Ramaco Resources Inc
NASDAQ:METC
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Ramaco Resources Inc
Earnings Call Analysis
Q3-2023 Analysis
Ramaco Resources Inc
Despite a softer market with weaker coal prices, the company demonstrated impressive resilience in Q3. Net income skyrocketed by over 150% to $19.5 million and adjusted EBITDA increased by more than 50% to $45 million compared to Q2. Sales volumes increased to a 4 million ton annual run rate, up 39% from the prior quarter, bolstered by improved transportation and reduced inventory levels.
Looking at the horizon, the company pinned down a production expectation of 3.1 to 3.4 million tons, with projected sales ranging from 3.25 to 3.5 million tons, buoyed by strong Q3 performance and a surge in overseas demand. With 3.3 million tons of coal already under contract, including 2.9 million tons secured at an average price of $173 per ton, the future prospects appear solid.
Cost pressures are mounting, with guidance increased from $102-$108 to $108-$112 per ton. The uptick stems from inflation felt industry-wide, a common trend also noted by the company's peers. Capital expenditures (CapEx) guidance has also been tightened, although future projections suggest a downswing in 2024 CapEx pending board approval.
The company's liquidity significantly improved, doubling from $49 million at the end of the previous year to $98 million as of September 30. This was achieved despite substantial debt repayments, fueling optimism for further debt reduction and possibly reaching a net cash position next year if current market prices persist.
July and August faced industry headwinds, but September witnessed a rally in metallurgical coal prices. Strategic advantages arise from muted global production and inflated Asian demand, particularly from India and Indonesia—both of which have limited domestic supply and robust steel production growth. With high-cost operations closing or downsizing in key global markets, the company is well-positioned in a market where prices are anticipated to stay above historical norms for the foreseeable future.
In terms of growth, the company has plans to scale up to 6.5 to 7 million tons over the next several years, with minimal required increase in CapEx to achieve this target. The company's undertakings in developing rare earth elements (REE) and carbon products further illustrate a commitment to innovation and potential diversification, highlighting interesting collaborations with national labs and novel intellectual property. Efforts include advancing carbon capture using coal and developing synthetic graphite—a key area of focus given recent export restrictions by China. These initiatives are slated for commercial path clarity within the next six months.
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Welcome to the Ramaco Resources Third Quarter 2023 Earnings Conference Call. [Operator Instructions]
I would now like to turn the call over to Jeremy Sussman, Chief Financial Officer. Sir, please go ahead.
Thank you. On behalf of Ramaco Resources, I'd like to welcome all of you to our third quarter 2023 earnings conference call. With me this morning is Randy Atkins, our Chairman and CEO; and Chris Blanchard, our Chief Operating Officer.
Before we start, I'd like to share our normal cautionary statement. Certain items 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 concerning future events. These 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 statements whether as a result of new information, future events or otherwise.
I'd also like to remind you that you can find a reconciliation of the non-GAAP financial measures that we plan to discuss today in our press release, which can be viewed on our website, www.ramacoresources.com. Lastly, I'd encourage everyone on this call to go on to our website and download today's investor presentation.
With that said, let me introduce our Chairman and CEO, Randy Atkins.
Thanks, Jeremy. Good morning to everyone, and thanks for joining the call. We have a lot of positive developments to unpack this morning since we spoke in August.
From the time we started Ramaco, we have generally been somewhat idiosyncratic within our industry. For over 5 years before we went public in 2017, we were investing and developing geologically advantaged coal reserves. During most of that time, a majority of the industry was in bankruptcy and certainly not aggressively buying greenfield coal reserves to develop from scratch. Since then, we've continued to invest heavily in a rapid expansion of our business and in production growth. Many of our peers have moved in another direction. They're essentially letting their own reserves deplete without investing in new replacement tonnage.
To prove the point, over the last couple of years, we've invested almost $0.25 billion in growth capital for production and acquisition. For a young company in the space, that is a meaningful number. And I wanted to highlight this background because our third quarter essentially reflects the results of this differentiated growth platform.
In simple terms, this quarter, in almost one fell swoop, we went from being a 3 million to a 4 million-ton per annum company. And of course, we're not done in terms of production growth.
To step back and frame this a little differently, over the past years, we have done -- or tried to do several things at once. We have invested to grow production, we have paid off debt, and we still have made substantial shareholder distributions. This year, we paid down over $50 million or over 50% of our term debt. At the same time, we have grown production by 55% from 2.2 million tons in '21 to 3.4 million tons this year. Lastly, we made shareholder equity distributions -- capital distributions of total of $160 million, which include cash dividends and the value of the tracking stock.
We have been fortunate that our shareholders have seen the positive results of this. Our stock price rose by 38% this quarter and by 320% over the past 3 years. We also have had a total shareholder return over that same period of 450%. We are now hopefully getting started down the right track.
And turning to Q3. As a result of this quarter's sales surge, we grew EBITDA by over 50% from the second quarter. This was in spite of a decline in margins caused by lower index pricing. Also, based on Q3 earnings, we expect to reduce our overall term debt down to just $50 million by year-end. For reference, our total debt at this point in '22 was $125 million.
Because of both stronger-than-anticipated third quarter shipments and increased overseas customer demand, we recently increased guidance on our '23 coal shipments. We also continue to enjoy a working capital benefit over the next few quarters as we expect to continue to reduce and sell down existing inventories as we did in the third quarter.
Switching gears to operations. I want to complement the work the operating team has done in developing the 2 deep mine sections of the Berwind Mine. In the last couple of months, the Berwind Mine produced an annualized run rate of 0.5 million tons per year. Cash costs were roughly $80 per ton from both deep mine sections. If this trend continues, we expect Berwind to be among the highest margin and lowest low-vol metallurgic -- largest low-vol metallurgic mine complexes in the country.
Moving to sales and marketing. We took what we thought was a prudent approach to our '24 domestic sales business. We have now committed 1.3 million tons of coal to North American customers next year, at an average price of $167 per ton, and an additional 200,000 tons for export price against index. To compliment our sales group, this appears to be the highest 2024 sales price figure of our public peers.
And as a backdrop, when the domestic steel mills came out in early July, we declined the lock-in business at what we felt was then a low price near the bottom of the cycle. We have basically decided instead the pivot to increasing the size of our '24 export business to roughly 70% of anticipated production.
And while we march on the path to increasing our production to roughly 7 million tons over the next few years, I would note that we could continue to produce at our current 4 million to 4.5 million ton level for the foreseeable future, largely only from maintenance CapEx. I feel we are advantaged to be in this position since the market at this point is very settled -- unsettled with a number of worldwide macro factors dominating the headlines and little clarity in near-term economic direction.
On '24 production, we will be providing formal guidance after our December Board meeting next month. But next year, we plan to preserve some optionality to either increase or maintain production levels depending on how we see the markets develop.
I'd now like to turn to an update on our western operations in Wyoming. I am pleased to report that last month, overall mine development commenced at the Rare Earth Brook Mine. We have been working to test from only CORE samples over the past years. We began meaningful mine development a few weeks ago with an initial goal to obtain larger quantities of material for testing. We will now be moving into a phase of extensive sequential testing of the metallurgic and chemical compositions of the multiple areas of material. This will help us determine the overall nature and extent of the deposit.
We've now established that the mine has an extremely large unconventional rare earth deposit. The figures of its size will no doubt increase as we do more CORE testing over both larger areas and at deeper depths. NETL, our partner, has told us that this mine may be geologically unique from almost any deposits they have examined.
The challenge for us from here is to perform an overall assessment of the optimal extraction, recovery and separation techniques, which can then be used to estimate the mine's economics. We will be doing this with our consultants at SRK and with NETL. We will also be working on some novel technologies in this area with other national labs, and we will continually update our progress on this project as it goes forward.
On the carbon products front, I want to highlight 2 exciting areas we are focused on involving work at our iCAM research center in Wyoming. As many of you may have seen, China recently decided to both regulate and restrict the export of graphite used for EV batteries and a host of other electronic applications.
Opportunistically, Ramaco's multiyear development of a revolutionary electrochemical process for conversion of coal to synthetic graphite has now assumed added strategic importance. Our work on this innovative technology has been done pursuant to our creative partnership with Oakridge National Labs. We have also recently filed an application with the DOE to build a continuous pilot plant using this technology for conversion of the bituminous coal from Ramaco's Berwind Mine into synthetic graphite. Also, we have developed a low-cost process with comprehensive intellectual property rights for the production of activated carbon fiber monoliths to be used for direct air capture and other filtering applications. This quarter, we established in-house melt blowing capability at the iCAM to produce the monoliths and activate them in market quantities. We look forward to updating on the commercialization of these activities going forward.
I'd like to finish by reflecting that I believe we were at an inflection point for Ramaco. Over the past couple of years, we have spent 7x more toward production growth and capital acquisitions than we have done compared to paying dividends. Importantly, at this point, I would anticipate in '24 that we will be returning substantially more to shareholders in cash dividends alone than we are currently expecting to spend on growth capital for production or M&A.
And with that, I'd like to turn the floor over to the rest of our team to discuss finances, operations and markets. So Jeremy, please start with a rundown of our financial metrics and markets.
Thank you, Randy. As you noted, we enjoyed a strong third quarter, especially in light of weaker markets in coal pricing throughout much of the quarter. Specifically, Platts U.S. East Coast Indices fell roughly 5% in Q3 versus Q2. Despite this decline, Q3 net income grew more than 150% versus Q2 to $19.5 million and adjusted EBITDA grew by more than 50% to $45 million.
During the third quarter, adjusted EBITDA benefited by $3 million received from insurance claims proceeds in connection with the Berwind Mine outage in mid-2002 -- mid-2022, and $8 million received in connection with the Elk Creek silo failure in late 2018. The combined net income impact was $8 million. I would note that Elk Creek insurance proceeds are not reflected in our cash balance as of September 30. I would also note that the company received a tax refund of $11.8 million in September, which is reflected in our Q3 cash figure.
Turning to our key metrics. The largest variance relative to Q2 was on volume. The company shipped 1 million tons of coal, which achieved its previous guidance of reaching a ratable annualized sales run rate of roughly 4 million tons. This figure was up 39% from Q2 as we had been previously shipping at a roughly 3 million tonne per annum run rate. The increase to 4 million tons per annum is the culmination of a multiyear investment in taking the Elk Creek plant capacity from 2 million to 3 million tons per year as well as the ramp-up at our Berwind Mine that Randy touched upon.
Average realized price in Q3 fell 4% versus Q2 to $157 per ton, in line with the decline in coal indices. Production was down 18% versus Q2 to 719,000 tons, and cash costs increased 5% to $114 per ton. This was largely on the back of the 2-week paid vacation taken in July at Elk Creek due to high inventory levels, which have since come down substantially.
After a disappointing second quarter, we applaud both railroads efforts in the third quarter, which allowed us to ship at a 4 million ton per annum run rate and meaningfully reduce inventory. We anticipate that this trend will continue.
Looking ahead, we are refining a number of areas related to our 2023 guidance. First, we now expect to produce 3.1 million to 3.4 million tons, with the midpoint unchanged from prior guidance. We expect to sell 3.25 million to 3.5 million tons, which is unchanged from our mid-October update where we increased 2023 sales expectations on the back of both strong Q3 results and increased overseas demand. I would note that we now have 3.3 million tons contracted, including 2.9 million tons, at an average fixed price of $173 per ton in the Balanced Price Index.
We have increased cost guidance to $108 to $112 per ton versus the high end of the previous range of $102 to $108 per ton. The increase is largely due to continued inflationary pressures that the industry is facing as witnessed by the majority of our peers also increasing cost guidance, in some cases, substantially, just in the past month or so.
Lastly, we have tightened the range on CapEx, SG&A and DD&A, which you will see in our guidance tables. The increase in CapEx is largely related to the timing of payments. We would anticipate 2024 CapEx to be down meaningfully versus 2023 and we'll update you all on this front after the 2024 budget is approved by the Board.
Moving to the balance sheet. The company has liquidity of $98 million as of September 30, double the $49 million level as of year-end 2022. I would remind everyone that liquidity has doubled despite the substantial year-to-date debt repayments, which Randy went through earlier. We would also expect to continue to pay down debt in 2024. And if current prices hold, we would also anticipate being in a net cash position next year.
While this concludes my financial remarks, I'm now going to give a brief sales and marketing update. Since Randy and I both touched upon our sales commitments, I'm going to focus more on the market itself.
Despite challenging conditions in July and August, the metallurgical coal markets began to substantially improve in September. U.S. High-Vol A prices are $60 per ton higher today compared to the middle of August. This is despite the fact that European steel demand remains subdued and the U.S. endured almost a 2-month-long strike at the major automakers. The good news is that, on the supply side, there is muted production globally, with major downward production revisions from large players in Australia, the U.S. and Canada. These 3 countries collectively account for roughly 75% of seaborne metallurgical coal supply.
In our opinion, the reason for these continual production disappointments is simple. The majority of coal companies are not reinvesting in a depleting asset base, in large part due to financing and ESG pressures. Global met coal CapEx is a fraction of what it has historically been despite very strong and growing Asian demand.
On that front, India has now surpassed China as the largest importing country of seaborne met coal. This is important for 2 reasons. First, India has very limited domestic supply of metallurgical coal and thus this reliance on imports for substantially all of its high-quality met coal. Second, steel demand has been extremely strong this year in India. Specifically, September saw Indian steel production up 18% year-over-year, bringing the total year-to-date increase to up 12% year-over-year.
India is not the only bright spot. Indonesia is set to bring online roughly 20 million tons of metallurgical coke capacity, which began to ramp up earlier this year. To put this in some context, this figure is larger than the entire United States annual coke production. Jason and his team have continued to do an excellent job placing tons into both new and existing customers. This is increasingly in Asia, where the majority of near-term demand exists and specifically to those 2 markets I just mentioned.
The bottom line is that in terms of the overall market, while demand remains relatively tepid in the U.S. and Europe, we are increasingly encouraged by both continued supply constraints and increased Asian demand. In addition, we saw a number of high-cost operations either close or materially cut their workforce when the Australian benchmark price fell into the low to mid-$200 per ton range earlier this summer. This tells us that the cost curve has meaningfully steepened in recent years on the back of high global inflation.
Amid this supply demand backdrop, we see a market where we expect prices to remain above historical levels for the foreseeable future. With that said, I would now like to turn the call over to our Chief Operating Officer, Chris Blanchard.
Thank you, Jeremy, and good morning, everyone. Operationally, it's nice to talk about positive steps and milestones despite all the challenges that are inherent to the industry. Randy and Jeremy both mentioned the Berwind Mine ramp-up, and I'll touch on that in more detail. But first, I wanted to start with a comment on Ramaco's safety performance.
We are extremely proud of our team at the Elk Creek preparation plant for having earned a Sentinel Safety Award for the second consecutive year for the performance in 2022. Annually, only 6 coal operations, and of those, only 2 preparation plants, are recognized across the entire nation. To win as the best large preparation plant in the nation 2 years in a row is not a fluke. As a company, we salute the daily effort that goes towards safety and compliance from all our employees.
Turning to the production and sales step change. During the third quarter, we completed the final pieces of the Elk Creek plant throughput upgrade. As we had previously updated, the plant reached higher feed rates late in the second quarter, but additional flotation sales and clean coal storage options did not come online until September. At this time, all contemplated upgrades have been completed and we are operating at our higher feed rates of roughly 3 million annual clean tons much more consistently.
This throughput ramp, coupled with an extended vacation period in July, allowed us to dramatically lower the raw coal stockpile levels at Elk Creek, which had been built due to the delays on the project. We anticipate that run-of-mine coal inventories will be brought to normal levels during the first quarter of 2024. At the same time, we expect additional production increases at Elk Creek to coincide with the exhaustion of the raw coal surplus in '24. As Jeremy and Randy have both mentioned, we'll discuss more concrete guidance on the '24 metrics later this year.
At our Maben operation, we have settled into a comfortable production cadence of roughly 250,000 annual tons that is somewhat above our initial expectations. Now that the initial surface mining spread and the highwall miner have reached their steady state, we are turning to additional areas to permit and mine by these low-cost methods.
We will also explore more detailed mine planning regarding the future underground operations and potential preparation facilities. Most of the coal from Maben is now being processed and sold through our Berwind plant. As the mines at Berwind continue to grow, we may look to expand at Maben's operations and reduce our logistics costs there accordingly.
Finally, turning to the Berwind complex. We are now running 2 super sections at the Berwind Mine in the Pocahontas #4 Seam. During these first few months, we've been able to meet our budget targets for production for the mine. We believe that current production levels are not only sustainable, but there is some room for continued improvement in produced tons and additional cost reductions as the mine progresses from a leased coal position onto our owned coal.
In the near future, we plan to construct additional air shafts at Berwind next year, which will enhance ventilation in the mine and allow the start-up of the third section if the low-vol market dictates that we should do this.
Also, as the Berwind Mine continues to grow, the wind-down of the smaller mines which we started during 2022 continues. The Triple-S surface mine is now idle and our Triad #2 mine is completing its last few months of its reserves. Ultimately, the equipment and infrastructure from the Triad Mine will be used to minimize growth capital associated with the third section at Berwind. We continue to evaluate the rest of the small feeder mines into the Berwind complex and will look to quickly pivot production as conditions and markets drive us.
This now concludes management's prepared remarks, and I would like to return the call to the operator for the question-and-answer portion of the call. Operator, please open the line up for questions.
Thank you. The floor is now open for questions at this time. [Operator Instructions]
And our first question comes from the line of Lucas Pipes with B. Riley Securities.
I will keep my comments to a minimum, and that is good job on the 2024 contract, and I'll go over to the questions. But on those 2024 domestic contracts, it would be really great to get some perspective on the quality mix there. Is it kind of your standard quality where is it maybe a little bit more on the higher-end spectrum? Would appreciate your thoughts on that.
Yes. Thanks, Lucas. I'll take that. So it's pretty similar to our overall mix. And frankly, I'd say about sort of 30% of what we've committed is kind of a low vol, mid-vol, and about, call it, 70% is high-vol. As Randy noted, we're kind of working on refining the '24 budget as we speak. But certainly, in terms of the overall high-vol mix, it will come in probably a little less than kind of 2/3. So overall, I mean, certainly, kudos to Jason and his team for a job well done.
Great. Yes. Good job, Jason. My second question, Randy, you mentioned in your prepared remarks, and I don't have your exact wording down here, but you said something along the lines of this is going to be a pivotal moment as you transition more towards capital returns. I think that was the essence. And I wondered if you can speak to that.
I think there are also targets for further debt reduction in '24. So kind of trying to put it all together, how much of free cash flow should investors anticipate going towards kind of the balance sheet for additional flexibility? How much would go back in the form of dividends or buybacks? I would appreciate if you could maybe put some additional details around that.
Thanks, Lucas. So I think what I tried to highlight is we've been trying to do a couple of things at the same time. I mean, we've been trying to grow, obviously, spending a great deal of CapEx, $0.25 billion over the last few years. We've been trying to pay down debt, which we've done, and we've gotten it down to about $50 million in term debt that remains. And then we've also, of course, been trying to do distributions, which, inclusive of both the cash dividends as well as the value of the tracking stock, which we did that summer, has been a pretty nice return. I think it's about $160 million.
So moving forward, I think the bulk of our growth CapEx from current projects is in the rearview. So as we look to '24 and out, unless and until we started another large-scale development project, we are going to have growth CapEx that will be below the level that we anticipate paying out in dividends, cash dividends.
And as far as further types of capital distributions in terms of stock buybacks or anything of that nature, we will have to see. We've always left the door open to that. We've also indicated that we wanted to get a certain level of cash on the balance sheet before we started considering that. We're certainly going to be in a cash build position here over the next few years. So that's certainly something that we hope we'll be able to get to here.
But I find ourselves, frankly, in a pretty good position where we're starting to somewhat reap the benefits of what we've sowed where we don't really have to spend too much more on growth CapEx. And indeed, as I indicated, we could pretty much maintain the same level of production just from maintenance CapEx going forward, which at 4 million to 4.5 million tons, is not a -- it's a fairly tidy amount of production. So I hope that addressed most of what your question was asking.
That's helpful. Thank you, Randy, for that. I'll squeeze one more operational one in. A few moving pieces on the cost side during the third quarter and then I think also into year-end. But as you look into 2024, what's a good way to think about it kind of on a normalized level? Thank you for any color you can provide.
When you say think about it, which costs are you specifically...
The production cost per ton on the...
Yes, I'll take that, Lucas. So yes, I mean just taking a step back for a second, in Q3, obviously, overall cash costs were $114 a ton. But really, I'd say that the bulk of the increase, frankly, all of the increase, was driven by the -- we took an extra week vacation, paid vacation at Elk Creek in July to reduce inventory, which we've certainly now done. So if I think about sort of August and September costs, which are normal kind of non-holiday months, those cash costs averaged about $103 per ton, to put that into some context. Now obviously, in Q4, you've got 2 months that have a week's holiday in that. So that -- you've got to take that into account.
But as I kind of think about next year, obviously, we are going through the kind of the budget sort of as we speak. On the negative side, there's certainly continued labor and inflationary pressure. I think given the comments of our peers and just the overall economy, that's not a surprise. But that should be offset by stronger production from a full year of the Berwind Mine producing in 2 sections and a full year of the Elk Creek prep plant at kind of 3 million tons per annum.
So we'll give some more refined guidance certainly after the budget is baked. But hopefully, that gives you a little bit of kind of context, kind of where we're coming from and where we hope to go.
So would low $100 per ton seem reasonable with these puts and takes?
I mean that's certainly where we were in August and September. So I would hope that that's repeatable, especially with the positive variances that we talked about. But again, you've got some inflationary pressures. So we'll come out and kind of get you guys some more refined numbers over the next month or so.
Yes. I think, Lucas, we've got a pretty good handle on what we can control ourselves, what we have -- as I alluded to, it's a fairly murky economic environment we're operating in today. So we're not quite sure where a few pivots may go that would externally drive cost. But hopefully, we'll be able to get some general thoughts on that we'll be able to articulate to the market here within the next month or 2.
Gentlemen, I really appreciate all the color. Continued best of luck.
[Operator Instructions] And we'll take our next question from the line of Nathan Martin with The Benchmark Company.
Maybe just one quick one for clarification on the cash cost per ton guidance, the $108 million to $112 million for the full year. Is that still the way you guys expect to frame your expectations for the fourth quarter as well?
Yes. I mean, so I think, obviously, Nate, at the midpoint, I think the answer is yes. Obviously, with the range, you can get kind of lower than that in the fourth quarter and even a little bit higher. I'd just remind you that fourth quarter always is kind of the one with the most variability with the 2 weeks' worth of paid vacations, of course, for Thanksgiving and Christmas. So hopefully, that answers the question.
Yes. Perfect, Jeremy, I appreciate that. And then maybe just sticking with the full year '23 guidance for a second. On the sales side, as you guys mentioned, that seems to imply shipments of around 800,000 tons at the low end and 1 million at the high end, or maybe even 1 million plus. So kind of what gets you to the high or low end of the range? Is it the ability to move more inventories you guys seem to anticipate? Just would be great to get your thoughts there, too.
Yes. I think we've got a nominal amount of open tonnage that's left for the year, Nate, which we're going to try and obviously push out before the year-end. There's the normal variables of making sure we can get the sales across the line with the rails, et cetera. But I think that's the primary variability.
Perfect. Thanks, Randy. And then maybe sticking with the stockpile just real quickly, I think Chris mentioned hopefully getting to normalized levels maybe the first quarter of next year. I think you're down to maybe 900,000 tons, plus or minus. What's kind of normal there for you guys at Elk Creek?
Chris, go ahead.
Nate, so the inventory levels that we've put out are sort of combined clean and raw. But just from a run-of-mine raw standpoint, the size at Elk Creek is we'd like to be running somewhere around 200,000 tons. So we have some flexibilities for the ebbs and flows of production without impacting the preparation plant. But never in a position where we're having to rehandle coal or have any concerns about it sitting. So if that answers your question.
Got it. Yes. I was just trying to figure out how much more there was to go. And I think you guys mentioned as well, hopefully, kind of a working cap tailwind for the next few quarters because of that. Okay.
Nate, to add on a little bit to Chris. I mean we've had kind of a funny year because of the fact that we had sort of built up inventory in anticipation of sort of flipping the switch at our prep plant and to knock the production up by 1 million tons from 2 million to 3 million tons. So we had a little bit of delay getting that plant, both open and then ramped up to full processing capacity. So that's what's caused the inventory.
And I think in general, we will certainly refine it, but at the moment our expectation is we'll have that inventory back down to normal levels, probably just after the first quarter of next year.
Great. Appreciate the thoughts there, guys. And then maybe just thinking about a little bit intermediate term. Randy, you made the comments you guys are very comfortable where you are now, maybe a 4-million-ton plus kind of run rate next year. Looking at next year, we don't know what the macro economy is going to bring with some of the issues that we're all keeping a close eye on. But let's say, the market cooperates and you see more demand for your product. Just curious what's kind of the next stage of growth in development for Ramaco on the coal side? What projects are you looking at? Maybe what kind of growth CapEx would that entail?
Yes. I think basically, Nate, we have, as I've indicated, based some optionality into next year depending upon how we see the market. We can kind of continue generally about the same, call it, 4-million-ton level. We could ramp that up without really bringing on much new growth CapEx at all to a higher level. I won't give you the exact tonnage right now, which we'll probably try to provide a little bit more clarity on after our budget, but we could ramp that up reasonably substantially next year if we saw the demand there.
And I think going forward, we're kind of a company that hits mostly singles and doubles as opposed to trying to go for grand slams in terms of production increases. We've got a number of projects out there on the horizon, one of which we've talked about before is taking our Maben complex, which we're now operating as sort of a surface high-vol proposition and looking at the possibility of taking that into a deep mine production, which attendant prep facilities, et cetera. But that's down the road, we're not there yet.
But we have a ramp that I think Jeremy has put in our presentation, which gets us to about 6.5 million to 7 million tons over the next couple of years. And we're very comfortable that can be accomplished with nominal growth CapEx.
Got it. That's helpful. Yes, it used to be -- nice to see that chart in there as well that kind of broke out the CapEx. So that's what I was trying to kind of get to. So I appreciate that.
And then maybe just one final one, if I could, just shifting directions a little bit. Randy, I appreciate your prepared remarks on both the REE and carbon product initiatives. But could you maybe give us an update on the timetables there? Kind of what stage are you at in each of those? And how long do you think it could take before you do have a commercially available silo product for either?
Yes. I think, Nate, the way I'd like to answer that is, peculiarly, the rare earth business is an entirely different type of mining exercise than coal mine. In coal mining, you're dealing with bulk. You can find, see and touch a lump of coal. When you're dealing with rare earth, you're dealing with microscopic metal deposits that are measured in parts per million.
So the real challenge is, once you found a sufficient level of rare earth, to find it in areas of concentration, which you could economically extract from and then to figure out what would be the appropriate sort of processing refinement techniques that would be able to get those metals out. We've got some very interesting things going on. We're doing some deep coring now because we think that there's a possibility that there may be some deposits, which we've missed since we've pretty much only used cores that have been originally developed from our coal mining exploration, which was generally fairly shallow, in the couple of hundred feet, 100 to 200 feet levels. And we're going to go down to a lower level to really test how much might be down there much lower.
So I think that's a roundabout way of saying what we're going to be involved in is more testing, not only on the dimension of the deposit, but more importantly, on sort of the chemical and metallurgic characteristics, which really define the ultimate economics. So I don't want to put a time frame on it that button-holds us in, but I'm hopeful by next year, probably sometime in the first half, that we'll be able to have some pretty solid preliminary thoughts on where we are in terms of defining that deposit.
And of course, we're getting a lot of help from the national labs, not only our friends at NETL, but we've got a host of other national ads we're working with as well on not only just the deposit aspect but also on some of the aspects of processing and, frankly, magnetic production down the road. Because if the deposit bears out to be the size and conformity that we hope, it could be a very important deposit from a national standpoint. So that's kind of where we are on rare earth.
On the carbon products, what we're trying to do is we've identified sort of 2 areas that we think have a lot of promise and could potentially use a lot of coal. And we've got some very interesting, pretty novel intellectual property that we've been able to develop around these with the national labs again. One is sort of taking coal and using it to make really a carbon fiber type activated carbon, where we could use that as a form of direct air capture, which is kind of interesting. And we're essentially using coal to capture CO2.
And the other one is the idea that we would be able to basically do some other forms of development on graphite, where the Chinese just put the [indiscernible] on export of graphite, where we've been working for several years with a bridge on developing synthetic graphite essentially from [indiscernible]. And so that is taking on a little bit more importance and urgency. And we're actually thinking about trying to get a prep plant built, a Permian pilot plant built, in West Virginia to be able to exploit that.
So in terms of the sort of the near-term commercialization of those 2, again, I would probably say, give us about 6 months or so to sort of see where we are on the sort of commercial critical path, and we'll be able to give you a lot more definition as to when we are able to turn the sort of technology into actual some form of sales or further development.
Perfect. Yes. We'll be waiting for more info on that for sure. And then I guess just curious real quickly to the feedstock and the carbon products initiatives, would you plan to use your own production there or no?
In terms of the coal that would go into the carbon product feedstock, Nate?
Correct. Yes. Correct.
Yes, great question. So the answer is we would be during production. We have been doing our testing on synthetic graphite from our low-vol coals at Berwind. And indeed, that's where we're sort of currently contemplating we build a pilot plant.
And in terms of the sort of the melt blown activated carbon that we would use for direct air capture, we've been using our Wyoming coal, and we've got plenty of that.
So our general thesis is, as time goes by, my bandwagon has been the use of coal for higher-value products under the theory that coal is too valuable to burn. And if you can use it to make something else with it, it might be more valuable to those of us in the industry, we would go in that direction. So that's kind of where we are on that.
Got it. So just wanted to confirm that could possibly be yet another avenue for your products to move into. Okay. Perfect. Guys, I really appreciate the time and information and best of luck in the fourth quarter.
This concludes the Q&A portion of today's call. I would now like to turn the floor over to Randall Atkins for additional or closing remarks.
I'd just like to, as always, thank everybody for being on the line with us today. Hopefully, we've been able to enlighten you. We've had a pretty good quarter. We will look forward to catching up with everybody again after the first of the year for our year-end results. And everybody, have a good day.
Thank you. This concludes today's Ramaco Resources Third Quarter 2023 Earnings Conference Call. Please disconnect your lines at this time. And have a wonderful day.