Nordic Mining ASA

OSE:NOM

Earnings Call Transcript 2022-Q4

[Ivar Fossum, executive]

Good morning, everyone, and welcome to Nordic Mining and our Q4 interim presentation for 2022. My name is Ivar Fossum. I'm the CEO, and we'll take you through the presentation this morning. I'll also be standing for CFO, Christian Gjerde, who is struggling with his voice this morning.

Please be informed that you'll find all the material and presentations on our web page. And after I'm through with my presentation, we will arrange the Q&A session live from here.

So let's get started. After a brief introduction, I'll take you through the update on the Engebø rutile and garnet project before we get back to financial status and the Q&A at the end.

But let's begin with a few highlights of Q4. First and foremost, we have secured a large majority of the project financing for the Engebø project corresponding to over 75% of the total financial needs. We have summoned for an extraordinary general meeting on the 3rd of February, suggesting a private placement for another and remaining USD 66 million.

The main topic this morning will be on our progress of construction at the Engebø project. We are ahead of schedule for the groundworks, and we have, a few weeks back, entered into the deposit, starting the underground infrastructure work.

On the market side, we are pleased to announce that we have secured offtake agreements for the first 5 years for both our products from Engebø, corresponding to approximately $400 million for the first 5 operational years of the project. We also see -- despite a dampening of the market in general in the world in the fourth quarter, we saw the strength of rutile as the highest feedstock grade in titanium withstand that dampening and remained strong throughout the quarter.

And finally, we are in a very, very interesting phase of the project, now having started to recruit key discipline managers for building the organization going forward.

So let's start on telling the status about the Engebø rutile and garnet project. And first and foremost, we're happy to recognize that we have had no injuries, no incidents in the fourth quarter. We are extremely focused on this issue with regard to health and safety. We are transforming into a phase in the project where there will be more people on site, several entrepreneurs. We are conducting underground tunneling works. So there are several areas at site which are connected with higher-risk operations. So we are conscious in building a strong culture, our consciousness around health and safety.

Before showing you some update pictures on where we are on the project, let me guide you a little bit on this map. As you have seen previously, we have started our preparatory groundworks at the process plant done by the key area. We have, in parallel with that, constructed a new access road to the mine servicing area, up along the eastern side of the Engebø hill ridge. And we have, a few weeks ago, sort of entered into the mine concession area, preparing for the vertical raise boring on top of the deposit. And I'll show you some pictures in a second.

So the groundworks at the process plant is almost finalized on the western side, where we will start concrete foundations for the 2 first buildings. So there is a kind of a puzzle and a systematic approach for how we are going to develop the groundworks, the concrete foundations and then building the process plant buildings on site.

The access road to the mine servicing area is now approximately 70% completed. It's a longer road due to all the turns and made for heavy machinery to be transported up to the service area, as you can see from this picture.

We have just started to prepare for raise boring of the vertical ore shaft coming from the top of deposits, down inside to the crushing chamber inside the mountain. Very interesting work that we will tell you more about when we move ahead with this work.

We have also started from the other side of the underground infrastructure, having made 55% of the horizontal tunnel going from the process plant area into the mountain and the crushing chamber. As you can see from this picture, we are drilling and approximately blasting twice a day and having good progress.

And it's great learning when you enter into the mountain and into the deposit and gradually also into the ore of the Engebø deposit to see how the rock behaves, what is needed in terms of blasting, drilling, safety measures, et cetera. And we're very happy to see that the geotechnical conditions in the ore and in the mountain itself is as expected and as analyzed and predicted because these changes and surprises could cause a lot of -- for extra work and extra safety measures. What we see now is rather the opposite. Work is going smoothly with no need for extra safety measures inside the tunnel, and it's dry.

Although we know a lot about Engebø deposit due to large drilling campaigns, we are immediately now starting to sample drill cuttings from where we are drilling on top of the deposits in order to continuously gather important data to fill into our database about the resource.

So over a little bit to procurement. And we are well ahead with sort of entering into letter of intents and agreements for -- to secure critical and long lead items, what we call the technology package for the process plant. First and foremost, we have signed a large agreement with Metso Outotec, which will deliver a comprehensive comminution package consisting of draw crushers, mills and a lot of other equipment that really is sort of the first [ part ] of the process plant, and it's a critical delivery to successfully make the high-grade products we would like to make from Engebø. It's also representing sort of considerable share of the overall equipment expenditure at Engebø with approximately 30%.

In parallel with this, we are preparing to erect the first buildings at the process plant. So we have filed the necessary applications to the municipality so that we are ready to start with concrete works now in the first quarter of this year.

As I said in the beginning, we are building the team at Engebø. We have had several advertisements out in the papers and other places recently, and we are very happy to see the positive response on all positions. Very competent applicants from both females and males, and it's really sort of supporting our goal to have a mixed crew at Engebø. And also, glad to see that there are many local and regional applicants coming in. And as you will see, we will open gradually more and more key positions in our buildup of the overall operational staff at Engebø going forward.

So a few more words about the market in Q4 and how we view it. The world is a demanding place, and we saw a kind of dampening in the general markets in Q4, also in the pigment and some other commodity markets, but the rutile demand withstood those fluctuations. And we saw that the larger rutile producers exceeded their production capacity in their sales in the last quarter and also with increasing prices. At the same time, we saw pigment producers in Europe adjusted their capacity to cater for inventory buildups and also the extremely high energy prices that were recognized in the last half of last year.

However, on the positive side, we see that the spring season is coming, the relaxation of COVID measures in China, and we also see an ease in the energy prices across Europe. And all of this bound for a good sort of demand season for pigment and other commodities in Europe and in the global markets. We recognize that the rutile prices were consistently higher than what we have sort of anticipated in our calculations last quarter, and we are -- we'll be excited to follow the prices going forward.

Also on garnet, we saw a steady and solid demand, partly driven by the energy sector, which has come back as a result of the energy crisis but also driven, for example, by the military defense sector increasing their production for reasons we all well too know -- know too well.

The metal sector in titanium has remained strong as it has done for the last couple of years. After COVID, we have seen a consistent increase in backlog from the 2 major commercial aircraft producers, Boeing and Airbus. Boeing has a backlog of USD 3 billion, majority being replacement, but also a solid growth portion of that backlog, which is, of course, extremely promising for the high-quality titanium metal producers around the world.

We are very, very pleased with our situation regarding our offtake agreements to 3 major industrial customers. First of all, our Japanese partner, Iwatani, who also will become a significant shareholder in Nordic after our completion of financing, but also our pigment major as well as our recent agreement with a global player of industrial abrasives for garnets. After having secured these offtake agreements and progressing our product and towards finalization of financing, we see a growing interest in the high-density side rock we have at Engebø and possible also other byproducts. So we are actively now pursuing these opportunities, which is exciting work with the position that Engebø has in terms of logistics to serve the international markets also with these products in the future.

So that was our brief sort of update on status where we are in progressing our construction work at Engebø. Now a glance of our financial status. And just a few remarks on this, and you can see all the details in the report and also in the appendix slides to this presentation, but we are well funded to continue our construction. We had around NOK 170 million in cash by year-end, ensuring that funding of construction. And we have also started recently to capitalize our construction work in the balance sheet now accrued to NOK 288 million with an addition of NOK 120 million in the last quarter of last year.

So with that, we get back to our highlights slide and Q&A. So I leave to you, [ Morten ], to read whatever we have of incoming questions. And please, Christian, despite your sore throat, please come up here, and we'll do our best to answer the questions.

[Unknown Executive]

Thank you, Ivar. We don't have that many questions. But we may start with one about the minerals. Could you give any color on how the portion of revenues coming from sale of rutile in the first 5 years?

[Ivar Fossum, executive]

Yes, we can give some highlights on that. As you know, we will produce at maximum production rate of rutile from the first year while, on garnet, we will gradually ramp up production. So there will be a majority of rutile revenues in the first 5 years.

[Unknown Executive]

It has been said that the water and power would be supplied from the other side of the fjord. How are you standing in this process? Do you still need power from the other side of the fjord?

[Ivar Fossum, executive]

We are in good dialogue with the [indiscernible], the power net supplier in the area. And there will be ample strengthening of the net to give us sufficient power on -- in our local area.

With regard to water, we have reduced our water needs so that now we will have our own desalination plant to bring fresh water to our process plant, avoiding a long pipe and heavy investments to bring water in from the other side of the fjord.

[Unknown Executive]

You say that remaining initial capital investment of around USD 187 million, down from USD 207 million. Does that mean you have reduced the size of the coming emission with about USD 20 million?

[Christian Gjerde, executive]

No. So the remaining capital estimate of USD 187 million reflects the amount spent during the course of last year, starting from the construction in April. So there are no changes in the expected financing needs to the -- to what has previously been presented.

[Unknown Executive]

Do you have any plans on how to avoid sea deposits?

[Ivar Fossum, executive]

We will do our utmost to utilize all the minerals we take out from our deposits being [ side rock ], being tailings. However, the realistic approach to this is that there is a need for a safe deposit of excess minerals.

[Unknown Executive]

What about other research and exploration projects? Do you have any news?

[Ivar Fossum, executive]

The major active R&D projects we are into today is the AlSiCal project for making alumina from other alumina-rich minerals and bauxites. It has still approximately 1 year left of the Horizon 2020-funded project, and we'll give you a thorough update when we approach the final stages of that project.

[Unknown Executive]

How should we think about timing of CapEx in 2023 and especially first quarter '23?

[Christian Gjerde, executive]

We are currently developing the Engebø project in accordance with our plans. So a large part of the first year capital expense will happen in the first half of this year related to not only the continuation of the EPC's involvement in the project through construction by EPC 1 on the process plant and mine site area, continued after the finalization of the detailed engineering. But also, as Ivar touched upon, we are now in the market to finalize the procurement of the technology packages related to the equipment that will be installed into the process plant. So a large part of the capital expenditure in this year will take place in the sort of the next 6 to 9 months.

[Unknown Executive]

Looking at other global mining projects, we see CapEx hikes across the board. Do you have any comments on how the rising inflation influence project costs?

[Christian Gjerde, executive]

So we have secured in our project for lump-sum EPC contracts that are fixed price for fixed scope. So we've already catered for that risk. When it comes to the cost sitting outside, the 60% that these 4 EPCs represent, we are currently in the market, have obtained and are in the process of obtaining either fixed contracts or letters of intent, where there is a commitment by the suppliers to deliver these products. So we have good assurance for the capital cost estimate that we presented in our latest investor presentation back on the 2nd of February. And we are also working proactively to ensure that we are maintaining the cost controls as necessary.

[Unknown Executive]

Are you planning on electrifying all work at Engebø?

[Ivar Fossum, executive]

That is certainly our goal. There might be several steps on this path depending on technology, but we see the clear possibility to have a carbon-free operation at Engebø.

[Unknown Executive]

Are there any outstanding environmental challenges with present -- which present a risk to the project?

[Ivar Fossum, executive]

We don't see any major risks in that area. We will cautiously progress our construction and try to envisage what could be sort of smaller and larger risk related to the construction work.

[Unknown Executive]

And then there are some questions about court case. Do you sleep well? Or do you have any concerns about the court question?

[Ivar Fossum, executive]

I sleep very well with regard to the court question.

[Unknown Executive]

Are there any updates? Where is it?

[Ivar Fossum, executive]

No. There is no update on that. We just have to wait to see how that thing evolves and whether the Supreme Court will continue on the court case. We are happy that we have won the 2 first round in the court, including expenses to be paid by the other part.

[Unknown Executive]

It does not seem that we have any other questions. And we have one. Do you have any positive news to give to small shareholders who buy shares on the Oslo stock exchange?

[Ivar Fossum, executive]

I think our important message to all shareholders in Nordic, we are doing our utmost to find an optimal solution to secure the best possible financing for completing the overall Engebø project, and we are confident that, that will bring value to existing and new and old and small and large shareholders.

[Unknown Executive]

Do you have an update on the ongoing equity raise? Do you have an updated time line? And will it be -- will the final financing be completed during first quarter?

[Christian Gjerde, executive]

As Ivar said, we have summoned for an extraordinary general meeting on the 3rd of March to resolve a contemplated private placement. We have, during the course of the last quarter of last year, had positive feedback from various industrial and strategic investors, and we have now broadened our discussions as a part of the announcement of the extraordinary general meeting, and we are working towards securing the private placement within the time line set for that general meeting.

[Unknown Executive]

And the follow-up on that question is, what is plan B for the cost rate -- cost case? No, it must be for the emission if negative.

[Christian Gjerde, executive]

We have, as I said, received very positive feedback from our initial discussions with investors, and we are continuing to see positive interest after the announcement of the general meeting and the defined structure of the private placement. So we are confident that we will get there by the 3rd of March. If, for any reason, we're not successful in that, there are several options that we would be exploring to ensure that we find an appropriate route forward to ensure the remaining financing of the project.

[Unknown Executive]

And what is the expected dilution of long-term shareholders with regards to the final puzzle of financing?

[Christian Gjerde, executive]

As Ivar said, we are working to ensuring the best possible financing structure that will deliver the total financing need for the project. The dilution will depend on various factors. We are now approaching both existing and new shareholders in discussions for a private placement, and it needs to be seen the ultimate structure on that and the dilution. But as Ivar said, there is a great value potential in the Nordic -- in Nordic Mining and the development of Engebø project. So we are confident that we will deliver to both existing and new shareholders in the future when this is realized.

[Unknown Executive]

There is one question about the value of the company. Why is it so low? Do you have any opinion?

[Ivar Fossum, executive]

I don't think we should have any strong opinion about that.

[Unknown Executive]

And back to the court case, have you got back all the expenses from the court case from AMR? And do you have a plan B for the court case, if you have a negative answer from the Supreme Court?

[Ivar Fossum, executive]

We are not speculating on any of these outcomes. We have to see what evolves on that. As I said, we are very pleased with the victories we had already in 2 rounds in the court. The expenses are locked and will be released eventually and paid to us.

[Unknown Executive]

Yes, it does not seem that there are any other questions. So thank you very much, Christian and Ivar.

[Ivar Fossum, executive]

And thank you all for listening to our interim presentation.