Nordic Mining ASA

OSE:NOM

Earnings Call Analysis

Earnings Call Transcript 2024-Q2

[Ivar Fossum, executive]

Good morning, and welcome, everyone, to this webcast and second quarter interim presentation here at Nordic Mining. My name is var Fossum. I'm the CEO of Nordic together with CFO, Jens Schnelle and Managing Director; Kenneth Nakken Angedal -- will give you jointly the presentation this morning. Please note that the full quarterly report, along with the presentation and the Stock Exchange release has been published this morning. and please also note that the webcast will be recorded and posted on the website, so you can look at it later at any time you want.

As normal, you may post your questions when we do our presentations, and we will have a Q&A after we have finalized where we'll read the questions allowed and do our best to answer all of those. So with that, let's start. The agenda today is quite normal after my brief introduction with highlights and a few other things. I will leave the word to Kenneth to give an updated and more detailed status on Engebo. I will give a few words on the market and will finalize with an update on financial and economy.

But first, let us underscore some highlights for the quarter and year-to-date. As in the last quarter, also the second quarter was without any lost time injuries, and we are extremely pleased and also a bit proud about these statistics. And we see that our focus to use a strong safety culture among ourselves, contractors and subcontractors really pays off and it's crucial for us. We have, in the second quarter, finalized a comprehensive task force in monitoring environmental impacts and status, both in the marine environment and onshore, so that we have a clear reference for the state of nature before we start production later this year. In the second quarter, NOK 385 million were invested in Engebo, somewhat down from the previous to the natural evolvement of our project construction.

Totally, NOK 2.3 billion now accumulated being invested in Engebo. We are on schedule to commence production ramp-up during the fourth quarter of this year. And Kenneth will take you through the various steps we are -- will go in before we reach that stage. We are carrying out a number of various activities to prepare for production and to start up the industry at Engebo.

In the second quarter, we signed a 5-year agreement for a mine operator. It's a local company, and we will give you more details on that. We have just commenced what we call commissioning, that is the startup procedure, the testing procedure of process plant machinery at Engebo. And we are pleased to announce that our offtake partner on garnet is the Barton Group of United States and will give you more details on all of these points as we go through the presentation.

In the second quarter, mid-May, we released the second drawdown of $30 million from the bond escrow account. And over the last month, we have reduced significantly our exposure on foreign currency through hedging and exchange. And as in the last quarter, we are confident in guiding on increased robustness on the project economy. And to give a little bit more flavor on the milestone for the project, the -- on August 15, we did the final drawdown of NOK 48 million from the escrow account, and that was the final release of the total financing package for Engebo.

And this milestone is important because it implies that we have carried out 4 independent cost to complete test for Engebo, validating our own forecasts and projections in terms of projects, overall construction costs and schedule towards production ramp-up. So it's been a comprehensive exercise each of these drawdowns. As we have guided previously, there has been volatile exchange markets. We are pleased to see that we now have taken down these risks and that we have remaining construction costs fully covered in NOK on our accounts.

Then to a few other interesting aspects of Nordic. In second quarter, we entered as the sole owner of the exploration rights at the Kvinnherad quartz deposit, which we know for over quite a few years. We are carrying out preliminary test work to check out the homogeneity of the deposit itself. And we're also doing preliminary assessment of potential use of land and social and environmental impacts for a possible new industry in Kvinnherad.

We're also having interesting dialogues with both national and international potential partners, both regarding offtake and possible joint cooperation. We see fluctuations in the solar cell market, especially internationally and in Asia. But this deposit may have a very sustainable and competitive place in the value chain or making crucibles for the PV sector, and we strongly believe in that sector going forward.

As mentioned, we are proud to say that our offtake partner on garnet is the Barton Group of U.S. It's a seventh-generation family company, and since many years ago, they have been the name in the abrasive industry, the strongest brand, we should say, in the garnet industry as we speak. And also Barton has experience from mining hard rock garnered in their own hard rock mine in upstate New York in the Adirondack Mountains. That means that there are a perfect partner for us when we are launching the Engebo garner to the international markets.

In our offtake discussions, we have also agreed that we will carry out a co-branding in our product. And I just want to a brief example of how 1 of these products could look like in the marketplace once we start to sell and distribute garner to the markets. And finally, from my side, we want to inform you that we have resolved in Nordic to seek a transfer of listing from the current Euronext expand listing to the main board at Oslo Stock Exchange.

We believe that over time, that will give the company improved ability to grow our position in the mineral sector, both in the Nordics, but possibly also internationally. So with that, I will leave the word to Kenneth, who will take you more into detail of the sectors of Engebo. Please Kenneth.

[Kenneth Angedal, executive]

Thank you, Ivar. Starting with [ HTC ]. The construction team at Engebo has yet again delivered a quarter without LTIs. And we have now a total free to date, 854 LTI free days. The focus over the last months and quarters has been to make sure that we are ready for the commissioning stage by introducing restrict -- rules in the process plant buildings. We have, in the last quarter, focused on closing of the buildings, roughly around 125 construction workers at site with a little less during the main holiday in July.

We expect now in the commissioning phase and with people working in all different stages of the project, around 160 construction workers at site in the third quarter, moving it downwards from 180 in August towards 125 in September and October. The majority of the lifts remained in a project was executed in August with the silos being placed on top -- silotops being placed on top of the silos. We are pleased to announce that we finalized an agreement for a mining collaboration and alliance with -- Industry Partner in second quarter.

The partner is responsible for drilling and blasting, loading and hauling of ore in the open pit. The company will make sure that the management of the mine design and schedule is in place and according to our DFS and financial requirements. The fleet will consist of Volvo hauling trucks and excavators and Sandvik will deliver drill rigs to the manufacturer -- asset manufacturers to the mining partner. Orica will also support from a blasting perspective into the contract.

The contract is expected to be roughly NOK 450 million over a 5-year period, and it includes predefined targets we had an element of profit and loss sharing between the parties, depending on meeting the targets in the contract. The construction at Engebø progress according to plan for our production ramp up in Q4 this year. We have received all the process plant equipment at sites and they are also installed by the SPP contractor, Nordic Burk, into the process plant buildings.

The Civil and Building contractors has started installation of the last building roof and wall panels, and we expect to be finalized within week. All major civil works has been completed at the site, and we are closing up on starting to refurbish with asphalt and fencing around the plant on the external side of the buildings. The ENI contractor, Numatic, is progressing well on cable installations, and the automation system is fully up and running and ready for commissioning.

We have started with mechanical completion walk-throughs in the primary crushing and comminution milling building. Looking at mechanical completion, we have entered into commissioning of the process plant. The activities are executed in stages and are progressing area by area. And as mentioned, we have now started commissioning in the primary crushing and combination side of our process plants. On a high-level point of view, you can divide our next steps into 3.

It's the coal commissioning, the hot commissioning and at the last stage, the tuning of the process plant. In the coal commissioning, we want to make sure that all equipment are installed according to the manufacturer requirements. We want to make sure all the signals from equipment into our automation systems are connected correctly and are giving us the right information as an operator. We are also testing and finalizing all the bulk material handling, making sure that we can move the ore from primary crushing all the way into our final destination in our production silos.

We are filling and testing all our water lines and making sure the pumps are working as required to feed the -- lines into different equipment in the -- when all of these are finalized, we are starting with hot commissioning. And it's important to notice that we will get support from our PMC partner, Hatch, during this operation startup. It's evident that it's important for us to make sure the quality and the stability of the process plant are according to their design.

The first thing we will do is to start up and test and make sure our crushing circuits are working as intended with manufacturing the right quality and particle size into our buffer silos. After that, we will start ramping up our production when all the mineral separation equipment in the wet and dry plant are ready for ore. After we have managed to get a stable production, making sure we have true pit in our process plant, we will start tuning our operations to make sure we achieve the full production capacity, and we expect to do this during 2025.

There is a long period of ramp-up to full production, which is then planned in line set out in the UDFS. Throughout these different stages, we will have support from the OEMs, the manufacturers of the process equipment. Some are only coming for the verification of installations, but some are also participating in the hot commissioning and in the tuning of the process plant to make sure that we are delivering quality to our customers. The operation teams are getting ready for the production ramp-up.

We have our team already visiting Barton as our offtake partner and making sure we get good experience from them on training our own people. We are today in our organization, 71 team members, and we are ready now and enough people to start up the plant. Even though we are ready for the colleagues will join and onboard in October and November. In total, when we are in stable production, we will be 110 employees taking into account the resources from the mining alliance partner.

In addition to training with some of our offtake partners, we have also built up a lab at a local school and university that are facilitating a lab-scale version of our process plants. This means that our team can already now train and prepare to understand the different equipment in the process plant and what they're supposed to do in the various stages of our mineral processing. Before we start the production, it has been very important for us to do an update of our ENI, which means that several monitoring facilities and programs and surveys has been executed over the last years.

This is, as Ivar mentioned, both in the marine environment and onshore on the terrestrial items. A lot of this has been executed and supported by the NoskiVeritas -- in addition to the monitoring and surveys, we have also developed our new water stearship plan which facilitates and solutions to follow up water quality, quantity and potential runoffs. We have followed up our biodiversity plan to make sure that we are documenting our impact during construction period. We have also prepared a plan and strategies for follow-up, both Scope 1, 2 and 3 during operations to make sure we land towards CO2 emission-free operations at Engebø. Then I give the word back to Ivar .

[Ivar Fossum, executive]

Thank you, Kenneth. A brief update on the -- markets, starting with the pigment sector, which is a bit twofold. We see a decreased inventory level towards the end of 2023, and we have seen somewhat higher demand in the beginning of 2024, which is positive, both with regard to the pigment producers as well as the feedstock producers. On the other side, we see the housing market in the Western world is quite subdued. So we're open to see how that market develops in the remaining part of this year.

We also see in this industry and in this market, as in many other industries, that geopolitics is coming into play. So EU has imposed preliminary antidumping duty on import pigment from China, which is quite substantial. And that may have an impact also on the feedstock supply and activity in our region. Although this is now being imposed, we see a strong increase in pigment production within China, which, of course, have also had a positive effect for the global producers of titanium feedstock -- selling their feedstock into China.

So it's a mixed picture, and we'll come back and report how this developed for the second half. In the titanium metal sector, the pace and outlook is quite different and much stronger any reasons. And we have touched upon that in previous quarterly updates. During this summer, both Boeing and Airbus have given their outlook towards 2043, and they are both projecting a massive increase on new aircraft going forward.

There are a lot more travel individuals. And despite each plane likely will hold more passengers, there is a substantial need for building new aircraft, both with regard to replacement of old models, but also new fabricated to increase capacity as such. So the titanium metal segment is expected to be firm and growing in the years to come, which is, of course, positive news for us producing the ideal feedstock for this sector. So that was a brief update on the titanium market. Now I'll leave the word to -- to give you a status on financials. Please go.

[Unknown Executive]

Thank you, Ivar. Financially, the main focus in this quarter has still been on the financing and investment of the Engebo project. So far, NOK 2.3 billion has been invested in the project. This quarter, we have capitalized NOK 385 million on the balance sheet. This is down from NOK 543 million in the first quarter. And the reason for that reduction is mainly due to less capital-intensive work being conducted in the last quarter.

Also, NOK 41 million has been moved from mine under construction to property, plant and equipment in the second quarter. This is due to the completion of the administration building that has now been taken into use. On the financing side, we completed the second release of USD 30 million from the bond escrow in Q2. Subsequently, we completed the third and the final release of USD 48 million in August. This amount also includes the accumulated interest over the lifetime of the escrow account.

Cost of complete test has verified -- been verified by independent technical engineer prior to each release, meaning the last 1 was done now earlier this month. We have solid source of funding available for the project NOK 49 million in cash and cash equivalents at the quarter end were of NOK 306 million is in the Engebo company. At the end of the quarter, we also had NOK 508 million available on the bond escrow, but this also relates to the same amount of USD 48 million that were released in August.

We have very limited U.S. dollar exposure related to the investment in the Engebo project now due to exchange of U.S. dollar to NOK to fully cover the remaining construction costs in the project. We maintain the guiding from previous quarter that the estimated remaining project reserve is USD 25 million, and this cover also the minimum liquidity requirement of USD 15 million and also unexpected costs. So with that, we go over to the Q&A.

[Unknown Executive]

We do have a few questions. We'll gather them under the same team, but we'll start with Ivar. What is the strategic outlook for leveraging the titanium feedstock from the Engebø project in titanium metal production to Nordic Titanium -- following the expiration of the 5-year offtake agreement?

[Ivar Fossum, executive]

Yes, thank you for that question. We are doing preliminary how should I say, scoping or fact-finding mission to understand how could we maneuver long term to see if it makes sense for us and for this region to enter into that part of the titanium value chain. There are more and more factors that could point in that direction. It's still at a very early phase.

[Unknown Executive]

Is the current rutile prices in line with what Nordic Mining has forecasted?

[Ivar Fossum, executive]

Yes. As we mentioned also in the last quarter, we are slightly above what we have forecasted on prices. We are moving into a time period where we'll see a further significant drop in the world supply of rutile, both from East Africa and also West Africa, which may have a further impact on price increases for rutile.

[Unknown Executive]

Is there any updates on the AlSiCal project?

[Ivar Fossum, executive]

There is no update as such from our side. Likely the research base that AlSiCal represented will spark new and more detailed scoping studies, which are pointing tubes more industrial application of the technology. Yes, I think that's a fair answer at this stage.

It also comprehend projects still remain to see whether it's also commercial benefits included in the scope of this technology.

[Unknown Executive]

Do you have any comments on the statements from ESA and the European Commission that not to -- our support for day case against the state?

[Ivar Fossum, executive]

No, we don't have any particular view on that. We are not part of that case, and we remain confident with regard to our permits, which are all in place for Engebo. And we think the City Court verdict was very, very comprehensive and clear the way we understand it.

[Unknown Executive]

And there is 1 view who is thanking you for the fantastic job you have done as CEO. How do you envision the process of finding a new CEO moving forward? Will that be an internal hire or external?

[Ivar Fossum, executive]

We have no specific comments to that. We are moving on with that process as we speak.

[Unknown Executive]

Kenneth, during the initial construction phase, the company provided monthly progress updates. Could you consider reinstating these reports for the later stages of the project as well?

[Kenneth Angedal, executive]

I believe we did quarterly updates where we show some monthly progress and status, and we have done also at each summer, a certain update on the status. At this time in a project, there is no reason to go into monthly details. There's so much happening on a weekly basis right now. And that's why we focus today on showing the stages that we're doing from now mechanical completion and into commissioning and start-up.

[Unknown Executive]

Has the ISPS certification been granted for the port facilities at Engebø?

[Kenneth Angedal, executive]

ISPS approval is fully in place, and we have had boats coming in offloading the top of the product silos and other conveyors and the ship loader as part of -- and after receivable of the permit from ista.

[Unknown Executive]

There are some questions about the opening date of the mine. And are you able to provide some more details regarding the process of going to full production capacity when in 2025, is this expected to be achieved?

[Ivar Fossum, executive]

I think the details of that, we will come back to later as part of both revenue and ramp-up projections going forward. It's a little bit too early to come into those details right now.

[Unknown Executive]

We have a few questions about the stock listing, which will gather in 1 question. And it's very nice to hear that Nordic Mining will be applying to start trading at -- and not just at Oslo expand, but how long will the application period be? And do you think that Nordic Mining will be on the main list by year-end?

[Ivar Fossum, executive]

What we have decided right now is that we are going to apply. We are working with the application now, and we will come back to you later this fall with the formal application. So we are mapping out how this will -- how long time this will take right now.

[Unknown Executive]

Ivar, Will shareholders be invited to a tour at Engebo at the mine start-up?

[Ivar Fossum, executive]

That's a very good question. We have 15,000 shareholders. It's hard to invite all of those to visit, but we will, of course, seek to welcome as many visitors as possible. However, we ask for understanding that we now are in a very, very hectic phase then were completion of construction and kicking off ramp-up, but we will continue for 40 years, so there will be plenty of time to visit the mine and the industry at Engebo.

[Unknown Executive]

That was the last question I noticed here. We could wait just for 1 minute. Perhaps, Ivar, you want to close up with some comments.

[Ivar Fossum, executive]

I can do. Thanks for all the questions. Please, if you have any more questions, send it to us per mail or try to call us, and we will do our best to answer. We are, of course, extremely excited about the pace of the project and what are just in front of us during fall. We're happy to see that recruitment is successful and that there are very many young talents that want to engage in the new mineral industry at the West Coast of Norway being an international player in the titanium and garner space. So I think I'll leave it with that, Martin. Thank you all for looking.