Ramaco Resources Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 8, 2024

There are 7 speakers on the call.

Operator

Good day, and welcome to the Ramaco Resources Second Quarter 2024 Results Conference Call. All participants will be in a listen only mode. After today's presentation, Please note this event is being recorded. I would now like to turn the conference over to Jeremy Sussman, Chief Financial Officer. Please go ahead.

Speaker 1

Thank you. On behalf of Ramaco Resources, I'd like to welcome all of you to our Q2 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 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.

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 like to remind you that you can find a reconciliation of the non GAAP financial measures that we plan to discuss today in our press release, which can be viewed on our website, www.ramacoresources.com. Lastly, I'd encourage everyone on this call to go on to our website and download today's investor presentation.

Speaker 1

With that said, let me introduce our Chairman and CEO, Randy Atkins.

Speaker 2

Thanks, Jimmy. Good morning to everyone and thanks for joining the call. As we had hoped, our 2nd quarter results were much better than our first, both on operations and financially. This improvement came in spite of the continued softness in the global coal pricing. Last quarter, we saw U.

Speaker 2

S. Met coal indices drop by 15% and they're now down 25% since the start of the year. We also made some solid progress this quarter on our REE project in Wyoming, which I will mention later. Turning first to our met coal operations. Importantly, we had record production.

Speaker 2

This was up about 7% 900,000 tons in the 2nd quarter. And this increase was largely due to a combination of better productivity, geology and labor availability. As a result of the stronger production and more tons, our cash costs declined 8% or by roughly $10 to $108 per ton in the 2nd quarter. Looking forward, both operational and financial results should continue to improve throughout the year as our growth projects come online. In a nutshell, we're expecting to ramp to a year end run rate in excess of 5,000,000 tons on both production and sales with costs hopefully at or below the $100 per ton cash cost range.

Speaker 2

Let me take a moment and walk through our 4 current production growth projects for this year. All of these remain on track and on budget. 2 growth initiatives relate to our high vol production at Elk Creek and 2 relate to our low vol production at Berwind and Maven. At Elk Creek, we are adding the RAM III surface highwall mine and a third section at the Stone Coal Alma mine. Combined, they will increase our overall 20 24 production by roughly 600,000 high vol tons on an annualized basis.

Speaker 2

Both of these mines had already begun to ramp up as of this June. At Berwind's main mine, we are adding a third section starting in the Q4. This should add roughly 300,000 tons of low vol production on an annualized basis. Importantly, cost in all 4 of these new 4 mines are anticipated to be roughly $90 to $95 per ton on a combined basis. Finally, we expect the prep plant at our Maven complex to be fully operational this fall.

Speaker 2

While this won't add to our overall 24 production, it should meaningfully reduce our current trucking costs at Maven by approximately $40 per ton. If you step back and look at the impact of these growth projects, again, we see a lot of operating parallels between this year and last. In 2023, our second half was much stronger than the first, where we essentially went from being a 3000000 to a 4000000 ton per year production company. In the first half of twenty twenty four, we remained at this 4000000 ton run rate, but we also invested in the growth initiatives I mentioned. Again, we should exit the year at a 5,000,000 ton run rate on both production and sales.

Speaker 2

And turning to the met coal markets, both the U. S. And global met coal indices have continued to fall meaningfully throughout the year. This drop has of course negatively impacted our price realizations across the board. The biggest reason was simply muted overall global economic and steel demand.

Speaker 2

This was coupled with China's slower internal growth and overproduction of steel and a corresponding dumping of this steel on the world markets. It's tough to expect strong met coal pricing when the world is awash in cheap steel. Unfortunately, we've seen the highest level of Chinese steel exports in a number of years. This is continuing to hurt both pricing and demand in our traditional European and U. S.

Speaker 2

Markets. Looking to the second half of the year, we hope these markets will move higher. We have unfortunately recently seen a number of high profile mine incidents this year. This has impacted global production and should lead to more muted supply in the second half. Also at this point, both Indian elections and their monsoon season is almost behind us.

Speaker 2

Next month, we anticipate Indian demand should accelerate. And lastly, we possibly will see the start to see some worldwide tariffs and other restrictions placed on Chinese steel exports. Indeed, Chile became the first this morning to impose a steel tariff on China. These types of tariffs could boost our traditional markets, but given the political nature of any curtailments, we will have to wait and see. And looking ahead, it's too early to really handicap the 2025 domestic sale negotiations.

Speaker 2

I would like to point out, however, that we enter this year from somewhat of a unique positive sales position. Before we have even engaged in the 2025 domestic tenders, we have already committed 1,250,000 tons for next year from primarily multi year export index linked contracts. Currently, these contracts would have an average netback price of roughly $150 per ton against fixed prices and current curve indexes. That puts us in a nice strategic position as we decide how to move forward. I might add that today we have less than 250,000 tons left to place for calendar 'twenty four.

Speaker 2

Most of this is our higher quality low vol and mid vol blends we are frankly shepherding to sell in the Q4 hopefully into a healthier pricing environment. Switching gears to our critical minerals front, we continue to make strong progress in terms of the development of the Brook Mine in Wyoming. You'll recall that our project is unique because we are focused on extracting rare earths from unconventional coal and carbon concentrated deposits, not radioactive hard minerals like others. We're currently advancing on the chemical, metallurgical and mineralogical testing of our cores. And once we get the results this fall, our consultant Weir International will update our previous exploration target report.

Speaker 2

Importantly, we're also on track to complete our techno economic analysis of the overall commercial aspects of the opportunity later this year. As we announced yesterday, we will be working with the Fluor Corporation on this, who we've also worked with in the past. As an aside, the development of a rare earth mine requires a tremendous amount of upfront testing in a number of disciplines, far beyond that of a typical coal mine. In our case, this involves a large amount of core drilling and chemical testing to develop a geospatial mapping of where best to locate the highest concentrations of REEs as well as the best techniques to surgically mine and remove the ores. Indeed, we're now working with NETL on developing some novel AI assessment techniques to improve on our recoveries.

Speaker 2

We're also spending a great deal of effort to determine the optimal processing technique for our slate of heavy and medium magnetic rare earths as well as critical minerals. As I mentioned, we recently brought the Fluor Corporation on board as our senior technical advisor to help coordinate preparing our techno economic analysis. Fluor will also assist with the design and engineering of our demonstration facility, which we hope to begin construction on by mid year 2025. We still have an immense amount of testing and planning to complete, but we're optimistic that starting with our demonstration facility that we'll be in a position to start commercial operation. We'll of course continue to provide granular updates on our rare earth activity as the year progresses.

Speaker 2

Also one personal highlight from each year is hosting the Ramaco Research Rodeo in Wyoming, which is what we call the R3. We believe this may be one of the leading research conferences focused on colder products research, rare earth element exploration, artificial intelligence and critical minerals. We hold it out in Sheridan, Wyoming while the real Sheridan rodeo goes on every night of that week. Last month was our 4th annual R3 conference. We hosted it again in partnership with an affiliate of the International Energy Agency in Paris.

Speaker 2

It brought together several congressional leaders in the energy space, leadership from the Department of Energy, as well as leading scientists from around the world. We even had the FBI speak on counterintelligence in the carbon research space. Frankly, the R3 newest technologies and development of coal based products as well as rare earths. And we hope to be discussing some new developments on all these fronts later this year. So in summary, we had a much stronger second quarter both operationally and financially, despite dealing with a much lower pricing environment.

Speaker 2

We know we can't control price, but we try to control our production and cash costs. And as the markets continue to remain generally weak, we'll try and continue to operate with a combination of aggression, agility and prudence. In the second half, we'll look forward to executing on our twin fronts of growing our met coal production and reducing our mine costs. And we'll also continue to advance the commercial development of our Brook mine. With that, I'd like to turn the floor over to the rest of our team to discuss Finances operations on markets and we'll start with Jeremy to give us a rundown on financial metrics.

Speaker 1

Thank you, Randy. As you noted, Q2 2024 results were meaningfully better than the Q1 2024 results, both operationally and financially. This was despite U. S. Indices declining roughly 15% sequentially.

Speaker 1

To get into specifics, Q2 adjusted EBITDA was $29,000,000 compared to $24,000,000 in Q1. 2nd quarter net income of $5,500,000 was more than double 1st quarter levels, which amounted to Class A diluted EPS of $0.08 for Q2. The primary reason for the increase in both EBITDA and EPS was the $10 per quarter over quarter improvement in cash costs to $108 per ton on the back of stronger production. 2nd quarter production was a record 901,000 tons, up 7% compared with the Q1 due to a combination of better productivity, geology and labor availability. Quarterly sales volume of 915,000 tons was down slightly from 929,000 tons in Q1.

Speaker 1

The decline was due to modest transportation constraints in June, which have largely since been alleviated. The realized price of 1 $3 per ton during Q2 was down 8% from $155 per ton in the 1st quarter, reflecting both weaker market conditions and lower index pricing. I'd point out that our decline in realized pricing was less dramatic than a decline in indices, thanks to our strong domestic book of fixed price business. Looking ahead, we anticipate 3rd quarter shipments of 900,000 to 1,050,000 tons. We also expect sales will increase in Q4 and it will exit the year above a 5,000,000 ton per annum sales run rate.

Speaker 1

As Randy noted, we anticipate adding almost a 1,000,000 tons of annualized production compared to the first half of twenty twenty four run rates before year end. Overall mine costs in the 3rd quarter are expected to remain in the same range as compared to the Q2. Due to the additional tonnage coming online, we will expect to exit the year at or below the $100 per ton cash cost range. We are maintaining all full year 2024 guidance with the exception of production and sales. In the current pricing environment, production and sales guidance is being reduced by 200,000 tons at the midpoint to between 3,800,000 to 4,200,000 tons and 4,000,000 to 4,400,000 tons respectively.

Speaker 1

Specifically, we are proactively reducing higher cost production at each of our complexes with the exception of Maven. Importantly, this move should have minimal impact to overall earnings in the current pricing environment. I'll make 2 other brief comments regarding 2024 guidance. First, you may notice that our committed tonnage level fell off a couple of 100,000 tons compared to our Q1 earnings release. This is due to proactively working with our customers and agreeing to defer some business into early 2025.

Speaker 1

2nd, in the current environment, our book tax rate will likely be towards the high end of the 20% to 25% range, though our cash taxes should be minimal. Moving to the balance sheet, our liquidity on June 30 of $71,000,000 was up 14% year on year. Furthermore, in July, we paid off the remaining $7,000,000 in acquisition debt related to the $30,000,000 purchase of Maven Coal LLC. We've now retired all $75,000,000 of acquisition debt since 2022 related to both our Maven and Ramaco Coal acquisitions.

Speaker 2

I'm proud

Speaker 1

to say that as of today, the only remaining material term debt is the $35,000,000 9 percent unsecured notes due in 2026 and any amounts drawn on the revolver that are used for working capital purposes. As of Q2, our net debt to trailing 12 month EBITDA was less than 0.4 times, which illustrates our continued commitment to maintaining a conservative balance sheet. In addition, the Board has maintained our quarterly Class A common stock cash dividend of $0.1375 per share for the Q3 of 2024. The Board also declared the quarterly Class B cash dividend of $0.2246 per share, which of course is driven mostly by our sales volume and to a lesser extent our realized price. With that said, I would now like to turn the call over to our EVP for Mine Planning and Development, Chris Blanchard.

Speaker 3

Thank you, Jeremy, and to everyone who joined us this morning. As Randy summarized, we had a significant turnaround in the operations during the Q2. The bulk of the improvement was at our underground operations, which frankly have lagged our expectations the last several months. Overall, we saw improvements of slightly over 5% in and returned to more normalized mining conditions. We've also seen modest improvements in the labor market in the Southern West Virginia area.

Speaker 3

This allowed us to start the 3rd section of our stone coal mine late in the quarter and also helped to fill a number of vacancies at all of the other mines. This hiring and stabilization of the workforce directly led to achieving 80 more production shifts during the Q2 compared to the first. The combination of all of these positive factors culminated in overall June cash costs below the $100 per ton threshold for the first time in 2024. Regarding the labor market, it remains very tight. There are insufficient experienced coal miners available in Southern West Virginia and Southwest Virginia to fill all the open positions of both our mines and those of our competitors.

Speaker 3

Although the turnover rates have moderated throughout the year, they are above the levels we want and higher than our historical averages. Hiring, training and retaining highly skilled miners remains challenging and is a daily focus the operations. Moving into the Q3, following the traditional vacation period around the 4th July, the June momentum has continued. While there are obviously less available shifts to work in July due to the idle periods, we have seen continued modest improvements in average coal heights and feet per shift and the other operational metrics for the legacy mines and plants to start the Q3. We're guiding the flattish costs in quarter 3 versus quarter 2 due to the vacation period and the ramp up period at our Stone Coal 3 surface mine, I'm sorry, our Ram III surface mine and the 3rd section at our Stone Coal mine.

Speaker 3

3 of our 4 discussed growth and optimization projects made strides in the Q2 and are now ahead of schedule. At Elk Creek, the 3rd section at Stone Cold started in May ahead of projections and is ramping according to our expectations. We expect this section to be fully staffed by the end of the summer and due to its projected geology to have advantage cash costs compared to the other operating sections at Elk Creek. This section should add an additional 3 100,000 annual clean tons at what we expect will be cost below $100 a ton. Similarly, our RAM III surface mine started in June.

Speaker 3

More importantly though, we have been able to start the RAM number 3 Howell miner spread almost 2 months earlier than we projected with the first coal cut in the last week. We're particularly excited about RAM 3 as it projects to have better geology and lower ratio than our RAM number 1 surface mine. Once the Howell Minor spread is fully operational, the production rate from the combined surface mine will be approximately 350,000 clean tons per year with produced coal cost atornearof90 dollars per ton. Finally, the labor market for highly qualified surface miners has not been as challenging as on the underground side, so the ramp up period for this mine will be much shorter and the cash costs will be normalized before the end of the Q3. On the low vol side, the construction of the new Maven plant is well underway.

Speaker 3

All geotechnical work and foundations were completed during the Q2. The first few pieces of steel were set in the last days of June as well. Plant re erection is in full swing. We are now projecting completion of the plant early in Q4 of the year rather than in the last days of the year with the attendant cost savings that I'll further discuss. In the intermediate term, it may have been having the plant on-site will open up the possibilities of additional underground low vol production in our high quality Sewell, Beckley, Fire Creek and Pocahontas reserves at Maven.

Speaker 3

The more immediate fundamental benefit is the raw coal transportation cost reduction. Our Maven surface mine and the Hi Will miner is currently amongst Ramaco's lowest cash cost of production before the burden of hauling this coal to our Berwind facilities for washing and shipment. Depending on the actual recoveries that we see for the mine, the raw coal transport costs can make up 30% to 40% of their total cash costs and up to or exceeding $40 per clean ton of their final produced costs. As the start up date of the Maven plant has become closer and becomes more certain, we will start stockpiling coal on the Maven property and not transporting it to Berwind so that we can claw some of these trucking savings back even on tons produced prior to the plant's completion. Our final expansion projects at the Berwind P4 minuteevelopment will continue throughout the Q3 with an anticipated start up and ramp period for this section in the 4th quarter.

Speaker 3

Our projections have this section providing approximately 300,000 clean tons per year of low cost, low vol coal. The start up of this section and the incremental raw coal to be processed will coincide with the completion of the Maven plant and elimination of a similar volume of coal being trucked into the Berwind complex. Additionally, during 2025, we expect to further ramp the Berwind mine to its ultimate capacity of 4 operating super sections. Finally, while our overall cash costs have declined significantly, we are extremely focused on a couple of mines and a couple of sections where the cash costs remain elevated and are not currently compatible with market conditions. All options at these sections are on the table, including deploying equipment and manpower to other mines which have better geology if we do not see continued improvement.

Speaker 3

As always, we will be aggressively agile at the operations level to respond to the financial and market conditions as they exist. For some additional discussion and detail on the markets and sales position, I'd now like to turn the call over to our Chief Commercial Officer, Jason Fannon. Jason?

Speaker 4

Thanks, Chris, and good morning, everyone. I will share what we are seeing in the markets and our current and forward sales outlook. Although global coking coal markets have weakened from a pricing standpoint, volumes are still well supported. Let me start with an overall global macro recap of the various markets where we sell. We are continuing to see the usual robust inquiries from the Pacific Basin for U.

Speaker 4

S. Coking coals. Atlantic demand remains muted, though we are now starting to see positive momentum for spot deliveries in the region. Integrated mills and coke batteries in the U. S.

Speaker 4

Continue to run strong despite a decline in finished steel prices. We think this is due to their continued positive profit margins as well as cost advantages for blast furnaces relative to electric arc furnaces. These cost advantages are likely to grow over time as increased power demand and higher electricity prices heat into EAF profitability. Therefore believe demand for U. S.

Speaker 4

Coking coal is likely to remain strong for the foreseeable future. We also continue to expect a moderate rebound in Europe in the back half '24 and more so in 2025. Western Europe is clearly a mature market continuing with carbon pricing and the relentless pursuit of de carbonization. Despite this, we are intrigued by the situation in Eastern Europe with a potential post war rebuild scenario and result in increase in raw materials demand. Situation in Brazil also looks promising as steel import tariffs will provide the impetus for higher steel production and follow on increases in coking coal demand in the coming months.

Speaker 4

In the Pacific, we are likely to see a seasonal rebound in demand from India and China in the back half of the year. The outlook for Indian steel production growth continues to look very favorable and we anticipate long term seaborne coking coal demand to increase materially as a result. From a supply standpoint, we were reminded how fragile supply chains really are with the recent fires at Grossner and Longview. There tend to be no upside surprises when it comes to supply and we view the long term supply versus demand backdrop as bullish. As Randy mentioned, we have a small open position remaining for 2024, amounting to around only 250,000 tons.

Speaker 4

Given the near term weak pricing environment, we will opportunistically time and place these unsold volumes in the market to align with the expected seasonal price correction. Looking ahead to 2025, as we begin the 2025 domestic sales negotiations, our already committed volume of 1,250,000 tons puts us in a unique sales position compared to previous years when we were fully uncommitted for the next year at this point in time. Ramaco sales book is now well positioned with specific long term partners who place incremental premium on Ramaco's position as one of the largest producers of low ash, low sulfur cooking coals in the U. S. Across all grades, low vol, mid vol and high vol.

Speaker 4

As production in the U. S. Cooking coal industry has increased in recent years, a lot of the incremental and new volumes have been on the higher end in terms of ash content and perhaps more importantly sulfur content. Turning to the current pricing environment, metallurgical index values have continued to soften as seasonal influences impact markets at this time of year. There's also been a deterioration in steelmaker profit margins as global steel prices have fallen mostly due to increased exports of Chinese steel.

Speaker 4

Meanwhile, millage for coal demand remains robust from an annual global seaborne volume standpoint. Import demand from India and China continue to grow on an annual basis. Indian first half imports increased 17% year over year, while China's seaborne imports increased 22% year over year. Prices have fallen however due to Asian end users inability to profitably pay higher prices for raw material feedstocks like coking coal. As of August 6, the U.

Speaker 4

S. East Coast index values were $208 per ton for low vol, dollars 203 per ton for High Vol A and $181 per ton for High Vol B, while Australian premium low vol sits at about $2.15 per ton. As prices in Asia have declined, U. S. Relativities compared to Australian premium low vol have rebounded back to historical averages.

Speaker 4

This suggests we are nearing a near term price for U. S. Coking coals. We also believe current U. S.

Speaker 4

Index pricing netbacks are below fully loaded cost for many marginal U. S. Coking coal operations today. Clearly that situation cannot continue. U.

Speaker 4

S. Low vol market is currently much tighter than index pricing is suggesting. We see demand continuing to outpace supply in the U. S. Low vol and mid vol segments where Ramaco is positioned for continued growth as we continue to ramp production at Berwind and at Maven.

Speaker 4

In the high vol segment, as mentioned earlier, most of the incremental growth from our peers in the U. S. Has been either higher ash or higher sulfur or both. Production growth in these less desirable quality buckets ensures sustained future demand for Ramaco's higher quality low ash and low sulfur high vol from Elk Creek. Looking ahead, we are very comfortable with our current order book and forward production expectations.

Speaker 4

We will be very selective where we place our few remaining 2024 volumes in order to achieve the highest netbacks possible. We look forward to the coming domestic contract negotiations as well as the opportunities in 2025 to be selective in placing incremental volumes for those customers who see value in our low ash and low sulfur supply. I'd now like to return the call to the operator for the Q and A portion of the call. Operator?

Operator

We will now begin the question and answer session. The first question comes from Nathan Martin with Benchmark Company. Please go ahead.

Speaker 5

Thanks, operator. Good morning, guys. Congrats on the progress during the quarter, especially on the cost side.

Speaker 1

Thank you, Meg.

Speaker 5

I mean, first maybe just something I noticed in the presentation, Slide 9, where you guys break out your kind of production outlook. In the medium term production outlook, it looks like maybe an improvement regarding your expectation for low vol production versus last quarter. Can we give additional more details on that update?

Speaker 1

Nate, it's Jeremy. I'll start and then maybe turn it to Chris. So I think as Jason noted obviously in the current environment we think lowball is extremely tight. So what we've done is we've effectively put the Maven underground expansion into our kind of official medium term outlook. So at the end of the day in addition to what we're producing now that's over a 1000000 tons of underground production which effectively takes us to to more than fifty-fifty in terms of low vol, mid vol versus high vol.

Speaker 2

And also that includes the 4th section of Berwind that we would be putting on.

Speaker 5

Yes. When would that Romani guys that maybe underground expansion likely get moving forward, I guess?

Speaker 2

Yes, we've got the optionality to frankly start that next year. I mean the main gating issue for that was the prep plant. And of course we move forward sort of opportunistically last summer or this summer with the purchase of a sort of idled prep plant that we moved up to Maven and have installed it. And frankly, as I mentioned, it will hopefully start operations sometime late fall. So that's really what gated us.

Speaker 2

And then of course we'll look at our budgeting for next year and move accordingly. But we can certainly start putting in sort of section by section that will ultimately probably be a 4 section mine.

Speaker 3

So ultimately, maybe as much as 1,500,000 tons, but obviously market conditions will dictate that.

Speaker 5

Got it. Okay. Thanks guys. And maybe just sticking with the Maven prep plant for a second. There's something else I noticed, I guess broke out in your cash flow statement kind of a separate line item for that prep plant expense.

Speaker 5

And then I also saw a footnote in your CapEx guidance that says it excludes $3,000,000 for the purchase of that prep plant. So I just want to make sure how we should think about all in CapEx number for the full year for 2024?

Speaker 1

Yes. Hey Nate, it's Jeremy. So very good question. So we did break that out so that you all could kind of for transparency see what we're spending on Maven. Dollars 3,000,000 within the cash flow statement is for the purchase price.

Speaker 1

So when you look at our full year guidance of $53,000,000 to $63,000,000 it effectively excludes that $3,000,000 for the purchase price, but it includes the rest of the spend on Mab and a little bit more than half of which has already taken place. So if you kind of think about our full year CapEx outlook, call it at the $60,000,000 range excluding the $3,000,000 or so for the purchase price, about $40,000,000 of that is maintenance, about sort of $20,000,000 of that is growth. So obviously when you look at the first half spend of call it $40,000,000 less the $3,000,000 so $37,000,000 dollars frankly that implies a lot lower spend in the second half and the reality is that's because when you look at our 3 or 4 major growth projects this year the vast majority of that spend has already taken place. So I do think that's something you guys can look forward to in the second half of the year especially in the Q4.

Speaker 5

Yes, okay, perfect Jeremy. That helps and I saw that mentioned in your release too that hopefully things come back down a little bit in the Q4. I guess sticking with CapEx, but shifting over to the Brook mine, obviously, saw the release, I guess, 2 days ago, bringing on a couple of new partners. What kind of CapEx do you guys expect to be involved kind of in the design and build of that refining and processing plant that you're going to be doing before? Will all that spending be your responsibility?

Speaker 5

I think you mentioned the target start is middle of next year. How long could that possibly take to build as well?

Speaker 2

Yes. I mean, our spend, frankly out at the Brook mine has been really very modest. I think we've spent since inception just a couple of $1,000,000 out there to really get everything moved into position. And as far as the design build, we're as I said we're going through testing and essentially trying to get the various variables nailed down, which will inform essentially how we would design the processing facility to deal with the specific minerals involved in their chemistry. I think in terms of a spend for the planning for the design of that, I would think it is in terms of several $100,000 that's about we're going to be.

Speaker 2

And in terms of what the cost for the overall demonstration facility will be, I really don't want to get over our skis now in terms of giving you a number. We'll certainly provide it as soon as we've got the design metrics around it, so we can give you really an informed concept. But remember the demonstration facility is kind of like an advanced pilot. It's not a pure pilot plant in the sense that we intend to frankly start selling product from the demonstration facility. So with this will be a revenue producing plant as soon as we open it.

Speaker 2

And we'll expect to probably start doing construction, certainly site work on that sometime around the middle part of next year once the weather permits out in Wyoming. And in terms of the timing, I'd probably earmark 9 months to a year of normal construction assuming no weather related issues out there and that's kind of the timeframe. So it's probably a 25 start and a 26 completion.

Speaker 5

Very helpful, Randy. Thanks for those thoughts. Then maybe just one more. I appreciate you guys don't really want to talk specifics on the domestic contracting season for 'twenty five as we're still early on there. But any initial thoughts at least directionally on what you think maybe demand for met coal could look like from domestic steel producers next year versus this year?

Speaker 5

And I also noticed that, Jeremy, maybe this is what you referenced in your prepared remarks that your domestic tonnage committed in price for 24 has crept down again to I think 1,300,000 tons now with some of that what was getting deferred into 2025? Thanks.

Speaker 2

Yes. Nate, this is Randy. I'm going to just tee up one brief comment and then turn it over to Jason. But the demand side, we haven't really seen a real fall off on the demand. The U.

Speaker 2

S. Steel producers are still enjoying pretty good margins despite the fact that the prices are down. So the demand side has not really been the problem. The problem has been as I mentioned in my remarks that we've really seen this sort of flood of Chinese steel hitting virtually every market and that has impacted steel companies' ability to frankly raise their prices. And when you've got low steel prices, you're going to have unfortunately low coking coal prices.

Speaker 2

So that's it's really more of a peculiar supply derived situation based on the Chinese peculiarities if you call it that. But Jason pick it up and refine on that comment.

Speaker 4

Sure. Thanks Randy. And Nate, yeah, obviously we're in ongoing discussions with some customers now, so we won't get into some specifics, but I mean as Randy mentioned, certainly hot rolled spot prices are down globally, still in the U. S. They're still the highest in the world.

Speaker 4

The margins here are still outsized compared to our seaborne customers. Service centers obviously low inventory points at a low point in the market which would seem odd. As they come back in those spot steel prices are going to move back up. And frankly, Randy referenced the flood of Chinese steel exports, which we probably haven't seen this level in almost 10 years. But protectionism is working, it's working here, it's working in other areas.

Speaker 4

Think probably see more of that. But I think one key aspect in terms of you asked about cooking coal demand here in North America next year versus this year, you're not seeing anybody slow down even given where hot rolled is at and I think that says a lot. And then in terms of the tonnage you mentioned there that Jeremy had commented on earlier, But we had 1 North American customer that has an extended force majeure status and rather than lose those volumes we work with them and deferred some into 2025 which worked out for the best for both of us and our customer, which is that committed change you see there.

Speaker 5

Very, very helpful guys. I appreciate all the comments and the time and best of luck in the second half.

Speaker 2

Thanks, Nate.

Operator

The next question is from Lucas Pipes with B. Riley Securities. Please go ahead.

Speaker 6

Thank you very much, operator. Good morning, everyone. Good job on the cost side. And wanted to ask on the cadence for the second half, if you could maybe provide a little bit of color for Q3 and Q4. Q3, I always remember kind of minor vacations can have an impact.

Speaker 6

So wondered if you could maybe speak to that. And Chris, you mentioned in your prepared remarks that some mines have an unacceptable level on the cost side today. What sort of tonnage are we talking about? Is that another 200,000 tons? Is it more?

Speaker 6

And how quickly would you could you redeploy manpower equipment, etcetera, if you decided to move things around? Thank you very much.

Speaker 3

All right. Look, I'll try and tackle the first one first a little bit on the cadence of the cost and right now in the second half, we're sort of expecting cash costs to be roughly the same in Q3 Q3 versus Q4 as we still have RAM 3 and Stone Cold 3 in the ramp process. So low 100s perhaps, but then Q4 pushing to 100 or a little bit below as those mines are fully operational and we also get the Maven cost savings. So at the low end of the guidance, we could see it move down significantly on the cost side, but that's sort of where we're guiding to on the costs. And then as far as the number of tons that are sort of unacceptable, it's probably in the 200,000 to 300,000 annual ton range.

Speaker 3

And those could be redeployed relatively quickly within the Q3, I would say. So I mean, we'll continue to monitor. We have had some improvement and that's what we saw in June costs and continuing into July, but coal mining can change day to day. So we are monitoring them extremely closely and we have a couple of places that we can move to get our costs continuing to move lower as they need to.

Speaker 6

That's very helpful. Chris, if you kind of expand this across the industry, how many tons would you say are in that bucket in the U. S. And maybe have a global view as well?

Speaker 3

I would guess in the U. S. It's if you exclude the big longwall operators, it's probably 25% of the remaining production is in that questionable and unsustainable range at these prices globally. That's probably a little out over my ski tips to opine on that, but maybe Jeremy or Jason has an opinion.

Speaker 4

I mean my quick comment on the global side, Lucas, this is Jason, is I mean you can always kind of look at the forward cost curve and see where that starts to trail off at and I think that tends to suggest where most folks think the that marginal ton lays. I don't know where it sits actually 26, 27 at this point since we're kind of focused on 20 5 right now. But I guess always a good indicator and obviously folks that are above that are on the edge there.

Speaker 2

And I think the good and the bad news as we see some of these producers have to contract needless to say that opens up some opportunities for us on the labor side because where we operate down in the Southern Appalachian area is always a tight labor market. And to the extent that we see sort of breaks in the action from some of our peers, we are delighted to pick up new people and deploy them because

Speaker 4

we've got situations where frankly

Speaker 2

our production has been full labor. So it's kind of a double edged sword.

Speaker 6

That's very helpful. Thank you for all that perspective. Randy, in terms of the demonstration processing facility, what product are you currently targeting out of that facility? Would appreciate your thoughts on that. Thank you.

Speaker 2

Sure. So as you probably recall from our earlier disclosures on sort of the overall product blend of our various REEs and critical minerals, we've got call it 8 rare earths which are the sort of heavy and medium rare earths, magnetic rare earths And then we've got 2 very valuable critical minerals which aren't really categorized as rare earth, germanium and gallium. And so those would be the end products that we would ultimately be aiming to frankly create oxides for which would be able to be separated and sold on an individual basis. As we start a demonstration facility, we'll probably deal with a concentrate, which will have probably most if not all of those kind of combined in one concentrate. And then as we go further up the food chain if you will in terms of processing then we'll separate those out which is obviously the farther you go up the food chain the higher the value you receive for being able to sell separated refined elements.

Speaker 6

That's helpful. So kind of first step here would be to demonstrate a concentrate and then what's a where's the market for that concentrate today either in terms of location or price for bucket. Is there a benchmark?

Speaker 2

Yes, I would say the prices of course in the rare earth business in general are a sort of opaque basket because there is such dominance by China in the pricing and production process. And frankly, China engineers both in a manner to try to mute and or eliminate any other production outside of China. So you can't necessarily always believe the prices that you perhaps would get off of normal benchmarks. But, the easy way if you want to start thinking about it as an analyst would be to simply take the breakout prices of each individual element and apply that into sort of a basket concentrate which we I think provided you some slides on in some of our earlier presentations on the rare earths which give you a notion of sort of what percentage of each one of these we have in our overall mix at least as far as our last exploration target is concerned.

Speaker 1

Yes, you can see it on Slide 13.

Speaker 2

Okay. And I might add that those numbers will probably change around when we do our further update this fall because we've got pretty significant amounts of additional data that will be going into this new revision. So kind of expect for those numbers to move around and course we hope they'll move in a positive direction, but we won't comment on that until we actually get all the data collected.

Operator

This concludes our question and answer session. I would like to turn the conference back over to Randall Atkins, Chairman and CEO.

Speaker 2

Again, I'd just like to thank everybody for being on the call today and we'll look forward to catching up with everybody in several months. Take care

Speaker 1

and have a great day.

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Earnings Conference Call
Ramaco Resources Q2 2024
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