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Nordic Mining ASA
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Good morning, everyone, and welcome to this fourth quarter 2021 interim here at Nordic Mining. My name is Ivar Fossum. I'm the CEO. Together with CFO, Christian Gjerde, we will give you the presentation this morning.And as usual, you can post your questions during our presentation as we will read them loud during our Q&A session at the end. Please also note that the webcast will be posted on our website together with the full report, along with slides. So let's move on. We have a very standard agenda this morning. We will focus on the Engebø rutile and garnet project, and we will give you a brief update on Keliber before we close off with the financial status of the company. I just want to remind you about our portfolio, our majority projects being titanium feedstock in Norway and Garnet, 100% owned the Engebø project, as well as our stake in the Keliber project for lithium hydroxide in Finland. We are, however, also pursuing other interesting projects in the pipeline once we pass sort of coming into construction and production for the Engebø project. We are also engaged in a couple of very, very interesting R&D projects, which are sponsors to other players and to possible new businesses within the mineral industry. Just to touch about a few of the highlights this quarter, mostly about the Engebø project. First and foremost, we have secured the first equity financing for the construction of Engebø. We have signed lump sum agreements with all EPC vendors for the construction. And we have got a final grant of the updated and revised waste disposal permit from the Ministry. And also glad to recognize that the markets for titanium and lithium in particular remain strong in the last quarter. And we'll come back to this point later on. So let's tell a little bit more about the Engebø Project. And I'm so happy to tell that we are now preparing for construction at Engebø. It has taken a while, but now we are getting really close. And we look forward to establish long-term sustainable mineral production for local and regional employment, for value creation for all stakeholders and for the society and to bring important and critical minerals to the European and other markets. One of the major events lately is the finalization of closing lump sum contracts with 4 EPC vendors, which represent over 75% of the construction CapEx for the projects. Another remarkable thing for us is that these 4 are Norwegian entrepreneurs. 3 of them are local. EPC 1, 2 and 4 are very local vendors which know each other, and they know the surroundings, they know the culture. And that is an important factor in derisking the whole project. Nordic Bulk is not far away. They are located on the West Coast in the oil city of [ Stavanger ]. And our focus will be to -- and success factor will be to ensure a good cooperation among these 4 vendors during the construction. And we are humbled to the execution phase of this project. And that is why we have strengthened our management team and have engaged a Project Director, Mr. Terje Gundersen to top our owners team in Sunnfjord during the construction phase of the project. Terje has long experience both from national and international projects related to oil and gas but also related to infrastructure projects in Norway, which has a lot in common with what we are going to establish at Engebø. And we're very, very happy that Kenneth, which has been the project manager so far for Engebø, will continue as operations director together with Terje and which will complement his role focusing on execution, while Kenneth will focus on preparing the project and staffing up for commissioning and production, which will go on for decades -- and as we have told you briefly before, we have established a lean but powerful project organization which will manage and supervise, first and foremost, the EPCs but also the equipment we will purchase ourselves for the project. And the owner's team will consist of our key persons alongside with hired specialists from Hatch and from Sweco. And as you can see from the boxes, it's a small but strong team. We have got quite a few names in place, and we are still in the hiring process of the remaining positions. We have in Nordic Mining, very ambitious goals for establishing sustainable mineral production at Engebø. And these goals are based on the UN sustainability set of goals. We want to focus on climate impact. We want to look at biodiversity, how can we protect that. And of course, being in the mining industry, we want to create a safe and healthy working environment for everybody. And last but not least, which is a long-term goal both in construction and operation, we want to have a continuous positive impact on communities. And one of the elements in this work is to establish a comprehensive and [indiscernible] social management system. All in all, consisting of 9 subplants -- and right now, we are working with a construction environmental management plan, which will be in place when we're kicking off construction. We are starting environmental to have baseline values for parameters like dust and noise and other emissions to the environment. And we are developing a biodiversity plan with the help of DNV GL now in the first quarter of this year. And lastly, we have just kicked off a life cycle analysis for rutile from Engebø to benchmark our products along with other rutile which are produced at other places in the world but also with competing titanium feedstock products. So again, we are preparing for start of construction. And we are preparing, while we are waiting for the final sort of permits, which were giving us the green light in kicking off the full construction work. So the municipality Board, we resolved the building permit, which has already passed and the municipality precedency in January. They will resolve it on the 17th of this month. And we are waiting for the Ministry of Industry, Trade and Fisheries to finally resolve the operational license, which is not needed for us to start construction but it's an important element to fulfill complete project financing for Engebø. And as we have seen from his statements lately, not only about the general mineral industry in Norway, he really wants to push forward on that, but he also respect the fact that we have been waiting a while and has commented that the resolution will come quite soon. And we look very much forward to that.A few words about the market. It's good to see that the rutile market remains strong and that prices increased during second half last year. And this has to do with pigment producers, which are representing the majority of demand of titanium feedstock normally are able to build up their inventories during the low season during the year. Last year, that was difficult for them, which means that they have to push for higher capacity to push their plants. And in order to do that, they need even purer and more high-grade feedstock to remain at peak production. And that boosts the price for rutile being the purest feedstock among all of them. We also recognize that recorded rutile prices for some of the majors was higher than the long-term forecast given by TZMI during the last half year. In the Garnet market, we also see a strengthening of prices that several other players have announced price increases during the year of 2022. We see bigger fluctuations in the price regime, mostly due to the fact that freight rates, especially from China, has spiked during the last half year. We expect that still to continue to create disruptive pattern in the garnet market.A few more words about the first equity investment which we have secured for Engebø at around NOK 130 million. That investment has been led by 2 of our EPC partners, 1 and 2, along with a group of other investors from the local [indiscernible] sulfur region. It is extremely important investment for us because it allows us to kick off important preparatory activities pending the completion of the total financial project financing for the projects. And of course, having 2 EPCs entering as owners in the project really validates their ownership and the intention to deliver a good project. It also indicates a local anchoring in the community also in fuel, which means that Engebø has a perception of a true cornerstone project. We are pursuing several financing structures going forward, and we are targeting a financial close for the project in this first half year. And we will try to guide you as best as we can moving forward. That was my introduction and description of where we are at Engebø. Let me give you a much briefer update on Keliber. And as you know, when we told you that Keliber are moving a lot in parallel with the Engebø project, although there are a couple of other elements remaining. But I want to highlight on the market because lithium prices continued to rally during the last quarter -- last year, and we have seen and will see a further boom in the sales of electric vehicles, which passed 160% increase last year. And also, I want to draw your attention to the graph on the right showing future trades of lithium hydroxide from January to February this year, indicating an over 30% increase for lithium hydroxide traded for delivery in April next year, a remarkable increase. And we have already seen in the market that spot prices in China are reaching levels of USD 60,000 per tonne compared to the level between $13,000 and $15,000 per tonne which has been assumed so far for the economical analysis for Keliber. And how is it? Is this a peak? Will it suddenly drop or will it continue to surge? Well, we can speculate. But it is a fact that I think we see the establishment of a completely new market segment for lithium. Along with the fact that even though you need a very, very tiny small weight percentage of lithium in each car battery, you need it. It's a critical element, it's a critical component to make that battery function. And that is why there is a strong willingness to pay for sustainably sourced and produced and transported lithium or the right quality for battery manufacturers for car manufacturers. So a very, very interesting development. Keliber is in the final stage of completing its updated feasibility study, and we'll try to guide you further on that when we know more. And they have commenced sort of the preparations for project financing. So with that, I will leave the word to Christian, who will take you through the financial figures. Thank you.
Thank you, Ivar, and good morning to everyone. I will then give a brief update on the financial situation in the company before we move to Q&A. The group's balance sheet remained solid as per the quarter -- fourth quarter of 2021. We had at quarter end, NOK 32 million in cash, which is a solid cash position for us. In the quarter, we had cash outflows from operations of close to SEK 16 million, which reflects the continued high activities related to our preparatory work for construction. Ivar touched upon the first equity investment for the Engebø project financing. The first tranche of that was released after the EGM approval on February 4. And the remaining tranches of that investment will be released as we start preparatory work towards Engebø construction. This early investment by the local investor group ensures that we can start the preparatory construction work and ensures that we are fully funded up to the completion of the remaining project financing expected within the first half of this year. The fair value of the Keliber investment was retained as per the third quarter of this year at EUR 64 per share. After having in that quarter, increased our fair valuation of 60%. However, we have, for this quarter, recognized a fair value loss of NOK 3.4 million as a result of the strengthening of the NOK compared to the euro. It's important to note that as per the quarter end of last year, we had no interest-bearing debt. Obviously, we have interest-bearing debt for the first quarter of this year with the convertible, but our balance sheet remains very solid going forward. For further details, please see the appendices to this presentation and also the full interim report on our website. With that brief update, I would like to invite Ivar back for the Q&A.
[Foreign Language] Yes, we'll start with some questions to Christian. What is the difference between the finance structures currently under consideration?
Sorry, could you repeat that?
Yes. We have a question into the financing structures currently under consideration for the whole project. Could you tell us a little bit more about it?
So as we presented in the interim report, we are looking at various structures of financing for [indiscernible] project. We are looking at both equity in its traditional thought. We are also looking at potential hybrid capital solution, which one could be a royalty financing, and we're also looking at the debt part of the financing. We are expecting that the equity will comprise of about 50% of the total financing package and the remaining hybrid and debt capital to cover the remaining 50% of our expected total financing package at the size of $250 million equivalent.
Will the share price for the project financing share issue followed the same principle as with the EUR 132.5 million [indiscernible].
That's too early to say. What I can say is that the pricing mechanism for the convertible is very customary to these type of transactions also for pure equity transactions where we are reflecting sort of the past 20 days of traded share prices. So -- but it's still to be seen what ultimate pricing mechanisms for the various instruments will be.
Have you calculated or estimated the best and worst case dilution of existing shareholders as a result of the project financing? And if you have, how does it look?
We always run different scenarios and calculations for our financing processes, but it's too early to say what the dilution will be. We will, as always, make sure and work towards minimizing dilution towards existing shareholders. And we will, as for our previous private placements, look to execute repair, remission to make sure that also existing long-term shareholders can participate in the project financing.
And to Christian, again, Nordic Mining stocks in Keliber, what is the value of those shares in the books?
The value of the Keliber investment for this quarter is EUR 64 per share. And that reflects about NOK 191 million equivalent. That was revised up by the equivalent of 60% compared to the Q3 this year or last year. And we are expecting, as Ivar guided in the update on Keliber that we will see continued strengthening in our fair value assessment of our investment in Keliber going forward.
Thank you. We have some questions for Ivar. Who will bear the financial risk associated with changes in raw material prices and shipping during the construction phase, the contractors or Nordic Mining?
The EPC contracts are lump sum contracts. And then there will be certain compensations, but we also will have possibilities to mitigate that.
Thank you. What is the time frame to buy out the local land owners at the process plant area.
We will buy the local land according to the option agreements which we have, and that is an immediate task once we have things ready. So that will be one of the first activities we'll carry out.
There is one of the stockholders here who anticipates that we will have protesters, and he asked, how long will you let the protesters delay the project before engaging local police?
Thanks. Yes, as you know, we have certain experience from that from before of our drilling program in 2016, and we fully respect that there are different opinions about these kind of industrial projects, and we also respect that people shall be able to voice their opinion about the project. I would also like to underline that the Engebø project has been transparent in its process for almost 16 years now, undergoing a lot of studies and full democratic evaluations and have reached sort of a legal and democratic resolution with regarding to its establishments. Obviously, we need to focus on safety. When we start constructing Engebø, there will be heavy machinery. There will be blasting operations. And our focus will be safety, along with trying to establish the possibility also for protesters to voice their opinion. But then, of course, this is not only a matter between protesters and ourselves. It's also a matter for the police.
Thank you. Does Nordic Mining expect to have an offtake agreement for Garnet before going into production or even before financing?
The answer to that is yes.
Has Nordic Mining looked into Garnet's role as an electrolyte in solid-state lithium batteries? Can Nordic Mining contribute to R&D in this field and perhaps together with Keliber?
That is a niche, and it's still a little bit ahead of us. And what we have got our answers looking slightly into that, that Garnet as a mineral is not directly used in such batteries. It's more of the structure of the cathodic material rather than the mineral itself. But let us get back to you a little bit more precisely on that. So if you please compose your questions in writing because we need to explain that a little bit more in detail.
When will Nordic Mining start to look at other projects to develop such as [indiscernible] or others?
Thanks. Yes, as mentioned in the beginning of my speech, we are pursuing a lot of interesting opportunities within our strategic avenues. And when the time is right, we will announce how we want to move forward on some of these projects.
How many feasibilities that this Keliber has done already? And when is it time to get money out of Keliber share?
As you know, Keliber is a private company. I think this is the second full updated feasibility study. They are finalizing as we speak, but there have been some upgrades in between. There have also been a lot of upgrades to their resource base and the overall concept in splitting the factories from upgrading the minerals through the chemical factory by the coast and also the location of the upgrading facility, which is now moved closer to the mine. So quite a few beneficial changes have been made in this phase. Keliber is a private company. It's possible to sell shares among shareholders. It is also a mechanism for Nordic to realize the shareholding according to certain terms in the shareholders' agreement.
Do you plan to start construction immediately following permit on Thursday, February 17?
We will kick off construction preparatory work quite immediately after the 17th of February pending the resolution from the Municipality Board.
And here we have a question perhaps for Christian. How much of the new equity is dedicated to use to do the construction?
All of the SEK 132.5 million will be dedicated towards Engebø, partly for working capital purposes, but majorly, I would say, 95% of that will be used towards physical and nonphysical preparatory works.
We have one statement, not a question here, that the quality of the webcast was poor with regards to connectivity. I hope the webcast posted on the net later will be better. We do also hope that, and we are sorry for the inconvenience. We have one last question, Christian. Regarding Nordic [indiscernible] research project, which of Nordic Mining Minerals are relevant in this project.
In this project, it could be a titanium that is relevant.
I believe we have been through all the questions. We could just wait 1 or 2 minutes just to see if there are any others. It could be that we have some Olympic Games stealing the attention today.
While we wait, Martin, you mentioned something about connectivity and the quality of the webcast.
Yes. The Internet connectivity was not that good. So we hope it will be better later and that [indiscernible] will be better at [indiscernible] platform later.
Okay. Thanks.
Thank you for participating in this webcast and wish you a very nice day.
Thank you.
Thank you.