Q1 2021 Ramaco Resources Inc Earnings Call
Yeah.
Good day, and thank you free standing by and welcome to the Ram and KOL resources incorporated first quarter 2021 earnings conference call.
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I would now like to hand, the conference over each your speaker today.
The Street charity Musa Smith. Please go ahead.
Thank you on behalf of Ram and co resources I'd like to welcome all of you to our first quarter 2021 earnings Conference call with me. This morning is Randy Atkins, our chairman and CEO and Chris Blanchard, Our Chief operating officer before we start I'd like to share our.
Normal cautionary statement.
Certain items discussed on today's call constitute forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
These forward looking statements represent <unk> expectations concerning future events.
Statements are subject to risks uncertainties and other factors many of which are outside of Ram and coast control, which could cause actual results to differ materially from the results discussed in the forward looking statements.
Any forward looking statement speaks only as of the date on which it is made and except as required by law Ram and co does not undertake any obligation to update or revise any forward looking statements whether as a result of new information.
Future events or otherwise.
Lastly, I'd encourage everyone on this call to go onto our website Grandma resources Dot com and download today's investor presentation under the events calendar with that said, let me introduce our chairman and CEO Randy Atkins.
Thanks, Jeremy.
As always and I want to thank everyone for joining us today to discuss our first quarter results.
What a difference a year makes.
Last year. This time the world seemed like it was in free fall. This year, we are sort of like the dog that is called the car.
We are just printed our second strongest first quarter on record with some terrific cost metrics.
We are in full growth mode, and produced a record number of tons for the quarter.
We are also well underway to increasing our overall production by roughly 50% by mid year of next year, two and annualized run rate of over 3 million tons.
We have just improved our guidance for the year on production cash cost and Capex.
And our margins on our most recent sales are now running in excess of $50 a ton.
Finally, if the met markets hold as we anticipate then we are well on our way to probably our strongest year of free cash flow.
The stars seem to be aligning and life and be it looks a lot better than it did this time last year.
Jeremy will be providing some more granular detail on finances, but let me simply highlight a couple of items that I think stand out.
And as I said, we had exceptional mine cost operational performance.
Quarterly cost numbers across all properties came in below $60 a ton.
Indeed for March our cost were $54 a ton.
Our production of almost 580000 tons for the quarter was also a record.
Our pricing was up almost $10 per ton since last quarter to $89 and as I said earlier, our margins are some of the strongest we have seen.
We printed EBITDA of just under 12 million for the quarter and are set to finish 2021, as perhaps our strongest year of free cash flow.
Although I'm going to speak on the markets and a moment, we are seeing continued record price and demand and the steel sector, which we do not see abating anytime over the next 18 to 24 months.
As of today, we have already sold about 1.9 million tonnes, and and 89 average price.
We have dry powder of over 400000 tons remaining to place and the second half of the year, which was when we expect some firming and met pricing.
Of our committed tons, we have placed 1.4 million tons domestically and and $87 average and roughly 500000 tons for export and an average of $93 based on today's index pricing.
The market is definitely improving and our last high vol sale was at $116 a ton.
As you know we have one of the cleanest balance sheet and liability profile and our industry as well as a strong liquidity position.
We will be exploring in the months ahead, some options to further enhance our liquidity to be and are positioned to be opportunistic and looking at adding near term production and to what we see as a strong multiyear market we.
We hope to be and are positioned to discuss this with you over the coming months.
In terms of new production on the Berwyn slope and the Big Creek mine I'm going to let Chris Blanchard provide some more detail, but we are both on track and on budget to have that additional production. Starting later this year.
As I said this will annualize our overall production run rate at over 3 million tons.
As far as overall market conditions, we now see some of the strongest positive macro indicators, we've seen and several years Steve.
Steel pricing is at record low steel utilization is back around 80%.
We have already seen very substantial price movement in both iron and copper this year.
Met coal, however has lagged and pricing no doubt in part because of the Chinese Australia and situation.
The way, we see it is that irrespective of any resolution of that particular political problem. There is simply too great and imbalance now and met coal demand versus supply that at some point later this year, you will begin to see and upward price correction.
Whether we see price spikes based on that imbalance I cannot say, but I do feel that in 2022, you will probably have stronger met pricing than you were seeing today.
Another positive is that there is of course also the potential for widespread infrastructure spending accompanied by broad fiscal stimulus and the developed economies and which we sell coal.
And we're trying to get poised to take advantage of that environment over the next two years and aim our increases in production accordingly.
So with that I'm going to turn the floor back and Jeremy to discuss our financial results.
Thank you Randy I'm going to start by going over our first quarter 2021 financial highlights.
And then I will turn to our updated guidance before touching on what we are.
To begin we had a stellar first quarter across the board, both operationally and financially.
First quarter 2021 EPS.
P. S of 10 cents was up 100 per cent from a year ago, while first quarter adjusted EBITDA of $11 $5 million was up almost 40% from a year ago. This was our second best first quarter of EBITDA and Ram and coast history with only the first quarter of 2019 best thing These results when.
And as you may recall, the Australia, and metallurgical coal benchmark was almost double where it is today.
We were pleased to produce a record amount of coal and the first quarter to the tune of 577000 tons.
Course, annualize to more than $2 3 million tons.
Our strong production led to record low companywide cash cost of under $60 per ton, including $55 per ton at our flagship Elk Creek complex Crystal touch on production and costs and his remarks.
Turning to our forward outlook, we are increasing our 2021 production guidance, while decreasing both our 2021 cost and capital expenditure guidance.
We now anticipate overall 2021 production of 2.1 to $2 4 million tons up from one nine to $2 4 million tonnes previously and compared to $1 7 million tonnes in 2020.
We continue to expect up to 350000 tons of new 2021 production from the combination of triad Berwyn and Big Creek the and.
Increase in production guidance comes from our Elk Creek complex, where we now expect 2 million tonnes of production at the midpoint.
We now anticipate Elk Creek cash costs of 61 to $66 per ton down from 63 to $68 per ton previously and down from $70 per ton and 2020.
We now expect 2021 capital expenditures of $25 million to $28 million down from $25 million to $30 million previously all other and 2000 and 'twenty one guidance is being maintained.
We continue to anticipate paying minimal cash taxes for the foreseeable future due to over $90 million of federal Nols.
In terms of the market U S met coal index pricing has generally improved throughout 2021.
And as both the U S and global economies have benefited from massive global finance and fiscal stimulus packages.
Aimed and consumption and infrastructure.
As we show on Slide 15 U S High vol. A prices are up almost 20% year to date to $165 per metric ton Fob port and are up roughly two thirds from their COVID-19 and do slows.
Slide 17 shows that we are in fact seeing record U S steel pricing of over $500 per ton for hot rolled which is up over 200% year over year.
These positive macro trends have already translated into much stronger fixed price and index based sales booked and the first part of the year.
We anticipate further met coal price increases on the back of record steel pricing and demand as we head into the second half of the year and into 2022.
Overall, we are pleased that <unk> has emerged from the 2020 challenges with what we soundly believe is the strongest balance sheet and the space, including very minimal pet and arrows as well as no material legacy liabilities and frankly the metrics on slide nine bear this out with our net debt.
The forward EBITDA based on analyst estimates and 0.2 times versus the peer group average closer to two times.
Our strong balance sheet, a record first quarter results in terms of production and costs as well as the improving U S met coal market, we are positioning ourselves to accelerate our production growth to our stated level of four to four and a half million tons of annual production.
And importantly, both Burlington and Big Creek are on time and on budget.
As Randy noted, we expect to be producing at a 3 million ton per annum run rate by mid 2022 with up to $2 1 million tons coming from Elk Creek up.
Up to 750000 tonnes coming from Berwyn and up to 200000 tons coming from Big Creek.
We stated we are very excited about what the future holds for amoco.
With that said I would now like to turn the call over to our Chief operating Officer, Chris Blanchard.
Thank you Jeremy.
From an operations standpoint, the first quarter of 2021 was a near total about face from the conditions and the market and and our mining operations ending 2020.
And I will just touch on a few operational details and give a brief update on our development projects.
However, first from a safety point of view.
<unk> 2021 started much stronger statistically than our performance in 2020.
Our total reportable incident rate across <unk> has improved by over 30% from 2020.
Obviously zero is our goal, but the focus on safety.
All of our miners can clearly be seen and the results thus far this year.
Equally important from a health perspective at the end of 2020 and January of 'twenty 'twenty. One we were operating in the midst of the third wave and the Corona virus pandemic.
For a portion of these months absenteeism at.
<unk> related to COVID-19 was running just below 10% as our employees either dealt directly with the virus or cared for family members and affected by it.
Fortunately as we have continued throughout this year, we have seen the virus subside and our communities and the impacts to our employees have reduced substantially.
Now turning first to our new projects.
At our Berlin Knox Creek complex, we initiated construction on the slope project, which will take the mine to the Berlin Pocahontas number for reserve.
We mobilized our contractor to the project during March with first excavations of the three slope tunnels occurring late in the month.
Construction on this project is currently on target for completion later in 2020 one with.
With P for low volume production expected in the fourth quarter of the year.
Our other growth project, the Big Creek surface and Highwall mining began earth work and construction of sediment control structures during March.
Equipment deliveries have commenced and we expect initial surface coal production and releases in the third quarter of this year.
Finally at our our Triad mine was successfully started and operated in the first quarter of this year.
Given the thicker coal seams and the Pocahontas number four we saw higher clean tons per foot higher washing recoveries and lower overall mine costs, which we also expect to enjoy in the larger bee prefer wind Pocahontas four mind later this year and throughout the future.
We expect to continue to use Tri Ed production as a bridge until the Berwyn mine is Oman and in operation and the number foreseen.
Try and has allowed us to successfully trialed the P foreseen of coal with both domestic and international customers. So far this year and initial customer feedback has been very positive.
Yeah.
Switching to our Elk Creek operations, the unusual confluence of negative events and the fourth quarter were all work through during the first quarter of this year.
Our stone coal mine and Congress some areas with poor roof conditions at the end of last year.
These were mined through early in the quarter and by March The mine had referred and returned to full budgeted production levels.
Mining and stone cold and not return to this area of the reserved for at least two years. So we expect production levels to normalize and this mine for the near term.
Our number two gas mine and countered hard sandstone conditions at the end of the year.
In 2020 again by January this zone was mined through and productivity increased to well above budgeted levels.
While we do expect to mine through.
And the sandstone zone again later in 2021, the overall average productivity for our number two gas mine continue to be expected to be amongst the highest at Elk Creek.
For this year and future years.
Most importantly, probably for the first full quarter and ran because history. We also had we had a period, where Elk Creek was able to run without the shackles of either a market based or internal bottleneck.
As you recall during the majority of 2019, our production was throttled back as a result of the silo collapse overhang and throughout most of 2020, we operated under the market uncertainty created by the pandemic.
The beginning of 2021 and brought US a period, where we were able to operate all the mines at full capacity for extended periods.
This resulted in a number of superlatives.
The Elk Creek mines produced a record number of tons during the first quarter of 2021 and in March set a single month production record.
The Elk Creek plant continues to operate at its full capacity and during March also set a single month record for both rail shipments and processed tonnes from the complex.
However, as efficiently as the <unk> play and operated the mine at Elk Creek were able to outrun the plant and we built raw and clean coal inventory during the quarter.
We anticipate simple similarly favorable mining conditions and associated costs for the balance of 2021.
Overall.
With our performance to begin this year and are cautiously optimistic about our trajectory and the opportunities for the rest of 2021 and onward and next year.
That now concludes management's prepared remarks, and I would like to return the call to the operator for the Q&A portion of the call operator.
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Yeah.
Your first question comes from the line of Lucas pipes from B Riley Securities. Your line is now open.
Good morning, everyone and congratulations to the entire team on a very strong first quarter.
Thanks, Mike.
My first question is on pricing we've had a few of your peers report first quarter results to date and and.
And.
You know pricing is complicated and space and.
And to book.
And I and back to some of your peers comments, there is kind of a mix on the open tonnage between.
Pricing linked to the Australian index.
Pricing linked to the much stronger U S East coast loans.
And I Wonder if you can.
Share with us your your anticipated a breakdown by by.
Geography or pricing exposure.
Would really appreciate that thank you.
Thanks, Lucas So we our east coast seaborne sellers, we don't price anything off the Australia and index.
If you go back and look at our breakdown.
Thus far this year, we're about 50 545 between domestic and export and in terms of the sort of geographic breakdown.
I'd say on the export side, our largest concentration is Europe.
We've sold actually summed to Africa.
And I think.
That's pretty much the main bulk of where our sales Jeremy if I missed any of that and we've got.
Mall amount to South America, but really the price like Randy said is Europe and Africa price.
And I mean look at I think.
And Randy hit on a key point.
There's been sort of a lot of dancing around and trying to shift away from the Australia and benchmark.
The U S East coast benchmark from us from our peers, but we do not sell anything on the Australia and benchmark. So.
And to get to our price to get to our prices on our index tons or all U.
All one needs to do is either take a look at the U S East Coast High Vol, a b or low vol index, depending upon the product that we're that we're selling.
That's really really good to hear.
Good job on the commercial commodity.
And.
My second question.
To your balance sheet, and and priorities in terms of capital going forward.
And enviable position.
And how do you think about balance between.
Essentially capital return and if pricing continues to recover versus organic growth what would very much appreciate your thoughtful and thank you.
Well, we're not we're not quite yet at the end of the diving board to talk about capital return I think if we needed to prioritize.
And we probably feel we need to get to a certain level of critical mass.
And then.
And depending upon the luxury of our free cash flow determine what's the most appropriate way to start doing.
Doing such thing as a dividend policy and we were absolutely.
Supportive of a dividend, we've said that for several years I.
I think what we want to do is again make sure that where.
We're kind of at a.
Unusual size and the coal industry right now, where we're not necessarily a micro cap, but we're certainly not to the size that we would like to be and honestly, if we get to the sort of four to 5 million ton range, we would be and the position of probably being you know based on this year's production numbers, almost a 10% supplier and.
To the entire U S met coal production.
We need to grow a little bit more than we've done thus far and at that point and I think we'll absolutely focus on capital return.
Randy I really appreciate that color to you and your team at continued best of luck. Thank you. Thank you.
Your next question comes from the line of David Gagliano from BMO capitals.
Your line is now open.
Okay. Thanks, I'll be quick Lucas at my two topics actually but I just wanted to see if you could just give us a quick refresh on any upcoming major capital spending needs or anything like that whether it's in 'twenty, one or 2022 and 2023 to achieve this.
Four to four and a half million ton target overtime.
No I mean, we've got I mean, I'll, let Jeremy go down the.
The cap spend David.
We've we've pretty well budget and and what our spending is for the main spend being and of course, the berwyn slope.
And we're on our way there.
Jeremy if you want to add some more color, but there is no there was no external needs and we've got right now.
Yeah.
That's correct Randy I mean, so we've tightened the range for Capex guidance for this year from $25 million to $30 million and now we're at $25 million to $28 million and <unk>.
That reflects our increase and increasing confidence as both Berwyn and Big Creek progress. So basically by by the end of the year or before the end of the year you know Big Creek will be at its full run rate David and by by Q2 of next year Berwyn will will be as well so while there'll be.
A little bit of capital spillover into 2022 is as we said at the time of.
The growth announcements the reality is the bulk of the capital for.
Burlington and Big Creek to get us to that and kind of overall 3 million ton.
Per annum run rate is and that $25 million to $28 million guidance for this year.
And David I mean, we're always opportunistic we are happy to look around and we've got a number of organic projects that we've outlined and the material for the call to here today.
And as you know north of four how we how we sequence that time. It is always a function of cash and availability as well as obviously a decision on where we think the market is so we'll be.
Constantly reviewing that as the year unfolds.
Okay.
Completely understand and she was guy just trying to get a sense as to next year and the year after they get to that four to four and a half million dollars.
I understand obviously, the 25 to 30 of the bulk of the or 'twenty five 'twenty eight now as the bulk of the spend.
And for Berlin are there any other major spends and.
And 'twenty two 'twenty three 'twenty four time horizon to get to that next level well I think if you go and take a look at the slide we've got a we've got a expansion of our Elk Creek plant.
That's probably about a $10 million spend over a period of two years, we would probably add another section to one of our existing mine to bump production up to roughly two and a half million tons there.
We've got our jawbone mine and that's over at our Knox Creek complex, that's probably Chris what would that'd be about a 10 million dollar spend as well. So we've got those somewhere on the horizon, whether that's a 'twenty two 'twenty three spend we'll we'll make those calls as we get to that point and and I would just add what Randy described as sort of <unk>.
Aid out in three phases on slide seven and so phase one is for wind and Big Creek, which of course is fully underway phase two is going to be the Elk Creek plant expansion and then lastly.
And the Jawbone mine, which basically gets us to free.
Much to our stated goal.
Okay. That's helpful. Thanks, very much thank you David and Beth.
For centuries, there and no further questions. Please continue.
Okay, well, we as always thank everybody for participating today and we hope it.
It has been helpful.
We obviously feel very gratified that we've been able to have a good quarter and we'll look forward to the balance of the year and.
We thank everybody and we'll talk again soon take care.
This concludes today's conference call. Thank you all for participating you may now disconnect.
Okay.
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