Good morning ladies and gentlemen and welcome to the Ramaco Resources second quarter 2019 earnings conference call. At this time, all participants are in a listen-only mode. Following the speakers’ remarks, we will conduct a question and answer session. If you would like to ask a question at that time, please press star then the number one on your telephone keypad. If you would like to withdraw your question, please press the pound key. If anyone should require operator assistance, please press star then zero on your touchtone telephone. As a reminder, this call may be recorded. I would now like to introduce your host for today’s conference, Jeremy Sussman, Chief Financial Officer. Mr. Sussman, you may begin.

Thank you Operator. On behalf of Ramaco Resources, I’d like to welcome you all to our second quarter 2019 earnings conference call. With me this morning is Randy Atkins, our Executive Chairman; Mike Bauersachs, our President and CEO, and Chris Blanchard, our Chief Operating Officer. Before we start, I’d like to share our normal cautionary 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 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. 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 the Securities and Exchange Commission included in our annual report on Form 10-K. These risk factors and other factors noted in the company’s SEC filings could cause actual results to differ materially from those contained in any forward-looking statements. Lastly, I’d encourage everyone on this call to go to our website, ramacoresources.com and download today’s investor presentation under the Events calendar. Now with that said, let me introduce our Executive Chairman, Randy Atkins.

Thank you Jeremy. As always, I want to thank everyone for joining us today to discuss our second quarter results. There is an old Chinese curse which goes, yours shall be a life lived in interesting times. I think the events of the last few weeks in both the financial and coal markets certainly bear this out, but despite the turbulence we are happy to discuss today that we have printed our most financially successful quarter since we got started. After my comments, Mike and then Chris will make some remarks on both recent operations and the sales and marketing landscape. Jeremy will then provide more detailed comments on our financial results as well as his macro perspectives on the market. For those who have gotten used to tolerating my one-liners, last week I remarked at an investor conference that you really don’t know who’s wearing a bathing suit until the tide goes out. This summer, we have seen a riptide with some unusual and severe stress in certainly the coal space. It feels like not a week goes by that we don’t see another coal company either filing for bankruptcy, auctioning assets, reorganizing, or announcing a senior resignation or management change. The thermal coal market has pretty much dropped off the shelf. Even met coal benchmark prices, which have held pretty steady at reasonably strong levels over the past year, have now dropped by over 30%. If you’re in the coal business, these are the times that try you. But as turbulent as the market looks right now, I want to point out that Ramaco was born as a contrarian investment play in the depths of the last coal rout earlier this decade. We took some care at the outset to design this company to be very conservative in…

Thank you Randy. Our overall results were very good and are indicative of a clean quarter from an operations standpoint. Mining and shipping occurred without any noteworthy incidents. Our infrastructure modifications undertaken due the silo collapse have been completed. The two remaining silos have been modified and became fully operational in August. Their use has decreased our preparation plant downtime and should enable us to work through the last remaining impact from the silo collapse, high raw coal inventories. We also have a permanent silo bypass in place. This provides redundancy but also allows us to feed coal to the plant that might have a tendency not to flow well through the silos. We anticipate consistent performance form our Elk Creek mines for the remainder of 2019. Each mine is currently operating in good mining conditions. In the case of the Alma mine, we have taken delivery of mobile route supports and will be conducting secondary mining for the remainder of the year. The biggest impact on production in the third and fourth quarters will likely relate to the multiple vacation days on which the mines will be idle. Development mining at our Berwind mine is continuing without any adverse geologic conditions. The second section is now fully functional and production is increasing. It is mining mostly in-seam versus cutting additional height in our development section. Our view of Appalachian production is that depletion and lack of capital will create production voids going forward, thus we continue to look for smart capital deployment. As Randy mentioned, our current shortlist includes potentially adding processing capacity at the Elk Creek preparation plant and ultimately developing a mine in the highball A Jawbone seam at our Knox Creek complex. Both of these projects have compelling rates of return. In all cases, as Randy…

Thank you Mike. As Mike and Randy have both mentioned, second quarter operations were largely in line with our previous expectations and guidance. We are also pleased with the continued strong performance from operations in both employee safety and environmental and regulatory compliance. Having one of the strongest workforces, nearly 400 miners now in southern West Virginia and southwest Virginia certainly helps. I would like to point out of operational highlights from the quarter and looking ahead for the second half of 2019. Turning first to our Elk Creek complex, at our Eagle mine we completed mining in a challenging geologic area during May and the first half of June. We had anticipated these conditions in advance but as a result of actually mining through them, overall productivity for this mine was reduced by 10% as measured by feet per shift for the second quarter compared to the first quarter. This resulted in production of over 20,000 clean tons less quarter-over-quarter. These conditions and the lower production also led to a higher cost of just over $7 per clean ton produced from this mine for the quarter. Mining was completed in this area at Eagle and productivities have returned to first quarter levels by the end of June. This has also continued into the third quarter. Through the acquisition of an adjacent lease, we have extended our projected full seam mining area for an additional 12 months. We expect mine rates and mining costs at our Eagle mine to return to the first quarter levels for the balance of 2019. As Mike mentioned, at our Alma mine we have completed advanced mining on one of our sections and have begun the Retreat mine. We have approximately 14,000 feet of panels to be retreated and we expect that given the mining…

Thank you Chris. In terms of second quarter financial highlights, Randy hit a number of the key points, but I want to dig into the details a bit more. Second quarter 2019 EBITDA of $19.1 million was the best in company history, 28% above the previous high of $14.9 million in the second quarter of 2018. Second quarter 2019 revenue of $65.8 million was also a quarterly record and compared favorably to revenue of $65.3 million in the same period one year ago. Record revenue came in the back of the best quarter of realized pricing in the company’s history, specifically price per ton of company produced coal of $115 in Q2 which compared to $91 in Q2 of 2018. Q2 2019 net income was $10.6 million, which compared to $10.2 million in Q2 of 2018. Second quarter 2019 earnings per share of $0.26 was another quarterly record when compared to earnings per share of $0.25 one year ago. I’d point out that while the company’s effective tax rate was 17% in both the first quarter and second quarter of 2019, actual cash taxes payable for all of 2019 are expected to be less than $200,000. Moving to capital expenditures, second quarter 2019 capex was $11.5 million, which compared favorably to second quarter 2018 capex of $14.7 million. We are on track for 2019 overall capex spend in the $35 million to $40 million range, likely coming in towards the upper end which includes capitalized losses for the remainder of the year at our Berwind and Knox complex. As noted in our earnings release, we are reiterating all key production, sales and cost guidance for 2019. Specifically, we expect company production of 1.8 million to 2.2 million tons this year with roughly 1.6 million to 1.9 million of that coming…

[Operator instructions] Our first question comes from the line of Mark Levin with Seaport Global. Your line is now open.

Great, thanks, and congratulations on a terrific quarter, the best in company history, so congratulations to all of you. My question relates more around contracting strategy in 2020. Obviously not looking for guidance, and I realize you guys are right in the middle of negotiations, but clearly most of the tons, the overwhelming majority of your tons were placed into the domestic market in 2019. Maybe you can frame for us what you--how you’re approaching 2020. A year ago, HRC prices were in a bit of a different spot and I think met coal prices were as well. Should we expect the mix of export versus domestic to change materially in ’20 versus ’19?

Mark, I’ll go ahead and address that. It really is too early to tell exactly what our mix will be. The good thing is we’re working from just a huge solid domestic position. We had the ability to back down and of course our future growth prospects really are focused on the international markets, so we’re going to be prepared to ship depending on what happens with our pricing negotiations. I suspect that you will probably not see us dip below 60% domestic, but we’re prepared to at least go to that point. The good thing is when we look at the competition, when we look at their costs and we look at our costs and we look at a little bit of weakness, we know that some of the highest quality coals are in some of the coal mines that aren’t necessarily in the best of shape, so we still believe that we’ll have a very solid domestic contracted season. I’d much rather be in our position than most of our other competitors because we’re protecting our position. So we look to try to protect all of it, to be honest with you, and our growth ultimately go to the export market.

That’s great, really good color. Appreciate it. Then with regard to the growth projects that you talked about in the past, it sounds like with regard to the prep plant capacity addition, that that is likely to happen. It sounds like the board meeting is in September. How much of that additional 500,000 tons would hit in 2020? It sounds like there’s a 10 to 12-month duration for the project. Should we expect any incremental tons from that project in 2020, or is that more or less a 2021 event?

Yes, to sort of address the overall growth projects that we’re talking about right now, Mark, I think on the prep plant, I think that’s a project that we view with a high level of confidence. That will provide an uplift in any market. I think as far as your specific question relating to tons, we would expect if we got started this year, we would probably bump about another 100, 150 of incremental tons into ’20 from where we would be if we didn’t o the upgrade. As I said, as far as the Jawbone mine, I think right now per your question to Mike about the market overall, if this year is somewhat similar to last year, I suspect sometime, certainly by the middle part of this quarter, maybe even probably by the time late September, we ought to have pretty good visibility on what the domestic market situation looks like. I think as far as putting in a new mine like Jawbone, which is a multi-year project, I think as we sit here in late August, or mid August, we’re going to take a fairly pragmatic view. We’re certainly going to grow tons but we’re not going to grow tons at the expense of being rather conservative about our approach.

That all makes sense. My last question just has to do with capex in ’20 and going forward. I think Jeremy did a great job mentioning how you guys could drive this down to maintenance capex levels in a more stress test scenario, which is very good to hear. But when you’re thinking about 2020, if we just kind of assume the curve stays where it is or in this general range, is there a way to think about how capex in ’20 would look relative to 2019, assuming you go forward with the Knox Creek prep plant expansion?

Well the prep plant, just to be clear, Mark, is at Elk Creek.

I’m sorry - Elk Creek. My apologies, yes - Elk Creek.

Jeremy, do you want to [indiscernible] touch on that?

Yes, so I think we gave you the maintenance capex levels, sort of $6 to $7 per ton, and as Randy noted in his prepared remarks, you’d be looking at about 2.3 million tons next year if we don’t go ahead with anything and we just got the numbers of what the plant would allow us to add. Look, I think above and beyond that, we want to get through this board meeting, get through budgeting and whatnot, but I think those are good numbers to start with and then once we’ve got more firm plans that we’re ready to announce on growth, we’ll go through those levels with you guys.

All right, great. Thanks very much.

Thank you. Our next question comes from the line of Scott Schier with Clarksons. Your line is now open.

Good morning everyone. Congratulations on a record quarter. You mentioned that there are some assets that may become attractive at a certain price point. Can you just walk us through your thinking around your capital allocation priorities going forward? What’s your preference between existing development opportunities, asset acquisitions, and returns to shareholders?

I’ll let Mike go on some of the specifics. Obviously all of our projects, we anticipate being something that would be very accretive to shareholders, so we’re not going to pull the trigger on anything that doesn’t look like it meets a fairly high level of return. As far as the distinction between organic projects which are ones that we control versus third party projects that we would acquire, I think our bias has always been towards organic projects that are essentially either within our areas of control of our existing mining complexes or certainly very simple add-on or bolt-on opportunities surrounding those complexes. With that said, Mike, maybe you want to add a little bit more color?

Yes, I think our priorities continue to be probably cost savings type things that could be in the form of acquisitions that could enable us to run the mines that we put in better. We continue to have a huge bias on putting our own coal mines in. You could hear throughout my comments, we just think we do a really good job putting coal mines in and doing it the right way. What’s been proven to be true is some of the better reserves that are available are greenfield or projects that haven’t been active, that are in spots sort of in between where existing infrastructure is at. In the end, geology wins, so we’re going to bet on geology and we’ll figure out all the infrastructure stuff later, because ultimately--you know, those are the tough projects but those are the long lived projects that have advantages. So I guess you could call us a bit of a contrarian with how other people have behaved, because they have a tendency to buy existing production. We just go the other direction. I think the strategy has proven out pretty well at this point.

And I’ll also say, Scott, as we move forward and get a more mature book with a little bit larger production, we will be in a position to dedicate obviously our free cash flow toward these type of activities as opposed to trying to use it--or use our cash flow, rather, to pay debt or legacy liabilities, so that gives us a certain leg up.

I will also add, and I know Randy usually notes this, that we continue to keep dividends on the table. We look at them. We at this point have a great deal of really quick return type capital investments in front of us, even at a slightly declining market. That being said, we’re again substantial owners of the shares and we’re not against dividends either.

Okay, great. That’s very helpful. Thank you for that. Switching gears a little bit to more of a market question, can you talk a little bit more about what you’re seeing in the domestic market? Do you expect U.S. pricing to continue to follow the decline in Aussie seaborne, or is it really diverging into two different markets?

I’ll make the first comment, Scott, before Mike gets into it, which is we’re not going to touch anything relating to pricing in the domestic negotiation. In terms of trying to give guidance as to whether we think it’s up, down or sideways, we’re certainly not going to make a comment on that in this discussion.

Yes, it’s really a bad time to talk about it because there’s just stuff ongoing, really even as we’re standing here. With that being said, we are very close to the marketplace in which we operate and we see even recent earnings releases with high cash costs, etc. One would think that a lot of people would not have much ability to alter hat they’re willing to sell coal for based on a lot of what we’re seeing, and we’ve actually physically been in coal mines and, frankly, we wouldn’t operate hardly any of them. We’d shut them down and fix them, which would be a tough thing to do.

So Scott, I thought it was going to be Lucas that was going to ask the question like he did last year, about what are our price and who our customers for this coming year, but you jumped the shark.

Yes, I thought we had to switch it up a little bit this year.

That’s good, that’s good.

All right, thank you very much, guys. Good luck going forward.

Thank you. Ladies and gentlemen, as a reminder, if you would like to ask a question, please press star then one on your touchtone telephone. Our next question comes from the line of Lucas Pipes with B. Riley FBR. Your line is now open.

Hi, good morning everyone. This is Matt Key asking a question for Lucas today. Just a quick one for me today since most of my questions have already been asked. Elk Creek costs per ton came in at the high end of its 2019 guidance range in 2Q. What exactly drove this, and do you see cash costs improving in the back half of 2019 at Elk Creek? Thank you.

This is Chris. Elk Creek did come in at the high end, but it was driven largely by two things. Fifty percent of the increase was based on sales related increases, higher royalties based on higher revenue, and the other 50% was on the cash costs at our Eagle mine, which resolved by the end of the quarter and have returned to first quarters levels. So that was geology at Eagle and basically higher coal prices drove it. We have several things I outlined where we have some cost savings going forward, so I think we’ll see us pull back safely into the range as we finish the year.

But we’re comfortable with the $63 to $67 range at this point, and we’ll leave it at that.

Got it, thank you. That’s very helpful. One more, I guess I’ll sneak in here. Based on your current capex guidance, you have roughly $15 million to $20 million remaining on the 2019 budget. Could you remind me exactly where that capital is being allocated and if you would expect it to be evenly spread between 3Q and 4Q? Thank you.

Go ahead, Jeremy.

Yes, in terms of second half capex, most of the growth capital is being allocated to Berwind, as Randy and Chris both talked a bit about in the prepared remarks. There’s a little bit of capital being spent at the Elk Creek plant as well, not necessarily the upgrade per se but just general items, and then your normal maintenance capex. So we’re comfortable with where our first half capex came in, and again, you should look to similar levels, as you noted, in the second half give or take.

Got it. That’s very helpful. Congrats on the record quarter, and best of luck moving forward.

Thank you.

Thank you. We have no further questions in the queue at this time. I would now like to turn the call back to Randy Atkins. My apologies - we did have a questioner join the queue. It looks like it’s coming from the line of Mason Stark with Wilshire Phoenix. Your line is now open.

Hi gentlemen. Thank you very much, good morning. Two questions that haven’t been addressed on the call. The first one, I was interested to see the transportation costs came in less than I was expecting this quarter. I was wondering if you could go through, is there a mix, and it’s interesting also just because you had a slightly--a bit more shift internationally, so I was wanting to see if there was something going on in the variance between Q2 and Q1.

Yes, I think from our perspective when we think about transportation, typically of course we’re shipping the majority of our coals domestically and we don’t--you know, basically we sell that coal FOB mine. You’ve seen a pretty large shift from us really focusing in on the domestic business based on the pricing that we received, and from a fluctuation in transportation cost standpoint and things going to the quarter, things that we pay for the freight on, we’ve actually seen it moderating, slightly moderating cost as the second quarter advances and into the third quarter, albeit I would definitely say not necessarily a sea change in any sort of activity. I think we’d just say slightly downwards. As we see where the domestic numbers come out and as we look at the international pricing and how it advances through the end of the year, I will say historically if international pricing remains in the range that it is or slightly lower, we should see a pullback in transportation and/or even loading costs, to some extent. That would be just a general comment.

And I would just remind you, if you’re looking at the transportation costs towards the end of the release, in the reconciliation of non-GAAP measures, all of our domestic sales are FOB mine, so the transportation is borne by the steel mills. For exporting coal we’ll see it on that front, and given that the large portion of our book is domestic versus export, one extra cargo on the export front here or there in a particular quarter will cause that number to fluctuate.

Got it, understood. Okay. Then the second question I had was sort of an overall market. As you alluded to with the recent bankruptcy filings of some of your competitors and that you think some of those mines might not be able to come back into operation, if you had to give a ballpark, what kind of potential impact do you think you could see in terms of a decline in the overall supply in the marketplace going forward, if you’re right?

I think as we sit here and look at production, I think there’s a very good chance that it could be a million or 2 million tons that basically go off the radar. When you look how really tight things are and then you look at the spectrum of really high quality coals, I think that quite a few of them are in those higher cost coal mines, so a million or two tons coming off the market could have a big impact on pricing and availability of the best quality coals.

The other thing I would add is just with the recent decline in pricing, there have been a lot of growth projects that have been pondered, and you just sort of wonder out loud, are some of these companies willing to put half a billion dollars in for a new mine in this environment? We don’t know the answer right now, but certainly I think the decline in price would cause a number of folks to think about pulling back, at least on some of the bigger projects. I’d view that as a positive as well.

Got you, thanks. All right, thank you very much, and good luck in the second half this year.

Thanks Mason. Okay, if there is no further questions, once again we appreciate everybody being on the line, and we’ll look forward to catching up with everybody, I guess it would be in November. Thanks again and have a good day.

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