AREC - NASDAQ

Greetings, and welcome to the American Resources Corporation Second Quarter 2022 Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mark LaVerghetta, Vice President, Corporate Finance and Communications. Please begin.

Thanks Sara. Good afternoon. On behalf of American Resources Corporation, I'd like to welcome everyone to our second quarter of 2022 conference call and business update. We welcome this opportunity to not only provide an update and discuss our accomplishments since our last update. But also on how we’re uniquely positioned in both the carbon and critical and rarest element markets. Also on the call with me is Mark Jensen, American Resources, Chairman and CEO. Kirk Taylor, our Chief Financial Officer, and Tom Sauve, our President. Before we kick it off, I'd like to remind everyone that this call is being recorded and of our normal cautionary statement, 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 the 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, we'll be holding a question-and-answer session today following our prepared remarks and for anyone waiting to ask a question, you'll need to dial in by phone to get into queue. We're going to begin today with a few comments from Kirk Taylor. Kirk?

Thanks, Mark, and thank you, everyone for taking the time this afternoon to join us. The second quarter of 2022 signifies the continued production ramp that really began this past March. And in a market environment that continues to be highly supply constrained. As a reminder, our mining focus is on high quality metallurgical carbon as well as PCI specially carbon. For the quarter, our total revenues of $16.2 million is a 78% sequential increase from our first quarter revenues this year and are really not comparable to the revenue from prior period when we were largely idle due to COVID-19 pandemic and highlights -- this highlights early growth attributes of our carbon business and a platform that we built. While mining is not completely linear, our carbon platform is uniquely positioned to be a meaningful contributor to much needed supply growth of metallurgical carbon and specially carbon products from our region where a lot of the mines are actually becoming exhausted and unable to expand. Also for the second quarter of 2022, we were able to generate adjusted EBITDA of $11.5 million, compared to an adjusted EBITDA loss of $537,000 in the prior year period, and a positive $5.8 million in the first quarter of this year, again signifying the beginning of a significant inflection point for our mining operations. Our unique platform of assets is in a great position to deliver what we believe is attractive return and value to our shareholders. This includes both our mining assets, which we are currently operating, as well as leased out margin complexes, including the Dean mining complex. Over the past six months, we've been able to eliminate approximately $2.9 million of debt repayable and invested over $18.3 million of expense development costs to position both American Carbon and reELEMENT for strong growth in high demand markets. We are currently experiencing and expect to maintain a certain degree of pricing power. This is especially true within reELEMENT, where we are the only domestic producers of rare earth and critical minerals in the United States as well as increased tax credits built into Inflation Reduction Act. Our debt balance currently sits at approximately $12.1 million in total of which $2.6 million is equipment financing, $8.9 million is in the form of convertible notes held by long-term partners, and $2.5 million is in the form of mine development loan from an offtake partner. Our shares outstanding currently sit at just $66.5 million all Class A common shares. Our cash on hand at ending the quarter is approximately $4.8 million. We are in a great position to continue to expand and execute across all of our business lines. I'll now turn it over -- back over to Mark LaVerghetta for some comments on reELEMENT. Mark?

Thanks, Kirk. As we've previously stated, our newly rebranded reELEMENT Technologies division, representing an incredibly exciting and very strategic opportunity for us. I'd like to remind everyone to visit our new website, reelementtech.com, and if you haven't yet watched the two new videos that provide some insight and imagery into our separation and purification process and technology. One of the videos is on the home page, and one of the videos is under the technology portion of the website. I'd like to reiterate and stress the significance of our recently announced milestone of achieving ultra-high pure Rare Earth elements on a commercial scale at our first separation and purification facility. Now that we have brought this facility online, we are the first domestic commercial producer of separated and purified Rare Earth elements. Additionally, we feel it is strategic to our advantage to address not only our domestic supply chain needs, but also our sustainability needs. This first commercial production line produces high-purity Rare Earth magnet metals such as neodymium, praseodymium and dysprosium from recycled rare earth permanent magnets. These metals are needed to produce high-efficiency electric motors such as those used in electric vehicles and wind turbines as well as other advanced technology and defense applications. We are still on a time line to have our second production line operating later this year. This production train will isolate and purify specific battery minerals such as lithium, cobalt, nickel and manganese from end-of-life recycled lithium-based batteries. We staggered the build-out of these two production lines to learn how we can improve on the overall implementation and operations of the facility. Additionally, to support these growth efforts, we recently bolstered our already amazing team with the addition of a Chief Commercial Officer, Chris Moorman, to further develop our upstream and downstream partnerships and our Director of Research and Development, Yi Ding. It was an important part of our amazing team at Purdue University that developed this innovative chromatographic separation and purification technology. So, what differentiates us, our technologies and our process from the others looking to address this market. First, it's our team. As a reminder, chromatography has been around for century and commercially has been used in various industries like pharmaceutical manufacturing for decades. We believe we have the world's best chromatography experts and team behind our reELEMENT division. Second, by initially addressing our sustainability needs, we eliminate the need to extract feedstocks from traditional mining methods. While the daunting demand growth, we obviously -- will obviously require an all-hands-on-deck approach, our process eliminates the environmental impact, lengthy permitting process, and high costs associated with extraction for mining. Additionally, our feedstock reserves from end-of-life products is growing and is growing in a big way. The time to establish this low-cost, flexible and environmentally safe platform that we've put together to address this part of the market is right now. With our recent milestone, we have truly brought the circular economy for these critically important minerals online. Third point, our process allows us to separate and purify all of the targeted critical and rare earth elements back to qualities, purities, or grades that are required in the manufacturing of new batteries or new magnets as well as for the requirements spelled out in the newly passed Inflation Reform Act. This is key as currently, we believe no one can recycle battery material back to battery grade qualities in a comprehensive, cost-effective or commercially viable application other than us. An important distinction to note, our technology is the only comprehensive solution to recover and re-purify all of the critical and rare earth elements in the entire powertrain of an electric vehicle, including both batteries and motors. No other solution today can offer that value. We feel we have further showcase these unique as we further showcase these attributes and scale our real-world solutions across our domestic supply chain. It puts us in a strategically beneficial position to collaborate and partner with other market participants, up and down the supply chain as well as garner support from the federal government, given their obvious focus in this area. Included in both the Bipartisan Infrastructure Law and the newly passed Inflation Reform Act, which puts us in a great position, given we are the only commercial source of separate and purified rare earth elements in the United States today that we know of. With that, I'd like to now turn it over to Mark Jensen for some additional comments.

Thanks Mark. I'd like to first start off by recognizing and discussing the recently devastating floods that have taken place in Eastern Kentucky. We've had many employees and/or members of the local community that have been hit hard by this flood -- this 100-year flood that has caused devastation throughout the community. If you're looking to support the case, please look to some of the local charities that are that are providing us as we're looking at doing with some of our sister companies like our Eco-Solutions. And it has been tough for a lot of our team members. So we -- they are in our thoughts and prayers. Second, I'd like to discuss our -- the special committee, which we recently announced. Our intentions to form the special committee to better unlock the value of American Resources and through the establishment of the committee, which includes members of management and members of the Board. Where we are looking at identifying methods to unlock the value, which we believe we hold underneath the corporate umbrella of American Resources, which may include stock buybacks, which may include spinning off and divining out shares to underlie investors of one of the divisions and/or continuing to evaluate other alternatives such as that we've had inquiries coming in on sale of assets and looking at maximizing the value for all of our shareholders in the best way possible. Given the execution of American Carbon and re elements, we believe and are extremely excited about the opportunities that both entities have and believe that the enterprise value as a whole is currently trading at a substantial discount relative to the peers and/or the sum of the parts of the company in itself. And we're going to continue to work on ways and methods to unlock that value for our shareholders. Let me talk a little bit about American Carbon. An exciting division of our business, one that we see strong growth for many years to come by unlocking the value of our specific properties and we spent years restructuring and positioning for the future. At American Carbon, we continue to see strong demand for our products that we produce. Global carbon demand for steel production continues to be relatively strong, all but off its recent highs due to the COVID restrictions in China. We believe these restrictions and the related net carbon price softness off their all-time highs will abate relatively soon. From our perspective, supply continues to be constrained and ultimately, we'll be -- we'll see major shortages in the metallurgical carbon industry for a number of years to come. Furthermore, thermal coal prices are extremely strong as the world is experiencing its first energy crisis of the 21st century. You see over in Europe currently today, you're seeing significantly higher prices than what they've probably seen if not at, forever in terms of energy prices due to the need to supplement their raw material feedstocks that are historically coming from Russia. These high energy prices are including thermal coal and are driving decade high inflation in some of the countries are experiencing major energy shortages. Russia and basin of Ukraine is obviously exacerbating that crisis. As a result, we're seeing net carbon crossing over into the global thermal coal market and sucking additional met carbon supply out of the market, given these extremely high thermal coal prices. We believe this entire backdrop has put a higher floor in place for carbon prices for the foreseeable future. And ultimately, we'll continue to exacerbate the problem that the world is going to have within carbon prices as China comes back online, coming out of their COVID restrictions and as the market looks to stabilize and the total economy looks to stabilize. This puts our growth-oriented American Carbon platform in a very unique position as being one of the largest sources of domestic growth in the market and the ability to continue to ramp up supply by bringing additional mines online from our position and permits that we currently have in place. For American Carbon, our focus is to continue to ramp up our currently operating complexes by bringing additional production online at our currently producing mines as well as bringing new organic mine production online. Our McCoy Elkhorn Complex continues as one of our biggest contributors and our biggest growth engines to American Carbon. Now that we have commenced production at our Carnegie 2 Mine, we've already begun -- started planning on the next two mines to bring online to feed our McCoy Elkhorn Complex. As a backdrop, McCoy Elkhorn is a large complex, two processing plants, a rail load-out facility -- and ultimately, back when James River on this facility, it was fed by over 10 mines. Our ability to continue to ramp up and feed the processing plant capacity and rail load-out capacity that we have is substantial. We can continue to bring these additional mines online. And the unique thing about these mines are they're low-cost operational mines. And ultimately, that fit well within the current labor market without needing to staff up in huge ways for these old legacy mines, and also to be able to expand them once you get underground and further to continue to drive revenue growth from our existing producing volumes. We've already started planning and development on Carnegie 3, mine 17, as well as our additional surface job we have in the region, and are looking at three to four additional mines that we can bring online in a very low-cost format. Each one of these mines is looking to be brought online using cash flow from operations without having the need to go raise additional equity to do so, and/or substantially leverage up the balance sheet for this growth that we're looking at expanding upon. Our Perry County operation has had -- has been impacted by the recent floods and also some water that was present within the mine, and it slowed down the production over the last couple of weeks. That being said, the Perry County operation was also slow to produce in the first quarter. And so the -- or the second quarter, the contribution during that period of time will be relatively similar to what it is currently and look to have the mine back up and running here in the next five to 10 days due to the recent flooding that's taken place in the area and the water that was within the mine. Nothing to be concerned about, nothing that is not out of the ordinary from this mine and the production from this mine and the contribution that it will have to our business going forward. The Dean mining complex is actually getting ready to start production. The contractor has made substantial improvement at the facility and ultimately is -- it has trains scheduled to be shipping out in September. So that will be a nice cash flow contributor going into the next -- end of this quarter and for this quarter as we continue to evaluate leasing out additional operations we have similar to what we've done at Dean mining to further bolster our cash flow and drive cash flow from all of our operations across in all of our properties across the entire platform. Additionally, we remain focused on progressing on our Wyoming County, West Virginia complex over the next year. As we recently communicated, we continue to work through the process of the $45 million taxes on bond at the state of West Virginia has preliminary approve for. That is now being underwritten by Hilltop Securities, as well as the allocation that we received for $4.9 million from the federal new market tax credit that we've recently announced. This complex is a unique complex. It will be the first time ever that a mining complex, mining metallurgical carbon, mid-ball, high-value, high-margin metallurgical carbon, but also tying into our electrolysis technology, which is the facility we currently have in design and being built down in Alabama. It will be the first of its kind and the first time that rare elements and critical elements will be produced from a mining complex offsetting the cost of running that facility by tying it directly in with the mining complex itself. With the issuance of those two non-dilutive capital sources, we're excited to showcase how we'll position this complex with the advanced carbon and the RE processing facility by doing so in a way that is extremely accretive to our investors. To expand upon the re element comments that Mark just made, I'd like to reiterate the importance of the milestone we recently achieved. I firmly believe that as the first commercial producer of isolated and purified critical and rarest elements in the US market, we're also introducing a practical and efficient solution to address our sustainability needs, creates the beginning of a new and exciting era. The United States needs a domestic supply chain. It has looked extensively across that. And the government has put a number of very substantial financial incentives out there for people to develop it. We're extremely excited about the cost structure of our technology and the scalability of our technology. We don't need to create a hub-and-spoke model. Our permitting process for our purification and isolation technology is not very difficult to achieve. We got our first facility permitted within two months. we can scale this facility organically and continue to expand it overtime, out of cash flow from the business and utilize a very small footprint compared to the older technologies, the Solvent-Based Extraction in the Hydrometallurgical Technologies that people are evaluating and are looking at, which are really a way of the path to doing this. Ultimately, we think we'll be able to showcase and confident we'll be able to showcase our Chromatography and our Purification and Separation Technology, as the new standard within the industry. The passage of the Inflation Reform Act, which includes some significant and aggressive targets for the Auto Industry, include the extension of the EV tax credit with no cap as well as the advanced manufacturing tax credits for Critical Elements. There are a couple of areas of this resolution that hit directly, at what we already accomplished -- what we've already accomplished. For the EV or the Clean Vehicle tax credit, 40% of the critical minerals in the batteries will need to be sourced domestically or from a free trade country or recycle in North America by 2024 and increased each year thereafter until 80% by 2026. That timeframe is right around the bend. And we're -- as far as our knowledge, the only producer in the United States market that can produce the products that meet the standard to go back to battery and magnet grade material and the ability to expand our production rapidly and aggressively. And for the advanced manufacturing tax credit that establishes a new credit that amounts to 10% of the cost, incurred to produce applicable Critical Minerals, including the magnet and battery-grade minerals that we've already showcased we can produce. And the ultra-high purity grades required to, receive the credit. What this shows us is the ability to utilize our technology and utilize our technology to either co-locate at other facilities and/or to build existing additional facilities where we can handle all the way from novice product to magnet and battery-grade materials very cost effectively and very quickly due to our -- the easy form of permitting and the lack of environmental footprint that we actually -- that we utilize within our technology. These federal incentives hit right at the heart of what we are doing at reELEMENT. And the fact that we've already proven our process and technology on a commercial scale puts us in a great position to be a value-added domestic supplier of sustainable and critical minerals to the EV and the Clean Energy sectors as well as the Department of Defense. As Kirk stated earlier, the second quarter this year was a 78% increase quarter-over-quarter in revenues, following a 100% sequential increase in the first quarter of this year. These results begin to showcase that our operations are well positioned to continue on a strong path of consistent returns, revenue growth and profitability. With our operations beginning to put cash back onto the balance sheet, we don't foresee us needing to issue additional equity to raise cash, especially with some of the sources of non-dilutive capital we've discussed and non-dilutive forms of capital that are available if we need them. Just to reiterate, as the largest shareholder of American Resources, our management team is focused and committed on maximizing the value for all of our shareholders. And I thank you for joining the call today. We'd like to turn it over to -- the call back over to the moderator for some questions-and-answer.

Thank you. We will now be conducting a question-and-answer session. Our first question comes from Mike Niehuser with ROTH Capital Partners. Please go ahead.

Good afternoon. Congratulations on all of the above. I won't isolate any particular thing, but really quite an amazing quarter. Just a couple of quick questions for you. In addition to the Inflation Reform Act, it's mentioned that about the national strategic reserve, how practically might that fit in with your purification of Rare Earths oxide what’s in – is it real?

Yes, Mike. I'll address it pretty broadly, and I'll let Mark jump in as well. Mark LaVerghetta going to jump on the additional commentary to provide. What’s unique about the products we produce? From the Rare Earth perspective, we produce oxide. So neodymium and praseodymium dysprosium oxide. In the oxide forms as are very storable. So from a strategic reserve perspective, and we've had members of -- we've had -- over the last three or four months, we've had many different members from military applications to the Department of Defense to members of The White House that we've had conversations with, with regards to our technology and what it provides. And so from a strategic reserve perspective, there's a pretty big emphasis on that right now. Obviously, being a domestic producer, we'd love to supply our government and make our government more secure and our technology enables that to happen. But most importantly, because we produce in an oxide form, it's in a stable form that can be stockpiled and secured for future use and the fact that all the materials we produce, we're the only company in the country that produces dysprosium in a pure form, but we're the only company in the country that produces dysprosium at all. Our peers, MP Materials, they produce neodymium and praseodymium but without the dysprosium, you can't make magnets. You can't make permanent magnet, and that puts us in a really unique spot as a company to continue to expand that and be the sole provider of dysprosium and ultimately, move faster, better, stronger than our peers to continue to grab a larger market share of that from not only the strategic reserve perspective, but also the magnet production industries that are popping up.

Mike, it's Mark LaVerghetta. The only thing I would add to that is I think the Department of Defense, Department of Energy, they're all highly focused on the sustainability needs of our supply chain. Like I said earlier, it's an all hands on deck approach. We'll need Virgin ore sources, we will need cycling as well for all of these things. And all of the above are focused on the sustainability needs. We've had some discussions around that with government officials. Obviously, with the Department of Defense in regards to their strategic stockpile, there's some sensitivity around their end-of-life products. But that being said, our technology and process given the flexibility, the low cost, the fact that we can co-locate, we don't need to aggregate everything and bring things back to a centralized point, provides good sources and good uses of how we can collaborate with them. So we'll continue to drive those initiatives forward.

Yes, the -- I guess I was just thinking that with a lot of the manufacturing in China, you'd probably be providing material that would actually accelerate the return of those manufacturing organizations here to the states or North America or allies, what have you, and that the strategic reserve would be a nice buyer for these materials to bridge their ramp-up to help encourage you to continue to grow as fast as you practically can. In that regard, you've given guidance for 5 tonnes a day rare earths in five years. Was that pretty much coming just from your facilities there in Fishers, Indiana, or would that include additional distributed operations elsewhere.

Yes. So the scale of our business, the scale of -- let me touch on two points real quick. One, the sale of our oxides. Yes, we'd love to have the strategic reserve be a buyer of them, but by no means is our business model predicated on that. There's numerous magnet manufacturers that are in development and/or producing not only here domestically, but also overseas that have a desire to buy our oxides. One, our cost structure is extremely attractive. Our process and our technology enables us to produce product at a lower cost than what China can produce that. And obviously, their state of an enterprise, they can always drop their prices, but they can only lose money for so long. Our technology and our cost structure that we produce in the purity and the consistency of purity that we produce make it a very attractive feedstock for magnet producers, and we're in conversations with a number of them. And ultimately, we have no concerns with selling those -- the rare earth elements as the only producer here domestically, especially with the current regulations and current tax bills that have been passed. So that's viable. In terms of the growth of the business, our current facility and our current magnet production train, we scaled at 1,000x. We're currently expanding that home to be 2,000x where we did a bench scale, we'll add a second magnet production train within that facility. And then we'll continue to expand not only in Indiana, we'll expand or expand our facilities, but also probably throughout the country. And talks about co-locating in a couple of different locations where we'll be able to purify at and scaling up to that scale of production, we'll require additional facilities beyond the Noblesville facility that you've actually been able to visit

Okay. That's a good answer. So basically, you can sell everything that you produce. Do you think we're going to see revenues, a new line for revenues for rare earths in the third quarter?

Probably not in the third quarter, but in the fourth quarter.

Okay. And that's pretty much all my questions. I imagine it'd probably be the same kind of ramp-up scenario for your battery materials purification, different process. But as far as the time line should be fairly representative of what we've seen with rare earths, is that close?

Yes. Yes. I mean, so batteries are an interesting space. There's a lot of people talking about recycling batteries and there's a lot of people saying they're recycling batteries today. There's not a lot of battery recycling that goes back to battery grade material. So the -- I mean including 40 miles from our existing facilities, Silanis is opening up battery product manufacturing facility where they need the cathode material which we produce. GMs around your Ford, they're all being located. Toyota is building out here domestically. And for them to receive the tax credits as well as no different than us, they need to buy from domestic producers. From a recycling perspective, our technology is quick to implement and low cost implement, which is an absolute game changer. You see our competitors announcing a $500 million facility that they're getting ready to build a hydrometallurgical which will take them two to three years to build and get permitted. We can be continually expanding our production out of our existing facilities and/or new facilities and/or colocation with our partners to be able to continue to scale that production to start to meet these needs of the domestic supply chain. So, yes, I would say that from a scalability and what we'll showcase here and excited to get this battery production trained up and running and be the first here in the country to be able to do that as well. But we're excited about the scalability we have because of our technology to be able to grow it.

Great. One more question before I jump back in the queue. As you compare the perception of the rare earth line versus the battery purification line, I'm thinking that the rare earth is kind of a niche kind of -- a lot of people -- I mean, rare roots are pretty, pretty niche, I guess. And I think that the materials that you'll be pulling out with purifying the battery end-of-life batteries, people pretty much have heard of lithium, cobalt, nickel, those kind of things. And I'm thinking maybe the market might respond to that segment, because they understand it and it might actually have maybe more economic importance, although, I see both are equally important. Do you have any thoughts on that?

Yes. So, I mean -- so the rare elements go into the electric motor. So those magnets are what effectively creates -- makes the electric motor run. And -- so ultimately, if you look at the wind turbines, you look at the electric vehicles, you look at the industrial tool market, the DoD, the missiles, the drones and all this technology, when you need a low -- basically a motor that can -- sustainable, create high heat, maintain high heat or operate in high heat functions, as well as be reliable. I mean the demand for electric motors is not going to go down anytime soon. The market for rare element is smaller than battery materials. You need a lot more -- in an EV, you need a lot more battery material than you do rare earth elements for the motors. There's nine electric motors within a vehicle, but they're still smaller. So, yes, I mean, I would say from a headline perspective, our battery production train will grab a lot of that headline news when we start up and running and showcase the scale of it. But, I will say, being the only player in the space that -- on the magnet side, there's a huge market there. I mean, there's $3 billion of magnets that go to landfills every year. And the demand for magnets is going up. And you're going to start to see some domestic magnet production taking place here in the United States, which we're extremely excited about. So, yes, I would say from a revenue perspective, our battery production train will outgrow our rare production train, but our rare production train will have huge market share, given the demand for purified products here domestically.

Well, very impressive quarter. Thank you for your answer. Also, for your comments on Deane Mining and the Kentucky operations. And thank you very much for taking my call.

Mike, thank you. We appreciate you joining.

Our next question comes from Steven Segal with KBB Asset Management. Please, go ahead.

Hey, Mark, how are you? I will -- just want to say congratulations on the great quarter and all that you and your team have accomplished, to me, it really is amazing. And along those lines, because the stock price should be more amazing than it is, I was wondering if you can talk any more about what -- you did mention about the special valuation committee that you had formed to look at the options in time. Can you talk any more about the timing of that at all?

Yes. So we're actively working on it, and thanks for joining, Steve. I appreciate the questions. From a special committee perspective, we're definitely looking at ways we can act quickly. I mean with -- and be thoughtful on our decisions for the long-term value of all of our shareholders. Stock buybacks right now, we believe our stock is not reflected upon the overall enterprise value of all of the divisions combined. We think we're being undervalued based on that. And that's something that our team is actively looking at, given where the strength of the operations are and the production growth that we're seeing out of the McCoy Elkhorn Complex and the stability of the operations is that we have to look hard -- we have to work really hard at that of looking at putting in place a stock buyback program soon. We've discussed since day one about potentially spinning off the re-element division, something we're constantly looking at. We've had offers on certain assets that we always have to look seriously at and see if it's accretive to our shareholders and make sense. So we are looking at that, we're hoping to make some decisions here imminently, as quickly as possible as we can. Obviously, we have a lot on our plate of growing the businesses and driving value from an operational perspective. But from a strategic perspective, we think there'll be some decisions made in the near term.

That's great. Okay. Well, thank you very much.

Excellent. Thank you.

Your next question comes from Michael Samuels with Berthel, Fisher. Please go ahead.

Hi Mark. Thanks for taking my call, and another great quarter. I just wonder if you could go a little into the met coal side. I think at the last report, you said you had about $100 million backlog. And just wondering -- and then the other question I was having is how pricing in the last couple -- this quarter looks going forward.

Yes. Backlog is still extremely strong. And we put -- if you look at our development expense, I mean, we've obviously invested heavily into the operations to set them up for future growth, as well as bringing them online. So Perry is set up to have additional sections and be able to expand production pretty rapidly there on and be able to take advantage of these current market environments that we see today, not only both on the met carbon side, but also the specialty products side, and the demand for those specialty products is great. Especially and then also on the McCoy Elkhorn Complex, the ability -- we spent a lot of money bringing these mines online and now they're in a position to start generating their own cash flow. The additional growth that will come out of Carnegie 1 and Carnegie 2 now for these additional sections is very small CapEx. So our CapEx expense is going to drop dramatically in the quarter. And so that will help our cash flows out significantly, which hence why we're looking at the strategic events to unlock value. Met carbon prices, so -- and indoor thermal coal price carbon as a whole. The industry is quite volatile right now with the lack of supply in the market, the prices move aggressively, so met carbon prices went to record prices over in the last quarter. Now we didn't get to take advantage of all that pricing because ultimately, when you sign quarterly orders and/or certain orders, you have to -- you sell in your current market, now you take advantage of some of the spot market, so we took advantage of some of the highest spot market prices. Now I will say, on average, though, our prices are still going up, even though met carbon prices have come down a little bit with the reaction over in China because of the COVID lockdowns. When China comes out of those COVID lockdowns with the current environment for thermal coal, it's going to be, in our opinion, a very, very interesting market. There is not enough overall supply between the thermal and met carbon market to feed the demand that's coming online, especially like over in Germany, they started up their coal-fired power plants. They're looking for 29 million tons of coal year that they're trying to source already in this really tight supply market. That's why thermal coal prices went up. Their natural gas facilities have been put back over to coal because ultimately, the Russia-Ukraine issues. It's going to get -- I think the market is going to get extremely volatile and I think there's a huge amount of upside potential in carbon prices in general over the next year or two years, given the tightness of supply and the lack of capital being invested in the space because, ultimately traditional bank financing has gone. And so we're in a unique position to take advantage of that.

Okay. Mark the, being inline, you were talking the one that was produced in the thermal coal that you're beginning to pay, I think it was $5 a ton or 5%, whichever is higher. And do you think that will start up in -- we'll be in the production in September.

Yes, they have a train schedule to go out in September. So it's -- we've been paid. Over the last couple of months, we've received the minimums of roughly $200,000 already. They cover all the cost of the operations, they're investing into our assets. Those are our -- I mean everything that there is ours. We own it. And they're investing heavily into it, put it in a really good position. It's a phenomenal deal for us. And honestly, give them an asset where they can get started on quickly. So, it's a great deal for them, too. But from our shareholders' perspective, it's a cash flow machine at this point, and we're excited to help them anyway they can to get up and running, but they have trains scheduled in September and we're excited about the development and the progress that they've made, and the way that they've navigated this market to get these facilities in a position to start generating revenue and scaling that revenue pretty aggressively, which is great for us.

Right. Well, again, everything you guys seem to be doing is phenomenal and I'm sure, eventually, the market will look at it. But congratulations in the meantime and just keep up the good work.

Mike, I appreciate you. Thank you.

So on our magnet – the legacy patents we acquired on the magnet production train, we do not have it licensed for ores. Our battery production train, we do. We have all feedstocks for the battery production train. So we can produce lithium from lithium brines, we can produce it from ores, we can produce -- any material from all feedstocks on the battery production train. And something right now, we believe a majority of our growth in margins will be focused on the recycled products, just because we're MP Materials, which has done a great job of turning around a legacy mining asset. They produce about 5% magnet material concentrate based on what they've put out publicly, our Magnet production train we're processing material that's 32% to 36% magnet grade material. So we have very high concentrates. It's getting – it's setting up the logistics that we've been putting all of our efforts into, of sourcing these end of by products economically and cost effectively, and again ultimately working with the people that have them to make sure it works for them as well. And same with batteries, so while we've been in the mining industry a long time. We've mined a lot of material and ultimately, not something we're new to. But we see the value, and we see a huge amount of value in focusing on the recycled market, as the initial feedstocks because ultimately, the margins are so much more attractive. But down the road, we'll definitely look at ores and no different than carbon-based materials.

Well, I understand that. It's just that our government has spent a great deal of money down in Hondo, Texas with Lynas developing some processing. There's probably going to be asset leaching, which we could get away from that.

Well, that's all the base extraction, right? That's what – Lynas runs a facility over Malaysia, which is why they probably were able to attract some money from the government. We've shied away from a lot of the money from the government on the smaller dollars ultimately we didn't need it for our facility. I don't I don't understand the line of situation. I don't think – I think permitting solvent-based extraction, even if you get it permitted, I think operating it in the United States market, given the water treatment and the requirements from an environmental perspective, I think, are extremely challenging. And probably not getting any better. We just passed the climate bill. So it's – that's probably not going to slow down – this environmental movement is not slowing down anytime soon, and that's what's unique about our technology. But ultimately, what's unique about our technology is also we don't need to raise a ton of money to scale it. We can grow this and we're going to showcase some of these initial production trains, and we continue to grow this and drive it out of revenue and showcase who our customers are. And I think, our investors will be extremely excited about the performance we're going to get and ultimately, the government definitely not turning their heads to us. We've had numerous conversations with them on multiple fronts about our technology, and they're excited to see what we're doing.

No, no, I understand that. My money is with you. It's just that, I believe, it's name of the company Magellan, which has that patent is not doing anything with it.

Magellan, yeah. I mean, again, we were focused on the recycled materials, and that's where – really, we think the opportunity is. I mean, from the battery recycling side of buying black mass processing, other people's lack math reading our own battery. There's a huge market there. And then on the Rare Earth element side, I mean, at the end of the day, Rare Earth element aren't rare. That's – they're actually all over. If you go to the beaches in Florida, there's Rare Earth element everywhere. They're just not in a concentration that makes sense. Magnets make sense and then establishing partnerships, including the one I was visiting earlier today, a phenomenal company on the preprocessing side for our magnet production train that we're developing a really solid relationship with, which is -- I mean, it's just a good win for everybody. Those are the deals that make sense. The logistics that make sense to aggregate the end of life magnet, $3 billion spend-wise magnets. If you can aggregate them and process them economically are a phenomenal feedstock, and ultimately, that's really where we want to invest our capital is on the recycling side because the highest margins there today.

I agree. Thank you very much and good luck and bring us in some money.

Thank you for being on the call, and thanks for your questions.

The next question comes from Michael Alicastro , private investor. Please go ahead.

Yes. Hello. This is, I guess, a very tactical question. But when it comes to the Rare Earth minerals, ReElement and also the recycling, who are the target customers? I've heard government agencies, but is it battery companies, or the car manufacturers, who might that be?

Yes. Yes. So on the -- so there's two different products we produce at ReElement. There's the Rare Earth elements, which go into the magnets. And then there's the battery materials that go into the batteries. On the magnet side, it would be magnet manufacturers. So if you look at the entire landscape across the United States today, it's a nascent industry. Now overseas, there's a lot of magnet producers. Obviously, in China, there's a lot of magnet producers. First and foremost, what we produced is a commodity. We produce oxides that are storable, shippable, transportable, overseas customers are aggressively looking for it. We like the domestic market, and we are in conversations with two out of the three magnet manufacturers here in the domestic market that are expanding their businesses and ramping up their business to produce magnets domestically. So I don't want to get into names just because we we'll talk about that here shortly of who our partners are on that front. But we're excited to support the growth of the magnet industry. Obviously, the government would buy it for strategic reserves. They would stockpile it, and then ultimately, eventually, if China -- when China cuts everybody off, then they'll have reserves that they can then feed our -- the domestic magnet producers, which we're already supplying. But on the Rare Earth -- or on the battery side, those are the cathode manufacturers, the battery manufacturers. You hear a lot about the autos that are announcing off-takes with people that will produce battery materials probably three, four years out. It's really the joint ventures that are establishing that are the battery, the cathodes that go into the batteries. And we're in talks on that front as well with the battery production train being in a scalable format to be able to supply these customers that are looking for huge amounts of volume. With the new this new tax credit bill that just went -- or the inflation bill that just got passed the -- there's no way the US market is going to be able to supply what that tax bill requires from the auto industry. You could take -- in my personal opinion, 10x what's produced in the domestic market over the next 10 years, and that still won't be enough to supply every auto manufacturer to supply it domestically. That's why they actually put free trade nations in there because ultimately, the US market isn't set up in a way that it can grow that fast. Now I will say our technology is extremely scalable, and we're going to be able to showcase that here very shortly about how cost effective it is to build a production train and how quickly we can scale it. But yes, those cathode manufacturers, the joint ventures you hear are popping up on the battery manufacturing that would be the customers' off-takes for us.

All right. Great. I appreciate the answer. I guess so then it's having a scalable operation like that was -- you'll be challenged with the amount of demand?

It will be fun. I mean, ultimately, that's why, I mean you see our team working pretty aggressively. We love what we do. We love where we're at. We love where we're positioned within the market, showcasing commercial scale, scalability. What's cool about our technology, and I ran a little bit about this, is that we at 1,000x lab scale; we got better results than we got in the lab. It's the surface area interface that we had within the columns that are so effective. Going -- and now we're going to 2,000 excess scale in the same facility, but the ability to go to 5,000 x in the same facility is very real and doable. And it's not, we're not looking at millions of dollars of CapEx that's required to do that. So to be able to feed the speeds of the electrified economy that's coming online, we're in a really unique position to grow our footprint aggressively because of the purification that final stage that lithium refining that you must call the ticket to print money, it's a pretty exciting opportunity that we have in front of us. And honestly, we have a team that brought Ben from Purdue. He’s a, I'm actually going to say, I think he's a genius. I think he's one of the smartest guys I've ever been around, operationally understanding, commercialization is something that he's done a phenomenal job of coming from a university platform to a commercial operation and understanding you need to make money and you need to grow it quickly. Jeff Peterson, who leads the entire team is an absolute rockstar. Chris Moorman, who we just brought on, Dave Sauve, who we have on the team, we have a team that is pretty passionate, and Bill Smith from an industry perspective coming out of 35 years at Eli Lilly, building a team like this of guys that are dead set on winning and dead set on executing and doing it the right way it's awesome. I mean it's something I wake up every morning just thankful that we have this team that's super excited about growing. And we had the same thing on the mining side on American Carbon, which is led by Tarlis Thompson. These guys are hungry. They want to win.

That's great. I look forward to the future then in the results. So thank you.

Awesome. Well, thank you. I appreciate you joining.

Our next question comes from Charles Bamberg , Private Investor. Please go ahead.

Hey Mark, congrats on the great quarter again. I'm wondering, if you have any updates on the Novusterra or grass land side of the business. Thank you.

Yeah, that's a good question. I will address that. So the Novusterra was coming to market, and we filed the S-1 and we can talk about it now. I couldn't talk about it during the public process, but we ended up terminating our lease with Novusterra, the management team, they wanted to go in a different direction. They were trying to close on acquisitions, trying to get public quicker. Ultimately, that didn't fit the objectives of our technology and our patents. And so we are currently -- actually, we're already working with Kenai Defense. He's done a phenomenal job on the government side of the technology and developing the technology. We're expanding our sponsored research with Texas Tech, working with our -- one of our Board members, Dr. Botte, and our team member, Christian down there. But the public process of it was delayed by the market. I mean, it was just -- ultimately the markets at the time about 60 days ago when we were trying to -- or 30 days ago, when we were trying to get this -- get public via the public process. We're at the final stages, but the market was -- I mean, we all witnessed it, it was pretty brutal. And new IPOs are slowing down pretty dramatically. And I didn't want to give away the value of our technology for our shareholders. I think ultimately, we would have not done justice to the value of this technology. Now we are in looking at doing some -- making some announcements on that pretty quickly about the direction we're going on monetizing these patents. And ultimately, it will be a very similar results to our investors, where we'll spin off the division and spend that offering and the team to run it and then raise capital at the subsidiary level and then spin that division off of its own public company. That's the goal that we're currently building that out. It's just that under the Novusterra leadership, it just didn't make sense based on the direction that they wanted to go. So, it's -- but it's -- and ultimately, we don't want to give away the value of our patents. It wasn't -- it didn't make sense for us. It would have been -- it wouldn't have reflected the value of the company based on what the direction they wanted to go and trying to rush through the public markets and orable market. So, it's being built out and continually to drive value and monetize that value in the near term.

Great. Thank you. It's awesome that you're a large shareholder as well, like the rest of the retail investors. So, we know you have our best interest at heart.

We have an awesome shareholder base. I will say like, I mean, you guys participate -- listen, I like to be transparent to communicate. I love what our company is doing. I'm the largest shareholder of the company, to my knowledge, and have never sold a share of stock or bought back stock. I love what our company is doing. I love the teams that we have in place. And I believe in it. And ultimately, it's -- but at the same point, anybody that's invested in our company, you're all investors, and you're all risking capital on the future execution of our team, and we don't take that lightly. And at the end of the day, we're mediators. We like to work hard. We like to drive value. And at the end of the day, we don't believe our -- the value of our technology is being reflected in the current structure. But ultimately, we'll address that. We're going to drive value and all of our shareholders will benefit from that.

Great, Mark. Thank you.

Thank you.

Our next question is a follow-up from Mike Niehuser with ROTH Capital Partners. Please go ahead.

Yes. Thank you fill it me on again. Regarding the last question, how do you get your arms around the valuation or the value proposition? Just what can you say to help people that maybe aren't familiar with that, like myself, how you would start to look at valuing that. I mean you guys have so much going on. And to your credit, it's all working wonderfully. But here's just one more thing you seem to be doing well. And could I get you to elaborate on that, because the other things seem to overshadow it quite a bit.

Yes. Are you referring more towards the ReElement division of how do you value it, or what was the…

No. The Novusterra, just the previous question about that unlocking that value of that asset, because there's just really not a lot of information out there about that. And I'm sure it's obvious from your point of view, but I'd like it to make it more obvious to myself too.

Yes, absolutely. So, the carbon nanostructure graphene patent, we licensed this from Ohio University. They were originally developed by our Board member, Dr. Botte when she was at Ohio. Obviously, now she Chairs Chemical Engineering Department Data Texas Tech and this is also -- when we licensed it, we licensed a suite of patents, which was our electrolysis technologies or process technology that we're going to be utilizing in West Virginia. As well as, we'll be utilizing in another application, which we'll talk about in the near future, which is exciting for us. But the carbon nanostructure and graphene patents are really unique in that. The challenge with producing graphene is typically your feedstock costs are really high. What our technology was developed upon and years of work by Dr. Botte was using carbon as a feedstock. So basically taking these this carbon material and oxidizing the exterior of it, which produces a graphene syrup and that graphene syrup then used to make -- to grow effectively either carbon nanostructures of graphene. A lot of people talk about graphene as typically carbon nanostructures. But -- if you look at the value of it, it's innovative technology, low-cost feedstock in a hugely growing market where carbon nanostructures are highly valuable to concrete additive, asphalt additives, new energy applications, graphene batteries. And so we believe they have substantial value, and that's why we also believe it should be spun out and bring in a separate team that solely focuses on those technologies because ultimately, we have our hands full, and we're willing to admit that we're a small team. We believe our emphasis needs to be squarely focused on the reELEMENT applications and American Carbon division. So, we are building that team out as we speak on the carbon nano structure and graphing technologies. But we've signed -- I mean, even on the sublicense we did with Kanai, they've already signed a $2.7 million deal I believe it was the Air Force for concrete additives and developing the technology for concrete additive for think about forward operating bases when you need to land plans on concrete, you need really strong countries to land these type of planes with the takeoff and velocity that they're landing at and power that they have. So, they need strong concrete to do that and that's an area that they're investing into. They're investing in our technology because they see the application of it. And then obviously, the battery side and what we're exploring on the graphene side of using batteries for superconductors and stuff to that nature that the technology is applicable for. But how we value it. I mean, we think it has substantial value. We are very close to IPOing it through the -- if the market would have held up, the Nova deal probably would have got done and the management would held together. The -- but I was valuing -- I mean I was putting in a value at north of $40 million to be listed on the NASDAQ. We believe these have substantial value, and we believe they'll be reflected in the near future as we explore those events and drive those events home.

Okay. That was really helpful. I don't mean to keep you after an hour, but is Dean -- is that primarily thermal coal?

So Dean is a -- now there's actually -- there's some high vol met over there. There's PCI, the specialty carbon and then there's thermal coal as well. I -- so we're not privy to their -- what -- who they're selling to. I know the prices that they're looking at selling for are attractive. I don't want to give a number until we see it, and we'll report that in a minute if they hit there for strain, we'll let investors know. But the thermal coal markets are extremely strong right now. So, I would have to explore -- I would have to assume that they're targeting the thermal coal markets given the strength of the market right now. But there's specialty coal there -- there's thermal and PCI met coal.

And lastly, what was the company that you mentioned was -- when they were -- you asked the question about ores that provides -- that produces rare earth comparing what you do recycling magnets to what they do -- was that Neo Materials? Is that who that was?

I don't know about purification. I'd mentioned -- and NP Materials mines, they sell concentrate.

That's what it is. Okay got it.

Yes.

Okay. Sorry for keeping you so long, great call. Thank you for getting me participate. Bye, bye.

Thank you for joining.

There are no further questions at this time. I would like to turn the floor back over to Mark Jensen for closing comments.

I want to say, thanks everybody for joining. We're excited about where we're at. Keep everybody in Kentucky and also as they recover from the flood, it's a resilient culture. It's a culture of fighters and a community that sticks together. So, definitely keep them in their thoughts. We're excited about where we're positioned. Ultimately, it's -- the reELEMENT division has accomplished things that we set out to achieve, we knew we were going to achieve, and our team has achieved them. The growth potential here is tremendous. The amount of collaborative partnerships that we'll be able to roll out here very shortly is strong and will drive more high-level visibility to what we're doing. But follow what we do, follow what we do with the team. Ultimately, as I said, we're shareholders in this company. We believe in this company, that's predominantly why we're involved in it. We have confidence in what this business can do and is doing and where we're driving in the future. We thank you for being a part of the call and we look forward to communicating in the future.