Ramaco Resources, Inc. (METC) on Q1 2021 Results - Earnings Call Transcript
Operator: Good day and thank you for standing by. Welcome to the Ramaco Resources, Incorporated First Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. I would now like to turn the conference over to your speaker today, Mr. Jeremy Sussman. Please go ahead.
Jeremy Sussman: Thank you. On behalf of Ramaco Resources, I'd like to welcome all of you to our first quarter 2021 earnings conference call. With me this morning is Randy Atkins, our Chairman and CEO; and Chris Blanchard, our Chief Operating Officer. Before we start, I'd like to share our normal cautionary statement. Certain items discussed on today's call constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.
Randy Atkins: Thanks, Jeremy. As always, I want to thank everyone for joining us today to discuss our first quarter results. What a difference a year makes, last year this time, the world seemed like it was in free fall. This year, we are sort of like the dog that has caught the car. We have just printed our second strongest first quarter on record with some terrific cost metrics. We are in full growth mode and produced a record number of tons for the quarter. We are also well underway to increasing our overall production by roughly 50% by mid-year of next year to an annualized run rate of over 3 million tons. We have just improved our guidance for the year on production, cash costs and CapEx. Our margins on our most recent sales are now running in excess of $50 a ton. Finally, the met markets hold as we anticipate, then we are well on our way to probably our strongest year of free cash flow. The stars seem to be aligning and life indeed looks a lot better than it did this time last year. Jeremy will be providing some more granular detail on finances, but let me simply highlight a couple of items that I think stand out. As I said, we had exceptional mine cost operational performance. Our quarterly cost numbers across all properties came in below $60 a ton. Indeed for March, our costs were $54 a ton. Our production of almost 580,000 tons for the quarter was also a record. Our pricing was up almost $10 per ton since last quarter, the $89. And as I said earlier, our margins are some of the strongest we have seen. We printed EBITDA of just under $12 million for the quarter and are set to finish 2021 as perhaps our strongest year of free cash flow. Although, I'm going to speak on the markets in a moment, we are seeing continued record price and demand in the steel sector, which we do not see abating any time over the next 18 to 24 months.
Jeremy Sussman: Thank you, Randy. I'm going to start by going over our first quarter 2021 financial highlights. And then I will turn to our updated guidance before touching on what we are . To begin, we had a stellar first quarter across the board, both operationally and financially. First quarter 2021, EPS of $0.10 was up 100% from a year ago. While first quarter adjusted EBITDA of $11.5 million was up almost 40% from a year ago. This was our second best first quarter of EBITDA in Ramaco's history with only the first quarter of 2019 best in these results when as you may recall, the Australian metallurgical coal benchmark was almost double where it is today.
Chris Blanchard: Thank you, Jeremy. From an operations standpoint, the first quarter of 2021 was a near total of outpace from the conditions in the market and in our mining operations ending 2020. I will just touch on a few operational details and give a brief update on our development projects. However, first from a safety point of view, 2021 started much stronger statistically than our performance in 2020. Our total reportable incident rate across Ramaco has improved by over 30% from 2020. Obviously, zero is our goal, but the focus on safety from all of our miners can clearly be seen in the results thus far this year. Equally important from a health perspective at the end of 2020 and January of 2021, we were operating in the midst of the third wave of the coronavirus pandemic. For a portion of these months, absenteeism at Ramaco related to COVID-19 was running just below 10% as our employees either dealt directly with the virus or care for family members affected by it. Fortunately, as we have continued throughout this year, we have seen the virus subside in our communities and the impacts to our employees have reduced substantially. Now, turning first to our new projects. At our Berwind, Knox Creek complex, we initiated construction on the slope project, which will take the mine to the Berwind Pocahontas number four reserve. We mobilized our contractor to the project during March with first excavations of the three slope tunnels occurring late in the month. Construction on this project is currently on target for completion later in 2021 with P4 Low Vol production expected in the fourth quarter of the year. Our other growth project, the Big Creek surface and High Vol mine began earthwork and construction of sediment control structures during March. Equipment deliveries have commenced and we expect initial surface coal production and releases in the third quarter of this year. Finally at our Triad mine was successfully started and operated in the first quarter of this year, given the thicker coal seam in the Pocahontas number four, we saw higher clean tons per foot, higher washing recoveries and lower overall mine costs, which we also expect to enjoy in the larger Berwind Pocahontas four mine later this year and throughout the future. We expect to continue to use Triad production as a bridge until the Berwind mine is online and in operation in the number four seam. Triad has allowed us to successfully trial the P4 seam of coal with both domestic and international customers so far this year and initial customer feedback has been very positive.
Operator: Your first question comes from the line of Lucas Pipes from B. Riley Securities. Your line is now open.
Lucas Pipes: Good morning, everyone, and congratulations to the entire team on a very strong first quarter.
Randy Atkins: Thanks, Lucas.
Lucas Pipes: My first question is on pricing, which had a few of your peers report first quarter results to-date. And pricing is complicated these days. And when I think back to some of your peers comments, there is kind of a mix on the open tonnage between pricing linked to the Australian index and the pricing linked to the much stronger U.S. East Coast indices. And I wonder if you can share with us your anticipated breakdown by geography or pricing exposure, would really appreciate that. Thank you.
Randy Atkins: Thanks Lucas. So we are East Coast seaborne sellers, we don't price anything off the Australian index. If you go back and look at our breakdown thus far this year we're about $55, $45 between domestic and export. And in terms of the sort of geographic breakdown, I would say on the export side, our largest concentration is Europe, we've sold actually some to Africa and I think that's pretty much the main bulk of where our sales. Jeremy, if I missed any of that.
Jeremy Sussman: A small amount of South America, but really the price like Randy said is Europe and Africa. And I mean Lucas, I think Randy hit on a key point. There's been sort of a lot of dancing around trying to shift away from the Australian benchmark to the U.S. East Coast benchmark from our peers. But we do not sell anything on the Australian benchmark. So to get to our prices on our index tons, all one needs to do is either take a look at the U.S. East Coast High Vol A/B or Low Vol index, depending upon the product that we're selling.
Lucas Pipes: That's really good to hear. Good job on the commercial strategy. My second question is in regard to your balance sheet and priorities in terms of capital going forward, you have an enviable position. How do you think about the balance between potentially capital returns if pricing continues to recover versus organic growth? Would very much appreciate your thoughts on that. Thank you.
Randy Atkins: Yes, well, we're not quite yet at the end of the diving board to talk about capital return. I think we needed to prioritize, we probably feel we need to get to a certain level of critical mass and then depending upon the luxury of our free cash flow, determine what's the most appropriate way to start doing such thing as a dividend policy. And we were absolutely supportive of a dividend, we've said that for several years. I think what we want to do is, again, make sure that we're kind of at an unusual size in the coal industry right now. We're not necessarily a micro cap, but we're certainly not to the size that we would like to be. And honestly, if we get to the sort of 4 million ton to 5 million ton range, we would be in the position of probably being – based on this year's production numbers, almost a 10% supplier into the entire U.S. met coal production. So we need to grow a little bit more than we've done thus far. And at that point, then I think we'll absolutely focus on capital return.
Lucas Pipes: Randy, I really appreciate that color. To you and your team, continue best of luck. Thank you.
Randy Atkins: Thank you.
Operator: Your next question comes from the line of David Gagliano from BMO Capitals. Your line is now open.
David Gagliano: Okay. Thanks. I'll be quick Lucas at my two topics actually. But I just wanted to, if you could just give us a quick refresh on any upcoming major capital spending needs or anything like that, whether it's in 2021 or 2022 and 2023 to achieve this 4 million to 4.5 million ton target over time?
Randy Atkins: No, I mean, we've got – I mean, I'll let Jeremy go down the cap spend, David. But we've pretty well budgeted in what our spending is for the main spend being in the course of the Berwind slope. And we're on our way there. Jeremy, if you want to add some more color, but there was no external needs that we've got right now.
Jeremy Sussman: Yes, that's correct, Randy. I mean, so we've tightened the range of CapEx guidance for this year from $25 million to $30 million, and now we're at $25 million to $28 million. And that reflects our increasing confidence as both Berwind and Big Creek progress. So basically by the end of the year or before the end of the year, Big Creek will be at its full run rate, David. And by Q2 of next year, Berwind will be as well. So while there'll be a little bit of capital spillover into 2022, as we said at the time of the growth announcements, the reality is the bulk of the capital for Berwind and Big Creek to get us to that kind of overall 3 million ton per annum run rate is in that $25 million to $28 million guidance for this year.
Randy Atkins: And David, I mean, we're always opportunistic. We'll happy to look around. We've got a number of organic projects that we've outlined in the material for the call to hear today that get us north of four, how we sequence that time. It is always a function of cash availability as well as obviously a decision on where we think the market is. So we'll be constantly reviewing that as the year unfolds.
David Gagliano: Okay. So I completely understand this year’s guide, just trying to get a sense as to next year and the year after to get to that 4 million to 4.5 million. I understand obviously 25 to 30 is the bulk of the – or 25 to 28 now is the bulk of the spend for Berwind. Are there any other major spends in 2022, 2023, 2024 time horizon to get to that next level?
Randy Atkins: Well, I think if you go and take a look at the slide, we've got an expansion of our Elk Creek plant. That's probably about $10 million spend over a period of two years. We would probably add another section to one of our existing mine to bump production up to roughly 2.5 million tons there. We've got our Jawbone mine that's over at our Knox Creek complex. That's probably Chris, what would that be, about a $10 million spend as well. So we've got those somewhere on the horizon, whether that's a 2022, 2023 spend, we'll make those calls as we get to that point.
Chris Blanchard: And I would just add, what Randy described is sort of laid out in three phases on Slide 7. So Phase 1 is Berwind and Big Creek, which of course is fully underway. Phase 2 is going to be the Elk Creek plant expansion. And then lastly the Jawbone mine, which basically gets us to pretty much to our stated goal.
David Gagliano: Okay, that’s helpful. Thanks very much.
Randy Atkins: Thank you, David.
Operator: Presenters, there are no further questions, please continue.
Randy Atkins: Okay. Well, we as always thank everybody for participating today. We hope it has been helpful. We obviously feel very gratified that we've been able to have a good quarter and we'll look forward to the balance of the year. And with that, we thank everybody. And we'll talk again soon. Take care.
Operator: This concludes today's conference call. Thank you all for participating. You may now disconnect.
