American Resources Corporation — Q2 2023 Form 10-Q
Reporting period: Unaudited quarter and six months ended June 30, 2023; comparisons are with the same 2022 periods. The company operates coal mining and processing businesses and is developing metal-recovery and rare-earth-related activities. It says its mineral properties do not have SEC-defined proven or probable reserves.
Financial results and liquidity
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Revenue, 2023 | $1.981 million | $10.849 million |
| Revenue, 2022 | $16.199 million | $25.280 million |
| Operating loss, 2023 | $7.031 million | $9.666 million |
| Net loss, 2023 | $1.000 million | $4.101 million |
| Net loss, 2022 | $2.444 million | $5.197 million |
- Second-quarter revenue fell about 88% year over year; first-half revenue fell about 57%. Coal sales were $1.676 million for Q2 2023 versus $15.970 million in Q2 2022, and $10.399 million for the first half versus $25.001 million.
- Q2 net loss narrowed despite a larger operating loss, chiefly alongside a $5.937 million gain on asset sales. First-half net loss also narrowed; the 2022 comparison included a $3.413 million debt-cancellation gain, while 2023 included the asset-sale gain.
- Cash was $2.875 million and restricted cash was $48.658 million at June 30, for $51.533 million combined. The company identifies only $2.875 million as available cash. Current assets of $6.388 million were below current liabilities of $16.205 million.
- For the first half, cash used in operations was $5.902 million; investing activities provided $1.173 million; financing activities provided $45.271 million. Financing included $43.476 million of bond proceeds and $4.011 million of bond-lookback proceeds.
- Balance-sheet liabilities included $43.476 million of bonds payable, $0.819 million of current debt, $13.790 million of lease liabilities, and a $20.792 million remediation liability. The $9.891 million remaining convertible notes were converted into 9.420 million common shares in January 2023. Shares outstanding were 76.198 million at June 30 and 78.213 million as of August 14.
- The filing does not provide a clear, consistent depreciation figure: the statements of operations show $8,482 for Q2 and $21,818 for the first half, while Note 2 reports $320,167 and $639,362, respectively.
Material changes, outlook, and risks
- Management attributes operating activity and revenue partly to post-pandemic production, but reported sales dropped sharply versus 2022. It expects to meet liquidity needs with cash, borrowings, equity issuance, and operating cash flow; it may reduce mine development or seek additional debt, equity, or asset sales if funding is inadequate. No specific earnings or revenue guidance is provided.
- After quarter-end, the company disclosed a binding letter of intent to sell certain Deane Mining assets for approximately $20.6 million of enterprise value, including a $0.2 million deposit, $0.8 million closing payment, quarterly payments of $0.5 million for 21 quarters, and assumption/replacement of about $9.1 million in reclamation bonds. The transaction was not reported as closed.
- Also after quarter-end, American Carbon entered a coal-sale agreement with Marco International for up to $20 million, based on a 70% advance rate against index pricing for accepted coal and a 3.25% premium.
- Environmental and regulatory obligations are significant. The company reported a $20.792 million remediation liability, assessed Kentucky Energy Cabinet claims of $1.141 million (with $1.432 million accrued for amounts owed to the Commonwealth, including those claims), and MSHA assessments of $729,280 (with $351,303 accrued). Management said it could not reasonably estimate the range of loss from potential claims.
- Management identified disclosure controls as ineffective because of insufficient accounting/reporting staff and untimely reconciliations. It also cited supply-chain constraints, coal-market sensitivity, regulatory costs, and substantial capital needs to restart or upgrade idled operations. Related-party arrangements include leases and service contracts with entities controlled by management-related parties.
Most important facts for investors to verify
- Reconcile the cash-flow figures in the financial statements with MD&A, which appears to label the operating and investing cash-flow amounts inconsistently.
- Confirm the depreciation discrepancy between the statements of operations and Note 2, and assess its effect on reported operating results.
- Track whether the Deane asset sale closes, its final consideration and timing, and whether reclamation-bond obligations are effectively transferred or replaced.
- Determine how much of the $48.658 million restricted cash is available for general corporate purposes and whether operating cash use can be funded without further financing.
- Review coal-sales recovery, share dilution, regulatory/permit status, reclamation exposure, and remediation of the control weaknesses disclosed by management.