The moment to place longer-term bets on metallurgical coal's market direction has arrived, said Ramaco Resources Inc. Executive Chairman and CEO Randall Atkins.
As world economies begin to recover from the impacts of the COVID-19 pandemic, demand for the steelmaking ingredient should follow a need for more steel, Atkins said on the metallurgical coal company's Feb. 19 earnings call. Simultaneously, metallurgical coal suppliers are likely to be hesitant to respond based on recent operating and financial performance, the Ramaco executive added.
"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," Atkins said. "Most companies will continue to operate with weakened balance sheets. With the new Biden administration, they will also operate with substantial political headwinds on their continuing thermal operations."
Many U.S. coal companies now emphasize metallurgical coal assets in marketing materials and other public communication as demand from domestic power generators for thermal coal wanes. Atkins noted that many still hold substantial thermal coal assets despite "some gymnastic public relations attempting to brand themselves as born-again pure met coal producers." He added that some of Ramaco's competitors would be held back by "punishing" legacy and reclamation obligations associated with those thermal coal operations.
Many companies in the coal sector also continue to face challenges accessing new capital to grow due to heightened attention to environmental, social and governance issues and recent financial performance across the sector.
"To make any headway, you somewhat have to go it alone," Atkins said. "Indeed, that is what we have chosen to do."
Ramaco recently announced it is expanding its operating profile by adding two new mines. The mines are expected to eventually add almost 1 million tons of new low-vol and mid-vol metallurgical coal production per year to Ramaco's portfolio, an increased production capacity of 50%. Atkins said the Kentucky-based company is funding that growth with a combination of working capital, small equipment credit lines and free cash flow.
"They are both extremely strong projects," Atkins said. "Depending on the markets, they will probably not be our last new projects."
The optimistic approach to 2021 and beyond follows a rough year. Atkins said 2020 was a year spent "worrying about whether the world was coming to an end" given the pandemic and other challenges.
"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," Atkins said. "It was a bad dream type of year that I'm happy to report looks like it may finally be in the rearview mirror."
That left some "battle scars" on Ramaco's results, Atkins added. The company reported a net loss of $4.7 million in the fourth quarter of 2020 compared to a prior-year net income of $1.9 million. The company recorded a net loss of $4.9 million for the full year, down from a 2019 net income of $24.9 million. Revenue in the year fell 27% to $168.9 million.
The company nearly sold out planned production through the second quarter, Atkins said. That bodes well, given the company expects the back of 2021 to be where there will be positive price movement for metallurgical coal, he added.
"This year is hopefully going to be very different," Atkins said. "[T]here are several market drivers that are all beginning to position our business for what I believe will be a very strong year."
