Akobo Minerals AB (publ) (AKOBO) Earnings Call Transcript & Summary

Good morning. Welcome to the Fourth Quarter 2024 presentation for Akobo Minerals. I have with me today Helge Rushfeldt, our Head of Mining and Processing. Together, we will take you through the latest updates from the company. Fourth quarter is some time back. We will try to focus more on the latest development and try to give you the information you're looking for. So Akobo Minerals, what's new? Well, we are now officially an Ethiopian gold producer, a major step forward for the company after 15 years of working on the project. So that's a great milestone and achievement for the company. We are the second operating mine in Ethiopia since the Lega Dembi mine opened in 1994. So that says a lot about what we have managed to do over the last few years. We've been there for 15 years. We have now a strong local foothold in the area. It's a nice place to work, and we're operating on a daily basis every day, all year round. And again, the Segele mine is now in commercial production. And it's based on the exploration and mining licenses that we have in the Gambela region and the Dima Woreda that you can see on the small map here all the way to the border of South Sudan, a very nice area to work in. So the company has some strategic advantages. We have our exploration license with a world-class deposit potential. We still see a lot of potential within the area and more and more confidence as we explore the bigger and larger area around this. Of course, the high margin cash flow that we expect from the Segele mine is based upon our resource mineral estimates with an indicated part of 41,000 ounces. And as you can see, it's pretty good at 40.6 gram per tonne. This is closest to the surface, and it is the area that we are moving into these days. Total resource, 68,811 ounces at 22.7 gram per tonne. It's some of the richest gold in the world. However, of course, it's a small resource, but we are confident that we will be able to extend this over time. We do have a very modern and efficient processing plant established, and we do have in-house drilling capacity. So for the growth and the future of this company, within the mining license, we already see potential for expansion. That's something we will focus on in the near term to try to establish a wider area of mining. Of course, the Segele deposit, as I said, is positioned to deliver a substantial cash flow over the next few years. And in general, for us being the second producing mine now in Ethiopia, we are well positioned to become a key player in the Ethiopian mining industry. So for the latest key events, of course, the most important, our first ever revenue achievement and first quarter with revenues in our 15-year history. And coupled with that, the record gold price has a significant impact on the cash flow and the value of the Segele deposits from where we are right now. We have strengthened our cooperation with Sutton Global. They're working hard on progressing the vertical shaft project with the preparation for that, the design work and also the site establishment. And it's all moving very well forward. We'll talk more about that later. We do have some leadership transitions. It's not unusual in our business that there are changes from time to time. So Helge Rushfeldt, he will pursue new opportunities outside of the company. Of course, I would like to extend my gratitude for all the hard work he has been doing for the company over the last few years. It's not been easy, but he's been a strong supporter of the company, of the project and will continue to be so going forward. So we'll have to do some changes with that regard. And what we're doing is bringing in Kobus Byleveldt. He has 40 years of mining experience, and he's joining us from Sutton Global. He is already actively working in Ethiopia, and I've had the pleasure of working with him and others for the last couple of weeks. It looks very, very promising. Also some changes since we're moving from a project-based operation to a more steady state operation where we do the same every day, and we're trying to improve on what we're doing every day. We have also decided to change our local General Manager in Etno Mining. So Tamiru, who is a mining engineer, one of the first pioneers actually who started the mining industry in Ethiopia many, many years ago. He will take over while Tesfaye Medhane, our General Manager for the last 4 years, he will step down. I would like to, of course, commend his work of getting the Segele mine up and running. It's been hard work and it's very much appreciated. On the production side, we have produced 18.5 kilos of gold so far. We've started our cost covering, which, of course, is very important for us. Even though the first 2 months of the year was lower than anticipated, we don't see any reason to change or modify our overall ambitions. Helge will talk a bit more about this, but we're still in the early phase. We're still working to expand and open up areas underground. And with that, we will also be able to produce more efficiently and get higher grades out. On the financial positioning side, we are continuing our efforts to support the development on the vertical shaft, and we're focusing on securing funding for that, and we were looking at different options, being a strategic industrial offtake agreements and more. So we will update the market once we have more information on that. I think it's worth mentioning now all the recent Ethiopian economic development. I've spent a lot of time in Ethiopia lately, and it's an enormous development and activity that I see every day. This country is transforming itself again into what we thought it would be a few years ago before the conflict in the north and before COVID. And I'm very, very happy to see the latest development, especially driven on the economic reform side. We've seen a successful currency flotation. That's not an easy achievement, but that has been, in my view, very successful. We've seen a huge reduction in inflation that is expected to continue. We've also seen the IMF and World Bank agreements coming into place. That is also helping on upgrading and renewing the economics reform. There's a push for that. They have launched their own security exchange. That, of course, is in the early stage, but it will definitely enable future capital raising through equity and bond markets in Ethiopia and just expand the general economic activity in the country. Opening of the bank sector, just last week, the new directive came. It's now possible for banks to get up to 40% foreign ownership. That will also strengthen the whole banking sector connected more to the international banking systems and just improve the competition and financial inclusion that we see. Also important for us is the improved access to foreign currency. We are now able to pay our international suppliers from local currency being exchanged into dollars in the country and then pay them. This has never been possible before. So we are very, very positive with regards to the economic development these days. Even you see the economic growth here estimated at some 7%, 8% last year in 2024. So of course, despite challenges, again, Ethiopia is making significant progress in economic reforms and creating more attractive environment for investors. And we would, of course, like to see more foreign direct investments into Ethiopia and also especially in the mining sector. That will only be positive for all of us. What we're working on in addition is the entry to the World Trade Organization. A lot of work is being done there, and that might be expected to conclude in 2026. So also a very interesting and exciting opportunity is a potential collaboration with Ethiopian sovereign fund. So the sovereign fund in Ethiopia called the Ethiopian Investment Holdings, they're now in charge of managing all state-owned enterprises, some 50 companies with approximately assets under management of $150 billion. They have a philosophy that is close to market-based and economic-based follow-up. They're here to make money. They are here to improve, to make their state-owned companies more efficient, and they do have extensive expertise in commercial management. They are now a driving force in the Ethiopian economic developments. And mining being a strategic industry for Ethiopia, they are now putting more effort into understanding it, more effort into seeing how they can help expand and support companies. And with that comes a very long-standing and ongoing discussion that I have had with Ethiopian Investment Holdings for a long, long time on a potential collaboration and investment into the company. We have overcome a lot of regulatory hurdles since no company in Ethiopia has been allowed or ever been investing outside of Ethiopia before. So EIH is now awaiting their final guidelines from the National Bank in order to conclude their first ever international investment. We are saying this now because the attention in Ethiopia and the level of the National Bank level of handling this tells me that we now need to disclose this. There is, of course, still a chance that this might not happen, but we are very confident and we are addressing this together with Ethiopian Investment Holding. So we will get back to this once we have more news and updates. But so far, it looks very promising. Also worth mentioning these days is our cooperation with Sutton Global. Sutton Global, they are a group of companies with expertise in certain areas and especially within mining and financing-related matters to mining. They are now more and more and gradually taking over all our mining and processing operations at site, which is something I'm very happy with. It gives me a lot of comfort. They have a lot of expertise. And from just the first interaction that we're seeing now, it makes me very comfortable on especially the trajectory towards sinking the new vertical shaft. So they already have a business support manager with us. We have now a mine manager, operations manager. We will get a process plant manager in once we start the CIL in the near future. They have a team and supplier -- working on supplier selection for the vertical shaft project. They have the technical expertise on how to do the vertical shaft project. And the mine planning side also goes along with this. So I'm very happy again that Sutton is taking full responsibility for this now going forward. As you can see from the right-hand side, Sutton is a trusted partner, not only of us, but also of our lenders, Monetary Metals. So the 3 of us are working hard together to find good solutions and move the project forward. On the gold sales and financial update, as I said earlier, we have ongoing strategic discussions, not only with EIH, but with other industrial and strategic partners. We're also looking at some offtake agreements. And we will get back once we have something. We are working to find a solution that is the best for current shareholders and of course, current bondholders. And you can see here, Monetary Metals support. We have a strong relationship and a continued support from Monetary Metals in finding now solutions that will facilitate our expansion, but will also be more fit for the current operation and the risk level that we're working on. You can see from the table that we're building up a small gold inventory. Of course, we would have liked to have processed that already and sold it to the bank. That is not possible before we start off the processing plant and the CIL startup. But it's good to see. We have gold in the bank sort of even though it's in the tailings at our site. You can ask some questions here on the purity of the last 3 batches smelted. That's something we are reviewing, and I'm happy to see that certain specialists will arrive the first week of April to investigate this further and help us with the next smelting that will happen that week. And hopefully, we will be able to fine-tune and get more out and also work more efficiently. And here, you can see the total production, 18.5 kilos of gold. It has an average before taking into consideration what's in the tailing of 15 gram per tonne. That's still amazing when you look at the industry average of 1 to 3 gram per tonne. If you include what is in the tailings, we're closer -- or we are above 20 gram per tonne, which is starting to match what we expect from the overall grade from the overall deposit. So, so far, it's looking good, but we're also expecting this to improve over the next few months. And again, while still early days, we are expecting improvements as we also open up new areas for mining underground. Helge will talk more about that. I found this one again. It's a slide we used a few quarters ago. It's probably even more relevant these days. We've all seen the gold price reaching all-time high, passing $3,000. I will not speculate which way it will go. But you can see here at least as an illustration of what a change up and down from $3,000 per ounce, what that will do to both the cash flow and the value of the resource. So if you look at the $3,000 mark on the cash flow side, it's an estimated $90 million cash flow. And here, I would like to add in that if you do compare that to the Monetary Metals gold loan, which will peak at 8,750 ounces now, that is valued at $25 million. So there is still more than enough cash flow to support that loan. And that's important to understand, even though we are in an ongoing dialogue with Monetary Metals to restructure the terms now for better alignment with the current operational status and also the risk level. Okay. ESG, Health and Safety, that's still important. You see here our lovely team on the clinic. We are taking care of all our 200 employees every day. It's a wide range of -- well, things they fix every day, and we're very, very happy to have this team at site supporting us. In general, they are doing also the regular work on the environmental monitoring side, noise, dust, annual performance report being submitted. We do have increased focus on health and safety initiatives, especially on-site clinic, which you can see here and also working a satellite clinic at the camp or at the mine. We're focusing on upgrading also with trained safety officers and the general documentation and reporting of incidents so that we can improve all the time. And again, we are definitely committed to responsible mining, and we're prioritizing the environmental stewardship and also the safety of our workers. Exploration, still a bit scaled back in fourth quarter. We have still had to prioritize the Segele mining ramp-up, but we have done some essential geological groundwork. We did complete 5 holes at the Segele surroundings. We have identified and prioritized new drilling targets. We've also reexamined a lot of the old holes and done core relogging. Data management is important to get a better understanding of what we have and trying to get the puzzle to fit together. A lot of surface mapping and sampling is happening. That's field work where you do chip and rock and soil sampling and adding that into the geological mapping. And unfortunately, the drill rig is now under maintenance. We need to get spare parts from abroad. In the meantime, we're focusing hard and still doing surface mapping and sampling and then in preparation for the next drilling phase. It's not decided yet where that will happen, but I have a strong feeling we will start now to focus on the Gingibil area together with Sutton and see if that is something we can get mining operations started on. So that is something we're excited about, and we will get back once we have more. Yes. A couple of nice pictures. This is the area. Guys working the drill rig, it's not always this. We're moving into the rainy season, but this is the area that we're working on. It's a nice area. Then over to the more important part of our operation and what is going to generate revenues for us and cash flow, the Segele mine in itself. You see a lovely picture here. Helge, I'll leave it to you to take us through the next few slides and explain what we're doing underground, what's been happening, what we're looking for and what we expect going forward?

Jorgen, good morning, everybody. I would like to show you this picture first, particularly because it shows the mining management discussing and painting yellow paint on the wall. And this is kind of a historic moment because this is the first race and the yellow paint is marking where we are taking the first blast for the first stope in the mine. So it's a very nice picture of historic or a milestone for us. Next. Okay. So the mine, as I have explained to everybody before, has two winzes going down. And we have, for some time now, operated through one of them and -- but now we have extended the Eastern Winze as you can see, from this crosscut 1 at level 585 down to cross-cut 2 at Level 575, that's a bit deeper. And the areas where we have so far mined is in this area of the crosscut 1, which is also called the trial stope area. We knew that this one was not the highest grade of all, but we have -- we're still seeing very high grade there. But now we are moving into the Level 575 and where we go into the stope 01 area, which is the highest grade area of the whole mine. So I would believe that any day now, the crosscut at Level 575 would reach ore. And then the dynamics of the mine will change because then you can start to take out ore both from the Western Winze and the Eastern Winze at the same time, and we are moving into a very rich ore in that level. Yes, the key mine metrics, you have seen this before. It's nothing new. We still have a very high indicated resource. We have a plant capacity that is much higher than we have so far been able to mine, and we have excellent possibilities at the depth. Next. Okay. So what has happened? We have, as I said, sunk the Eastern Winze level down to level 575 and started a new crosscut, the crosscut 2. We have opened several phases for ore extraction in crosscut 1. And that is very important because then we have the possibility to find different kinds of ores, and we can blend it into the plant so that the plant receives homogeneous ore at any given time, and that gives us a better recovery in the plant and in the production. And another thing that is very important and easily overlooked is the fact that we have had steady ore production day by day for the last quarter and in the whole fourth quarter and also the first quarter of 2025. So it's -- the system is working. We are extracting ore every day, and we are also blasting development down, as I've talked about, down to Level 575, and we have been able to do that day by day and continuous operation. And that is a very good thing. So the Eastern Winze is now at 86 meters and will be used for extraction of ore from crosscut 2 down at that level. The Western Winze is at current length 63.5 and is used for extraction of ore from the higher up at crosscut 1. We have previously said that we have an incline shaft and the previous slide showed that the incline shaft still. But we are now through the help of Sutton Global moving away from that plan in favor of a vertical shaft. I will go to that next, but that is a significant change in how we will plan and operate the mine. The challenges we face is that the current mine infrastructure with these 2 winzes severely limits the extraction of ore from the mine. And that is also why this new sink shaft or the vertical shaft is planned. Next. Okay. So the new vertical shaft, the first thing I want to say about it is that it will replace the incline shaft, and it will save us time and money. A vertical shaft is much shorter in length, and it is easier to get done in a shorter time period. The area where it will be started is between the 2 current winzes. So it's very close to the ore. So once we reach down to levels, it's almost on the ore. So far, it is planned to a depth of approximately 130 meters, and it will be at 4 levels. So the first level down in the mine will be at minus 40 meters from the surface and then add 30 meters down, minus 70, minus 100 and minus 130 meters. Those are the 4 levels that has been planned so far. The capacity of this is like 100 to 150 tonnes per day. And that is important to compare that with the current 10 to 20 tonnes per day that you get from the winzes. Each of these skips that going up and down will have 2 carts in them. So you use small like railway carts that are filled up with about 1.5 tonnes each. So 2 of them make 3 tonnes per trip to the surface. So already just 3 of these hoistings will be the whole day production for 1 winze today. This system also can be used for personnel carriage up and down. You have a personnel cage, and you also use it for waste ore and ore, of course. What is also important is that when we reach the minus 40 level, we can already then immediately start working at that level while we are still sinking the shaft down further to the 130 meters that are planned. So that means that it can be used for operations while it's being developed, and that is a major advantage for us. Yes. Size is about -- of the hole would be about 2.5 meters x 2 meters. The headgear or what you see in this drawing on top is a standard design, and it will be manufactured in South Africa. The approximate cost of everything on top and all the equipment is around USD 900,000 for the winder, the headgear and everything you need. And for personnel, we need 2 experts from South Africa for -- that are experts on making sink shafts, vertical sink shafts. And we also have people that have been doing this for a long time, the specialists operators from Zimbabwe, about 7 of them. Okay. Next. Yes. So this is just a few pictures I took last time I was down in Ethiopia. And to the left there, you have our -- 2 of our best geologists discussing what they see underground in the crosscut. And right beside them, I took a picture of the wall in the mine. You see my fingers there, pointing to relatively rich ore to say it mildly, with also visible gold just on the face of the wall. So that is how it looks like underground there. Next. Okay. So we're back to the processing plant. The fourth quarter saw a very good production, especially in November with 2.8 kilo in October, 10 kilos of gold in November and 2.3 again in December. And we were going through some very rich areas in this trial stope area of the mine. Another thing is that the processing plant has been running every day with minimal downtime processing the ore from the mine. Next. Yes. So the key recent developments is that, yes, we have produced on a daily basis without much downtime. And the way we have been producing now is on a batch-wise, meaning that we have started and stopped the process every day. And that has given us actually a huge advantage in how to run the plant because if we have been running like it should be with the CIL tanks, we would have to run it continuously for weeks and months. And that would have given us less opportunities to methodically go through and uncover bottlenecks and optimize the plant. But now since we are running short or like just daily operations, then we have had the chance to uncover all kinds of small things that we have improved. And that is a big advantage when we go into the next phase where we have more ore coming to the plant because then that way, we have already uncovered a lot of the things that would possibly be a problem in the future and have already rectified these and made the plant ready for more tonnage. So that has been kind of a blessing in disguise for us at this point. We are also moving now into making a permanent tailings storage. And we have -- the plants are ready for implementation. So this is something we are working on now. Next. Yes. This is the last gold pouring that happened when I was down there. So me and Jorgen was on site together. I think that was the first time, Jorgen. So that was a pleasant time. Here is showing the operators just finished pouring the gold smelt and how the smelted gold looks like right afterwards with red hot smelted mass. And after breaking apart this thing and cooling it down, then you see a happy CEO with a Dore gold bar. So this is -- typically happens, yes, once a month with this smelting. Next. Okay. So going forward, the main focus now is to getting the new operations management in and transfer all knowledge to them. We have a new site manager, Kobus, that Jorgen mentioned, and he has extensive mining experience, and he will be rotating to site and stay on site most of the time. We also have a shaft sinking team now that we talked about that will come to site on just a few days on Monday, on April 1. So they will start to look at that project and get that into production as quickly as possible. The production from the 2 winzes will start very soon when crosscut 2 comes into ore. And that can happen any day because we have a model of where the ore is, but we don't know exactly where the ore is -- but we don't know before we have actually blasted into it. So it can happen with the next blast or it can happen in a few blasts, but we know it will be very soon. So that would be a major milestone coming into ore at the 575 level and being able to produce ore from both winzes at the same time. Yes. And when the vertical shaft is operational at the first level, then the ore haulage can be dramatically increased. As we saw that we have now a capacity of maybe between 15 to 30 tonnes realistically from the 2 winzes, maybe up to 40, if we push it. But when we have the vertical soft operational, we are into 100, 150 tonnes per day, and then that will no longer be a bottleneck. And we are also planning then to commission the rest of the plant with the CIL tanks when the temporary tailings tank is full because as Jorgen said, it is full of material that has for us, not very high value, but still around 5 grams per tonne in the tailings, which is quite a lot. So that is something we will move into quickly. I would like to use the opportunity to thank you for this opportunity I had with joining the company and working for Akobo for many years. It has been a fantastic journey, and I really root for the company going forward, and I will follow up as much as I can. And I use all my time now to make sure that the new -- the transition with the Sutton people coming in is going smoothly and that all the knowledge that we have had and all the experience is being transferred properly to the new management. And I also think this is the right thing to do because now we will have operational leadership on site all the time. And I think that is the way it should be done. So I'm very positive towards this change, and I wish them all the luck with this going forward. Thank you. I think that was my last slide.

Thank you, Helge. Yes, again, thank you for all the hard work. It's been hard, but we see the results. And as you said, the changes we are doing right now will be important and will yield very good results going forward. So on the short financial update, we did, again, have our first revenue quarter ever with revenue. You can see the development of the operational expenses here. We're close to covering all the expenses in the fourth quarter. We are working hard, of course, on still keeping our operational expenses as low as possible. And this looks good. On the equity debt side, I think that's more for your information. On the debt side, we have the convertible loan and also the Monetary Metals loan. The negative equity as such is not something that is a problem to us. And then just wrapping up with the corporate structure and top shareholders, not much happening on the top shareholder list. We have still a strong supportive long-term shareholder base that would like to see this move into the next phase now. Listed on the Euronext Growth, we have a ticker on the Frankfurt and on the OTC market. And you can see the company at the end of the year had 8,400 ounces in the gold loan to Monetary Metals. A lot of key metrics, income statement figures. If you want to look into the details and reach out, please do so. Most important thing here is that we have our operating income. Just a small remark. It's excluding the 2.3 kilos that we smelted in the beginning of January, but it's related to the production we did in December. So in reality, we probably did cover more of our costs when you look at the actual production and not the smelting. So I think that's it for today. I have not received a lot of actually Q&As, means that we probably have been good at explaining what we're doing. And if there are any other questions, please feel free to reach out. But apart from that, I think we're all good. And again, I would like to thank Helge for participating. He will not be here next time. So you'll probably see only me, but that should also work out fine. And in the meantime, I wish you all a good day, and thank you for joining.