METC: Brook Mine Ramp-Up Will Strengthen US Rare Earth Supply Chain

Key Takeaways

• Expansion into rare earth mining, supported by federal collaboration, diversifies revenue beyond coal and aligns with national supply chain priorities.
  
• Leading cost efficiency in metallurgical coal strengthens resilience, margins, and future growth amid stable global steel demand and industry consolidation.
  
• Heavy reliance on uncertain government support and volatile commodity markets heightens financial and operational risks, threatening both diversification efforts and long-term earnings stability.

Catalysts

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

• Ramaco's advancement of the Brook Mine into America's first new rare earth mine in over 70 years-bolstered by extensive federal government collaboration and potential policy support amid rising U.S. demand for domestic critical minerals-positions the company to unlock new, high-margin revenue streams beyond metallurgical coal, with initial commercial oxide production targeted as soon as 2027.
  
• The persistent global need for steel, driven by ongoing infrastructure growth in emerging markets and the lack of short-term substitutes for metallurgical coal in steelmaking, supports Ramaco's expectation of durable demand, stabilizing coal volumes and pricing, and underpinning future revenue and EBITDA growth in its core business.
  
• The company's cost leadership-operating in the first quartile of the U.S. met coal cost curve and ongoing investment in mining efficiency-enhances net margins and cash generation potential, enabling Ramaco to withstand weak market periods and capitalize robustly when prices recover.
  
• Federal policy shifts prioritizing domestic supply chain resilience and national security for critical minerals, as evidenced by multi-agency U.S. government engagement and discussions around price supports/offtake agreements, could further accelerate Ramaco's rare earth scale-up and de-risk future revenue streams.
  
• Industry consolidation and environmental restrictions on new metallurgical coal supply favor established low-cost producers like Ramaco, supporting pricing power and reducing competitive threats, thereby enhancing long-term earnings visibility and potential valuation upside.

Ramaco Resources Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Ramaco Resources's revenue will grow by 11.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from -3.2% today to 15.3% in 3 years time.
• Analysts expect earnings to reach $134.6 million (and earnings per share of $0.83) by about August 2028, up from $-19.9 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 15.0x on those 2028 earnings, up from -69.1x today. This future PE is lower than the current PE for the US Metals and Mining industry at 21.2x.
• Analysts expect the number of shares outstanding to grow by 4.73% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.49%, as per the Simply Wall St company report.

Ramaco Resources Future Earnings Per Share Growth

Risks

• The company's rare earth and critical minerals business is heavily reliant on future government support, price supports, or industrial procurement agreements, which are subject to policy risk and uncertainty; if these do not materialize as expected or are delayed, projected revenue growth and diversification may fall short, impacting long-term earnings and share price.
  
• The assumptions for rare earth pricing and demand-particularly for high-value materials like scandium-are based on expected future U.S. demand growth and willingness of Western customers to pay premium prices for domestic supply; if global adoption, customer demand, or price realization do not meet projections (especially given near-term demand below projected supply and Chinese pricing manipulation), revenue and margins from the rare earth platform could be materially lower than forecasted.
  
• Despite strong cost control, Ramaco remains primarily exposed to the volatile economics of metallurgical coal, which faces ongoing long-term risks from global decarbonization efforts, alternative steelmaking methods (like electric arc furnaces), regulatory constraints, and ESG-driven capital allocation, all of which could structurally weaken coal demand, depress volumes, compress net margins, and ultimately reduce earnings power.
  
• The company's major capital investments into rare earth development require substantial up-front and ongoing funding, potentially straining the balance sheet and increasing financial risk if cash flows from met coal operations decline or if rare earth commercialization timelines and cost estimates are not met, jeopardizing future profitability and liquidity.
  
• The market for specialized critical minerals such as scandium remains thin and highly sensitive to both technological adoption and geopolitical considerations; any inability to secure large, long-term take-or-pay contracts or to reliably forecast customer needs could result in overcapacity, weak pricing, and persistently low utilization of the new mining and processing assets, creating negative drag on overall earnings growth.

Valuation

• The analysts have a consensus price target of $21.667 for Ramaco Resources based on their expectations of its future earnings growth, profit margins and other risk factors. 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 analyst's consensus, you'd need to believe that by 2028, revenues will be $877.8 million, earnings will come to $134.6 million, and it would be trading on a PE ratio of 15.0x, assuming you use a discount rate of 7.5%.
• Given the current share price of $20.85, the analyst price target of $21.67 is 3.8% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• 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.