Ramaco Resources (Pending: METC) filed an S-1/A with the Securities and Exchange Commission for its upcoming initial public offering. The company intends to raise $81 million through its sale of 6 million shares at a marketed price range of $12 to $15. Of those shares, approximately 37% (2.2 million) will be sold by company insiders. Ramaco has an additional 900,000 shares as an overallotment option for its underwriters.

If Ramaco Resources completes its IPO, it would be the first coal IPO since CNX Coal Resources (NYSE: CNX) on June 2015. CNX was forced to downsize its IPO due to low demand and declining coal prices.

Assuming Romaco Resources prices at the mid-point of its range ($13.50) it would have a market cap of $527 million. The company is expected to price on Thursday evening (Feb 22.).

The underwriters for the IPO are Credit Suisse, Jefferies, BMO Capital Markets, Clarksons Platou Securities and Seaport Global Securities.

Business overview

Based in Lexington, Kentucky, Ramaco Resources is a developer of high-quality metallurgical coal with operations located in southern and central West Virginia, southwestern Virginia and southwestern Pennsylvania. The company reports that it has four near-term development projects that it expects will be fully financed through 2020 with the IPO, its projected cash flow and its current investments and cash on hand. The company reports that it made its first commercial production of metallurgical coal in Dec. 2016. Metallurgical coal is used to make coking coal, which is used to produce steel. The company is backed by Yorktown Partners LLC and Energy Capital Partners, both of which invest in the energy sector.

Executive management team

The executive chairman and director of Ramaco Resources, Randall Atkins, has served in those capacities since Aug. 2015. He has more than 35 years of experience with energy investments and financing activities. Since 2011, Atkins has also served as the chief executive officer and chairman of Ramaco, LLC. From 2009 to 2011, he worked as a banker at J.P. Morgan. He formed Brook Investment in 2004, which provided investment banking services to the energy and mining fields. Atkins has served in a variety of financing and investment capacities for numerous energy companies since 1977. He holds a Bachelor of Arts from Duke University and a Juris Doctor from Washington & Lee University School of Law.

The chief executive officer, president and a director of Ramaco Resources, Michael Bauersachs has served in those roles since Aug. 2015. He has more than 30 years of coal-industry experience, serving in multiple executive-level positions. Since 2011, Bauersachs has served as president of Ramaco, LLC. Prior to that, Bauersachs held executive positions for Trinity Coal, Massey Energy Company, Arch Mineral Corporation and Ziegler Coal Holding Company. Bauersachs holds a Bachelor of Science from Illinois College and a Master of Business Administration from Southern Illinois University Edwardsville.

Financial highlights and risks

Ramaco Resources was incorporated in Oct. 2016, so it does not have any historical financial data. The company supplied financial data of its accounting predecessor, Ramaco Development. Ramaco Development reported no revenue for the year that ended on Dec. 31, 2015, and a net loss of $2,335,000. For the nine months that ended on Sept. 30, 2016, the company reported that it had total revenues of $1,465,000 and a net loss of $5,980,000. During the same time period in 2015, the company reported it had no revenue and a net loss of $901,000.

The company identifies several risk factors, including the fact that none of its properties have yet been developed into producing coal mines. The company reports that if it has any delays in development of its properties, it may be adversely affected. The company also identified its lack of operational history as a risk factor for people who are trying to evaluate the company's ability to implement its strategy. Ramaco Resources intends to use $10.7 million of its proceeds to pay off its promissory note to Ramaco, LLC. The company states that it has not yet allocated the remainder of its IPO proceeds.

The coal industry has been extremely volatile in the past few years, and numerous coal companies have filed for bankruptcy protection since 2012, including Peabody Energy, one of the largest private sector coal producers, which filed for bankruptcy protection in April 2016. Although prospects for the coal industry have improved, uncertainty adds risk.

Ramaco Resources reports that the metallurgical coal industry is highly competitive. The company identifies numerous potential competitors, including Blackhawk Mining, LLC, Coronado Coal, LLC, Alpha and others.

Conclusion: Consider Holding Off

The company has recently commenced commercial production and expects to be fully financed by 2020.

However, Ramaco Resources has no operational history, and its predecessor had consistent losses. Additionally, volatility of the coal industry and uncertainty surrounding future prices, makes it difficult for us to evaluate this company.

We recommend that investors avoid this initial public offering and wait to see how it progresses in the future with its coal mine developments.