Good day, ladies and gentlemen. And welcome to the Ramaco Resources Fourth Quarter 2018 Earnings Conference Call. At this time, all participants are in listen only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time [Operator Instructions]. As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Chief Accounting Officer, Michael Windisch. Mr. Windisch, you may begin.

Thank you, Josh. On behalf of Ramaco Resources, I would like to welcome all of you to our fourth quarter earnings conference call. With me this morning is Randy Atkins, our Executive Chairman and CFO; Mike Bauersachs, our President and CEO; and Chris Blanchard, our Chief Operating 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 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 found in the company’s filings with Securities and Exchange Commission, including our annual report on Form 10-K. 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 would like to introduce Randy Atkins, our Chairman and CFO.

Thanks Mike. As always, I want to thank everyone for joining us today to discuss our fourth quarter and year-end results. I also want to share some remarks on our 2019 guidance. As an overview from where we stood today, we are very positive about Ramaco's long-term prospects for growth, our capability to generate significant free cash flow and ultimately our ability to return cash to shareholders by dividend. We also remain in an aggressive growth mode to basically double the size of our company over the next three to four years. But let's start with 2018. As we look back on Q4, the defining event was the silo failure at our Elk Creek prep plant in early November. As you know, we were able to get back to substantial throughput with by early December. We are ramping back to full capacity by Q2 of this year. Needless to say not being able to wash and sell coal for three weeks negatively impacted Q4. Revenue dropped about 30% quarter-over-quarter to $44 million and we went from an $11 million adjusted EBITDA in Q3 to only $7 million in Q4. For the full year, however, we had strong positive results both financially and operationally, certainly in comparison to 2017. Revenue rose about 270% to $228 million on about 1.75 million ton produced. We had almost $52 million positive swing in EBITDA to $42 million and net income similarly rose by over $40 million to $25 million in 2018. We spent about $48 million on CapEx in 2018. And on a normalized basis, we expect that number to drop in '19 by about 25% to somewhere in the $35 million to $40 million range. That figure is inclusive of the CapEx needed to get our Elk Creek prep plant back to full…

Thank you, Randy. Fourth quarter 2018 was very solid from an operating standpoint. Our mines continue to operate even while we were addressing the silo issue at Elk Creek. The ability to continue to run our mines has allowed us to keep our workforce intact. In fact, the productivities in our Elk Creek deep mines during January were some of the best we've experienced since inception. Included in the accompanying PowerPoint is a slide that illustrates the production build out at Elk Creek. The high productivities and temporary capacity limitations at the plant have created unprecedented raw coal inventories at Elk Creek. We continue to be challenged by the size of the stockpiles, which were 330,000 raw tons at the end of 2018, an increase over 430,000 raw tons at the end of January 2019. These inventories have costs us to occur additional handling costs and in most of the cases the units shipments during the first three months of 2019. This issue should dissipate as we enter the second quarter, but it will take most of the year to fully work through the stockpiles. Limited plant capacity has also costs us to miss multiple plant shipments to our customers. While we will continue to see some near-term impacts, we believe that we will be able to manage these challenges and meet our forward issued guidance. It is a testament to our management team that we were able to quickly address the impacts of the silo failure at Elk Creek. And three weeks after the incidence resumed processing and shipping coal in December. While we have not been processing at 100% of our nameplate capacity, we were able to meet the most pressing needs of our customers. I thought that it might be a good idea to provide some visuals…

Thank you, Mike. I would like to refocus discussion on our fourth quarter and full year results. During the three month period, we recorded net income of $3.4 million or $0.08 per share and adjusted EBITDA of approximately $7 million. Both represent decreases sequentially over third quarter but obviously a huge increase year-over-year. For the full year 2018, net income totaled $25.1 million or $0.62 per share and adjusted EBITDA was just over $42 million. Total revenues during fourth quarter were $44.2 million, down significantly from prior quarter. Our margins on company produced coal however did improve in the quarter to $20 per ton, up from $25 per ton in the preceding three months. For the full year, revenue totaled $228 million, which was a 273% increase over 2017 levels. Our cash mine costs are considerable improvement during 2019 as well, dropping from $73 per ton in the prior year to $63 per ton in 2018. Including significant capitalized development costs at our Berwind mine, CapEx totaled approximately $8.3 million during the quarter and $48.1 million for the full year. This include some incremental CapEx at Elk Creek relating to our silo failure and related workaround. During the fourth quarter, we greatly improved our working capital flexibility with the closing of a combined $40 million two year amortizing equipment loan and a three year ABL with KeyBanc. We had only $9.6 million outstanding borrowings with an additional $33.4 million of available liquidity at year end. This now concludes managements' prepared remarks. At this time, I would like to open up the line for any questions you might have on our 2018 results or our outlook for 2019.

[Operator Instructions] Our first question comes from Jeremy Sussman of Clarksons. You may proceed with your question.

Randy, I guess, starting here. You noted that as production increases, you anticipate exploring with the board the possibility of returning cash to shareholders in the form of a recurring dividend. Can you give us a bit more color on maybe what's your thinking here?

So last year of course, we did not free cash flow. We basically were slightly below. This year, we anticipate our first year of free cash flow, and that begins a trend as we project forward to have pretty meaningful cash flow as we go out between now and let's call it 2021-22. So, I think once we get to a point where we're comfortable on having a fairly steady recurring level of free cash flow, we have always said from the very beginning that we would explore dividend policy and we continue to do so.

And maybe secondly, Mike, maybe a question for you, I guess two projects that you talked about caught my eye. First, the potential to add 0.5 million tons or so of high-vol A at NOX Creek and then secondly, you noted that you're looking at ways to add about 0.5 million tons or so of throughput at the Elk Creek prep plant, which could allow you accelerate some production. So I guess, could you expand on these opportunities and maybe in particular what are you seeing that could make them attractive enough to pull the trigger on later this year.

I think since we have Chris Blanchard with us, I'm going to go get and let Chris address those. He's a little bit closer to than even I am.

Jeremy, starting at Elk Creek. We have two permitted mines that are high vol A quality, they are standard than some of the things that we're currently mining, but their quality is far superior and they're fully permitted that we could bring online. They're in our intermediate term plans anyway that we could accelerate them given extra capacity at the Elk Creek plant. But those located in pretty close proximity and to the plants, so they've got a good cost profile even though they're slightly thinner. But obviously, we need to upgrade the plant throughput a little bit. When the plant was designed and built, there is an excess capacity on certain ones that circuit, some of the fine coal circuit. So we don't have to do a full build on the plant. We have to do some of the course coal some of the conveyers have to be beefed up a little bit. So it appears to be relatively modest capital for the improvement at Elk Creek and the increased throughput. Switching to Knox Creek, we just have -- we have a permitted coal mine we've explored it, reactivated the permit and the deep mine and explored and found the conditions underground to be really quite good for a mine that has been idled for six or eight years. So the incremental CapEx to develop into the Jawbone seam at Knox Creek, which is a high-vol A product is also relatively minor compared to having, I think shafts and slopes or do major development work there. We think we could bring on 0.5 million tons there over 18, 24 months. And the labor in that area is also pretty conducive to bringing on that extra production, the labor availability that is.

Just to add a couple of things to Knox Creek thing. Having the availability to access in existing prep plant with all the infrastructure there is also a big thing that I think probably makes that Knox Creek project even more compelling, maybe even in some of the stuff at Elk Creek. And having a high-vol A coal on the Norfolk Southern as you guys know is a big plus, because there is more low-vol really there than high-vol. So we’re really excited about that opportunity.

Thank you. And our next question comes from Curt Woodworth of Credit Suisse. You may proceed with you question.

First question just on Berwind for 2020. So if you get into number Procahontas number 4 say mid-year. What’s the timing from then to ramp up to the 750? And then just from a modeling basis for 2020, how should we be thinking about cost? I assume it would be 125 at the start of the year and then trending down. But any color on that would be appreciated?

So at Berwind, obviously, we should reach mid-year development with one of our operating sections. It will start branching out and driving mains from the other section and that would be the remaining six months of 2020 will probably be, I hesitate to call it development mining, but it will be setting up to put the mine in full production over two sections. We’ll move to second section in 2021 and we’ll have two sections operating full year in '21. We should be production ramp up. But we’re really not expecting the full run rate until the latter half of '21. And so we won’t get full production until 2022 out of the Berwind mine with two sections running full year at full production in the Procahontas 4 seam.

So would you say that the cash costs in 2020 should be somewhat similar to 2019, or slightly lower than you had on the first section?

The first half of the year should be similar to 2019. As we get into the second half of the year, we should see the improved cash cost on the number one section. So for the second half of the year, I would expect us to be half way between '19 and full run rate production for the blend and then '21 and onward when you have them both in there, we should be towards our long range cost guidance.

And then, Mike on Jawbone. What is the reserve base there and what would you estimate cash cost to be?

The reserve base, I think is somewhere around 5 million tons or so, 5 million to 6 million tons recoverable. I guess when we think about the cost structures, it’s going to a little bit better than some of our Elk Creek coals, which obviously are exceptional. I think you probably got costs in the high 70s and low 80s depending on the fluctuating clean tons per foot. So, still very compelling for a high-vol A coal, of which it will until we put them out in seam at Elk Creek, it would be our best product that we have. So really excited about it, because really slightly higher costs are offset by what we believe will be substantially higher revenues.

And then just last question in the portion of your business that’s priced on an index basis. Can you talk about how that math works? So is the index based on U.S. East Coast high vol A number and then discounted back, or how should we think about incorporating that into our models?

We've got some different pieces of business. But the right way really to look at it for us is to take a look at a high vol A number on the East Coast and a B, and really strike a number in the middle of that. Most of our coals, although we sell some coal purely off the high vol A minus a certain amount and some B plus. But really when you take it and you put it all together, it's really -- it's a high vol AB coal. So just strike it right down the middle, I think it'd be pretty good for your projections.

And would that be based on like a quarterly lag or a monthly lag, in terms of how the price resets?

It's really the month that it ships for the most part. So we come back and calculate it and they're not always exactly the same, but that's really how it works.

Thank you. And our next question comes from Mark Levin of Seaport Global. You may proceed with your question.

So two questions, one more modeling and the other bigger picture, so on the modeling one. What type of rail and port rate should we assume in 2019, so the rail plus the port charge?

We've seen a little bit of escalation in our port rate. When things get pretty good, the numbers are fairly substantial. So I mean you're going to see, depending on how the pricing goes from the mid to high 30s to $40 with both those numbers. So, obviously, it moves around a lot based on the market but we've seen just a little bit of -- especially the port charges being a little bit escalation there from what we saw in '18.

And Mike just putting a finer point on that. How much do you think that would be up year-over-year in '19 versus '18?

Yes, couple of dollars for sure on the port stuff and the rail has been fairly consistent. So, I would say maybe even on the rail -- maybe its $3 or $4 up from where we were all in.

And then this is bigger picture. So, I think you mentioned or Randy, you may have mentioned getting to 4.5 million tons in that kind of '22 to 2023 timeframe, so two more specific questions around that. When you think about before the 4.5 million tons of potential production. Can you maybe put them into different buckets, whether it's Elk Creek, Berwind, Knox, just the different buckets? And then as a corollary when you think about what the overall cash cost profile might look like of the enterprise when you do get to 4.5 million tons. And I realized there's a lot that goes into that, whether its sales related costs or inflation and all things to try to make a cost call several years out. I understand the complexity of that, but just generally speaking. Where the production is going to come from and what the ultimate cost profile could look like at 4.5 million ton production rate?

I think it's a little bit of a moving as I assure you could appreciate looking several years out. But I think if you just took large buckets, at Elk we're probably going to be 2.5 to 2.75. We've got our land mine up in Pennsylvania, which is about 300,000 ton operation; Knox Creek, call it 0.5 million tons there; Berwind will just under a million tons. So that gets you in the 4 million to 4.5 million ton range. And I think in terms of our cost structure, I think probably overall, particularly with some of the new mines, we're talking we would probably in the mid-70s somewhere in that range.

Thank you. And our next question comes from Michael Dudas of Vertical Research. You may proceed with your question.

First question, maybe following up on Mark's on the outlook longer term. What type of return requirements do you guys look at relative to these capital investments? And as you look at the balance sheet and look at obviously the potential for free cash balancing the growth in investment. What the capital structure of the company should look like optimally or how do you like to see it over the next couple of years as you're meeting this balance between growth and CapEx, and returning cash to shareholders? Michael, the stock is trading at as you mentioned something times of EBITDA.

Let me start in reverse order. So, I think our mantra has always been to be a no debt or relatively low debt operation, and we don't see any reason to discontinue that outlook. All the things that we're talking about are pretty much organic projects. We are not talking about any type of large acquisitions it's really taking reserves that we've now got and then essentially just developing those, and frankly trying to develop into the fairly low cost manner. So I don't think that you would see us layering on a lot of debt into our capital structure. We've got a revolver now, which is of course is very helpful for cash management. But we don't anticipate putting on a lot of new term debt or anything of that nature to ramp up to do deals that addresses where you're coming from there. And then first part of your question again was…

So I think, we don’t approach it necessarily with a strict mathematic that we're going to try and get a 15% 20% return, although, any of our projects would frankly exceed that by accretively substantial nature. A lot of what we're trying to do is to strategically position ourselves, so that we've got pretty good blend out there of various products that we think have got high margin potential.

In the coal business with all the potential for revenues fluctuating key component of course is low cost. And we'll run the numbers absolutely at net present value type calculation that has discount rates of 20% plus just because of the risk.

I think just to echo that. I mean, again, if you go back to our original mantra. If we were trying to be both low cost and little or no debt, we figured that if we were in that position we will be able to ride out a few storms and certainly be able to be comfortable in terms of whatever market conditions otherwise somewhat volatile commodity might bring us.

And Randy just to maybe a follow up. How your major shareholders feel about how things are working and the plan et cetera and their long term visibility potentially in the investments?

Well, our largest shareholder is a private equity group called Yorktown, which of course has been with us since the inception. They are frankly very happy about where we are. Their long term expectations are to approach us as a core portfolio investment where they have essentially modeled their outlook on a couple of other deals that they have done, which frankly they've held for over 30 years, which are very nice, low debt, high cash flow producing entities where you essentially have the same strategic plan we have, which is to return shareholder cash in the good years and be able to be flexible in the bad years to perhaps even consider buying back some stock. So our long term plans are to have a very healthy cash flow producing machine and that gives us a lot of optionality.

Just one final quick one from me. Mike as you look into '19, maybe you can share some views on the acquisition market maybe on what you're looking at, your small deals you'd like to swap and enhance what you guys have around your reserve and your deposits? But also like how you see given the cost pressures and the lack of growth, et cetera. Is there going to be more competition or some more decisions in the marketplace, especially in central part of the met coal front that could maybe enhance and ramp those opportunities on a relative basis?

We're constantly looking at things next door. We like smaller deals. We like to do things that a lot of people don't. We'll buy assets that are not accretive. And we believe that we're pretty good at deploying the capital in geologically advantaged properties. And indeed there are some properties that we're looking at. We've got the potential to lease some additional reserves. They're very close to our existing properties. These are things from a risk standpoint that are very low risk wise. We've got some infrastructure projects or some infrastructure opportunities that are close to some of our properties that we think might be cost enhancement type acquisitions. But as far as larger transactions, a lot of the stuff that we see, we just hate liabilities, Mike. As you know, it’s been one of my focuses in the past. And large mergers that have large amounts of AROI abilities and those things are not things we're interested in. We overtime want to keep the balance sheet pretty clean, because we think we win all the time with that balance sheet. So as far as the larger picture, nobody has a lot of cash to do deals with, nobody's stock currency is such that you feel like there could be some stock deals. So as far as the domestic side, it's pretty tough to envision anything substantial happening from at least my view.

I will say, Mike, to go back again to a macro. If you look at what we're trying to do organically, which admittedly is a lot of singles maybe couple of doubles but certainly not trying to go for homers. There is not a lot of people out there we see that are trying to essentially double the footprint of their company in the next couple of years. So at least in that respect, I think we somewhat stand up in the crowd…

And do it from free cash flow, which is the right way to do it.

I think keeping that balance sheet clean is a very good priority. Thank you, gentlemen.

Thank you. And our next question comes from Lucas Pipes of B. Riley FBR. You may proceed with your question.

Hey good morning everyone, and thanks for squeezing in my question. I wanted to ask if you could remind us of the capital intensity of the various growth projects. What would be required this year, next year that you have after that, and then any updated thoughts on maintenance capital as well? Thank you.

I'm going to go in and refer to Chris. I can say that we're continuing to evaluate a couple of these things. So there is -- some of this is the moving target. But for the most part, a lot of the mining type stuff is more or less equipment and/or driving slopes and accessing existing infrastructure, for example at Knox Creek. But with that being said, I'll turn this over to Chris and give you an idea. And then he can also talk about maintenance CapEx overall for the company and what our baseline numbers are?

So for the growth CapEx that we're considering, it might be little bit premature to throw a number out to you guys on those. But as far as what we're projecting in our ongoing plan and our public numbers, we've got about $10 million of capital that we're going to deploy at our Elk Creek plant, which is both related to our third clean coal tube and handling facility that has to do with completing the silo repairs and the work around and some other small projects around plant. So, that's about between the third and the quarters of the total spend for Ramaco for '19 will be the Elk Creek plant. And then on an ongoing basis, our mine dollar still relatively new, most of our underground mines are continuing to develop. So we're advancing both, advancing structure, buying belt drive that type of maintenance CapEx. And as we get a little bit more mature, we'll have continuous miner rebuild and that thing come in. And if you want to use a rough number, somewhere in the 6 to 6.50 per clean ton of production number for maintenance CapEx ongoing at our underground operations unless at our surface and our plant. And then just rough numbers really, really broad brush. Some of these expansion projects that we're talking about we're in the range of $5 million to $10 million incremental a piece, so over several years. So that keeps me from handling myself in too tightly but gives you a little bit of a flavor for the five projects we're working out.

And Randy, Mike, maybe a higher level industry question. What would you expect U.S. met coal production as a whole in the aggregate to shake out in 2019 versus 2018?

I think from a production standpoint, overall I think we had about 750 million tons produced last year just in both thermal and met markets. I see that we'll still be trying to produce as strongly as we can next year or rather this year, given the state of the markets. So I would see a slight incremental jump, I think the governor on all that production is frankly capacity. I think most of the mines that we survey seem to be running at fairly full out and I think couple of the development projects, particularly the larger ones like Arch's and the Warrior's -- probably not going to hit here for maybe a couple of years. So I think this year, I would say, a modest incremental bump.

[Operator Instructions] Our next question comes from Nathan Martin of Seaport Global. You may proceed with your question.

Just a quick modeling related question. I mean in the past, you guys have given guidance on purchase coal. I guess you did about 427,000 tons in 2018. Any thoughts on purchase coal in 2019? Obviously, you do have the unprecedented stockpiles there. So if any other color you could give us there would be great?

We really turned our Knox Creek plant to focus on our internal production. Although, we are purchasing some coal but this year, I envision that number going down to somewhere around 100,000 from one mine that we’re focused on. I will say that as we get past this year and we begin focusing on some other international markets from a future standpoint, I think that number could grow. But from a modeling standpoint this year, I would show about 100,000 tons.

And that by the way is probably going to be low volume.

Thank you. And I am not showing any further questions at this time. I would now like to turn the call back over to Randy Atkins for any further remarks.

Once again, we just appreciate everybody being on the line this morning and look forward to catching up with you very shortly as we talk about our Q1 results in May. Thank you very much.

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