Shifts Away From Coal And Overvaluation Will Mar Future Prospects

Key Takeaways

• Exposure to decarbonization policies and technological shifts may erode demand for core products, causing earnings pressure and greater revenue volatility.
  
• Heavy reliance on optimistic rare earth forecasts and limited diversification heightens risk of disappointing returns and financial vulnerability.
  
• Strategic expansion into rare earths alongside coal positions Ramaco for diversified, stable growth as federal support and customer agreements bolster resilience against market volatility.

Catalysts

Engages in the development, operation, and sale of metallurgical coal.

• The company's significant exposure to global decarbonization policies and the accelerating transition away from coal in both developed and developing markets threatens to undermine long-term demand for both its metallurgical coal and emerging rare earth operations, potentially resulting in sustained revenue declines and persistent earnings pressure.
  
• Ramaco's heavy concentration in metallurgical coal, combined with the increasing risk of technological displacement from hydrogen-based steelmaking and increased steel scrap recycling, could accelerate demand erosion over the coming decade, leading to volatility in revenue and downward pressure on net margins as customers transition to alternative materials.
  
• The planned expansion into rare earth elements at the Brook Mine is heavily reliant on optimistic price and demand assumptions, especially for commodities like scandium, where future market size and achievable pricing remain speculative and are exposed to both supply gluts and rapid shifts in end-use technology, creating a high risk of disappointing returns and earnings shortfalls.
  
• Progressive tightening of ESG regulations, financing restrictions, and insurance challenges for coal and critical mineral projects may sharply increase Ramaco's cost of capital, constrain access to required funding for mine development and rare earth processing plants, and threaten the company's ability to maintain its planned growth trajectory, ultimately putting future net margins and liquidity at risk.
  
• Ramaco's limited geographic and customer diversification, combined with potential trade barriers or tariffs affecting U.S. coal and critical mineral exports, increases vulnerability to local operational disruptions and shifts in global policy, which could reduce revenue stability and magnify negative impacts on future earnings.

Ramaco Resources Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Ramaco Resources compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Ramaco Resources's revenue will grow by 8.8% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from -3.2% today to 2.5% in 3 years time.
• The bearish analysts expect earnings to reach $20.1 million (and earnings per share of $0.36) by about August 2028, up from $-19.9 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 65.8x on those 2028 earnings, up from -78.2x today. This future PE is greater than the current PE for the US Metals and Mining industry at 21.6x.
• Analysts expect the number of shares outstanding to grow by 4.89% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.47%, as per the Simply Wall St company report.

Ramaco Resources Future Earnings Per Share Growth

Risks

• The Brook Mine rare earths and critical minerals project is receiving unprecedented support from federal agencies, including the Department of Energy and potential engagement from the Department of Defense, which can accelerate project development and improve future revenues and earnings for Ramaco.
  
• The transition to a dual platform business model with both metallurgical coal and rare earths positions Ramaco to capitalize on the scarcity and strategic importance of domestic critical minerals, offering a substantial new revenue stream that could diversify and stabilize earnings over the long term.
  
• Preliminary economic analysis of the Brook Mine indicates a pretax net present value of $1.2 billion and strong projected EBITDA by 2028 and 2029, suggesting that successful commercialization of the rare earths business could significantly boost Ramaco's long-term profitability and share price.
  
• Ramaco continues to operate its metallurgical coal business in the first quartile of U.S. cash costs and is achieving record production levels, supporting solid free cash flow generation and resilience in net margins even during periods of coal price volatility.
  
• Secured long-term offtake agreements and proactive engagement with prospective rare earth customers, including major defense contractors, as well as a newly enacted production tax credit for U.S. metallurgical coal, collectively enhance future revenue visibility and the company's capacity to withstand market downturns.

Valuation

• The assumed bearish price target for Ramaco Resources is $14.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Ramaco Resources's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $27.0, and the most bearish reporting a price target of just $14.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $807.0 million, earnings will come to $20.1 million, and it would be trading on a PE ratio of 65.8x, assuming you use a discount rate of 7.5%.
• Given the current share price of $23.59, the bearish analyst price target of $14.0 is 68.5% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.