Ramaco Resources Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 4, 2023

There are 6 speakers on the call.

Operator

Welcome to the Ramaco Resources First Quarter 2023 Earnings Conference Call. At this time, all participants have been placed on a listen only mode and the floor will be open for your questions following the presentation. I would now like to turn the call over to Jeremy Sussman, 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 Q1 2023 earnings conference call. With me this morning is Randy Atkin, our Chairman and CEO and Chris Blanchard, our Chief Operating Officer. Before we start, I'd like to share our normal cautionary statements. Certain items discussed on today's call to forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Speaker 1

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, which can be viewed on our website, ramicoresources.com. Lastly, I'd encourage everyone on this call to go on to our Web

Speaker 2

Thanks, Jeremy. Good morning to everyone and thanks for joining the call. We have a lot to unpack this morning. First off, we executed well in Q1. Fortunately, we had a strong quarter and ended up a bit ahead of what was expected.

Speaker 2

I will discuss the independent confirmation on this discovery may lead to a unique new direction for us. To start, in terms of our quarterly performance, I'm happy to note that with some help from the rails, we managed to ship coal in Q1 with much better We told our investors that our goal in 2023 is to execute. Thus far, this year, we are steadily working to reverse and operational setbacks we incurred in 'twenty two. Last quarter, adjusted EBITDA jumped 50% to $48,000,000 from year end and earnings per share jumped 75 percent to $0.57 per share. In Q1, we also achieved both record production and sales.

Speaker 2

As a result of our better than expected performance, we are increasing our full year production and sales guidance, which Jeremy will talk about in more detail in a moment. In addition, despite continued inflationary and wage pressures, our cash mine cost Almost $10 per ton from Q4 to Q1. Elk Creek cash costs declined more than 10% sequentially to $90 per ton in Q1, which likely puts out among the lowest cash cost mines in the country. In addition, as second half production ramps at Berwind, our overall company wide mine cost should decline even further. I'm pleased to note that the first section at the Berwind number 1 minutee restarted earlier than anticipated and has been ramping production since March in line with expectations.

Speaker 2

Board recently approved pulling forward the start of the second section in Berwind from 'twenty four into mid 'twenty three, which should add approximately 300,000 tons of additional production on an annualized basis by late this And the extra tonnage will continue to reduce mine cash cost. We can also report that our Maven mine recently produced its first tons. In addition, the start up is imminently from our roughly year long project to increase Elk Creek's prep plant capacity by 50% from 2,000,000 to 3,000,000 tons on an annualized basis. We will ramp production at Elk commensurate with that processing capacity. On the marketing front, we now have 81% of our forecasted 20 With almost 2,000,000 tons sold at a fixed price of just under $200 per ton.

Speaker 2

Our sales team continues to aggressively reach out to new markets to increase our global footprint.

Speaker 1

And since the start of the

Speaker 2

year, we have sold our first tons to India, Japan and Indonesia. Overall, we now have about 700,000 tons of production at midpoint of guidance, which is not contracted for and will be sold at index pricing. While worldwide benchmark pricing continues to move lower, our strong contracted position somewhat insulates Bramaco a bit more than our peer group. As far as looking down the road for the balance of 23, we will have a substantial second half increase in production and sales As we ramp up Berwind and the Elk plant. By Q3, we should be running at a 4,000,000 to 4,500,000 ton per year annualized production and Chris Blanchard will have more to say on all our operations in a moment as well.

Speaker 2

I would now like to turn to perhaps today's major announcement. This week, we received an independent assessment that our Brook mine may contain 1 of the largest unconventional rare earth deposits in the United States as well as one of the most significant finds in this country of valuable rare earth elements containing magnetic I've laid out a good deal of background on this in my shareholder letter. To borrow phrase from the play Hamilton, it is nice to have Washington on your side. The journey Several years ago, we provided any detail samples of our Brook Mine Coal as part of a national assessment they were performing to identify major areas of deposits in the U. S.

Speaker 2

Of critical and strategic rare earth elements. They came back to us about a year later candidly surprised that they had found exceptionally high concentration levels of magnetic REs in our deposits. Indeed levels in line with some of the highest recorded concentrations found in China. That clearly got our attention. Over the past 2 years, we have embarked on an extensive core drilling and chemical analysis to determine the extent of the deposit.

Speaker 2

The technical detail on the geological and chemical analysis is contained in the exploration target report from Weir International, our independent reserve engineers. That report is now on our website. It is important to recognize that what we have discovered and are reporting on today encompasses less and 1 third of the ultimate area of the Brook mine. That area is permitted and we could fast track initial production on the site by later this year, subject to further assessment. We will also do additional future work to determine the scale and dimension of the entire deposit contained across That then begs the question where we go from here.

Speaker 2

1st, Working with NETL and others, we will continue further geological assessment, drilling and chemical analysis on the entire property, so so we can understand the overall scope of the deposit. We will also study the best manner to process what is largely a clay type deposit into an REE concentrate. The good news is that given the softer nature of the clays, it will be less costly and more environmentally friendly to process than typical REEs found in harder conventional mineral structures. We also intend to study some novel mining techniques, which we might deploy to capture more of the clay and perhaps less of the coal. Overall, the mining approach will basically be straightforward, old fashioned surface mining.

Speaker 2

And of course, as As we proceed with our diligence, we will study the economics around the entire proposition. When I said this was a unique find, I meant it as this is really the only unconventional RE play in the United States at this time, and much of what we will be doing certainly on processing will be a matter of first As I said in my shareholder letter, we will look at this development with the same financial discipline that we have deployed in all our met coal business. This will not be a bet the farm approach, although eventually It might lead to Ramaco developing a very valuable farm. Our idea is to take this on a step by step, almost modular approach to make sure we are proceeding correctly in what is a fast moving new area of critical minerals. We intend to fund this project from internal cash flow and apply the same conservatism and discipline that we have to our other development projects.

Speaker 2

And unlike many discussed critical mineral projects, this one is currently already permitted, shovel ready and in a position to begin mining by later this year, should we so choose. We also hope to be materially helped by our partnership with the DOE's National Labs. They have unique visibility into the overall REE space as well as access to new techniques and science that will benefit the whole process. In summary, we will of course update our shareholders on a regular basis as we move forward. But in closing, this important mineral discovery opens the door for Amaco to transform into a very different type of company going forward.

Speaker 2

We would no longer solely be especially Magnetix. I would also note from an investment standpoint that there are currently not many Operating REE Producers in the U. S. And they tend to be valued very differently than coal companies. We hope as this unfolds, this

Speaker 1

And with that, I would like

Speaker 2

to turn the floor over to the rest of the team to discuss more detail on finance, operations and markets. So Jeremy, please start with a rundown on our financial metrics and the overall market.

Speaker 1

Thank you, Randy. As you noted, it is nice to have a quarter that beat expectations and saw meaningful sequential earnings growth. Our first quarter net income was up 75% from the Q4 of 2022 on better production, sales, pricing and cost metrics across Overall production of 834,000 tons in Q1 was up 20% compared with Q4 as new mines ramped up production. Total sales volume of 757,000 tons was up 12% from the 4th quarter. We saw a meaningful improvement in rail service in the Q1 and we applaud the efforts of our railroad partners.

Speaker 1

Company produced Cash mine costs were $105 per ton, which was 8% better than Q4. As Randy mentioned, Cash costs at Elk Creek were $90 per ton, down $11 per ton sequentially. We expect to continue to operate near this level at Elk throughout the year. At the same time, we anticipate overall cash costs to fall meaningful to fall throughout the year as both Berwind and Maven ramp up production and we achieved better economies of scale as a whole. Realized pricing was $185 per ton in Q1, up $3 per ton from the Q4.

Speaker 1

Pricing was negatively impacted by $6 per ton due to our final API2 Index linked cargo that was shipped in early January. Now turning to our outlook, I would like to touch on a few of the key areas in our guidance table. First, we are maintaining our full year 2023 guidance across the board With the exception of production and sales, we are raising both of these metrics by 100,000 tons on the back of a strong first quarter. We now anticipate production of 3,100,000 to 3,600,000 tons and sales of 3,300,000 to 3,800,000 tons. 2nd, while we are maintaining our book tax rate of 20% to 25%, I would point out that our cash tax rate is likely to be around just 5% to 10%.

Speaker 1

3rd, as it relates to the Q2, sales are expected to increase modestly versus 1st quarter levels of In addition, U. S. Metallurgical coal spot pricing is currently down roughly 25% from 1st quarter averages. Thus, if indices remain at current levels for the duration of Q2, we'd anticipate our Q2 average realized pricing with fall about 9% to 11% from 1st quarter levels of $185 a ton. While this concludes my financial remarks, I am now going to give our sales and marketing update with Jason currently traveling in Asia.

Speaker 1

As Randy noted, Our sales team continues to make solid inroads into parts of the world where steel production and demand for high quality metallurgical coal is structurally growing. On the back of our new Asian business, we now have 2,700,000 tons or 81% of our forecasted production committed. We will continue to layer in new export business throughout the year as we continue to ramp up production. In terms of the overall market, we are seeing both Signs of strength and some signs of weakness out there. So let's start with the positives.

Speaker 1

First, U. S. And Chinese steel production are close to year to date highs. As it relates to the U. S, it is good to see both steel capacity utilization and pricing moving in the same direction.

Speaker 1

Indeed, U. S. Hot rolled prices are around $11.60 per ton, up more than 75% from their recent lows, while steel capacity utilization is at a 9 month high above 76%. 2nd, Chinese credit growth has been increasing throughout the year with total lending hitting an all time high in the Q1. Strong Chinese credit growth is often a leading indicator to an increase in overall economic activity, which of course would be positive for metallurgical coal.

Speaker 1

3rd, despite strong industry wide margins, global coal CapEx remains just a fraction of what it has been Historically, given increased financing, permitting and overall ESG challenges, barriers to entry Now on to the negative side. Since last quarter, there have been both increased economic In the Western world, inflation and bank failures have, of course, dominated the headlines. None of this economic backdrop is providing any near term uplift in the market. Expanding on China a bit, PMI unexpectedly fell into contraction territory in territory in April declining to 49.2% from 51.9% in March. While Steel production remains strong.

Speaker 1

The combination of steel, iron ore and met coal prices in China are currently near year to date lows on lack Luster demand. Given current weak steel margins, there is increasing talk of steel production cuts in China, which could reduce near term met coal demand. In addition, some of the supply disruptions we saw earlier this year have cleared up, especially in Australia. As a result, we are seeing more met coal offered for sale, which has had a negative impact on prices recently. However, Looking ahead, we would generally agree with the shape of the forward met coal curve, which suggests a 15% to 20% rebound in price heading into next year.

Speaker 1

We would expect steel mills to restock once met coal prices begin to stabilize as we believe inventories are generally pretty low. Furthermore, we hope that strong Chinese credit growth We'll turn into increased housing and infrastructure activity, which should lead to better downstream demand later this year. In the meantime, we will look to continue to execute on these sales and control those factors, which we indeed have control of, such as production and cost. With that said, I would now like to turn the call over to our Chief Operating Officer, Chris Blanchard.

Speaker 3

Chris?

Speaker 4

Thank you, Jeremy. As Randy alluded, in the Q1, we passed a number of operational milestones with additional That's in our production ramp and the expansion of our prep plant at Elk Creek ongoing. Both of these will start hitting in the second quarter and continue accelerating through the balance of the year. Most importantly, though, the new growth mines and sections that we added in 2022 at Elk Completed the ramp up periods and have all reached steady state levels of coal production. Economies of scale, Stabilization of the workforce and training our new employees all led to higher productivity levels and and drive our costs into the $90 per ton range at Elk Creek.

Speaker 4

Even while the pressures haven't yet subsided on wage increases competition, higher sales related costs and the inflationary pressures on fuel, steel, chemicals and other consumable products. Relating to the Elk Creek plant upgrade itself, this project is entering its final weeks. The final deliveries of critical equipment were made earlier this week and Last stages of installation will take place over the next 2 weekends. We anticipate a tie in late this month. We expect that the new circuitry will increase the overall plant feed rate from 700 tons per hour to 10.50 raw tons per hour.

Speaker 4

This 50% increase equates to an annualized run rate increase from approximately 2,000,000 to 3,000,000 clean tons per year at our expected recovery levels. Later this summer, we expect to break ground on the final stage of the Elk Creek plant enhancements, which will expand our clean coal storage area to allow further segregation of our coals and better blending opportunities to Importantly, except the normal maintenance and advancement capitals that are mines at Elk Creek, we do not expect to and any additional project or growth CapEx to serve the plant expansion through the remainder of 2023. Turning to the low vol and mid vol mines at our Berwind and Knox Creek operations, we've taken several positive steps forward. 1st and foremost, on March 7, we brought our Burwood mine back into production after approximately 9 months spent Recovering and rehabilitating from the July explosion. During the intervening months, we made a few The chief amongst these is installing upgraded dual mine fans in parallel with a backup diesel generator on-site so that we can ensure no buildup of any contaminants in the future, whether electricity is interrupted to the mine or not.

Speaker 4

This will also allow us to perform our routine fan maintenance without idling the mine or interrupting normal ventilation. Production at Berwind has begun in line with our expectations. We expect the final development mining to completed to be completed on our number one section by midsummer, allowing us the option of mining into the thick Owned fee coal that we acquired with the Aminata assets during the Q3 of 2023. Speed position, coupled with the elimination of all trucking and the run of mine production belted directly to the Berwind prep plant, to dramatically lower the mine cash costs from historical development cash cost levels we have experienced. We're also moving forward with the addition of the 2nd mining unit at the Berwind mine during the Q3 following the completion of the mine's second exhaust Ventilation excavation should be completed in mid summer with production commencing from the second section shortly thereafter.

Speaker 4

This expansion puts Berwind mine back on the production ramp that we had previously projected prior to 20 22's As the bulk of the growth in Ramco's medium ton production ramp is at the Berlin Complex, one of our biggest areas of focus is now on recruiting, training and building the workforce at Garland and Knox Creek areas in what remains a very competitive labor market. Lastly, we are pleased that our Maven operation has reached its first production earlier this month. Surface production has commenced and our first coal has been shipped from the mine and processed at the Berlin plant. In our initial pits, the quality of the coal and the mining conditions have been excellent. The Howell Mine will start mining its initial panel in the next several days, and we expect the mine to be ramped up to its full productivity by the end of June.

Speaker 4

Dual seams coal from the Maven mine have excellent metallurgical properties as a standalone product or to improve the blends with other low volatile coals. We're continuing our exploration and examination of this property and have already started permitting several additional mining areas that have not been included in the reserves for Engineering and planning work will continue for the potential future development of this complex with additional surface Summarizing the operations, nearly all the development work, capital projects and Advanced hiring that was done in 2022 set the table for a strong Q1 of 2023 and the continued ramp of production as as we move through the last three quarters of this year. We expect to exit 20 3 running in excess of 4,000,000 Clean ton per year run rate with the flexibility to grow and expand our coal portfolio and best make sense for the needs of our customers and as the market dictates. This now concludes management's prepared remarks. I will now turn the call over to the operator for the question and answer session of the call.

Speaker 4

Operator?

Operator

Our first question is coming from Lucas Pipes with B. Riley Securities. Please go ahead.

Speaker 3

Thank you much, operator. Good morning, everyone. Good morning, Lucas. My first question is in regards to cadence

Speaker 2

Sure, Lucas. I'll take a first stab at it and Jeremy can certainly chime in here. So this quarter will probably be around 800,000 As I mentioned, we've got Berwind ramping and we've got Elk, which is just about to flip the switch to really increase processing by 50%. So we'll look at Q3 in probably roughly 900 to 1,000,000 tons and then Q4 probably Add another 100,000 tons on top of that, more like 1,000,000 to 1,000,000.

Speaker 3

That's helpful. Thank you. Then on the rare earth opportunity, what sort of capital or budget would you say you're allocating to this opportunity for both 2023 2024. Thank you.

Speaker 2

Well, the short answer is for 2023, we probably allocated about $5,000,000 And we focus primarily on testing, drilling, analysis. We have not formed the economics yet of what the operational phase of this would look like. As I said, this is really a project of first impression because Look at most REE Producers really around the world, but certainly in the U. S, they are in A hard mineral, uranium, lithium, cobalt, places like that. Here we would be essentially finding the REs in much softer materials like clay.

Speaker 2

So obviously, both the mining as well as the processing is entirely different. So Working, as I said, with partners at the NEGL and other private groups, we're now focusing on how would be the best way to really Start to create an appropriate business plan for some operation like this. And as I said, once we start to do this, Do it on a step by step basis and certainly keep the investment community apprised as we go.

Speaker 3

Very helpful. Thank you. Then one last question turning back to this year in operations. With the growing Sales and production outlook over the course of this year, how would you expect cost to evolve? And I'd assume royalties with declining prices would also play into that.

Speaker 3

So I would appreciate your color on the cost side for this year. Thank you.

Speaker 4

Lucas, this is Chris. So on the cost front, We'd expect the Elk Creek cost to stay more or less in line with where they were in Q1. But as the production ramps up at Berwind and Knox We'd expect those costs to decline sequentially quarter over quarter as we get more production each quarter coming in and overall pull the total company down slightly.

Operator

We'll take our next question from Nathan Martin with The Benchmark Company. Please go ahead. Your line is open.

Speaker 5

Hey, good morning, guys. Congrats on the quarter and thanks for taking my questions.

Speaker 1

Thanks, Nick.

Speaker 5

I wanted to start with logistics. I'm sure you'd agree this has been a bit of a thorn in your side for 2022 at least. It sounds like you got some help from the rails in the Q1, but It would be great to get an update on rail truck port service. And then maybe just for modeling purposes, I think I noticed A pretty sizable quarter to quarter jump in transportation costs. Anything there to speak over?

Speaker 5

Or is that just a bit of an anomaly?

Speaker 1

Thanks, Nate. So yes, it's Jeremy here. I guess I'll start with the transportation costs. So As you know, we pay transportation costs. It's a pass through, but you on the revenue and the cost line for our export business.

Speaker 1

And in the Q1, actually about 2 thirds of our volume was exports. So certainly, That's the highest portion that we've had on a percentage basis. So it was more a mix issue, I would say, necessarily a higher rail rate. Rail rates did go up a little bit, but I will say Each company is different. We're a bit more real time basis.

Speaker 1

So in the second quarter or in the second quarter, Our rail rate is not going to be based on a higher Q1 index, so that will help us a little bit as well in the second What was the first part of your question again, Nate?

Speaker 5

Just an update overall, Jeremy, on how Services from a logistics standpoint or this rail truck report.

Speaker 1

Yes. So I mean, listen, the rail did a great job in Q1. I If you look back to where we were this time last year, we in the Q1 of 2022, About 20% of our scheduled shipments didn't happen because of transportation issues. This quarter, it was really Couple of trains, so I really applaud the rail on their hiring efforts and certainly hope the recent efforts That they've made continue to pay off throughout the course of the year.

Speaker 5

Great. Appreciate all that color, Jeremy. And then Good to hear as well things progressing at Berwind. Your Elk Creek prep plant expansion sounds like starting up later this month. You guys obviously raised full year guidance We're about 100,000 tons this year and looks like that flowed through to 24 based on your slides.

Speaker 5

As you think about the timing of potential expansion From here and again kind of looking at the table in your slide, which projects are kind of on deck next? How much production could they Maybe if you look ahead to 2024 and even 2025 and maybe what portion of that CapEx has been approved? Thanks.

Speaker 2

I'll let this is Randy. I'll let Chris go on the granular. But basically, all we've green lighted so far for this year beyond what we already talked about is the Berwind expansion. I think what we wanted to do is to kind of see how the market stabilizes here in Q2 and into Early Q3, we have a few more projects that we could look to green light, which probably not result in too much 'twenty three production, but would certainly Become much more meaningful in 2024. And Chris, you want to sort of elaborate a little bit?

Speaker 2

Yes.

Speaker 4

I mean, so one thing is, as You can see from our Q1 results, we did out produce our sales a little bit. So we have built some inventory. And even with plant upgrade coming on, We'll work through that. So probably the first thing that would come on, on that list, given all the right market conditions, The Ram III surface mine. And then behind that on the list that we've got in the slide deck is probably the I'll now go to my next question.

Speaker 4

I'll pass that we have a lot of other projects that are or lower tier or earlier in their development that we'd look at, but those are the 2 that you would target. Neither of those, to answer your question, has been approved by

Speaker 1

Yes. Maybe just from a high level in round numbers, the 23 CapEx that you see on there, that's All been approved and just looking at 24, probably about half of it roughly has It's been approved and obviously we'll continue to have these conversations with the Board as we progress throughout the year.

Speaker 5

Great. Appreciate those comments, guys. And then maybe Randy, thank you for all your thoughts earlier on the rare earth element development with deposit there at the Brook Mine. I know you're also working on some other coal to products research. And by the way, congrats on your appointment to the IEA Advisory Board there.

Speaker 5

Maybe could you spend a minute or 2 and update us On that side of the house and comment on how those pursuits could potentially be additive to Ramaco in the future as well?

Speaker 2

Sure. So as you probably know, we filed a tracking stock, and it's got a lot of detail in the S-one on that on our whole operations, which we kind of historically called Ramaco Carbon. And in that beyond the rare earths, we've got a blanket of intellectual property, which covers about 60 odd patents in various processes. And they're Basically, properties on different types of uses of carbon from coal that we feel could be used to make advanced Carbon products and materials, which have got obviously a much higher value than simply the use of coal, for conventional purposes. The ones we're focused on right now, which we think have the most interest, certainly both in terms of potential size as well as frankly Far enough along in development are the ability to take coal and use that as a feedstock to make synthetic graphite.

Speaker 2

There was a press release that we put out a month or so ago on that. We're working with Oak Ridge National Labs on that, We're basically we both have some IP around that. They have not only more of a processing secret sauce, but also a lot more equipment to do some of the testing on. So we are We're moving on a path with them to be able to do development, which would probably use principally met coal, but it may have some applications in thermal, but that could be a very meaningful use of coal. The other is carbon fiber.

Speaker 2

So this goes back The processes that were developed frankly in the 70s, where you can basically take what amounts to a pitch like substance and use that as a precursor to make carbon fiber from coal instead of petroleum. That has a potential game changing cost impact, frankly, on the materials business. If you could use Carbon fiber is a substitute for steel and aluminum that could have some important longer term implications. So both of those projects actually we've been working on with Oak Ridge. And Hopefully, some exciting stuff will come out of that in the relative near future.

Speaker 2

I would say from a commercialization standpoint, I would look to to probably a 12 month timeframe to be able to have some meaningful commercial possibilities on both of those fronts. And then lastly, we are working on the ability to use carbon from coal to make graphines that can be used in such Things as concrete additives as well as some ink injection. And those are not quite as far along as The first two that I mentioned, but potentially have other implications as well. So perhaps a bit long winded, but it's an area that I'm obviously very interested in.

Speaker 5

Yes. And that's how I wanted to give you that quick platform, Randy. Just curious, so how much capital are you guys investing in this business at this point?

Speaker 2

Really extremely nominal capital, Nate. We're probably spending less than, I would Say $1,000,000 to $2,000,000 a year. Most of the heavy lifting frankly comes from the national labs because a lot of this research That requires some pretty heavy duty and sophisticated equipment and manpower. We have some of the Equipment and manpower out at our operation in Sheridan, but we are relying a lot on the national labs who have immense amounts of Equipment, capital and talent to do a lot of the heavy lifting.

Speaker 5

Got it. Appreciate that. And then just one last You did bring up the S-one for the tracking stock. It looks like holders are expected to vote on June 12. So first, is that correct?

Speaker 5

And then And can you maybe just remind us what revenue streams or royalties are expected to kind of flow through those new shares?

Speaker 2

Sure. So you are correct. The 12th is indeed the date that we will have the shareholder vote, which will be a vote to approve the distribution of the tracking stock. I think in terms of referring to the amounts that will be involved in potential dividend distributions beyond that, I I have to refer you back to the S-one because we've kind of got our hands legally tied about doing too much discussion on that in advance of The proxy solicitation and the vote. But rest assured, right before the proxy pardon me, right before the shareholder meaning we will be doing further communications on the tracking stock where we'll be much more explicit in terms of what's going to be expected in terms of actual cash dividend distributions and the rollout.

Speaker 5

Got it. Very helpful. Appreciate those thoughts. Best of luck coming forward, guys.

Speaker 1

Thank you. Thank you, Nate.

Operator

We'll take our next question from Curt Woodworth with Credit Suisse. Please go ahead. Your line is open.

Speaker 1

Yes. Thank you. Good morning, Randy and Jeremy and team. I just wanted to follow-up on the rare earth kind of Conversation on admittedly a neophyte when it comes to this, but just some of the language around this being Potentially one of the largest unconventional deposits discovered and you've been drilling for 18 I would think you've got a decent idea of potential saleable production. And you noted that it's shovel ready, it's permitted.

Speaker 1

And you kind of said you could fast track it, but then at the same time, you also said you're going to kind of go slow and have a modular approach. So I guess I'm just curious, what are the next steps in terms of milestones you need to see in terms of When you potentially would accelerate production, could you frame any sort of economic upside The potential EBITDA or cash flow that this could create, I realize it's early days. And then you also talked about potentially, I think your comment was producing constituent products like magnetic products, which I assume means more downstream manufacturing of the Element. So yes, again, any more color you could provide on Some

Speaker 2

of those things would be helpful. And admittedly, I know it's still very early days, but thank you. Sure, Kurt. So I think the Let me take you somewhat sequentially through our whole thought process here. And that will hopefully Articulate some answers to several of your questions.

Speaker 2

So we bought this property, I guess about 12 years ago as an opportunistic thermal reserve. And shortly into that Development phase and permitting phase, we recognized that it was going to be pretty tough to deploy capital to justify a new thermal coal mine. That was not frankly what our MO was anyway. So we began to explore all sorts of other alternative uses for coal, and that led us to the National Labs. And working with the National Labs then led us to explore with them, frankly, just testing our coal for other purposes.

Speaker 2

That's how, of course, the whole entire idea of the rare earth proposition came about, which we frankly didn't really get Too much detail from them until 2019. And at that point, we sort of slowly began to stick our toe in the water to do some further Drilling assessment, when that looks like it was coming back promising that we then this year, particularly After we sort of merged the 2 entities, Ramaco Carbon and Ramaco Coal, we decided to explore a much more thorough drilling program to really analyze what the opportunity would be. And frankly, right now, we've really only got Chemical results back on about a third of, a little bit more than a third of the core drilling that we have done of the 100 So we have a lot more delineation to do. I'd almost think of this as like a junior minor proposition where we're kind of taking it, I call it, step But there's certainly a sequencing to trying to delineate the size of the deposit, how it lays out, the contours, etcetera, before we can essentially come up with what we think is an appropriate mine plan for the whole proposition.

Speaker 2

And as I also mentioned, this has really been testing done on really less than a third of the overall site. So we obviously have the ability to somewhat dramatically increase the scope and scale of the overall proposition as we get into it. But what we have found to date, obviously, with a lot of help from the National Labs, is that this is not only an interesting, but perhaps We got the quote from the National Labs that this is indeed probably the largest unconventional deposit play on rare earths that they've seen in the States. So we are trying to approach this with a fairly methodical idea of What would be the highest value proposition to the company? And it also has, of course, some national strategic implications as well because of the Predominance of magnetic REEs and what we seem to have found.

Speaker 2

So The food chain in terms of the RE business is that you could take it obviously from just simply mining the deposit to making into a concentrate to oxide and then eventually actually up to a metal or a magnet. So we're certainly going to explore what the implications And economics of having a vertically integrated operation are, but that's very early game for us. I think our next steps are really going to be to Find the mining proposition and the processing proposition, to take it to concentrate, which of course is the first step. And again, as I mentioned, because this is unconventional deposits, which are softer than Uranium and cobalt is going to be expected to be much easier to process, much less expensive and much more environmentally friendly. Indeed, the interesting thing as we've gotten into it is, if you look to the largest REE producer in the world, which is China, I think the figure is about 80% of the value of all their REs come from unconventional plays because, again, the economics of mining and processing that type of an RE are much more attractive from a number of propositions and certainly from an economic one.

Speaker 2

So I think where we are today is we technically have A permit, which is rare in the REE space because, again, most of these are junior miners who are just looking to try to find the deposit, and then it probably 5 or 10 years to permit. We've got a permit. So we could start mining as quickly as probably late this year. When we do start that mining is a function of doing proper assessment, as well as Planning on how the processing would occur because we're not going to obviously mine until we know what to do with the material. But we hope to be in a position to be able We'll be in a position to hopefully report by the next quarter what our progress is, and we will develop the economics on this, which is once again a very unique proposition where we're not being able to look to a lot of comparables in our space that we can rely on to backstop what the economics look like.

Speaker 2

But I would think of it more in terms of a normal coal mining proposition from a mining perspective on economics. And then from the processing, once again, we feel We will hopefully look at it again somewhat like a met coal preparation plant operation with perhaps some unique characteristics thrown in for processing the type of material that we're really looking for. And once we understand that, then the question is to how far we take it up the food chain is one that we'll develop economics around and certainly But it's a very exciting proposition. And as I said in my note, this was clearly something that we hadn't gone to look for. It's I won't say it's fallen into our lap, but it's certainly something that we were looking for other alternative uses for coal, and this certainly seems to be potentially a very exciting and hopefully potentially a very profitable one.

Speaker 1

Great. Thanks very much for the color.

Operator

This will conclude the Q and A portion of today's call. I would now like to turn the floor over to Randall Adkins for additional or closing remarks.

Speaker 2

Thank you. Well, I again appreciate everybody being on the call this morning. These are interesting times, both on a macro basis and certainly for Ramaco, and we will look forward to keeping everyone abreast of our activities and certainly for the call for next quarter. Hope everyone has a nice weekend and bet well on the Derby.

Speaker 1

Take care.

Operator

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

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Earnings Conference Call
Ramaco Resources Q1 2023
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