American Resources Corporation — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021; unaudited. American Resources operates coal mining and processing businesses, primarily in eastern Kentucky and West Virginia, and also pursues metals recovery and rare-earth opportunities. Management says production is focused on metallurgical coal; the company reports no proven or probable reserves under SEC Industry Guide 7.
Financial performance and position
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $2.814 million | $0.295 million | $3.218 million | $1.046 million |
| Operating loss | $7.843 million | $2.234 million | $19.401 million | $9.300 million |
| Net income (loss) | $(8.914) million | $0.124 million | $(21.954) million | $(1.829) million |
| Loss per share, basic and diluted | $(0.15) | $0.00 | $(0.41) | $(0.07) |
- Q3 coal sales were $2.779 million; nine-month coal sales were $3.122 million. Metal sales and royalties made up most of the remaining revenue.
- Coal sales and processing costs were $3.069 million in Q3 and $4.814 million for the nine months, exceeding total revenue by approximately $0.255 million and $1.596 million, respectively.
- Development costs rose to $5.142 million in Q3 and $10.010 million for the nine months, versus $0.793 million and $1.228 million in the comparable 2020 periods. Management attributes higher expenses to increased mining and development activity and asset purchases.
- At September 30, cash was $19.122 million and restricted cash was $1.009 million. Current assets were $21.504 million versus current liabilities of $27.943 million. Total assets were $51.901 million and total liabilities $49.134 million.
- Interest-bearing debt shown on the balance sheet totaled approximately $22.111 million: $5.314 million current long-term debt, $12.051 million current convertible debt, and $4.746 million long-term notes. This excludes reclamation liabilities, which totaled $18.772 million.
- Stockholders’ equity was $2.767 million, compared with a $20.006 million deficit at December 31, 2020. Common shares outstanding increased from 42.973 million at year-end to 60.830 million at September 30; 61.731 million were outstanding November 15.
Cash flow and changes versus prior period
- The financial statements report nine-month cash used in operations of $17.441 million, cash used in investing of $5.076 million, and cash provided by financing of $31.446 million. Cash and restricted cash increased by $8.929 million to $20.130 million.
- Financing included $29.218 million net proceeds from common stock and $2.269 million from warrant conversions. The company also issued 8.6 million shares in a June offering for $27.943 million net proceeds.
- Revenue grew as coal production resumed, but losses widened as operating and development expenses increased. Q3 2020 included $2.539 million of gains from forgiven interest and depreciation recapture; nine-month 2020 also included a $6.821 million gain on sale of stock. These items contributed to the more favorable prior-period results.
- Mining at Perry County’s E4-2 mine restarted March 29, 2021; Carnegie 1 restarted October 8, after quarter-end. The company said it was using less than 10% of capacity at certain operating preparation plants.
Outlook, risks and unusual items
- No quantified revenue, earnings, or production guidance is provided. Management expects to fund liquidity needs with cash, future borrowings, equity issuance, and operating cash flow; it may reduce mine development or seek additional financing or asset sales if cash flow is insufficient.
- Management cited continuing pandemic-related disruption and elevated or restricted labor, supplies, and logistics. Demand remains sensitive to steel markets, and the filing warns of competition and extensive environmental, mine-safety, permitting, and reclamation requirements.
- On November 9, 2021, after the reporting date, Quest Processing was released from principal and interest obligations on a $5.143 million Kentucky New Markets Development Program loan.
- The company reported assessed claims of $1.446 million from the Kentucky Energy Cabinet, with $1.708 million accrued as payable to the Commonwealth including those amounts; MSHA assessments totaled $0.754 million, of which $0.202 million was accrued. Management said it could not reasonably estimate the range of potential losses from claims and litigation.
- The company has an obligation, through its investment in AOV, to fund up to $0.800 million of American Acquisition Opportunity Inc.’s operating and working-capital deficits. Related-party Land Betterment service charges were $1.619 million in Q3 and $3.556 million for the nine months.
- Management concluded disclosure controls were not effective due to insufficient accounting and reporting staff and untimely reconciliations. It said external consultants and review procedures supported the material correctness of the reported financial statements.
Important facts for investors to verify
- Cash-flow figures conflict: the cash-flow statement reports operating cash use of $17.441 million, investing cash use of $5.076 million, and financing cash inflow of $31.446 million; MD&A reports $10.446 million, $2.927 million, and $31.300 million, respectively. Reconcile these amounts to the filed statements and underlying records.
- Confirm the post-quarter $5.143 million loan release and its accounting and cash-flow effects in subsequent filings.
- Assess near-term liquidity and debt maturities, including the company’s stated reliance on further borrowing, equity issuance, or asset sales if operating cash flow is inadequate.
- Track production restart progress, realized coal pricing, development spending, and the ability to improve operating economics given low utilization of available processing capacity.
- Monitor reclamation obligations, regulatory violations and permit transfers, assessed claims, and the effectiveness of remediation of disclosure-control weaknesses.