Release Date: August 19, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- American Resources Corp (AREC, Financial) is making significant progress in unbundling its assets to create standalone companies, which could unlock substantial shareholder value.
- ReElement Technologies is positioned as a world leader in efficient, low-cost, and environmentally safe critical mineral refining, with a focus on diversifying away from China's monopolistic economy.
- The company has secured partnerships and supply agreements for its ReElement division, including with large multinational corporations and automotive companies.
- AREC's Noblesville facility is expanding to meet the growing demand for rare earth oxide and battery-grade materials, indicating strong market interest.
- The company is pursuing a hybrid model for ReElement, combining its own facilities with a 'Powered by ReElement' service, which reduces CapEx and operational risks while expanding its market reach.
Negative Points
- The current stock price does not reflect the perceived value of AREC's assets, indicating a potential disconnect between market perception and intrinsic value.
- The company is undergoing significant restructuring and separation of its divisions, which could introduce operational complexities and execution risks.
- AREC's financials have been delayed due to the replacement of auditors, which may cause uncertainty among investors.
- The company is reliant on securing additional capital, including from patriotic capital funds, to support its growth initiatives, which could dilute existing shareholders.
- There is a potential risk associated with the SPAC merger for American Metals, including how much capital will stay in trust and the final valuation of the deal.
Q & A Highlights
Q: Can you explain how the grade for rare-earth ores is different from refining lithium to be battery grade? Also, can you elaborate on the demonstration conducted and its scale?
A: The quality we produce for rare-earth oxide is at 99.5% purity, which is also what battery manufacturers need. We demonstrated this at a commercial scale, and the efficacy of our technology improves at higher volumes. The demonstration was conducted at a lab scale due to the sample size provided by the customer, but we are ready to scale up once partnerships are in place.
Q: Can you give us some input factors used to derive the fairness opinion value of American Metals?
A: The fairness opinion was conducted by the SPAC itself, not by us. They had full data room access to our business and partnerships. We don't have all the details, but the fairness opinion valued American Metals at $170 million, which will be included in the S4 filing.
Q: How much cash has been brought in through the spinoffs and M&A activities, and how much more do you expect by the end of the year?
A: ReElement has credit facilities and some revenues from customers. We are discussing a $10-20 million raise with patriotic capital funds. American Carbon is negotiating a large pre-pay order and has credit facilities available. American Metals has been a revenue driver through reclamation and is merging with a SPAC, with additional credit facilities if needed.
Q: What is the total asset base value of American Resources, and how does it compare to the current share price?
A: The replacement value of our equipment is around $300 million. Adding the $170 million fairness opinion for American Metals and a minimum of $150 million for ReElement, we estimate a total value of around $600 million, minus $50 million in debt. This suggests a significant undervaluation compared to the current market cap.
Q: Are you expanding the Noblesville location to fill orders and start realizing revenue?
A: Yes, we are expanding Noblesville to handle the volume of material for testing and to fulfill purchase orders. However, the main revenue generation will come from our Marion facility, which will produce rare earth oxides and battery materials at a commercial scale.
Q: How does the American Metals SPAC deal benefit American Resources shareholders?
A: American Metals is currently 100% owned by American Resources. Once the S4 is effective, we will distribute a portion of those shares to our shareholders. The exact percentage is yet to be determined by the board.
Q: What is the timeline for completing your 10-Q?
A: The 10-Q was filed today. The delay was due to our audit chair traveling overseas and being unable to sign off on the report.
Q: What will the capital raised from patriotic capital funds be used for?
A: The capital will go directly into ReElement, primarily for working capital and to buy equipment for the Marion facility. This will add a cushion of capital as we pursue the spinoff and get the company ready as a separate public entity.
Q: Should we think of ReElement as an asset-light business model?
A: Yes, ReElement is moving towards an asset-light model. We will deploy our technology in other companies' facilities and charge a service fee, reducing our CapEx and the need to hire a large workforce. Our focus is on building our own facilities to showcase our technology and then expanding through partnerships.
Q: Will the Kentucky and Marion facilities compete for the same material?
A: No, the Kentucky facility will focus on lithium spodumene, while the Marion facility will handle rare earth ores, magnets, and recycled battery materials. They will produce different products and serve different markets.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
