American Resources Corp Q4 FY2022 Earnings Call

Greetings. Welcome to the American Resources Corporation’s Fourth Quarter 2022 Conference Call. Please note this conference is being recorded. At this time, I will now turn the conference over to Mark LaVerghetta, Vice President, Corporate Finance and Communications. Mark, you may begin.

Thanks, Rob. Good afternoon. On behalf of American Resources Corporation, I would like to welcome everyone to our fourth quarter and full year 2022 conference call and business update. We always welcome this opportunity to provide an update on our business and discuss our accomplishments since our last update and also discuss how we are uniquely positioned within the markets we serve, for our American Carbon, American Metals and our ReElement Technologies division. Also on the call today is Mark Jensen, American Resources’ Chairman and CEO; Kirk Taylor, our Chief Financial Officer; and Tom Sauve, our President. Before we kick it off, I would like to remind everyone of our normal cautionary statement. Certain statements discussed in 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. And for anyone wanting to ask a question, you need to dial in by phone to get into the queue. We are going to begin today with a few comments from our Chief Financial Officer, Kirk Taylor.

Thank you, Mark and thank you everyone for your interest and your time this afternoon. The fourth quarter of 2022 and the beginning of 2023 have continued to showcase our focus and execution that positions our company for long-term value creation. When looking at our recent execution, it is important to take a step back and highlight some of our accomplishments on all fronts. From a corporate standpoint, during 2022, our Board established a special committee to evaluate strategic opportunities to best unlock the value of the company. Out of that committee, we announced a share repurchase program, which our team began to execute upon and repurchased 86,400 shares as of December 31, 2022. Additionally, we purchased back 7.5% of the outstanding interest of our ReElement Technologies division, making it again a wholly owned subsidiary of American Resources. We believe this will contribute meaningful value to our shareholders. We subsequently announced our plan to spin off ReElement into its own public company. In conjunction with ReElement’s planned spin-off, we filed a Form 10 information statement with the SEC this past January for 2023. I would refer you or anyone interested in reading more about that to go to sec.gov and search under ReElement. We have also sold the exclusive rights of our carbon nanostructure and graphene patents to Novusterra, showcasing our focus and ability to monetize the value of our broad asset base. Lastly, during January 2023, our last and largest convertible debt holder converted all of its debt into common stock, which reduced our debt by over $9 million and further strengthens our balance sheet and exemplifies strong confidence in our business planning and execution as well as belief in our value as a company. While we will dive into our business pillars in more detail throughout this call, it is worth noting a couple of achievements that we have gone through during 2022. For ReElement Technologies, we have achieved groundbreaking success in commercializing our revolutionary critical mineral refining technologies by producing greater than 99.5% pure rare earth elements and critical battery elements on a commercial scale. We are the first to accomplish this domestically. Our rapid execution in advancing ReElement Technologies as a worldwide leader in critical mineral refining is worth reflecting upon. In October 2020, we unveiled our critical and rare earth element division for the first time. In November 2021, we successfully permitted our first refining commercial scale refining facility, which took under 2 months of permitting process. This is a clear and unique differentiator of our leading technology and how environmentally safe it is. In April of 2022, we announced the advancement of our intellectual property with a filing of multimodal chromatography patent for critical mineral separation and purification. In August of 2022, we announced our commercial scale success in rare earth element refining, separation and purification from recycled material. And then just in January 2023, we announced again our commercial scale success in lithium refining from recycled battery material. We believe we have uniquely positioned ReElement as it plans to be a standalone public company. Over this brief timeline, we have also secured an initial independent working capital facility at the ReElement level. We have added key talent to bolster our best-in-class team and entered into our first long-term collaborative partnerships to help secure our domestic supply chain for critical minerals, including sales MOUs with the only two domestic manufacturing companies in existence. 2022 marks a record year for us. We have realized nearly $40 million of revenue, which increased more than 400% over 2021. This again showcases our valuable carbon assets as we opportunistically acquire and restructure them. 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 becoming exhausted and closing down. We remain focused on monetizing our platform of assets for our shareholders. We will also discuss the options and actions we are taking within our control to do just that. Our unique platform of assets is in a great position to deliver what we believe is an attractive return 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 electrification economy. Over the past year, we have been able to eliminate approximately $12 million of debt and payables and invested approximately $28 million of expense development costs positions both our American Carbon and ReElement Technologies platforms for strong growth in high-demand markets. As of December 31, 2022, our traditional debt balance totaled approximately $1.9 million in total, of which $300,000 is equipment financing and $1.6 million in the form of mine development loan from one of our top customers. As of December 31, 2022, our convertible note balance totaled approximately $9.7 million. And as mentioned previously, on January 31, 2023, the entire convertible note was converted into common equity, which is reflected in the current shares outstanding of just over 78.2 Class A common shares. Cash on hand at the end of 2022 is approximately $8.9 million. Lastly, as part of our ongoing risk management process, all of our excess cash above FDIC limits are held at a top two U.S. domicile bank. I’d now like to turn our call over to Mark LaVerghetta for some additional comments on our ReElement Technologies division.

Thanks, Kirk. As we frequently state, our ReElement Technologies division represents an incredibly exciting and very strategic opportunity for us. 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 meaningful part of the recycling value chain, we are not solely a recycling platform. We do believe our position in the recycling market and the sustainable supply of critical minerals is highly important as we move towards a highly mineral dependent electrified economy. However, we also believe our refining methods hold an important position in the global value chain of processing and purifying natural ores, such as lithium. Additionally, in regards to our strategic positioning, it is worth noting that our innovative and advanced refining technology holds a critically important role for our domestic supply chain of critical minerals and our domestic manufacturing of goods. China’s global dominance of critical minerals has a lot to do with their ability to refine, both natural ores and in recycling, where they use conventional, environmentally and socially toxic refining methods. Their low environmental and social standards allow them to produce these minerals at a lower capital cost. We believe that deploying these conventional and toxic refining methods in the United States market will be very challenging. As we put together and developed our intellectual property, we set out to solve the biggest bottleneck in the supply chain, which we see as economically competitive refining, which is highly flexible to a variety of feedstocks and very environmentally safe. Our innovative and advanced refining methods using chromatographic separation and purification displace the toxic conventional methods used in China and we believe is an important linchpin in making the United States competitive within the electrified economy. Kirk just highlighted the expeditious timeline of some of our milestones. I would like to reiterate some of the significance of our milestones in producing ultra-high pure rare earth and critical battery elements in a commercial scale. First, we are the first domestic commercial producer of the separated and purified rare earth and critical battery elements. Our technology showcases that we in the United States can migrate away from and no longer need to depend on foreign adversaries to refine these minerals necessary for advanced high-tech green energy, including electric vehicles, wind, as well as defense applications. Our innovative chromatography technology is a clear differentiator in the market for several reasons, which specifically addresses the refining bottleneck within the supply chain. Our refining technologies, modular structure and design enable it to scale congruently and efficiently with the needs of the market, meaning we do not have to lay out a huge CapEx investment and wait for the market to adapt or catch up and they can be deployed either using a larger aggregation hub model, where we can co-locate customized refining capacities for certain supply chain partners, allowing them to reduce logistics and control a portion of their critical mineral supply. Our refining technology is very flexible to the type of feedstocks and materials that we choose to refine, meaning we can handle end of life recycling, manufacturing waste, scrap and non-spec as well as virgin ores. Similar to the MOU we signed earlier this year to refine spodumene ore for high-lithium carbonate or lithium hydroxide, which is needed in the production of a variety of lithium-ion batteries. We believe the opportunity to provide low-cost and environmentally safe lithium refining around the world in a collaborative manner to meet the needs of the energy storage market is abundant.

Thanks, Mark. First, I would like to thank our team for the hard work and effort they put in to position our business going into 2023 and also prepare our business to be more resilient across all of our platforms. As we mentioned earlier, 2022 revenue of $39.5 million increased more than 400% year-over-year as we accelerated our carbon production. While achieving this record sale for us, our ReElement Technology division in commercializing our leading critical mineral refining technology. Having the team in place to be able to accomplish the growth of the carbon industry, while also developing and building out and commercializing ReElement, is a key factor for our business and our focus going forward. The majority of our revenue was generated from our McCoy Elkhorn complex. This was offset by the idling of our Perry County Resources Complex, which we will discuss later. At no point in our history has our business been better positioned to serve the markets we operate in and to capitalize on the broad asset base and our talent and our ability to produce, process and refine raw materials that are in very high demand across all of our platforms. Given our execution, we are extremely excited about the opportunities for both entities we have in front of us. I also believe that the enterprise value as a whole is currently a substantial discount relative to some of the parts or comparable to peer valuations. Let’s dive into each division. In American Carbon, our mining division, we have spent a significant amount of time in the fourth quarter and also in the first quarter evaluating what generates the most return for our investors. And we have set up a strategic plan to not only be able to execute upon this plan, but also to evaluate the opportunities to monetize certain assets. Over the course of the last three months, Tarlis Thompson has done a phenomenal job of stepping up and running this division in assistance with Joel Stanley, setting up a plan for this business to make money and generate substantial value for our investors focusing on the highest value assets that we have, while also not chasing golden divisions out there. The carbon side of this division needs to focus on making money and driving fundamental value in the lowest risk possible scenario for our investors. From our perspective, the outlook for metallurgical carbon looks extremely strong with China coming back online following their zero-COVID related shutdowns, and you’re starting to see the world open back up including the U.S. market with two new blast furnaces opening up in the last few months. Now, this will take time for it to trickle through, but net carbon prices are still at very attractive levels and we are starting to see the transportation and logistics bottlenecks hit but also open back up which will drive revenue and drive value. The supply for high-quality met carbon remains constrained. There is not a lot of new investment going into the space. A lot of the existing mines within the space are old legacy mines that are producing higher cost structures. We have made substantial investment into our complexes to position them for low-cost production, but long-term production as well, including some investments we made in the fourth quarter, which resulted in substantial downtime of expanding the mines and positioning the mines and then also in the first quarter of setting up the mines for the long-term growth, including adding the second section at Carnegie 2 which will be talked about here going forward as well. We remain steadfast on monetizing our carbon assets now that could be through joint ventures or through sales and/or monetizing the growth and cash flow from the operations versus focusing on aggressive growth. We believe that we have opportunities for substantial growth by monetizing existing assets and relocating assets. Our Perry County Resources Complex was idled for most of the second half of 2022. This is a large complex that was hit hard by the floods and the workforce in that area has been somewhat limited. Now, I think that’s opening back up pretty substantially. That being said, our focus for Perry County at the current moment in time is not to put that back into production. We have substantial assets over there, including the equipment and infrastructure that we put into it and the ability to relocate that equipment and infrastructure to other mines. We also are evaluating offers on the complex to potentially sell it. We believe that the cash today would be very accretive to the business if somebody would offer a value that is commensurate with what we are willing to sell it for. That being said, a substantial amount of these assets would be very accretive to our Wyoming County Complex, and relocating these assets to Wyoming County would maximize and de-risk the production in Wyoming County in an extremely accretive way. Wyoming County is a mid-wall complex, with also a very high quality high-vol A mine in the same complex with the processing plant and rail load-out facility onsite. As we pursue our tax-exempt bond, we are waiting for the markets to stabilize within the bond industry and we believe we can advance this project forward faster, better and stronger by utilizing existing assets that we have by relocating them in a very accretive way by bringing over $40 million of value there. The net value we believe post-reclamation if we go to that at Perry County would be approximately $35 million in value of our business and based on our estimates. Upon evaluating several opportunities, we are not sitting on our hands. We made the decision to deploy certain assets also to our McCoy Elkhorn complex and support the embedded organic growth there. McCoy Elkhorn as a complex is an extremely high value complex. We have put the value of our carbon business on McCoy and Wyoming County. We have invested into expanding the McCoy complex by adding a second section at Carnegie 2. These three sections we have running at the Carnegie mines are one, accretive and very high margin complexes for us now that we have gone through the development, spent the development over the last six months, and positioned these mines for growth and the ability to add another section at our Carnegie 1 mine as well as looking at our Carnegie 3 mine down the road without having to spend substantial CapEx. Our focus, as I said earlier, is about generating cash and we are positioned to do that going forward. The mines and the production capacity and the production run-rate that our team has hit would enable us to generate revenue and be profitable going forward based on the current production we are achieving right now. One thing we have realized on our carbon complex is that we need to control our own destiny. We relied upon one of our customers’ processing plants and it struggled. They had trouble moving product and getting product to their processing plants. So, we made the decision. Our team made the decision to bring our state-of-the-art processing plant back online. At the time when we started the mine, there was no need to do that and what we realized we needed to do moving forward. Now we control our fate. We have the ability to diversify our customer base and monetize and maximize the margins within our product by now operating our current processing capacity, which is a state-of-the-art plant with long life empowerment. We are showcasing that now. The processing plant is up and running. We are able to start monetizing the inventories on the ground and setting ourselves up for a record second quarter. As I stated earlier, we will continually evaluate all of our mining complex; our Deane mining complex has started production. The team over there is running. They are hitting their strides. They are set up for growth. We are excited that they have been able to get that mine into production, which would ultimately generate cash flow streams for the business in itself. We are looking at monetizing other assets we have as well, including the Perry County Complex if someone is willing to pay the commensurate value for it. However, we believe with the Wyoming County Complex going online, those assets and that value would have to be commensurate with the $35 million to $40 million in value that we believe will generate by bringing that to the Wyoming County Complex. To help facilitate the start of the processing plant, we also stockpiled over $6 million worth of net carbon over at our McCoy Elkhorn complex. That is revenue and cash flow that we will be able to realize in the next few months, next few weeks actually, now that the processing plant is up and running and is hitting its stride and doing well. The sequential decline in top-line revenue growth in the fourth quarter of 2022 was partially due to us beginning to stockpile production and given our plans to restart our own processing plants as well as expand our mines to position them for future cash flow. At the end of the day, certain mines need to be run at scale. Thankfully, our Carnegie mines are smaller. They don’t need huge production. They are able to run efficiently. Now with two sections, the margins and the margin expansion we achieve doing that will be showcased here very shortly and we are already starting to realize the benefit of that internally. McCoy Elkhorn continues to be our biggest contributor and our growth engine for American Carbon. Now that we have two operating sections at Carnegie 2, we are looking at adding a second operating section to Carnegie 1. We are looking at our other mines that can be brought online with minimal CapEx given we already have our processing plant up and running and the ability to produce specialty products for the specialty sulfur market, specialty carbon market, while evaluating our Carnegie 3 mine, Mine 17, Mine 15A as well as surface mines we have in the region that won’t take a lot of CapEx to get up and running and further expand the revenue base. Our platform is unique given the significant mining infrastructure that we own and ultimately adds a lot of value and the quality of the carbon that we produce and have access to the restructuring efforts and the investments we made to streamline cleanup of environmental liabilities left behind by the legacy companies and position this business as a high-margin, high-growth asset is exactly where we are at today. We are starting to see the production coming out of the Carnegie mines which are two very high quality mines that are very mineable that showcase the revenue growth that we can achieve from exceeding the revenue we did last year in a meaningful way. Additionally, we remain focused on progressing our Wyoming County Complex over the next year. As recently communicated, we continue to work through the process for the $45 million tax-exempt bond to the state of West Virginia which has been preliminarily approved. The credit markets are seeing some stabilization following a very aggressive interest rate policy from the Federal Reserve as well as the allocation commitment totaling $4.9 million of the federal new market tax credits. With the interest rate stability, we have also seen stability within the banking environment. Our team that’s working on the tax-exempt bond is doing a phenomenal job navigating the current market environment. We are also advancing the project forward and relocating assets there which is just further reducing the risk, not only for us and our investors, but also for our tax-exempt bond investors by offsetting the costs that would be required out of the new capital coming in with existing equipment and infrastructure that we already possess within our business. We can de-risk this and expedite the production to bring these mines online very quickly and at nice margins right off the bat. We are excited about the developments and the progress we are making and the planning that we are making in that complex to get that mine – that complex online. With the issuance of two non-dilutive capital sources, we are excited to showcase how we positioned the complex to be the first of its kind advanced carbon and rare earth processing facility by combining premium mid-vol met carbon production with unique rare earth capture process technology, utilizing electrolysis onsite to treat the water and waste material coming off your plant, and then further capturing and monetizing byproducts that are coming off of that is the first of its kind and a unique structure that has a low cost structure by utilizing the processing capacity to generate rare earth elements. It’s not a standalone rare earth element recycling facility or processing facility, it’s a fully integrated coal processing facility capturing the water streams coming off. We are excited to showcase that in the next year as we get this complex further advanced. Lastly, we will also explore leasing opportunities with our other idle assets. And similar to our structure we have done with our Deane mining complex, which has started production recently, we will continue to explore opportunities to monetize additional assets and support the existing production with our existing team that runs our mines to be the most profitable and the most accretive to our investor base. To expand a little bit on the ReElement Technologies division that Mark just discussed, we have never been involved with an entity that is as exciting or to the higher ceiling than ReElement is. Looking at this space, you see a lot of the companies within the battery recycling space; there is nobody that is fully integrated from the battery to the magnet. Our technology developed out of Purdue University sponsored by Eli Lilly through decades of research and investment is revolutionary. One we can process lithium ores at dollars per kilogram, very efficiently, very effectively localized processing as well as the ability to co-locate at existing battery manufacturing sites to help offset their costs, make it truly a more circular economy and a more efficient and optimized economy. Our technology can do that where hydromet cannot. Hydromet is multi-hundreds of million dollars investment, years and months of planning where our technology takes months of permitting and fractions of the dollars to invest, which gives us the opportunity to grab market share and showcase it. We have had numerous calls with parties, new battery manufacturing plants popping up throughout the United States, and we are excited to continue to advance those discussions forward, contracts for our investors. We are also continually entering into additional pilot and partnership programs with some very exciting companies out there that provide different feedstocks, anything from end-of-life magnets to different chemistry to batteries, as well as the lithium ores. Currently today, the opportunity is very attractive for us to continue to expand this division and partner with some of our existing partners such as USA Earth, which is standing up one of the largest magnet manufacturing facilities in the United States. We are excited to see their growth, as well as AML, the magnet manufacturer in Florida, which is doing a phenomenal job of commercializing their technology and expanding their technology. With regards to the natural occurring lithium refining, we believe our technology is a game changer. We can process at the local level, cut out the logistics costs, cut out the need for transporting lithium spodumene, which is a 94% rock material halfway across the country to process using heavy chemicals and solvent extraction. We can process it locally. Given that unique technology, we have been able to enter into numerous partnerships and MOUs and conversations within the African environment, one of the most resource-rich nations, accessing the ports where we are currently in discussions of building and refining facilities on the West Coast of Africa as well as on the East Coast of Africa to be able to access the lithium reserves and the current lithium production being exported in raw form bringing that value to the African community bringing in partners within the African community that are on a world stage in terms of their knowledge as well as their experience. Opportunities like this further exemplify the unique attributes of the ReElement refining platform in terms of its feedstock from chemistries and ability to grow. The ability to be efficiently deployed due to modular design and environmental sensitivity is something that has not existed in this industry, and something we are bringing to this industry. We are thankful for the team that we have been able to put in place at ReElement and the team that we continue to expand upon. We brought Bob Galyen on as a board member and Bob’s team is first class. He was the number two employee at CATL, the Chief Technology Officer. He helped build that business from the ground up and he is helping us do the same. He is extremely valuable and the people that he is working with and his team are phenomenal. We are excited to have them onboard and we are excited to further expand that talent pool, which we will be talking about here in the next few months – next few weeks. We have seen numerous opportunities in the recycling space beyond what we have announced with our magnet partners. We have also commenced several pilot programs to recycle these critical minerals from feedstocks such as consumer power tools, wind turbines, black mass producers, battery manufacturers as well as industrial battery sources on energy storage platforms, which is predominantly LFP chemistries, which would not have been very challenging to recycle using traditional legacy technologies very cost effectively to recycle utilizing our technology. In terms of recycling, I think it’s worth reiterating how we strategically position our value-added partners in addressing our sustainability needs. Our flexibility in refining technology does not require massive CapEx. It does not require a hub-and-spoke model. We can recycle at the local level. We can recycle at the source. We are not transporting dangerous battery materials across highways. We can recycle it locally, reducing the risk profile not only for us, but also for our customers and the community. The innovative and economic process we utilize has a payback period of less than 3 years and often on projects of less than 2 years, which is unheard of in the battery recycling space. In regards to the realm of spin-off, you will see that we filed a Form 10. We are working with the SEC through the review process of that. We are excited about the progress that we are making. This business deserves to be its own public company. It doesn’t fit within the platform of a mining operation on the coal side to a green energy recycling platform using the most environmentally sensitive technologies. We have the teams in place to manage that process, operate these businesses post spin-off so that they can both be very successful businesses in their own right. I would like to give a shout out to our ReElement team for the groundbreaking things they have achieved. Being able to produce 99.99% purity products is a game changer. That is ultimately what has separated us from our peers, but also being able to do that cost-effectively. We believe we put together a team that is not only entrepreneurial, but also has the history of success in operating large industrial facilities and will be able to drive this business forward very profitably and efficiently for our investors. We will continue to add top talent, interviewing top talent daily from within the industry as well as outside the industry and bringing them in from a technical perspective, which we believe will have the world’s best chromatography experts and team behind our ReElement division, whether it’s with university partners at Purdue as well as engineering teams and longstanding success in developing the technology and operating such as Eli Lilly and Dr. Yi Bing, who joined our team internally as well as our Chief Commercial Officer who joined us recently has done a phenomenal job, Chris Moorman. Our technical advisors, as I referenced, Bob Galyen as well as a few others, which we will announce here shortly, will continue to position ReElement as a global refining leader and the entity that will deliver significant value to our shareholders as well as the goal to build ReElement into a multibillion dollar business by executing upon the need for recycling not only in batteries but also in magnets. Battery recycling and what was mentioned earlier in this call, are probably good segues into our American Metals division, and I will keep this relatively short. American Metals has predominantly been a ferrous metal recycler for us as we reclaimed legacy mining operations that were no longer viable in the current market environment. As we have continued to expand our business and to keep ReElement as a pure-play refining division, we are in the process of developing American Metals into a world-class shredding operation, with the ability to not only shred end-of-life batteries very efficiently and safely and working with the leading industry partner to help ensure that we are the standard for battery shredding in a safe way to reduce the combustible events that take place in the battery shredding as well as being able to shred magnets and shred the products that magnets come with it. We have developed a process that can efficiently and effectively recycle rare earth magnets in a cost-effective way, extracting the magnets from what they come in, which would be a motor, rotor, or a wind turbine and extract them very cost-effectively to be recycled back to high purity magnet grade materials today. The ability to do that within American Metals will enable us to keep ReElement as a pure-play refiner, which will not compete against our other customer bases that provide us end-of-life products already today, but also enable us to capitalize on the ability to take both magnets and batteries from our partners that want us to recycle these materials to get them back into the circular economy. As such, we believe American Metals is a great platform to leverage ReElement’s refining capacity, enabling us to produce products that we can then deliver to ReElement to be able to efficiently and effectively expand our revenue base. In closing, we remain very confident in the position of all of our assets and the long-term value they provide to our investors. We remain hyper-focused on unlocking value and have already communicated our initial strategic steps to do so. With ample liquidity, we do not foresee needing to issue equity to raise cash, especially due to some sources of non-dilutive capital we have. We also feel very good about the current production levels at the mines themselves. From Carnegie 1 to Carnegie 2, we believe based on the roughly 30,000-ton run-rate of production would put us in a highly profitable state month over month going into the second quarter and for the rest of the year and potentially for the next 10 to 15 years. Just to reiterate, as the largest shareholder of American Resources, our management team is committed to maximizing the value for all of our shareholders. We believe continued execution and splitting the ReElement divisions are early steps in doing so. We believe we are well-positioned to capitalize on opportunities as they come to us to monetize assets and bring assets online in cost-effective ways as we continue to expand the McCoy complex, which ultimately will generate the cash flow to continue to support the business as a whole in a very profitable way as well as our Wyoming County Complex, which is probably one of the most attractive virgin opportunities in the market today. I thank you all for your time and look forward to the balance of this year as we continue to showcase the execution of where the businesses are positioned today and the opportunity that we have in front of us. And now, I can turn over to the moderator for some Q&A.

Thank you. And our first question is from the line of Heiko Ihle with H.C. Wainwright. Please proceed with your questions.

Hey there. Thanks for taking my questions.

Yes, thanks for joining.

Of course. At McCoy Elkhorn, are you guys facing any issues with either supply of materials, any sort of supply chain issues or labor, or is everything going smoothly?

Yes. I would actually say we are starting to see a lot of stabilization in that environment today. From a labor market perspective, McCoy is – they are effectively two new mines. So, they are pretty attractive places to work. As for supplies, we’re starting to see – I mean, there are fewer suppliers out there than they were 5 years ago. But you are witnessing stabilization within the supply market. I would say even in the fourth quarter of last year, people were starting to return to some semblance of normal, but there were still a lot of challenges, and now I would say we really don’t see much of that anymore.

Fair enough. So fair to say progress can be felt even in the last two months?

Yes, I mean, I would say the biggest issue we had was, for us to expand our revenue was the processing capacity. I mean, we predominantly sold to one customer, who is a great customer and colleague. But the processing plant that we had was struggling. I mean, it was running at less than a third capacity. So we made the investment to bring our own; we have a state-of-the-art processing plant. That is – we just at the time, when we started the mines, it was easier just to ship to our customer who was processing it. Now, we had to make the decision to drive revenue growth and margins to bring our own processing plant online, which we did about two weeks ago. So that was probably the biggest limiting factor was the processing capacity in the region. Thankfully we own and possess not only the newest but also the largest processing capacity in that region, and I think there’s going to be some pretty significant growth for our business, not only from the existing production that we have coming out of the mines right now, which is very good, but also third-party business we could bring in because of our processing capacity. That was probably the in the fourth and a little bit of the first quarter here. Now the production in the first quarter was great, but the processing capacity was slow. Now with our own processing plant coming online, I think we are pretty excited about where we are positioned at right now and the cash flows that the business will be throwing off.

Got it. Okay, perfect. And then just one quick one, you spend a decent amount of time talking about the partnerships, both in your press release and earlier on this call. So wide of a net, should we expect you to see when it comes to partnerships? I guess what I’m saying is, are there any end uses or markets that you’re mostly against, or are you just open to anything that may be beneficial?

On the ReElement side, is that what you are pointing to?

Yes.

Yes, worldwide. I mean, obviously, we’re going to be a little sensitive about certain areas of the world where we need to protect our IP. But we’ve signed an MOU with a Japanese recycler; we are working obviously very aggressively in African nations and feel really good about the resource-rich nature of that. Obviously, domestically throughout the U.S. We are in numerous discussions. Hopefully here shortly, we have some additional co-location opportunities designed with another battery manufacturer right now and in mine recycling process for them, how our technology can sit at their battery manufacturing plant to recycle their waste material. Nobody else in the industry can do that. You can’t put a hydromet facility next to a battery manufacturing plant in a matter of six months. It would take you years, and they wouldn’t want a hydromet facility next to their plant. We can do that. So those are the conversations we are having, but even a couple of our board members have been over in Australia talking to other lithium producers about our technology displacing their current processing capacity, because it’s a lower cost. So we are not just focused on the U.S. market by any means. We believe that if we can replace all of the extraction throughout the world and position our technology as the solution, that’s our focus today. And looking at our team, you get Bob’s experience; I think we’re going to be successful at that.

That’s helpful. Thank you, all.

Thank you.

Our next question is from the line of Mike Niehuser with ROTH Capital Partners. Please proceed with your questions.

Hi, thanks for taking my call, or taking my questions, that is. Very helpful answer on the last analyst. So if I can understand what you said earlier in your narrative, the fourth quarter, there was investment and the expansion of facilities, and that was related to the processing, I am assuming, and the reason for stockpiling the $6 million worth of ore; is that somehow related? And we’re transitioning out of that phase, at the end of the first quarter with increased processing capacity. Is that close?

Yes, I mean, that – and I mean that trickled into the first quarter as well. We needed – I mean, our customers were still running their plant, but it just wasn’t running efficiently, which slowed down some of our internal production as well. So, stockpiling the ore slowed production because we didn’t have our own processing capacity up and running. During the Christmas holidays, we also expanded; we started the development of expanding the Carnegie 2 mine, which, during that period of time was relatively slow. Now, I will say today, where we said, all three sections are operating, the plant’s operating, and they’re hitting production levels, which will be commensurate with that 28,000 to 30,000 tons a month, which we think we can expand upon, which would put us in a very profitable state as a business going forward. Now, we are also expanding our customer base as well. Just diversifying a little bit with that additional production coming online, and we think we will be able to – the good thing is you are seeing a lot of blast furnaces open up right now. So there is quite a bit of demand and with the logistics, which are relatively tight right now, we are starting to see that open up.

But still all met coal, correct?

Yes. Everything is met coal. I mean, that’s really where our business is focusing on those the Carnegie mines right now, just because that’s what generates cash flow for the business. That’s what puts cash in the bottom line going forward and focusing on the high margin McCoy versus exploring lower margin products.

And you mentioned the Dean was starting production. Can you give us some idea of the scale of that through the fourth or first quarters?

Yes. So they just started up recently, doing some development in mining. The attractiveness of what the team brought in over there, they brought a hydro mining; hydro miners are very, very efficient forms of mining, very low-cost forms of mining. They’re targeting right around that start-off phase around 30,000 tons a month, is what we’re being told, which would translate into right around a couple hundred thousand dollars in revenue does have cash flow does have, a month. And they’re looking at some pretty significant expansion opportunities around there. They’re hitting what they said they’re going to do, and they were delayed a little bit but that’s not unexpected, I guess in this industry when you’re starting up a new mine. But thankfully they’re in production today. They are hitting their stride.

Got it. And as far as like Perry, you mentioned that trying to get the right price for it and taking some of the equipment and moving it or transitioning over to Wyoming County, in West Virginia. If you take that away from Perry, is that going to cannibalize or degrade the value of that asset as you would present it to a potential purchaser?

I mean, we’re looking at maximizing the value for our investors. We believe Wyoming County is one of the most attractive opportunities we have in front of us today, high margin looking at generating cash. I mean, we could talk very frankly, coal businesses sometimes aren’t – we want to look at maximizing the value of our coal business today, maximizing the revenue and cash flow generation from our coal business today. We believe the value of our assets redeployed to Wyoming County would be roughly $40 million, the cost to reclaim the complex would be roughly $5 million, which would yield a net realization of value to our investors of roughly $35 million. If we deploy it to Wyoming County, if there’s an investor that would like to buy it, they can come in around those values and pay us cash for it. We are open to that. We are open to monetizing it in the most creative way for our investors, but those assets and that equipment, and there’s other assets and equipment that we can bring to Wyoming County as well. But today, our focus needs to be run as a three-section mine. If that was all our focus, and all we were focused on doing is just running Perry County, we could put three sections in there; we could make money. There is a lot of people that want to do that. We have had offers on the complex that weren’t quite at a position, those offers weren’t quite as high. Some of them were close, actually quite close to the replacement value of redeploying those assets to our Wyoming County division, but they weren’t there yet. Ultimately right now, we are looking at the cost-benefit analysis, and we’re looking at what’s the most creative aspect for our investors. If that means redeploying our equipment and infrastructure and assets to Wyoming County, we will do that. But what we’re not going to do is sit on our hands and wait for somebody to come and match that value; they either need to move quickly, or we’re going to redeploy the assets and maximize the value today.

Well, I would never accuse you of sitting on your hands, that’s for sure.

With regards to Wyoming County, the bond is $45 million. Will that balance the construction budget? And of course, you’ll benefit from moving equipment over, but there’s also inflation. At the end of the day, are you going to need to raise equity or do you think you’re going to be able to – with cash flow and equipment and all these things together, not need to go to the markets? No, I mean, I will say that the $45 million is built in quite a bit of contingency. Also, the ability for near-term revenue growth, revenue generation during the development phases of that, we actually think we can be in revenue very quickly. They’re even during the phase of development and offset those costs. I actually believe that the $45 million is – would be extremely well capitalized, especially with – there is a lot of infrastructure, we are already setting aside rebuilding and ready to deliver over to the complex. What we are doing by doing that is we are offsetting we are de-risking it for ourselves and the tax incentive of investor to tax amount investors by doing those moves already. We have already started investing in that equipment. We have already started investing in the infrastructure. Now if we redeploy the infrastructure over from Wyoming, it’s going to be extremely de-risked for us and our tax-exempt bond investors. That’s a good thing, more higher likelihood for success, monetizing the asset and getting the assets online for the long-term.

Got it. And as far as that goes, it seems like it’s going to be a really appealing project, if you can say that about a carbon producer. But what’s your sense about closing that bond building, and being able to move into production? Is that the 2024 production you are looking at?

No, I think it can be – I am going to caveat this. I don’t control the bond markets. I mean, we had how many banks just failed what a month ago, not even, so there are people that like to sometimes hold me to timeframes on certain things outside my control. But this one is when the bond markets are fully open. I think our advisors are doing a phenomenal job. They understand this environment. They’re navigating and we want to make sure we put a good deal in place with good investors. Right now, it’s an extremely attractive mine to bring online. Our customers are beating down the door; we have off-takes that are very interested in that; there’s numerous off-takes we can go under some of the legacy mining companies around the region also express interest in desire for that product. We want to get it online quickly. But we also want to make sure we navigate the current market environment. What we’re seeing now is even with unemployment rates climbing today, I think the interest rate environment is stabilizing, which is a good thing. That’s the most important thing to get a tax bond done. Over the last five months it would have been nearly impossible just because that’s what killed those banks right, with rising interest rates and pricing deals below it. So we are starting to get pretty good environment for it.

Once the market stabilizes – sorry for interrupting, Mark, I apologize! Once it stabilizes, closure would be imminent at that point, I am wondering how long to build and start seeing some benefit from Washington County or Wyoming County?

Yes, I mean, we are going to mobilize quickly. We have already narrowed it down on the development team that’s going to be up there. Our current operating team, led by Tarlis Thompson, has been to the site numerous times already doing the engineering planning phases of it. I think it would be – I think it would be months, not years, not quarters before we start moving dirt there, it would be days actually; we will probably start moving dirt here in the near-term anyways, even before it closes.

As far as production goes…

Yes. We could start generating revenue in three months. There are some work we need to put cap, which is what the tax and bond will fund. We are bringing infrastructure for the processing plant from other plants we already have that are idled and not being used; but, it’s, within months, we can start generating some revenue on the that’d be development revenue, though. Within six months and building in a little bit of cushion for myself, we can be producing at pretty good state.

But I’m a little ignorant here: Aren’t you going to have to build a plant, or is there an existing plant that you’re working on?

Yes, Wyoming County is a really attractive complex. The way that we developed it and the way that we have – the way that it’s set up, and our plan has been developed is there are two deep mines built directly into the processing plant that is already onsite. We are going to upgrade that plant using a lot of the infrastructure we already have and equipment we already have at various projects. So that will be the focus is developing the deep mines and upgrading the plant simultaneously. There is a real load out onsite as well that accesses VNS, Norfolk Southern Rail. We paid over $26 million for this complex and bought it a number of years ago; the reason we bought it is one, it’s fully permitted; two, it has the existing plant onsite that can be upgraded quickly; and we have two deep mines within a strata that is very similar to what we already mined in Kentucky, at the Carnegie mines. So it’s a relatively straightforward development plan, low-risk development plan given what’s already onsite there today.

Excellent, thank you for that tutorial on that, I appreciate that. You have a lot going on. And Wyoming County doesn’t get a lot of press except for the bond in the last couple of years. So thank you for your patience. Moving on to the ReElement, I am really quite interested in the spodumene and your ability to co-locate; it seems that there are many lithium companies out there, you know, resource companies that each have their own kind of like black box or bag of tricks to concentrate lithium to ship. I just want you to tell me if I got this right; it sounds like, you’re talking to lots of people; there’s really an opportunity. But I’m wondering, sometimes, disruptive technologies have a tough time penetrating until it’s seen that it really is lower cost. I’m just wondering if you have the flexibility to be able to dominate that space in terms of the really the difficulty that lithium companies are having to produce the concentrate. And the reason for the long question, I don’t want to overstate that, but it just seems like you’re in an excellent position in a market where if this easy thing is going to work out, lithium is going to be one of those critical items that really rises to the top and is scarce. How do you see you fitting in from an industry level as being the go-to technology to be able to, for the initial extraction of lithium production to spodumene?

Yes, that’s a good question. That is really what shows why our technology shows – is able to be showcased in a very efficient way. Our energy use and chemical use versus the alternative is a fraction of solvent extraction. We are not using a series of mixtures and settlers, hundreds at times, even thousands of times; we are using columns. We’re not using high pressure or high heat within those columns either. It’s a very efficient form of processing. The cost structure matters, right? Everything matters, but most of what a lot of people don’t realize is logistics matter. When you’re dealing with commodities, if you’re transporting a raw commodity halfway across the world to be refined, there’s a huge cost to that; lithium spodumene is typically a 6% lithium ore, meaning you’re transporting 94% rock halfway across the world to be purified to a 99.99% pure. Most people can’t get to that high; we can. More importantly, we can localize that. So, why Africa has been such a huge opportunity is there are hundreds of thousands of tons of lithium spodumene that is transported from African nations to China today to be purified. We have already been testing that material in our facility. We have already been processing it to showcase what it can do, one, at small scale; but what we have proven is that our technology works as it scales up even better. Because of the surface area interface; basically, the surface area of the resin, the bigger the columns, the more resin you have, the more surface area, which lowers our cost structure. But the ability to localize that, and the ability to do it timely, meaning we could build a plant and deploy it in three to six months. The agreements that we are putting in place throughout different African nations right now predominantly imports, because we can process multiple products in multiple mines. That is a big deal. There is a lot of volume of material that can be processed, and can be processed very quickly. I do think that the localization not only on the spodumene side, but also on the battery manufacturing side of the battery industry is a big deal. If you can offset that transportation costs, take things off the highways that you are transporting back and forth, you’re saving everybody money in the equation. We have been working with a number of the OEM partners showcasing our technology, and that takes time. I mean, everybody wants us to sign an off-take immediately and sort of weep. We also want to select our partners, and they want to select us and make sure that they feel comfortable with it. We are in our third, fourth, fifth, sixth, eighth meeting with certain parties that have seen the technology, including the one that we are co-locating a design facility for them as we speak right now. It’s a big opportunity. I would say the African opportunities, from a revenue perspective are huge. These are big mines that are mechanized mines. These aren’t children, labor, nuts, and there is a misconception of how things are mined over there. It’s really not fair to some of the attractive opportunities that are over there. But these are big revenue opportunities. I mean, the first one we are working on is a pilot program. It’s an exploration phase permitted 8 million tons of spodumene a year targeting to produce. Their initial production is 35,000 metric tons of spodumene a year under the exploration plan. That’s a big opportunity, a big potential for us and can be substantial revenue right off the bat and we can build on that pretty quickly. We are working aggressively on that. We have worked on it for almost eight months now and it’s coming to fruition pretty quickly.

Great. That’s just super. The transportation, you laid out, is undeniable, a huge cost savings. I guess as I've learned about your technology, it’s so effective in producing high purity material that I have the side benefit of being flexible for different types of material that you process. I was – the original part of my question was, is that each one of these lithium mines has a unique ore, and my sense is, is that your chromatography process isn’t distracted by the nuances of the ore in terms of you just have to get it into the right condition, and then just present it to your columns with the technology. It seems like it could be a universal very – something that would be considered by every company going in as opposed to feeling they need to develop something proprietary.

So, what’s unique about our patents is great, and our trade secrets are better. But what we possess is the ability to run simulation software that we can plug in based on our Ictus machines, that we own. That we can plug in the data that will run the virtual simulations to tell us our mass balance calculations, which means we can process any ores, any chemistries. Because of that software, we can move very quickly. We don’t have to spend weeks or months in labs running analysis to dial in the solvent extraction call of tanks and change our emulsion chemicals and ratios. We don’t have to do that. All we need to do is run it through our mass balance calculations based on what ore body is coming in to run those simulations virtually. That software we control. That was put together through 40 years of research by Dr. Wang and Dr. Yi Bing on our team now is an absolute game changer for us, not only for the lithium bodies but also the magnet materials. That is what’s unique about the flexibility of our technology and then the purity. I mean, purity matters. Purity is, I mean, the impurities within a battery are oftentimes what causes a combustion event, which causes fires with a battery. When I first met Bob, that’s one thing that he is like, you need to ensure you can bring high purity. We showcase that to him, he joined our technical advisory board. He just recently agreed to join our board because he felt comfortable with the efficacy of our technology and the proof and our technology of how it works. He watched the facility run, and he was like, that’s the goal. That’s a game changer. I am obviously super thankful to have him on our team, because he is a rock star. He is probably the most respected or one of the most respected guys in the battery industry. To have him on our team, I mean it’s hard to express our gratitude towards that, but he believes in the technology, and that’s important.

Does the co-location that you are seeing that opportunity? Does that reduce the need to build the facility in Indianapolis that you have kind of got online, or is that – and what’s the timing for that?

Yes. We have not announced our second facility. We did say it’s going to be in Indiana. The bid has been approved for that facility. Now, we are waiting on documents. We have already started renovating it. No, the co-location opportunities would not displace; we still need a bigger facility. We weigh over on our existing facility already. We need to meet our larger scale facility, but that we also have partnership opportunities for people to co-locate at our facility. The facility we selected, this 42 acres, it’s a huge site. The ability to bring in partners alongside of us, we get magnet producers, battery producers, can producers; we are in conversations with them because we will have a lot of excess capacity at that site. It will be our first large scale internal site, but also then, from there, it will be all about co-location.

Got it. I apologize. I just realized how long I’ve been on this call. I have enjoyed your answers. As far as the magnitude of the purification of a particular metal, does lithium look like it’s going to be several magnitudes more than what the other metals that you are involved with as far as market size and acceptance and demand? Is lithium the big one?

Yes. I mean, so lithium ores are the largest opportunity we have in front of us right now, just because we have some opportunities that are really large. That being said, I think I mean there are some cobalt operations that just shut down, because of the market environment today, because prices went up, prices went back down. We can actually help make those projects profitable. I think they explore other ores and the other materials you get. On batteries, you are going to produce more nickel and cobalt than you will lithium.

Are you talking about cobalt mines there?

Yes.

Okay. And I do apologize. Yes. I apologize for keeping this long. Last question, do you think we are going to start seeing meaningful revenues from ReElement on the rare earth and the battery metals this year?

I think by the end of the year, I mean we are already making money on the metals side of the business and part of our breakdown recycling process. I know, USA Rare Earth and AML are actually both doing really well on the magnet side. They are getting really close, and that will help unlock some pretty significant revenue for us. From everything I am hearing, they will be up and running this year, which I know AML well. I think USA Rare Earth is likely going to be a lot bigger producer, and they are being led by a world class team. Then on the battery side, I think some of these projects we are working on could move really quickly. By the end of the year, I think we could be generating pretty substantial revenue. However, there are things outside of our control; we wait on our partners for some of those things. Now, that being said, they are advancing quickly, and we feel good about those timeframes.

Thank you. Our next question comes from the line of Steve Segal with KBB Asset Management. Please proceed with your question.

Hey Mark. Congratulations, all the benchmarks you have already accomplished with ReElement, especially. Most of my questions that was asked have been asked and answered already. So, I was just wondering if you can talk a little bit about Novusterra.

Yes, absolutely. So, we sold – Novusterra actually ties into the Wyoming County Complex as well. It’s part of what – that will be the initial pre-stock, pre-feedstock process in fact. We ended up selling the exclusive rights to those patents to Novusterra for equity in Novusterra. As you can see what we have said is we have set out earlier, end of last year with the ability to align the interests of all of our team members, but also the people dedicatedly focused in that. And so notice there was restructured. We brought in the new management team; part of our team moved over there. They now have a dedicated focus on operational control. What’s exciting about Novusterra is we did a sub-license with Kenai Defense. Kenai Defense already got the first contract with one of the military divisions, and now they have been approved for a second one. So, Novusterra will become a profitable entity, which is really attractive based on those partnerships it had signed and the agreements it has with the DoD related parties through Kenai Defense. Ultimately, then the technology development and the commercialization of it internally through Novusterra will be tying into the electrolysis technology. The goal – the new team, the new CFO, Josh Brumbaugh, who is a phenomenal guy, has come onboard. He is getting the audits back in line. He wanted to recreate them, so that they are his work, and he feels comfortable with them. Not that there’s anything wrong with the prior, but he is the kind of dedicated guy who wants to work perfectly, and the company will refocus and be ready to go through that public process. It will be a lot easier of a process than it was before. They won’t have to raise the $16 million the way that they are structuring it. They can do a much smaller deal. The company doesn’t need that kind of money. We feel really good about it.

And where would that be located, you think? Would that be located in the Wyoming area?

Yes. I think Wyoming. I will also be throughout Kentucky. I am not on the board of members here anymore. But from my conversations with them, I believe it will end up being licensed – technology that’s licensed out to third parties as well. The ability to license that out to monetize it, because it’s a really unique technology product and waste material that otherwise would end up as a pollutant.

And that’s for the fly ash, right, for the ash?

Well, predominantly starting off with carbon waste materials.

Thank you. This will conclude today’s conference. You may disconnect your lines at this time. Thank you for your participation.