We came across a bullish thesis on Ramaco Resources, Inc. (METC) on Value Degen’s Substack by Unemployed Value Degen. In this article, we will summarize the bulls’ thesis on METC. METC Technologies, Inc.'s share was trading at $10.77 as of Sept 25th. METC’s trailing and forward P/E were 9.97 and 5.78 respectively according to Yahoo Finance.

A group of miners in hard hats and safety gear descending into a deep coal mine.

Ramaco Resources (METC) is a small-cap metallurgical coal producer, the company is led by founder and CEO Richard Atkins who holds a 5.8% ownership stake who operates the company with a strategy focused on balancing sustainable growth and free cash flow generation keeping investor interests aligned. METC aims at a production rate of 5 million tons in 2024 and plans to reach 7 million tons in the medium term. This trajectory places METC in direct comparison with its larger competitor Warrior Met Coal (HCC) which is also expanding its capacity.

Ramaco could be a good buy despite earning less EBITDA in 2023 as the company is set to generate between $400 million and $600 million annually. METC is also among the lowest-cost producers giving it a competitive edge with production costs at $108 per ton. This efficiency, along with a clean balance sheet and timely, under-budget growth projects, showcases the management’s ability to deliver sustainable long-term value.

In addition to its coal operations, Ramaco’s rare earth element discovery in Wyoming is of strategic importance valued at $37 billion as this deposit includes significant Gallium reserves, which are particularly important given China’s recent ban on exports. While extracting and processing these rare earth elements will require significant future capital expenditure, this development offers a valuable “lottery ticket” for investors, providing exposure to a high-growth market without additional upfront costs.

At current valuations, Ramaco offers a compelling upside as it plans to significantly increase its annual production, and low production costs, making it one of the most efficient in the industry. Additionally, the potential discovery of rare earth elements at its sites adds to its attractiveness without affecting its main coal business. These factors highlight Ramaco as a well-managed company with strong growth potential and the possibility of good returns for investors. Trading at an Enterprise Value / EBITDA ratio of 5x, the stock has the potential to see a 6x return over the next few years. This estimate does not even factor in the additional value the company could unlock through rare earth element production.