I'm Adding to This Rare Earth Play Even as It Gets a Kick in the Pants
There's three good reasons I'm buying here as the shares sell off after quarterly results.
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On Wednesday evening, "Stocks Under $10" name and Sarge-folio holding Ramaco Resources (METC) released its fourth-quarter financial results. They were disappointing. The stock sold off. I did add to my long position in self-defense. This is that story.
For the period ended December 31, Ramaco Resources posted a GAAP loss of $0.22 per share on revenue of $128 million. These top and bottom-line results both fell short of Wall Street's expectations. The earnings print missed by four cents a share. The revenue line missed by about $15 million, while reflecting a year-over-year contraction of 25%.
However...
According to the press release, Ramaco continues its progress towards the development of a Pre-Feasibility Study or PFS. The company is announcing Thursday that it has developed an alternative flowsheet design for the processing of its rare earth elements and critical minerals from coal deposits. Key here is that this process is both proprietary and has a patent-pending. This process has been developed by Ramaco's internal critical mineral processing team and has now been endorsed by independent third parties.
This alternative flowsheet design uses a carbochlorination process for the recovery of critical minerals. Internal corporate projections estimate that this flowsheet process will generate somewhat significantly increased incremental revenue and free cash flow when compared to the company's previously published projections which had been based on the use of the older solvent extraction method.
Ramaco wrote in that release, that the company "continues its ongoing dialogue with both government and strategic groups regarding our development progress as we clarify our product capabilities, economics and timelines over the coming months."
Balance Sheet
Ramaco closed out the quarter with a cash position of $440.347 million and inventories of $87.155 million. This puts current assets at $597.606 million. Current liabilities stand at $109.5 million, including shorter-term debt of just $56K. Yes, that's a K. That puts the company's current and quick ratios at 5.46 and 4.66, respectively. Safe to say that Ramaco will have no trouble meeting its short-to medium-term obligations.
Total assets amount to $1.141 billion, all of which is tangible. Total liabilities less equity comes to $657 million. This does include long-term debt of $451.4 million, which is more or less in line with the company's cash position.
This balance sheet is in better shape than many might think without putting in the research.
The Chart
Readers will note that despite Thursday's beat-down, the double-bottom scenario is still in play, but the second bottom has been pushed out to today. Remember that I stated that my panic point was the December low of $13.87. The stock is nowhere near that level.
The 200-day simple moving average (SMA) remains my effective pivot. For now that's goal enough. If METC gets there, then we'll think about what that means for a longer-term price target.
Note that the second half of the above double bottom is starting to look like a falling wedge. That's two patterns of bullish reversal at work plus a decent balance sheet. That's why I am adding on this weakness despite an apparently sloppy quarter.
At the time of publication, Guilfoyle was long METC equity.
