Nordic Mining ASA

OSE:NOM

Earnings Call Transcript 2021-Q2

[Ivar Sund Fossum, Chief Executive Officer]

Good morning, and welcome, everyone, to this second quarter interim presentation here at Nordic Mining. My name is Ivar Fossum, I'm the CEO; together with CFO, Christian Gjerde, we will give you the presentation today. Please note that after the presentation is finished, we will arrange a Q&A session, and you can post your questions at the web during the presentation. The complete presentation and the interim report is also in close to our release this morning and will be posted in its entirety at our web page. So let's start. It has been quite an eventful quarter. We will take you through the presentation through our normal agenda, spending most time, explaining the status of the Engebø, Barton and Garnet projects and then give a brief update on our engagement at Keliber in Finland before we close off with a status of the financial position for the company. As I said, it's been a number of positive events for ourselves in the last quarter along all our assets. I will start to give you a brief list of highlights for the quarter. First of all, the major milestone when we presented the updated feasibility study for the Engebø project at May 11 this spring, confirming that this is a world-class mineral project. Also before summer, we successfully signed letter of intents with 4 EPC partners for the construction of the project as well as signing up with the project management consultant for the construction period. We have successfully signed off-term -- offtake term sheets with 2 partners for the complete production of rutile from Engebø for the first years. We are confirmly funded towards the construction for Engebø. And we also signed up 2 financial advisers preparing for project financing as we speak. And we will come back to you on all of these points later on. We took the opportunity during spring to participate in the Keliber share issue, reflecting the major shift which has happened in the lithium space. And we are following appropriate opportunities within seabed minerals through our subsidiary, NORA. Let us start to give a more detailed update on the Engebø, Barton and Garnet projects. And first of all, we're extremely pleased that we had the updated feasibility study in May, confirming the robustness of the projects. We are also proud that we achieved some major milestones related to environmental footprint, and also to CO2 emissions from the projects, both with regard to the physical footprint of the plant itself, but also the environmental aspect related to additives, related to climate emissions because of electrification of among other things, mineral dryers. In addition, we realized a saving of CapEx of almost USD 100 million, but still retaining a robust financial project, both with regard to IRR and net present value. The project demonstrates a very robust cash flow with a free cash flow of USD 1.4 billion with an EBIT margin of almost 70% and a payback period below 5 years. And the revenue to cash cost position for rutile really demonstrates the strength in having a dual mineral project. We have spent a lot of time in the last year to find out an appropriate and decent execution strategy and model for the Engebø projects. We ended up with having 4 EPC partners. All of them are Norwegian, 3 of them are quite local around the project. And we think that alignment has brought significantly strength to our projects. First of all, it is Sunnfjord Industripartner, SIPA, which will take care of the first package for Sitewide Earthworks. It's Åsen & Øvrelid, the largest local civil contractor, taking care of civil works and all the buildings in the projects. The [indiscernible] based company, Nordic Bulk, which have become a major provider in the mineral industry in Norway will be responsible for structural, mechanical and piping and then finally, the [indiscernible] fluoro-based company, Normatic, also very local, will handle the last EPC for electro control systems and instrumentation. And these 4 packages are covering over 70% of the construction expenditure estimated for the project. So this is sort of a tremendous derisking on how we will sort of execute the project moving forward. Also before summer, we kicked off what we call preconstruction activities, engaging Hatch and Sweco as PMCs to move into continuation of basic engineering to prepare for project setup and system integration, which means that the project is ready for physical work to put a shovel in the ground once we have financing in place. We have, during the summer, continued our recruitment process for our own project team, which will be strengthened by both and Sweco during the construction phase, and we will report back to you when we have these key positions in place, adding to our already strong team in Sunnfjord.I would also like to highlight the ESG part being sort of a very core of our focus, not only for Nordic Mining as a group, but certainly for the Engebø project as such. And we have established 4 pillars for our ESG strategy. First of all, climate responsibility, and we have enhanced the project in converting some traditional technology using natural gas over to using hydropower for drying our minerals, which is a significant exercise in all mineral projects. We have managed to make our process plant considerably more compact and hence, reducing the area for the whole plant, which goes directly into the environmental footprint of the project itself. We are also extremely concerned about the execution period with regard to safety and with regard to health for our workers and the whole working culture with regard to the culture and the team itself but also the environment. And we are doing a lot of preparation and making plans for this as we speak. And last but not least, we are caring being a local player, a new long-term industrial employer. In Sunnfjord, we have made a quite extensive, what we call, a stakeholder engagement plan. And we have kicked off a local resource group where we bring in local stakeholders to sit with us and follow the project throughout and in particular with regard to environmental parameters and monitoring the whole aspects around the projects. We have finally succeeded and we are very pleased with that, the offtake term sheet agreements, both with our Japanese partner for the majority of the rutile production and with the international major in pigments, Kronos. Our Japanese partners also has an intention to participate in financing of the Engebø project, and we are continuing these discussions alongside with the offtake discussions. As many of you know, Kronos is a large pigment producer with several plants in Europe, but is also owning an ilmenite mine in Norway as well as a pigment plant in Fredrikstad. The markets for rutile and titanium has continued to improve, followed by the strong recovery, first of all, by China, coming out of the COVID pandemic quite fast. It has been followed out by strong demand also in the U.S. during the last months, and that has really strengthened the demand for high-grade feedstock and rutile, in particular, over the last period. And we expect it to continue, not only because of market, but we see there are some unstability for some of the larger producer of high-grade feedstock. Iluka, one of the largest one in Western Africa has noted that they will suspend production in November this year and that will considerably reduce the output of feedstock. And unfortunately, Rio Tinto had to close down their smelter for titanium slag in Richards Bay in South Africa previously this summer due to unrest and riots by their mine sites. So these are unfortunate happenings, which are also making and tightening the market for high-grade feedstock. In addition to this, I'd like to underline that we are continuing very positive discussions with possible partners for offtake of Garnet, both to the European market, but also to overseas markets. Nordic Mining has mining rights, and we have secured operational license for the Engebø deposits. Over mining rights cover, and as you can see on this picture, the whole, what we call, eclogite deposit at Engebø and the operational license cover the whole sort of regulated area for industrial activity at the deposits. The operational license has been confirmed in 2 rounds by the Directorate of Mining. And therefore, we consider the lawsuit and claim from AMR and our previous Board member to be contrary to what has been granted from the authorities, from the directorate, but also contrary to the Minerals Act as such. We are waiting for the final decision from the Ministry of Trade and Fisheries -- Industry, Trade and Fisheries, and we expect it to be around the quarter despite some delay due to COVID and capacity. As we speak, we have full throttle ahead to prepare for project financing for the Engebø project. As mentioned, we have engaged 2 financial advisers, Clarkson Platou Securities and SpareBank 1 Markets to advise on the project financing, both on equity and on the debt side of financing. And we have already started the pre-sounding towards selected and strategic investors to explore sort of the possibilities and interests and what kind of structure to go for with regard to project financing. We're also in the process of appointing an independent technical engineer that will review the project related to the financing round. The former process will start later in this half, and we will carefully sort of guide and inform you with regard to the details of this progress later on. Then I will touch briefly upon our engagement in the lithium company, Keliber Oy, in Finland. It's been a long-term engagement for us, and it's been through a recent period, which has been a little bit dull maybe in the lithium space, but it has taken a sudden and firm positive shift during last year, as you can see from this graph on pricing or lithium hydroxide. But there are other also very positive progress on the Keliber project itself. As you know, they have consistently continued with resource drilling in Finland every year. And this half year, they have increased the resource base for one of the bigger areas, Rapasaari, with over 30%, which have resulted in a total resource base for Keliber of almost 14 million tonnes of lithium ore, which is quite significant, up from 12 million tonnes. Keliber is progressing their updated feasibility study, which will be published just into the next year in 2022. They are lining up their projects alongside with structure, and they have appointed Sweco in Finland to be their EPCM partner for project execution with an EPCM philosophy. A lot of positive push for the Keliber project to come through and to establish new lithium industry in Finland and the first in Europe to produce lithium hydroxide. And business in Finland have granted EUR 700,000 to Keliber on one of their projects, which indicates sort of the strong support they have in Finland as such. They are continuing with basic engineering for the mine concentrator, which is close to one of the mine sites as well as the chemical plant, which is at the coast in Kokkola. And as many of you have seen, I think over the last month there are, almost every month, coming new initiatives for battery manufacturing plants all over Europe, not only Central Europe, but we see initiatives here in Norway, in Sweden, in Finland, but also in Eastern Europe. And this has resulted in a strong underlying demand for lithium, a very, very exciting space, we think, to be in the future for Nordic Mining. Then I leave the word to CFO, Christian, to take you through the financials.

[Christian Gjerde, Chief Financial Officer]

Thank you, Ivar, and good morning, everyone. I will then give you a brief update on the financial status before we move to Q&A. The group's balance sheet remains solid with NOK 65 million in cash at quarter end, NOK 120 million investment in Keliber and no interest-bearing debt. With that, we remain fully funded towards the construction of Engebø based on our current plans and forecasts. Net cash flow in the quarter was around NOK 27 million, reflecting the activities to finalize the updated definitive feasibility study and other development activities towards construction, and also, obviously, our participation in the Keliber share issue, as Ivar mentioned. We have, for the quarter, retained the fair value assessment of the Keliber investment. However, we are recognizing a gain on the investment of NOK 2.1 million from a translation from a stronger euro to NOK in the quarter. For the full details of the financials, please see the interim report on our website. And with that, I would like to bring back Ivar for the Q&A session.

[Unknown Executive]

Yes. We have a few questions there. And the first one is about how the trading house would contribute to the finance? Will it be by increasing the share of capital in Nordic rutile? Or will it be by providing cash upfront for discounted minerals or other types?

[Christian Gjerde, Chief Financial Officer]

The trading house will be paying on a going basis for the offtake of rutile. So meaning that once we have started production of rutile, they will be paying as it is delivered to their site in Japan.

[Unknown Executive]

Does the rutile offtake agreement price follow the retail price variation in the market?

[Christian Gjerde, Chief Financial Officer]

The price formula that we have agreed with the Japanese trading house is based on the market price for rutile.

[Unknown Executive]

Would Nordic Mining consider selling its caliber share to finance the Engebø project?

[Ivar Sund Fossum, Chief Executive Officer]

The Keliber engagement will be assessed continuously sort of as we develop. Right now, we think that the lithium space is an exciting one, strengthening as we speak, but that will be assessed on a continuous basis.

[Unknown Executive]

And the Engebø project, when will you start the construction of it?

[Ivar Sund Fossum, Chief Executive Officer]

We will start -- the project, as I have explained, is kind of shove already. So as soon as we have financing in place, we will start the physical groundwork and the construction for the project.

[Unknown Executive]

The upcoming trial on Monday is difficult for an outsider to understand. Would it be right to say that Nordic rutile is the wrong party in this case?

[Ivar Sund Fossum, Chief Executive Officer]

Yes. So I think that's a fair comment. So we agreed to that.

[Unknown Executive]

Another question here. How do you consider the possibility that the District Court will be able to clarify these right issues?

[Ivar Sund Fossum, Chief Executive Officer]

We don't consider that court case to be relevant for any of these. We have our valid granted licenses from the authorities, and we are focusing on moving forward on the project.

[Unknown Executive]

You have reduced the risk of 70% of the CapEx, while it's covered by the EPC contracts. Could you talk about the remaining risk to the CapEx figures? How should we think about it?

[Ivar Sund Fossum, Chief Executive Officer]

Yes. I can talk a little bit about that. We have taken the philosophy to -- on the procurement side of things in-house in our own team to relate directly with the vendors of all the technical sort of content of the process plant. So that risk retained with our own specialists in our own team primarily. And we think that's the best way to sort of anchor the remaining risk for the -- for sort of the remaining part of the construction CapEx. So we think the combination of a strong group of EPC vendors together with our specialist team procuring that the technology package, the content is a good setup.

[Unknown Executive]

What would happen if EPCs are not able to deliver on time and budget? Who takes the risk?

[Ivar Sund Fossum, Chief Executive Officer]

We are, as we speak, discussing and finalizing the complete agreements with the EPCs and all of these elements will be a natural part of these agreements.

[Unknown Executive]

We have some questions about NORA. Have you reached out to potential business partners in order to form a joint venture within that project?

[Ivar Sund Fossum, Chief Executive Officer]

We are enjoying constructive and positive dialogues with possible partners also, but also with ourselves on how to proceed in the NORA and the seabed mineral space.

[Unknown Executive]

There are quite a few small companies who are focused on seabed minerals in Norway. How is NORA compared to those? Could you say a few words?

[Ivar Sund Fossum, Chief Executive Officer]

First of all, we're very pleased to see that there is a good response in the Norwegian industry related to the initiatives from the Norwegian government on seabed minerals, in general. I think one of the strengths with NORA and Nordic Mining is our knowledge related to exploration, geological settings, the mining and processing part for minerals, but not at least also the environmental side from our history. We have become very, very skilled and have gained knowledge related to the environmental aspects of mining. And I think a lot of these skills and knowledge will also be able to transfer into seabed minerals.

[Unknown Executive]

Could you say something about your ALUMINA project. What is your plan with it?

[Ivar Sund Fossum, Chief Executive Officer]

We first will have to wait for the outcome of the project. We're quite excited about the project. It's approaching, being halfway in their investigations. We see that there is increasing awareness about making new value chains also for ALUMINA with regard to environment, but also with regard to climate. So we are excited about the project. We still have to wait to see the sort of the outcome of all the test work being done in the project.

[Unknown Executive]

Are you looking to secure Garnet offtakes before raising project financing? Or do you think you can raise capital without any offtakes on Garnet?

[Ivar Sund Fossum, Chief Executive Officer]

We are enjoying very constructive dialogues on Garnet. We think we will sort of encapsulate offtake agreements also for Garnet in due time.

[Unknown Executive]

Do you have any plans to invest more to Keliber in Finland?

[Ivar Sund Fossum, Chief Executive Officer]

That's a question we have to discuss from time to time. We're pleased that Keliber now is in very good shape financially. They have got a new strong partner and shareholder through Sibanye-Stillwater, very, very competent minerals group. We will see when you get closer to construction financing and opportunities for our shareholders to engage further in that financing. So that will be evaluated in due time.

[Unknown Executive]

And can you ensure the stockholders that the share capital increase related to the project financing will be kept at a minimum or even at 0?

[Ivar Sund Fossum, Chief Executive Officer]

We try to sort of think about all aspects when it comes to financing and certainly, the existing shareholders of Nordic Mining.

[Unknown Executive]

I think we have covered most of the questions here. So thank you very much.

[Ivar Sund Fossum, Chief Executive Officer]

Thank you, and thank you all.