American Resources Corporation (NASDAQ: AREC) is making another move into the battery recycling market.

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The company announced this morning that its majority-owned subsidiary, Electrified Materials Corporation, or EMCO, has signed a binding letter of intent to acquire Blackion LLC in an all-stock deal valued at roughly $13.2 million. And while $13.2 million isn't exactly a massive acquisition, there's an interesting angle here.

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You see, Blackion specializes in the collection, transportation, recycling, and recovery of materials from lithium-ion batteries. It already has relationships with battery manufacturers, recyclers, and other companies throughout the battery supply chain. American Resources wants access to those relationships. So instead of spending years building its own network to find and collect old batteries and manufacturing scrap, EMCO could bring Blackion's existing network into the fold and start feeding more material into its own processing operations.

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Where the battery market is headed

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Lithium iron phosphate, or LFP, batteries are becoming increasingly common in electric vehicles and stationary energy storage. But they're also more difficult to recycle profitably because they don't contain large amounts of valuable nickel and cobalt.

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That means recyclers need to get very good at collecting these batteries cheaply, processing them efficiently, and recovering the lithium. That's exactly where Blackion could help.

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EMCO is already building infrastructure to collect, dismantle, and preprocess used batteries and manufacturing scrap. Those materials can then be sent downstream for more advanced refining, including through American Resources affiliate ReElement Technologies.

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So think of Blackion as another piece of that supply chain. It helps bring in the material. EMCO processes it. And ReElement can potentially refine the valuable minerals recovered from it.

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More than a quarter billion dollars

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This acquisition values EMCO at $275 million on a pre-money basis. That's notable considering American Resources itself is still a relatively small company. It also gives you another data point for valuing one of the company's major subsidiaries. 

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And American Resources isn't writing a $13.2 million check. Blackion will be paid entirely in EMCO stock, with 50% issued at closing, another 25% after 12 months, and the final 25% after 24 months, assuming certain conditions are met.

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Of course, the acquisition hasn't closed yet. But once it does, American Resources will have expanded its battery-recycling operation without draining cash from the balance sheet. For a microcap trying to build exposure to one of the fastest-growing parts of the domestic critical-minerals market, that's not a bad way to do it.

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