Ramaco Resources, Inc.

and welcome to the Romaco Resources Incorporated Fourth 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 instructions will follow at that time. If anyone should require assistance during the conference, please press TAR, then zero on your touchtone telephone. I would now like to turn the conference over to your host, Chief Financial Officer Jeremy Sussman. Thank you. Please go ahead.

Thank you, Operator. On behalf of Ramico Resources, I'd like to welcome all of you to our fourth quarter 2020 earnings conference call. With me this morning is Randy Atkins, our Chairman and CEO, and Chris Blanchard, our Chief Operating Officer. 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 Ramico's expectations concerning future events. These statements are subject to risks, uncertainties, and other factors, many of which are outside of Ramico'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, Ramico 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 this call to go onto our website ramicoresources.com and download today's investor presentation under the events calendar. With that, let me introduce our chairman and CEO, Randy Atkins.

Thank you, Jeremy. As always, I want to thank everyone for joining us today to discuss our year-end results and our crystal ball forward look into 2021. We held our first board of directors meeting of the year a few days ago. I described to the board that in looking back at 2020, it was kind of like you were transported into an Indiana Jones movie, where you were trying to outrun some huge rolling boulder, only to jump out of the way into a pit of snakes. It was a bad dream type of year that I'm happy to report looks like it may finally be in the rearview mirror. Sadly, it left a few battle scars on our reported earnings for the year, which Jeremy will detail for us in a moment. We basically spent half the year worrying about whether the world was coming to an end, whether we would be able to continue to safely produce, and if so, would we still have any customers? That drove us into a mad dash to main as much liquidity and sanity as we could possibly do through a combination of actions. Although they were painful at the time, they did manage to get us about $50 million of new dry powder through the first half of 2020. which included both capex and cost cuts. We were able to deploy funds to keep operations intact and the ship moving forward, even as our customers went into a free fall. The back half of the year shifted, and we actually ended up having record sales, but realized that the demand had not quite kicked into gear to allow us to benefit price-wise from the coming market recovery. Indeed, we had two large customers claim forced majeure on over 200,000 contracted tons, which cost us about $7 million in EBITDA, which would have had us report a solidly positive second half EBITDA. Indeed, right now, we have printed more EBITDA in January of this year alone than for the entire second half of 2020. This year is hopefully going to be very different. I told our board that there are several market drivers that are all beginning to position our business for what I believe will be a very strong year. We had taken our normal conservative posture and since last fall have placed fixed-term price domestic and floating index price export contracts for about 1.7 million tons, which works out to about 80% of the mid-range of our 2021 production target. of 2.1 million tons. Any new business that we have placed subsequent to year-end has now been at substantially better prices and indeed has been placed at a premium as opposed to a discount to the benchmark. We now hope to have five to six hundred thousand additional tons to place into today's rising markets for the balance of the year. We are now pretty well completely sold out through the second quarter. This suits us fine since we see the back half of 21 is where there may be potentially some very interesting price movement. And to that end, we announced earlier this week we have decided to put the, quote, adding new production sign back on the front door. As I told the board, it was somewhat like we had lost a year. At this same time last year, we were also considering whether to approve the continuation of the Berwyn slope mine. As you might recall, February 20 was when the first whiffs of the pandemic were beginning to appear in the U.S., and we decided to shift into neutral and defer the Berwyn expansion until we saw more market clarity. I will get to an assessment of the market dynamics in a moment, but suffice to say we regard today as a moment to begin to place some longer-term bets on market direction. As my grandmother wisely counseled, if Bobby wants a blue suit, maybe you need to turn on a blue light. The markets are now telling us to turn on that light. The global steel business is back in a big way. Steel prices have jumped 150% since last summer, and steel utilization, which had hit a 10-year low last spring, has jumped almost 50% since that time. Steel inventories are now at their lowest levels in over 40 years. Our demand side of the business looks comfortably like it is coming into focus. We have correspondingly seen benchmark prices jump almost 40% since the start of the year, and the forward curve is comfortably in contango at about $160 per ton benchmark. When the $60 per ton Chinese arbitrage, which was created, I would remind everyone, by political and not market factors, eventually lifts, it will create more pricing positive dynamics. The bottom line is we think the market has a way to go yet both in terms of price and as well in demand. So let's review a few metrics on the macro side. The world We'll be waking up gradually over the next 12 to 18 months as the economies of both the developed and the developing world gradually shake off the after effects of COVID. As we've said before, met coal is a proxy for steel and steel is a proxy for a nation's GDP. The central banks of almost all developed countries have decided to embark on massive fiscal stimulus packages. almost simultaneously. This stimulus will be focused on increasing sustained infrastructure and consumer spending across the board. This, of course, bodes well for both steel and thus its primary feedstock, met coal. Assuming COVID abates over the next two years, there will be an ongoing global restocking among all developed economies and almost at the same time. We think this will further play into met coal demand. But what about supply? In previous cycles, if the markets told you that demand required one new coal mine, almost every producer would always oblige. They would each add one new coal mine, and there went the supply imbalance. I have a suspicion that this time things may be different. Our peers are also coming off terrible operating and financial performances from last year. We are probably the only U.S. met coal company that maintained as much or more liquidity in 2020 without raising dilutive equity at fire sale prices or issuing onerous term debt. Most companies will continue to operate with weakened balance sheets And in a new Biden administration, they will also operate with substantial political headwinds on their continuing thermal operations. This will be despite some gymnastic public relations attempting to brand themselves as born again pure met coal producers. We must also remember that with the exception of ourselves, Coronado and Warrior, almost every public coal group essentially produces more thermal than met coal. Many have punishing legacy thermal reclamation and ARO liabilities that will weigh on their ongoing concernability in increasingly more acute fashions as the years progress. We enjoy the lowest legacy liabilities in the public space, and by a huge margin. Similarly, we have the lowest adjusted net debt, and that includes ARO, to EBITDA by huge multiples. We are less than one time this ratio, while our highest peer is almost eight times. I say all this to point out that I do not feel this time we will have a huge supply rebound in the near term. Yes, there are some companies that have previously announced expansion, some much larger than ours. But on an investment dollar per new ton basis, we are vastly ahead. And indeed, some announced expansion has also been deferred and may not occur. And by the way, there is also the small matter of finding new capital for growth. The capital markets are punishing all coal groups for ESG reasons, underperformance, and certainly any thermal production. To make any headway, you somewhat have to go it alone. And indeed, that is what we have chosen to do. On Tuesday, we announced the expansion of our operating profile to add both two new mines and 50% of new capacity to our current 2.1 million ton production slate. Chris is going to go into some specifics on each project in a moment. The headlights are that we will continue to spend about $12 million to finish the Berwyn Slope. which adds about 750,000 tons of low-vol production, which will have mine costs in the low $70 per ton range. It takes us until next year to hit full stride, but we will be able to add some modest production even this year from that mine. Berwyn will become our second flagship complex and should produce at these levels for another 20 years or more. Adding to Berwyn, will be a new mid-vol, high-vol A surface property called Big Creek, which is near our Knox Creek plant and where we will spend in the neighborhood of $5 to $7 million. Big Creek will add up to 200,000 new tons of production starting later this year with mine cost in the mid to upper $50 per ton range. Both of these new mines currently enjoy FOB mine margins north of $50 per ton in this market. We look forward to adding them to our mix. Indeed, they both also de-risk our overall portfolio, so we are not so reliant only on Elk Creek. Once they are all online, we have almost equal production levels of high vol A, high vol B, and low vol. and we have decided to finance these developments as conservatively as we can. We will pay for these new mines from a combination of working capital, small equipment credit lines, and free cash flow. Indeed, we recently repaid our revolving credit line in full last month, so we are operating at strong levels of liquidity at the moment. These new mines will also cash flow to completely repay any new investment in them in under one and a half years at today's prices. They are both extremely strong projects. Depending on the markets, they will probably not be our last new projects. We currently have permitted mines to take us to the four to four and a half million dollar ton production levels if the markets to continue to perform strongly. We will probably not look to test any new ideas for new projects until next year. We will also look forward to some substantial free cash flow generation as the overall portfolio kicks into gear in a strong market, and we continue to operate with little to no debt or AR exposure. I would like to point out that unlike many public companies, we are all substantial shareholders in management at Ramico. We will look to start a policy of prudent return of capital to our shareholders as soon as we feel we have reached sufficient levels of free cash flow to begin a sustained program of regular dividends. We are not far from that time right now when we will be in a position to review those options. And before I turn the balance of our remarks over to Chris and Jeremy, I would like to make some brief comments on some recent changes in our management and board of directors. Last year, my partner Mike Barasax and I decided to split our areas of responsibility. Mike is one of the best development minds in the coal industry, while I am a little more comfortable operating under the hood of the car, so to speak. We decided that Mike would step down and focus on acquisition and development projects at our sister private company, Ramico Resources, pardon me, Ramico Royalty. There may be some interesting news on that front, indeed, in the near term. I will continue to steer Ramico Resources, now with the assistance of Chris and Jeremy, who the Board has elevated to Executive Vice Presidents for Operations and Finance, respectively. We have also elevated Jason Fannin to Chief Commercial Officer, who has done a great job on marketing for us in a lousy market, and hopefully, now that we are headed into a stronger market, will continue his run. We also added B.J. Sturgill to our team last year at General Counsel. Together, all of those mentioned and the rest of our experience team comprise what I believe is one of the strongest management groups in the business. We have also had some recent changes to our board. Tyler Reeder, a friend and our longtime director from Energy Capital, has unfortunately stepped down to turn his attention back to the power sector, and we have replaced him with both Jennifer Gray and Mahmoud Rafiq from Energy Capital. We've also recently added David Frischkorn of Houston and Forrest Jones of Charleston, West Virginia as new directors. At this point, we have a board with eight independent directors and three inside directors. We also now fully meet all ESG diversity-related matters in all respects. I might also add that our overall board is one of the strongest and has some of the greatest experience in the coal industry as well. So in close, we weathered 2020 as well or perhaps better than most, but we look forward to growing in 2021 perhaps better than most. So with that, I would like to turn the program back over to Jeremy.