Q2 2021 Ramaco Resources Inc Earnings Call
Yeah.
Yeah.
Today's conference is scheduled to begin shortly please go on through.
And you to standby and thank you for your patience.
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And.
Good day, and thank you for standing by welcome.
To Diradical resources incorporated second quarter 2021 earnings conference call. At this time, all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star 1 on your telephone if you Rick.
Any further assistance. Please press star zero and I would now like to hand, the conference over to your speaker today, Mr. Jeremy Sussman Chief Financial Officer. Please go ahead.
Thank you on.
On behalf of <unk> resources I'd like to welcome all of you to our second quarter 2021 earnings Conference call.
With me. This morning is Randy Atkins, our chairman and CEO and Chris Blanchard our CLO.
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 1095.
These forward looking statements represent <unk> expectations concerning future events.
These statements are subject to risks uncertainties and other factors many of which are outside of <unk> control, which could cause actual results to differ materially from the results discussed in the forward looking statements.
Any forward looking statements speaks only as of the date on which it is made and except as required by law Remco 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 <unk> 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 second quarter results.
There is a line and an old song by pulse Salmon, which says when something goes right. It's app to confuse me.
And and the 3 months since our last call we have gone through its pleasant series of things going right.
I'd like to provide a few highlights.
First we've now printed 2 very strong quarter to zone growth driven by some terrific cost metrics and and improving overall met coal market.
We concluded the first half with $30 million of EBITDA, which is frankly higher than we had internally budgeted for the entire year back and last December.
The balance of 2021 seems on track for more strength and hopefully a record performance.
Our second quarter production of 550000 tons at our Elk Creek complex was also a record.
The first half production of almost 1.1 million tons puts us on track to perhaps exceed even nameplate capacity and all creek of $2.1 million tonnes, and that's even allowing for Q3 and Q4 and vacations.
Sales have certainly been strong.
The U S low vol benchmark pricing is rather dramatically increased by over $50 since Q1.
And we've continued to see the general world economy improve.
Steel companies, both domestically and abroad are enjoying record pricing and the highest capacity utilization since 2008.
And the second quarter, we sold almost 700000 tons, making and at a quarterly record by almost 30%.
This puts us at about $1.1 million tons sold through the first half which is about 40% ahead of last year.
And Elk Creek, we have held first half costs at $61 a ton.
And for all our operations at $65 a ton.
As a result of these outstanding operational and marketing results for the second time. This year, we are again, increasing guidance on production and sales and reducing guidance on costs and capex, both as set forth on our release.
Yeah.
Our margins on our most recent sales are now running in excess of $70 a ton.
We still have over 400000 tons of dry powder remaining to place and the second half of the year.
Our fleet with the same strong margins are above.
As we feel the met markets will still have more room to run.
Iron ore and copper made their moves early in the cycle. We think met coal is now playing catch up and May Indeed turn out to have longer legs.
This is especially given the unique supply constraints and the coal sector from lack of capital.
So bottom line if the met markets continue with their current strength, which we expect and.
And we anticipate having our strongest year of free cash flow.
As we have said repeatedly we try to manage for cash and of course for liquidity.
Indeed, as you know we have 1 of the cleanest balance sheets and liability profile and our industry as well as a very strong liquidity position.
After the end of the second quarter, we took some additional steps to improve that liquidity.
By floating and unsecured bond offering where we raised almost $35 million.
We are proud that this was the first unsecured debt deal and the coal space and over 4 years and we'd like to give a tip of the cap cap to all of our underwriters.
This additional liquidity gives us some optionality to explore ideas to add near term production either organically or through outside development projects.
As I said, we see the met markets as having some legs.
We think you may see a strong multiyear market.
And we would like to be able to take advantage of that with some additional near term low cost production.
Having said that we intend to exercise a good deal of discipline and how we approach looking at both the market and any new production opportunities.
Our industry. Unfortunately has a long reputation of when the market shows some strength, we throw money at indiscriminately, adding more tonnes, even when that might not be particularly prudent.
We intend not to do that at <unk>.
Further I think the capital markets will keep too much production and <unk> and check this cycle.
We always will try to keep liabilities on our balance sheet and liquidity and the forefront as we analyze any options and.
And we hope to be able to discuss some ideas further with you over the coming months.
I also want to mention 2 matters, which occurred post quarter end.
While they were both not entirely unexpected they do add.
Of additional positive momentum as we continue to build out the year.
First we won a very decisive $33 million plus costs jewelry victory and litigation against Chubb insurance.
This grew from chubb's denial of coverage for damages stemming from the collapse of a cold storage silo at Elk Creek and late 2018.
Although court decisions are always subject to possible appeal, we feel very confident on our position.
We look forward to having a decision finalized.
Additionally, late last week, we heard from the SBA that our paycheck protection program loan of $8.4 million, which we secured last year had been formally forgiven.
Although we had treated the loan in this manner since last year and it's comforting to also have this finalized as well.
To close I want to touch briefly on matters near and Dear to our shareholders of which <unk> management team and certainly in that camp.
We've seen our stock rise by 200% over the last 12 months and by about 130% year to date.
This is certainly very gratifying and we hope for continued strength and price over the coming months.
But also as we grow and begin to reach are close to our production goals. We will begin later this year to explore with our board what may become our dividend policy.
Our growth companies such as <unk> always has a rather tricky balancing act, we need to fund growth and production and we also need to balance that growth against making sure. We have enough sustainable free cash flow to fund, our reliable and growing dividend.
As a company we hope we are at a point later this year to explore this again not in the not too distant future.
Now before I turn the floor over to Jeremy and Chris to delve into finances and operations and more detail.
I would just like to reiterate how proud I am to our whole <unk> family on.
On what has been a very strong first half that's been produced.
And with some continued operational execution and a bit of wind on our sales for the market.
I Hope we will continue as that song goes to have some things go right for the balance of what I hope will be our strongest year.
And with that I'd like to now turn the floor back to Jeremy to discuss our financial results.
Thank you Randy I'll start by going over our second quarter 2021 financial highlights.
We had another stellar quarter, both operationally and financially second quarter 2021, and EPS of <unk> 23 was up more than 260% from a year ago, while second quarter adjusted EBITDA of $18.1 million was up 67% from a year ago. This was the second Scott overall quarter of and.
Adjusted EBITDA and our history with only Q2 of 2019, beating these results when domestic met coal contracts were 30% higher than in 2021.
First half of 2021, adjusted EBITDA was $30 million, which was materially higher than our adjusted EBITDA for all of 2020.
Turning to our forward outlook for the second straight quarter, we are increasing our 2021 production and sales guidance, while decreasing our 2021 cost and capital expenditure guidance.
We now anticipate overall 2021 production of 2.2 to $2.4 million tons up from 2.1% to $2.4 million tonnes previously and compared to $1.7 million tons in 2020.
We have increased 2021 sales guidance by a like amount.
We now anticipate 2021 cash cost of 61% to $65 per ton and our Elk Creek complex down from 61 to $66 per ton previously and down from $70 per ton and 2020.
We now expect total 2021 capital expenditures of 23% to $26 million down from 25% to $28 million previously.
We continue to anticipate paying minimal cash taxes for the foreseeable future.
In terms of what we're seeing and the market metallurgical coal pricing has continued to improve throughout 2021 as both the U S and global economies have benefited from our massive global fiscal stimulus packages aimed and consumption and infrastructure. We expect these positive conditions and the steel and met coal market to continue to.
Strong tailwind for Ram and co.
On the demand side U S. Low vol met coal price indices have more than doubled from their COVID-19 induced flows.
Mastic Hot rolled coil steel prices are at record levels above $850 per ton.
U S steel capacity utilization recently hit 85% for the first time since 2000 and need at.
And at the same time, the supply of high quality low sulfur met coal that we produce remains scarce we.
We see nothing on the horizon to change our view that the net coal supply response will continue to be muted for a variety of factors.
This positive supply demand market positioning is occurring as we head into negotiations for 2020 to annual contracts with domestic steel mills.
Now moving onto our balance sheet I am pleased to note that we have shifted from having a small net debt position previously to a net cash position position of $6 million as of June 30.
We believe we are the only U S publicly traded coal company to be and a net cash position we.
We ended the quarter with a record of almost $50 million of liquidity.
After quarter, and we completed a $34.5 million, 9% senior unsecured note offering.
Looking ahead, both Berwyn and Big Creek are on time and on budget with Big Creek recently, having uncovered coal and its first work area.
We continue to expect to be producing at a 5 million tonne per annum run rate by mid 2022.
Simply stated.
We are very excited about what the future holds for <unk>.
With that said I would now like to turn the call over to our Chief operating Officer, Chris Blanchard Chris.
Thanks, Jeremy.
Before turning to the update on operational issues I did want to briefly thank the entire and house team and outside counsel, we worked with <unk> throughout the Chubb litigation.
This is a long process and a complex and technical case.
We think core for their attention and of course, the jewelry for their time and care and rendering what we believe was a wise and fair decision.
Switching back to our operations.
50, and compliance remain our primary focus.
Our safety statistics for the first half of 2021 continue to track ahead of our performance for the same period and 2020.
This is despite the fact that we are now growing our workforce and running our existing operations at near capacity.
As opposed to the throttle back production, we experienced and the early months of the pandemic last year.
We now have just under 400 employees and hope to grow by year and near 450.
Similarly on the environmental side, we are happy to report.
Water quality and compliance within <unk> has reached 99, 9% for the first half of the year.
All that said, we have seen COVID-19 related impacts to our workforce move up slightly at the end of the second quarter and continue into July and line with increased positivity rates throughout the country.
We've kept all of our preventative measures in place across our operations and plan to do so until the pandemic is clearly behind us.
We're also tracking and monitoring the increased stress and the local labor market on finding experienced coal miners.
While we have been able to successfully grow our workforce and the second quarter to accommodate the Big Creek startup and fill vacancies that are existing Elk Creek operations, we have started to see turnover rates modestly increasing as well.
To date, we have not experienced any adverse impacts and our productivity rates and our operations.
But continue to monitor the situation closely.
Turning now to the existing operations at Elk Creek.
We ended the second quarter of 2021 with all of our Elk Creek mines operating in areas, where we anticipate that productivity should continue at approximately the same levels for the third quarter and into the fourth quarter.
I would remind everyone on the call and third quarter does contain 1 of our traditional vacation weeks for the mines, although the preparation plants continue to operate throughout.
While we did see a modest increase and mine cash cost and the second quarter. This was only to our anticipated levels and of course included the welcome increase and cash costs due to higher realizations for our spot and our index based coal sales.
We have seen modest raw material cost increases from our suppliers and anticipate these to continue as long as the commodity commodity prices remained strong.
However, we believe that the projected cash cost range is that we have provided and will cover these inflationary pressures.
Moving to our new operations as both Randy and Jeremy noted these projects are moving forward at full speed.
Our Big Creek surface mine and worked through the majority of the second quarter on pre mining construction and sediment control.
As Jeremy mentioned, we did on cap, our first coal and July and we have moved the mine and to producing status.
Although only 1 ship per day currently as we start August.
We anticipate having the surface mine and fully staffed and operating 2 shifts per day in September.
Our highwall mining system at <unk> Creek should begin operation at the end of the quarter or very early in October for and.
This mine to its anticipated full run rate of approximately 200000 claims and tons clean annual tons by the end of this year.
We will process. The first call from this mine and the coming days and look forward to first shipments potentially in September.
And our Berlin mind, the flow project continues and excavation of the 3 slope tunnels is approximately 2 thirds complete.
And our current construction rates, we anticipate we will reach the Pocahontas force number foreseen and the final days of next month early in October.
Equipment and infrastructure will be moved in and we expect to begin the production ramp and Berlin at that time.
Assuming the fourth quarter of 2021 startup and the Berwyn and see for mine. We expect to have this mine fully operational as currently budgeted and producing it up to a 750000 annual clean ton pace by the end of the second quarter of 2022.
At that point, the combined renco run rate from Elk Creek, Big Creek, and Berlin should exceed the $3 million annual clean ton production rate, which we have previously discussed.
It is indeed, a promising time and the metallurgical coal markets and it's that.
It is an exciting time for Ram and co.
With that this concludes management's prepared remarks, and I would now like to return the call to the operator for the Q&A portion of the call operator.
As a reminder to ask a question you will need to press star 1 on your telephone to withdraw. Your question are you from your question and that's been answered press the pound key please standby, while we compile the Q&A roster.
Your first question comes from the line of Lucas pipes from B Riley <unk> Securities. Your line is open.
Thank you very much and good morning, everyone and congratulations on a on a really strong first half.
Thanks Lucas.
My first question is on the growth projects and I wondered if you could remind us in terms of the quality of the additional coal roughly.
Roughly what you would be thinking about in terms of production costs and then the commercial strategy.
Should we anticipate test shipments for customers or are you established and the market sufficiently with Alex at.
Okay and kind of.
With no kind of test shipments out of time. Thank you very much for your perspective on that.
So Lucas your question relates to our current production.
No on the growth projects and.
The growth from all 3.
Great.
Want to talk about Big Creek and <unk>.
Yes.
So Lucas.
And with Big Creek.
200 or so.
Annual.
Clean tons and Thats, a mid vol project for us.
Mid vol product primarily.
We expect cost to be and the upper fifty's and that range.
And.
And then turning to borrow and that's more of an established product for us.
And low sulfur low ash.
Low slash mid volume that we expect costs once it's at full run rate.
And to be and the low $70 range.
And Lucas Jeremy here, so in terms of kind of the commercial strategy and Chris debt Berlin and <unk>.
Tablets, low vol and the market so.
Needless to say, we've we've had more inquiries and tons on the ground debt.
We can sell so I don't think out on.
And certainly that's not going to be a challenge.
Obviously, we'll be ramping up so you will want to get test shipments and here here and there but.
Needless to say low volt and very tight supply and while we don't have and established mid fall, obviously Big Creek will be the first of that product.
And clearly that's also a.
Type of coal and it's in short supply. So we have been receiving inbounds on that obviously, having uncovered first call us.
Is good first step so I think we'll start to get samples and enhanced customer shortly and.
Needless to say and we will.
And to get these lines up and running as quick as possible and.
And Lucas 1 other thing just in terms of strategy. So I think this is.
As we look at and our overall portfolio, we started life with a pretty heavy sort of high vol. B component and we're now moving so probably by next year.
Certainly into 'twenty, 3 we're going to be probably 2 thirds in terms of low vol.
<unk> and mid <unk> and I think that's probably the direction, we will start to look as we kind of exam.
Examined some of our production options.
Alright, Thanks, Paul.
Thank you very much for all that detail.
And then.
Randy in your prepared remarks, you mentioned capital returns and.
And certainly very exciting discussion to be to be turning turning to that topic.
And the coal space and.
Yes.
I wondered if you could maybe.
Elaborate on.
And kind of what Youre looking at today, what sort of metrics either and from the industry are or from your balance sheet.
The influence your decision on on the capital return question, but thank you very much.
I don't want to get too far over my skis, because as I said, we're going to talk about this with the board later on as we kind of progress through the year.
We are and we're in a very good position right now.
And we've got we've got.
Record liquidity.
Hope to end the year, even and a stronger position and we sit right now.
There are a few things that are still obviously out there and the space that needs to be nailed down and we have to understand how the 'twenty..2 business is going to look from a domestic standpoint, we have to get some visibility really on the market a little bit further into the second half.
And we've got some ideas obviously to increase production that we're just now beginning to explore both organically. We've got a couple of projects and our pipeline and externally. We've got a couple of projects that we're looking at as well so I think.
And what I wanted to telegraph as debt, we are not on mindful that a dividend would be something that is very high on our priority, assuming we're able to balance the requirements of getting our growth profile to a level of production that we feel comfortable we can make sort of a sustained genera.
<unk> of free cash flow that would support.
A decent dividend and a sustainable dividend so.
And thats, probably not nailing it down with the specificity that you'd like but again I don't think were in a position as we sit here just.
And just over the lip of the second quarter, 2 to really nail that down for the year, but we will be discussing and later.
The year evolves.
Randy This is super helpful really appreciate all the detail and kantar.
Best of luck.
Thank you Lucas and thanks to be rally for the play.
Placement efforts that they did and helping us underwrite the baby bonds.
That's that's very much appreciate it thank you.
Once again to ask a question you will need to press star 1 on your telephone and your next question comes from the line of Nathan Martin from the Benchmark Company. Your line is open.
Hey, good morning, guys and.
Congratulations on the performance.
Thanks, Mike.
Maybe I'll start with pricing.
You guys are committed and it's about halfway in terms of export sales now.
98, I think that was versus about 200000 times.
And then <unk>.
And do that math and come up with incremental pricing around 105, but obviously that can include some times you guys have already shipped.
Randy you made the comment that what Youre seeing out there right now is maybe more of a margin of closer to $70 or better. So I was just hoping you could talk maybe a little bit more about the export pricing environment Youre seeing today, Gary and to the back half and give us an idea on where your products and pricing relative to our published you asking east coast and industries.
Okay.
Nate it's Jeremy I'll start off and then turning to Randy So yes that debt.
Your math is certainly is correct.
And would note a couple of things 1.
Randy.
His comments on sort of where pricing is today as he said.
Mobile is up 50 Bucks a ton since since.
We last reported Q2, so clearly we've.
We're seeing higher prices today, and then anything that we have previously shipped.
I think the.
The second thing is.
Call It 300000 tons or so there was some semi soft and.
And there we kind of give a good breakout of the semi soft and everything on slide 13, low vol High vol, B et cetera, so and.
Anytime you get a little bit of Lumpiness in there that can kind of skew.
The average little bit so.
Net.
Peaks to the kind of quarter to quarter cadence and Randy I don't know if you have any other comments on price and I think the only thing I was really referencing.
We've got some sales that we've done that have netted us back probably in the 150 plus range.
And at the mine and.
And if you take a look and where our cost structure is and thats. It.
Pretty easy to figure out what kind of margins and we're looking at.
We think the market.
As I said, it's got some legs.
I would not be.
Surprised to see further strengthening and the market as we go into the second half and.
Perhaps even into 'twenty 2 because I think the thesis is that met coal is somewhat lagged some of the other steel.
Steel supplies are really.
Feedstocks like on iron ore.
Because frankly, you have added situation politically with China, and Australia, which I think is dampened a lot of the met coal pricing structures.
I think as that and I'm not sure I would.
Espoused it we're going to see any.
Change and the Australia Chinese causal over the next few months, but I do think that met coal will begin to catch up.
On to what's happened earlier in the year.
On copper and iron ore.
Great I appreciate your thoughts there guys and just kind of drill down on the last part of my question.
And any thoughts on and the discount or Youre getting roughly in line with U S East coast and the <unk> high voltage et cetera.
And I don't like discounts Nate I think.
Doug about premium so.
Yeah.
Okay, that's great and then I guess again and thanks for those thoughts.
And maybe if I could get your thoughts guys on how the domestic contracting season is progressing extremely.
And extremely tight market were seeing could.
Could you give us an idea of how much they price it could possibly be up year over year, given what we just talked about with export pricing where it is today.
And thats higher than where it was a year ago. During this time.
I think the best guidance I could give you is that we at least as we sit here today.
We expect that the dance will start sometime on print and.
September when in September and not quite clear.
But at some point and I think so.
From a handicap pricing sitting here in August is a little difficult.
I don't see anything out there on the horizon that is going to impede.
So and what continued upward.
On a trend and pricing.
And as I said in my remarks, I guess for the earnings release I expect the pricing this year to be.
Much more robust and then.
For 2021 pricing.
And we'll just have to see as we get we get closer to it.
Got it makes sense and tend to ask obviously.
Sure.
Okay.
And then Lucas kind of touched on my bigger picture question and then obviously you guys are.
On a net cash position.
And then you've got some some more cash.
And so coming in the door.
Weighted today.
Positive vertical silo failure.
Yes.
Hello, Madam Wang and.
Especially related to your current cash balance of about $19 million and kind of again.
And the lower Capex guidance for the second quarter on a row. So.
Jim maybe just talk a little bit differently, what would be your first use you picture for selling of this extra cash that you guys are going to have on hand.
And any other thoughts there, yes, well the first thing.
And we're a relatively conservative bunch. So we certainly don't want to cash count cash before we receive it. So we haven't we haven't cash and check yet on the judgment that we just received against Chubb and of course, we did borrow some money and I'm kind of fond of not having too much debt hanging around so.
Repayment of liabilities is certainly high on my priority list.
And when we look at the talking about dividends and things of that nature of course, it will be paid out of free cash and not from Bard money at.
And at least from our vantage point.
We'll take a look at where we are a little later in the year, we'll take a look at what our forward thoughts are and to 'twenty 2.
Have a better visibility as I said on sort of what 'twenty 2 may look like once we're beyond the.
Domestic sales season and we.
And also I think.
Some some visibility on how the steel industry is itself looking into 'twenty, 2 which from all indications right now is that.
The steel industry is going to have and extremely strong 22, which we think is.
Great and I think the other interesting dynamic.
And as it typically <unk> seen on.
Our coal industry rush into.
Producing a lot of tons quickly whenever they saw a market.
And I think this time it is going to be a little bit different because and this cycle. We're seeing some some real constraints on adding new production from the capital market side of the equation and.
Probably there is a lot of people who'd like to produce more coal, but just can't find the money to do so.
Fortunately in a position that we have that luxury day to try to add some new tonnes, which we think we would try to add.
For near term production.
We don't want to have mines that theyre going to take 3 or 4 years to build out.
And we would like to see minds that would be and and are positioned to be and production well inside of a year.
And so we can take advantage and sort of the market strength.
Got it and I appreciate those thoughts Randy.
And Thats it from me. Thanks, Thanks, again for the time and best of luck and the second half.
Great. Thanks, Nick.
Once again and ask a question you will need to press star 1 on your telephone.
I am showing no further questions at this time I would now like to turn the conference back to Mr. Randall Atkins. Please go ahead, Sir okay.
Okay. Thank you and again.
As always appreciate everyone's.
Time and attention this morning, and we hope we've addressed most of the.
Questions that you've had and we.
Certainly on looking forward to a strong second half.
And we'll look forward to speaking to you sometime in October and November take care.
This concludes today's conference call. Thank you for participating you may now disconnect.
And.
[music] flow.
Moving on.
Okay.
Okay.
And.
These assets.
And.
And then also.
Net income.
And again.
Okay.
Okay.
And then.
3 of our growth.
Okay.