Greetings and welcome to the REX American Resources Fiscal 2022 Third Quarter Conference Call. During the presentation, all participants will be in a listen-only mode. Afterward, we will conduct a question-and-answer session. [Operator Instructions] I would now like to turn the conference over to Mr. Doug Bruggeman, Chief Financial Officer. Please go ahead.

Good morning and thank you for joining REX American Resources fiscal 2022 third 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 risks and uncertainties within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements reflect the company's current expectations and beliefs but are not guarantees of future performance. As such actual results may vary materially from expectations. The risks and uncertainties associated with the forward-looking statements are described in today's news announcement and 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 review our financial performance and then turn the call over to Stuart for his comments. Sales for the third quarter increased by 8.5% as we experienced higher pricing for ethanol, distiller grains and corn oil. Ethanol sales for the quarter were based upon 66.3 million gallons this year versus 69 million gallons last year. We reported a gross profit of $11.3 million this year versus a gross profit of $25.2 million in the prior year. For the current year quarter improved selling prices were offset by higher corn and natural gas pricing. Ethanol pricing improved by 8%, dried distiller grain and corn oil pricing both improved by 25% for this year's quarter over the prior year third quarter. Corn cost increased by 17% and natural gas pricing increased by 56% for this year…

Thank you, Doug. Going forward, currently -- in the current quarter, we remain profitable, but crush spreads are still challenging, which our CEO Zafar Rizvi will discuss in his segment. We've made significant progress in carbon capture, which again will be discussed by Zafar Rizvi in his segment. In terms of our cash, we have approximately $290 million in cash, very little or no debt. We continue to look for investments in ethanol companies although nothing is imminent. We're also making major investments in carbon capture, which will be discussed later in the call. We also now can earn meaningful interest on our cash and with $290 million we expect our interest income to go up during the current quarter and during the following quarters. We buy back stock on dips. We bought back approximately 250,000 shares in the quarter. We have Board authorization for another 875,000 shares. Zafar Rizvi will now discuss our ethanol and carbon capture operations. Thanks.

Thanks, Stuart. Good morning, everyone. As I mentioned in our previous quarterly calls, challenging logistic problems caused by issues with the railroad and availability of corn were slowdown in our production. The availability of corn in the South Dakota due to a drought last year and again this year resulted in a decrease in corn yield, which led to an increase in the price of corn greater than the ethanol price. On top of that, the high price of natural gas is also negatively affecting the profit margin in the ethanol industry, as Doug mentioned earlier. The USDA November corn report shows the corn yield dropped 26% in Nebraska and 10% in South Dakota. Nebraska about 2.9 million bushels were dropped and in South Dakota, 78 million bushels were dropped compared to last year. In the South Dakota, where our Nugen plant is located, and while it -- but -- it increased 13% in Illinois, where our One Earth Energy plant is located. Sorry for that. The USDA also reported corn production increase in Illinois, North Dakota and Minneapolis and production drop in all other corn producing states. The worst affected states are nearly all western states, Nebraska, Kansas, South Dakota, and Texas. The November USDA reports show an expected output of 13.91 billion bushels for 2022, 2023 crop year compared to approximately 15 billion bushels in the ‘21, ‘22 crop year, a decrease of 8%. On the bright side, ethanol and DDG export have increased compared to last year through September 2022 and the non-food corn oil price continues to increase and it is expected to increase even more. Ethanol exports of 2022 total 1.12 billion gallons, compared to 873 million gallons for the same period last year, a 27% increase. Despite all these issues and difficulties, as long…

Thank you, Zafar. In conclusion, the ethanol business remains steady and [indiscernible] carbon capture business. It's been helped significantly by government legislation along with great progress by Zafar Rizvi and his team. We continue to consider -- we continue to believe that we have the best plants among the best plants in the industry, our locations are good, especially the one that is right in the middle of what we consider the best carbon capture area of the country. But more importantly, we truly believe it's a [indiscernible] we have among the best employees in the industry. Most companies in the industry were not -- many, many companies were not profitable. We had a profitable quarter and we continue to consider our employees to be among the -- we consider that the real reason why we're doing better than most is we consider our employees to be the best and that I think separates us in ethanol and I think, you'll see and we hope that it will continue and will separate us in carbon capture. I'll now leave the podium open to questions.

Thank you. [Operator Instructions] Our first question comes from Jordan Levy with Truist Securities. Please proceed.

Good morning all and really nice execution again this quarter. Maybe I'll start out, you're clearly making good progress on the CCS side. If I think about that project moving forward along with the clean fuel credit and the IRA that starts I think in 2025, maybe -- could you just help us think about how those two items might play together as we get into some of the out years, assuming CCS progresses and what that means for the business?

Zafar?

Yes. Jordan, the 45Z and 45Q. 45Q is a direct payment up to $85 per ton and 45Z is a tax credit, which you receive if you reduce the carbon intensity, which is the line right now if most ethanol plants had approximately 70 CI score what we call it carbon intensity plant. And then there is a line, which is a 50 if you reduce anything below the 50, you get some per gallon basis tax credit on each gallon you produce. So, there is a far more like to look at it carbon. We are not -- just want to make sure, we are not tax experts, but this is what I understand. So, when you do the carbon sequestration, you reduce approximately 30 points to CI score. And then there is about 18 points is for the land use. That also reduced because we are -- our land use what happened, we further reduced that 18 point. So if you started 170 and then you reduced by almost 48 points and then you can reduce your further CI score. If you are able to achieve zero, which is not that easy, but there is also have to be made a lot of changes in the process and other things, which has to be accomplished. As I mentioned, we were working on a lot of these things previously for the last couple of years to reduce our CI score. So, we are already working on that thing we -- for example, if we are able to achieve zero, but I'm not saying that we will be or we will not be, then it's almost equal to a dollar a gallon of your ethanol production. So, if we are producing 150 million gallons and we reduced CI score to zero, we can have almost per gallon basis, a dollar a gallon that may be in one location, can be as much as $150 million. But we are not expert, but that's what we understand at this time.

And I'm certainly no tax expert either, but that's a great explanation. Maybe just the clarify, did you -- on the land use side of that, did you mentioned that you're working on something to get that 18 point reduction or is that [Multiple Speakers].

When we have accomplished the carbon sequestration, if we take the carbon all and put it in the ground, under that formula, we get approximately 30 point for the carbon sequestration we did and 18 point, which is now ethanol has been used. They use always that when they compare their our CI score, they always add 18 point for the land use. For that land use will be automatically will also get the reduction with carbon sequestration. So that's where it adds up. That's what I understand.

So you're basically -- you're getting nearly a 50 point reduction just on the carbon capture.

None of these numbers Zafar saying include what we potentially the higher selling price of zero carbon or low carbon ethanol, which, it's another parts -- we don't want anyone to put that in our numbers, but that's a real possibility also.

Exactly. As I've learned generally there is a 70 -- normally 70 to 72 generally ethanol plants has CI score, which they call it. So if you take it 30 point reduction for the carbon sequestration and 18 point reduction for the land, that's a 48. So, 70 minus 48. So, you can see that it's going to come approximately 22. So the line started with the 50 that you have to have minimum 50 and then go down. So, that's where the comparison is done. So, it is there a far more lot, which we understand that will be used.

Got it. That's helpful. Next, there been some headlines on Rovio's coming out in the next day or whatever. Just curious, your thoughts if we assume mandates for ethanol roughly held flat over the next three years or so?

I think, we are hearing it's approximately still going to be staying at 15 billion for ethanol, which they may increase the overall 21 billion, but we understand that it's probably going to stay at 15 billion for the ethanol, but we're not sure up until it's released.

One thing that would be important and we don't know -- so far the Biden administration held firm is no waivers. They have the ability to keep waivers wherever they feel like giving them and they happened in the administration, they have in the past and Biden, it's been pretty good, very little or no waivers. So, if there's no waiver, so it's actually a decent increase.

Yes. And hopefully, this export continue to increase as I said, this year we can see that we are way ahead compared to last year and if export continues to increase, that will also help us.

Got it. That's helpful. Lastly, jumping around a bit here, but just to go back to CCS. Zafar, maybe can you go over it in your prepared remarks, but just so we have separated out, can you just talk to kind of the next steps as we move into early next year? I know, you mentioned that you've -- most of the long, long-term items, you've been working on and the detailed plans but maybe just break out what we should be looking for as you move into 1Q, 2Q?

Yes, Jordan. As I have mentioned year on there was a lot of still work to do, because there is a lot of government agencies' permits we are still in process applying. Those permits doesn’t take that long compared to Class 6 permit that would take from six months to 18 months, but other permits, which is required by Illinois, required by the federal government and other things. So we are working on those progress, and then we are -- we cannot start injection well start even digging the injection well up that time we received EPA permit. So we are in the process of looking at to starting the bid already to be prepared for as soon as we receive a permit from EPA. We should be prepared to start injection well. So there's going to be a lot of work will be happening next year, but our goal is hopefully. But certainly, as Doug said forward-looking statement that we complete this project by the end of 2024. But this could take longer, but that's what we are trying to achieve.

And just because you filed for three permits, I would assume that you're thinking about some third-party volumes there too.

I think at this stage, probably that's what we're thinking because we do not have enough capacity for our ethanol facility, but we know there is a lot of demand for the well going to be in -- for in the future. And so we just wanted to make sure, is they're going to be too extra well. we'll be available. We don't have to start digging them right away as we -- there will be started as needed basis but we will have already a permit for the EPA to achieve though. So that if we wanted to start it, we can start it anytime.

Got it. Thanks, guys.

Thank you, Jordan.

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

Yes. Hi, good morning.

Good morning.

Can you talk more about our -- it's REX experiencing any logistical challenges with rail?

I think the main concern, which we have is, as you can see the recently going on that there is a strike and you can hear it from the strike and all around that during that 2019, 2021 and railroad laid off a lot of people and certainly these drivers and all those things demand increase, but there is not enough manpower. We see sometimes that power is already there-- are the power made it to the plants to pull but there is no driver and they're supposed to pull it on fair Monday, they're not, they're up to Saturday, Sunday, as these things delayed further to pick up those railcars. Are there other containers that are not available sometimes and that delays car our-- there is limited storage, although we have increased a lot of our storage compared to other ethanol facilities, but there is a per point reach, which you have your tanks are completely full, then you have to slow down the project are storages are full you can't really overflow the ethanol from the tanks and then you have to slow down and wait for that to the railcars to come back before you loaded again. So that certainly caused the problem production that certainly is the caused the problem of shipment and unfortunately that's the consistent continue problem at this stage.

Okay, thanks. As you head into winter can you comment on how an increase in the price of natural gas will affect profitability?

Yes, I think it does really we are already analyzing it journey we try to make sure that we have at least enough get natural gas before we got into that plan, but you can see it's Nymax is trading today it's a $6.93 and last, last month this was $6.35 and last year it was $5.42. So there $1.50 change and that's change since that happened and it's consistently continuously, we see the natural gas is although there is enough natural gas in this country. I think basically reaction is due to the European situation or Ukraine war again since that happened at the time natural gas prices start going up and that makes really major impact if we look at it actually in calendar year it was about $2.08 average and 2021 it was $3.84 average. And now for this calendar year so far, is a $6.64 average. So this, and we don't know what happened in 2023, but that certainly is affecting the bottom line as Doug mentioned is a 56% increase. So that takes away your 56% of the portion of the profit.

Okay. Thanks for the answers.

Thank you.

Our next question comes from Pavel Molchanov with Raymond James. Please proceed.

Thanks for taking the question and you provided some useful perspective on natural gas, let me zoom in on corn. When we look at the futures curve, it basically points to $5, $6 a bushel practically forever and we went through a decade pre COVID with $3, $4 is $6 corn an your view going to be the new normal now on a permanent basis?

I think it seems to me that at this stage, at least the area where we have seen what country probably going to continue to trade that level, but the major problem is that area is where you have drought, which I had mentioned earlier in my prepared marks, those areas like South Dakota, Nebraska and Kansas and Texas. Texas is already deficit corn area, but these area is certainly due to the drought the basis, are very high. You can find somewhere basis are $50, $60 or $80 even though we have seen a $1.20 basis for the corn basis. And if the corn is going to leave some area like say North Dakota this year has a bumper crops last year they didn't have that great. I mean Annapolis has a great crops this that area and Illinois has great corps. So when you are shipping these corn from one area to other area by rail, the rail cost about some we are depending on the destination. But if you look at if you send it from North Dakota to Texas it's about $1.60, just to ship per bushel. And on top of that they're going to be $0.60, $0.70 or maybe $0.80 on a basis. So if you are delivering $1.60 plus paying $0.80 basis so $2.40 to deliver a corn in those Texas or in Nebraska in other area, which is further away, would be very difficult for some of these ethanol facility to continue to produce at that corn level price.

Okay, let me turn to our regulatory topic. It seems like it's forever, we've been talking about E15 on a year-round basis and I know there is a new bill from Senator Fisher in Nebraska to put a legislative authorization on that without going through the EPA waivers, you it's a pay that bill has a good chance of passing. What do you think?

I believe this time looks to be, is the good surpassing because the most all the players are agreed seems like agreed, I should say, seems like they agreed that E15 will not be bad idea. So if that path I think that will be great help, because if the pumps continue to supply 12 months in a year, then people will convert that because I have seen some several pumps in actually in Illinois, Nebraska and other area. What, they call it E88, they are selling, and you can see the price difference almost $0.15 to $0.20 sometime difference than regular price. So people are using that. So I think if these pumps can produce regular sell basis 12 months. I think this will catch up more and more in depth. That will be very certainly will increase another 5% ethanol demand.

Okay and then lastly, you mentioned exports and obviously kind of vary from quarter to quarter, but your general impression on the export window to China where do things stand on that?

I think if you look at it really, we didn't see much export to join China this year mostly. I think we can see that mostly it was Canada was the highest we produce Canada, South Korea, Netherlands, India, and UK, and I think India is certainly moving also rapidly to meet their own demand locally in India and they are pushing very hard and suddenly better deal was not a major player this year so far, but we have seen certainly Canada and South Korea and Netherland step up and but we have not seen any major shipment to China this year.

Right, okay. Consistent with what we're seeing. Thank you, guys.

Thank you. Pavel.

There are no further questions at this time. Please continue with your presentation or closing remarks.

Okay. Like to thank everyone for listening and we'll look forward to talking to you at the end of next quarter. Thank you very much.

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.