Ramaco Resources, Inc. (METC) Earnings Overview

Ramaco Resources, Inc. (METC) reported its strongest operational quarter in the Third Quarter 2024 Earnings Call, featuring record production and sales. Despite a drop in metallurgical coal prices, the company retained solid cash margins and reduced cash costs, showcasing effective operational management. Compared to the previous quarter, adjusted EBITDA declined, and net income hit a break-even point. Enhanced liquidity and reduced SG&A cash guidance were reported. However, closing an unprofitable mine led to a reduced production and sales outlook for 2024. Ramaco is optimistic about future growth in met coal and rare earth minerals due to key initiatives and favorable market conditions.

Key Takeaways

• Ramaco achieved record quarterly production of 972,000 tons and over 1 million tons in sales for the first time.
• Cash margins remained steady at $34 per ton, despite a 13% decline in metallurgical coal prices.
• Production and sales guidance for 2024 was reduced by 200,000 tons due to difficult market conditions.
• Q3 adjusted EBITDA was $24 million, with net income breaking even.
• Liquidity improved to $81 million by September 30, 2023, with lowered cash SG&A guidance.
• Operational success was attributed to the Elk Creek complex and Maben prep plant's early commissioning.
• Global coking coal prices fell roughly 7% in Q3, yet an increase in demand from China and India is anticipated.
• Contracts for 2.7 million tons secured for 2025, with expectations for a potential rebound in U.S. coking coal prices.

Company Outlook

• Forecast for year-end sales run rate to exceed 5 million tons.
• Objective to maintain cash costs below $100 per ton in Q4.
• Growth initiatives at Elk Creek and Maben prep plant are on track.
• Anticipated production ramp-up at Berwind mine with a focus on cost management.

Challenges

• Closure of the Knox Creek Jawbone mine due to market pressures.
• 2024 production and sales guidance reduced by 200,000 tons.
• Increased CapEx guidance from $61 million to $65 million due to project timing.

Positive Developments

• Contracts for 2.7 million tons secured for 2025 suggest a positive sales outlook.
• U.S. coking coal prices may stabilize, showing signs of a rebound.
• Strong interest from European clients for extending supply agreements.

Misses

• Q3 adjusted EBITDA decreased to $24 million from $29 million in Q2.
• Net income remained at break-even.

Q&A Highlights

• Berwind's third section is projected to operate at a $300,000 run rate.
• 10-25% of Central Appalachian mines face closure risks.
• Negotiations for specialty coal pricing for 2025 likely to see increases from the current pricing average of $152.

Investor Insights

Ramaco Resources' strategic initiatives and proficient operational management have positioned the company for potential growth, despite existing market challenges. The focus on cost control and important project developments should enable Ramaco to benefit from expected demand increases and price recoveries in the global coking coal market.

Market Position

• Ramaco has a market capitalization of $637.76 million and a revenue of $698.13 million for the last twelve months as of Q3 2024, indicating significant growth potential.
• The company's share repurchase activities reflect confidence despite economic challenges.
• High shareholder yield and commitment to returning value to shareholders through a dividend yield of 4.94% and 10.0% growth over the past year.
• Strong free cash flow yield suggests attractive conditions for value-oriented investors.

Financial Metrics Overview

• P/E ratio at 18.36 and Price to Book ratio at 1.74 indicate reasonable stock valuation.

Ramaco Resources is well-positioned with operational strengths and strategic plans for growth in met coal and rare earth minerals, even amidst current economic difficulties.

Full Transcript

Operator

Good day, and welcome to Ramaco Resources' Third Quarter of 2024 Results Conference Call. All participants will be in a listen-only mode for the duration of the call. Please be aware that today's call is being recorded. I would now like to turn the call over to Jeremy Sussman, Chief Financial Officer. Please go ahead, sir.

Jeremy Sussman

Thank you. On behalf of Ramaco Resources, I'd like to welcome all of you to our third quarter 2024 earnings conference call. With me this morning is Randy Atkins, our Chairman and CEO; Chris Blanchard, our EVP for Mine Planning and Development; 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 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. 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. Lastly, I'd encourage everyone on this call to visit our website and download today's investor presentation. With that said, let me introduce our Chairman and CEO, Randy Atkins.

Randy Atkins

Thanks, Jeremy. Good morning everyone and thanks for joining the call. The third quarter was easily our strongest operational quarter this year. We focused on controlling what we can—cash costs and volume growth. What we can't control is pricing. Despite a 13% decline in the Australian benchmark price this quarter, we maintained our operational margins unlike other metallurgical coal groups. Our mine costs declined by over 25% this year. We saw record production and sales figures, with over 1 million tons booked in quarterly sales for the first time.

To sum it up, despite market headwinds, we anticipate operational improvements in Q4, with a projected year-end sales run rate exceeding 5 million tons and cash costs below $100 per ton. As we advance into 2025, our growth initiatives remain on track, accentuated by expected increases in demand for our sales in met coal and critical minerals.

Operator

This concludes our Q&A session. Thank you for attending today's presentation. You may now disconnect your lines.