Welcome to the Ramaco Resources Third Quarter 2023 Earnings Conference Call. At this time, all participants have been placed on the 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 would like to welcome all of you to our third 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, www.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, Randall Atkins.

Thanks, Jeremy. Good morning everyone, and thanks for joining the call. We have a lot of positive developments to unpack this morning since we spoke in August. From the time we started Ramaco, we have generally been somewhat idiosyncratic within our industry. For over five years before we went public in 2017, we were investing in developing geologically-advantaged coal reserves. During most of that time, a majority of the industry was in bankruptcy, and certainly not aggressively buying greenfield coal reserves to develop from scratch. Since then, we continue to invest heavily in a rapid expansion of our business and in production growth. Many of our peers have moved in another direction. They were essentially letting their own reserves to flee without investing in new replacement tonnage. To prove the point, over the last couple of years, we've invested almost a quarter of a billion dollars in growth capital for production and acquisition. For a young company in this space, that is a meaningful number. And I wanted to highlight this background because our third quarter essentially reflects the results of this differentiated growth platform. In simple terms, this quarter in almost one fell swoop, we went from being a 3 million to a 4 million tonne per annum company. And of course, we're not done in terms of production growth. To step back and frame this a little differently, over the past years we've done or tried to do several things at once. We have invested to grow production, we have paid off debt, and we still have made substantial shareholder distributions. This year we paid down over $50 million or over 50% of our term debt. At the same time, we have grown production by 55% from 2.2 million tons in 2021 to 3.4 million tons this year.…

Thank you, Randy. As you noted, we enjoyed a strong third quarter, especially in light of weaker markets and coal pricing throughout much of the quarter. Specifically, flat U.S. East Coast indices sell roughly 5% in Q3 versus Q2. Despite this decline, Q3 net income grew more than 150% versus Q2 to $19.5 million, and adjusted EBITDA grew by more than 50% to $45 million. During the third quarter, adjusted EBITDA benefited by $3 million received from insurance claims proceeds in connection with the Berwind mine outage in mid-2022 and $8 million received in connection with the Elk Creek silo failure in late 2018. The combined net income impact was $8 million. I would note that Elk Creek insurance proceeds are not reflected in our cash balance as of September 30. I would also note that the company received a tax refund of $11.8 million in September, which is reflected in our Q3 cash figure. Turning to our key metrics, the largest variance relative to Q2 was on volume. The company shipped one million tons of coal, which achieves its previous guidance of reaching a rateable annualized sales run rate of roughly 4 million tons. This figure was up 39% from Q2, as we had been previously shipping at a roughly 3 million ton per annum run rate. The increase to 4 million tons per annum is the culmination of a multi-year investment in taking the Elk Creek plant capacity from 2 million to 3 million tons per year, as well as the ramp up at our Berwind mine that Randy touched upon. Average realized price in Q3 fell 4% versus Q2 to $157 per ton, in line with the declining coal indices. Production was down 18% versus Q2 to 719,000 tons, and cash cost increased 5% to $114 per…

Thank you, Jeremy, and good morning, everyone. Operationally, it's nice to talk about positive steps and milestones despite all the challenges that are inherent to the industry. Randy and Jeremy both mentioned the Berwind mine ramp up, and I'll touch on that in more detail. But first, I wanted to start with a comment on Ramaco's safety performance. We are extremely proud of our team at the Elk Creek Preparation Plant for having earned a Sentinel Safety Award for the second consecutive year for the performance in 2022. Annually, only six coal operations and of those, only two preparation plants are recognized across the entire nation. To win as the best large preparation plant in the nation two years in a row is not a fluke. As a company, we salute the daily effort that goes towards safety and compliance from all our employees. Turning to the production and sales step change, during the third quarter, we completed the final pieces of the Elk Creek Plant throughput upgrade. As we had previously updated, the plant reached higher feed rates late in the second quarter, but additional frost floatation sales and clean coal storage options did not come on until September. At this time, all contemplated upgrades have been completed, and we are operating at our higher feed rates of roughly three million annual clean times much more consistently. This throughput ramp, coupled with an extended vacation period in July, allowed us to dramatically lower the raw coal stockpile levels at Elk Creek, which had been built due to the delays on the project. We anticipate that one of mine coal inventories will be brought to normal levels during the first quarter of 2024. At the same time, we expect additional production increases at Elk Creek to coincide with the exhaustion…

Thank you. The floor is now open for questions. [Operator Instructions] And our first question comes from the line of Lucas Pipes with B. Riley Securities. Please go ahead.

Thank you very much, Operator. Good morning, everyone. I will keep my comments to minimum, and that is a good job on the 2024 contract. And I'll go over to the questions, but on those 2024 domestic contracts, it would be really great to get some perspective on the quality mix there. Is it kind of your standard quality? Is it maybe a little bit more on the higher end spectrum? We would appreciate your thoughts on that. Thank you.

Yes, thanks, Lucas. I'll take that. So, it's pretty similar to our overall mix. And frankly, I'd say about 30% of what we've committed is kind of a low vol, mid vol, and about 70% is high vol. As Randy noted, we're kind of working on refining the 2024 budget as we speak, but certainly in terms of the overall high vol mix, it'll come in probably a little less than kind of two-thirds. So overall, I mean, certainly kudos to Jason and his team for a job well done.

Great, yes. Good job, Jason. My second question, Randy, you mentioned in your prepared remarks that I don't have your exact wording down here, but you said something along the lines of this is kind of you had a pivotal moment as you transition more towards capital returns. I think that was the essence. And I wondered if you can speak to that. I think there are also targets for the debt reduction in 2024, so kind of trying to put it all together. How much of free cash flow should investors anticipate going towards kind of the balance sheet for additional flexibility? How much should go back in the form of dividends or buybacks? We'd appreciate if you could maybe put some additional details around that. Thank you very much.

Sure. Thanks Lucas. So I think when I tried to highlight is we've been trying to do a couple of things at the same time. I mean, we've been trying to grow, obviously spending a great deal of CapEx, quarter of a billion dollars over the last few years. We've been trying to pay down debt, which we've done, and we've gotten it down to about $50 million in term debt that remains. And then we've also, of course, been trying to do distributions, which inclusive of both the cash flow event as well as the value of the tracking stock, which we did that summer, it's been a pretty nice return. I think it's about 160 million bucks. So moving forward, I think the bulk of our growth CapEx from current projects is in the rearview. So as we look to 2024 and out, unless and until we started another large scale development project, we are going to have road CapEx that will be below the level that we anticipate paying out in dividends, cash dividends. And as far as further types of capital distributions in terms of stock buybacks or anything of that nature, we will have to see. We've always left the door open to that. We've also indicated that we wanted to get a certain level of cash on the balance sheet before we started considering that. We're certainly going to be in a cash build position here over the next few years. So that's certainly something that we hope we'll be able to get to here. But I find ourselves, frankly, in a pretty good position where we're starting to somewhat reap the benefits of what we've sowed, where we don't really have to spend too much more on growth CapEx. And indeed, as I indicated, we could pretty much maintain the same level of production just from maintenance CapEx going forward, which at 4 to 4.5 million tons is not a fairly tidy amount of production. So I hope that addressed most of what your question was asking.

That's helpful. Thank you, Randy for that. I'll squeeze one more operational one in. A few moving pieces on the cost side during the third quarter and then I think also into year end. But as you look into 2024, what's a good way to think about it kind of on a normalized level? Thank you for any color you can provide.

When you say think about it, which cost are you specific?

The production cost per ton on the metallurgic side.

Yes, I'll take that, Lucas. So yes, I mean, just taking a step back for a second in Q3, obviously overall cash costs were $114 a ton. But really, I'd say that the bulk of the increase or, frankly, all of the increase was driven by the - we took an extra week's vacation, paid vacation at Elk Creek. And in July to reduce inventory, which we certainly have done. So if I think about sort of August and September costs, which are normal kind of non holiday months, those cash costs averaged about $103 per ton to put that into some context. Now, obviously in Q4, you've got two months that have a week's holiday, and so that it's got to take that into account. But as I kind of think about next year, obviously we are going through the kind of the budget sort of as we speak on the negative side, there certainly continued labor and inflationary pressure. I think given the comments of our peers and just the overall economy, that's not a surprise. But that should be offset by stronger production from a full year of the Berwind mine producing at two sections and a full year of the Elk Creek prep plan and at kind of 3 million tons per annum. So we'll give some more refined guidance, certainly after the budget is baked. But hopefully that gives you a little bit of kind of context, kind of where we're coming from and where we hope to go.

Thank you. So, with low $100 becomes seem reasonable with these puts and takes?

I mean, that's certainly where we were in August and September. So I would hope that that's repeatable, especially with positive variances that we talked about. But again, you've got some inflationary pressures. So, we'll come out and kind of get you guys some more refined numbers over the next month or so.

Yes, I think, Lucas, we've got a pretty good handle on where we can control ourselves, what we have, as I alluded to, it's a fairly murky economic environment we're operating in today. So, we're not quite sure where a few pivots may go that would externally draw costs. But hopefully we'll be able to get some general thoughts on that that we'll be able to articulate to the market here within the next month or two.

Gentlemen, I really appreciate all the color and continue best of luck.

Thank you, Lucas.

[Operator Instructions] And we'll take our next question from the line of Nathan Martin with The Benchmark Company. Please go ahead.

Thanks operator. Good morning guys. Thanks for taking the questions. Maybe just one quick one for clarification on the cash cost, the telephone guidance, the 108 to 112 for the full year. Is that still the way you guys expect the frame and your expectations for the fourth quarter as well?

Yes, I mean, so I think, obviously, Nate, at the midpoint, I think the answer is yes. Obviously, with the range you can get kind of lower than that in the fourth quarter and even a little bit higher. I just remind you that fourth quarter always is kind of the - one with the most variability with the two weeks worth of paid vacations, of course, for Thanksgiving and Christmas. So hopefully that answers the question.

Yes, perfect, Jeremy. Appreciate that. And then, maybe just sticking with the full year 2023 guidance per second on the sale side, as you guys mentioned, that seems to imply shipments of around 800,000 tons at the low end and a million at the high end or maybe the million plus. So kind of what gets you to the higher low end of the range? Is it the ability to move more inventory as you guys seem to anticipate? Just would be great to get your thoughts there too.

Yes, I think we've got a nominal amount of open tonnage that's left for the year, Nate, which we're going to try and obviously push out before the year end. You know, there's the normal variables of making sure we can get the sales across the line with the rails, et cetera. But I think that's the primary variability.

Perfect, thanks, Randy. And then, maybe sticking with the stock policy just real quickly. And then Chris mentioned, hopefully getting to normalize levels, maybe the first quarter next year. If you're down to maybe 900,000 tons plus or minus, what's kind of normal there for you guys for help?

Chris, go ahead.

Nate, so the inventory levels that we've put out are sort of combined clean and raw, but just from a run of mine raw standpoint, the size of Elk Creek is we'd like to be running somewhere around 200,000 tons. So we have some flexibilities for the ebbs and flows of production without impacting the preparation plant, but never in the position where we're having to re-handle coal or have any concerns about it sitting. So if that answers your question.

Got it. Yes, just trying to figure out how much more there was to go. And I think you guys mentioned as well hopefully kind of a working cap tailing through the next two quarters because of that? Okay.

Nate, to add on a little bit to Chris, I mean, we've had kind of a funny year because of the fact that we had sort of built up inventory and anticipation of sort of flicking the switch at our prep plants and to knock the production up five million tons from two to three million. So we had a little bit of delay getting that plant both open and then ramped up to full processing capacity. So that's what caused the inventory. And I think in general, we will certainly refine it. But at the moment, our expectation is we'll have that inventory back down to normal levels, probably just after the first quarter next year.

Great. Appreciate the thoughts there, guys. And then, and then maybe just thinking about a little bit intermediate term. And Randy, you made the comments, you guys are very comfortable where you are now, maybe a four million ton plus kind of run rate. You know, next year, looking at next year, we don't know what the macro economy is going to bring with some of the issues that we're all keeping a close eye on. But let's say the market cooperates and you see more demand for your product. And I'm curious, what's kind of the next stage of growth and development framework on the whole side? What projects are you looking at? Maybe what kind of growth CapEx would that entail?

Yes, I think basically, Nate, we have, as I've indicated, baked some optionality into next year, depending on how we see the market. We're going to continue generally about the same called four million ton level. We could ramp that up without really bringing on much new growth CapEx at all to a higher level. I won't give you the exact tonnage right now, which we'll probably try to provide a little bit more clarity on after our budget. But we could wrap that up reasonably substantially next year if we solve a demand there. And I think going forward we were kind of a company that hits mostly singles and doubles as opposed to trying to go for grand slams in terms of production increases. You know, we've got a number of projects out there on horizon one of which we've talked about before is taking our Maven complex, which we're now operating as sort of a surface Highwall proposition and looking at the possibility of taking that into a deep mind production, which attendance prep facilities, et cetera. But that's down the road. We're not there yet. But we have a we have a ramp that I think Jeremy has put in our presentation, which gets us to about 6.5 million to 7 million runs over the next couple of years. And we're very comfortable, comfortable that can be accomplished with nominal road CapEx.

Got it. That's helpful. Yes. And it used to be nice to see that chart in there as well. It kind of broke out the CapEx. So that's what I was trying to kind of get to. So appreciate that. And then, maybe just one final one, shifting direction a little bit. Randy, I appreciate your prepared remarks on both the RE and carbon product initiatives, but could maybe give us an update on the timetables there kind of what stage are you at in each of those and how long do you think it could take before you do have a commercially available viable product for either.

Yes, I think, Nate, the way I'd like to answer that is that peculiarly the rare earth business is an entirely different type of mining exercise and coal mine. You know, coal mining, you're dealing with gold. You know, you can find, see and touch a lump of gold when you're dealing with rare earth, you're dealing with microscopic metal deposits that are measured in parts per million. So the real challenge is once you've found a sufficient level of rare earth to find it in areas of concentration, which you could economically extract from, and then to figure out what would be the appropriate sort of processing refinement techniques that would be able to get those minerals out. We've got some very interesting things going on. We're doing some deep coring now, because we think that there's a possibility that there may be some deposits, which we've missed since we've pretty much only used cores that have been originally developed from our coal mining exploration, which was generally fairly shallow in the a couple hundred feet, one to two hundred feet levels, and we're going to go down to a lower level to really test how much might be down there, way slower. So I think that's a roundabout way of saying what we're going to be involved in is more testing, not only on the dimension of the deposit, but more importantly, on sort of the chemical and mineralogic characteristics, which really define the ultimate economics. So I don't want to put a timeframe on it that buttonholes us in, but I'm hopeful by next year probably sometime in the first half, that we'll be able to have some pretty solid preliminary thoughts on where we are in terms of defining that deposit. And of course, we're getting…

Perfect. Yes, we'll be waiting for more from that for sure. And then, I guess just curious real quickly though that the feedstock and the carbon products initiatives, would you plan to use your own production there or no?

In terms of the coal that would go into the carbon product feedstock, Nate?

Correct. Yes, correct.

Yes. Yes, that's a great question. So the answer is we would use our own production. We've been doing our testing on synthetic graphite from our low-vol coals in Berwind. And indeed, that's where we're sort of currently contemplating we'd build a pilot plant. And in terms of the sort of the melt blown activated carbon that we would use for direct air capture, we've been using our Wyoming coal. And we've got plenty of that. So our general thesis is it's time goes by my bandwagon has been the use of coal for higher value products under the theory that coal is too valuable to burn. We can use it to make something else with it. It might be more valuable to those of us in the industry who would go in that direction. So that's kind of where we are on that.

Got it. So just wanted to confirm that could possibly be yet another avenue for your products to move into. Okay, perfect. Guys, I really appreciate the time and information and best of luck in the fourth quarter?

Thanks, Nate.

This concludes 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.

I'd just like to, as always, thank everybody for being on the line with us today. Hopefully we've been able to enlighten you. We've had a pretty good quarter. We will look forward to catching up with anybody again after the first of the year for our year end results and everybody have a good day. Thank you.

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