Good morning, ladies and gentlemen and welcome to the Ramaco Resources Incorporated Fourth Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instruction will follow at that time. [Operator Instructions]. I would now like to turn the conference over to your host, Chief Financial Officer, Jeremy Sussman. Thank you. Please go ahead.

Thank you, operator. On behalf of Ramaco Resources, I'd like to welcome all of you to our fourth quarter 2020 earnings conference call. With me this morning is Randy Atkins, our Chairman and CEO; and Chris Blanchard, our Chief Operating Officer. Before we start, I'd like to share our normal cautionary statement. Certain items discussed on today's call constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. 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. Lastly, I'd encourage everyone on the call to go on to our website ramacoresources.com and download today's investor presentation under the events calendar. With that said, let me introduce our Chairman and CEO, Randy Atkins.

Thank you, Jeremy. As always, I want to thank everyone for joining us today to discuss our year-end results and our crystal ball forward look into 2021. We held our first Board of Directors meeting of the year a few days ago. I described to the Board that in looking back at 2020, it was kind of like you were transported into an Indiana Jones movie, where you would try and outrun some huge rolling boulder only to jump out of the way into a pit of snakes. It was a bad dream type of year that I'm happy to report looks like it may finally be in the rearview mirror. Sadly, it left a few battle scars on our reported earnings for the year, which Jeremy will detail for us in a moment. We basically spent half the year worrying about whether the world was coming to an end, whether we would be able to continue to safely produce. And if so, would we still have any customers. That drove us and into a mad dash to make as much liquidity and sanity as we could possibly do through our combination of actions. Although they were painful at the time, they did manage to get us about $50 million of new dry powder through the first half of '20, which included both CapEx and cost cuts. We were able to deploy funds to keep operations intact and the ship moving forward, even as our customers went into a freefall. The back half of the year shifted and we actually ended up having record sales, but realized that the demand had not quite kicked into gear to allow us to benefit price wise from the coming month recovery. Indeed, we had two large customers claim force majeure on over 200,000…

Thank you, Randy. I am going to first go over our fourth quarter 2020 financial highlights and then I will turn to our forward outlook. To begin with, fourth quarter 2020 EPS and adjusted EBITDA were both down from a year ago. We unfortunately have lots of good company here, which is the result of operating in the middle of a global pandemic. Australian benchmark Met coal pricing fell under $100 a ton for the first time in roughly five years in the fourth quarter. In total, Q4 adjusted EBITDA loss was $1 million. The fourth quarter was negatively affected by a number of one-time cost issues described in our press release, which impacted EBITDA by over $5 million. Chris will describe the larger items in more detail. In addition, overall, second half 2020 EBITDA was negatively affected by well over $6 million, including $4 million in the fourth quarter alone, due to more than 200,000 tons of coal that was force majeure by our two largest customers, and subsequently resold into a weak spot market. The good news is that both of these unusual items are behind us. Of course, it naturally helps when your customers take their previously contracted shipments as they have so far in 2021 with the meaningful pickup in steel pricing and demand that Randy referenced. Lastly, as it relates to the fourth quarter, we were pleased that we were able to sell a record amount of company produced coal of 515,000 tons as well as record quarterly export volume of over 300,000 tons. While index pricing remained weak in the fourth quarter, our record sales volume foretold a material increase in demand for our product, which in turn, has now translated into a meaningful uptick in pricing. U.S. metallurgical coal pricing is up more…

Thank you, Jeremy. Before turning to a bit of discussion on our new projects, I want to spend a few minutes reflecting on the full year results of 2020 and offer some granularity on the challenges that we faced in the fourth quarter. Navigating 2020 was a challenge for us like it was for everyone in the industry. Maintaining our workplaces for our employees in a safe and healthy environment as possible was our primary objective. After minimal COVID related impacts in the first three quarters of the year, we unfortunately did see an uptick in the number of confirmed cases of our employees as well as among their dependents late last year. The increase in cases tracked directly with the general increase nationally, and more specifically in the southern counties of West Virginia where the majority of our workforce resides. Fortunately, the direct impact from COVID has trended downward along with the broader national, state and local levels. Nevertheless, during December, absenteeism due just do test and quarantine and/or recovery from the virus, averaged 10%. We're thankful of our employees who have been directly affected, none have had serious complications or hospitalizations from the virus to-date. The direct impacts of COVID-19 in the fourth quarter financially were over $2 per ton sold between the absenteeism, subsequent loss of production for vacation and sickness, and the direct health related spending for additional personnel carriers, safety and cleaning supplies and personal protective equipment. Even more impactful was having to operate with shorter crews than normal and cover with temporary labor when it was available. In addition to the health constraints in the fourth quarter, nearly every one of our operating mines at Elk Creek had other geologic or operational challenges. Starting with our RAM surface mine, we lost our prime overburden…

[Operator Instructions] And your first question comes from the line of Lucas Pipes with B. Riley Securities. You may now ask your question.

Hey, good morning, everyone.

Good morning, Lucas.

I first wanted to kind of turn to the marketing side. And, Randy, you mentioned the improving market globally. And then specifically the arcane to China. To what extent are you able to tap into that market, or would you say it's really more about taking advantage of the rising High Vol A, High Vol B price? Thank you.

Thank you, Lucas. Well, first, congratulations on your new production edition yourself for '21. But as far as your comment about China, it's really a twofer for us. So, if you remember last year, we mentioned that we had initiated a relationship with a group out of Brisbane and Singapore called Square Resources to handle our marketing in the Far East. So we have already been in contact and indeed have decided that we will probably be making some offers on Chinese related bids that have come to us recently. So, we will be playing the uptick in the Chinese market directly. Indirectly, of course, because of the Aussie-Chinese political issues, as we’re all aware China has embargoed any new Australian calls coming in, and as a result you’ve got an ARB that’s gone from 60 bucks to 100 bucks, I guess, it’s about 80 bucks today. And when that lifts, we believe that there will be not only of course a rise in the Australian benchmark but that will find its way also into a rise on the Atlantic benchmark. When that happens, of course, as anybody’s guess, no one’s intelligence is particularly perfect when it comes to Chinese political policy. So, we will look forward to that happening at some point, because the economic reality too lifted its course. So well in place. So, we look forward to enjoying sort of two benefits from exposure to the Far East here this year.

That’s very good to hear. I appreciate that additional insight. Thank you, Randy. And then I wanted to also again this is more marketing related, but touch on the domestic markets last year, obviously, was very tough for the domestic steel industry specifically, Q2, Q3 but it’s been coming roaring back and you noted that in your presentation as well. But are you getting increase for additional domestic comps and I assume, if so, they’d have to compete with some of these higher international prices. So, would be curious kind of to hear your thoughts on those dynamics? Thank you.

Yeah, so last fall was tough for us. Because we could see that the market was starting to wake up probably by let’s call it late summer. But the demand equation was not quite there. And as a result, when we came out for the domestic bids early in the fall, we were bidding into still what was a still somewhat weakened market on the domestic side which we knew was going to improve. And it indeed it has. I mean the demand has come pretty well roaring back on the metrics that I described earlier. And to your point, yes, we are indeed seeing some of those same domestic customers come back to us to try to get more tons that they had need to top off some of their demand that they’re looking at right now. And we’re having to poke them prices that are well like in excess of what they were able to buy their coal for in the fall. And I think, depending upon how the cards play up for the balance of the year, it should be an interesting domestic sale season coming next fall, because that’s somewhat when we estimate that the demand will start to be kicking in even perhaps even more so than it is today and in which case, we expect that the pricing dynamics for the 2022 business will be much different than this year.

Interesting, interesting. Thank you, Randy. Then, one last question from me. There’s been a lot of news headlines around the more difficult sureties’ markets, mostly on the thermal coal side I have been hearing much on the metallurgical coal side and Ramaco of course, is well positioned with its extremely low I guess the liability balance and strong balance sheet. Can you comment on maybe Jeremy, what the impact is for you if any? Would appreciate your insights. Thank you.

Yes, Lucas I’ll start and then let Randy kind of finish up. So, I mean, the short answer is if we didn’t read the trade rags or look at some of our thermal coal competitor reports. Frankly, we’re seeing no change to how the surety providers are treating us or looking at us. Of course, when you have $15 million of AROs which is 98% below the Group average and no term debt, I think, and obviously only know [0:35:47] mostly underground production, it's a vastly different profile than many competitors who have been producing large open pits for many years or have water issues and what not. So, it’s certainly interesting to read in the rags and go through other earnings reports. But the short answer Lucas is, no change to how we're looking at it.

Yeah, Lucas, this is Randy. So, I have been saying for some time that I'm afraid ARO's are sort of the Achilles heel of our business in general, but certainly for the thermal space. And I've seen it as you know, we have on our private company some production operations out in Wyoming. And Wyoming over the last few years has done away with self-bonding. And then, in terms of the surety requirements has dramatically increased their requirements for operators in that state. And the same thing is playing off across the country. And as a result, a lot of us when we look at coal company balance sheets, we really overlook the ARO and the legacy cost, and we just go straight to the actual financial debt, but the ARO and the legacy liabilities are indeed real liabilities. And, as the recent issues relating to restructuring around Peabody have made clear, the sureties are coming back, and they're no longer simply relying upon the overall balance sheet of a company to secure those surety obligations and are, indeed are asking for hard liquid collateral. And as we all know, liquid collateral and liquid liquidity in general is not something that the coal industry has in great abundance at the moment. So, this is something that I think is going to start to play out a little bit more and I'm hopeful that there aren't any regulatory tweaks that the Biden administration may make in this regard, but I will be not surprised if the Biden administration does not take some steps to probably make the general operation of our coal industry a little harder than it was before.

Interesting, very helpful perspective Randy, Jeremy, thank you very much. And everyone continue, best of luck.

Thank you, Lucas.

Thank you. Your next question comes from the line of Nathan Martin with Benchmark. You may now ask your question.

Hey, thanks. Good morning, guys. And thanks for taking my questions.

Hey Nate, thank you.

First, just a quick clarification, I think to make sure I heard the comment correctly. I think Randy, you mentioned on the domestic side, you guys recently signed a contract for; I think it was more than one-third higher of a price compared to your current 2020 committed volumes. I just want to make sure I heard that correctly.

Hi, Nate. Yeah, it's Jeremy here. I think, I mentioned that and yes, indeed, you did hear that correctly.

Okay. Got it. Great. And just to kind of goes along with some of the domestic demand comments Randy just made. So, thanks for that clarification. And then congrats again on the announcement to move forward with Berwind and Big Creek. I did notice, Berwind costs are now expected to be in the low to mid-70s. And I think in the past, you guys had always mentioned the cost 80 -- somewhere in the 80. So, what's got you more comfortable now and believing those costs should be even lower than originally planned? Thanks.

Sure. I'm going to let Chris answer that specifically. But the simple answer is that once we hit the Berwind 4 slope, it is a substantially higher amount of coal. The amount of footprint inside the mine it goes almost to 70 feet of carbon. So, Chris why don't you provide Nate a little bit more granularity there on cost?

Thanks, Randy. And Nate, to your question specifically, the information we have now was afforded to us by the startup of our Triad mine, which is in the same seam that our Berwind mine will ultimately be in once we complete the slope. And so, we have some real live operating data and the most specific one is the mine recoveries that we are seeing at the coal mine coming out of Triad and the Pocahontas 4 Seam are substantially higher than our initial projections. For the same transportation, the trucking and the washing costs are one of our biggest cost components at that coal mine. So, the improved recovery is the driver on the cash costs.

Got it. Thanks for that information, Chris. I appreciate it. And best of luck to you guys.

Thanks, Nate.

Your next question comes from the line of David Gagliano with BMO Capital. You may now ask your question.

Hi. A lot of my questions have been asked and answered. But I just want to ask one on the operating side. Obviously, the Elk Creek complex is a huge engine of the volumes and ground conditions or roof falls and sandstone intrusions are not ever really, I mean are typical I guess I would say in general in Central App. But I did want to ask about the guidance for 2021, 1.9 million to 2.4 million tons. And what you're factoring in to that guidance in terms of any potential additional production disruptions. And also, if you could just comment a little more detail on what you're doing to if there's any you intend to address some of the issues that came up in the fourth quarter? Thanks.

Chris, why don't you handle that one? At least to start with.

Well, I mean, as you said, Dave, roof falls and ground conditions and sandstone, particularly in Central App aren't unusual. And we've definitely had them in our minds, since 2017, when we started ramping the property up. We just had multiple occurrences of all of the above in the fourth quarter so that normally with four operating mines at Elk Creek, if we have anyone that's struggling the others or operating normally and we've got enough built into our budgeting that the other three or four carry the one that's struggling, we just happened to hit where everyone struggled, particularly last half of November, first part of December. So, we aren't expanding our coal mines anymore as far as getting deeper into the coal mine. We generally speaking know the conditions that we'll have throughout 2021 and 2022 at these coal mines. And while the sandstone persisted longer at Number 2 gas it was by a matter of weeks, not months or large part of the year. It just had an outsized impact in fourth quarter was two vacation periods already. That said, if we were to run into prolonged conditions that caused the downturn at one of the mines at Elk Creek, we have the ability to go to a second operating section at our Number 2 gas mine or do some other operational things to cover the gap in production. Currently, as we're running, the mines that we have in place can outperform our Elk Creek preparation plan, they can produce more raw coal in a week than the plant can process at full capacity. So, we do have some slack built in there already.

Yeah. And Dave, this is Randy. A couple of points just to make on an Elk. So, when we prepared our guidance, we kind of talked about this a little bit. So, we've got about a 300,000 ton delta there in our guidance for Elk. But you got to remember that, we've got a number of mines on that complex. So as Chris said, we do have some optionality to move around, I really think the main constraint we've got on Elk Creek of course, is our processing capability. And to that point, one of the things that we've got on our to-do list at some point over the next few years is probably expand our prep plant capacity there at Elk which will probably at least in our current plans, probably bump that production up by then another 0.5 million tons. So, your points absolutely well taken on the geologic issues that Central App has a tendency to define more often than not. But I think particularly at Elk, we've got a number of workarounds for that.

Okay, great. That's very helpful. Thanks. So just the difference between the low end and the high end of the range, the 1.9 to 2.4. Is that more operating based or more kind of marketing based in terms of that -- what would it take to get to the high end versus and what's kind of baked into the low end?

Yeah, so Dave, my strong admonition to the Board was that, gang we need more tons to sell. This is a rising market. We feel it's a strong market that's got some legs and we want to get as much production into that market as soon as we can. So, the constraint on the range is really more of a production related issue, not a market one. We feel pretty good that if we had 2.4 million tons, we would be able to sell them this year. We had -- frankly, we'd love to have more. But we're pretty comfortable on the marketing side of that.

Okay, perfect. Thanks.

You bet. Thanks, David.

That concludes that question-and-answer session of today’s call. I would now like to turn the conference back to Randall Atkins, Chairman and CEO.

Okay, thank you operator and thanks again for everyone participating on this. We hope that all of us have a healthy, safe and prosperous New Year and we at Ramaco are looking forward to having this beep perhaps one of it not our best year. So, thanks very much again.

Ladies and gentlemen, this concludes today’s conference. Thank you for your participation. And have a wonderful day. You may all disconnect.