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American Resources Corporation Reports Third Quarter 2019 Financial Results

November 18, 2019 GMT
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, ...
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, ...

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 endedThree month ended
September 30,June 31,September 30,
201920192018

Sales Volume (a)

Tons Sold

25,969127,021122,823

Company Production (a)

McCoy Elkhorn Coal

11,18056,33557,721

Deane Mining

14,78970,68665,102

Total

25,969127,021122,823

Company Financial Metrics(b)

Revenue per Ton

71.1373.3872.38

Cash Cost per Ton Sold (c)

113.8449.2749.27

Cash Margin per Ton (c)

-42.7124.1123.11

Development Costs

1,425,0241,887,447945,341

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

-147,94620,876167,462

Total Revenue

1,847,2799,038,26818,183,68123,386,684

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

770,405875,9421,251,3591,295,065

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

82,343-164,68641,171

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

24,886,7631,038,78323,025,762941,495

AMERICAN RESOURCES CORPORATION

CONSOLIDATED BALANCE SHEETS

UNAUDITED

September 30,

2019

December 31,

2018

ASSETS

CURRENT ASSETS

Cash

$716,840$2,293,107

Accounts Receivable

71,5801,338,680

Inventory

1,004,326163,800

Prepaid fees

483,000147,826

Accounts Receivable - Other

336,800319,548

Total Current Assets

2,612,5464,262,961

OTHER ASSETS

Cash - restricted

297,987411,692

Processing and rail facility

14,496,48711,630,171

Underground equipment

10,155,9158,717,229

Surface equipment

3,224,8963,101,518

Acquired mining rights

28,831,4402,913,241

Coal refuse storage

12,171,27111,993,827

Less Accumulated Depreciation

(11,320,116)(6,691,259)

Land

3,248,169907,193

Note Receivable

4,117,1394,117,139

Total Other Assets

65,223,18837,100,751

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

639,180474,654

Accrued interest

1,977,1421,118,736

Funds held for others

-79,662

Due to affiliate

132,639124,000

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

14,691,69614,169,139

Current portion of convertible debt

7,219,612-

Current portion of reclamation liability

2,327,1692,327,169

Total Current Liabilities

34,470,51726,433,022

OTHER LIABILITIES

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

4,829,3307,918,872

Reclamation liability

21,425,09716,211,640

Total Other Liabilities

26,254,42724,134,512

Total Liabilities

60,724,94450,563,534

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

2,7261,776

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

90,094,00642,913,532

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

3,036,7471,931,374

Amortization of mining rights

1,592,110181,385

Accretion expense

962,6991,116,751

Cancelation of debt

-(315,000

Gain on disposition

-(807,591

Recovery of previously impaired receipts

(50,806)(92,573

Amortization of debt discount

7,722,197420,134

Warrant expense

2,528,598234,067

Warrant modification expense

2,545,360-

Option expense

245,35613,410

Issuance of common shares for services

1,806,040201,250

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

164,526512,378

Accrued interest

858,406287,639

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

5,139,3995,316,977

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

9,676,0944,039,509

Decrease in cash and restricted cash

(1,689,972)(41,883

Cash and restricted cash, beginning of period

2,704,799385,665

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

Net Income

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

Interest & Other Expenses

1,121,03011,964,870305,655

Income Tax Expense

---

Accretion Expense

320,900962,699433,589

Depreciation

1,414,9423,036,747700,595

Amortization of Mining Rights

252,7281,592,110181,385

Non-Cash Stock Options

-485,799-

Non-Cash Warrant Expense

-5,069,860-

Non-Cash Share Comp. Expense

138,8571,806,040-

Development Costs

1,425,0245,912,589945,341

Total Adjustments

4,673,48130,830,7142,566,565

Adjusted EBITDA

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

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

www.pcgadvisory.com

Company Contact:

Mark LaVerghetta

317-855-9926 ext. 0

Vice President of Corporate Finance and Communications

SOURCE: American Resources Corporation

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