American Resources Corporation (AREC) Earnings Call Transcript & Summary

Greetings, and welcome to the American Resources Corporation Second Quarter 2022 Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mark LaVerghetta, VP, Corporate Finance and Communications. Please begin.

Thanks, Sara. Good afternoon. On behalf of American Resources Corporation, I'd like to welcome everyone to our second quarter of 2022 conference call and business update. We welcome this opportunity to not only provide an update and discuss our accomplishments since our last update, but also on how we're uniquely positioned in both the carbon and critical and rare elements markets. Also on the call today is Mark Jensen, American Resources' Chairman and CEO; Kirk Taylor, our Chief Financial Officer; and Tom Sauve, our President. Before we kick it off, I'd like to remind everyone that this call is being recorded and of our normal cautionary statements. Certain statements discussed on today's call constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These forward-looking statements are subject to risks, uncertainties and other factors which could cause actual results to differ materially from the results discussed in the forward-looking statements. When considering forward-looking statements, you should keep in mind the risk factors, uncertainties and other cautionary statements, which are laid out in our press releases and in SEC filings. We also do not undertake any obligations to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Lastly, we will be holding a question-and-answer session today following our prepared remarks. And for anyone wanting to ask a question, you'll need to dial in by phone to get into the queue. We're going to begin today with a few comments from Kirk Taylor. Kirk?

Thanks, Mark. And thank you, everyone, for taking the time this afternoon to join us. The second quarter of 2022 signified the continued production ramp that really began this past March and in a market environment that continues to be highly supply constrained. As a reminder, our mining focus is on high-quality metallurgical carbon as well as PCI specialty carbons. For the quarter, our total revenues of $16.2 million is a 78% sequential increase from our first quarter revenues this year and are really not comparable to the revenue from prior period when we were largely idle due to the COVID-19 pandemic and highlights -- this highlights early growth attributes of our carbon business and a platform that we've built. While mining is not completely linear, our carbon platform is uniquely positioned to be a meaningful contributor to much needed supply growth of metallurgical carbon and specialty carbon products from our region where a lot of the mines are actually becoming exhausted and unable to expand. Also, for the second quarter of 2022, we were able to generate adjusted EBITDA of $11.5 million compared to an adjusted EBITDA loss of $537,000 in the prior year period and a positive $5.8 million in the first quarter of this year. Again, signifying the beginning of a significant inflection point for our mining operations. Our unique platform of assets is in a great position to deliver what we believe is an attractive return and value to our shareholders. This includes both our mining assets which we are currently operating, as well as our leased out mining complexes, including the Deane mining complex. Over the past 6 months, we've been able to eliminate approximately $2.9 million of debt and payables and invested over $18.3 million of expense development costs to position both American Carbon and ReElement for strong growth in high demand markets. We are currently experiencing and expect to maintain a certain degree of pricing power. This is especially true within ReElement where we are the only domestic producers of rare earth and critical minerals in the United States. As well as increased tax credits built into the Inflation Reduction Act. Our debt balance currently sits at approximately $12.1 million in total, of which $2.6 million is equipment financing, $8.9 million is in the form of convertible notes held by long-term partners, and $2.5 million is in the form of mine development loan from an offtake partner. Our shares outstanding currently sit at just 66.5 million, all Class A common shares. Our cash on hand at end of the quarter was approximately $4.8 million. We are in a great position to continue to expand and execute across all of our business lines. I'll now turn it over back over to Mark LaVerghetta for some comments on ReElement. Mark?

Thanks, Kirk. As we've previously stated, our newly rebranded ReElement Technologies division represents an incredibly exciting and very strategic opportunity for us. I'd like to remind everyone to visit our new website, reelementtech.com. And if you haven't yet, watch the 2 new videos that provide some insight and imagery into our separation and purification process and technology. One of the videos is on the home page and one of the videos is under the technology portion of the website. I'd like to reiterate and stress the significance of our recently announced milestone of achieving ultra-high pure rare earth elements on a commercial scale at our first separation and purification facility. Now that we have brought this facility online, we are the first domestic commercial producer of separated and purified rare earth elements. Additionally, we feel it is strategic to our advantage to address not only our domestic supply chain needs, but also our sustainability needs. This first commercial production line produces high-purity rare earth magnet metals such as neodymium, praseodymium, and dysprosium from recycled rare earth permanent magnets. These metals are needed to produce high-efficiency electric motors such as those used in electric vehicles and wind turbines as well as other advanced technology and defense applications. We are still on a timeline to have our second production line operating later this year. This production train will isolate and purify specific battery minerals such as lithium, cobalt, nickel and manganese from end-of-life recycled lithium-based batteries. We staggered the build-out of these 2 production lines to learn how we can improve on the overall implementation and operations of the facility. Additionally, to support these growth efforts, we recently bolstered our already amazing team with the addition of a Chief Commercial Officer, Chris Moorman, to further develop our upstream and downstream partnerships, and our Director of Research and Development, Yi Ding, who was an important part of our amazing team at Purdue University that developed this innovative chromatographic separation and purification technology. What differentiates us, our technologies and our process from the others looking to address this market? First, it's our team. As a reminder, chromatography has been around for a century and commercially has been used in various industries like pharmaceutical manufacturing for decades. We believe we have the world's best chromatography experts and team behind our ReElement division. Second, by initially addressing our sustainability needs, we eliminate the need to extract feedstocks from traditional mining methods. While the daunting demand growth will obviously require an all-hands-on-deck approach, our process eliminates the environmental impact, lengthy permitting process and high costs associated with extraction through mine. Additionally, our feedstock reserve from end-of-life products is growing and is growing in a big way. The time to establish this low-cost, flexible and environmentally safe platform that we've put together to address this part of the market is right now. With our recent milestone, we have truly brought the circular economy for these critically important minerals online. Third point. Our process allows us to separate and purify all of the targeted critical and rare earth elements back to qualities, purities or grades that are required in the manufacturing of new batteries or new magnets, as well as for the requirements spelled out in the newly passed Inflation Reform Act. This is key, as currently we believe no one can recycle battery material back to battery-grade qualities in a comprehensive, cost-effective or commercially viable application other than us. An important distinction to note, our technology is the only comprehensive solution to recover and repurify all of the critical and rare earth elements in the entire powertrain of an electric vehicle, including both batteries and motors. No other solution today can offer that value. We feel we have further showcased these unique -- as we further showcase these attributes and scale our real-world solutions across our domestic supply chain, it puts us in a strategically beneficial position to collaborate and partner with other market participants up and down the supply chain as well as garner support from the federal government given their obvious focus in this area. Included in both the Bipartisan Infrastructure Law and the newly passed Inflation Reform Act, which puts us in a great position given we are the only commercial source of separated and purified rare earth elements in the United States today that we know of. With that, I'd like to now turn it over to Mark Jensen for some additional comments.

Thanks, Mark. I'd like to first start off by recognizing and discussing the recently devastating floods that have taken place in Eastern Kentucky. We've had many employees and/or members of the local community that have been hit hard by this flood, this 100-year flood that has caused devastation throughout the community. If you're looking to support the cause, please look to some of the local charities that are providing this as we're looking at doing with some of our sister companies like our Eco Solutions. And it has been tough for a lot of our team members, so they are in our thoughts and prayers. Second, I'd like to discuss our special committee, which we recently announced. Our intention is to form this special committee to better unlock the value of American Resources, and through the establishment of the committee, which includes members of management and members of the Board, where we are looking at identifying methods to unlock the value, which we believe we hold underneath the corporate umbrella of American Resources, which may include stock buybacks, which may include spinning off and dividending out shares to our early investors of one of the divisions and/or continuing to evaluate other alternatives such as that we've had inquiries coming in on sale of assets and looking at maximizing the value for all of our shareholders in the best way possible. Given the execution of American Carbon and ReElement, we believe and are extremely excited about the opportunities that both entities have and believe that the enterprise value as a whole is currently trading at a substantial discount relative to the peers and/or the sum of the parts of the company in itself. And we're going to continue to work on ways and methods to unlock that value for our shareholders. Let me talk a little bit about American Carbon, an exciting division of our business, one that we see strong growth for many years to come by unlocking the value of our specific properties that we spent years restructuring and positioning for the future. At American Carbon, we continue to see strong demand for our products that we produce. Global carbon demand for steel production continues to be relatively strong, albeit off its recent highs due to the COVID restrictions in China. We believe these restrictions and the related net carbon price softness off their all-time highs will abate relatively soon. From our perspective, supply continues to be constrained, and ultimately, we'll see major shortages in the metallurgical carbon industry for a number of years to come. Furthermore, thermal coal prices are extremely strong as the world is experiencing its first energy crisis of the 21st Century. You see over in Europe currently today, you're seeing significantly higher prices than what they probably seen, if not forever in terms of energy prices due to the need to supplement their raw material feedstocks that are historically coming from Russia. These high energy prices are including thermal coal and are driving decade-high inflation and some of the countries are experiencing major energy shortages. Russia's invasion of Ukraine is obviously exacerbating that crisis. As a result, we're seeing net carbon crossing over into the global thermal coal market and sucking additional net carbon supply out of the market, given these extremely high thermal coal prices. We believe this entire backdrop has put a higher floor in place for carbon prices for the foreseeable future. And ultimately, will continue to exacerbate the problem that the world is going to have within net carbon prices as China comes back online coming out of their COVID restrictions, and as the market looks to stabilize and the total economy looks to stabilize. This puts our growth-oriented American Carbon platform in a rare unique position as being one of the largest sources of domestic growth in the market and the ability to continue to ramp-up supply by bringing additional mines online from our position and permits that we currently have in place. For American Carbon, our focus is to continue to ramp up our currently operating complexes by bringing additional production online at our currently producing mines, as well as bringing new organic mine production online. Our McCoy Elkhorn complex continues as one of our biggest contributors and our biggest growth engines to American Carbon. Now that we have commenced production at our Carnegie 2 mine, we've already begun expanding -- started planning on the next 2 mines to bring online to feed our McCoy Elkhorn complex. As a backdrop, McCoy Elkhorn is a large complex, 2 processing plants, a rail load-out facility, and ultimately back when James River owned this facility, it was fed by over 10 mines. Our ability to continue to ramp up and feed the processing plant capacity and rail load-out capacity that we have is substantial. We can continue to bring these additional mines online. And the unique thing about these mines are they're low-cost operational mines and ultimately, that fit well within the current labor market without needing to staff up in huge ways for these old legacy mines. And also, to be able to expand them once you get underground and further continue to drive revenue growth from our existing producing mines. We've already started planning and development on Carnegie 3, Mine 17, as well as our additional surface job we have in the region, and are looking at 3 to 4 additional lines that we can bring online in a very low-cost format. Each one of these mines is looking to be brought online using cash flow from operations without having the need to go raise additional equity to do so and/or substantially leverage up the balance sheet for this growth that we're looking at expanding upon. Our Perry County operation has been impacted by the recent floods and also some water that was present within the mine, and it slowed down the production over the last couple of weeks. That being said, the Perry County operation was also slow to produce in the first quarter. And so -- or the second quarter. The contribution during that period of time will be relatively similar to what it is currently and look to have the mine back up and running here in the next 5 to 10 days due to the recent flooding that's taken place in the area and the water that was within the mine. Nothing to be concerned about, nothing that is out of the ordinary from this mine and the production from this mine, and the contribution that it will have to our business going forward. The Deane Mining complex is actually getting ready to start production. The contractor has made substantial improvement at the facility and ultimately has trains scheduled to be shipping out in September. That will be a nice cash flow contributor going into the end of this quarter and for this quarter as we continue to evaluate leasing out additional operations we have, similar to what we've done at Deane Mining, to further bolster our cash flow and drive cash flow from all of our operations across, in all of our properties, across the entire platform. Additionally, we remain focused on progressing on our Wyoming County, West Virginia complex over the next year. As we recently communicated, we continue to work through the process of the $45 million tax bond that the state of West Virginia has preliminary approval for that is now being underwritten by Hilltop Securities as well as the allocation that we received, or $4.9 million from the federal new market tax credit that we've recently announced. This complex is a unique complex. It will be the first time ever that a mining complex mining metallurgical carbon, mid-vol high-value, high-margin metallurgical carbon, but also tying into our electrolysis technology, which is the facility we currently have in design and being built down in Alabama. It will be the first of its kind and the first time that rare earth elements and critical elements will be produced from a mining complex, offsetting the cost of running that facility by tying it directly in with the mining complex itself. With the issuance of those 2 nondilutive capital sources, we're excited to showcase how we'll position this complex with the advanced carbon and the RE processing facility by doing so in a way that is extremely accretive to our investors. To expand upon the ReElement comments that Mark just made, I'd like to reiterate the importance of the milestone we recently achieved. I firmly believe that as the first commercial producer of isolated and purified critical and rare elements in the U.S. market, while also introducing a practical and efficient solution to address our sustainability needs, creates the beginning of a new and exciting era. The United States needs a domestic supply chain. It has looked extensively across that, and the government has put a number of very substantial financial incentives out there for people to develop it. We're extremely excited about the cost structure of our technology and the scalability of our technology. We don't need to create a hub and spoke model. Our permitting process for our purification and isolation technology is not very difficult to achieve. We got our first facility permitted within 2 months. We can scale this facility organically and continue to expand it over time out of cash flow from the business and utilize a very small footprint compared to the older technologies, the solvent-based extraction and the hydrometallurgical technologies that people are evaluating and are looking at, which are really a way of the past of doing things. Ultimately, we think we'll be able to showcase and confident we'll be able to showcase our chromatography and our purification and separation technology as the new standard within the industry. The passage of the Inflation Reform Act, which includes some significant and aggressive targets to the auto industry, include the extension of the EV tax credit with no cap, as well as the advanced manufacturing tax credits for critical owns. There are a couple of areas of this resolution that hit directly at what we've already accomplished. For the EV or the clean vehicle tax credit, 40% of the critical minerals in the batteries will need to be sourced domestically or from a free trade country or recycled in North America by 2024, and increased each year thereafter until 80% by 2026. That timeframe is right around the bend. And we're, as far as our knowledge, the only producer in the United States market that can produce the products that meet the standard to go back to battery and magnet grade material and the ability to expand our production rapidly and aggressively. And for the advanced manufacturing tax credit, it establishes a new credit that amounts to 10% of the cost incurred to produce applicable critical minerals, including the magnet and battery grade minerals that we've already showcased we can produce. And ultra-high purity grades required to receive the credit. What this shows us is the ability to utilize our technology and utilize our technology to either co-locate at other facilities and/or to build existing additional facilities where we can handle all the way from end-of-life product to magnet and battery-grade materials very cost effectively and very quickly due to the easy form of permitting and the lack of environmental footprint that we actually, that we utilize within our technology. These federal incentives hit right at the heart of what we are doing at ReElement. And the fact that we've already proven our process and technology on a commercial scale puts us in a great position to be a value-added domestic supplier of sustainable and critical minerals to the EV and the clean energy sectors as well as the Department of Defense. As Kirk stated earlier, in the second quarter of this year was a 78% increase quarter-over-quarter in revenues, following a 100% sequential increase in the first quarter of this year. These results begin to showcase that our operations are well positioned to continue on a strong path of consistent returns, revenue growth and profitability. With our operations beginning to put cash back onto the balance sheet, we don't foresee us needing to issue additional equity to raise cash, especially with some of the sources of nondilutive capital we've discussed and nondilutive forms of capital that are available if we need them. Just to reiterate, as the largest shareholder of American Resources, our management team is focused and committed on maximizing the value for all of our shareholders. And I thank you for joining the call today. We'd like to turn it over, the call back over to the moderator for some questions and answers.

[Operator Instructions] Our first question comes from Mike Niehuser with ROTH Capital Partners.

Congratulations on all of the above. I won't isolate any particular thing, but really, quite an amazing quarter. Just a couple of quick questions for you. In addition to the Inflation Reform Act, it's mentioned about the national strategic reserve. How practically might that fit in with your purification of rare earth? How soon? What's the ML? Is it real?

Yes, Mike, I'll address it pretty broadly, and I'll let Mark jump in as well. Mark LaVerghetta will jump in if he's got additional commentary to provide. What's unique about the products we produce, from the rare earth perspective, we produce oxide. Neodymium, praseodymium, dysprosium oxide. In the oxide form, those are very storable. From a strategic reserve perspective, and we've had members of -- we've had over the last 3 or 4 months, we've had many different members from military applications to the Department of Defense to members of the White House that we've had conversations with, with regards to our technology and what it provides. From a strategic reserve perspective, there's a pretty big emphasis on that right now. Obviously, being a domestic producer, we'd love to supply our government and make our government more secure, and our technology enables that to happen. But most importantly, because we produce it in oxide form, it's in a stable form that can be stockpiled and secured for future use. And the fact that all the materials we produce, we're the only company in the country that produces dysprosium in a pure form, but we're the only company in the country that produces dysprosium at all. Our peers, MP Materials, they produce neodymium and praseodymium, but without the dysprosium, you can't make magnets, you can't make permanent magnets. And that puts us in a really unique spot as a company to continue to expand that and be the sole provider of dysprosium and ultimately move faster, better, stronger than our peers to continue to grab a larger market share of that from not only the strategic reserve perspective, but also the magnet production industries that are popping up.

Mike, it's Mark LaVerghetta. The only thing I would add to that is I think the Department of Defense, Department of Energy, they're all highly focused on the sustainability needs of our supply chain. Like I said earlier, it's an all-hands-on-deck approach. We'll need virgin ore sources. We'll need recycling as well for all of these things. And all of the above are focused on the sustainability needs. We've had some discussions around that with government officials. Obviously, with Department of Defense in regards to their strategic stockpile, there's some sensitivity around their end-of-life products. But that being said, our technology and process, given the flexibility, the low cost, the fact that we can co-locate, we don't need to aggregate everything and bring things back to a centralized point. This provides good sources and good uses of how we can collaborate with them. We'll continue to drive those initiatives forward.

Yes. I guess I was just thinking that with a lot of the manufacturing in China, you'd probably be providing material that would actually accelerate the return of those manufacturing organizations here to the states or North America or allies, what have you, and that the strategic reserve would be a nice buyer for these materials to bridge their ramp-up to help encourage you to continue to grow as fast as you practically can. In that regard, you've given guidance for 5 tons a day of rare earths in 5 years. Was that pretty much coming just from your facilities there in Fishers, Indiana? Or would that include additional distributed operations elsewhere?

Yes. The scale of our business, the scale of -- let me touch on 2 points real quick. One, the sale of our oxides. Yes, we'd love to have the strategic reserve be a buyer of them, but by no means is our business model predicated on that. There's numerous magnet manufacturers that are in development and/or producing, not only here domestically, but also overseas that have a desire to buy our oxides. One, our cost structure is extremely attractive. Our process and our technology enable us to produce product at a lower cost than what China can produce it at. Obviously, they're a state-owned enterprise, they can always drop their prices, but they can only lose money for so long. Our technology and our cost structure that we produce, and the purity and the consistency of purity that we produce, make it very attractive feedstock for magnet producers, and we're in conversations with a number of them. And ultimately, we have no concerns with selling those, the rare earth elements, as the only producer here domestically, especially with the current regulations and current tax bills that have been passed. So that's viable. In terms of the growth of the business, our current facility and our current magnet production train, we scaled at 1,000x. We're currently expanding that home to be 2,000x where we did a bench-scale. We'll add a second magnet production train within that facility. And then we'll continue to expand. Not only in Indiana we will expand our facilities, but also probably throughout the country. And talks about co-locating in a couple of different locations where we'll be able to purify at and scaling up to that scale of production, will require additional facilities beyond the Noblesville facility that you've actually been able to visit.

Okay, that's a good answer. So basically, you can sell everything that you produce. Do you think we're going to see revenues, a new line for revenues for rare earths in the third quarter?

Probably not in the third quarter, but in the fourth quarter.

Okay, and that's pretty much all my questions. I imagine it'd probably be the same kind of ramp-up scenario for your battery materials purification. Different process, but as far as the timeline, should be fairly representative of what we've seen with rare earths, is that close?

Yes. Batteries are an interesting space. There's a lot of people talking about recycling batteries and there's a lot of people saying they're recycling batteries today. There's not a lot of battery recycling that goes back to battery grade material. Including 40 miles from our existing facility, Solana is opening up a battery manufacturing facility where they need the cathode material which we produce. GM is around here, Ford. They're all being located -- Toyota is building out here domestically. And for them to receive the tax credits, as well as no different from us, they need to buy from domestic producers. From a recycling perspective, our technology is quick to implement and low-cost to implement, which is -- it's an absolute game changer. You see our competitors announcing a $500 million facility that they're getting ready to build a hydrometallurgical which will take them 2 to 3 years to build and get permitted. We can be continually expanding our production out of our existing facilities and/or new facilities and/or colocation with our partners to be able to continue to scale that production to start to meet these needs of the domestic supply chain. So yes, I would say that from a scalability and what we'll showcase here, and excited to get this battery production train up and running and be the first here in the country to be able to do that as well. But we're excited about the scalability we have because of our technology to be able to grow it.

Great. One more question before I jump back in the queue. As you compare the perception of the rare earths line versus the battery purification line, I'm thinking that the rare earths is kind of a niche kind of -- a lot of people -- I mean, rare earths are pretty niche, I guess. And I think that the materials that you'll be pulling out with purifying the battery, end-of-life batteries, people pretty much have heard of lithium, cobalt, nickel, those kinds of things. And I'm thinking maybe the market might respond to that segment because they understand it and it might actually have maybe more economic importance, although I see both are equally important. Do you have any thoughts on that?

Yes. Rare earth elements go into the electric motor. Those magnets are what effectively creates, makes the electric motor run. Ultimately, if you look at the wind turbines, you look at the electric vehicles, you look at the industrial tool market, the DoD, the missiles, the drones, and all this technology, when you need a low -- basically a motor that can be sustainable, create high heat, maintain high heat or operate in high heat functions as well as be reliable, I mean the demand for electric motors is not going to go down anytime soon. The market for rare elements is smaller than battery materials. You need a lot more, in an EV, you need a lot more battery material than you do rare earth elements for the motors. There's 9 electric motors within a vehicle, but they're still smaller. So yes, I would say from a headline perspective, our battery production train will grab a lot of that headline news when we start up and running and showcase the scale of it. But I will say, being the only player in the space on the magnet side, there's a huge market there and there's $3 billion of magnets that go to landfills every year. And the demand for magnets is going up. And you're going to start to see some domestic magnet production taking place here in the United States, which we're extremely excited about. So yes, I would say from a revenue perspective, our battery production trains will outgrow our rare earth production train, but our rare earth production train will have huge market share given the demand for purified products here domestically.

Our next question comes from Steven Segal with KBB Asset Management.

I just want to say congratulations on the great quarter and all that you and your team have accomplished. It really is amazing. And along those lines, because the stock price should be more amazing than it is, I was wondering if you can talk any more about what -- you did mention about the special valuation committee that you had formed to look at the options in timing. Can you talk any more about the timing of that at all?

Yes. We are actively working on it. And thanks for joining, Steve, I appreciate the questions. From a special committee perspective, we're definitely looking at ways we can act quickly and be thoughtful in our decisions for the long-term value of all of our shareholders. Stock buybacks right now, we believe our stock is not reflected upon the overall enterprise value of all of the divisions combined. We think we're being undervalued based on that. And that's something that our team is actively looking at, given where the strength of the operations are, and the production growth that we're seeing out of the McCoy Elkhorn complex and the stability of the operations. We have to look hard, we have to look really hard at that, looking at putting in place a stock buyback program soon. We've discussed since day one about potentially spinning off the ReElement division, something we're constantly looking at. We've had offers on certain assets that we always have to look seriously at and see if it's accretive to our shareholders and makes sense. We are looking at that. We're hoping to make some decisions here imminently as quickly as possible as we can. Obviously, we have a lot on our plate of growing the businesses and driving value from an operational perspective. But from a strategic perspective, we think there'll be some decisions made in the near term.

Our next question comes from [ Michael Samuels ] with [ Berthel Fisher ].

Just wondering if you could go a little into the met coal side. I think at the last report, you said you had about $100 million backlog. I'm just wondering -- and then the other question I was having is how pricing in the last couple, this quarter looks going forward?

Yes. Backlog is still extremely strong. And we put -- if you look at our development expense, we've obviously invested heavily into the operations to set them up for future growth as well as bringing them online. Perry is set up to have additional sections and be able to expand production pretty rapidly there and be able to take advantage of these current market environments that we see today. Not only both on the met carbon side but also the specialty products side, and the demand for those specialty products is great. And then also on the McCoy Elkhorn complex, the ability -- we spent a lot of money bringing these mines online and now they're in a position to start generating their own cash flow. The additional growth that will come out of Carnegie 1 and Carnegie 2 now for these additional sections is very small CapEx. Our CapEx expense is going to drop dramatically in the quarter. That will help our cash flows out significantly, which hence why we're looking at the strategic events to unlock value. Met carbon prices, and indoor thermal coal price, carbon as a whole -- the industry is quite volatile right now. With the lack of supply in the market, the prices move aggressively. So met carbon prices went to record prices over the last -- in the last quarter. Now we didn't get to take advantage of all that pricing because ultimately, when you sign quarterly orders and/or certain orders, you sell on your current market. Now you take advantage of some of the spot market, so we took advantage of some of the high spot market prices. Now I will say on average though, our prices are still going up, even though met carbon prices have come down a little bit with the reaction over in China because of the COVID lockdowns. When China comes out of those COVID lockdowns, with the current environment for thermal coal, it's going to be, in our opinion, a very, very interesting market. There is not enough overall supply between the thermal and met carbon market to feed the demand that's coming online. Especially over in Germany. They started up their coal-fired power plants. They're looking for 29 million tons of coal a year that they're trying to source already in this really tight supply market. That's why thermal coal prices went up. Their natural gas facilities have been flipped back over to coal because of ultimately the Russia-Ukraine issues. It's going to get -- I think the market is going to get extremely volatile, and I think there's a huge amount of upside potential in carbon prices in general over the next year or 2 years, given the tightness of supply and the lack of capital being invested in the space. Because, ultimately, traditional bank financing is gone, and so we're in a unique position to take advantage of that.

Okay. And the Deane Mine you were talking, the one that was producing the thermal coal that you'll be getting I think it was $5 a ton or 5%, whichever is higher. And you think that will start up -- they'll be into production in September?

Yes, they have a train scheduled to go out in September. We've been paid over the last couple of months, we've received the minimums of roughly $200,000 already. They cover all the costs of the operations. They're investing into our assets. Those are our -- I mean everything that's there is ours, we own it. And they're investing heavily into it to put it in a really good position. It's a phenomenal deal for us. And honestly, gave them an asset where they could get started on quickly, so it's a great deal for them, too. But from our shareholders' perspective, it's a cash flow machine at this point and we're excited to help them any way they can to get up and running. But they have trains scheduled in September, and we're excited about the development and the progress that they've made. And the way that they've navigated this market to get these facilities in a position to start generating revenue and scaling that revenue pretty aggressively, which is great for us.

Right. Well, again, everything you guys seem to be doing is phenomenal. And I'm sure, eventually, the market will look at it. But congratulations in the meantime and just keep up the good work.

Our next question comes from [ Lyle Posey ] with [ Limo ].

Mark, they've stolen all of my questions. But I do have one. When do you believe that the lithium line will be up and running?

Yes. We stated in the fourth quarter we think there could be -- I think in the very beginning of the fourth quarter is very realistic. It's set up as a continuous production line. It's a really unique design. It's our multimodal chromatography, so it's the latest patent we just filed. We have the exclusive worldwide patent for the production of battery materials using this technology. The unique thing about this is we don't need an elution agent in it, so our cost of purification is very low comparative to the industry. What's unique about it, what's really nice about it is, as we get this initial production line up and running, we're already designing our second production line, our third production line, our larger facility here in Noblesville, Indiana, that we're currently evaluating the space for and already have the space leased actually. The ability to scale it once we get this up and running in the very early fourth quarter and being able to produce these materials that the battery manufacturers need.