American Resources Corp (AREC) 2020 Q4 法說會逐字稿

Greetings, welcome to American Resources Corporation fourth-quarter and full-year 2020 conference call. (Operator Instructions) Please note this conference is being recorded. I will now turn the conference over to Mark LaVerghetta, Vice President of Corporate Finance and Communications. Mr. LaVerghetta, you may now begin.

Thanks, [Rob]. Good morning. On behalf of American Resources Corporation, I'd like to welcome everyone to our fourth quarter 2020 and full year conference call and business update. We're excited to have the opportunity to not only discuss how far we've come, but also on where we have our sight set as we embark on this exciting time for us.

Also on the call today is Mark Jensen, our CEO, Kirk Taylor, our CFO, and Tom Sauve, our President.

Before we kick it off, I'd like to remind you of the normal cautionary statements. Certain statements discussed on today's call constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These forward-looking statements are subject to risks, uncertainties, and other factors, which could cause actual results to differ materially from the results discussed in the forward-looking statements.

When considering forward-looking statements, you should keep in mind the risk factors, uncertainties, and other cautionary statements which are laid out in our press releases and SEC filings. We also do not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. With that said, I'd like to introduce Mark Jensen, our Chairman and CEO of American Resources Corporation.

Thanks, Mark, and thanks, everyone, for joining. I'm excited to give you guys a bit of an update on the company where we came from and where we're going from.

2020 was a transformational year for the company. It showcased a lot of the efforts that we put forth over the last five years to reposition these assets that we've acquired and really put them in a direction to continue to drive innovation in the infrastructure market as well as the electrification market, and what is needed to turn to really accommodate what we're doing as a country from a greener economy.

I want to take a step back because we've had a number of new investors that come to the store and tell you a little bit about the history of the company as well and why we've embarked on this mission and why we're executing upon it.

Over the last five years, we've closed on over eight acquisitions, four of them through 363 bankruptcy sales. We acquired nameplate assets of high value that were just very inefficiently run, a little like the existing coal industry and the entire coal industry itself. And why we bought these assets for is to leverage the value of the carbon industry, leverage the value of what these assets mean for the country from an infrastructure perspective and then what we've continued to transform them to be is what they mean for the electrification market.

We've repositioned them to be more innovative and be more forward thinking. What we've done is we've divided them, and we've started up three different divisions of the company, American Carbon, American Metals, and American Rare Earth.

And what we've done is we've taken these assets and taken these divisions and layered them upon our existing asset base. And by doing so, we've created large efficiencies from a prior inefficient operation versus just leveraging just the carbon business. We're now able to leverage all three of our divisions and utilize our team more efficiently as well as our assets more efficiently.

I'll start on American Carbon. It's our prior -- the start of our business and really why we embarked on this mission to begin with acquiring large assets that had high value, that had a lot of capital spent on them previously, and then went in and restructured them and repositioned them by making them significantly more efficient by disrupting this legacy industry that hasn't had this type of action taken previously.

American Carbon provides carbon to the steel industry. And so what we've done is we went in and acquired complexes that were prior coal mining complexes, shut down the thermal coal industry entirely as we don't believe in that market. We don't think that it's an efficient operation to operate, especially in our region. We think most of the thermal coal operators in Central Appalachia or very few will survive.

And so what we've been able to do is go in there and shut down the thermal coal industry, take the infrastructure from those assets and reposition them to our metallurgical operations. And we've successfully done that. We've spent the time and energy at American Carbon to restructure and reposition these assets in a much more streamlined focus to be able to ramp them up significantly over the next five years and do so profitably, do so sustainably.

So not only can we provide good, stable jobs in the community, but we can also supply customers that need this product to produce steel for the infrastructure market cost effectively. We think that the market in our region, the legacy providers in our region are still broken. And as such, we think we're going to be able to continue to take market share and continue to expand our business, while our competitors are going to continue to fail. And there's a number of providers in our region that provide a significant amount of carbon that we think their cost structure is ineffective. And we'll be able to continue to grab that market share.

Starting at our Perry County complex, Perry County, we acquired a little over a year ago. It was -- the assets itself were fantastic. The quality of the carbon is excellent. The processing plant was a great plant but needed work. And so we spent over a year rebuilding this facility and setting this facility up to streamline it and make it efficient and make it effective.

As we announced in December, we started up the processing plant, started up the complex, and showcased how it will perform today under our new operating structure and how it's much more efficient than it's ever been before. And we are extremely excited about that.

Now as the late season starts to open back up, we're going to start to ramp this complex back up. We are in the final stages of an agreed order with the state. We are very excited that even despite COVID and despite the challenges, we've got their attention and we've got their attention because the jobs we're creating. Over 500 jobs in this community, we will restart in the next 18 months.

We will be one of the largest employers in the region and we'll continue to grow that base as we continue to take market share and ramp up our operations. As we've worked through this agreed order, we've made significant improvements at the mine and continue to make significant improvements at the processing plants. We were originally anticipating starting up with two continuous miners. We are now ready to start up with three continuous miners. And we're very shortly going to be able to expand that to four and then five.

The great thing about it is we own that equipment and we've been continually making improvements, while we were working through the process to get the relicensing that we embarked on completed, and we're excited to work with the state to accomplish that.

The second facility we have, which we talked about is our McCoy complex. McCoy Elkhorn we acquired in 2016, and we've set this complex up to be extremely efficient today. We have -- the primary focus of this operation will be our Carnegie mines. We have two mines in this region that we are -- one we've already started employing people at work, we're making -- getting ready to prepare this mine to restart. And we're going to continue to make advancements there.

Our second mine, we're going to continue and finish the face upon and bring a contractor in there. The first mine will be company run. It's set up to be a very low-cost operation. And it's set up to be a very efficient, stable operations, not for the next five years, but for the next 20 years, and because of the change and because of the improvements and investment we made in this complex prior, our CapEx to restart this mine is extremely efficient.

It's set up to scale and set up to grow by utilizing just a streamlined footprint. It doesn't need to be the biggest complex in the world that just needs to make money and produce great jobs and stable jobs so that the workforce can feel comfortable that they're going to have a job for the long term, and that's where this is set up.

But more importantly, the McCoy Elkhorn complex can continue to scale and continue to ramp up as well. We have other mines in the region that we'll look at. But we look to pull forward this complex. And we'll provide additional guidance here in the next few months when this complex will restart. We think it's going to be earlier than what we've initially anticipated due to the market demand for this product and the quality of this carbon that we produce from here.

Our third complex, we've seen great demand from and great interest in from potential partners and potential ways to expand and increase the accretiveness of this operation. This is our Wyoming County complex in West Virginia. We've had a very strong relationship with the West Virginia government and the ability to upbring this complex online in the West Virginia community.

This mine is a -- it will be two brand new deep mines that we put into production here, but more importantly, the ability to potentially partner with third parties to increase the accretiveness of our processing facility as well as our loadout facility. We're continually evaluating that and looking at the opportunities to pull that forward as well, given the strength of the market and given where we see the infrastructure market taking place today.

One thing I want to end with on American Carbon or two things I want to end with on American Carbon is we feel comfortable with our guidance, very comfortable with our guidance. It was typically back ended due to the late season and our customers and the demand we've seen for our product, it has been well above what we initially anticipated from all of our complexes. And so we do feel comfortable with our $55 to $75 million of guidance this year. And we're confident we're going to achieve that.

The last piece we just announced today. As we continue to expand our business, we need to expand our team. And -- but more importantly, we need to expand our team with people that understand the importance of being efficient and being streamlined.

We announced that we hired Bernie Mason to head up our American Carbon division, a fantastic team member, an individual that I've known for many years and understands our culture, most importantly, understands what it means to put people back to work and create stable jobs for this community that desperately need them.

But he also understands that we need to be streamlined. And we're extremely excited to have him lead up our American Carbon. The division is set up to be efficient. It has been restructured and now it's about growth.

And I couldn't name a better individual to ramp up these complexes and get these mines back online quickly, efficiently, and effectively and then continue to scale them thereafter as we see this demand, so that we can achieve what our complexes set up to do, achieve the growth that it's set up to achieve by doubling our revenue every year from the existing asset base that we have for a number of years. And he's a great individual. We're excited about having him on as part of our team.

Our second division I want to talk about is American Metals. American Metals is leveraging our existing asset base. It is leveraging our rail loadouts that we have that used to load out thermal coal. Now we're loading out metal to be recycled in the electric arc furnaces to produce new steel and new infrastructure. It's leveraging an asset base that was run inefficiently before, and that's what our industry -- this industry used to do.

We're going to change that and we're going to continue to ramp up our American Metals business line. We're seeing strength in the steel market. So in the fourth quarter, we stockpiled a lot of steel. And we're going to continue to stockpile fuel and start dribbling it out in the market today because we're seeing strong steel prices. But we also see strong demand in the infrastructure market today that we're going to continue to see better steel prices and continue to take advantage of that.

We're going to reutilize our existing asset bases. And we're going to scrap out this thermal coal industry and utilize the steel to sell it to the electric arc furnaces to make new infrastructure for the green economy. We are the industry, the world is going. We're excited about the division. It has been accretive since day one and will continue to be so.

We aim to achieve anywhere from 5 million to 10 million of revenue a year from this complex over the next two years and continue to keep it as a stable operating cash-flowing entity. And we may look to expand it as we bring in additional partners. We've seen great interest from a number of different individuals -- region as well as outside the region to continue to help us grow this business line and continue to provide that raw steel to the recycled infrastructure market, the recycled electric arc furnace market.

Our third division I want to talk about is American Rare Earth. As we mentioned, we brought in Bernie Mason to lead American Carbon and drive the growth in American Carbon. That frees my time up and other members of our team up significantly to drive innovation and drive commercialization in American Rare Earth. And we're going to do that.

We announced this division in October of last year, and it's got a lot of attention. It's got a lot of attention for good reasons. It's extremely exciting. But more importantly, we've partnered with leading players in the space. We've partnered with, we believe, to be some of the most talented individuals in the space, but also the talented universities that want to see this driven to commercialization.

This is not about research. This is about driving innovation and commercialization in the domestic rare earth industry and doing so in an environmentally positive way, while also making money throughout the process. There is no way to compete against China today with our environmental regulations here in using solvent-based extraction. We don't rely upon that.

We partnered with Purdue University on the chromatography technology. We partnered with Texas Tech and Ohio University on our electrolysis technology. In fact, over the last few years, we've been working on, and we've secured over 15 patents and technologies from five leading universities. And more importantly, we've brought these universities together where they can collaborate and actually work together to create a technology process chain that will be able to go head-to-head on China, on environmental regs, as well as on costs.

And how we do that is by cleaning up the waste of the coal industry and also the utility generation industry, which is where we see a significant amount of critical elements on a parts per million basis. On top of that, we've also licensed the technology from Purdue University, where we can recycle lithium-ion batteries using chromatography. And we can recycle existing permanent magnets by breaking the magnets down and then separating the elements through chromatography to be able to reuse those elements effectively and efficiently.

What we've established and what we talk about is our technology process chain, which we define as capture, process, and purify. Capture is exciting in itself. It's cleaning up waste streams around cold countries. It's cleaning up waste streams around the utility generation industry where we see a very strong [parts per million].

But more importantly, we're offsetting existing cost that we either experience as a carbon producing industry or on the coal industry side where these waste streams are producing these elements that are leaching out through highly -- through acidic waters, and we're able to recapture them and also improve the water quality, so that what is discharged by these previous mining operations is a better quality.

Our process technology is game changer. It's between process and purify. I don't know which one I'm more excited about. It kind of sits on a daily basis. But the teams that we've put in place on process and purify will enable us to be extremely successful in this industry and extremely successful in producing the domestic rare earth products and really make United States energy independent. We're not today. We rely on China for 85% of the electrification market.

Electric vehicles are not produced without relying on China today. We can stop that. As an industry, we can stop that. And we are excited about the other players in the industry that are also working to achieve this. We need ot. We need the supply chain. And we're going to lead that supply chain. Our process technology through electrolysis will enable us to not only capture critical elements through waste streams, but also capture critical elements through fly ash.

Fly ash is a product that is -- very small percentage of it is sold into the concrete market today. The rest of it is stockpiled in landfill because there's too many elements and too many particulates and too much carbon in it. Our electrolysis technology developed by Dr. Gerry Botte, who is on our -- is a Board member of our company today, is -- can truly revolutionize how fly ash is treated and we're working with.

We've already had conversations with four major utilities about how we can utilize this technology to improve fly ash to be able to sell it to the concrete market, strip out the carbon, so it can be sold and then strip out the elements, so we can process it through our chromatography technology. And we believe this process technology will not be a cost [center] in our business.

We'll actually be able to make money, while incurring the process, while actually stripping out the critical elements, which is why we initially embarked on it. But at the same point, field produced fly ash will go to the concrete market. With coal-based utilities shutting down, there's a shortage of fly ash today. And it is going to continue to be a significant shortage because we believe more coal utilities are going to shut down.

And so our ability to go into these landfills and process this fly ash to create high value products within our technology process chain will be a big game changer for our company because we can then compete on cost against -- across the entire scope and be able to get the elements effectively for free by making money on the fly ash, by making money on the carbon, and also clean up massive landfills that are needed to be cleaned up from an environmental perspective.

Our purify technology, the last point on process, we've announced that we are working towards commercializing this technology. In the very short order we will be coming out with news about where we're going to build this first facility, who's going to help build it for us, and the team that we're building out there, and we're excited about that. We're excited about providing that news in a very short order here.

On our purify technology, we license this technology from Purdue in concert with a gentleman named Dan Hasler. Dan, very accomplished in himself, and at the same point, what Purdue has developed with chromatography is phenomenal. As we announced, we licensed this, we also brought on an individual named Bill Smith, and he has led this charge of chromatography and manufacturing at Eli Lilly for many, many years.

We brought him in to build the facility -- design the facility, build the facility, and help us operate the facility here in Indiana. And we're excited about the progress we're making there. We're in the middle of site selection. Between the process technology, our CapEx, we're looking at spending on the initial facility less than $1 million to showcase what it does on fly ash and waste product.

No different than chromatography, our initial facility, we have a budget of less than $1 million to be able to showcase how the technology works, and how it actually will generate revenue, and it will generate revenue in that process at the same point.

We're in the final site selection phases of this with the goal of having this facility breaking ground in the second quarter, no different than our process technology with electrolysis and continue to build it out and continue to expand it, build them in a way that we can continue to ramp these facilities up and deploy more capital as we showcase the success of it to continue to expand our revenue base.

As I mentioned, the feedstocks that we're producing through our American Rare Earth division are typically waste streams, are waste products that can be recycled and reused. When Nucor set out to create their business, they saw an opportunity in the steel industry. They saw an opportunity to recycle existing steel to make products for the steel industry. And today, I believe they are one of the largest, if not the largest steel producer in the United States.

That's how we see the rare earth division. We're able to -- and the critical element division for that matter, the need for lithium-ion batteries, the need for permanent magnets, and the need for the elements itself to go into the electrification market for windmills and for all the different variety of products we can go on forever about what you use these products for is robust and is continually growing.

There wasn't a market 10 years ago that enabled this industry to be successful because China can control it. Today, they cannot do that. The market demand is going to be too high, and it is too high for them to continue to control this market.

More importantly, we can compete against costs. We're able to take acid mine drainage, utility, fly ash, waste magnets, waste batteries, and we're able to recycle these and improve the quality of these, so that at the end the day we can produce these high-end products to go into the electric vehicle, to go into the windmills, to go into the electrification market in general to be able to make in the United States energy independent.

And we're excited about working with other people in the space to be able to accomplish that same goal, continue to collaborate, so that at the end of the day, our country can succeed on the electrification market and can showcase what American innovation can lead to.

The last component -- the last division of our business we announced more recently is American Acquisition Opportunity Corp. (sic - American Acquisition Opportunity Inc.). It's the SPAC that we have sponsored at American Resources level, so that all investors can benefit from the sponsor economics, from retail to institutional. By invest -- by holding American Resources, you're effectively sponsoring this SPAC.

And we're excited about the direction of where it's going and why we did it. It's on track to price the IPO at the end of March, and we are confident in the timeline, and we're very confident in the progression of the SPAC itself.

What the goal of this SPAC is and why we sponsored the SPAC wasn't necessarily just because we wanted to sponsor the SPAC. It had nothing to do with that. It had to do with the fundamental opportunity that we saw. The ability to sponsor a SPAC, to acquire a land and resources company, of which we saw the same vision with our carbon division.

These land companies are inefficiently run. They haven't adapted, and honestly, they turn slower than the Titanic. And as you see, the green infrastructure market moving quickly and aggressively, land companies haven't done that. They typically monetize one or two of their resources and they leave the rest to sit there and do nothing with. We see a vision and we see the opportunity.

Over the last five years, we've seen many opportunities to buy land and they made sense. Fundamentally, they would have been good opportunities for us. That being said, it's not our mandate at American Resources to invest all of our capital to buy land when we can continue to drive innovation and drive the value of what we're doing today.

Now when you turn the sponsor economics into it, it makes sense, and it made a great deal of sense. With the number of opportunities that we see on a daily basis and the opportunities we see to take these land companies and drive innovation and drive the green infrastructure market on top of them, it's an immense opportunity for our company. And we're going to execute upon that.

And we're going to execute upon it quickly. The ability to buy an asset, making money and then bring in that green infrastructure market, bring in our rare earth technology, bring in partners that want to build [solar], want to build wind, want to build recycling facilities, right on top of this existing land and leverage the cash flows significantly, reduce the cost structure of what these land companies operate under today.

There're way too many people to do what they're doing. And at the end of the day, bring these people in and hire people to drive the innovation side of it, to drive it more effectively and more efficiently and quicker. And that's what we're looking at doing. We're looking at a number of opportunities, and we're extremely excited about where it's going.

I'd like to turn the call over now to Kirk Taylor to talk a little bit about what we've seen from the financial side of our business, the balance sheet positioning for our growth, and we're excited about where we're at. And I'll leave it to Kirk.

Thanks, Mark, appreciate that. Beyond our operational overhead efficiencies that we drove during 2020, we also greatly enhanced the efficiencies of our accounting and reporting efficiencies. The back office is the backbone of our company. It enables us to build scale quickly and efficiently and be nimble throughout all of our processes and all of our integrations. It also enables us to release our earnings fast as we've ever been able to. We're -- our team has been very proud of that. And we look to continually, efficiently communicate with our investors on a more timely basis.

We also attacked our financial overhead. We did that in three ways during 2020. We created and offered a convertible debt offering in April, and I'll talk about the results of that in a minute. We were able to do in October a straight common equity drawdown from our S-3. It enabled us to give us all the capital we need to execute on the plans that Mark just laid out. And the third way we attacked our financial structure was that our warrants started exercising, and I'll talk about that briefly, too.

So we have a few components from balance sheet restructuring. The convertible note offering allowed us to raise both new capital as well as reposition existing debt in a more company friendly terms. We've also seen most of the convertible debt convert into equity, removing the overhang of having to pay principal interest on top of operational costs.

Right now, our debt -- our amortized -- our true amortizing debt amounts to about $14 million and 80% of that is held by long-term investors of the company. We feel very aligned with both our debt holders and our shareholders. As I mentioned in October, we were able to do straight common equity of our available S-3 shelf offering over $13 million we're able to raise, strengthening both our financial position currently and also position us for great growth this year.

We've also had significant amount of warrant exercises, over 3.5 million warrants exercised last five months, bringing an additional $3.7 million of funding to the company. Currently, our shares outstanding are 50 million -- 50.8 million Class A common. We only have one class of common stock outstanding, which means that we're all aligned together on this mission.

We've had approximately $20 million of debt convert into equity. This again allows our capital to go into expansion, into growth, and not just paying debt service for prior investments. These three things have put us in a fantastic position.

We now sit with a very strong balance sheet, very clean capital structure, the strongest we've ever been as a company and likely the strongest in the industry. Both from an operational excellence standpoint as well as a financial excellence standpoint, we're poised for that 2021 growth that Mark just laid out.

Mark, let me kick it back to you for a summary and then some Q&A. I think, do we want to go to Q&A first?

Yes, we'll go directly to Q&A.

(Operator Instructions) Steven Segal, KBB Asset.

Hi, Mark, and the rest of the team. Just wondering with the -- for the fly ash market I was reading about recently that it's more of a regional market and what will your electrolysis mean to the fly ash market you think as far as pricing because I thought prices have been going up recently?

Yes. Thanks, Steve, and I appreciate you. Thanks for joining. Electrolysis is extremely excited for the fly ash market. One is fly ash itself is used in the concrete market or the product that can be used in the concrete market, a lot of fly ash isn't able to use because there's too much carbon and too many elements in it.

Our fly ash technology built by Dr. Botte enables the separation of those products that you can actually monetize the fly ash itself and why we've seen so many interests from the coal-based utilities in the prior coal-based utilities, for all the landfills fly ash there is they have to maintain and treat those. We're able to go in there and strip out that carbon to create a usable product.

And it's a big deal. I mean, like you said, you're seeing fly ash prices increase because these concrete manufacturers are struggling to find supply, and that's going to compound significantly over the next five years. And so it's -- and the nice thing about it is the regional locations of where we're looking are right around the concrete market as well.

I mean, we operate in -- coal-based utilities are typically in industrial areas. So the ability to strip out this carbon and strip out these elements, which really become the by-products, we're able to sell the fly ash and make money on it. It's not something we forecasted in our revenue lines over the next few years, but it's going to be a very big deal for us.

And I think we'll be able to continue to capitalize, especially as you see the fly ash market continue to improve. But overall, we'll continue to provide more clarity on that, especially as we deploy our first facility, which we'll talk about here publicly in the next few months.

And then the other question I had on it was does it make concrete better, if they have it, stronger?

Yes, it does. I mean why they use it is it's a great binder and a great filler within the concrete itself. And I mean, especially if you have a high-quality. So if you have too much carbon in it, it creates -- it actually accomplishes the negative. It doesn't work.

But with our technology, we're able to -- our electrolysis technology utilizes the carbon and strips out the carbon in an environmental way that makes it a very high-end product, which will increase the value, which really will increase the value of our partners when they acquire the fly ash from us because they're buying a very pure product from us.

Okay. Thank you.

Thank you.

Thank you. (Operator Instructions) Thank you. At this time, I'll turn the floor back over to Mark Jensen for closing remarks.

I want to thank everyone for joining. I know everybody's got a lot of things going on in their days and they can choose to do something else than they could listen to us. We're passionate about where we're going. We're aligned on where we're going with our shareholders. We're aligned where we're going with our stakeholders and making -- creating jobs and helping the communities, which we operate to be more efficient and more effective.

And with that, we're disrupting this industry and we're going to do it in the positive way. We're going to create a lot of jobs in the community, but we're also generally to -- we're focused on generating stakeholder and shareholder value effectively and efficiently.

We look forward to providing a lot of communication here in the near future about where we're going and how we're going to get there and continue to show our execution and hitting our timelines of what we set out to achieve, in terms of hitting our guidance as well as ramping up our rare earth business and our critical element business effectively and efficiently.

We look forward to providing that communication with you. And we thank you for joining today and look forward to talking further.

Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.