Nordic Mining ASA

OSE:NOM

Earnings Call Transcript 2023-Q3

[Ivar Fossum, executive]

Good morning, and very welcome, everyone, to this third quarter interim presentation here at Nordic Mining. My name is Ivar Fossum. I'm the CEO. Together with Chief Financial Officer, Jens Schnelle; and Managing Director of Engebø Rutile and Garnet, Kenneth Nakken Angedal, we will give you the presentation this morning.

Please note that the presentation will be recorded and put on our web page, so you can have a look at that also later. The full presentation is next to the stock exchange release that was published this morning together the full interim report.

So let's start. We have a fairly standard agenda this morning. So after my brief introduction, I will hand over to Kenneth to review more in detail the status of the Engebø project, before Jens will give us an update on the financial situation. At the end of the presentation, we will have a live Q&A session. So you can post your questions during our presentation, and we will read them up at the end and do our best to answer all incoming questions.

Just a brief comment on the highlights for the quarter and year-to-date from my side. And we're lucky to report that there are no lost time injuries during third quarter, and it has remained in that situation during the whole period of activity at Engebø. And we have focused every single second, minute and day for it to remain that throughout our construction period.

In the third quarter, we invested around NOK 270 million at Engebø, in total, slightly over NOK 1 billion project year-to-date. And the project is being constructed as we speak. Two of the 5 buildings are almost complete and interiors are being put in place, and we are currently receiving steels and other part from mechanical installation at sites.

As now, all the 4 EPC contractors are present at Engebø, so it will be a busy place in the coming months. Since before summer, we have had a recruitment campaign for key positions at Engebø, and we're pleased to see the positive response on our announcements. So I'll leave it at that.

Also in the quarter, we entered into a joint cooperation with the Norwegian company, Saferock, on development of a new type of cement based on mineral tailings and other recirculated materials to make a climate-friendly alternative to traditional cement. Very exciting work, and we will report on the progress moving forward. This is one of several initiatives we're looking at, to use tailings over time from Engebø. There are other emerging markets, for example, linked to offshore wind, which we will explore in the future.

Finally, I want to welcome the appointment of Jens as new Chief Financial Officer, and you will soon meet him.

So with that, I'll leave the word to Kenneth to review the Engebø project more in detail. Please, Kenneth.

[Kenneth Angedal, executive]

Thank you, Ivar. As Ivar mentioned, we have no lost time injuries recorded in the period. And we are glad, happy and satisfied to inform that we have -- neither had high potential incidents. We are currently focusing on working in heights and lifting operations as we are commencing mechanical installations and are starting the construction of the 30-meter high process plant. We are, over a week, between 80 to 120 people at site on a daily basis, depending on ongoing work.

The construction at Engebø is at cost, on time and plan to start our production ramp-up in Q4 next year. A big achievement in the last quarter has been to finalize the certified information from the mechanical packages and executing HAZOP on the main mineral processing lines. EPC1 has ramped down a little bit of their activity since they have finalized the tunneling and vertical shaft drilling in Q2, but they are continuing to support EPC2 with concrete foundations and preparing groundworks for other activities and site-wide utilities.

EPC2 has done a great job in the last quarter to make sure the progress on administration building and workshop has progressed up until 80% and the planned finalization of those buildings are early first quarter next year. Roughly 70% of concrete foundations for our main process buildings has been completed.

As Ivar mentioned, EPC3 and EPC4 are now established at sites, and EPC3 is receiving steel structures this week and has also received steel structures for primary crushing chamber previously. EPC4 has started minor work to support EPC1 with installation and construction of cable sleeves in the process area and are following up the earthing as part of the concrete foundation work at the main process area.

Looking a little bit at pictures. As you can see now on the left side, there's a laydown area close to the tunnel entrance to the primary crushing chamber, where we see the primary steel for the comminution and primary crushing. We also see a significant lot of pipes and other mechanical equipment coming in. On the right-hand side, you see the crane finally installed and ready for mechanical installation in the coming weeks. So our focus in the last quarter has been concrete foundation for our main process buildings.

On the top right corner, you see the comminution and milling building which is finalized, except the foundation for the primary rod mill. On the right bottom corner, you see the wet plant foundation which is planned to be finished in the next couple of weeks, but we are already starting mechanical installation with sumps next week. The groundworks, as mentioned, by EPC1 has now continued to work towards site wide utilities and preparation, as you can see on the right bottom corner, for the concrete foundation for the product silos. Inside our primary crushing chamber, we have already installed the MCC and transformer rooms, as you can see in the top right corner.

In regards to mechanical equipment, we have more than 50% of the fabrication completed and we have significant amount of key critical items already underway to site or at intermediate warehousing close to sites. I think the key point here is to mention that we have already clarified all the technical items between the EPCs and the CPIs, and we have now locked the design into finalization and building off the plant.

We have seen requirements to do mitigative actions along the way, mainly to change fabrication location due to either closeness to site or because of available fabrication slots. And we see a critical item for us in the continuing of the project is to maintain the project schedule for the CPI arrivals at site.

So we have been focusing a lot up until now with infrastructure, with concrete foundations, and we are now looking more into our main process buildings. We have 3 main areas, which is comminution, wet plant and dry plant, and all items are in order and fabrication for all of the buildings. We are starting mechanical installation on comminution and wet plant in week 46. The dry plant concrete foundation is estimated to finalize early Q1 next year and we'll go straight into mechanical installation there as well.

We have seen some optimization throughout the detail engineering. Specifically on wet plant, we have decreased the risk in terms of water management and startup and operation of the plant. And in the dry plant, we have reduced the complexity of material handling. So it's all positive and it's good to achieve the milestones we have.

As Ivar mentioned, we have done significant recruitment in the last quarter as well. We have onboarded both in Q2 and Q3 our key management resources, which have already now started to implement business systems for operations. In third quarter, we have had a successful recruitment campaign with over 100 applicants on our 5 positions that we have had out. These are now in finalization and half of them have already signed to start in first quarter next year.

We have started also preparing the control room towards commissioning. So when the administration building is finalized in early Q1 next year, we will go straight into preparation of our operational room to make sure we can use that and support the commissioning early Q2 next year.

[Ivar Fossum, executive]

Thank you, Kenneth. A few words on observations from the market.

It's fair to say that the world is somewhat reluctant when it comes to general demand growth. However, on the titanium sector we see a landscape which is a bit new to us, where we see strong demand and growth in the titanium metal sector. While on the pigment sector, we see a more dampened development as such. So a division between the 2 sectors for some specific reasons, of course. The aerospace and the civil aircraft industry are strong growing sectors for titanium metal, and we also believe there are some effect from the geopolitical changes around the globe as we have seen in the recent years and months.

In terms of garnet, we also see a dampened growth based on increasing interest rates. We see some struggles in the automotive industry in the States and generally a somewhat slowed output from the industry in Europe as well as the freight market costs has come down quite a bit and are stabilized currently at a fairly low level, which also impact, to a certain extent, domestic pricing. However, it's worth to mention that we have entered into offtake contracts for up to the full production at Engebø for the first 5 years.

So I'll leave it at that. And I'll leave it to Jens to give a comment on the financial situation. Please, Jens.

[Jens Schnelle, executive]

Thank you, Ivar. I'll provide a quick update on the financial situation for the third quarter and current.

We had a net loss of NOK 8.3 million in the third quarter, primarily related to costs not associated with the construction of the Engebø mine, partly set off by interest income on cash deposits. The construction expenditures, including borrowing costs on the bond loan net of interest income on the bond escrow, was capitalized on the mine under construction during Q3 with a total amount of NOK 266 million. Year-to-date, that figure is NOK 767 million. And as of 30th of September, we had capitalized NOK 1.1 billion in the mine under construction. The group's financial position is solid and we are fully funded up until production, subject certain CPs. But the construction progress is dependent on timely drawdown of the secured financing.

At the end of the quarter, we had NOK 363 million in cash and cash equivalents at a group level with NOK 250 million located in the Engebø subsidiary. We also had NOK 1.1 billion in the bond escrow account, but there is a requirement to draw down the royalty financing and expend it prior to utilizing the bond escrow, also subject to other CPs. And as of the end of the quarter, we had yet to draw on the royalty financing. This is a main priority of management, and we are currently focused on fulfilling the CPs in order to draw down the USD 50 million royalty financing this month.

For further details on the quarter, I refer you to the full interim report, which is located on our website. And with that, I thank you, and we move to the Q&A session.

[Unknown Attendee]

Yes. We have some questions. We'll start with the finance. In Norwegian kroner, what is the total amount expected to be capitalized in mine under construction the coming 4 financial quarters?

[Jens Schnelle, executive]

Could you say the -- repeat the number of quarters?

[Unknown Attendee]

The coming 4 financial quarters.

[Jens Schnelle, executive]

Unfortunately, I don't have that amount on top of my head in Norwegian kroner.

[Unknown Attendee]

Okay. We'll try to get back to the person with that question. Are you, based on the outlook for now, expecting to use any of the project reserve to achieve completion of Engebø?

[Jens Schnelle, executive]

The project reserve is available to the group in terms of either using it for working capital in Engebø project, which we might do. We can also use it to repay debt on the bond loan or transfer it over to the parent after providing the bondholders with an option to accept repayment. What option we will ultimately decide upon, it's too early to speculate on.

[Unknown Attendee]

We have a couple of questions about ramp-up and volumes. With ramp-up starting in Q4 next year, what is the first expected delivery from Engebø? And what is the budget income for Q4 '24? Kenneth?

[Kenneth Angedal, executive]

I can give a short answer. I think we have a slow ramp-up as we have planned, and we don't have the possibility to give out any specific numbers at this point in time.

[Unknown Attendee]

It's nice that you hired a lot of good people. Are there any skills that you're struggling to get?

[Kenneth Angedal, executive]

I think that if you look at the recruitment program that we have just executed, we see a wide range of both skills and experience. Our challenge will be to find the right balance between experience and local skill sets. So I think from our main challenges is to find the right balance between bringing in experience from outside of the region with the capability of teaching and learning those who live already near by the sites.

[Unknown Attendee]

Can you explain a little bit about the future values of the agreement with Saferock?

[Ivar Fossum, executive]

I can give a general comment with regard to that cooperation. It's a development cooperation, so it's hard to put any specific figures on that today. But it's an important initiative that we will line up with others in order to move forward on how to use the tailings in value-added products from Engebø. So we will report back on the specifics on this cooperation later on.

[Unknown Attendee]

With all EPC contractors now on site, have you discovered any unforeseen bottlenecks? And what do you consider to be the main potential risk going forward with regards to the project time line?

[Kenneth Angedal, executive]

Yes. I think as all big projects, there are items we are focusing on a daily basis. But the big scheme is that we are on cost, on time and we are solving and mitigating risk that comes along the way. I think the main risks that we are facing is, as mentioned, making sure that all EPCs are collaborating and making available space and time at site for the EPCs work. It has worked very well until now, and we are now coming into next phase of the project with mechanical and electrical installations. And we foresee no big issues with the partnership and collaboration between the EPCs in the next phase of the project.

[Unknown Attendee]

We have some questions about the lawsuits. Can you explain a little bit about the recent court case that has ended and the possible consequences this may have?

[Ivar Fossum, executive]

I Shall be careful to comment too much. We're not part of the court case, at least not directly. We expect the verdict to come during November. So we have to relate to that. We have been granted valid permits from the government and King-in-Council in Norway. So I think the State of Norway has a strong case.

[Unknown Attendee]

How is the ongoing and coming court cases affecting the overall project and strategy going forward?

[Ivar Fossum, executive]

I didn't get it fully, [ Morten ]. Could you please repeat?

[Unknown Attendee]

Yes. How is the ongoing and coming court cases affecting the overall project and the strategy going forward?

[Ivar Fossum, executive]

Fortunately, this is not impacting our progress in the project at all. We are handling these matters on a professional basis and it's not disturbing our progress in the project.

[Unknown Attendee]

To what extent is weaker demand affecting pricing of rutile and garnet? And how does this compare to your budgeted levels for the next 5 years?

[Ivar Fossum, executive]

Yes. Fortunately, we have a contract for the first 5 years on rutile. It's an index market price. The prices for natural rutile, which predominantly have a strong demand in the metal sector, is keeping up very well. Actually, our forecast is slightly higher now than in our previous assumptions. And on garnet, we have entered into fixed prices for the first 5 years. So they remain fixed regardless of the market.

[Unknown Attendee]

What is the risk for the sea landfill permit to be revoked? In case of a revoked permit, is there a redundancy plan?

[Ivar Fossum, executive]

We don't see any risk at all for that plant to be revoked based on the number of years this has been examined and processed by all authorities in Norway and also outside.

[Unknown Attendee]

We have a repeat question here. Is there any income expected budgeted for 2024?

[Ivar Fossum, executive]

I think there is a small portion booked for 2024 in the last quarter as a part of the production ramp-up. We don't have that specific figure but we certainly will come back to that.

[Unknown Attendee]

You mentioned in the presentation that management focused on fulfilling condition-precedent CPs to enable drawdown of USD 50 million royalty financing in November. Does the company fulfill those conditions as today? And if not, what is missing? And is there any risk that this drawdown will be delayed and/or canceled?

[Jens Schnelle, executive]

We have provided the CPs as required. They are being assessed by the Orion team, and we are in direct contact with them on a daily basis in order to ensure that we fulfill these CPs. We currently have no indications that there would be any risk of the CPs not being fulfilled, and the only concern regarding timing would be exactly when we draw it down. But we, as mentioned, aim to draw down in November, and that is also the aim of the Orion team.

[Unknown Attendee]

If the economical progress continues as of now on budget, what will you use the buffer of $30 million for, call on the bond?

[Ivar Fossum, executive]

I think we shouldn't speculate too much about that. These will be options that we will have in the future, and we will discuss that internally in the company and with our investors.

[Unknown Attendee]

Just a clarification. Is it correct that the offtake agreement for garnet has a fixed price for the first 5 years? And if so, at what price?

[Ivar Fossum, executive]

We are not in position to disclose these prices. But yes, they are fixed.

[Unknown Attendee]

We do not have any further questions. We'll just leave it for 1 minute or 2 just to see if there is. I would like to thank the participants for their good questions. And, Ivar, perhaps you have a final remark.

[Ivar Fossum, executive]

Yes. I will say thank you to all of you which have followed us this morning. And if you have any more questions, don't hesitate to send us by mail or call us, and we will answer you. Thank you all. Have a good day.