferor and transferee unitholders, such tax items must be prorated on a daily basis and these regulations do not specifically authorize all aspects of our proration method. If the IRS were to successfully challenge our proration method, we may be required to change the allocation of items of income, gain, loss, and deduction among our unitholders.
A unitholder whose common units are the subject of a securities loan (e.g., a loan to a “short seller” to cover a short sale of common units) may be considered as having disposed of those common units. If so, the unitholder would no longer be treated for tax purposes as a partner with respect to those common units during the period of the loan and may recognize gain or loss from the disposition.
Because there is no tax concept of loaning a partnership interest, a unitholder whose common units are the subject of a securities loan may be considered as having disposed of the loaned units. In that case, the unitholder may no longer be treated for tax purposes as a partner with respect to those common units during the period of the loan to the short seller and the unitholder may recognize gain or loss from such disposition. Moreover, during the period of the loan, any of our income, gain, loss or deduction with respect to those common units may not be reportable by the unitholder and any cash distributions received by the unitholder as to those common units could be fully taxable as ordinary income. Our unitholders desiring to assure their status as partners and avoid the risk of gain recognition from a loan to a short seller are urged to consult a tax advisor to discuss whether it is advisable to modify any applicable brokerage account agreements to prohibit their brokers from loaning their common units.
We have adopted certain valuation methodologies in determining a unitholder’s allocations of income, gain, loss and
deduction. The IRS may challenge these methodologies or the resulting allocations, and such a challenge could adversely affect the value of our common units.
In determining the items of income, gain, loss and deduction allocable to our unitholders, we must routinely determine the fair market value of our assets. Although we may from time to time consult with professional appraisers regarding valuation matters, we make many fair market value estimates ourselves using a methodology based on the market value of our common units as a means to determine the fair market value of our assets. The IRS may challenge these valuation methods and the resulting allocations of income, gain, loss and deduction.
A successful IRS challenge to these methods or allocations could adversely affect the timing, character or amount of taxable income or loss being allocated to our unitholders. It also could affect the amount of gain from our unitholders’ sale of common units and could have a negative impact on the value of the common units or result in audit adjustments to our unitholders’ tax returns without the benefit of additional deductions.
As a result of investing in our common units, our unitholders may become subject to state and local taxes and return filing requirements in jurisdictions where we operate or own or acquire properties.
In addition to U.S. federal income taxes, our unitholders may be subject to other taxes, including state and local income taxes, unincorporated business taxes and estate, inheritance or intangible taxes that are imposed by the various jurisdictions in which we conduct business or control property now or in the future, even if they do not live in any of those jurisdictions. Further, unitholders may be subject to penalties for failure to comply with those requirements. As we make acquisitions or expand our business, we may own assets or conduct business in additional states or foreign jurisdictions that impose a personal income tax. It is a unitholder’s responsibility to file all applicable U.S. federal, foreign, state and local tax returns.
ITEM 1B. Unresolved Staff Comments
None.
ITEM 2. Properties
In addition to the information provided below, information regarding our properties is included in Item 1. “Business — Our Operations,” “Leases and License” and “Trona“Summary of Trona Resources and Trona Reserves,” and “Internal Controls Disclosure over Trona Resources and Trona Reserves” and is incorporated by reference in this Item.
Our Green River Basin facility is situated on approximately 880 owned acres in the Green River Basin of Wyoming. We own the surface land and its improvements in fee, which we acquired pursuant to a quitclaim deed in 1991. See Item 1A, “Risk Factors—Risks Inherent in our Business and Industry—Defects in title or loss of any leasehold interests in our properties could limit our ability to conduct mining operations on these properties or result in significant unanticipated costs” for more information. We have operated our facility since 1996, prior to which Rhône-Poulenc was the operator. In addition, we have approximately 23,500 acres of subsurface leased/licensed mining areas. Four ponds on the property of our Green River Basin facility enable us to store the by-products from our refining process. We draw the water necessary for our refining processes from the nearby Green River. Our mining assets consist of two mining beds with five active mining faces at any one given time. The mine is served by threefour separate mine shafts.
Ciner CorpSisecam Chemicals leases 12,234 square feet of office space for its headquarters in Atlanta, Georgia which it utilizes to provide management and other shared services to the Partnership, pursuant to the various shared services agreements.
We believe that the size of our facilities is adequate for our current and anticipated needs.
Item 3. Legal Proceedings
From time to time we are party to various claims and legal proceedings related to our business. Although the outcome of these proceedings cannot be predicted with certainty, management does not currently expect any of the legal proceedings we are involved in to have a material effect on our business, financial condition and results of operations. We cannot predict the nature of any future claims or proceedings, nor the ultimate size or outcome of existing claims and legal proceedingsthereof and whether any damages resulting from them will be covered by insurance.
Item 4. Mine Safety Disclosures
Information regarding mine safety violations and other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K is included in Exhibit 95.1 to this Report.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common units are listed on the NYSE under the symbol “CINR.“SIRE.” As of March 10, 2021, Ciner Holdings2022, SCW LLC owned 14,551,000 common units. The closing sales price of our common units on NYSE on March 10, 20212022 was $13.61. Ciner Holdings$19.95. SCW LLC has approximately 74% ownership interest in usthe common units and the public owned 5,214,7815,236,748 common units which constitutes an approximately 26% ownership interest in us. There were 98 record holders of our outstanding common units as of March 10, 2021.2022.
Distributions of Available Cash from Operating Surplus and Capital Surplus
General
Our partnership agreement requires that, within 60 days after the end of each quarter, we distribute our available cash to unitholders of record on the applicable record date.
Definition of Available Cash
Available cash generally means, for any quarter, all cash and cash equivalents on hand at the end of that quarter:
less, the amount of cash reserves established by our general partner to:
•provide for the proper conduct of our business (including reserves for our future capital expenditures and for anticipated future credit needs subsequent to that quarter);
•comply with applicable law, any of our debt instruments or other agreements; or
•provide funds for distributions to our unitholders and to our general partner for any one or more of the next four quarters (provided that our general partner may not establish cash reserves for distributions if the effect of the establishment of such reserves will prevent us from distributing the minimum quarterly distribution on all common units;units);
plus, if our general partner so determines, all or any portion of the cash on hand on the date of determination of available cash for the quarter, resulting from working capital borrowings made subsequent to the end of such quarter.
The purpose and effect of the last bullet point above is to allow our general partner, if it so decides, to use cash received by us after the end of the quarter but on or before the date of determination of available cash for the quarter, including cash on hand from working capital borrowings made after the end of the quarter but on or before the date of determination of available cash for that quarter, to pay distributions to unitholders. Under our partnership agreement, working capital borrowings are generally borrowings that are made under a credit facility, commercial paper facility or similar financing arrangement, and in all cases are used solely for working capital purposes or to pay distributions to partners, and with the intent of the borrower to repay such borrowings within 12 months with funds other than from additional working capital borrowings.
Any distributions we make will be characterized as made from “operating surplus” or “capital surplus.” Distributions of available cash from operating surplus are made differently than distributions of available cash that we would make from capital surplus. Operating surplus distributions will be made first to our unitholders. If our quarterly distributions exceed the first target distribution level described below, then operating surplus distributions will also be made to the holder of our incentive distribution rights (“IDRs”).rights. We do not anticipate that we will make any distributions from capital surplus. If we do make any capital surplus distribution, however, we will distribute such amount pro rata to all unitholders. The holder of the IDRs would generally not participate in any capital surplus distributions with respect to those rights.
In determining operating surplus and capital surplus, we will only take into account our proportionate share of our interest in our consolidated subsidiaries, so long as they are not wholly owned, as well as our proportionate share of entities accounted for under the equity method.
Operating Surplus
We define operating surplus as:
•$20.0 million; plus
•all of our cash receipts, including amounts received by us from OCI Enterprises under the Omnibus Agreement for periods prior to the consummation of Ciner Enterprises’ indirect acquisition of approximately 72% limited partner interests in us, as well as, our approximate 2.0% general partner interest and all of our incentive distribution rights (the “Transaction”“OCI Transaction”), and, Ciner Corpby us from Sisecam Chemicals under the ServiceServices Agreement for periods subsequent to the consummation of the OCI Transaction, in each case, to the extent such amounts offset operating expenditures or lost revenue, and excluding cash from interim capital transactions (as defined below) and, under certain circumstances, the termination of hedge contracts; plus
•working capital borrowings, if any, made after the end of a period but on or before the date of determination of operating surplus for the period; plus
•cash distributions paid in respect of equity issued (including incremental distributions on IDRs), to finance all or a portion of replacement, improvement or expansion capital expenditures in respect of the period from such financing until the earlier to occur of (1) the date the related capital improvement commences commercial service and (2) the date that it is abandoned or disposed of; plus
•cash distributions paid in respect of debt or equity issued (including incremental distributions on IDRs) to pay the construction period interest on debt incurred, or to pay construction period distributions on equity issued, to finance the expansion capital expenditures referred to above, in each case, in respect of the period from such financing until the earlier to occur of (1) the date the capital asset is placed in service and (2) the date that it is abandoned or disposed of; less
•all of our operating expenditures (as defined below); less
•the amount of cash reserves or our proportionate share of cash reserves in the case of subsidiaries that are not wholly ownedwholly-owned established by our general partner to provide funds for future operating expenditures; less
•all working capital borrowings not repaid within twelve months after having been incurred, or repaid within such twelve-month period with the proceeds of additional working capital borrowings; less
•any cash loss realized on disposition of an investment capital expenditure.
We will include in operating surplus, when collected, cash receipts equal to our proportionate share of accounts receivable that are retained by Ciner Corp.Sisecam Chemicals.
As described above, operating surplus does not reflect actual cash on hand that is available for distribution to our unitholders and is not limited to cash generated by our operations. For example, it includes a basket of $20.0 million that will enable us, if we choose, to distribute as operating surplus cash we receive in the future from non-operating sources such as asset sales, issuances of securities and long-term borrowings that would otherwise be distributed as capital surplus. In addition, by including, as described above, certain cash distributions on equity interests in operating surplus, we will increase operating surplus by the amount of any such cash distributions. As a result, we may also distribute as operating surplus up to the amount of any such cash that we receive from non-operating sources.
The proceeds of working capital borrowings increase operating surplus, and repayments of working capital borrowings are generally operating expenditures, as described below. Therefore, we will reduce operating surplus when we repay working capital borrowings. However, if we do not repay a working capital borrowing during the twelve-month period following such borrowing, it will be deemed to be repaid at the end of such period, thereby decreasing operating surplus at such time. When such working capital borrowing is, in fact, repaid, it will be excluded from operating expenditures because operating surplus will have been previously reduced by the deemed repayment.
We define operating expenditures in our partnership agreement, which generally means all of our cash expenditures, including:
•taxes,
•reimbursement of expenses to our general partner or its affiliates,
•payments made in the ordinary course of business under interest rate hedge agreements or commodity hedge agreements (provided that (1) with respect to amounts paid in connection with the initial purchase of an interest rate hedge contract or a commodity hedge contract, we will amortize such amounts over the life of the applicable interest rate hedge contract or commodity hedge contract, and (2) we will include in operating expenditures payments made in connection with the termination of any interest rate hedge contract or commodity hedge contract prior to the expiration of its stipulated settlement or termination date of such contracts in equal quarterly installments over the remaining scheduled life of such contract),
•compensation of officers and directors of our general partner,
•repayment of working capital borrowings,
•debt service payments, and
•payments made in the ordinary course of business under any hedge contracts.
However, operating expenditures will not include:
•repayment of working capital borrowings deducted from operating surplus pursuant to the penultimate bullet point of the definition of operating surplus above when such repayment actually occurs;
•payments (including prepayments and prepayment penalties) of principal of and premium on indebtedness, other than working capital borrowings;
•expansion capital expenditures;
•investment capital expenditures;
•payment of transaction expenses relating to interim capital transactions;
•distributions to our partners (including distributions in respect of our IDRs); or
•repurchases of equity interests except to fund obligations under employee benefit plans.
Capital Surplus
Capital surplus is defined in our partnership agreement as any available cash distributed in excess of our operating surplus. Accordingly, we will generate capital surplus generally only by the following (which we refer to as “interim capital transactions”):
•borrowings, refinancings or refundings of indebtedness other than working capital borrowings and other than for items purchased on open account or for a deferred purchase price in the ordinary course of business;
•sales of our equity and debt securities;
•sales or other dispositions of assets, other than inventory, accounts receivable and other assets sold in the ordinary course of business or as part of normal retirement or replacement of assets; and
•capital contributions received.
Quarterly Distributions
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 or at any other rate, and we have no legal obligation to do so.
In an effort to achieve greater financial and liquidity flexibility during the COVID-19 pandemic, on August 3, 2020, each of the members of the board of managers of CinerSisecam Wyoming approved a suspension of quarterly distributions to its members beginningmembers. In addition, effective August 3, 2020, in connection with the secondquarterly distribution for the quarter of 2020.
Eachended June 30, 2020, each of the boardmembers of managers of Ciner Wyoming and the board of directors of our general partner approved the continuation of thea suspension of quarterly distributions to the members of Ciner Wyoming and our unitholders as applicable,that continued for each of the quarters ended September 30, 2020, and December 31, 2020, in a continued effort to achieve greater financialMarch 31, 2021, and liquidity flexibility during the COVID-19 pandemic. June 30, 2021.
In March 2021, the board of managers of CinerSisecam Wyoming approved a special $8.0 million distribution to, amongst other things, provide the Partnership with funds to retire the Ciner Resources Credit Facility.
Management andIn October 2021, the board of directorsmanagers of Sisecam Wyoming approved a $15.0 million distribution to the members of Sisecam Wyoming.
On October 29, 2021, the Partnership declared its third quarter 2021 quarterly cash distribution of $0.340 per unit to both the limited partners and general partners. The quarterly cash distribution was paid on November 19, 2021 to unitholders of record on November 9, 2021.
On January 27, 2022, the Partnership declared its fourth quarter 2021 quarterly distribution. On February 18, 2022, we paid a quarterly cash distribution of $0.650 per limited partner unit to unitholders of record on February 7, 2022. The total distribution paid was $13.4 million with $12.9 million paid to our limited partners and $0.3 million and $0.3 million paid to our general partner will continue to evaluate, on a quarterly basis, whether it is appropriate to reinstate afor its general partner interests and incentive distribution to our unitholders, which will be dependent in part on our cash reserves, liquidity, total debt levels and anticipated capital expenditures.rights, respectively.
Percentage Allocations of Distributions from Operating Surplus
The following table illustrates the percentage allocations of distributions from operating surplus between the unitholders and our general partner based on the specified target distribution levels. The amounts set forth under the column heading “Marginal Percentage Interest in Distributions” are the approximate percentage interests of our general partner and the unitholders in any distributions from operating surplus we distribute up to and including the corresponding amount in the column “Total Quarterly Distribution per Unit Target Amount.” The percentage interests shown for our unitholders and our general partner for the minimum quarterly distribution also apply to quarterly distribution amounts that are less than the minimum quarterly distribution. Under our partnership agreement, our general partner has considerable discretion to determine the amount of available cash (as defined therein) for distribution each quarter to the Partnership’s unitholders, including the discretion to establish cash reserves that would limit the amount of available cash eligible for distribution to the Partnership’s unitholders for any quarter. The Partnership does not guarantee
that it will pay the target amount of the minimum quarterly distribution listed below (or any distributions) on its units in any quarter. The percentage interests set forth below for our general partner (1) include its 2.0% general partner interest, (2) assume that our general partner has contributed any additional capital necessary to maintain its 2.0% general partner interest, (3) assume that our general partner has not transferred its IDRs and (4) assume that we do not issue additional classes of equity securities.
| | | | | | | | | | | | | | | | | |
| | | Marginal Percentage
Interest in
Distributions |
| | Total Quarterly
Distribution per Unit
Target Amount | | Unitholders | | General Partner |
| Minimum Quarterly Distribution | $0.5000 | | 98.0 | % | | 2.0 | % |
| First Target Distribution | above $0.5000 up to $0.5750 | | 98.0 | % | | 2.0 | % |
| Second Target Distribution | above $0.5750 up to $0.6250 | | 85.0 | % | | 15.0 | % |
| Third Target Distribution | above $0.6250 up to $0.7500 | | 75.0 | % | | 25.0 | % |
| Thereafter | above $0.7500 | | 50.0 | % | | 50.0 | % |
Securities Authorized for Issuance under Equity Compensation Plan
See Item 12, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” for information relating to compensation plans under which the Partnership’s securities are authorized for issuance.
During the year ended December 31, 2020,2021, the Partnership did not repurchase any of its equity securities.
Item 6. Selected Financial Data
The following table provides selected historical financial data of the Partnership for the periods and as of the dates indicated. The financial data provided should be read in conjunction with management’s discussion and analysis of financial condition and results of operations and our audited consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| Statement of operations data: | | For the years ended December 31, |
| ($ in millions, except per unit data) | | 2020 | | 2019 | | 2018 | | 2017 | | 2016 |
| Results of Operations: | | | | | | | | | | |
| Net sales | | $ | 392.2 | | | $ | 522.8 | | | $ | 486.7 | | | $ | 497.3 | | | $ | 475.2 | |
Cost of products sold (excludes depreciation, depletion and amortization expense set forth separately below)
| | 309.3 | | | 365.0 | | | 355.0 | | | 356.7 | | | 335.6 | |
| Depreciation, depletion and amortization expense | | 28.8 | | | 26.9 | | | 28.4 | | | 27.1 | | | 26.1 | |
| Selling, general and administrative expenses | | 21.7 | | | 23.8 | | | 24.5 | | | 22.4 | | | 23.3 | |
| Impairment and loss on disposal of assets, net | | — | | | — | | | — | | | 1.6 | | | 0.3 | |
| Litigation settlement | | — | | | — | | | (27.5) | | | — | | | — | |
| Operating income | | 32.4 | | | 107.1 | | | 106.3 | | | 89.5 | | | 89.9 | |
| Total interest and other expense, net | | (5.5) | | | (5.5) | | | (3.3) | | | (3.1) | | | (3.6) | |
| | | | | | | | | | |
| | | | | | | | | | |
| Net income | | $ | 26.9 | | | $ | 101.6 | | | $ | 103.0 | | | $ | 86.4 | | | $ | 86.3 | |
| Net income attributable to noncontrolling interest | | 15.2 | | | 52.0 | | | 53.1 | | | 44.8 | | | 44.9 | |
| Net income attributable to Ciner Resources LP | | $ | 11.7 | | | $ | 49.6 | | | $ | 49.9 | | | $ | 41.6 | | | $ | 41.4 | |
| | | | | | | | | | |
| | | | | | | | | | |
| Net income per limited partner unit: | | | | | | | | | | |
| Net income per limited partner unit (basic) | | $ | 0.58 | | | $ | 2.46 | | | $ | 2.48 | | | $ | 2.08 | | | $ | 2.08 | |
| Net income per limited partner unit (diluted) | | $ | 0.58 | | | $ | 2.46 | | | $ | 2.48 | | | $ | 2.07 | | | $ | 2.08 | |
| Limited partner units outstanding: | | | | | | | | | | |
| Weighted average limited partner units outstanding (basic) | | 19.7 | | | 19.7 | | | 19.7 | | | 19.6 | | | 19.6 | |
| Weighted average limited partner units outstanding (diluted) | | 19.8 | | | 19.7 | | | 19.7 | | | 19.7 | | | 19.6 | |
| | | | | | | | | | |
| Cash distribution declared per unit | | $ | 0.34 | | | $ | 1.36 | | | $ | 2.27 | | | $ | 2.27 | | | $ | 2.27 | |
Adjusted EBITDA (1) | | $ | 61.6 | | | $ | 135.4 | | | $ | 136.5 | | | $ | 120.1 | | | $ | 116.5 | |
| Distributable cash flow attributable to Ciner Resources LP | | $ | 17.0 | | | $ | 54.9 | | | $ | 58.4 | | | $ | 52.0 | | | $ | 50.4 | |
| Distribution coverage ratio | | 2.50 | | | 2.00 | | | 1.28 | | | 1.14 | | | 1.10 | |
(1)Adjusted EBITDA is defined as net income (loss) plus net interest expense, income tax, depreciation, depletion and amortization and certain other expenses that are non-cash charges or that we consider not to be indicative of ongoing operations. Please see non-GAAP reconciliations in, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Non-GAAP Financial Measures” for additional information.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| Balance sheet data (at period end): | | As of December 31, |
| ($ in millions) | | 2020 | | 2019 | | 2018 | | 2017 | | 2016 |
| Total assets | | $ | 498.0 | | | $ | 494.3 | | | $ | 434.6 | | | $ | 453.2 | | | $ | 413.1 | |
| Long-term debt | | 128.1 | | | 129.5 | | | 99.0 | | | 138.0 | | | 89.4 | |
| Partners’ capital attributable to Ciner Resources LP | | 174.2 | | | 172.7 | | | 153.9 | | | 148.4 | | | 153.3 | |
| Noncontrolling interests | | 131.1 | | | 127.2 | | | 106.2 | | | 99.8 | | | 105.9 | |
| Total equity | | 305.3 | | | 299.9 | | | 260.1 | | | 248.2 | | | 259.2 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Cash flow data (at period end): | | | | | | | | | | |
| ($ in millions) | | For the years ended December 31, |
| Cash provided by (used in): | | 2020 | | 2019 | | 2018 | | 2017 | | 2016 |
| Operating activities | | $ | 54.7 | | | $ | 103.8 | | | $ | 162.2 | | | $ | 79.3 | | | $ | 128.3 | |
| Investing activities (primarily capital expenditures) | | (42.2) | | | (65.4) | | | (39.4) | | | (24.7) | | | (25.3) | |
| Financing activities | | (26.9) | | | (33.7) | | | (142.8) | | | (44.1) | | | (103.7) | |
| | | | | | | | | | |
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
References
References in this Annual Report on Form 10-K (“Report”) to the “Partnership,” “CINR,” “Ciner Resources,“SIRE,” “we,” “our,” “us,” or like terms refer to Sisecam Resources LP (formerly known as Ciner Resources LPLP) and its subsidiary, Sisecam Wyoming LLC (formerly known as Ciner Wyoming LLC,LLC), which is the consolidated subsidiary of the Partnership and referred to herein as “Ciner Wyoming”.“Sisecam Wyoming.” Sisecam Chemicals Resources LLC ("Sisecam Chemicals" formerly known as Ciner Resources Corporation) is 60% owned by Sisecam Chemicals USA Inc. ("Sisecam USA") and 40% owned by Ciner Enterprises Inc. References to “our general partner” or “Ciner“Sisecam GP” refer to Sisecam Resource Partners LLC (formerly known as Ciner Resource Partners LLC,LLC), the general partner of CinerSisecam Resources LP and a direct wholly-owned subsidiary of Sisecam Chemicals Wyoming LLC ("SCW LLC" formerly known as Ciner Wyoming Holding Co. (“Ciner Holdings”), which is a direct wholly-owned subsidiary of Ciner Resources Corporation (“Ciner Corp”). Ciner CorpSisecam Chemicals. Sisecam Chemicals is a 60%-owned subsidiary of Sisecam USA, which is a direct wholly-owned subsidiary of Türkiye Şişe ve Cam Fabrikalari A.Ş, a Turkish corporation ("Şişecam Parent") which is an approximately 51%-owned subsidiary of Turkiye Is Bankasi Turkiye Is Bankasi ("Isbank"). Şişecam Parent is a global company operating in soda ash, chromium chemicals, flat glass, auto glass, glassware glass packaging and glass fiber sectors. Şişecam Parent was founded 86 years ago, 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 is one of the largest glass and chemicals producers in the world. Ciner Enterprises Inc. (“Ciner Enterprises”), which is a direct wholly-owned subsidiary of WE Soda Ltd., a U.K. corporationCorporation (“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 Şirketi (“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 including American Natural Soda Ash Corporation (“ANSAC”), which was an affiliate for export sales through the end of day on December 31, 2020. customers.
Effective as of the end of day on December 31, 2020, Ciner CorpSisecam Chemicals exited ANSAC. As of January 1, 2021, Ciner CorpSisecam Chemicals began managing the Partnership’s sales and marketing efforts for exports with the ANSAC exit being complete. Ciner Corp isSisecam Chemicals was able to establish business relationships with distributors by leveraging the Ciner Group’s distributor network established by Ciner Group while independently reviewing current and potential distribution partnersoffering its customers an improved level of service and greater certainty of supply to optimize our reach into each market.the Partnership’s end customers. In connection with the settlement agreement with ANSAC, there arethe Partnership met its 2021 sales commitments to ANSAC in 2021 and 2022 where Ciner Corp will continue to sell,which were at substantially lower volumes productthan prior years. These 2021 sales to ANSAC were for export sales purposes, withand required a fixed rate per ton selling, general and administrative expense, and will alsoexpense. There remains a commitment to sell additional tons to ANSAC in 2022, which are at substantially lower volumes than 2021. Additionally, in connection with the settlement agreement, the Partnership met its obligation to purchase a limited amount of export logistics services in 2021. There is not an obligation to purchase logistic services from ANSAC beyond 2021. Through in part the Partnership’s affiliates, the Partnership has amongst other things: (i) obtained its own international customer sales arrangements, for 2021, (ii) obtained third-party export port services, and (iii) chartered and executed its own international product delivery.
You should read the following management's discussion and analysis of financial condition and results of operations (“MD&A”) in conjunction with the historical consolidated financial statements, and notes thereto, included elsewhere in this Report. The Partnership has omitted from this MD&A a detailed discussion of the year-over-year changes from the Partnership’s fiscal year 2018 as compared2019 to the fiscal year 2019,2020, which can be found in the MD&A section in the Partnership’s annual report on Form 10-K for the year ended December 31, 2019,2020, filed with the U.S. Securities and Exchange Commission on March 9, 2020.16, 2021.
Overview
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and notes to consolidated financial statements included elsewhere in this Report. The following discussion and analysis contains forward-looking statements that reflect our future plans, estimates, beliefs and expected performance. Our actual results and financial condition may differ materially from those implied or expressed by these forward-looking statements. Please read “Cautionary Statement Concerning Forward-Looking Statements” and the risk factors discussed in Item 1A " Risk Factors" of this Report.
We are a Delaware limited partnership formed by Ciner Holdings to ownthat owns a 51% membership interest in, and to operateoperates the trona ore mining and soda ash production business of, CinerSisecam Wyoming. CinerSisecam 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.
NRP Trona LLC, a wholly owned subsidiary of Natural Resource Partners L.P. ("NRP"), currently owns a 49% membership interest in CinerSisecam Wyoming.
Recent Developments
Change in Control of Sisecam Chemicals
On December 21, 2021, Ciner Enterprises (which was the indirect owner of approximately 74% of the common units in the Partnership, completed the following transactions pursuant to the definitive agreement which Ciner Enterprises entered into with Sisecam USA, a direct subsidiary of Şişecam Parent on November 20, 2021:
•Ciner Enterprises converted Ciner Resources Corporation into Sisecam Chemicals Resources LLC, a Delaware limited liability company ("Sisecam Chemicals"), and Ciner Wyoming Holding Co., a direct wholly-owned subsidiary of Sisecam Chemicals, into Sisecam Chemicals Wyoming LLC (“SCW LLC”), with SCW LLC in turn then directly owning approximately 74% of the common units in the Partnership and 100% of the general partner, and Sisecam USA purchased, 60% of the outstanding units of Sisecam Chemicals owned by Ciner Enterprises for a purchase price of $300 million (the “Sisecam Chemicals Sale”); and
•at the closing of the Sisecam Chemicals Sale, Sisecam Chemicals, Ciner Enterprises, and Sisecam USA entered into a unitholders and operating agreement (the “Sisecam Chemicals Operating Agreement”) (collectively such transactions, the “CoC Transaction”).
Pursuant to the terms of the Sisecam Chemicals Operating Agreement, Sisecam USA and Ciner Enterprises have a right to designate six directors and four directors, respectively, to the board of directors of Sisecam Chemicals. In addition, the Sisecam Chemicals Operating Agreement provides that (i) the board of directors of the general partner (the “MLP Board”) shall consist of six designees from Sisecam USA, two designees from Ciner Enterprises and three independent directors for as long as the general partner is legally required to appoint such independent directors and (ii) the Partnership’s right to appoint four managers to the board of managers of Sisecam Wyoming (the “Wyoming Board”) shall be comprised of three designees from Sisecam USA and one designee from Ciner Enterprises. Each of Sisecam USA and Ciner Enterprises shall vote all units over which such unitholder has voting control in Sisecam Chemicals to elect to the board of directors any individual designated by Sisecam USA and Ciner Enterprises. The Sisecam Chemicals Operating Agreement also requires the board of directors of Sisecam Chemicals to unanimously approve certain actions and commitments, including without limitation taking any action that would have an adverse effect on the master limited partnership status of the Partnership or any of its subsidiaries. As a result of Sisecam USA’s and Ciner Enterprise’s respective interests in Sisecam Chemicals and their respective rights under the Sisecam Chemicals Operating Agreement, each of Ciner Enterprises and Sisecam USA and their respective beneficial owners may be deemed to share beneficial ownership of the approximate 2% general partner interest in the Partnership and approximately 74% of the common units in the Partnership owned directly by SCW LLC and indirectly by Sisecam Chemicals as parent entity of SCW LLC.
Expected Change in Management
On February 11, 2022, the Partnership disclosed that Turkiye Sise ve Cam Fabrikalari A.S. of Istanbul, Turkey (“Sisecam”), announced its intention (i) to appoint Mr. Ertugrul Kaloglu as President and Chief Executive Officer of Sisecam Chemicals and its subsidiaries, including our general partner, effective upon the receipt of all requisite U.S. immigration and corporate approvals (the
“Kaloglu Effective Date”), and (ii) to appoint Mr. Mehmet Nedim Kulaksizoglu as Chief Financial Officer of Sisecam Chemicals and its subsidiaries, including our general partner, effective upon the receipt of all requisite U.S. immigration and corporate approvals (the “Kulaksizoglu Effective Date”). Mr. Oguz Erkan has agreed to resign as the President and Chief Executive Officer of the general partner as of the Kaloglu Effective Date in order to pursue other opportunities with the Ciner Group. After the effectiveness of the foregoing resignation Mr. Erkan is expected to remain a member of the board of directors of our general partner and continue to serve as President and Chief Executive Officer of Ciner Enterprises. Mr. Ahmet Tohma has agreed to resign as the Chief Financial Officer of the general partner as of the Kulaksizoglu Effective Date in order to pursue other opportunities with the Ciner Group and is expected to continue to serve as the WE Soda Group’s Chief Financial Officer. As of the date of this filing, neither the Kaloglu Effective Date nor the Kulaksizoglu Effective Date has occurred.
COVID-19
Public health epidemics, pandemics or outbreaks of contagious diseases could adversely impact our business. In December 2019, a novel strain of coronavirus (“COVID-19”) emerged in Wuhan, Hubei Province, China. On March 11, 2020,COVID-19, including the World Health Organization declared COVID-19 a pandemic. It has spreadOmicron variant, continues to cause certain disruptions to the economy throughout the world, and significant numbers of infections have been reported, including in the United States and markets to which our products have historically been exported. Governmental jurisdictionsThere have been extraordinary actions taken by international, federal, state, and local public health and governmental authorities to contain and combat the outbreak and spread of COVID-19 in regions throughout the world, including travel bans, many vaccine mandate policies, quarantines, “stay-at-home” orders, and similar mandates for many individuals to restrict daily activities and for many businesses to curtail or cease normal operations. Vaccines for COVID-19 become widely available globally and individuals over five years old are eligible for the vaccine in the United States and globally have taken various actions to reduce the transmission of COVID-19, which has resulted in disruption in the national and global economic and financial markets. Since late December 2020, the vaccines for COVID-19 have become more widely available in the United States and globally.U.S.
Our Response to COVID-19
We continue to closely monitor the impact of the outbreak of COVID-19 pandemic and all governmental actions in response thereto on all aspects of our business, including how it impacts our customers, employees, supply chain, distribution network, and cash flows. We have taken strong proactive steps to keep the safety of our team and their families as the priority. We have been executing and continue to execute a comprehensive plan to help prevent the spread of the virus in our work locations and it appears to be having a positive impact. This plan includes multiple layers of protection for our employees, including but not limited to, social distancing, working from home for certain employees, splitting shifts, increased sanitation, restricted contractor and visitor access, temperature checks on all contractors and third-party vendors, travel restrictions, mask wearing requirements, and daily communication with our teams. We have conducted proactive quarantining and contact tracing from the early days of this pandemic and require self-reporting of any illness, in addition to a company doctor, weekly status meetings, tracking local resources, and industry wide efforts. We have also prepared strong contingency plans for all our operations with specific actions based on absentee rates. While we have not utilized any such plans to date as they have not been needed, they are continuously refined in case needed. As COVID-19 vaccines become more broadly available, we will encouragehave encouraged employees to consider gettingget vaccinated. We anticipate a re-opening of society whencontinue to use guidance from local health organizations, including the virus plateausCenters for Disease Control and diminishes, and we have completed re-entry plansPrevention, to implement as they become appropriate. We are using datamake decisions about our return to guide our actions rather than firm dates, and our teams are kept up to date on these plans.the workplace policies. Our focus prior to and during this pandemic has been the safety of our teams and this will continue to be our priority as we scale our operations backuse data to normal asaddress the data guides us to do so.COVID-19 pandemic. We continue to actively monitor and adhere to applicable local, state, federal, and international governmental guideline actions to better ensure the safety of our employees.
The impact of COVID-19
InAs the impact of COVID-19 evolved, we saw continued recovery in both domestic and international business in 2021. The soda ash volume sold in the first, second, third, and fourth quarters for 2021 increased 21.7%, decreased 9.7%, increased 7.8%, and increased 6.0%, respectively, compared to the immediately preceding quarter. The decline in the soda ash volume sold in the second quarter of 2021 compared to the first quarter of 2020, we started2021 is primarily due to see the first quarter of 2021 including significant international sales volumes associated with the initial impact of COVID-19 on our operations in the form of slowing global demand and downward pricing pressure and we began at that timeselling directly to utilize the flexibilityinternational customers as part of our production assets to adjust to the COVID-19 uncertainties and our customers’ demands.
In the second quarter ofDecember 31, 2020 the decline in demand adversely impacted our sales and production volume, and price per ton. We experienced an approximately 33.4% decline inANSAC exit. The production volumes and 35.7% decline in sales volumes when compared2021 are at pre-COVID-19 pandemic levels, which we consider to our pre-COVID-19be production and sales levels in the quarter ended March 31, 2020, respectively, primarily as a result of utilizing the flexibility of our production assets to adjust to the COVID-19 uncertainties and our customers’ demands in the near- and mid-term. Our international demand was impacted the most as different countries dealt with different levels of the outbreak and shutdowns. In addition, our customers in the flat glass and in particular the automotive business were significantly negatively impacted.
In the third quarter of 2020, demand showed signs of recovery domestically; however, there was still a decline in the global market compared to the third quarter of 2019. Our international demand was impacted the most as different countries dealt with different levels of the outbreak and shutdowns, but showed signs of recovery during the third quarter of 2020 as comparedprior to the second quarter of 2020. While we have yet to recover to pre-COVID-19 levels, overallThe sales volumes increased 26.7% and overall production volumes increased 1.5% overin the second quarter 2020 results. Our production volume trended upward consistently with our sales volume excepthalf of 2021 are at pre-COVID-19 pandemic levels. Sales volumes for an unplanned weather-related outage in September.
In the fourth quarter of 2020, the decline in demand compared to the fourth quarter of 2019 adversely impacted our sales and production volume, and price per ton due to the continued impact of the COVID-19 pandemic. Our international demand continued to recover in the fourth quarter of 2020 as compared to the third quarter of 2020. While we have yet to recover to the pre-COVID-19 levels, overall sales volumes increased 9.5% and overall production volumes increased 49.1% over the third quarter 2020 results. So far, we have been able to utilize the flexibility of our production assets to adjust to the COVID-19 uncertainties and customers’ demands, but the Partnership may experience similar variability or declines in operating and financial results in the near- and mid-term as the duration and severity of the COVID-19 pandemic cannot be predicted with confidence. Our increased fourth quarter production was also part of our plan to exit ANSAC and transition our international sales, marketing and logistics internally.
At this time, we are unable to predict the ultimate long-term impacts that COVID-19 may have on our business, future results of operations, financial position, cash flows or ability to make distributions to unitholders. The extent to which our operations may be impacted by the COVID-19 pandemic will depend largely on future developments, which are still uncertain and cannot be accurately predicted, including new information that may emerge concerning the severity of the outbreak and actions by local, state, federal or international government authorities to contain the outbreak or treat its impact even where the vaccines are becoming more available. Furthermore, the impacts of a potential worsening of global economic conditions and the continued disruptions to and volatility in the financial markets remain unknown. While we have begun to see signs of recovery with some of our customers and industries, primarily in the form of government re-openings and increasing orders these recoveries are very fluid. We are actively managing the business to maintain cash flow, and we believe we have enough liquidity to meet our anticipated liquidity requirements. As oftwelve months ended December 31, 2021 and 2020 we cannot predict the duration or the scope of the COVID-19 pandemicwere 2.8 million short tons and its impact on our operations, and the potential negative financial impact to our results cannot be reasonably estimated but could be material.2.2 million short tons, respectively.
For the year ended December 31, 2021 and 2020, we have incurred $1.8 million and $2.4 million, respectively, in net costs directly related to COVID-19 primarily in the form of costs related to employee safety and retention and additional inventory storage and logistics costs during the COVID-19 pandemic.costs.
Notice to Terminate Membership in ANSAC
As previously disclosed, the Partnership was informed on November 9, 2018 that Ciner Corp, an affiliate of the Partnership, had as part of its strategic initiative to gain better direct access and control of international customers and logistics and the ability to leverage the expertise of Ciner Group, the world’s largest natural soda ash producer, delivered a notice to terminate its membership in ANSAC. Such termination was expected to be effective as of the end of day on December 31, 2021. On July 27, 2020, ANSAC and the members thereof entered into an agreement, effective as of July 24, 2020, that, among other things, terminated Ciner Corp’s membership in ANSAC effective as of December 31, 2020 (the “ANSAC termination date”), a year earlier than previously announced (the “ANSAC Early Exit Agreement”). Effective as of the end of day on December 31, 2020 Ciner Corp exited ANSAC. In connection with the settlement agreement with ANSAC, there are sales commitments to ANSAC in 2021 and 2022 where Ciner Corp will continue to sell, at substantially lower volumes, product to ANSAC for export sales purposes, with a fixed rate per ton selling, general and administrative expense, and will also purchase a limited amount of export logistics services in 2021. Through in part the Partnership’s affiliates, the Partnership has amongst other things: (i) obtained its own international customer sales arrangements for 2021, (ii) obtained third-party export port services, and (iii) chartered and executed its own international product delivery.
Although ANSAC was our largest customer for the aforementioned periods, we anticipate that the impact of Ciner Corp’s exit from ANSAC on our net sales, net income and liquidity will be limited. We made this determination primarily based upon the belief that we will continue to be one of the lowest cost producers of soda ash in the global market. With a low-cost position combined with better direct access and control of our customers and logistics and the ability to leverage Ciner Group’s expertise in these areas, we believe we will be able to adequately replace these net ANSAC sales. As of January 1, 2021, Ciner Corp began managing the Partnership’s sales and marketing efforts for exports with the ANSAC exit being complete. Ciner Corp is leveraging the distributor network established by Ciner Group while independently reviewing current and potential distribution partners to optimize our reach into each market.
Suspension ofQuarterly 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, or at any other rate, and we have no legal obligation to do so.
In an effort to achieve greater financial and liquidity flexibility during the COVID-19 pandemic, on August 3, 2020, each of the members of the board of managers of CinerSisecam Wyoming approved a suspension of quarterly distributions to its members. In addition, effective August 3, 2020, in connection with the quarterly distribution for the quarter ended June 30, 2020, each of the members of the board of directors of our general partner approved a suspension of quarterly distributions to our unitholders.
Each of the board of managers of Ciner Wyoming and the board of directors of our general partner approved the continuation of the suspension of quarterly distributions to the members of Ciner Wyoming and our unitholders as applicable,that continued for each of the quarters ended September 30, 2020, and December 31, 2020, in a continued effort to achieve greater financialMarch 31, 2021, and liquidity flexibility during the COVID-19 pandemic. June 30, 2021.
In March 2021, the board of managers of CinerSisecam Wyoming approved a special $8.0 million distribution to, amongst other things, provide the Partnership with funds to retire the Ciner Resources Credit Facility.
Management andIn October 2021, the board of directorsmanagers of our general partner will continue to evaluate, onSisecam Wyoming approved a quarterly basis, whether it is appropriate to reinstate a$15.0 million distribution to our unitholders, which will be dependent in part on our cash reserves, liquidity, total debt levels and anticipated capital expenditures.
Green River Expansion Projectthe members of Sisecam Wyoming.
We continueOn October 29, 2021, the Partnership declared its third quarter 2021 quarterly cash distribution of $0.340 per unit to develop plansboth the limited partners and executegeneral partners. The quarterly cash distribution was paid on November 19, 2021 to unitholders of record on November 9, 2021.
On January 27, 2022, the early phasesPartnership declared its fourth quarter 2021 quarterly distribution. On February 18, 2022, we paid a quarterly cash distribution of $0.650 per limited partner unit to unitholders of record on February 7, 2022. The total distribution paid was $13.4 million with $12.9 million paid to our limited partners and $0.3 million and $0.3 million paid to our general partner for a potential newits general partner interests and incentive distribution rights, respectively.
Green River Expansion Project
In connection with the CoC Transaction, we believe we have further opportunities to debottleneck our facility and are incorporating several of these in our holistic approach as we further explore whether to proceed with the Green River Expansion Project that, should we decide to proceed, we believe could increase production levels up to approximately 3.5 million short tons of soda ash per year or up to approximately 134% of the last five-year average of soda ash produced per year. We have conducted the initial basic design and secured certain related permits and are currently evaluating and pursuing the related permits and detailed cost and market analysis pursuant to the basic design. ThisIf we proceed with this project, it will require capital expenditures materially higher than have been recently incurred by CinerSisecam Wyoming.When considering the significant investment required by this expansion and the infrastructure improvements designed to increase our overall efficiency, combined with the COVID-19 pandemic’s negative impact on our financial results, we have re-prioritized the timing of the significant expenditure items in order to increase financial and liquidity flexibility until we have more clarity and visibility into the ongoing impact of the COVID-19 pandemic on our business. The timing of the new Green River Expansion Project as well as any other expansion capital expenditures may also be impacted by certain performance ratios requirementsthe Partnership’s financial results including further negative volatility caused by the ongoing COVID-19 pandemic, including resurgences or subsequent variants of the Ciner Obligors’ Facilities Agreement. Based on the Ciner Obligors’ applicable ratios at December 31, 2020 our expansion capital expenditures are prohibited until the Ciner Obligors’ applicable ratios are at acceptable levels pursuant to the Facilities Agreement.virus.
Financial Assurance Regulatory Updates by the Wyoming Department of Environmental Quality (“WDEQ”)
We have historically beenOur operations are subject to a self-bond agreement (the “Self-Bond Agreement”) withoversight by the Land Quality Division of Wyoming Department of Environmental Quality (“WDEQ”) under which we committed to pay directly for reclamation costs. The amount of. Our principal mine permit issued by the self-bond was $36.2 million as of December 31, 2019. In May 2019,Land Quality Division, requires the State of Wyoming enacted legislation that limits our and other mine operators’ ability to self-bond and required us to seek other acceptable financial instrumentsPartnership to provide alternatefinancial assurances for our reclamation obligations by November 2020. We providedfor the estimated future cost to reclaim the area of our processing facility, surface pond complex and on-site sanitary landfill. The Partnership provides such alternate assurances by timely securingthrough a third-party surety bond effective October 15, 2020 (the “Surety Bond”) for. According to the then-applicable full self-bond amount. After we securedannual recalculation and submittal, the Surety Bond the Self-Bond Agreementamount was terminated. As of$41.8 million and $36.2 million at December 31, 2021 and 2020, therespectively. The amount of our Surety Bond was $36.2 million, which increasedsuch assurances that we are required to $41.8 million effective March 1, 2021. Asprovide is subject to change upon annual recalculation according to Department of Environmental Quality’s Guideline 12, annual site inspection and subsequent evaluation/approval by the date of this Report, the impact on our net income and liquidity due to securing the Surety Bond is immaterial and we anticipate that to continue to be the case. 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, please readsee Part I, Item IA, “Risk Factors--Risks1A, “Risk Factors - Risks Inherent in our Business and Industry--OurIndustry - 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.” for additional information.
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 in the 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 from the United States, Turkey and to a limited extent, from China, the largest suppliers of soda ash to international markets. Currently, and in the near-near and mid-term we expect that COVID-19 willcustomers across all segments to continue to have a material impact across a variety of our customersmanaging and customer segments which will have a negative impact on demand for our products. We began to seemitigating the financial impact of COVID-19 primarilyto their operations. Soda ash demand in the second quarter of 2020. In the third quarter of 2020, demand showed signs of recovery domestically; however, there was still a decline inU.S. as well as the global market comparedhave recovered to pre-pandemic levels in 2021. There are select markets which continue to bear the third quarter of 2019. Our internationalimpacts, however in most cases we see recovery taking place even where the demand was impacted the most as different countries dealt and continue to deal with different levels of the outbreak and shutdowns, but showed signs of recovery during the third quarter of 2020 in comparison to the second quarter 2020. In the fourth quarter of 2020, while we have yet to recover to the pre-COVID-19 levels, overall sales volumes increased 9.5% over the third quarter 2020 results but decreased 14.8% over the fourth quarter 2019 results. We have been able to utilize the flexibility of our production assets to adjust to the COVID-19 uncertainties and customers’ demands, but the Partnership may experience similar declines in the near- and mid-term as the COVID-19 pandemic continues.a great extent for a prolonged period.
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.
International Commercial Restructuring and Expansion
As previously disclosed, the Partnership was informed on November 9, 2018 that Ciner Corp,Sisecam Chemicals, an affiliate of the Partnership, had as part ofterminated its strategic initiative to gain better direct access and control of international customers and logistics and the ability to leverage the expertise of Ciner Group, the world’s largest natural soda ash producer, delivered a notice to terminate its membership in ANSAC. Such termination was expected to be effective as of the end of day on December 31, 2021. On July 27, 2020, ANSAC and the members thereof entered into an agreement, effective as of July 24, 2020, that, among other things, terminated Ciner Corp’s membership in ANSAC effective as of December 31, 2020 (the “ANSAC termination date”), a year earlier than previously announced (the “ANSAC Early Exit Agreement”). Effective as2020. As of January 1, 2021, Sisecam Chemicals began managing the end of day on December 31, 2020 Ciner Corp exited ANSAC. Partnership’s sales and marketing efforts for exports with the ANSAC exit being complete. In connection with the settlement agreement with ANSAC, there are sales commitments to ANSAC in 2021 and 2022 where Ciner Corp will continue Sisecam Chemicals continued to sell, at substantially lower volumes, product to ANSAC for export sales purposes, with a fixed rate per ton selling, general and administrative expense, and will also fulfilled its obligation to purchase a limited amount of export logistics services in 2021. ThroughIn connection with the settlement agreement with ANSAC, there remains sales commitments to ANSAC in part2022 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. Further, in 2022 there are no required export logistics services with ANSAC. The ANSAC exit allowed Sisecam Chemicals to improve access to customers and gain control over placement of its sales in the Partnership’s affiliates,international marketplace in 2021. This enhanced view of the Partnershipglobal 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 amongst other things: (i) obtained its own international customer sales arrangements for 2021, (ii) obtained third-party export port services, and (iii) chartered and executed its own international product delivery.
Historically, by design and prior to Ciner Corp’s exit from ANSAC, ANSAC managed most of our international sales, marketing and logistics, and as a result, washistorically been our largest customer, for the years ended December 31, 2020, 2019 and 2018, accounting for 45.4%, 60.4% and 52.0%, respectively, of our net sales. Although ANSAC was our largest customer for the aforementioned periods, we anticipate that the impact of Ciner Corp’sSisecam Chemicals' exit from ANSAC on our net sales, net income and liquidity will bewas limited. We made this determination primarily based upon the belief that we will continue to be one of the lowest cost producers of soda ash in the global market. With a low-cost position combined with better directand improved access to international customers and control over placement of our customersits sales in the international marketplace and logistics, and the ability to leverage Ciner Group’s expertise in these areas, we believe we will be able tohave adequately replacereplaced these net ANSAC sales. As of January 1, 2021, Ciner Corp began managingsales made under the Partnership’s sales and marketing efforts for exportsformer agreement with the ANSAC exit being complete. Ciner Corp is leveragingANSAC. Sisecam Chemicals leveraged the distributor network established by the Ciner Group while independently reviewing currentin 2021 and potentialcontinues to evaluate the distribution network and independent third-party distribution partners to optimize our reach into each market.
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. Our cost of energy, particularly natural gas, has been relatively low in
recent years, and, despiteDue to the historic volatility of natural gas prices, we believe that we will continue to benefit from relatively low prices in the near future. However, we expect to continue to hedge a portion of our forecasted natural gas purchases to mitigate volatility. During 2019 and the first quarter of 2020, we constructedcompleted construction of a new natural gas-fired turbine co-generation facility and started its operation in March 2020. The facilitythat is designed to providecapable of providing roughly one-third of our electricity and steam demands at our mine in the Green River Basin. The newThis co-generation facility began operating in March 2020 and provided 172.6 million kWh of electricity which saved the Partnership $4.4 million in 2021 based on average purchased electricity costs and gas costs. In a normal production environment the facility is expected to provide us with an improvementover 180.0 million kWh of approximately $3 to $4 million annually in energy costs.electricity annually.
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”,grade,” is determined by measuring the trona ore recovered as a percentage of the deposit, which includes both trona ore and insolubles. Our ore grade for the years ended December 31, 2021 and 2020 was 86.3% and 2019 was 86.6% and 86.6%85.7%, respectively. 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 for the years ended December 31, 2021 and 2020 and 2019 was 1.60:1.56: 1.0 and 1.51:1.60: 1.0, respectively.
Freight and Logistics
The soda ash industry is logistics intensive and involves careful management of freight and logistics costs. TheseThis 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. With our exit from ANSAC, we expect that our gross freight costs and related sales prices will increase as a result
Sisecam Chemicals enters into contracts with one railroad company for the majority of our directly managing our international operations, including ocean freight export logistics.
Union Pacific Railroad Company (“Union Pacific”) is our largest provider ofthe domestic rail freight services.services that the Partnership receives and the related freight and logistics costs are allocated to the Partnership. For the year ended December 31, 2021 and 2020, wethe Partnership shipped approximately 96.6%over 90% of our soda ash to our customers initially via a single rail line owned and controlled by Union Pacific. Ourthe railroad company. The Partnership’s plant receives rail service exclusively from Union Pacificthe railroad company and shipments by rail accounted for 85.6%over 60% and 86.3%over 80% of our total freight costs for the yearsyear ended December 31, 20202021 and 2019,2020, respectively. The decrease in the percentage of freight that is related to Union Pacificthe railroad company is due primarily to our decreased usagethe increased ocean freight in the year ended December 31, 2021 of Union Pacific to accommodate changes indirect international sales mix between domestic and international and their respective delivery locations. Our agreement with Union Pacific expires on December 31, 2021 and there can be no assurance that it will be renewed on terms favorable to us or at all.
If we doSisecam Chemicals does not ship at least a significant portion of our soda ash production on the Union Pacificrailroad company’s rail line during a twelve-month period, weit must pay Union Pacificthe railroad company a shortfall payment under the terms of our transportation agreement. For the year ended December 31, 2020, we assistedThe Partnership assists the majority of ourits domestic customers in arranging their freight services. During the year ended December 31, 2021 and 2020, weSisecam Chemicals had no shortfall payments and dodoes not expect to make any such payments in the future. Sisecam Chemicals renewed its agreement with the railroad company in October 2021, which now expires on December 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 for the majority of our contracts with customers, 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. Beginning in 2021,Until the ANSAC exit on December 31, 2020, the time at which delivery and transfer of title occurred for ANSAC sales to ANSAC will be fulfilled when delivered to ANSAC facilities.had been the same as domestic customers. Substantially all of our sales are derived from sales of soda ash, which we sell through our exclusive sales agent, Ciner Corp.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.
SalesUntil the end of 2020, sales prices for sales through ANSAC include the cost of freight to the ports of embarkation for overseas export or to Laredo, Texas for sales to Mexico. Sales prices for other 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 and the cost of inland freight required for delivery to 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.
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 $5.70.$6.34. The average monthly Northwest Pipeline Rocky Mountain Index natural gas settlement prices for the years ended December 31, 2021 and 2020, were $3.90 and 2019, were $2.07 and $2.59 per MMBtu, respectively. However, we expect to continue to hedge a portion of our forecasted natural gas purchases to mitigate volatility. During 2019 and the first quarter ofIn early 2020, we constructed a new natural gas-fired turbine co-generation facility that is expected to provide roughly one-third of our electricity and steam demands at our mine in the Green River Basin. The newThis co-generation facility began operating in March 2020 and provided 172.6 million kWh of electricity which saved the Partnership $4.4 million in 2021 based on average purchased electricity costs and gas costs. In a normal production environment the facility is expected to provide us with an improvementover 180.0 million kWh of approximately $3 to $4 million annually in energy costs.electricity annually. In order to mitigate the risk of gas price fluctuations, wethe Partnership expects to continue to hedge a portion of ourits 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 fourthree years. See Item 7A, “Quantitative and Qualitative Disclosures about Market Risk - Commodity Price Risks,” for additional information.
Employee Compensation. See Item 8, Financial Statements and Supplementary Data—Note 11, “Employee Compensation,” for information on the various benefit plans offered and administered by Ciner Corp.Sisecam Chemicals.
Royalties. During the year ended December 31, 2020,2021, we paid royalties to the State of Wyoming, the U.S. Bureau of Land Management and Sweetwater 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 our Green 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 to Sweetwater County, and trona severance tax to the State 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. On June 28, 2018, CinerSisecam Wyoming amended its License Agreement, dated July 18, 1961 (the “License Agreement”), with a predecessor in interest to Sweetwater Royalties LLC, to, among other things, (i) extend the term of the License Agreement to July 18, 2061 and for so long thereafter as CinerSisecam 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. On December 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 reducesreduced the rates on our mineral leases with the U.S. Government from 6% to 2% as of January 1, 2021 and for the following ten years. If the 2%This 4% rate were applied to Leases with the U.S. Governmentreduction saved over $6.5 million in 2020, our savings on royalty fees would have been approximately $4.5 million based on our mining operations in 2020.2021.
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. Selling, general and administrative expenses incurred by ANSAC on our behalf are allocated to us based on the proportion of ANSAC’s total volumes sold for a given period attributable to the soda ash sold by us to ANSAC. Pursuant to the ANSAC Early Exit Agreement, we will incur a fixed rate of selling, general, and administrative expense for each ton we sell to ANSAC. The Partnership has a Services Agreement (the “Services Agreement”), with our general partner and Ciner Corp.Sisecam Chemicals. Pursuant to the Services Agreement, Ciner CorpSisecam 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 Ciner CorpSisecam Chemicals an annual management fee, subject to quarterly adjustments, and reimburse Ciner CorpSisecam Chemicals for certain third-party costs incurred in connection with providing such services. In addition, under the joint venture agreement governing CinerSisecam Wyoming, CinerSisecam Wyoming reimburses us for employees who operate our assets and for support provided to CinerSisecam Wyoming.
Ciner Group also ownsEffective as of the end of day on December 31, 2020, Sisecam Chemicals exited ANSAC. As of January 1, 2021, Sisecam Chemicals began managing the Partnership’s sales and operates port facilities in Turkey, and, since 2017, one of its other North American subsidiaries has an arrangement to exclusively import soda ash into a port onmarketing efforts for exports with the U.S east coast. Ciner Corp, which is the exclusive sales agent for the Partnership, also serves as the exclusive sales agent of that material and receives a commission on those sales. We believe by having access to that material, Ciner Corp isANSAC exit being complete. Sisecam Chemicals was able to offerestablish business relationships with distributors by leveraging the Ciner Group’s distributor network and offering its customers an improved level of service and greater certainty of supply to the Partnership’s end customers,customers. In connection with the settlement agreement with ANSAC, the Partnership met its 2021 sales commitments to ANSAC which were at substantially lower volumes than prior years. These 2021 sales to ANSAC were for export sales purposes, and asrequired a result lower its overall costsfixed rate per ton selling, general and administrative expense. There remains a commitment to serve,sell additional tons to ANSAC in 2022, which are subsequently chargedat substantially lower volumes than 2021. Additionally, in connection with the settlement agreement, the Partnership met its obligation to purchase a limited amount of export logistics services in 2021. There is not an obligation to purchase logistic services from ANSAC beyond 2021. Through in part the Partnership.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.
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 tables set forth our results of operations for the years ended December 31, 20202021 and 2019.2020. | | | | | Years Ended December 31, | | | Years Ended December 31, |
| ($ in millions; except for operating and other data section) | ($ in millions; except for operating and other data section) | | 2020 | | 2019 | | | ($ in millions; except for operating and other data section) | | 2021 | | 2020 | |
| | Net sales | Net sales | | $ | 392.2 | | | $ | 522.8 | | | | Net sales | | $ | 540.1 | | | $ | 392.2 | | |
| Cost of products sold: | Cost of products sold: | | | Cost of products sold: | | |
| Cost of products sold (excludes depreciation, depletion and amortization expense set forth separately below)
| Cost of products sold (excludes depreciation, depletion and amortization expense set forth separately below)
| | 185.6 | | | 221.4 | | | | Cost of products sold (excludes depreciation, depletion and amortization expense set forth separately below) | | 215.5 | | | 185.6 | | |
| Depreciation, depletion and amortization expense | Depreciation, depletion and amortization expense | | 28.8 | | | 26.9 | | | | Depreciation, depletion and amortization expense | | 31.6 | | | 28.8 | | |
| Freight costs | Freight costs | | 123.7 | | | 143.6 | | | | Freight costs | | 213.0 | | | 123.7 | | |
| Total cost of products sold | Total cost of products sold | | 338.1 | | | 391.9 | | | | Total cost of products sold | | 460.1 | | | 338.1 | | |
| Gross profit | Gross profit | | 54.1 | | | 130.9 | | | | Gross profit | | 80.0 | | | 54.1 | | |
| Operating expenses: | Operating expenses: | | | Operating expenses: | | |
| | Selling, general and administrative expenses | Selling, general and administrative expenses | | 21.7 | | | 23.8 | | | | Selling, general and administrative expenses | | 23.5 | | | 21.7 | | |
| | Total operating expenses | Total operating expenses | | 21.7 | | | 23.8 | | | | Total operating expenses | | 23.5 | | | 21.7 | | |
| Operating income | Operating income | | 32.4 | | | 107.1 | | | | Operating income | | 56.5 | | | 32.4 | | |
| Other income/(expenses): | Other income/(expenses): | | | Other income/(expenses): | | |
| | Interest income | Interest income | | 0.1 | | | 0.4 | | | | Interest income | | — | | | 0.1 | | |
| Interest expense | Interest expense | | (5.3) | | | (5.9) | | | | Interest expense | | (5.0) | | | (5.3) | | |
| Other - net | Other - net | | (0.3) | | | — | | | | Other - net | | (0.1) | | | (0.3) | | |
| Total other expense, net | Total other expense, net | | (5.5) | | | (5.5) | | | | Total other expense, net | | (5.1) | | | (5.5) | | |
| | Net income | Net income | | $ | 26.9 | | | $ | 101.6 | | | | Net income | | 51.4 | | | 26.9 | | |
| Net income attributable to noncontrolling interest | Net income attributable to noncontrolling interest | | 15.2 | | | 52.0 | | | | Net income attributable to noncontrolling interest | | 27.0 | | | 15.2 | | |
| Net income attributable to Ciner Resources LP | | $ | 11.7 | | | $ | 49.6 | | | | |
| | Net income attributable to Sisecam Resources LP | | Net income attributable to Sisecam Resources LP | | $ | 24.4 | | | $ | 11.7 | | |
| | Operating and Other Data: | Operating and Other Data: | | | | | | | Operating and Other Data: | | | | | |
| Trona ore consumed (thousands of short tons) | Trona ore consumed (thousands of short tons) | | 3,653.8 | | 4,157.0 | | | Trona ore consumed (thousands of short tons) | | 4,251.2 | | 3,653.8 | |
Ore to ash ratio(1) | Ore to ash ratio(1) | | 1.60: 1.0 | | 1.51: 1.0 | | | Ore to ash ratio(1) | | 1.56: 1.0 | | 1.60: 1.0 | |
Ore grade(2) | Ore grade(2) | | 86.6 | % | | 86.6 | % | | | Ore grade(2) | | 86.3 | % | | 86.6 | % | |
| Soda ash volume produced (thousands of short tons) | Soda ash volume produced (thousands of short tons) | | 2,279.3 | | | 2,752.0 | | | | Soda ash volume produced (thousands of short tons) | | 2,720.5 | | | 2,279.3 | | |
| Soda ash volume sold (thousands of short tons) | Soda ash volume sold (thousands of short tons) | | 2,221.9 | | | 2,759.1 | | | | Soda ash volume sold (thousands of short tons) | | 2,813.5 | | | 2,221.9 | | |
| Adjusted EBITDA(3) | Adjusted EBITDA(3) | | $ | 61.6 | | | $ | 135.4 | | | | Adjusted EBITDA(3) | | $ | 88.5 | | | $ | 61.6 | | |
|
(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.
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:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Years Ended
December 31, | | Percent Increase/(Decrease) | |
| ($ in millions, except per ton data) | | 2020 | | 2019 | | | | 2020 vs 2019 | | | |
| | | | | | | | | | | |
| Net sales: | | | | | | | | | | | |
| Domestic | | $ | 208.8 | | | $ | 207.0 | | | | | 0.9 | % | | | |
| International | | 183.4 | | | 315.8 | | | | | (41.9) | % | | | |
| Total net sales | | $ | 392.2 | | | $ | 522.8 | | | | | (25.0) | % | | | |
| Sales volumes (thousands of short tons): | | | | | | | | | | | |
| Domestic (thousands of short tons) | | 940.9 | | | 874.5 | | | | | 7.6 | % | | | |
| International (thousands of short tons) | | 1,281.0 | | | 1,884.6 | | | | | (32.0) | % | | | |
| Total soda ash volume sold (thousands of short tons) | | 2,221.9 | | | 2,759.1 | | | | | (19.5) | % | | | |
| Average sales price (per short ton): | | | | | | | | | | | |
| Domestic | | $ | 221.92 | | | $ | 236.71 | | | | | (6.2) | % | | | |
| International | | $ | 143.17 | | | $ | 167.57 | | | | | (14.6) | % | | | |
| Average | | $ | 176.52 | | | $ | 189.48 | | | | | (6.8) | % | | | |
| Percent of net sales: | | | | | | | | | | | |
| Domestic sales | | 53.2 | % | | 39.6 | % | | | | 34.3 | % | | | |
| International sales | | 46.8 | % | | 60.4 | % | | | | (22.5) | % | | | |
| Total percent of net sales | | 100.0 | % | | 100.0 | % | | | | | | | |
| Percent of sales volumes: | | | | | | | | | | | |
| Domestic volume | | 42.3 | % | | 31.7 | % | | | | 33.4 | % | | | |
| International volume | | 57.7 | % | | 68.3 | % | | | | (15.5) | % | | | |
| Total percent of volume sold | | 100.0 | % | | 100.0 | % | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
As discussed in the “Overview” section above the impact of COVID-19 and actions taken by the Partnership in response to it had varying effects on our results of operations in 2020. The Partnership experienced a significant decrease in sales and production volumes due to a significant decrease in global demand and production volumes, which negatively impacted the business. | | | | | | | | | | | | | | | | | | | | |
| Years Ended
December 31, | Percent Increase/(Decrease) | |
| ($ in millions, except per ton data) | 2021 | | 2020 | | | 2021 vs 2020 | | |
| | | | | | | | |
| Net sales: | | | | | | | | |
| Domestic | $ | 276.8 | | | $ | 208.8 | | | | 32.6% | | |
| International | 263.3 | | | 183.4 | | | | 43.6% | | |
| Total net sales | $ | 540.1 | | | $ | 392.2 | | | | 37.7% | | |
| Sales volumes (thousands of short tons): | | | | | | | | |
| Domestic (thousands of short tons) | 1,300.6 | | | 940.9 | | | | 38.2% | | |
| International (thousands of short tons) | 1,512.9 | | | 1,281.0 | | | | 18.1% | | |
| Total soda ash volume sold (thousands of short tons) | 2,813.5 | | | 2,221.9 | | | | 26.6% | | |
| Average sales price (per short ton): | | | | | | | | |
| Domestic | $ | 212.82 | | | $ | 221.92 | | | | (4.1)% | | |
| International | $ | 174.04 | | | $ | 143.17 | | | | 21.6% | | |
| Average | $ | 191.97 | | | $ | 176.52 | | | | 8.8% | | |
| Percent of net sales: | | | | | | | | |
| Domestic sales | 51.2 | % | | 53.2 | % | | | (3.8)% | | |
| International sales | 48.8 | % | | 46.8 | % | | | 4.3% | | |
| Total percent of net sales | 100.0 | % | | 100.0 | % | | | | | |
| Percent of sales volumes: | | | | | | | | |
| Domestic volume | 46.2 | % | | 42.3 | % | | | 9.2% | | |
| International volume | 53.8 | % | | 57.7 | % | | | (6.8)% | | |
| Total percent of volume sold | 100.0 | % | | 100.0 | % | | | | | |
| | | | | | | | |
| | | | | | | | |
Consolidated Results
Net sales. Net sales decreasedincreased by 25.0%37.7% to $540.1 million for the year ended December 31, 2021 from $392.2 million for the twelve monthsyear ended December 31, 2020, from $522.8 million for the twelve months ended December 31, 2019, primarily driven by a decreasean increase in soda ash volumes sold of 19.5% due to the global COVID-19 pandemic, as well as a decrease26.6% and an increase in average sales price per short ton of 6.8%. The decrease in sales prices was driven by a decrease in8.8% primarily due to continuing recovery of domestic and international pricing duringdemand from the twelve monthssignificant negative impact from the COVID-19 pandemic. We operated at normal production capacity in the year ended December 31, 2020. Contributing2021. Domestic average price was lower than the prior year same period due to customer mix, factoring in the decreaseoverall volume growth as well as lower annual market prices which were set during the slow economy in late 2020 affected by the COVID-19 pandemic. Sales prices, particularly when considering the impact of rising logistics costs, in the year ended December 31, 2021 had not fully recovered to pre-COVID-19 pandemic levels. Increase in net sales was a decline in international pricing, which continued the trend that began in the fourth quarter in 2019. The overalland cost of product sold from 2020 to 2021 is also impacted by an increase in domestic soda ash volumes sold was primarily driven by the domestic market not being as adversely impacted by COVID-19 as thenon-ANSAC international marketsales which include ocean freight in both net sales and adding sales to new customers.cost of product sold.
Cost of products sold.Cost of products sold, including depreciation, depletion and amortization expense and freight costs, decreasedincreased by 13.7%36.1% to $460.1 million for the year ended December 31, 2021 from $338.1 million for the twelve monthsyear ended December 31, 2020, from $391.9 million for the twelve months ended December 31, 2019, primarily due to lowersignificant increases in overall soda ash sales volumes for the twelve months ended December 31, 2020 as a resultvolumes. The increase in cost of a decline in demandproducts sold is also due to supplier cost inflation as well as significant increases in ocean freight rates primarily from the COVID-19 pandemic.high demand in the global supply chain as well as price increases in natural gas. In addition, the increases from 2020 to 2021 are also attributable to an increase in non-ANSAC international sales which include ocean freight in both net sales and cost of product sold.
Selling, general and administrative expenses. Our selling, general and administrative expenses decreased 8.8%increased 8.3% to $23.5 million for the year ended December 31, 2021, compared to $21.7 million for the twelve monthsyear ended December 31, 2020, compared to $23.8 million for the twelve months ended December 31, 2019.2020. The decreaseincrease was primarily due to decreasesdeveloping our internal international sales, marketing, and logistics infrastructure while additionally incurring an incremental fixed rate cost per ton on sales to ANSAC in sales and marketing expenses and professional fees and contracted services during2021.
Operating income. Operating income increased by 74.4% to $56.5 million for the twelve monthsyear ended December 31, 2020 as a result of decreased travel and deferring most non-essential costs due to the global COVID -19 pandemic for the twelve months ended December 31, 20202021, compared to the twelve months ended December 31, 2019.
Operating income: As a result of the foregoing, operating income decreased by 69.7% to $32.4 million for the twelve monthsyear ended December 31, 2020 compared2020. The increase is primarily due to $107.1 million for the twelve months ended December 31, 2019. Duringsales volume improvement to the twelve months ended December 31, 2020, productionpre-COVID pandemic level, the international sales price improvement to the pre-COVID pandemic level, and the domestic sales decreased significantly. Operating results have declined by a greater percentage thanprice slow recovery toward the pre-COVID pandemic level. Despite the sales recovery from the negative impact of the COVID-19
production and sales duepandemic, the operating income has not yet recovered to the pre-pandemic level as supply chain costs have increased at a significant amount of fixed plant costs that are not proportionally impacted by lower sales and production volume. In addition, certain costs are higher due to costs related to employee safety and retention during the COVID-19 pandemic.much faster pace than sales.
Net income. As a result of the foregoing, net income decreasedincreased by 73.5%91.1% to $51.4 million for the year ended December 31, 2021, compared to $26.9 million for the twelve monthsyear ended December 31, 2020 compared to $101.6 million for the twelve months ended December 31, 2019
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 on our ability to generate cash flow from operations.
Our sources of liquidity include:
•cash generated from our operations;
•Approximately $122.5$155.0 million ($225.0 million, less $102.5$70.0 million outstanding) was available for borrowing and undrawn under the CinerSisecam Wyoming Credit Facility as of December 31, 2020,2021, subject to availability; during the twelve monthsyear ended December 31, 2020,2021, we had borrowings of $211.5$83.5 million under the CinerSisecam Wyoming Credit Facility, offset by repayments of $238.5$116.0 million;
•Approximately $9.0 million ($10.0 million, less $1.0 million outstanding) was available for borrowing under the Ciner Resources The Prior Sisecam Wyoming Credit Facility (as definedwas terminated and described below underreplaced by the Sisecam Wyoming Credit Facility on October 28, 2021, with approximately $105.0 million drawn on the Sisecam Wyoming Credit Facility that was used to terminate the Prior Sisecam Wyoming Credit Facility. Please read Part II, Item 8, Financial Statements - Note 9, of the Notes to Consolidate Financial Statements) as of December 31, 2020, subject to availability; during the twelve months ended December 31, 2020, we had borrowings of $1.0 million under the Ciner Resources Credit Facility and no repayment to offset the borrowings. In March 2021, we paid off the $2 million outstanding balance, and subsequently terminated, the Ciner Resources Credit Facility.“Debt,” for details.
We continue to analyze all aspects of our spending in order to maintain liquidity at levels we believe are necessary. Sincenecessary in order to satisfy cash requirements over the second quarter of 2020, we have taken steps to remove current non-essential spend, including limiting spending on travel, third-party servicesnext twelve months and other operating expenses.beyond. We are utilizing applicable COVID-19 related government relief programs, such as cost reimbursement or payment deferral programs. We have reviewedclosely reviewing maintenance capital expenditures at our Wyoming facility to adequately maintain the physical assets. In addition, we are subject to business and taken actionsoperational risks that could adversely affect our cash flow, access to adjust our capital spendingborrowings under the Sisecam Wyoming Credit Facility, and in particular our expansion capital spending until we have more clarity and visibility intoability to make monthly installment payments under the impact of the pandemic on our long-term business.Sisecam Wyoming Equipment Financing Arrangement. Our ability to satisfy debt service obligations, to fund planned capital expenditures, to make acquisitions and to make acquisitions,distributions will depend onupon 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.
In an effortWe expect our ongoing working capital and capital expenditures to achieve greater financialbe funded by cash generated from operations and liquidity flexibility duringborrowings under the COVID-19 pandemic, on August 3, 2020, eachSisecam Wyoming Credit Facility. The amount, timing and classification of any such capital expenditures could affect the membersamount of the board of managers of Ciner Wyoming approved a suspension of quarterly distributionscash that is available to its members. In addition, effective August 3, 2020, in connection with the quarterly distribution for the quarter ended June 30, 2020, each of the members of the board of directors of our general partner approved a suspension of quarterly distributionsbe distributed to our unitholders.
Each of the board of managers of Ciner WyomingIn addition, we are subject to business and the board of directors ofoperational risks that could adversely affect our general partner approved the continuation of the suspension of quarterly distributions to the members of Ciner Wyoming and our unitholders, as applicable, for each of the quarters ended September 30, 2020 and December 31, 2020 in a continued effort to achieve greater financial and liquidity flexibility during the COVID-19 pandemic. In March 2021, the board of managers of Ciner Wyoming approved a special $8.0 million distribution to, amongst other things, provide the Partnership with funds to retire the Ciner Resources Credit Facility.
Management and the board of directors of our general partner will continue to evaluate, on a quarterly basis, whether it is appropriate to reinstate a distribution to our unitholders, which will be dependent in part on our cash reserves, liquidity, total debt levels and anticipated capital expenditures.
We are actively managing the business to maintain cash flow and we believe we have taken stepsaccess to have adequate liquidity to meet our anticipated requirements duringborrowings under the COVID-19 pandemic. As we cannot predict the duration or scope of the COVID-19 pandemic and its impact on our operations, the potential negative financial impact to our results cannot be reasonably estimated but could be material to the Partnership. We believe our existing liquidity, the steps we have taken during the year ended December 31, 2020 to strengthen our financial position through the amended CinerSisecam Wyoming Credit Facility and the suspensionSisecam Wyoming Equipment Financing Arrangement.
We intend to pay a quarterly distribution to unitholders of record, to the extent we have sufficient cash from our quarterly distributions since the second quarteroperations after establishment of 2020, provide the financial flexibilitycash reserves, funding of any acquisitions and sufficient liquidityexpansion capital expenditures, paying debt obligations and payment of fees and expenses, including payments to run our business effectively. We will reviewgeneral partner and when appropriate, adjust our overall approach to capital allocation and liquidity as we know more about the length and severity of the COVID-19 pandemic and how the post-pandemic recovery will unfold. See Part II, Item 7, Overview, “Recent Developments”, for more information.its affiliates.
Working Capital Requirements
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 CinerSisecam 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 December 31, 2020,2021, we had a working capital balance of $109.3$134.2 million as compared to a working capital balance of $116.0$109.3 million as of December 31, 2019.2020. The primary driver for the decreaseincrease in our working capital balance was a decreasean increase in cash and cash equivalents primarilyaccounts receivable related to declinesincreases in sales as we continuein the fourth quarter ended December 31, 2021 in comparison to utilizesales in the flexibility of our production assets to adjust to the COVID-19 uncertainties and our customer demands and optimizing balances outstanding on the Ciner Wyoming Credit Facility and additionally decreases in due from affiliates primarily related to a decline in sales levels to ANSAC and timing of collections.fourth quarter ended December 31, 2020.
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
(including expenditures for the construction or development of new capital assets or 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 following table below summarizes our capital expenditures, on an accrual basis:
| | | Years Ended December 31, | | Years Ended December 31, |
| ($ in millions) | ($ in millions) | 2020 | | 2019 | | | ($ in millions) | 2021 | | 2020 | |
| Maintenance | Maintenance | 22.9 | | | $ | 20.5 | | | | Maintenance | 27.0 | | | $ | 22.9 | | |
| Expansion | Expansion | 14.5 | | | 37.6 | | | | Expansion | 0.8 | | | 14.5 | | |
| Total | Total | $ | 37.4 | | | $ | 58.1 | | | | Total | $ | 27.8 | | | $ | 37.4 | | |
The following is a summary of cash provided by or used in each of the indicated types of activities:
