American Resources Corporation — Q3 2023 Form 10-Q
Business context and reporting period. This unaudited quarterly report covers the three and nine months ended September 30, 2023. The company operates coal mining and processing businesses and is also pursuing critical-mineral refining and metal-recycling activities. It says it has no proven or probable reserves under SEC Industry Guide 7.
Key financial metrics
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $5.83 million | $9.51 million | $16.68 million | $34.79 million |
| Operating income (loss) | $1.09 million | ($4.63 million) | ($8.57 million) | ($12.75 million) |
| Net income (loss), statements of operations | $3.48 million | ($5.23 million) | ($0.62 million) | ($10.47 million) |
| Operating cash flow | Not presented separately | Not presented separately | ($9.03 million) | ($11.88 million) |
- Revenue was down about 39% year over year in Q3 and 52% for the first nine months. Coal sales accounted for most revenue and declined to $5.72 million for the quarter and $16.12 million year to date.
- Q3 net income included a $2.54 million gain on asset sales; the nine-month period included $8.48 million of such gains. Nine-month net loss was also affected by $1.04 million of interest expense.
- At September 30, cash was $3.12 million and restricted cash was $41.60 million. Current assets of $12.35 million were below current liabilities of $16.21 million.
- Long-term liabilities included $43.20 million of bonds payable, net, and a $21.04 million remediation liability. The May 2023 bond agreement was for $45 million principal, bears 9% interest and matures in 2038. Much of the restricted cash is held in bond-related reserves.
- Total liabilities were $88.22 million; reported stockholders’ equity was $14.70 million. Cash and restricted cash totaled $44.71 million at period-end, versus $10.99 million at the start of the year.
Changes, outlook and material items
- Operating losses narrowed for both the quarter and nine-month comparison, while revenue fell materially. Management attributes operating costs to mining and development activity; the filing also cites increased mine development and expansion.
- Financing cash flow was $44.98 million for the nine months, primarily reflecting bond proceeds and related lookback proceeds. Investing cash flow was a use of $2.23 million.
- Management expects to meet liquidity needs through cash on hand, future borrowing, stock issuance and operating cash flow; it may reduce mine development or pursue debt, equity or asset sales if cash flows are insufficient. No quantified earnings or revenue guidance is provided.
- A binding letter of intent to sell Deane Mining assets for approximately $20.6 million of enterprise value, including assumption and replacement of about $9.1 million in reclamation bonds, had not closed by the report date. Separate nonbinding indications for American Carbon and Perry County assets were approximately $300 million and $40 million, respectively; neither was a completed transaction.
- A coal-sale agreement with Marco International permits up to $20 million in sales; $2.02 million had been sold under it by the report date. A November 2023 City of Marion bond agreement authorized $44.897 million in local incentives for a critical-mineral refining campus; it closed and an initial incremental payment was made after quarter-end.
- Risks include significant reclamation and remediation obligations, regulatory compliance and permit-transfer uncertainty, coal-market and customer-demand exposure, and the need for substantial capital to restart or upgrade idled mines and facilities. The company reports outstanding permit violations that could affect new permit approvals.
- Management concluded disclosure controls were not effective, citing insufficient accounting/reporting staff and untimely reconciliations. The filing also describes related-party leases and service arrangements, including $3.38 million incurred under the Land Betterment services agreement during the first nine months.
Important facts for investors to verify
- Financial-statement inconsistencies: the statements of operations report Q3 net income of $3.48 million and nine-month net loss of $0.62 million, while MD&A reports different attributable results ($142,842 and $4.24 million of income). The cash-flow statement’s starting net-loss figure also does not match the statements of operations.
- Share-count discrepancy: the balance sheet reports 66.86 million shares outstanding at September 30, while the equity statement reports 76.25 million; the cover page reports 78.27 million as of November 14. Confirm the correct share count and dilution.
- Property-and-equipment discrepancy: the balance sheet lists net property and equipment of $11.69 million, while Note 2 reports $17.85 million. Confirm the correct balance and any effect on assets or equity.
- Confirm the accessibility and permitted uses of restricted cash, bond-reserve requirements, and the company’s ability to fund operating cash burn and remediation obligations.
- Track the status, final terms and closing conditions of asset-sale proposals, the Marco agreement, and the City of Marion incentives; distinguish completed transactions from letters of intent or nonbinding proposals.
- Assess remediation claims and regulatory exposure: the filing cites Kentucky Energy Cabinet assessments of $1.17 million and MSHA assessments of $755,377, with accrued amounts differing from those assessments.