Welcome to the Ramaco Resources Second Quarter 2023 Earnings Conference Call. At this time, all 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. Please go ahead, sir.

Thank you. On behalf of Ramaco Resources, I would like to welcome all of you to our second quarter 2023 earnings conference call. With me this morning is Randall Atkins, our Chairman and CEO; and Chris Blanchard, our Chief Operating Officer. Before we start, I would 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, Randall Atkins.

Thanks, Jeremy. Good morning to everyone, and thanks for joining the call. We have a lot to cover this morning since we last spoke in May. First, during the second quarter, we announced two potentially transformative milestones. In early May, we disclosed that our Brook Mine near Sheridan, Wyoming, may contain the largest known unconventional and positive rarer of elements in the United States. In late June, our tracking stock, which we call core resources, began trading under the ticker symbol METCB and will pay its first dividend next month. As an aside, CORE stands for Carbon Ore-Rare Earth, which describes some of the unique asset classes included in the stock. We felt that these assets might trade above levels of the typical operating company because of a combination of a lower risk profile on the fixed income side, combined with a higher potential return profile from assets like rate earth. CORE is now trading roughly 65% higher than issue, at a roughly 16 times EV/EBITDA multiple and with over a 6% yield. This compares to METC shares, which still trade inline with our coal peers at around 2 times to 3 times EV/EBITDA. And overall, the issuance of the tracking stock has increased our combined market cap of these two stocks by about $120 million or almost 30%. It goes without saying that, we are gratified with the support investors have shown for this security in the early dawn. To expand on the REE front, earlier this week, we reported that our Board had approved development mining to start on our Brook Mine project this fall. Our initial efforts will be to recover larger quantities of material that we can chemically analyze to determine the most effective processing, separation, and recovery techniques. This first step does not require large…

Thank you, Randy. As you noted, the second quarter was challenging across the board to the industry as a whole, as everyone has no doubt, already heard from our peers. In fact, I would point to Slide 14 that shows our closest peers saw Q2 EBITDA declined by over 40% on average versus Q1, having missed consensus by over $30 million on average. Our second quarter net income of $8 million was down $18 million from the first quarter of 2023. Diluted EPS of $0.17 was down $0.40. Adjusted EBITDA fell to $30 million versus $48 million in Q1. As noted in our press release, Q2 net income, EPS, and adjusted EBITDA were negatively affected by $9 million, $0.19, and $11 million respectively due to rail transportation non-performance issues. Roughly 85,000 tons that were contracted to shipped during the last week of the quarter, were pushed to July by CSX. Relative to first quarter metric the largest variance was on realized price which fell 12% to $163 per ton. U.S. high Vol A indices averaged 25% less in Q2 compared to Q1. Currently, prices to date in Q3 are down more than 10% from the Q2 average. Overall production of 876,000 tons in Q2 was a quarterly record, up 5% compared with Q1 due to new mines ramping production. Total sales volume of 715,000 tons was down 6%, compared with Q1 due again to the aforementioned transportation issues. Company produced cash mine costs were 4% higher than in Q1. The increase in costs was largely due to continued inflationary pressures, as well as the inventory build on the back of rail issues. Specifically, cash cost per ton sold of a $109 came in much higher than cash cost of production of a $103 per ton. Looking ahead, we are adjusting…

Thank you, Jeremy. As both Jeremy and Randy have noted, two of our largest milestones in our multi-year growth progression largely ended in the second quarter and will be completed a hundred percent this quarter. As we discussed on our last call, the idled Berwind mine, we started development mining last quarter. The first section has progressed according to our projections and sloped down into the Pocahontas number four seam in early July. Final slope work is ongoing and will be completed during August and this mine will move out of development mode. At that time, the section will have reached the heart of the reserve area and we will also be moving onto our fee coal position to further reduce our costs there. We have also begun the redeployment of manpower and equipment to start the second production Berwind section, which will also be ramped up during the third quarter. This section will start in full [indiscernible] and will not have any development mining, just the typical production ramp-up period. Supporting the Berwind Mine, we also completed two exhaust ventilation shafts during the second quarter. We completed all of the fan upgrades, which we believe eliminates any future risks of lightning related admissions, similar to the one-off accident which occurred last July. As the Berwind Mine continues to ramp up its production, we will work for opportunities to take advantage of its geologic and logistical advantages. This may involve further rationalizing higher cost production and moving man power equipment to Berwind Mine as additional mining areas become developed and available. Turning to Elk Creek. The upgrade to the preparation plant is largely complete in June. While we are finishing some of the last, forward items on the upgrade, the full capacity feed rate has been reached and the plant…

[Operator Instructions]. And our first question comes from Lucas Pipes with B. Riley.

Thank you very much. Good morning everyone. My first question is on pricing and the current market environment. Jeremy, if I heard you right, you mentioned that, pricing would be down 12% to 15% from first-half levels if current prices hold for kind of the remainder of the year. And I guess I could back into it, but wasn't able to do it so quickly here on the call. But kind of what does this assume for net back prices on kind of unpriced hunts for the remainder of the year? Thank you, very much.

Thanks, Lucas. So, first, just slight correction is, so that would be the Q3 net back. I'd say, there's a couple things going on there. As we mentioned in our prepared remark, demand right now is certainly strongest in Asia compared to elsewhere. And so, I'd say first and foremost, that assumes that that's where a good chunk of the spot tons go. Secondly, in terms of our contracted position, we've got a very nice contracted book. I'd say it's a little bit more weighted both in terms of volume and certainly price on the high side towards Q4 versus Q3. So, I'd say those are sort of the nuances in there, but I would point out that obviously even a low double-digit percentage decline in realized price in Q3 is certainly better than what the index currently would point to if we were selling everything against the index. So, I'd also say that does point to certainly having a relatively strong contracted position.

That's helpful. And Jeremy, can you remind us kind of what the net back price would be on average in today's environment?

So, look, I mean, if you're talking flat to the index, I mean, let's call it for a high-vol A/B that's about a $200-ton index. So, if you're getting kind of flat to the index that's 140 ish on new business, again, you're going to have to take some degree of the freight differential into Asia. So, kind of depending upon where freight rates are, you'd certainly put that on top of any or you'd back it out, I should say, from any index price.

Got it. Thank you, so much for that detail. My second question is about the rare earth opportunity and two questions there. The first is in terms of the initial assessment and economic analysis, when would you expect that to be completed? Good to see that you hired contractors on that front and the $2.5 million that you are allocating towards the mine startup. What sort of equip, I assume that's going towards equipment, but maybe that's wrong and if it is equipment, is that mobile equipment plant property plant and equipment just a little bit of color on where the $2.5 million would go to get a little bit of a sense of the development cadence?

Sure. So, I think, to answer your first part of your question, the economics, and of this project are basically largely derived from the processing and separation techniques. As you know, Rare Earth is measured in parts per million at least in the sense of coal. So, we have to determine what exactly is going to be the appropriate processing technique that will happen on a sort of sequential basis. As we basically analyze larger amounts of material, we'll get a pretty good sense of that particularly as it relates to sort of the chemical qualities of some of the material, whether it's ionic or not, which has a large determination on the processing approaches. I would say within, we give ourselves probably less than a six months period to get some good initial results. But I would say, I would expect probably more like a nine months period before we would get really definitive results. And as far as the mining is concerned, I'm going to let Chris speak to that. But really most of the spend is not on equipment per say, because we may start on some of that with contractors. Chris?

Thank you, Randy. And Lucas, it's that $2.5 million will start being spent probably in early October, and then run through into the first quarter of next year, but it's largely on development CapEx, putting in the sediment control of the roads, to the permitted area for the initial pit. It will also include the excavation of a small area in the initial permitted area for the testing and larger bulk samples that Randy has referenced.

Okay. That's really helpful. I really appreciate all the color and detail. Best of luck. And thanks very much. I'll turn it over.

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

Thanks, operator. Good morning, guys. Thanks for taking my questions. Maybe I will start with, you guys mentioned the idles, the Triple S Mine, due to market conditions there. We have seen some other Ramaco mine idlings analysis, I think, Jeremy, you referred to in your prepared remarks. But if U.S. indices kind of stay at these levels. As you pointed out, they have been kind of moving in the opposite direction from Asian indices, at least here to start the quarter. Do you think we could see more idlings? Again, assuming most of these are related to inflationary pressures we have seen on costs, so it would also be great to get your thoughts on where do you think the price of that marginal ton is today?

Yes. It's a great question, Nate. So, I mean, clearly, with the $200 high-vol A/B average, the fact that, you are seeing, idling or layoff and whatnot tells you that, the cost curve has moved materially higher. So, I mean, I think the answer is, we are already seeing, certainly some mines either get idled or see their workforce reduced. And I think that will continue. I mean, keep in mind, a number of probably high cost operations are being propped up by a strong 2023 contract book that rolls off, obviously, at end of this year. And we will see what '24 pricing looks like. But again, I'd say, in the absence of some of those stronger contracts, you will certainly see some mines that have been around sometime probably idle. And I'd also remind you that, from our perspective, every one of the minds that we have is not in place before 2017. Obviously having a newer fleet of mine certainly puts us in a very, very good relative position, as Randy pointed out on the overall cost curve. So at least from our perspective, I'd view Triple S as a one off.

And actually, this put in place largely as a precursor to a Berwind operation. We actually did that after the Berwind mine went down, if I recall. So, the essentially, we will be moving manpower and equipment from Triple S into the Berwind.

That’s helpful guys. Appreciate that. And then maybe related to your costs specifically compared to the $109 you guys reported where do you think cost a ton would've been in the second quarter? Had you been able to ship those roughly 85,000 tons that slipped the July? Is that the $103 per ton cost of production? I think you mentioned, and you also said you expected 3Q costs to be roughly flat, quarter of a quarter. Should we be using that cost of sales of $109 as a base or the cost of production of one or three? Just to be clear there.

No, it's a good question, Nate. So, I mean, we shipped 715,000 tons and obviously we produced about 150,000 tons more. So, I'd say, had we shipped the 85,000 tons our cash cost to sales would've been pretty darn close to that 103 number, maybe not exactly, but within a dollar or two of that figures. And as it relates to Q3, I would, use the 109 cost of sales. Keep in mind, you've got a couple of things going on. Obviously, you've got the vacation week, which increased costs. But both Chris and Randy referenced Berwind is clearly the first section will be finished in development mode later on this month. The second section will begin to ramp. So, really by the time you hit Q4, I mean, we expect Berwind at least the two main sections to be running sort of on a normal operating basis. So, by the end of the year, I would expect our costs to be sort of at or below a hundred bucks a ton. And that's probably the exit rate I would use into next year all up to equal.

Very helpful. Jeremy appreciate that. And maybe just one more on the tons that slipped, the 85,000, should I assume those were all export, and then maybe could you kind of share the domestic export split in the quarter and then maybe what that looks like in 3Q, 2Q, 4Q?

Sure. Yeah. I mean, it was a combination of domestic and export, probably leaning a little bit more on the export side. When I think about our sort of domestic export split, this quarter was probably our heaviest domestic quarter call it about 50-50. And recall Q1 was in that kind of third domestic two thirds export range. Obviously, there's still some spot sales to be had in the second half of the year, and certainly I would assume that the majority of those go export. With that assumption, domestic will probably be in that call it, let's say 40% range in the third quarter. And then as we exit the year above a million funds shipped in the fourth quarter domestic will be down to about a third of our shipments with certainly the majority going export.

And finally, maybe you guys lowered your CapEx guidance for full-year ‘23 down to $60 million to $70 million. It looks like you've already spent $48 million in the first half, so obviously that would imply a meaningful fall off in the second half. So just would be great to get your thoughts there on cadence of CapEx.

So, from a high level -- and I'll alternative to Chris. So, from a high-level mate, obviously, you're correct. It implies $15 million to $20 million in the back half of the year, obviously versus almost $50 million in the first half. We've spent really over the last 18 months a lot of money getting the elk plant from 2 million to 3 million tons and the Berwind mine in development to where basically, there is two sections in the mine. And by the end of the third quarter, those two sections will be producing at a sort of a normalized run rate. So, I would say, we have always sort of had a much heavier cadence first half versus second half. But Chris, you want to expand a little bit on the updated guidance?

Yes. So most of it is just the completion of major projects. And then for the delay or deferment of some other spending on mines like Triple S, that are higher cost profile. But with the Berwind Mine, the Berwind plant, and the Elk Creek projects behind us. And we have one project that's a little bit delayed due to permits at Elk Creek on our clean coal vials, that's really what's driving the lower CapEx for the rest of this year.

Appreciate that, Chris. I will leave it their guys. Thanks for the thoughts and the time, and best of luck in the second half.

Thank you. That does conclude the Q&A portion of today's call. I would now like to turn the call back over to Randall Atkins for closing remarks.

Again, I would like to thank everybody for joining us here today, and we will look forward to catching up with everybody in the fall. Take care.

Thank you. That does conclude today's teleconference. You may all now disconnect.