American Resources Corporation (NASDAQ:AREC) Q3 2023 Earnings Call Transcript

American Resources Corporation (NASDAQ:AREC) Q3 2023 Earnings Call Transcript November 14, 2023

Operator: Good day, everyone, and welcome to today’s American Resources Corporation Third Quarter 2023 Conference Call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question-and-answer session. [Operator Instructions] Please note this call may be recorded and I will be standing by if you should need any assistance. It is now my pleasure to turn the conference over to Mark LaVerghetta. Please go ahead, sir.

Mark LaVerghetta: Thank you, and good afternoon, everyone. On behalf of American Resources Corp, I would like to welcome everyone to our third quarter of 2023 conference call and business update. We do always welcome this opportunity to provide an update on our businesses and discuss our accomplishments we have made over the past several months and how we are uniquely positioned within the markets that we serve for our American Carbon, American Metals, and ReElement Technologies. Also on the call today is Mark Jensen, American Resources Chairman and CEO; Kirk Taylor, our Chief Financial Officer; and Tom Sauve, our President. So Mark and Kirk and I will provide some prepared remarks, then we will get into the question-and-answer part of the call.

A well-dressed insurance broker presenting a portfolio of investment and risk advice services to a client.

Before we kick it off, I would like to remind everyone of our normal cautionary statement. Certain statements discussed on today’s call constitute forward-looking statements within the meaning of the Private Security Litigation Reform Act. These forward-looking statements are subject to risks, uncertainties and other factors, which could cause actual results to differ materially from the results discussed in the forward-looking statements. When considering forward-looking statements, you should keep in mind the risk factors, uncertainties and other cautionary statements, which are laid out in our press releases and SEC filings. We also do not undertake any obligation to update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise.

Lastly, for anyone wanting to ask questions today, I believe you will need to dial in by phone to get into the queue. And we are going to begin today with a few comments from Kirk Taylor, our Chief Financial Officer. Kirk.

Kirk Taylor: Thank you, Mark, and thank you, everyone, for taking a few moments out of your afternoon. Over the past several months, we have continued our execution on solidifying our strategic positioning within our addressable markets, which we believe positions our company for attractive long-term value creation. In doing so and in conjunction with the direction of our strategic committee, we have embarked on several initiatives to unbundle our unique platform of assets to better unlock value for our shareholders and position each entity as a standalone company. We will go into some detail on several of these initiatives throughout this call. First, I will start with the update on ReElement technologies. As we have previously discussed, our intention is to separate our wholly-owned ReElement Technology division into a standalone public company, given the strategic positioning and groundbreaking innovation as a world-leading refining technology platform using our patented chromatography technology to refine critical minerals as well as rare earth elements.

We believe ReElement is a very unique entity and provides investors with a tremendous value proposition. This past January, we filed our initial Form-10 registration statement with the SEC to begin that process. We have addressed all the comments and questions from the SEC regarding the spin-off at separation and feel that we are in a good position to continue to update our filings, as it relates to quarterly updates and periodic news flow. All of our filings related to this can be found at sec.gov under ReElement Technologies. We also converted ReElement Technologies, LLC to Indiana Corporation to further advance the separation process. We recently announced a bond offering approval in an amount up to $150 million to finance our dedicated lithium refining facility in Knott County, Kentucky.

We are tremendously excited to work with the local county and the workforce there to develop a unique platform as a domestic refiner of lithium, battery grade lithium. We also recently closed on our previously announced nearly $45 million tax increment financing bond for our Marion Refining facility. Again, we tremendously look forward to working with local community, workforce and government to enhance both of these projects. We continue to discuss many strategic relationships, both in commercial and financial arrangements with domestic and worldwide partners on ReElement. Every day is exciting and every day we are progressing. Next, I will touch on our spec. So as previously discussed, American Resources sponsored AMAO, American Acquisition Opportunity, Inc.

We are extremely proud of our team with the execution of the recent closing of the merger between our sponsors back American Acquisition Opportunity and its target RoyaltyMajor Corporation. American Acquisition Opportunity, Inc., has been renamed Royalty Major Holding Corporation and now trades on NASDAQ under RMCO and its warrants RMCOW. When we had IPO’ed AMAO as its main sponsor, we sought out to merge with a dynamic cash flowing company that did not require a complicated or highly diluted financing as part of this D SPAC process. We wanted to make sure it was a clean platform to thrive as a public company. After assessing a number of potential targets with several required complex structures, we paved the path forward to bring Royalty Major Corporation to the public markets through the D SPAC merger with AMAO.

As a reminder, RMCO is a next generation royalty company, focused on expanding its current cashflow and revenue streams by identifying undervalued assets within sectors, including natural resources, land, sustainable development, controlled environment, agriculture, and intellectual property, while constructively supporting the communities in which those businesses operated. Following the closing of this transaction, American Resources remained the shareholder approximately 3.25 million shares and warrants a fully diluted basis. The underlying registration of these shares was filed yesterday, and I would direct anyone wanting to learn more information to go to sec.gov. Search under RMCO, you will find all the relevant filings. And again, to reiterate, as of last week, the combined company trades under RMCO on NASDAQ as Royalty Management Corporation, a royalty management holding corporation.

Now we will dive into our quarterly summary. Over the third quarter of 2023, we again showcase our operational flexibility, operating cash flow positively and generating approximately 3.5 million in net income, while continuing to position our unique set of assets while executing on our value creating initiatives. The only new debt that we took on over the past two quarters was associated with the issuance of the tax exempt industrial development bond for the development of our Wyoming County, West Virginia buying complex, as well as mine development financing from one of our key customers to develop the Carnegie 1 and Carnegie 2 expansion. As of today, November 14, 2023, our current shares outstanding is just over 78.2 million Class A common shares.

Cash on hand as of the end of third quarter was approximately $44.7 million. Lastly, and it is probably worth reiterating, all of our excess cash above FTIC limits are held at a top two U.S. based bank. Our unique platform of assets is in great position to deliver what we believe is attractive returns and value to our shareholders, including our mining assets, our ReElement Technologies division, as well as our American Metals division, which we are in the process of strategically positioning within the electrified economy. I would like to now turn the call over to Mark LaVerghetta for some additional comments. Mark.

Mark LaVerghetta: Thanks, Kirk. As we frequently state, our ReElement Technologies division represents an incredibly exciting and very strategic opportunity for us. We have never been involved with an entity that in our opinion has as much upside than ReElement. As we continue to strategically position ourselves in the global supply chain for critical minerals, I think it is important to reiterate and emphasize our position within that market. ReElement is an innovative and advanced refining platform for critical minerals. While we believe we are a high value component within the recycling value chain, we are not solely a recycling platform. As highlighted by our recent announcement of producing battery grade lithium carbonate from spodumene bearing ores.

Our ability to produce high-purity lithium products and rare earth oxide from natural feedstocks showcases our platform’s flexibilities and differentiates us. However, we do believe our position in the recycling market and sustainable supplier of critical minerals is highly important as we move towards a highly mineral-dependent electrified economy. That being said, and again in our opinion, recycling platforms alone are going to have a hard time, bridging the gaps to an end-of-life and manufacturing volumes materialize to levels that can support their CapEx and OpEx fundamentals. Additionally, when we started ReElement, our mission was always focused on how to most efficiently and effectively deploy critical mineral refining capacity Outside of China.

It has always been our belief that attempting to deploy legacy Chinese refining technology in the United States or Europe or much of the industrialized world for that matter would pose a real challenge. Those type of facilities are extremely expensive to build and operate, due to the harsh chemicals, the waste output and maintenance at large scale. Even though it is still early in energy transition, I believe we are starting to see those challenges manifest as projects utilizing solvent extraction or HydroMet are getting delayed or canceled. Of note, we are now referring to our Noblesville, Indiana facility as our commercial qualification plan, rather than a pilot facility, to give a more accurate description of what we actually do there, especially given the variety of feedstocks that we frequently receive, test, validate and design for in large scale.

Our innovative and advanced refining methods using chromatography, displaces the toxic conventional methods which are used in China and we believe is an important linchpin in making the United States competitive within the electrified economy. Just to recap some of our commercial qualification milestones, meaning the production of certain ultra pure elements and compounds at commercial scale within our Noblesville plant and validated by third-party labs. These are, we produce greater than 99.5% pure rare earth elements such as neodinium, presiodinum, and dispersium from end of life waste magnets, greater than 99.9% pure lithium from end of life NMC lithium ion battery chemistries. 99.9978 pure lithium carbonate, produced from LFP battery manufacturing waste and 99.96 pure lithium carbonate from spojemine bearing pegmatite ores.

And as we frequently, we are frequently sending material out to our third-party labs to verify our own results. We recently again verified neodinium oxide at a 99.57% purity with presiodinum being the most predominant contaminant, where our NDPR mixed oxide was produced at a 99.96 purity, where magnet manufacturers actually prefer a mixed NDPR oxide. Another meaningful attribute and differentiator of our technology is its ability to modulate scale within a smaller footprint, allowing us to grow more congruently with available feed stocks and as market demand grows, meaning we do not have to make huge CapEx bets and wait for feed stocks to materialize. We design for the specific feed stock, we spend less and build accordingly to the market. While our intrinsic operating parameters do not change as we scale up.

The world has never really needed innovative innovation and critical mineral refining until now or maybe we just became complacent with China’s dominance of the overall market. But that is obviously changing and that there is the value proposition of ReElement. The world needs advancements in refining these raw materials that power our modern day technology and we believe we provide the most efficient solution while also being in the lead position to do so. Lastly and to add to Kurt’s comment on the strategic spinoff of ReElement, I have frequently stated that this is not an exercise of speed, but rather an exercise of value creation. There is strategic value in communicating our plan to separate certain assets from the holding company as well as our desire to be transparent with our investor base.

While certain things are within our control, others are not. However, I would refer to the closing of the Wyoming County coal tax exempt bond issuance, the closing of the merger between American Acquisition Opportunity and Royalty Management Corporation, and the recent procurement of our Marion facility and incentive package, which Mark will elaborate on here soon as recent executional successes. We truly believe ReElement has the opportunity to create substantial value for our shareholders and the decision we, the decisions we make, and the time associated around the entire process, while sometimes outside of our control are based on maximizing that value the best that we can. I would like to now turn the call over to Mark Jensen for some additional comments.

Mark Jensen: Thanks Mark, and thanks everyone for joining. It is been an exciting quarter for us, in terms of a number of avenues, but more importantly, our team has been extremely active this quarter on positioning and the execution at all of our divisions. Our business model within these divisions was set out to displace and disrupt legacy industries through technology efforts, streamlining of the businesses, and we are exceeding on or succeeding on all fronts. We truly sit at a very interesting position within our ability to bring cost competitive refining of critical minerals to the domestic and global market in the most environmentally safe and sustainable methods ever developed. At no point in our history has our business been better positioned to serve the markets we operate in and capitalize on the broad asset base that we built, the talent that we possess within our team and our ability to produce, process and refine raw materials that are in very high demand across the entire platform.

We are extremely excited about the opportunities for all of our entities, as we continue to execute upon our strategic plan to unbundle these assets, extract value for our shareholders and better position the asset bases within each of their divisions for growth as well as capital allocation and with developing teams under each of the separate operating companies. Let me touch briefly on the monetization of our Carbon platform. As we have reiterated, we remain highly focused on monetizing our substantial platform of carbon assets, either through operations, leases or divestitures. As we have previously communicated, we have successfully closed on our $45 million tax exempt industrial bond offering through the West Virginia Economic Development Authority, which will fund the expansion technological improvements to the existing metallurgical carbon processing facility at our Wyoming County Complex.

We have commenced our development work there and recently put out our first development production of mid-vol carbon on the ground as we began facing up the first deep mine. Subsequent to the closing, we have seen an increased interest in our carbon assets from several parties. These include, an unsolicited bid for all of the assets associated with American Carbon for the implied enterprise value of approximately $260 million. This offer was not accepted by our Board of Directors due to the duration and structure of the consideration payments. We have also received and entered into a non-binding LOI from a non-affiliated strategic party to purchase McCoy Elkhorn, Perry County and Wyoming County complexes for a total consideration of approximately $280 million or $3.58 per share.

We have signed that LOI and are working with that party on that process. We are seeing a round of consolidation taking place within the global steel industry, including the supply constrained carbon market. Our platform of carbon assets is unique, given the significant mining infrastructure we own, the quality of the carbon we produce and have those two, the restructuring efforts and investments we have made over the past several years to right size and streamline the operations. Those streamlining efforts, let me touch base on that quickly, which I think is important. We acquired eight companies, five of them through 363 bankruptcy sales over a period since 2015. During that process, we have reclaimed almost $28 million of environmental liability and received bond releases on it.

Those bonds cost money each year. And by reducing that liability, we are also making our business more profitable from these legacy operations that we acquired, bettering the assets and streamlining the team to be focused on production at low cost. And that is what we build today and that is what we possess in our ramping up. We believe our platform is very attractive for the current market as steel producers are looking to secure long-term supply chains of quality met carbon, not only domestically but also internationally. And within the supply constrained environment, there is going to be significant opportunity over the next few years, and into the future to be a low cost producer of met carbon. Furthermore, our operational team has made huge strides over the last few quarters to further reduce the cost structure and position these operations as one of the last low cost, long life operations within the industry.

Given the progress, the company’s target is to restart these select operations over the next 45-days and we are progressing towards that in past quarter. As we work through the sale process as well. We continue to work through these processes along with the other possible consolidation plays that are taking place in the overall global steel industry. As stated earlier, we have received interest from multiple parties and continue to receive interest from multiple parties and additional parties across the landscape for our different operations, which provide us several options to explore and we will pursue those that best benefit our shareholders and workers alike. Given our team’s efforts and positioning to date, we choose and if we choose not to sell the carbon assets to the OI which we signed or any of the other interested parties, we are well positioned to still separate the companies to create pure play opportunities.

With that we previously filed our initial form 10 registration statement with the SEC to spin off our wholly owned American Carbon division into a standalone public company. Let me touch base on that briefly. The reason we did that was we can’t control every aspect and or timing of any other party. What we have we can control is the ability to put forth effort to position the assets and prepare for anything that comes at us. And as such, we filed that the Form 10 and we are pursuing and working with the party to sell the assets. But should that not close, we are well positioned to still monetize the assets for our investors, create a royalty stream back to American Resources, dividend out those shares to our underlying investors, and position the company for growth as a standalone operating entity.

We did this in conjunction with the recommendation of our strategic committee and approved by our Board of Directors on spinning off American Carbon into its own public platform, which better enables the business for growth, capital allocation and motivation of the operating team in itself. As stated, also, additionally, the spinoff is structure did that American Resource Corporation could receive up to over 300 million in the form of royalty payments from American Carbon over time based on production and capital raises. Under a spinoff scenario, our shareholders would receive a pro rata distribution of the American Carbon shares, should we go that route. Furthermore, we have also secured a $20 million factoring facility for American Carbon to support its normal course of business and to grow the business and upon any spinoff of American Carbon.

We have a $100 million dollars equity financing facility in place under American Carbon Pubco as an additional option for future growth, which would go alongside of our 45 million tax and bond for Wyoming County, which cumulatively represents approximately 165 million meta fees of financing capacity for a standalone American Carbon asset. Over the third quarter, we were able to monetize some carbon assets and inventories as the Global Met carbon market stabilized following a brief period of logistics and bottleneck supply challenges that took place in the global supply chain. As previously stated, we are currently in the process of planning a restart of our Carnegie mines. And pick up where we left off earlier in the year where we have realized some of our best fundamental production levels.

Furthermore, during this period of downtime, we have also continued to advance forward at the operations to further drive operational efficiencies and have made huge stride by our team there at very low CapEx levels by expanding and positioning those mines to be high producers at low cost. We continue to develop our Wyoming County complex to begin operations next year and are on track and progressing nicely at that operation and execute upon the vision of the American Carbon team and also the vision of our strategic committee to unbundle the assets, the certain assets as we disclosed. Let me touch briefly further on ReElement Technologies. To add to the comments that Mark made earlier regarding ReElement, the opportunities we have in front of us are extremely exciting.

Our ability and the way that we efficiently deploy critical mineral refining is indeed unique. Our strategic plan to scale our platform is multifaceted. One, we will operate our existing facilities and current facilities we have announced. We currently have two planned announcements of two additional planned facilities that we publicly announced, one, in Marion, Indiana and two, Knott County, Kentucky. Our Marion, Indiana campus which I was at today is coming along phenomenally well. This is a 42 acre campus with approximately 425,000 square feet of existing structure which will be mainly focused on the recycling and refining of Critical Minerals. Our initial design will support an annual production capacity of 5,000 metric tons of battery-grade lithium carbonate and 1,000 metric tons of magnet-grade rare earth oxides.

We have also closed on our tax incentive package with the support of Marion of approximately $45 million from the City of Marion to support the Brownfield development of the facility, as well as the equipment expansion and operational expansion of the facility. And we are working on other government supported programs under Bipartisan Infrastructure Law and IRA as well as other capital sources to support that growth at the project level. Kentucky Lithium, Kentucky Lithium project highlights another unique attribute of ours and how we are well-positioned to deploy our leading critical mineral refining technology. Our vast ownership of mining assets in Eastern Appalachian Corridor provides us with the needed infrastructure to bring meaningful lithium refining to North America.

Furthermore, I would like to point out, we are tapping into a skill set in a workforce that has hundreds of years of commodity processing experience. They understand the importance of cost. They also understand the importance of quality. We are also tapping into existing infrastructure that we have at our Knott County complex, which we did not include in the sale of the assets under the previous LOI for this reason. This provides us the ability to move fast and at low cost to build our lithium refinery there, utilizing the existing infrastructure and the existing location to lower the CapEx and further to tap into the existing infrastructure that we have already present that we are not going to be waiting on from power stacking tubes, conveyors, et cetera.

As a point of reference, the United States today produces approximately 17,000 metric tons of battery-grade lithium carbonator hydroxide. This facility is being designed to produce approximately 15,000 metric tons of battery-grade lithium carbonator hydroxide, giving the United States the ability to double its capacity utilizing our state-of-the-art technology and utilizing a workforce that is more than up to this challenge. The facility is on controlled land, logistics infrastructure is on place, rail is on place, landfill is in place and the workforce is in place. This is an exciting opportunity not only for us, but also to showcase and provide opportunities to a workforce that has been displaced by the energy transition marketplace. As stated, we have recently announced the preliminary approval of the Knott County Fiscal Court for the issuances of up to $150 million of taxes and revenue bonds to support the growth of that complex, similar to the Wyoming County bond we closed.

I have also had the opportunity to speak at a taxes and bond conference and I will say that the Port for industrial revenue bonds such as these is very strong upon the investment community especially, the way that we are building this facility, the workforce that we are bringing, and the use of this facility in itself. Both our Marion and Kentucky lithium facilities will be able to modularly and efficiently add refining capacity to respond to feedstock availability as well as market demand. And I will say from a feedstock availability based on our trips to Africa as well as to Canada is abundant. There is quite a bit of lithium ores, lithium bearing ores within the marketplace that need a place to refine other than China, that are looking for a place to refine other than China.

We have also recently been expanding our operations and looking at opportunities in discussions on several opportunities in Germany as well as throughout the EU marketplace, and are having those discussions with partners as we speak with our team over in Germany as during this call at the moment. Japan is another market which we have been working on. We have been working on the Japanese market for a long time. We have entered into a joint venture partnership within the Japanese market. We will showcase ReElement Technology in Japan, one of the most highest tech areas of the world, and showcase how it can not only refine critical minerals, but do it at a cost structure that is competitive, if not better than what is done in China today. This partnership has also already begun realizing service revenues to ReElement sourcing of lithium ores.

As I mentioned, our team has been to Canada, we have also been to Africa. I have been to Africa myself three times over the last six-months, and the opportunities there not only for sourcing ores but also showcasing our technology is abundant, it is an amazing opportunity to create job opportunities within the local environment, to displace China’s dominance throughout the region and to do it in a way that is favorable to the local community. Our relationships in West Africa, South Africa, as well as East Africa are substantial and very and moving very, very quickly and we are excited about the opportunity to import high value technology to Africa, create jobs for the population, one of the fastest growing population bases in the world, while also helping them drive manufacturing and solving the supply chain for the United States.

We believe these opportunities to provide low cost, environmentally safe, lithium refining around the world in a collaborative manner to meet the needs of the energy storage market are abundant and will continue to grow. Being able to build our modular facilities in these local environments to source the critical minerals in a low cost format, while also showcasing one of the lowest carbon footprints from a refining capacity facilities in the world. We have had early successes in developing partnerships such as the one we have established with our magnet and battery partners that we have already announced, and we continue to have good success with several other pilot programs where we are fostering collaborative opportunities within the automotive, wind energy, consumer power tools, and broader energy storage and recycling markets.

We are excited and confident about the developing these pilot programs into long-term partnerships and communicating them in the near term with our investor base. I would like to recognize our ReElement team for the groundbreaking successes that we have achieved and the time, quick timeframe we have achieved it and we do believe the time is of the essence. We also believe that we put together the best team to continue to drive the revolutionary refining technology and continue to add great talent to our team with the recent additions of Ben Weisman as President and Shane Tragathonas Vice President of International Strategy. Our goal is to build real element into a multi-billion dollar business and do so based on performance. We believe we have the right team in place and the line of sight to accomplish this mission.

As we continue to execute upon our strategic plan, American Resources is focused on the highest value opportunities and we will look to expand its asset base within the natural resources industry, utilizing cash generated from asset sales and royalties to acquire interest in high value, critical and rare earth mining assets that can feed into ReElement Technologies to be refined in a cost-effective environmentally sustainable method. We are in active discussions on multiple opportunities in this front where we can leverage the ReElement Technology, take an ownership stake in these mines such as lithium bearing mines in Africa, as well as other parts of the world that we can also showcase and help to provide guidance on how to operate these mines safely and effectively and efficiently.

We are excited about that opportunity and we believe in the future from American Resources, as a holding company, we will be able to benefit greatly from these additional expansions we are evaluating. In closing, we remain very confident in the positioning of all of our assets and the long-term value they provide to our shareholders. We remain hyper-focused on unlocking that We have ample liquidity and do not foresee us needing to issue equity at the AREC level to raise cash, especially with some of the sources of non-dilutive capital we have available to us and recently announced project financing that we have available to us at the ReElement level. Just to reiterate, as the largest shareholder of American Resources and one of our largest shareholders of American Resources, our management team is committed to maximizing the value of all of our businesses and believe our continued execution and the unbundling of assets will help us to achieve this.

With that, I would like to turn the call back over to the moderator for some Q&A.

Operator: [Operator Instructions] And we will take our first question from Heiko Ihle with H.C. Wainwright. Your line is open.

See also 12 European Countries with the Best Quality of Life and 12 Asian Countries with the Best Quality of Life.

To continue reading the Q&A session, please click here.