Good day, ladies and gentlemen, and welcome to the Ramaco Resources Second Quarter 2017 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to hand the floor over to Michael Windisch, Chief Accounting Officer. Please go ahead, sir.

Thank you, Karen. On behalf of Ramaco Resources, I would like to welcome all of you to our second quarter earnings call. With me this morning is Randy Atkins, our Executive Chairman; Mike Bauersachs, our President and CEO; and Marc Solochek, our Chief Financial Officer. Before we start, I would like to share our normal cautionary statement regarding forward-looking statements. Certain statements discussed in 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 or beliefs concerning future events, and it is possible that the results discussed will not be achieved. These forward-looking 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 statement. 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 statement, whether as a result of new information, future events or otherwise. New factors emerge from time to time, and it is not possible for Ramaco to predict all such factors. When considering these forward-looking statements, you should keep in mind the risk factors and other cautionary statement found in the company's filings with the Securities and Exchange Commission, including our annual report on Form 10-K and our Form 10-Q. The risk factors and other factors noted in the company's SEC filings could cause actual results to differ materially from those contained in any forward-looking statement. With that said, I would like to introduce Randy Atkins, our Executive Chairman.

Thanks, Mike. Again, on behalf of all of us at Ramaco Resources, I want to thank everyone for joining us here today. We're now basically 6 months beyond our IPO. Every month, we continue to transition from being a development company and into a fully functioning coal production and marketing operation. We've achieved a number of milestones this quarter, which we will talk about today, and we are on the cusp of several more. First, I'd like to address several marketing highlights and a few metrics. We have approximately 280,000 uncommitted tons placed for the balance of '17. As we stated in our press release, we expect our total production for '17 to be approximately 720,000 tons, but we will also be selling about 120,000 additional tons this year of primarily high-quality, low-vol tons purchased from third parties. These tons are primarily for export. Through June, sales from both our own production as well as purchased tons was approximately 184,000 tons. These were sold at an average sale price of about $111 per ton, which works out to an FOB mine price of $91. Of this $184,000 (sic) [ 184,000 ton ] figure, roughly 75,000 tons was purchased coal. That purchased coal sold at an average of $163 per ton or $145 FOB mine. As I said, we hope to sell at least 50,000 additional purchased tons in the second half. We also have about 338,000 tons of additional committed tons for the balance of the year at a gross average sale price of $90 per ton or slightly less than $70 FOB mine. About half of these tons were sold at an artificially low price in connection with our washing arrangement with competitor, which goes away at year-end, which we have discussed previously. Domestically, from a marketing perspective, we…

Thank you, Randy. We definitely have some very positive developments, milestones and updates to discuss during this call. The geologic conditions that we are encountering and the productivities we are experiencing are very exciting. Once the Elk Creek preparation plant is online, coupled with unleashing our mines for coal production, we anticipate that we will meet and hopefully exceed our expected results. With the above being said, let me preface everything for the second quarter and for the third quarter, for that matter, by reminding everyone that we are indeed in development mode. In many cases, we have purposefully limited staffing and delayed equipment deployment to align our production with stockpile space, coal sales and the ultimate startup of our Elk Creek preparation plant. Although we are in development mode, that does not mean that we are not experiencing an increasing number of employee hours. Our current number of employees is 113. We anticipate that headcount to rise to 187 employees by the end of the third quarter and 213 by year's end. Our nonfatal days lost rate continues to be 0. We believe that says a lot about our operational execution to date to not have incurred a lost time accident, while initiating production alongside interaction with our sizable infrastructure build-out. One of the key positions that we've hired in the second quarter is a Vice President of Administration, Legal and Environmental. Our addition of Dan Zaluski will allow us to address more administrative and legal tasks internally, rather than through consultants. Let me provide an update on our operations. One major change that we made during the second quarter was to switch our Alma Mine from a contracting mining operation to a company mine. In some respects, this mine is still in transition for a couple more weeks.…

Thank you, Mike. In as much as we had no active operations in the first half of 2016, I will not bore you with quarter-to-quarter comparisons. Rather, I will hit some of the financial highlights of the second quarter of 2017. But before I do, I encourage you to read our 10-Q and our 2016 10-K to get more detail about and insights into Ramaco Resources. Now to the highlights. And most of these, as would be expected, relate to the highlights that Mike has just talked about in operations. As noted, we completed some unanticipated developments in the Alma Mine that enabled the startup of the second section in that mine. We did this to increase Alma production and to avoid some geological issues. We capitalized 370,000 -- $378,000 of costs of this extension as development expense. It's already starting to pay dividends as Alma production increased significantly in June over prior months. Also, we extended our development through thinner seams at the Eagle Mine towards the point where the Eagle and the #2 gas seams merge. This area forms the economically advantage reserve that we are focusing on exploiting. We spent over $1 million in the second quarter developing the inner workings of the Eagle Mine. After accounting for Eagle inventory buildup and some sales revenue, we capitalized about $600,000 of additional development expense for the Eagle Mine. In the second quarter, we had total capital expenditures of $26 million. We invested a little over $7 million in a preparation plant, leaving about $5 million to complete it. We also spent $4.6 million to purchase the Alma mining equipment and infrastructure equipment from our contractor. And we spent $900,000, not a whole lot of money, to finish the Elk Creek rail line, which is now ready to operate.…

Thank you, Marc. So this completes our formal remarks for the quarter. And at this time, I would like to open the field to questions from the analyst or investor community that are out there.

[Operator Instructions] Our first question comes from the line of Jeremy Sussman with Clarksons.

Congratulations on getting the Berwind permit. I wanted to focus on that for a second. Sounds like that mine is going to begin producing in Q4, which obviously brings some high-quality tonnage to the market. How should we think about the, kind of, ramp profile, both volume and costs of Berwind?

Yes, sure. So volume, as I, kind of, referenced, will start out, kind of, slowly in the Pocahontas #3 seam actually versus Pocahontas #4 seam. And we'll be in a development mode in that mine where we'll actually be driving what is more like a tunnel mine, Jeremy, to the point where we ramp up to the more prolific #4 seam. So during that period of time, we will probably see slightly elevated costs coming from that mine because some of the work will be rehabilitation work. That being said, we'll generate a substantial -- well, a reasonable number of tons during that time period to offset our cost structure, which will be very high-quality, low-sulfur, low-volatile coal. We like the thought of blending that coal with some of our purchased coal, creating, kind of, similar revenues to some of the things that we've experienced on the purchased coal side. So what you will see is, instead of a coal mine that will run at -- or a section, for example, that would run at 200,000 or 300,000 tons a year, we'll be mining more at 125,000 ton a year rate as we begin to ramp up to what will ultimately be a coal mine that will mine more like 800,000 or 900,000 tons a year after we reached the Pocahontas #4 seam. So still we believe healthy margins. We will indeed have trucking costs that will impact those margins, but we expect the -- ultimately the recoveries in this coal mine to be superior to any that we have which will help lower the trucking costs. So...

That's very helpful. And maybe, if I could follow up, more conceptually, I noted that you've been invited to the table for all of the domestic steel mill negotiations and understanding that you have to be sensitive on pricing, I guess, can you just give us a sense of maybe how those discussions are going, particularly given that, obviously, Ramaco is a new entrant to the market?

Yes, I think it is important to qualify everything, in that we are a new entrant. We have -- we've done as many things as we possibly can to get -- to make sure our potential customers are comfortable with our ability to perform, both quality wise and production wise. That entails sending barrel samples and all of those sort of things to these customers and making sure that they know that we can perform. I think we've done a very good job with that. We are -- we're just pleased to have Joe Czul representing our coal into that marketplace, and each of these requests for proposal that we've been reviewing, have bid on and will bid on, and I think the reception has been very good.

Jeremy, this is Randy. I'll add one other remark, which is how quickly we forget but less than 1 year or 1.5 years ago, a lot of these suppliers were in some level of distress. And I think our customers remember that and have basically accepted us perhaps a little more willingly than they might in a stronger market. So we're very encouraged on that.

And our next question comes from the line of David Gagliano with BMO Capital Markets.

One thing I just would like to suggest before I clarify some of this is, if possible, as you go through the review on the earnings release process, if you could include tables and information like this in the earnings release, it would be extremely helpful on our side. I just want to make sure I got my numbers right. So it sounds like full year 720,000 of production plus 120,000 of purchased. I believe that's what was said, so 840,000 in total. And then, in the first half, it was 184,000, which implies 656,000 in the second half of total production plus purchased. Is that correct?

It is. And I think one thing to remember, David, of course, is that we weren't really going to ramp production until we had Elk Creek -- the Elk Creek prep plant online. So that's going to be a September occurrence for us. So that's when we really start to push tons out.

There's lots of things contributing to that, David. And some of it even relates to better recoveries from the Elk Creek plant kicking in versus as you can imagine, sometimes, these recoveries that you have from third-party washing agreements don't necessarily meet with what you think the recoveries should be in. And the surface mine will make a big impact too in the third and fourth quarters, primarily in the fourth quarter as the Highwall Miner comes online.

Okay. That's helpful. Okay. So then 656,000, of which, I believe 50,000 is purchased. Is that right? I'm backing into that numbers.

For the second half.

50,000, second half, okay. So run rate, exit rate for second half is 1.2 million tons annualized. Obviously, that -- it seems like heavily loaded to the fourth quarter. So it's probably a higher exit rate in the fourth quarter versus that 1.2 million. So one of my questions is, does Ramaco feel like they're still on pace for roughly 2.8 million tons of production in 2018, given we've got the Alma ramp, the first surface line starting in the fourth quarter, I believe, when we are down there, there's a second service mine that's likely to be developed in 2018? What -- I guess, the short question is, what's the outlook for 2018 production at this point?

Yes, I think the range that we would give you would be between 2.2 million and 2.8 million tons at this point. The real question becomes will we go ahead and put a second surface mine in? We haven't answered that question yet. Some of that relates to being able to effectively segregate and market those coals in the way that we think they should be marketed. In particular, there'll be some very low-ash, high-quality coals there. We'll hit a tipping point here in the next quarter or so when we'll make that decision. We feel very confident about the 2.2 million tons or so for sure. That will include also bringing on a #2 gas seam deep mine that will add to the production profile at Elk Creek, which we expect to be a very good coal mine. That face-up, by the way, is actually in process. We've gone ahead and moved up that face-up to make sure that we can react to market changes, if indeed they come quicker. That was originally a 2018 budgeted item. So I would give you that wide range there, Dave. I wish I could tell you exactly what we were going to do with the surface mine, but it is -- we are still a bit up in the air on that.

Okay. Now that's helpful. And then the 2.2 to 2.8, I believe is that 400,000 tons, is that surface mine -- second surface mine? So 2.2 would be 2.6, if the second surface mine came on. Is that correct?

Yes, roughly. I mean, it could have a slightly bigger impact, but roughly 400,000 or 500,000 tons.

Okay. That's helpful. And then just last question for me. The commentary said production cost at the mine $74 a ton in the second quarter. And then I believe what was said was $18 per ton of that is -- are costs that effectively go away when the prep plant is operational. Are there any offsetting increases? Or is it simply $74 minus $18 moving forward?

Yes. I mean, we will have a small amount of trucking on-site that will be fairly minor as compared with the on-road trucking, lot of bigger trucks with better cycle times, will have better recoveries. All of those things, I think, contribute to providing a guide from where we are today to where we will be. The other thing, of course, that I alluded to that's contributed to the cost really has been some bad costs that we've experienced, really dealing with some over and under mining issues in the Alma Mine. We, by the way, expect those to totally go away in the next couple of weeks as we migrate to another -- to an area in the mine that will actually be in for 6, 7, 8 years that has no over or under mining issues. So that will also provide better productivities. We also believe that fully staffing and fully capitalizing these coal mines will lead to much greater productivities, which, of course, will help our cost structure. I'll also, of course, reference that we will have preparation plant costs, our own costs that will, of course, go the other way on cost, but we obviously have to wash the coal. So...

Okay. That's helpful.

We still believe in the 50s, Dave, all in when everything is fully operational. The only other negative will be is that, that we will be trucking refuse to the impoundment during the fourth quarter until our beltline is fully in place, which will mean really, as I, kind of, referenced, everything in place in 2018, just some slight additional costs until we get that beltline in place.

And our next question comes from the line of Curt Woodworth with Crédit Suisse.

Mike, could you comment on the sort of the production ramps at Berwind? Do you have an estimate for how much volume you think you'll do in 2018?

Yes. And again, this development in that coal mine will be extended. I mean, it's -- it is a plus/minus 16-month, kind of, development, more or less, than a shorter-term development. We still anticipate plus/minus 125,000, 150,000 tons next year coming out of that coal mine. Some of the production time that will be in there will be in rehabilitation efforts to some works as we continue to migrate towards that point where we ramp up. What will happen though almost immediately as we hit that Pocahontas #4 seam is the thickness will double, the productivities will get much better. And as we hit 2019, you'll begin to see the full effect of all that, adding an additional section in there and being, in essence, coals twice as big. So we do think it's very high-quality coal. We got about 0.65 sulfur and stuff. So we hope to offset a lot of the development costs by being able to sell that coal at a very good number. So...

Okay. And then, just given the strength of the market and the fact that your Highwall surface mining operations are extremely cost competitive, I guess, what -- why would you not look to sort of accelerate development of the second Highwall and surface mine in this type of market?

Yes, there are a number of things we think about. I alluded to some of it earlier. Some of it is, do we feel like we can do that job justice from being able to segregate some of the very high quality coals? Do we feel like we can properly blend some of those coals on the clean and raw side of the plant? I'll also say that those tons are precious, being permitted and having basically a 20-year mine plan for 1 mine. And it's just, kind of, a difficult decision. We will also have capital that we'll have to deploy. And we're just not quite at the point where we're ready to do that. The marketplace will have something to do with it. How things go with the first surface mine will have things that will impact our decision. And there are just so many different things right now, I just -- I can just tell you we've not made that final decision.

Okay. Understood. And then, just with respect to the domestic met coal contracting cycle, the steel companies seem be out early to try to put to bed 2018. Can you just comment on where you stand in the qualification process with the mills? Do you feel like you're fully qualified with most of them? Are they still doing testing? And what's your sense of timing on when you think the domestic steel contracts will be completed? And do you feel like you're still in a pretty good position with respect to the qualification process?

Yes. Good -- excellent question. You're absolutely right. We've been surprised by how early everyone has come out. We believe that we are qualified with the number of the guys that have come out early. We actually have a couple of people visiting the property here in the next couple of weeks, which will be important for us. Obviously, having a good flavor for the development work and the fact that it'll absolutely be done on time for 2018 business is powerful when we are dealing with our customers, but to see it firsthand is important. That being said, we are in the process of continuing to send out samples to customers as we work our way through the process. We feel like we'll have everything in place by the time they make decisions. The way things have been going, I think you will see decisions made in the third quarter for virtually everyone domestically. They've all, kind of, jumped out there early. But we've had a very good reception. A lot of the coals that we're shipping are similar to the guys around us. So they're familiar with the coals too, and they've been very receptive to adding us through the whole process. That being said, I think, our expectation is that while we'll have a substantial amount of domestic business, that majority will still be export business.

And Curt, I think this year probably based on the experience a lot of the domestic steel companies had, who waited until the latter part of the year and probably wish they bought a little bit earlier in '16. So we see a little bit of that going on.

Thank you. And that concludes our question-and-answer session for today. I'd like to turn the conference back over to management for any closing remarks.

We appreciate everybody being online today, and we look forward to chat with you again in 3 months.

Thank you. Ladies and gentleman, thank you for your participation in today's conference. This does conclude the program, and you may now disconnect. Everyone, have a great day.