Andromeda Metals Limited (ADN) Earnings Call Transcript & Summary

Okay. Good afternoon, everybody, and welcome to this Zoom webinar with Andromeda Metal's Managing Director, James Marsh, who has taken some time away from the Noosa Mining Conference, where he'll be presenting tomorrow. To talk us through some of the highlights from the 2 significant announcements that were reported to the ASX yesterday. James, over to you. And also to those watching, we'll host some questions at the end here as well. So thank you for joining.

Yes. Thank you, Peter, and welcome, everybody, to this webinar. The idea here is just to cover the transaction now with Minotaur that was announced yesterday. So I'll take you through the main points of that, the advantage of that. And then we'll -- as we said, then we'll open to questions afterwards. So I'll just start off quickly by giving you the corporate snapshot, which I shown -- I do show regularly. This was mind you a day late, so there's been a bit of a shift there in the share price on this chart. But we are in about the same position. This is what we look like. I think this is a great opportunity just to thank the efforts of the Andromeda team that is behind this transaction that we've just conducted or is in process now. It's taken a solid 8 months of serious effort from all parties involved. So a massive effort, and it's great to achieve that. Special thanks to 2 people who don't actually -- you don't see what they do, they're behind the scenes, Andrew Shearer and Rhod Grivas, our Chairman. They've done a massive amount of work here, but it's not really very visible. And just to make sure that you know that without those 2 individuals, this company actually wouldn't be where it is now because they started this company, got off the ground and brought me in. So yes, thanks for the whole team, and especially those 2. And it's been a very good team effort all around. So this is the actual transaction summary. So this is the crux of the matter that we've just actually announced yesterday. So we are going to combine with Minotaur, who you probably know is our joint venture partners to create a leading industrial minerals and technology company. And as I mentioned before, this has taken a solid 8 months of negotiation to get this point. And we went with the mechanism of a friendly takeover here. And you'll see that the ownership -- pro forma ownership here is very important. Our aim was to acquire 25% of the joint venture. We are effectively doing that, but it's only costing us 19.5%. So we will acquire Minotaur. And this is unanimously recommended off-market scrip, all-scrip takeover. So this will put us in a position of being a leading Australian kaolin and halloysite-kaolin producer and technology company by combining the 100% of the Great White and also 100% of Natural Nanotech which is the downstream IP part of what we're doing. So this is important this is an accretive transaction. That's very important. That means that Andromeda shareholders are benefiting from this significantly, by the increase in the equity interest in Great White and also in Natural Nanotech. So of the offer at the moment stands as we are offering 1.15 Andromeda share for every 1 share of Minotaur. That will mean that the Minotaur shareholders will end up holding about 19.5% of the new enlarged company or new enlarged Andromeda. So Minotaur shareholders will retain exposure to the Great White. That's important. They still have exposure plus exposure to Natural Nanotech. So they will benefit from that. But they also receive shares in the spin co, spin company, which is Breakaway Resources, and that will be Minotaur's existing copper and gold assets. So this is quite a detailed transaction, and there's quite a lot to it. That will -- all those details will become public very soon. And that will be coming public towards the end of the month when the bidder's statement comes out, so not too long to wait. And you just see there on the right-hand side of the pie chart gives you a representation of the whole pie there. 100% -- Natural Nanotech 100%. And it ends up the new ownership of the new company will be about -- should be eventually about market cap of about $550 million, and we'll have about $40 million, just have $40 million in the bank. So in a very healthy strong position. So that's the mechanism. And this is the real benefits, the key benefits for all shareholders involved. As I mentioned before, this is an accretive transaction. It's -- the shareholders -- Andromeda's shareholders will get the benefit of the actual 25% and also the 100% of Natural Nanotech. And also, it's going to expose the shareholders -- Minotaur shareholders to an attractive premium here along with that continued exposure. So looking at the benefits of the consolidation. So very importantly for us, we wanted to simplify the whole structure, the process, the management and what we're doing with our definitive feasibility study, or DFS, the financing and the construction. So one of the main objectives here was to do that, just to simplify, I think and streamline everything. So this gives us a great opportunity now to move quickly and agilely through the process with no unusual constraints that we had before. It enhances our chance of getting project finance, which is very important. That is our debt financing. Now we're working very hard to make sure we don't have to raise any more money in this process of developing the Great White. And by streamlining this, the structure of the company, that means that we have much better opportunities at obtaining that bank finance and avoiding any more raises. So this is a very important long term for us and also increases our scale. So the Andromeda company consolidated means we are bigger scale, much more market relevance, and we have very good liquidity and trading. So it makes the company a very attractive proposition all around. Financial strength. So this is an all-scrip acquisition, so no cash involved. That means we preserve our strong balance sheet, which is as of 30th of September, it was $46 million. So in a strong position there. This means that we are now very well positioned to move as quickly as possible through to production and operations in the Great White. And it also allows us to put some effort into these new high-value applications we're working on, which are progressing very well. I'll be talking a lot more about these tomorrow in my presentation at the Noosa Conference. It includes the concrete high-purity alumina project and also cosmetics application, which is also moving along very quickly. So at the bottom there, we've just put the other highlight there. It provides an enhanced investment proposition for existing and any new shareholders because we have the potential now for a market rerating. And once this is all completed, there will be no share price consolidation afterwards. I think once people will realize that what we're getting here 25% of the project. If you equate that through to 25% of revenue, EBITDA going forward over 20, 30 years, possibly $50 million a year. That's a huge amount of money and a huge upside to this deal. So certainly a lot of positives here, and it's not a short-term hit on the share price. We see this as a real strong move for long-term investors, long-term prospects of the company, greatly enhanced by this acquisition. Thank you for that and happy to take any questions.

Thanks, James, and there are quite a few coming through, and we won't be able to answer all of them. Some of you've already covered, but I encourage people to send questions through to us, and we can get to them in time. But we'll start with the deal. One of the common questions is, why did Andromeda feel the need to acquire Minotaur now at this price? And couldn't you just have acquired 25%,did you know Great White and the Natural Nanotech joint venture on their own?

Well, good question. We could have done that, and that was certainly one thing we looked at. So these 8 months of negotiations and deliberations have covered all different aspects of how we could get this transaction done. But if we -- if that approach was taken, there are some very significant capital gains implications and tax implications apart from the other legalities of doing that. So when we looked at those possible mechanisms and using different ways of acquiring it, this was by far the best for shareholders involved because these significant sums of money would have had to come from some way. And ultimately, shareholders would have paid the price. So this was decided to be the best mechanism to use for that reason. The question about timing there, well, the timing now is actually very good for us because now we are moving very quickly towards our mining lease approval and the DFS, our definitive feasibility study. That was due out very soon now, but due to the fact that we are in the midst of this takeover, it means that we cannot actually release that at this moment in time. Now we would like to have released it, but this transaction has got some legal implications, which means we can't do that till it's actually concluded. So that should now be January. But the timing is very good for that reason. We can now move through the process and also into the debt financing stage, which comes out of our bankable feasibility study and then into operations very cleanly and very quickly without any complications.

It gives you a lot more ease of planning and operations across Nanotech and Great White decision-making and all that sort of process going through different layers?

Yes, it cleans the whole thing up. So Natural Nanotech is very important. That was -- getting 100% of that was -- that was something that we really work hard towards, and we want it because having a joint venture with a 75-25 joint venture that was supplying -- potentially supplying material into a 50-50 joint venture was a very, very complicated arrangement structure and it made -- it would have been a bit of a nightmare trying to get that going. But now we have the opportunity to supply 100% of own company material into 100% owned company innovations and IP. So this now will really allow us to accelerate commercialization of that really exciting intellectual property we've got there that's -- they've got the carbon capture and the hydrogen opportunity and the water purification all those things can now be moved forward quickly without that complication.

James, the general question that comes through is some Andromeda shareholders feel the company paid too much to Minotaur. What was the justification for the valuation? You've explained some of that already, but maybe just to give those shareholders with that concern a definitive.

Yes. So it was -- this is something that we have worked on for very long to the process where we've been looking at all the different permutations and combinations and the value that had to be attributed to this from both sides of the equation. And the key here was it had to be attractive -- it needs to be attractive to Minotaur's shareholders because we need their vote to get this across the line. So there needs to be some upside for them. And the premium for them, we felt was about right. Because when you look at the -- as I mentioned before, when you look at the pie there, the 25% of pie is coming to us of the joint venture, but this is actually only costing us 19.5%. So there's an upside there. If you look through to the market cap equivalent valuation there, it's somewhere around about $20 million to $30 million extra market cap that would add to Andromeda once this deal is complete. So there's an upside to both parties, both shareholder groups here, but there certainly has been incentive for Minotaur shareholders to vote this over the line because it's going to go to a shareholder vote probably early next year.

And on -- based on that, I believe the directors then fully unanimously voted in favor, the Minotaur directors and some of the larger shareholders. Can you comment on when you think that might be concluded?

Yes. Look, hard to say that. Now we've got -- we canvassed some of the major shareholders there. I mean the directors -- by having a friendly takeover with the directors fully backing it, that's a great start. That should give any Minotaur shareholders reassurance that this is a good deal for them, and they should actually vote in favor of it. Now we -- the ASX isn't too keen on speaking to too many shareholders before the deal was done. So it has to be done in confidence, so you can't speak to too many. But ones we've talked to, they've certainly reacted very positively here. So the chances are that we have to get to 50% to get to control, but then 90% for unconditional. So I think the 50% will be reached very quickly, but then 90%, it might take a bit of work because they've got some -- over 1,000 shareholders and a lot of those may not even know this is going on.

Thanks, James. That's a good segue into the questions around the DFS delay, which was the other big announcement. Can you provide some more clarity around the reasons for the delay, some of the inputs that have had to change and is the Minotaur acquisition time of that delay?

It is. So the delay really is because we're not allowed to release this DFS during a takeover process because that is a material change in the information that's been used to get this agreement in place. So this agreement has been based on the PFS, the pre-feasibility study and because that's all that's public at the moment. So once this has been agreed and in process, we can't go and then put out a DFS that maybe -- that will be materially different. I think that the market understands that the PFS was a different concept. We were looking at sending ore over to China, which we would refine in a toll processing activity over there, and then we will sell our material after paying a fee to have that done. So since then, we've decided we want to build our own plant at site. We put an announcement out in June that outlined our plans there. So we're looking at building our own plants. But we are also looking very closely at direct shipping ore. Because as I mentioned here before, we want to minimize any effects on the share -- number of shares out there, and we don't want to do another raise if at all possible. So we've got a very -- I suppose, a very clear opportunity here for direct shipping ore, which is looking more and more attractive by the day because there's been a change in the market where previously the sand that was a waste material was a cost and had to be disposed off has now become something that can be sold. So now it means that the price for the DSO has gone up to where it's very attractive for us. So we can see an opportunity here for some early cash flow. So the DFS now is really focused on, okay, DSO looks like it's a very good option for us. So how much do we do per year? And how long do you see that going? How much money do we need to cash flow the need to build up a war chest along with the bank funding that we have to get approximately 65% indicated? And how long was -- is that need to be done before we can possibly move through without another raise? So as all of those things are being worked out at the moment. And as I said before, we can't make those public while we're in this process of the takeover because that is a material change to what the status that was agreed for this acquisition. So it's coming. And as soon as we complete this transaction, then we're looking forward to getting the DFS out there because it's going to be some very interesting numbers there. And if we do the job, we think we can do a very good job there, then we'll make sure that we minimize impact to the current shareholders and maximize value.

James, does the delay in the DFS make any difference to the commencement of construction on site?

No, that's not a factor. The DFS will lead to a BFS, a bankable feasibly study, which that all can be done early next year. So that's not going to change the time line to the projects. The only thing that will change the time line is just waiting for the government to get the mining lease approvals through. So that process is taking longer than we would have hoped. We've done everything exactly right and everything on time, but it's taking longer than we would hope. And it's not due to any problems. There's no problem at all. This is a very simple, easy mining project. So no red flags, no issue there. It's just the government process that is dragging on, but we've been promised the mining lease by the end of the year. So it's not long to wait now. As soon as that's granted, then we have to complete our EPAP, which is coal, which is our environmental plan or otherwise known as a mining plan. That mining plan typically takes 6 months. But as soon as that's complete, then we can break ground and start moving. Now we've done a lot of work already on -- for that in preparation. So ever since we put our mining lease application in, which is back in February this year, we started working on the -- on our EPAP, our environmental plan. So we've done a lot of background work there and we got a regular team behind that. So we'll move that through as quickly as possible. But again, it's a government process. So is something that we can't guarantee. It will be done quickly, but it should take 6 months. So we're looking at mid next year. As soon as we get that, we'll be breaking ground. And then if we move into the DSO production scenario, then we could get into cash flow pretty quickly.

That summarizes a lot of the questions we've had here about expectation for breaking ground and the mining approval being given. So thanks for answering that. There are a lot of questions coming through. If we don't get all of them, some of them are quite detailed, please send them through, and we'll see if we can arrange an answer back to you. I think the direct shipping ore was a nice and well received input on the announcement, James, and you come there, too. There's been a number of questions on that one. One of the main areas of shareholders' question focuses around the concrete product, the market and its progress through the trials. Can you give us some update on that particular product?

Yes, certainly, this is sort of subject to mine, I suppose, and it's something that people are very keen on hearing about. But we haven't put a lot of news out recently. That's because we finished our testing. We got some excellent results and we could actually sell this material tomorrow. If we could produce it, we'd have people buying it tomorrow. So no problems with that. But what we need to do now is we need to get a JORC resource of that particular mineral. It's got certain properties that we weren't looking for in our original work. Now original work was looking at ceramic properties and paint properties. So the concrete requirements are a bit different. So we just have to go back and revisit the samples and the drill hole samples to work out how much of that material we have so we can put a JORC resource on it. So -- the only thing they're waiting for now is the JORC resource or that material. So once we've got that, it's exceptionally easy material to make. It just needs a sand screening out. And then you have a product that's fit for market and can sell for a lot more than the other 2 products we'll sell for. And as I said there, we've got customers who are ready to go. So commercially, it's all good. Technically, it's all good. We know we've got material. We just don't know how much material. And being an ASX listed company, then we have to comply to JORC. So we're not a company that goes out and makes announcements without having any backing for it. So we wait to get that resource and maybe reserve on that material. And then once we reach that point, it can go straight into our DFS standard. So in summary, it's a great material. It's working beautifully. Not just in concrete -- since then, we're looking at all sorts of applications that we're also working. So concrete would just be type iceberg here. It looks like it's got some great activity and some great performance in a whole range of different applications. So that one's just watch this space. And as soon as we get that resource out, we'll let you know.