10-K: REX American Resources Reports Fiscal Year 2024 Results, Navigates Ethanol Market Volatility and Advances Carbon Sequestration Initiatives

REX American Resources Corporation reports a net income of $58.2 million for fiscal year 2024, while managing ethanol market volatility and progressing with carbon sequestration and plant expansion projects.

Summary

• REX American Resources Corporation reported a net income attributable to REX common shareholders of $58.2 million in fiscal year 2024, compared to $60.9 million in fiscal year 2023.
• The decrease in profits was primarily due to lower ethanol selling prices, partially offset by decreases in corn and natural gas prices.
• The company is invested in three ethanol production entities: One Earth Energy, LLC (75.9% ownership), NuGen Energy, LLC (99.7% ownership), and Big River Resources, LLC (various ownership percentages).
• These entities shipped approximately 727 million gallons of ethanol in aggregate during the twelve-month period ended January 31, 2025, with REX's effective ownership being approximately 294 million gallons.
• REX is progressing with a carbon sequestration project at One Earth Energy, expecting a draft permit from the EPA by the second quarter of 2025 and a final decision by late in the third quarter of 2025.
• The company has increased the budget for the carbon sequestration and plant expansion projects to approximately $220 million to $230 million, funded from available cash.
• As of January 31, 2025, $55.7 million has been spent on the carbon sequestration project and $59.9 million on plant capacity expansion and CI scoring reduction efforts.
• The company repurchased 281,709 shares for approximately $11.9 million subsequent to January 31, 2025, and authorized the repurchase of up to an additional 1,500,000 shares.
• The company is monitoring Illinois Senate Bill 3968, which could ban carbon sequestration projects if they overlie, underlie, or pass through a sole-source aquifer.

Sentiment

Score: 6

Explanation: The document presents a mixed sentiment. While the company reports a net income, it also faces challenges such as decreased profits in the ethanol business, permitting delays, and regulatory uncertainties. The company is actively pursuing carbon sequestration and plant expansion projects, which could provide future benefits.

Positives

• The company has secured sufficient subsurface easements for the proposed first injection well to allow for sequestration of all the carbon emissions from the One Earth Energy ethanol plant for a minimum of 15 years.
• REX has a stock buyback program in place and repurchases shares when the stock price is deemed to be a discount to the underlying value of net assets.
• The company is working to reduce its carbon intensity (CI) score at the One Earth plant to maximize tax credits available under the Inflation Reduction Act (IRA).
• The company plans to pay for all carbon sequestration and plant expansion costs from available cash.

Negatives

• The company's ethanol business experienced decreased profits in fiscal year 2024 compared to fiscal year 2023.
• The carbon sequestration project faces permitting delays and additional requirements due to new legislation in Illinois.
• The company faces uncertainty regarding the outcome of proposed legislation in Illinois that could ban carbon sequestration projects near sole-source aquifers.
• The federal production tax credits received through ownership of the refined coal facility, approximately $58.2 million, remain under IRS audit.

Risks

• The ethanol industry is subject to commodity price volatility, which can significantly impact the company's financial returns.
• The company's risk management strategies may be ineffective and expose it to decreased profitability and liquidity.
• The company may not successfully develop its planned carbon sequestration facility near the One Earth Energy ethanol plant.
• Changes in legislation or regulation could materially and adversely affect the company's results of operations and financial position.
• The company may not be able to hire and retain qualified personnel to operate its ethanol plants and carbon sequestration facility.
• The company is exposed to potential business disruption from factors outside its control, including natural disasters, severe weather conditions, accidents, pandemic diseases, international disputes, tariffs, and unforeseen operational failures.

Future Outlook

The company expects One Earth and NuGen to use a majority of their cash for working capital needs, capital expenditures, general corporate purposes, and dividend payments. The company is investigating various uses of its excess cash and plans to seek and evaluate various investment opportunities.

Management Comments

• Management believes that cash flow from operating activities together with working capital will be sufficient to meet One Earth's and NuGen's respective liquidity needs.
• We typically repurchase our common stock when our stock price is trading at prices we deem to be a discount to the underlying value of our net assets.

Industry Context

The report provides insights into the ethanol industry, including production volumes, capacity, and the impact of legislation and regulations such as the Renewable Fuel Standard II (RFS II) and the Inflation Reduction Act (IRA). It also discusses the influence of commodity prices, trade restrictions, and competition from foreign producers.

Comparison to Industry Standards

• The report mentions the Renewable Fuels Association (RFA) estimates for U.S. ethanol production and capacity, providing a benchmark for REX's operations.
• The report references Alto Ingredients, Inc. and Green Plains, Inc. as a peer group for performance comparison in the performance graph.

Corporate Governance

Legal Proceedings

• The federal production tax credits received through ownership of the refined coal facility, approximately $58.2 million, remain under IRS audit.

Related Party Transactions

• During fiscal years 2024, 2023, and 2022, One Earth and NuGen, combined, purchased approximately $99.2 million, $117.0 million, and $135.4 million, respectively, of corn and other supplies from minority equity investors.
• During fiscal year 2024, $1.5 million was paid to landowners who are equity investors of One Earth Energy, for land easements related to the carbon sequestration project.

Stakeholder Impact

• Shareholders: The company's financial performance and stock repurchase program impact shareholder value.
• Employees: The company's compensation policies, training initiatives, and safety programs affect employees.
• Customers: The company's ability to produce and sell ethanol and by-products impacts customers.
• Suppliers: The company's purchases of corn and other supplies affect suppliers.
• Creditors: The company's financial condition and ability to meet its obligations impact creditors.

Next Steps

• The company will continue to work with government agencies to obtain required permits and approvals for the carbon sequestration project.
• The company intends to apply for another permit to increase ethanol production at the One Earth plant to 200 million gallons per year.
• The company plans to spend $50 million to $70 million during fiscal year 2025 on carbon sequestration and plant expansion projects.
• The company will seek and evaluate various investment opportunities.
• The company will monitor Illinois Senate Bill 3968 and any impact it would have on the sequestration project.

Key Dates

Keywords

ethanol, carbon sequestration, renewable fuel, corn, distillers grains, RINs, ethanol plants, commodity prices, biofuel, REX American Resources