Ramaco Resources, Inc. (METC) Earnings Call Transcript & Summary

Welcome to the 2020 Annual Meeting for Ramaco Resources, Inc. Our host for today's call is Randy Atkins, Executive Chairman and Chairman of the Board. [Operator Instructions] I will now turn the call over to your host. Mr. Atkins, you may begin, sir.

Thank you very much. It's my pleasure to welcome everyone here today to this first virtual meeting of Ramaco Resources on an annual meeting basis. Given the state of the world in which we find ourselves, this web approach I believe allows us to be more inclusive and reach obviously a larger number of shareholders than we would otherwise be able to do, of course, in person. We certainly look forward, hopefully next year, to again being in a position to do something in person as we have done before. We are going to conduct the meeting in sort of 2 parts. First, we will have a short sort of business portion where we'll conduct some of the formalities of the annual meeting. And we'll also be able to have a brief slide presentation, which hopefully all of you are able to see as part of this webcast. Then we'll open it up for a brief period of questions and any comments you might have. I'm pleased to say that I've got on the line with me today, all of our senior management. I have Jeremy Sussman, our Chief Financial Officer, who's with me here in Kentucky; and in West Virginia, we have Mike Bauersachs, our President and CEO; as well as Chris Blanchard, our Chief Operating Officer. So as we go into the questions, obviously, if anyone has some comments they'd like to make, hopefully, somebody's on the line will be able to respond accordingly. I'm also pleased to announce that as of this morning, we've had roughly 84% of the total outstanding stock had voted and we've received sufficient votes to reelect all of our Board. After this meeting is complete, we will, of course, do a final tabulation and publish the detailed results. So now I'd like to introduce Jeremy Sussman, who we've designated as our inspector of elections and acting secretary for this meeting to conduct some of the formalities.

Thank you, Randy. It is now just passed 1:30 Eastern on June 26. This meeting is now officially called to order. After the formal meeting and presentation has concluded, we will provide time for general questions. Only validated stockholders or their proxy may ask questions. [Operator Instructions] This meeting is being recorded. However, no one attending via the webcast is permitted to use any recording device. The Board of Directors fixed April 27, 2020, as the record date for determining stockholders entitled to vote at this meeting. An affidavit has been delivered attesting to the fact that the documents themselves were mailed to all stockholders as of this record date. As required by our bylaws, a list of the stockholders who are entitled to vote at this meeting has been available for inspection at company headquarters for the last 10 days. The list of stockholders is also available during this meeting. The list shows that as of the record date, there were 42.7 million shares of common stock outstanding and entitled to vote at this meeting. I am pleased to announce as the inspector of election that a majority of the voting power of all issued and outstanding stock entitled to vote on the record date are present at this meeting today, either in person or by proxy. Therefore, a quorum is present. I declare the polls for the election of directors now open. All stockholders entitled to vote at this meeting who have not already voted, have the ability to do so at any time during this meeting until we close the polls. If you are a stockholder entitled to vote and have not yet voted or if you wish to change your previously cast votes, please do so by clicking the button on your screen via the webcast used to access this meeting. Please remember that if you have already voted by proxy, it is not necessary to vote again unless you would like to change your vote. After voting is complete, we will close the polls and the inspector of election will provide his report. Our single proposal is the reelection of all 10 directors listed in the proxy for each to hold office until the 2021 Annual Meeting of Stockholders or their successors are duly elected and qualified. If any stockholder would like to make a comment regarding the proposal, please submit your comment through the web portal. [Voting]

Okay. I don't see any comments. So with there not being any comments regarding the proposal, I will turn the meeting back over to our Chairman, Randy Atkins.

Thanks, Jeremy. So hopefully, everyone can navigate the web page that we've got here for our portal to see the presentation, which we're going to go through right now and myself and Mike Bauersachs will be the ones kind of going through this. But as I said, at the end, if anybody has questions, we're happy to direct it to any of the 4 of us here on the line. So as sort of a brief overview, as most of you probably well know, Ramaco is a pure play metallurgic coal company. We've got roughly a 50-year reserve life of 265 million tons. We're somewhat distinguished by low debt, very low ARO liabilities, advantaged geology, which is the main ingredient to our low-cost structure. And candidly, the ability to essentially the double production size of this company over the next few years. So on this first slide, which I guess shows as Page 3, we've got a number of attributes which are listed somewhat there on the left side, which I'd also like to refer -- actually on the next page, which is to kind of go down the list. We've got, as I said, on Page 4, we've got a long-lived asset base with very high-quality geologic reserves, which we've accumulated over the last, really almost 10 years. Our production this year is going to be slightly less than 2 million tons. But as we'll point out, we have the capacity to probably grow to between 4 million to 4.5 million tons over the next few years. Obviously, we're trying to wait to initiate some of our new projects until we see better market clarity, but we are in a position to move forward as soon as we feel that, that clarity is present. Our costs are roughly in this low $60 range. Our first quarter at Elk Creek came in at $61 a ton, which is clearly below most other met coal producers and certainly those that are operating continuous mining operations as opposed to longwall. Our superior geology basically get us a very attractive clean ton per foot number. And we hope to be able to maintain this low-cost profile for a number of years. We are poised to be able to sell into both domestic and export markets. Over the last few years, we've predominantly sold into the domestic markets, which has turned out to be a favorable trend for us. We're not quite sure what the future will bear, and since it's been a rather volatile year in the met coal markets, both domestically and for export -- but we're advantaged both from an infrastructure and quality standpoint to take advantage of either the domestic or the export markets. We've got very low debt and we've had basically $7 million of net debt at the end of last year. We have very low ARO liabilities, which were about $15 million at the end of last year. We are delighted to compare that against anybody else in the industry in our peer group. Our EBITDA last year was a record. We were north of $55 million. 2019 was a great year on many fronts. We had record production. The price environment and market environment was very favorable. We were roughly 30% above what we had reported in 2018. We feel as if we've got a very attractive management team, and we also feel, certainly from where the stock is trading at today's levels, that we make a compelling opportunity as a pure play met producer to advantage ourselves as we move forward in the stock market. Page 5 is a busy slide, but it essentially shows what our results for 2019 were, which, as you can see over on the right-hand side of the screen, we're roughly $55 -- pardon me, $55 million in '19, which was about a 30% jump. Our earnings per share were roughly $0.60 a share, which, again, is very attractive. The next slide, Page 6, is simply representative of our production growth capability. On the next slide, we'll talk about some of those in more specifics, but we basically have in-place reserves, which are fully permitted to move forward to essentially double the size of this company over the next few years once, as I said, we feel we're operating in a much more attractive market condition. On Slide 7, this kind of gives you the bridge as to where we would go to add roughly about 1.9 million tons, which we could do over the next 12 to 24 months. We start, of course, with our Berwind mine, which we have stopped the slope development on for the time being, again, just based on market conditions. But we're prepared to initiate that again just as soon as we see the market clarify itself. We've got another project that is near Knox Creek, which is a very attractive low-vol proposition. Also at Knox Creek, we've got the Jawbone mine, which is a high-vol A mine we've spoken about in quarters passed on our earnings call. And then, of course at some point, we will also increase the capacity of our Elk Creek operation by 0.5 million tons, which altogether would add about another 1.9 million tons on top of the projected growth that we've got right now in production of a little bit over 2 million tons. On the next slide, Page 8. This is kind of a peer comparison, the most important of which I think probably is our cost structure. So again, we are at -- on the far left side, we are ahead of the pack and certainly so on the basis of, again, doing more traditional mining techniques. Our shareholder position from a management standpoint, once again, is unquestionably different than most of our peers. We have a vested interest as owner-managers in trying to improve the stock price and improve the performance of the company to return value to our shareholder base. We definitely -- we know where we work. The next page on Slide 9, this shows some of our balance sheet characteristics. Again, obviously, we have a very, very low net debt-to-EBITDA number. It's kind of best-in-class, the same with respect to our ARO position. Again, we're poised to be able to grow this company, we think, organically without adding a lot of outside debt, which obviously creates problems in volatile markets like we find ourselves from time to time and certainly right now. So with that, I'm going to turn it over to Mike Bauersachs, who's going to do a little bit more deep dive on our operations and maybe touch a little bit more on the market characteristics which we find ourselves in at the moment. So Mike, if you'd please go forward.

Thank you, Randy. This slide shows the location of our reserve holdings' operations and a brief description of our key assets. When reviewing our infrastructure, reserves, production profiles and future organic growth opportunities, Ramaco has a tremendous advantage going forward. Our high-volatile Elk Creek mine -- Ramaco leads 2 attractive tracks earlier this year and I thought it would be important to point that out. They're immediately adjacent to our Elk Creek Holdings and add over 21 million proven and probable reserves and approximately 20 different coal seams, all accessible above drainage. With the last commercial mining on these tracks in the 1960s, a large portion of these reserves will have geologic advantages, helping us to perpetuate our current low-cost structure at Elk Creek for years and years to come. The reserves are adjacent to existing and planned Ramaco mines and we're actively mining on the property today at our Alma Mine. Leasing this reserve adds the last mining areas that were included in our original IPO-related mine plans. At Berwind, our large low-volatile reserve, we've remained poised to restart the slope from the #3 Seam to the low-cost #4 Seam. The #4 will have similar coal heights to what we are currently experiencing at Elk Creek. As we get more clarity about the metallurgical marketplace, this is a key priority from capital deployment at an operating perspective. As referenced, we also envisioned future Jawbone high-vol A production adjacent to the Knox Creek infrastructure. Also note, on the map, the recently added Big Creek area that is in close proximity to Knox Creek. That area has an existing deep and surface mine permit. The surface mine could provide quick access to new production in a rising market. In our addendum, which you can view later, we added 2 slides that depict 2 of our Elk Creek deep mines. Those pictures provide a good view of the terrain that we're operating in, in that area. The ability to construct low-cost above drainage mines has historically been an advantage that Central Appalachia has enjoyed. At Elk Creek, this will be the case for decades to come in lots of different coal seams. The last picture in the addendum as well as the cover slide depict the Elk Creek preparation plant and associated infrastructure. Note the 2 outbuildings from the main plant. We recently finished deploying capital to construct a new plate press building, housing 2 additional plate presses. With 4 plate presses in 2 buildings, we are well positioned to manage refuse material disposal post the exhaustion of impoundment space for decades to come. The new capacity that we've created here also includes the ability to grow our production levels from where they are today. The next slide depicts our current coal quality mix as well as our targeted mix post the build-out of our growth projects that we referenced earlier. For good measure, we've also included a slide that depicts our current 2020 sales mix and pricing. I believe that our average pricing will likely compare favorably with our competition due to our heavy amount of fixed price exposure. While we see others continually focus on acquiring legacy operations with short reserve lives and assumption of substantial liabilities, we prefer to do the hard work and develop mines and properties from scratch. Moreover, we are almost entirely a metallurgical coal producer, which really sets us apart from our competition. With that said, the entire sector has had a difficult share price performance in the last year or so and you can see how we compare with our peers. From strictly a metallurgical perspective, the next slide depicts one of the key reasons for some of negative stock performance: very difficult met coal pricing. With that sort of drop-off in pricing, we are continuing to see under investment in the sector as well as supply rationalization. These fundamentals should set the stage for a recovery. The following slide shows the impact that COVID-19 has had on our domestic customers. With that said, the healthy recovery we are seeing in China will hopefully set a positive trend going forward. On the final slide, we have included some key fundamentals for our environmental, health and safety program. Our motto that safety is everyone's responsibility has also run true as we have implemented our pandemic response. While this is the final slide in the presentation, I can assure you that in most of our internal management meetings, that this is the first thing that we discussed, and it is the most important thing that we do every day. I'll now turn things back over to Randy.

Thanks, Mike, for that overview. Jeremy, have we completed the voting from a formality standpoint?

Yes. So Randy, now that everyone has had the opportunity to vote, I now declare the polls for the 2020 Annual Stockholder Meeting closed. As the inspector of election, and as Randy already said, I'm pleased to announce that the preliminary vote report shows each nominee for election to the Board of Directors has received a sufficient percentage of votes for election and therefore, each nominee is duly elected. We will be reporting the final vote results in a Form 8-K. With that, I turn the meeting back over to you, Randy.

Okay. Thank you, Jeremy. So before we kind of open it up for a Q&A, if we've got any shareholders with questions, I just want to make sure and leave on a -- somewhat of a point that, again, as management with a large ownership position in this company, we are acutely aligned with the interest of our public shareholders. And we will continue to operate essentially with the same objectives that we started this company with, which was to mine very long term, opportunistically, geologically opportunistic reserves, which we hope we can bring in at a very low-cost structure and continue to do so with very little debt or other types of liabilities. At the end of the day, we are focused on generating free cash flow, which we are anxious to get back into the hands of our shareholders, as we've said we would -- wanted to do since we started this company. And we feel, over time, by generating that free cash flow, we will be able to have the market reflect essentially what our underlying value truly is. So with that, kind of as a brief remark, do we have any questions, Jeremy?

Not yet, Randy.

Okay. We'll leave the lines open a little bit for anybody that might want to address any questions to us. I know it's not the easiest thing in the world to navigate these web pages to ask questions. But certainly, if anyone does, we'll be delighted to entertain them. Okay. Well I see, unfortunately, we don't have any questions. We will, as always, be happy to entertain any questions that a shareholder might have. We are delighted to respond directly to anyone who might like to either write or call us. So do not feel shy about asking us anything. Our next public earnings announcement will be in mid-August, I believe. So we will certainly look forward to speaking with everyone at that point. And with that said, I believe this concludes our meeting, and we appreciate everyone coming today, and we look forward to another meeting, hopefully, again in person, sometime next year. Thank you very much. And I'll turn that back to the moderator then for the web page here.

This now concludes the meeting. Thank you for joining and have a pleasant day.

Thank you.