Good day, everyone, and welcome to today’s American Resources Corporation Second Quarter 2023 Conference Call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question-and-answer session. [Operator Instructions] Please note this call may be recorded and I will be standing by if you should need any assistance. It is now my pleasure to turn the conference over to Mark LaVerghetta, Head of Corporate Finance and Communications. Please go ahead.

Thank you, and good afternoon, everyone. On behalf of American Resources Corporation, I would like to welcome everyone to our second quarter of 2023 conference call and business update. We always welcome this opportunity to provide an update on our businesses and discuss our accomplishments we’ve made over the past several months and how we are uniquely positioned within the markets that we serve for our American Carbon, American Metals, and ReElement Technologies division. Also on the call today is Kirk Taylor, our Chief Financial Officer; Chairman and CEO, Mark Jensen, is currently en route to Africa for meetings relating to lithium ore partnership opportunities. So Kirk and I will provide some prepared remarks, then we will get into the question-and-answer part of the call. Before we kick it off, I’d like to remind everyone of our normal cautionary statement. Certain statements discussed on today’s call constitute forward-looking statements within the meaning of the Private Security 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 statement whether as a result of new information, future events, or otherwise. Lastly, for anyone wanting to ask questions today, I believe you will need to dial in by phone to get into the queue. We are going to begin today with a few comments from our Chief Financial Officer, Kirk Taylor. Kirk?

Thank you, Mark, and thank you, everyone, for sharing a couple of minutes here this afternoon to listen about our Q2 results and business updates. Over the past several months, we have continued our execution on solidifying our strategic positioning within our addressable markets, which we believe positions our company’s for long-term value creation. In doing so, and in conjunction with the direction of our strategic committee, we have embarked on several initiatives to unbundle our unique platform of assets to better unlock value for all of our shareholders and position each entity as a standalone company. I will go into some further detail on each of these initiatives. First, the spin-off of ReElement Technologies. As we’ve previously discussed, our intention is to spin-off our wholly-owned ReElement Technologies division into a standalone public company. This will give its strategic positioning and groundbreaking innovation as a world-leading refining technology platform using our patented chromatography technology to refine critical minerals. This past January, we had filed our Form 10 Registration Statement with the SEC to begin that process. Subsequently, we have filed the necessary amendments to update the financial information and address comments and questions raised by the SEC. All of our filings related to this can be found at sec.gov under ReElement Technologies. And at this time, we have addressed all comments and questions from the SEC. We’ve also engaged a top Tier 1 investment bank to advise us through this process, while also commencing a capital raising process at the subsidiary level. This is to fund ReElement’s initial growth plans as a pure-play next-generation critical mineral refining platform. Feedback and interest from potential strategic investors have thus far been very positive. We expect to have this process completed later this year or early next year, and will communicate our progress…

Thanks, Kirk. I’d first like to applaud our team on another exciting quarter of continued execution in positioning all of our divisions within our end markets while also leveraging our processing and groundbreaking refining technologies into new and exciting markets. We truly sit at a very interesting position with our ability to bring cost competitive refining of critical minerals to our domestic market in the most environmentally safe and sustainable methods ever developed. At no point in our history, has our business been better positioned to serve the markets we operate in and to capitalize on our broad asset base, our talent, and our ability to produce, process, and refine raw materials that are in very high demand. We are extremely excited about the opportunities for all of our entities, and we continue to execute on our strategic plan to unbundle assets to extract value and to better position each division for growth, capital allocation and with separate operating teams. Let’s dive into some of these. First, American Carbon. I will first address the revenue shortfall for this past quarter. As global met carbon market softened over the second quarter, we chose to idle carbon production. Over most of the second quarter, our customers became constrained when taking product due to port logistics and bottlenecks within the supply chain. We believe this was largely a result of the shift in China’s and Australia’s relationship around product sourcing, which created significant shifts within supply chains and the timing of product deliveries. Our ability to idle back production showcases our operational flexibility and also highlights that given our expansion around our ReElement division, we do not want to take unnecessary risks associated with inventory expansion and rather focus on cost constraints. In other words, we chose not to run our mines just…

[Operator Instructions] And we’ll take our first question from Mike Niehuser. Your line is open.

Hey, Mark. Interesting press release as always. Just a couple of questions for you. I’m not quite sure I understand the reduction in revenues on the carbon side, but it sounds like it just made a lot of sense in order to not to be able to maintain a positive cash flow. And my interest – my curious – I’m curious if you’re flexible enough to do that or if there’s any degradation to the assets by such a significant swing in pausing production or slowing?

Hey, Mike. Well, first, appreciate your questions and all of your support. Hope you’re doing well. So…

Yes, thank you.

The first answer on the degradation of assets, no, we don’t believe there’s any degradation. I think from how we’re positioned within all of our businesses, and we look at the overall platform and taking a conservative approach for the business. And as I mentioned earlier on the call, we weren’t just going to produce through a, what we view as a blip in the supply chain, given we’re relatively in the – on a global landscape, we’re relatively small producer of met coal, met carbon. Our customer base is somewhat limited and we have good customers. However, we weren’t going to sacrifice the overall execution of all of our platforms, including ReElement Technologies, just to put inventory on the ground. Our customer, our main customer became constraints, just given some of the supply chain dynamics. So we chose not to overextend ourselves, dial back on production, focus on continued execution. We continued to assess a variety of options that came out in front of us. We executed an LOI to sell our Deane Mining Complex. As we just mentioned, we’ve received multiple LOIs in all of our assets. We closed on our Wyoming County tax-exempt bond issuance. So our execution was still head down driving forward. But from a capital standpoint and from an overall risk profile, we weren’t just going to spend a bunch of money to put inventory on the ground just given the execution that we’ve – that we continue to have on the ReElement side of the business. I hope that makes sense for you.

Absolutely. Thanks for the answers. Sorry just to dive into the question. But – so it sounds like you’ve got the flexibility where you can do that between the Carnegie mines and et cetera. And I guess, it’s interesting that there’s just a flurry of activity between Deane and Perry and Wyoming County and these LOIs. What sparked all those things to come to ahead this quarter? Is it just coincidence? Or a lot of these things been worked on for six to 12 months? Or is there something in the environment that’s causing this to happen right away? The reason I’m asking is I’m going to try to get an indication of where you’re going with this side of the business. Obviously, you can answer.

Sure. No. Well, I think it’s – you can read between the lines. I don’t think it’s a secret. I think we’re – as we’ve said, we’re steadfast and focused on monetizing our assets, and that includes selling of specific assets or all of those assets. I think the closing of our – of the tax-exempt bond issuance are fully capitalizing that as one of the last virgin boundaries of mid vol met carbon in the Appalachia region, brought back some parties to take a better look at our carbon platform. Additionally, we press release that we received a – an unsolicited bid coming out of the gate post the closing of that bond issuance. I think that had – people that were kicking the tires on the platform of looking at certain assets to get more aggressive with them. And you’ve seen it in the marketplace today and why I mentioned earlier on the call, the Cliffs bid for U.S. Steel. I think, where we sit in this cycle of the commodity cycle is, folks are very focused on supply chain resiliency, sourcing their feedstocks for global steel production and vertically integrating. Cliffs have done a great job of it. They’re a great example, and they continue to be aggressive in the market. I think that’s part of it as well. I think it’s a macro trend of producers in the global steel markets looking at vertically integrating their supply chain and sourcing material.

Well, I know that the quality of the Wyoming County is something else. And so, I think that gives us kind of a clue as to how others might be looking at you for that supply chain resiliency. So that’s a good – another good answer, Mark. Also, before I forget, congratulations to Taylor, really a competent hands on big picture guy. So I think this is great for him, but be careful what you want. And on shifting – oh, go ahead.

No. Well, I appreciate that. I’m sure Taylor appreciates that. And you’ve, like I said, we appreciate your interest. And I know you’ve spent – you spent a good part of the day with tireless, touring our assets.

He’s the man.

Yes.

So on the lithium side, could you just define – I’m not the lithium guy at ROTH, but what is manufacturing scrap for lithium? I that from I guess, what’s left over on the cutting room floor at a battery shop? Is that what that is?

Yes. I think, at a high level best way to explain it and I said it earlier, we – from our perspective, we believe the energy storage market, and it depends on the application, whether it’s just general energy storage, electric vehicles, small power tools or things like that. Everybody uses a different battery. Your cell phones using LCO typically or your laptop using LCO battery chemistry. EVs have kind of been a mix between NMC, nickel, manganese cobalt, and LFP lithium ion phosphate. It’s migrating more towards LFP, in our opinion, just given the – you don’t need the nickel cobalt, which are high price commodities that go into the chemistries of an NMC, lithium ion phosphate, the lithium is relatively valuable. Iron phosphate carries less of a value. So the inputs on that – the difference between the two is the energy density. NMC can carry a higher energy density, but as we state, battery technology continues to evolve at a rapid pace. And you’re starting to see good energy density in LFP, it provides a little bit better safety characteristics as well. So the market is migrating more towards that as the energy density, safety, and less expensive feedstocks that go into the production of an LFP battery chemistry. So you’re starting – you’ve seen Tesla announced LFP giga-factories, Ford is, in the like. So EV is definitely migrating more towards an LFP battery chemistry. And when you’re manufacturing cathodes or batteries, there’s a lot of waste. It’s a messy process. When you spray coat your cathode material, you trim it for sizing, there’s a lot of waste in the process. I think it’s estimated there’s about 20% waste currently. I know battery manufacturers want to reduce that. But they’ll not – our understanding is they’ll never get to zero and trimming it to very low levels is going to be very hard just given the inherent capability. So there’s a lot of scrap material that goes into the process. Our ability to take that scrap and recycle it back and into high purity forms, having the ability to modulate and co-locate with certain parties gives us a very strategic advantage of when you’re looking at domestic manufacturing because logistics matter, input prices matter and we’re able to reduce that, able to do it in a collaborative manner to reduce the cost structure for everybody. And that’s key when we’re competing head to head with China and the Asia Pacific region on shoring manufacturing.

So this goes along with the theme of that you can pretty much take not anything, but pretty much anything. And regardless of what kind of waste it is from different kinds of batteries, in conditions sprayed left out in the rain, whatever it is. If you have a basic understanding of your feedstock, you’re able to purify it, so that none of it goes to the minimal amount as possible goes to the dump. I think that’s what I’m taking away here. And I guess it depends on, you just prove that you can do it just a matter of finding the right partner at the right place and such. So that’s what I drive into that.

Yes. You’re right. Auto manufacturers are highly focused on all of that, reducing the total amount of waste that come out from any of their production. Our ability to do that, we provide very efficient solutions for us, typically in the recycling process, you can only go after NMC because you need that nickel cobalt value to justify your cost structures. For us, it showcases how low our cost structure is. We can extract the lithium very effectively, very cost efficiently in a low-cost manner and very high purity form, at commercial scale from LFP battery chemistry. Again, we’re the only ones that we know that have been able to showcase that.

Okay. So along those lines, you’ve got a shipment of spodumene coming from Africa. How soon do you think you’re going to be able to tackle that? And is that going to kick off marketing to lithium mining companies as they seek to upgrade their lithium with maybe what could become a standardized process in the industry? Is that – what’s the timing on that?

Yes, it’s a good question. I think timing is always hard to predict just given counterparty’s timelines. But what I think you can take away from it is our ability to refine lithium very effectively from manufacturing or scrap or end of life whether it’s LFP or NMC or if it’s the input, the feedstock input is ore-based virgin spodumene ore it really doesn’t differ from a technology perspective. It’s very, very similar from a cost structure and purity perspective. We look forward to communicating our milestones of purifying lithium coming from natural occurring ores. We have our process lined out. We know what our technology capabilities are. We’re fine tuning those today, and I think we’ll be in a position here in the short-term to communicate those milestones. And then, right, as you think about it, I think, well, it hasn’t been – it’s already begun. The reason Mark Jensen is not on the call today is because he’s visiting some of our partners and looking to expand some of our partnerships abroad to source those raw materials, those natural lithium-based stores to bring in. And again, it showcases our technological advantages of purifying that lithium ore into high purity carbonate or hydroxides form what the battery industry really needs.

Well, just a question for modeling for me. As far as, like, either revenues, et cetera, on the ReElement side with the rare or sort of the lithium with what you just mentioned or with the carbon assets, with everything that’s going on there, narrowing activity there, should we just assume that it’s market dependent production there. And as you move closer to be able to start Wyoming County in earnest, there’s going to be a couple of quarter slump in revenues as things come back into place and you sort out some of these sale agreements. It looks like there’s a lot going on.

There is a lot going on. I think from the press release today, I think there’s some decent value that we’ve tried to showcase that the market is putting on our carbon assets, right? We talked about earlier on the call and in the press release. We believe our platform of carbon assets is very attractive given the hard work and restructuring efforts that we’ve taken place. And I think the market is looking at that as a valuable asset, a very valuable growth asset we’re seriously considering all options. But I think the fact that we put that on the front page, we’re moving towards certain divestiture options. But, again, we’re only going to make decisions that are in the best benefit of our shareholders.

Well, in the meanwhile, how soon could Wyoming County move into something respectable as a startup of the existing infrastructure with the additional opportunities, et cetera?

Yes. We’ve started some of that early development over at Wyoming County. I think sometime next year, we would be in position to start getting some development production started over there.

Meaningful. Yes. Okay. And as far as, like, revenues from ReElement or the lithium, too early to tell when we might start seeing revenues?

And I think one thing to consider as this entire infrastructure here in the United States gets stood up, right? There’s very little that’s being produced today. There’s not a whole lot of magnet manufacturing that’s being produced in the United States, but we’re partnered –we have partners with two of the three we’ve heard of a fourth with grand plans to put magnet manufacturing here in the United States. We’re in discussions with them. But currently, today, very little rare earth centrifuge on the manufacturing happens. Same with giga factories here for energy storage and battery production. So we continue to stockpile product. We continue to run our pilot programs where you’ve been at our facility. We’re running our facility much more frequently in a batch process. A lot of times, we’re taking that purified product and showcasing it back to our potential partners or pilot program partners that we are nurturing into full commercial partnerships. We think that’s more valuable than dropping a few kilograms into the marketplace showcasing the efficacy of our technology and putting up really sound commercial partnerships is probably what suits us best currently.

Yes. Well, inquiring mines want to know. But one last question, and I’m sorry for hogging the Q&A. But could you just make a couple of comments about your facilities? It looks like things are starting to take shape as far as capacity and co-locating. And I’ll just step off the call, but thank you for taking my questions.

Yes. Well, we currently, as we’ve talked about in the past, our Noblesville, Indiana facility is currently running. It’s really an R&D center, but just given the technological advantages of chromatography, we can actually run good throughput through that facility. We’ve talked about our expansion up in Marion, Indiana, 42-acre campus, building that out with much larger scale, capacity, initially. Initially, we’ll look to build that capacity out of 2,000 tons of output of pure rare earth oxides per annual, as well as…

How many tons did you say?

2,000 tons of purified rare earth oxides per year on the rare earth side and on the critical minerals side. Again, it’s a little bit harder to model on the battery side of things based off of the variety of inputs, the quality of the inputs, the different chemistries of the inputs, but we’re building that out to be about a 5,000 per year of high purity lithium carbonate, 5,000 tons. And a third of that was, let’s just say recycled NMC, chemistry from a black mass perspective, from an input, that would equate to about 3,000 to 3,500 tons of a mixture of nickel and cobalt sulfates. And then we currently are looking at advancing lithium preprocessing in Eastern Kentucky.

Right. Thank you for – don’t forget that. Okay. Well, I’m done, and congratulations. Things are actually starting to take shape, continue to….

Thanks, Michael.

Thanks, Mark.

[Operator Instructions] We’ll take our next question from Michael Samuels with Fisher. Your line is open.

Yes, Mark. I just have a couple of questions. Number one, when I was looking at your current quarter, why was your cost of coal sale and processing, it went up almost a $1 million this quarter, but yet our sales went down $14 million. So how was that so high? That was one thing. And the other question I had – another question I have too is, you announced the buyback some time ago. Did we buy any shares back in the last – this year so far?

Two points. Kirk, do you want to maybe jump in on the cost of coal processing?

Yes. And so it’s just – it’s a timing aspect really to when you capture inventory costs, when you take it off of your balance sheet and expense it through the P&L when the coal is sold through that we should see that evening out over the next quarter. Our coal shipments are fairly chunky. So if you have one large shipment the day before or the day after the quarter, it can provide some more impactful inventory cost swings. So as you look at that over three, six, nine, 12 months, you get more of an even picture. Regarding a share buyback program, we did announce that the strategic committee is one of the points that they brought up. As we discussed, on the year-end earnings call, we did buy back shares during the end of 2022. But we have not disclosed or bought back any during 2023.

I mean, I’m looking, you’re saying you’ve got this letter of intent. And we’ve had letters of intent, letters of intent, and you’re saying that could be worth like $3.83 a share. And just so happened to be watching us talk in the after hour here and the stock just continues to go down, down, down, down, down. And so at a $1.60, you would think you would at least be looking at a buyback if you’re going to get $3.83 from just that. And then the other question I had is, you also mentioned at the beginning of the call that we were going to spin-off American Carbon like 1 share for every 2 shares of American Resources. But then we also, last year, we were going to do the same with ReElement. So why would we be spinning both sections off at half a share each?

You want me to take that one, Kirk, or do you want to continue to…?

Oh, no. Yes. So yes. So, again, as we go through the options through the strategic committee, each operating business does deserve to be its standalone public company. And so as we looked at building world-class manager teams to run them, [track show talent, track show customers], they do seem to deserve to be on their own. Once those are executed, American Resources would remain as a NASDAQ listed public company. It would give it the flexibility to execute on some opportunities that lie outside of the current operating business model. It would give it more flexibility to take on those opportunities. So again, as we progress on the business plans and those subsidiaries, each of them have a clear defined structure and message to the investment community as well as to workforce and to customer base. And so, again, the Strategic Committee of the Board and management feels that they each deserve to be their own public company.

Okay. And then last question…

If I can add in on…

Go ahead.

If I can add in on that, too. It's – each separate entity. We would capitalize American Carbon differently than we would American, excuse me, ReElement Technologies. Those things would look differently just given the markets that they operate in and the opportunities that they have in front of them. They probably also carry a different multiple in the public market as well. Hence, the reason to drive forward with that unbundling of assets to extract that value. We think both of them carry different multiples, as well. So capital allocation for growth, multiples in the public marketplace, and then separating it from an operational and governance perspective as well makes a lot of sense to do so. And then where American Resources would sit post that potential split or divestiture of any of the carbon assets, American Resources would continue to leverage the ReElement refining, just given that strategic advantage of refining critical minerals to be able to broaden the natural resource play. Again, march over in Africa, we're looking at a variety of different lithium plays. Again, because we can refine lithium very cost effectively into high purity forms. It's a hard element to refine.

Will you be able to get enough batteries?

Well, that's the unique thing. The opportunities we're exploring right now are for spodumene, which are – which is natural occurring ore, right, just like coal, just like iron ore or any other mine-based product, that is again, strategically differentiates us because it helps us bridge that gap of when are all these batteries going to become to an end of life? Is it going to be five years from now, 10 years from now, 15 years from now? The recycling market is dependent on end of life or manufacturing scrap. But like I said earlier, nobody is producing a whole lot of things here in the United States yet. Mandate has been set, the capital is being deployed, infrastructure is being stood up, but manufacturing scrap isn't widely available in large volumes today. Getting our hands and access on high-quality ores in the lithium market is very attractive for us. That helps us bridge that gap to when recycling takes on a much larger products mix or input mix of your feedstock.

Okay. And then last question. It's been a while now since we applied for the ReElement side. And I know you had questions back from the SEC and I thought you answered them. So how far along are we on the spin-off of ReElement right now?

Oh, time is relative. Mike, I think the reason why we announced it initially was from a strategic perspective because having a really clean tech refining company embedded inside of a coal mining company, just called spade to spade. There’s some strategic advantages for us doing that. Some portfolio managers aren't allowed to buy. They want a piece of ReElement, but they can't buy it within American Resources. But announcing that we have a planned spin-off, maybe it gives portfolio managers. And there's some other strategies that, that makes a whole lot of sense of from other aspects within the supply chain in developing commercial partnerships and looking at different, government-based incentives or grants opportunities as well. So there's a reason why we announced it maybe early in the process because we wanted to be on record of this is our plan.

[But the clearance] if we wanted to go forward.

Kirk, you want to….

Yes. I think at this point, we're now getting discussion with SEC and we're trying to maximize shareholder and strategic value along that process. We wanted to make sure that it is a proper public company and not just spun out just for the sake of spinning out. So we really wanted to go through the process, keep our options open, and get it to this point of being actionable when the value is there to act upon. I really – I think that's probably as far as we want to go, I don't want to get into it, we have one comment or no comments or so.

Right. Mike, I've always also said repeatedly when you've talked to me in the past, or I've talked is the spin out of ReElement is a, strategic; but, b, it's not – we like to execute on things quickly, right? And I think we've showcased our ability to do so. But in regards to the ReElement spin-off, it's not – speed is not the primary objective here. I think if speed were the primary objective, we could separate ReElement and let it drop off into the public market and let the public market figure out how to value it. Or we can help investors hit the easy button by discovering value through the capital raising process through strategic partnerships.

Okay. No, I understand. Okay. Thank you.

Thank you. We appreciate it.

[Operator Instructions] And we'll take our next from Steve Segal with KBB Asset Management. Your line is open.

Hey, Mark. The question I was going to ask was just answered, but I was just wondering, I know we talked a lot – well, you talked a lot about lithium so far in this call. Has there been any new things or new developments in the magnet area as far as partnerships?

On the magnet side of things or on the lithium?

Yes, magnet side?

We continue to have very strong pilot programs in our pipeline today where we intake a variety of feedstocks from large powerful manufacturers, auto OEMs. We continue to showcase our – the efficacy of our technology, showcasing what we're able to do in providing sustainable sources back into their supply chain of those critical raw materials. So, yes, there’s – there continues to be progress and developments made. We just haven't gotten to a point yet where we're able to publicly announce them by name. But we're getting – I would say we're getting closer on the magnet side. I think one thing to also highlight, Steve, is the flexibility of our platform allows us to look at – from looking at different feedstocks, our ability to take the entire powertrain of an EV and recycle it back into high purity sustainable products is differentiated as well. So our ability to take the motor and magnets out of an EV, recycle them back gives us the ability to talk to OEM's battery team as well and vice versa rather than just looking at for a battery recycler, and we can only handle NMC battery chemistry. We have a much broader and appealing proposition from an auto's perspective, I would say, to look at. But we continue to drive those pilot programs forward with what we feel is a high degree of success. And, yes, we look forward to communicate – communicating those milestones when we're able to.

Okay. And then the other question is, like, as far as the – sorry about that. As far as the LOI goes for the whole seal. Like, is there some type of a timeframe on that? Because, in the – or in the meantime, you still have to progress and get Carnegie reopened when you can and get Wyoming starting, right?

Yes. And I think that's why we've – we talked about both paths forward, right? We're not just not going to hang our hat on one path. We need to drive our execution forward from an operational standpoint as far as developing Wyoming County getting our Carnegie mines back up and running when we feel the market is solidifying. I did mention earlier on the call that our customer base is fairly narrow. We're working on broadening our customer base as well there. So we continue to drive that execution forward while we explore other alternative avenues as well, like divesting the entire platform or pieces of the platform.

Right. Okay. Thank you.

Thank you. I appreciate it.

Appreciate you guys.

[Operator Instructions] And it appears that we have no more questions at this time. I'll turn the program back to the speakers for any additional or closing remarks.

Well I'd like to thank, everyone, for your interest in American Resources and your time you took out of your busy schedules to participate in today's call. We look forward to executing on your behalf and communicating with you in the near future. Thanks, again.

This does conclude today's program. Thank you for your participation and you may disconnect at any time.