Nordic Mining ASA

OSE:NOM

Earnings Call Transcript 2020-Q2

[Ivar Sund Fossum, Chief Executive Officer]

Good morning and welcome, everyone, to this second quarter interim presentation by Nordic Mining. My name is Ivar Fossum together with our new CFO, Christian Gjerde; and Vice President, Resource and Sustainability, Omos Ganke. We will give you the presentation this morning. So it has started. After my brief introduction, we will go through the status for the Engebø rutile and garnet project, followed by a videotape from UMA, presenting our ESG strategy and focus. Then I will give an update of Keliber before Christian will take us through the figures for the second quarter. Please also be informed that you can post your questions on the web during our presentation, and we will have a Q&A session and read your questions after we have finalized here. So let's move on to the introduction. In Nordic Mining, we are focusing on our 100% project on the West Coast of Norway, the Engebø rutile and garnet project as well as our holding of 16.3% in the private Finnish company, Keliber Oy, on lithium hydroxide. We are also following the R&D program in the Horizon 2020 research project, AlSiCal, for production technology of alumina. Looking back at the second quarter of this year. June 17 was a big milestone for us when the Director at Oy mining granted our operational license for the Engebø project. That closed sort of all the major permits for the project, a very comprehensive operational license for both minerals, for the complete lifetime of the projects and for the whole Engebø deposit and extraction rights. At the same time, it's clear that the uncertainties brought by the COVID-19 pandemic still remains with us. We have seen short-term effects, and we think we will see some long-term effects, and we will come back to that issue later on. But this requires cautiousness, and we think we need to be prudent in our strategic development expenditures in order to remain flexible on our financials going forward. At the same time, pushing, making us ready for financing and construction. In the second quarter, we did a value engineering exercise, which have indicated interesting opportunities and potentials for optimization for the Engebø project, and we will take you through the status of that. And finally, we will present to you our sort of new level of ESG strategy and focus, both on a corporate level and for the Engebø project. So let's move on to Engebø. We believe that the long-term fundamentals for our minerals from Engebø rutile and garnet are strong, both on a global scene but also in the European market region. But it's clear that the COVID-19 uncertainty remains and have impacted the market demand for the minerals, and we see that some of the major producers of pigments as well as titanium metal have reported a significant decline for second quarter sales this year. On the other hand, the production and supply of rutile, the high-grade titanium feedstock, has also declined during the first half of this year for several reasons. Some mines have had depleting production rates, depleting grades and some mines have really sort of ended their production due to lack of resources. And this has led to a firmness of the rutile market. So the price of rutile have increased in the first half of 2020 compared to the second half of 2019. It's also clear that the demand for garnet have and will be affected by the pandemic due to general reduction in activity around the world and is also some turbulence in the supply picture for garnet. The biggest producers today are Australia, China and South Africa and also with some modest volumes coming out of India. We are reviewing our market strategy and opportunities in this situation, and we experience a very strong and positive interest to bring on a new long-term producer of high-quality garnet in the European region. And we are having very positive dialogues with new potential partners in the marketing and distribution of garnet. The Australian company, Ausenco, carried out a so-called value engineering study for us during the second quarter with a fit-to-purpose focus in order to reduce CapEx down from the DFS level. And they also looked into various methodologies on mining and mine scheduling, which may provide increased value for our projects. We're also considering alternative technologies within mineral drying processes as well as production of processed water for the plants. All in all, we are revising the current DFS in order to make the Engebø project more robust and more resilient to a new market situation. And at the same time, bring it forward, ready to be financed with reduce risk going forward. So we will get back to you later on with more guiding, more specifics on our findings of this revised DFS. So with that, I will leave the word to Mona Schanche, which will, via a video tape, present the ESG corporate and project strategy. Thank you.

[Mona Schanche, Vice President of Exploration]

Good morning. Nordic Mining is committed to take a proactive approach to ESG. We based our ESG goals on United Nations sustainability goals. We have targeted 4 areas of importance related to climate change, environment, health and safety, and social responsibility. These goals form pillars for sustainable solutions for our projects in accordance with high international standards. Nordic Mining is also participating in the towards-sustainable-mining initiative. This initiative is now being implemented in Norway and gives a set of tools and indicators to drive environmental and social performance within Norwegian mining stream. Next slide. We focus on enhancing our environmental and social performance for the Engebø project. First of all, we have started implementing comprehensive environmental and social management programs for important aspects of the project. Our goal is to develop a systematic approach to continually ensure that the project meets high standards on all aspects as listed here. Secondly, we have some targeted areas to enhance performance. We have to sign solutions within the process plant to recirculate heat to increase our energy efficiency. We are looking at several options for electrification to reduce climate impact. And we have reduced our chemical consumption with more than 90%, and we will continue to explore further reduction as substitution. We are stepping up our efforts in terms of stakeholder engagement, and we aim to have a local resource group and agreements mechanism in place within the next 6 months. Our goal is to provide timely information, give the colors the ability to address their concerns and make them part of our environmental monitoring, through local engagements, and collaboration. We are investigating options to minimize our footprint, through alternative use of waste and to smarter land use solutions. We are currently also in dialogue with DMV GEO to sign an advanced system for environmental monitoring. And finally, we do believe that the higher degree of digitalization and automation for our operation will bring several benefits, not only in terms of economic value but also to create a healthy work environment and to increase our ability to control and minimize our environmental footprint. Thank you.

[Ivar Sund Fossum, Chief Executive Officer]

Many thanks, Mona. Then we will move on to Keliber Oy in Finland, where Nordic Mining is the largest private shareholder with 16.3% shareholding. Keliber is moving forward. They have decided to increase their production capacity on lithium hydroxide in this quarter from 12,500 tonnes per year to 15,000 tonnes per year. They have also moved forward on 2 other environmental impact processes, both for the Päiväneva mine in the Kaustinen area as well as the chemical plant located in the port of Kokkola. They have also hired Riku Sauso as a new CFO in the company. And they have engaged the combined company now with Metso and Outotec to carry out the basic engineering for the Päiväneva mineral concentrator. There are still a couple of permits remaining for Keliber, expected to be due in the first half of 2022 when Keliber is planning to kick off construction for the lithium hydroxide mine and plant. And then I'll leave the word to Christian Gjerde, who will take us through the figures for the second quarter.

[Christian Gjerde, Chief Financial Officer]

Thank you, Ivar. I will then take you through the financial highlights for the second quarter of 2020. As we indicated in Q1, we have, in light of the uncertainties caused by the corona pandemic taken a prudent and strategic approach to our development expenditures. Operating costs is, as a result, reduced by NOK 9 million compared to Q1 2020 and around NOK 13 million compared to the same quarter in 2019. This focus will continue as we move forward towards financing and construction. Profit loss for the period is then coming to negative NOK 12.4 million. The Keliber valuation from quarter 1 is retained. However, due to the weaker euro, we have a translation loss on the investment of NOK 4.7 million. The balance sheet of Nordic Mining remains solid with the financial investment of Keliber, a solid cash balance of NOK 57 million and no interest-bearing debt. Based on the current forecasts and planned activities, we are financed well into 2021. That was what I was going to talk about at this point in time. I will then ask you, Ivar, to come up, and we can move on to the Q&A session if there are any questions.

[Ivar Sund Fossum, Chief Executive Officer]

Thank you, Christian.

[Unknown Executive]

Okay. We have received some questions, and it appears that several of them relates to offtake agreements. Start with the first. In Q1, you wrote that the dialogue between Nordic Mining and the Japanese Trading House was proceeding constructively, targeting to finalize the terms of an offtake agreement. In Q2, the wording is almost identical. Has there been any development or meetings since Q1?

[Ivar Sund Fossum, Chief Executive Officer]

Yes. We're having a good and constructive dialogue with the Japanese Trading House on the terms and conditions for an offtake. Certainly, the world has changed also on the market side of things on titanium, but we have a strong relationship with the trading house and moving forward in our discussions.

[Unknown Executive]

We continue with the question also related to the Japanese Trading House. Which area of use does the Japanese Trading House intend for the rutile from Engebø when it comes to end product?

[Ivar Sund Fossum, Chief Executive Officer]

We will need to get back to more precise information on that particular question. But there are mainly 2 uses of titanium feedstock. It's for pigment, and it's for production of titanium metal.

[Unknown Executive]

Now we're over to garnet. Prior to the cancellation of the collaboration between Barton and Nordic Mining, Barton expressed that they expected that new project would lead to overproduction of garnet. Do Nordic Mining know about any new competing garnet project, which will enter the market in the coming years?

[Ivar Sund Fossum, Chief Executive Officer]

We don't see many mature new sizable garnet project. As such, there are attempts to increase production, both in South Africa and in India. There have been some repetitive attempts for new deposits, both in Australia and also in New Zealand, but we haven't really seen any new sizable projects coming on. And in Europe, we don't see any either deposits or projects, which are comparable to the Engebø.

[Unknown Executive]

Now more specific related to garnet offtake. Is there any development in the offtake agreements regarding garnet?

[Ivar Sund Fossum, Chief Executive Officer]

We are continuing our dialogue with potential partners on garnet and also reviewing our strategy in that space. So we will get back to you and report more precisely when we are in position to do so.

[Unknown Executive]

When do you expect offtake agreements to be completed?

[Ivar Sund Fossum, Chief Executive Officer]

No. Of course, this is a priority we have high on the list and are eagerly moving forward. And it's also evident that the pandemic is causing some restrictions on how to carry out development and relationships in this space, but we are high priority on this task.

[Unknown Executive]

You have said in your speech today that there was going to be a released -- a revised DFS. Do you have more specific time for this release? Will it be in third quarter, fourth quarter?

[Ivar Sund Fossum, Chief Executive Officer]

We are now reviewing sort of the scope and the contents of all this revision, and we need to get back with more precise information on the duration and then we finalize this work.

[Unknown Executive]

So we have received also a question related to Keliber. Can you please repeat if construction start at Keliber is planned for 2021 or 2022?

[Ivar Sund Fossum, Chief Executive Officer]

Keliber have chosen a little bit particular route towards construction. So they plan to kick off, what they call, early works, already next year. And they will do a bridge financing for that during this year. But then the full sort of plant construction will start in mid-2022.

[Unknown Executive]

Thank you. Then we have a question. How would you describe the company's long-term strategy if such can be described shortly?

[Ivar Sund Fossum, Chief Executive Officer]

Well, that's a valid question in today's circumstances. Our long-term strategy remains that we intend to establish new long-term industry based on high-end industrial minerals. And that certainly is true for the Engebø project, which have now received almost all necessary permits to move on. We have been halted certainly by the COVID-19 pandemic, but we'll move on, and reduce risk and get the product ready for financing. And that's on our top of priorities going forward.

[Unknown Executive]

So more related to financing, any color to add on feedback from banks regarding lending to Engebø construction with permitting now in place?

[Christian Gjerde, Chief Financial Officer]

So we continue to obviously make sure that we develop the project to make sure that it is bankable when that time comes. We've not had specific discussions with banks after summer, but we have kept them in the loop in terms of our planned activities going forward. And there is a keen interest amongst the investor community and financier community for the Engebø project.

[Unknown Executive]

More regarding financing, can you please give an update on the financing process going forward? I mean presume it's related to construction financing.

[Christian Gjerde, Chief Financial Officer]

So as we've touched upon in this presentation, we are now currently in the process of reviewing and revising the DFS. Obviously, that will be an important stepping stone into the financing process. So we will need to come back on more details also on that process when we come back with a more detailed schedule and plan for the revision of the DFS.

[Unknown Executive]

Are you planning on keeping the interest in Keliber at present level or allow for further decline?

[Ivar Sund Fossum, Chief Executive Officer]

We believe the holding in Keliber has and will bring value to our shareholders. And it is a holding. We are the largest private shareholder. It's a question we revisit from time to time.

[Unknown Executive]

Do you have agreement with all landowners for resources included in the reserve estimate?

[Ivar Sund Fossum, Chief Executive Officer]

We have concessions and rights to all the necessary reserves in our estimates.

[Unknown Executive]

The question was agreements with landowners.

[Ivar Sund Fossum, Chief Executive Officer]

We have agreements with landowners for the whole open pit. We remain having agreements with landowners for the underground long-term production after the 15-year in the open pit.

[Unknown Executive]

Now the question box seems to be empty. Maybe we should wait a couple of seconds or do we...

[Ivar Sund Fossum, Chief Executive Officer]

Okay. Thank you. Thank you.

[Christian Gjerde, Chief Financial Officer]

Thank you.