Greetings and welcome to the REX American Resources Fiscal twenty twenty one second Quarter Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. I would now like to turn the conference over to Doug Bruggeman, Chief Financial Officer. Please go ahead, sir.

Good morning and thank you for joining REX American Resources fiscal twenty twenty one second quarter conference Call. We'll get to our presentation and comments momentarily as well as your question and answer session. But first, I'll review the Safe Harbor disclosure. In addition to historical facts or statements of current conditions, today's conference call contains forward-looking statements that involve risks and uncertainties within the meaning of the Private Securities Litigation Reform Act of nineteen ninety five. Such forward-looking statements reflect the company's current expectations and beliefs, but are not guarantees of future performance. As such, actual results may vary materially from expectations. The risks and uncertainties associated with the forward-looking statements are described in today's news announcement and in the company's filings with the Securities and Exchange Commission, including the company's reports on Form ten K and ten Q. REX American Resources assumes no obligation to publicly update or revise any forward-looking statements. I have joining me on the call today, Stuart Rose, Executive Chairman of the Board; and Zafar Rizvi, the Chief Executive Officer. I'll first review our financial performance and then turn the call over to Stuart for his comments. Sales for the quarter increased substantially by three ninety-eight percent primarily due to higher production levels as we had NuGen and One Earth plants for a portion of last year's second quarter due to the impact of the pandemic amongst other factors. Ethanol sales for the quarter were based upon sixty-nine million gallons this year versus twenty-six point five million gallons last year. We also benefited from a significant increase in average selling prices in the Ethanol and byproduct segment. We reported gross profit of fourteen point two million dollars for the ethanol and byproduct segment versus a gross profit of five hundred and fifty-three thousand dollars in the prior year. Gross margin benefited from the increased volume in selling prices, which were offset somewhat by higher corn pricing. Gross profit also benefited from certain shipping costs being recorded in SG&A this year based upon contract terms and our placement of ongoing shipping cost in SG&A. Our refined coal segment had a gross loss of three point one million for the second quarter of fiscal twenty twenty one versus one point nine million for the prior year based upon increased volume. These losses are offset by tax benefits from this segment of five point four million and two point nine million dollars for the second quarter of fiscal twenty twenty one and twenty twenty respectively recorded from the section forty-five credits and tax benefits from operating losses. As a reminder, we currently expect this business to end by November 18 of twenty twenty-one as this plant operation will no longer be eligible for tax credits based upon current legislation. SG&A increased for the second quarter to six point six million dollars from four point four million dollars in the prior year. This primarily represents increased shipping costs recorded in SG&A as mentioned earlier for certain ethanol contracts in which we pay shipping based upon contract terms, as well as higher incentive compensation associated with higher profitability levels. We had income of one point eight million dollars from our unconsolidated equity investments in this year's second quarter versus a loss of five hundred and seven thousand in the prior year, reflecting improved ethanol industry conditions during this time period. Interest and other income decreased to approximately thirty-nine thousand versus one hundred and ninety-seven thousand in the prior year, primarily reflecting lower interest rates. We recorded a tax benefit of three point seven million dollars for the second quarter of this year versus a benefit of four million dollars in the prior year. Fluctuation in rates is largely caused by the level of refined coal production and credits, and the prior year having a pre-tax loss versus pre-tax income in the current year. These factors led to net income attributable to REX shareholders of seven point nine million dollars in this year's second quarter versus a net loss of one point seven million in the prior year. In addition, our weighted average shares outstanding declined from six million two hundred and sixteen thousand to six million and eleven thousand from last year's second quarter, further benefiting the earnings per share. As we announced this morning, we completed our most recent share repurchase authorization and the Board of Directors has approved an additional five hundred thousand share repurchase authorization. We currently have approximately five hundred and seventy-one thousand shares outstanding.

Thank you, Doug. Going forward, we're currently running in the ethanol business at a profitable rate, but significantly less than in the quarter we just reported. The industry is hampered by high corn prices, corn shortages, and a number of other issues which our CEO, Zafar Rizvi, will discuss in his segment. Also, RINs remain up in the air as the Biden administration has not issued any RINs for the future. So we still don't know where that exactly stands. In refined coal, it continues to run at a good rate and should be profitable again on an after-tax basis this quarter. This business, as Doug said, is scheduled to end in the middle of December, but we could have significant tax credits to carry forward which should help our cash flow for the foreseeable future. In terms of cash, we had a consolidated cash balance of one hundred and eighty-seven point six million. We have completed the five hundred thousand share buyback and have authorization for another five hundred thousand shares. We try to buy on dips, and we prefer to return our shareholders' money in buybacks versus dividends since it reduces share counts, increases earnings per share, and provides liquidity to shareholders looking to possibly sell our stock. We're looking for other opportunities in the ethanol business to buy plants. We've looked at a few things this year, but we have had no success in buying anything and we have nothing imminent. Terms of carbon capture will be our biggest new project. We're working hard on it. We have the possibility of being a large player in that industry. We're working with the University of Illinois on a site, and we've received a grant to help fund this work from the U.S. Government. Zafar will now discuss more of that in the ethanol business in his segment.

Thank you, Stuart. As I mentioned in our previous call, our operating environment in twenty twenty one is beginning to improve, and production continues to increase. These improved conditions helped in the first and second quarter and resulted in a profitable quarter. However, we are beginning to see a decline in the cash margin due to several factors, including the cash price of corn, as Stuart mentioned; availability of corn, corn exports, a decline in the price of distiller grains, but an increase in the price of non-food-grade corn oil. Both of our majority-owned plants are producing below capacity due to a number of reasons, including a planned shutdown, availability of corn at a reasonable price, and logistic problems due to the availability of DDG containers. We expect this trend may continue until harvest, but the logistic problem may continue longer. Although we have seen some improvement lately, we expect the gross margin will continue to be under pressure in the near future, which could adversely affect the third quarter. I would also like to share our progress in the carbon sequestration project as Stuart just discussed. We are working with the University of Illinois to drill a carbon sequestration test well. The 2D seismic survey is completed, and results are expected by the end of September. The well site has been cleared and is ready for site preparations, and we expect the site preparation to start soon. We have applied for a permit for the test well from the Illinois Department of Natural Resources, and expect to receive the permit within the next one to two weeks. It will be permitted as a test monitoring well, and we expect it will be converted into a Class 6 monitoring well. The first stage of preparing the Class 6 permit application has begun using existing information, and the U.S. EPA has been notified. The completion of the application process will continue as we begin to receive more information after the test well is completed. The RFQ or test well drilling has been sent out, and several proposals have been received. We expect to start drilling the well in the fall. It should take approximately six weeks to drill and another several weeks of testing. It will require extensive modeling and computer stimulation to predict the behavior of the CO2 when it is injected. This stimulation model will determine how much CO2 can be injected at the location, at what rate, and its eventual behavior in the subsurface area. A FEED study of the capture of CO2 and the design of the facility is underway, and the design of the CO2 capture facility is expected to be completed soon. As I have mentioned in previous calls, this project is still at a preliminary stage, and we cannot predict yet that we will be successful. Our target is to achieve net-zero emissions. In summary, we are pleased to announce once again a profitable quarter. We are very appreciative and thankful for the hard work of our colleagues to achieve these results. I'll turn the floor back to Stuart Rose for additional comments.

Thanks, Zafar. In conclusion, we've had a successful quarter, but we have a few obstacles on the near-term horizon. Still, we're currently running at a profitable rate due to good plants, good locations, and most importantly, we feel we have the best people and we're working with the best people in the industry, and that's what really makes a difference in why our plants on a long-term basis have consistently outperformed the industry. I'll now leave it open to questions.

Thank you. And our first question comes from Jordan Levy with Truist Securities. Please proceed with your question.

Good morning all and nice quarter. Just first wanted to start out on, Zafar, you mentioned the logistics issues with the DDG containers. Can you just expand on that? And is that something that's specific to one area? And what is the extent of that on what we're looking like on utilization into the third and fourth quarter?

I think the problem we had last month and some of that in this month seems to be as I mentioned, it's beginning to improve because yesterday, we received almost fifty containers, and before that, we were not receiving that many containers coming back to One Earth Energy. So that was the concern because we export mostly DDG at One Earth Energy. They require a lot of containers. Due to that reason, we had to slow down a little bit because the containers which were supposed to arrive here were not arriving, and the DDG storage was getting full. But it seems to be getting a little bit better since yesterday.

Okay. Got you. And is that sort of the same situation that you mentioned running at somewhat lower utilization and ability to get corn at a reasonable price? We’ve seen the financial market for corn come down a bit over the last week or two, are you starting to see some pressure there too?

Yeah. I think we have seen the business – although the price has come down, but I think the basis are beginning to weaken. We have seen that not only in South Dakota but even in Illinois where the basis was as high as $1.25-$1.30 plus, and now the basis are coming down everywhere in the industry. We’re trying to be very careful not to overbuy and not to overpay to end up with higher inventory prices.

Sure. Sure, thanks for that. That's great color. Stuart, maybe for you, definitely encouraging to see you all continuing to buy back shares and increase that authorization, I'm just curious if you think about a couple of years down the road, is there a point you get to where it doesn't make sense to continue to buy back shares, or is this something you think can remain at the pace it's been at, and you all have been pretty opportunistic in when you choose to repurchase? So, is it just kind of a continuation of that or I'm just curious how you think about it longer term?

Right. That's a good question, Jordan. I think the way I look at it is there's always times where we think not to buy when the stock is performing well on its own. We're there to put a floor on the stock when the stock dips. Hopefully, I'll never have to use the five hundred thousand share buyback, but should the stock dip to prices that we think are unrealistic in our minds, that's when we choose to do the buyback. We've probably bought back longer than anyone in the industry, and we certainly think we know what we're doing when it comes to buybacks. We don’t just buy back to throw money out there; we do it opportunistically and we do it on dips. We've historically done it that way. One of the things that I think separates us from the rest of the industry; first of all, we consistently make money. Second of all, I think we're good stewards of that money. We do have our speculative project, which is a big one, and we hope to be huge in carbon capture, but we also watch our shareholders' money like our own money, and we try to use it wisely. We've consistently done that, which has allowed us to outperform almost everyone in the industry.

Yeah. Absolutely agreed. And then just the last one for me, maybe Stuart for you on the carbon capture project, you mentioned kind of preparing the site for the test this fall and how that will take some time to get the results and then monitor it. I'm just curious when we think about timing, the major kind of milestones we should be looking for to track the progress on that project? Is it early next year? We might have an initial sense of what this looks like and then kind of what the steps after that might be, after the test well, assuming things go well?

I think the test well we seem to at this stage, at least, we think that it will be – test well will be this year and then as I said, six to eight weeks. After the test well is completed, then we will be doing a lot of stimulation and looking at how the subsurface is reacting. The main purpose is to really also not just to decide on the location but to determine how much carbon this can store each well, because if this well can hold about two million tons a year or only one million tons a year, that will give us clarity on how much we can bring from different locations or other ethanol facilities, for which we have non-binding agreements. This will determine how much storage we have, and then we can decide if we need to dig another well in the same area. So I think by next year, by June, we will have a pretty good idea of where we stand with this location.

Great and exciting to see that moving along as well. Thanks. Thanks for all the details, guys.

Yes.

Thank you, Jordan.

Our next question comes from Graham Price with Raymond James. Please proceed with your question.

Hi, good morning and thanks for taking my questions. I guess, first up, I was wondering when you expect the EPA to release the twenty twenty-one fuel blending volumes mandates and maybe just wanted to gauge your expectations there?

Personally, I have no idea; they were supposed to do it long ago. I don't know what they're waiting for. I don't get it, but that's – Zafar, do you have any more clarity on when it may come out?

I don't really know. I think you are right, Stuart. It’s already the White House has to approve it, and so we don't know when they will approve it. There's so many uncertainties and things are going on at the White House right now.

There have been a few issues right now, but I don't know that this is at the top of their agenda, but it should be top of the EPA’s agenda. It is disappointing to be honest with you. We need and would like to know what we're shooting at for this year; it makes no sense.

I mean, there are reports out there that the EPA is ready to send their recommendations to the White House, but there's no clarity on how long that will take. But from what I've read, and I'm sure you've read the same thing, there's some speculation that the EPA is going to propose reducing the number of RINs for twenty twenty-one versus twenty twenty.

Yes. But I think, Doug, this is not clear whether it is going to be about biodiesel or ethanol. So that's really not clear because biodiesel is not producing as much as required. There are rumors it may be a reduction in either biodiesel or ethanol, but it's not very clear at this stage.

Got it. Understood. That's definitely helpful. And then I guess sticking with the EPA, as we look at least at the near-term potential for fuel shortages in the wake of Hurricane Ida, we've seen there have been some requests from the EPA to allow more ethanol to be sold in Louisiana and some of the other states impacted by the storm. Just wanted to see what your views are on that situation.

We're always going to pay for more ethanol, but I think that must be a lot less striving when we can too. So, who knows what, I don't think that's going to hit – on an overall basis, I would not look at that as being any permanent major change.

Yeah, it’s a short-term change. I think it's not long-term. So, I think in the short term, the demand may increase, depending on really how long they continue that. But as we all know, ethanol is a clean fuel, and we encourage people to use that as much as they can.

Got it. Understood. Thank you for taking my questions.

You're welcome.

Thank you.

And our next question is from Chris Sakai with Singular Research. Please proceed with your question.

Hi everyone, good morning.

Good morning.

Just – I think Stuart mentioned that you're looking at some acquisitions but didn't make any this quarter. Wanted to see why? What were the main reasons there?

I said this year, and the main reason was we were, so simple as that. As I said earlier, we try to be very, very good stewards of our shareholders' money, and we did not get what we were looking for. And so we move on. In truth, we're better off buying our own shares given the prices of acquisitions out there; we can buy our own shares cheaper. So that's how we choose to go. We will not spend more than we think we need to spend for an acquisition, and there have been a couple, but we did not get them, and so be it. I think in the long run, our strategy has worked, and that's how we'll continue to do it.

Okay. All right, thanks. And then I guess internationally where are the best countries that are demanding ethanol?

I think as you can see this year, we have seen Canada and other countries demand more ethanol versus shipment, but compared to Canada, South Korea, Peru, and Mexico, I think China has received some this year, but the problem is that Brazil was completely off this year compared to the last year. Ethanol export this year was six hundred sixty-four million compared to last year's thirty-one million; and Brazil actually imported only thirty point six million compared to last year's one hundred seventy-seven million and in twenty nineteen almost two hundred eleven million. So, Brazil was not there this year compared to the past several years.

Did you mention China there? How’s it going with China?

China did import some, close to – let's see, China imported close to one hundred million gallons this year. Let me confirm that. I think I had somewhere. Let me look at it. I'll get back to you about it.

Okay. Thanks. And then as far as the rest of the year goes, I mean, do you have any idea as far as cross spreads go?

As I mentioned, I think in this business, it really depends; it's a commodity business that fluctuates week to week, sometimes month to month. As I stated earlier in my prepared remarks, certainly the cross spread is under pressure at this time. So regarding China, yes, China imported almost one hundred million gallons this year, so that’s the correct information.

Okay. All right. Great. Thanks.

Thank you.

Our next question is from Jarrod Edelen with South Dakota Investment Office. Please proceed with your question.

Hi thanks guys, and thanks for taking the question.

Hi. Yeah, thanks.

I wanted to get a little more color around the dynamic of the drought that's going on this year. And in your corn-consuming areas, if you had a sense of if there's going to be any future acute shortages as occurred in the past for you guys, especially in the NuGen and One Earth facilities?

I think let’s look at one at a time. I think One Earth Energy facility, if you look at this year, the corn yield for twenty twenty one, twenty twenty two is expected to be one hundred and seventy-four point six million bushels, and also approximately two million acres were planted more this year compared to last year. We expect record yield in Illinois. The One Earth Energy area received a lot of rain and is expected to have really good crops. Illinois, Indiana, and Ohio are expected to be top yield areas; however, the yield in Minnesota as you were asking and the North Dakota and South Dakota are expected to be lower than last year due to drought in those areas. But one positive sign, particularly for South Dakota, is that this year approximately one million more acres were planted compared to last year. So, even if this yield goes down a little bit, we still think that overall it could be almost better than last year if the yields stay as expected. We have had rain of approximately three to five inches in the last couple of weeks in the affected areas. The overall NuGen area is not as bad as we have seen in North or South Dakota. Overall, it's not as good as last year, but we have more acres planted this year than last year.

Wonderful. Thank you. And could you touch a little more on some of the byproducts mainly including DDG and modified DDG as well as corn oil and how impactful the price increases have been to your profitability?

I think we have seen as I mentioned earlier that the corn oil prices have really gone much higher than expected. If you look at even our – we will be issuing soon complete details, or even in the press release you can see that the corn oil prices this year above average in July was $0.47 compared to last period it was $0.25, and six months ago it was $0.41. Recently it has even spiked as high as $0.60 to $0.65. DDG prices have come down and were previously trading close to one hundred percent to one hundred and ten percent of the value of corn, but now we have seen them somewhere around eighty-five percent to ninety percent of the corn value.

Great. Thank you.

Mr. Rose, I'll turn the call back to you. There are no further questions at this time.

Great. Thank you so much. I would like to thank everyone for listening and we'll look forward to talking to you at our next conference call. Thank you very much. Bye.

Thank you. Bye-bye.

That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.