REX American Resources Corporation

Greetings and welcome to the RECS American Resources Fiscal 2022 Fourth Quarter Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question and answer session. At that time, if you have a question, please press the 1 followed by the 4 on your telephone. If at any time during the conference you need to reach an operator, please press star 0. I would now like to turn the conference over to Mr. Doug Brueggemann, Chief Financial Officer. Please go ahead.

Good morning, and thank you for joining Rex American Resources Fiscal 2022 Fourth 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 risk and uncertainty. within meetings of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements reflect the company's current expectations and beliefs, but are not keys of future performance. As such, actual results may vary materially from expectations. The risk 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 10-K and 10-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, Chief Executive Officer. I'll first review our financial performance and then turn the call over to Stuart for his comments. Sales for the fourth quarter declined by 5.6% as we experienced lower volume for ethanol and distillers grain. Ethanol sales for the quarter were based upon 63.7 million gallons this year versus 69.9 million last year, as we experienced some weather-related disruptions to their operations during the quarter. We report a gross profit of 14.9 million for this year's fourth quarter versus a gross profit of 38.8 million in the prior year. In the current year quarter, we experienced lower ethanol pricing as well as higher corn and natural gas pricing. Corn cost increased by 22% and natural gas pricing increased by 12% for this year's quarter compared to the prior year as inflationary pressures and the impact of commodity pricing from the Ukraine-Russia conflict continued. We continue to experience higher basis pricing for corn near the Nugent facility based upon a poor corn harvest and reduced corn availability in that local area. SG&A increased for the fourth quarter to $6.7 million from $6 million in the prior year. The increase is primarily due to an increase in the number of ethanol contracts that require the freight to be paid by us compared to the prior year, which we classify as SG&A cost. We had income of $2.5 million from our unconsolidated equity investment in this year's fourth quarter versus income of $3.9 million in the prior year. The company's interest and other income in the current year increased dramatically to $2.6 million versus $13,000 the previous year, primarily reflecting increased yields on our cash. The discontinued operations reflecting the prior year numbers are from the refined coal business as we ended those operations on November 18, 2021. There was no impact in the current year. We reported a tax provision from continuing operations of $2.2 million for this year versus the provision of $10.7 million in the prior year, primarily reflecting the lower level of income in the current year. These factors led to net income attributable to REC shareholders from continuing operations of $8.2 million for this year's fourth quarter versus $21.3 million in the prior year. Total net income per share attributable to REC shareholders from continuing operations was $0.47 for this year's fourth quarter versus $1.19 in the prior year. Again, I'll point out all shared numbers reflect the three-for-one stock split, which was the effect of August 5th, 2022. Stuart, and I'll turn the call over to you.

Thank you, Doug. Going forward, ethanol currently is running a roughly break-even year to date. So far, Rizvi and his section will discuss ethanol much further. Our cash is approximately $280 million at the end of the year consolidated. And we have our uses of cash over the next couple of years include carbon capture, which again so far is we will discuss. Investing the cash right now. Right now we're investing the cash in interest-bearing accounts, mostly treasuries and money market accounts. And the banks that we are dealing with, and this is – to the best of our knowledge are very, very secure. We consider them top quality banks and we feel very comfortable that our cash is invested in a very, very good way. We are earning decent interest on that cash versus many companies that have debt. We do not have much, we have virtually no debt. So, so that's in our opinion, it's good a way as any to invest our cash at this time. We will buy back on dips. Uh, We have some plans for expansion of our ethanol plants, which Zafar Rizvi will talk about. We're always looking for additional ethanol plants to purchase at this time. We have nothing imminent, but if something were to come up, a very good ethanol plant, we would certainly look at it. I'll now turn the call over to Zafar Rizvi, our Chief Executive Officer. Thank you.

Thank you, Stuart. Good morning, everyone. As I mentioned in our previous quarterly call, we continue to face challenging operating environments throughout the year due to a number of factors. Drought has affected the availability of corn and created a strong basis, as Doug just mentioned, particularly at the Marion, South Equator location. In addition, ethanol production is greater than the demand, which continues to negatively affect the crush margin. The high price of the natural gas during the last quarter and year also negatively affected the profit margin. In positive news, we have seen natural gas price drop considerably recently. And according to EIA, yesterday's weekly report shows ethanol production dropped under 1 million barrels a day, 10 weeks low, retreated 17,000 barrels a day, week to week. The corn bases are still strong and expected to get worse before the harvest. We are pleased with the availability of corn in the Gibson City, Illinois area. However, because of growth in domestic exports from the state, the corn bases are beginning to strength. We have seen weakness in the price of corn, oil, and DDG, but these are still selling above the cost. Despite drought, the recent slowdown in export, the decline in the crush margin, and other economic headwinds, if we continue to source corn at a reasonable price and don't face any major logistical issue or shortage of corn at this early stage of the first quarter of 2023, we expect to break even or slightly profitable at this time, as Stuart just mentioned. Let me give you some Progress of our carbon sequestration project, these are the bullet points. The university successfully drilled a test well to a total depth of around 7,100 feet, in which almost 2,000 feet of Mount Simon sandstone was incurred. Completed geologically, models are predicting the movement of the CO2 injection into the subsurface. The rock core analysis performed indicate very good reservoir quality. completed water injection test at the well itself to evaluate the expected movement of CO2 as well as expected plume area. Testing indicates a very suitable storage for carbon sequestration. The 2D and 3D seismic testing was completed and indicates very good storage. Several other tests and modeling were performed to verify maximum injection pressure, reservoir quality, rock core analysis, and expected movement of CO2 plume. These test results still show this location is a very good target for carbon sequestration. The design of the compressor facility is completed. The contract to build the compressor part of the facility has been signed, and long lead time equipment has been ordered. The pipeline hazard material identification number has been received. The class six permit for three injection wells with a capacity to store 90 million tons of carbon have been completed and submitted. The work on the pipeline feed studies is expected to be finished by the early April 2020. All major lead equipment order for the compressor facility, which has been engineered and sized, the contract to build the facility have been signed We are currently working on a front-end engineering design study for short pipeline to deliver carbon from our carbon sequestration facility. We expect the pre-built modular plant will be delivered by the end of December 2023, and then the building will be structured around the modular plant. We continue. Once again, this is highly technical, very early stage and time consuming project. It has required considerable time to make progress. We cannot predict we will be successful, but we are pleased what we started four years ago now has achieved some big milestones. As I also mentioned in our previous call, we are evaluating several other projects that will increase production efficiency, improve energy efficiency to reduce carbon intensity, as well as reduce water consumption at our plant. We believe we will be able to complete most of these projects soon. Completion of these projects will lead to a greater benefit under the Inflation Reduction Act passed by the Congress and will contribute to decrease cost of production. As Stuart just mentioned, we also decided to increase the ethanol production capacity at One Earth Energy, Gibson City, Illinois, to 175 million gallons from 150 million. The Clean Fuel Production Credit, Section 45 , which is related to reduce fuel carbon intensity score, could provide as much as a dollar a gallon, depending on carbon intensity of ethanol produced and sold. The Section 45 cash payment for the carbon sequestration increased to $85 metric ton, which we plan to switch after the expiration of the 45G, which we will continue to enhance the strong position of our company. In summary, we are pleased to announce, once again, profitable quarter in a very, very difficult environment, as well as good progress in our carbon sequestration project. We plan to increase ethanol production capacity to maximize benefit of the Inflation Reduction Act section 45Z and 45Q once 45Z expires. If we can achieve what we are planning to accomplish, in the future we will be ready to provide low carbon ethanol and byproducts while reducing carbon in the atmosphere. We cannot hit these carbon sequestration milestones, embark on projects to decrease carbon intensity, plan to increase ethanol production and achieve 10th consecutive quarter of positive income without the hard work and dedication of our colleagues. We are very appreciative of their efforts to achieve these positive results. I will give the floor back to Stuart for further comments. Thank you, Stuart.

Thanks so far. In conclusion, we've outperformed most of the industry competitors again. We've done this, again, we believe we have the best plants, great locations, great potential in carbon capture, which we think will be our future. And most importantly, and the biggest difference between us and the rest of the industry, as afar mentioned, is our people. We feel we have the best people in the industry. And in the end, that's what separates us from the competition. And a lot of competition can have hopes and dreams. But if you don't have good people to implement them, they just tend to never happen. We have proven in the past that we have good people and can run very, very good ethanol plants. And we plan and hope to do that in carbon capture. We look at that as our future. I'll now leave the call open to questions.

Thank you. If you would like to register a question, please press the 1-4 on your telephone. You will hear a three-tone prompt to acknowledge your request. If your question has been answered and you would like to withdraw your registration, please press the one followed by the three. Once again, to register a question, please press the one four on your telephone. One moment please for the first question. Our first question comes from Jordan Levy with Truist Securities. Please proceed.

Morning Stewart, Zafar, Doug, and a nice quarter against another challenging backdrop. I think that's worth recognizing for sure. Maybe to start out, you mentioned the plan for expanding One Earth's capacity certainly seems like CCUS is moving forward. and some of the initiatives this year. Maybe if you could just give us any commentary you might have around capital plans for 23 and what we should expect there.

As I said, we plan to expand to $175 million. We are in process of evaluating all the costs and the return on investment. We hope to have all of those disclosed at the June 1st. our quarterly call either at the shareholders meeting that what exactly total cash will take to for the ethanol facility expansion and the carbon sequestration and we will have those numbers at that time.

And presumably would the expansion be throughout the course of this year?

Yes, exactly. I think we have already had A major evaluation has done. We are putting the financial models and we are looking at all of those information to see what's the return on investment. As I mentioned, that with the expansion from $150 to, if we go to $175 million, and that's about $25 million more ethanol production. And if we look at the benefit of 45Z, if we are able to achieve all those carbon intensity, which we are working on, carbon sequestration, and as I mentioned, that for a couple of years, even before the 45Z, we were trying to make sure that we reduce our carbon intensity. So all of those projects are really coming out to be great benefit for us moving forward. So it looks like we are trying to evaluate all that return on investment and putting the package together, and hopefully we will have by that. That's what it leads to, saying we can expand to $175 million. We could have considered to expand $200 million, but we want to make sure we do not create deficit of corn in that area.

Great. Thanks for that. Zafar, I appreciate all the comments and updates you gave on carbon capture. Maybe just to back up and look at this on a high level, can you just lay out for us, I know you mentioned some targets for the end of the year moving into 24. Can you just sort of lay out for us where you expect to be exiting 23, what will be completed and what you expect to kind of be working on at the time?

I think the most of our items, as I mentioned, that we have ordered all the long lead items. Equipment, some of those equipment takes as long as time leading is to a year and a half. And so we have to order all those equipment. And also, as I mentioned, that we will expect to have our modular unit, which will be compressor facility, will be delivered by the end of this year. and then we will have construction will start around that modular unit because that will take also at least six to seven months or longer because there's a lot of pipe pipes that need to be connected electric building need to be built around it so that and so our goal is to have this uh to finish all this project by the end of 2024 certainly that's our goal and It can happen some other uncertain things, which we do not come out and delay that project, but that's what our goal is by the end of 2024.

Jordan, one other thing you should know, and a lot of people are announcing CO2 projects in the ethanol industry, but all they're really doing is tapping into pipelines and And they're not getting the bulk of the economic benefits. The economic benefits are up to, for the years 26, 27, and 28, a dollar a gallon. We expect to have 175 million gallon plants. So even if we get half of that, whatever we receive, we will receive it all. Whereas most of these companies tapping into pipelines are dependent on the pipelines being built. They're announcing contracts. that they're doing CO2 capture, but they're really not doing their own CO2 capture. We are doing our own. We've been doing this, as Zafar mentioned, for four years. And this is our project. This is our shareholders project. It's not something where we have to share the bulk of the revenues with the pipeline company. The pipeline company, of course, then has you captive and has the ability. They will take a good percentage of the profits in our case. all profits come to our shareholders. And again, we're a small company, 18 million shares, but we think it can be very, very significant. That's our plans, and that's what we hope and expect.

Exactly. Yes, that's the major difference between us and others. And also, I think, as Stuart mentioned, we were really trying to look at it four years ago when there was no 45Z at that time. 45Q was $50. Now it's $85. So all these benefits are really coming to see some productive.

They will accrue to our shareholders, as the bar is saying. Exactly.

Yeah. I think that's great commentary. I really appreciate it. I'll leave it at that. Thanks.

Thanks, Jordan.

Our next question comes from Chris Sakai with Singular Research. Please proceed.

Hi. Good morning. Can you talk about where you see the countries of largest export for 2023?

Export of ethanol, you mean?

Yes.

Okay. Canada has exported imported 502 million gallons. And I think South Korea, 156, Northland, 99. Total export for 2020 was 1.3 billion gallons compared to 2021 was 1.2 billion gallons. And that was 9% higher than 2021. Okay, thanks.

Are you seeing any increased costs in rail due to all the recent train derailments?

Not really. I think the railroads always increase their rates. They basically have a monopoly on that track, on the direction, so they really always increase their rates, but recently we have not seen it due to this situation which is derailed. and increase in the rate.

Okay, thanks. Can you talk about the permitting process so far for the CCS?

I'm sorry, could you repeat your question, please?

How is the permitting process going?

The permitting process, we have submitted the permit, which all the requirements which they requested We completed all the documents. Since that time, they have a couple of questions which we answered them, and they confirmed that they have received all the documents and it is under review. So from there, we cannot control. It depends on the government agency how long they were going to take. But we expect that we should receive the permit sooner than anybody else because we already have done previously our test well. and they know those area, and we applied for the test well permit previously, and we received at that time. So we hope that we will receive sooner, and now the rest really depends on the agency.

Okay, great. Thanks for your answers.

Thank you.

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

Hi, thanks for taking the questions. First off, I was just wondering about your thoughts around the M&A landscape as it relates to producing assets, you know, how valuations are looking versus a year or two ago.

We haven't seen anything that's anything up for sale, to be honest, so I can't tell you how valuations are, but I would assume people would want significantly more for their plants than they did a year or two ago. For no other reason, everyone has some type of carbon capture. Every public company at least has some type of carbon capture plants. And so they think their companies are worth more. Our contention is that the pipeline companies that they're dealing with will end up either... First of all, we think they'll be delayed. Second of all, we think that they... will not contribute to the bottom line, what some of these companies think. But in the meantime, they are valuing their companies more than they did a year or two ago, for sure, because of the opportunity, because of the legislation that just passed that Savar mentioned. We now can get up to $1 a gallon for 45C and $85 a ton for 45Q. That's a lot of money. be distributed to different people. In our case, we hope to keep the bulk of it.

Okay. Got it. Understood. And then for my follow-up, I had a more macro policy question. So the EPA recently proposed allowing year-round E15 blending in the Midwest. Just wondering, do you think this will happen? And Does that plan go far enough in your opinion? Zafar, do you want to answer?

Yeah, it's hard to say. I think the different, as you can see, the different states are trying to implement and in Iowa and other locations, several other states are saying to all year around and they applied for the exemption from the EPA. I hope it's all year around, E15, because If it's not all year around, it's discouraged by the gas station to have six, eight or nine months in a year, and then they have to discontinue and then start over. So that's what we hope. But we cannot predict what Congress or any EPA will probably will do that. There is already legislation trying to introduce in Congress to allow all year around. and hopefully that happened.

Got it. That's clear. Thank you very much. I'll pass it on.

Thank you. Mr. Rolls, there are no further questions at this time.

Okay. We thank everyone for listening, and we'll look forward to talking after the end of this quarter and talking to everyone again after the end of this quarter. Thank you. Bye.

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

Have a great day, everyone. Hello. Thank you. Thank you.

Thank you.

Greetings and welcome to the RECS American Resources Fiscal 2022 Fourth Quarter Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question and answer session. At that time, if you have a question, please press the 1 followed by the 4 on your telephone. If at any time during the conference you need to reach an operator, please press star zero. I would now like to turn the conference over to Mr. Doug Brueggemann, Chief Financial Officer. Please go ahead.

Good morning, and thank you for joining Rex American Resources Fiscal 2022 Fourth 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 risk and uncertainty within meetings of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements reflect the company's current expectations and beliefs, but are not keys of future performance. As such, actual results may vary materially from expectations. The risk 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 10-K and 10-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, Chief Executive Officer. I'll first review our financial performance and then turn the call over to Stuart for his comments. Sales for the fourth quarter declined by 5.6% as we experienced lower volume for ethanol and distillers grain. Ethanol sales for the quarter were based upon 63.7 million gallons this year versus 69.9 million last year, as we experienced some weather-related disruptions to their operations during the quarter. We report a gross profit of 14.9 million for this year's fourth quarter versus a gross profit of 38.8 million in the prior year. In the current year quarter, we experienced lower ethanol pricing as well as higher corn and natural gas pricing. Corn cost increased by 22% and natural gas pricing increased by 12% for this year's quarter compared to the prior year as inflationary pressures and the impact of commodity pricing from the Ukraine-Russia conflict continued. We continue to experience higher basis pricing for corn near the Nugent facility based upon a poor corn harvest and reduced corn availability in that local area. SG&A increased for the fourth quarter to $6.7 million from $6 million in the prior year. The increase is primarily due to an increase in the number of ethanol contracts that require the freight to be paid by us compared to the prior year, which we classify as SG&A cost. We had income of $2.5 million from our unconsolidated equity investment in this year's fourth quarter versus income of $3.9 million in the prior year. The company's interest and other income in the current year increased dramatically to $2.6 million versus $13,000 the previous year, primarily reflecting increased yields on our cash. The discontinued operations reflecting the prior year numbers are from the refined coal business as we ended those operations on November 18, 2021. There was no impact in the current year. We reported a tax provision from continuing operations of $2.2 million for this year versus the provision of $10.7 million in the prior year, primarily reflecting the lower level of income in the current year. These factors led to net income attributable to REC shareholders from continuing operations of $8.2 million for this year's fourth quarter versus $21.3 million in the prior year. Total net income per share attributable to REC shareholders from continuing operations was $0.47 for this year's fourth quarter versus $1.19 in the prior year. Again, I'll point out all shared numbers reflect the three-for-one stock split, which was the effect of August 5th, 2022. Stuart, and I'll turn the call over to you.

Thank you, Doug. Going forward, ethanol currently is running a roughly break-even year to date. So far, Rizvi and his section will discuss ethanol much further. Our cash is approximately $280 million at the end of the year consolidated. And our uses of cash over the next couple of years include carbon capture, which, again, so far is we will discuss. Investing the cash. Right now we're investing the cash in interest-bearing accounts, mostly treasuries and money market accounts. And the banks that we are dealing with, and this is – to the best of our knowledge, are very, very secure. We consider them top-quality banks, and we feel very comfortable that our cash is invested in a very, very good way. We are earning decent interest on that cash versus many companies that have debt. We do not have much. We have virtually no debt. So that's, in our opinion, as good a way as any to invest our cash at this time. We will buy back on dips. We have some plans for expansion of our ethanol plants, which Zavar Rizvi will talk about. We're always looking for additional ethanol plants to purchase at this time. We have nothing imminent, but if something were to come up, a very good ethanol plant, we would certainly look at it. I'll now turn the call over to Zavar Rizvi, our Chief Executive Officer. Thank you.

Thank you, Stuart. Good morning, everyone. As I mentioned in our previous quarterly call, we continue to face challenging operating environments throughout the year due to a number of factors. Drought has affected the availability of corn and created a strong basis, as Doug just mentioned, particularly at the Marion, South Dakota location. In addition, ethanol production is greater than the demand, which continues to negatively affect the crush margin. The high price of the natural gas during the last quarter and year also negatively affected the profit margin. In positive news, we have seen natural gas price drop considerably recently. And according to EIA, yesterday's weekly report shows ethanol production dropped under 1 million barrels a day, 10 weeks low, retreated 17,000 barrels a day, week to week. The corn bases are still strong and expected to get worse before the harvest. We are pleased with the availability of corn in the Gibson City, Illinois area. However, because of growth in domestic exports from the state, the corn bases are beginning to strength. We have seen weakness in the price of corn, oil, and DDG, but these are still selling above the cost. Despite drought, the recent slowdown in export, the decline in the crush margin, and other economic headwinds, if we continue to source corn at a reasonable price and don't face any major logistical issue or shortage of corn at this early stage of the first quarter of 2023, we expect to break even or slightly profitable at this time, as Stuart just mentioned. Let me give you some Progress of our carbon sequestration project, these are the bullet points. The university successfully drilled a test well to a total depth of around 7,100 feet, in which almost 2,000 feet of Mount Simon sandstone was incurred. Completed geologically, models are predicting the movement of the CO2 injection into the subsurface. The rock core analysis performed indicate very good reservoir quality. completed water injection test at the well itself to evaluate the expected movement of CO2 as well as expected plume area. Testing indicates a very suitable storage for carbon sequestration. The 2D and 3D seismic testing was completed and indicates very good storage. Several other tests and modeling were performed to verify maximum injection pressure reservoir quality, rock core analysis, and expected movement of CO2 plume. These test results still show this location is a very good target for carbon sequestration. The design of the compressor facility is completed. The contract to build the compressor part of the facility has been signed, and long lead time equipment has been ordered. The pipeline hazard material identification number has been received. The class six permit for three injection wells with a capacity to store 90 million tons of carbon have been completed and submitted. The work on the pipeline feed studies is expected to be finished by the early April 2020. All major lead equipment order for the compressor facility, which has been engineered and sized, the contract to build the facility have been signed We are currently working on a front-end engineering design study for short pipeline to deliver carbon from our carbon sequestration facility. We expect the pre-built modular plant will be delivered by the end of December 2023, and then the building will be structured around the modular plant. We continue. Once again, this is highly technical, very early stage, and time-consuming project. It has required considerable time to make progress. We cannot predict we will be successful, but we are pleased what we started four years ago now has achieved some big milestones. As I also mentioned in our previous call, we are evaluating several other projects that will increase production efficiency, improve energy efficiency to reduce carbon intensity, as well as reduce water consumption at our plant. We believe we will be able to complete most of these projects soon. Completion of these projects will lead to a greater benefit under the Inflation Reduction Act passed by the Congress and will contribute to decrease cost of production. As Stuart just mentioned, we also decided to increase the ethanol production capacity at One Earth Energy, Gibson City, Illinois, to 175 million gallons from 150 million. The Clean Fuel Production Credit, Section 45 , which is related to reduce fuel carbon intensity score, could provide as much as $1 a gallon, depending on carbon intensity of ethanol produced and sold. The Section 45 cash payment for the carbon sequestration increased to $85 . which we plan to switch after the expiration of the 45G, which we will continue to enhance the strong position of our company. In summary, we are pleased to announce, once again, profitable quarter in a very, very difficult environment, as well as good progress in our carbon sequestration project. We plan to increase ethanol production capacity to maximize benefit of the Inflation Reduction Act section 45Z and 45Q once 45Z expires. If we can achieve what we are planning to accomplish, in the future we will be ready to provide low carbon ethanol and byproducts while reducing carbon in the atmosphere. We cannot hit these carbon sequestration milestones, embark on projects to decrease carbon intensity, plan to increase ethanol production and achieve 10th consecutive quarter of positive income without the hard work and dedication of our colleagues. We are very appreciative of their efforts to achieve these positive results. I will give the floor back to Stuart for further comments. Thank you, Stuart.

Thanks so far. In conclusion, we've outperformed most of the industry competitors again. We've done this, again, we believe we have the best plants, great locations, great potential in carbon capture, which we think will be our future. And most importantly, and the biggest difference between us and the rest of the industry, as afar mentioned, is our people. We feel we have the best people in the industry. And in the end, that's what separates us from the competition. And a lot of competition can have hopes and dreams. But if you don't have good people to implement them, they just tend to never happen. We have proven in the past that we have good people and can run very, very good ethanol plants. And we plan and hope to do that in carbon capture. We look at that as our future. I'll now leave the call open to questions.

Thank you. If you would like to register a question, please press the 1-4 on your telephone. You will hear a three-tone prompt to acknowledge your request. If your question has been answered and you would like to withdraw your registration, please press the one followed by the three. Once again, to register a question, please press the one four on your telephone. One moment please for the first question. Our first question comes from Jordan Levy with Truist Securities. Please proceed.

Morning Stewart, Zafar, Doug, and a nice quarter against another challenging backdrop. I think that's worth recognizing for sure. Maybe to start out, you mentioned the plan for expanding One Earth's capacity certainly seems like CCUS is moving forward. and some of the initiatives this year. Maybe if you could just give us any commentary you might have around capital plans for 23 and what we should expect there.

As I said, we plan to expand to $175 million. We are in process of evaluating all the costs and the return on investment. We hope to have all of those disclosed at the June 1st our quarterly call other at the shareholders meeting that what exactly total cash will take to for the ethanol facility expansion and the carbon sequestration. And we will have those numbers at that time.

And presumably would the expansion be throughout the course of this year?

Yes, exactly. I think we have already had a major evaluation has done. We are putting the financial models, and we are looking at all of those information to see what's done on investment. As I mentioned, that with the expansion from $150 to, if we go to $175 million, and that's about $25 million more ethanol production. And if we look at the benefit of 45Z, If we are able to achieve all those carbon intensity, which we are working on, carbon sequestration, and as I mentioned, a couple of years even before the 45Z, we were trying to make sure that we reduce our carbon intensity. So all of those projects are really coming out to be great benefit for us moving forward. So it looks like we are trying to evaluate all that return on investment and putting the package together, and hopefully we will have by that. That's what it leads to saying. And $275 million, we could have considered to expand $200 million, but we want to make sure we do not create deficit of corn in that area.

Great. Thanks for that. Zafar, I appreciate all the comments and updates you gave on carbon capture. Maybe just to back up and look at this on a high level, can you just lay out for us, I know you mentioned some targets for the end of the year moving into 24. Can you just sort of lay out for us where you expect to be exiting 23, what will be completed and what you expect to kind of be working on at the time?

I think the most of our items, as I mentioned, that we have ordered all the long lead items. Equipment, some of those equipment takes as long as time leading is to a year and a half. And so we have to order all those equipment. And also, as I mentioned, that we will expect to have our modular unit, which will be compressor facility, will be delivered by the end of this year. and then we will have construction will start around that modular unit because that will take also at least six to seven months or longer because there's a lot of pipe pipes that need to be connected electric building need to be built around it so that and so our goal is to have this uh to finish all this project by the end of 2024 certainly that's our goal and It can happen some other uncertain things, which we do not, you know, come out and delay that project. But that's what our goal is by the end of 2024.

Jordan, one other thing you should know, and that a lot of people are announcing CO2 projects in the ethanol industry, but all they're really doing is tapping into pipelines and And they're not getting the bulk of the economic benefits. The economic benefits are up to, for the years 26, 27, and 28, a dollar a gallon. We expect to have 175 million gallon plants. So even if we get half of that, whatever we receive, we will receive it all. Whereas most of these companies tapping into pipelines are dependent on the pipelines being built. They're announcing contracts. that they're doing CO2 capture, but they're really not doing their own CO2 capture. We are doing our own. We've been doing this, as Zafar mentioned, for four years. And this is our project. This is our shareholders project. It's not something where we have to share the bulk of the revenues with the pipeline company. And the pipeline company, of course, then has you captive and has the ability. They will take a good percentage of the profits in our case. all profits come to our shareholders. And again, we're a small company, 18 million shares, but we think it can be very, very significant. That's our plans, and that's what we hope and expect.

Exactly. Yes, that's the major difference between us and others. And also, I think, as Stuart mentioned, we were really trying to look at it four years ago when there was no 45Z at that time. 45Q was $50. Now it's $85. So all these benefits are really coming to see some productive.

They will accrue to our shareholders as far as saying exactly.

Yeah. I think that's great commentary. I really appreciate it. I'll leave it at that. Thanks.

Thanks, Jordan.

Our next question comes from Chris Sakai with Singular Research. Please proceed.

Hi. Good morning. Can you talk about where you see the countries of largest export for 2023?

Export of ethanol, you mean?

Yes.

Okay. Canada has exported imported 502 million gallons. And I think South Korea, 156. Northern land, 99. Total export for 2020 was 1.3 billion gallons compared to 2021 was 1.2 billion gallons. And that was 9% higher than 2021. Okay, thanks.

Are you seeing any increased costs in rail due to all the recent train derailments?

Not really. I think the railroad always increased their rates. They basically have a monopoly on that track, on the direction, so they really always increase their rates, but recently we have not seen it due to this situation which is derailed. an increase in the rate.

Okay, thanks. Can you talk about the permitting process so far for the CCS?

I'm sorry, could you repeat your question, please?

How is the permitting process going?

The permitting process, we have submitted the permit, which all the requirements which they requested We completed all the documents. Since that time, they have a couple of questions which we answered them, and they confirmed that they have received all the documents and it is under review. So from there, we cannot control. It depends on the government agency how long they were going to take. But we expect that we should receive the permits sooner than anybody else because we already have done previously our test well. and they know those area and we applied for the test well permit previously and we received at that time. So we hope that we will receive sooner and we now rest is really depends on the agency.

Okay, great. Thanks for your answers.

Thank you.

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

Hi, thanks for taking the questions. First up, was just wondering about your thoughts around the M&A landscape as it relates to producing assets, you know, how valuations are looking versus a year or two ago.

We haven't seen anything that's anything up for sale, to be honest, so I can't tell you how valuations are, but I would assume people would want significantly more for their plants than they did a year or two ago. For no other reason, everyone has some type of carbon capture. Every public company, at least, has some type of carbon capture plants. And so they think their companies are worth more. Our contention is that the pipeline companies that they're dealing with will end up either... First of all, we think they'll be delayed. Second of all, we think that they... will not contribute to the bottom line, what some of these companies think. But in the meantime, they are valuing their companies more than they did a year or two ago, for sure, because of the opportunity, because of the legislation that just passed that Savar mentioned. We now can get up to $1 a gallon for 45C. $85 a ton for 45Q, that's a lot of money to be distributed to different people. In our case, we hope to keep the bulk of it.

Okay. Got it. Understood. And then for my follow-up, I had a more macro policy question. So the EPA recently proposed allowing year-round E15 blending in the Midwest. Just wondering, do you think this this will happen and does that plan go far enough in your opinion? Zafar, do you want to answer?

Yeah, it's hard to say. I think the different, as you can see, the different states are trying to implement and in Iowa and other locations, several other states are saying to all year around and they applied for the exemption from the EPA. I hope it's it's all year around E15 because if it's not all year around, it's discouraged by the gas station to have six, eight or nine months in a year and then they have to discontinue and then start over. So that's what we hope and but we cannot predict what Congress or or any EPA will probably will do that. There is already legislation trying to introduce in Congress to allow all year round. And hopefully that happened.

Got it. That's clear. Thank you very much. I'll pass it on.

Thank you. Mr. Rawls, there are no further questions at this time.

Okay, well, we thank everyone for listening, and we'll look forward to talking after the end of this quarter and talking to everyone again after the end of this quarter. Thank you. Bye.

That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line. Have a great day, everyone.