Greetings. And welcome to the REX American Resources Fiscal 2021 First Quarter Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards we will conduct a question-and-answer session. I would now like to turn the conference over to Doug Bruggeman, Chief Financial Officer. Please go ahead..

Good morning. And thank you for joining REX American Resources’ fiscal 2021 first quarter conference call. We will get to our presentation and comments momentarily, as well as your question-and-answer session, but first I will 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 risk and uncertainties within the meaning of the Private Securities Litigation Reform Act of 1995..

Sorry. Going forward second quarter to-date continues to be profitable similar to first quarter, ethanol prices, wind prices and DDG prices and corn oil prices had been strong. It’s been offset by higher corn prices, natural gas prices, Zafar Rizvi, our CEO will discuss this further in the call, when he discusses the ethanol segment.

In refined coal area production this quarter to-date is exceeding last year’s quarter by a large margin. This is mostly I believe due to reopening and causing higher utility use and also higher natural gas prices, which is change in utility we work with, we think over the more call. Business -- this business ends in the middle of November.

But the credits can be carried forward for 20 years and we believe we will benefit from these credits with higher cash flows for years to come.

Quarter end REX had approximately consolidated $193 million in cash and no debt, uses of cash include looking for opportunities in the ethanol business, it must be a good plan, good locations, and most importantly, a good price. We have explored these and so far we have found nothing there. We have explored a few opportunities but nothing is eminent.

We are looking at other opportunities in alternative energy that would fit our business skills. So far again nothing imminent. Stock buybacks on dips are authorized, although again, we buy stock on dips. We are also working on a serious carbon capture project, which Zafar Rizvi will discuss further in his call..

Thank you, Stuart. As I mentioned in a previous call, 2020 started and ended with a challenging environment. But the operating environment 2021 is beginning to improve as production continued to increase. According to report from EIA, the ethanol output last week was 55.7% ahead of the same week last year.

But the 2021 production remains 3.64% lower than the -- lower when compared with pre-pandemic was similar week in 2019. The ethanol inventories little change and remains at its lowest levels since 2016 according to the EIA -- last week EIA reports.

But today’s report -- today’s EIA report shows production and stock both dropped and same time gasoline demand is increasing. These improved conditions helped in the first quarter and resulted in the profitable quarter.

We are beginning to see some decline in the crush margin due to a number of factors including the cash price of corn, China’s increase in corn purchases, decline in the price of distiller dried grain, but on the other hand, increasing the price of the corn -- non-food grade corn oil.

We expect the crush margin will continue to be under pressure in the near future. However, we expect to see improvement as the consumption of gasoline increases with people more comfortable driving greater distance as COVID-19 vaccination rises. We are pleased the 10th District -- 10th U.S.

Circuit Court of Appeal granted EPA request to cancel three small refineries exemption but over 70 requests for waiver, waiver request are still under EPA review from RFS compliance year 2011 to 2020. We hope EPA follows the law and rejects all the requests.

The May 12th EPA report shows that -- the May 12th USDA report shows a disappointing 2021 stock carry out of 1.275 billion bushels for the year.

However, 2022 corn prices are expected to increase to -- corn -- stock continue, I am sorry, 2021, 2022 corn stocks are expected to increase 1.507 billion bushels and corn production is forecast to rise 6% to approximately 15 billion bushels.

The estimated corn yield for 2021, 2022 is expected to be 179.5 bushels per acre export are projected 2.45 billion bushels. There was a decrease in the export of distiller trail -- DDG grains and ethanol in the first quarter of 2021. Exports of distiller dried grain total approximately 2.6 million tons, compared to 2.73 million tons in 2020.

We exported 399.3 million gallons of ethanol, compared to 485.4 million gallons in 2020. We are pleased China started to import ethanol and distiller dried grains..

Thank you, Zafar. In conclusion, we have outperformed most ethanol companies in the country this quarter. All closed plants did bad last at the beginning of the pandemic and people seem to think they were all equal. Now as the good plants come online. The good plants do well.

The bad plants might have new ideas, new hopes, new dreams, but at the core they remain bad plants and anything that someone else might do if they start off at a high price, but the ethanol producing the ethanol will not carry forward into the type of profits that a good plant can generate.

We are working very hard on a carbon capture product -- project which Zafar just described. Again, this is a real carbon capture project. There’s a lot of people are announcing carbon capture projects.

We are the one that’s actually working on a hole in the ground, which we think is the key to the carbon capture, not just assembling a bunch of people that will give you their carbon..

Our first question is coming from the line of Jordan Levy with Truist Securities. Please go ahead..

Good morning all and really nice quarter against the clearly challenging backdrop. Just wanted to….

Hi, Jordan..

…first, if we can just talk carbon capture maybe Zafar or Stuart, knowing kind of where you are in the process and still early stage.

Just wanted to get a reminder of what the initial thesis is behind the project and why the area is attract -- is it an attractive place to explore that option and what’s driving kind of looking into that just to give us a reminder on that?.

Zafar?.

Yeah. I think, as you know, the One Earth Energy, as I mentioned in the previous few calls, we are right at the Mount Simon.

And we have done 2D seismic testing previously and we discovered that with the location which we are at One Earth Energy not only can produce CO2 at the same location, we can also same time do the carbon sequestration for our own location and also -- we can also bring from other location to the pipeline.

Our goal is to look at it to cover most Illinois ethanol facilities our other ethanol -- at our other facilities who is producing CO2 to bring that to that location. So we already have the land. We have already done the surveys.

We are now in the process of setting up the facility and we have some set of people was there like last week and we are trying to look at that how the facility will operate and how we can compress CO2 and then how far we can take it to local area where we can do the carbon sequestration.

So, I think in a simple word, we have the best location and a proven location around that area. As you know, ADM is already has done very successfully in those area. So we have supply of that CO2 and we have the location and we also have the funds to make sure that we can achieve our goals..

Perfect..

To add to what Zafar said a lot of people….

And there are….

To add to what Zafar just said a lot of people think you can just put any hole in the ground and it will stay -- and the CO2 will stay in the ground and that’s a complete joke. It’s a very serious business.

It’s the reason why a very, very few people doing it right now because it’s a serious complicated business and the hole it’s not something to be just taken rightly, it’s a very, very difficult part of the process.

And like Zafar said, we have been working very hard at it for a long period of time and people announcing that they are going to put -- capture the carbon, that’s really easy to announce, but it’s a lot harder to find a legitimate hole where it will stay in the ground.

We have identified an area close to one of our plants where we are working hard to make sure that if we do have a project it will be a legitimate project and the carbon -- the CO2 will stay in the ground. And again we think we are ahead of virtually everyone in this business..

That’s great. Thank you for that. And just as a follow up on a more of the capital allocation side, you’ve all been pretty consistent in share buybacks. Just curious, you had some really strong free cash flow this quarter and knowing the ethanol volatility, but also where your cash position is.

Just curious how you all have thought about dividends and the potential for either kind of fixed dividend or as we have seen in some other sectors some have started to kind of do some variable dividend payout structure? Just curious how you think about that versus share buybacks?.

The dividends is always a Board decision, but my own personal opinion is we are a small company and you can either do dividends or share buybacks.

The share buybacks have the advantage of putting a floor on or at least hoping to put a floor on the stock when there are dips and reducing the share count, which increases the earnings per share when we do report earnings and that’s been our way of distributing or giving back to our shareholders some money. Again we are not a huge company.

We are generating a lot of cash. We are fairly for our size, fairly rich company. We do have a lot of cash, but we have uses for that cash. One of the uses, as I said in my call, was to do buybacks and support the stock when someone -- when there are dips in the stock.

We have done that for a number of years and it’s worked pretty well for us over the years. So I imagine the Board will keep with this plan. Hope that answers your question..

Yeah. Yeah. Absolutely. If I could just sneak one last quick one and Stuart you mentioned that, you guys are always looking at kind of attractive opportunities and nothing imminent. I am just curious how you are looking at, you mentioned, alternative -- other alternative energy potential.

I am just curious if there are certain aspects within that that you think are attractive or fit with the business that you would look at versus some of the most attractive?.

Well, we have mostly looked at the ethanol business and we have looked at some very closely, but either the location didn’t work out, the plant didn’t work out or the price was too high. So, but if -- but that could change at any time. They know we are out there looking. In terms of other energy, there’s always the usual wind and solar.

We have looked at that over the years.

We -- but -- and to us the best opportunities are businesses that relate to the ethanol business and to us the best opportunity in the ethanol business is carbon capture and it’s not going to be an inexpensive situation and we will receive very good tax credits from that business, which we know how to monetize, have done in the past and we plan to do that in this case.

But it could be a very, very large business and at the moment that’s what we are focused -- we are focusing on -- what Zafar is focusing on in terms of expanding our company and it’s -- in my opinion something that we need to do not just for us but for the country and for the world at large.

So we are very hopeful for that business and that’s probably the most important thing we can be doing right now and it could be very profitable for us if we do it right..

Makes a ton of sense. Thank you all..

Thank you..

There are no further questions. I will turn the call back over to you..

Okay. We would like to thank everyone for listening to our call and we will look forward to talking to you next quarter. Thank you very much. Bye..

That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line..