Good morning, ladies and gentlemen and welcome to Ramaco Resources Inc Third Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session and instruction will follow at that time. [Operator Instructions] As a reminder, this conference call may be recorded. I would now like to turn the conference over to your host today, Mr. Jeremy Sussman, Chief Financial Officer. Sir, the floor is yours.

Thank you. On behalf of Ramaco Resources, I'd like to welcome all of you to our third quarter 2020 earnings conference call. With me this morning is Randy Atkins, our Executive Chairman; and Mike Bauersachs, our President and CEO. 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. These forward-looking statements represent Ramaco's expectations concerning future events. These statements are subject to risks, uncertainties and other factors many of them 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. Lastly, I'd encourage everyone on the call to go on to our website, ramacoresources.com and download today's investor presentation under the events calendar. With that said, let me introduce our Executive Chairman, Randy Atkins.

Thank you, Jeremy. I suspect, like many of us, we had a long night last night, and it's probably going to be a long few days. But as always, I'd like to thank everyone for joining us today to talk about our third quarter results. Like many of our peers, we've come through this quarter, which has been marked by continued market softness and wide uncertainty as we approach '21. As you saw in our release, this quarter was clearly not exemplary from a financial perspective, but it has positioned us to end 2020 and perhaps the strongest financial condition we've been in from a liquidity standpoint, and with some very hopeful markers on sales and marketing for the years ahead. I'm going to let Jeremy drill down on our financial individual metrics for Q3, but it's almost as if we had a tail of two quarters in three months. July and August continued to show the effects of market weakness that's plagued the industry since COVID-19 hit at the end of the first quarter. September, however, turned out to be a particularly strong sales month for the month, the quarter and it has carried that forward. This has created some very positive momentum for us. First, we're going to have two record export quarters for sales; second, we now have new acceptance of our calls into some export markets that we have not tapped before; and third, this has enabled us to end the year with what we believe will be the strongest liquidity position we have had at any year-end. Let me focus on that last point for a second. Since COVID-19 hit in the first quarter, we have been focused all year on maintaining and building liquidity as a firewall against the overall market and operating confusion,…

Thank you, Randy. In terms of third quarter 2020 financial highlights, I'm going to try and break it into two areas. First, overall metrics; second, liquidity on our balance sheet. To begin with, I believe the metrics do not tell the real story of the third quarter from our perspective. Overall, third quarter 2020 EPS revenue and adjusted EBITDA were all down from a year ago. We will have company here, as I suspect every public coal company will be reporting substantially lower earnings this quarter. This is, of course, due to the fact that benchmark pricing fell by almost 30% year-over-year between Q3 2019 and Q3 2020 on the back of COVID-19 demand-related concerns. Losing roughly 90,000 tons have already contracted $91 per ton priced annual business in the third quarter to force majeures hurt us in all three phases: volume, costs and, of course, pricing. In total, Q3 adjusted EBITDA of $0.6 million was negatively affected by $2.6 million from higher-priced contracted business getting resold into the spot market. While we were successful in reselling this coal, it was, of course, done at spot prices, which were hitting a multiyear low during the quarter. However, as Randy touched on, we are able to place almost 800,000 tons of new 2020 and 2021 sales into the international market in the last 60 days or so, which gives us some excellent momentum heading into the end of the year. On the cost front, in July and August, we were negatively affected by having extremely high inventories. We effectively produced for just half of the month in July, given the combination of the July 4 holiday week as well as an extra week furlough to manage stockpiles. Based on stronger sales, our costs return to more normalized level in the low…

Thank you, Jeremy. The third quarter of 2020 was substantially impacted by the worldwide pandemic. COVID-19 continues to impact our operations. To date, we had nine of our employees diagnosed with the virus. Fortunately, none of these employees had serious cases and all are back at work. Ramaco continues to keep hand sanitizing, social distancing and personal protective equipment policies in place. We continue to adopt best practices as well as comply with any change in guidelines from the CDC and our state and local health departments, maintaining a healthy and safe work environment is our top priority. To add a bit of granular comments to Randy's market commentary, over the course of the third quarter, our North American customers displaced approximately 200,000 tons out of 2020. And these lost tons due to their above market prices will obviously weigh on our financial results for the remainder of the year. While we could allow the realities of losing these tons to dominate the script for Q3, that is fortunately not the case. The third quarter became the quarter when we transitioned to a more balanced company from a sales perspective due to restocking by customers, combined with intense marketing efforts that were already underway, we've been able to place over 400,000 tons of seaborne volumes into the Atlantic basin in the back half of 2020. While the pricing for much of the new international volume during the second half is less than desirable, it is influenced by a couple of large shipments of semi-soft high volatile coal, a new product offered from our Elk Creek complex. This allows us to better utilize a portion of our production mix at Elk Creek, which do not meet typical metallurgical specifications. Selling these tons as a semi-soft metallurgical coal, while price lower than…

Great. Thanks, Mike, for the round up. So moderator, we will turn it back to you to address any questions that the audience might have.

[Operator Instructions] Our first question comes from the line of Mark Levin from the Benchmark Company. Your line is open.

A couple of quick questions. Just kind of thinking about Q4, it sounds like Q4, you're going to -- you're going to have a banner shipment quarter. Should that imply that cost would be lower sequentially? And then also, I think you referenced a full year price, and I just want to make sure I got that right, so that we could back into the fourth quarter price. So maybe just any, any color you're willing to give? You've obviously provided production thoughts, and it sounded like price. So maybe just kind of fourth quarter -- 3Q to 4Q bridge?

So Mark, this is Randy, and thanks for your question. Let me break that down in sort of two parts. So in terms of costs, we had, as I said, kind of a pretty junky July and August, which is us to say, cost or higher, production was lower. And as we've been able to ramp production, which we continue to feel will be much stronger in Q4, then obviously, our costs have come down. And as far as pricing, Jeremy, you want to talk about it.

So Randy mentioned in his prepared remarks, we kind of project to end the year at close to $86 a ton. Mark, the way I think about to that is we've given you our 2020 committed sales volumes as we, I think, clearly note, that includes everything, which may -- which including what's been force majeure. So when you kind of take into account the moving parts, including what's been force majeure, what's been resold in index and where the index is today, I think that's kind of how we're getting to that number.

And I'm going to ask the requisite 2021 question, although I know you guys have not provided guidance. But just if we were to assume that met prices remained under pressure, and hopefully, that will not be the case, hopefully, they will rebound in the first quarter. But just for the sake of argument, if net prices stayed depressed or around where they are right now, any idea of how you think CapEx would look next year? And then, I guess, as a corollary, if the market recovered, let's say, in the kind of the 145 , 150 in range, what might CapEx look like under that scenario?

Well, I think to answer -- this is Randy, again, to answer your last question first. So we've got, as both Mike and I alluded to, we've got this small mine Triad, which we'll start spending on this quarter, which will bleed over a little bit into the first quarter of next year. In terms of CapEx, we're kind of at maintenance levels other than that. And other than the larger spend for us, of course, is the continuation of the Berwind slope when we decide to push the button on that, which is about another $10-plus million spend to get us to production in the Q4. And we're not going to push that button until we, frankly, some decent stabilization in the low-vol markets. There's a lot of moving pieces, as you're probably as aware as anybody in the industry as to how low-vol metrics are moving around the table right now. So it's a little bit unsettled. But we're breaking into some low-vol markets overseas that we've never encountered before. And so we're kind of hopeful on '21 in terms of low-vol stabilization, not only domestically, which we probably won't have to consider too much until probably next summer, early fall. But in the interim, we're looking forward to sort of seeing how our low-vols begin to play out into the export markets. If that kind of addresses your two points.

Yes, that's perfect, Randy. And I think the other thing just last sort of like sort of in the wise question, I guess, SG&A was up, and I was reading the queue and it mentioned that just growing the internal sales team was a part of it. Is that -- the quarterly run rate for SG&A that we saw this quarter, is that the one that you would just kind of annualize or think about as a new run rate going forward?

I'll let Jeremy take that.

Yes. So Mark, I think in terms of Q4, that's probably reasonable. With that said, there is some overlap. So I would -- I think it's reasonable for Q4. While I don't want to get too of these for next year. I would not annualize it for next year. There will be some things that roll off.

Your next question comes from the line of Curt Woodworth from Crédit Suisse. Your line is open.

Randy, with respect to your comments that you could be in a position to return some capital to shareholders next year. Just curious, if you could expand on that? What would you need to see? I mean, clearly, given the liquidity position and if you're going to run a maintenance CapEx, you should be fairly free cash-generative so if you could just kind of outline your thoughts and potential timing on that?

Sure. So we've said in the past, Curt, as you know, we hope to grow up, so to speak, and be up probably four or five years out from our IPO and be in a posture that we were throwing off some free cash because we've got a very low debt structure, of course, and we have low-cost structure. And sort of those hallmarks, I think, are beginning to bear fruit as we mature our portfolio and start to get into slightly higher numbers of production. So without trying to get over my skis in terms of what our forward projections for '21 are, the market, of course, as it always does, can move around quite a bit on us. But we have some scenarios where we would end the year next year with some pretty decent free cash flow. And in terms of looking to what we would do with that, I think we always look at sometime around in the third quarter to sort of look as to what we want to do for the balance of the year. I would expect sometime in sort of the September, October period of next year, we would consider what it is we might want to do, depending upon how we look financially. But the nice thing is to have free cash and with a little bit of luck, knock on wood, we'll be in a very good position next year to at least be able to make that decision one way or the other.

That's great to hear. And then on Triad, is the expectation that you could run close to the 250,000 ton rate all of next year? Or is it more back-end loaded because you're going to have a ramp-up in 1Q?

Sure. I'll let Mike take that.

Yes, sure. It's -- we're going to have a couple of options. I mean, a lot of it comes down to what kind of ships we run and those sort of things. Our objective would be to run it all. Obviously, that would help cost structures and everything else. And it's critical that we get that coal out in the market and do test shipments and stuff in advance of the Berwind slope. So the objective would be to run it all. The good thing is with the conditions that we have to have a reasonable cost structure, we don't have to. So it's one of the reasons why it made sense to pull the trigger. We could run a little over half of those tons over the last three quarters, if we choose to. So lots of flexibility there.

Yes. And Curt, just to put sort of an underline on what Mike just said. When we looked at placing low-vol for the '21 domestic market, we kind of pulled back and said, look, we don't really think the price structure that we're looking at here in September, early October of this year is going to be reflective of what full '21 is going to look like. So we deliberately took the decision to scale back what we were potentially capable of putting into the domestic market because we want to save some of that. No sense in selling your coal for a cheaper price than what you think, hopefully, the market will look like somewhere in the next curve of the next four to six months, months.

Yes, agreed. Makes sense. And then, I guess, with respect to the export, market. You commented that you have roughly, I think, 1 million tons available for export. And then you also commented that in the last 60 days, you sold 800,000 tons, which is sort of a mix. Can you comment at all on what your export book looks like today for '21 in terms of volume and price?

Sure. I'll let Jeremy take that one.

Yes. So Curt, I think when we talk about the 800,000 tons, just to clarify our remarks, that includes back half of 2020, of course, in the spot market and then some fixed price business for 2021. So I think we've given kind of an overall pricing for 2021 of $84 a ton, I don't think we want to necessarily at this point get into a breakdown of the various regions. But needless to say, right now, it's a very, very good sign, at least when I look at where we were a year ago versus where we are today, we're certainly, as Randy noted, breaking into new markets that we hadn't broken into before.

Yes. And I think, Curt, the most encouraging thing for me, we as I said in my remarks, we've traditionally been a domestic house. We placed practically 80% to 90% of our tons in various years in the domestic markets. And as a result, we really haven't had much about an export book. Well, literally, within the last few months, we have gotten trial shipments into some markets and some customers that we, frankly, did not have before. And as a result, we're kind of hopeful that some of those foreign export steel groups are now saying, well, we want to look at Ramaco coal on par with some of the more established domestic producers, which we think is a very good thing, at least as far as our future export book looks like.

And in terms of the export penetration, is it -- are you trying to market this as more of a pure high-vol to displace the low-vol? Or is it I know that can kind of go both ways, it's AB blend. But it seems like to some degree, there is a growing or increasing appetite or shifting of coal blends more globally to have acceptance of high-vol, higher-vol AB type . I think traditionally, it's mainly just Europe that typically bought that, is that somewhat fair?

Yes. I think that's a fair point. I mean, our coal itself up as being pretty very close, of course, to a pure AB blend. And some of our export customers look at it as an A, some of it look at as a blend, some of it look it as a B. I mean, it's kind of depends on which country you're trying to market to and what their particular blend specifications are. So we've got a coal that I think works well in a number of different markets, which suits us well. Obviously, we're not a huge low-vol producer at this point. But we certainly -- as we go forward, if we are really more when we put in Berwind at some point, we'll have a pretty decent balance in terms of our overall quality book. So that's going to open up, again, some other opportunities for us.

Our next question comes from the line of Lucas Pipes from B. Riley. Your line is open.

I know it's early, but I have another question on 2021 and wanted to hone in a little bit on the cost side. Just based on your response to the prior questions on Triad. We kind of assume for an average cost, the kind of mid-70s on Triad and then kind of mid-60s on your remaining productions on Elk Creek to come up with a reasonable kind of weighted average, but would you say that there are a couple of other considerations here you should?

I'll let Jeremy, start on that.

Yes. I mean I think Lucas with Triad, we've kind of given the numbers since it's a new mine. And obviously, you guys need to be able to model it. And with Elk Creek, I think the answer is it depends. I think costs should trend in the direction that you are suggesting. Clearly, you'll -- the biggest variable is being able to run the mines more efficiently. I mean, this year, you saw what the cost could look like in Q1 in the low-60s when we were able to run the mines well, and that's presumably at a higher realist price, which means higher royalties than at least what we've got locked in already. So at the same time, it's the coal business. This year, COVID came and kind of knocked everyone in the industry back a bit where you can't run as efficiently. And so you lose kind of the economies of scale. And so I think bottom line is we're going through a pretty detailed planning session over the next, call it, one to two months. And I think we'll come out with some more official guidance probably next time we speak. But directionally, I think you're thinking about it correctly, at least year-over-year.

And then taking a step back again on the exports versus staying domestic question. So on -- can you just elaborate on kind of how we should think about that? Is it that you didn't like the pricing in the domestic market, just kind of given where we were here over the summer negotiating during a pandemic? Or is it that, that market is just maybe shrinking due to changes in the industry on the steel side? Can you elaborate a little bit more kind of what's pushing more of your sales focus?

Yes. I'll make a comment, and then I'll let Mike also chime in here. So all -- it's a little bit about timing. As you well know better than anybody, Lucas. So as we got into the traditional domestic sales season, which is kind of August, September, we were coming off of July and August of exceedingly low demand from the domestic markets based on COVID and this complete uncertainty as to where we, frankly, still were as a country. So in terms of -- if you had to pick a perfect storm, we hit it in terms of being at a point where the steel companies domestically could take the posture , prices are low, we're not going to give you too much benefit. And indeed, many of them did that. And of course, as I mentioned, some of them canceled contracts that were at higher prices and a few other things, which did not please us. And so I think we stepped back from the table and said, look, we've got some pretty good coals. I think at that point in certainly September when we were finalizing contracts, the market had begun to breathe a little life into itself. And we sat back and said, do we really want to bite the bullet and take really low prices to move volumes at this level right now? Or do we want to step back a little bit? Because, again, the good news for Ramaco is, we don't have the same pressures that some of our peers do. We don't have a lot of interest cover, we've got to make. We've got very low-cost structures when we're running hard. So we just said, all right, '21 looks like it's going to be a better time for us. Let's see what the options are there, and we decided to place our book accordingly. Mike, do you want to kind of add a few comments to that?

Yes, I'll jump in a little bit. I do think that the comment about the markets shrinking is certainly true, we believe it will be true, just especially with some of the consolidation and things we're seeing so it's another thing that we kept in mind as we continue to push our products overseas, we've had at least one domestic customer that we've had firm business with that two years in a row, we've had pushback on those volumes. So a lot of the things pointed to having a bigger piece of the pie overseas. And indeed, as all of these domestic discussions were going on, we were getting momentum. And I think the momentum that continued to build helped us make the decision to pull back a bit. And certainly, as we've seen, and you'll see in the fourth quarter as we ship, it's a big change for us. And frankly, having more diversity, I think, is good. So hopefully, that momentum continues into next year. And if you just look at the numbers, maybe we could be 60/40 in favor of domestic or closer to 50%. We'll just kind of see how it goes.

Your next question comes from the line of David Gagliano from BMO Capital Markets. Your line is open.

I think a lot of them have been covered. I just have some assumption questions for clarification purposes. 2021, the commentary for volumes was, obviously, $1.1 million committed and priced in North America. And then I think in the press release, you said around 1 million tons open for the export market or left for the export market. So is that a reasonable assumption for 2021 total volumes now, is it about 2.1 million tons? Or should we be thinking about something else?

That's a fair number, David.

Okay. And then just on the Triad, mine. I may have missed this. Is it expected to basically be like kind of a quick hitter here where we get 250,000 tons of production in 2021, is that the number?

Well, I think the beauty of the Triad is it's a low-cost operation for us. We can somewhat have it modulated in terms of production to produce at all in '21, if we think the markets justify. We want to kind of slow walk it. We can do that. I mean, it's not a lot of production, but at the same time, we can make a very nice margin on it, given its cost structure and it's CapEx. So we'll just wait to see how ‘21 begins to play itself out. We saw a spike. We can dial it up. If we see markets contract, we can dial it down.

And then just the last one. For the fourth quarter, I just -- can you just help me understand? So the slides, obviously, it says your sales book is 2 million tons committed. $1.8 million tons price, an average price of $88, the over 500,000 tons in the fourth quarter implies about 1.7 million tons. So I guess it goes into the, obviously, the deferrals piece of this. Is it right to assume that we've got roughly 200,000 tons that are kind of being pushed away or that are not going to come through in terms of this that's committed and priced of 1.8 million tons at a fixed price of $88, is that reasonably about 200,000 that goes the way?

Yes. We've said it, and I think our earlier public statements, David, that we had a round number of about 200,000 tons, as you correctly point out, that we're force majeure, principally to two customers. And those were, frankly, nicely priced tons in the low mid-90s, and they decided to just cancel them and walk away based on their perceptions of their operating situation of COVID. And so that was 200,000 tons. We then had to replace out into the markets, needless to say, at much lower prices.

Okay. And I'm sorry, was that domestic or export? I missed that piece.

That was domestic, that was domestic.

Speakers, I'm showing no further questions at this time. I would like to turn the conference back to Mr. Randall Atkins.

Okay. Thank you so much. Well, again, as always, we deeply appreciate you all being on the call today and your attention to us, and we will look forward to having our next call. I guess it will be next year. And I have a feeling the rest of this year is going to be a pretty interesting one. So best of luck to all. Thank you.

Thank you, speakers. Ladies and gentlemen, this concludes today’s conference call. Thank you all for joining. You may now disconnect.