Nordic Mining ASA

OSE:NOM

Earnings Call Transcript 2022-Q1

[Ivar Fossum, executive]

Good morning, and welcome, everyone, to the First Quarter interim presentation here at Nordic Mining. My name is Ivar Fossum, together with CFO, Christian Gjerde, we will give you the presentation this morning, followed by a Q&A session. Please also note that all material will be available at the website for Nordic. And you can also pose your questions during my presentation and you will read them loud after we have finalized our presentations. So let's get started. We have a normal agenda for today's webcast. After a brief introduction, we will focus on the status for the Engebø rutile and Garnet projects, give you a brief update on what is going on in Keliber in Finland before Christian will give the highlights on financing for the group and then followed after that, a Q&A session.

Nordic Mining is focusing on 2 major assets. First and foremost, the Engebø rutile and Garnet project on the West Coast of Norway as well as our stake being the third largest shareholder in Keliber Oy in Finland. Besides that, we have an engagement in Seabed minerals, and we are also involved in a couple of very promising R&D projects related to production of alumina and battery production. And first of all, a few highlights of today's presentation.

Last Friday, we got the final granting of the operational license for Engebø, a very awaited resolution, and we will come back to that. We have received permits for groundworks at Engebø and we have started construction after having acquired landowner properties for the process area. And at last, Keliber has released its updated DFS study, showing a significant increase in the net present value for their lithium projects.

And then I also like to draw attention to that we are strengthening our group management in Nordic. We have just engaged Mr. Maurice Kok to be responsible for all sales and marketing and other products from the group as well as participating in business development. And we are extremely pleased that Mr. Kok will join Nordic Mining. He has valuable experience from not only selling and marketing on minerals, but more specifically mineral sands and over sector of minerals. So which is a rare and valued experience. So we look forward to get him on board in August.

Then we will move on to Engebø rutile and Garnet. And as you know, even though we haven't fully started construction, we have started early preparatory construction work at site, and we will onwards report on health and safety for all our activities. We started in April, and fortunately, there are no injuries, and we have now fenced in the construction area for the process plant down at Engebø. That was started in the second half of April, followed by early preparational groundwork. We have performed mandatory HSC training for all of our contracting workers and our own people as well as risk training for the same contractors.

Despite that, we had a possible incident last Friday related to handling of some asbestos cement sheets and the contractors and Nordic are in dialogue with the labor authority in Norway to clear out and how we can resume work as soon as possible. Of course, we will like to enforce and secure our routines so that we don't have similar kind of possible incidents in the future.

Last Friday, we had a fantastic day. Finally receiving the operational license for Engebø. We sent the application in the beginning of 2019 and the Director of Mining handed this over to the ministry late 2020. It's been a long waiting time and have brought a lot of insecurity to the group and to our shareholders. So we are extremely happy that now this is finally granted. The minister also included some unspecified certain requirements to the operational license, which is related to maximizing resources, to minimize waste based on always best available technologies. This also specifies that we will having an approval of our mine plans for underground mining 1 month before we actually start with Directorate of Mining.

And we shall consider how to optimize possible backfilling solutions of tailings into the underground areas. We shall seek to utilize a fossil free mining fleet, also looking at the best available technology at each time and try to set and implement goals for reduction of climate gas and waste. And I'm pleased to conclude that many of these elements, if not all, are already embedded in our operational plans, and also in our current waste disposal permit, but we appreciate these specifications and we'll follow those closely. Being in Scandinavia, we want to be in the forefront related to all of these requirements specified by the ministry.

Talking a little bit more about ESG and following up being a Norwegian, being in Scandinavia, naturally, we will aim to be in the top class with regard to ESG standards. And we have pinpointed 3 main sectors for that. We shall be environmentally responsible. We would like to be a good neighbor and have positive impact where we operate, and we shall ensure a safe and healthy working environment. And we shall follow up and specify policies within each of these sectors as we move forward.

I'm glad also to report that based on studies comparing Engebø with other producers of titanium feedstock. We are supposed to be best in the class by far, giving the natural conditions, giving hydropower available in the area of Engebø, we will have a superiorly low carbon footprint from Engebø. When we have considered the impact that mining at Engebø will have on nature and looking in a longer perspective, we see that we should aim for a net gain in biodiversity at Engebø, and we have implemented a fully advanced plan together with DNV and how to track sort of the net status of biodiversity in marine environment and on land as we move along with our projects.

Coming back to being a good neighbor. The Engebø project is positively anchored locally in the Sunnfjord municipality. It has been going on for 15 years with regulations and debates and discussions, but it's always been welcomed by the local democracy. That is crucial, for us, for the local stakeholders, but for Norway in general. That's an important principle in Norway. We have also secured that Engebø is becoming a local player even in the construction phase, having signed contracts with 3 local contractors and some of them have also participated in a local investor group for the project.

We think that's an important factor going forward. And as mentioned, in April, we started preparatory work at the process plant area based on early investment from the local investor group. It has been delayed as expected from activists from what we've done which is partly still ongoing. And we have planned for this, and we have had a good dialogue with the Nature and Youth organization also jointly with the police, and we hope that they realize that in our democratic society, we have certain rules and regulation that will have to prevail and so that we can move forward. Our focus in this phase have been safety for all people being present at the site being activists, being our workers or the police.

Then a few words about the overall global situation. And it is a fact, I think that globalization has stopped, if not being partly reversed in the difficult times we are realizing with war in Ukraine and pandemic situation still ongoing in China and many other uncertainties. And this has led to that EU and U.S. and other bigger nations are focusing on how can they secure enough minerals to sustain a prosperous society and to move forward on the green shift and produce the necessary products we need to transit into the -- to a green society as such. And there have been some bigger solutions in the States and a constant policy around this in EU. They have been in Scandinavia, touring the countries and asking, how can you contribute to our list of critical minerals. And also, the Norwegian government are working on a new mineral strategy, which is supposed to be released within this year.

The markets for titanium products and feedstocks remained firm in the first quarter, and we saw a healthy growth rates from the majors in the pigment sector still sort of recovering the inventory levels for pigment after the years of the pandemic, where the recovery was much stronger than anticipated.

On rutile specifically, we see a fairly rapid decline in supply from many places, and this has caused a certain deficit an increase in pricing and also in some instances, a limiting factor for production of pigment in some factories. So that market is specifically tight, and we see pricing far above the current assumptions we are using in our financial models for Engebø.

Also on Garnet, it is a supply picture with still with high freights, especially from China, and we are getting more interest with regard to garnet supply from Engebø from bigger players, and we are now approaching the final discussions for an offtake for garnet.

Then a few words about financing. And coming back to the operational license. That has been in a very, very sort of important factor in moving forward on financing, and now we can really sort of continue our important steps towards full project financing on Engebø, which we have started for quite some time ago but having awaiting -- have been awaiting this important resolution from the ministry. We're still expecting a total package of around USD 250 million in a combination of equity debt and hybrid instruments. And we are targeting a close before summer in first half of this year. Of course taking in all the uncertainties and the dynamic we are experiencing in the world at present.

But that is our target and the resolution from the ministry was sort of late, but very welcomed also related to this process, and we will update you as we move forward on financing.

Then a few words about Keliber Oy in Finland. Also a project where they have kicked a shovel in the ground, a couple of months back. And they are preparing for building new access roads to the [ Syväjärvi ] and [indiscernible] mine sites, and they are removing overburden to get into the deposit as we speak.

Recently, they released their new updated feasibility study with a tremendous increase in value, of course, based on the booming market for lithium globally, and also specifically the plans for battery manufacturing in Europe. It has become a very, very valuable projects along with market, but also along with increasing resource base in Keliber, both with regard to the reserves, but also with regard to the promising areas in the vicinity of the Keliber projects. Sibanye Stillwater has become a major shareholder in Keliber and we are excited to see how they will drive the product forward being a reputable and very experienced mineral player.

Also, and Christian will touch up on this as well. We have reviewed our fair value of Engebø for our share being the third largest shareholder, which will be present in our books for the first quarter. And rest to remained about the matter related to plant new battery manufacturing in Europe including several initiatives in Scandinavia, this is the basis that will be the business for Keliber and Keliber will the first producer for high-grade lithium hydroxide for many of these battery plants in Europe.

So with that, I'll leave the word to Christian that will take you through the highlights on financing. Thank you.

[Christian Gjerde, executive]

Thank you, and good morning to everyone. I will then give a brief presentation and status of the financials of the group. The group's balance sheet remains solid, and we are as per our current plans fully funded for the continuation of the development of the Engebø project up to project financing which, as Ivar covered also is targeted to be finalized before summer. Our cash position at the quarter end was NOK 32 million. In addition to that, we had NOK 112.5 million on escrow account related to the convertible loan that was issued in February.

Net cash outflow in the quarter was around NOK 14 million, reflecting the high current activity level at Engebø with the preparatory activities towards construction. As Ivar touched upon, we have following Keliber's updated definitive feasibility study, reassessed the fair value of our investment -- that investment now is valued at just below NOK 400 million, equivalent to around EUR 137 per share and we are on that, recognizing a fair value gain in the quarter of NOK 206 million, which equates to an increase in the fair value of around 108%.

So significant value being delivered in our exposure to the Keliber lithium project. We have also recognized a fair value loss on the convertible. Again, which was entered into in February of NOK 5.5 million equivalent, and that relates to the convertibility of that loan to equity, which will form part of the equity project financing towards Engebø.

For the full details of our financial statements and financial report, please see our Q1 report on our website. With that, I would like to invite Ivar back for the Q&A session.

[Unknown Executive]

We might start with some financial questions. One, are there any further clarification needed from the government before the company can complete a financial deal. Can you still?

[Christian Gjerde, executive]

No. I think with the final permit of the operational license, we have what we need to move forward on financing. And as we also presented in the presentation for today and in our quarterly report, we are progressing and closing our discussions with selected strategic financial investors, and we are targeting to closing financial clause before this summer.

[Unknown Executive]

Are there going to be any further capital raises behind beyond the 1 you have planned for in the general meeting invitation?

[Christian Gjerde, executive]

We are, as said, fully funded for the continuation of the preparatory works at Engebø. We have NOK 32 million or had NOK 32 million in disposable cash at quarter end. We had the NOK 112.5 million on the convertible loans sitting on escrow. That will bring us all the way to the expected financial close of the project financing before summer, and we are planning to raise a full capital for Engebø being the next capital raise for the company.

[Unknown Executive]

What will be the timing of new share issuance. After other financial solutions are in place like loan and possible Keliber sale?

[Christian Gjerde, executive]

Our anticipated structure is that we will move to market, firstly, on the debt financing and the hybrid capital or potential hybrid capital before we close on the equity financing part of the project.

[Unknown Executive]

Ivar. How is retail affected by stricter environmental requirements from the government?

[Ivar Fossum, executive]

As I said, it seems that most of these specified requirements are already within our plants and also in the waste disposal permits. One of them are quite a bit into the future related to underground mining. But we will review this carefully and also in a tight dialogue with the directorate to see how we shall adjust our plans going forward. At present, we don't see that this will represent any major factor that will decrease the financial figures for rutile.

[Unknown Executive]

Our Nordic Mining going to restore confidence amongst investors and the general public after the failure related to asbestos handling at Engebø.

[Ivar Fossum, executive]

Thank you for that. First of all, we'll try to communicate as best as we can with regard to what possibly had happened. We are in good dialogue with the labor authority together with our contractors, and we'll report back once we can on that issue and we'll, of course, also review our routines on how we follow up our contractors after this incident.

[Unknown Executive]

Thus another -- Nordic Mining have a plan to restore the company's reputation following the negative media coverage containing largely falls or exaggerated claims about the Engebø trailing deposit?

[Ivar Fossum, executive]

We are constantly communicating what we think are the important positive elements related to the disposal not only by climate gas but we think is contribute excellent, but also with regard to biodiversity. And we will continue to communicate around that, and of course, also communicate to stakeholders over environmental monitoring related to the disposal.

[Unknown Executive]

Environmental activists are now targeting investors with a public shaming campaign. How much negative coverage can they handle? And how do they respond to this?

[Ivar Fossum, executive]

I think that most investors dealing in the mining sector are used to -- that there are principal opinions about mining in general. And not at least in Scandinavia. So I believe many of them are prepared for that, but it is our duty also to communicate and make them understand sort of the full picture what is -- what the project is about.

[Unknown Executive]

Christian, will the 46% equity raise from the GF invitation covered the entire project financing?

[Christian Gjerde, executive]

That we will need to see when we continue our progressions on the financing discussions. So I think we are anticipating that a fair part of the equity will be -- the financing will be raised as equity. Ultimately, we will need to see once we conclude on the discussions with the strategic investors what that amount will be. And we will come back more on our sort of concrete plans for the overall financing as we are moving forward.

[Unknown Executive]

It seems that we have covered all the questions. We might just wait 1 minute to see if anything else.

[Ivar Fossum, executive]

People can send us questions at any time, and we will try to reply to them also after this webcast.

[Unknown Executive]

Yes. And it would be fine if you have a question to send them by e-mail to the company. It seems that -- we have answered all the questions. So thank you very much for your good presentation.

[Ivar Fossum, executive]

Thank you.