Ramaco funds rare earth minerals expansion
Amid steep investor scepticism, Ramaco Resources turned to its largest shareholder to raise US$300m from a convertible bond, providing the metallurgical coal miner liquidity to fund its transition to rare earth minerals mining.
Following an earlier wall-cross, Goldman Sachs and Morgan Stanley priced the six-year CB overnight on Tuesday at a zero-percent coupon and 35% conversion premium, the aggressive-ends of 0%–0.5% and 30%–35% price talk.
To facilitate delta-hedging, the banks separately placed 2.2m common shares borrowed from an existing shareholder at US$24.25, an 8.8% discount to the US$26.59 Tuesday closing share price. The stock-loan facility was offered on swap to arbs participating in the deal to hedge their downside exposure.
Nevertheless, Ramaco shares tumbled 8.5% post-pricing on Wednesday to US$24.34 despite the built-in hedge – at last count, short interest in the name stood at 10.1%.
While the identity of the stock-loan counterparty was not disclosed, long-time backer Yorktown Partners holds a 17% stake.
Ramaco is using the proceeds to fund a portion of the US$1.74bn capex planned to build out Brook Mine, a metallurgical coal/rare earth minerals mining complex located in Wyoming. That is significantly more than the US$475m cost outlined in July and reflects the addition of a strategic critical minerals terminal and rare earth minerals processing plant.
The expansion is projected to boost rare earth minerals production to 3,400 tons annually, from 1,240 tons previously, and become free cashflow positive in 2029, when the company projects FCF at US$309.8m, climbing to US$552.2m in 2030.
Aligning with those long-tailed cashflows, Ramaco spent US$28.5m of the proceeds raised on a capped call to offset dilution from the CB up to a share price of US$54.56, double the reference price.
Ramaco was dealt a setback when it recently announced a delay in the Brook Mine processing plant to mid-2026, from year-end 2025.
The company is returning to market after having raised US$200m from a follow-on stock sale (at US$19.14) in August, boosting cash levels as of September 30 to US$274m.
Ramaco last month announced an agreement with the US Department of Energy to work on rare earth minerals mining and processing technologies. A day later, the company said it had appointed Goldman Sachs to help develop a strategic rare earth minerals terminal at Brook Mine.
The transition to rare earth minerals is made more difficult by depressed prices for metallurgical coal, which saw Ramaco generate Q3 adjusted Ebitda of US$8.4m on revenue of US$121m, the latter a 21% year-over-year decline.
Ramaco is the latest to utilise synthetic borrow facilities to fund in the convertible bond market this year. Solaris Energy Infrastructure used a stock-loan facility to facilitate a US$135m five-year CB in April.
The prepaid forward, whereby an investor buys new stock on a forward basis that it then lends to CB arbs, is another way to create synthetic borrow. Cash-strapped EV maker Lucid Motors, Chinese data centre operator GDS and Australian HPC provider IREN have all employed prepaid forwards on CB new issues.
Stock-loan facilities and prepaid forwards allow issuers to maximise proceeds on capital raises versus the alternative of concurrently buying back stock to facilitate borrow.