Andromeda Metals Limited (ADN) Earnings Call Transcript & Summary

Good morning, everybody, and thanks for joining us here today. We have a webinar here to provide an update to the ASX announcement by Andromeda Metals on Friday, and the market update today presented by Andromeda's Managing Director, James Marsh. Following James' update, I'll be conducting a Q&A session with questions that have been sent through from shareholders. If you have a question that is not addressed by James either in the update or during the Q&A session today, then please send it through by e-mail to ir@andromet.com.au. I'll now invite James to speak. Thank you, James.

Thank you, Peter. Hello, everyone, and good morning. My name is James Marsh. I'm the Managing Director for Andromeda. As a near-term producer of the kaolin industrial mineral, I wanted to provide shareholders an update of how we continue progressing our flagship, Great White Kaolin Project and all the other activities that seek to leverage the potential of this world-class resource. Development of project represents a significant long-term opportunity for Andromeda. This is a multi-generation opportunity and you, our shareholders, also for the [ financial ] community and for the Australian -- South Australian economy. Since identifying the global significant and high-quality halloysite kaolin deposit, the company has continued to execute on its strategy of progressing development. We've been doing this through expanding our knowledge, understanding of the resource itself; identifying markets and customer opportunities for selling products, by developing customer relationships that lead to binding offtake agreements; researching and assessing the market for new high-value products and applications; gaining the relevant approvals to develop and undertake mining operations; and also undertaking proprietary works in advance of anticipated approvals being granted. At every stage of the process, Andromeda's Board and management have sought to methodically and progressively derisk the project's development whilst also evaluating different funding arrangements that best suit the long-term interest of the company and its shareholders. In executing our strategy of progressively derisking the project, the company has achieved a number of significant milestones since we raised capital during 2021. These milestones include: having gained approval of the mining lease and miscellaneous purpose leases for all the relevant land underpinning the great white deposit, that was December 2021. We completed our definitive feasibility study or DFS, I'll refer to, and providing an updated ore reserve of 15.1 million tonnes in April 2022. We added to our global number of committed sales with a further 2 binding offtake agreements, that was in July and August of this year. We signed the land access acquisition agreements for the relevant land, all the land required, which underpin the project, and that was only announced earlier this month. We launched a program for Environmental Protection and Rehabilitation, otherwise known as a PEPR, that was also done during August. And then we triggered the procurement process for long lead items that was announced only last Friday. And finally, we continue proprietary activities in advance of our PEPR approval. So just want to make it very clear here that the intention of Andromeda's Board and management is to deliver the project as outlined in the DFS. Since publishing the DFS, and in light of the changed conditions though, through the impacts of COVID and other geopolitical developments, the Board has sought to further derisk this project. Now marketing activities are a critical function of any industrial [ winners ] project and especially our kaolin projects, and access to some key target markets that we are looking at such as China and Japan, to name but a few, remain very restrictive. In addition to that, the risk environment of the world has been elevated compared to when the DFS was completed. The changed geopolitical economic environment has resulted in labor shortages, supply chain disruptions, rises in the rate of inflation, cost and capital. So in view of all that, accordingly, a refinement of the staged scalable approach to developing the Great White Kaolin Project was deemed more prudent to match the offtakes more closely with -- and reduced capital intensity. So whilst demand remains solid for the products, the time frames for completing negotiations with customers have been extended, which in ordinary times, are actually already very lengthy due to the exacting process and product specifications and extensive sampling and testing requirements. So whilst China remains the largest market for us, anything to note that the rest of Asia is actually a greater share of the global demand for our products. So the company sought to increase geographic diversity of its discussion with customers and, therefore, leading to offtake agreements. So shareholders would have noticed that recent offtakes were for customers covering alternative markets to China, which include Japan, Vietnam, Hong Kong, Malaysia and others. In addition to ongoing negotiations for these binding offtake agreements with several parties, and in anticipation of the approval of our PEPR, the company has progressed the design, development and planning for commencement of mining activities. This will provide the ability to ramp up production volumes to match the offtake profile, with the goal of achieving the levels and time frames clearly outlined in the DFS for The Great White Kaolin Project, which was released in April. But very importantly, it's whilst also minimizing risk and early-stage capital intensity. So this staged, scalable approach, has resulted in optimizing the planning for mining operations and the supporting facilities through the building of what we called a starter plant, the design of which and planning for which is now complete. And it very importantly also, it incorporates the ability to quickly ramp up processing capacity, in line with additional commitments and customer demand. So the starter plant represents the beginning of a stage approach to getting and developing to The Great White Kaolin Project that will deliver on the production and the financial outcomes of the DFS. The stage approach is really to derisk the development of the project, whilst building the Great White brand, reputation and value in the market. After revising and rescheduling the mine plan and redesigning the mine closure plan, our updated environmental modeling showed that the starter plant was able to reduce the initial capital required. It will get us into production, without compromising the overall designs and details that we published in the DFS. So when fully operational, the starter plant is planned to process at a nominal rate of 100,000 tonnes a year of feed ore with a nameplate capacity of approximately 50,000 tonnes a year of final product to fit for all customer demand. The plant is designed to produce our products, KCM 90 and also Great White HRM. But it has built-in scalability and optionality to provide the feedstock to meet the need for other products and customers' demands. The ramp-up in production from the initial 100,000 tonnes a year of feed ore is expected to increase in line with offtakes in the processing capacity of 300,000 tonnes a year, which is -- was outlined in Stage 1 of DFS. Now securing good quality binding offtake agreements for kaolin projects is a lengthy and complicated process. This has been made far more difficult, without face-to-face meetings possible and also with technical centers throughout Asia being closed for lengthy periods and even was 2 years during lockdowns. Now the customer approval process also requires laboratory, pilot scale, full-scale commercial trials and then followed by downstream customer approvals. And that's all before negotiation of the offtakes can actually start. So completion of the approvals also requires large amounts of high-quality representative product, along with intimate customer product and process requirements and knowledge of those. And all those spent considerable time and effort on these activities, and over the last 4 years, we've been doing that around the world, and that includes 4 full-scale plant trials in 4 countries. And the offtake agreements themselves can be very complex things to negotiate. They're usually well over 30 pages of clauses, and they have to be translated and translated again and reviewed by multiple parties, including lawyers, legal representatives on both sides. So very challenging. But despite that, we have 4 binding offtakes in place and a number of others under negotiation. So until we achieve the critical milestones that I just detailed, the Board considered that ordering of long lead items would be premature and would expose shareholders to unacceptable risk. But as these milestones have now been achieved, the Board has determined that it's appropriate time to order these long lead items, which was announced last Friday. The procurement process for long lead items is anticipated to take approximately 6 to 12 months, depending on which items we're talking about, and includes finalizing tender documents, placing orders for selected manufacturers and delivery to site. So during this time, on-site proprietary works will be undertaken in advance of expected arrival of the long lead items. So once the approval of the PEPR's received, there are numerous activities that will run in parallel to complete the construction as efficiently as possible. Important to emphasize they're running in parallel. So significant plant components will be fabricated off-site, in advance, to reduce construction times. And once those components long lead items arrive, they can be swung into place. So pending approval of the PEPR, commissioning of the starter plant is expected sometime late 2023, that's commissioning phase. So that concludes my formal update. I'll now turn it back to Peter. And Peter, please, can you stand through ask any questions that we've got from shareholders?

Thanks, James. Yes, there are many questions that have come through, and we hopefully will have answered some of them during your preamble and we'll summarize some of them in these questions. As I said, please feel free to send your individual questions through to ir@andromet.com.au. So the first question that we have here, James, is that, "Some shareholders feel for Friday's announcement meant you were no longer committed to the DFS. But it indicated delay in the stated time line for the first of the 4 phases of production. Can you give some confidence around the DFS timing and volumes detailed in the DFS."

Yes. Thanks, Peter. Yes, I can confirm that I've had hundreds of messages since Friday. I apologize, I can't answer people's messages independently. I literally have hundreds coming through every day. But the aim of this is to address this -- your questions now. And thanks for that question, Peter, which gives me a chance to cover some more aspects of that. And as stated in the preamble, the procurement process does run concurrently with many other ongoing activities, which are all part of the project development. So a key to this was we needed the PEPR submission to trigger plant procurement and all the other activities that go along with that. That will give us the chance for most efficient delivery of development milestones. There are many moving parts and priorities considered in this. We have civil works, site works, project staff, road, transport solutions and lots of other matters, all of which are being progressed alongside with this procurement process. So the company still does intend to deliver on the DFS. So I can't stress that enough. We are still -- our goal is to deliver exactly on that DFS. The starter plant represents initial start to the money operations, and it gives us the ability to ramp up production, matching the profile of our offtakes. But as I said before, it also does that whilst minimizing the risk and upfront capital intensity of the project. The Board feels that this is really the most prudent approach and it should be considered as a refinement of the DFS. So what we're doing is refining DFS rather than any substantial departure from it. So what we've done is we've effectively reduced the upfront capital requirements by optimizing the initial volume through the starter plant so that aligns with our customer needs and it grows with our customer needs. The offtakes will be -- that we have -- they're coming through, they double year-on-year. So there's a very significant growth there, and we want the plant to match that growth. So whilst initial capital, product volume output has been reduced, we still intend to deliver on those final volumes that you saw in the DFS, and that will remain to be our goal. Thanks, Peter.

Okay. Thanks, James. Next question is on whether you can give an update on the expected timing for the approval of the PEPR.

Yes. So the PEPR process, this is a very complex process. In the end, we are estimating about 6 months. It took us 7.5 months to complete. But there were -- the reasons for that were revisions to the project size, ramp-up. And ultimately, we managed to save ourselves around about $3 million. In fact, well over $3 million by doing that. We've had to sign over the environmental bond, which is that very large amount. We managed to restructure that so we save that money. So we demonstrated really is a priority to apply funds as efficiently as possible here. And it's important to note that the development time for our PEPR is actually -- was far better than most prior submissions of PEPRs for the South Australian government. As for the approval process, that matter is outside of our control. That is now up to the South Australian Department for Energy and Mining. But we do continue to have a very good working relationship with that department. And we plan to start ground-engaging activities as soon as that approval is received, and we are preparing for that to happen.

Thank you, James. Now this question is a pretty frequent one. "Can you provide an update on the carbon capture plant?"

Yes, you're right, Peter. That's a very topical subject. And it's also one that is very exciting for us all in Andromeda. But as we've previously disclosed, the carbon capture plant has arrived in Australia, and it is located in Newcastle at the moment. And the status is, it's just awaiting certification of its components and assembly. Once it's been assembled, there will be some more testing required and certification, and we really look forward to be able to update the market on the progress of that, and we will do that as soon as we possibly can.

All right. Now some of the big ticket items. "There have been 2 successful binding offtake agreements signed and reported recently, which helped to underpin the project. What can you tell us about the LOI with IMCD for a concrete additive, where that lies and other potential product areas previously flagged, such as the interest for cosmetics additive."