Published: December 5, 2019 |

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American Resources Corporation has spent the past four years consolidating assets to build out its metallurgical carbon platform. It is staffed by a team of reformed private equity executives and consultants with a sentimental attachment to Appalachia and its coal - who are keen to stage a turnaround in how business is done there.

Mark LaVerghetta, vice-president of finance for American Resources says that the five-year-old company distinguishes itself from struggling rivals — many of whom have plunged into bankruptcy — by their low-cost, efficient operations.

“Our platform is built upon a simple and centralized operation that is very scalable and utilizes modern business practices. For example, we run our administrative, accounting and back-office systems from the cloud which allows us to efficiently centralize all of our operations,” says LaVerghetta. “When we close an acquisition, we have the ability to restructure and integrate it onto our platform very efficiently and set it up for long-standing success.”

A quest for new ways to improve the intricate work of supplying various grades of coal to steel producers has been on the to-do-list for American Resources’ management since its founding partners — CEO Mark Jensen and President Tom Sauve — made their first investment in the industry in eastern Kentucky back in 2006.

“They fell in love with the business,” remembers LaVerghetta. “They looked at it and realized the industry has been fraught with inefficiency and needed to be right-sized. They also saw an opportunity in separating and focusing on the assets that produce metallurgical-quality coal used to produce steel rather than coal that is used to generate electricity given the challenges specific to that side of the industry, known as thermal or stem coal.”

In the last five years, American Resources has gobbled up a number of struggling coal operations across Central Appalachia, closing on eight acquisitions. Its recent takeovers include McCoy Elkhorn Coal, Dean Mining LLC, ICG Knott County, Wyoming County Coal, Empire Kentucky Land, the PointRock Mine and most recently, Perry County Resources. Perry is its fifth carbon processing and logistics complex, which is located in eastern Kentucky and generates about $60 million in yearly revenue.

American Resources management has a proven record of restructuring high-cost businesses in short order while maximizing the core value of their operations.

And after stripping out about $15 million in costs from the Perry County Resource complex in the first step of a restructuring, American Resources’ team has already laid out a detailed plan to boost its performance and profitability and ensure it thrives.

Indeed, the improvements have already kicked in and are evident in Perry County’s performance in early November, when the deep mine’s single section crew achieved 445 feet of mining advancement in one production day.

The Indiana company currently runs two working processing and logistics complexes for coal production and boasts three additional idled complexes as well as permits for more than forty idle mines, which will be rebooted and put in working order once capital is gleaned for the projects.

How is it doing:

When announcing third-quarter results in November, CEO Mark Jensen said he was “extremely excited” about the future of the metallurgical coal company as demand for infrastructure balloons around the world.

The coal market is currently soft — with coal commanding a price of about $70 per ton. But American Resource’s management now projects its 2020 coal production will fall in the range of 2 million to 2.2 million tons, which would amount to gross revenue of $140 million.

Softness in demand for coal and a seasonal steel slowdown have exacted their toll on the coal sector and American Resources has not emerged unscathed from the knock-on effects of this downturn. In the third quarter, the company posted revenue of $1.8 million and a loss of $7.1 million, or $0.30 per share, in the quarter.

But CEO Mark Jensen is unwavering in his optimism. “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,” he said.

What the broker says:

Maxim Group analyst Tate Sullivan is among the band of optimists about American Resources Corp. on Wall Street.

In a recent note, Sullivan kept a ‘Buy’ rating and $1.50 price target on the stock — which currently trades at $0.59 — as well as sticking to his 2021 revenue and EBITDA forecasts for the company.

Thanks to the opening of new mines and the re-opening of other ones as well as the expected boost in production from the Perry County acquisition, Sullivan is forecasting “meaningful revenue growth” in 2020.

Maxim’s 2021 revenue forecast for American Resources is $88.6 million while its EBITDA figure is expected to come in at $19.1 million.

Inflection points:

•  When American Resources scouts for acquisitions, it is on the prowl for coal miners of sound quality which have broken away from the pack in a difficult sector.
 
•  The company’s senior management is particularly bullish on India’s potential as a market. The country doesn’t produce a tremendous amount of high-quality indigienous metallurgical coal and its prime minister Narendra Modi is pledging to spend from $3 trillion to $5 trillion on building seaports, rail systems, airports and buildings as part of an infrastructure drive over the next five years.
 
•  Despite soft coal markets and fresh concerns about the steel industry due to trade wars, American Resources is looking to produce between 2 million and 2.2 million tons of steel in 2020.

What the CEO says:

Reflecting on the progress of the company he founded, American Resources’ CEO Mark Jensen says the key to it all is how critical coal is to the steel industry.

“We are one of the fastest-growing producers of high-quality carbon used in the steel-making process,” Jensen said in a recent interview with Proactive. “So, 100 percent of our production is infrastructure-related and involves anything from bridges to tunnels, highways and buildings. We are the raw material that goes into that steel to make those products.”

Source: Proactive Investors

About American Resources
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 PCI to the steel industry. The company operations are based in the Central Appalachian basin of eastern Kentucky and West Virginia where premium quality metallurgical products are located.

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