AREC Well-Funded To Develop Carbon And Rare Earth Concentrates: Analyst

H.C. Wainwright analyst Heiko F. Ihle reiterated a Buy rating on American Resources Corporation AREC, with a price target of $3.50.

AREC recently received and rejected an unsolicited bid for the assets of its metallurgical carbon division, American Carbon. The proposal included upfront cash, assumption of debt, and a scaling royalty structure totaling an implied enterprise value of ~$260 million.

Despite the enterprise value of the offer, the analyst highlighted that its structure included just $12 million in cash over the first six months.

In short, the offer included a relatively small upfront cash component, assumption of debt, and a scaling royalty, notes the analyst. 

The analyst adds that AREC remains well-funded to continue growing its operations to create additional value for these assets even without the deal.

The firm believes it is in the best interest of shareholders to continue expanding production at its McCoy Elkhorn and Wyoming County assets over the next several years. 

AREC is currently weighing its options for a lithium and critical mineral refining operation with a lithium refining capacity of 120,000 tonnes annually, notes the analyst. 

Potential areas for this project are locations controlled by the company, including West Virginia, Kentucky, Tennessee, and Indiana.

With the initiative, Ihle believes that the company will be able to participate in the domestic manufacturing of ultra-pure battery-grade lithium carbonate and hydroxide, which could then get utilized by domestic battery manufacturers.

The analyst thinks that after issuing a $45 million tax-exempt bond, AREC is well-funded to modernize and transform its Wyoming County complex to process carbon and rare earth concentrates. 

Price Action: AREC shares are trading higher by 4.91% to $2.03 on the last check Thursday.