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

Good afternoon, ladies and gentlemen. Welcome to the Altona Rare Earths Plc Investor Presentation. [Operator Instructions] The company may not be in a position to answer every question it receives during the meeting itself. However the company can review all questions submitted today, and we'll publish those responses where it's appropriate to do so on the Investor Meet Company platform. Before we begin, I would just like to submit the following poll. And if you'd give that your kind attention, I'm sure the company would be most grateful. And I would now like to hand you over to CEO, Cedric Simonet Cedric, good afternoon, sir.

Good afternoon, and thank you. So this presentation is going to be a relatively short one. The idea is to give our investors an update on what the company is doing. If you have followed recent analysis from Altona, you know since February that we are implementing diverse portfolio expansion and diversification strategy into other critical raw materials, not just rare earths and we have done already 2 acquisitions, copper project in Zambia and Copper-Silver project in Botswana. So I would like to explain a little bit why we took the decision to diversify the portfolio and our activities. I would like to tell you a little bit more about these two exciting copper projects and I would also like to tell you what's happening with Monte Muambe because Monte Muambe remains a key asset for the company, and we believe there is a lot of value in it. This is the usual disclaimer. All right. So let's talk a little bit about Monte Muambe. I just want to summarize what we have done so far. As you know, we acquired the project back in 2021. Last year in October, we completed the scoping study, which included a maiden resource estimate, 13.6 million tons at 2.42% total rare earth oxide. The scoping study considers the production of 15,000 tons per year of mix rare earth carbonates over a life of mine of 18 years, and the financials came with an [ NPV8 ] of $283.3 million, an IRR of 25% and a CapEx of $276 million. The completion of the scoping study triggered the increase of our holding in the Monte Muambe project in the Monte Muambe license from 20% to 51%. So now we are at 51% ownership which is also an important achievement. Last year, we launched a mining concession application with the Mozambique government. In Mozambique, it's possible to get your mining license relatively early in the life of projects. So we want to take advantage of this. And the mining concession we applied for has a duration of 25 years. We expect that this is actually being processed currently, and we expect that it will come out sometime in the third quarter. In terms of Monte Muambe, what are we doing at the moment? We are doing basically two activities, two activities which are aimed at derisking and we are using as little resources as possible on these two activities. We are really focusing on these two activities. The first activity is metallurgical testing. We have 100 kilos of representative or samples at SGS Lakefield in Canada, which is one of the best labs in the world for rare earth metallurgy. And we have another 70 kilos, which is in Australia, with another land called Orelia. So what are we doing exactly practically at the moment? In terms of metallurgy, we are doing flotation testing. When we did the scoping study, we were only able to do 1 site of test at the time. And now we are going to do about 30 sites of test, so a lot more testing. In the scoping study, we had to use a parameter, which is the grade of the concentrate, it was bastnaesite concentrate, which was 10% total rare-earth oxide. So to remind you, at Monte Muambe, there are two processing steps. The first step is beneficiation, which includes crushing, milling and flotation that produces a bastnaesite concentrate. And that bastnaesite concentrate goes into the second step, which is hydrometallurgy where the concentrate is leached and a synthetic product, a mix of carbonate of rare earth is produced -- is precipitated. So if you look at the little chart on the bottom right side of the slide, you can see a pie chart and that yellow section represents the OpEx, okay, the pie chart represents the total OpEx of Monte Muambe as per the scoping study. And the yellow section represents the OpEx of the hydrometallurgy. It's 55%. It's enormous. It's the most expensive part of the project. So by taking the grade of the concentrate from 10% to 20%. That means that the sheet that will go into the hydrometallurgy is going to be twice more -- twice richer, twice more loaded in rare earth and that means that it will cut basically into the OpEx of the hydrometallurgy for the project. So this is going -- this is expected to have a significant impact on the financials of the project and the cost net and that will have an impact also on the CapEx. The second thing we are looking at in terms of metallurgy. You probably remember that originally, Monte Muambe was considered to be a fluorspar project. Exploration for fluorspar was done about 10 years ago. At the time, a resource -- a fluorspar resource was defined -- now that resource was too small for Monte Muambe to be a stand-alone fluorspar project. However, now it's a rare earth project we are looking at rare earth ore. This rare earth ore still contains about 15% fluorspar. So it's totally worth looking at the ore which we are anyway going to extract, crush, mill and put through a flotation plants to see if we can extract and separate this fluorspar that would give us a byproduct that will give us additional revenue. The second thing we are doing at the moment in terms of derisking is a mining concession application. It is in process. We are following up with the government, so these two aspects, the metallurgy and the mining concession are going to help derisk in the project. You might have seen in one of the analysis we published recently, we have received a strong interest from the U.S. government on Monte Muambe. The U.S. government could come to fund the project but not at the stage of the prefeasibility study where we are now. So that is going to come later. As I will explain in a few minutes, it's very difficult right now for a junior exploration company to fund a rare earth project. So what we are doing is that we are actively seeking a strategic investor to fund the Monte Muambe PFS and that funding may come in different forms. So when we say a strategic investor, we are looking at an investor who is going to need the product -- or was going to need to secure a responsible source for the product. So this way, we think that we will be able to finance Monte Muambe separately from the rest of the activities of the company. And -- sorry, I lost my thoughts. Anyway, this is a plan, a strategic investors. We are already talking to several possible candidates. All right. So now we are called Altona Rare Earths. You might wonder why we decided to go into copper. The reason is shown on this slide. The chart that you have on the top side, the upper chart on the right-hand side, this is the forecast for the neodymium and praseodymium oxide demand over the next 25 years, roughly. The NDPR oxide long-term fundamentals are still very, very strong. They are driven by the green energy transition. There cannot be a green energy transition, wind turbines or electric vehicles without rare earths to produce permanent magnets. And it is estimated that by 2040, the rare earth and the NDPR consumption will be 3x what it is at the moment. So very, very strong fundamentals. However, if you look at the chart on the bottom side, this is the evolution of the price -- of the actual price of neodymium and pras -- of neodymium in the case of this chart. And you can see that the price from 2020 has been picking up a lot, picking at the end of 2021, beginning of 2022. And then it has been dropping. So on the short term, this long-term fundamentals, we don't see them active on the rare earths. There are several reasons why the price of rare earth has been falling lately. One is that the expected demand growth has been actually much slower than expected? And the second thing is that in 2023, there has been a surplus of rare earth on the market. 2024, there are expectations that there will be a deficit. So rare earth prices might pick up a little bit. But in 2023, there was a surplus. So the rare earth market is still in its infancy, it's a very immature market. It's a very new market because rare earth is a new commodity and because of this, it is very unstable. And this instability might continue a little bit in time. So when you look back at Monte Muambe, Monte Muambe is going into production in at least 4 years, not before that. So the price of rare earth, the current price of rare earth shouldn't be so relevant to the potential of Monte Muambe. But the fact is that investors in general look at the price of commodities when they make their decisions. and that does not affect only us, but that affects basically all the rare earth companies, the junior exploration companies, that are on the rare earth market. You end up having the stock price of these companies following the trend of the commodities. So for us, this was an issue. We thought that it will be difficult to keep funding the company just based on Monte Muambe. So we decided to bring in new products. And we looked carefully at what sort of project we could select -- so on the top row here, digital boxes, you have the selection criteria that we use. First is the quality, the geological merit, the technical merits of the project, obviously, Second is a low entry cost. And you've seen the Botswana and Zambia are in a [ series ] of projects that are not very expensive. Further is a low initial exploration cost. These are projects that have got very, very good indication of potential, and I will take you more through this, but at the same time, there are grassroot projects. So the first phases of work, geophysics and geochemistry are not going to cost a lot, and then we will do a few reconnaissance force, so we can manage the cost analysis. And last, we looked at the fundamentals and the market for different metals. And we came to the conclusion that the most interesting metals at the moment, we are copper and lithium. And so far, we have picked 2 copper rare earth projects. So we don't want to fill a basket with a lot of projects. We want to select a few very carefully chosen projects. And this is what we are doing. The objective of this strategy of this expanded strategy, #1 is to reduce our exposure to only the rare earth prices what I have just explained in the previous slide, that we want to move away from being a rare earth-only company. The second thing is that if we have several projects that also means we will increase the [ userflow ] and that's quite important, obviously, for the share price. By having different projects, we will also increase the value realization options. What I mean by this is that -- for example, the copper market is very mature. You've got many players, you've got many mines in operation. If you have a copper project and you develop it to a certain point, at some point, you can sell it easily. You can do a joint venture with a major, you can develop it. There are many different options, whereas with a rare earth project, you don't have majors doing rare earths because the market is not yet developed. So having more projects in a diversified, diversified portfolio allows us to have more options to realize value from these projects. The last thing that we wanted to diversify our jurisdiction exposure, our country exposure. And because of this, we selected projects which are in jurisdictions, which are highly rated in Africa. Zambia is a very good jurisdiction, especially for copper, obviously. And Botswana is one of the top -- is a top jurisdiction in Africa and one actually of the top jurisdictions in the world. If you look at the Fraser Institute report for 2022, you will see that the top 10 includes jurisdictions in North America, in the U.S. and Canada, in Australia and together with them, you've got Botswana. So very, very good jurisdiction. So again, we are not going randomly into this diversification. We thought about it very carefully. We've decided exactly what we are looking for, and we are implementing it strictly in accordance with our criteria and our objectives. So, since we have gone into copper. Let's look a little bit at the copper market. The top chart shows the recent evolution of the copper prices. I'm sure you're very much aware about the increase of copper prices over the last few months. I believe right now, it must be around $4.3 per pound. Copper is a very interesting material for us. What was interesting with copper was the stability and was also the maturity of the market with many players, many options to sell products and so on. But now we are -- because we positioned ourselves at the right time, we are getting into a commodity, which is entering a bull market which is even better for us. The usage of copper for the Green Energy transaction is expected to double by 2035. So that's already huge in itself. There is no economically available substitutes for copper for the green energy transition applications. And what is happening at the moment, why the price is increasing? It's because over the past 10, 15, 20 years, the pipeline of exploration and developments projects for copper has been completely insufficient to sustain the growing demand. So some analysts are predicting that by 2050 the supply of copper will be 19 million tons per year and the deficit from a demand of 53 million tons per year will be 34 million tons per year, so, 34 million tons per year of deficit. This is absolutely crazy. So the fundamentals for copper are extremely good. And this situation of a shortfall of the production capacity is not going to resolve itself in a short time. So copper is there to stay in a bull market and that is absolutely certain. And we are very happy to have been able to secure good copper projects now because probably in a few months, it will be too late. So let me take you through the Sesana project, which is located in Botswana. It's located in the Kalahari Copper Belt. It's a belt which passes through Namibia and Botswana. It's not the same one as the Central Africa copper belt in [ DRC ] and in Zambia. And the Kalahari Copper Belt is an emerging copper province of Africa. This area of Africa has got a sound cover. They are called the Kalahari Sans. There are several tens of meters thick. And these Kalahari Sans blanket what is [ under only ] if you can't see it from the surface. So this has been an issue for previous explorers. But now with modern exploration methods, geophysics, geochemistry, it is possible to find copper deposit below the sans to put them into production and actually in the Kalahari Copper Belt. Some deposits have already been found like the Khoemacau Zone 5 underground the Khoemacau Zone 5 deposit, which is now being mined underground. And this Khoemacau Zone 5 deposit is located just 25 kilometers from the Sesana project area. So as I said before, this was a low-cost acquisition. We have an earning agreement which takes us to 85%. The total cost over 4 years is a $370,000 1/3 of this paying in cash, 2/3 in shares. And the initial commitment on the first phase in terms of cash is just $10,000. So very low cost. And we are really very happy to have been able to secure this project because the Kalahari copper belt is very hot right now and there is very little ground left. I think if we had come 3 months later, we would not have been successful. We are able to rapidly secure this project. The little photo of the road with the sign post for the Boseto plant and the Khoemacau Zone 5 underground mine. I took it last week, when I was on site. And so to get to the site, I have to drive just past the Boseto plant and the Khoemacau underground mine. In the Kalahari Copper Belt, the controls of copper and silver mineralization because all these deposits also have copper -- sorry, also have silver, 10 to 30 grams per [ copper. ] The [ contours ] are very well understood. Mineralization is found as the contact between two geological formations, the Deca formation and the [ guaco pan formation ] these two formations have got different characteristics. Deca is made of reduced sales tons and [ guaco pan ] of [ oxidized sand stones]. So because of this contact, when hydrothermal solutions are passing through the sand storms, they are leaching copper and other minerals. And then when they get to the reduced environment, they precipitate sulfide the compare deposits, there are sulfide deposits. One thing which is very, very interesting is that there were airborne geophysical surveys that we have flown during the 1990s and the early 2000s. And so there is a very nice aeromagnetic map of the whole area, and it is possible to precisely identify the geological formations. Hence, the contract between the Deca and [ Guaco ] formation, and it's possible to see exactly where it's passing on the surface. So this is very, very useful and that was an important criteria for us to choose the Sesana project. You can look at the map on the right-hand side, the red outline is the license outline. And what you can see in blue is the trace of the contact between the two formations based on the [indiscernible] geophysics. If you look at the top left corner, you can see actually on the satellite image, the Khoemacau underground mine with the 3 box cuts for the inclined shaft and [indiscernible]. You can see that there is also another small deposit called Northeast [ Muambe ], which is a long strike. And this is on this blue line, which represents the contact between the two formation. And the contact is repeated because there is a lot of folding in the Kalahari copper belt. So the contact passes then a little bit towards the south into Arc Minerals license into the zone line deposits, which you can see again is just next to this blue line. And you can see the contact, the blue line passing through the northern part of our license or the Sesana licencse. We've got about 13 kilometers long of contact passing through our license. So we already know we are at the right spot. And what we are going to do now is geophysics and so geochemistry using specific methods that are suitable for the genetical context with the sand [indiscernible] up to define drilling targets. And hopefully, my objective is to start drilling by the end of this year. So potentially very, very exciting news by the end of this year. Let's go to Zambia. So the carbon post office project is located in Northwestern Zambia. It's located just next to a smaller copper occurrence known as [ camoge along ] strike and it's locating about 60 kilometers of west of the [indiscernible] copper mine, which has a resource of 22 million tonnes at 1.6% copper and you can see the context is a little bit the same as in Botswana. You have this contact zone, which passes between Sunstones and [ freestones ], with the same potential immunology -- in sorry, mineralization controls. So you can see these blue lines are passing through the license very clearly, especially in the northeast corner of the license. So this license used to be held by Freeport-McMoRan. And then Freeport-McMoran had some very large mining operations in Zambia at some point, they decided to divest out of Zambia. So they were not going to keep a team just for a few exploration license. However, interesting they were. They just exited the whole country, the left is license not because it didn't have any merits just because they have [indiscernible] strategic decision. So we've got some data coming with this license. It has been partly covered by a ground [ magnetometers ], which shows some very interesting anomalies and also some regulations on each sampling, which is not shown on the map, but it shows also an anomaly in the northeast corner, just where that contact is passing. So very, very interesting ground with data. And the next steps for Carbon [indiscernible] are going to be very simple. We are going to already process the [ MAG ] data. to extract as much information as possible. And very simply, we are going to do infill [indiscernible] sampling to define much better these anomalies to senior ships and again, to define drilling targets. So I think I've covered everything to recap a little bit what is going to happen in 2024 and to give you a hint of what is going to happen into in terms of [ news flow ]. For Monte Muambe, the metallurgical results will come out I'm hoping that they will come out the first coming batches, some might come by the end of this month, the rest will come next month. So the metallurgy results is very, very important because it can change completely the economics of the project and that will also kind of isolate a little bit the project from the issues of rare earth prices going up and down at the moment. The mining concession also very important to the risk and the quest for a strategic investor, which is advancing already. For the Sesana copper project, that is going to be our priority in terms of field work. The completion of the transaction is expected to take place within a month or so. once we finish formalizing everything and sign the final agreement. The geophysics and geochemistry will follow immediately and that we generate some news also, but even more exciting, more important, the start of drilling by the end of this year and obviously a possible discovery. Carbon base, same thing. We need to complete the transaction. And then as I said, we will get into geophysics and geochemistry. But for now, we are going to focus on our resources, mostly on the Sesana project in Botswana. So I think I've covered everything. Thank you for listening. Jake, over back to you.

Ladies and gentlemen, please do continue to submit your questions just by using the Q&A tab that situated on the right-hand core of your screen. But just while the company takes a few moments to review those questions that were submitted already, I would like to remind you that a recording of this presentation along with a copy of the slides and the published Q&A can be accessed via your invested dashboard Cedric, we obviously received a number of pre-submitted questions ahead of today's event. And as you can see there in the Q&A tab, we've also received a number of questions throughout your presentation this afternoon as well. So firstly, thank you to all of those on the call for taking the time to submit their questions et cetera, if I may now just hand over to you just to read out those questions and give your responses where it's appropriate to do so. And I'll pick up from you at the end.

Thank you, Jake. All right. So the first pre-submitted question is, do you see the Monte Muambe project possibly becoming similar in size to [indiscernible] The reserve statements for [indiscernible], I believe, is about 30 million tons -- right now, our resource statement is at 13.6 million tons. We want to grow a little bit this resource base ideally during the prefeasibility study to level between 20 million and 30 million tons. So we might not be just as big as [indiscernible], but we will be very close. And what is important for me is not to try to break records in terms of size. I've already said that before. And what is important is to have a project that is viable and that brings value to our shareholders. The second pre-submitted question is, in a recent interview, you mentioned that you have been in discussions with the U.S. government about Monte Muambe but they said they would look to get involved at the DFS stage. Do you see the U.S. government helping to from the DFS. It's probably a little bit early to tell and to guarantee this, but I've seen a lot of interest, really, we've met with three different agencies, and it's not only the U.S. government that is interested. So yes, I would see the U.S. government positioning itself once we've completed the prefeasibility study. But that's my opinion. Next question, are there any other governments looking to invest in project in Mozambique, such as the U.K. to provide salt and chemical park with rare earth? Right? So as I just said, there are other governments that are interested. But we've talked mostly with the U.S. government so far to be frank. We have not talked with the U.K. government about providing products for the salt and chemical park. One of the things you have to see is that one of the outputs of the metallurgy. I've talked a lot about the process and the cost structure and also a potential additional revenue from the first [ power line product ] but another output of the metallurgy is that it gives you some pulse of product. And when you have the samples of -- when you have these product samples and when you have the chemical characteristics and physical characteristics, that's when you can start to have really meaningful conversations with offtakers and with refinery projects. So we expect that this sort of conversation would not happen now. It would happen a little bit later once we have a better idea of the specifications of the product. The next question is with the completion of the scoping study and the positive outcome is revealed what specific strategies are at your disposal to further enhance the economic potential of the project. So I've talked a lot about the metallurgy. That's kind of the no-brainer the most important driver in terms of cost. But there are other drivers, of course, in the framework of the PFS, We will look at all the parameter, the mining parameters, we will look at the processing, the environmental parameters, the power supply is very important. We are very conscious that our products are going to be used for the green energy transition. So our products will need to be a net zero as possible. So it's not just a question of finances, but it's also a question of carbon at the end of the day. And one other thing that I want to look at very closely in terms of further enhancing the economic potential of the project is looking at doing a third step of processing of metallurgical processing on site. If you remember at the beginning of the presentation, I spoke about #1 beneficiation, which includes flotation #2, hydrometallurgy, we would like to do #3 part separation of partial separation of neodymium-praseodymium oxide that would add a lot of value for the country that would add also a long-term value for our investors. The next question how are you prioritizing capital allocation, particularly in light of the macroeconomic environment? So yes, the macroeconomic environment is very difficult to navigate. What we are doing at the moment is that we are very careful with our resources, we are also looking at reducing costs even at the corporate level, very carefully. So these resources that we have, we want to use them in the best possible way. I've explained that there are two priority actions that we need to keep continuing with Monte Muambe to increase the likelihood of us securing a strategic investor. That's a metallurgy and the mining concession but apart from that, we are not spending anything on Monte Muambe. And as I explained, our focus is going to be to get value out of the Sesame project in Botswana as fast as possible and possibly to drill by the end of this year. So the answer to your question is that there will be a lot of focus on Sesana, it will be given a very high priority. The last question I have on my screen, what type of strategic partners are you seeking for the projects, miners, traders OEMS. So basically, we are looking at all these options. We are very open. But what we want is that someone who understands the rare earth market, someone who needs the product even if there are some other steps of along the value chain in between. So it could be also OEMs and we want someone who is going to support the project on the long term, obviously, and to have interest in seeing the project get into production. All right.

Cedric, if I may just jump back in the thank you very much indeed for being so tons at your time and addressing all of those questions that came in from investors. And of course, if there are any further questions that do come through, we'll make these available to you immediately after the presentation has ended, just view to review to then add any additional responses, of course, where it's appropriate to do so, and we'll publish all those responses on the investor meet company platform. But Cedric, perhaps before really just looking to redirect those on the core to provide you with their feedback, which I know is particularly important to yourself and the company. If I could please just ask you for a few closing comments to wrap up with, that would be great.

Yes. Well, thank you again for listening, and thanks for your help, Jake. So the message I would like to pass to our investors is that, as you've seen, Altona is evolving. We are not evolving randomly just having a new jerk's reaction. We have -- I've been thinking about this change for several months now since last year. And we've been constructing this strategy. We've looked very carefully at what we want to achieve and we are following exactly this strategy we are not diverting and we are going to continue to follow it. So what I want to say is that the strategy and the objectives of the company are very focused. And you've seen this already with the delivery of these two copper projects on which we are going to focus now. So I want to assure you that we are going to follow exactly the strategy.

Perfect. Cedric, that's great. And thank you once again for updating investors today. Could I please ask investors not to close this session as you'll now be automatically redirected for the opportunity to provide your feedback in order at the management team can really better understand your views and expectations. This will only take a few moments to complete, but I'm sure it'll be greatly valued by the company. On behalf of the management team of Altona Rare Earths Plc, we would like to thank you for attending today's presentation. That now concludes today's session. So good evening to you all.

Thank you.