Ramaco Resources - Earnings Call - Q1 2022

Transcript

Speaker 0

Ladies and gentlemen, welcome to the Remica Resources Inc. First Quarter twenty twenty two Earnings Conference Call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time. I would now like to turn the conference over to your host, Mr.

Jeremy Sofman, Chief Financial Officer. Sir, please go ahead.

Speaker 1

Thank you. On behalf of Ramaco Resources, I'd like to welcome all of you to our first quarter twenty twenty two earnings conference call. With me this morning is Randy Atkins, our Chairman and CEO Chris Blanchard, our Chief Operating Officer and Jason Fanning, 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 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.

Lastly, I'd encourage everyone on this call to go on to our website, ramicoresources.com, and download today's investor presentation under the Events Calendar. With that said, let me introduce our Chairman and CEO, Randy Atkins.

Speaker 2

Thank you, Jeremy. As always, we look forward to discussing our Q1 results and some updates with everyone. These are indeed pleasant days to be in the met coal business as long as you can dial out the noise from the stock market. Despite the backdrop of the immediate market turmoil, our quarterly earnings were a record. Indeed, we generated more net income in Q1 than for the entire year of 2021.

To those concerned about any miss from consensus estimates, we will address that head on with this call. As of today, we have sold 2,400,000 tons or about 70% of our 2022 sales. This assures us another record year. We still have 30% of remaining production or over 1,000,000 tons left to sell basically at index prices and into export markets. To address results, Q1 EBITDA of $64,000,000 was not only a record quarter, but it was a double of our Q4 'twenty one earnings.

Like every other coal producer, last quarter was a woulda, shoulda, coulda quality based on substandard rail service. We were only able to load about 80% of planned shipments. The vast majority of the missed shipments were higher priced export index price business. Had we been able to load on schedule as contracted, that would have translated into an additional $23,000,000 of EBITDA. These deferred earnings, so to speak, will now slip into future quarters.

So far in 2022, of our 2,400,000 tons of committed sales, roughly 90% have already shipped or have priced. These sales now translate into roughly $330,000,000 of EBITDA generated year to date, $235,000,000 of net income and roughly $530 of earnings per share. For perspective, three months into the New Year, we now have greater than four times more EBITDA and almost six times more net income than we did for the entire year of 2021. Again, we still have roughly a third of production left to sell to add to these figures. So looking beyond Q1, we expect to have an extremely strong and again record year on all fronts.

The next three quarters of twenty twenty two promise to improve on Q1. We expect to increase the cadence of both production and market based index sales in the second half. We will also recognize additional cost savings from both that increased production and royalty and sales expense reduction, which we'll talk about in a moment. Our remaining open sales tons should primarily head into export markets, which of course still are at record index pricing levels. Spot index pricing levels for the Atlantic seaborne continue to hold well.

Yesterday low vol was at $474 a ton. Indeed, our last low vol shipment printed at a premium of $510 per ton with a 400 per ton mine netback. We expect overall second half market conditions to remain strong. The underlying rationale for this stronger for longer dynamic we think will continue to persist for some extended period. The factors are, of course, very limited existing supply with no meaningful near term new supply, continued strong demand, and now we stir in some looming disruptions in Q3 when Russian coal shipments into The EU finally stop in August.

We are successfully executing on all our announced production increases and now hope to hit 3,400,000 tons this year. We also hope to bump this to at least 4,000,000 tons or more in 'twenty three. We are well along in adding our new prep plant processing capacity. Once increases at our Elk Creek and New Berwind plants are complete, this will push our nameplate capacity to 5,500,000 tons and possibly more. As I've said before, we can think of no other public coal group which is growing as fast, doubling current production, paying for it from internal funds, and simultaneously making meaningful shareholder returns of capital.

Indeed, this week, the Financial Times named us as the 300 out of 500 fastest growing companies in America. I self servingly mentioned that fact because Tesla was ranked behind us at only three fourteen. It's a very nice company to keep. We are also of course on this year to generate record levels of both free cash flow and cash buildup. This week, we announced our second regular base dividend.

We also announced that we intend to register a new class of tracking stock, which is expected to receive a dividend based on the financial performance of the recently acquired assets of Ramaco Coal. We intend to refer to this new business line as core resources signifying its focus on carbon ore and rare earth elements. Since we will be filing a registration statement on this new security, I unfortunately cannot discuss it in any detail beforehand. We also sent out our first annual shareholder letter last month, which you might look at for some additional color. In it, I expounded on the fact that unfortunately, from the standpoint of the stock market, the coal industry has a Rodney Dangerfield, we don't get much respect feel to it.

When you look at both Ramaco and our peers, we all trade in an average EV multiple band of about two times consensus 22 EBITDA. Even companies making massive special cash dividends and buybacks are trading for a fraction of the five to 15 times EBITDA multiples of oil and gas, other energy groups, industrial or materials groups. Please do not get me started on commenting on multiples at rare earth element companies. I contend one reason for the industry's valuation lethargy is that the market does not deem that there is any effective endgame to our business. What I mean is that the larger coal industry has not been able to articulate a vision of how to transition in a world which penalizes anything that remotely looks like a greenhouse gas emitting business.

This is unfortunately true whether you say you're in the met coal business, much less if you say you're a thermal producer. Almost 10 ago, before it was either fashionable or we had even heard of the term ESG, we at Ramaco started looking at alternative uses of coal beyond combustion. I want to comment on this as a lead in to our approach to our recent Ramaco coal purchase. We've been working for years with two of the national labs to develop some fascinating advanced carbon products and materials which use coal as a precursor. We started to refer to coal used this way as carbon ore, and we have started to build what we also call a carbon valley for coal in Wyoming.

We've developed a large body of intellectual patent and licensing rights around these concepts. These advanced carbon products would basically allow for a much higher market price for coal as a base feedstock because of the higher value of the end product. It could become a third leg of the stool where coal or carbon ore could be used for power, for steel, or in the future for carbon products and materials. We've also built over the last ten years a sizable fee owned met coal reserve portfolio, which we now mine in the East. It throws off annual royalty income that should grow to over 20,000,000 to $25,000,000 per year over the next twenty four months at the forward curve, and it will continue for another twenty or more years.

Since Ramaco Resources now owns those reserves, it will let us avoid that royalty cost. Lastly, for several years we have been doing reserve assessments of our Powder River Basin coal in partnership with the DOE's National Energy Technology Lab. We discovered about two years ago that we may be sitting on some very high concentrations of rare earth elements at our 500,000,000 ton permitted Brook Mine in Wyoming. These are valuable medium and heavy quality REEs. They are found in both our coal seams as well as the clay over and under burdens.

As we speak, we are currently doing an extensive coring analysis to determine a broader reserve assessment of both the extent and quantity of that reserve. We hope to have that assessment complete later this year. Indeed, when you look at all of these new Ramaco coal assets, they can produce basic royalty like income streams that are a lower risk form of passive income. These should trade more like a royalty security and therefore at substantially higher multiples than coal companies. We will continue to look at ways to unlock that value and provide it back to shareholders.

Speaking of dividends, I realize this has been a busy quarter on dividend and buyback announcements from other coal groups. Unfortunately, they have received mixed reaction from the markets. As I said, at Ramaco, are now on track to have our best year of cash generation as you can calculate from the figures that I provided earlier. We still intend to consider an increase in our basic dividend level later this year, probably in the fourth quarter. At that time, we will also consider possible share buybacks, especially if our stock is in a low valuation environment.

In the meantime, in Q3, we expect to make a dividend of a percentage of the new Tracking Core Resources shares post the registration of that stock. Now with that, I'd like to turn the floor over to the rest of the team to dive into some more detail on finances, operations and the market. So Jeremy, please run down our financial and some market metrics. Thank you, Randy.

Speaker 1

I'll start by going over our first quarter twenty twenty two financial highlights. Adjusted EBITDA of $64,000,000 was our best quarter on record, up 103% from Q4 of $32,000,000 which was our previous quarterly record. Unfortunately, as Randy mentioned, the rail transportation issues that we flagged on our last earnings call persisted throughout the first quarter, causing us to build almost 85,000 tons of inventory. Had we shipped that coal, Q1 adjusted EBITDA would have been over onethree higher or up an additional $23,000,000 First quarter diluted EPS of $0.92 was up 121% from Q4 EPS of $0.42 We believe the transportation dynamics negatively impacted Q1 EPS by another $0.38 While our rail service has improved a bit to begin Q2, we would anticipate service to increase meaningfully in the back half of the year. As a result, we expect second quarter results to be modestly above first quarter results and second half earnings to be well above first half earnings.

Now turning to our full year 2022 outlook, I would like to touch on a few of the key areas in our guidance tables. First, on production and sales, we increased guidance from 3,000,000 to 3,300,000 tons, now up to 3,100,000 to 3,400,000 tons. We slightly beat Q1 in terms of our internal budget for production. However, Q1 shipments, as discussed, fell short of expectations due to transportation issues, though we anticipate making these up throughout the year. Second, on costs, despite inflationary pressures, we are maintaining our cost guidance of $82 to $90 per ton.

We anticipate costs coming down throughout the year. This is based on a combination of economies of scale from increased production plus the benefit of material savings in coal royalties on the back of the Ramaco coal transaction, coupled with the Berwind prep plant coming online to reduce trucking costs. To drill down, in Q1, we, of course, saw no meaningful benefit from royalty savings because we did not own Ramaco coal. Had we owned Ramaco coal, cash costs would have been around $100 per tonne despite mining on very little fee coal compared to normal. Second, had our Berwind prep plant been up and running, which we anticipate this summer, overall cash costs would have come down another $3 per ton.

Lastly, in Q1, we also saw meaningfully higher labor costs than we anticipate the rest of the year, up $6 per ton from Q4 based on advanced hiring. Simply put, we made the decision that it made sense to hire a lot of qualified miners in Q1 in anticipation of higher production as we ramp throughout the year. Indeed, our headcount is up by over 100 since year end. While this negatively impacted Q1 costs per tonne, we wanted to put ourselves in the best possible position to hit our production growth targets throughout the year. As we ramp production, unit costs should come down.

Lastly, we are increasing our capital expenditure guidance from 65,000,000 to $85,000,000 to 80,000,000 to $95,000,000 Around onethree of the increase is due to general inflationary pressures, but the rest is due to the combination of pulling forward some planned 2023 capital into 2022 to buy available equipment and adding some incremental production at both Elk Creek and Knox Creek. The biggest new capital project is the addition of a second section at our No. Two gas mine at Elk Creek. While these investments add around 100,000 tons to our 2022 guidance, I'd like to point you to Slide six in our investor deck, which gives our longer term production outlook. Specifically, as it relates to 2023, we are now taking production guidance up from 3,700,000 tons previously to 4,000,000 tons, largely on the back of the increase at two gas, which should add around 250,000 tons on an annualized basis.

Simply put, we expect production to grow from up to 3,400,000 tons this year by almost 20% to 4,000,000 tons next year. Lastly, I want to comment on shareholder returns. In early twenty twenty two, we hit our long standing goal of becoming the dividend payer. I would remind everyone that we will meaningfully grow production in the next couple of years. We are proud to both grow and pay a meaningful dividend at the same time.

In the back half of this year, we will assess the best use of cash. As Randy said, if our stock continues to trade at a discount to what we and our Board deem to be fair value, a meaningful share buyback program is certainly one option. With that, I'd now like to turn the call over to our Chief Operating Officer, Chris Blanchard. Chris?

Speaker 3

Thank you, Jeremy. Well, as Randy and Jeremy have both indicated, it's been a very busy several months at Ramaco since we have last spoken. During the first quarter, we hit a number of operational milestones as we ramped in as we continue to ramp an increase in production this year by 50% over our 2022 levels or 2021 levels, rather. We completed rehabilitation and reinstallation of all infrastructure at the Laurel Fork mine, which was acquired as part of the Amanada transaction. This mine began production in March ahead of schedule and continues to ramp production and build their workforce.

We started our MP number one Palatin mine at Elk Creek ahead of schedule and did all initial mining and set all permanent belts in the mine fan. We completed construction for Elk Creek's crucible mine and became began operation early in the second quarter. This mine will provide a long term and consistent product for the foundry and specialty coal markets. At our Berwind plant, demolition of all obsolete components and infrastructure was largely completed during the first quarter, and upgrades of equipment and installation of more efficient and modern circuitry began. The plant is still on schedule for a midsummer twenty twenty two start up.

Perhaps most importantly, our first production unit production and development projects and began mining at a ratable full productivity levels as we expected. The second mining unit is fully set up and will begin mining once our Triad, Pocahontas number four seam mine, is exhausted later this year. Despite the tightness of skilled labor, we continue to stay on track with hiring to support this growth, and we did manage to do some advanced hiring last quarter in anticipation of our further production ramp up throughout the year. Overall, Ramco increased headcount at our mines by over 15% in the first quarter in a very competitive market for Central Appalachian coal miners. There were certainly a number of challenges in the quarter as well.

In addition to the rail issues we discussed, we are seeing the same inflationary pressures that are impacting everyone in the industry. Cost for steel products are up approximately 20% so so far this year. Diesel fuels lubricants are up approximately 30%. Labor costs are up 15%. Contract trucking costs are up over 20% across our company.

But as Jeremy mentioned, despite these headwinds on cost, we actually expect our mine cost to improve as we move throughout the year. The now closed Ramco royalty transaction will immediately lower royalty expense at our mines, and this will accelerate as the year progresses as the number of our sections move into now fee coal areas. Our first quarter costs were also elevated by the expected higher start up costs of the new mines and sections that I discussed. As these mines reach their normalized productivity, these costs will come into line with existing operations, and the entire company averages will decline. Finally, the startup of the Berwind preparation plant this summer will eliminate a substantial amount of the trucking expense for the Berwind and the Triad mines.

As this complex continues to increase production, these savings will become material. As Randy mentioned, the growth is not yet complete. At Elk Creek, we hope to bring one additional underground mining section into operation by midsummer at our number two gas mine as we continue to work on expanding the overall capacity of the Elk Creek plant and CSX load out that are there. In fact, we continue to evaluate Elk Creek to see what the optimal and ultimate annual throughput of this operation should be and will be. At our Berwind complex, we're finalizing plans to start a mid voluble surface high oil miner operation that should also begin operation during the third quarter.

This fully permitted mine was also acquired as a portion of the Amanada purchase in '21. To conclude, despite our share of challenges so far this year, we've been buoyed by a very favorable coal market worldwide with positive dynamics that appear to have some staying power. I'd now like to hand the call over to Jason Fannon, our Chief Commercial Officer, to discuss this in more detail. Jason? Thanks,

Speaker 4

Chris, and good morning, everyone. In my remarks, I will share an overview of what we are seeing in the market and discuss our current and forward sales outlook. The coking coal markets remain at historically high levels. The reason is persistent structural challenges on the supply side, coupled with continued strength in global steel demand and pricing. On supply first quarter coking coal export volumes from The US, Australia, and Canada remain below those during the same period in 2021.

They are even further below compared to pre pandemic levels. On August 10, the real fallout on the market from Russia's invasion of Ukraine kicks in when the EU's outright ban on Russian coal takes effect. That has already impacted our export business into Central And Eastern Europe, where year to date, we have already placed about 175,000 tons. Geopolitical issues, COVID nineteen impacts, logistical bottlenecks, weather events, and labor shortages have all led to even further disruptions in trade flows and negatively impacted supply. Indeed, supply continues to fall from the simple fact of the prolonged underinvestment in coal mining, transportation, and transloading facilities.

We believe this supply imbalance will sustain a stronger for longer period in pricing than in past upcycles. Underscoring this, although U. S. Met coal index pricing has dropped less than 10% from the recent highs, the forward curve for the back half of this year has actually increased nearly $70 since then. We see limited second half met coal supply growth expected from both Canada and Australia.

Future use of Russian coal in Western markets is of course problematic. As a result, we believe that U. S. Coking coal will continue to see growth in export demand and the global markets will remain tight for the foreseeable future. On the demand side, we are seeing an increasing amount of requests and interest from longtime customers and new parties alike.

The steel market fundamentals remain strong. The strong rebound during 2021 continues and is further intensified by the tragic events in Ukraine. This has left a large void in the global market in terms of steel, pig iron and iron ore supply, and of course, impacted spot prices in The US and Europe. Today, the combination of energy cost increases and the shrinking supply and rising cost of scrap and pig iron continue to pressure many EAF producers here and abroad. This favors U.

S. And Canadian integrated steelmakers, particularly those with less complicated and in some cases captive access to iron ore and coking coal. On a related note, we have recently had inquiries from domestic customers regarding supplemental twenty twenty two volumes above their existing contracts. Overall, we believe the protracted longer term period of elevated coking coal pricing levels bodes particularly well for Ramaco. We now have roughly 1,000,000 tons remained to sell at the upper end of guidance into a strong export market during the remainder of 2022.

In terms of the cadence, given early transportation bottlenecks as well as our production ramp schedule, the vast majority of those open tons for the second half are low in mid fall and are expected to be sold into export markets. In Q1, over 75% of our export coal was shipped into Europe. Lastly, indicative of current market strength, and as Randy has mentioned, our most recent low vol export sale was booked at a premium to the current index, which nets back to roughly $400 per ton at the mine today. With that said, I would now like to return the call to the operator for the Q and A portion of the call. Operator?

Speaker 0

Thank you. Your line is open.

Speaker 5

All right. Thanks for taking my questions. I guess, I just want to ask a more about the ceramic coal transaction. First of all, you you gave us a number of the royalty income stream on a forward basis of somewhere around 20,000,000 to $25,000,000 I think you said it was sustainably higher at that point, I think. You know, how much of that is price dependent, and how much of that is just because of the the location they got out the mining?

Speaker 2

I'll let Jeremy take that, David.

Speaker 1

Thanks, David. So yes, I mean, of course, it's royalty the royalty stream is going to be price dependent. When we let's use 2023 since that's a clean full year, of course, for us. So, you know, if we think about kind of where the forward curve is for 'twenty three, which on one hand, it's elevated compared to historical levels. On the other hand, it's well below where we are today.

We'd be looking at around $5 a ton in royalty savings, which would net out to about $20,000,000 If you take spot, you know, you're north of $30,000,000 a year, which would be kind of $7 to $8 a ton. So, you know, again, it's price dependent. But as Chris mentioned, you know, we are going to increase the amount of coal that is being mined by Ramaco Resources on, you know, historical Ramaco coal reserves. So that cadence is going to help as well and will protect us from certainly any downturn in pricing.

Speaker 5

Okay. And I apologize. Thanks for that answer, by way. I apologize. I don't have

Speaker 4

the foreker in front of me.

Speaker 5

But let's say $200 sort of average world. Let's say the world normalizes, whatever that means, kind of a $200, you know, Pacific Basin benchmark price. What would the royalties be in that scenario?

Speaker 1

It's a it's a good question, obviously. It'd be certainly below the the the levels that we mentioned. I mean, I I'm not sure we wanna really go through sensitivity, analysis on on the phone. But, you know, needless to say, it it would be meaningful. It would certainly be somewhere in the in the mid teens, give or take.

But, you know, you we can certainly follow-up and and work on kind of the sensitivity offline if that helps.

Speaker 5

Sure. And then I'm just going to ask a kind of a typical annoying question for me, in terms of this particular transaction that you've mentioned. How do you address the perception of creating and giving shareholders a tracking stock that may be you know, frankly, illiquid and small. You know, if I and and I'm probably thinking about it the wrong way, but, you know, here's here's, you know, the thought for me. You know, you bought Ramaco coal for 65,000,000.

You've given us some numbers on royalties. Maybe it's, you know, mid teens on a normalized basis. Obviously, there's longer term potential in rare earths, which I think is early stage from a resources perspective perhaps. And and then the the I think it's the carbon coal initiative. But initially, that may not get as much value as, you know, arguably, they should.

So the question I'm wondering really is as of right now, why are this tracking stock actually happening? Then number two, how do you address that if these shareholder concerns come up about receiving what could be an illiquidsmall tracking stock?

Speaker 2

Sure. So, David, I'll answer, an annoying question with an annoying answer. So, unfortunately, we can't talk very much at all about the tracking stock because of what I stated, which is that it's gonna be registered, we can't get out in front of that. So our decision to address putting these assets into a tracking stock was principally motivated by the fact that we thought we could get more value for our shareholders in that manner because as I alluded to, think these will be able to trade at a substantial multiple to what coal stocks typically trade simply because it's a different type of income stream. I'm afraid that's probably all I can really go out on the limb to address to you on this, But certainly, as soon as we file the registration, we will be in a position to enlighten both you and the market much better.

Speaker 5

Okay. That's helpful. And I was wondering just on operations, and obviously, got prices all over the place. I think we got a number a brief mention of a number kind of at current prices a minute ago for the second quarter. But given where we are and given the volatility in pricing, given where we are the second quarter at this point, we've got a decent amount of visibility on volumes.

But can you give us a sense as to if the world stays where it is, given the mix and everything like that, what's a reasonable ZIP code for realized pricing in the second quarter?

Speaker 2

Jason, I'll let you handle that. Although I think, David, the simple suggestion is to obviously look at where the curve is. That's probably the most logical place to start in terms of trying to address where prices are. But Jason, you want to take a stab at that?

Speaker 4

Yeah. Thanks, Richie. If you look at the forward curve and I'm going from memory here a little bit as well, which, of course, is backward dated here from where we're at today, although it continues to have its own staying power, I would think you're at the mine somewhere three fifty plus in the say through Q3 and potentially into Q4. Of course, the curve has come up to meet kind of today pricing as we've gone through this year. The U.

S, the Atlantic indices have essentially held their own throughout the entire first quarter here well into the second quarter where we've seen a lot more volatility. Pacific indices basis some moves there on some sell tenders that immediately bounce back as they have just yesterday and today. I think what gives us some confidence as well though is just the lesser volatility that we're seeing in the Atlantic Basin. I think that's driven by what we're seeing going on in Europe in particular and in South America to a little bit lesser degree in terms of supply.

Speaker 1

David, just to kind of follow-up on Jason's answer. One of the reasons we said kind of Q2 will be modestly above Q1 and a much bigger second half than first half, is Q2 is going to be our heaviest domestic quarter. It's about 70%, give or take, of our shipments will go domestic. So that's priced at about $188 give or take. So obviously, take that domestic and then, overlay that with kind of the 30% or so in terms of the pricing that Jason just mentioned on the export side.

And then

Speaker 2

on the back half, obviously, that's when our low vol production increase has come in.

Speaker 1

Exactly. So back half, call it more like a fifty-fifty mix with also a lot higher production in sales.

Speaker 5

Okay. Yes. That's very helpful color. I appreciate it.

Speaker 2

Thanks. Sure.

Speaker 0

The next question comes from the line of Lucas Pipes from B. Riley Securities. Your line is open.

Speaker 6

Thank you very much and good afternoon everyone. Randy, I'm curious where the Financial Times would have put you in the growth ranking if they had considered spot met coal prices, but we will leave that for next year.

Speaker 2

That ranking was basically for 2020, believe it or not. So I think we would have done a little better in 'twenty one.

Speaker 6

No. I mean, if there's such a lag, I think there's a potential you'll be in the top 10 or so next year or the year after that. In you know, speaking about growth, Randy, I wondered if you kind of could provide a little bit of color here increase in the CapEx guidance for this year. What is what were the main drivers for that? And then as we think about the growth to 5,100,000 tons, kind of what's the capital intensity for that growth from here on out over the timeframe you're looking to add those volumes?

Thank you very much

Speaker 2

for Sure. Your color on Lucas. I'm going to let Jeremy dive back into the CapEx granular question, which he kind of alluded to in his remarks. But the one thing that I guess I would highlight whenever you get a question on CapEx, the question is where is the money coming from? And so as I alluded to, our cash generation, as we projected out over the next several years, is rather significant, I think the most polite way to express it.

And so we're basically paying for all our CapEx from internal funds. But Jimmy, why don't you drill down on Lucas' question on the more granular basis? Thanks, Randy.

Speaker 1

And yes, excellent question, Lucas. So when I think about sort of, let's call it, a $17,000,000 increase at the midpoint of guidance this year, around onethree is just general inflationary pressures, equipment costs a little more, that sort of stuff. But really, thirds of that is aimed at growth, roughly evenly split between, and there's a couple other small moving pieces, but I'll give you the two biggest, which are you know, the the first would be adding a second section at our number two gas mine at our Elk Creek Complex. That'll that'll add about 250,000 tons sustainably. So, you know, if you assume $5,000,000 $6,000,000 give or take, you asked about CapEx intensity.

I mean, that's a a pretty darn good, CapEx intensity. And and, of course, it's possible because we've got all the infrastructure in place. The other third is, effectively pulling forward some equipment, frankly, because we were able to secure it that we had planned in 2023 for our new Ram 3 surface mine. We mentioned that on our last call as part of the kind of Elk Creek prep plant capacity expansion. That was the mine that's going to go in next year.

So simply that's really just frankly more of a timing thing, Lucas.

Speaker 6

Got it. Got it. Very helpful color. Thank you for that. And the 5,100,000 tonne target and the capital needed to get there, is there a rough ballpark to think about?

Speaker 1

So, you know, we basically pointed you to kind of 4,000,000 tons for next year. Right? So that you you've got the guidance for that. So to kinda go from four four point three in 2024, you know, that's, know, mostly adding a couple of sections at our Berwind mine, frankly on the Amanada Reserves which of course we now own in fee. So, you know, when I think about the cadence, 'twenty three will be certainly elevated compared to just maintenance levels.

But it will be below 2022 absent any new projects. So I think, you know, to get from, let's call it, mid-4s to five, you know, we've got a couple of different options. The one that, you know, we pointed out on Slide seven, of course, is our Jawbone Mine, which is a pure high vol a product that would feed our our Knox Creek prep plant. So we've sort of talked about that in the past, which is mostly being equipment. So it's not very capital intensive.

And, you know, certainly, I mean, while we could pay for it all up front, we could, you know, we could get creative with financing if we wanted to. So, you know, call it on the order of magnitude of maybe an additional $15,000,000, give or take, for the jawbone line. So as you can see, I mean, I think the bulk of the capital to kind of get us to 5,000,000 tons is frankly in the rearview mirror, but we certainly will be above maintenance levels until we get there.

Speaker 6

Got it. Super helpful. Thank you so much, Jeremy. Sure. My second question is on the rail side.

Thank you for the color there on the slippage in Q1. Wondered if you could provide an update on how rails are performing today. Think in response to Dave's question, you kind of already addressed kind of cadence of domestic versus export volumes this year. But how should we think about the timing of making up these lost shipments? Thank you.

Speaker 5

Jason, why don't you handle that?

Speaker 4

Sure. Yes, Lucas, this is Jason. Yes, I think, again, we delineated well there what it did to us there in the first quarter. And you'll recall in the previous quarter's conference call, we mentioned we also had some volume slip out of late 'twenty one into Q1. Of course, were made up.

Then the rail issues we dealt with there in Q1 got us behind on new Q1 tons and Q1 contracted sales. The performance is certainly better today than we saw in Q1. We do see it continuing to get better as they had the rail partners there had labor, which translates into more crews and, of course, more trains cycling in the coal fields. But as we sit here today, we're slowly gaining on catching up. Primarily, we see most of the catch up completed as we get into Q3 and on into Q4 as they, again, continue to add crews and and cycle more trains to us.

Speaker 6

So

Speaker 2

so, Lucas, the the patient is stabilized, but we're not exactly well in terms of, what I would call the optimal level of rail service.

Speaker 6

Very helpful. Thank you so much for all the color. And Randy and team, continue best of luck.

Speaker 2

Thank you, Lucas. Thank you, Lucas.

Speaker 0

The next question comes from the line of Nathan Martin from The Benchmark Company. Your line is open.

Speaker 5

Hey, good morning, guys. Thanks for taking my questions. I think David and Lucas probably did a pretty good job checking most of my questions off my list. So maybe just a bit of clarification at this point. You guys called out 2Q results should be modestly above 1Q.

Are we talking about EBITDA net income?

Speaker 7

Are we looking at shipments, realized pricing as well? Just maybe some clarification there.

Speaker 1

Thanks, Nate. I'll take this. It's Jeremy. So yes, shipments production and, call it, EBITDA net income would be what we were referring to there.

Speaker 7

Got it. Perfect. So kind of across the board. I think, Jeremy, you called out your costs should trend down sequentially as we move through the year, for the reasons you mentioned, whether it's the Brooklyn prep plan towards the end of the year or obviously saving on the royalty side with the brand for full acquisition.

Speaker 1

Exactly. So I think costs should trend down in Q2, they should be lower in the second half certainly than first half and even Q2, especially, as as Chris said, know, the the Berwind plant comes online this, this summer, which saves the trucking costs. And incrementally, as we move throughout the year, we'll get on to more kind of Ramaco coal, feed coal, which will, which will help as well.

Speaker 2

And and, Nate, one other way to look at it, you know, we're ramping up production, at both Berwind and our Knox Creek complexes. That's, you know, a million two roughly of of low vol and mid vol, and most of that is that increase is hitting in in the second half.

Speaker 7

Yeah. Makes sense, Randy. Obviously, higher shipments should should do well for the, the cost per ton sold. So

Speaker 5

I guess maybe just one other question. As I'm trying to think about the sense of shipments domestic versus export, in the first quarter, it was a 573,000

Speaker 7

tons shipped. You guys have booked 1,800,000 tons of domestic. Could you give any color on the split of domestic versus export in the first quarter? I think you mentioned that 2Q should be your heaviest domestic shipment quarter, I think roughly 70% you guys mentioned. But again, just trying to get a sense of what's left on the domestic side of the ship for the rest of the year and kind of how that plays into your average realized sales price when mixed with the higher priced export tons?

Thanks.

Speaker 2

Good question, Nate. I'm going let Jeremy take that.

Speaker 1

Thanks, Nate. Excellent question. So in Q1, it was a little under 55% domestic with obviously the bulk being export, the rest being export. Q2 is going to be our heaviest quarter domestic, call it around 70%. And then in the back half of the year, we, you know, as we ramp production, kind of get to a nice fifty-fifty split.

So a lot of, as Jason said, a lot of low vol and mid vol open tons for the second half of the year, which we expect to go into the export market. So overall, that still kind of puts us in around a 55 ish percent kind of domestic range for the full year.

Speaker 7

Very helpful, Jeremy. I appreciate that.

Speaker 5

And then maybe just one final one.

Speaker 7

I think, Jason, you mentioned some comments on

Speaker 5

the Russian EU, I guess, EU ban on Russian coal starting up in August. It sounds like you guys have already shipped some time, I think it was 175,000

Speaker 7

or so you mentioned, to Europe year to date. I also heard some commentary about getting more inquiries on the domestic side. So as we think about again the million tons plus or minus left to sell, I'm sure the export market is where you guys are leaning heavily towards sending those tons. But would there be any option for domestic tons maybe as well to fill some of those inquiries? And obviously you would be looking to get a margin, I would assume, close to what you would get on the export side.

Just any thoughts there?

Speaker 4

Nate, it's Jason. Certainly on the domestic side, some of these customers we have here are selling spot tons in the spot markets, whether it's coke or steel. They certainly recognize where the seaborne levels are at now for The U. S. Producers and sellers.

And I think the seller is going be opportunistic, it's export or domestic, where they place those remaining tons. So I'd at the end of the day for us, that's what it's going come down to is where the margin's at as we build these tons out.

Speaker 7

Got it. That's helpful, Jason. And maybe just one other thought I could get from you. With the rail service issues that we've already touched on, which your peers have had as well, is there any potential for slippage of any domestic or export tons

Speaker 5

maybe into 'twenty

Speaker 7

three at this point? You see or do you fully expect to be able to ship everything in the back half of the year?

Speaker 4

Yes, think today as we sit here, it's a bit early to worry about slippage into 'twenty three. Typically for any producer, year in, year out, you're going to have a trainer, a boat or whatever slip over just due to normal timing issues. But again, what we're seeing out of our rail partners today is very earnest effort on the labor side just as we've made with our miners and expect them to be kind of back to more normal performance certainly during the second half. And we're already beginning to see some improvement here actually in April and on through this quarter. So I'd say nothing material that we would concern ourselves about today as far as slippage in the '23.

Speaker 7

Got it. Great to hear. I appreciate that. I'll leave

Speaker 5

it there. Best of luck, guys. Thanks.

Speaker 1

Thanks, Nate.

Speaker 0

And we have a follow-up question from David Zagliano from BMO Capital. Your line is open.

Speaker 5

Hi. Thanks again. It's it's actually related to what Nate was just asking about the cadence of volumes and the commentary that you just mentioned. So just a quick back of the envelope math, it should be some 10% increase in second quarter volumes. That would imply to get to the midpoint of your full year, it would imply second half.

You'd need to move about a million tons a quarter or maybe a little bit more just to get the midpoint. That's a pretty big jump. That's a 55% increase, and and it would be, yeah, yeah, I think the highest volume quarter you've had was 680 or something like that in '21. The question is, you know, I mean, given all the rail challenges, like, you know, what what's changing that's gonna I I I know just, like, qualitatively, we're getting, you know, better performance, and that's great. But is it realistic to expect that order of magnitude of increase?

And if so, why aren't we seeing it in the second quarter? And why such a big jump expected in the third and fourth quarter?

Speaker 2

Thanks, David. Yes.

Speaker 1

I mean, excellent question. So part of the jump is just related to our production ramp. Berwind certainly hitting its stride in the back half of the year as we've guided for probably the better of couple years now. So certainly, that'll make a make a big difference. And, I mean, look, Jay Jason and I had a had a very, productive in person meeting with the rails a couple of weeks ago.

And, without getting into too much detail, the reality is, you know, they've got some, you know, pretty sizable planned increases, for, you know, the specific area that route that we ship on. So I mean, I know they've struggled this year, but, you know, we're confident that they are making the necessary investments in people and, you know, they've got the rail cars. So certainly came away from that meeting confident that, you know, that the planned ramp in the back half of the year is certainly doable. So we feel pretty good about where things are at right now.

Speaker 5

Okay. Understandable. And and in terms

Speaker 2

of just back on the, you know,

Speaker 5

the capital allocation, obviously, the focus is on buybacks and, I mean, a nice core in this environment, you know, who knows how long

Speaker 4

it's gonna last, but there's obviously quite a

Speaker 5

bit of free cash flow generation and buyback almost, in our numbers, more than 50% of the free float, you know, in in the next year. So the question, you know, hypothetically, I guess, is there a limit on how much stock, you you know, Ramaco would wanna buy back? You know? And and and how do you balance that with, you know, liquidity?

Speaker 1

Well, I think, you know,

Speaker 2

you've kind of asked a couple of questions at the same time. So first of all, of course, we're not going to make up our mind on what a buyback would look like if indeed we go forward with one until we get to that point, which is going to be toward the fourth quarter. Secondly, that will be dictated certainly in terms of size by a perception of where we see the stocks trading. Obviously, we think it's trading at a discount, we would probably argue to ourselves that that's a a good use of our cash, to buy an undervalued asset. And in terms of the amount of cash that we'd like to throw at it, you know, the reason why I have suggested we'd like to get to the end of the year to see where we look is obviously see what that what that amount looks like, and then we can determine from there, you know, what percentages and how much of that we'd like to spend for an investment in our own stock.

So that's that's kind of the way we look at it.

Speaker 5

Okay. That's helpful. Thanks. And and just just to round out that question, I know I asked this in the past, but why not what's the would you consider special dividends in addition to buybacks to kind of help balance that liquidity question? Or is it still all buybacks?

Speaker 2

Well, I think at this point, the way I'm looking at the market, you've seen a couple of companies that did massive special dividends and massive buybacks and their stock is now trading lower than it was before they announced it. So that doesn't strike me as something that is a path that I want to rush into. Other than the fact that we would like to return cash to shareholders, we'll consider whatever is the best route to do so. We think a gradual increase in the base dividend is appealing to long term investors because it implies a certain stability as well as a steadier benchmark for them to do their own planning for. Special dividends should be perhaps regarded as indeed what they're named, special for circumstances that don't happen very often.

We hope to be in a position as we're doubling our size over the next few years to be in a position to look at that more often than not. We'll, again, make it as an investment decision as to whether we think buying back stock makes more sense than simply giving cash out to shareholders. But we're not going to handicap that at this point.

Speaker 5

Okay. Thanks for the answer.

Speaker 0

Thank We have reached the end of our Q and A session. I would now like to hand the conference back to Mr. Randall Atkins for the closing remarks.

Speaker 2

Great. Well, once again, thanks, everyone, for the interest in us. We look forward to the next quarter and to, as I said earlier, printing a record year, and we'll speak in another few months. Take care.

Speaker 0

Thank you, ladies and gentlemen. This concludes today's conference call. Thank you for participating. You may now disconnect.