Ramaco Resources Inc. Q1 2023 Earnings Call
Hum.
[music].
Please standby your program is about to begin.
Okay.
Okay.
Welcome to the <unk> resources first quarter 2023 earnings conference call. At this time, all participants have been placed on a listen only mode and the floor will be opened for your questions. Following the presentation.
To ask a question at that time, Please press star and one on your telephone keypad. If at any point. Your question has been answered you may remove yourself from the queue by pressing star and two.
So others can hear your questions clearly, we ask that you pick up your handset for best sound quality.
Lastly, if you should require operator assistance, please press star and zero.
I would now like to turn the call over to Jeremy Sussman, Chief Financial Officer, Sir. Please go ahead.
Thank you.
On behalf of <unk> resources I'd like to welcome all of you to our first quarter 2023 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 1095.
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 <unk> control, which could cause actual results to differ materially from the results discussed in the forward looking statements.
Any forward looking statements speak only as of the date on which it is made and except as required by law <unk> does not undertake any obligation to update or revise any forward looking statements.
As a result of new information future events or otherwise.
I'd also like to remind you that you can find a reconciliation of the non-GAAP financial measures that we plan to discuss today in our press release, which can be viewed on our website <unk> resources Dot Com Lastly, I'd encourage everyone on this call to go onto our website and download today's investor presentation under the events calendar with that said.
Let me introduce our chairman and CEO Randy Atkins.
Thanks, Jeremy.
Good morning to everyone and thanks for joining the call.
We have a lot to unpack this morning.
First off we.
We executed well in Q1, Fortunately had a strong quarter and ended up a bit ahead of what was expected.
Also yesterday, we filed a separate press release and shareholder letter related to the significant news on our rare earth deposits in Wyoming.
I will discuss the independent confirmation on this discovery may lead to a unique new direction for us.
Start in terms of our quarterly performance I am happy to note that with some help from the rails, we managed to ship coal in Q1 with much better results.
We told our investors that our goal in 'twenty three is to execute.
Thus far this year, we are steadily working to reverse the operational setbacks, we incurred in 'twenty two.
Last quarter, adjusted EBITDA jumped 50% to $48 million from year end and earnings per share jumped 75% to <unk> 57 per share.
In Q1, we also achieved both record production and sales.
As a result of our better than expected performance, we are increasing our full year production and sales guidance, which Jeremy will talk about it in more detail in a moment.
In addition.
Despite continued inflationary wage pressures are cash mine costs fell almost $10 per ton from Q4 to Q1.
Elk Creek cash costs declined more than 10% sequentially to $90 per ton in Q1, which likely puts out among the lowest.
Cash cost mines in the country.
In addition, our second half production ramps at Berlin.
Our overall companywide mine costs should decline even further.
I am pleased to note that the first section at the Berwyn number one mine restarted earlier than anticipated and it's been ramping production since March in line with expectations.
Board recently approved pulling forward the start of the second section Berwyn from 24 into mid 'twenty, three which should add.
Approximately 300000 tons of additional production on an annualized basis by late this year and the extra tonnage will continue to reduce mining cash cost.
We can also report that our May been mine recently produced its first tonnes.
In addition, the startup is imminently from our roughly a year long project to increase out Creek prep plant capacity by 50% from two to 3 million tonnes on an annualized basis.
We will ramp production at al commensurate with that processing capacity.
On the marketing front, we now have 81% of our forecasted 23 production contracted with almost 2 million tonnes sold at a fixed price of just under $200 per ton.
And since the start of the year, we have sold our first tons to India, Japan and Indonesia.
Overall, we now have about 700000 tons of production at midpoint of guidance, which is not contracted for and will be sold at index pricing.
While worldwide benchmark pricing continues to move lower our strong contracted position somewhat insulates <unk> a bit more than our peer group.
As far as looking down the road for the balance of 'twenty. Three we will have a substantial second half increase in production and sales cadence as we ramp up Irwin in the plant.
By Q3, we should be running at a four to $4 5 million ton per year annualized production and sales rate.
Chris Blanchard will have more to say on all our operations in a moment as well.
This week, we received an independent assessment that our brookman may contain one of the largest unconventional rare earth deposits in the United States.
As well as one of the most significant funds in this country are valuable rare earth elements containing magnetic properties.
I've laid out a good deal of background on this in my shareholder letter.
The bar phrase from the play Hamilton It is nice to have Washington on your side.
They came back to us about a year later candidly surprised that they had found exceptionally high concentration levels of magnetic our EES and our deposits indeed levels in line with some of the highest recorded concentrations found in China.
Herman the extent of the deposit.
The technical detail on the geological and chemical analysis is contained in the exploration target report from where international our Internet Our independent Reserve engineers.
That report is now on our website.
It is important to recognize that what we have discovered and are reporting on today encompasses less than one third of the ultimate area of the Brooklyn Manhattan.
That then begs the question where do we go from here.
Working with <unk> and others, we will continue further geological assessment drilling and chemical analysis on the entire property. So we can understand the overall scope of the deposit.
As I said in my shareholder letter, we will look at this development with the same financial discipline that we have deployed in all of our met coal business.
Our idea is to take this on a step by step almost modular approach to make sure. We are preceding correctly in what is a fast moving new area of critical minerals.
They have unique visibility into the overall <unk> space as well as access to new techniques and science that will benefit the whole process.
Solely be met coal producer, but we can also become an important producer of ARIA E critical minerals and their constituent products, especially magnetics.
Pricing was negatively impacted by $6 per ton due to our final API two index linked cargo that was shipped in early January .
Now turning to our outlook I would like to touch on a few of the key areas in our guidance tables.
In terms of the overall market, we are seeing both signs of strength and some signs of weakness out there so let's start with the positives.
As a result, we are seeing more met coal offered for sale, which has had a negative impact on prices recently.
Furthermore, we hope that strong Chinese credit growth will turn into increased housing and infrastructure activity, which should lead to better downstream demand later this year.
Blending opportunities to meet our customer needs.
Turning to the low vol and mid vol mines that are Berlin, and Knox Creek operations, we've taken several positive steps forward.
During the intervening months, we made a few substantial ventilation and safety enhancements to demand.
The chief amongst pleases installing upgraded dual mine fans in parallel with a backup diesel generator on site.
This will also allow us to perform our routine maintenance without idling, the mine or interrupting normal ventilation.
Production at Berlin has begun in line with our expectations. We expect the final development mining to complete to be completed on our number one section by Midsummer allow.
Allowing us the option of mining into the thick.
Owned fee coal that we acquired with the <unk> assets.
During the third quarter of 2023.
The position coupled with the elimination of all trucking.
And the run of mine production belt to directly to the Berwyn prep plant.
Dramatically lower the mine cash costs from historical development cash cost levels, we have experienced.
We're also moving forward with the addition of a second mining unit at the Berwyn mine during the third quarter. Following the completion of the mine's second exhaust shaft.
Ventilation excavation should be completed mid summer with production commencing from the second section shortly thereafter.
This expansion puts Berlin mine back on the production ramp that we had previously projected prior to 2020 twos admission event.
Is the bulk of the growth in line with those medium term production ramp is at the Berlin complex one of our biggest areas of focus is now on recruiting training and building the workforce at Burlington Knox Creek areas in what remains a very competitive labor market.
Lastly, we are pleased that our maven operation has reached its first production earlier this month.
Surface production has commenced in our first coal has been shipped from the mine and processed at the borrowing clients.
And our initial pits the quality of the coal and the mining conditions have been excellent.
Highwall miner will start mining initial panel in the next several days and we expect demand to be ramped up to its full productivity by the end of June .
Dual seam of coal from the <unk> mine is excellent metallurgical properties as a standalone product or to improve the blends with other low volatile coal.
We are continuing our exploration and examination of this property and have already started permitting several additional mining areas that had not been included in the reserves for the property.
Engineering and planning work will continue for the potential future development of this complex with additional surface mines and underground mining possible.
Summarizing the operations.
Nearly all of the development work capital projects and advance hiring that was done in 2020 to set the table for a strong first quarter of 2023 and the continued ramp of production as we move through the last three quarters of this year.
We expect to exit 2003 running in excess of 4 million ton per year clean ton per year run rate with the flexibility to grow and expand our coal portfolio.
Best makes sense for the needs of our customers and as the market dictates.
This now concludes management's prepared remarks, and I'll now turn the call over to the operator for the question and answer session coal.
Great.
Thank you the floor is now open for questions. At this time, if you have a question or comment Please press star and one on your telephone keypad. If at any point. Your question has been answered you may remove yourself from the queue by pressing star and two again, we ask that you pick up your handset with posing questions.
Perfect optimal sound quality.
Our first question is coming from Lucas pipes with B Riley Securities. Please go ahead.
So much operator, good morning, everyone.
Good morning. My first question is in regards to cadence of shipments over the course of this year I Wonder if you could maybe provide a little bit of color on Q2, Q3, Q4, but really appreciate that thank you very much.
Sure Lucas I'll take a first stab at it and Jeremy can.
The chime in here. So this this quarter will probably be around 800000 tons.
As I mentioned, we've got Berwyn ramping we've got Elk, which is just about to flip the switch to <unk>.
Increase processing by 50%. So we will look at Q3 and probably.
Roughly 900 to 1 million tons in Q4, probably add another 100000 tons on top of that more like a millions of millions.
That's helpful. Thank you and then on the.
Rare earth opportunity, what sort of capital budget would you say youre allocating to this opportunity for both 2023 and 2024. Thank you.
Well the short answer is for 'twenty, three we probably allocated about 5 million Bucks.
And we focused primarily on testing drilling analysis.
We have not formed the economics, yet what the operational phase of this looked like.
I said. This is this is really a project with first impression because if you look at most R E producers.
Really around the world, but certainly in the U S. There are in.
Hard minerals.
Iranian lithium cobalt places like that here, we would be essentially finding the aro <unk> and much softer.
Materials like play so obviously, both the mining as well as the processing is entirely different.
<unk> working as I said with the <unk>.
Partners at the <unk> and other private groups were now focusing on how would be the best way to really start to create an appropriate business plan for some operations like this and as I said once we once we start to do this we'll do it on a step by step basis and certainly keep.
The investment community apprised as we go.
Very helpful. Thank you and then one last question turning back to.
This year in operations with the growing.
Sales and production outlook over the course of this year, how would you expect cost to evolve and I I would assume.
Royalties.
Declining prices would also play into that.
State your color on that on the cost side for this year. Thank you.
Lucas This is Chris so on the on the cost front.
We would expect the Elk Creek costs, the same more or less in line with where they were in Q1, but as the production ramps up it Erwin and Knox Creek, we'd expect those costs to decline sequentially.
Sequentially quarter over quarter, as we get more production each quarter.
And overall pull the coal the total company down slightly.
Got it. Thank you very much gentlemen, best of luck.
Okay.
We will take our next question from Nathan Barton with Benchmark Company. Please go ahead. Your line is open.
Hey, good morning, guys, congrats on the quarter and thanks for taking my questions.
Thanks Nate.
I wanted to start with logistics some I'm sure you'd agree this has been a bit of a thorn in your side for 2022 at least it sounds like you've got some help from the rails in the first quarter, but it would be great to get an update on rail truck Port service and then maybe just for modeling purposes, I think I noticed a pretty sizable quarter over quarter jump in transportation.
Costs and anything there.
So to speak over or is that just a bit of an anomaly.
Thanks, Nate so yes, it's Jeremy here I guess I'll start with the with the transportation costs. So.
As you know.
We pay transportation court costs.
<unk> through but you record it on the revenue and the cost line for for our export business and in the first quarter are actually about two thirds of our volume was a was exports. So certainly that's that's the highest portion that we buy.
On a percentage basis. So it was more a mix issue I would say then.
Not necessarily.
A higher rail rates rail rates did go up a little bit, but I will say you know.
Each company is different.
A bit more real time basis, so in the second quarter and the second quarter.
Our rail rate is not going to be based on a higher Q1 index. So that that'll help us a little bit as well in the.
In the second quarter.
What was the first part of your question again.
Yes.
Overall, Jeremy on health services from a logistics standpoint, whether it's rail truck report Oh, yeah.
So I mean listen the rails did a great job in Q1 I mean.
If you look back to where we were this time last year.
We in the first quarter of 2022.
About 20% of our scheduled shipments I didn't happen because of transportation issues. This quarter. It was really just a couple of trains. So I really applaud the rails are on their hiring efforts and certainly hope the.
The recent efforts that.
That they have made continue to pay off throughout the course of the year.
Okay, Great I appreciate all that color Jeremy and then.
Good to hear as well things progressing at Berlin.
Great Prep plant expansion it sounds like starting up later this month.
Guys, obviously raised full year guidance by about 100000 tons. This year it looks like that flow through to 'twenty four.
Just on your slides as we think about the timing of potential expansion from here and again kind of looking at the table in your slides, which projects or are kind of on deck next.
How much production could they add maybe as we look ahead to 2014 and 25 and maybe what portion of that Capex has been approved.
Thanks.
Well I'll, let this is Randy I'll, let I'll, let Chris go on the granular, but basically all we've green lighted so far for this year beyond what we've already talked about is the berwyn expansion.
I think what we wanted to do is to kind of see how the market stabilizes here in Q2 and into early Q3.
We have a few more.
Projects that we could that we could look to green light, which probably not result in too much 23 production, but would certainly.
How much more meaningful in 'twenty, four and Chris you want to sort of elaborate a little bit.
Yeah, I mean, so one thing is as.
You can see from our first quarter results, we did out produce our sales a little bit so we'd have built some inventory and even with the planned upgrade coming on.
We will work through that so.
Probably the first thing that would come on on that list.
Given all of the right market conditions would be the Ram three surface mine.
And then <unk>.
And that on the way that we've got in the slide deck is probably the.
Java on mine at Knox Creek.
Past that we have we have a lot of other projects that are.
For lower tier or earlier in their development that we'd look at but those are the two that you would target.
Neither of those to answer your question that has been approved by the board to Greenlight and move forward on yet.
Maybe just.
From a high level in round numbers the 'twenty three capex that you see on there that's all been approved in.
Just looking at 'twenty four.
Probably about half of it roughly it's been been approved and obviously, we'll continue to have these conversations with the board as we progress throughout the year.
Great I appreciate it.
Those comments guys and then maybe.
Maybe Randy.
Thank you for all your thoughts earlier on the rare Earth element development the deposit there broke mine.
But you are also working on some some other coal products research.
And by the way Congrats I think on your appointment to the IEA Advisory Board there, maybe could you spend a minute or two and update us on that side of the house and comment on how those pursuits could potentially be additive to rainbow COVID-19 feature as well.
Sure.
So as you.
As you probably know we filed a tracking stock.
And it's got a lot of detail in the S. One on that on our whole operations, which we kind of.
Historically called <unk> carbon.
And in that beyond the rare Earth, we've got.
A.
Blanket of intellectual property, which covers about 60.
60 odd patents in various processes.
And there they are based.
Basically properties on different types of uses of carbon from coal that we feel could be used to make advanced carbon products and materials, which you never got obviously, a much higher value than simply the use of coal.
For conventional purposes, the ones, we're focused on right now, which we think have the most interest certainly both in terms of potential size as well as frankly.
Enough along in development are the ability to take coal and use that as a feedstock to make synthetic graphite.
There was a press release that we put out a month or so ago on that we're working with Oak Ridge National labs on that.
Basically we both have some IP around that they have.
Not only more of a processing secret sauce, but also a lot more equipment to do some of the testing on so.
We are we're moving on a path with them to be able to do development, which would probably used principally met coal.
But it may have some applications in thermal but that could be a very meaningful use of coal.
Other is carbon fiber.
So this goes back to processes that were developed frankly in the in the seventies.
Where you can basically take what amounts to a.
Pitch like substance and use that as a precursor to make carbon fiber from coal instead of petroleum.
That has a potential game changing cost impact frankly on the materials business. If you could use carbon fiber as a substitute for steel and aluminum that could have some.
Important longer term implications so.
Both of those projects actually we've been working on with Oak Ridge.
And.
Hopefully some exciting stuff will come out of that.
In the relative near future I would say from a commercialization standpoint.
I would look to probably a 12 month timeframe to be able to have some meaningful <unk>.
Commercial possibilities on both of those fronts.
And then lastly, we are working on the ability to use carbon from coal to make graphene that can be used in such things as concrete additives as well as.
Some ink injection.
And those are not quite as far along as the first two that I mentioned, but potentially other implications as well so perhaps a bit long winded, but that's an area that I'm, obviously very interested.
Yes, that's all I wanted to give you that got quick platform Randy I'm, just curious how much capital or are you guys investing in this in this business at this point.
Really extremely nominal capital needs, we're probably spending less than I would say $1 million to $2 million a year.
Most of the heavy lifting frankly comes from the National Labs, because a lot of this research are requires some pretty heavy duty.
And sophisticated equipment.
And manpower, we have some of the equipment and manpower out in our operation and Sheraton, but we were relying a lot on the national labs, who have immense amounts of equipment capital and talent to do a lot of the.
Heavy lifting.
Got it appreciate that and then just one last item you did bring up the S. One for the tracking stock it looks like.
Holders are expected to vote on June 12. So first is that correct and then can you maybe just remind us what revenue streams or royalties are expected to kind of flow through those those new shares.
Sure. So you are correct.
<unk> is indeed, the date that we will have the.
Shareholder vote.
It will be a vote to approve the distribution of the tracking stock.
I think in terms of referring to the amounts that will be involved in potential dividend distributions beyond that I'd have to refer you back to the S. One because we've kind of got our hands illegally tied about doing too much discussion on that in advance of the proxy.
Solicitation in the boat, but rest assured.
Right before the proxy pardon me right before the shareholder.
Meeting, we will be doing further communications.
On the tracking stock will be much more explicit.
In terms of what's going to be expected in terms of the actual cash dividend distributions and the rollout.
Got it very helpful. Appreciate those thoughts.
Best of luck going forward guys. Thank.
Thank you thank you Nate.
We will take our next question from Curt Woodworth with Credit Suisse. Please go ahead. Your line is open.
Yes. Thank you good morning, Randy and determined team.
I just wanted to follow up on the rare earth kind of conversation.
Admittedly Neil said when it comes to this but just.
Some of the language around this being potentially one of the largest unconventional deposits.
Covered.
And then you've been drilling for 18 months I would think you've got a decent idea of.
Potential saleable production.
And you noted that it's shovel ready it's permitted.
And you kind of said you could fast track it but then at the same time, you also said youre going to kind of go slow and have a modular approach. So I guess I'm just curious you know what.
What are the next steps in terms of milestones you need to see in terms of.
When you potentially would accelerate production.
Can you frame any sort of economic upside too.
The potential EBITDA or cash flow that this could create I realize it's early days.
And then you also talked about.
Potentially I think your comment was producing constituent products like magnetic products, which I assume would mean.
Our downstream manufacturing of the.
Element.
So yes again any more color you can provide on some of those things would be helpful.
Admittedly I know, it's still very early days, but thank you sure Kurt So I think the.
Let me take you somewhat sequentially through our whole thought process here.
And that will hopefully articulate some answers to several of your questions. So.
We bought this property.
About 12 years ago is a is a opportunistic thermal reserves.
Shortly into that.
Development phase.
Phase and permitting phase, we recognized that it was going to be pretty tough to deploy capital to justify a new thermal coal mine and that was frankly, what our MLR was anyway. So we began to explore all sorts of other alternative uses for coal and that led us to the national labs, and working with the National Lab.
<unk> and led us to.
Explore with them frankly, just testing our coal.
For other purposes, that's how of course, the whole entire idea of the the rare Earth proposition came about which we frankly didn't really.
Too much detail from them until 2019 and at that point, we sort of slowly began to stick our toe in the water to do some further drilling assessment.
When that looked like it was coming back promising that we then this year, particularly after we sort of merge the two.
Entities, <unk> carbon and <unk> coal.
Entities, <unk> carbon and <unk> coal.
Decided to.
Explore much more.
Thorough.
Billing program to really analyze what the opportunity would be and frankly right now we've really only got chemical results back on about a third of a little bit more than a third of the core drilling that we have done 100 holes. So we have a lot more delineation to do I would almost think of this as like a junior miner.
Proposition, where we're we're kind of taking at that call. It step by step, but theres certainly a sequencing to trying to delineate the size of the deposits.
How it lays out.
Contours Etsy.
Et cetera, before we can essentially come up with what we think is a.
Appropriate mine plan for the whole proposition and as I also mentioned this is really been testing done on really less than a third of the overall site.
So we obviously have the ability to.
Somewhat dramatically increased the scope and scale of the overall proposition as we get into it but what we've found to date, obviously with but a lot of help from the National Labs is that this is not only an interesting, but perhaps as well.
We got the quote from the National Labs that this is indeed, probably the largest unconventional.
Posit play on railroads that they've seen.
In the states. So we are trying to approach this with a fairly methodical.
Idea of what would be the highest value proposition to the company.
And it also has some core some some national strategic implications as well because of the predominance of magnetic Aro <unk> and what we seem to have found so.
The food chain in terms of the <unk> businesses that you could take it obviously from from just simply mining the deposit.
Making into a concentrate to an oxide and then eventually actually up to a metal or a magnet. So we're certainly going to explore what the implications and economics of having a vertically integrated operation are but that's that's very early game for US I think our next steps are really going to be to define the mining proposition and the processing.
Opposition.
To take it to concentrate which of course is the first step.
And again as I mentioned because this is this is unconventional deposits, which are softer than uranium and cobalt is gonna be expected to be much easier to process much less expensive and much more environmentally friendly.
Indeed, the interesting thing is we've gotten into it is.
If you look to the to the largest <unk> producer in the World, which is China I think the figure is about 80% of the value of all there are he's come from unconventional plays.
Because again, the economics of of mining and processing that type of an E. A much more attractive.
From a number of propositions and certainly from an economic one.
So I think where we are today is we technically have a permit which is rare in the <unk> space. Because again most of these are junior miners are just looking to try to find the deposit and then it probably takes you five or 10 years to permit we've got a permit.
So we can start mining.
Quickly is probably late this year.
Whether we do start that mining is a function of doing.
Proper assessment.
As well as.
Planning on how the processing would occur because we're not going to obviously mine until we know what to do with the material.
But we hope to be in a position to be able to assess that fairly quickly.
Again, we're getting a lot of help on this end.
I would I would look to be in a position to hopefully report by the next quarter.
You know what our progress is and we will develop the economics on this which is once again, a very unique proposition where we're not.
Being able to look through a lot of comparables.
In our space that we can rely on.
Two to backstop, what the economics look like but I would think of it more in terms of a normal coal mining proposition from a from a mining perspective on economics, and then from the processing. Once again, we feel we will hopefully look at it again somewhat like a met coal preparation plant operation.
Perhaps.
<unk> unique characteristics thrown in for processing the type of material that we're really looking for.
And once we understand that then a question as to how far we take it up the food chain is one that will develop economics around and certainly report more on in the future.
But it's a very exciting proposition in a you know as I said in my note. This was clearly something that we hadn't gone to look for.
It's it's I won't say, it's fallen into our lap, but it's certainly something that we were looking for other alternative.
Uses for coal.
And this certainly seems to be potentially a very exciting and hopefully a potentially a very profitable one.
Great. Thanks, very much for the color.
Yeah.
Okay.
This will conclude the Q&A portion of today's call I would now like to turn the floor over to Randall Atkins for additional or closing remarks.
Thank you.
Again appreciate everybody being on the call. This morning.
Interesting times.
Both on a macro basis, and certainly for <unk> and we will look forward to keeping everyone abreast of our activities and certainly from the call up for next quarter.
Everyone has a nice weekend and that well on the Derby.
Take care.
Thank you. This concludes today's Rainbow coal resources first quarter 2023 earnings Conference call. Please disconnect. Your line at this time and have a wonderful day.
Yeah.
Yeah.
Okay.
Yes.
[music].
Yes.
Okay.
Yes.
[music].
Okay.
[music].
Uh huh.
[music].
Uh huh.
[music].
Okay.
[music].