Good day, ladies and gentlemen, and welcome to the Ramaco Resources First Quarter 2017 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call may be recorded. I would now like to turn the conference over to Michael Windisch, you may begin.

Thank you, Leeann. Good morning, and welcome to the conference call for Ramaco Resources' first quarter earnings. With me this morning is Randy Atkins, our Executive Chairman; Mike Bauersachs, our President and CEO; and Marc Solochek, our Chief Financial Officer. Before we start, I would like to share our normal cautionary statement regarding forward-looking statements. Certain statements discussed in 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 or beliefs concerning future events, and it is possible that the results discussed will not be achieved. These forward-looking 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 statement, whether as a result of new information, future events or otherwise. New factors emerge from time to time, and it is not possible for Ramaco to predict all such factors. When considering these forward-looking statements, you should keep in mind the risk factors and other cautionary statements find -- found in the company's filings with the Securities and Exchange Commission, including its annual report on Form 10-K and our Form 10-Q. The risk factors and other factors noted in the company's SEC filings could cause its actual results to differ materially from those contained in any forward-looking statement. With that said, let me introduce Randy Atkins, our Executive Chairman.

Thanks, Mike. Again, on behalf of all of us at Ramaco Resources, I want to thank everyone for joining us today on our second earnings call in actually about 6 weeks. We're now basically 3 months beyond our IPO, and we're continuing to derisk our mining assets at all of our properties, which we're going to detail for you today. To make the point, which we said during our IPO, Ramaco is in development mode in 2017. We will not be either in substantial production or active sales mode until our Elk Creek prep plant is fully operational later this summer. So we've got relatively minor exposure to the current market. We feel that the volatility in the met markets continues to support the wisdom of our strategy to be a debt free, low-cost producer. And that volatility, since our last call, has been impressive. On our March 29 call, low-vol prices for spot was about $150. 2 weeks later, it was $315. This week, spot is back to about $190 and the '18 forward curve is $150. If we talked to you 12 months ago in May, the spot price was only $90. So regardless if you're a buyer or a seller, it's tough to pick the spot to either sell on or catch a falling knife. We're a firm believer, however, that this volatility for better or for worse is going to continue. We also believe that as long as Ramaco becomes one of the lowest-cost producers and remains debt free, we will be just fine in whatever market we find ourselves. Our goal remains to generate strong long-term cash flow and occasionally benefit from periods of short-term market tightness. In the meantime, we are continuing to execute according to our plans as outlined before. And in a…

Thank you, Randy. I'm pleased to provide an update on our operating and marketing developments as well as our infrastructure build-out. We are equally excited about hosting our pending Elk Creek site visit on June 6 and 7 with numerous coal analysts and investors. While viewing the pictures on our website is helpful, the visit should reinforce the fact that our on-the-ground execution of very complex tasks and infrastructure construction is both on schedule and remarkable. Additionally, we are hopeful that a site visit will demonstrate the value of our operating assets and advantaged reserve base. As those on this call know, we continue to experience a large number of firsts in our organization. I think that it is important to highlight that we have, alongside mining our first coal production from a company mine, also implemented our environmental management system as well as our company-wide safety program. In each case, we have taken best industry practices and are integrating them into our best daily practices. I can assure each of our shareholders that we will actively manage the health, safety and environmental issues that we face as a company in the coal mining business. This will include actively measuring key metrics such as our nonfatal days lost, or NFDL rate, which is a common industry measure of safety performance. I'm also pleased to report a 0 NFDL rate to date at our company operations as well as our contract mine. From an employee standpoint, excluding our contract mining operation, we have 52 current or committed company employees as of today. We anticipate having that increase to over 100 employees by the end of June. To date, the quality of people that we have been able to attract has been outstanding. We have hired not only experienced coal miners and…

Thank you, Mike. First, I want to refer everyone to our current release of earnings into our recently filed Form 10-Q for more detail about the quarter ended March 31, 2017. As Randy mentioned, we don't have a whole lot of meaningful financial information to share with you today beyond what is in the earnings release, but I would like to highlight a few points. We continue to have a very strong balance sheet and excellent liquidity. During the quarter, this was bolstered by our initial public offering that closed in February. Ramaco Resources sold 3.8 million of the 6 million shares offered in the IPO, generating $43.7 million in net proceeds. At March 31, 2017, we had approximately $79 million in cash and investments, which is more than enough to complete our planned production ramp-up and capital build-out. Ramaco Resources recorded a net loss of $3.1 million or $0.10 per share for the quarter ended March 31, 2017. This compares with a net loss of $3.8 million or $0.17 per share for the quarter ended March 31, 2016. Both quarters had a significant unusual item. In 2017, we had a onetime charge of $2.1 million for equity-based compensation, which arose from the accelerated vesting of executive stock options as a result of our IPO. This had a $0.07 per share adverse impact. And in 2016, we wrote off deferred operating expenses of $3.1 million in connection with a proposed financing that was not consummated. This had a $0.14 per share adverse impact. During the first quarter of 2017, we sold 91,050 tons at an average realization of $108.20. The 55,770 tons of company production was delivered under a relatively low price contract that provided us with washing capacity for our Alma coal until the Elk Creek preparation plant is…

Thanks, Marc. Well, at this point, that concludes the formal remarks for us for the quarter. And we would be happy to turn it over to questions from either the analysts or investment parties on the line.

[Operator Instructions] And your first question comes from Jeremy Sussman with Clarksons.

I guess, first of all, good to see that the prep plant is on schedule for mid-August. I guess, maybe a little bit of a bigger picture question. Let's say, going back to the beginning of the year to what you know now, any sort of positive or negative surprises that you're seeing from really anything? Let's stick with Elk Creek on that question?

Mike?

Yes, good question. I think the availability of labor has been a very positive surprise for us. We continue to read things from other parties that talk about having job fairs in different states and things. We're in the heart of coal country there, but it surprised us, the talent that we've been able to recruit. And the first tier of talents you recruit normally leads to another layer of good talent, so I think that's been a very good surprise. I think we continue to be surprised by how difficult it's been to acquire some deep mining equipment and how easy it's been to acquire surface equipment. In particular, kind of medium-size deep mining equipment, it's pretty tight and capped. The good thing is, we got out well in front of that. And I'm definitely glad we're not trying to acquire a bunch of that equipment now. And I might add it's that equipment that has allowed us to be flexible enough to bring on additional production when we needed it, because we have it on hand, rebuilt and ready to use.

That's very helpful. And maybe just switching gears to the pricing side. I think, Randy, you and Mike both mentioned sort of test shipments was the term, I think, you used this year. So it sounds like just to get into the market that perhaps maybe we shouldn't look at 2017 pricing and sort of use that as a guide going forward, at least for some of the stuff earlier in the year. Is that how we should kind of think about things?

I think that's right, Jeremy. I mean, I think one thing that I try to express is there has been, obviously, tremendous volatility in the first quarter. And I think we're lucky that we didn't have to be out there trying to figure out whether to pull the trigger one way or the other in this kind of a market, which is that fluid. Obviously, we hope that the general market settles down a little bit later in Q3 and Q4 when we're going to out there trying to tie down some domestic business. We're certainly following the spot market out there for some of our shipments, particularly those that we're doing right now for third-party coal. But you are absolutely correct. We've said it from day one, when we started our IPO roadshow, this is a 2017 startup and a 2018 show, and we're just about to get the show on the road. So that's a fair statement that you made.

I think also what you're seeing is management just continue to look at where our production levels are expected to be and the most important thing, I think, is test shipments. But secondarily, we will need to move these tons in 2017. And frankly, most people are already contracted for 2017. So we continue to see opportunities to do that and are currently following those and also keeping some tons open for what could be a much better realization. So you can see the back-ended nature of our production, and we're constantly trying to manage that with our focus being on 2018.

Right, that makes sense. Well, I appreciate the color, and I'll pass it along.

Thanks. And I'd make one other comment to your point, Jeremy, which is, I think, in hindsight, it's somewhat of a blessing. We've been having shakedown period here in this period of volatility in the markets, so we can get our operational situation well-founded and footed, and that's what we're doing. We're -- as I said, we're out there blocking and tackling.

Your next question comes from Mark Levin with Seaport Global.

Randy, I want to follow-up on a comment that I think you made at the beginning of the call, and I just kind of want to make sure I understood it correctly. So I think you said in a $145 to $150 type environment and correct me if I'm wrong, that you guys would realize $85 to $90. Is that right?

That's correct.

Okay.

That's on export, Mark.

On export, right. So on that $145 to $150, can you kind of just back us into like how you would get to that $85 to $90? Because if I were assuming transport cost of, let's say, like $25 or so, I would be at that level coming closer to maybe like a 20% discount to the benchmark. Is that math wrong?

That's not wrong. I think when I did it, I frankly probably used about a $30 transportation cost. I think that maybe going to be a little high, but again, we're sitting in a situation where we're not actually doing a lot of that export business right now. But if you basically want to do a net back, you would deduct, of course, the conversion from metric tons, you would take out the transportation. And then as we've said all along, our quality differential for sort of a high-vol A/B product, we anticipate being in sort of the 12%, 12.5% range, plus or minus.

Got it. And then just -- okay. Fair enough. And then just with regard -- I hate to focus on '17, because it really isn't the critical year, but just for modeling purposes. On the 900,000 tons or so of production that you anticipate this year, just high level, how much of that today is priced and at what price level?

Yes, Mark. What we've done, basically of the remaining tons that we have to ship the rest of the year, approximately half of that or so is priced. And if you look at, with some variability, of course, from trucking costs and recoveries and those kinds of things, we're seeing some of those tons placed at numbers closer to $60 and some of those numbers closer to $80. You're seeing those numbers kind of shake out more or less in that $70 range. And I might add that these tons were purposefully entered into. They have a great deal of flexibility and quality. They also did not require cash shipment qualifications and those kinds of things. And again, we're also entered into at a time when everybody else is pretty much already entered into contracts with other parties. So it shows the desirability of the coal. And we believe that we have to have some base load to help guide us through the remainder of the year, and we'll continue looking at that. And we're continuing to keep tons available for opportunities that are much higher than that. We'll continue to generate a margin at those levels. And as the -- as we get in the third and fourth quarters, I mentioned, our margin will increase by about $10 over what we will experience in the first and second quarter, because more of the tons that were entered into post the contract to help us wash coal will kick in. And also, I had, again, that it's never been a part of our plans to do some of this back-to-back kind of trading, but the margins we've been able to realize really for just the use of working capital have been pretty handsome to tell you the truth. And I think you'll see us provide additional guidance on escalating those activities in the next few year or so.

Interesting. And then just -- you gave some good color, Mike, on Berwind and what's going on there with regard to the permit. Obviously, it slipped a little bit, but what's your degree of confidence that in the next month, I mean, is it 100%? Is it 90%? I mean, is there any -- I mean, obviously, it's out of your hands to some degree, but you seemed exceedingly confident about it. Maybe you can give some more color around what's going on there in terms of timing and degree of confidence.

Yes. We are getting engagement, especially in the last week or so, from all parties. I can tell you that the West Virginia DEP is very engaged on our behalf. They basically have completed everything except this. And we remain very confident. First of all, that we comply with what will be inserted into our permits. And we're dealing with a bureaucracy here, so it's more of the timing that's the issue, but I am extremely confident, 95% confident that it will be issued within the next month. I think it will be quicker. So I'm pretty happy with the recent engagement. And we're very happy with the support from West Virginia DEP by the way, who is dissatisfied with some of the time frames that we faced in dealing with this issue as we are. So -- and the fact that they've issued the NPDS permit by the way, which relates to the issue, shows a sign that the DEP is also confident.

Yes, got it. I appreciate it.

Mark, one other point just to clarify one remark that Mike made on some of the lower price tons that we moved early in the year, it's almost more of a wash arrangement that we made with a competitor that was nearby, that saved us a tremendous amount of trucking expense that we would have to incur to take those tons to be washed much further away. So admittedly, we had the low price coal to a competitor, but it's more of a wash agreement. It's a temporary situation that, obviously, goes away as soon as we've got Elk Creek operational, which will be in a few months. So just want to make sure that, that is clarified.

Your next question comes from Michael Dudas with Vertical Research.

For Mike, the -- give me -- elaborate a little more on the Jewell Ridge transaction. It sounds quite interesting in how you're playing off the company that you're buying and washing the coal for. And how do we think about that from a timing standpoint? Can there be some relatively near-term -- or how about next year, 1.5 years opportunities there? And are there other opportunities like that in the next -- I know you're building up the CapEx program over the next 6 to 9 months that we might be seeing from here?

Yes, Mike, really good question. I mean, the benefits from the Jewell Ridge transaction are probably more 12 months out than they are more near term, just because we're permitting and we're providing groundwork to have coal that can be produced for our own margin. That can be through coal purchase agreements, it can be through subleases, where we lease coal to other parties, and it could mines that we operate ourselves. What we're very pleased about is having a position in these high CSR tons that are very close to the SunCoke coke plant, which can allow us to begin to do more business locally with them as well as have a different coal in our portfolio. As far as sort of general M&A, we're constantly looking at things. I can tell you that, as we speak, we're looking at 2 opportunities that could relatively -- in the relatively near term, impact both our costs as well as impact additional production that we could bring online. So each of them are on our borders, and they're pretty interesting, and we're going to continue to look at opportunities that create long-term shareholder value. And of course, we always try not to overpay for them, Mike, as you know so.

I'm aware of that. The IRRs in those opportunities, I'm assuming, they're quite favorable given relative to the market today?

Absolutely. Your bunny has a good nose. Absolutely.

The second question, thinking about some of the test shipments you've entered into agreements and can you may be shed some thoughts on the customer base that's looking at the coals right now and the qualities? What's bringing them to you? What are some of the things that you can show more advantage for your coal and your infrastructure, your logistic relative to others in the marketplace that you may have to displace as you look into, say, the 2018 contract season in U.S.? And of course, some of the international folks that are looking at your coals?

Yes. I think some of the advantages continue to be not necessarily the fact that our coal is that much different from our competition, it's the fact. Especially through some of the customer visits that we have experienced, they've been quite impressed by the resources that we have, the ability to ship them long term with the same qualities, with slightly advantaged transportation due to 150 car loadout and basically brand new infrastructure. So our ability to wash coal and do it with high recoveries and those sort of things at a low cost is something that resonates with our customers. And I think we've really been out there a lot, spending a great deal of time, both domestically and internationally, with people who are very interested in the coals. So from a differentiation standpoint, it's not so much that, Mike, it's the fact that they realize what we have is something that's pretty unique and can be there a long time and can be very cost competitive, and we've been put on a lot of lists because both of the fact that we've been out there with a very good sales agent Joe Czul, but also the fact that we've been very visible with these guys, invited them to the property, and they see what's going on.

And I would add to that, Mike, as we sort of also said during the roadshow, one of the key components that we're hearing from a number of potential buyers is, despite a number of our peers emerging from bankruptcy, there's still somewhat of a lingering issue about reliability, and we are certainly the new kid on the block and we have a sort of a fortress balance sheet. So they view us as someone that they feel moving forward would be a reliable partner, and we hope to be one.

That's interesting. My final question, maybe for Randy is -- for you Randy is, can you -- and I might not have seen this from the road show, and I have to get involved in stuff. But can you talk a little bit about executive compensation and share ownership and how deep you have a plan there to allow that? And are there any restrictions for anybody internally to want to be into the market to purchase shares since, obviously, you just came through the IPO a few months ago. Were there any other than just normal course of business restrictions?

Yes. We've got -- our compensation plans in general for the entire executive ranks are going to be discussed probably at our next board meeting. We've had a number of comp consultants dealing with this. Mike and I, I think, own collectively about 5% apiece. So we've got certainly a large stakeholding. We continue to feel that the value of the underlying company is not necessarily reflected in the stock price today. We are getting up each morning trying to improve shareholder value, which we can -- we can work on the value, we can't work very well on the price. But in terms of the way we view things, of course, we're in a blackout period right now from buying stock, that may change shortly, and we certainly, from an investment standpoint, continue to see our shares as perhaps undervalued in the market.

And I'm showing no further questions at this time. I would now like to turn the call back to Randy Atkins for any further remarks.

I think that sort of concludes our remarks for this quarter. We're delighted at the progress we're making. We continue to execute according to our plan, and we look forward to our next call with you and perhaps some intermittent news in between. We appreciate everyone being on the call today, and thank you very much.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program, and you may all disconnect. Everyone, have a great day.