American Resources Corporation Reports Third Quarter 2019 Financial Results

FISHERS, IN / ACCESSWIRE / November 18, 2019 / American Resources Corporation (NASDAQ:AREC) (the "Company"), a supplier of raw materials to the rapidly growing global infrastructure marketplace, with a primary focus on the extraction, processing, transportation and distribution of metallurgical carbon to the steel industry, today reported a net loss from operations of $7.08 million, or a loss of $0.30 per share, in the third quarter of 2019, compared with a net loss from operations of $4.13 million, or a loss of $3.44 per share, in the prior-year period. The Company earned adjusted earnings before interest, taxes, depreciation, amortization, accretion on asset retirement obligations, non-operating expenses, and development costs (‘adjusted EBITDA") of a loss of $2.67 million in the third quarter of 2019, as compared with adjusted EBITDA loss of $0.99 million for the third quarter of 2018. Revenues totaled $1.85 million for the three months ended September 30, 2019 versus $9.04 million in the prior-year quarter.

"We are extremely excited about how our platform is set up to perform in 2020 and beyond. The third quarter of 2019 proved to be a challenging quarter for our industry, highlighted by a number of market participants liquidating assets through the bankruptcy process in the face of the seasonal steel slowdown and general macro uncertainties in the global economy. During this period, we were able to execute on both organic opportunities as well as opportunities to further consolidate quality metallurgical carbon assets," stated Mark Jensen, Chairman and CEO of American Resources Corporation. "Organically, we took the opportunity to further develop some of our existing mines around our McCoy Elkhorn complex including commencing the final development stage to bring our Carnegie 2 mine into production. The capital investments and development of our mines meant that we needed to take some production offline. We feel that this was done at an opportune time and has put us in a better position in terms of volume and quality metrics. We were also very active in the bankruptcy processes of assets within our operating region. As a result, we were able to acquire our previously announces, fifth operating complex, Perry County Resources this past September. The addition of Perry County to our portfolio of assets is already proving to be a valuable assets as we are executing on our restructuring plan while serving the existing customer base. Overall, the market for our products remains very promising as the world's need for carbon, steel and infrastructure continues to be healthy, and our platform remains in a unique position of bringing a robust pipeline of growth to the market and to our investors."

Operational Results

The Company produced and sold 25,969 short tons of coal in the third quarter of 2019.

The exhibit below summarizes some of the key sales, production and financial metrics:

 
Three month ended
 
 
Three month ended
 

 
September 30,
 
 
June 31,
 
 
September 30,
 

 
2019
 
 
2019
 
 
2018
 

Sales Volume (a)

Tons Sold

 
 
25,969
 
 
 
127,021
 
 
 
122,823
 

Company Production (a)

McCoy Elkhorn Coal

 
 
11,180
 
 
 
56,335
 
 
 
57,721
 

Deane Mining

 
 
14,789
 
 
 
70,686
 
 
 
65,102
 

Total

 
 
25,969
 
 
 
127,021
 
 
 
122,823
 

Company Financial Metrics(b)

Revenue per Ton

 
 
71.13
 
 
 
73.38
 
 
 
72.38
 

Cash Cost per Ton Sold (c)

 
 
113.84
 
 
 
49.27
 
 
 
49.27
 

Cash Margin per Ton (c)

 
 
-42.71
 
 
 
24.11
 
 
 
23.11
 

Development Costs

 
 
1,425,024
 
 
 
1,887,447
 
 
 
945,341
 

Notes:

(a) In short tons

(b) Excludes transportation

(c) Cash cost per ton is based on reported cost of sales and includes items such as production taxes, royalties, labor, fuel, and other similar production and sales cost items, and may be adjusted for other items that, pursuant to GAAP, are classified in the Statement of Operations as costs other than cost of sales, but relate directly to the cost incurred to produce coal. Our cash cost of sales per short ton is calculated as cash cost of sales divided by short tons sold, and our cash margin per ton is calculated by subtracting cash cost per ton from revenue per ton. Cash cost of sales per short ton and average cash margin per ton are non-GAAP financial measure which are calculated in conformity with U.S. GAAP and should be considered supplemental to, and not as a substitute or superior to financial measures calculated in conformity with GAAP. We believe cash cost of sales per ton and average cash margin per ton are useful measurse of performance as it aides some investors and analysts in comparing us against other companies. Cash cost of sales per ton and margin per ton may not be comparable to similarly titled measures used by other companies.

Mark Jensen added, "Throughout the third quarter of 2019, where we idled some production during a time of market softness, we also continued to make progress on our growth objectives to position ourselves for advancement in 2020. Most notably, was the acquisition of Perry County Resources, as it represents our fifth carbon processing and logistics hub in the Central Appalachian basin and broadens our footprint in the metallurgical carbon market. Additionally, we continued to position our metallurgical mines at McCoy Elkhorn to provide expanded output with greater efficiencies. Over the past five months, we have seen a meaningful amount of U.S. carbon supply come offline given market participants idling assets plus several participants entering into bankruptcy. Our unique business model has allowed us to be opportunistic during this time and strengthen our position in the market. We expect markets to firm up sometime next year as it digests a tighter supply outlook, while our outlook on demand remains healthy. We feel that we are in as good of a position as we have ever been to deliver attractive growth to our customers, employees and shareholders, and we maintain a sanguine outlook on carbon and steel markets given infrastructure development world-wide."

Additional Financial Results

Total revenues were $1,847,969 for the third quarter of 2019. Cost of sales (includes mining, transportation, , and processing costs,) for the third quarter of 2019 were $2,956,305, or 160 percent of total revenues, compared to $7,116,009, or 78.7% of total revenue in the same period of 2018.

General and administrative expenses for the third quarter of 2019 were $1,434,544 for the third quarter of 2019, or 77.7 percent of total revenue. Depreciation for the third quarter of 2019 was $1,414,942, or 76.6 percent of total revenue. American Resources incurred interest expense of $901,810 during the third quarter of 2019 compared to $305,655 during the third quarter of 2018. Development costs during the quarter were $1,425,024, compared to $2,887,448 in the second quarter of 2019.

The Company did not incur any income tax expense as it was able to utilize its available net operating losses ("NOL") carried forward from prior periods of approximately $2,027,765 as of December 31, 2018.

Company Outlook

Based on American Resources' organic growth from its already owned infrastructure, controlled mining permits and its capital investment schedule, the Company expects its 2020 production forecast to be in the range of 2.0 to 2.2 million tons.

AMERICAN RESOURCES CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

UNAUDITED

Three Months

September 30,

2019

Three Months

September 30,

2018 As

Restated

Nine Months

September 30,

2019

Nine Months

September 30,

2018 As Restated

Coal Sales

 
$
1,847,279
 
 
$
8,890,322
 
 
$
18,162,805
 
 
$
23,219,222
 

Processing Services Income

 
 
–
 
 
 
147,946
 
 
 
20,876
 
 
 
167,462
 

Total Revenue

 
 
1,847,279
 
 
 
9,038,268
 
 
 
18,183,681
 
 
 
23,386,684
 

Cost of Coal Sales and Processing

 
 
(2,956,306
)
 
 
(7,116,009
)
 
 
(15,254,961
)
 
 
(18,214,195
)

Accretion Expense

 
 
(320,900
)
 
 
(433,589
)
 
 
(962,699
)
 
 
(1,116,751
)

Depreciation

 
 
(1,414,942
)
 
 
(700,595
)
 
 
(3,036,747
)
 
 
(1,931,374
)

Amortization of mining rights

 
 
(252,729
)
 
 
(181,385
)
 
 
(1,592,110
)
 
 
(181,385
)

General and Administrative

 
 
(1,434,545
)
 
 
(2,320,287
)
 
 
(3,798,051
)
 
 
(3,892,596
)

Professional Fees

 
 
(170,937
)
 
 
(707,735
)
 
 
(5,136,767
)
 
 
(1,106,864
)

Production Taxes and Royalties

 
 
(948,148
)
 
 
(759,269
)
 
 
(2,811,691
)
 
 
(2,217,156
)

Development Costs

 
 
(1,425,024
)
 
 
(945,341
)
 
 
(5,912,589
)
 
 
(3,429,512
)

Total Operating Expenses

 
 
(8,923,531
)
 
 
(13,164,210
)
 
 
(38,505,615
)
 
 
(32,089,833
)

Net Loss from Operations

 
 
(7,076,252
)
 
 
(4,125,942
)
 
 
(20,321,934
)
 
 
(8,703,149
)

Other Income

 
 
770,405
 
 
 
875,942
 
 
 
1,251,359
 
 
 
1,295,065
 

Gain on cancelation of debt

 
 
–
 
 
 
–
 
 
 
–
 
 
 
315,000
 

Loss on settlement of payable

 
 
–
 
 
 
–
 
 
 
(22,660
)
 
 
 
 

Receipt of previously impaired receivable

 
 
–
 
 
 
–
 
 
 
–
 
 
 
92,573
 

Amortization of debt discount and issuance costs

 
 
(219,218
)
 
 
–
 
 
 
(7,722,197
)
 
 
–
 

Interest Income

 
 
82,343
 
 
 
–
 
 
 
164,686
 
 
 
41,171
 

Warrant Modification Expense

 
 
–
 
 
 
–
 
 
 
(2,545,360
)
 
 
–
 

Interest expense

 
 
(901,810
)
 
 
(305,655
)
 
 
(1,674,653
)
 
 
(864,104
)

Total Other income (expense)

 
 
(268,280
)
 
 
570,287
 
 
 
(10,548,825
)
 
 
879,705
 

Net Loss

 
 
(7,344,532
)
 
 
(3,555,655
)
 
 
(30,870,759
)
 
 
(7,823,444
)

Less: Series B dividend requirement

 
 
–
 
 
 
(17,000
)
 
 
–
 
 
 
(104,157
)

Less: Net income attributable to Non Controlling Interest

 
 
–
 
 
 
–
 
 
 
–
 
 
 
(151,278
)

Net loss attributable to American Resources Corporation Shareholders

 
$
(7,344,532
)
 
$
(3,572,655
)
 
$
(30,870,759
)
 
$
(8,078,879
)

Net loss per common share – basic and diluted

 
$
(0.30
)
 
$
(3.44
)
 
$
(1.34
)
 
$
(8.58
)

Weighted average common shares outstanding

 
 
24,886,763
 
 
 
1,038,783
 
 
 
23,025,762
 
 
 
941,495
 

AMERICAN RESOURCES CORPORATION

CONSOLIDATED BALANCE SHEETS

UNAUDITED

September 30,

2019

December 31,

2018

ASSETS
 
 

CURRENT ASSETS

Cash

 
$
716,840
 
 
$
2,293,107
 

Accounts Receivable

 
 
71,580
 
 
 
1,338,680
 

Inventory

 
 
1,004,326
 
 
 
163,800
 

Prepaid fees

 
 
483,000
 
 
 
147,826
 

Accounts Receivable – Other

 
 
336,800
 
 
 
319,548
 

Total Current Assets

 
 
2,612,546
 
 
 
4,262,961
 

OTHER ASSETS

Cash – restricted

 
 
297,987
 
 
 
411,692
 

Processing and rail facility

 
 
14,496,487
 
 
 
11,630,171
 

Underground equipment

 
 
10,155,915
 
 
 
8,717,229
 

Surface equipment

 
 
3,224,896
 
 
 
3,101,518
 

Acquired mining rights

 
 
28,831,440
 
 
 
2,913,241
 

Coal refuse storage

 
 
12,171,271
 
 
 
11,993,827
 

Less Accumulated Depreciation

 
 
(11,320,116
)
 
 
(6,691,259
)

Land

 
 
3,248,169
 
 
 
907,193
 

Note Receivable

 
 
4,117,139
 
 
 
4,117,139
 

Total Other Assets

 
 
65,223,188
 
 
 
37,100,751
 

TOTAL ASSETS

 
$
67,835,734
 
 
$
41,363,712
 

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
 
 

CURRENT LIABILITIES

Accounts payable and accrued liabilities

 
$
7,483,079
 
 
$
8,139,662
 

Accounts payable – related party

 
 
639,180
 
 
 
474,654
 

Accrued interest

 
 
1,977,142
 
 
 
1,118,736
 

Funds held for others

 
 
–
 
 
 
79,662
 

Due to affiliate

 
 
132,639
 
 
 
124,000
 

Current portion of long term-debt (net of issuance costs and debt discount of $0 and $134,296)

 
 
14,691,696
 
 
 
14,169,139
 

Current portion of convertible debt

 
 
7,219,612
 
 
 
–
 

Current portion of reclamation liability

 
 
2,327,169
 
 
 
2,327,169
 

Total Current Liabilities

 
 
34,470,517
 
 
 
26,433,022
 

OTHER LIABILITIES

Long-term portion of note payable (net of issuance costs of $420,062 and $428,699)

 
 
4,829,330
 
 
 
7,918,872
 

Reclamation liability

 
 
21,425,097
 
 
 
16,211,640
 

Total Other Liabilities

 
 
26,254,427
 
 
 
24,134,512
 

Total Liabilities

 
 
60,724,944
 
 
 
50,563,534
 

STOCKHOLDERS' EQUITY (DEFICIT)

AREC – Class A Common stock: $.0001 par value; 230,000,000 shares authorized, 27,267,197 and 17,763,469 shares issued and outstanding, respectively

 
 
2,726
 
 
 
1,776
 

AREC – Series A Preferred stock: $.0001 par value; 5,000,000 shares authorized, 0 and 481,780 shares issued and outstanding, respectively

 
 
–
 
 
 
48
 

AREC – Series C Preferred stock: $.001 par value; 20,000,000 shares authorized, 0 and 50,000 shares issued and outstanding, respectively

 
 
–
 
 
 
5
 

Additional paid-in capital

 
 
90,094,006
 
 
 
42,913,532
 

Accumulated deficit

 
 
(82,985,942
)
 
 
(52,115,183
)

Total American Resources Corporation's Stockholders' Equity (Deficit)

Total Stockholders' Deficit

 
 
7,110,790
 
 
 
(9,199,822
)

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

 
$
67,835,734
 
 
$
41,363,712
 

AMERICAN RESOURCES CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

UNAUDITED

For the Nine

Months

September 30,

2019

For the Nine

Months

September 30,

2018

As Restated

Cash Flows from Operating activities:

Net loss

 
$
(30,870,759
)
 
$
(7,823,444
 

Adjustments to reconcile loss to net cash

Depreciation

 
 
3,036,747
 
 
 
1,931,374
 

Amortization of mining rights

 
 
1,592,110
 
 
 
181,385
 

Accretion expense

 
 
962,699
 
 
 
1,116,751
 

Cancelation of debt

 
 
–
 
 
 
(315,000
 

Gain on disposition

 
 
–
 
 
 
(807,591
 

Recovery of previously impaired receipts

 
 
(50,806
)
 
 
(92,573
 

Amortization of debt discount

 
 
7,722,197
 
 
 
420,134
 

Warrant expense

 
 
2,528,598
 
 
 
234,067
 

Warrant modification expense

 
 
2,545,360
 
 
 
–
 

Option expense

 
 
245,356
 
 
 
13,410
 

Issuance of common shares for services

 
 
1,806,040
 
 
 
201,250
 

Change in current assets and liabilities:

Accounts receivable

 
 
1,300,654
 
 
 
(930,478
 

Inventory

 
 
(840,526
)
 
 
188,371
 

Prepaid expenses and other assets

 
 
(335,174
)
 
 
(147,826
 

Accounts payable

 
 
(2,274,582
)
 
 
973,057
 

Funds held for others

 
 
(79,662
)
 
 
(19,061
 

Due to affiliates

 
 
164,526
 
 
 
512,378
 

Accrued interest

 
 
858,406
 
 
 
287,639
 

Cash used in operating activities

 
 
(11,688,816
)
 
 
(4,076,157
 

Cash Flows from Investing activities:

Advances made in connection with management agreement

 
 
–
 
 
 
(99,582
 

Advance repayment in connection with management agreement

 
 
–
 
 
 
222,304
 

Cash paid for PPE, net

 
 
(327,250
)
 
 
(127,957
 

Cash received in asset acquisitions

 
 
650,000
 
 
 
–
 

Cash provided by (used in) investing activities

 
 
322,750
 
 
 
(5,235
 

Cash Flows from Financing activities:

Principal payments on long term debt

 
 
(2,548,111
)
 
 
(2,064,902
 

Proceeds from long term debt

 
 
5,139,399
 
 
 
5,316,977
 

Proceeds from convertible debt

 
 
399,980
 
 
 
–
 

Proceeds from related party

 
 
8,639
 
 
 
–
 

Net proceeds from (payments to) factoring agreement

 
 
(1,087,413
)
 
 
787,434
 

Sale of common stock for cash in connection with public offering

 
 
4,354,000
 
 
 
–
 

Sale of common stock for cash issued with warrants in connection with public offering

 
 
3,409,600
 
 
 
–
 

Cash provided by financing activities

 
 
9,676,094
 
 
 
4,039,509
 

Decrease in cash and restricted cash

 
 
(1,689,972
)
 
 
(41,883
 

Cash and restricted cash, beginning of period

 
 
2,704,799
 
 
 
385,665
 

Cash and restricted cash, end of period

 
$
1,014,827
 
 
$
343,782
 

Supplemental Information

Cash paid for interest

 
$
389,437
 
 
$
156,331
 

Cash paid for income taxes

 
$
–
 
 
$
–
 

Non-cash investing and financing activities

Shares issued in asset acquisition

 
$
24,400,000
 
 
$
–
 

Assumption of net assets and liabilities for asset acquisitions

 
$
8,787,748
 
 
$
2,217,952
 

Equipment for notes payable

 
$
–
 
 
$
906,660
 

Conversion of accounts payable into common shares

 
$
231,661
 
 
$
–
 

Beneficial Conversion Feature on note payable due to modification

 
$
7,362,925
 
 
$
–
 

Preferred Series B dividends

 
$
–
 
 
$
104,157
 

Shares issued in connection with note payable

 
$
297,831
 
 
$
–
 

Conversion of Series A Preferred into common shares

 
$
161
 
 
$
–
 

Conversion of Series C Preferred into common shares

 
$
1
 
 
$
–
 

Return of shares related to employee settlement

 
$
11
 
 
$
–
 

Forgiveness of accrued management fee

 
$
–
 
 
$
17,840,615
 

Warrant exercise for common shares

 
$
60
 
 
$
–
 

Reconciliation of Non-GAAP Measures

Reconciliation of Adjusted EBITDA to Amounts Reported Under U.S. GAAP:

 
For the three months ended Sept. 30, 2019
 
 
For the nine months ended Sept. 30, 2019
 
 
For the three months ended Sept. 30, 2018
 

Net Income

 
 
(7,344,533
)
 
 
(30,870,759
)
 
 
(3,555,655
)

Interest & Other Expenses

 
 
1,121,030
 
 
 
11,964,870
 
 
 
305,655
 

Income Tax Expense

 
 
–
 
 
 
–
 
 
 
–
 

Accretion Expense

 
 
320,900
 
 
 
962,699
 
 
 
433,589
 

Depreciation

 
 
1,414,942
 
 
 
3,036,747
 
 
 
700,595
 

Amortization of Mining Rights

 
 
252,728
 
 
 
1,592,110
 
 
 
181,385
 

Non-Cash Stock Options

 
 
–
 
 
 
485,799
 
 
 
–
 

Non-Cash Warrant Expense

 
 
–
 
 
 
5,069,860
 
 
 
–
 

Non-Cash Share Comp. Expense

 
 
138,857
 
 
 
1,806,040
 
 
 
–
 

Development Costs

 
 
1,425,024
 
 
 
5,912,589
 
 
 
945,341
 

Total Adjustments

 
 
4,673,481
 
 
 
30,830,714
 
 
 
2,566,565
 

Adjusted EBITDA

 
 
(2,671,052
)
 
 
(40,045
)
 
 
(989,090
)

Adjusted EBITDA is defined as net income before net interest expense, income tax expense, accretion expense, depreciation, non-cash stock compensation expense, transaction and other professional fees, and development costs. Adjusted EBITDA is not a measure of financial performance in accordance with GAAP, and we believe items excluded from Adjusted EBITDA are significant to a reader in understanding and assessing our financial condition. Therefore, Adjusted EBITDA should not be considered in isolation, nor as an alternative to net income, income from operations, cash flow from operations or as a measure of our profitability, liquidity, or performance under GAAP. We believe that Adjusted EBITDA presents a useful measure of our ability to incur and service debt based on ongoing operations. Furthermore, similar measures are used by analysts to evaluate our operating performance. Investors should be aware that our presentation of Adjusted EBITDA may not be comparable to similarly titled measures used by others.

Use of Non-GAAP Financial Measures

This release contains the use of certain U.S. non-GAAP financial measures. These non-GAAP financial measures are provided as supplemental information for financial measures prepared in accordance with GAAP. Management believes that these non-GAAP financial measures provide additional insight into the performance of the Company, and reflect how management analyzes Company performance and compares that performance against other companies. These non-GAAP financial measures may not be comparable to other similarly titled measures used by other entities.

About American Resources Corporation

American Resources Corporation is a supplier of raw materials to the rapidly growing global infrastructure marketplace. The company's primary focus is on the extraction, processing, transportation and selling of metallurgical carbon and pulverized coal injection (PCI) to the steel industry. The company operations are based in the Central Appalachian basin of eastern Kentucky and southern West Virginia where premium quality metallurgical products are located.

The company's business model is based on running a streamlined and efficient operation to economically extract and deliver resources to meet its customers' demands. By running operations with low or no legacy costs, American Resources Corporation works to maximize margins for its investors while being able to scale its operations to meet the growth of the global infrastructure market.

Website:
http://www.americanresourcescorp.com

Special Note Regarding Forward-Looking Statements

This press release contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks, uncertainties, and other important factors that could cause the Company's actual results, performance, or achievements or industry results to differ materially from any future results, performance, or achievements expressed or implied by these forward-looking statements. These statements are subject to a number of risks and uncertainties, many of which are beyond American Resources Corporation's control. The words "believes", "may", "will", "should", "would", "could", "continue", "seeks", "anticipates", "plans", "expects", "intends", "estimates", or similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. Any forward-looking statements included in this press release are made only as of the date of this release. The Company does not undertake any obligation to update or supplement any forward-looking statements to reflect subsequent events or circumstances. The Company cannot assure you that the projected results or events will be achieved.

Institutional/Retail/Individual Contact:

PCG Advisory
Adam Holdsworth
646-862-4607
adamh@pcgadvisory.com
www.pcgadvisory.com

Company Contact:

Mark LaVerghetta
317-855-9926 ext. 0
Vice President of Corporate Finance and Communications
investor@americanresourcescorp.com

SOURCE: American Resources Corporation

ReleaseID: 567020