Ramaco Resources Holds 25% Upside Potential, Analyst Says In Bullish Initiation

Shares of Ramaco Resources Inc (NASDAQ: METC), a developer of metallurgical coal, have about 24-percent upside potential that's contingent on continued execution by the company, according to B. Riley FBR. 

The Analyst

Analyst Lucas Pipes initiated coverage of Ramaco with a Buy rating and $10 price target.

The Thesis

Ramaco has a growth-oriented profile, with six mines in production and the remainder in various stages of development, Pipes said in a Thursday note.

The company's flagship asset Elk Creek is likely to achieve production of 1.7 mt in 2018, which could increase to 2.2-2.4 mt in 2022, the analyst said.

Considering all facilities, the company expects annual production of 4 mt in 2022, Pipes said. 

Exports should account for about 20 percent of Ramaco sales in 2018, but the share of exports is likely to improve in the years to come, according to B. Riley FBR. 

"As Ramaco establishes its brand and product quality in the marketplace, realizations (both on domestic and international sales) should, we believe, start to move toward the high-vol A index," Pipes said. 

High costs in Q1 — a function of weather, poor rail service and geology issues — may not persist, the analyst said. 

"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." 

The Price Action

Ramaco shares were up 1.24 percent at $8.18 at the time of publication Friday. 

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