Ramaco Resources, Inc.
Q1 2019 Earnings Call Transcript

Published: 12 May 2019

[Operator:]

Good morning, my name is Nora, and I'll be your conference operator today. At this time, I'd like to welcome, everyone, to the Ramaco Resources Incorporated First Quarter 2019 Earnings Conference Call. [Operator instructions] Thank you. Speaker Michael Windisch, Chief Accounting Officer. You may begin your conference.

[Michael Windisch:]

Thank you, Nora. On behalf of Ramaco Resources, I would like to welcome all of you to our First Quarter 2019 Earnings Conference Call. With me this morning is Randy Atkins, our Executive Chairman; Mike Bauersachs, our President and CEO; and Chris Blanchard, our Chief Operating Officer. Before we start, I would like to share our normal cautionary statement regarding forward-looking statements. Certain statements 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 Ramaco's expectations or beliefs concerning future events, and it is possible that the results discussed will not be achieved. These forward-looking statements are subject to risks, uncertainties and other factors, many of which are outside of Ramaco'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, Ramaco does not undertake any obligation to update or revise any forward-looking statement whether as a result of new information, future events or otherwise. New factors emerge from time to time, and it is not possible for Ramaco to predict all such factors. When considering these forward-looking statements, you should keep in mind the risk factors and other cautionary statements found in the Company's filings with the Securities and Exchange Commission, including our annual report on Form 10-K and our Form 10-Q. The risk factors and other factors noted in the Company's SEC filings could cause its actual results to differ materially from those contained in any forward-looking statement. With that said, let me introduce our Chairman, Randy Atkins.

[Randy Atkins:]

Thanks, Mike. As always, I want to thank everyone for joining us today to discuss our first quarter 2019 results. I also want to share some remarks on our footprint and organic growth plan. Mike will be making some remarks on operations. And since I realize many of you on the call this morning are mining analysts, we are offering you today the rare opportunity to take a shot at formerly one of your own fraternity. As we welcome the newest member of our team and CFO, Jeremy Sussman. We have thrown Jeremy in the deep end on his first week and he will be making some remarks later on the Ramaco investment thesis as well as provide some macro perspective on the market. As an overview, we had a strong first quarter, especially considering we're still dealing with operational issues stemming from what I affectionately call, the silo hangover from last year. We are extremely proud that we were able to overcome these headwinds, demonstrate some substantial resiliency and emerge even stronger. Also, although, we are still several weeks out, from where we sit today, we are on track for our second quarter to be the highest adjusted EBITDA record for the Company. I also fully anticipate Ramaco will be generating substantial cash throughout the balance of the year. As we look back on Q1, we managed to produce adjusted EBITDA of $14 million, which was our second best quarter. It is probably unfair to book end comparison with Q4 on many metrics due to the 3-week work stoppage because of the silo. But on a year-over-year comparison, EBITDA was up almost 50% from Q1 '18. We knew we would face in Q1 carryover headwinds at Elk, where the prep plant would run well below capacity because we are still in the process of reinforcing the remaining 2 silos. We are also dealing with a massive raw coal stockpile situation at Elk, which curtailed our ability to operate our mines at full capacity. Indeed, as Mike Bauersachs will explain, we would have produced roughly 100,000 more tons at Elk this quarter had we not cut back shifts. Despite all this, we were able to hold cost at Elk to $63 per ton, and indeed, have now lowered our overall 2019 Elk Creek cost guidance to between $63 to $67 per ton. As we look forward, the plant at Elk Creek still remains on track to be functioning at full capacity before the end of June. This is in line with our prior expectations. At that point, we will alleviate the operational burden and the financial impacts we have been dealing with frankly since November. So let's start with some metrics for Q1. Revenues were up 30% from the fourth quarter of '18. Company production hit 478,000 tons, up 16% from Q4. And as noted, without curtailments, production could have been higher. Cash margins of $39 per ton on company-produced coal improved by 26% from Q4. We also spent $8 million on CapEx in Q1, which was a 36% year-over-year decline. On sales, I'm also pleased that first quarter pricing was $104 per ton. While this was a quarterly record, it could have been $5 per ton higher were it not for almost 20% of our volume being priced as carryover replacement tons from 2018. Without the negative impact from these lower-priced carryover tons, Q1 adjusted EBITDA would have been over $16 million, and would have been a quarterly record. The good news is that these lower-priced carryover shipments are now basically behind us. We only have about 20,000 tons remaining in Q2 and nothing in the back end of the year. We hope to continue from this strong start. And as we look ahead for the rest of '19, we are predicting a materially better year than last year. For production at Elk Creek, we continue to estimate roughly 1.8 million tons. We expect about 0.25 million tons of the lower volume development mining in the 30-inch Pocahontas number 3 Seam at Berwind which will continue through mid-2020. When we reach the lower cost Pocahontas number 4 low-vol Seam next year at Berwind, we expect ultimate full production of roughly 750,000 tons per year. Given that seam thickness in the Poci number 4, we also anticipate future mine cost in the $80 per ton range with the potential for some future logistical cost improvement. Combined, our 2 mining complexes in Elk and Berwind should put us over 2 million tons of production overall for '19, which is about a 14% bump from last year. On marketing, we also hope to sell over $2.2 million tons as we work down about our stockpiles. As of today, we have sold forward almost 2 million tons or about 90% of our overall projected sales. We have sold both domestically and for export and at both fixed and indexed pricing. We are also very pleased that all of our domestic business this year is to repeat customers. Our fixed-price sales from Elk Creek should provide us cash margins in roughly the $50 per ton range. We'd expect margins to continue to expand throughout the year from the $39 per ton levels in Q1 as the effect of the lower price carryover tons wears off. We are also continuing to explore various ways to increase overall production in sales. Having rebounded from the silo failure, we will plan to discuss with the Board later this month the possibility of accelerating some attractive near-term opportunities to increase production, which we had planned for development in later years. At Elk Creek, we are looking at expanding the throughput capacity at the prep plant by roughly 500,000 tons per year above the current nameplate. When we do that, we will accelerate some new mine production in the Number Two Gas and Glen Alum seams, which we had originally slated to start in the 2020, '21 period. We are also considering adding some new high-vol A production at our Knox Creek complex, which would give us an additional 500,000 tons of production in the Jawbone seam at full capacity. As I've said, we are not green-lighting these projects yet, but assuming we start later in the year, most of the CapEx impact would be in 2020 and forward. As Berwind ramps up and Elk Creek continues to produce as expected, we expect close to a 3 million ton annual production rate in '21 and by '22, '23, we expect to have production approaching to 4 million to 4.5 million ton range. As we start generating meaningful free cash flow, as we've said several times before, we anticipate exploring with our Board to start to return cash to shareholders in the form of a recurring dividend. Ultimately, we anticipate being a coal company that both grows as well as returns cash to shareholders. I believe few of our peers can say that they aim to double the size of their company over the next three or four years, especially without taking on a lot of new debt and other ARO liabilities. So in summary, we hope that 2019 will be a year where we can demonstrate the momentum and let our cash flows speak for themselves and hope the market appropriately reflects that. And with that, I would now like to turn the floor over to Mike Bauersachs.

[Mike Bauersachs:]

Thank you, Randy. My comments for the first quarter are relatively brief because little has changed since our last call. Most first quarter items were discussed in some detail with our year-end results just a few weeks ago. Overall, the first quarter approximated our 2019 internal operating plan. Our plan anticipated being impacted by shipping some lower-price carryover business from 2018. We also anticipated that infrastructure limitations would cause reduced production, which in turn would cause slightly reduced shipping levels. I will elaborate a bit more on a few of these key impacts. As I mentioned during our most recent conference call, we continue to be challenged by the size of our Elk Creek raw coal inventories, which were over 450,000 raw tons at the end of the first quarter, and exceeded 500,000 raw tons during April 2019. Stockpile inventories started to decrease slightly in the second half of April. We expect this reduction to continue and accelerate through the remainder of the second and third quarters of this year. Assuming productivities at the Elk Creek mines remain at similar levels to the first quarter, it will take the majority of 2019 to process and ship this stockpile production. During the first quarter, we lost the opportunity to run 121 continuous miner unit shifts at Elk Creek due to the increased production rates at the underground mines coupled with the capacity limitations at the Elk Creek plant during the silo-related repairs. In addition to the limitation on production due to inventory levels, we also incurred additional handling costs, placing excess raw tons in an ancillary stockpile, which had a measurable negative impact on our cost performance. While we were dealing with silo-related impacts, our mines have been exceeding budgeted expectations. In particular, our deep mine feet per ship exceeded our plans in the first quarters and continues to do so. It is relatively easy to imagine the improved financial results going forward as we reduce missed ships and resume shipping and washing coal at our nameplate capacity. I put in a few of the above referenced key metrics from the first quarter operation of our Elk Creek deep mines on Slide number 11 to help point out how we believe the rest of the year should shape up as the impacts from the silo interruptions and the resulted stockpile buildup dissipate. The slide depicts the missed ships for the quarter at Elk Creek, the quarterly feet per shift and a formula that utilizes our average clean ton per foot to calculate the missed clean coal production in the first quarter. Even taking into account that we would likely only have washed less than half the tons at normal preparation plant capacity not differing between 50,000 to 100,000 clean tons from the first quarter could have turned a solid first quarter into a stronger one. While we have obviously missed near-term opportunities due to temporary stockpile and infrastructure limitations, when this is compared against improved productivities, it bodes well for cost, production and shipment performance for the remainder of the year. For all practical purposes, we have completed bolstering the key components of our silos to avoid any potential similar failure and allow for a long-term safe usage of the remaining silos. I can also report that our permanent bypass is being fully utilized, and in turn, we have seen improvements in our plant performance in April. We had placed some coal into the silos and anticipate full utilization in the next week or so. With these milestones achieved, we anticipate a quick migration back to normal capacity, plus the second quarter advances. In contrast to 2018, our surface mine at Elk Creek has had some positive geologic variances thus far in 2019. Our plan had the surface mine transitioning to an area where the data indicated the upper seams would have less metallurgical characteristics and would have to be sold as a thermal product. We planned and budgeted to sell up to 150,000 tons of surface coal as a steam product in 2019, which would have been twice the amount sold in 2018. As the mine has moved into these zones, we have had more favorable results on the mined coal. While this had limited impact in the first quarter, we now expected that at least 1/3 or 50,000 of these previously thermal tons will be sold as metallurgical tons for a substantial difference in revenue. The bulk of this product shipping will be in the second and third quarters of 2019. We are currently in the shoulder season from a marketing perspective. Year-to-date, we continue to see good results for our coal qualities and shipment reliability. We've seen improved performance from both the CSX and NS railroads. As illustrated on Slide number 12, we continue to believe that our domestic market portfolio for 2019 is in great shape. This allows us to be fairly selective on export business, especially if we see some sort of temporary market price escalation. We believe we will see domestic customers come out fairly early for 2020 business, likely early to mid-Summer. It appears to us that it's not a matter of getting their coal, it's more about being able to buy the coal that they want and prefer in their blends. There's no doubt that a very large portion of the best metallurgical coals stay in the U.S. Our current marketing efforts have been focused on advancing our direct coal sales into Asia. We hope to have some updates on this during the next earnings call. In summary, on the marketing front, while many have predicted pricing declines as the year goes on, we continue to see a receptive marketplace both domestically and internationally. I'm also pleased to announce that [Kevin Karasia] has agreed to join Ramaco Resources as its Senior Vice President Wholesales and Marketing. His first day with the Company is actually today. Kevin has both the domestic and international sales experience to take Ramaco Resources to the next level. This is the first step in migrating away from exclusive agents, except for areas where it make sense to have targeted international agents. In summary, we are pleased with our position at this point in the year. We're excited about the opportunity to run our mines at their full capacities. Additionally, we remain focused on organic growth opportunities and synergistic opportunities that can propel Ramaco Resources growth over the coming years. I would now like to turn things over to Jeremy Sussman, who'll provide some financial highlights relative to our first quarter, discuss some positive changes to our previously issued guidance and provide a reminder of the overall investment thesis at Ramaco Resources. This will include some comparisons of the key metrics to our peer group.

[Jeremy Sussman:]

Thank you, Mike. In terms of first quarter financial highlights, Randy hit many of the key points, but I want to touch a bit further on cost as this was only one of two revisions to guidance. The operating team at Elk Creek has done a tremendous job in overcoming the challenges of the November silo failure. Our first quarter 2019 cash cost came in at $63 per ton at Elk Creek, up just $1 per ton year-over-year despite our prep plant and stockpile issues carrying over from the fourth quarter. Given our ability to control costs this quarter in the face of those challenging operational issues, we are now guiding to an overall lower 2019 cash cost per ton outlook at Elk Creek from $63 to $69 per ton to $63 to $67 per ton. As I noted, almost all other key 2019 guidance was reiterated, including total company production of 1.8 million to 2.2 million tons, total sales of 2.0 million to 2.4 million tons including purchased coal and total capital expenditures of $35 million to $40 million. I would note that our 2019 capital expenditure guidance does not reflect the expenditures of any of the potential developments Randy and Mike spoke about. As we proceed in the analysis and approval for these projects, we will provide further guidance. The only other change to guidance relates to our sales mix. Prior to the favorable surface mine developments that Mike just talked about in his remarks, we had anticipated that 94% of our 2019 sales mix would be metallurgical coal, with the remaining 6% being thermal coal. I'm pleased to say that we now expect 96% of our sales this year to be metallurgical coal. Now turning back to the first quarter, net income was $6.9 million. This compared to $5.3 million in the first quarter of 2018. The 2019 increase was due to higher volumes in price as was previously mentioned. Without the negative impact from lower price carryover tons resulting from November silo failure, first quarter 2019 net income would have been approximately $9 million. I'd now like to turn to some of our forward views on the macro environment. We obviously like the conditions in this market and expect that we will remain in a supply deficit for the foreseeable future. In fact, there are a number of large metallurgical coal players that are facing financial challenges even in the current favorable market condition. Frankly, we view this as a sign of a healthy market. Lower-cost operators with good balance sheets are generated solid margin, while higher-cost players with more challenging balance sheets are struggling. As such, we continue to remain encouraged that the market still has legs well into 2020 and beyond. Now a couple of signposts that we are looking at. First, met coal stock prices have remained above $200 per metric ton for the vast majority of the year. The 2020 met coal curve is up to $186 per ton. At the time of our earnings call, just a few weeks ago in March, the 2020 curve was a $183 per ton, and at the beginning of this year, the 2020 curve was $177 per ton. So while spot prices continue to be volatile, the forward curve continues to march higher. Second, Chinese metallurgical coal stockpiles on the ground are at their lowest levels since early October. This is despite the fact that the Chinese production is up 10% year-over-year in the first quarter of 2019, which is a record high. Now on a personal note, let me say that I am delighted to be joining a first-class organization in Ramaco. It is a company that I have long admired from the other side of the table, and now that I am here, it is clear that we have a strong group of very talented employees. In their prepared remarks, Mike and Randy referred to our slide deck. I'd encourage all the listeners on the call to download the slides. You'll notice that they are a bit different than past earnings calls as we really wanted to highlight what I'll refer to as the Ramaco investment thesis. Or, said another way, the reason I moved my family to Kentucky to become a part of Ramaco, leaving behind the job that many of you on the call know I loved. As its core, Ramaco is a low-cost producer with very little debt or legacy liabilities. And we hope to double the size of the Company in the next 3 to 4 years while returning cash to shareholders along the way. As you see on Slide 14, while many met coal for producers like to tap their cost structures, we believe, we truly believe we are in the first quartile of the U.S. cost curve for metallurgical coal. Our cash costs at Elk Creek came in at $60 per ton last year and $63 per ton in the first quarter of 2019, generally ahead of our direct peers. At the same time, Slide 16 shows that we have by far the lowest legacy liabilities among our peer group, while Slide 15 shows that our net debt to EBITDA levels are very much towards the lower end of the peer group. In short, we believe we have the right people, right assets, and right balance sheet to put us in a position to execute on our goals that I discussed a moment ago. This now concludes management's prepared remarks. At this time, I'd like to open up the line for any questions that you all may have on the first quarter 2019 results or outlook. Operator?

[Operator:]

Yes. We have a question from the line of Mark Levin of Seaport Global.

[Mark Levin:]

Congratulations, Jeremy. Good to talk to you on this end now. And just a couple of quick questions mostly related to comments regarding Elk Creek, the prep plant capacity expansion, and then also potential new production at Knox Creek. So maybe some more color around timing when you would expect to have a better idea on potentially sanctioning those projects. How soon -- I think you mentioned 500,000 tons a piece at both Elk Creek and Knox Creek. How soon would that production be able to be ramped to that full million tons of incremental? Is that a 2020 full year impact? Is that a -- if you were to sanction it. And then any type of color around what the CapEx might be?

[Randy Atkins:]

Mark, this is Randy. First, I just want to reiterate that we have not yet taken this through the Board, which we expect to do some time later this month. And once we do that, we would also expect probably to file future further guidance on exactly what we would be doing with the more metrics so the market would have some transparency there. But with that being said, I'm going to let Chris Blanchard to pick it up and give you some -- the more granular detail on the mining metrics.

[Chris Blanchard:]

Mark, with regard to the production ramp, assuming this was greenlighted appropriately sometime in the second quarter, we would start to see the effects of the new production in the second half of '20. So it would be backloaded in '20 and we'd be at the full additional million run rate in '21. As far as the CapEx impact, I think it's probably best to defer any color on that until the projects are actually greenlighted.

[Mark Levin:]

That make sense, Chris. And then just in terms of what the -- what it would do to the overall cost profile of the business? And maybe even mix as well?

[Chris Blanchard:]

The mix would be stronger. The full million tons would high-vol A production, 0.5 million additional at Elk Creek and then the 0.5 million annual rate at Knox Creek would all be high-vol A. So the mix would get stronger. The overall cost profile would probably creep up a little bit. These mines are going to have a slightly higher cost profile than what we're currently running. Closer to Elk Creek than they are to Berwind.

[Mark Levin:]

Closer to Elk Creek than Berwind. Got it. And then when you think about Berwind in 2020, I think, you mentioned getting to the Pocahontas Seam #4 middle of the year, next year. And when you look at your guidance this year for production for Berwind, what do you think is a reasonable step up in '20 versus '19?

[Chris Blanchard:]

Perhaps as much as 50% more in '20 than we have in '19. We won't reach the number four Seam until June, July of 2020 and then there will be some development work in the back half of the year before we can move those operating sections into the thicker number four Seam. We really won't see the full step change until 2021 at Berwind.

[Mark Levin:]

Got it. And then my last question just has to do with the cadence of EBITDA. I think in the press release and in your remarks, you mentioned Q2 would be a record quarter, best quarter. When you think about Q3 and Q4, do you expect, given some of the issues will have been behind you, the carryover tons I think that Mike mentioned will be behind you. Should Q3 and Q4 continue the trend of Q1 getting -- Q2 being better than Q1, would Q3 be better than Q2, Q4? Better than Q3, I realize pricing will have a lot of do with it. But just kind of assuming that the market stays where it is.

[Randy Atkins:]

Mark, I think -- we hope, obviously, that Q2 is going to print very favorably. I would say for the balance of the year, we would like to, at least, at this point guide to sort of flat after that from where we hit in Q2. But we will certainly be able to give you a little bit more guidance as we get further out into the quarter.

[Jeremy Sussman:]

It's Jeremy. I'd just remind you that we do have about 20,000 tons of carryover volume still in Q2. A lot less than in Q1, but just keep that in mind for modeling purposes.

[Mark Levin:]

Got it. And I lied, one last question. I think on the last call, Mike Bauersachs might, I asked a question about logistics, rail import and kind of the year-over-year increase and it maybe referenced a $3 to $4 increase this year over last year. And I believe, and I could be wrong, an all-in sort of cost closer to like $40 a ton. What are the trends that you guys are seeing on the logistics side? I know met prices are kind of staying high, which is a good thing, which impacts logistics cost or rail cost, but what have you guys seen in the last 3 months as it relates to rail cost?

[Mike Bauersachs:]

Yes. Things have been pretty stable. Even slightly less than that number that we threw out last quarter. So I think at these levels we've seen pretty much stability in the marketplace and the same thing on the rail side, Mark.

[Mark Levin:]

Appreciate it. Congrats on a good quarter and all the great progress, and to you, Jeremy, specifically, on your new position.

[Jeremy Sussman:]

Thank you, Mark.

[Operator:]

We have another question from the line of Lucas Pipes of B. Riley FBR.

[Lucas Pipes:]

Congratulations, Jeremy. This is great, great, great move. Very exciting, and very happy for you.

[Jeremy Sussman:]

Thank you, Lucas.

[Lucas Pipes:]

I wanted to follow up on some of Mark's question, maybe ask it a little bit more pointedly. And that's, the 4.5 million ton target by 2023, could you walk us kind of through a bridge year-by-year how volumes could evolve? I know you touched on it in the prepared remarks. And then similar to Mark's question, kind of, what sort of CapEx would be associated with that growth?

[Mike Bauersachs:]

Yes. Just kind of walking through the, and again, we've still got a lot of work to do, I think, to make sure that we bring on all this additional production and work with our Board, et cetera. But if you look at '19, lets just say midpoint 2 million tons, working our way up to about 2.5 million tons or so, maybe a little bit better than that to 3.1 million in '21, probably around 3.6 million in '22, working our way to somewhere between 4.2 million and 4.5 million in '23. The one difference maker, I mean, with some other things we've thrown out with Berwind and Knox Creek is we do continue to anticipate production in Pennsylvania at our RAM Mine, which continues to be a bit of a challenge permitting-wise. But I do think we continue to make good progress to try to get that to the finish line. So that's approximately 350,000 to 500,000 tons depending on how we choose the mine.

[Lucas Pipes:]

Got it. And in terms of CapEx, what would be a good yardstick to think about?

[Mike Bauersachs:]

Yes. I'd let Chris take a rough range maybe. It's similar that, I think, does vary and how we'll deal with the RAM Mine.

[Chris Blanchard:]

I mean I think just for modeling purposes, at this point, back of the envelope five years out, you want to use somewhere in the neighborhood of $20 per annual ton and incremental production. I think that will get you in the ballpark for all development permitting equipment, maintenance CapEx, everything that goes into these new mines.

[Lucas Pipes:]

Okay. All right. Maybe switching topics. When I think about your 2019 sales contract position, mostly fixed-year prices, $113, and mostly in the domestic market, of course. So a couple of questions on the back of that. First, as you look out to 2020, any preference to potentially shift more into the export market? And then two, there were some moving pieces on the contract booked this year with the carryover tons, but -- and then, of course, also selling a lot of it into the domestic market. Do you have a sense for what your price realizations could look like in the current market kind of mark-to-market? Just sort of curious as it relates to the earnings potential for 2020. Very much appreciate your thoughts.

[Randy Atkins:]

We, first of all, look, we're not going to try to give you our quote for what we're going to price coal at 2020. But with that being said, I'll let Mike speak for sort of the international balance.

[Mike Bauersachs:]

Yes. I think -- and I think, Jeremy, we were just -- I mean, we are at a kind of an interesting position domestically. I mean we have a lot of guys who really like our coal. I think we felt like with a lot of things we were doing, it was good to go ahead and price forward, et cetera. And of course, the numbers were very good. I do think you'll see the balance tip back, especially as we enter sort of that Asian market directly. We're working very hard on a couple of things there. I think our sales mix could shift back to more 50-50 type levels as we look forward. And of course, the market place for some of the coals we're selling, low-vol wise and otherwise right now, are better than $113. I think you could see our overall numbers kind of move up as the year goes on depending on how the market price shifts. So...

[Lucas Pipes:]

Okay. That's very helpful. And best of luck to all you, and Jeremy, congratulations again.

[Operator:]

We have another question from the line of David Gagliano of BMO Capital Markets.

[David Gagliano:]

First of all, since -- Randy, since you opened the door, take some shots at Jeremy, I'm going to take you up on that opportunity. Jeremy, congrats on the move. I'm really looking forward to...

[Jeremy Sussman:]

Thank you, David. [indiscernible] I'm right here.

[David Gagliano:]

Yes. I am. Jeremy, congrats on the move. I'm looking forward to consensus estimates now being more realistic now that you're not in the mix. And congrats. And I really hope your time as CFO is much more successful than your time as a sell-side analyst. Randy, thank you. Thank you for the opportunity. Jeremy, you know I'm kidding, by the way. All right. So...

[Jeremy Sussman:]

Nothing but love, David.

[Randy Atkins:]

In part of our analyst outreach program, David.

[David Gagliano:]

Exactly. All right. Turning to the questions. Just some clarification questions. Obviously, hit on a lot of topics here, pretty quickly, and I missed some of those details. Just on some near-term questions. On the inventory sales commentary, I think it's implied about 200,000 tons of sales out of inventory for 2019, none of which were sold in the first quarter, I believe. But I didn't quite, I also didn't quite follow the near-term timing of those inventory sales. Should we assume about 65,000 tons of inventory sales each quarter 2Q to 4Q?

[Randy Atkins:]

You're talking about carryover tons, David?

[Jeremy Sussman:]

Yes, he's talking about the inventory.

[David Gagliano:]

The inventory actually.

[Randy Atkins:]

Pretty good. Yes. So sales of tons in inventory, I think, that's a pretty good, yes, it's a pretty good assumption on the clean side of it. Yes.

[David Gagliano:]

Okay. And then on the pricing of those inventory tons, are those going to be sold at spot market prices or are there any contract deferrals tied to those inventory sales?

[Mike Bauersachs:]

Yes. No, those will be basically placed on our existing sales. I wouldn't anticipate any of those being spot. I mean they're all same qualities, et cetera, that we've got in our specs for existing business.

[David Gagliano:]

Okay. And then just longer term, one clarification. I thought you said you expected '20 and '21 to be 3.1 million tons just now and then go into 3.4 million in 2021 and 4.2 million in 2022. Did I get those numbers right?

[Jeremy Sussman:]

You're off by a year, David. I think we mentioned 2 million tons this year, 2.5 million next year, 3.1 million in '21, and then kind of moving up to 4.2 million to 4.5 million to 2023.

[David Gagliano:]

All right. Perfect. That's what I needed. Again, congrats, Jeremy.

[Jeremy Sussman:]

Thank you.

[Operator:]

Another question from the line of Michael Dudas of Vertical Research.

[Michael Dudas:]

Can't compete with Dave's very comedic introduction, but ditto on all those thoughts, and well done, gentlemen, for hiring Jeremy. And we're looking forward to that big, first Analyst Investor Day in here Lexington that you'll be hosting.

[Jeremy Sussman:]

We're looking forward to hosting that.

[Michael Dudas:]

Absolutely. Randy and Mike, maybe a little more thoughts on what drove your announcement today about accelerating the CapEx and getting you ahead of the curve on some development projects. Is it a level of comfort with the operation? The ability to effectively develop the plants and the mines at a better, more efficient rate than maybe what we've seen in the past? Or has the market just gotten that much stronger and demand that much better that you want to get ahead of the curve where maybe others might be trying to chase some of that market over the next several years?

[Randy Atkins:]

Yes. I think, Mike, it's probably a combination of a number of those factors. I mean when you look at what happened to us back in the fourth quarter, we really had a body blow respect to the closure of Elk Creek for several weeks. And I think we have done a, not to pat ourselves on the back, but I think we've done a pretty good job of coming back from that pretty well. So I think with that kind of wind in our sails, we started to step back and say, all right, we knew what our menu was kind of looking forward for the next several years, we think we're comfortable, particularly where we look in terms of our cash generation to be able to deploy some of that, frankly, a little bit nearer term to developing out some of our additional tonnage. We do think we've got some other opportunities, particularly down in Jawbone and the Tiller that, frankly, when we first started, we didn't really think we were there, and we now have discovered that we think that's a very attractive opportunity for us. So I think it's a number of factors, but I do think that we are comfortable going to the Board to start some serious discussions about moving some of this forward and I think as a result, we'll hopefully be able to glean a little bit of that performance in earlier years.

[Mike Bauersachs:]

Mike, I think one other trend that we're seeing and as you know with us, we've many times gone the opposite direction of others as we see our competitors paying dividends and the large dividends in many cases and buying back shares. We think the opportunity for us is to do what we do best, which is put coal mines in. And as Randy indicated, we did have a very pleasant surprise as we reviewed the opportunity to go to the Tiller Seam at Knox Creek. All of our infrastructure is placed there. The Tiller Mine was in much better shape than we thought it would be. There's still work to do to get to the point where we would be in the Jawbone, but to have all of those planets kind of aligned at Knox Creek with excess capacity and a prep plant that's washing metallurgical coal. I think the right answer for us is to get after it. So in anything, hopefully, that helps to...

[Randy Atkins:]

And I think, Mike, in our DNA is to be a little bit of contrarian. We started this company, frankly, in the depths of the worst coal recession that we've had in quite some time. And I think as we look out, we're reasonably comfortable that there's a pretty bright future in the met space. So we're comfortable in trying to fight some bets in that direction.

[Michael Dudas:]

No. You're certainly been contrarian throughout the career as I was watching you -- especially Mike over the years. So I appreciate those thoughts. And then my follow-up, maybe for Jeremy, as you've dived into due diligence in your first week at the organization, and recognizing all the very married capital structures we've seen in the mining sector in general and coal in particular, your early vision on -- I know you mentioned something in your remarks about -- that you have a great kind of very strong balance sheet, but balancing that, not getting too ahead of yourself with the cash flow and setting up a stronger balance sheet relative to optimal bet levels and cash allocation to shareholders, which might be certainly different what we've seen throughout the other mining prospect.

[Jeremy Sussman:]

Yes. I mean just kind of -- thanks for the question, Mike. Echoing what Randy said come on the contrarian side. I think we clearly see supply being challenged going forward, whether it's here, whether it's abroad. And you look at places like India, where they've doubled their steel production over the last 10 years. And they have virtually no met coal. So if you kind of think about -- they're at 100 million tons today, they're growing 7% a year, that's 7 million tons of steel, that means they need three million to four million tons of new met coal every year. So I think when you look at all the supply that's coming online or lack thereof, I should say, it's not enough to keep up with demand. So our view is, certainly, we want to continue to grow but we want to grow the right way and you look at Elk Creek, costs in the $60 to low-60s per ton range. I mean that beats some of the long vols out there. So we want to continue to grow low-cost production, but at the same time, we are mindful that investors do care about dividends. So I mean as Randy said in his remarks, we are going to look to balance that going forward, and I think that's certainly a discussion that's -- an ongoing one that we continue to have. So thank you for the question.

[Michael Dudas:]

No. I appreciate the response. Just one final follow-up, maybe for Mike. You mentioned in your remarks about you're targeting Asia with some of the product. Is that traditional Asia? And are you -- is there a need for the quality of coal that you like to sell over there? Or is the diversity argument that they're looking at given what Jeremy mentioned that's there's not that, the supplier response that we're seeing? And how comfortable can you get those customers base to look at a name or a company like Ramaco could supply tons to that market?

[Mike Bauersachs:]

Yes. It's a great question. And what we found was more time being spent there and, of course, with Kevin on board now with his experience in that area, I know we'll be spending more time in that part of the world. But the main reasoning, it really is diversity. And with continued production impacts out of Australia that always just seem to happen. It never fails. I mean what we're seeing from customers is, first of all, they like the quality of the coal, no question about it. And getting some high-vol, in particular in some of their blends or in many cases. Of course, a lot of these customers want mid-vol, which we can also make. But they really want diversity. And when you think about entities such as Steel Authority of India, for example, there are only a few U.S. suppliers that ship coal there. And with the growth that Jeremy mentioned, it only makes sense that they would want additional suppliers in the industry.

[Operator:]

We have another question from the line of Scott Schier of Clarksons.

[Scott Schier:]

Congratulations on the move, Jeremy. Just one question left for me today. This was touched on a little bit earlier, but I was hoping you could elaborate a little bit on the impact of the 2018 carryover tons. You mentioned you have some remaining in the second quarter. Would it be possible to quantify any potential impact of these going forward? Or how should we think about this?

[Randy Atkins:]

I really think it's pretty much behind us. Just 20,000 tons, more or like, $40 per ton margin difference on about 20,000 tons or so is the impact. Shipping more like $80 business than $113 business or so. Pretty minor. With most of it, obviously, behind us. But it was, as you noted, it was the big impact in Q1 that was almost 20% of volumes, so that's certainly a nice tailwind for us going forward. I'll also say we're very proud that we've made up the tons that we would have shipped in December with our customers. Our customers are happy. All of our existing customer base from 2018 took tons in 2019. And so we were able to work our way through all these issues with really very minimal impact from a forced maturity standpoint.

[Mike Bauersachs:]

And Scott, I don't want to do the old would have, should have, could have routine, but I mean we did make comments as to basically what life might have looked like had we not had the silo incident, both in terms of additional production, which is now probably up roughly 100,000 tons. And also, frankly, what the results would have been like, which would've been closer to 16-handle than a 14-handle in the quarter. I would say that 100,000 tons are pretty interesting when you look at the clean tons per foot and the slide, which is really good to look at. I don't think you can just take that, multiply it by 4. I mean we absolutely didn't have the washing capacity even at full capacity to wash all those tons. But it shows, it really shows what the opportunity was. And there will be somewhere between 0 and 100 for that opportunity as we roll in the second, third and fourth quarter. So...

[Operator:]

[Operator instructions] We have another question from the line of Steven [indiscernible] Corporation.

[Unidentified Analyst:]

I wonder if you could just provide any further color on the status of your insurance claims related to the silo failure that you discussed in your earlier conference call this year?

[Mike Bauersachs:]

Sure. Since that call, we have had a number of points of contact with the insurance company. We actually met with the insurance company physically and laid out, I think, some of the things that they potentially were not looking at closely enough, including at least the thesis for what we believe the cause of the silo is and, of course, we'll also say that we don't think anyone will ever know exactly what caused it. The changes we're making to the silos going forward, I think, would prevent whatever would be to happen again because of the bolstering that we're doing to the remaining silos. But we're not at a point where they've denied the claim, we're not at a point where they've accepted the claim. So we do expect maybe one more site visit in the next week or so. And we should know, at least, from the standpoint if the claim is accepted or not in the next couple of weeks. So we're -- obviously, we've been fine without any proceeds, we've made things work. But we continue to believe that it should be a covered issue.

[Operator:]

[Operator instructions] There are no further questions at this time. I'd like to turn back the call over to speaker, Randy Atkins.

[Randy Atkins:]

Great. Well, thank you very much everyone for being on the line today. We hope you gave -- we gave you a little bit more insight. Again, we're very happy to welcome Jeremy to the clan here. And we look forward to speaking with you here in a few months on the second quarter. Thank you so much.

[Operator:]

This concludes today's conference call. You may now all disconnect.