American Resources Corp Q3 FY2022 Earnings Call

Greetings, and welcome to American Resources Corporation Third Quarter 2022 Conference Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Mark Laverghetta, Vice President of Finance and Communications. Thank you, Mr. Laverghetta. You may begin.

Thanks. Good afternoon. On behalf of American Resources Corporation, I would like to welcome everyone to our third quarter of 2022 conference call and business update. We always welcome this opportunity to provide an update and discuss our accomplishments since our last update and also to discuss how we're uniquely positioned with both divisions of our company, American Carbon and our critical minerals division ReElement Technologies. Also on the call today is Mark Jensen, American Resources Chairman and CEO; and Kirk Taylor, our Chief Financial Officer. Before we kick it off, I would like to remind everyone of our normal cautionary statements. Certain statements discussed on today's call constitute forward-looking statements within the meaning of the Private Securities 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, we will be holding a question-and-answer session today following our prepared remarks. For anyone waiting or wanting to ask a question, you'll need to dial in by phone to get into the queue. We're going to begin today with a few comments from Kirk Taylor. Kirk?

Thanks, Mark. Thank you, everyone for joining us this afternoon. I'll start first with some financial highlights. We'll dive into results from the quarter. So third quarter of 2022 showcased our focus on execution that continues to position our company for long-term value creation. We're looking at that execution over the third quarter as important to take a step back and highlight some of our accomplishments on all fronts. From a corporate standpoint, we've established a special committee to evaluate strategic opportunities to best unlock the value of the company and subsequently even announced the share repurchase program. We've repurchased 7.5% interest in ReElement, so that American Resources now holds 100% of ReElement Technologies. We've also announced our plan to spin off ReElement into its own public company. Further, we sold the exclusive rights of our carbon nanostructure in graphene pads to Nova Stero for $16 million worth of Nova Stero Class A common shares. Again, these items are highlighting our ability to unlock shareholder value. Within ReElement, we've achieved groundbreaking success in producing greater than 99.5% pure rare elements at a commercial scale, being the first to accomplish this domestically. It's a fabulous team effort by our entire group. We've also secured an initial independent working capital facility as we position ReElement as a standalone company and allowing it to scale to meet market demands. Further on, we've added key talent at the technical level, at the commercialization level, and engineering level, adding to our best-in-class team. We've entered into our first long-term collaborative partnership to help secure our domestic supply chain for critical minerals, and we're looking forward to expanding those relationships. On the American Carbon front, we've commenced initial production sales at our Carnegie 2 metallurgical mine. We've also received a commitment totaling $1.9 million of federal new market tax credits for our company's Wyoming County Coal expansion. These federal tax credits will be combined with the previously announced $45 million tax-exempt industrial development bonds from the state of West Virginia. Moving into financial highlights. For the quarter, we realized revenues totaling $9.5 million. While this was a quarter-over-quarter decline due to our decision to idle Perry County in response to historic flooding in the region, which we will discuss later on this call, it did showcase a 238% year-over-year increase. While mining is not completely linear, our carbon platform is uniquely positioned to be a meaningful contributor to much-needed supply growth of metallurgical and specialty carbon products from our region, where a lot of mines are currently being exhausted and have very short lives left. We will remain focused on monetizing our platform of assets for our shareholders. Our unique platform of assets is in a great position to deliver what we believe are attractive returns and value to our shareholders. This includes our mining assets as well as our ReElement Technologies division, which we are in the process again of spinning off into its own standalone public company. Over the past nine months, we've been able to grow production, our revenue, and streamline our capital structure while investing over $22 million of expense development costs to position both American Carbon and ReElement Technologies platforms for strong growth in high-demand markets. Our debt balance currently sits at approximately $12 million in total, which $400,000 is made up of equipment financing, $9.4 million in the form of convertible notes from one of our long-term partners, and $2.2 million in the form of a mine development loan from one of our top customers. Our shares outstanding currently sit at just 68.7 million Class A common shares. Our short-term available liquidity totals over $20 million, including nearly $5 million cash on hand, almost $6 million in accounts receivable, and $10 million untapped equipment financing. I would now like to turn the call over to Mark LaVerghetta for some comments on our ReElement Technologies division. Mark?

Thanks, Kirk. As we frequently state, our ReElement Technologies division represents an incredibly exciting and very strategic opportunity for us. I would like to reiterate the significance of our recent milestone of achieving ultra-high purity rare earth elements on a commercial scale. First, we're the first domestic commercial producer of separated and purified rare earth elements. The significance of this milestone is worth diving into a bit. One, our technology has showcased that we, meaning the United States, no longer needs to depend on foreign adversaries for the ability to refine, separate, and purify these minerals necessary for advanced high-tech green energy including electric vehicles, wind energy, and defense applications. I'm sure we've all seen the reports on the F-35 being grounded for several reasons, one being its reliance on metals and parts sourced from China. Our innovative chromatography technology is a clear differentiator in the market for several reasons. Its modular structure and design enable it to scale congruently with the needs of the market, meaning we do not have to lay out a huge CapEx investment and wait for the market to either adapt or catch up. It's also very flexible to the type of feedstocks and material we want to focus on refining. Strategically, we feel it is the most important to address our recycling and sustainability needs to truly close the loop of these critical minerals. Our first commercial production line produces high-purity rare earth magnet metals such as neodymium, praseodymium, and dysprosium from recycled rare earth permanent magnets. Again, these are the metals needed to produce high-efficiency electric motors, such as those used in electric vehicles and wind turbines. The flexibility of this technology allows it to be applied to a variety of feedstocks, and we are still on a timeline to have our second production line operating by the end of this year. This production line will isolate and purify specific battery minerals such as lithium, cobalt, nickel, and manganese from end-of-life recycled lithium-based batteries. Additionally, specific to the battery material market, our technology can efficiently adapt to changing battery chemistry, which is currently taking place due to its low-cost modular and environmentally safe aspects. We are currently exploring chromatography recycling solutions for LFP and nickel-metal hydride battery chemistries to recover and repurify the inherent critical minerals back to ultra-pure qualities. Our chromatography technology allows us to do this efficiently, where we do not have to reinvent the wheel, but rather modify our existing process. This is another clear differentiator of our technology where other recyclers cannot bring the minerals back to battery grade or are limited to only an NMC battery chemistry. As we bring our battery production train online, we are confident in our technology's capabilities and the value it brings to the market. As such, we are confident that we will continue to develop additional collaborative partnerships throughout the supply chain. On that point, we've had early success in developing partnerships such as the ones we've established with USA Rare Earth Magnets, in establishing the first complete domestic lifecycle for rare earth magnet manufacturing here in the United States and recycled materials with aggregating and pre-processing high-value materials to be recycled while also addressing the social needs of the individuals recycled works with. It is truly an awesome program and, in our opinion, a great example of how federal investment dollars can be leveraged by the private sector through meaningful collaboration. We continue to have good success in pilot programs and fostering additional collaborative opportunities that we're really excited about developing into long-term partnerships. These partnerships cover both rare earth settlements and critical battery minerals from various feedstocks. And this is an important distinction to also emphasize, our technology is the only comprehensive solution to recover and re-purify all of the critical minerals in the entire powertrain of an electric vehicle, including both batteries and motors. No other solution today can offer that value. We are confident as we continue to showcase our competitive distinction, and collaborative value, our ReElement Technologies division will garner proper value either as part of American Resources or as a standalone company. While Mark Jensen will dive into this a bit more, I will add some comments on how we are positioning ReElement as a standalone public company. First, it's our team. As a reminder, chromatography has been around for a century and commercially has been used in various industries such as pharmaceutical manufacturing for decades. We recently had the opportunity to bolster our team to support this path forward, and we will continue to add top talent. Additionally, from a technical perspective, we believe we have the world's best chromatography experts and team behind the ReElement division. Whether it's with our university partners at Purdue, our engineering team that has had long-standing success developing this technology or operating the foundation of this technology at Eli Lilly or the addition of our Director of Research and Development, our Chief Commercial Officer, or battery industry expert Bob Galyen, we continue to position ReElement as a leader in its space. I would now like to turn it over to Mark Jensen for some additional comments on all of our divisions. Mark?

Thanks, Mark. First, I'd like to address the quarter-over-quarter decline in carbon sales. As stated, Perry County resources were idle during the historic floods that took place in the region that not only affected the property, but mostly affected our labor pool. Unfortunately, many people were impacted by that flood and are still recovering from that. Ultimately, our decision with Perry is that we are currently evaluating restarting the operation. In the meantime, we've also been approached by numerous opportunities that we're currently evaluating to unlock the maximum amount of value for all of our shareholders. When we operate our businesses, we operate them for maximum shareholder value for all of our investors, both on a quarterly basis or yearly basis over the life of the operation and the opportunity, and we want to ensure that we maximize that value to our shareholders. When we bring it back online ourselves, we do it in a highly profitable way. Or if we monetize it through other avenues by which we've been approached, we then maximize the value in those aspects. That being said, in revenue, we did increase our revenue by 240% year-over-year from carbon sales, as we are steadfast in monetizing our carbon assets, and a strong market. The special committee we established to evaluate strategic opportunities to better unlock the value of American Resources has acted quickly and taken steps to do so. We have implemented a share repurchase program as well as defined our intention to spin off ReElement into its own standalone public company. The share repurchase program we announced was during a blackout period. Ultimately, we also have to be cognizant of material opportunities that are being presented to us to not buy back stock during those periods of time. We do believe that, as we did at the time of when we announced the share repurchase program, that at current market opportunities, should we be allowed to legally based on the guidelines of the SEC, it is an opportune time to continue to buy back stock, and we are currently evaluating that based on those opportunities. We also had the opportunity to repurchase a 7.5% stake in ReElement as we were in a position, and the special committee was making the decision to spin ReElement off into its own separate public company. We believed it made the most amount of sense to maximize the value for our shareholders by being able to take advantage of this opportunity and act swiftly to reacquire that stake in the business, which we did. We believe both of those are accretive uses of capital and better position ReElement and the company in a positive way forward for all of our investors, of which we hope will drive and continue to drive shareholder value for all of our investors. Given the execution of both American Carbon and ReElement Technologies, we're extremely excited about the opportunities for both entities, but we also believe that the enterprise value as a whole is currently at a substantial discount relative to the sum of the parts or comparable pure valuation. Ultimately, that's our goal, to separate these businesses and maximize the value for our shareholders as we do so and continue to drive both of those businesses thereafter. American Carbon, we continue to see strong demand for the products that we produce. As I just mentioned, we remain focused on monetizing our carbon assets. It is a really good time to own high-quality carbon assets in this region. Ultimately, what's unique about our properties is that we spent a number of years restructuring these operations and streamlining them to be extremely efficient while also being in a position to ramp them up quickly and efficiently. We have a number of opportunities that are being presented to us by either investors or companies that have a great amount of interest in the asset pool that we have today. Perry County Resources was idle for most of the third quarter due largely to the effect of the disastrous floods in Eastern Kentucky that had a major impact on our workforce at Marion County Resources. As I stated earlier, our objective is to either bring this back online internally, partner with somebody, reallocate the assets that are present there and/or monetize this subsidiary as a whole should that opportunity present itself. We are evaluating all of those opportunities and the opportunities that are being presented to us today to ensure that we can make a decision during the balance of this quarter that will maximize value for our shareholders. The McCoy Elkhorn complex continues to perform well. It was a division we acquired from James River prior to it going bankrupt, but was a pretty strong producer in the region. What's unique about our McCoy Elkhorn complex is the quality of the net carbon that we produce from this complex is a high volume net carbon, which we believe is going to be and is a current strong market; it will be a very strong market in the near future due to the damage taking place in the industry right now. The production of high-quality carbon from our McCoy Elkhorn complex increased 45% quarter-over-quarter with the contribution of the initial development production from our Carnegie 2 mine. Also, as recently announced, we have recently been approved for an enhanced deep cut plan at our Carnegie 1 mine. During the quarter, we're also in the fourth quarter, and we're seeing Carnegie 2 continue to increase its production as it's coming out of its development production and being able to spread out underground to maximize not only the production but the efficiency of the production. Similar to the deep cut plan at Carnegie 1, which we are currently operating under, we're able to increase our production while reducing the downtime and the wear and tear on our equipment to make a more efficient operation, but also significantly enhance the production at that operation. The McCoy complex continues to be our biggest contributor and our growth engine for American Carbon. Now that we have commenced production at our Carnegie 2 mines, we've also started planning, engineering, and development of the next few mines to bring online to feed our coal complex. Our McCoy Elkhorn complex will be a large contributor to our growth in the next few years. We continue to expand production from the existing mines by adding a second section there, while also bringing online other mines that have low development costs and are easy to ramp up. That would include our Carnegie 3 mine, our Mine 17 as well as Mine 15A, which belts directly into our processing facilities in that region. Our platform is unique, given the significant mining infrastructure that we own, the quality of the carbon that we produce and have access to in both the met and the thermal markets. The restructuring efforts and investments we have made to streamline these operations, along with the growth we have to provide incremental high-quality carbon products—especially in the extremely tight global market in both the steelmaking and energy markets—position our assets in a very favorable light given we have current permits that are idle that can come online quickly. We can provide a multitude of products out of our McCoy complex, out of our Dean complex, out of Wyoming County, as well as Perry and Knott County. We intend to look to maximize the value of these assets in many ways, whether by mining them, partnering on them, selling them, or entering into lease arrangements, which we have recently done at our Dean mining complex. The global carbon demand for steel production continues to be relatively strong, albeit it's off its recent highs due to the COVID restrictions in China that we saw in the second quarter. We believe China is beginning to come back online from those restrictions. We're seeing a unique situation unfold in the carbon markets today, with thermal coal prices selling above metal prices. You're seeing met coal producers—representing around 15% of the world's production—sold into the thermal market and entering into long-term contracts, which ultimately means suppliers are coming out of the met market and moving into the thermal market. This has created a very tight market on the met coal side of the business. As China comes back online, it will create an extremely tight market, and we believe there will be continued strength within the Met coal industry itself. As stated, thermal coal prices are extremely strong, and the world is experiencing its first energy crisis of the 21st century. With the upcoming winter season, we expect global demand to remain elevated. High energy prices, including thermal coal, are driving decade-high inflation, and some countries are experiencing energy shortages. The Russian invasion of Ukraine is obviously continuing to exacerbate the crisis. We're seeing demand and interest from overseas companies and overseas parties in Germany and other locations throughout Europe that are looking to acquire assets or to establish long term supply arrangements to meet their energy needs. As a result, we're seeing met carbon crossover into the thermal organization, which is putting supply constraints on the met carbon side of the business. We believe the entire backdrop has put a higher floor in place for carbon prices for the foreseeable future. This positions our growth-oriented American Carbon platform in a very unique position as being one of the largest sources of domestic growth in the market. We continue to assess strategic options across all of our carbon assets. For American Carbon, we continue to focus on the things we can control and ramping up our McCoy Elkhorn complex production and to have a definitive strategic course of action with Perry County in the very near term. We also continue to evaluate leasing other idle assets that can enter the thermal market and/or the met market. The mining we have been informed by our leasing partner that they anticipate starting production up very rapidly and have the equipment in place to do so. Additionally, we remain focused on progressing our Wyoming County, West Virginia complex in the next year. As we have recently communicated, we continue to work through the process of the $45 million tax-exempt bond to the state of West Virginia that we've been preliminarily approved for. We've been working with our underwriter, Hilltop Securities, as well as the allocation commitment provider for the $4.9 million of federal new market tax credits. We believe the recent leveling of inflation and stabilization within the bond markets will help us expedite that process to get that close and get Wyoming County into a development phase for not only the metallurgical mines but also our electrolysis technology for producing a fully integrated rare earth concentration site. With the issuance of two non-dilutive capital sources, we're excited to showcase how we will position this complex to be the first of its kind, advancing carbon and RE processing facilities by combining the premium mid-volume met carbon production, along with the unique rare earth capture and process technology on site fully integrated. Let's talk a little bit about our ReElement division and expand upon Mark's recent comments. I firmly believe as the first commercial producer of isolated and purified critical and rare earth elements in the United States market that we are extremely well-positioned to capitalize on the growth we anticipate coming online in 2024 and 2025, as well as 2023 on the rare earth element side. We've seen a number of battery manufacturers state their intentions to come online in 2024 and 2025, and we're working with some producers that are already online. We are becoming the most efficient and flexible producer of sustainable battery materials, which we believe will enable us to continue to grab market share within this industry while also introducing a practical and efficient solution to address the world's recycling needs. We're at the beginning of a very new and exciting era. Ultimately, possessing a technology that can scale up as supply scales up and demand scales up versus having to build and await a half billion dollars to a billion dollars to build a facility that's overshooting the current size of the market; we are able to grow our position within the market as the market demand is needed as well as the supply as needed. As we continue to showcase our unique positioning and quality of critical mineral products, we are confident in incremental collaborative partnerships that we are entering into. We have several partnerships and MOUs that we've already entered into, as well as are currently evaluating some very attractive opportunities to further scale our technology into the commercial marketplace. As we continue to launch our initiative, our innovative process, and as the most efficient solution of refined critical materials to qualities needed for domestic manufacturing, we are in good position to begin realizing revenue by year-end and expect those revenues to continue to grow throughout 2023 as the domestic downstream manufacturing marketplace further develops. As stated already, we've entered into an offtake agreement with USA Rare Earth, and we're excited about the developments of the facility; we've had the opportunity to visit their facilities in Oklahoma, and we are extremely impressed by their level of development and the progress that they're making to come online. Now that we're first to market with ultra-high purity and separated rare earth elements, we will more broadly showcase that we are the best solution for domestic needs. In fact, I don't think there's another process, team, or technology out there that is better positioned or can accomplish what we can accomplish with our technology. Beyond 2023, we believe the passage of the Inflation Reduction Act, which includes some significant and aggressive tax targets for the auto industry, including the extension of the EV tax credit with no cap, as well as the advanced manufacturing tax credits for critical minerals will boost our revenue growth and profitability. Just to remind you, for the EV or clean vehicle tax credit, 40% of the critical minerals in the batteries will need to be sourced domestically from a free trade country or recycled in North America by 2024 and increase each year thereafter until 80% by 2026. To our knowledge, there are no other competitors within the space that can produce these products domestically. For the advanced manufacturing tax credit, it establishes a new credit amount that amounts to 10% of the total costs incurred to produce applicable critical minerals, including the magnet and battery minerals we've already shown we can produce. The end result being ultra-high purity grades required to receive the tax credit. When we booked this business line in place and developed this technology, we didn't build it with the need for subsidies or government-based capital. That's what puts our business in a unique spot. We are nimble, focused, and can grow rapidly. Now with these additional tax credits in place, that makes our business more profitable. That wasn't a requirement for our business. That being said, these federal initiatives hit right at the heart of what we're doing at ReElement, and the fact that we've already proven our process and our technology on a commercial scale puts us in a great position to be the value-added domestic supplier of sustainable critical minerals to the EV and clean energy sectors, as well as the DOD. We remain very confident in the position of our assets and the long-term value they provide to our shareholders. We remain hyper-focused on unlocking that value, and we have already communicated our initial strategic steps to do so. We don't foresee us needing to issue equity to raise cash, especially with some of the sources of non-dilutive capital that we have available to us. Just to reiterate, as the largest shareholders of American Resources, our management team is committed to maximizing the value for all of our shareholders in the short-term as well as the long-term. With that, I'd like to turn the call back over to the moderator for some Q&A.

Thank you. We will now be conducting a question-and-answer session. Thank you. Our first question is from Heiko Ihle with H.C. Wainwright. Please proceed with your question.

Hello, everyone. Can you hear me all right?

We can. How are you doing, Heiko?

Excellent. Thank you. I'm calling from Zurich right now, and I spent a good part of last week in Germany as well. Let me tell you, the energy crisis that you were describing earlier on this call is not just real, but it is on everyone's mind. People are having a hard time paying their heating bills; geopolitical risks in a couple of countries away. Not pretty over here. Anyways, your allocation commitment of $4.9 million at new market tax credit that you got, can you give a little bit more color on that? How much more that you might be able to see and just the financial aspects of it? Just more background information, please.

Yes. I'll try to address that. If I need to have Kirk jump in, I will. But the $4.9 million was combined with the tax-exempt bond issue. That combined with the total provides us—combined with the new market tax credit as well as the tax-exempt bond issuance—the Wyoming County Complex is extremely well-capitalized. That provides significant working capital and development capital to fully ramp up not only the mining operations, but also the electrolysis technology, which will tie into the backside of our processing plant to capture the rare earth elements in producing concentrate that will then feed our chromatography technology. That $4.9 combined with the $45 million in the tax-exempt bond fully funds that operation with a pretty healthy cushion in there.

That's helpful. Perry County, obviously for outsiders, might be just a touch of a black box right now. Can you just go through what exactly is happening inside? I mean, I know you shut down because of flooding, but I assume the water is gone, or is it? I don't know. Is the infrastructure damaged? How many people are actually there doing the care and maintenance right now? How much is the outflows for, call it, October and November, or I guess Q4, even if you want to be bold and guesstimate that? Just maybe a touch more background on that, please.

Yes. So what happened in Perry County and that area of the world was very unfortunate for the community. The floods were—I've never seen anything like it. We did get water into the mine. It did not damage any of the infrastructure or the mine itself; we just had to pump that water out. The local community was hit a lot harder, so our workforce is impacted extremely hard. A number of our employees lost their homes. Many of those employees are currently living elsewhere until they can rebuild. That's part of the problem. When we look to evaluate it, we want to make sure we bring it back online in a highly profitable state. We've had numerous alternatives proposed to us, including several overseas companies that have expressed a lot of interest in that property, either partnering with us or potentially acquiring it, which we are evaluating. We want to maximize the value for our investors. We're not managing quarter-to-quarter; we're managing for the long-term fundamental business and making sure that as we bring this back online in whatever structure that is, that it maximizes the value for our investors, and some of the opportunities presented to us are extremely attractive right now. We expect to make a decision regarding those avenues by year-end, and we believe they will be highly accretive to our shareholders.

Yes. Fair enough. That's all from my end. Thank you very much. And keep up the good work.

Thank you. I apologize I couldn't provide a concrete answer on that, because we are currently evaluating those opportunities as we speak. I can assure you that as an investor in this company, we're excited about the position those assets are in today.

Our next question comes from Michael Samuels with Berthel, Fisher. Please proceed with your question.

Hey, Mark, how are you? I have two questions regarding the American Carbon side. First, do we have any business interruption insurance for Perry covering the last quarter and this quarter? Second, what's the status of the individual leasing the land? Has any production started? I know that instead of receiving $20,000 a month, we might be getting $5 a ton.

Yes. So we haven't notified our insurance providers. That's a very complicated process to see what is available to us. Ultimately, floods in Eastern Kentucky are not typically something covered by insurance on properties. That being said, we're evaluating some very attractive opportunities for the Perry County complex. So yes, on the insurance side, we've notified our insurance providers, but I wouldn't anticipate a lot coming from that personally. But I'm not an insurance guy, so I will let them evaluate that. Regarding the mining contract that we leased out, we have been in constant communication with them. I spoke to them on Sunday. They have moved a high wall miner on site, which is a high-performing, high-volume method of mining. I'm excited that they were able to get that in there. They've stated to me they are in the final stages of going through all the different proxies to bring that mine online. I think they have to do so within the next 30 days. And you're right; I mean, right now, it's a great deal for us. They cover our cost, they pay us monthly. As they commence mining, that number will increase dramatically, and that will be pure cash flow to the business. We are excited about supporting them and helping them in any way to get them up and running. They are extremely excited about their progress in getting up and running, so we anticipate that imminently.

Okay. Thanks a lot.

Thank you.

Our next question is from Steven Segal from KBB Asset Management. Please proceed with your question.

Thank you. Hey, Mark, and Mark, great job in everything your company is doing, especially in the ReElement division. I had a couple of questions. I know you've already talked about this a little bit. You created a special committee to unlock value. Beyond what you said in your prepared remarks, is there anything you can enlighten us with as far as the progress in those fronts beyond the spinoff that you're doing? And how is the current market affecting the value of the core properties you're trying to monetize?

Yes. Well, thanks for joining, Steven. It's an exciting time right now. In terms of the current market, it's really unique. I mean, you're seeing there's not a lot of unconditional increase in production taking place within the carbon market worldwide. One, everybody supplies and infrastructure. The permits required to bring new mines online are very challenging. Now, you also see Germany coming to market trying to buy 29 million tons a year for the next 10 years, as they made the decision on what their energy source will be, given the Russia-Ukraine situation they are facing. That is putting an extreme value on permits and infrastructure that are ready and able to come online quickly. We've been evaluating numerous opportunities that we believe will maximize value for our shareholders; one being partnering with people. We have customers that are coming to us—offering significant capital to bring mines online either in an uptake or joint venture scenario. We've had overseas companies express interest in acquiring our operation. Our objective is to evaluate all those opportunities that will drive the maximum shareholder value for our investors and position for the companies. We're not intending to sell any assets unless they come to the table with something that makes sense. We are focused on ramping up our cash flows and monetizing the value of our assets to drive earnings per share for our investors.

Right. Okay. And then, thank you for answering that. And I feel like when you talk about the property, it's all property. So it's not just you because I know you have numerous properties that you could monetize.

Yes. And we're evaluating approaches based on the vastness of our permanent base and infrastructure. We own five processing facilities across over 19 million tons of carbon a year. We own five rail loadout facilities that access both CSX and NS. We have over 54 permits that are fully permanent operations. We're in a unique spot, and we're currently focused on ramping up the McCoy complex. McCoy itself is set to ramp up to a couple million tons a year and doesn't need a lot of capital, given the current growth of the business. Right now, we're focused on driving cash flow for investors. We're also evaluating the opportunities being presented to us, and we will continue to do so.

Okay. And my second question, actually regarding the buyback, because I know you've been in blackout period for a long time. I believe this week, you'll be out of the blackout period with the stock down here, which, to everybody on these calls, and all the industries, seems like amazing value. As far as whether you pull the trigger to buy stock back, is that based on the value or other uses of cash?

Yes. Good question. Yes. When we announced the stock buyback, when the stock was around three, now we've been in a blackout period until we filed our Q. I think we are until three days after that. Yes, I mean, we believe that it is highly undervalued right now. Ultimately, should we be able to, we intend to exercise the option to buy back stock. We do have to be cognizant of material information that if we are working on something that we believe will be very valuable to our shareholders, we have to be cognizant of not buying back stock with that information until there's resolution one way or another. So we are navigating around those aspects just to ensure we do what's right by all.

Okay, great. That's all I had. Thank you.

Excellent. Thank you, Steve.

Our next question is from Mike Niehuser with ROTH Capital Partners. Please proceed with your question.

Hey, Mark, try not to run out of time here. Do I understand that you have not received any revenues from Dean yet, or it hasn't yet entered production?

We receive revenue from there. They have not commenced production, though. So we have minimum royalties that they owe us. We got paid those on a monthly basis and received a fair amount of money upfront as well. But they are bringing in significant equipment, worth an estimated $6 million-$7 million, to start production. I'm excited about what they're doing. We all want to see it produce. It's a fun day when our mine starts operating. They're getting close to doing that, so it will be exciting times here in the next 30 days.

Well, it sure is, it was fun to see Carnegie 2 where it was just a short time ago. Can you comment on a range of time where you might see Carnegie 3 out in the future, or Mine 17 or 15A ready for production? Do you have any kind of idea what quarter that might be in the future?

Yes. So I would say, the first thing we'll see out of the mining industry is the second section at Carnegie 2. They're progressing towards that as we speak, also a deep cut plan at Carnegie 2. That will combined will increase production there pretty significantly, and that's the next phase of growth at McCoy. I would say probably Mine 15A, given it's an idle mine right now that can come online, we're interviewing contractors for as we speak, that can be one that comes online pretty quickly. I would say that the team says before the end of the year, I would push that to the beginning of January or into January. That will be a nice additional revenue growth. Then 17 and Carnegie 3, we're evaluating which one of those we'll start up next. But those are probably first quarter events. The McCoy complex is a valuable complex because one, the processing facilities are state-of-the-art, they're the best in that area. They have been built to the highest standards, and I mean, James River spent hundreds of millions of dollars building that facility. We're the beneficiaries of that capital and the mines that can feed that complex like 15A and 17 and Carnegie 3, there's a vast amount of opportunity and growth at the McCoy complex to ramp up. Our internal target is around 2 million tons a year that we can ramp up the McCoy complex to; in the current market, that's a phenomenal number. However, that's not going to happen overnight. The uniqueness of that complex is that it's production-ready, and it's located close to the prep plant to continue to ramp up production.

Were there any impacts to the facility with the rains on the last go-round? Or did it pretty much avoid all that trouble?

In the third quarter, we were delayed because a lot of our employees were helping other neighbors, and they were helping their families. I mean, during the third quarter, we had probably two to three weeks of delays that even at the McCoy complex, that impacted our numbers a little bit. We also ended the quarter with quite a bit of inventory at cost on the ground too. So that would have been a lot higher in the third quarter as well. But those impacted the quarter; they didn't impact the facility. The McCoy complex in that area of Kentucky and in the mountains, when storms get over certain areas, they hover over them. Unfortunately, that region was hit really, really hard. Letcher County and the Dean area got hit pretty hard but did not affect our infrastructure down there. In the McCoy complex, it did not get hit that hard at all. It kind of avoided that region, so it didn't affect any of our infrastructure.

At Perry, you avoided any water coming off the site into the rivers, environmental issues, that kind of thing.

Yes, we have not had any environmental issues. I mean, there were floods throughout our properties and we're one of the largest permit owners in eastern Kentucky. There was definitely environmental work to ensure that there was never an impact on the environment. But as a business, we’ve performed extremely well over the last year; we have over $8 million of additional bonds rolling off here in the near term or bond releases that will go into place. The floods didn't heavily impact us on the environmental side. We mitigated any potential impact to ensure there was no impact there; even at Perry now, we have fully obtained approval for the mine release in the last week or so, so we've got a lot of that stuff cleaned up. There was no long-term damage to any of the infrastructure; we've made significant improvements to the mine to be even more efficient when we bring it back online, setting it up as a three-section mine where we were previously operating around one and a half sections. It's now set up beautifully right now, and we're pretty excited about it.

I'm really excited about what you're doing on the rare earth and lithium-ion battery recycling side. I'm really looking forward to seeing news about the commercialization of the lithium-ion batteries, etc. When do you think that you might start seeing meaningful revenues out of either one of those efforts? And by meaningful, I just mean something that's reported on your income statement that wouldn't be maybe accounting-wise considered like a development offset? I'm wondering about if you've had any other thoughts about additional site expansion? And lastly, if you don't mind, meters running on there, I'm really interested in this USA rare earth magnets. And it sounds like they're developing the facility, so a lot of this revenue seems to be in '24 and beyond. Is there something meaningful you might be able to put up on the board in '23?

Yes. No, I'll try to remember and do my best. In terms of revenue generation, we'll start generating revenue in the fourth quarter and meaningful revenue probably in 2023. The business is set up to expand. We've done a lot; we have brought all the internal leaching in-house since you last saw the facility it was quite different. We need to get you back to Indiana when you're near the region because it looks completely different than when you saw it last with the battery train there with the full leaching in-house at scale now. That's progressing nicely; the facility is set up to scale revenue pretty rapidly. We can sell battery materials, which are in high demand. We can market 10 times over; same with rare earth elements. USA Rare Earth offers a phenomenal team; I haven't met their new CEO yet, but I intend to speak this week. They are doing a great job of setting up to be the largest magnet manufacturer in the United States and will be the first at commercial scale. We're excited to partner with them and provide them the raw materials they need to support domestic manufacturing. We have a nice relationship with them; we're collaborating on partnerships on the downstream and upstream. We've introduced them to some of our OEM friends, and they have their own relationships. Having the luxury of being out in Oklahoma at their facility was extremely impressive. Regarding our scale and growth, we have our current Noblesville facility. We have a property in Noblesville, and we're evaluating that. We've begun pretty advanced discussions on a site location in Indiana for an extremely large facility well north of 250,000 square feet, north of 300,000 square feet that we are in advanced discussions on to take the business to the next level. Furthermore, on the growth of ReElement, we have one technology in the industry that can co-locate with battery manufacturers, as well as with magnet manufacturers for recycling their waste product. That is key, as there's a lot of waste that comes out of the battery space, north of 20%. The only technology that can do that with a solvent extraction facility inside of a battery manufacturer wouldn’t work. Our technology will, and that puts us in a unique spot for growth. We're in conversations on some really attractive opportunities to facilitate that need for these battery elements, like lithium, cobalt, and nickel, with the added bonus of processing LFP batteries. I personally believe that over 50% of the battery market will be LFP. 95% of battery recyclers that you read about don’t care about LFP because it doesn’t have cobalt or nickel in it. They only produce black mass and sell it to smelters. We recover the battery-grade materials, and that’s a key differentiator of our technology. That's why we've been able to attract some of these relationships we're working with now. Ultimately we can process LFP very efficiently and get that lithium back into the supply chain of battery manufacturers. So that's where we believe the growth will be.

An excellent job at that. One last question. I'm really glad you bought back the 7.5% of rare earth element. Was that for cash or stock? And can you tell me what the amount of consideration for that was?

Yes. We did not disclose what the consideration was, but it was not in stock. It was in equal consideration to what they paid. We had the opportunity to do that; we wanted to spin the ReElement division off, and when that opportunity presented itself, we worked with them to get that deal done. I have nothing bad to say about Heritage; they’re a great company, and we wish them the greatest success. When we had the opportunity to buy back for our investors, that made the most sense, and we moved aggressively and quickly to get that deal done when the opportunity presented itself.

Well, it obviously makes it cleaner to spin out that business. It seems like Heritage Group has been a great partner. That's all my questions. Thank you very much. Good work in difficult times.

Yes. It's exciting times. I will say both of our divisions are seeing demand that we've never experienced before, and we're ramping up production of both. It's probably one of the most exciting times I've seen in my lifetime.

Thank you. Our next question is from a private investor. Please go ahead with your question.

Hi, I've wondered, with the cash on hand in the burn, do you anticipate that you will have to do a raise to sort of bridge you over?

No, we don't want to do an equity raise. We have, as Kirk mentioned, over $18 million of available liquidity between our credit facility, cash on hand, and receivables. We had record production last week.

Okay, the majority of capital of the capital.

Yes, go ahead.

And the price of coal. It's come down a bit lately, but how is your spread going from costs to what you currently being able to get?

Very good. I mean, some net prices are down from third quarter or from second quarter and the third quarter. They were down like they were down from the second quarter. Amazon doubled in the second quarter; that was phenomenal. I actually think next year we'll be stronger than that, given the fundamentals in the market. If you look at the fundamental nature of the market right now with met coal being sold at thermal coal prices and long-term contracts, COVID restrictions have driven China's economy down pretty significantly, and they produce over 50% of the world's steel. As they come back online—and you're starting to see them come out of COVID—they announced something this morning that’s a little bit earlier than I thought they would, which is starting to release some of their COVID restrictions. There's no way to increase production materially in the world. The coal industry has struggled. I see a really strong coal market now. Our spreads right now are still significantly up over a year ago. The deep cut plan will add additional margin to the income statement. Adding the second section of Carnegie 2 will be extremely accretive to our cash flow. We believe you have a great opportunity to grow our coal operations; we are confident in the met coal market.

Right. And then just to go back to the railroads from the magnets. What do you think is the next sort of catalytic investment? Not investment, I'm sorry, catalyst news event that shareholders should look for? Because it seems like that's just really starting to unfold, and overlooked significantly by the rest of the investing market.

Yes. There are quite a few things. We have a busy balance of the year. Partnerships that we continue to move forward on, some signs, some in development. We will get those out there - additional developments site selection for the facility, battery production train coming online, expanding our current facility, and processing lithium ores is something we've been working on that we feel extremely good about with our technology. Chromatographic separation for lithium spodumene is a very attractive opportunity given the uniqueness of our technology. Additional partnerships on the feedstocks with the magnets, as we are very close to having, there are only three companies in the country that I know of that are talking about producing magnets at scale. We're extremely excited about partnering with USA Rare Earth. This is an exciting time. We're in unique business to produce both rare earth elements and battery elements to maintain our competitive edge in the market. The magnet materials represent a significant opportunity as they offer higher margins compared to other products, as they are five times more valuable on a per-kilogram basis than battery materials. We are exploring additional sites as we identify opportunities.

Yeah. Clearly, the Chinese got their monopoly in this business by acquiring that processing. And they had the margin and a processing to squeeze Toyota in the past. And it's really a critical area.

The final stage purification is what's key. Most battery recycling firms start at the shredding side, producing black mass and selling it to smelters—it's all shipped to China currently. We instead began the process by focusing on purification as this is where the bottleneck resides. We have distinguished ourselves over the last several years, ensuring we have the most efficient process for this; that's why we are setting the groundwork in this sector. We will showcase our efficiency over the next year and earn significant market share.

One of the overhanging questions we have as analysts looking at this new process is how confident are you that you can ramp up throughput?

Extremely.

Thank you.

The process, trade secrets, and the technology are backed by a strong team. Between Bill Smith, Jeff Peterson, and numerous others at Purdue, Texas Tech, we are ready to optimize our technology. Our chromatography techniques will be more efficient at larger, commercial operations, enabling us to scale effectively. We are much more confident in our ability to scale than before. We expect exciting growth in upcoming years. Yes. That’s right. Our processes are superior to those of competitors.

Thank you for your question. There are no further questions at this time. I would like to turn the floor back over to Mark Jensen for closing remarks.

I want to thank all the investors for dialing in today. We are excited about where we are currently positioned. We are extremely excited about the value of our assets and the cash flow these assets can generate. We are at a unique inflection point in the business. We've accomplished a lot over the years and we anticipate accomplishing a lot more in the balance of the year. We continue to be the largest shareholders of the business and are working on getting my 10-B five plan back in place so I can buy more stock. Ultimately, we believe that the fundamentals of the business will continue to drive value and ultimately create value for our shareholders. Our management team and our board of directors are focused on driving this value every day in every decision we make for all our investors. Thank you for joining the call, and I look forward to future calls.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.