Nordic Mining ASA

OSE:NOM

Earnings Call Transcript 2024-Q1

[Ivar Fossum, executive]

Good morning, and very welcome to this first quarter interim presentation here at Nordic Mining. My name is Ivar Fossum. I'm the CEO, together with CFO, Jens Schnelle; and Managing Director of the Engebø Project, Kenneth Nakken Angedal. We will take you through the presentation this morning. Please be informed that our stock release this morning contains the full report as well as this presentation and this webinar will be recorded and put on our website. Let's start. We have a normal agenda today. After my brief introduction, Kenneth will take you through the status of the Engebø Project before Jens will tell you more about the financial and economical situation. As normal to the end of the meeting, we will have an open Q&A session. You can post your questions during the presentation, and we will read them loud and do our best to answer after we have finalized our presentation. I will start my introduction with a few highlights of a very active first quarter of 2024. Again, we are extremely pleased to see that we don't have any lost time injuries year-to-date in the whole project, a fantastic achievement and even more so important in the coming months and now in a very active period and Ken to tell you more about what's going on at Engebø also related to safety in the presentation. We invested NOK 543 million in this quarter. High activity, a total of NOK 1.9 billion so far in the project. A tremendous effort for our contractors and for the Engebø team, very, very impressive activity in this quarter. It's good to see that construction are on track, on plan to kick off production ramp-up during Q4 this year. We also had a major milestone, finalizing the litigation from AMR that started back in 2018. We had a clear win on all counts in the Supreme Court, and I'll tell you more about that in a second. Also in terms of our project economy, risks are being reduced on several areas. We had a successful release from the bond escrow in March. We have seen a very volatile forex market. The NOK has been fluctuating up and down versus dollar, which have paused some challenges. Now we have been in a position to hedge our risk on the currency side. We're very pleased with that. All in all, several factors that are increasing the robustness in the product economy that we guided on in the last quarter. Coming back to the legal affairs and the litigation raise, to put it from AMR, which has lasted now in six years. we are extremely relieved in the verdict that we had strong confidence in, but it's good to have it completely finalized and that we have been refunded all the expenses that we claimed through all the three legal cases. I want to underline this verdict is important for Nordic Mining and all you shareholders, but it's even important for new projects in Norway. It's important for the new Mineral Act, and it brings predictability for any new mineral projects on critical and strategic minerals in Norway. A few words also about the case from NGOs versus Norwegian states also related to disposal permit for the Engebø Project. We saw a clear verdict from the Oslo City Court in January. That was a very thorough and good verdict in our review. A small part of that, some sentences have been appealed to the Court of Appeal, which again has transferred this to the EFTA Court for an advisory statement. We remain, as we have done with other court cases, very confident on the result of this claim, and we see that all our mining rights as well as our permits remain valid and solid.We see that the concern and focus on sustainable supply on critical and strategic minerals is continuing to increase all over the world, Australia, U.S., Canada, EU and also in the Nordic region. Finally, on March 18, the CRMA, the new law of enforcing new mineral supply in Europe was resolved by the EU Council. It brings some very bold benchmarks for the mineral industry in Europe, both related to the amount of minerals we are going to supply for our own mines in this region, but also the pace of how we regulate new mineral projects, very bold benchmarks, and we're happy to see that the ambition for the Norwegian government is to align with the CRMA act in EU. There has been some positive statements from the ministry, and we also see that Norwegian government has kicked off discussions with U.S. on critical and strategic minerals. This momentum is continuing, and we're excited to see that, that hopefully will pave the way for an increased mineral sector in Norway. We also like to share with you what is happening in the energy sector, where we see that solar energy is outperforming a lot of the other energy carriers and that this will go on forward in the next decade. This changes maybe a little bit the strategy, what value chains will appear within energy transition and production. We see some interesting opportunities in this space going forward. As you know, we had the right to promising core deposit on the West Coast of Norway, which possibly could find an interesting space in these value chains. We'll report back more on that project later on. Finally, again, we want to highlight our focus, not only on climate but also on biodiversity in Nordic Mining. We're really proud about the pioneering work we have been doing together with DNV and Espen Barth Eide enabling a dynamic annual tracking or changes in biodiversity. We are now in a very exciting moment where we, in the second quarter, we finalized our baseline monitoring on marine habitats on habitats onshore, which will mark the starting point for this exercise throughout the project lifetime. With that, I leave the word to Kenneth to take you through the status on Engebø.

[Kenneth Angedal, executive]

As Ivar mentioned, we have successfully completed another quarter without any lost time injuries, with a total now in a project of 743 days without lost time injuries. We have, in the first quarter, been on average, 100 person at site, and we do expect with increased work in the next quarter that we will reach on average 130 workers at site for piping, mechanical and electric installations. During April, we have safely conducted several critical and heavy lifting operations in several areas of the plant. I will show more pictures of that later. Our priority has been to focus on working in height and spending loads for the quarter, and we will continue on that to safeguard our workers at site to make sure we keep our statistics and safety at the highest priority. Construction at Engebø is at schedule for production ramp-up in Q4. The administration and workshop building has been completed, and we have received certification of completion for the administration building from the municipality. EPC 2 has finalized all the concrete foundation for the main process plant buildings and have started roofing and putting together the buildings with wall panels, as you can see on the pictures on the right side. EPC 3 and EPC 4 has now access in several areas, and we'll discuss more of that in the details. The product cost in the quarter is according to plan and actual project progress. According to the construction plan on the right-hand side, you can see that we plan to finalize the construction of crushing prior to downstream milling, which means that we are trying to achieve a situation where we can actually test performance of crushing equipment prior to fully start-up of the plant. This makes us more reliable to make sure that we don't have any issues on the downsizing of particles and can fully focus on mineral separation as we start up production. We have been closely following the logistics for several months. We see now that we are completing the fabrication of our critical mechanical process packages that we only now have two left, which are close to completion. During the last months, we have seen risks materialize within the Logistics change, but we have managed to find a solution by different construction methodology to mitigate these risks. We do not have any impact on the production ramp-up. To show you some pictures from the site. At the left side, you see the primary crushing chamber and all the mechanical installation is completed. We are close to finalizing the electrical cable racking and close to start cable installation.EPC 4 has started installing frequency converters and other electric equipment in the MCC rooms. We do expect within May to have the conveyor installed out to the process plant. On the right side, you see erection of the product silos, which are the last shipments of concrete elements are coming in the next two weeks. On the process plant area, we have finalized in April the heavy lifting operations of the buffer silos coming in two parts with chips, lifting into place at Level 22 in our process plant area. This has been lifts with up to 50 tons. It's a major achievement to conclude all of this with no incidents on safety. Right now, we have a lot of installations at site ongoing in the three main process plant buildings.Right now, we see activities in comminution and milling, where all major equipment and bulk material handling is installed. There are some subsystem assembly remaining on the rod mill, such as electromotor and the mechanical gearbox. Other than that, most mechanical installations are complete. EPC 4 has full access to area and are conducting both cable racking and cable installation at the moment. On the wet plant and the dry plant, we have full mechanical installation ongoing, and EPC 4 have been given access to electrical rooms to start installation in all areas. As part of building a large project with export of mineral products, we need to prepare for the logistics of these shipments. We have an approved risk assessment by the authority and are planning to finalize the implementation of the actions set out in the risk assessment to be able to prepare for shipments from fourth quarter this year. We have hired a sales and logistic coordinator to facilitate and coordinate documentation required between us as an exporter and our customer for both rutile and garnet. What is also very interesting to mention and to highlight is that we have started our second wave of the recruitment campaign in the first quarter. We have, during March and April, received over 150 applications for technical and operator positions. We are taking the advantage of this high number of applications and adjusting our ramp-up plan for the resources. As you can see on the trend on the right lower side that we expect to increase our resources number with 10 more than planned for this stage. We will slowly incorporate more resources as they will be on board from summer and onwards ramp-up. We are also continuing our business implementation with the control room, all up and running and functioning. We have service for automation systems installed and digital applications for maintenance management and performance management under implementation.

[Ivar Fossum, executive]

Thank you, Kenneth. A few words about the market. As you know, the world economy has been subdued recently for reasons we know well about all of us, however, and that, of course, has impacted also most industrial sectors, the titanium sectors and so on. We see some improvement in this quarter compared to the last quarter in terms of feedstock demand and a more balanced production of heat compared to inventory levels. Same goes for the largest titanium sector pigment, where the larger producers are disciplined in depletion of stocks and also are running their plants at a somewhat higher utilization rates than previously. The market is improving, which is very good in the world, which has so many challenging factors around. One sector remain strong, if not stronger than last quarter, and that is related to titanium metal, and it's driven by civil aircraft production as well as military actions. As you can see from the graph on the slide, the backlog for the two major Western producers of civil aircraft are running at around 13 years of backlog or production of civil aircraft, which is a very long time and underpins the strong market for titanium metal in this sector. The demand for garnet has also been impacted in North America due to the higher interest rates and somewhat depressed industrial sector. That has been a softer market, and we have seen generally the same picture in Europe. In addition, in Europe, there has been some supply challenges and disruptive supply partly caused by terror and actions of war in the Middle East, but partly also from production problems out of South Africa. With that, I'll leave the word to Jens Schnell, who will give some details on financials.

[Jens Schnelle, executive]

I'll provide a brief financial update for the first quarter. Engebø construction expenditures of NOK 543 million was capitalized on the mine and the construction in the first quarter. The total consolidated carrying amount at the end of the quarter was NOK 1.9 billion. The group completed the first release of $30 million from the bond escrow in the first quarter. Prior to such release, we completed our cost to complete test, which was verified by an independent technical engineer. The group has solid source of funding available for the project. We had NOK 552 million in cash and cash equivalents at quarter end, whereof NOK 444 million was located in the Engebø subsidiary. We also had NOK 831 million on the bond escrow, which was held in U.S. dollars available to us, subject to certain CPs. The main CP similar to the first release is that we need to complete our cost to complete test verified by an independent technical engineer. We expect that the second release of $30 million will be completed this month, and we expect the third release in August of this year. During the first quarter, we secured the majority of our U.S. dollar exposure to forward sale of $45 million, buying NOK with validates that aligned with the second and third release from the bond escrow account. This was to secure the project against the highly volatile U.S. dollar and NOK exchange rate fluctuations. The group maintains the guidance from the previous quarter that remaining project reserve is $25 million, and then we will allocate this reserve to Engebø rutile and garnet AS to ensure its robustness and to meet the minimum liquidity requirement of $15 million. The robustness of this guidance improved in the first quarter. The group completed its second cost to complete test in the quarter, and we fully expect to complete our third cost to complete test this month. The group also won in the Supreme Court, and we received $1.3 million to cover legal expenses. The group had realized and secured exchange rate levels in the first quarter at solid levels compared to the project estimates, which reduced our foreign exchange risk for the project. Finally, we had solid progress on the construction during the quarter on cost and on time. For further details, please see the full interim report on our website, nordicmining.com. With that, we move to the Q&A session.

[Unknown Executive]

We have received many good questions, some about the same topic, which we will try to do. We'll start with you, Eva. Are you planning an IPO on the main list of Oslo stock change? If so, when can we expect that.

[Ivar Fossum, executive]

We don't have any specific plans set out in time at this moment, but it will be a natural transition when the company is moving into being an established producer of minerals. We'll keep you informed when we have set specific time line for that

[Unknown Executive]

How is the rutile, garnet prices now compared to the estimates in the UDFS?

[Ivar Fossum, executive]

We see rutile prices keeping up slightly above the previous estimates in the DFS. Still keeping up being a niche and high-priced feedstock in the titanium sector. For Garnet, we see a difference in price with stronger prices in North America compared to a somewhat softer market in Europe. I just want to highlight that we have fixed agreement on prices for garnet for the first five years of production.

[Unknown Executive]

What is the status on the AlSiCal Project? Is there any news in regards to the patents there?

[Ivar Fossum, executive]

No specific news about the patents, the AlSiCal Project is in its final phase where the Horizon 2020 administration is reviewing the project costs to get the final accounts in order, and that will be the completion of the four-year Horizon Project. We will follow how that technology could fit into a value chain going forward.

[Unknown Executive]

Do you intend to progress the Kvinnherad Project to a feasibility study? If so, when is that targeted?

[Ivar Fossum, executive]

As mentioned in the presentation, that is something we are reviewing as we speak, how to position that deposit in a future value chain for this mineral.

[Unknown Executive]

Can you say something about what's going on with regards [indiscernible] names to Nordic [indiscernible]? Do you have a long-term plan on being a titanium producer?

[Ivar Fossum, executive]

We want to keep ourselves well informed about all the factors playing into being a producer of the most high grade and climate-friendly feedstock in the titanium sector, including production of titanium metal. As we stated last year, we have paused our engagement in seabed minerals. We think the time line for opportunities onshore are more proven and more promising for our shareholders.

[Unknown Executive]

Are you planning to have an opening session at Engebø when the production starts? Will you invite investors there?

[Ivar Fossum, executive]

Absolutely, and we'll come back to that.

[Unknown Executive]

Kenneth, does the project have a plan start to finish date for the commissioning of the Engebø Project?

[Kenneth Angedal, executive]

Yes, the construction plan shown includes in parallel with finalization of the mechanical insulation that we already start pre-commissioning and coal commission activities in May this year, this month that we are in, and that will continue until the finalization and startup of the production in Q4.

[Unknown Executive]

You did touch about the recruiting in the presentation, but they are wondering how it's going forward and will every position be occupied towards full start-up later this year.

[Ivar Fossum, executive]

With a positive application numbers we see coming in, we do not see any foreseen risk of not having any or every person in place according to our resource ramp-up plan.

[Unknown Executive]

Jens, we have some questions about the Kvinnherad Project. Could you say some few words about how the company can finance that project? Can you legally use the money from the subsequent emission to fund the development of that project.

[Jens Schnelle, executive]

The project is still in early exploration phase where the activities are not capital intensive. We are able to use the funds in Nordic Mining AS for other purposes than the Engebø Project. Keep in mind that the project reserve of $25 million does not include funds in ASA. In regards with potential financing of future development of that project, we have cooperation with another party, and it's too early to comment or guide on such potential financing.

[Unknown Executive]

Ivar, we have a question here, which they ask what is Nordic Mining stakes in the AlSiCal Project? How many percent is Nordic Mining control?

[Ivar Fossum, executive]

Well, there is not a shared ownership of the project as such. I think it was 15 different parties to the project as such. It was fully funded by the EU. It's more a joint effort to fulfill the project.

[Unknown Executive]

Kenneth what are the biggest risks and mitigations that remain prior to mine completion and in relation to production startup?

[Kenneth Angedal, executive]

I think the main risk now is to make sure all of the mechanical packages are safe and sound at site for installation and to make sure that the ramp-up and commissioning is ready for this fourth quarter.

[Unknown Executive]

Well, it doesn't seem that we have any further questions. Perhaps Ivar you will take some final remarks?

[Ivar Fossum, executive]

I can do so. Again, I want to commend the team at Engebø for this last quarter with very comprehensive work with a tremendous focus on safety, and this also includes our EPC contractors and the way they have cooperated at sites. This will be important values to bring forward in the final phase of constructing Engebø. Again, thank you all for watching and we'll try to keep you informed about our progress. Thank you.