Welcome to the Ramaco Resources First Quarter 2023 Earnings Conference Call. At this time, our participants have been placed in a listen-only-mode, and the floor will be open for your questions following the presentation. [Operator Instructions] I would now like to turn the call over to Jeremy Sussman, Chief Financial Officer. Sir, please go ahead.

Thank you. On behalf of Ramaco Resources, I'd like to welcome all of you to our first quarter 2023 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 statements 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 like to remind you that you can find a reconciliation of the non-GAAP financial measures that we plan to discuss today in our press release, which can be viewed on our website, ramacoresources.com, Lastly, I'd encourage everyone on this call to go on to our website and download today's investor presentation under the Events Calendar. With that said, let me introduce our Chairman and CEO, Randy Atkins.

Thanks, Jeremy. Good morning to everyone, and thanks for joining the call. We have a lot to unpack this morning. First off, we executed well in Q1. Fortunately, we had a strong quarter and ended up a bit ahead of what was expected. Also yesterday, we filed a separate press release and shareholder letter related to the significant news on our railroad deposits in Wyoming. I will discuss the independent confirmation on this discovery may lead to a unique new direction for us. Start, in terms of our quarterly performance, I'm happy to note that with some help from the rails, we managed to ship coal in Q1 with much better results. We told our investors that our goal in '23 is to execute. Thus far, this year, we are steadily working to reverse the operational setbacks we incurred in '22. Last quarter, adjusted EBITDA jumped 50% to $48 million from year-end, and earnings per share jumped 75% to $0.57 per share. In Q1, we also achieved both record production and sales. As a result of our better-than-expected performance, we are increasing our full year production and sales guidance, which Jeremy will talk about in more detail in a moment. In addition, despite continued inflationary and wage pressures, our cash mine costs fell almost $10 per ton from Q4 to Q1. Elk Creek cash costs declined more than 10% sequentially to $90 per ton in Q1, which likely puts out among the lowest cash cost mines in the country. In addition, as second half production ramps at Berwind, our overall company-wide mine costs should decline even further. I am pleased to note that the first section at the Berwind #1 mine we started earlier than anticipated and has been ramping production since March in line with expectations. Board recently approved…

Thank you, Randy. As you noted, it is nice to have a quarter that beat expectations and saw a meaningful sequential earnings growth. Our first quarter net income was up 75% from the fourth quarter of 2022 on better production, sales, pricing and cost metrics across the board. Overall production of 834,000 tons in Q1 was up 20% compared with Q4 as new mines ramped up production. Total sales volume of 757,000 tons was up 12% from the fourth quarter. We saw a meaningful improvement in rail service in the first quarter, and we applaud the efforts of our railroad partners. Company produced cash mine costs were $105 per ton, which was 8% better than Q4. As Randy mentioned, cash cost to Elk Creek were $90 per ton, down $11 per ton sequentially. We expect to continue to operate near this level at Elk Creek throughout the year. At the same time, we anticipate overall cash costs to fall meaningfully to fall throughout the year as both Berwind and Maben ramp up production, and we achieved better economies of scale as a whole. Realized pricing was $185 per ton in Q1, up $3 per ton from the fourth quarter. Pricing was negatively impacted by $6 per ton due to our final API2 index linked cargo that was shipped in early January. Now turning to our outlook, I would like to touch on a few of the key areas in our guidance tables. First, we are maintaining our full year 2023 guidance across the board with the exception of production and sales, we are raising both of these metrics by 100,000 tons on the back of a strong first quarter. We now anticipate production of 3.1 million to 3.6 million tons and sales of 3.3 million to 3.8 million tons. Second,…

Thank you, Jeremy. As Randy alluded, in the first quarter, we passed a number of operational milestones with additional steps in our production ramp and the expansion of our prep plant at Elk Creek ongoing. Both of these will start hitting in the second quarter and continue accelerating through the balance of the year. Most importantly, though, the new growth mines and sections that we added in 2022 at Elk Creek completed the ramp-up periods and have all reached steady state levels of coal production. Economies of scale, stabilization of the workforce and training our new employees all led to higher productivity levels and helped drive our costs into the $90 per ton range at Elk Creek. Even while the pressures haven't yet subsided on wage increases in competition, higher sales-related costs and the inflationary pressures on fuel, steel, chemicals and other consumable products. Relating to the Elk Creek plant upgrade itself, this project is entering its final weeks. The final deliveries of critical equipment were made earlier this week and the last stages of installation will take place over the next 2 weekends. We anticipate a tie-in late this month. We expect that the new circuitry will increase the overall plant feed rate from 700 tons per hour to 1,050 raw tons per hour. This 50% increase equates to an annualized run rate increase from approximately 2 million to 3 million clean tons per year at our expected recovery levels. Later this summer, we expect to break ground on the final stage of the Elk Creek plant enhancements, which will expand our clean coal storage area to allow further segregation or coals and better blending opportunities to meet more customer needs. Importantly, except in normal maintenance and advancement capital at our mines at Elk Creek, we do not expect…

Thank you. The floor is now open for questions. [Operator Instructions] Our first question is coming from Lucas Pipes with B. Riley Securities. Please go ahead.

Thanks much operator, good morning everyone. My first question is in regards to cadence of shipments over the course of this year. I wondered if you could maybe provide a little bit of color on Q2, Q3, Q4, would really appreciate that. Thank you very much.

Sure, Lucas. I'll take a first stab, and then Jeremy can certainly chime in here. So this quarter, we'll probably be around 800,000 tons. As I mentioned, we've got Berwind ramping and we've got Elk, which is just about to flip the switch to really increase processing by 50%. So we'll look at Q3 and probably roughly 900 to 1 million tons, and then Q4 probably add another 100,000 tons on top of that like $1 million to $1 million.

That's helpful. Thank you. And then on the rare earth opportunity, what sort of capital budget would you say you're allocating to this opportunity for both 2023 and 2024? Thank you.

Well, the short answer is for '23, we've probably allocated about $5 million. And we focused primarily on testing drilling analysis. We have not formed the economics yet of what the operational phase of this would look like. As I said, this is really a project of first impression because if you look at most REE producers really around the world, but certainly in the U.S., they are in a hard mineral, uranium, lithium, cobalt things like that. Here, we would be essentially finding the REEs in much softer materials like clay. So obviously, both the mining as well as the processing is entirely different. So working, as I said, with partners at the NETL and other private groups. We're now focusing on how would be the best way to really start to create an appropriate business plan for some operation like this. as I said, once we start to do this, we'll do it on a step-by-step basis and certainly keep the investment community of price as we go.

Very helpful. Thank you. Then one last question, turning back to this year in operations. With the growing sales and production outlook over the course of this year, how would you expect cost to evolve? And I'd assume royalties with declining prices would also play into that? So I would appreciate your color on the cost for this year. Thank you.

Lucas, this is Chris. So on the cost front, we'd expect the Elk Creek costs to stay more or less in line with the way they were in Q1. But as the production ramps up at Berwind and Knox Creek, we'd expect those costs to decline sequentially quarter-over-quarter as we get more production each quarter going in and overall pull the total company down slightly.

Got it. Thank you very much gentlemen and best of luck.

We'll take our next question from Nathan Martin with The Benchmark Company. Please go ahead. Your line is open.

Hey, good morning guys. Congrats on the quarter, and thanks for taking my questions. I wanted to start with logistics. I'm sure you'd agree this has been a bit of a storm in your side for 2022 at least. It sounds like you got some help from the rails in the first quarter, but it would be great to get an update on rail, truck, port service? And then maybe just for modeling purposes, I think I noticed a pretty sizable quarter-over-quarter jump in transportation costs. Anything there to speak over or this is an anomaly?

Thanks, Martin. So yes, it's Jeremy here. I guess I'll start with the transportation costs. So as you know, we pay transportation costs. It's a pass-through, but you record it on the revenue and the cost line for our export business. And in the first quarter, actually, about 2/3 of our volume was export. So certainly, that's the highest portion that we've had on a percentage basis. So it was more of a mix issue, I would say, than necessarily a higher rail rate. Rail rates did go up a little bit. But I will say each company is different. We're a bit more real-time basis. So in the second quarter, our rail rate is not going to be based on a higher Q1 index. So that will help us a little bit as well in the second quarter. And what was the first part of your question again, Nathan?

Yes. Just an update overall, Jeremy, on health services from a logistics standpoint of this rail truck report.

Yes. So I mean, listen, the rail did a great job in Q1. I mean, if you look back to where we were this time last year, we in the first quarter of 2022, about 20% of our scheduled shipments didn't happen because of transportation issues. This quarter, it was really just a couple of trains. So I really applaud the rail on their hiring efforts and certainly hope the recent efforts that they've made continue to pay off throughout the course of the year.

Okay. Great. Appreciate all that color, Jeremy. And then good to hear as well, things progressing at Berwind, Elk Creek prep plant expansion sounds like starting up later this month. You guys obviously raised full year guidance by about 100,000 tons this year and looks like that flowed through to '24 based on your slides. As you think about the timing of potential expansion from here, and again, kind of looking at the pig on your slides, which projects are kind of on debt next, how much production could they add maybe as you look ahead to '24, even '25. And maybe what portion of that CapEx has been approved?

Alright, this is Randy. I'll let Chris go on the granular. But basically, all we've greenlighted so far for this year beyond what we've already talked about is the Berwind expansion. I think what we wanted to do is to kind of see how the market stabilizes here in Q2 and into early Q3. We have a few more projects that we could look to greenlight, which probably not result in too much '23 production but would certainly become much more meaningful in '24. And Chris, you want to sort of elaborate a little bit.

Yes. I mean so one thing is, as you can see from our first quarter results, we did outproduce our sales a little bit. So we have built some inventory. And even with the planned upgrade coming on, we'll work through that. So probably the first thing that would come on, on that list, given all the right market conditions would be the RAM free surface mine. And then behind that on the list that we've got in the slide deck is probably the Jawbone mine at Knox Creek. Past that, we have a lot of other projects that are lower tier or earlier in their development that we look at, but those are the 2 that you would target. Neither of those answer your question has been approved by the Board to greenlight and move forward on that.

Yes. Maybe just from a high level in round numbers, the '23 million CapEx that you see on there, that's all been approved. And just looking at '24, probably about half of it roughly has been approved. And obviously, we'll continue to have these conversations with the Board as we progress throughout the year.

Great. Appreciate those comments, guys. And then maybe, Randy, thank you for all your thoughts earlier on the rare earth element development, the deposit base at Brook Mine. I know you're also working on some other color products research. And by the way, congrats, I think on your appointment to the IEA Advisory Board there. Maybe could you spend a minute or two and update us on that side of the house and comment on how those pursuits could potentially be additive to Ramaco in the future as well?

Sure. So as you probably know, we filed a tracking stock, and it's got a lot of detail in the S-1 on that on our whole operations, which we kind of historically called Ramaco carbon. And in that beyond the rare earth, we've got a blanket of intellectual property, which covers about, I don't know, 60-odd patents in various processes. And they're basically properties on different types of uses of carbon from coal that we feel could be used to make advanced carbon products and materials, which have got obviously a much higher value than the use of coal for conventional purposes. The ones we're focused on right now, which we think have the most interest, certainly both in terms of potential size as well as, frankly, far along in development are the ability to take coal and use that as a feedstock to make synthetic graphite. There was a press release that we put out a month or so ago on that. We're working with Oak Ridge National Labs on that. where basically, we both have some IP around that. They have not only more of a processing secret sauce, but also a lot more equipment to do some of the testing on. So we're moving on a path with them to be able to do development, which would probably use principally met coal, but it may have some applications in thermal, but that could be a very meaningful use of coal. The other is carbon fiber. So this goes back to processes that were developed, frankly in the 70s, where you can basically take what amounts to a pitch like substance and use that as a precursor to make carbon fiber from coal instead of petroleum. That has a potential game-changing cost impact, frankly, on the materials business. If you could use carbon fiber as a substitute for steel and aluminum, that could have some important longer-term implications. So both of those projects actually we've been working on with Oak Ridge. And hopefully, some exciting stuff will come out of that in the relative near future, I would say, from a commercialization standpoint, I would look to probably a 12-month time frame to be able to have some meaningful commercial possibilities on both of those fronts. And then lastly, we are working on the ability to use carbon from coal to make graphites that can be used in such things as concrete additives as well as some ink injection. And those are not quite as far along as the first 2 that I mentioned, but potentially have other implications as well. So perhaps a bit long-winded, but it's an area that I'm obviously very interested in.

Yes. And that's how I want to give you that quick platform and just curious how much capital are you guys investing in this business at this point?

Really extremely nominal capital. We're probably spending less than, I would say, $1 million to $2 million a year. Most of the heavy lifting, frankly, comes from the national labs because a lot of this research requires some pretty heavy-duty and sophisticated equipment and manpower. We have some of the equipment and manpower out at our operation in Sheraton, but we were relying a lot on the national labs who have immense amounts of equipment, capital and talent to do a lot of the heavy lifting.

Got it. Appreciate that. And then just one last item. You did bring up the S-1 for the tracking stock. It looks like holders are expected to vote on June 12. So first, is that correct? And then can you maybe just remind us what revenue streams or royalties are expected to kind of flow through those new shares?

Sure. So you are correct. The 12th is indeed the date that we will have the shareholder vote, which will be able to approve the distribution of the tracking stock. I think in terms of referring to the amounts that will be involved in potential dividend distributions beyond that, I'd have to refer you back to the S-1 because we've kind of got our hands legally tied about doing too much discussion on that in advance of the proxy solicitation in the boat. But rest assured, right before the proxy -- pardon me, right before the shareholder meeting, we will be doing further communications on the tracking stock where we'll be much more explicit in terms of what's going to be expected in terms of actual cash dividend distributions and the rollout.

Got it. Very helpful. Appreciate those thoughts. Best of luck going forward, guys.

Thank you.

Thank you. We'll take our next question from Curt Woodworth with Credit Suisse. Please go ahead. Your line is open.

Yes, thank you. Good morning Randy, Jeremy and team. I just wanted to follow up on the rare kind of conversation on admittedly when it comes to this. In a similar language around this being potentially one of the largest unconventional deposits discovered and you've been drilling for 18 months. I would think you've got a decent idea of potential salable production. And you noted that it's shovel-ready, it's permitted. And you kind of said you could fast track it, but then at the same time, you also said you're going to kind of go slow and have a modular approach. So I guess I'm just curious what are the next steps in terms of milestones you need to see, in terms of when you potentially would accelerate production. Could you frame any sort of economic upside to the potential EBITDA or cash flow that this could create? I realize it's early days. And then you also talked about potentially, I think your comment was producing constituent products like magnetic products, which I assume would mean more downstream manufacturing of the element. So yes, again, any more color you can provide on some of those things would be helpful. And admittedly, I know it's still very early days, but thank you.

Sure. Great. So I think the -- let me take you somewhat sequentially through our whole thought process here. And that will hopefully articulate some answers to several of your questions. So we bought this property, I guess, about 12 years ago as an opportunistic thermal reserve. And shortly into that development phase and permitting phase, we recognized that it was going to be pretty tough to deploy capital to justify a new thermal coal mine, and that was not frankly, what our IMO was anyway. So we began to explore all sorts of other alternative uses for coal, and that led us to the national labs and working with the national labs, then led us to explore with them, frankly, just testing our coal for other purposes. That's how, of course, the whole entire idea of the rare earth proposition came about, which we frankly didn't really get too much detail from them until 2019. And at that point, we sort of slowly began to stick our toe in the water to do some further drilling assessment. When that looked like it was coming back promising that we then this year, particularly after we sort of merged the two entities, Ramaco Carbon and Ramaco Coal, we decided to explore much more thorough drilling program to really analyze what the opportunity would be. And frankly, right now, we've really only got chemical results back on about 1/3 of a little bit more than 1/3 of the core drilling that we have done of the 100 holes. So we have a lot more delineation to do, I'd almost think of this as like a junior manner proposition where we're kind of taking as I call it, step to step, but there's certainly a sequencing to trying to delineate the size of…

Great. Thanks very much for the color.

This will conclude the Q&A portion of today's call. I would now like to turn the floor over to Randall Atkins for additional or closing remarks.

Thank you. Well, I again appreciate everybody being on the call this morning. These are interesting times, both on a macro basis and certainly for Ramaco, and we will look forward to keeping everyone abreast of our activities and certainly for the call for next quarter. I hope everyone has a nice weekend. And bet well on the Derby. Take care.

Thank you. This concludes today's Ramaco Resources First Quarter 2023 Earnings Conference Call. Please disconnect your line at this time, and have a wonderful day.