American Resources Corporation

Greetings. Welcome to American Resources Corporation's fourth quarter 2021 conference call. At this time, all participants are in listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero from your telephone keypad. Please note, this conference is being recorded. At this time, I'll now turn the conference over to Mark LaVarghetta, Vice President, Corporate Finance and Communications. Mr. LaVarghetta, you may now begin.

Thank you, Rob. Good afternoon, everyone. On behalf of American Resources Corporation, I'd like to welcome everyone to our fourth quarter and full year 2021 conference call and business update. We welcome this opportunity to not only discuss our accomplishments over the past year, but also on how we have positioned ourselves and where we have our sights set as we embark on this exciting time. Also on the call today is Mark Jensen, American Resources Chairman and CEO. Kirk Taylor, our Chief Financial Officer, and Tom Salve, our President. Before we kick it off, I'd like to remind everyone that this call is being recorded and of a normal cautionary statement. 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 statements, whether as a result of new information, future events, or otherwise. Lastly, we'll be holding a question-and-answer session following our prepared marks, and for anyone wanting to ask a question, you will need to dial in by phone to get into the queue. With that said, I'd like to turn the call over to Mark Jensen.

Thanks, Mark, and thanks, everyone, for joining today. I apologize, my voice is a little bit raspy as we get going, but excited about having the opportunity to speak to you and walk through what we did last year, but also focus on where we're at today and where the business is going. Overall, the fourth quarter of 2021 continued to show ongoing execution and growth of execution in terms of positioning American resources as a low-cost and most innovative supplier of raw materials to the infrastructure, metals, and electrification market. Given our strategic positioning, we remain extremely well aligned with our national priorities in terms of providing steelmaking carbon to traditional and modern infrastructure initiatives worldwide, as well as being the first domestic supplier of isolated and purified critical and rare earth elements to the domestic supply chain to support the rapid growth and advancement of electrification, clean tech, and national security. Our innovative processes allow us to not only bring these solutions to the domestic marketplace, but also to accomplish it through a low cost and the most environmentally safe and scalable methods. Last year, we defined our critical and rare earth element technology chain specific to capture, process, and purifying critical and rare earth elements More recently, we have had the opportunity to begin introducing our strategic partnerships that enable us to leverage expertise and networks that we feel will ensure our success in synthesizing the domestic and circular supply chain. As of today, we are just a handful of weeks away from the commercially producing domestic sourced and sustainable purified critical and rare earth elements, which as of today, As far as we know, we will be the first in the country to be able to do this within the domestic supply chain of producing purified and isolated rare earths and critical elements of the 99.5 to greater percent purity. As we embark on this very important milestone, it's worth noting that this is occurring as we are hitting a higher and more consistent level of metallurgical carbon production in one of the strongest markets we've ever seen. which puts us in a much stronger position to fulfill our 2022 order backlog of approximately $110 million. With the confluence of these factors, we are both confident and excited about our ability to deliver our best year in our history. As we go through and talk about where we're at today, I want to take a brief reminder for those that are just joining us on our history and why we position ourselves within the marketplace that we have done. Over the course of – since 2015, we closed on over eight acquisitions, where what we did was we lasered in focusing on acquiring an asset base at a very substantial discount to replacement value. More importantly, an asset base that could be repositioned and drive innovation on that to drive not only revenue growth, but also utilizing our high-value technologies on these properties to eliminate the legacy liabilities, but also drive future value from what these assets can generate. We are leveraging that asset base using a streamlined, efficient operational platform across several business lines and positioning these assets to be able to capitalize on current and future markets at a very low cost because of the efforts we put forth over the last few years. Additionally, we've acquired a suite of patents and technologies that allow us to drive innovation and expand the resources we produce and how we produce them. Subsequently, we've been strategically aligning ourselves with best-in-class partners to efficiently synthesize our technologies and processes to be more efficiently established in domestic supply chain, as we announced with the Heritage Group and additional partnerships we are currently working on as well. What I'd like to do now is take a quick moment to walk you through the carbon market strength and walk you through where we're currently at within the business line. Carbon demand for steel production remains very strong and supply remains very constrained. As we've heard over the past several months, the vast majority of our industry in 2022 production is largely sold out. And we continue to corroborate that assessment. More importantly, obviously the labor markets are tight and so are the supply chains for getting parts and materials and getting the equipment needed to grow the existing marketplace. And due to that, you're seeing a strength in metallurgical carbon pricing And we anticipate that pricing to actually be more stable than what we've seen in the peaks and valleys of the industry in its prior years. Overall, the demand for metallurgical coal, like most commodities, is being driven by the broad economic and infrastructure growth worldwide. And as the world emerges from COVID-19 pandemic, along with also the craziness taking place within the world today, we see a significant amount of demand taking place on the infrastructure side of the world. as well as the increased government stimulus to continue to drive economies out of this pandemic. The infrastructure bill, in our opinion, will keep a higher floor under carbon prices. And as federally funded infrastructure projects require U.S.-produced steel, that will help drive the demand for products such as ours that we produce out of our complexes today. Unlike past cycles, the industry remains more constrained with its ability to bring incremental supply online due to a number of factors. But more importantly than most importantly, we're seeing demand a lack of invested capital over the years for growth projects, an extremely tight labor market, and an aging of existing industry and existing infrastructure at existing mines that are operating today, and a number of mines being close to being mined out. Overall supply issues remain for parts, supplies, and equipment. As we go through this call, we'll discuss how we are handling those issues and how we are currently positioned within the marketplace to be in a much better position than our peers. Even though we are not immune to these issues, though, we do have a platform of assets and a strong asset base that we can draw upon to position ourselves in a better position than our peers and others entering the market today. And the investment we've made over the course of the last two years – The position that puts us in puts us in a very strong position to continually ramp up our revenue on a monthly basis, as we will showcase and talk about here further. Out of Perry County, I'll give you a quick update on where we're at there, but what we continue to see is a higher realization and a more consistent output from the complex. We started this mine last year, and we were struck with challenges of a labor market where we were competing against federal stimulus and other factors that delayed our ramp-up of production. What we see today, though, is strength. We have a strong labor force here, an extremely talented team of individuals that are hitting their stride in terms of what we're needing to produce and hitting our stride in terms of producing the product, processing the product, and getting that product shipped to our customer base. Of note, at the end of 2021, we were operating one section at our Perry County mine, utilizing two continuous miners. As of mid-February, we've been able to expand our production to where we are now, currently operating out of two sections, utilizing four continuous miners, one super section and one walking section, so that we have the redundancy of operations to continue to hit our stride, essentially doubling our production. Like we've said, we've seen a stronger and more consistent rate of output at Perry County, and as a result of getting our second section properly equipped and staffed and efficiently operating, we applaud our team for its hard work and execution and applaud the workforce that we've been able to attract that are looking at a long-term, stable place of operation, given the mine plan that we're executing upon. Our mine plan at Perry County is a testament to our restructuring efforts, to where we'll be accessing our reserves more efficiently and more foreseeable for the future. Our near-term plan includes adding a fifth continuous miner, that will be running in a pillar section that we are currently developing with the anticipation that will be running over the next 60 days. Then our second growth update at the complex is also adding a sixth continuous miner that will be approximately 120 days out from today where we'll be accessing another boundary of goal. What's unique about this mine plan is the cost structure. And one thing I'd like to delve into a little bit here is the plan that we put in place when we acquired this complex is to pull the mine back to a much more accessible boundary of carbon that we have available to us. And we're executing upon that today. Over the course of the next two years, we will be pillaring a vast majority of our mining. Now, what pillaring enables us to do is combat the current supply chain issues that we see today, where we're not out there trying to buy water line, which is very challenging to do. We're not out there paying a very high price for roof bolts because of our mine plans. We're not out there trying to buy belt and structure. We're able to utilize our existing infrastructure to continue to expand the mine through our development sections and the lower boundaries, but at the same point, access the current boundaries by pillaring and retreat mining for the next two years, which will significantly improve the yield of what we're producing, but also drop our cost structure dramatically. That puts us in a very different position than a lot of our peers in the industry that are constantly out there fighting the supply chain issues for parts and materials. And by doing so, we're going to be able to reuse those materials, those belt lines, and reuse that infrastructure that we already bought at not only our Perry County operation, but also at our McCoy-Elkhorn operation, as well as we continue to develop our Wyoming County operation. At our McCoy-Elkhorn complex, we are currently operating with one continuous miner at our Carnegie One mine since its restart. Most recently, we announced we've expanded that by delivering our second continuous miner. What that provides us is the ability to effectively double our production and expand our mine plan there to hit a more consistent production and expanded production, and we'll start to reap the benefits of that going into the April month. Similarly, at PCR, we are now essentially doubling our production and looking at additional expansion opportunities at the McCoy Elkhorn Complex, more importantly also at the Carnegie One Complex, where we can add an additional miner for three miners and add additional production out of that existing portal while also having to rely upon a smaller labor force by doing so. With these production enhancements, we feel that we are in a better position and a strong position to fulfill our stated order backlog. And as you can see through our press release and an announcement of a March number that puts us in not only a strong revenue generation and a strong growth of revenue, but also in an operating profitable status from our operations, which puts us in a strong cash position to continue to expand our business and continue to execute. To provide that further visibility, with the additional section operating at Perry County, we expect to end the month of March with met carbon production reflecting a $5.25 to $6 million revenue number for the month of March, which we believe we're executing upon and hitting a higher end of that. With these advancements, we are now able to begin to realize an operating profit in March and continue to drive the business forward without having to rely on the capital markets to grow this business. We can execute out of cash flow and continue to put additional cash back on the balance sheet given the profitable numbers we're putting forth today. Furthermore, we're confident that we have implemented the mind plan, the structure, and the team to capitalize on the current and future market prices. And as we continue to ramp up our production, we'll be able to take advantage of the current spot market prices, which is extremely strong, while also fulfilling our existing backlog of orders for our existing customers, which we're thankful for. On the recent announcement of acquiring the operating rights of a service operation to feed our McCoy Elkhorn complex, it highlights our ability to be nimble, but also to utilize our existing infrastructure to bring incremental supply online in this strong market to feed additional customers and take advantage of current market environments. Our Wyoming County update I'd like to provide here is about our $45 million tax exempt bond that we've been preliminary approved from the state of West Virginia. This is an innovative capital source for what we're looking at doing in Wyoming County where we can not only produce mid-vol metallurgical carbon to the steel industry and the steel industry that desperately needs that product today, but also to be able to utilize our rare earth and advanced carbon technologies that we were able to license from the state of Ohio to produce rare earth concentrates in a very low cost form. What we will utilize in our Wyoming County complex is our electrolysis technology. Electrolysis is a unique technology to produce high value concentrates in a very low cost format because of the ability to create byproduct economics, which you've heard us talk about. The byproduct economics from electrolysis is by processing coal-based waste material coming out of the processing plant, we're able to produce hydrogen from the facilities because of the high iron and water content coming out of the slurry, but also in that electrolysis within the anode, we're able to separate out and produce a rare concentrate that we can then send to our Indiana facility to be further purified and isolated out of our chromatography facility from the technology license from Purdue University. Overall, we're going through that process on the tax-exempt bond issuance, and we anticipate in the first quarter of 2023 looking at the Wyoming County complex, and there's some things that could pull that forward. But we are currently developing there, currently moving the infrastructure that we have from idle mines and idle facilities to lower that cost of implementing and reduce the timeframe of getting that complex back into production. What I'd like to do now is to turn it over to Mark LaBergetta to discuss some of our updates on our rare earth and battery metals division, American Rare Earth.