Metallurgical coal producer Ramaco Resources (METC) has registered to sell a new issue of $25/share senior notes.
The notes will have a maturity date in 2026 with an optional early redemption period starting in July, 2023.
Yield talk on this issue is in the 9.00-9.25% area.
The registration statement can be read here.
EarlyBird was right on this one.
31 thoughts on “Ramaco Resources to Sell $25 Baby Bond Issue”
Purchased a small position of METCL intended as a hold. Still deciding if I want to add more to possibly flip
I am comfortable holding some. I am just not sure we will see a big pop to flip shares if that is one’s objective. I am sure a number of people will mistakenly look at Coal and view it as a dirty word, not understanding the difference between metallurgical coal and coal used for the energy market
Hello, just wanted to let you all know that METCL started trading as of this morning. The filing came through faster than I expected. Anyway, it’s right around $25.50 right now. I have bought some already, but would still like a bit more for one account.
Thinking about market pricing since we don’t have a lot of comps. When looking at Energy related Preferreds, I see yield ranges from 7-8.75%. I look at another small-cap preferred in BKEPP for example at 8.75%. Hence, even though this is debt versus a preferred, I suspect that we may see it stick in this neighborhood, but I’d be interested to hear what you all think. Thus, wondering if this won’t be great for the those looking to flip, but only good for those looking to hold till maturation. All the best. –NCSI
I can see some upcoming confusion on this one if the prospectus is accurate… https://www.sec.gov/Archives/edgar/data/0001687187/000110465921091245/tm2119875-6_424b3.htm It shows they’re going to pay a coupon commencing on July 30. Am I reading that correctly?
The brokerages that have computer generated stats compiled are going to have trouble with this paying a coupon on July 30 with accrued from July 13. We’ve seen where some of these services just annualized the payment to come up with a yield and if they do that, there’s going to be a lot of questions as to why the payment is so low… If were lucky, that might create some selling in August…
Thanks for the heads up. That’s a good point. I’ve seen that happen on my screen at Fidelity but usually in the other way where it shows a higher yield due to a catch-up+normal distribution.
I was looking up peer Warrior Met Coal (HCC) as they have a senior secured note outstanding with an 8% coupon. Unfortunately haven’t found any current pricing yet. That was last issued in ’18 when 5Y rates were materially higher. Still it’s a more established company. So far still thinking we might not get much of a lower yield from here in the sort term. All the best. –NCSI
NCSI – with my apology , I do thank you for the comments on the company. Your comments on FCF for the company may have been slightly off target. Overall, I like the Met Coal market but hopefully you can expand your ideas to all of us that are novices in the market. Your Top Pick for 2018 is right here to discuss, so let’s get this ball rolling!!! Once again, sorry for my comments if they were off the mark, as I’m a long-term investor and just want to learn from your research. Small investors like me can always learn from you and your research, thanks again for any insight you can provide.
Wow.. I have been looking at this one hard as I see this one as not just digging coal for electric power plants that are being shut down right and left. Not every day you see a 9% one that doesn’t stink to high heaven.
Greatly appreciate your comments NCIS. It reinforces what I see so far. They appear to be a sound company. One thing that bothers me is Ramaco is in an inherently risky business. They dig very deep holes in the ground and send in folks to work. What happens to the ability of Ramaco and an investment to survive a tragedy where a number of people die in one of those deep holes? They are not a big company. I have began to check up on their safety record and not found much so far. I see they got a small fine early this year but don’t know what for. I suspect they run a safe workplace, but this is one industry you don’t get many second chances in.
You are right that Material Resource companies are inherently prone to tail risk from accidents. They do have insurance of course, but there will be accidents nevertheless. I’m not an expert on this industry by any stretch, but I can’t remember a company going BK due to accidents. Murphy SHOULD have gone BK because of the terrible safety record at his company, but in the end it was still just too much leverage with a poor pricing environment that led to the filing. When it comes to solvency I would just offer to everyone to focus on EBITDA and Free Cash Flow over Net Income, because there is a lot of D&A in these models. You can search for safety records for the company and industry online at MSHA.GOV. Generally though my concern is more about variability of production quarter to quarter due to the normal challenges of mining, than a specific one off event that could lead to a BK filing. Note they did have a silo failure that caused production and capital strains a few years ago. The silo was actually part of a building they bought with the Elk Creek property, so they didn’t build it but it failed nonetheless. Hence, there’s never any guarantees in this biz, but usually it’s about inhibiting profitability versus increasing solvency risk. All the best. –NCSI
Thanks for your thoughts NCSI. Guess I get antsy sometimes on investing my hard earned bucks! Still thinking they may be worth a buying a few shares, but not what I normally do.
PLEASE read the history, very recent private stripping of publicly held coal assets thru BK courts; the factual history of Peabody and Arch.
Then make your decision regarding some speculation in this ‘dirty’ industry.
So a friend who works at US Steel (X) says that he doesn’t know METC specifically, but the future of Met Coal is not very bright. Almost all investment in the US is in electric arc furnaces that use recycled steel and don’t use coal. Not saying that METC isn’t viable, but growth may be more dependent on exports, namely China.
I did a one minute look at their investor presentation.
Looks like they are banking on the Australia/China fight continuing. The Chinese may be ramping down steel production a bit (someone said on this board), but they will still need met coal to fire the rest – and with their fight with the Aussies ongoing, it might be good for METC for a while.
All said, I might get a little for the short term. Will have to see how things pan out.
Pg.6 – One quarter of positive bottom line. With a steep drop on the top line tonnes sold.
You are betting on this underdog catching a big break.
Ramaco Resources just priced the issue this evening at 9% and increased the size of the offering. Considering the interest rate environment we have at the present time, this issue comes with considerable risk – so buyer beware. Investors will likely collect the first few interest payments, but I always like preservation of capital as well.
Could be an interesting speculative holding depending on your views of the steel industry over the next 5 years. Small-cap but low debt prior to this offering. Here is presentation.
Ticker is going to be METCL. Somebody needs to step up and spoon feed me some actionable info here, as I may take a small speculative bite if someone will do the work! 🙂 I know metallurgical coal is at least intriguing over power plant coal. And it appears recently they are profitable.
It’s a new issue, pays 9%, and we can probably get it on the gray market. That’s the extent of my “stepping up”. I’m probably in. For a few days.
headline on SA said they’ll strongly benefit from infrastructure spending. Reminded me of recent news. Until I saw the article was written in 2018.
Steel would be a great investment. If it were 1952.
Martin…I love ya (in a financial forum manner only of course) and appreciate the great work you do here. So it really pains me to say… Your fired! That was a mail it in “aint got no time for that” analysis. 😂
I aint no analyst. I’m a pattern recognition and price movement guy.
Just for you I researched it at Yahoo Finance conversations. They said “I may add to it or reduce my holding at any time.” You’re welcome. Can I have my job back?
I never actually sent the termination notice to HR so you never actually lost the job, ha. Ok, In all seriousness, in this period of time (and knowing your period of time is Job 1) understanding financials either long or intermediate term is totally irrelevant to making money if your a trader.
Its sad to say, but financial prospects of the company just doesnt matter in period of liquidity and yield chase. It is as you mentioned its really only about yield, price movement from buy/sell imbalance, and finding relative value imbalances. All the things that should matter don’t, and quite frankly havent for a long time which has in turn made me a lot of money… Until it does, and that is where recognizing Job 1 comes in.
Grid – for what it’s worth Teck Resources which is CDN biggest met coal producer was just raised to buy . So………
Hey Buck. I got my coal miner hat on order, but it probably wont help. A lot of moving parts here and a lot of guessing. Here is the chart trend of pricing.
China is slowing down steel production and fighting with Australia hurting their business. And then you got domestic vs. export pricing and demand.
Wouldnt surprise me, if market in general isnt wobbly, it will probably come out of the gate too hot for me for a quick flip. Then there is the problem of deciding what high risk bucket issue to sell to purchase.
I like what I presently have in HY bucket and they are doing well. And just squeezing a 100-200 share purchase out doesnt seem worth it. I might have to sit this one out, but will wait for that hat to be delivered before I totally make up my mind.
Ok, I’m here mostly because of Gridbird’s interactions with me on SA in regards to some articles of preferreds I’ve written over there in the past. As it turns out I know METC very well and have written a number of articles about it over the years. My most recent piece came out just a little while ago.
You can find it here: https://seekingalpha.com/article/4430405-time-ramaco-resources-met-coal-play-catch-up
My previous articles also go into more details about Met Coal overall if interested. To be blunt, I didn’t think I would be interested in this deal, because I assumed the coupon would be too low. Now I’m more than interested. This company has a spotless balance sheet, generates enough free cash flow to fund their growth plans of doubling production over the next 3-4 years, and have bottom decile cost/ton operations currently in the US.
As some comments above mentioned, this is more about export than domestic sales, although most of METC’s sales have been to domestic producers. The comment about US Steel’s view of Met Coal is ironic since X is the largest integrated steel producer in the country which is why they’ve struggled so much relative to Nuecor and Steel Dynamics over the last 20 years. However, the US is unique globally in that its the only region I am aware of that producers more scrap metal (feeds electric arc furnaces) than local demand. China cannot produce enough scrap to convert their steel industry to all Electric Arc Furnaces (EAF). So I would argue this risk is way overstated.
The question is why issue debt at all. They don’t need this if they stick to current plan, which thereby suggests that this is going to setup an acquisition in my mind. They have shown already an ability to buy quality assets at a discount in that this is a Greenfield producer which the industry hasn’t seen in decades, and thereby it has no legacy costs at all.
Met coal and METC as an equity is clearly tainted by Thermal in the market place, which is why I suspect they had to issue such a high coupon. It’s being treated like an energy company which has a four letter word attached to it as in COAL, when it really is a Material Resource company attached to the Steel industry. Anyway, I’m going to be in as I don’t think the solvency risk is in anyway reflected correctly by the 9% coupon. I suggest it’s worth taking a look into. All the best. –NCSI
Hi NCSI, yes I read your articles and greatly appreciate the color here and the articles. As I am flying blind without your articles and the company link put here by Chris.
We all know there isnt IG 9% issues on the market so risk is inherent with the purchase. Its the big picture that worrys me. Like you said, the word coal. If something goes wrong, its like buying a mall reit preferred. Ya deserved the punch in the mouth for playing if it didnt work out lol. But as a flip you dont need long term viability to make a buck. Hopefully it will take a few days for it to come to market so I can stew on it.
Gotcha, I’d probably just encourage everyone to understand that this isn’t Thermal but Metalurgical Coal. This is not Arch or Peabody. This product is effected by Steel pricing not Energy prices, and the Met Coal benchmark has actually been held back by the political skirmish between Australia and China. Also, I believe METC will produce about 20 mil in FCF this year, and likely 65 mil in ’22. That’s including the 25 mil in growth Cap-ex obviously. Hence, I don’t think this is a big issue, unless they go and use the 30 mil to buy something stupid. Considering how conservative this management has been all along, that really seems like an unlikely scenario. I have zero concerns about METC’s solvency for the equity. We can debate what the market should/is willing to give it for a valuation, but in terms of solvency I don’t think this is anywhere close to a 9% coupon when high-yield is down here. COAL might be viewed as the risk, but if you just priced this off the #’s it would be half the coupon at least. The fact that it’s Met and not Thermal I think is what provides the opportunity for those willing to do the work. All the best to everyone. –NCSI
NCSI – thanks for your comments this evening about the new offering. Interesting that you have been “recruited” from SA to comment on the offering. However, I do appreciate your comments. They were very valid, even though I may not agree in total with coal and the future. Thank you.
SEC annual reports show the company lost 19M (loss from operations) in 2020 but operations in 2019 and 2018 were profitable. There is no ” free lunch.” – but maybe worth a quick trade or gamble.
As you are new to the board, just want to offer some additional info. Last year I left the board due to some transactions that I considered “not ethical” by any standards. A small investor here was pushing shares in a preferred stock called “AILLL” at about $29 per share, but it was callable at any time. Turns out, the security was called, the “investor” had already sold his shares to everyone else on this board, so they took a bath of about $4 per share. Spent a few weeks with some of my followers on SA to respond to this egregious act. In my honest opinion, looks like the “hijinks” are here now again. Once again, I thank you for your comments on the new issue. Best wishes and have a great weekend.
I read all the discussions on this board at that time about the security AILLL. The ‘small investor’ was very open about the potential call of that security, never pushed the shares on anybody, and is, in general, a fountain of good, reliable info on preferreds. Kaptain Lou has completely misunderstood or distorted the actions of that person, whose input on this board is greatly appreciated by so many of us.
Kaptain Lou did indeed announce that he was leaving our chat board at that time, but he can’t seem to stay away. Even introducing that old topic now into your notes on METC shows an obsession that is not healthy.
I, too, value your comments about METC and hope you will continue to contribute your knowledge to the group.
Thank You Bill,
I agree with everything you said.
This board has been an oasis of non-political, non-confrontational discussion since its inception (thank you Tim!).
It is disappointing that KL has apparently walked back his reasons for leaving this board to try to stir up conflict again.
The first rule of internet discussion is “don’t feed the trolls”, so maybe if we just ignore him he will throw another tantrum and leave again.
This is the best investment board I’ve ever been on for sharing high level insights and for lack of negativity. I’ve never confused a comment with “pushing a stock”.
Amen, Martin… Amen.
How do you pump and dump a stock you don’t own, and have to get in line to buy at issue like everyone else?
Wouldn’t you want to not talk about Ramaco so you could buy it cheaply and then talk it up once you have it? Why would you “recruit” someone to come tout it before anyone can even buy it? You just risk giving yourself a worse entry price.
I would be fascinated to learn what method Lou is implying is being used here to engage in “hijinks” because I will admit that I am not bright enough to figure it out and am always willing to learn new things and be educated.
Thanks, yeah that was an.. uh.. interesting post with unusual inferences. I suppose if I were some big institutional that now owned a ton of this issue and wanted to flip it in the secondary market, then you could accuse me of trying to pump the issue, but if I were that then I think I’d be looking for a venue with a larger audience than this nice niche community. As you noted I don’t own any, but would like to when it’s available. I offer my opinions on this issue only because I have gained from the community’s discussions previously, (the TDS/PU issue for example), and I like to contribute where I can. I guess that’s an old view of how things should work, but that’s all I’m trying to do here. I’ve seen enough comments over time to know there are people who do a lot of good work here and like to share, and I appreciate those efforts. All the best to everyone. –NCSI