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

Hello, and welcome to the Ramaco Resources Update Conference Call. [Operator Instructions] After today's presentation, there will be an opportunity to ask question. [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to Jeremy Sussman, Chief Financial Officer. Please go ahead.

Thank you. On behalf of Ramaco Resources, I'd like to welcome all of you to our first rare earth elements update conference call. With me this morning is Randy Atkins, our Chairman and CEO; and Dr. Alex Moyes, our Director of Critical Minerals. 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. These forward-looking statements represent Ramaco's expectations concerning future events. These statements are subject to risks, uncertainties and other factors, many of which are outside of Ramaco's control, which could cause actual results to differ materially from the results discussed in the forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made, and except as required by law, Ramaco does not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. I'd also point you to additional REE specific disclosures in our March 21 material, including Randy's shareholder letter, which can be viewed on our website, www.ramacoresources.com. Lastly, I'd encourage everyone on this call to go on to the homepage of our website and download both the shareholder letter and the full Weir technical report. With that said, let me introduce our Chairman and CEO, Randy Atkins.

Thanks, Jeremy. Good morning to everyone. Although the day has the feel of one of our quarterly earnings calls, it's somewhat of a different breed. Today we're going to discuss in more detail, our Rare Earths which is a new line of business that Ramaco has been working on for some time. I want to make clear that our potential Rare Earth business is in development mode. But because of the shareholder interest generated in this project, we felt it was appropriate to now have a public presentation of where we are in the development cycle. I have Jeremy speaking to some of the more business-related aspects and importantly, we recently brought on Dr. Alex Moyes to help oversee our rare earth efforts. Alex has got some serious experience in the entire area, including a PhD thesis which focused on rare earth mining in Wyoming, and we'd be delighted to have him guiding us. The updated Weir report was released last week, as Jeremy said, and had some very positive results. They provide us some confidence that on the basis of that geological testing, we may have the foundation for our commercial rare earth project. With that said, we've got a lot of geological, metallurgical, mineralogical and technoeconomic work ahead of us to prove all that out. So with that as a preamble, the purpose of today's call is to discuss sort of: first, where we are on the critical path for the mining, the processing and future commercialization of this opportunity. Second, what near-term steps we will be taking for the rest of the year to advance the project. Third, what are the sort of "known unknowns and known knowns", so to speak. And lastly, how we're contemplating structuring the capital investment to move the project forward. As you all know, this rare earth opportunity was publicly introduced about a year ago. Since 2018, however, we have been involved with the U.S. government in an ongoing geological assessment of our Brook Mine property in Wyoming. In 2019, we received the discovery that the Department of Energy's National Energy Technology Lab, NETL, had determined that the mine had unusually high primary magnetic concentrations and that was from testing only a limited number of core samples we had provided. And as far back as 2014, NETL had been tasked by the Defense Department to do a national assessment of where REEs might be found in the U.S. given both their scarcity and the strategic national importance of these elements. Indeed, we hope that this project will one day contribute to solving that scarcity and become a vital national domestic source of these valuable elements. Today, after several years of core testing and additional core drilling, the geological aspects of the prospects have matured. Because of that, we can now address some threshold issues. One is whether the REE deposit is large enough or concentrated enough to be considered commercially viable. From the results of the Weir report, it's now our conclusion that the geological analysis has reached this critical mass to validate its commercial prospects. Indeed, one important aspect of this project today is that we essentially began this overall development roughly almost 12 years ago. Because of that, we're now positioned to now transition from testing and move forward into a commercial development cycle. Our mine is fully permitted, took us an 8-year slog. And indeed, we've already begun actual mining to develop bulk core samples for additional precommercial chemical testing. Our near-term goal is to complete most of that geological and chemical testing this year and produce a full-blown technoeconomic report by Q4. Alongside that work, we will be exploring with third parties the optimal processing techniques that will apply to our geology and chemistry. And this could then set the stage for 2025, considering either to construct a pilot processing facility on the site or to have that pilot testing done in a third-party facility. We hope that this would then lead by '26 to preliminary commercial production. Admittedly, this is a long runway. But if each piece of the puzzle falls in place, it is achievable. We are starting this REE development as an established metallurgic coal producer and not as a start-up junior miner. Ramaco's coal operations are growing in size and financial capability but with a very conservative capital structure. Our team is experienced in successfully starting new projects from scratch. And we also start the Brook Mine project from the position of already enjoying a solid core cash flow pipeline from our met coal operations. That's going to enable us to develop this project with the optionality of what is going to be the highest value proposition as far as the shareholders of Ramaco are concerned. Now let me briefly summarize the findings on the geology and chemical testing we released last week. Then I'm going to turn the floor over to Jeremy to discuss some of our options on funding development, and then I'll have Alex explain in more technical detail what the results mean and what we will be doing to move the project forward on a variety of operational fronts. As I said in my shareholder letter released last week, what we know now is that the Brook Mine is the largest unconventional rare earth discovery thus far in the U.S. Also, NETL has a variety of theories geologically as to why the REE was formed in this spot and came to be deposited in our mine, which Alex will address. In a nutshell, we have independent testing that's validated we possess about 1.5 million tons of various REEs with an average concentration of almost 600 parts per million. These numbers will likely grow as we do further testing and coring. Also recall that these totals are from less than 1/3 of the property and its shallower depths. The deeper and the broader the physical areas we test in core, the more we expect to add to these totals. The REEs were found in a variety of different streams in the lithologies, but one important fact is we do not have radioactive tailings, which would make the mining and processing much more expensive and complex. The concentration levels are important as a marker for the cost and difficulty of processing the REEs economically. Some of the deposits now show concentrations, particularly in coal, which are much higher than the norm and indeed to the level of almost 10,000 parts per million. And through some physical and chemical techniques, all of these concentrations can be further enhanced for processing. We're now also starting to do more deeper cores because NETL has a theory that there may be greater concentrations at deeper levels. We have previously cored to only about 200 feet and we know that there are seams that go down to more than 1,000 feet. Testing on these deep cores also opens the possibility that we might pursue a variety of mining techniques, surface highwall or even in-situ mining at different parts of the property and, of course, with different cost structures. The REEs we found to date are extremely valuable. Testing so far indicates that about 40% of the deposit contains primary and secondary rare earths, including 2 very valuable critical minerals, germanium and gallium. And both of those 2 minerals were banned from export by China last year and candidly may be more valuable than almost all the other rare earths except for perhaps terbium. If we step back and look at this opportunity, one analogy would be to size this up as another major Ramaco mine project but one with the possibility, however, to process the mine product ultimately to an even higher value in product. It's too early to declare that this might be a mine-to-magnets project. However, both the deposit size and the concentration levels would suggest that this concept is not beyond contemplating. And as far as financing the project, as I said in my shareholder letter, we need further information on project economics and costs before we can begin to determine which direction to proceed there. We are going to preserve a great deal of optionality on our finance. However, given the growing cash flow from our met operations and the potential high-value returns from developing the REEs, we will probably have a bias to self-funding, so as not to dilute our existing Ramaco shareholders. So with that as the background, I'm going to turn the floor over to Jeremy to discuss the project economics and then to Alex to discuss the technical aspect of what we're doing. At that point, we're going to open the floor to some questions. And with that, Jeremy, please give us some background on the business side.

Thank you, Randy. I'm excited to talk about the business prospects of our potential new rare earth element business line. Even though we'll be focused today on rare earth, let me first say how proud we are of the growth in our core metallurgical coal business. With that said, we've been given a unique geological opportunity from the discovery of an exceedingly large and concentrated rare earth deposit at the Brook Mine. It's our goal to now derisk and advance the commercial prospects of that project. Investors would then have the benefit of being able to view Ramaco as both a growing metallurgical coal company and an emerging producer in the REE space. I believe there are 5 unique aspects to Ramaco that would allow our Brook Mine prospects to stand out favorably in contrast to pre-revenue junior mining companies, which, as Randy noted, we, of course, are not. First, as Randy mentioned, our mine is permitted after an 8-year odyssey. That in and of itself is a rarity. We also own the mineral, which is on private, not federal land. Second, the deposit is not only uniquely large, it has now tested both to show likely commercial concentration. It obtains a slate of the most valuable magnetic REEs in almost 30% of the deposits such as terbium, dysprosium, neodynium and prasadinium. 2 extremely valuable critical minerals, germanium and gallium, also make up another 10%. Importantly, our deposit does not show any radioactive tailings so we can ultimately process this ore in the United States without shipping it to China for refinement. Third, we're well capitalized to be in a position to fund the capital for development. Ramaco Resources generated almost $350 million in net cash from operating activities in 2022 and '23 from its metallurgical coal business. This all gives the company a major leg-up financially to be self-sufficient compared to the vast majority of pre-revenue junior miners. Fourth, our management team has an excellent track record of both growing the business from scratch and attracting the talent to do so. Ramaco has grown from mining its first ton of coal in 2017 to exiting 2023 at 4 million ton per annum sales run rate with over 800 employees. Fifth, Brook Mine is located in the true Tier 1 jurisdiction near Sheridan, Wyoming. It's intersected by both Interstate 90 and the mainline of the BNSF railroad. By contrast, over 2/3 of all critical minerals are found in conflict-zone countries around the world. In terms of the value proposition of this mine, as noted on Page 5 of Randy's shareholder letter, the estimated size of the deposit is 1.5 million tons of total rare earth oxide or TREO. This is from sampling only 1/3 of the site. The market value of our magnetic REEs and critical minerals are found in Randy's shareholder letter. Our mine and extraction plans will focus on maximizing that value by focusing on mining and extracting those valuable elements and not concentrating on the lesser value REEs. In terms of financing the project, we believe both the necessary investments to commercialize this asset is within both our operational and financial capabilities. Once we understand the capital and operational requirements to develop this new REE business, we can more logically provide a capital structure around how this unique opportunity should be financed. We'll maintain optionality on this with, of course, one option being to internally fund the investment from Ramaco's own growing financial resources. Alternatively, there are other financing options. And in any scenario, METCB could maintain a royalty position in the REEs and critical minerals being mined. As everyone is aware, there's increased focus from the government on securing domestic sources of key critical minerals. In fact, speaking of financing, earlier this month, a single clay lithium deposit received more than a $2 billion conditional loan from the U.S. Department of Energy. The Brook Mine may also be positioned to be a significant strategic and economic benefit to the U.S. I want to be clear that regardless of the financial direction we take, Ramaco's management remains committed to maintaining a conservative balance sheet, while at the same time, striving to return increasing amounts of cash to our shareholders. Lastly, as we look at the somewhat different unconventional opportunity, reality is that coal companies generally trade at fairly low multiples. This is one of the motivations for Ramaco to pursue this unique business line. There's only one active REE mine in the U.S. today owned by MP Materials in California. For some comparative purpose or context, Ramaco generated more adjusted EBITDA net income in the second half of 2023 alone than MP generated for all of 2023, yet Ramaco's market cap is currently less than 1/3 of the market cap of MP. In summary, while there's clearly a lot of work that remains as we embark on a path to REE commercialization, we're excited for what lies ahead on this journey. With that said, I'd now like to turn the call over to Alex Moyes, our Director of Critical Minerals, to discuss the geological aspects of the deposit and our next steps in the commercialization time line.

Thank you, Jeremy, and good morning, everyone. Randy and Jeremy touched more on the business and financial aspects of the Brook deposit. I'm going to focus on the geological and operational aspects of our development. Our exploration efforts at the Brook Mine deposit have been nothing short of exciting. As Randy mentioned, based on the Weir report released last week, our estimated tonnage has almost doubled since last year. That is because we've identified mineralization spanning multiple rock types, ranging from near surface level down to depths of approximately 400 feet. We now have significantly more drill holes and core compared to last year. Not only did we organically drill new boreholes and cut core, but we also inherited a massive drilling database with significant data from prior work on the property. We now have approximately 600 boreholes informing our geologic model and over 100,000 feet of core and lithologic logs. We have performed almost 30,000 XRF scans and over 1,900 ICP-MS analyses to date. This does not include the significant testing we are doing on our new deep 850-foot core. The additional sampling has increased our average deposit concentration to 550 parts per million on an ash basis, a near doubling since last year. This number includes gallium and germanium, which are incredibly valuable elements and, as Randy mentioned, found in unusually significant quantities at the Brook deposit. We are currently estimating approximately 140,000 tons of gallium and germanium and at high concentration. We are currently evaluating both the best way to process and separate these developments as well as where we have the most overlap from our high-grade rare earth zones. This will have implications on the design of our process flow sheet and subsequent pilot operations. Also, keep in mind that our efforts around gallium and germanium are relatively new. We had not previously focused on these 2 elements, and therefore, have significantly less data compared to our rare earths. We are, however, now systematically resampling all our core and are dramatically increasing the number of tests we have on these 2 elements. So tonnage and concentration may actually increase as we further define these 2 elements. I mentioned a moment ago the concentration on an ash basis. Let me describe ash basis in more detail because it's a really important point. The Weir report indicates our highest-grade zones are associated with rock types that have high organic carbon content, that is to say, it is not mineral matter but an easy-to-remove constituent of the rock mass. Removing this carbonaceous material allows us to assess the concentration of the rare earth and the actual mineral matter. This is just like any conventional rare earth mining operation would report given that their ore is 100% mineral matter. Furthermore, it has been documented in academic literature and confirmed by us and SGS that dissolving the carbon in solution when performing concentration testing leads to an underestimation of the rare earths. This is due to the carbon matrix interfering with the machine's measurements. Early retesting suggests that due to not removing the carbon from our original samples, we were likely underreporting our rare earth concentration by 10%. We are currently in the process of retesting a majority of our samples and we will re-report our revised concentrations in a later TRS. Now back to the geology. We have determined that the mineralization encompasses coal seams and associated rock types, including sandstones, siltstones and shelves. Importantly, our mineralization is essentially free of radioactive materials, which many domestic and international deposits are having to contend with. Removing radioactive waste can create a significant cost increase when compared to a deposit free of them. As a result, many producers find the only place they can refine their radioactive ore is in China. Also, what's particularly intriguing geologically is the emergence of what we've come to term fairways, which exhibit significantly higher grades of rare earths. These zones demonstrate lateral continuity suggesting geological controls that concentrate the rare earth elements within specific areas of the Brook. We will now focus on these high-grade regions to gather additional data and optimize our exploration efforts. As we better define and understand these high concentration zones, such as depths and ore thickness, we can make determinations of initial mining methods and do mine sequence planning. Interestingly, we've now found the highest concentration zones to be associated with the coal seams. This finding holds immense significance in how we think about our mining and processing of this highest-grade ore. Because of enhanced testing techniques recommended by our consultants, we are able to more precisely sample our coals. Now as we resample these zones from both recovered core and new drilling, we anticipate a combined increase in average concentration within the deposit as a whole as well as tonnage associated with the coal. Rare earth element oxide tonnage associated with the coal currently stands at 5% or 70,000 tons of the deposits. It is also worth noting that while we have not definitively established the trend, it appears based on limited tests from deeper zones, the concentrations are increasing the deeper we go. We have a handful of cores down to 400 feet and those deeper zones do show an increase in concentration. We now have a new deep core that went down to 850 feet and has intersected some large coal zones that we are awaiting testing data on. Having even higher concentrations at depth opens up possibilities for alternative and probably less expensive mining methods such as in-situ recovery mining. This trend is so far consistent with the hypothesis proposed by our colleagues at NETL. That theory suggests that concentrated rare earths within our coals may be due to the infiltration and upward migration of fluids through permeable and porous coal zones and sandstones. These zones have high flowability, which could be due to extensive fracturing. The fluid could have been acidic enough to then dissolve the rare earths into solution in situ and then redeposit them in these high concentration zones. The fact that the location of the Brook deposit is on the steep, structural edge of the Powder River Basin and likely in an area with increased fracture intensity could partly explain why this deposit is so enriched compared to other parts of the basin. These fractured zones have been identified in core, but not [indiscernible] to the highest concentration areas at this point. That work is ongoing. Looking forward towards our critical path, let's delve into our ongoing initiative and what lies ahead. Mineralogical analysis of both ore and non-ore zones is now underway. Understanding which minerals our rare earths are associated with as well as the gangue or the non portion -- the non-ore portion of the rock mass is pivotal for cost-efficient concentrating techniques. Understanding mineral distribution, sizes, associations, and other properties will be used to inform which physical concentrating tests we should focus on. We are also currently engaged in bulk sampling with material from the areas where we have already begun mining. Based on the results of our mineralogical analysis, there will likely be some further combination of physical testing that could include crushing and grinding, density separation, flotation and magnetic separation. It is important to select the right physical concentrating methods for the specific mineral properties that are found within the ore for optimal results. This testing will provide crucial insights into optimizing our process flow sheet and generating the highest feedstock possible for the leaching portion of the operation. Sequential digestion testing is also in motion. These forms of tests require reacting the ore with various chemicals. The nature of the chemical, whether it is acidic, basic, reducing, et cetera, will inform what fraction of the minerals the rare earths are most associated with since various minerals react to various chemicals in different ways. To say it another way, we want to know what percentage of our rare earths dissolve in acid, which percent dissolve in a basic solution and so on. That way, we know how to sequence the leaching and determine the most cost-effective method for rare earths recovery from our ore. These tests, however, take a significant amount of effort. You are testing various chemicals, then you need to optimize the chemicals to the right temperature, the right concentration, get the solid to liquid ratio right and find the right contact time to get the most effective and cost-optimized recovery. Once optimal physical concentration and leaching conditions are determined, we'll explore the various processing technique such as solvent extraction and ion exchange to extract the concentrated rare earth elements from the leachate. Solvent extraction is likely the most common and proven technique for extracting and separating the various rare earths. In addition to testing traditional processing techniques, we will be exploring various unconventional processing techniques with academic and government partners. Again, as mentioned prior, we are at a huge advantage as our process flow sheet will not need to include the handling of radioactive waste. This will be a large cost savings both at the pilot scale and commercial production scale. It will also be important for us to determine what modifications to the process flow sheet we will need to efficiently incorporate for the recovery of gallium and germanium. With all of this data, we are beginning to construct an internal technoeconomic model to determine the most cost-effective mining and processing techniques. This model will bring together a large list of geological parameters. We'll be looking at depths, thickness and grade with processing parameters such as recovery, reagent costs and consumption. We will factor in energy usage as well as mining operation parameters such as extraction costs and production volumes. And as we update this model, we will also factor in current and forward forecast market parameters. This model will, of course, be validated by SRK, our third-party consultant. Looking ahead, we believe our development plans are sound and present very real possibilities. So to summarize, we hope to have a process flow sheet and technoeconomic model by the end of this year. This will inform the design of our pilot plant. We are currently assessing the potential size, scale, cost and location of the plant given the data we have to date. The size will largely depend on what we think we can mine on a commercial scale and how many kilograms of finished product we will need for our potential offtake customers. It's important to keep in mind that due to the pioneering nature of our ore deposit, our pilot plant will incorporate some unique features such as dealing with this organic carbon. Our journey of the Brook Mine deposit has and will be marked by exciting discoveries and diligent progress. With a comprehensive understanding of our findings and strategic development plans, we are in a great position to be commercially successful in this fascinating new rare earth mining sector. Thank you all for your attention. And this now concludes management's prepared remarks. I would now like to turn the call back to the operator to open up the question-and-answer portion of this call. Thank you.

[Operator Instructions]. The first question today comes from Lucas Pipes with B. Riley Securities.

My first question is to -- this was very helpful. My first question was, as for the budget in 2024, how much do you expect to spend on the rare earth opportunity this year? And then I have a few follow-up questions from there.

Thanks, Lucas. Excellent question. I think as Randy said on our earnings call, kind of the beauty of this is what we've been able to accomplish so far is with minimal spend. So we're talking in the few million dollar range this year for 2024. So not too material.

Very helpful. And then on this call, you shared your expectation to preferably self-fund this opportunity. And first, is it possible to think about some percentage of free cash flow that would go towards this rare earth opportunity? Just trying to size up but because I imagine capital spending could be very large. And obviously, shareholder returns is also a priority for -- from any coal investors. So wondering how you think about balancing those interests.

Sure. Thanks, Lucas. This is Randy. So I think the first answer to your question is, of course, we do not have costs associated with this at this point. So we certainly can't start here and give you percentages of what our potential cash flow would be dedicated towards this opportunity. You have as good a sense as any analyst on sort of what our forward cash flow generations look like. So you know that they're fairly substantial. I think the interesting thing about an opportunity such as this, which is much different, of course, than a coal opportunity, is that there's a lot of other alternative financing opportunities that come into play here, least of which is the potential to be associated with the government, which, of course, we already are. So I think before we could sit there and give you any sort of a definitive answer on either what percentage of cash flow would be dedicated, we first, of course, have to understand the costs. We have to understand what our financing alternatives and opportunities are. But as I said, the main hallmark of anything we do is we're trying to keep our eye on the ball that our first goal is to enhance current Ramaco long-term shareholder value. So anything we're going to do is not going to try and jeopardize coal cash flow, if you will. And we'll do everything we can to enhance sort of the development cash flow coming off this opportunity which, again, is going to be a much different type of entity even within Ramaco than we currently are operating.

And I'll try to squeeze one last one in before turning it over. I think I heard at the end of the year, we can expect a process flow sheet, is that right? And what are kind of the critical pieces to conclude that analysis?

Yes. And I think I'll let Alex to detail. But what we said is we would have sort of a technoeconomic analysis which is going to cover obviously what operational steps we think we need to advance the project and, of course, to be able to start generating some costs and potential cash flows associated with that. But with that as an overview, Alex, take away.

Yes. Yes, great question. And the answer to your question is, yes, this will be a lab-based or call it bench-scale process flow sheet is where we start. And there's really -- I like to think of 3 components to the process flow sheet. One, there's the physical upgrading or the concentrating. And that requires the bulk samples, which I mentioned we're in the process of getting about a ton or a little over a ton of material to start that. And so that's kind of step run. But running parallel, we can do what we call sequential digestion where we're understanding what is the optimal leaching conditions, leaching chemicals, et cetera and then that final part of the process flow sheet. If we -- and we want to maintain as much optionality in the process as possible. But if we decide to go forward with extracting and separating individual rare earths, that's where the solvent extraction testing that we're going to get done goes in as well. So yes, at the end of the year -- so it would be kind of a lab-based bench-scale that we can then use that to inform our pilot design. And as Randy mentioned, we're assessing potential third-party places do that or assessing doing that on site ourselves.

The next question comes from Carlos De Alba with Morgan Stanley.

Yes. Sorry, I was on mute. Just -- I recognize that it might be too early to respond to my question, but do you have a sense of the potential range of prices for rare earths that you may need for the project to be viable? Or any color around this would be great. Given where prices, particularly for NdPr, are right now, it is a relevant debate out there.

Sure. Good question. So I think the first comment I would make, again, going back to the earlier question is we don't have our cost yet, so we don't obviously know what we need for breakeven purpose. Having said that, we start this with a pretty low basis, if you will, in the property. We certainly didn't buy this property as a rare earth opportunity. We bought it as a coal mine. It's been widely publicized what we paid for it, which is very nominal. And frankly, to date, we've got a very low cost in what we've done for development purposes to date. I think our hope is that from a cost standpoint, we've got a couple of things working in our favor. First, of course, is that we're dealing with a relatively softer form of matter -- material than typically is associated with a hard mineral rare earth extraction program. We're dealing with coal, carbonaceous material plays, a pretty soft stuff. So first of all, that's easier to mine. Secondly, as Alex pointed out, it's not radioactive. So that's a big leg-up. And then thirdly, from a processing standpoint, because it's softer and is not radioactive, we are hopeful that we will come up with some processing techniques that will be frankly more benign, both environmentally and cost effective than is again associated with hard mineral. This is a sort of first of its kind certainly here in the U.S. And frankly, we're not quite aware of any other project around the world that has gotten its start by really looking at coal as the primary feedstock. So sort of a bit of a brave new world. And I think you're absolutely correct. We all understand that the Chinese as pretty much a monopolist in this space go to great lengths to manipulate pricing to try and deter or eliminate potential competition from other sources. We're aware of that. And I think we will certainly hope to be a low-cost producer in this space just as we are a very low-cost producer in the met coal space.

The next question comes from Nathan Martin with The Benchmark Company.

Maybe just asking a little bit of a different way on the possible capital spend, understanding all the elements we just talked about. I mean maybe can we think about this from a way of potential magnitude of spend as we move through the various stages? Obviously, we're still doing some core samples here, getting some deeper samples, it sounds like. Then it sounds like moving to lab scale testing and possibly pilot plant testing and then eventually scaling up the commercial production levels, if that makes sense. But maybe just kind of talk about the magnitude of spending as we move along that trajectory, if that makes sense?

Well, I'll let Alex perhaps answer that in more detail. But I think, again, the magnitude is going to be a function of -- I expressed at the outset of my remarks that we have known knowns and known unknowns. So many of the known unknowns are essentially matters that would go to the heart of your question which is, what is the magnitude of potential spend, which is based on how much of the property we may be mining, what technique we would be mining at, how we would be processing the material that we take out. These are all things that are going to have key bearing on what our cost will be at virtually every stage of the game. And as I just expressed to the last question, I think just at a 10,000-foot level, we are hopeful that a lot of the spend that would be typically associated even with a rare earth project would be less in this case because of the material that we're using and some of the advantages that we've got on this project which we cited earlier. Alex, is there something you'd like to add, please?

Yes. No, it's a great question. But again, one that is kind of hard to answer without the crystal ball at this point. And you mentioned the laboratory testing and that coincides, Jeremy gave a budget for 2024 of approximately a few million dollars. That will cover the laboratory testing, that's important, plus the handful of infill drilling. Now I want to make it known that, because I've seen some questions pop up, we've reported an average deposit concentration of 550. We certainly have -- I mentioned fairways in my conversation that are considerably higher concentration. So there will be efforts to further delineate these fairways. But the thing that's really going to drive the price, particularly when we get to the pilot scale, is going to be what that process flow sheet is. If we have to do everything from crushing, grinding, density, gravity, flotation, magnetic, that can be a very different pilot cost than if we can just crush grind and then do some magnetic separation. You know what I mean. So that being said, we have explored with third parties what pilot testing can cost. And we don't expect that pilot testing to be considerably more material than the budget we have mentioned for 2024 into 2025. So with that, we will certainly have a lot more to update everyone on after we've been through the laboratory testing by the end of this year and give more concrete numbers for you.

Yes. I think one other thing to add, Nate, that Alex just touched on. So interestingly, with respect to our pilot, we probably have got the option to either build one ourselves or, frankly, take this or to a third-party testing group that already has the mechanical and structural infrastructure in place and simply have them run the test and then get the data to design and develop our full commercial plant. So that is potentially a pretty decent savings as opposed to having to construct something on our own site. We'll get to that. We'll maintain the optionality. But just like everything we do in every development project, whether it's coal or rare earth, we try to economize as best we can.

Very helpful commentary, guys. I appreciate that. And then maybe just, again, taking kind of a bigger picture look here. As we move through these various stages we just talked about, kind of -- could you possibly lay out what you need to see in those different stages to kind of give you confidence to move forward with the next stage? Or what would a possibility -- or what would a possible situation look like? What would you need to see to be like, All right, if I'm playing devil's advocate, this would keep us from moving forward?

I'll let, again, Alex go through sort of the more specific steps. But I think just like any project, mining is an uncertain arch. And like everything involved with mining, whatever material, Mother Earth is going to provide its own share of surprises for you. So I think we approach this with the normal discipline of saying we'll take our temperature at various points along the line. But I think we've gotten far enough out on the diving board, so to speak, to understand that from a geology standpoint, the project looks like it's a go. The question then becomes because this is not like coal, where you're simply mining the product and you ship it almost on an unvarnished basis. Here, you're dealing with almost an industrial chemical situation where you've got to go through a fairly rigorous amount of processing and refinement to get that in product. So we'll have a lot of steps along the way. And I think the first milestone will, of course, be the technoeconomic report, which will essentially visualize what the economics of this will look like, and we'll make judgments from that step forward.

Yes, that's a good point, Randy. And I'll speak in generalities here, not with specific numbers. But -- for example, you asked milestones. Again, I've mentioned our internal technoeconomic analysis. So as we go through the physical concentrating steps, we have numbers in mind that are going to be important to get that feedstock concentration to prior to leaching. And again, since we haven't done those tests, let's say, worst case, we can only upgrade our feedstock by 5%, that could be a big problem. But fortunately, the way we've set this up and Randy described is going to be step-by-step. So one, we do need to see certain physical concentrating numbers, which will plug into the technoeconomic model. And then two, if you think of a very worst-case scenario, which fortunately our ore isn't this kind of ore because we don't have the same hard rock minerals that a lot of the traditional ones are dealing with. If you had to use the most concentrated expensive asset to get it out, then of course, that's going to be uneconomic for any rare earth element producer. So of course, we're very excited to start doing the chemical testing and seeing which fraction and percentage we can recover with environmentally benign and relatively low-cost reagents. But again, we are setting up this model so that each step we're going to have a very good handle on if we want to progress to the following step after that. So we certainly have a good linear plan in place to make sure that we're checking the right boxes.

And I think as an overview, frankly, the reason we're having this call today, this is a different line of business from our -- obviously, our met coal operation. So we're trying to be pretty transparent about it. We are having this call, obviously, with the milestone that we've got an update from Weir on the geology. And about every quarter or every 6 months, depending upon the velocity of generation of new information, we will certainly intend to inform our shareholding public where we stand on this project moving forward.

Appreciate the thoughts, guys. And then Randy, just maybe one last one along those lines, I know I asked you on the earnings call, but any updates on the timing of the SRK report? I'm assuming that information will be included in the technoeconomic analysis you guys hope to have by year-end?

You bet. Great question, Nate. So the beauty of having Alex on board is he is very, very familiar with putting together technoeconomic analysis. So we will be doing that, frankly, in conjunction with SRK so that it will -- we'll certainly run our own numbers, but we're going to have SRK on our site to validate what we're doing and when we publish the SRK -- pardon me, when we publish our technoeconomic report, it will have the validation of SRK. Everything we're trying to do to inform the public as we best can is being done by independent third-party.

The next question comes from Pavel Molchanov with Raymond James.

Have you looked at what kind of Section 45X incentives via the Inflation Reduction Act this project may be able to accumulate?

Yes, that's a great question. So we haven't modeled it, but we're certainly aware of the 45X and the implications. And so we will -- as we build this technoeconomic model, we're fairly confident with the operational coverage of the costs on the processing side. And as you might know, there's more -- there's a push to get more of that 45X to coverage on the upstream side. So we are awaiting some more guidance on that front. But certainly, we want to look at the model 2 different ways. We want to run it with the 45X on what we know will be covered on the processing side. But then we also want to run it without it. And so we will certainly be sharing our view in the model both ways once we get to that point here, hopefully, in Q4.

Yes. And I also think this is a rapidly emerging area with a lot of existing and potential government support in different ways. I think the government is trying to somewhat figure out what's the best way to incent creation of more rare earth production, obviously, which is domestically cited and processed domestically. And I think once again, we check the box to uniquely be somebody who could sort of be Team USA in terms of both mining on private land as well as processing here in the United States.

Yes, interesting. We've seen a lot of battery and EV manufacturing new builds in more kind of the southern portion of the United States, Nevada, Texas and so forth. Your prospective rare earth project is quite a bit further north. Have you worked out what the logistics, the presumably rail-based shipping would look like if you were to enter production down the road?

Well, we've got some very interesting logistics because of the fact that our property, if you had to design where the -- to have in mind, to have it right on the main line of the Burlington Northern Railroad and intersect a major interstate gives you a lot of logistics optionality. And interestingly, as you mentioned, in the Southeast, so we are and have been for a number of years in partnership with Oak Ridge National Labs on exploring a number of different kind of coal to product technologies, including battery-related technologies. As a matter of fact, we're working with them right now on a sort of a synthetic graphite production from coal and indeed ship a lot of material to the Oak Ridge folks on a regular basis. So we're very familiar with the logistics between Wyoming and Tennessee, if you will. So...

The next question comes from Sam Tisch with Millennium.

I think it has my old information on there. But really appreciate it. Just a quick one following up on something Pavel touched on just now. I was wondering, in the time line that you've put out there, of the pilot plant and then commercialization, '25, '26, what period would you start applying for government money, not under the Inflation Reduction Act, but just in general, DOE funding or anything like that?

Well, I think it's not like there's a online application that you sign up for how to start a rare earth mine, but we have been involved in the government from day 1 on this. We are in relatively constant contact with a number of different levels and number of different aspects of the government. And as opportunities for funding come along in no small measure, we will be incented to try to move as quickly and, of course, as prudently as we can because, as I mentioned, this satisfies a very strategic national need for a domestic source of these, frankly, particular elements that we seem to find. So we will avail ourselves of any kind of government funding that seems to make sense for us. It's like any funding, you've got to look at the pros and cons of it. But we are very familiar with these types of programs. And -- we look forward to working with the government at different levels to develop what seems to be the best for all parties involved.

Is there any -- all right, appreciate it. Just a quick one follow-up. Is there any sort of milestones though that you feel like you have to reach before getting into that, like the technoeconomic report or anything like that? Or anything you could look at?

I think there is not necessarily any specific check-the-box moments. I mean, NETL has been involved with us on assessment. We are already working with Oak Ridge and frankly, a number of other national labs on various forms of potential processing extraction and separation techniques. All of those, frankly, although many of those are novel techniques because that's sort of what the government does is they kind of act as the cutting edge in technology on a number of projects of this nature. But we will be informed as we go along from the government of what aspects they may want to work with us to try to accelerate some aspects and we'll certainly be open to all their suggestions.

The next question comes from Lucas Pipes with B. Riley Securities.

Alex, maybe this is too early, but obviously, there's a range of concentrations that have been discovered. And I wondered how you think about a cutoff grade at this stage.

Yes. Great question. We are certainly thinking about cutoff grade. But before we get to that point, we are waiting on some specific laboratory data though -- unfortunately, these labs have been kind of backed up lately. So hopefully here in the next few months is when we'll be kind of diving in on what that cutoff grade ought to be. And certainly, by the time we get to our technoeconomic model, we'll have a great handle on that. But again I just want to emphasize as there's a question. We're not coming out here saying that 550 is that grade. That's a composited average, which, candidly, for a sedimentary deposit is quite high. But we do have some much higher fairways, and we expect that we're going to start narrowing in and then zeroing in on that cut-off grade here in the next few months.

This concludes our question and answer session. I would like to turn the conference back over to Randy Atkins, Chairman and CEO, for any closing remarks.

Thank you very much. And of course, I very much appreciate all the folks that have gotten on the call to listen to us today. We will probably expect to have calls relating to rare earth on a probably less periodic basis than we do for our normal coal mining quarterly calls, but we will certainly schedule calls when we have information that we feel would enlighten our shareholder public as to where we stand and certainly probably have one within the next 6 months. So that's sort of the cadence that we would expect to be able to continue to make disclosures in this area. And with that, we certainly, again, appreciate everybody being on the call today, and we'll look forward to catching up again. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.