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

Good morning. Welcome to second quarter presentation for Akobo Minerals. I'll take you through the latest updates today. So let's dive straight into it. I'm very pleased to announce another record quarter for Akobo Minerals, strong performance. We've never seen such numbers before. We produced approximately 37 kilos of dore in the second quarter. And not only that, if you look at the grade here, we had an average recovered grade of 38.5 gram per tonne, which is well, in the very high range of what's normal, even for us, approximately 134 kilos total dore produced as of end of Q2. And if you look at the numbers here, the value in U.S. dollar around $6.1 million. And so far, we have accumulated sales of around $17.7 million. In Q2, we also did a large repayment to Monetary Metals of around $3.4 million. And also interesting is that we're continuing our strong production and our strong performance into Q3. We're estimating around another 35 kilos of dore produced at least. That is based upon an estimate of 10 kilos for September. That might change as we continue producing from the plant as we speak. Given 35 kilos, we will then be up at around 170, 169 kilos in total dore production to date. You can see we also have a stockpile of around 700 tonnes. We estimate around 20-gram per tonne. That's also by the end of September. So we have a backlog to call it like that. That is -- we're not keeping it just because we can't process it. It's because we are using it as part of running a smooth and a stable operation as possible once we run the processing plant. So this is just a stockpile that we're using. Cash position, we have around $3 million at the end of September in cash and gold inventory. We repaid also another $3 million to Monetary Metals in September. So all in all, we have repaid approximately $7 million to Monetary Metals in 2026. When it comes to the capital structure, we're still working with Verdant Capital to do and finalize a debt restructuring. So the preparations are still ongoing, and we'll expect an official launch in October once everything is finalized. So just looking at the left side here, what's worth mentioning is obviously the strong increase in EBITDA from Q1 to Q2 and this proves a lot of the business model of Akobo. We have stable operating costs and an increase in production the majority there will hit our EBITDA and the operating results. So current operations and key approvals, we are working hard these days. We have a great team at site and in Addis. All in all, we are around now 390, call it, employees and associated people working here. It's getting big. I just spent 2 weeks in Addis, came back here the other day, also visited sites. So I'm very happy and pleased on progress and what I'm seeing. We've never had this consistent production and consistent improvements before. So we're continuing mining from the existing winzes, the 2 tunnels that we have. The vertical shaft is progressing. We did have a ball mill issue on the plant. We have repaired it. It says a lot about the team who is there 24/7 at site in a remote area, fixing and keeping everything up and running. We've also done some tailings and retesting of the tailings, and that could indicate a recovery upside. The tailings is, let's call it, what leftover is from the current production, and we're saving that for later processing. We might process it sooner rather than later because we see there is a good potential of getting more gold out of it. Still strong processing performance and good normal site operations. We are working on expanding our site accommodation. We were very lucky to have four mining engineer students visiting us for a month. They were hard at work underground and above ground, and this is part of our mandate to support and develop the mining industry in Ethiopia. You can see also from the picture, we're spraying in our area and local areas. We're working on containing malaria. It's part of the area. But we are trying to do what we can to reduce the effect of the malaria not only for us, but also in the surrounding communities. Milestone now as the first payment to the community fund, it's been completed. It's early yearly exercise based upon the 2025 results. So we're happy to be able to contribute from our operations into local community projects. On the licensing and approval side, we do have a renewal of the mining license that's happening every fifth year. It's a formality, but it still needs to be done. As long as you're producing, this is really not an issue. Going back to the Gilo exploration license that we talked about for quite some time. I believe we're close to finalizing that. All regional and local and governmental agencies have approved the license. We are now waiting for the Environmental Protection Agency to give their final go-ahead based upon baseline studies and what we call ESIA review. I think that will happen in a short period of time. We've also talked about our gold export since this is the first time happening out of Ethiopia since 2018. It is a bit of a puzzle, but we are getting there. We're signing up with the LBMA approved refinery and opening the account there these days, and looking to do our first gold export very, very soon. Just looking at the pictures, you can see some miners hard at work, drilling and preparing for blasting, the spraying, our students and also the plant running well and producing the gold. So we are actually getting close to our second year anniversary. Our first gold bar, as you can see here on the picture, was produced back in October 2024. So time, obviously, yes, it flies, but we have been producing now consistently for 2 years. I think that's a major achievement for us. We've moved from being a development company into a proper junior miner producing. Not many can say that these days and definitely not with what we can see here on the average recovered grade that we're getting on a monthly basis. It's improving. And from the beginning, it's stable. And you can see also that we have some pretty fantastic results a couple of months here in June, July of 100 grams per tonne. So it tells a lot about the Segele mine and what it's actually giving us month by month by month. So we're very, very pleased. From what the guys at site are saying to me, it's the gift that keeps on giving. So we're increasing production and combined with these exceptional grades, we have a strong foundation going forward. And not only that, the strong cash generation this mine is giving us quite unique. Just tried to illustrate here from the first 3 quarters of this year, how the strong EBITDA, the strong cash flow generation is actually covering our investments and debt service, and we will continue to develop accordingly. And this is only now based upon the current 2 winzes that we have. And obviously, we all look forward to getting the vertical shaft up and running, and these numbers will look even more impressive. You can see it here on the right-hand side on the improved operating leverage, where I talked about on the first page, obviously, these numbers are quite significant, a 71% EBITDA margin, 65%. And it tells us something about the leverage here with stable operating costs, and any increase in revenue the majority will hit the EBITDA and the operating cash flow as an increase. So obviously, we still have some investments going forward into the vertical shaft and the underground development. But we expect them to be lower as the majority of the infrastructure is done, and it's more about normal development and blasting and hoisting. Next financial steps. I talked about refinancing our high-cost debt that we have in Monetary Metals. We have a very good relationship with Monetary Metals. We're working together on this. We're all eager to find a good solution for all parties involved. That might be a partial restructuring or a full restructuring, and we might also have a default option that we'll fall back on. will inform the market as we go forward. It's all about reducing our financial cost. Obviously, we're in a different situation now than we were 4 years ago. When Monetary Metals came on board, we had a scoping study in the grass field. That was it. Now we have a producing mine with a good track record. So obviously, we're looking at extending the maturity profile somewhat and all of this will increase our financial flexibility going forward. So the vertical shaft, the one that everyone is waiting for. It will unlock higher capacity, flexibility and deeper access. We are getting closer every day. As you all know, we've had issues with soft rock formation that has also been an issue in September. But from what we can see now, it's getting less. And we do expect and hope October will be a strong, good month. Interestingly enough, we have seen visible gold now during the shaft development. We're not talking about the 30 -- 20, 30-gram per tonne, but it's very rare to actually have gold when you're developing, and it's not what we expected to see. And it's a good indication maybe of more gold to come in the area. That's not part of the existing resource measurements. So we're now talking about -- instead of talking about going to the bottom, I think it's better to focus on the first lateral, which is about 25 meters. We've put that a bit lower than in each just to make sure that we cover bigger area on top of the first lateral. And our current focus now is to start gold extraction from that first lateral while the shaft sinking continues. So that's our main focus these days to get the first lateral up and running. In general, industry standard, you can say that during a month with competent hard rock, you can do approximately 28, 30 meters a month. If you have semi-competent rock, maybe half of that. So we're getting close during October to reach the first lateral. That means by the end of October. We're doing all the ground support, and it's all doing in line with development requirements and the progress is continuing. So just to remind ourselves, the production impact, definitely an increased hoisting capacity will have faster access to deeper mining levels and more operational flexibility. And if you look at the small picture here, what is very exciting is obviously to continue exploration at the bottom of the shaft, the red one, the bar you see here and continuing development deeper and maybe to the right, lower West or East. So all of this will unlock new opportunities in developing the Segele mine. And you can see the current design of the shaft will cover at least the 40,000 ounces of the indicated mineral resource that has an average grade of 40-gram per tonne. So this is a very strong, good setup for current operations, but also future development. We know Segele is open at depth. We've seen gold, visible gold in drill holes, way below current resource limits. We see indicators that suggest a larger mineralized system, and we haven't even started to explore potential parallel zones or extensions. So all of this will enable us to continue developing the Segele for the years to come. So this is an interesting sketch. I got this made here from our team at site just a few days ago because we do see already that mining is going outside of the current resource estimate. It's bit early to give indications, but we have continued beyond the block model where the current resource estimate lies. Again, we have seen gold in the vertical shots where we thought we would not see gold. We've done underground surveying and geological evaluations are underway. So if this will lead to a geological gain and an upgrade of our resource estimate, it is too early to say. But it's still -- it's a positive upside regardless because we are now mining outside of the 69,000 ounces that we thought we had. So this is exciting, and we will get back as soon as we have more information about this. Good. So Akobo 2.0, that's what I'd like to call it. We're transitioning from producer to a growth company. We still have a few elements to get in place by the end of the year. But I expect 2027 to be a different year for Akobo. We'll be in a state and stage where we have the opportunity to look beyond the Segele mine and really start growing. And the strong foundation already in place is obviously the local and federal government support EIH, the Ethiopian Sovereign funds ownership. The export approval that we have already secured from the National Bank of Ethiopia. We do have the offshore account already up and running and operational with Standard Bank in South Africa, the biggest bank in Africa. We do have the right to retain 70% of our export proceeds in dollars. I just got some news today that this might even change in the very near future for us, enable us to keep 100% of our export proceeds in U.S. dollars. So that says something about the general development in Ethiopia these days. It's a strong focus on continuing economic reforms, continuing adapting to the international financial environment communities, and I'm really happy to see all the good progress happening. We have a few points left, as I mentioned. I expect most of them to be closed out by the end of the year. We'll see about resource growth potential that will be exciting based upon, again, the surveying and what we've done lately. I do expect the first gold export to happen. We will continue the vertical shaft development. That's obviously a strong focus getting to the first lateral. I expect the Gilo exploration license to be awarded finally. I do expect us to do the balance sheet restructuring. If that is done by the end of the year or into Q1 next year, we will see. We will find and spend the time needed to really find the best structure and solution and partner for Akobo going forward. And obviously, then the additional growth and exploration opportunities that we already have in our existing exploration license area. But we're also looking at other exciting targets. And we will come back, obviously, once we have more information on that. Financial performance. The operational leverage. We're happy, obviously, seeing the development here. It's going in the right direction, both on the revenue side, the EBITDA side, on the debt side, the debt is decreasing and the equity is improving, and that's according to the plan. That's been the plan all along. And now we see that the mine is delivering. And again, this is just based upon the two existing winzes that have theoretical capacity that we're running at max capacity that we're running at right now. So really pleased to see this. And again, when you look at the operating cost here, it's pretty stable. It's not really changing much, even though we're more or less doubling the revenue side. So this will -- we expect that to continue going forward even with the vertical shaft up and running. With the vertical shaft up and running, we'll probably have a lower unit cost, so not probably will have a lower unit cost. We will shut down most of the winze operations and move the team to the vertical shaft, and we'll probably be even more efficient in running the vertical shaft. So what will increase is obviously costs to diesel for running the plant 24/7 and running the operations 24/7. But that's the cost we will be very happy to take. The financials, please have a look. If there's anything, you can get back to me, and I will explain more in details. But I think that's it for today, no major changes on the top shareholder side, very stable. They've been with us for a very long time. Obviously, great support for the company. They're all eager to see the next stage for Akobo Minerals and no really changes there. So with that, I will go over to our Q&A session and see if there are questions.

Expectations for Q4 regarding the vertical shaft and gold production output? As I mentioned, we do expect to start hoisting from the vertical shaft from the first lateral. I do expect that to happen before the end of Q4. But again, I must say that with the soft rock formation and the hard rock formation, it is difficult to say. There is nothing we can do and we can't compromise on safety for our people and we'll have to take the time it will take. But we're getting close to the first lateral. And once we hit through there, we will start hoisting from the vertical shaft. Okay. Outlook regarding future dividends? That's obviously a question to shareholders. What I can say is that before we can do any dividend, we need to repay our debt. And once that's in place, there might be a dividend. Obviously, looking at the cash generation potential here, there should be room for dividend. But again, it's up to shareholders. And if any dividend is to be allocated, then I guess that will be from year 2028. Good. Okay. So connection to other zones, which has lower grade, but much larger life span of 15 to 20 years. I just have to read here. So we are expecting to proceed from the 120-meter shaft and developed out from there. That's the main objective with the shaft, but mainly to go to the west and somewhat to the east and see if we can connect more in between the shaft and the existing resource estimate. There is a big area there. And since we're seeing gold now in the vertical shaft, that could potentially indicate that there is a relationship between the shaft and the existing Segele resource estimate. That has to be looked into. But we're not stopping there, obviously. We have plenty of near-term targets around Segele, and we expect to be able to restart a lot of work by the end of the year once we have ticked some of the last few boxes that I mentioned here on the other slide. Okay. There are obviously some questions on the conflict up in the north in Tigray. It's a valid point to ask. There's been some writing in the newspapers, it's doom and gloom. It's obviously very unfortunate, and it has a negative impact the population and people living there. Compared to the conflict a few years ago that we managed well, I don't see any issue with it for us. We're 1,500 kilometers away. We're in the most stable secure area in Ethiopia. Again, we have operated for 16 years without any incidents the fact that we do have a strong local community partnership and been part of the community for a long time. That gives us a good security situation in general. Obviously, for the country, this is challenging, but I don't foresee this being a big or returning to what we saw 5 years ago or 4 years ago. It's a different situation. And I think and hope this will actually be resolved pretty soon. Yes. Okay. And again, news about refinancing. We're launching it this week, now this month in October. We see already good interest. There aren't that many junior producers out there with a consistent production track record, and the grades and the operational cash flow that we have. So I'm optimistic and very positive around that. But we have to do the process, and we will spend time the time needed to really find the right partner and the right structure. We won't rush this at all. The production facility is big enough. It won't be a bottleneck. Yes, it is big enough to handle everything that will come up with the shaft. It's also modular so that we can add another ball mill and increase the production capacity significantly. So I don't see any bottleneck issues with the processing plant. Why we're not again running the stockpile and why we're not running everything all the time? It's because we're running currently just in batches. We are running 1 to 2 weeks at a time. And we want to make sure that we try to blend as much as possible and keep the production stable when we produce through the processing plants. So no bottlenecks there. So all in all, that was it. No more questions. I'm going to leave you there. I just want to say that we have great team working hard every day. I've been there, as I said, the last 2 weeks at site and in Addis. It's a strong team working hard and they're delivering strong, strong results these days. So Q3 is looking very good. I don't see any major changes into Q4 either. So we expect to continue the current operational setup that we're having right now and make improvements here and there. So thank you for joining. And if there are any questions, please do reach out, and I will get back to you. Thank you.