Company Overview
American Resources Corporation (NASDAQ:AREC) is a diversified natural resource company with a unique focus on the critical minerals and rare earth elements (REEs) supply chain. The company has undergone a remarkable transformation, transitioning from a traditional coal mining operation to a leading innovator in the extraction, processing, and recycling of these vital materials.
Company History
American Resources Corporation was originally formed in 2013 as Natural Gas Fueling and Conversion Inc., with the initial goal of constructing and managing a chain of combined gasoline, diesel, and natural gas fueling and service stations in the Miami, Florida area. The company also aimed to construct conversion factories to convert natural gas to liquefied natural gas and compressed natural gas, as well as retrofit vehicles to run on natural gas.
In January 2017, the company executed a Share Exchange Agreement with Quest Energy Inc., a private company incorporated in Indiana in 2015. This transaction resulted in Quest Energy becoming a wholly-owned subsidiary of American Resources Corporation, allowing the company to acquire coal mining and coal processing operations primarily located in eastern Kentucky and western West Virginia.
Business Segments
American Resources Corporation operates through several subsidiaries focused on acquiring, rehabilitating, and operating various natural resource assets. The company's operations are divided into three main segments: Coal Mining and Processing, Metal Recovery and Sales, and Critical and Rare Earth Elements.
Coal Mining and Processing
The company's core business is its coal mining and processing operations, primarily located in eastern Kentucky and western West Virginia. American Resources operates through several subsidiaries, including McCoy Elkhorn, Knott County Coal, Deane Mining, and Wyoming County Coal. These subsidiaries control coal deposits that are generally comprised of metallurgical coal used for steelmaking, as well as high-BTU, low-sulfur, low-moisture bituminous coal used for industrial and specialty products.
McCoy Elkhorn, the largest of the coal mining subsidiaries, operates three mines - Mine 15, Carnegie 1, and Carnegie 2 - and two coal preparation facilities, Bevins 1 and Bevins 2. The coal from these mines is primarily sold to domestic and international steel producers as a high-vol B coal or blended coal. Knott County Coal and Deane Mining currently have their permitted mines idled or in various stages of reclamation, though the company maintains these assets for potential future production. Wyoming County Coal holds permits for two idled underground mining operations and the idled Pioneer Preparation Plant in West Virginia.
It's important to note that since mid-2019, American Resources Corporation has not mined or sold coal which is sold into the thermal coal markets, instead focusing all production and future investment on the mining of metallurgical coal used in the steel and specialty markets.
Metal Recovery and Sales
American Resources has established a subsidiary, American Metals LLC, focused on the recovery and sale of recycled metals and steel products. This segment is expanding its operations and is also developing strategies to pre-process rare earth and critical minerals, in addition to continuing its steel recycling business.
Critical and Rare Earth Elements
The company's flagship subsidiary, ReElement Technologies LLC, has developed an innovative, multi-mineral refining platform capable of separating and purifying a wide range of critical minerals, including lithium, cobalt, nickel, dysprosium, terbium, neodymium, and praseodymium. Importantly, ReElement's technology is not only highly efficient but also environmentally sustainable, utilizing a chemical-light process that minimizes the environmental impact compared to traditional hydrometallurgical methods.
One of the standout achievements of ReElement Technologies is its ability to economically separate and refine heavy rare earth elements, a significant challenge in the industry. This capability positions the company as a unique player in the market, able to produce a diverse range of high-purity, critical minerals that are in high demand for applications ranging from electric vehicles and renewable energy storage to defense and aerospace systems.
Strategic Developments
In 2024, American Resources Corporation took a bold step, spinning off the majority of ReElement Technologies and its American Infrastructure division (focused on metallurgical carbon and iron ore production) as separate public entities. This strategic move was aimed at unlocking shareholder value by allowing each business to focus on its core competencies and pursue growth opportunities more effectively.
Financials
The company's financial performance has faced challenges in recent periods. In the latest fiscal year, American Resources reported annual revenue of $16.74 million, a net loss of $11.45 million, and negative operating and free cash flows of $14.52 million.
For the most recent quarter, the company reported revenue of $235,440, representing a significant decrease of $5.57 million compared to the same period last year. This decline was largely driven by a $16.12 million reduction in coal sales, as the company's mines remained idled for much of the period due to market conditions. The net loss for the quarter was $9.21 million, an increase of $6.85 million compared to the previous year.
Breaking down the revenue by segment, the coal mining and processing operations generated $333,560 in revenue for the first nine months of 2024, a significant decrease from the $16.68 million reported in the same period of 2023. The metal recovery and sales segment, through American Metals LLC, generated $187,500 in revenue for the first nine months of 2024, up from $60,150 in the prior-year period.
Despite these challenges, the company's focus on the high-margin critical minerals and REEs business through ReElement Technologies has resulted in a significant improvement in its financial outlook. ReElement Technologies booked revenue of $150,000 in the third quarter of 2024, a relatively small figure but one that is expected to grow exponentially as the company ramps up production at its Noblesville, Indiana facility and the upcoming Marion, Indiana Advanced Technology Center. The company's order book for 2026 currently represents an estimated $75 million to $100 million in potential revenue, highlighting the strong demand for its products.
Liquidity
As of the most recent reporting period, American Resources Corporation had a debt-to-equity ratio of -4.20, indicating a high level of leverage. The company reported cash and cash equivalents of $2.67 million. The current ratio stood at 1.93, while the quick ratio was 1.89, suggesting that the company has sufficient short-term assets to cover its immediate liabilities.
American Resources' strategic partnerships and investments have further strengthened its position in the critical minerals and REEs supply chain. The company's joint venture with Novare Holdings to develop integrated refining facilities across Africa, as well as its collaboration with LVC Global Holdings to establish "ReElement Middle East," demonstrate the company's global ambitions and its ability to capitalize on emerging opportunities.
Management
The company's management team, led by Chairman and CEO Mark Jensen, has played a crucial role in guiding American Resources through its transformation. Jensen's deep industry experience and vision for the company have been instrumental in positioning it as a leader in the critical minerals and REEs space.
Challenges and Outlook
While the company has faced its share of challenges, including the need to re-audit its subsidiaries due to the disbarment of its previous auditor and the significant decline in coal sales, American Resources has demonstrated its resilience and adaptability. The company's commitment to innovation, environmental sustainability, and strategic partnerships has positioned it well to capitalize on the growing demand for critical minerals and REEs globally.
Looking ahead, American Resources Corporation has provided qualitative commentary on their expectations and plans for different business divisions:
For ReElement Technologies, the company is currently producing rare earth elements and battery materials for customers out of their customer qualification plant in Noblesville, Indiana. They are in the process of ordering equipment for their larger 400,000 sq ft facility in Marion, Indiana, which they expect will become a major producer of separated and purified rare earth oxides as well as lithium carbonate. The company expressed confidence that ReElement's revenue growth will start to be more substantial in 2025 as they continue to scale up production.
In the American Infrastructure (Metallurgical Carbon) division, the focus is to transition into more of a royalty-based model, capturing top-line revenue royalty streams from their high-quality assets. The company stated that their contractors are expected to start production imminently.
For American Metals, the company mentioned that this division has advanced and is developing strategies to pre-process rare earth and critical minerals, in addition to continuing its steel recycling business.
In conclusion, American Resources Corporation is a unique and compelling investment opportunity in the critical minerals and rare earth elements sector. With its innovative technology, diverse product portfolio, and global expansion plans, the company is well-positioned to disrupt the traditional supply chain and play a pivotal role in securing a sustainable domestic and allied supply of these essential materials. As the world continues its transition towards a more electrified and technologically advanced future, American Resources Corporation stands out as a company to watch in the years to come, despite the current financial challenges it faces in its legacy coal business.