American Resources Corporation (AREC) Earnings Call Transcript & Summary

Good afternoon, everyone, and thank you for joining us today. My name is Jenene Thomas. I'm CEO of JTC IR, and I will be the moderator for today's event. I'm pleased to welcome American Resources, which is sponsoring American Acquisition Opportunity Inc., which will be the focus for today's discussion. Joining me are Mark Jensen, Chairman and CEO; Kirk Taylor, CFO of American Resources Corporation. Welcome, gentlemen.

Thanks for having us on.

Thanks, Jenene.

Of course. Hi there. So before we get started, I just want to remind our audience that American Resources and American Acquisition Opportunity Inc. are publicly listed on NASDAQ and trade under the tickers AREC and AMAO. During today's discussion, the company will be making forward-looking statements, and I encourage everyone to view the company's latest SEC filings on their website at americanresourcescorp.com and americanopportunityinc.com for the latest information. So Mark, it's so great to have you back on our platform. We've had a lot of visits from you recently. And Kirk, this is your first opportunity on our platform. So again, welcome both.

We appreciate it. We're excited to tell the story and talk a little bit about AMAO.

Yes. We can't wait. So to start, for those that are new to the story, can each of you introduce yourselves and provide a little bit of your background? So Mark J., why don't we start with you?

Yes. My name is Mark Jensen. I'm the Chairman and CEO of American Acquisition as well as the Chairman and CEO of American Resources, the sponsor of this pack. Quick background, I've been an entrepreneur for roughly the last 20 years of my career. It seems that the number, unfortunately, is getting quite large. And also one of the founders of American Resources Corporation, the sponsor. We started that business from the ground up, along with Kirk and the rest of our team, where we wanted to build a business that was built on real sustainable value for our investors. And that led us to creating value in multiple different ways, one, obviously, being our stack of looking for an innovative opportunity here that we're excited to talk about.

Excellent. Kirk, why don't you go ahead?

Yes. Thanks, Jenene. Kirk Taylor. I'm the CFO of American Resources Corporation, which is the sponsor of AMAO. For AMAO, I'm a Director, President and also sort of the CFO. I am a trained, licensed CPA, was in public practice for over 15 years, focused on structuring business combinations, business acquisitions and administering internal controls, both pre-merger and after merger. I earned my MBA from University of St. Francis here in Indiana, and my undergrad in accounting and finance from Indiana University down in Bloomington where we got a chance to meet Mark. And it's great to have learned our own separate experiences over the past 15, 20 years and then come back together to really build value for our shareholders across all of our businesses. So again, thanks for having us on today.

Absolutely. And you guys always have so much going on. Mark, we recently hosted you on our platform where we discussed the company's innovative rare earth element recycling technology through ReElement. However, today, as you know, we are going to talk about your SPAC, which represents one of the most -- many potential value drivers that makes up American Resources. Can you provide us with an overview of American Acquisition Opportunity Inc. and why it was formed and American Resources' current ownership stake? A lot there, but hope you can cover it all.

Yes. Absolutely. So I'll give you a quick dive to the purpose of it. But ultimately, what we were looking at was we were seeing the opportunity within the marketplace to create one value for our shareholders at American Resources, that's why we sponsored the SPAC, but ultimately, because of what we saw within the marketplace. There is a number of attractively valued private assets out there that were generating substantial cash flow and that weren't being monetized on. So looking at the value of land, looking at the value of resources and looking at the royalty space in general, you have these multiple billion-dollar companies out there, these big public royalty companies that are obviously doing extremely well in these markets. But there was a gap really where people were on the smaller royalty side, nobody really focused on the fundamental aspect. And so we saw the opportunity. And the purpose of sponsoring the SPAC was to look for companies that were generating cash flow. And you see the frothiness of the SPAC market. I mean it's -- at the end -- I mean not the time when we sponsor a SPAC, there's a lot of SPAC we sponsored looking for the next flying vehicle or the next innovative company that was going to lose money for the next 7 years. That wasn't what we were interested in. We were interested in driving fundamental value and finding a company that the arbitrage of being private to public, and more importantly, the lack of buyers in the space for some of these companies that have these transitionary royalty streams, the opportunities. So we sponsored the SPAC with that with fundamental focus in mind that we didn't have to go and raise hundreds of millions of dollars in pipes. We wanted to drive value by buying a company that deserve to be public.

Very helpful. I'm so glad we're spending time on this because I don't think we've really had the opportunity to inform our audience of the strategy behind this. So really appreciate that, Mark. So Kirk, as Mark had said, SPACs have had their share of headline presence over the past 24 months. Are you just jumping on the SPAC train? Or is there something different about AMAO that sets it apart?

Yes. I believe there is something different. First, we're operator-led, right? So we have a history of driving real value from an operations standpoint and integrating acquisitions and building shareholder value for the long term, not a quick invest and flip type strategy, which many SPAC sponsors are. But to Mark's point, we are seeing tremendous deal flow in the asset space that we, as American Resources, could not take advantage of because we are an operating company focused on monetizing resources that we already have. We do not want to turn American Resources into land holding company, and it would just track the overall message. And so we are passing on opportunities, and we felt there was a way for us to take our experiences and start to build longer-term value on the royalty side. And some of our advisers brought to us a SPAC structure as a way to take advantage of the upside on these types of opportunities without diluting the current American Resources story or investor base. And the SPAC structure fits well for that purpose. But it had to be structured the right way. We do not want a SPAC that had tons of leverage on it, tons of different rights and warrants on it. We wanted a clean structure. So post the SPAC, it trades well. It can actually operate as a real public company with a lot -- not a lot of overhang. And so when we went to market, we articulated a story of our background to our investors. And we got a good deal passed through our IPO. Our unit, when we went public, had one common share, only half of a warrant, which is not common in SPACs. And I think that the story we talked to our initial IPO investors resonated. No one is coming to and telling them that they were going to look for a real cash-flowing business. Like Mark said, everyone was chasing after the flying taxis out there. And they saw us as a different value proposition but with a proven track record. And I think, again, that's not necessarily prevalent in the SPAC space. So we had 3 themes that we went public with: cash-flowing business, one that didn't need large amounts of side capital raised and one that we can be additive to where we can take our experience -- our collective experience and actually drive value for the target, again, not flipping out of our position, but actually driving long-term shareholder value. And I think the culmination of all those front-end efforts have provided resiliency in our investor base, whereas a lot of our SPACs have gone through large share price erosion, large front-line redemptions. And I think that our structure has allowed us to have a pretty stable presence. It allowed us to go forward and act upon a really good target that hits on all those theses that we went to the market with during our IPO.

Extremely helpful, Kirk, and I know it is for the audience. So let's talk about -- if you could provide some insight on where you are in the AMAO in its life cycle. And can you speak to your current strategic execution and if there are any near-term objectives on the horizon?

Yes. So the IPO, like you said, back in March of 2021 right at a high SPAC frothiness and with a tight initial 12-month window to get a merger done, we really believe that given our deal flow and our track record in deal execution, we would have been able to get a deal done during that time frame. But as you also said, the SPAC market itself went through a lot of gyrations during that time frame. And a couple of the targets that we were working on were just not doable in the new SPAC landscape. And so during March of this year, we went through an extension where we asked our investors to vote on allowing us 6 more months to find and execute upon a target. They voted in affirmation of that. And so back in June, we announced Royalty Management Co. as our target. We've been working judiciously on the registration statement for that combination. We passed the initial 6 months that we asked for extension, and our investors granted us -- voted in favor of another 6-month extension. And we're working on filing the required documents and disclosure statements around the merger with Royalty Management Co. And we're hopeful that we can get that done here and closed out in Q4.

Excellent. Extremely helpful. So Mark, to build on what Kirk said, AMAO announced a merger agreement with Royalty Management company. Can you give us an overview of the acquisition target and the rationale behind it?

Yes. Absolutely. So I mean during the process, Kirk mentioned, we looked at over 50 companies. We went down the path with 3 or 4 that we were pretty close with. Ultimately, the financial structure that they would have required would have been, we believe, a negative to our shareholders and would have put pressure on the stock and would have made for a poor-performing public company, like a lot of SPACs nowadays, unfortunately. So during that process, we came to terms with the Royalty Management Company that we have invested in. So we're familiar with the business, but it was looking at going public on its own. And so it was in a good position to get through this public process. Royalty Management Co., what I love about the business and why I personally invested was that -- and why the SPAC structure worked very well it, it benefited from being public. It can use the equity as currency as acquisition. I mean the attractiveness -- I mean it was -- as a stand-alone, any one of its acquisitions would have been too small for the SPAC. But ultimately, within the RMC structure, it's acquiring really attractive legacy royalty streams, but also transitionary royalty streams, is looking where -- it's generating cash flow today where you can generate cash flow, but it's also looking at where the cash flow is going to come from in the future. And investing in, you can call it sustainable -- I would say, sustainable is something that actually makes money for the long term as well as being sustainably driven in its mission. And so that's really what's exciting to me about the Royalty Management Co. structure is it's a lot of royalty companies are looking just at legacy assets or just investing in copper or just investing in carbon or oil and gas. We're -- the Royalty Management Company is investing across all spectrums. But it's building a really attractive base of assets that can create sustainable value and long-term value for the investors, not for the next 5 years, but for the next 20, 30, 40 years. And to me, that's -- that deserves to be public. And having that public currency will enable it to continue to execute using that equity as currency, maybe not having to raise money all the time because it doesn't -- it's not that position. I mean the attractiveness of it is, there's zero pipe required. So there's not some really complicated financial structure in here, which is what all SPACs are being laden with today. There's no variable rates, there's no conversion at discounts or forward purchase agreements. We didn't need any of that to get this deal done. And that's a big deal for how the company can execute on its public vision.

Very helpful, Mark. So Kirk, can you take us on a deeper dive into their business lines and what type of royalties they're focused on?

Yes. The Royalty Management Co. is really focused on 3: traditional cash-flowing royalties; sustainable royalties; and then IP and digital royalty streams. I'll jump into the first one. Like Mark talked about, we looked at many targets during this process. Some of them were single asset royalty streams. So one gold mine, one copper mine. It isn't really a binary outcome for those investments. So that's not something we are interested in. And what joyous to Royalty Management Co. is they're developing a portfolio of both current cash flow, near-term cash flow and some exploratory upside assets. The focus on current cash flow is really base industrial royalty streams, so the inputs into steelmaking, inputs into energy. They're monetizing today, which is great because these underlying commodity prices for these resources have never been higher. So they're monetizing -- they're at the right time to monetize these royalty streams while building a portfolio of the backside for long-term development. We -- the other reason we like it from a Royalty standpoint is royalties are generally recessionary-proof, right? When times are more challenging, governments spend on infrastructure. Infrastructure is normally a big driver for increased resource production, resource demand. When economies are growing, private enterprise is growing their demand for resources. And it's a little bit of a hedge against inflation because rising input costs do not generally affect royalty streams because they come in the top line and are driven off of percentage of sales, which again go up in inflationary times. The other aspect is that we wanted to be additive to this process. So as operators of resource companies, we can understand what resources have value today, what resources have value in the future and can help Royalty Management Co. make some of those decisions. Currently, the cash-flowing businesses are all U.S.-based, with the exception of one investment in South Africa. So we did like the fact that we had exposure internationally, but with the U.S. focus just given the dynamics in the international policies today.

I would also say that one -- just to jump in here a little bit on, looking at rural properties today. I mean if you look at the United States and look at how the economy has transitioned and you saw a big push overseas for manufacturing and industrial movements, you're starting to see that come back. But the value of rural distress properties is still at a really attractive time. I mean it's phenomenal the amount of deal flow you see today because all of those businesses have been overseas, now people are looking to bring them home. I mean American Resources, we've done that. We're bringing home the rare earth and critical elements space, battery recycling and magnet recycling and then looking at the other groups, but it's -- you're starting to see that transition back. And RMC is in a phenomenal position to capitalize on that from a land movement perspective of taking advantage of some of these really distressed values that are out there for these lands and then transition them forward where the market is going today. I mean it's a -- we believe we have a 2- to 3-year horizon to capitalize on some of these land values and a public vehicle. It gives us a perfect avenue to do that.

Excellent. So in line with that, Mark, could you speak to RMC's sustainable and IP royalty streams? Are they scalable? And what is your growth strategy for continued sustainable outcomes?

Yes. I mean -- so you look at the markets, right? I mean, it's pretty tough right now to find capital if you're out there trying to raise capital for some of these innovative IP streams that are available today. I mean a couple of them I can't talk about because the company hasn't announced them yet as a public company, but there's some really attractive royalties that are being structured here from a utility perspective, from a use perspective of what people use every single day in their lives and need every single day in their lives that the company is very far along with that are really attractive for cash flows that the way it's structuring it, because people need capital now. It's able to bring the capital to the table in a way that's not a hindrance to their business, but it generates long-term cash flow streams for the company. So from an IP perspective, the company is really focused on investing into existing IPs for new innovative projects that are proven. And I think you'll see in the next few months the company roll out, knock on wood, they get them through the finish line some really attractive IP deals that are different than what you traditionally see in a royalty company because it's built upon the future production of those assets, but maybe the technologies that are driven off them versus the actual resources themselves.

Yes. I guess I'll add something. And that's another place where our team can help support on the de-SPAC side. American Resources has a proven track record of taking university-developed IP and commercializing it for large amounts of value. One of AMAO's Board members, Dan Houser, used to be, well, former Commerce Secretary of our state here in Indiana and also ran the Research Foundation at Purdue University, focused solely on commercializing university-developed IP. And so in his process as a professional, he scoured these opportunities and has a pretty keen nose to the ones that will work, the ones that won't, right? And so by having institutionalized Board members, team members that have this type of experience, we can really differentiate Royalty Management Co. from any other players in the space because we'll already have a head start, right, on knowing what IP is worth investing in, what one should just be passed over and all of the focus of near-term monetization, cash flow development really makes a very unique value proposition that's different than anything else out there.

And one last point on that is cash flow. Looking at the IP that can be generated cash flow, not IP that just sounds cool, but it's looking at the IP that's actually being developed in a commercialable state.

So excellent background. So Mark, what is your target closing date for the merger? And will you need to raise any additional capital between now and then?