Nordic Mining ASA

OSE:NOM

Earnings Call Transcript 2022-Q2

[Ivar Fossum, executive]

Good morning, everyone. Welcome to this second quarter interim presentation here at Nordic Mining. My name is Ivar Fossum, I'm the CEO of Nordic Mining, and I will give you the presentation this morning. I will also be the stand-in for our CFO, which is at home with a back injury. Please make note that you can post your questions during my presentation, and we will have a Q&A as normal towards the end of the presentation, and you can find the full report and the presentation at our web page and in our press release.

We have a standard agenda this morning. We will focus on the Engebø, Rutile and Garnet project. We'll touch on Keliber as well as our financial position after this quarter. So let's start.

First of all, I'm glad to report that we have good progress in our early construction works at Engebø, and we are still targeting second half of 2024 as production startup. There has been some vacation during summer, but we are now moving forward with our work at site.

Secondly, Engebø has again been documented as being the most climate-friendly titanium feedstock through an NLCA study, which I will come back to later on. We have signed an agreement with the Japanese Group Iwatani Corporation, both for sale of Rutile and for equity investment in the project. We have also agreed to sell our stake in Keliber to South African Sibanye Stillwater, which will be a pleasant and good return on our investments.

And finally, we are on a good way to secure an important part of the financing for Engebø. Our focus remains the same in Nordic. We focus on high-value industrial minerals and metals, whether they come from land or sea. We have been diluted further down in our ownership in Keliber as Sibanye has taken the majority ownership in that company, and the exit is in progress, and we'll touch upon that later. We are also focusing and are engaging in R&D programs, which can open avenues and give new opportunities within the mineral perspective.

I'd like to repeat our strong focus on sustainability in Nordic Mining throughout the organization and in our projects. And our approach is focusing on three main areas: first of all, being environmentally responsible; being a good neighbor and have a positive impact in our communities; and, of course, also taking care of a safe and healthy work environment.

So let's move on to the Engebø, Rutile and Garnet project. And first of all, we're glad to report that there has been no injuries during the second quarter, but a few what we call are potential incidents. We had previously this year, an incident related to handling our asbestos containing cement sheets, which is now clarified and all the asbestos is removed from site as we speak.

In this map, you can see an overview of the construction site at Engebø, and we have circled the two areas where the main activities are ongoing for the moment. And we had good progress both on the engineering task being carried out by the EPCs as well as the physical early construction work at ground. And I'm going to show you some pictures, which illustrates what we are doing for the moment.

First of all, we are carrying out a leveling in the process area. And we are in the process of constructing a completely new access road to the open pit area. So this is a picture from the lower level of the process area, which we are leveling out. There will be three different levels in the process area.

Moving up the road, you see a picture from the construction work of that access road. And this picture is also even further up in the access roads, making a complete new turn for heavy vehicles to be transported upwards. Another important activity for the project group is environmental monitoring. And we have together with DNV, we have developed a very comprehensive monitoring program, especially tailored for the construction phase of the project.

And that is about carrying out water sampling, dust monitoring, marine measurements, but also a number of water quality measurements, both for groundwater and surface water as well as several other biomarine measurements, which will go on through the project phase. So this is a classical activity, along with the other physical work going on in the project.

And we're happy to see that after having engaged with Minviro previously this winter, they have studied carefully the sort of the greenhouse gas emissions from the project. And based on that assessment, they had documented the global warming potential from the project. And the results are extremely promising, showing that Engebøs, Rutile is record low in greenhouse gas emissions and global warming potential. There is still some, and we will focus and move forward and see how we can target and establish a zero emission project by replacing diesel-fueled dumpers and other rolling equipment in the mine when the technology is ready to do that in an efficient manner.

Early June, we signed two agreements with Iwatani Corporation offtake for Rutile for 5 years as well as an investment agreement of approximately USD 20 million for investment in the Engebø project. Iwatani is an active long-term partner, also presently operating in the titanium space, and we look forward to develop and operate together with Iwatani as a part owner in the projects.

As it looks now, we will end up having two offtake agreements for Rutile, one with Iwatani and the other one with Kronos International, and we will have two agreements for Garnet on two different continents. And we are progressing in all of these discussions to wrap it up, being an important sort of basis for the start-up and first production years of Engebø.

The market in the second quarter remained very firm for titanium feedstock and Rutile in particular, having the combination of strong demand in parallel with decreasing supply of natural Rutile. So prices were reported in the area of USD 1,500, and the outlook is that they probably will further increase for the rest of the year.

The other basis on this is also that the pigment producers are seeing strong prices for their products and are reporting record profits in the second quarter. This is also the case for titanium metal, partly also being impacted by the Ukraine crisis where you have a lot of titanium metal production.

On Garnet, we still see that the tightness in shipping, in particular, overseas transportation from China and other continental routes are keeping firm prices for Garnet, and we are considering strong demand for our Garnet in different markets, not only Europe, but also overseas market like the U.S. and the Middle East.

As I mentioned earlier in my presentation, we have secured over USD 80 million in equity for financing of Engebø. And these are coming from three different sources. First of all, the convertible loan, we engaged in the first quarter with the local investor group, partly also participating from the EPC; then the USD 20 million approximately from our partner, Iwatani Corporation; and of course, the sale of our stake in Keliber which will bring almost USD 50 million to -- in equity for Engebø financing.

Looking at the complete financing package in excess of USD 250 million, with a combination of debt equity and possible other sort of capital structures like hybrid capital or royalty. And we are progressing our discussions with selected strategic investors to wrap up the rest of the financing, and we will give you an update when the time is right, but we are moving fast forward along these lines.

Then a few words about Keliber and our decision to sell our stake in Keliber. First of all, the voluntary offer from Sibanye was 15% higher than our own fair value assessment in the first quarter for Keliber and we see a tremendous return from our historic investment in Keliber. Having said that, I would like to underline that Nordic Mining was a very, very early mover in the lithium space, making our first investments in Keliber already in 2008, and we have developed and participated actively to make Keliber what it has become today, a company that will be the first producer of high-quality lithium hydroxide for the battery industry in Europe.

Last year, it was clear that Sibanye Stillwater will have the right to be a majority owner of Keliber being a private company. And together with the value assessment and the current state of the project, it was over consideration that this was the right time to exit from Keliber. But I would like to underline that exiting Keliber is not a sign of a change of strategy. We will strongly focus on industrial minerals with niche properties. And of course, also the minerals that goes into battery production, for example, but also a lot of other technologies relating to the green shift transition that we are witnessing globally.

And then a glance at our financial status after the second quarter, and we remain quite solid with NOK 40 million in cash after the second quarter, in addition to NOK 22 million, the escrow account to continue the construction works, which belongs to the convertible package we did with the local investor group. It's also a milestone quarter in the sense that we are now capitalizing a lot of the development costs for Engebø in the balance sheet for the first time and will remain there. And we can track the development of the Engebø project through the construction with this reposting of funds. We had a fair value gain on the Keliber sale also in last quarter, due to the fact that the fair value and the voluntary offer was higher.

Please look for the full report on our website, where you can find all the details related to our financial standings. And the P&L sheet and the balance sheet is also appendices to this presentation. So with that, we move to our Q&A session. So please, everybody, to pose your questions. And we will do our best to answer them as we stand here on the podium.

[Unknown Executive]

We have already received some questions, Ivar. And the first one is about the time line for the financing of the Engebø project. Do you think it will be completed in the third quarter? And do you have an updated time line?

[Ivar Fossum, executive]

We have continuous timelines for financing. Having said that, we got a severe delay after having the final operational license granted by the ministry, much, much later than anticipated. This caused us to regroup and together with the fact that we had the option to exit Keliber. We also did a somewhat different consideration of the whole financial package but we are progressing. And as we have indicated to you today, a lot of the equity is already secured, and we are moving forward and we'll report back as soon as we have interesting news to give to the market on financing.

[Unknown Executive]

What percentage will the gearing be? It has previously before being said about 50% to 60%, but lately, it has been said 50%. Do you have a number?

[Ivar Fossum, executive]

We don't have a number yet, and I think it will be wrong to specify that before the complete package is actually settled, but we are still in the range of 50% -- between 50% and 60%.

[Unknown Executive]

Are you able to tell us what the interest rate Nordic Mining can hope to get on the bank loan to Engebø?

[Ivar Fossum, executive]

I shouldn't comment on that. We will revert all these details when the package is ready.

[Unknown Executive]

How long can the project continue to run with the funds from the Keliber sale and entrepreneurial loan?

[Ivar Fossum, executive]

We haven't done sort of a careful assessment of that. But of course, the exit from Keliber provides significant funding to go on with the construction if needed.

[Unknown Executive]

How will the rising inflation influence the project costs?

[Ivar Fossum, executive]

We are good protected through our EPC contracts related to inflation, and we have taken measures to cater for the inflation as such. But we will report back when we get closer to actually sort of completing the whole financial package and what measures that might be in there also related to inflation.

[Unknown Executive]

And we have some questions about MR. How will the Engebø project be affected if the court of appeal decides that the Paragraph 7B is interpreted, so the Garnet is the state's mineral?

[Ivar Fossum, executive]

I'd like to underline that it has been confirmed, first of all, from the Ministry of Industry that our operational license is valid and firm and non-revocable. Finally, the Director of Mining has confirmed that the mineral rights belong to Nordic Mining that there will be one operator. We can't see how the court can change anything on that. So we are very, very easy on the outcome whatever it is from that court case.

[Unknown Executive]

What are the Nordic Mining's expectations regarding the price development of Rutile TiO2 in the next 2 to 5 years?

[Ivar Fossum, executive]

That is a tricky question. But we remain confident that rutile will be in high demand. It will be the purest feedstock for the titanium sector. the supply will be at a relatively low level historically. And we will be in a position to produce one of the purest Rutile feedstocks in the world, both with regard to climate but also with regard to other impurities like radioactive elements.

[Unknown Executive]

You have at the early point said that there are some scandium in Engebø. Are you able to take that out? And does it have any economic value?

[Ivar Fossum, executive]

We have never focused on scandium in Engebø. It's along with many other elements, a part of the mineral at Engebø. Over consideration is at so low level. So it doesn't seem any prospect to develop a separate process to extract scandium from that resource.

[Unknown Executive]

Looking at other mining projects in the world, we see CapEx hikes across the board. You have managed to push a lot of your CapEx exporter to the EPC contractors. Any color idea on how those are holding up with the inflation and price hikes?

[Ivar Fossum, executive]

We will come back to that when we get closer to our complete financial package and elaborate on that. We are quite calm on the various elements and moving parts in that setup as we speak.

[Unknown Executive]

We will just wait a minute or 2 and see if we have any further questions coming in. Ivar, perhaps you will sum up the main.

[Ivar Fossum, executive]

Yes. We are approaching the end of this presentation, and thank you all for taking the time to follow it. The headline says that we are tremendously derisked in our financing Engebø, having already EUR 80 million secured from various sources. We have signed a dual agreement with the Iwatani Corporation. We have decided to exit Keliber with a very, very good return on our investment in that project, and we are experiencing very good progress on our early work construction. And finally, we have documented once again that Engebø, Rutile will be the most climate-friendly titanium feedstock.

So with that, I think we close this session. Thank you very much for calling.