Welcome to the Ramaco Resources Fourth Quarter 2023 Results Conference Call. All participants will be in a listen-only mode. [Operator Instructions] Please note today's event is being recorded. I would now like to turn the conference over to Jeremy Sussman, Chief Financial Officer of Ramaco Resources. Please go ahead, sir.

Thank you. On behalf of Ramaco Resources, I'd like to welcome all of you to our fourth quarter 2023 earnings call. With me this morning is Randy Atkins, our Chairman and CEO; Chris Blanchard, our Chief Operating Officer; and Jason Fannin, our Chief Commercial 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. I'd 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. With that said, let me introduce our Chairman and CEO, Randy Atkins.

Thanks, Jeremy. Good morning to everyone. As always, thanks both for your interest and for joining the call. We have a lot of positive developments to unpack this morning since we spoke last November. I discuss then, over the past few years, we have tried to differentiate ourselves by aggressively but prudently growing our production and sales profile. In 2021 through last year, we doubled our production. Our goals over the next few years are to again double our current 3.5 million ton level in met coal. And next, to hopefully add an intriguing and very valuable new line of business with rare earth. Looking back over the last few years, we invested almost $0.25 billion in capital for increased production and acquisition. That strategic investment in growth paid off for us in the second half of '23, again, letting us be consensus for the last two quarters. I will let Jeremy provide the financial metrics where Q4 was the record quarter for us this year, and we printed $182 million in annual EBITDA and also had record free cash flow, all despite some muted pricing in the overall market. As we look down the road at our quality slate, we were aiming to essentially double our low-vol, mid-vol levels to about 50% of overall production with another 30% is high-vol A. Today, we are about 40% high-vol A and 30% low-vol, mid-vol. In part, that decision is based on our organic reserve quality mix, but it's also based on what we perceive may be some future crowding in the high-vol A space. Several peers are slated to bring on as much as 6 million tons of new production in that blend over the 24 to 26 period. On the other hand, we see low volt production is essentially flat…

Thank you, Randy. As you noted, financially, we enjoyed a strong fourth quarter in 2023, which was easily our strongest quarter of the year. While U.S. metallurgical coal indices did rise in the fourth quarter compared to the prior two quarters, the indices were still more than 10% below Q1 levels. Our strong Q4 was frankly due to both solid execution of our growth strategy and tight cost control. Specifically, in each of Q3 and Q4, we shipped a 4 million-ton per annum run rate compared to a 3 million-ton per annum run rate in the first half. In Q4, our margins expanded more than 50% versus Q3. Realized pricing was up 10% to $173 per ton on stronger indices. More importantly, cash cost per ton fell $7 sequentially and on both a stronger absolute and relative contribution from our main Berwind mine, as Randy noted. In terms of financial metrics, adjusted EBITDA was $58 million in Q4 and up almost 30% from Q3. Fourth quarter net income of $30 million was up more than 50% sequentially. Now, I want to make one point on net income and earnings per share. First, for comparative purposes, had we calculated EPS as we had in the past, I would note that Q4 fully diluted EPS would have been $0.68. That said, since we issued the tracking stock in mid-2023, GAAP accounting rules have frankly complicated our EPS calculations. 2024 will be our first full year with having a dual fare class structure. I would note that the Class B dividend amount each quarter will affect the Class A EPS calculation alone. Adjusted EBITDA, net income and all other key items will not be affected. Based on our current outlook, I would expect quarterly 2024 Class A EPS to come in anywhere from…

Thank you, Jeremy, and thank you to everyone who joined us this morning. I want to first start by reiterating how pleased and proud we are of the safety performance and environmental stewardship that we achieved in the field in 2023. We had overall our lowest incident rate in our history last year, and we are focused on improving and enhancing that performance as we move forward. Looking back on 2023 operationally, it was a tale of two halves. The first half was constrained at both of our big complexes. We had delays in the preparation plant upgrade at Elk Creek and Berwind was completing its development mining to reach the thick Pocahontas store teams following the ignition event of 2022. The second half, however, saw us increase preparation capacity at Elk Creek and begin the monetization of our inventory, which had built up. We also reached the long talked about main reserve at the Berwind mine and staff the mine and quickly reached and exceeded projected production levels. We also started our surface mine at Maven, which has run better than expected. The sales and marketing team has done an incredible job selling our inventory. Now as we turn into 2024, our operations will ramp up to meet these new elevated sales levels and work to double the size of our production over the next several years, as Randy has described. That work is underway at all three of our main complexes now. At Elk Creek, after a couple of years with flat production, we've moved forward with the Ram number 3 project. This will bring on 300,000 to 400,000 annualized additional production from a second surface mine and its accompanying Highwall Miner operation. This mine had been previously planned in both 2022 and 2023, but due to market…

Thanks, Chris, and good morning, everyone. I will share what we are seeing in the markets and our current and forward sales outlook. Global coking coal markets remain well supported, mainly due to lower supply because of continued underinvestment in the coal space. economic conditions, steel market fundamentals and demand outlook continue to vary widely around the globe. Integrated meals and coke batteries in the U.S. continue to run strong on the back of sustained steel demand and pricing levels. Brazil continues to struggle with low-cost steel imports and wheat coke production, while economic conditions in Europe, along with high carbon taxes are keeping demand from rebounding there. Although many blast furnaces have returned to production to start the year with low utilization rates. One bright spot for U.S. producers during much of 2023 and continuing into 2024 has been the Pacific market ex-China where Ramaco is now becoming a player. We saw tremendous year-over-year demand growth in India. New coke batteries continuing to ramp up in Indonesia and traditional customers in South Korea and Japan, expanding their intakes of U.S. coking coal as they diversify and derisk their supply portfolio. Since our last call, we have effectively doubled our committed and sold position for 2024. Since December, as Randy said, we added 1.8 million tons of new sales essentially all to seaborne markets at index-linked pricing. This now brings our overall sole position to about 3.9 million tons, basically 100% of our original lower end sale of guidance. As Randy also mentioned, during much of 2023, Ramaco focused its marketing efforts on the growing Asian markets, placing multiple test cargoes of all grades of coking coal, low-vol, mid-vol and high-vol into several different end users. The culmination of those efforts has resulted in a number of long-term offtake agreements…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Today's first question comes from Lucas Pipes with B. Riley Securities. Please go ahead.

This is Nick Chile asking a question on behalf of Lucas. Congrats on the solid results here. My first question was around volume cadence. First quarter guidance was 800,000 to 950,000 tons. And I was wondering what would take you to the high or low end of that range? And then you mentioned a 5 million-ton run rate over the second half. And should we think about that as an even split or more weighted to 4Q?

Nick, it's Jeremy here. Good to hear from you. So, I mean, sitting here at the beginning of March, there's always a lot of variability with rails and as we export more, you're going to end up on larger and larger vessels. So, I mean, frankly, the difference between the low end and the high end this quarter is mostly on the logistics side, I would say. So obviously, we hope to be at the high end, but I think history has told us that while the rails have certainly improved. At the end of the day, there's still some variability in there, hence the range. In terms of the cadence, I mean, I'd say volume will ramp up kind of each quarter. So if you're kind of thinking about a sales cadence, second quarter will probably be around 1 million tons. I'd say third quarter and fourth quarter is really where you're going to see the big step up, and frankly, fourth quarter a little bit higher than the third quarter, call it, $1.25 million, $1.3 million in Q4 and really -- I'll let Chris kind of touch a little bit about this, but the big delta is just as he talked about in his prepared remarks, when you bring the third section on at Berwind and the Ram 3 mines at Elk Creek. I mean, that's almost 3/4 million tons on an annualized basis. Chris, do you want to touch on a little bit on that?

Yes. So, the cadence is, obviously, Ram surface mine, which is the smaller part of that complex will come in, in very end of the second quarter, beginning of the third quarter, and then we'll layer in the Highwall Miner at Elk Creek in the fourth quarter. And that will be the bulk of the production. And so that's why you get the step change on the Elk Creek side. And then at Berwind on the low-vol, it's all based around the timing of our third section, which is ventilation dependent. So, we'd love to start that earlier, but the reality is it really won't start up until third quarter. And then as we build the workforce and get it to normalized production, you'll see that step change in the fourth quarter, which has us exiting the year the 5 million-ton run rate.

Super helpful. My next question was just on quality mix. You provided a nice outlook on a full year basis. And I think you mentioned the Great Lakes picking up here in March. So how should we think about quality mix here in 1Q? And maybe how things would progress into the second quarter as well?

Yes. Nick, this is Jason. As far as Q1 goes, I think our quality mix will look quite a bit like it did in Q4. Certainly, as Chris mentioned, a lot of the production ramp coming in the back half of this year, which we'll see certainly more low volume. As you mentioned, Ram 3 was a smarter part of that -- a smaller part of that uptick in the back half. Our Q1 production mix and quality mix essentially mirrored Q4 there.

Nick, one thing I'd point to the Slide 7, where we kind of give the breakdown. Randy touched upon it in his prepared remarks. But I think the thing to note there is the big change is on the low-vol side. So, I mean, right now, we're at sort of a 40% low-vol mid-fall kind of kind of a mix. As we move forward, ultimately, that will take us above kind of 50%. So, I mean our mix, I'd say, in will look a little bit different obviously than it will kind of when we exit the year as Berwind ramps and ultimately, you get a full year Maven and bring on more tons there as well.

Got it. Got it. If I could maybe just sneak one more on the market. I think you touched on the European market and cited lower utilization. I was wondering if you'd expect those operations to ramp up over the course of the year? Are you seeing any green shoots yet? Thanks for any additional comments.

Yes. So, Nick, this is Jason again. Yes, I mean, as Randy mentioned, it seems like that market is kind of spring loaded for a rebound. I think there are several triggers that are is going to be necessary to cause that. They've been so depressed now for the last couple of three years. Certainly, really since COVID and then the energy impacts after the Ukraine war began, we have grown business with certain customers there for the premium products. Those customers have a very, I'd say, strong outlook for this year as it goes forward. Some of those customers have indeed restarted blast furnaces. I think some of the capacity holdbacks on those furnaces are an attempt to keep the steel pricing at a reasonable level for them. I think one of the big triggers for a rebound there would be some resolution in Ukraine. If you recall, prior to the war, they were taking upwards of 4 million tons a year from the U.S. That could be a big jump in demand out of the states, if and when that happens. But certainly, there are shoots there and there are positive aspects there, it's just a matter of timing.

I'd also say, Nick, that on a macro, of course Europe has been sort of behind the U.S. In terms of its perception of when interest rates may start to decline. But I do think if you see the U.S. decline at some point this year, you'll see Europe probably follow in its footsteps not too much further after that. And I think that would be another catalyst towards seeing a little bit more economic activity over there.

[Operator Instructions] Our next question today comes from Nathan Martin with The Benchmark Company. Please go ahead.

Maybe sticking with the slide deck real quick. I think it's Slide 6. You guys talk about medium-term production of approximately 7 million plus tons. Could you provide a little more color around that target, maybe how much CapEx that could possibly take, or at least how many years you guys foresee it taking to kind of get to that level, what I think, Randy, you said it's basically double what you guys did in 2023?

Yes. I think in terms of the cadence, we kind of look at that as probably a three-year ramp. We bumped Elk Creek up to about 3.5 million tons. We have Berwind probably at a 1.5 million to 2 million ton level. We haven't greenlighted Maven yet, but that would bump probably to about 1.5 million tons, give or take. And then we'd also have Knox Creek in there with, frankly, as much as just a little bit under 1 million tons. So actually, that adds up to a little bit more than $7 million, but we've got room for a little wiggle room in there. I think in terms of the CapEx, we've got to work through it. But I would say our main CapEx for this would probably be '25 million, '$26 million. We to get to where we are right now in '24 moving even up to sort of a $4.5 plus million threshold. We're really bumping CapEx, only about $13 million from what we had originally come in at maybe in the sort of the low 60s, high $50 million range. And as we look further out, we will give you plenty of heads up as to what the numbers will be. But I would say our cadence would probably ramp for probably two years at about a doubling of that rate. And of course, that also includes maintenance CapEx, too. So our growth CapEx is going to be much less than that. But when we get to the point of laying all that out with any new guidance on specific projects, to take that up, we will be happy to provide all the CapEx numbers around it, growth CapEx that is.

Got it. Appreciate it, Randy. Maybe shifting over to the Brook mine and the potential rare earth element side of the house. You mentioned the expectation to get to Weir report, I think, over the next 2 weeks or so. What kind of information do you expect from that? And then separately, do you guys still anticipate receiving the report from SRK, I think you said previously by the end of the first half. And correct me if I'm wrong, but I believe that should give us the first glimpse in the possible economics of the project as well.

Yes. So great question. So basically, to break it down, in the Weir report, we are going -- we essentially been putting up a tremendous amount like thousands of additional samples that have been tested since our first report. So that's what's given the time lag. We've also gone back as we will explain and done some interesting new testing metrics that will be focused not only on tonnage, but more importantly, on concentrations. So, I don't want to front load that because it's going to be out soon enough. And in terms of SRK, basically, what they were brought in to do was, of course, to help us determine the economics. And the way that, that cadence will roll is, first, you have to determine essentially what the chemical and metallurgic and minerallurgic character of the deposit is before you can really determine how the best processing techniques will be developed. And so that's frankly the process that we're in now. And again, once we come out with the report, we will have a full disclosure of everything we're looking at. We just brought on board someone who is kind of now going to functionally run our rare earth effort, who's got a great deal of experience and background in this area. So, look forward to having a sort of an analyst call here probably sometime within the next month to be able to explain all findings from the Weir report and also to give you sort of a critical path of how we're proceeding forward with the commercialization efforts.

Maybe just one more on CapEx and as it relates to what we're just talking about. I mean these reports come out, let's say, with positive results. Is there a possibility that CapEx moves up in 2024? Or are we still a little bit ways off before we look to start spending more material amounts on that project?

You're talking about on REEs or on met coal?

Yes, on REEs at the Brook Mine, exactly.

We have spent exceedingly modest amounts sort of in the $3 million to $4 million range on our entire rare earth project to-date. So, you can do the math on what kind of return that's generated for us, at least from a market value standpoint, so our CapEx relating to the mine out there really won't begin to kick in until '25. And that is premised on the fact that we will come up with what is the appropriate processing technique that we will try to pursue. We've got a lot of testing to do before we come up with that conclusion. And once we get to that point, again, just like we always do with any of our CapEx, we will give you plenty of guidance on what that looks like. But I'm thinking not much CapEx even in '25. I would look to more CapEx probably be in the outer years.

Thank you. And ladies and gentlemen, this concludes our question-and-answer session. I'd like to turn the conference back over to Mr. Atkins and the management team for any closing remarks.

Great. Well, as always, we appreciate everybody being on the line this morning. We look forward to catching up here in a few months. And thanks for your interest. Thanks very much.

Thank you, sir. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.