American Resources Corporation is a company that has undergone a remarkable transformation from a coal mining operator to an innovative provider of critical mineral refining solutions. With its diversified asset base and cutting-edge technology, the company is poised to play a crucial role in addressing the global demand for rare earth elements and battery materials.
Business Overview and History American Resources Corporation was originally formed to operate a chain of combined gasoline, diesel and natural gas fueling and service stations in the Miami, Florida area. The company also planned to construct conversion factories to transform natural gas to liquefied natural gas and compressed natural gas, as well as factories to retrofit vehicles to run on natural gas. This initial business model was a significant departure from its current operations.
In January 2017, a pivotal moment occurred when ARC executed a Share Exchange Agreement with Quest Energy Inc., a private company based in Indiana. This transaction resulted in Quest Energy becoming a wholly-owned subsidiary of ARC, allowing the company to acquire coal mining and coal processing operations primarily located in eastern Kentucky and western West Virginia.
Through its Quest Energy subsidiary, later renamed American Carbon Corp, ARC was able to acquire seven coal mining and processing operating subsidiaries between 2016 and 2020. These subsidiaries, located in the Central Appalachian and Illinois coal basins, mine and process metallurgical coal used in steel making as well as high-BTU, low sulfur bituminous coal for industrial and specialty products.
In 2019, ARC shifted its focus away from thermal coal markets and began efforts to diversify its revenue streams. The company established additional subsidiaries, including American Metals LLC focused on metal and steel recovery and recycling, and ReElement Technologies LLC focused on the aggregation and monetization of critical and rare earth element deposits. It's worth noting that the coal deposits controlled by ARC have not been classified as proven or probable reserves, and the company is still considered to be in the exploration stage for these assets.
Over the years, the company has continued to evolve, expanding its footprint in the coal industry while also diversifying into new business segments. In 2020, the company established its American Metals division, focused on the recovery and sale of recycled metals and steel. More recently, in 2021, the company launched its ReElement Technologies division, which has become the primary driver of the company's growth and strategic direction.
ReElement Technologies Pioneering Critical Mineral Refining ReElement Technologies, American Resources' wholly-owned subsidiary, has positioned itself as a leading provider of high-performance refining capacity for rare earth and critical battery elements. Through the acquisition of proprietary technologies from Purdue University, ReElement has developed a unique and efficient approach to refining a wide range of critical minerals, including rare earth elements, lithium, cobalt, and nickel.
The company's hybrid business model combines the development of its own commercial facilities, such as the Noblesville Customer Qualification Plant and the upcoming Kentucky Lithium Complex and Marion Advanced Technology Center, with its "Powered by ReElement" offering. This asset-light approach allows ReElement to deploy its technology and expertise at partner facilities, reducing capital expenditure requirements while rapidly scaling its reach.
ReElement's technology has demonstrated the ability to produce high-purity rare earth oxides and battery-grade materials at a lower cost than China, the current global leader in critical mineral refining. This capability is crucial in addressing the growing demand for these essential materials, driven by the global transition to electric vehicles and renewable energy storage.
ReElement is positioning itself as a world leader in deploying efficient, low-cost, and environmentally safe critical mineral refining capacity outside of China. The company is targeting over $10-20 million in capital raises from "Patriotic Capital Funds" at a significant premium to the current stock price. ReElement expects to start producing rare earth oxides and lithium products from the Marion and Kentucky facilities, although specific timelines were not provided.
Financial Performance and Liquidity American Resources Corporation has reported mixed financial results in recent years, with significant variations in revenue and profitability. In the most recent fiscal year (2023), the company reported revenue of $16.74 million and a net loss of $11.46 million. Operating cash flow (OCF) and free cash flow (FCF) were both negative at $14.52 million.
The latest quarter (Q2 2024) showed a significant decline in financial performance, with revenue dropping to just $4,090 and a net loss of $6.62 million. OCF was negative $5.09 million, and FCF was negative $5.47 million. This decline was primarily driven by a reduction in coal sales, metal recovery, and royalty income.
For the six months ended June 30, 2024, AREC reported total revenue of $98,110, down significantly from $10,870,000 in the prior year period. This decline was primarily driven by a $10,400,000 decrease in coal sales. Operating expenses for the six months totaled $12,730,000, down from $21,140,000 in the prior year, with the largest decreases in cost of coal sales and processing, development expenses, and production taxes and royalties.
In terms of liquidity, as of June 30, 2024, American Resources reported cash and restricted cash of $169,550,000, up significantly from $36,680,000 at the end of 2023. The company's debt-to-equity ratio stands at -4.58, calculated as total debt of $57.83 million divided by stockholders' equity of $0.22 million. The current ratio is 1.93, and the quick ratio is 1.91, indicating a relatively strong short-term liquidity position.
The company has stated that it does not foresee the need to issue equity at the parent company level, instead focusing on subsidiary-based financing to fund the growth of its ReElement Technologies division.
Business Segments American Resources Corporation operates through three main business segments:
1. Coal Mining and Processing: This remains the company's primary business, conducted through subsidiaries McCoy Elkhorn, Knott County Coal, Deane Mining, Wyoming County Coal, and Perry County Resources. These subsidiaries operate several coal mines and preparation facilities in eastern Kentucky and western West Virginia, primarily focused on producing metallurgical coal for the steel industry.
2. Metal Recovery: Through its American Metals LLC subsidiary, AREC focuses on the recovery and sale of metals and steel products. This segment generates revenue from metal recovery and sales activities. American Metals is currently in the process of merging with a SPAC (AI Transportation Acquisition Corp) in a deal that values American Metals at $170 million. This SPAC deal is expected to provide capital and enable American Metals to operate as a standalone public company.
3. Rare Earth Elements: AREC's ReElement Technologies LLC subsidiary is focused on the aggregation and monetization of critical and rare earth element deposits. This segment is still in the early stages of development but represents a significant growth opportunity for the company.
Strategic Initiatives American Resources Corporation is pursuing several strategic initiatives to unlock value for shareholders:
1. ReElement Technologies Development: The company is focusing on scaling up its ReElement Technologies division, with plans to start production of rare earth oxides and lithium products from its Marion and Kentucky facilities.
2. American Metals SPAC Merger: The merger with AI Transportation Acquisition Corp is expected to provide capital and enable American Metals to operate as a standalone public company.
3. Spin-offs: The company is working to spin off American Infrastructure and ReElement Technologies as standalone public companies by the end of 2024. American Infrastructure's focus is on leasing out its carbon assets and royalty-based operations, requiring lower capital expenditures.
Risks and Challenges American Resources Corporation faces several risks and challenges that investors should be aware of. The volatile nature of the coal industry, with fluctuating commodity prices and regulatory changes, has posed ongoing challenges for the company's legacy business segments. Additionally, the successful commercialization of its ReElement Technologies division is crucial, as the company's long-term growth and profitability are heavily dependent on the division's ability to scale its operations and capture market share.
Furthermore, the company's reliance on strategic partnerships and joint ventures for its Powered by ReElement offering introduces execution risks that must be carefully managed. The company's ability to navigate these challenges and effectively execute its strategic initiatives will be key to its future success.
Outlook and Conclusion American Resources Corporation has embarked on a transformative journey, pivoting from its coal mining roots to become a leader in critical mineral refining. The company's ReElement Technologies division holds significant promise, with its proprietary technology and asset-light business model positioning it to capitalize on the growing global demand for rare earth elements and battery materials.
While the company's financial performance has been uneven in recent years, with significant declines in coal sales and operating losses during the first half of 2024, the potential of its ReElement Technologies division, combined with its strengthened liquidity position, suggests that American Resources Corporation may be well-equipped to navigate the challenges ahead and unlock substantial shareholder value in the long term.
The company's strategic initiatives, including the SPAC merger for American Metals and the planned spin-offs of American Infrastructure and ReElement Technologies, demonstrate a commitment to unlocking value across its various business segments. These corporate actions, if executed successfully, could provide significant growth opportunities and enhance shareholder value.
Investors interested in the critical minerals and energy transition space would be wise to closely monitor the progress of American Resources Corporation and its ReElement Technologies division as the company continues to execute on its strategic initiatives. While the company faces challenges in its legacy coal business, its pivot towards critical minerals and innovative refining technologies positions it well to capitalize on the growing demand for these essential materials in the global transition to clean energy and electric vehicles.