Q3 2024 Ramaco Resources Inc Earnings Call
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Speaker Change: Good day, and welcome to Ramico Resources' third quarter of 2024 results conference call.
Speaker Change: All participants will be in a listen-only mode for the duration of the call. And should you need any assistance today, please signal a conference specialist by pressing the star key followed by zero.
Speaker Change: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. And to withdraw a question, please press star, then two.
Speaker Change: Also, please be aware that today's call is being recorded. I would now like to return the call over to Jeremy Sussman, Chief Financial Officer. Please go ahead, sir.
Jeremy Sussman: Thank you.
Jeremy Sussman: On behalf of Ramico Resources, I'd like to welcome all of you to our 3rd Quarter 2024 Earnings Conference Call.
Jeremy Sussman: With me this morning is Randy Atkins, our Chairman and CEO, Chris Blanchard, our EVP for Mine Planning and Development, and Jason Fannin, our Chief Commercial Officer. Before we start, I'd like to share our normal cautionary statement.
Jeremy Sussman: Certain items discussed on today's call constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.
Jeremy Sussman: These four looking statements represent Rameco's expectations concerning future events.
Jeremy Sussman: These statements are subject to risks, uncertainties, and other factors, many of which are outside of Ramachod's control, which could cause actual results to differ materially from the results discussed in the forward-looking statements.
Jeremy Sussman: Any forward-looking statement speaks only as of the date on which it is made, and except as required by law, GRAMICO does not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.
Jeremy Sussman: 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, www.ramicoresources.com.
Jeremy Sussman: Lastly, I'd encourage everyone on this call to go on to our website and download today's investor presentation.
Jeremy Sussman: With that said, let me introduce our Chairman and CEO, Randy Atkins.
Randy Atkins: Thanks, Jeremy. Good morning to everyone and thanks for joining the call.
Randy Atkins: The third quarter was easily our strongest operational quarter this year.
Randy Atkins: In a nutshell, we continue to focus on controlling what we can, and that is ash cost and volume growth.
Randy Atkins: What we can't control is pricing.
Jeremy Sussman: Despite a 13% decline in the Australian benchmark price this quarter, we seem to be the only public metallurgic coal group to have maintained essentially the same operating margins for both the second and third quarters.
Jeremy Sussman: One large reason is that throughout this year our mine costs have declined by over 25 percent.
Jeremy Sussman: We went from a March high of $120 to a September low of only $93 per ton.
Jeremy Sussman: Quarterly, these costs have dropped from 118 per ton in the first quarter to 102 tons this quarter, and we hope to actually improve on that in Q4.
Jeremy Sussman: In addition to excellent cost control, we also had improved mine productivity, as well as both record production and sales.
Jeremy Sussman: Indeed, this was the first quarter in the company's history where we booked more than a million tons of quarterly sales.
Jeremy Sussman: Unfortunately, the bigger story behind both Ramico and the entire Metcoal Industries results this quarter is the drop in Metcoal prices throughout 24.
Jeremy Sussman: The decline is, of course, a direct result of China's overproduction of steel, which it has then exported or dumped into world markets.
Jeremy Sussman: This has then resulted in world steel companies both cutting back on their own production and then reducing the price they're willing to pay for their Metcol's feedstocks.
Jeremy Sussman: As a result, this quarter alone, we saw a $15 per ton sequential decline in U.S. med-col indices.
Jeremy Sussman: Both the U.S. low vol and high vol indices fell by roughly 7% this quarter on average.
Jeremy Sussman: and by roughly 32% since the start of the year.
Jeremy Sussman: When we step back and assess it, with our strong beat on cost, the price decline was the sole reason for our quarterly drop and a dip at the top.
Jeremy Sussman: As I mentioned earlier, our cash margins for the past two quarters have remained at $34 per ton, or about 25%, even in the face of declining prices.
Jeremy Sussman: These margins have also remained well above most of our larger Central Appalachian peers.
Jeremy Sussman: Looking ahead, our operational results should continue to improve in the fourth quarter.
Jeremy Sussman: We are projecting more growth, again, in both production and sales.
Jeremy Sussman: This fourth quarter increase should provide a year-end run rate in excess of 5 million tons on sales with normalized cash costs below $100 a ton.
Jeremy Sussman: and, importantly,
Jeremy Sussman: In addition to our strong cost control, all of our main 2024 growth initiatives
Jeremy Sussman: remain both on track and on budget. Here's a quick rundown.
Jeremy Sussman: First, the highball additions at our Elk Creek complex were fully in production as of September and should ultimately add roughly 600,000 tons on an annualized basis.
Jeremy Sussman: These were in the Ram No. 3 surface and highwall mine, as well as the third section at the Stone Coal Alma Mine.
Jeremy Sussman: All growth capex for these two mines is now behind us.
Jeremy Sussman: Second, the prep plant at our Maven Low Ball Complex was commissioned both on time and on budget in October.
Jeremy Sussman: This will reduce our current trucking stock costs by approximately $40 per ton.
Jeremy Sussman: Again, the vast majority of the growth cap acts associated with the Maven plant is also behind us.
Jeremy Sussman: Third, before year-end, we will add the third section at the main Berwyn mine.
Jeremy Sussman: with roughly 300,000 additional annualized tons of low vol production.
Jeremy Sussman: With the current challenging environment in the coal space, we are now experiencing a surge of incoming job applications to staff this new section, and next year we anticipate adding a fourth section, depending upon, of course, market conditions.
Jeremy Sussman: I would also point out that the Berwyn mine has demonstrated it is among the lowest cost low vol mines in the country.
Jeremy Sussman: Across the whole mine complex, we are now averaging mine costs in the $90 to $95 per ton range.
Jeremy Sussman: And as I just noted, one silver lining to the continued decline in METCALP pricing
Jeremy Sussman: is that higher cost U.S. coal production is beginning to come offline and rationalized.
Jeremy Sussman: IMSHA data suggests that the third quarter U.S. met coal production fell by more than 8% sequentially.
Jeremy Sussman: This would equate to a six million ton annual decline.
Jeremy Sussman: And, of course, we went in the opposite direction in group production.
Jeremy Sussman: Anecdotally, we have also heard about a number of recent mine or section closures in just the past few weeks.
Jeremy Sussman: From our perspective, absent some meaningful immediate pricing improvement.
Jeremy Sussman: We anticipate production will continue to fall farther in the fourth quarter.
Jeremy Sussman: These dislocations may create more opportunities for us as we move forward.
Jeremy Sussman: We hope to position ourselves accordingly.
Jeremy Sussman: Turning to the demand side, it's possible that there may be some future macro steps to temper the onslaught of cheap Chinese steel exports.
Jeremy Sussman: There is currently serious discussion of tariffs in many world markets.
Jeremy Sussman: Over time, they may boost steel and
Jeremy Sussman: Similarly, we may see the Chinese government adopt more aggressive fiscal stimulus measures.
Jeremy Sussman: Again, this might have a similar potential to improve pricing. None of this, however, is a quick fix.
Jeremy Sussman: Turning to our sales book, I'm pleased at how our 2025 domestic and international contracting has progressed.
Jeremy Sussman: Total sales commitments for next year are now up to 2.7 million tons.
Jeremy Sussman: Of this, 1.6 million tons were sold mostly to North American customers at average fixed prices of approximately $152 per ton.
Jeremy Sussman: Given the 30% drop this year on benchmark price levels, these fixed prices are only off 10% from last year.
Jeremy Sussman: We have also not announced yet our 2025 production guidance, but our current level of sales puts us comfortably down the field at this point in time.
Speaker Change: And Jason will go into more detail on the sales front and his remarks in a moment.
Jeremy Sussman: Our rare earth and critical minerals business continues to be a major unique opportunity for us.
Jeremy Sussman: I'm pleased with the substantial progress our team continues to make.
Jeremy Sussman: We are fortunate to now have assembled an array of experience groups involved in our rare earth testing, mine planning, and processing design.
Jeremy Sussman: And on that front, working with Floor, we are now in the advanced stages of completing our initial techno-economic report.
Jeremy Sussman: We expect Florida to present their preliminary results to our board in early December, and then we will communicate the same to our shareholders.
Jeremy Sussman: We also have substantial additional ongoing testing that we expect to receive results on later in December, and we'll update our reporting after that as well.
Jeremy Sussman: We continue to plan toward commencement of construction on a processing demonstration facility in mid to late 2025.
Jeremy Sussman: We are also already in discussions with potential rare earth customers for offtake agreements for our first production.
Jeremy Sussman: So I want to close by again pointing out that we expect to exit the year on a very strong note, even in the face of challenging pricing.
Jeremy Sussman: We expect record sales and production as well as cost reduction in the fourth quarter from where we were in this quarter.
Jeremy Sussman: As we look ahead into 2025, we are also well positioned on our future coal sales and look forward to hopefully some stronger seasonal pricing as we start the year.
Jeremy Sussman: In summary, we continue to transition into becoming an even larger low-cost metcol producer with an exciting future potential as also a critical mineral producer.
Jeremy Sussman: So with that, I'll turn the floor over to the rest of our team to discuss finances, operations, and markets. So Jeremy, please start with a rundown on our financial metrics.
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Jeremy Sussman: Thank you, Randy.
Jeremy Sussman: As you noted, third quarter 2024 operational results were meaningfully better than second quarter operational results, which were also meaningfully better than our first quarter.
Jeremy Sussman: However, U.S. metallurgical coal indices have fallen throughout the year, thus negatively impacting financial results.
Jeremy Sussman: To get into specifics, Q3 adjusted EBITDA was $24 million compared to $29 million in Q2. Third quarter net income of break-even compared to second quarter net income of $6 million.
Jeremy Sussman: Q3 net income was negatively impacted by approximately $1 million due to the closure of the Knox Creek Jawbone Mine.
Jeremy Sussman: Class A EPS showed a 3 cent loss compared to an 8 cent gain in Q2.
Jeremy Sussman: Closure of jawbone negatively impacted Q3 Class A EPS by 3 cents.
Jeremy Sussman: The primary reason for the decrease in both Q3 EBITDA and EPS was simply the $7 per ton sequential decline in realized price per ton due to the continued meaningful fall in U.S. index prices.
Jeremy Sussman: Specifically, Q3 realized price per ton came in at $136 versus $143 per ton in Q2.
Jeremy Sussman: From a margin perspective, the price decline was mostly offset by continued cost improvements.
Jeremy Sussman: In Q3, cash costs improved to $102 per ton versus $108 per ton in Q2 and $118 per ton in Q1. As we've consistently guided, our cash costs would decline as low-cost production ramped up.
Jeremy Sussman: This was indeed the case at Elk Creek with our RANC3 mine in the third section at our Stone Coal Alma mine hitting full capacity in August and September.
Jeremy Sussman: This translated to average cash costs in the mid-90s per ton range for those two months.
Jeremy Sussman: Our solid cost control led to cash margins per ton of $34 in Q3, which was flattest versus Q2, despite realized coal prices falling $7 per ton sequentially.
Jeremy Sussman: Q3 non-GAAP cash margin per ton was 25% vs. 24% in Q2.
Jeremy Sussman: Q3 saw a record production of 972,000 tons, up 35% from Q3 of 2023.
Jeremy Sussman: We enjoyed record sales of 1.02 million tons, which was the first time we eclipsed the 1 million ton figure in company history for a single quarter.
Jeremy Sussman: In October, we elected to close the Knox Creek Jawbone Mine due to challenging market conditions.
Jeremy Sussman: Frankly, Jawbone was nearing the end of MimeLife anyway and was our only loss-making mime.
Jeremy Sussman: Due to these difficult market conditions, 2024 production and sales guidance is being reduced by 200,000 tonnes at the midpoint to 3.7 to 3.9 million tonnes and 3.9 million to 4.1 million tonnes respectively.
Jeremy Sussman: But on a positive note, midpoint of full year 2024 cash cost guidance is also being reduced.
Jeremy Sussman: Guidance is now $106 to $109 per ton sold versus the prior $105 to $111 per ton range.
Jeremy Sussman: In line with this updated cash cost guidance, overall mine costs on a normalized basis are anticipated to exit the year below the $100 per ton range.
Jeremy Sussman: After adjusting for two weeks of vacation in the fourth quarter, we anticipate cash costs to be similar in both Q3 and Q4.
Jeremy Sussman: I'd also note that the high end of 2024 sales guidance remains at a roughly 5 million ton per annum exit run rate.
Jeremy Sussman: As the year winds down, we're refining a number of other areas in our full year 2024 guidance, which can be found in our tables.
Jeremy Sussman: We increased 2024 CapEx guidance to $61 to $65 million from $53 to $63 million. This is largely due to the timing of the Maven PrEP plant, which was commissioned a bit earlier than we had anticipated. Thus, we're essentially pulling forward from 2025 CapEx.
Jeremy Sussman: We're also increasing DD&A guidance from $62 to $68 million previously to $65 to $69 million, as well as interest expense guidance from $4 to $5 million previously to $5.5 to $6.5 million today.
Jeremy Sussman: Last but not least, we are decreasing cash SG&A guidance by $4 million at the midpoint from $38 to $42 million to $34 to $38 million, which is in line with our cost-tightening approach to spending in the current challenging environment.
Jeremy Sussman: Moving to the balance sheet, our liquidity on September 30th of $81 million was up almost $10 million from June 30th.
Jeremy Sussman: This is despite having made the final seven million dollar payment of debt related to the Maven acquisitions in Q3
Jeremy Sussman: We have now retired all $75 million of acquisition debt since 2022 related to our Maven and Ramico coal acquisitions.
Jeremy Sussman: As of today, the only remaining material term debt is the $35 million 9% unsecured notes due in 2026 and any amounts drawn on the revolving line of credit that are used for working capital purposes.
Jeremy Sussman: As of Q3, our net bet to trailing 12-month EBITDA was 0.4 times, which illustrates our continued commitment to maintaining a conservative balance sheet.
Speaker Change: I'd now like to turn the call over to our EVP for Mine Planning and Development, Chris Blanchard, to discuss operations.
Chris Blanchard: Thanks, Jeremy. And thank you to all of you who joined us this morning.
Chris Blanchard: As discussed, we continued the strong finish to the second quarter and carried that momentum into and throughout the third quarter.
Chris Blanchard: The biggest catalyst in the ramp-up of produced tons and subsequent cost reduction was at our flagship Elk Creek complex.
Jeremy Sussman: Along with the startup of the additional surface mine and underground section, we saw some of our legacy mines complete mining through some of the challenging geology we experienced in the early months of 2024.
Jeremy Sussman: Also...
Jeremy Sussman: At our Michael Palatin mine, which had been dealing with an acute labor shortage due to the tightness of the labor market, it has been fully staffed and production levels have exceeded our targets throughout the quarter.
Jeremy Sussman: Finally, we brought on the new section at Stone Coal with high clean tons per foot, higher production, as well as the Ram No. 3 surface mine.
Jeremy Sussman: Both mines provide lower inherent production costs and increased total volume.
Jeremy Sussman: This has driven down operating costs at Elk Creek to levels that we have not seen since late 2022.
Jeremy Sussman: With all of our production growth behind us at Elk Creek, we should be running at or above a 3 million ton per year production rate for the foreseeable future.
Jeremy Sussman: At the Berlin Complex, we continue to grow the base production at the Berlin Pocahontas No. 4 mine.
Jeremy Sussman: Hiring efforts are ongoing to fill all vacancies at this mine as well as beginning the staffing of our number three section, which is scheduled to begin producing late in the fourth quarter.
Jeremy Sussman: The current environment in the coalfields should help on the hiring.
Jeremy Sussman: We're working closely with the state of Virginia on the environmental side on permits required to begin raise boring our exhaust intake and elevator shafts located centrally in the Berwyn Mine Reserve.
Jeremy Sussman: Once the first of these shafts are completed, anticipated in the first half of 2025, we will complete the ramp-up of the Berlin Mine with a fourth super section and push mine production above one million tons per annum.
Jeremy Sussman: At that time, Will brought the Berwyn complex to its full production levels of approximately a million and a half tons per year of premium lowball coal.
Jeremy Sussman: At the Maven Complex, our operating surface and hollow mine continue operating at above-budgeted levels for the entire third quarter.
Jeremy Sussman: Knowing that construction of the preparation plant was ahead of schedule, midway through the quarter, we ceased trucking our raw coal to the Berlin complex for washing and began stockpiling production on site.
Jeremy Sussman: This translated into immediate cost savings on this production for over half of the third quarter.
Jeremy Sussman: Turning specifically to Maven Processing, I am pleased to share that during October we completed all major construction and commissioning, and on November 1st, we started the plant and processed our first tons of clean coal on site.
Jeremy Sussman: The project was completed on budget, delivered a month early, and most importantly, accident-free.
Jeremy Sussman: We expect to be fully staffed at the plant and processing on a normal schedule as we enter 2025 and shipping only clean coal from the property going forward.
Jeremy Sussman: As a reminder, the raw coal trucking costs averaged $40 per clean ton, and at times when highwall miner recovery was lower, could reach $50 per ton.
Jeremy Sussman: That cost is behind us and we project to work through the accumulated raw coal inventory at MABEN by the end of February 2025.
Jeremy Sussman: Looking forward at MABEN, we are completing the budgeting and forecasting process for the eventual underground expansion at MABEN.
Jeremy Sussman: Market conditions and the economics of these projects versus other growth opportunities will dictate when these tons come on, but eventually we project annual production of a million and a half clean tons from Maven as well.
Jeremy Sussman: We continue to focus on cost containment or reductions which we can implement at any of the operations.
Jeremy Sussman: Collaborating with our key suppliers and vendors, we have managed to secure meaningful unit cost reductions on most of our consumable supplies at our surface and our underground mines.
Jeremy Sussman: Where we truck coal, we are working with our trucking partners to similarly reduce the trucking costs for our products.
Jeremy Sussman: As the coal industries continued their swoon throughout the year, unfortunately we did have to close our jawbone mine early based on these market conditions.
Jeremy Sussman: Difficult geology coupled with logistics costs made the mine unprofitable and unsustainable any longer.
Jeremy Sussman: We were able to transfer almost all of the workforce to mines within the Berlin complex, so we turned this event into a positive productivity change, as well as seeing an overall decline in cash costs at Ramico with the removal of the jawbone tons.
Jeremy Sussman: We anticipate that the full recovery and closure of this mine will be completed before year-end 2024.
Jeremy Sussman: As we enter the fourth quarter, we know we can only control our production and, to an extent, our costs.
Jeremy Sussman: Our momentum continues on those fronts with a record month of production in October.
Jeremy Sussman: So, regarding the markets and those sales, I'd like to now turn the call over to our Chief Commercial Officer, Jason Fannin.
Jason Fannin: Thanks Chris and good morning everyone. Today I'll share our views on coking coal and steel markets as well as our current and forward sales outlook.
Jeremy Sussman: Global cooking coal markets have continued to weaken. From a pricing standpoint, index averages were down approximately 7% in Q3.
Jeremy Sussman: Prices rebounded materially at the end of September due to optimism around Chinese stimulus measures, but this momentum faded in October.
Jason Fannin: Chinese authorities now appear willing to support their economy, including the real estate sector, which is a significant driver of their steel demand. But we'll have to wait and see what and how these stimulus measures play out in the real economy.
Jason Fannin: Contractual volumes and spot demand in the seaborne market continue to be well supported. This is mostly due to robust demand growth in the Pacific.
Jason Fannin: Chinese and Indian imports in particular have seen import growth of 23% and 6% year-over-year so far this year.
Jason Fannin: Looking ahead, we're anticipating more demand growth from India in 2025.
Jason Fannin: As India continues to develop incremental blast furnace capacity, demand for coking coal imports is likely to grow substantially.
Speaker Change: The restocking season in India has been disappointing, likely due to below-trend steel production, along with sufficient current coking coal inventories.
Jason Fannin: However, we're anticipating a pickup in Indian demand and buying next year.
Jason Fannin: In 2025 alone, we see an incremental 16 to 17 million tons of additional hot metal production in India from new blast furnaces.
Jason Fannin: This amounts to over 10 million tons of incremental new coking coal consumption.
Jason Fannin: We are continuing to look at new opportunities in India and are actively engaging current customers regarding next year's supply contracts as well as new customers for test shipments and qualification purposes.
Jason Fannin: Chinese metallurgical coal demand growth of 23% year-to-date has been somewhat surprising given their 5% drop in pig iron production.
Jason Fannin: We are closely monitoring the Chinese steel overcapacity issue in the face of lackluster demand, domestic steel demand.
Jason Fannin: Hopefully, the stimulus measures will increase domestic steel consumption enough to absorb some of the excess supply. In turn, this could lead to less steel exports in 2025. Hopefully, this would generate higher finished steel prices globally and improved profit margins throughout the supply chain.
Jason Fannin: In Europe, overall metallurgical coal imports are down 11% here today.
Jason Fannin: Spot demand has been tepid in the face of poor economic and manufacturing output.
Jason Fannin: With that said, our smaller, specialty coking coal customers.
Jason Fannin: and Europe have continued regular spot intakes. Despite these manufacturing and industrial headwinds in Europe this year, we continue to fulfill our term supply agreements with European customers as contracted and scheduled.
Jason Fannin: Our term European customers have also expressed interest in continuing term deals for 2025.
Jason Fannin: South American markets have been mostly stable, with modest demand growth year-to-date.
Jason Fannin: We expect demand from Brazil to gradually improve as recently implemented steel tariffs should provide support for increased pig iron production in 2025.
Jason Fannin: Shifting to North American markets, steel utilization continues to hum along, although recently experiencing a slight decline, which is normal for this time of year.
Jason Fannin: Demand for coking coal appears to remain supportive based on industry-wide 2025 contracted volumes.
Jason Fannin: While we still have a handful of domestic contract negotiations outstanding, we are pleased to report today that we have booked roughly 1.6 million tons to mostly North American customers at an average fixed price of $152 per ton.
Jason Fannin: and another 1.1 million tons to overseas customers.
Jason Fannin: bring our total sold volume for 2025 to 2.7 million tons.
Jason Fannin: As we're exiting the year at around a 5 million ton per annum sales rate, we've increased our year-over-year domestic sales volumes as our total production grows.
Jason Fannin: And we've similarly increased our marketing efforts in the growing Asian markets.
Jason Fannin: We continue to see robust interest from end-users in Asia for SPOT trials to new customers and to continue our current term-optic agreements.
Jason Fannin: Likewise, we remain in a position to opportunistically sell incremental volumes when we view pricing arrangements as favorable compared to prevailing market levels in alternative markets.
Jason Fannin: Turning to the current pricing environment.
Jason Fannin: As of November 4th, the U.S. East Coast Index values were $190 per ton for low ball, $185 per ton for high ball A, and $173 per ton for high ball B.
Jason Fannin: while Australian Premium Lowball sits at $203 per ton.
Jason Fannin: As prices in Asia have declined, U.S. relativities compared to Australian premium lowball have rebounded back to historical averages.
Jason Fannin: This continues to suggest we are at or near the price floor for U.S. coking coals.
Jason Fannin: With a lack of supply growth out of Australia, combined with the demand growth we continue to witness.
Jason Fannin: Pacific markets can no longer treat the U.S. as a swing supplier. Prices must rebound if Pacific end-users are to continue enjoying the supply diversity the U.S. brings to their coke and coal blends.
Jason Fannin: Production volumes in the U.S. have already declined due to unfavorable prices.
Speaker Change: As Randy mentioned, overall industry Q3 U.S. MET production was down 8%.
Speaker Change: bringing overall growth back to flat on the year. We believe U.S. Met production will continue to fall from here, at least until the price environment improves.
Jason Fannin: In terms of market segmentation, U.S. lowball production is down 4% year-to-date. This segment is currently much tighter than index pricing is suggesting, and we see demand continuing to outpace supply.
Jason Fannin: Fortunately, we are positioned for growth in the lowball segment as Maiden and Berwyn continue to grow production.
Jason Fannin: In the highball segment, U.S. production remains up 3% year-to-date, despite lower pricing.
Jason Fannin: Most of the incremental growth from our domestic piers has been high ash and high sulfur.
Jason Fannin: This ensures sustained demand for Rameco's supply of low-ash and low-sulfur highball from Elk Creek.
Jason Fannin: which is used by customers to blend down less favorable coal characteristics.
Jason Fannin: Our broad spectrum of low-ash and low-sulfur coking coals across all grades is somewhat unique in the industry and represents a competitive advantage.
Jason Fannin: This is especially true in lower-priced environments like the one we're in now. Ramico's customers recognize the value in our position as one of the largest producers of low-ash and low-sulfur cooking coals in the United States.
Jason Fannin: With that said, I would now like to return the call to the operator for the Q&A portion of the call. Operator?
Speaker Change: We will now begin the question and answer session.
Speaker Change: To ask a question, you may press star then 1 on your telephone keypad.
Speaker Change: If you're using a speakerphone, please pick up your handset before pressing the keys. And to withdraw a question, please press star, then two.
Speaker Change: At this time, we will take our first question, which will come from Nathan Martin with The Benchmark Company.
Nathan Martin: Jason, I appreciate your market comments there. Obviously, a lot of discussion during earnings season around.
Nathan Martin: the current weakness in the steel market, especially on the highball side. Seems like price realizations are reflecting maybe some higher than normal discounts. You just talked about maybe some of the advantages your products have. Maybe just a few more additional thoughts there, or even a representative net back calculation would also be really helpful. Thanks.
Speaker Change: Sure, Nate. Thanks for the question.
Speaker Change: doing quick math on where the current indices are at and then pulling out a typical irrelevant poor cost.
Nathan Martin: You're probably around a 130 net back, you know, flat to the to the highball indices average currently.
Nathan Martin: I'd say in that range. And yeah, as I mentioned, Ramco's really unique in terms of all our products are low sulfur.
Nathan Martin: And particularly in the highball space, that plays a big part in Elk Creek's pricing.
Nathan Martin: So certainly we see
Nathan Martin: Folks taking business at levels like you mentioned. Fortunately for us, our products demand a
Nathan Martin: You know, I'd say a stronger relativity just based on those attributes, particularly when we saw, if we're going back in history a little bit, when the Russian coal was pulled out of Europe and, you know, became available only to very select markets, you know, that coal was very low sulfur.
Nathan Martin: as well. We've stepped in, actually, a lot of the newer business we've had last year and this year has been folks replacing that type of coal.
Speaker Change: Okay, got it. That's helpful. Maybe any additional color you can provide on the variable costs? I mean, you mentioned rail costs. I'm sure there's also some sales price related costs, too, in that calculation. Is there a sensitivity there?
Speaker Change: Yeah, certainly, you know, those will ebb and flow, basis the indices. They're very, I'd say, prompt.
Speaker Change: in terms of which indices they reference.
Speaker Change: You know, the market's up. They'll trend up slightly with it almost at the same time and same thing when it's when it's Moving downwards, so they track pretty closely You know with where the market's at essentially
Speaker Change: Okay. Thanks.
Nathan Martin: Nate, of course, also, I would point out, obviously, our sales and marketing costs are rather...
Nathan Martin: a quick pass through as well. So obviously in the declining market, we're going to be experiencing lower costs there.
Speaker Change: Exactly, Randy, appreciate that. And maybe along those lines...
Speaker Change: I can appreciate you guys are probably still going through the budgeting process for next year, but
Nathan Martin: given the meaningful improvements you continue to make on the cost per ton front.
Nathan Martin: including, you know, some of that lower cost production coming to line and obviously the reduced trucking costs associated with the Maven prep plant ramping up. Do you feel pretty confident in your ability to maintain that expected sub $100 cost per ton year-end run rate, you know, into next year?
Speaker Change: short answer is yes I think you know we've got
Speaker Change: you know, a strong slate of.
Nathan Martin: oncoming production next year that we've already kind of got baked in which is
Nathan Martin: you know, the growth in our Berwyn mine into the third and perhaps hopefully the fourth section.
Nathan Martin: depending upon market conditions. We've got Maven, which we, of course, have the prep plant that's now operational. We can take a look at perhaps expanding there into deep production, which, you know, ultimately would be as much as another million tons.
Nathan Martin: and then we've got our eye on a couple of additional projects. So, I think in terms of 25 costs...
Nathan Martin: I think we're going to, you know, the good news is that it's in a down market.
Nathan Martin: You try to exercise as much discipline as possible to go back and really...
Nathan Martin: sweat out all the areas of...
Nathan Martin: potential cost savings that you can.
Nathan Martin: from Normal Operations, and I think we've done a...
Nathan Martin: an outstanding job on the operational front of doing that obviously dropping our cost from a
Nathan Martin: High of 120 down to 93 is a huge drop percentage-wise, and I'd hold that up against anybody else in our space. I don't know that we're going to continue to drop at that same rate, but we will certainly continue to try to squeeze everything out that we can.
Speaker Change: Great, appreciate those thoughts. And then maybe just one last, kind of taking a step back here to the fourth quarter. I see you guys tightened up your full-year shipment guidance range. What does it take to kind of get you to the low end or the high end of that updated guidance? Is it mainly logistics? Is it demand? Just would be great to get some thoughts there.
Jeremy Sussman: Yeah, hey Nate, it's Jeremy. So yeah, obviously the implied range is about a million to, obviously, a million and a quarter, which is that kind of five million ton exit rate.
Jeremy Sussman: I'd say the high-end of guidance assumes nothing really slips into 2025 in terms of carryover tonnage.
Jeremy Sussman: that we continue to reduce inventory. You know, the low end assumes, you know, a reasonable amount of slippage into next year. Obviously, demand isn't great right now, but, you know, we'll just have to see how the cards shake out. But that's kind of the reason for the range.
Speaker Change: Jeremy, thank you. So I'll leave it there guys, very helpful. Appreciate the time and best of luck in the fourth quarter.
Speaker Change: Thanks, Dave.
Speaker Change: And our next question here will come from Lucas Pikes of B-Rally Securities. Please go ahead.
Lucas Pikes: Thank you very much, operator. Good morning, everyone. My first question is on the volume side for 2025. Jeremy, you just mentioned there the kind of exit rate, Q4 expectations. How should we think about 2025 off of that base? Thank you very much.
Speaker Change: Yeah, obviously. Hey, Lucas. It's, uh, I appreciate the question. So...
Speaker Change: You know, we've got a kind of budget meeting coming up with the board in in a couple of weeks and then of course the early December board meeting where we'll Certainly release guidance in line with historical practice, but you know, I I kind of point you to I think it's slide Slide 15 where you know, you can effectively see that for each of the last, you know, five quarters
Lucas Pikes: You know, we've effectively increased our production guidance, or excuse me, our actual production.
Nathan Martin: every quarter. So, I mean, we're certainly excited to exit the year at a, you know, hopefully a five million ton per annum sales run rate at the high end of
Nathan Martin: of the range. We'll see where market conditions lie and get back to you guys kind of in line with the normal cadence within a month or so.
Nathan Martin: Yeah, and Lucas, this is Randy, and I think you can also do some pretty easy math from, you know,
Nathan Martin: points we made such as the Berwyn third section, you know, will be running at a 300,000 run rate. We've got the four section, we can also start.
Nathan Martin: We've got Maven.
Nathan Martin: that will be, you know, obviously at full tilt.
Nathan Martin: with the possibility of adding.
Nathan Martin: you know, some deep tonnage, which will probably not happen until later in the year.
Nathan Martin: but we have additional tons that we'll be able to start bringing on throughout the year. But I don't want to get ahead again of what Jeremy said, of what the board slates for what we want to look at for 25 production, but those are some low-hanging fruit.
Speaker Change: I appreciate the call. Thank you.
Speaker Change: on their minds or percentage of supplies lost making, how quickly might they respond to that price signal? Thank you very much.
Speaker Change: Chris, why don't you go ahead and take a first stab at that.
Chris Blanchard: Yeah, so just, you know, anecdotally down in the in the coalfields, Lucas, we've we've heard of a number of...
Speaker Change: mines shutting down that probably similar to Jawbone or perhaps even worse that just just can't be sustained in this market, particularly with as tight as labor has been throughout really 23 and 24. So we've heard a number of these come off.
Nathan Martin: There are, you know, a number of processes that are running, you know, right now for looking for sales for operations that are distressed. So if I was going to
Nathan Martin: Handicap, I would guess, you know, probably.
Nathan Martin: 115% is on the chopping block right now, and there's probably a little bit more than that where
Nathan Martin: You know, our competitors where the plan is that hope things get better. So you may maybe that same amount that's treading water and hoping for better days. So, you know, as much as 20, 25 percent of the total production is probably, you know, code orange or code red.
Speaker Change: Chris, thank you very much for the color. I'll try to squeeze one last one in. On the domestic pricing for next year, I believe specialty coals were still outstanding.
Speaker Change: Could you speak on what additional volumes you're looking to put under fixed price for 2025 and how should we think about the weighted average once all the dust has settled? Thank you very much.
Speaker Change: Thanks, Lucas. This is Jason. Obviously, we've got a few negotiations ongoing at this moment. We can't get into too much detail there. Certainly, given the nature of the product, it will bump up that current average number of 152, as Randy mentioned in his remarks.
Speaker Change: And likewise, you know, given it's, you know, we're talking about more than one customer here, the volumes could frankly could fluctuate somewhat too.
Speaker Change: I know that's not a hard and fast answer, but it's probably the best one I can give with a lot of up in the air currently.
Speaker Change: Good news, Lucas, is two things. One, the number will go up and the price will go up.
Lucas Pikes: Very helpful.
Speaker Change: Gentlemen, I appreciate all the color and I wish you continued best of luck.
Speaker Change: Thanks, Lucas.
Speaker Change: And this concludes our question and answer session. I'd like to turn the conference back over to Randall Atkins for any closing remarks.
Speaker Change: Learn more at www.plastics-car.com
Randall Atkins: Well, thanks again for everybody for being on the call, and we look forward to catching up on our next call, which will be next year.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.