Ramaco Resources Inc. executives said the company's focus on geologically advantaged, low-cost mines allowed it to post the second-highest adjusted EBITDA on record, even as turbulence in metallurgical coal markets has led competitors to the bankruptcy court.
Ramaco reported adjusted EBITDA of $19.1 million in the second quarter, compared to $14.9 million in the year-ago quarter, even as global metallurgical coal prices started to decline. Ramaco Executive Chairman Randy Atkins said the company was created in tough times for metallurgical coal producers and is built to weather another downturn a market.
"If you're in the coal business, these are the times that try you," Atkins said. "But as turbulent as the market looks right now, I want to point out that Ramaco was born as a contrary 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 terms of both leverage and [asset retirement] liabilities so that we could financially withstand the historic volatility in the met space."
Those measures have largely succeeded as the company boasts some of the lowest debt and legacy liability levels of any in the industry, Atkins said. Still, the company remains among the most undervalued stocks in the coal space, Atkins added.
"We continued to operate on the theory that ultimately our cash flow generation will speak for itself, and we're confident that the stock market will ultimately reflect that value over time," Atkins said. "So, if anyone likes a bargain, I would suggest another look."
Ramaco posted net income of $10.6 million in the second quarter, up from $10.2 million in the 2018 second quarter. The metallurgical coal producer expects to produce between 1.8 million and 2.2 million tons of coal in 2019. Recent bankruptcies among its peers have made some assets available for a potential expansion of that output, but those opportunities are being evaluated very carefully.
"You really don't know who's wearing a bathing suit until the tide goes out," Atkins said. "This summer, we have seen a riptide with some unusual and severe stress in the coal space. It feels like not a week goes by that we don't see another coal company here filing for bankruptcy, auctioning assets, reorganizing or announcing a senior resignation or management change."
Ramaco President and CEO Michael Bauersachs noted that three of the company's direct and closest competitors are in the middle of a bankruptcy reorganization and many are offering operating assets for sale. To date, none were compelling enough to pursue, Bauersachs added.
"During the last two years, we have had a stable metallurgical coal pricing environment," Bauersachs said. "It is hard to envision that many of the assets now in bankruptcy will be able to operate in a less attractive marketplace, let alone secure sufficient capital to upgrade the mines and rebuild equipment."
Ramaco is biased toward putting in new mines in advantaged geology versus deploying capital to buy other mines, Bauersachs added. Some of the best projects have been greenfield or inactive projects that are in places that may be between existing infrastructure.
"In the end, geology wins," Bauersachs said. "And we're going to bet on geology. And then we'll figure out all the infrastructure stuff later because ultimately, those are the tough projects. But those are the long-lived projects that have advantages."