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B. Riley FBR initiates coverage of Ramaco with 'buy' rating, $10 price target

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B. Riley FBR initiates coverage of Ramaco with 'buy' rating, $10 price target

B. Riley FBR Inc. analysts initiated coverage of Ramaco Resources Inc. May 31 with a "buy" rating and a 12-month price target of $10 per share, citing the company's growth-oriented profile and first positive net income during the first quarter.

The Kentucky-based pure-play metallurgical coal producer, which has mines in Pennsylvania, Virginia and West Virginia, began commercial production of metallurgical coal in the first quarter of 2017 and has been developing multiple properties since. Ramaco Executive Chairman Randall Atkins said on a May 16 earnings call that the company has doubled revenue to roughly $56 million and swung net income from a loss of $2.6 million in the previous quarter to a gain of $5.3 million.

"We hope to continue this momentum into the balance of the year, and indeed we're optimistic we will have a very strong year," Atkins said. The company's guidance for full-year coal production is 1.8 million tons to 2.0 million tons, growing to 4 million tons over the next five years.

B. Riley analysts expect Ramaco's flagship asset, the Elk Creek mine in southern West Virginia, to produce about 1.7 million tons of coal in 2018 and up to 2.4 million tons by 2022.

Since sales have begun, Ramaco has signed contracts both domestically and internationally, the analysts said in a research note. As of March 31, it had 1.1 million tons of produced domestic coal contracted and priced at about $78 per ton and 662,000 export tons sold.

"As [Ramaco] matures, the long-term cost structure should become more apparent," they said, adding that the company guided 2018 cash costs in the mid to upper $50s per ton for 2018.

Ramaco "experienced high costs in 1Q due to a mixture of weather, poor rail service, and geology issues, which we do not expect to persist," the analysts wrote. "We are modeling costs around $60/t for company-produced tons. We estimate average tons, including purchased volumes, in the mid $60s per short ton at the mine."