Good day, ladies and gentlemen, and welcome to the Ramaco Resources, Inc. First Quarter 2018 Earnings Conference Call. [Operator Instructions] I would now like to introduce your host for today's conference, Mr. Michael Windisch, Chief Accounting Officer of Ramaco Resources. Sir, you may begin.

Thank you, Jimmy. On behalf of Ramaco Resources, I would like to welcome all of you to our first quarter earnings conference call. 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 begin, I would like to share our normal cautionary statement regarding forward-looking statements. Certain statements discussed on today's call constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements represent Ramaco's expectations 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 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 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 found in the company's filings with the Securities and Exchange Commission, including our 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 statements. With that said, I'd like to hand the call over to Randy Atkins, our Chairman.

Thanks, Mike. As always, I'd like to thank everyone for joining us today for our call on our first quarter results. As you're aware, Q1 is the first quarter that we have reported a profit. That is a milestone that we are very proud of and it has been a long time coming. From here, we hope to grow continuously and in one direction. We made some strong overall progress this quarter on our sales, operations and finances. We hope to continue this momentum into the balance of the year and indeed, we are optimistic we will have a very strong year. Let me start by giving some financial milestones. We more than doubled revenue this quarter to roughly 56 million. Our net income swung from a $2.6 million loss to income of 5.3 million. On a per share basis, that was a $0.20 shift from a $0.07 loss to $0.13 of earnings. Our adjusted EBITDA for the quarter grew substantially to 9.2 million from a loss of 330,000 in December. In [indiscernible], we could have done better. Mike will provide you some details in a moment. In brief, we had logistic issues with the two rails at service. We also had some unexpected geological issues at our surface mine at Elk Creek. This resulted in lower surface production levels and a correspondingly higher cost due to the lower volumes. Both railroads at service were either delinquent or very delinquent in providing timely delivery of our coal to our customers. The railroads of course are not just a Ramaco issue, but unfortunately, their performance had an impact on us. If it gets corrected, as they contend it will, we will hopefully see a rebound. Time will tell. Operationally though, each of our five mines are performing quite well with the…

Thank you, Randy. First of all, we're pleased to have a substantial swing to first quarter profitability. This is the first quarterly profit for our company's short history. Typically, the first quarter in the coal industry for those with substantial weather exposure is the low watermark for the year from an operational standpoint. Our expectations for Ramaco Resources are no different. In 2018's first quarter, our deep mines at Elk Creek achieved their projected production and productivity expectations and generally get their cost structures. This performance continues to validate that we have some of the best metallurgical feed mines in the United States from geological and cost perspectives. The Elk Creek preparation plant became fully operational on February 16. A picture of the Elk Creek plant and facilities is included in our Investor Presentation. The new number two gas mine, our third deep mine at Elk Creek is now fully operational and we are seeing good productivity and production growth as it ramps up. I've also included a slide that illustrates the overall production growth. We have proven our ability to execute on developing new deep mines. Additionally, our sales products are being widely accepted in the marketplace. Our coal qualities have proven to be better than expected. During the next round of contracting, we expect to see quality price increases. Unfortunately, we faced struggles in the first quarter on the cost and volume front at our Elk Creek service mine. Simply put, the issues at our surface mine were responsible for the entire increase in our cash cost per ton on a linked quarter basis and overshadow the really good performance by our deep mines. The Elk Creek surface mines faced poor weather, including large amounts of precipitation in the first quarter. We also experienced regulatory delays in obtaining…

Thank you, Mike. I have just some brief remarks this morning that compare the highlights from our first quarter of 2018 to the December 31, 2017 quarter. The nature of our company has changed so dramatically that year-over-year comparisons are not meaningful. For the first quarter of 2018, Ramaco Resources reported net income of $5.3 million, $0.13 per share on revenue of 56 million. Adjusted EBITDA for the first quarter was $9.2 million. This compares favorably to the fourth quarter of 2017, where we had a net loss of 2.6 million or negative $0.07 per share and negative adjusted EBITDA of $328,000. We realized the cash margin on company coal sales of over $26 per ton, more than double the fourth quarter's roughly $12 per ton. Our cash margin on third party purchase coal sales increased from $7 per ton in the fourth quarter of last year to over $11 per ton this quarter. In the first quarter, we recognized income tax expense of $743,000, only $35,000 of this expense is currently payable and not until 2019. We anticipate that this year, our effective tax rate will be about 12.6% and our effective income tax pay rate will be less than 1%. The total income taxes paid for 2018 is expected to be less than $400,000. Capital expenditures were roughly $13 million in the first quarter of 2018, primarily from mine development. The company had $7.3 million in cash at March 13. In the first quarter of 2018, we had $6 million in short term borrowings to manage our growing accounts receivable balances, which grew from $7.2 million at December 31 to $23.5 million at March 31. We anticipate a major growth in trade receivables to continue as our sales continue to grow, especially given repayment terms in the export arena that can extend to 45 days or more. To respond to this, we are in the process of obtaining a larger working capital facility to assure greater cash management flexibility in the future. With that, I am going to turn this call back to Randy.

Thanks, Mark. We would now like to take any questions that any of you all might have.

[Operator Instructions] Our first question comes from Jeremy Sussman with Clarkson.

Congrats on posting your first quarterly profit. That's certainly an important milestone for any junior miner transitioning from a developer to a producer. So congrats on that front. I guess one thing I picked up in the prepared remarks, I think you noted that your coal quality has actually been a little bit better than expected. Maybe, can you elaborate on this a bit, sort of what type of mix can we expect towards year end as your low vol Berwind mine ramps up or kind of how should we think about that those comments?

Yeah. I think on the high vol side, Jeremy, what we've basically found is that, we really don't have a high vol B coal. I mean it is a much better product. Overall, as we've seen now, a great deal history on the mines. So, we expect going forward to have a high vol A and high vol AB product and I think that will translate into higher realizations going forward from what we experienced this year. Without having that experience upfront, it was difficult to place these goals in the marketplace and obviously we placed some of these goals assuming that we would have more or less a high vol B coal plus the other categories. Our low vol coal is actually a very good coal. We expect it to trade at a slight discount for low volatile coals, but believe that especially as we migrate to the number four seam that it is going to be a very strong coal, superior to a lot of the stuff that we see in other Pocahontas 3 seams for example at the mine. So I think that the comment related more or less, Jeremy, to the high vol coals than the low vol coals.

Maybe shifting, just maybe a little bit early to be bringing this up, but given you just posted your first profit, I know going back to sort of the beginnings of Ramaco, you had noted that sort of the medium to long term capital return strategy was to pay out dividends from free cash flow. I guess as the year progresses and earnings ramp up, ultimately, is there any change to that? I guess, how should we think about how you are thinking about kind of returning cash to shareholders down the road?

I think, Jeremy, this is Randy, I think as we've said all along, we're going to review that towards the latter part of the year, sort of see where we are in terms of cash generation and make a decision at that time. Basically, our uses for capital are either to use it in the business or return it back to our shareholders. So, that comment that we made earlier has not changed and I would say probably sometime in to the early part of the fourth quarter, we will be making a call on that.

And our next question comes from David Gagliano with BMO Capital Markets.

I just wanted to ask a couple of questions. First of all, if you could just drill down on these previously unknown mined out areas. Can you quantify the future expected production from the surface mines that will be impacted and then in terms of internally what specifically is being done to mitigate the risk of this type of unexpected discovery happening again in the future? That's my first question.

Yeah. Sure, David. I'll try to address that. What we're doing in the future of course is we're redoing our mine plans. We're going to do some additional exploration as we go forward. It's really a combination of some of these old works that we've encountered and some slightly higher ratios that weren't necessarily directly related to that. So as we move into other spectrums of seams, we expect absolute improvement because we don't expect to see some of these order works and things that surprised us this quarter. I think unfortunately for this year, you can see, we felt compelled to change guidance. We think in the near term, we're going to continue to have elevated ratios from what we had projected. I do think you'll see the production increase and at this point, we're still - just still early enough in the experience. It's really hard to pinpoint it exactly, but overall, if we were to look at how the impact could be, if you just look at the production that we've had to date, I mean, we could be down plus minus 300,000 tons from a mine that should produce twice as much. So I think over the long term though, we feel pretty confident that the surface mine will meet its expectations and reduce the cost structure. So that's why you kind of saw us on guidance talk about the near term, but in the long term, we expect that mine to be very successful.

And David, we're also studying how we may be able to add some more tons for this year probably from more deep mines and I think the other thing that I would pointed out to everybody, the surface mines are of course an important component, but they are not our high margin business and they are a distinct minority of our overall production slate. So not that that ameliorates anything, but I would like to point that out.

And it actually ties into my next question, which is stepping back for a second and clearly this is a longer term development story, 2020 and beyond, but you've also touched on a lot of different potential changes in the mine plan longer term and maybe it's a little bit early, but it is - 2020 is only a few months away. So I wanted to just rattle off the assumptions we're making for five key assets by 2020 and if you can just tell us where we should be thinking about change and what we should be thinking about changing on each of these. So for example, Elk Creek underground by 2020, we're assuming 1.3 million tons, high vol Elk Creek, 700,000; surface at Elk Creek, 600,000, Berwind of 900,000 and ram number one of 500,000. So those are kind of the assumptions. That adds up to 4 million tons, which I think is, again the sort of the bigger picture driver here. How should we be thinking about each of those, specifically where should we change those numbers and what should they be changed to at this point.

Yeah. Sure, I think based on what we're seeing, we likely will not have two surface mines at Elk Creek. I think you'll see our Elk Creep surface production be more like - 500,000 would be what I would, and that would include half high vol miner and half surface. I do think that you'll see us at Elk Creek still migrate towards about that 2.2 million to 2.4 million ton level, but I think you'll see us fill that gap with deep mines. We are excited about the tunnel mine when we see a $15, $20 premium for high vol A coals. I mean, this is absolutely our best coal on the property, it's a 105, 106 reflectance type coal. I think that you'll see us insert that in place of some of the other production that you might have seen from a surface mine. So at Elk Creek, I would say that that's kind of where we're - that's kind of where we're headed. I think what you'll see in our Berwind property is somewhere around 800,000 tons as we migrate from '19 to '20, as we hit the Pocahontas number four seam. We would have the ability there to continue some of the Pocahontas 3 production. At this point, I would say I would not put that in your projections at this point. I would keep that at about 800,000. Our RAM mine up in Pennsylvania, your numbers are correct. We remain hung up in the permit queue in Pennsylvania. We still think it's a good, we still think it's a good operation. And we still think your timing is probably correct for that to go in, assuming that we work our way through all of the permit related stuff. So hopefully that helps, I'll also say we continue to look at some of the other assets we have in our portfolio. We're absolutely focused on hitting that 4 million ton level. We think that even Elk Creek could produce more tons if we can ship some of it on an alternate railroad. So, lots of different things and progress, but hopefully that kind of helps for the things that we think are pretty certain at this point.

And Dave, this is Randy. I'll also echo that as we said when we first started, we have been pretty good about being opportunistic about looking at potential adjacent reserves and other reserve opportunities down in certainly the southern West Virginia area. We have a number of things we're looking at. I would not be shocked by the time we get out to 2020 and beyond that we potentially have some other reserve areas that we might be looking at.

So just one quick clarification on those comments, did you say Elk Creek in total, underground, high-vol and surface, did you say 2.2 to 2.4 or is that yours?

That's correct. And one of the real positive things, Dave, from the quarter, seeing that feed rate go up on the plant was a huge relief for us. I mean, we're seeing the ability now to ship more of those deep tons. So it's really clicking that prep line, we're really happy about that, so it gives me more confidence to tell you that we could put more deep production through it.

And our next question comes from Mark Levin with Seaport Global.

As Jeremy said, congrats on your first profitable quarter. Fantastic. Just a couple of questions maybe, dovetailing on what David was just asking, not so much around production, but maybe around cost and Mike, I think you alluded to some of the uncertainties going forward. I mean, do you feel less confident, more confident in that sort of mid to upper 50s type long term cash cost expectation based on the way things are evolving. How would you sort of characterize where your head is around that number?

Yeah. I think at Elk Creek, we really believed that we'll migrate back to this prior guidance, 58 to 61 or 62. We do think that the, one way or the other, I mean, we will get our costs I think back in line. I wouldn't call it mid to low 50s, but I would certainly believe that the combination of all the production could be back in and around that prior guidance, Mark. Even with the really negative quarter, I mean with surface production costs extremely elevated, we still held the costs totaled around $65 with Berwind's cost contributing of course to that number too, because we're in a much thinner scene that we'll ultimately migrate to. So, I think we'll be back there. It's hard for me to tell you exactly when Mark, just because we're continuing to really work hard and figure out what we need to change in surface mines.

And then around CapEx, I think you raised the CapEx and you alluded to why with this haulage road and the reasons around it. I know it's incredibly early, but when you look out to like 2019 and what your capital needs might be, flat with '18 seem like a reasonable assumption, would it be lower or higher or what's the way maybe to think about '19 CapEx?

I think you could actually look at '19 to be lower, I mean, our CapEx at that point will be focused on probably developing a new deep mine, at least, one new deep mine at Elk Creek and continuing to do a few things down around our Berwind properties. So, I think you'll see us return to that, more like that plus minus 20 million ton level or $20 million level, I'm sorry, than where we will be this year. I think we felt like it was important to go ahead and deploy the capital in the road to get us to the point where we can keep constant feed on our plant and we think it will have long term benefits for us from a cost perspective. So that really is the main reason for the increase, but I think you'll see us - most of our development projects are behind us.

And Mark, I think I'd also point out that going forward, our CapEx is either going to come out of cash or cash flow. So we've pretty much funded everything, moving forward into our plan.

That was certainly on my mind. I wanted to ask that as well. Just with regard to pricing for a second, you mentioned looking a lot more like an A and not like a B. When you look at sort of prices, US high vol A prices and how you're selling coal into the export market, what are you seeing? Are you getting 5%, 10% discount? Are you getting something more or less and how would you kind of characterize how the product is pricing?

I think our product is pricing very competitively. It's pretty darn close to the index. I don't want to give away too much in terms of - we're pricing on individual grades, but we're highly competitive right there at the index. There's a slight discount in each case. What I think you'll see for us again talking about this AB coal versus B is that, over time, people are really appreciating AB product and of course a lot of people don't want to pay for the As. So I really feel like it's sort of in that midpoint and that over time, we're going to do much better with that product.

Yeah. Mark and I'll also say we still have a little bit of the newbie syndrome here in the sense that being the first time out of the gate, some of the buyers over there have said, all right, we love your coal, we might take a slight haircut, but come back to us next time and we probably won't.

That makes sense. And then last question just more of a, for our purposes. The Berwind mine, what is a reasonable production number out of that mine? What do you think you can get out of it this year and then what do you think the incremental would be I guess '19 over '18?

Good question. I think you'll see us and I'm going to give you a little bit of a range on it because we're still debating about cleaning an actual production section and the number three seam, which could kick in sort of in the second half of the year. So, you should see us between 200,000 and 275,000 tons coming out of that mine this year with the 75,000 tons or so being that additional production. If we have two sections in there next year, you could see us in the 350,000 to 400,000 ton range next year. What you'll see then as we migrate to the end of 2019 and ramp up into the foreseen, you will over the course of a quarter or so see that production go to more or less 800,000 tons, just because really the four seams about twice as big really.

And our final question in the queue is from Nick Linnane with Unigestion.

But you made one comment on the surface mining that impacts the profitability list and the tons, just because there is a high thermal content of the lost previously mined tons. Is that just a reference to the fact that the surface mining was always planned to have a higher thermal content than the underground mines. Or you are saying that the tons would have been mined before specifically 10 to 3 to thermal power.

Well, I'll answer in two ways. On a surface mine, especially around the edges, a lot of that coal has become oxidized and it's lost its fluidity and we always anticipated having a portion of our production, certainly less than half, somewhere around 30% or 40% that might have been - that would have been thermal coal. So losing those tons of course don't bother us as much. What you've found in areas where we've seen previous mining that have been surprises have the same problem and those tons would get converted to thermal tons too, because of oxidation and really the inability to ship them directly and that sort of thing, but we've always felt like we would have a portion of thermal tons on the surface mine, really shooting for a high proportion of metallurgical tons from the high vol miner component of the mine. So, hopefully that answers the question.

So the high vol mine part is accessing areas that haven't been mined before. Is that?

We will create basically a pit that will have an open face into the high wall miner portion of the property and the high vol miner works a lot like a deep mine does or an auger does in that you need really a clean face and everything, you would have removed any thermal coal and basically be in a situation just like you would be in a deep mine where there's no oxidation or any of that.

Yeah. Nick, for simplicity, obviously the high vol is more of a met quality and the surface operation is more of a thermal quality.

Thank you. And I'm showing no further questions in the queue at this time. I'd like to turn the call back over to Randy Atkins for any closing remarks.

Great, well, listen, we very much appreciate everybody being on the call today. As I said, we're very excited about our first quarterly profit. It's been a long time coming and we appreciate all the excellent questions everyone has posed. So thank you very much and we'll look forward to visiting the next time. Thank you.

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