Nordic Mining ASA

OSE:NOM

Earnings Call Transcript 2019-Q4

[Ivar Sund Fossum, Chief Executive Officer]

Good morning. And welcome, everybody. My name is Ivar Sund Fossum. I'm the CEO of Nordic Mining. Together with our CFO, Birte Norheim, we will give you the presentation of the Q4 2019 interim presentation this morning. We will follow our usual agenda. So after a brief introduction by myself, I'll leave the word to Birte, which will give you the updates of the financials before we give a brief status of the Engebø rutile and garnet project, a status of Keliber Oy in Finland, and finally, we will have a Q&A session. And please note that it's possible for you, on the webcast, to post your questions, which we will read here in the audience. And welcome also to all new shareholders to Nordic Mining. We are extremely proud that we have just finalized the most important milestone for the Engebø project. We presented that to you 2 weeks ago, and we're glad that it's documenting a very robust and economically attractive project. The DFS represents major derisking of the project, and it's also a start of new activities moving towards financing and construction. I'm also glad to announce that we now are fully financed until construction start-up of the Engebø project. So this year is really about preparing for construction. We will step up our financial activities, we'll finalize our offtake agreements and we will build our own team to become a strong owners group during construction. And just to recap a little bit, the DFS proved strong figures, very healthy NPV levels, but not at least, robust cash flow, which are there to serve debt costs and project financing for the first 15 years of the projects. We want to develop Engebø as a long-term industry, and we want to have a perspective which is more than only being miners. We want to have an overall view as caretakers of our common resources and have the end in mind, with regard to how we construct and how we operate and how we finalize this industrial establishment. So we will naturally focus on climate in all aspects of the project, both the construction and certainly also operation, our footprint with regard to environmental, both on land and in the marine environment; health and safety, not only for ourselves, but for our neighbors and other stakeholders of the project; and finally, but not least, our responsibility as a social player in the local community, which we certainly will impact, hopefully, only to the positive side. So with that, I'll leave the word to Birte, which will take us through the financial figures.

[Birte Norheim, Chief Financial Officer]

Thank you, Ivar. So the operational loss for the period amounted to NOK 15.7 million, reflecting the activities relating to DFS, which was ongoing in the fourth quarter. Special items on the P&L in the period is the impairment made on Keliber, which amounted to NOK 25.1 million. As you may recall, we are currently carrying the holding in Keliber as a mark-to-market investment, which may cause these kind of fluctuations from time to time. And there are 2 key drivers that results in the impairment made in this period, which is relating to the announcement made by Keliber in November of a delay in the construction start-up, but also a sustained pressure on the spot market for lithium product. Both of these factors have had an adverse impact on the valuation of Keliber in the period and has reduced the gain for the period -- for the year to NOK 75.5 million. This results in a net loss for the quarter of NOK 40.9 million and a net gain for the year of NOK 1.4 million. On the balance sheet, you will recognize that we have reduced the value in our Keliber investment to NOK 90.8 million. And I'd also like to point to the cash balance amounting to NOK 30.6 million as per December 31, which obviously does not account for the gross proceeds in the private placement executed in January of NOK 57.4 million. So our balance sheet has been further strengthened since December 31, both on the cash position, but also on the equity base. And it is a pleasure to actually, for the first time, stand in front of you and say that we are now fully financed until we are commencing the construction project. Through the equity raise executed in January of 27.8 million new shares, with gross proceeds of NOK 57.4 million, we have sufficient capital to take the company through the FEED phase and through the financing processes according to our current plans and estimates. In addition, we have called for an extraordinary general assembly to resolve on a repair issue of up to 10 million new shares directed towards existing shareholders, providing a potential additional cash buffer of up to NOK 20 million. And as we have said before, the DFS represents a major milestone for the company, and it also triggers an increase in activity level towards our financing partners. It is also often referred to as a bankable study. And the bank's due diligence processes has commenced and takes a basis in the work that has been undertaken in the DFS. At the moment, it's currently focused on the technical aspects, including geology and resource, mining process, et cetera, but it will also evolve to go into more the market aspects, insurance, execution strategy and so on later on. We have made an appointment of Clarksons Platou Securities and Sparebank 1 Markets as jointly the rangers for the equity component, primarily focused on the equity component on the construction financing, which is quite complementary to the previous appointment made for Northcott Capital, which is primarily focused on the debt component of the construction financing. But obviously, this is a teamwork, and we will continue to work with both teams to optimize the financing mix for the construction financing. And as we have said before, the offtake partner intend to contribute with a substantial portion of the construction financing.And with that said, I'll leave the word back to you, Ivar.

[Ivar Sund Fossum, Chief Executive Officer]

Thank you, Birte. Then we will give an update of the Engebø rutile and garnet. And naturally, it's building our DFS finalization, which is marking a start of new activities, preparing for construction. The FEED phase, which kicks off early March, is financing engineering, but it's also about having bid runs for EPCM partner, and it's about negotiating and optimizing contract packages for the construction. There are also some smaller activities. We will establish building permits at site, which is a municipality exercise, and we will kick off baseline monitoring programs on the environmental side also this summer. Our strategic focus for construction remains the same. We think it's wise to build the process modules off-site while we are preparing the infrastructure, the civil works. And then later on in the construction period, we are barging the modules into our key, roll them into place and assemble them to become a complete process plant at site. The current plans indicates a start of construction by the end of 2020 and production start towards the end of 2022. And we will come back and report to you more details on how we see the final sequence with regard to the construction going forward. In building a long-term industrial operation, which Engebø will become, it's about finding the right people and building a greenfield. It's about establishing a strong local team with a long-term perspective, but also with the qualifications that is reducing risk through the construction period, but also related to commissioning and start-up of a brand new plant. So we will strive to find strong positions -- strong persons to fill these positions in our local team, and we have started that work already. Going forward, we will be an operational staff of around 100 persons when in operation. And this type of industry also need a permanent staff with a long-term perspective to optimize and to improve the constant operation of the business. There are many ways to rome when it comes to contract strategy. We are now evaluating various scenarios with regard to the structure on how we want to establish a contract strategy and also the structure with our partners. We are not there to build several projects. We are going to build this Engebø project, and we want to be successful. And just to give you a very sort of snap and illustration of other modules, but also that indicates the level of engineering which is carried out at this stage. So just briefly, it looks sort of quite simple, but it's massive amount of engineering work behind these structures. In addition to all I've said, this year is about stepping up and increasing our activities related to financing, a project in itself. And it's really about educating, informing and explaining potential lenders about our projects, so that they can familiarize themselves with how we intend to fulfill and move through the phase of construction. And there is a number of ingredients in this work that we see for us in the coming months. And as indicated previously, our base case is traditional project financing with the lending syndicates, followed by equity raise. Having said that, there are other elements that we will consider and bring with us in our financing work going forward, not at least the potential in getting guarantors, export credits and other similar facility systems that could back our lending finance. Finally, we will kick off the continuation of implementing a lot of plans, which will back our environmental and social management system for the projects. A number of them are sort of inherent as part of our permit, but also a number of them is our sort of own plans to make a complete business program. We're talking about environmental monitoring program, stakeholder grievance mechanisms, internal control systems, naturally extractive waste management, energy management program and closure plans to mention a few of them. We have also just initiated work to align with the Canadian system towards sustainable mining. We'll do that also together with the Norwegian Mining Association. That's a system that enables us to score and align ourselves versus this international system for modern miners. And finally, we intend to establish a local stakeholder group, that jointly with us, will monitor the environmental impact of the project. So that closes my presentation of the Engebø rutile and garnet project. Briefly on our assets in Keliber Oy in Finland. On the positive side, Keliber, as you know, have constantly focused on increasing their resource base. And in December, they announced that they have increased their mineral reserves by 25%. This is important for Keliber, and they are on a constant raise in terms of mineral resources. On the other hand, they have had some setbacks on permitting, that takes longer. And as many of you have seen, the market for lithium have been through a softer period. But fortunately, we see that it's now again strengthening in the international markets. Keliber is moving forward, and we'll continue to optimize their project to derisk it, prepare for project financing. So we will come back and report back from Keliber later on. So that ends our presentation this morning, and we will start our Q&A session. So please post your questions from the web. And I guess we also leave the word open here in the audience for any questions. And Lars will help us to guide us through that session.

[Lars Kristian Grøndahl, Senior Advisor]

We would -- we have received some questions from the web audience, but we have certainly time for more questions. So maybe we should open for questions in the room here in Oslo. Are there any questions around the table? Yes, please?

[Morten Normann, Analyst of Materials]

Morten Normann, Carnegie. When do you need to have that -- Morten Normann, Carnegie. When do you need to have the overall financing of the NOK 311 million in place in order to be sure that you can start construction end of this year?

[Ivar Sund Fossum, Chief Executive Officer]

Well, certainly, it has to be in due time before that date and it goes in steps. First of all, we need to focus on commitment from lenders. And that will be followed by raising of equity. However, preparations for these activities will run in parallel, but commitment will naturally follow in that sequence. You could say that the sooner the better, but you need to have that financial close before we commit to any significant amount of money and before we actually break ground in the project.

[Morten Normann, Analyst of Materials]

Okay. But do you need to have everything installed? Or is it possible to go ahead with parts of the construction, based on, let's say, funds from that Japanese player you talked about?

[Ivar Sund Fossum, Chief Executive Officer]

There are certain levels. We will, during this year, look into intention agreements with some of the bigger vendors so that we can partly enter into agreements on intention basis, so that we have an alignment and understanding with some of the bigger vendors. So that is about sort of maturing as much as we can before we are actually committing to the spendings.

[Lars Kristian Grøndahl, Senior Advisor]

Any other questions here? Yes, please?

[Unknown Analyst]

[ Wilhelm Berg ]. Could you -- when you said you were thinking of traditional project financing, what do you put into that as in how much equity, how much debt, what sort of type of debt, first lien, second lien?

[Ivar Sund Fossum, Chief Executive Officer]

Birte, maybe you want to comment that briefly?

[Birte Norheim, Chief Financial Officer]

Yes. So I guess what we mean with the traditional project financing, we mean that we are pursuing, first and foremost, bank debt and maximize the amount of senior secured bank facilities. And this is -- will be a negotiation with the banks and depends on the final terms of the offtakes and so on, but our target is to have around 60% leverage in the project.

[Unknown Analyst]

What sort of quality -- credit quality, do you then see in offtake agreements? And what level of pre-sales can you expect or are you expecting?

[Birte Norheim, Chief Financial Officer]

I think I'll leave that to you, Ivar, with the offtake.

[Ivar Sund Fossum, Chief Executive Officer]

Yes. It's a balance between what is realistic to get an offtake, what is needed in an offtake and what is commercially wise to have in an offtake. And we had to find that balance. I think that will have to be my comment on that today.

[Lars Kristian Grøndahl, Senior Advisor]

Thank you very much. Are there any other questions here before we start on the questions from the webcast audience? If not, I will read the questions that has come in. And now my laptop has closed. So I have to log in again. Give me a second. I'm sorry for that little break. I'll read the questions. We start with one question regarding Keliber. According to an interview with CEO, dated -- in Keliber dated 31st of January, the company within Keliber will need to raise more capital. Will Nordic Mining participate in the potential upcoming share issue in Keliber?

[Ivar Sund Fossum, Chief Executive Officer]

I'll be very brief on that comment. I can actually not comment our intention or not intention to participate, but we are positive about the development in Keliber.

[Lars Kristian Grøndahl, Senior Advisor]

And then we have 3 questions so far regarding Engebø. As a part of the PFS test program, it was planned to try to develop a second rutile circuit in order to extract rutile with smaller particles than the main circuit, what is the result here?

[Ivar Sund Fossum, Chief Executive Officer]

We have optimized the floor sheet for rutile in the DFS. And we have succeeded in maintaining the recoveries, but also sort of, to a certain extent, reducing the amount of fines. So now we have -- we will have 1 rutile product, sort of comprises the -- all the specifications for commercial rutile product. So there will be no second product or rutile at this stage.

[Lars Kristian Grøndahl, Senior Advisor]

Then the question is, going forward, what is the main happenings to be expected? And when will there be some new information with regards to the planned joint venture between Barton and Nordic Mining for sale of garnet in Europe, or more details on the cooperation with the Japanese trading house?

[Ivar Sund Fossum, Chief Executive Officer]

All of these events is a natural succession, I think, of the stage which we are into, and we will duly report them when we have anything material information to give you.

[Lars Kristian Grøndahl, Senior Advisor]

Maybe there are some more in the first part of the question going forward. What is the main happenings to be expected and when?

[Ivar Sund Fossum, Chief Executive Officer]

Well, I shouldn't be too precise on that, but we are expecting, granting our operational license in the near future. We see that we will finalize our detailed zoning plan for freshwater supply, which is remaining. So these are on the authority side and the other events are related to financing and to finalization of the FEED phase of the project.

[Lars Kristian Grøndahl, Senior Advisor]

Then we have one last question here. Has there been any progression in the negotiations with the landowners at Vevring which is on the west side of the Engebø Hill?

[Ivar Sund Fossum, Chief Executive Officer]

We will come back to that question. So it's not the time to comment that. But we are confident that we will have the necessary rights to move forward on the whole deposit of Engebø.

[Lars Kristian Grøndahl, Senior Advisor]

Thank you, Ivar. We haven't yet received more questions from the webcast audience. Are there any final questions around the table here in Oslo? If not, I suggest we close the presentation and everything.