American Resources Corporation

Q3 2022 Earnings Conference Call

11/15/2022

spk01: Greetings, and welcome to the American Resources Corporation third quarter 2022 conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Mark LaVarghetta, Vice President of Finance and Communications. Thank you, Mr. Lavarghetta. You may begin.
spk07: Thanks, Camilla. Good afternoon. On behalf of American Resources Corporation, I'd like to welcome everyone to our third quarter of 2022 conference call and business update. We always welcome these opportunities to provide an update and discuss our accomplishments since our last update and also to discuss how we're uniquely positioned with both divisions of our company, American Carbon and our Critical Minerals Division, Re-Element Technologies. Also on the call today is Mark Jensen, American Resources Chairman and CEO, and Kirk Taylor, Chief Financial Officer. Before we kick it off, I'd like to remind everyone of our normal cautionary statement. Certain statements discussed on today's call constitute forward-looking statements. within the meaning of the Private Securities Litigation Reform Act. These forward-looking statements are subjects 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 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 waiting or wanting to ask a question, you'll need to dial in by phone to get into the queue. I'm going to begin today with a few comments from Kirk Taylor. Kirk?
spk06: Thanks, Mark. Thank you, everyone, for joining us this afternoon. I'll start first with some financial highlights. We'll dive into results from the quarter. So the third quarter of 2020 showcased our focus on execution that continued to position our company for long-term value creation. When looking at that execution over the third quarter, it is important to take a step back and highlight some of our accomplishments on all fronts. From a corporate standpoint, we've established a special committee to evaluate strategic opportunities to best unlock value of the company. And subsequently, we've announced a share repurchase program. We've repurchased 7.5% interest in re-element so that American Resources now owns 100% of re-element technologies. And we've also announced our plan to spin off re-element into its own public company. Further, we sold the exclusive rights of our carbon nanostructure and graphene patents to Novastera for $16 million worth of Novastera Class A common shares. Again, these items are highlighting our ability to unlock shareholder value. Within re-element, we've achieved groundbreaking success in producing greater than 99.5% pure rare earth elements at a commercial scale, being the first to accomplish this domestically. It was a fabulous team effort by our entire group. We've also secured an initial independent working capital facility as we position re-element as a standalone company and allowing it to scale to meet market demands. Further on, we've added key talent at the technical level, at the commercialization level, and engineering level, adding to our best-in-class team. We've entered into our first long-term collaborative partnership to help secure our domestic supply chain for critical minerals, and we're looking forward to expanding those relationships. On the American carbon front, we've commenced initial production and sales at our Carnegie II metallurgical mine. We've also received a commitment totaling $4.9 million of federal new market tax credits for our company's Wyoming County coal expansion. These federal tax credits will be combined with the previously announced $45 million tax exempt industrial development bonds from the state of West Virginia. Moving into financial highlights. For the quarter, we realized revenues totaling $9.5 million. While this was a quarter-over-quarter decline due to our decision to idle Perry County in response to the historic flooding in the region, which we will discuss later on this call, it did showcase a 238% year-over-year increase. While mining is not completely linear, our carbon platform is uniquely positioned to be a meaningful contributor to much-needed supply growth. of metallurgical and specialty carbon products from our region where a lot of mines are currently being exhausted and have very short lives left. We remain focused on monetizing our platform of assets for our shareholders. We will also be discussing these items, our operations and actions further on in this call. Our unique platform of assets is in a great position to deliver what we believe is our attractive returns and value to our shareholders. This includes our mining assets, as well as a re-element technologies division, which we are in the process, again, of spinning off into its own standalone public company. Over the past nine months, we've been able to grow production, our revenue, and streamline our capital structure while investing over $22 million of expense development costs to position both American Carbon and re-element technologies platforms for strong growth in high demand markets. Our debt balance currently sits at approximately $12 million in total, of which $400,000 is made up of equipment financing, $9.4 million in form of convertible notes from one of our long-term partners, and $2.2 million in the form of a mine development loan from one of our top customers. Our shares outstanding currently sit at just 68.7 million Class A common shares. Our short-term available liquidity totals over $20 million, including almost nearly $5 million cash on hand, nearly $6 million in accounts receivable, and $10 million untapped equipment financing. I'd now like to turn the call over to Mark LaBregada for some comments on our re-element technologies division. Mark?
spk07: Thanks, Kirk. As we frequently state, Our re-element technologies division represents an incredibly exciting and very strategic opportunity for us. I'd like to reiterate the significance of our recent milestone of achieving ultra high pure rare earth elements on a commercial scale. First, we're the first domestic commercial producer of separated and purified rare earth elements. The significance of this milestone is worth diving into a bit. One, our technology has showcased that we, meaning the United States, no longer needs to depend on foreign adversaries for the ability to refine, separate, and purify these minerals necessary to advanced high-tech green energy, including electric vehicles and wind energy and defense applications. I'm sure we've all seen the reports on the F-35 being grounded for several reasons, one being its reliance on metals and parts sourced from China. Our innovative chromatography technology is a clear differentiator in the market for several reasons. Its modular structure and design enables it to scale congruently with the needs of the market, meaning we do not have to lay out a huge CapEx investment and wait for the market to either adapt or catch up. It's also very flexible to the type of feedstocks and material we want to focus on refining. Strategically, we feel it is the most important to address our recycling and sustainability needs to truly close the loop of these critical minerals. Our first commercial production line produces high purity rare earth magnet metals such as neodymium, praseodymium, and dysprosium from recycled rare earth permanent magnets. Again, these are the metals needed to produce high efficiency electric motors such as those used in electric vehicles and wind turbines. The flexibility of this technology allows it to be applied to a variety of feedstocks, and we are still on a timeline to have our second production line operating by the end of this year. This production line will isolate and purify specific battery minerals such as lithium, cobalt, nickel, and manganese from end-of-life recycled lithium-based batteries. Additionally, and specific to the battery materials market, our technology can efficiently adapt to changing battery chemistry, which is currently taking place to its low cost modular and environmentally safe aspects. We are currently exploring chromatography recycling solutions for LFP and nickel metal hydrate battery chemistries to recover and repurify the inherent critical minerals back to ultra pure qualities. Our chromatography technology allows us to do this in an efficient way where we do not have to reinvent the wheel, but rather modify our existing process. This is another clear differentiator of our technology, where other recyclers cannot bring the minerals back to battery grade or are limited to only an NMC battery chemistry. As we bring our battery production train online, we are confident in our technology's capabilities and value it brings to the market. As such, we are confident that we will continue to develop additional collaborative partnerships throughout the supply chain. On that point, we've had early success in developing partnerships such as the ones we've established with USA Rare Earth Magnets in establishing the first complete domestic lifecycle for rare earth magnet manufacturing here in the United States. And Recycle Force with aggregating and pre-processing high value materials to be recycled while also addressing the social needs for the individuals RecycleForce works with. It is truly an awesome program, and in our opinion, a great example of how federal investment dollars can be leveraged by the private sector through meaningful collaboration. We continue to have good success in pilot programs and fostering additional collaborative opportunities that we are really excited about developing into long-term partnerships. These partnerships cover both rare earth settlements and critical battery minerals from various feedstocks. And this is an important distinction to also emphasize in that our technology is the only comprehensive solution to recover and repurify all of the critical minerals in the entire powertrain of an electric vehicle, including both batteries and motors. No other solution today can offer that value. We are confident as we continue to showcase our competitive distinction and collaborative value, our re-element technologies division will garner a proper value either as part of American resources or as a standalone company. While Mark Jensen will dive into this a bit more, I will add some comments on how we are positioning re-element as a standalone public company. First, it's our team. As a reminder, chromatography has been around for a century and commercially has been used in various industries such as pharmaceutical manufacturing for decades. We recently have had the opportunity to bolster our team to support its path forward, and we will continue to add top talent. Additionally, and from a technical perspective, we believe we have the world's best chromatography experts and team behind our re-element division. Whether it's with our university partners at Purdue, our engineering team that has had longstanding success developing this technology or operating the foundation of this technology at Eli Lilly, For the addition of our director of research and development, our chief commercial officer or battery industry expert, Bob Galen, we continue to position Re-Element as a leader in its space. I'd like to now turn it over to Mark Jensen for some additional comments on all of our divisions. Mark.
spk08: Thanks, Mark. First, I'd like to address the quarter-over-quarter decline in carbon sales. As stated, Perry County resources was idle during the historic floods that took place in the region that not only affected the property, but mostly affected our labor pool. And unfortunately, many people were impacted by that flood and are still recovering from that. Ultimately, our decision with Perry is we are currently evaluating restarting the operation. In the meantime, we've also been approached by numerous opportunities that we're currently evaluating to unlock the maximum amount of value for all of our shareholders. When we operate our businesses, we operate them for the maximum shareholder value for all of our investors, be it on a quarterly basis or a yearly basis over the life of the operation and the opportunity. And we want to make sure that we maximize that value to our shareholders. And when we bring it back online ourselves, we do it in a highly profitable way. Or if we monetize it in other avenues, which we've been approached by, that we maximize the value in those aspects. That being said, in revenue, we did increase our revenue by 240% year over year from carbon sales as we are steadfast on monetizing our carbon assets in a strong market. The special committee we established to evaluate strategic opportunities to better unlock the value of American resources has acted quickly, enacting steps to do so. We have implemented a share repurchase program as well as defined our intention to spin off Three Element into its own standalone public company. The share repurchase program we announced was during a blackout period, and ultimately we also have to be cognizant of material opportunities that are being presented to us to not buy back stock during those periods of time. We do believe that, and as we did at the time of when we announced the Share Repurchase Program, that at current market opportunities, should we be allowed to legally, based on the guidelines of the SEC, that it is an opportune time to buy back stock, and we are currently evaluating that based on those opportunities. We also had the opportunity to repurchase 7.5% stake in ReElement. As we were in a position and the special committee was making the decision to spin ReElement off into its own separate public company, we believed it was It made the most amount of sense to maximize the value for our shareholders by being able to take advantage of this opportunity and act swiftly to reacquire that stake in the business, which we did. We believe both of those are accretive uses of capital and better position re-element in the company in a positive way forward for all of our investors, of which we hope will drive and continue to drive shareholder value for all of our investors. Given the execution of both American Carbon and Re-Element Technologies, we are extremely excited about the opportunities for both entities, but also believe that the enterprise value as a whole is currently at a substantial discount relative to the sum of the parts or comparable pure valuation. And ultimately, that's our goal is to separate these businesses and maximize the value for our shareholders as we do so, and continue to drive both of those businesses forward thereafter. On American Carbon, we continue to see strong demand for the products that we produce. As I just mentioned, we remain focused on monetizing our carbon assets, and it's a really good time to own high quality carbon assets in this region. Ultimately, what's unique about our properties is we spent a number of years restructuring these operations and streamlining them to be extremely efficient, but also being in a position to ramp them up quickly and efficiently. And ultimately, we have a number of opportunities that are being presented to do so and or investors or companies that have a great amount of interest in the asset pool that we have today to where we can monetize those. Perry County Resources was idled for most of the third quarter due largely to the effect of the disastrous floods that hit Eastern Kentucky that had a major impact on our workforce at Perry County Resources. As I stated earlier, our objective is to either bring this back online internally, partner with somebody, reallocate the assets that are present there, and or monetize the subsidiary as a whole should it present itself. We're evaluating all those opportunities and the opportunities that are being presented to us today to make sure that we can make a decision during the balance of this quarter that will maximize the value for our shareholders. The McCoy Elkhorn Complex continues to perform well. The McCoy Elkhorn Complex was a division we acquired from James River, prior to doing bankruptcy bankrupt, a public company that was a pretty strong producer in the region. What's unique about our McCoy Elkhorn complex is the quality of met carbon that we produce out of this complex. It's a high vol met carbon of which we believe is going to be, is a current strong market. It will be a very strong market in the near future due to the industry dynamics taking place right now. Production of high vol carbon from McCoy complex increased 45% quarter over quarter with the contribution of the initial development production from our Carnegie 2 mine. Also, as recently announced, we have recently been approved for an enhanced deep cut plan at our Carnegie 1 mine. During the quarter, we're also in the fourth quarter, we're seeing Carnegie 2 continue to increase its production as it's coming out of its development production and being able to spread out underground to maximize not only the production, but the efficiency of the production. Similar to the deep cut plant at Carnegie 1, which we are currently operating under, we're able to increase our production while reducing the downtime and the wear and tear on our equipment to make it a more efficient operation, but also significantly enhance the production at that operation. The McCoy complex continues to be our biggest contributor and our growth engine for American Carbon. Now that we have commenced production at our Carnegie 2 mine, We've also started planning and engineering and development of the next few mines to bring online to feed our McCoy Alcorn complex. Our McCoy Alcorn complex will be a large contributor of the growth of the next few years. We believe we continue to expand production from the existing mines by adding second sections there, while also bringing online other mines that are low development cost and easy to ramp up. That would include our Carnegie III mine, our mine 17, as well as mine 15A, that belts directly into our processing facilities in that region. Our platform is unique given the significant mining infrastructure that we own, the quality of the carbon that we produce and have access to in both the MET and the thermal markets. The restructuring efforts and investments we have made to streamline these operations and the growth that we have to provide high quality carbon products to an extremely tight global market in both the steelmaking and energy markets. That positions our assets in a very good light, given we have current permits that are idle that can come online quickly, as well as we can provide a multitude of products out of our McCoy complex, out of our Dean complex, out of Wyoming County, as well as Perry and Knott County. We intend to look to maximize the value of these assets in many ways, either mining them, partnering on them, selling them, and or entering into lease arrangements, which we have recently done at our Dean Mining Complex. The global carbon demand for steel production continues to be relatively strong, albeit it's off its recent highs due to the COVID restrictions in China that we saw in the second quarter. We believe China is beginning to come back online from those restrictions. And ultimately, we're seeing a unique situation take place in the carbon markets today. With thermal coal prices selling above met coal prices, you're seeing met coal producers, which met coal represents about 15% of the world's production being sold into the thermal market, entering into long-term contracts, which ultimately means supply is coming out of the met market and moving into the thermal market. That creates a very tight market on the met coal side of the business and the met carbon side of the industry that as China comes back online, we'll create an extremely tight market. And we believe very... continued strength within the met coal industry in itself as stated thermal coal prices are extremely strong and the world is experiencing its first energy crisis of the 21st century and with the upcoming winter season we expect global demand to remain elevated high energy prices including thermal core driving decade high inflation and some countries are experiencing energy shortages the russian invasion of ukraine is obviously continuing to exacerbate the crisis We are seeing demand and interest from overseas companies and overseas parties over in Germany and other locations throughout Europe that are looking for either to acquire assets or to acquire long-term supply arrangements to feed their need for energy that they're currently experiencing. As a result, we are seeing met carbon crossover in the thermal market, as I stated, and putting supply constraints on the met carbon side of the business. We believe the entire backdrop has put a higher floor in place for carbon prices for the foreseeable future. This puts our growth-oriented American Carbon platform in a very unique position as being one of the largest sources of domestic growth in the market. And we continue to assess strategic options across all of our carbon assets. For American Carbon, we continue to focus on the things we can control and continue to ramp up our McCoy Elkhorn Complex production and to have a definitive strategic course of action with Perry County in the very near term. We also continue to evaluate leasing other idle assets that can feed the thermal market and or the met market. Dean Mining, we have been told by our lease partner over there that they anticipate starting production up very rapidly and have the equipment in place to do so. Additionally, we remain focused on progressing our Wyoming County West Virginia complex over the next year. As we have recently communicated, we continue to work through the process of the $45 million taxes that bond to the state of West Virginia that we've been preliminary approved for. We've been working with our underwriter Hilltop securities, as well as the allocation commitment provider for the 4.9 million of federal new market tax credits. We believe the recent leveling of inflation and the stabilization within the bond markets will help us expedite that process to get that closed and get Wyoming County in a development phase. for not only the met mines, but also our electrolysis technology from producing a fully integrated rare earth element concentration site. With the issuance of two non-dilutive capital sources, we're excited to showcase how we will position this complex to be the first of its kind in advancing carbon and RE processing facilities by combining the premium mid-vol met carbon production and the unique rare earth capture and process technology onsite fully integrated. To talk a little bit about our re-element division and expand upon Mark's recent comments, I firmly believe as the first commercial producer of isolated and purified critical and rare earth elements in the United States market, that we are extremely well positioned to capitalize on the growth that we see coming online in 2024 and 2025, as well as 2023 on the rare earth element side. We've seen a number of battery manufacturers state their intentions to come online in 2024 and 2025, and we're working with some producers that are already online. eminently becoming the market's most efficient and flexible producer of sustainable battery materials we believe will enable us to continue to grab market share within this industry, while also introducing a practical and efficient solution to addressing the world's recycling needs. We're at the beginning of a very new and exciting era, ultimately possessing a technology that can scale up as the supply scales up and the demand scales up versus having to build and outweigh a half a billion dollars to a billion dollars to build a facility that's overshooting the current size of the market, we're able to grow our position within the market as the market demand is needed and as well as the supply is needed. As we continue to showcase our unique positioning and quality of critical mineral products, we are confident in incremental collaborative partnerships that we are entering into. We have a number of partnerships and MOUs that we've already entered into. as well as are currently evaluating some very attractive opportunities to further scale our technology into the commercial marketplace. As we continue to launch our innovative process as the most efficient solution of refined critical materials, the qualities needed for domestic manufacturing, we are in a good position to begin realizing revenue by year end and expect those revenues to continue to grow throughout 2023 as the domestic downstream manufacturing marketplace further develops. As stated already, we've entered into an offtake with USA Rare Earth, and we're excited about the developments in the facility. We've had the opportunity to visit their facilities in Oklahoma, and we're extremely impressed by their level of development and the progress that they're taking place to come online. Now that we are first to market with ultra-high purity and separated rare earth elements, we will more broadly showcase that we are the best solution for the domestic need. In fact, I don't think there is another process, team, or technology out there that is better positioned or can accomplish what we can accomplish with our technology. Beyond 2023, we believe the passage of the Inflation Reduction Act, which includes some significant and aggressive targets for the auto industry, including the extension of the EV tax credit with no cap, as well as within the advanced manufacturing tax credits for critical minerals, will boost our re-element's revenue growth and profitability. Just as a reminder, for the EV or Clean Vehicle Tax Credit, 40% of the critical minerals in the batteries will need to be sourced domestically from a free trade country or recycled in North America by 2024 and increase each year thereafter until 80% by 2026. To our knowledge, there is no other competitor within the space that can produce these products domestically. For the advanced manufacturing tax credit, it establishes a new credit amount that amounts to 10% of the total cost incurred to produce applicable critical minerals, including the magnet and battery minerals we've already showcased we can produce, and at ultra-high purity grades required to receive the tax credit. When we put this business line in place and we developed this technology, we didn't build it with the need of having subsidies or government-based capitals. That's what puts our business in a unique spot. We are nimble and we are focused and we can grow rapidly. Now with these additional tax credits in place, that makes our business more profitable. It wasn't a requirement of our business. That being said, these federal initiatives hit right at the heart of what we were doing at ReElement. And the fact that we've already proven our process and our technology on a commercial scale puts us in a great position to be the value-added domestic supplier of sustainable, critical minerals to the EV and clean energy sectors. as well as the DoD. We remain very confident in the position of our assets and the long-term value they provide to our shareholders. We remain hyper-focused on unlocking that value, and we have already communicated our initial strategic steps to do so. We don't foresee us needing to issue equity to raise cash, especially with some of the sources of non-dilutive capital that we have available to us. Just to reiterate, as the largest shareholders of American Resources, our management team is committed to maximizing the value for all of our shareholders, in the short term as well as the long term. With that, I'd like to turn the call back over to the moderator for some Q&A.
spk01: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we pull for questions. Thank you. Our first question is from Heiko Ille with HC Wainwright. Please proceed with your question.
spk05: Hello, everyone. Can you hear me all right? We can. How are you doing, Heiko? Excellent. Thank you. I'm calling you from Zurich right now, and I spent a good part of last week in Germany as well. Let me tell you, the energy crisis that you were describing earlier on this call is not just real, but it is on everyone's mind. People having a hard time paying their heating bills, geopolitical risks, a couple of countries away, not pretty over here. Anyways, your allocation commitment, the $4.9 million, that new market tax credit that you got, can you give a little bit more color on that? How much more that you might be able to see in just the financial aspects of it, just more More background information, please.
spk08: Yeah, I'll try to address them if I need to. I'll have Kirk jump in. But $4.9 million was combined with the tax exempt bond issuance. So that provides us, with that $4.9 million on the new market tax credit, as well as the tax exempt bond issuance, the Wyoming County complex is extremely well capitalized. That provides significant working capital and development capital to fully ramp up not only the mining operations, but also the electrolysis technology, which will tie into the back end of our processing plant and utilize what that processes, the slurry, the waste material coming out of the prep plant to capture the rare earth elements and that's produce a concentrate, which will then feed our chromatography technology. But that 4.9 combined with the $45 million taxes that bond fully funds that operation with a pretty healthy cushion in there.
spk05: That's helpful. Perry County, obviously, you know, for outsiders, maybe just a touch of a black box right now. Maybe just go through what exactly is happening inside. I mean, I know you should know because of flooding, but I assume the water is gone or is it? I don't know. Is the infrastructure damaged? How many people are actually there doing the care and maintenance right now? How much is the outflows for call it, you know, October and November or I guess Q4, even if you want to be bold and guesstimate that. Just maybe a touch more background on that, please.
spk08: Yeah. So, yeah, what happened in Perry County and that area of the world was, was, very unfortunate for the community um the floods were i mean i've never seen anything like it um the we did get water within the mine it did not damage any of the infrastructure and or the mine itself we just had to pump that water out the local community was hit a lot harder so our workforces hit extremely hard a number of our employees lost their homes and a number of those employees are currently living elsewhere until they can rebuild and so that's part of the problem is um So when we look to evaluate it, it's making sure we bring it back online in a highly profitable state. Now, as we're evaluating that, we've had numerous alternatives that have been proposed to us. A number of overseas companies have stated, expressed a lot of interest in that property, partnering with us and or potentially acquiring it, which we are evaluating all those opportunities to make sure that we maximize the value for our investors. And ultimately, we don't, We're not trying to manage quarter to quarter. We're trying to manage for the long-term fundamental of the business and the, and making sure that as we bring this back online and whatever structure that is, that it maximizes the value for our investors. And some of the opportunities that are being presented to us are extremely attractive right now. And so we're looking at making a decision on those avenues with by year end, and we believe there'll be highly accretive to our shareholders.
spk05: Yeah. Fair enough. That's all from my end. Thank you very much, and keep up the good work. Thank you.
spk08: And I apologize I couldn't give you a concrete answer on that because we are currently evaluating those opportunities as we speak, but I can assure you that as an investor in this company, we're excited about the position that those assets are in today.
spk05: Understood. It's just sometimes you get questions like this on inbounds, and I frankly couldn't answer a whole lot more than I saw in the release, which is why I brought it up. Mm-hmm. Understood. Thanks again. Thank you.
spk01: Our next question comes from Michael Samuels with Brentville Fisher. Please proceed with your question.
spk04: Hey, Mark. How you doing? Two questions on the American carbon side. One is, do we have any business interruption insurance to cover the PERI over the last quarter and this quarter? That's number one. What's happened with the guy who was leasing the land? Have they started any production yet? Because I know as opposed to getting $20,000 a month, we could be getting $5 a ton. So just wondering if you could update us.
spk08: Yep. So we haven't notified our insurance providers. That's a very complicated process to see what is available to us, and ultimately, it's Floods in eastern Kentucky are not something typically covered by insurance for internally owned properties. That being said, what we're evaluating, as I stated earlier, is some very attractive opportunities for the Perry County complex. On the insurance side, we've notified our insurance providers. I wouldn't anticipate a lot coming from that personally, but I'm not an insurance guy and I'll let them evaluate that. On the de-mining complex that we've leased out, we have been in constant communication with them. I spoke to them on Sunday. They have moved a high wall miner or are moving a high wall miner on site, which is a high performing, high volume method of mining. I'm excited that they were able to get that in there. They have stated to me they're in final stages of going through all the different processes to bring that mine online. And I think they hope to do so within the next 30 days. And you're right. I mean, right now we make, it's a great deal for us right now. They cover our costs. They pay us monthly. As they commence mining, that number will increase dramatically. And that's pure cash flow to the business. And we're excited about supporting them, helping them in any way to get them up and running. And they were extremely excited about their progress of getting up and running. So we anticipate that eminently.
spk04: Okay. Okay. Thanks a lot. Thank you.
spk01: Our next question is from Steven Segal from KBB Asset Management. Please proceed with your question.
spk02: Thank you. Hi, Mark. Mark, great job on doing everything you are with the company, especially in the re-element division. I've had a couple of questions. I know, and you've already talked about this a little bit, you created a special committee to unlock value. Beyond what you said in your prepared remarks, is there anything you can enlighten us with as far as the progress on the fronts beyond what the spinoff you're doing and how the current market is affecting the value of the core properties you're trying to monetize?
spk08: Yeah. Well, thanks for joining, Steve, and it's an exciting time right now. In terms of the current market is really unique. I mean, you're seeing there's not a lot of additional increase of production taking place within the carbon market worldwide. One, everybody supplies and infrastructure and then the permits required to bring new mines online is very challenging. And now you also see Germany coming to market trying to buy 29 million tons a year for the next 10 years. as they made the decision on what their energy source will be given the Russia Ukraine situation that they're facing. That is putting an extreme value on permits and infrastructure that are ready and able to come online quickly. And so we've had, we're evaluating numerous opportunities that we believe will maximize the value for our shareholders. One being partnering with people. We haven't, we have, customers that are coming to us offering significant capital to bring mines online, either in an offtake or joint venture scenario. We've had overseas companies express interest in acquiring our operation. Our duties are to evaluate all those opportunities that will drive the maximum shareholder value for the investors and position for the company. And so we're currently evaluating that, but we've never built a business to sell. We've never sold an asset. We're not intending to sell any assets unless they come to the table with a very attractive offer. But we are focused on ramping up our cash flows and monetizing the value of our assets to drive earnings per share for our investors.
spk02: Right. Okay. And then thank you for answering that. And I assume when you talk about the properties, it's all properties. It's not just because I know you have numerous properties that you could
spk08: Yeah, we're evaluating. We have been approached on numerous opportunities given the vastness of our permit base and infrastructure. We own five processing facilities that process over 19 million tons of carbon a year. We own five rail loadout facilities that access both the CSX and NS. We have over 54 permits that are fully permitted operations. We're in a unique spot. And ultimately, right now we're focused on ramping up the McCoy complex. McCoy itself could ramp up to a couple million tons a year and doesn't need a lot of capital given the current growth of the business. Right now we're focused on driving cash flow for the investors and ultimately probably utilizing some of our cash to buy back stock should we be allowed to given information known and SEC guidelines. But ultimately, that's our focus right now. And in the meantime, we do continue to evaluate these opportunities that are being presented to us. And we'll continue to do so.
spk02: OK. And my second question actually regarded the buyback. Because I know you've been in a blackout period for a long time. And I believe this week you'll be out of blackout period. With the stock down here, which to everybody on these calls, or all the investors, it seems like an amazing value. As far as whether you pull the trigger to buy stock back, is that based on the value or other use of cash?
spk08: Yeah, that's a good question. Yeah, so we announced the stock buyback when the stock was at around three. Now, we've been in a blackout period until we filed our queue, and I think we are until three days after. Yes, I mean, we believe that it is highly undervalued right now, and ultimately, it's Should we be able to, we intend to exercise the option to buy back stock. We do have to be cognizant of material information that if we are working on something that we believe will be very valuable to our shareholders, we have to be cognizant of not buying back stock, knowing that information until there's resolution one way or another. We are navigating around those aspects just to make sure that we do what's right by all of our investors.
spk02: Okay. Great. That's all I had. Thank you. Excellent. Thank you, Steve. Thank you.
spk01: Thank you. Our next question is from Mike Neuhauser with Roth Capital Partners. Please proceed with your question.
spk10: Hey, Mark. Try not to run out of time here. Do I understand that you have not received any revenues from Dean yet or it hasn't yet entered production?
spk08: We receive revenues from there. They have not commenced production though. So we have minimum royalties that they owe us. And so we get paid those on a monthly basis and we got paid a fair amount of money upfront as well. But they are, and they'll continue to do that until they get into production. Um, so, but ultimately they, they have, I mean, the progress that they made there has been phenomenal. Not only that, but we own the assets there still, and they put a significant amount of money into upgrading the facilities there to start production. I mean, I would estimate they put over a million dollars, if not substantially more than that into the processing plan in itself. Um, and so they are progressing nicely in terms of their development and their, and, and the equipment they're bringing in is worth, I mean, the high wall minor in itself today is worth about six, $7 million. So they're bringing in some pretty hefty equipment to start production there, and I'm excited about what they're doing. I mean, we all want to see them produce. It's a fun day when a mine starts, and they're getting close to doing that, so it'll be exciting times here in the next 30 days.
spk10: Well, it sure is. It was fun to see Carnegie 2 where it was just a short time ago. Can you comment on a range of time where you might see Carnegie 3 out in the future or mine 17 or 15A, you know, ready for production? Do you have any kind of idea what quarter that might be in the future?
spk08: Yeah. So I would say the next growth we'll see out of the mining industry is the second section at Carnegie II. They're progressing towards that as we speak. Also a deep cut plant at Carnegie II. So that will combine, will increase production there pretty significantly. And that's the next phase of growth at McCoy. And then I would actually say probably mine 15A, given it's an idle mine right now that can come online. We're interviewing contractors for it as we speak. That can be one that comes online pretty quickly. I would say the team says before end of year, I would say probably push that to beginning of January or end of January. But that'll be a nice additional revenue growth. And then Uh, 17 and, and Carnegie three, we're evaluating which one of those will start up next, but those are, um, those are probably first quarter events, the end of first quarter. And so it's, uh, the McCoy complex is a valuable complex because one, the processing facilities are a state of the art. They're the, they're the best in that area. They're the biggest in that area. Um, and I mean, the facilities build out to the nines James river spent hundreds of millions of dollars building that facility. And so we're the beneficiaries of that capital. But also the mines that can feed that complex, like the 15As, the 17s, the Carnegie 3s. There's a rapid amount, there's a vast amount of opportunity and growth at the McCoy complex to ramp up to, I mean, internally our target is around 2 million tons a year that we can ramp the McCoy complex up to. And current market, that's a phenomenal, that's a phenomenal number. Now, that's not going to happen overnight, but the uniqueness of that complex is it's coal ready. It's production ready. And ultimately, they're all within very short distance to the prep plant to continue to ramp up production.
spk10: Were there any impacts to the facility with the rains on the last go-around, or did it pretty much avoid all that trouble?
spk08: In the third quarter, I mean, we were delayed because, I mean, I will say that a lot of our employees were helping other neighbors, and they were – mean helping their families and i mean so there was during the third quarter we had we probably had two to three weeks of delays even at the mccoy complex um that impacted our numbers a little bit we also ended the quarter with quite a bit of inventory at cost on the ground too um so that would have that would have been a lot higher in the third quarter as well um so i mean those impacted the quarter they didn't impact the facility so the mccoy complex in that area of kentucky i mean in the mountains when storms get over certain areas they they hover over them and Unfortunately, that hazard region got hit really, really hard. Letcher County, Dean area got hit pretty hard, did not affect our infrastructure down there. And the McCoy complex didn't really get hit that hard at all. It kind of avoided that region, so it didn't affect any of our infrastructure.
spk10: And Perry, you avoided any water coming off the site into the rivers, environmental issues, that kind of thing?
spk08: Yeah, no, we've, uh, environmentally did not, did not have any issues. Uh, we, I mean, there was slides all throughout our properties and we're the heart, one of the largest permit owners in Eastern Kentucky. So it's, uh, I mean, there was definitely environmental work to make sure that there was never an impact to the environment, but environmentally as a business over the last year, we've crushed it. We have over $8 million of additional bonds rolling off here in the near term, um, or bond releases that will go into place in the near term. And, and so it's, uh, The floods didn't impact us too much on the environmental side. We mitigated any potential impact after the floods to make sure that there was no impact there. Even at Perry now, the issue is the workforce in that region because ultimately they've been displaced. The mine is actually, I think we've fully got approved for the mine to be released now in the last week or so. So we got a lot of that stuff cleaned up. There was no long-term damage to any of the infrastructure. We made significant improvements to the mine to be even more efficient when we bring it back online. Set it up as a three-section mine where we were previously operating around one and a half sections. So it's set up as a beautiful complex right now. We're pretty excited about it.
spk10: Well, I'm really excited about what you're doing on the you know, rare earth and lithium ion battery recycling side and really looking forward to seeing news about the commercialization of the lithium ion batteries, et cetera. When do you think that you might start seeing meaningful revenues out of either one of those efforts? And by meaningful, I just mean something that's reported on your income statement that wouldn't be maybe accounting-wise considered like a development offset. And in that question, I'm wondering about if you had any other thoughts about additional site expansion. And lastly, if you don't mind me just running on there, I'm real interested in this USA Rare Earth Magnets. And it sounds like they're developing a facility. So a lot of this revenue seems to be 24 and beyond. Is there something meaningful you might be able to put up on the board in 2023? Yeah. Sorry for the long question, Mark.
spk08: Yeah. No, I'll try to remember them all. I'll do my best. In terms of revenue generation, we will start generating revenue in the fourth quarter. Meaningful, probably in 2023. The business is set up to expand. We brought all the internal leaching in-house. So since last time you've seen the facility, it looks obviously quite different. Need to get you back to Indiana when you're around the region because it looks completely different than when you saw it last with the battery train in there with the full leaching in-house at scale now. So that's progressing nicely. The facility is set up to scale revenue pretty rapidly. Selling battery materials, you can sell them 10 times over, same with rare earth elements. USA Rare Earth, phenomenal team. I haven't met the new CEO yet. We intend to speak this week. Great business. They're doing a great job of setting it up. They're set up to be the largest magnet manufacturer in the United States. They'll be the first magnet manufacturer in the United States at commercial scale. So we're excited to be able to partner with them and provide them the raw materials they need to supply domestic manufacturing. And we're also then we have a nice relationship with them and we're collaborating on partnerships on the downstream and upstream. We've introduced them to some of our OEM friends and they obviously have their own relationships and they're doing great. I mean, having the luxury to be out in Oklahoma at their facility, it was extremely impressive. In terms of our scale and growth, we have our current Noblesville facility. We have a property in Noblesville we're evaluating. We also have begun pretty advanced discussions on a site location in Indiana for a extremely large facility, well north of 250,000 square feet, north of 300,000 square feet that we are in advanced discussions on to take the business to the next level. Furthermore, on the growth of re-element is the ability to co-locate. We have the one technology in the industry that can co-locate with battery manufacturers as well as with magnet manufacturers for recycling their waste product. That is key. Ultimately, there's a lot of waste that comes out of the battery space, north of 20% in battery manufacturing. We're the only technology that can do that. You can't put a solvent extraction facility inside of a battery manufacturer. It wouldn't work. Emulsion of highly toxic chemicals inside of a battery manufacturing plant would not work. Our technology can and will. And that puts us in a really unique spot for growth. And we're in conversations on some really attractive opportunities to do that, in part with partners that need these battery elements. They need lithium. They need cobalt. They need nickels. And then more importantly, the ability to process LFP batteries. I believe personally that over 50% of the battery market will be LFP. 95% of the battery recyclers that you read about don't care about LFP because it doesn't have cobalt nickel in it. All they do is produce black mass and sell it to smelters. They don't sell it to battery manufacturers. We do. We take it to battery grade material. That's a key differentiator of our technology. And that's why we've been able to attract some of these relationships that we're working with now. because ultimately we can process LFP very, very efficiently to get that lithium right back into the supply chain of the battery manufacturers. So on the growth side, that's ultimately where we believe it'll be. I think that answers all your questions, but maybe not.
spk10: Let me know. And an excellent job at that. One last question. Sorry for filibustering here. I'm really glad you bought back the 7.5% of rare earth element.
spk08: and uh can was that for cash or stock and can you tell me what the uh amount of consideration for that yeah we did not disclose what the consideration was um but uh it was not in stock it was in it was in equal consideration of what they paid um and so we uh we had the opportunity to do that we wanted to spin the real element division off and when that opportunity presented itself we we worked with them to get that deal done um I have nothing bad to say about heritage. Great, great company, uh, ultimately continued dialogue with them. Um, they, uh, there's, um, and, and ultimately I wish them the greatest in success, but when we had the opportunity to buy it back and for our investors that made the most amount of sense and we, we moved aggressively and, and, uh, and quickly to get that deal done when that, when the opportunity presented itself.
spk10: Well, it obviously makes it cleaner to, uh, to spin out, um, that business.
spk08: and uh it just seems like the heritage group has been a great partner so that's all my questions thank you very much and um you know good work and difficult times yeah it's exciting times um i will say it's uh both of our divisions are seeing demand that we've never seen before and and we're ramping up production of both of them it's uh it's probably one of the most exciting times i've seen in my lifetime so best of luck Thank you.
spk01: Thank you. As a reminder, it is star one to ask a question. Our next question is from Paul Sons with Sons Partners. Please proceed with your question.
spk11: Hi. I wondered, with the cash on hand and the burn, do you anticipate that you will have to do a raise to sort of bridge you over?
spk08: No, uh, no, we, I'm not, we want to do an equity raise. Um, we have, as Kirk mentioned over $18 million of available liquidity between our credit facility cash on hand and receivables. That's uh, and then ultimately I will say we, I mean, at our Carnegie complex, we had record production last week. Um, that's uh, and with, and so we're, we're, we've also cut back on our development cap, uh, development spending on the carbon side significantly. We have development costs obviously hitting the balance sheet of the holding company through re-element. That's being done through its own credit facility, though. Okay. Majority of the capital on... Oh, go ahead.
spk11: And the price of coal, it's come down a bit lately, but how is your spread going from cost to what you're currently being able to get?
spk08: Very good. I mean, some MET prices are down from... third quarter or from second quarter. In the third quarter, they were down from the second quarter. Second quarter, they almost doubled in the second quarter. That was phenomenal. I actually think next year will be stronger than that given the fundamentals in the market. If you look at the fundamental nature of the market right now with met coal being sold as thermal coal in long-term contracts and with China, China controls the field market. China controls the commodity market. I've been in the commodity industry for 20 years. They always have. They're shut down effectively for COVID right now. Their COVID restrictions have put them in a spot where they've slowed their economy down pretty significantly, which ultimately they produce over 50% of the world's steel. When they come back online and you're starting to see them come out of COVID, they actually announced something this morning, which is actually a little bit earlier than I thought they would, that they're starting to release some of their COVID restrictions. As they come back online, There's no way to increase production in any material nature in the world. The coal industry's tried. So I see a really strong coal market. Now, our spreads right now, even with the down, it's still way up from over a year ago. And so with the deep cut plan, that just adds additional margin to the income statement. Adding the second section of Carnegie II will be extremely accretive to our cash flow. Um, so with, with current markets, I mean, if you could say I could sell this cold, this market for the rest of my life, that'd be phenomenal. And, uh, um, and so it's, uh, I, I, we actually see a lot of strength coming in the market in the near term because of the fundamental nature of the market though. And, and, uh, and prices are still really attractive.
spk11: Great. And then, um, uh, just to go back to the, um, uh, the railroad from the, the magnets, um, What do you think is the next sort of catalytic investment, not investment, I'm sorry, catalytic news event that shareholders should look for? Because I think that that's just really starting to go. And I would expect that it seems overlooked dramatically by the rest of the investing market. I mean, it's very unusual what you're doing. So I'm trying to understand what might be the next thing that will get the investors to understand how unique this is?
spk08: Yeah, there's quite a few things. We have a busy balance of the year. Partnerships that we continue to move forward on, some signed, some in development. Once our partners feel comfortable, we'll get those out there. Additional developments, site selection for the facility, battery production train coming online, full scale. Expanding in our current facility, processing lithium ores is something we've been working on that we feel extremely good about with our technology. Chromatographic separation for lithium spodumene is a very attractive opportunity for us given the uniqueness of our technology. And then additional partnerships on the feedstocks with magnets. very close to having, there's, there's only three companies in the country that I know of that are talking about producing magnets at scale. And we are in conversation. We obviously partner with USA rare earth and we're extremely excited about that and excited about that team and they're where they're at in this space. And then there's a more novel approach, uh, that's coming online that we are, uh, in conversations to partner with. And so it's, I mean, we're one of the only people in the space, the unique thing about our business, having the ability to produce both rare earth elements and battery elements using chromatographic separation is the, the opportunity to fully leverage the platform. The magnet side is very high margin. The magnet materials are almost 5x on a per kilogram basis that battery materials sell for. But more importantly, the LFP chemistry is actually extremely attractive to us. If we just target the lithium, our processing costs drop dramatically. We're sub $2 a kilogram to produce lithium from either lithium spodumene or uh or from lfp battery chemistries and that that puts us in a really unique spot in the industry because we can process materials that nobody else wants to because we don't we don't use solvent extraction we don't use harsh chemicals and toxic chemicals to do so which are extremely expensive to operate right well good all right well look thank you that's that's good well thank you i appreciate you joining the call
spk01: Thank you. Our next question is from Paul Spetz, who is a private investor. Please proceed with your question.
spk03: Yes, thank you. Can you hear me all right? We can. Relative to the coming rare earth business, it's a new business. I'm wondering how tight your partnership is with the processor. Do you have room to As you learn what's going on in this business to adjust pricing or can you sell into alternate channels, how bound up are you?
spk08: Yeah, so our rare earth business, we can sell to anybody. I mean, I can sell throughout the world. We're not restricted. We don't have any exclusives with anybody. We're obviously excited about our partnership with USA Rare Earth and intend to supply them a lot of oxides. Um, for their, for the magnet manufacturing space, we, I love their domestic. Model. I think it ultimately will qualify for, um, as a domestic supplier given. And so I love their focus and I love their team. I mean, they're great partner. That being said, we can sell to anybody and, and ultimately we'll sell to other parties, including, we think, we think the DOD would be a natural fit as a buyer of the products. And I've had numerous conversations with numerous government agencies given their need and their demand for rare earth and battery materials.
spk03: Is there a possibility on the processing side, on the proprietary processing that you have, that you might distribute that processing to purchasers of the product so that they can supply some of the capital in your growth?
spk08: Would we effectively license it to them to an extent?
spk03: Well, not necessarily license them, but provide their ability on site to do the processing.
spk08: Oh, 100%. That's co-locating on battery material and magnetic material.
spk03: Yeah, that's what I'm referring to. No, that's what I'm referring to. I sense that. Thank you very much.
spk08: Yeah, I mean, that's what I'll say to that question is that that is the uniqueness of our technology is because we can do that because of our tech, our footprint that we utilize is so much smaller than solvent extraction, which is the only other method of producing critical or rare earth elements. The hydro met, which is solvent extraction. could not be co-located. We can co-locate because of the uniqueness of our technology with battery manufacturers as well as magnet manufacturers, ultimately reducing, it's optimizing, right? It's reducing the logistics costs within the footprint of the space. If you're going to buy an electric car, you want to pay as little as you possibly can for it. If a battery manufacturer is taking their waste material, shipping it 200 miles down the road or 500 miles down the road to be processed at a solvent extraction facility, that adds a tremendous amount of cost and logistics and delays. We can do that in-house at facilities, and we're progressing nicely on that front.
spk03: Clearly, the Chinese got their monopoly in this business by acquiring that processing, and they had the margin in the processing to squeeze Toyota in the past. It's really a critical area.
spk08: The final stage purification, that's where we started. Most of the people in the battery space started at the shredding side of producing black mass and selling it effectively to China, which is where everybody does today. We started at a purification because that's the bottleneck in the equation. And that's why we put that focus over the last three, four years is to make sure we had the most efficient process of doing that. Because ultimately that's what makes our business valuable then. And we'll showcase that over the next year.
spk03: One of the overhanging questions we have as analysts looking at this new process is How confident are you that you can ramp up the throughput? Extremely. Thank you.
spk08: The process, the trade secrets, the technology in itself, the team we have in place between Yee, Bill Smith, Jeff Peterson, Jay Campbell, and a number of other teams, and Dr. Wang and her team at Purdue, our team at Texas Tech led by Jerry Boddy and Christian Pagalessi. I mean, the team we have in place, have enabled us to optimize this technology. I mean, Bill Smith was at Lilly for 35 years building and engineering and building their chromatography facilities. They produce over $3 billion of insulin using chromatography. Chromatography also processes high fructose corn syrup. So it processes high volumes of material. Scaling our technology, we've proven that it works better at commercial scale than it did at lab scale because it's all about surface area, surface area to the resin. And so going bigger columns, going taller columns, adding additional production trains, we're highly confident in our ability to scale it and we're excited about what we're getting ready to do here in the very near future.
spk03: Will you benefit from the culture that Purdue put together from other companies?
spk08: So I'm an IU guy. I went to Indiana. Both my parents went to Purdue. But I do love Purdue University. The team there, I mean, Mitch Daniels from from the top down built a great, uh, built a great university and made it extremely efficient. Dan Hassler, who just took over as Purdue Indianapolis, the head of it as a transition, which is phenomenal. Um, I mean, they have a, they have a great team. And then ultimately it's, uh, and Linda Wang, uh, Linda does a great job of, of driving the, the PhD she works with and the postdocs and everybody else to think about commercialization first, understanding the importance of it. So, um, Do we hope to learn from the culture of Purdue? I mean, we're a for-profit business. We do things different than universities, but Purdue is a great university and a great partner to what we're doing.
spk03: Thanks. Thank you.
spk01: Thank you. There are no further questions at this time. I would like to turn the floor back over to Mark Jensen for closing remarks.
spk08: Well, I want to thank all of our investors for dialing in today. We're excited about where we're currently positioned. We're extremely excited about the value of the assets of our business and the cash flow that these assets can generate. We're at a unique inflection point of the business and ultimately we've accomplished a lot over the year and we anticipate accomplishing a lot more in the balance of the year. We are and continue to be the largest shareholders of the business and working on getting my 10B5 plan back in place so I can buy more stock. But ultimately, we believe that the fundamentals of the business will continue to drive value and ultimately create value for our shareholders. And our management team, our board of directors are focused on driving this value every day and every decision that we make for all of our investors. Thank you for joining the call and look forward to the future calls.
spk01: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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