Andromeda Metals Limited (ADN) Earnings Call Transcript & Summary

I'd like to welcome everyone to our investor briefing on the Way Forward for Andromeda, the Great White Mineral Company. I'm Sue-Ann Higgins, Andromeda's new Executive Chair, and with me is Sarah Clarke, our acting CEO. Andromeda recognizes the Kaurna people of the Adelaide Plains and the Wirangu people of South Australia's Air Peninsula as the traditional owners and custodians of the land on which we operate. We pay our respects to elders past and present and recognize their cultural heritage, beliefs and relationship with the land, waterways and sky. We also extend that respect to other First Nations people who are present here today. Between Sarah and myself, we have about 50 years of experience working in the resources sector. For the last 10 years, I've been a consultant to resource companies, managing major transactions, including capital raisings, IPOs, mergers and acquisitions and joint ventures, asset sales and divestments, and acquisitions. Prior to that, I was a member of the executive team of Citadel Resources, where we took the Jabal Sayid project in Saudi Arabia from PFS through to BFS and construction, including raising $450 million in equity and debt funding. Prior to Citadel, I was with Oxiana, working in business development and managing transactions, including assisting treasury with the debt financing for the Prominent Hill project. In addition to transaction management, I have extensive experience in compliance and governance. I joined Andromeda as a Non-Executive Director in February this year. What attracted me to Andromeda was the Great White project. It is a great project. The economics are compelling. But what I found since joining Andromeda is that, not only do we have a great project, but we also have a great team. We have a highly experienced Board and management team who have funded and delivered successful projects. Leading the team is Sarah, who has been working with energy and resources companies for over 18 years. She has extensive transaction management experience, including in equity and debt financing. Sarah is all over every aspect of Andromeda's business. She's a great leader, and she has the respect and support of the Board and all of our employees. Supporting Sarah is Pascal, our CFO. He has 15 years' experience as a mining finance professional in commodity and mining finance. He's had roles at major international finance institutions and is well qualified to manage the funding project -- process for the Great White project. We also have a dedicated project team led by Joe Ranford. Joe and his team have delivered everything that we have asked for them. We've got the DFS, long lead items have been secured. We've got the PEPR approved. We've got contractors and logistics sorted and they're ready to execute Stage 1A. In addition, Joe has been working tirelessly to promote the project with the South Australian government. Joe and his team are also the champions of our products in development, HRM and HPA. These products have the potential to substantially increase the value of our products -- the value to our shareholders from this project. Joe and his team are essential to our expansion of the market for our products, for our product development and the progress of our funding. Their knowledge of our resources, our products and our project is irreplaceable. We also have Miguel Galindo in Europe. Miguel is a chemical engineer with a major in ceramic technology. He's a global expert in industrial minerals with over 20 years' experience at Rio Tinto in ceramic sales and marketing. Miguel is CEO of Galesk Consultancy, and he's President of the Spanish Society of Ceramics and Glass. He is also a champion of our Great White products. And he's been instrumental in developing our relationship with IberoClays. He's managed the validation of our products by the ITC and is continuing to manage our relationships in Europe, introducing our products to potential customers, assisting with testing and demonstrating our products' high quality and value in use. As I said before, what attracted me to Andromeda is the Great White project. It's compelling. We have a long-life, high-quality resource, incredibly strong economics. We have high-grade in-demand premium products. And now we've got our Stage 1A plus binding offtakes finalized. The project has a net present value of $1 billion before tax and $763 million after tax and a 43% IRR. It is compelling. We are in South Australia in a Tier 1 jurisdiction. We own the land. We have the mining leases. We have the team. We have the equipment ordered. We have all our approvals. And now that we've got those binding offtakes to support Stage 1A plus secured, we now have everything in place to fund and deliver this project. In addition, we have products in development, which have the potential to significantly add value to this project. We've also got over 4,000 square kilometers of exploration ground and 170 million tonnes in resources, which means this project may well continue beyond the initial 28 years for generations. We're shovel-ready. Our team is in place. We have a compelling fundable project, and we have the funding process underway now to secure us the debt and equity funding we need for a final investment decision. I'm now going to hand over to Sarah.

Thanks, Sue-Ann, and thanks for that introduction earlier. It's great to be here with you guys today. I'm going to start by talking a little bit about the kaolin market. Kaolin is a very versatile mineral. You can see there it's used in ceramics, paper, fiberglass, rubber and plastics, coatings and other applications such as pharmaceuticals. We are focusing our core products on that ceramics market segment there. That is the largest segment. And the key takeaways for this market is it is a large market. It is a growing market, and there is a supply deficit for that high-quality kaolin. That's being driven by, not only the war in Ukraine, which is constraining supply of the really high-quality kaolins, but also increasing demand. And we are playing to that really a premium ceramics product because where you have a premium product, you can command premium pricing. With our premium product positioning, we want to be the industrial mineral of choice in the global ceramics market. We've had our product independently validated by leading experts, and that shows that we are in the top 3 for the iron alumina ratio of the global kaolin samples we've been tested against. We also have really high brightness that is retained in high temperatures. And again, that is an attribute that is really valued in that high-quality porcelain wear and ceramic tiles market. We have hydro-mechanical strength, which is valuable in that large-format porcelain tile. You can imagine if you've got a large tile, if you get a breakage in it, you're actually wasting a lot. If we can offer something there that gives that mechanical strength to reduce breakages, that is sought after. And then finally, we are looking at that zircon replacement potential in the super-white and ultra-white premium slabs and porcelain tiles. So we think we're really strongly positioned here to offer exceptional value to the end users of our products that our products are used in, like the porcelain tableware, large-format porcelain ceramic tiles and glazes and that super- and ultra-white premium porcelain tile and slabs. That takes us to our target markets. What we've got up here are our 3 ceramic products. The first one is our CRMT. This is a tile product. We have that high alumina to low iron ratio and a really high whiteness that's sought after in the tile manufacture. We then have our porcelain product. This has some slightly different characteristics here that are designed for that porcelain tableware market. And finally, our concentrate product of Great White, KCM90. This is a semi-refined high-quality kaolin. It can either be used directly or it can be used to upgrade inferior kaolins or the end user can further refine it themselves. So you can see here that we will put them into ceramic formulations for tile bodies, and we are looking at that white and super white porcelain tiles. The porcelain slabs, they can be used, for example, to replace tabletops, which is an interesting area that we are looking at, at the moment. We think that it will be a growth market given the crystalline silica manufacturing stone band. So that is an exciting area to watch. And then there's also the high-end porcelain tableware. That takes us to our binding offtakes, which underpins Stage 1A plus. There's been a lot of work that's gone into getting these binding offtakes away. And you can see that as we ramp up from year 1 to year 2 to year 3, we have got the 100,000 tonnes spoken for, for year 3 onwards. Our offtake partners, we have 4. The first one was Plantan Yamada. They are a highly respected multigenerational Japanese ceramics company. That offtake came after years of testing of our product, which confirmed the superior quality. So we're really excited to partner with Plantan Yamada and we actually have some ceramic bowls in the office that they have provided to us made with our product. Foshan Gaoming is our Chinese offtake. We -- they are a Chinese ceramics company. They are located in the Foshan district of China, which is key ceramics hub in China. And they are also involved in the end-to-end, like, machinery and equipment as well. IberoClays, a fantastic company in Spain. They're a leading formulator. So they are going to take our product and blend it with other products to formulate the best thing for, say, a tile body and then sell to end users there. We have been working closely with them as they've been testing and validating our product, and we're really excited to work with Alberto and Jose and the team over there. And finally, Traxys. Traxys is our biggest contract and our most recent. For those of you that don't know, Traxys is a global industrial minerals trader. They have a global reach, and we are really excited to have our products sold through them because of the penetration we can get into the market with those guys. They have also supported us with the expansion of our project. They have agreed to take up to 130,000 tonnes per annum of our product as we move through the stages for increase. So that is particularly exciting as well. All right. So how are we going to get this out of the ground? To put it simply, we dig it, shake it, dry it, bag it and ship it. The mine -- the ore body itself is shallow with a low strip ratio, which is great. Once we get the ore, it's predominantly free dig. So we'll get an excavator in there, dig it up and take it to our ROM stockpiles. There, they'll be graded into the different grades, high, medium and low with a blending process to feed in through our processing plant. It's a very easy way to describe this processing plant. It is a washing, a sand screening and then a separation to size. We will then thicken it. It will go through the filter press into the noodle extruder and it will be dried. Once it's dried, we will truck it to the Bowmans terminal where it will be loaded into lined containers, and then it will be railed out to Port Adelaide out through the Flinders Port Adelaide container terminal there to our customers. Here are the strong economics. Sue-Ann spoke to this earlier. This slide demonstrates that at each stage, each stage is profitable. It has compelling economics, low CapEx hurdles, attractive net present value of $211 million there for Stage 1A plus with an internal rate of return of 26%. That is what we're going out to fund us with at the moment for Stage 1A plus to get the funding. It's a short period, 12 months from when we have a final investment decision to first production for that 55,000 tonnes per annum with 15 months for the 100,000 tonnes per annum when we upgrade to the full Stage 1A plus. When we move to Stage 1B, you can see we will add capacity. And again, it is stand-alone attractive economics. We expect that to be largely funded out of the revenue from Stage 1A plus, but there may need to be some additional funding for that process. But by the time we get to Stage 2, that should be self-funding. So that's particularly exciting there. Our products in development. This slide shows the potential upside for our project. We have some really exciting products in development. The first is our Great White HRM. This is an additive to decarbonize concrete. The concrete and cement industry is a significant contributor to carbon footprint globally. So if we can offer a product that helps that industry decarbonize, we think that will be something that is sought after. So we've done some independent test work there. 1 kilo of the product in standard concrete mixes lowers the required water in cement by around 8%. That produces a direct OpEx saving for the end user. That's shown there, but also we have that 7% reduction in carbon footprint. Not only that, but this product can deliver us a significant uplift to our margins. So that is particularly exciting. We don't need any additional CapEx to produce this product. That can come straight out of our Stage 1A and 1A plus plant. It's certified for use in concrete in Australian standards. And we also have this strategic alliance with the Hallett Group. The Hallett Group are a fantastic group. They have their green transformation project, which I think they're actually a finalist in for the State Government Awards, a premier awards coming up. So we congratulate them. They're a fantastic partner. They are moving on to Stage 2 of the strategic alliance, which is going to involve some lab work to test that product. So we're looking forward to seeing what comes with that. We also have conditional binding offtakes for this product with both Traxys and IberoClays. So that commercialization pathway is really clear on that product. Our second product development is our high-purity alumina. HPA, for those of you that don't know, is a critical mineral. It is on the federal government's critical mineral list. It's used in the manufacturing of LED lighting, synthetic sapphire glass, semiconductors and lithium-ion batteries. So we have a process here that's been designed to overcome several of the inherent problems associated with HPA production, which can make it uneconomic. We have a patent lodged that is pending on this flow sheet, and we have recently recommenced the test work to assess the potential viability of this flow sheet. That has produced some really promising results. We're excited about this. We are now moving it through our commercial -- gated commercialization program, and we are undertaking some further work to test out and optimize that process flow sheet. And in addition to those products that we have in development, we also have a huge amount of regional resources to support future growth. Sue-Ann mentioned it earlier, we're hoping this will be a multigenerational project that we can add to from our other kaolin deposits here. We have a total of 170 million tonnes of resources either in the measured indicated or inferred categories there. We own 100% of all these resources apart from the chairlift, which is under the Eyre Kaolin joint venture, where we own 51%. So that is an exciting potential upside here for future value for the company as well and to feed into our project in the future. So with the signing of Traxys in July, we have all the elements in place to obtain funding and make final investment decision. We'll be funding Stage 1A plus through a combination of debt funding and equity funding, and we're also considering bond funding. All of these processes are being run in parallel. For the debt funding, we've got multiple potential financiers, including government funding bodies, banks, private credit institutions in the data room. For bond funding, we've mandated Pareto Securities to lead the process for accessing global bond markets. And for equity funding, we've appointed Azure Capital to run this process for us. Azure are a leading corporate adviser in the Australian mining sector, and they have extensive experience in industrial minerals market. They have a global reach for access to relevant investors and counterparties, and they've developed and are now engaging with a long list of potential equity funders for the Great White project. This includes private equity groups, high net worth investors, family offices, kaolin industry participants, corporates and many more. And we haven't limited the process to cornerstone equity funding. We're open to proposals on project level funding, royalty streaming and anything else that adds value for our shareholders. So to sum up, we've got a Tier 1 project in a Tier 1 jurisdiction. It has strong economics, a favorable CapEx, low complexity operations and great future upside. We have a significant kaolin market opportunity with a large market with challenged supply and above CPI price growth historically. And we have derisked development. We have a clear development strategy with 3-stage development. We have a validated product strategy, targeting kaolin for premium ceramics. We have our major offtakes finalized, and we have all the key approvals in place to commence development. We are now focused on raising funding, so we can build this project and deliver value to our shareholders. This is the way forward and we are determined to achieve it. Thank you.

We'll now open up to questions. Some of you have provided questions before and some of you are on the live stream. The first question is that a lot of investors have invested a lot of money. When can we expect some positive momentum?

We think we are generating that positive momentum now with that debt and equity funding process, we are pushing that forward, and we just have to run the process now to get that done.

Another question is, if the fundamentals of the project are so strong, why have we not yet received funding?

One of the key reasons there was that we needed to get our binding offtakes in place. And now we have that -- all those binding offtakes, with Traxys being the last one delivered in July, we can really push that process forward.

Can you please explain some of the high salaries and -- with the lack of performance to date and why are you continuing paying these high salaries?

The salaries are appropriate for the skills and experience that our people have. We need these people to not only help us with the due diligence process that we are now running, but also to demonstrate that we can deliver this project. If we don't have a team in place, that would be a problem for the financiers as they're looking at our project and determining what are the risk levels here, can they do what they're going to say they're going to do. In terms of our key achievements, I think we have achieved a lot in the last 12 months. We have got the PEPR, we've got the binding offtakes, we've completed the 2023 DFS, we have completed a bankable feasibility study and had it subject to independent technical review, we've procured the long lead time items, we've secured a strategic alliance with the Hallett Group, we've acquired the land underlying the project. We've earned an interest in the Eyre Kaolin Joint Venture, and we've had a maiden JORC resource that chairlift for that. And we've also divested those noncore assets to really focus in on our key project here.

Next question is, how close are we to getting financing? What sort of commitments on timing can you give? And who's in charge of overseeing that?

As I said before, Pascal is overseeing the financing with the help of Sarah, myself and the Board. We -- financers follow a process and the average process is about 4 to 5 months. We are out there in the equity markets now seeking expressions of interest. And we're not limiting how the -- what type of equity funding we're seeking. We're opening it up to people to propose to us where they want to cornerstone invest, invest in a project, royalty stream or whatever. What else? Yes, I answered the question, I think.

That's answered the question. Next question is, are you looking at things like, for instance, offering a 20% stake in the project to Traxys, for instance, or other options like that?

Yes. We haven't limited our equity funding reach. We're open to all suggestions and all transactions as long as they add value and create value for our shareholders.

There are rumors that ADN will never get funding based on the time you've had a data room open, for instance. Can you please state your level of confidence and how long it will take the funding?

I think we've already done that. We -- the project financial speak -- economics speak for themselves. And yes, we have opened up the data room to fund us previously. But on those previous occasions, the feedback that we had is that we need our offtakes in place. You've got to bear in mind that this product doesn't have a market that you can just sell it into. You need to develop your market first. And funders want to know that if we mine it, we can sell it. So we need to create and find the market, and that's what we've done with the Traxys offtake agreement.

Okay. If there's a shortfall in the expected entitlement offer, what is your plan for ensuring the company can continue is a going concern?

So we will have 3 months to place that shortfall after the closing date of the entitlement offer. So we will have that period, but we will also investigate any other funding options as we need it.

And is the Board currently looking at any redundancies to reduce costs? Or what are you doing in the way of costs?

Look, costs have been a big focus for the company. We are minimizing those discretionary costs where we can and investigating other ways that we can save on costs. At Board level, Mick has agreed not to take any fees until we are funded. We're obviously not paying the separate Managing Director fees at the moment as well, and Sue-Ann has accepted lower fees than what would be payable for an Executive Chair. We did not pay any short-term incentives for FY '24. And where appropriate, we have had some staff agreed to go on a temporary part-time arrangement. Like I mentioned earlier, we've also disposed of our noncore assets. So we've gotten rid of the costs associated with that. And we're also looking at a range of other initiatives as to how we can further reduce our costs. So it's really important to note that our team is one of our most important assets in this process. We need our team in place to be able to demonstrate that we can deliver this project. We need our team in place to answer those due diligence questions that will be coming in about the various technical side of things and how we're going to do things and what we've looked at today. We need that team. So that is an important thing to know.

And we also need the team to help us in our product development. We have offtakes in place, but we need to continue to develop the demand for our product and send trial product over to be tested by new customers because we have a stage development, and we're going to continue to develop and build the customer base for our product.

Funding seems a bit difficult for resource companies, particularly startup mining projects at the moment. What is your level of confidence? And what are you hearing from financers?

We are starting that process. We think that our project is fundable. We -- if you look at the economics and you look at all the things that we've put in place, we think it does represent an attractive investment for a financier, and we just have to run that process now.