Altona Rare Earths Plc (REE) Earnings Call Transcript & Summary

Good morning, my name is Cedric Simonet, I am the Chief Executive Officer of Altona Rare Earths. I was appointed back in June 2023 when we moved from the Aquis Stock Exchange to the Main Market of the London Stock Exchange. Before that, I was the Chief Operating Officer of the company. I've been with the company for about 3 years. I'm a geologist by profession, with over 25 years' experience managing mineral exploration and mining businesses and mostly in Africa. With me is Louise Adrian. She's our Chief Financial Officer, also appointed upon listing. And previously, she was the financial controller of the company. She's also been with the company for a little bit over 3 years. She is a qualified Charter Accountant, with a lot of experience in the oil and gas and mining industries. So Altona Rare Earths is a mineral resources and exploration and development company. We are specializing rare earths since early 2020, and we are focused in Africa. When we started to implement this rare earths strategy back in early 2020, we looked at many different possible projects with very strict due diligence criteria. We ultimately settled on the Monte Muambe carbonatite rare earths project, which is located in Mozambique. We've been operating this project since June 2021. We have drilled so far 7,800 meters. We have produced a maiden mineral -- JORC mineral resource estimates and scoping study. We acquired the project under earn-in agreement, which can -- which allows us to earn up to 70% ownership in the project and beyond this. And so far with the deliverables that we have produced, we have earned 51% of the project. This slide is very important, you should read it. The presentation will be soon available on the website so please have a look at it later. Before we get into the Monte Muambe project description, let's look a little bit at the market of rare earths. So rare earth elements are 17 different chemical elements, 15 of them are present at Monte Muambe. Each of these elements has got its own characteristics, its own uses and its own price. There are many different uses and many different applications in the industry, in high technologies, including weapon systems. We will not go through this in details now. But just be aware that the screen on which you are watching this presentation, whether on your computer or on your cell phone, is made with rare earths yttrium, terbium and europium. Without these rare earths, you wouldn't be able to see the colors on the screen. But the most important rare earths for us are the ones we call the magnet metals. These are neodymium, praseodymium, terbium and dysprosium. These magnet metals are used to make permanent magnets. Permanent magnets are used to produce many things actually, but in particular, drivetrains for electric vehicles and generators for wind turbines. So the magnet metals are very, very important for the current green energy transition. You might have heard about battery minerals and battery metals. Rare earths are not considered as battery minerals. You need battery minerals to make batteries to store electricity. You rare earths to produce electricity, green electricity. And you need rare earths to turn this electricity into motion in the motors of electric vehicles. A small anecdote about this slide. People often think that the green energy transition is happening only in the developed world. Actually, the wind farm, which is shown on this slide, which has a capacity of 310 megawatts. It's located in Kenya, in Africa. And Kenya's electricity production is 70% from renewable sources. Let's look a little bit more at the market of these magnet metals, again, neodymium, praseodymium, terbium and dysprosium. If you look at the global rare earth markets, the permanent magnets represent by volume, about half of this market. By value, these magnet metals represent 95% of the rare earth market. So they are extremely important. Because of the green energy transition, the demand for neodymium-praseodymium oxide, what we call NdPr oxide, is expected to grow from the current level of about 100,000 tons per year to 300,000 tons per year in 2040. This is a huge climb. The deficit -- the supply deficit for these magnet metals is expected to reach 90,000 tons per year by 2040. And this is despite all the projects which are currently being worked on and which are going to come online. So what this means is that the rare earth market has got some very, very strong long-term fundamentals, which are expected to drive an increase in the prices of neodymium and praseodymium oxide at a compound annual growth rate of over 5% over the next decades. Fortunately, magnet metals are present at Monte Muambe. Actually, they represent 90% of the value contained in the ground at Monte Muambe, the remaining 10% being the other rare earth elements. The value chain for permanent magnet is made of 3 segments or components. There is the upstream segment, the midstream segment and the downstream segment. The upstream segment is made of extraction, beneficiation to produce a concentrate and then hydrometallurgical processing on this concentrate to produce a mixture of carbonates or a mixture of product. At that stage, all the rare earths are still altogether in the same product. Then in the midstream, you start with separation. Now separation of each of these rare earths, and you go start as magnet manufacturer. Whereas in the downstream segment, you look at the production of parts and the production of finished products. The rare earths supply chain is very strongly dominated by China. I'm sure you're aware of this. The upstream segment production of the mixed rare earth product is dominated at 60% by China. And China dominates over 90% of the midstream segment of the market. So this dominance has created a strong dependence of all other countries on China for rare earths. There is -- currently, there are projects to develop alternative supply chains in the rest of the world, especially in Europe, North America, Australia and Asia. What we think is that in the future, we are not going to see 2 separate supply chains, one for China, one for the rest of the world. But rather, we will be seeing an integration between the supply chains of China and of the rest of the world. So as part of the scoping study for Monte Muambe, we have looked at the production of a mixed rare earth product, a mix rare earth carbonate. And now as we go into the pre-feasibility study, we are going to look at taking one step further down the value chain and producing in Mozambique, a partly separated neodymium-praseodymium oxide product. Monte Muambe is located in Northwest Mozambique in Tete Province. This is a very safe and major mining region of Southeastern Africa between Malawi, Zambia and Zimbabwe. In close vicinity, in close proximity to Monte Muambe, there are 3 large coal mines: Vulcan, ICVL and Jindal. There is a large iron and steel project called Baobab Steel. There are gold mines. So there are already lots of equipment and service suppliers for the mining industry. We also have access in Tete to a lot of infrastructure. There is an international airport in Tete City. We are close to the Cahora Bassa hydro power plant, which has a capacity of 1.45 gigawatts of green energy, clean energy. There is a high voltage power line passing about 3 kilometers south of Monte Muambe. We have access to not 1 but 2 railway lines to go to Indian Ocean ports, the ports of Nacala and Beira. One of these lines, the Nacala corridor, which is already used by the mining industry. And this Nacala corridor line passes 20 kilometers northeast of Monte Muambe. So in short, we are in the perfect spot to open a mine. Right. So this is how Monte Muambe looks viewed from the sky. It looks a lot like a volcano, but believe it or not, it's not a volcano. The shape of the mountain is an erosion feature because the carbonatite in the center are softer than the sandstones, which are around the carbonatites. So the basin has a diameter of about 4 kilometers. Rare earths are not found everywhere in this basin. They are found in some very special spots. The most important for us is the one we call Target 1. I hope you can see my cursor, but it corresponds to this small brown here, in the middle here. That's Target 1. Target 4 is somewhere behind. So what is important to understand is that there is enough space in this basin to fit the open pits, to fit the dams, to fit the tailings storage facility, to fit the plant, and we will still leave a lot of forest in place. So there is a good opportunity to fit the whole mining operation, isolated from the rest of the world, in this basin. As you can see on the photo, right now, nobody lives except us, nobody lives within the sites. Actually, there are no human settlements, again, except our camp within the license. This is very important for us because that means that there will not be any issues with resettling communities. The project is held under a prospecting license, which has been renewed up to May 2025. The license has been transferred to our special purpose vehicle called Monte Muambe Mining Limitada, of which we held 20%, and we are now processing the transfers to go to 51%, thanks to the completion of the scoping study. And we have control of the Board of the company. During the course of this month, November, we are going to launch a mining concession application. The mining concession will cover the project over the complete life of mine of the project, and we expect that it will be issued sometime during the course of 2024. All right. Let's talk a little bit about geology. On the right-hand side, you have a geological map of Monte Muambe, you can recognize the circular structure. The brown patch in the middle corresponds to the carbonatites. The yellow and red colors correspond to rare earth anomalies in the sands. So this indicates the location of the mineralized bodies in the ground. The 2 most important for us right now are Target 1 and Target 4, which form the basis of our maiden mineral resource estimates. But you can see that there are more targets. Target 3, Target 9, Target 11, and there are more yellow spots. So there is a very good opportunity to increase the resource base of this project. The total of the JORC mineral resource estimates, which we published in September, is 13.6 million tons at 2.42% total rare-earth oxide. The important thing that I would like to point out is that about 60% of the tonnage is already in the indicated category, which is a higher level of confidence and which is quite unusual for a maiden mineral resource estimate. We are quite happy and proud about this result because we designed our drilling program to ensure that the large part of the resource will already be in the indicated category. We intend next year to do more drilling, to increase the resource from 13.6 million tons to somewhere between 20 million and 25 million tons, which we think is a good size for the future mining operation and which could be converted into an ore reserve. And the drilling program will also be designed so that the new upgraded -- new resource estimate is all in the indicated and measured categories. Let's go back to the scoping study. The scoping study considered a 3-stage process. The first stage is extraction. There will be 2 open pits, one for Target 1, one for Target 4. The life of mine average strip ratio is 1.6, which is quite low and which is very good, very favorable. We will be extracting 750,000 tons per year of ore, which will be processed in a beneficiation plant. The plant will be located between the 2 pits. So the distance between the plant and any of the 2 pits will be about 800 meters, which is very short, to reduce the transport distances. So in the beneficiation plant, we will crush and we will mill the ore. It will go through flotation cells, and we will produce a concentrate. The concentrate will then go to the hydrometallurgy section of the plant, which will be next to the beneficiation section. In the hydrometallurgy section, we will do a gangue leach, and then we will leach the rare earths with [indiscernible] sulfur solution and we will reprecipitate the rare earths into a mixture of carbonates, which will contain [ 1,000 140,000 ] tons per year of neodymium-praseodymium oxide. You can see on the map on the right-hand side that all the operations will be basically between the 2 pits so they will be very, very self-contained in a very small space. Let's look a little bit at the numbers now of the scoping study. They are very positive. But first, let me remind you what the scoping study isn't. A scoping study is the first pass evaluation of the technical and financial characteristics and viability of a project. Basically, a scoping study is what will the project look like? So the cost estimates for CapEx and OpEx, we are prepared within a plus 35%, minus 30% range of accuracy, which is normal for a scoping study. And considering an 18 years life of mine and the production of 15,000 tons of mixed rare earth carbonates per year, which corresponds to 1,140 tons per year of contained neodymium-praseodymium oxide. The NPV8 of the project is $283 million. The post-tax IRR is 25%. These figures are very good. What they tell us is that at the level of the scoping study, at the level of accuracy and detail of the scoping study, the project is viable. And this scoping study completely backs the decision of the company to move towards the next stage of the project, which is a prefeasibility study. The scope -- another important takeaway of the scoping study is that there are many opportunities to optimize and to improve the parameters of the project at the stage of the prefeasibility study. I have already mentioned the opportunity to increase the resource base, so you already know how we will work on this. We will drill down deep of Target 1 and Target 4. We know that these orebodies are continuing at depth. So by drilling deeper, we will increase the tonnage. And we will also do resource drilling on the other targets that you are seeing on that map. We will optimize all the parameters of the project, especially the mining methods, the cutoff grades, the logistical and infrastructure aspects of the project. Very importantly, we are going to put a lot of emphasis on the metallurgy. We need to work more on the metallurgy. We are aware of this. And so in the initial months of the prefeasibility study, there will be a lot of focus on the metallurgy. Monte Muambe initially was considered as a fluorspar project before rare earths were discovered back here 10 years ago. We don't think that Monte Muambe can be viable as a stand-alone fluorspar project. But at the same time, we have found that in the rare earth ore, there is about 10% of fluorspar. So as part of the metallurgical testing, we are going to see if it would be possible without much addition of CapEx and OpEx to produce a fluorspar byproduct together with the rare earth, which would add a second revenue stream to the project. As part of the prefeasibility study, we will also put a lot of attention on our energy sources. There are lots of different options possible in that. And as we do this, we will look at the cost, obviously, the CapEx and the OpEx, but we will also give a lot of attention to the carbon footprint. We are very conscious to the fact that the product that will come from Monte Muambe will be used ultimately in the green energy transition, and they have to be as decarbonized as possible, as net zero as possible. And as part of the prefeasibility study, we will also do a complete life cycle assessment of our future products. Last, as I mentioned before, we want to look at doing as much value addition in country as possible. It is in the interest of the country, it is in the interest of the company and our shareholders. So as part of the prefeasibility study, we will look at producing and converting the mix rare earth carbonate into separated NdPr oxide. A little bit of benchmarking. So one thing you need to know is that it's very difficult to benchmark carbonatites rare earth projects. The reason is that right now in the world, there are only a few carbonatite rare earth mines in China, and there is one in Australia and one in the U.S. And that's it. There is not a single carbonatite rare earth project currently operating in Africa. So when we do benchmarking, we can't compare really to operating mines. We have to compare to [ DFSCs ] and [ DFSCs ] of more advanced projects in Africa, also in Australia. So if you look at the left-hand side chart, it compares basically the resource statement and the reserve statement of different carbonatite projects. The resource statements correspond to the amount, the quantity and the grade of minerals that you've got in the ground. These are the yellow dots. And the reserve statements correspond to the quantity and grade of the mineral that can be actually valuably extracted as proven by a prefeasibility study or a definitive feasibility study. What you can see is that many projects have been drilled to a point that they had hundreds of millions of tons of resources. But if you look at the reserves, what is actually viable, there are very few projects that exceed 30 million tons. What this tells us is that there is some kind of a sweet spot, the correct size for a carbonatite rare earth mining operation, and that is somewhere between 15 million and 30 million tons. So as we develop a Monte Muambe, we don't want to drill for numbers. We don't want to publish resource estimates of hundreds of millions of tons, knowing that we will never mine this. We are very, very focused on what can be ultimately minable. And that's why we want to get the resource statement to somewhere around 20 million to 25 million tons and then convert it into a reserve. If you look at the results of the scoping study now, it would not make much sense to compare the financials in details with other projects, which are more advanced because you would be comparing a scoping study with a definitely feasible feasibility study or a definitive bankable feasibility study, which are not at all the same thing. But if you look at key parameters like the life of mine, with 18 years, we are somewhere in the average of other projects. If you look at the NdPr oxide contained production, we would be somewhere at the medium-sized level, lower than the very large projects in Tanzania and in Angola, but higher than the iron-nickel and tailings project elsewhere in Africa. If you look at our CapEx, well, it makes sense compared to other projects. It's in the same range. If you look now at our market capitalization, it is still extremely low at 3 million compared to our peers. And that tells you what is the current potential upside in terms of share price for our projects and for Altona. I'm now going to hand the microphone over to Louise, who is going to take you through the time line and through the next slides of the presentation.

Thank you, Cedric. So here's an overview of our project time line, just sums up where we are. We acquired the asset in 2021 with 1% holding, started exploration immediately and completed 2 drilling campaigns drilling 7,800 meters and spending just over GBP 1.5 million. The projects moved quickly on through Phase 1, and we've just completed Phase 2 with the publication of our MRE and scoping study, and the paperwork is signed, but we're just doing final checks to be able to take holding of the 51% of Monte Muambe. So we're now entering the PFS stage, which is expected to take 18 months. And there's a contracted spend on the farm-out agreement minimum spend of $2 million. When we complete this in 18 months, we will hold 70% of the project. After this, we have the definitive feasibility study or the bankable feasibility study, which will help secure finance then we'll be able to finalize tendering, the tendering process, move on to construction, with the first production expected by the end of 2028. And the scoping study indicates that payback period for the project is 2.5 years after production commences, which would take us to mid-2031. So I think it's quite a useful slide just to see the time line. So here is the prefeasibility study budget. This has been extracted directly from the Competent Person's Report, and our budgeting will be based on this, but we are highly likely to strengthen the ESG component, as Cedric just said, as we're very aware of becoming a responsible miner and it is important to us. This budget is in sterling, not dollars, but it's higher than the GBP 2 million minimum spend in the farm-out contract. We're in the process of requesting various proposals from contractors and consultants to refine the budget, but we have actually started some PFS activities. As Cedric mentioned earlier, we've done the infill drilling on Target 4, and we've been sending additional metallurgical samples to Australia. Over the next few months, our emphasis will continue to be on metallurgy and commencing our baseline environmental studies. We're also preparing the 2024 resource upgrade drilling plan, with the goal of increasing our resources from 13.6 million tons up to the mid-20s. So that's where we are with the prefeasibility budget. The next slide takes us on to our shareholders. So who are they? The listed -- the significant shareholders are listed on the slide here. And we're not aware of any shareholders who own more than 3% who aren't listed on this slide, several nominee accounts but we have delved into them. The only exception is the Optiva Securities who itself holds 4.54% of the shares. The directors and senior management own just under 9% of the shares, which shows our confidence in the value of the company. Indeed, currently, and over the last year, directors and senior management continue to take some or all of their shares in deferred payment or shares. There are just under 120 million warrants that have been granted 40 million of these were granted in June 2023 with a 10p exercise price. But attached to these are another 40 million piggyback warrants, which are exercised at 20p. These will actually only be issued if the original warrant holders exercised their warrants when the trigger price of 12p is met, and then they have 30 days to exercise those, and they replace their old warrants with new warrants. The weighted average price is 11.1p, and the weighted average life is just over 2 years. And actually, if all the warrants were to be exercised, there would be 3.5 million coming into the company. Our share price is on the table there. The gap in the share price was earlier in the year when we moved markets, which took longer than expected when we moved to Aquis to the LSE. Our share price is unfortunately trending downwards, which I believe reflects the overall poor market conditions, particularly for small cap companies at the moment, but also the short-term price drop in the rare earth prices. This floor has been reflected across the majority of other rare earth mining companies, and you'll be seeing that in the share price with most of them. However, the deficit for rare earths and critical metals is expected to increase substantially in the coming years as was shown on Cedric's table earlier, resulting in an increase in this commodity pricing. In this environment, there appears to be a mismatch between the value of the underlying assets and the current market cap of 3 million. On the financials, we completed our audit in October -- at the end of October 2023, and the reported accounts have been published and can be found on our website. Just highlighting a few things here. Our total assets have increased to 2.8 million, which reflects our continued investment at Monte Muambe. And the liabilities here includes a convertible loan note of 275,000, with a 15% coupon rate that expires in May of next year. Our operating loss did increase due to increased operations and unfortunately, the delay in moving our listing to the London Stock Exchange from Aquis also increased our corporate cost. The cash used in operations and investing activities is slightly down from last year, but I believe this is due to the year-end timing of the fund raise, and we should expect to see this increasing significantly in the current accounting year. The next slide shows a brief overview of our team. You've already met Cedric and myself, who are the executive directors, and we're very lucky to be supported by an experienced and diversified team. We have 3 non-execs, Martin, Audrey and Simon, who support us with business, mining, governance and compliance experience. On the senior management team, and I'll highlight Gavin Beer who is a well-known and highly regarded in the industry. He specializes in critical metals and is leading our current metallurgy work. We have Christian Taylor-Wilkinson, who is in charge of our business development. [ Pedro Manjate ], who is one of the original license holders in Monte Muambe. He's an experienced businessman. He's also our Nonexecutive Chairman of Monte Muambe, and he continues to be highly supportive of the project. And finally, we have Luis Veloso, who is our project manager on the ground in Mozambique. I think -- and if we take the next slide, and then back to Cedric for the portfolio growth plan.

All right. Yes. Just to note that Altona always had a strategy of being a multi-asset company, multi-rare earth asset company. Right now, we are focusing on the Monte Muambe project because it is a very important project. It is a good project. The scoping study has proven that we need to continue with this project. But because we are based in Africa, we'll continue looking for different opportunities to add to our portfolio. And as we do this, we -- there is a lot of variety in rare earth deposits in terms of geology. And each of these different deposit has got a different dynamic in terms of development. So as we look for more projects, we do not want to want a project that would be similar to Monte Muambe, which is a carbonatite project, but we focus more on opportunities with iron-nickel projects, which can be developed quite quickly, and also projects that have a higher proportion of heavy rare earths. Monte Muambe is richer in magnet metals so we want to complement this with a project with heavy rare earths. So that marks the end of our presentation. For me, the key takeaways. First, the green energy transition cannot happen without rare earths. Because of this green energy transition, the market for magnet metals has got some very strong long-term fundamentals. It is also a very new industry. There are very few operating mines. There are lots of projects out there, not all of them will go into production. So now is the right time to get into this new market into these rare earth markets, and Altona presents a very good opportunity. The second point is that Monte Muambe so far ticks all the boxes. It is located in the good major mining region of Africa, with infrastructure, with existing mines. And as we have seen the mineral resource estimate and the scoping study have shown that the project completely justifies to carry on into the prefeasibility study. So we've got very good confidence in the project. The last point is that as we've pointed out during the presentation, our project compares favorably to other advanced projects. Our market cap is still at 3 million. So the upside potential in terms of market cap is, in my opinion, quite obvious. This closes our presentation. We will now look at questions which have been asked through the platform.

I'm just looking at the platform now, Cedric. And there don't appear to be any questions. There's no questions at the moment.

Yes, it seems there are no questions. Can we give maybe 1 minute to listeners who want to log a question through the LSE platform? This is interesting. Okay. Well, one of the questions we often hear is how much support we get from the government in Mozambique and how much support we get from Western governments who are trying to develop alternative supply chains for rare earths. So as far as the support for the Mozambique government is concerned, so far, the government has been very supportive. Mozambique, again, is a major mining country. If you look at the Mozambique mining cadastre, you will see that the government regularly issues licenses, including mining concessions like the ones we are going to apply for during the course of this month. And there are incentives for minus to do value-addition in countries. The government wants to encourage this. In terms of Western governments, we have been contacted by several governments and organizations to see how they can support Monte Muambe, and we can say that there is a lot of interest in supporting a new potentially viable rare earth project, especially for magnet metals. Still no questions?

Still no questions. You can find -- you'll be able to find the slide show on our website. Also the recently published accounts also has quite a good introduction of -- which contains details on the scoping study and our environmental plans. So you'll be able to look at our published accounts on our website. And if you have any other questions, our e-mail addresses are attached as well. So please feel free to e-mail myself, Cedric or Christian, and ask any questions and we'll do our best to answer.

And for those who are really interested in the details, feel free to download the Competent Person's Report, which includes the mineral resource estimate and the scoping study, and to go through with it. It's a big document but very interesting. Thank you very much for listening to this presentation. And please feel free to join us to invest in Altona and in this wonderful adventure at Monte Muambe.