American Resources Corporation — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022; comparative periods are the corresponding 2021 periods. The unaudited consolidated company operates coal mining and processing businesses and is developing critical-minerals and metals activities.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $9.51 million | $2.81 million | $34.79 million | $3.22 million |
| Operating loss | $4.63 million | $7.84 million | $12.75 million | $19.40 million |
| Net loss attributable to ARC shareholders | $5.23 million | $8.91 million | $10.40 million | $21.95 million |
| Loss per share, basic and diluted | $0.08 | $0.15 | $0.16 | $0.41 |
Revenue growth was principally driven by higher coal production following pandemic-related disruption. The nine-month operating loss included $22.01 million of development costs, versus $10.01 million in 2021. Management attributed higher operating costs to increased mining and development activity, production taxes and royalties, and asset purchases that increased depreciation. Operating-loss margins were approximately 48.7% of revenue in Q3 and 36.6% for the nine-month period.
Cash flow: Operating activities used $11.88 million in the first nine months, compared with $17.44 million used in 2021. Investing activities provided $3.48 million, while financing activities provided $0.67 million. Cash and restricted cash declined $7.73 million to $4.86 million, including unrestricted cash of $3.77 million.
Liquidity and obligations: Current assets were $11.22 million and current liabilities were $20.69 million. Total liabilities were $46.39 million, compared with assets of $37.31 million, leaving a $9.07 million stockholders’ deficit. Debt reported as current debt, current convertible debt and long-term notes payable totaled approximately $12.01 million; finance lease liabilities totaled $4.46 million. The reclamation liability was $19.94 million.
Material changes and unusual items
- Nine-month revenue increased substantially from 2021 as coal sales rose to $34.44 million from $3.12 million. Q3 coal sales were $9.44 million, compared with $2.78 million.
- Nine-month net loss improved, in part reflecting a reported $3.05 million gain on cancellation of debt. Q3 included a $0.36 million loss on cancellation of debt.
- Property and equipment, net, fell to $15.06 million from $22.90 million at year-end 2021. The cash flow statement reports $5.05 million of net cash received from PPE, but the filing text does not clearly explain the full movement.
- Current convertible debt increased to $9.49 million from $0.57 million at year-end 2021, while long-term convertible notes fell from $8.62 million to zero.
- After quarter-end, on October 21, 2022, ARC agreed to acquire HG Ventures’ 7.5% interest in ReElement Technologies and its warrant for undisclosed consideration; the parties also terminated their collaboration agreement.
Outlook, risks and contingencies
- The filing provides no quantified revenue, earnings or production guidance. Management expects to meet liquidity needs through cash on hand, future borrowings, common-stock issuance and operating cash flow; it may reduce mine development or pursue debt, equity or asset sales if cash flows are insufficient.
- Management cited persistent supply-chain constraints and sensitivity to global steel demand. The company states it has no SEC-defined proven or probable reserves and identifies its activities as exploration stage under the cited Regulation S-K framework.
- Mining operations face substantial permitting, safety, environmental and reclamation obligations. The company disclosed unabated or uncorrected violations that could affect regulatory approval of new permits, and some acquired permits remained subject to transfer approval.
- The reclamation liability was $19.94 million. The filing also reports Kentucky Energy Cabinet claims of $1.43 million, with $1.71 million accrued including other amounts owed to the Commonwealth, and MSHA claims of $0.75 million, with approximately $0.35 million accrued.
- Management concluded disclosure controls were not effective as of September 30, 2022, citing insufficient accounting and reporting staff and untimely reconciliations. Management said it believed the presented financial information was materially correct after consultant support and review.
- Related-party arrangements include property leases and a services agreement with Land Betterment, an entity controlled by certain management members who are also directors and shareholders. The company incurred $4.68 million under the services agreement in the first nine months of 2022.
Investor verification priorities
- Assess cash runway, upcoming debt maturities, refinancing needs and reliance on future borrowing or equity issuance.
- Reconcile the $5.05 million PPE cash inflow and the large decline in net property and equipment with the underlying asset transactions.
- Review the terms, valuation and funding source for the undisclosed-consideration ReElement interest acquisition and the effect of terminating the collaboration agreement.
- Evaluate the status and potential cost of reclamation, MSHA and state claims, permit transfers, and outstanding violations.
- Track remediation of the disclosed control weaknesses and review related-party service charges and governance safeguards.