Nordic Mining ASA

OSE:NOM

Earnings Call Transcript 2021-Q3

[Ivar Sund Fossum, Chief Executive Officer]

Good morning, and welcome, everyone, to this third quarter interim presentation here at Nordic Mining. My name is Ivar Fossum. I'm the CEO of the company. The CFO, Christian Gjerde, should have joined me in this presentation, but he's home with the flu, but he will join us later on for the Q&A session. So let us start. I read the disclaimer with you for a second. We will run this session with quite a normal agenda. All the presentation will be recorded and posted on our web, along with all the other material. And please also be informed that you can post your questions while I speak, and we will read them loud in the audience for me to answer at the end of the session. So after the intro, we'll start out with the Engebø Rutile and Garnet project, followed by an update on Keliber and some other developments before we close off with the status of financials. And then finally, a Q&A session. So first of all, let me draw your attention to the awareness of the climate change that we have seen the recent years, and in particular, in the recent weeks. And I think the whole society around the globe, politicians and all of us, are becoming aware of the need to change. They need to transfer our economy over to a greener society. And we see that most of us are becoming aware that in order to enable such a transition, we need more minerals, different minerals and more volume of minerals. And regardless of recycling, less use, more advanced technology, there is no doubt that we need more supply of minerals. And I'm glad to see that the new government in Norway also adopt that awareness and have ambitions and focus on the mineral industry in Norway. We have to supply more minerals, but we have to do it in a sustainable way. And I'm proud to say that Nordic Mining has been a promoter of the sustainable mining rating system, which we have adopted from Canada and which now is being rolled out in the Norwegian mineral industry. And I'll come back to that later in my presentation. Just a quick glance over assets, focusing our core projects in Norway for titanium and in Finland on lithium, but also our positioning with regard to seabed minerals off the coast of Norway, but potentially also internationally. Today, I also would like to highlight the two R&D projects that Nordic Mining is involved in. First of all, the AlSiCal project, which is 100% funded by the EU through their Horizon 2020 program. And secondly, the NorGIBatfF project run by NTNU in Trondheim and funded by the Norwegian Research Council. Both of them are good examples on how technology and progress can see and create new avenues for minerals and technology, picking completely new value chains, which may replace traditional production of minerals and metals and batteries and other things we need in society. And I'll come back later and explain more about the AlSiCal project specifically. Just a quick launch of some of the main topics we will touch up on the presentation today. First of all, the court ruling a couple of weeks back, designing of construction agreements, progressing our engineering, a little bit about the rutile market and our adjustment of our fair value assessment of our investment in Keliber. But let's start with Engebø Rutile and Garnet. And I want to highlight the court ruling, which happened a couple of weeks back, which clearly confirmed that the mining rights we have at the whole Engebø deposit is valid. And there is no doubt about -- from the court drilling that there'll only be one mining operator at the Engebø deposit, and that will be Nordic Mining. That was a great relief to us even though the court ruling was as expected. But it's also clear that the court ruling and the delay in the final decision from the ministry about the operation license has caused uncertainty and some delay, and I'll come back to that later in the presentation. But we are waiting for the final decision from the ministry, which we suppose will come any day soon. The signing of the fixed price agreements with 3 of 4 of our EPC partners a couple of days back, has been a major milestone for us. EPC 1 with earthworks and tunneling with SIPA as the contractor. Åsen & Øvrelid in EPC 2, civil work and buildings. And Nordic Bulk with structural, mechanical installation and underground comminution are very, very important contracts. And the signing of these represent a milestone in our corporation and the kind of execution model that we have established for the Engebø project. And we will see the signing of the last one coming soon. We are progressing as we speak also with detailed engineering work. Actually, work, which belongs to the construction package of work. So in many ways, you can see that we have already initiated the construction of Engebø by way of engineering. Finally, I'm also glad to say that we have engaged Mr. Terje Gundersen as Project Director for the Engebø project. Execution of industrial projects is a major task, and we need specialists. And Terje has extensive experience from large projects in the oil and gas industry as well as larger infrastructure projects. So we look forward to get him on board on the owners team in [indiscernible]. This picture indicates a little bit about the engineering work ongoing. This is a sketch from EPC 3's engineering work on the comminution unit, which is one of the major buildings at the plant site. ESG has been a strong value driver for our company and for the Engebø project, and it remain so, now throughout construction and throughout the whole operation. And we have pinpoints, as I told you before, four specific focus areas for our ESG goals for the company. I'd like to follow up this to tell you a little bit more about the -- sustainable mining concept. It is a transparent scorecard or rating system divided in eight specific protocols, which belongs to three different groups: Communities and people, environment and energy efficiency. Each of these 8 protocols have again specific criteria. And this creates a landscape, which is covering all aspects of ESG for a mineral project or a mineral operation. Not all of these are equally important for any project. So you have to find your heights within this landscape. But it represents a major step forward for the mineral industry in Norway, probably also Scandinavia. It has been developed for many, many years in Canada through Mining Association of Canada. And it will bring consciousness. It will bring awareness. It will be in transparency. It will bring confidence to us, as operators, to our shareholders, to our neighbors, to politicians and all our stakeholders around us. So this is a very, very important work. And we will report according to the system from day 1, that means already next year, where there will be a trial phase for reporting. And then gradually, it will be a full-fledged reporting according to this system. I'd just also like to highlight another topic. It's about how things are looked when they are finally built. And this is an item that was included in our building permit to the local municipality, showing how we are utilizing the topography and the height differences from the country road and down towards the coast line where we were able to locate the whole process plant beneath the road level. There is no doubt we are moving towards a completely fossil-free mining operation. We are currently at an extremely low level. But with the pace of technology development that we see within all aspects, there is no doubt that we will get into a completely carbon-free operation at some point in time. And what we are discussing internally is how could we cooperate with authorities to facilitate even faster progress towards such fossil-free cooperation. Moving over to market, and a few words first about the titanium market. We saw, as I told you last time, a strong recovery for demand of titanium feedstock into the pigment and metal sector, strongly driven by Asia, and that has continued. And it has continued in such a way that producers have not been able to rebuild their inventories for pigment feedstocks. So it's still a very firm and tight market. It also has been impacted by a number of events. It has been unrest in Africa. It has been COVID problems with many operations in addition to resource depletion at some of the major suppliers. This has led to an adjustment of outlook prices. TZMI focus on a 15% increase for prices next year for rutile with a long-term outlook price being 10% higher than what we have assumed so far in our projects. So it's troublesome for some of the final producers in the value chain. It's very exciting for the supply chain of feedstocks for titanium. On the garnet side. The trade of garnet is still impacted dramatically by the chaotic situation in the freight markets, in particular with regard to container freights, and in particular, from exports out of Asia. That has also partly been caused by COVID with lack of people in the ports. Also, with the shipping, staffing and so forth. And we think it will continue for quite another while. We still haven't seen the dramatic consequences on pricing, but we will revert back to you and report more about the situation into the next quarters. A brief update about project financing. We are working together with our financial advisers, Clarkson Platou and SpareBank Markets, and we are enjoying very positive discussions and processes with strategic investors, both for equity and for debt financing for the projects. We just also finalized an updated ITE review, particularly for the debt financing part of the projects. But having said that, and coming back to my comments on time line, there is no doubt that progress on further financing is pending over the final decision on the operational license. And we'll keep you posted once we are sort of engaging into a clear plan for financing, although we already have kicked off many important activities related to that. Then I move over to Finland and Keliber. And I'm sure many of you have noted the movements and the patterns in the trade of lithium and the plans for battery manufacturing. Keliber is progressing, and they have consistently drilled. And in the third quarter, they updated their reserves, which have been increased by some 30%. And it's now 2 deposits, which represent over 80% of the total resources for the project with a mine life of approximately 15 years. It's a major improvement for the Keliber project as such. We also saw in the third quarter that their large shareholder, South African Sibanye-Stillwater invested another EUR 10 million into Keliber, as scheduled according to the shareholders' agreement. And in parallel with all of these activities, the prices for lithium has rallied upwards, as you can see from the graphs, both for lithium hydroxide and also for lithium carbonate. And just in the recent weeks, we have seen that the shape of these curves has slightly become to flatten out a little bit. And this has caused valuation of lithium companies that we can compare Keliber with to rise tremendously. The graph on the curve is a comparison -- is a peer group comparison with the hard rock companies such as Keliber being in a similar phase. And we see that they had gained a valuation over 300% in the recent period. That has led also us to have a new look of our fair value assessment of reinvestment of Keliber, which have been increased by around NOK 70 million up to almost NOK 200 million. And then finally, I'll say a little bit about other developments, starting with the AlSiCal project. And there are two major benefits and interesting aspects we see with this project. First of all, it's about making industrial minerals and products, which we need in society from one rock. So one ore can bring three different industrial minerals. So it's fantastic utilization. But to overcome that, you have to develop, you have to find new ways. And the AlSiCal project is qualifying a technology where we are consuming CO2 and binding the CO2 in the product through the process. And that's another great achievement with these projects. It's a 4-year project. They have come roughly halfway. And they have documented production of alumina and silica with the right grade and with the right limits of impurities, which are crucial for these products. And they will continue in the project to demonstrate acid regeneration, which is important, and production of precipitated calcium carbonate so alumina, silica and -- carbonate are. The three products coming out of this new production chain for alumina. And we see that the interest is growing around the technology. And then I'd like to highlight our review or renewed view, if you like, on seabed minerals. We have been engaged with seabed minerals for many years. And now we see that the Norwegian Petroleum Directorate has kicked off an impact assessment on the Norwegian shelf in the area where they will open licenses for exploration and possibly exploitation of seabed minerals. The impact assessment will last approximately 1.5 years followed by a hearing round and a decision process. And we are discussing and having dialogues on how we are going to position NORA to be in the right position to establish a robust and sustainable strategy for these forthcoming events in Norway and potentially also internationally. Then I will finalize with the financial update. And we still have a very solid balance sheet in Nordic Mining. We see an increase of cash outflows in the third quarter. And that reflects the preconstruction work, the engineering and all of the setup around the product, which we discussed in some of the previous slides, which is actually part of the construction work that we outlined in the UDFS. That means also that most of this work is deductible from the original CapEx indication. And then again, a change in the balance sheet coming from the fair value adjustment of our Keliber investment, which has gained value. And I'm glad to say that we still have no interest-bearing debt in the company. And that we are comfortably funded to move forward towards construction of Engebø and the other activities that we outlined on the other assets. So with that, I'll come to the end of my presentation, and we open up for questions, which would help from my systems here. I will read them loud, and I will try to answer. And I think also Christian is with us online to help us out. So please.

[Unknown Executive]

Thank you, Ivar. This must have been a fantastic presentation because we don't have any questions. So if our views out there would like to post the questions, we're going to hang in another minute or 2. Could you perhaps elaborate a little on when you think that the construction could start?

[Ivar Sund Fossum, Chief Executive Officer]

Absolutely. We are in a show already stage. As I said, we have kicked off a lot of preconstruction activities, pending the final outcome of the operational license. It would have been fantastic for me to give any specific dates. But hopefully, within the first quarter next year, we can immediately start construction follow the financing of the project.

[Unknown Executive]

So all the processes are running as we speak?

[Ivar Sund Fossum, Chief Executive Officer]

Absolutely.

[Unknown Executive]

There is one question here. How much is the equity part of the investment? And how much of that will be asked from today's owners?

[Ivar Sund Fossum, Chief Executive Officer]

Well, I think that's related to project financing on Engebø, and we are still discussing a gearing between 50% and 60%. So a debt part of the financing, which is somewhere between 50% and 60% and the rest as equity. But of course, we expect to see a revaluation of the project and other company when we move on towards financing.

[Unknown Executive]

Well, we would like to thank all our viewers for participating in this presentation. And thank you, Ivar for a very clear and good message today.

[Ivar Sund Fossum, Chief Executive Officer]

Thank you.