Good morning, my name is Nora, and I'll be your conference operator today. At this time, I'd like to welcome, everyone, to the Ramaco Resources Incorporated First Quarter 2019 Earnings Conference Call. [Operator instructions] Thank you. Speaker Michael Windisch, Chief Accounting Officer. You may begin your conference.

Thank you, Nora. On behalf of Ramaco Resources, I would like to welcome all of you to our First Quarter 2019 Earnings Conference Call. With me this morning is Randy Atkins, our Executive Chairman; Mike Bauersachs, our President and CEO; and Chris Blanchard, our Chief Operating Officer. Before we start, I would like to share our normal cautionary statement regarding forward-looking statements. Certain statements 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 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 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 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 statements 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 its actual results to differ materially from those contained in any forward-looking statement. With that said, let me introduce our Chairman, Randy Atkins.

Thanks, Mike. As always, I want to thank everyone for joining us today to discuss our first quarter 2019 results. I also want to share some remarks on our footprint and organic growth plan. Mike will be making some remarks on operations. And since I realize many of you on the call this morning are mining analysts, we are offering you today the rare opportunity to take a shot at formerly one of your own fraternity. As we welcome the newest member of our team and CFO, Jeremy Sussman. We have thrown Jeremy in the deep end on his first week and he will be making some remarks later on the Ramaco investment thesis as well as provide some macro perspective on the market. As an overview, we had a strong first quarter, especially considering we're still dealing with operational issues stemming from what I affectionately call, the silo hangover from last year. We are extremely proud that we were able to overcome these headwinds, demonstrate some substantial resiliency and emerge even stronger. Also, although, we are still several weeks out, from where we sit today, we are on track for our second quarter to be the highest adjusted EBITDA record for the Company. I also fully anticipate Ramaco will be generating substantial cash throughout the balance of the year. As we look back on Q1, we managed to produce adjusted EBITDA of $14 million, which was our second best quarter. It is probably unfair to book end comparison with Q4 on many metrics due to the 3-week work stoppage because of the silo. But on a year-over-year comparison, EBITDA was up almost 50% from Q1 '18. We knew we would face in Q1 carryover headwinds at Elk, where the prep plant would run well below capacity because we are…

Thank you, Randy. My comments for the first quarter are relatively brief because little has changed since our last call. Most first quarter items were discussed in some detail with our year-end results just a few weeks ago. Overall, the first quarter approximated our 2019 internal operating plan. Our plan anticipated being impacted by shipping some lower-price carryover business from 2018. We also anticipated that infrastructure limitations would cause reduced production, which in turn would cause slightly reduced shipping levels. I will elaborate a bit more on a few of these key impacts. As I mentioned during our most recent conference call, we continue to be challenged by the size of our Elk Creek raw coal inventories, which were over 450,000 raw tons at the end of the first quarter, and exceeded 500,000 raw tons during April 2019. Stockpile inventories started to decrease slightly in the second half of April. We expect this reduction to continue and accelerate through the remainder of the second and third quarters of this year. Assuming productivities at the Elk Creek mines remain at similar levels to the first quarter, it will take the majority of 2019 to process and ship this stockpile production. During the first quarter, we lost the opportunity to run 121 continuous miner unit shifts at Elk Creek due to the increased production rates at the underground mines coupled with the capacity limitations at the Elk Creek plant during the silo-related repairs. In addition to the limitation on production due to inventory levels, we also incurred additional handling costs, placing excess raw tons in an ancillary stockpile, which had a measurable negative impact on our cost performance. While we were dealing with silo-related impacts, our mines have been exceeding budgeted expectations. In particular, our deep mine feet per ship exceeded our…

Thank you, Mike. In terms of first quarter financial highlights, Randy hit many of the key points, but I want to touch a bit further on cost as this was only one of two revisions to guidance. The operating team at Elk Creek has done a tremendous job in overcoming the challenges of the November silo failure. Our first quarter 2019 cash cost came in at $63 per ton at Elk Creek, up just $1 per ton year-over-year despite our prep plant and stockpile issues carrying over from the fourth quarter. Given our ability to control costs this quarter in the face of those challenging operational issues, we are now guiding to an overall lower 2019 cash cost per ton outlook at Elk Creek from $63 to $69 per ton to $63 to $67 per ton. As I noted, almost all other key 2019 guidance was reiterated, including total company production of 1.8 million to 2.2 million tons, total sales of 2.0 million to 2.4 million tons including purchased coal and total capital expenditures of $35 million to $40 million. I would note that our 2019 capital expenditure guidance does not reflect the expenditures of any of the potential developments Randy and Mike spoke about. As we proceed in the analysis and approval for these projects, we will provide further guidance. The only other change to guidance relates to our sales mix. Prior to the favorable surface mine developments that Mike just talked about in his remarks, we had anticipated that 94% of our 2019 sales mix would be metallurgical coal, with the remaining 6% being thermal coal. I'm pleased to say that we now expect 96% of our sales this year to be metallurgical coal. Now turning back to the first quarter, net income was $6.9 million. This compared…

Yes. We have a question from the line of Mark Levin of Seaport Global.

Congratulations, Jeremy. Good to talk to you on this end now. And just a couple of quick questions mostly related to comments regarding Elk Creek, the prep plant capacity expansion, and then also potential new production at Knox Creek. So maybe some more color around timing when you would expect to have a better idea on potentially sanctioning those projects. How soon -- I think you mentioned 500,000 tons a piece at both Elk Creek and Knox Creek. How soon would that production be able to be ramped to that full million tons of incremental? Is that a 2020 full year impact? Is that a -- if you were to sanction it. And then any type of color around what the CapEx might be?

Mark, this is Randy. First, I just want to reiterate that we have not yet taken this through the Board, which we expect to do some time later this month. And once we do that, we would also expect probably to file future further guidance on exactly what we would be doing with the more metrics so the market would have some transparency there. But with that being said, I'm going to let Chris Blanchard to pick it up and give you some -- the more granular detail on the mining metrics.

Mark, with regard to the production ramp, assuming this was greenlighted appropriately sometime in the second quarter, we would start to see the effects of the new production in the second half of '20. So it would be backloaded in '20 and we'd be at the full additional million run rate in '21. As far as the CapEx impact, I think it's probably best to defer any color on that until the projects are actually greenlighted.

That make sense, Chris. And then just in terms of what the -- what it would do to the overall cost profile of the business? And maybe even mix as well?

The mix would be stronger. The full million tons would high-vol A production, 0.5 million additional at Elk Creek and then the 0.5 million annual rate at Knox Creek would all be high-vol A. So the mix would get stronger. The overall cost profile would probably creep up a little bit. These mines are going to have a slightly higher cost profile than what we're currently running. Closer to Elk Creek than they are to Berwind.

Closer to Elk Creek than Berwind. Got it. And then when you think about Berwind in 2020, I think, you mentioned getting to the Pocahontas Seam #4 middle of the year, next year. And when you look at your guidance this year for production for Berwind, what do you think is a reasonable step up in '20 versus '19?

Perhaps as much as 50% more in '20 than we have in '19. We won't reach the number four Seam until June, July of 2020 and then there will be some development work in the back half of the year before we can move those operating sections into the thicker number four Seam. We really won't see the full step change until 2021 at Berwind.

Got it. And then my last question just has to do with the cadence of EBITDA. I think in the press release and in your remarks, you mentioned Q2 would be a record quarter, best quarter. When you think about Q3 and Q4, do you expect, given some of the issues will have been behind you, the carryover tons I think that Mike mentioned will be behind you. Should Q3 and Q4 continue the trend of Q1 getting -- Q2 being better than Q1, would Q3 be better than Q2, Q4? Better than Q3, I realize pricing will have a lot of do with it. But just kind of assuming that the market stays where it is.

Mark, I think -- we hope, obviously, that Q2 is going to print very favorably. I would say for the balance of the year, we would like to, at least, at this point guide to sort of flat after that from where we hit in Q2. But we will certainly be able to give you a little bit more guidance as we get further out into the quarter.

It's Jeremy. I'd just remind you that we do have about 20,000 tons of carryover volume still in Q2. A lot less than in Q1, but just keep that in mind for modeling purposes.

Got it. And I lied, one last question. I think on the last call, Mike Bauersachs might, I asked a question about logistics, rail import and kind of the year-over-year increase and it maybe referenced a $3 to $4 increase this year over last year. And I believe, and I could be wrong, an all-in sort of cost closer to like $40 a ton. What are the trends that you guys are seeing on the logistics side? I know met prices are kind of staying high, which is a good thing, which impacts logistics cost or rail cost, but what have you guys seen in the last 3 months as it relates to rail cost?

Yes. Things have been pretty stable. Even slightly less than that number that we threw out last quarter. So I think at these levels we've seen pretty much stability in the marketplace and the same thing on the rail side, Mark.

Appreciate it. Congrats on a good quarter and all the great progress, and to you, Jeremy, specifically, on your new position.

Thank you, Mark.

We have another question from the line of Lucas Pipes of B. Riley FBR.

Congratulations, Jeremy. This is great, great, great move. Very exciting, and very happy for you.

Thank you, Lucas.

I wanted to follow up on some of Mark's question, maybe ask it a little bit more pointedly. And that's, the 4.5 million ton target by 2023, could you walk us kind of through a bridge year-by-year how volumes could evolve? I know you touched on it in the prepared remarks. And then similar to Mark's question, kind of, what sort of CapEx would be associated with that growth?

Yes. Just kind of walking through the, and again, we've still got a lot of work to do, I think, to make sure that we bring on all this additional production and work with our Board, et cetera. But if you look at '19, lets just say midpoint 2 million tons, working our way up to about 2.5 million tons or so, maybe a little bit better than that to 3.1 million in '21, probably around 3.6 million in '22, working our way to somewhere between 4.2 million and 4.5 million in '23. The one difference maker, I mean, with some other things we've thrown out with Berwind and Knox Creek is we do continue to anticipate production in Pennsylvania at our RAM Mine, which continues to be a bit of a challenge permitting-wise. But I do think we continue to make good progress to try to get that to the finish line. So that's approximately 350,000 to 500,000 tons depending on how we choose the mine.

Got it. And in terms of CapEx, what would be a good yardstick to think about?

Yes. I'd let Chris take a rough range maybe. It's similar that, I think, does vary and how we'll deal with the RAM Mine.

I mean I think just for modeling purposes, at this point, back of the envelope five years out, you want to use somewhere in the neighborhood of $20 per annual ton and incremental production. I think that will get you in the ballpark for all development permitting equipment, maintenance CapEx, everything that goes into these new mines.

Okay. All right. Maybe switching topics. When I think about your 2019 sales contract position, mostly fixed-year prices, $113, and mostly in the domestic market, of course. So a couple of questions on the back of that. First, as you look out to 2020, any preference to potentially shift more into the export market? And then two, there were some moving pieces on the contract booked this year with the carryover tons, but -- and then, of course, also selling a lot of it into the domestic market. Do you have a sense for what your price realizations could look like in the current market kind of mark-to-market? Just sort of curious as it relates to the earnings potential for 2020. Very much appreciate your thoughts.

We, first of all, look, we're not going to try to give you our quote for what we're going to price coal at 2020. But with that being said, I'll let Mike speak for sort of the international balance.

Yes. I think -- and I think, Jeremy, we were just -- I mean, we are at a kind of an interesting position domestically. I mean we have a lot of guys who really like our coal. I think we felt like with a lot of things we were doing, it was good to go ahead and price forward, et cetera. And of course, the numbers were very good. I do think you'll see the balance tip back, especially as we enter sort of that Asian market directly. We're working very hard on a couple of things there. I think our sales mix could shift back to more 50-50 type levels as we look forward. And of course, the market place for some of the coals we're selling, low-vol wise and otherwise right now, are better than $113. I think you could see our overall numbers kind of move up as the year goes on depending on how the market price shifts. So...

Okay. That's very helpful. And best of luck to all you, and Jeremy, congratulations again.

We have another question from the line of David Gagliano of BMO Capital Markets.

First of all, since -- Randy, since you opened the door, take some shots at Jeremy, I'm going to take you up on that opportunity. Jeremy, congrats on the move. I'm really looking forward to...

Thank you, David. [indiscernible] I'm right here.

Yes. I am. Jeremy, congrats on the move. I'm looking forward to consensus estimates now being more realistic now that you're not in the mix. And congrats. And I really hope your time as CFO is much more successful than your time as a sell-side analyst. Randy, thank you. Thank you for the opportunity. Jeremy, you know I'm kidding, by the way. All right. So...

Nothing but love, David.

In part of our analyst outreach program, David.

Exactly. All right. Turning to the questions. Just some clarification questions. Obviously, hit on a lot of topics here, pretty quickly, and I missed some of those details. Just on some near-term questions. On the inventory sales commentary, I think it's implied about 200,000 tons of sales out of inventory for 2019, none of which were sold in the first quarter, I believe. But I didn't quite, I also didn't quite follow the near-term timing of those inventory sales. Should we assume about 65,000 tons of inventory sales each quarter 2Q to 4Q?

You're talking about carryover tons, David?

Yes, he's talking about the inventory.

The inventory actually.

Pretty good. Yes. So sales of tons in inventory, I think, that's a pretty good, yes, it's a pretty good assumption on the clean side of it. Yes.

Okay. And then on the pricing of those inventory tons, are those going to be sold at spot market prices or are there any contract deferrals tied to those inventory sales?

Yes. No, those will be basically placed on our existing sales. I wouldn't anticipate any of those being spot. I mean they're all same qualities, et cetera, that we've got in our specs for existing business.

Okay. And then just longer term, one clarification. I thought you said you expected '20 and '21 to be 3.1 million tons just now and then go into 3.4 million in 2021 and 4.2 million in 2022. Did I get those numbers right?

You're off by a year, David. I think we mentioned 2 million tons this year, 2.5 million next year, 3.1 million in '21, and then kind of moving up to 4.2 million to 4.5 million to 2023.

All right. Perfect. That's what I needed. Again, congrats, Jeremy.

Thank you.

Another question from the line of Michael Dudas of Vertical Research.

Can't compete with Dave's very comedic introduction, but ditto on all those thoughts, and well done, gentlemen, for hiring Jeremy. And we're looking forward to that big, first Analyst Investor Day in here Lexington that you'll be hosting.

We're looking forward to hosting that.

Absolutely. Randy and Mike, maybe a little more thoughts on what drove your announcement today about accelerating the CapEx and getting you ahead of the curve on some development projects. Is it a level of comfort with the operation? The ability to effectively develop the plants and the mines at a better, more efficient rate than maybe what we've seen in the past? Or has the market just gotten that much stronger and demand that much better that you want to get ahead of the curve where maybe others might be trying to chase some of that market over the next several years?

Yes. I think, Mike, it's probably a combination of a number of those factors. I mean when you look at what happened to us back in the fourth quarter, we really had a body blow respect to the closure of Elk Creek for several weeks. And I think we have done a, not to pat ourselves on the back, but I think we've done a pretty good job of coming back from that pretty well. So I think with that kind of wind in our sails, we started to step back and say, all right, we knew what our menu was kind of looking forward for the next several years, we think we're comfortable, particularly where we look in terms of our cash generation to be able to deploy some of that, frankly, a little bit nearer term to developing out some of our additional tonnage. We do think we've got some other opportunities, particularly down in Jawbone and the Tiller that, frankly, when we first started, we didn't really think we were there, and we now have discovered that we think that's a very attractive opportunity for us. So I think it's a number of factors, but I do think that we are comfortable going to the Board to start some serious discussions about moving some of this forward and I think as a result, we'll hopefully be able to glean a little bit of that performance in earlier years.

Mike, I think one other trend that we're seeing and as you know with us, we've many times gone the opposite direction of others as we see our competitors paying dividends and the large dividends in many cases and buying back shares. We think the opportunity for us is to do what we do best, which is put coal mines in. And as Randy indicated, we did have a very pleasant surprise as we reviewed the opportunity to go to the Tiller Seam at Knox Creek. All of our infrastructure is placed there. The Tiller Mine was in much better shape than we thought it would be. There's still work to do to get to the point where we would be in the Jawbone, but to have all of those planets kind of aligned at Knox Creek with excess capacity and a prep plant that's washing metallurgical coal. I think the right answer for us is to get after it. So in anything, hopefully, that helps to...

And I think, Mike, in our DNA is to be a little bit of contrarian. We started this company, frankly, in the depths of the worst coal recession that we've had in quite some time. And I think as we look out, we're reasonably comfortable that there's a pretty bright future in the met space. So we're comfortable in trying to fight some bets in that direction.

No. You're certainly been contrarian throughout the career as I was watching you -- especially Mike over the years. So I appreciate those thoughts. And then my follow-up, maybe for Jeremy, as you've dived into due diligence in your first week at the organization, and recognizing all the very married capital structures we've seen in the mining sector in general and coal in particular, your early vision on -- I know you mentioned something in your remarks about -- that you have a great kind of very strong balance sheet, but balancing that, not getting too ahead of yourself with the cash flow and setting up a stronger balance sheet relative to optimal bet levels and cash allocation to shareholders, which might be certainly different what we've seen throughout the other mining prospect.

Yes. I mean just kind of -- thanks for the question, Mike. Echoing what Randy said come on the contrarian side. I think we clearly see supply being challenged going forward, whether it's here, whether it's abroad. And you look at places like India, where they've doubled their steel production over the last 10 years. And they have virtually no met coal. So if you kind of think about -- they're at 100 million tons today, they're growing 7% a year, that's 7 million tons of steel, that means they need three million to four million tons of new met coal every year. So I think when you look at all the supply that's coming online or lack thereof, I should say, it's not enough to keep up with demand. So our view is, certainly, we want to continue to grow but we want to grow the right way and you look at Elk Creek, costs in the $60 to low-60s per ton range. I mean that beats some of the long vols out there. So we want to continue to grow low-cost production, but at the same time, we are mindful that investors do care about dividends. So I mean as Randy said in his remarks, we are going to look to balance that going forward, and I think that's certainly a discussion that's -- an ongoing one that we continue to have. So thank you for the question.

No. I appreciate the response. Just one final follow-up, maybe for Mike. You mentioned in your remarks about you're targeting Asia with some of the product. Is that traditional Asia? And are you -- is there a need for the quality of coal that you like to sell over there? Or is the diversity argument that they're looking at given what Jeremy mentioned that's there's not that, the supplier response that we're seeing? And how comfortable can you get those customers base to look at a name or a company like Ramaco could supply tons to that market?

Yes. It's a great question. And what we found was more time being spent there and, of course, with Kevin on board now with his experience in that area, I know we'll be spending more time in that part of the world. But the main reasoning, it really is diversity. And with continued production impacts out of Australia that always just seem to happen. It never fails. I mean what we're seeing from customers is, first of all, they like the quality of the coal, no question about it. And getting some high-vol, in particular in some of their blends or in many cases. Of course, a lot of these customers want mid-vol, which we can also make. But they really want diversity. And when you think about entities such as Steel Authority of India, for example, there are only a few U.S. suppliers that ship coal there. And with the growth that Jeremy mentioned, it only makes sense that they would want additional suppliers in the industry.

We have another question from the line of Scott Schier of Clarksons.

Congratulations on the move, Jeremy. Just one question left for me today. This was touched on a little bit earlier, but I was hoping you could elaborate a little bit on the impact of the 2018 carryover tons. You mentioned you have some remaining in the second quarter. Would it be possible to quantify any potential impact of these going forward? Or how should we think about this?

I really think it's pretty much behind us. Just 20,000 tons, more or like, $40 per ton margin difference on about 20,000 tons or so is the impact. Shipping more like $80 business than $113 business or so. Pretty minor. With most of it, obviously, behind us. But it was, as you noted, it was the big impact in Q1 that was almost 20% of volumes, so that's certainly a nice tailwind for us going forward. I'll also say we're very proud that we've made up the tons that we would have shipped in December with our customers. Our customers are happy. All of our existing customer base from 2018 took tons in 2019. And so we were able to work our way through all these issues with really very minimal impact from a forced maturity standpoint.

And Scott, I don't want to do the old would have, should have, could have routine, but I mean we did make comments as to basically what life might have looked like had we not had the silo incident, both in terms of additional production, which is now probably up roughly 100,000 tons. And also, frankly, what the results would have been like, which would've been closer to 16-handle than a 14-handle in the quarter. I would say that 100,000 tons are pretty interesting when you look at the clean tons per foot and the slide, which is really good to look at. I don't think you can just take that, multiply it by 4. I mean we absolutely didn't have the washing capacity even at full capacity to wash all those tons. But it shows, it really shows what the opportunity was. And there will be somewhere between 0 and 100 for that opportunity as we roll in the second, third and fourth quarter. So...

[Operator instructions] We have another question from the line of Steven [indiscernible] Corporation.

I wonder if you could just provide any further color on the status of your insurance claims related to the silo failure that you discussed in your earlier conference call this year?

Sure. Since that call, we have had a number of points of contact with the insurance company. We actually met with the insurance company physically and laid out, I think, some of the things that they potentially were not looking at closely enough, including at least the thesis for what we believe the cause of the silo is and, of course, we'll also say that we don't think anyone will ever know exactly what caused it. The changes we're making to the silos going forward, I think, would prevent whatever would be to happen again because of the bolstering that we're doing to the remaining silos. But we're not at a point where they've denied the claim, we're not at a point where they've accepted the claim. So we do expect maybe one more site visit in the next week or so. And we should know, at least, from the standpoint if the claim is accepted or not in the next couple of weeks. So we're -- obviously, we've been fine without any proceeds, we've made things work. But we continue to believe that it should be a covered issue.

[Operator instructions] There are no further questions at this time. I'd like to turn back the call over to speaker, Randy Atkins.

Great. Well, thank you very much everyone for being on the line today. We hope you gave -- we gave you a little bit more insight. Again, we're very happy to welcome Jeremy to the clan here. And we look forward to speaking with you here in a few months on the second quarter. Thank you so much.

This concludes today's conference call. You may now all disconnect.