Roth Capital initiated coverage on American Resources Corporation (NASDAQ:AREC) with a 'Buy' rating and a $7.50 per share target price, calling the company a “growing metallurgical coal producer with a rare earths kicker".
“The company’s three near-term mining projects, Perry County, McCoy Elkhorn, and Wyoming, are in the process of ramping up production and, according to our projections will begin to generate cash flow in 2021,” Roth Capital analyst Matthew Farwell wrote in a note to clients.
“Investments in American Rare Earth's metals processing technologies also hold potential to add a high-multiple business line focused on sustainable materials for electric vehicles and other clean technologies,” he added.
READ: American Resources-invested special purpose acquisition company seeks acquisition target for IPO
The analyst noted that over the past five years American Resources has assembled a portfolio of semi-distressed assets through bankruptcy auctions and private sales and implemented cost-cutting and restructuring efforts at each operation.
He expects the company to grow its metallurgical coal production, which is used in steel making, to more than 3.5 million tons by 2023.
As well, Farwell noted that the company’s investment in American Rare Earth has the potential to form a valuable new business line with Environment, Social and Governance (ESG) appeal, as American Resources has announced technology partnerships with major universities directed at recycling rare earth elements (REEs) from coal and other waste.
“While the subsidiary won’t generate revenue in 2021, we view it as a high-multiple, ESG-focused initiative that could transform the American Resources story in coming years,” Farwell said.
“ESG investor focus will place greater scrutiny on supply-chain sustainability, and the company could be one of the first in the world to develop technology to recycle rare earth elements from coal waste,” he added.
The Roth Capital analyst also mentioned that American Resources has proposed the formation of a Special Purpose Acquisition Company (SPAC), to be known as ‘American Acquisition Opportunity’, which will target natural resources assets as well as clean energies, social impact, and recycling.
Farwell expects American Resources will own about 20% of the SPAC.
Contact Sean at sean@proactiveinvestors.com