Australian Strategic Materials Ltd (ASM.AX) Earnings Call Transcript & Summary

I'm Ian Gandel, the Chair of Australian Strategic Materials, and it's my pleasure to welcome you to this year's annual general meeting of our company. I'd like to begin by acknowledging the traditional custodians on the land in which we're meeting, and my respects to Elders past and present. I also extend my respect to Aboriginal and Torres Strait Islanders today. I'm joined in Perth by my fellow Board members: Rowena Smith, Kerry Gleeson and with Gavin Smith and Nic Earner joining us remotely from east side. Also in attendance are Annaliese Eames, General Counsel and Joint Company Secretary; Dennis Wilkins, Joint Company Secretary; Steele Bromley, ASM's acting CFO; and Helen Bathurst of auditors of PricewaterhouseCoopers. The formalities of today, we'll follow the common format for AGMs. Voting will be conducted by way of a poll on all items of business. A polling card should have been provided to you upon entering today. If you've lodged your vote by submitting a proxy form prior to the start of this meeting, and you would like your proxy vote to stand, you do not need to take any further action. Completed polling cards will be collected by representatives of the Chair [indiscernible] at the conclusion of the meeting. There will be an opportunity to ask questions on today's business after all resolutions have been brought to the meeting. And I will address any written questions via e-mail from those who are unable to be present in the room today during the question time. All questions will be answered prior to the conduct of the poll. And results will be posted on the ASX announcements platform later today. As a quorum is present, I declare the meeting open. The proxies received for each item of the business are displayed on the set. I declared that as a Chair of the meeting, I will be voting any available open proxies in favor of each resolution. Further, I inform shareholders with the minutes of last year's AGM have been adopted as a correct record of the savings at that meeting. The midst of the previous meeting are valid for spectrum should any shareholders which to do so. Please contact me or Rowena or Annaliese after the meeting. I'll now move on to the business of the meeting. The first item of business is the consideration of the financial [indiscernible] for the year-end of 30th of June 2023, which is now tabled. The auditor [indiscernible] PricewaterhouseCoopers will be available to respond to any questions on the financial statements or on the conduct of the audit during the [indiscernible]. We will now proceed to consider the proposed resolutions on today's agenda. The first resolution is the adoption of the remuneration report. This resolution is set out in the notice of meeting and displayed on screen along with the proxy votes received on this resolution. I put that resolution for the meeting, and we'll move to the second resolution, for which I will hand the Chair to Rowena as it relates to my reelection as director.

Thank you, Ian. As mentioned, resolution 2 relates to the reelection of Mr. Ian Gandel as a director of the company. Would you like to [indiscernible]. So resolution 2, it relates to the reelection of Mr. Ian Gandel as a Director of the company. This resolution is as set out in the notice of meeting, as displayed on the screen along with the proxy votes received on this resolution. And as Ian mentioned, questions will be addressed prior to the conduct of the call. So I now put the resolution to the meeting and hand back the Chair to Ian.

Thanks, Rowena. I now move to resolution 3, which relates to the [indiscernible] on investing of the financial year 2023 performance rights. This resolution is set out in the notice of meeting and as displayed on the screen along with the proxy votes received on this resolution. I now put that resolution to the meeting and then move to the next side of the business, which is a resolution 4 regarding the grant of financial year 2024 short-term incentive performance rights [indiscernible]. This resolution is set out on the notice of meeting as displayed on the screen along with the proxy votes received on this resolution. I now put that resolution to the meeting and move to the next item of the business, which is resolution 5 regarding the grant of financial year 2024 long-term incentive [indiscernible]. This resolution is as set out in the notice of meeting and as displayed on the screen along with the proxy votes received on this resolution. As that covers all of the business for this meeting, I'll now put those resolutions to the meeting and open up the floor for questions. Firstly, to those present in the room, are there questions on the floor on any item of business or the auditors on the financial statements or the conduct of the audit? Thank you. If there are no questions who those present, Dennis, will you see any written questions.

None, Chair.

Thank you very much. So as all the questions have now been answered. We can deduct the poll. As mentioned earlier in the meeting, if you'd like your proxy vote to stand, you do not need to take any further action. If you do not want a proxy vote [indiscernible] if you wish to remain your proxy vote or would like, please complete your polling card and hand it to the advanced [indiscernible] acting as a returning officer as mentioned. So thank you all. I now [indiscernible] the formal part of today's meeting close. And thank you for the participation. The results from the meeting will be released to the ASX later today. I'd now like to invite our MD and CEO, Ms. Rowena Smith, to provide an update on the company's results for the year and an insight into what would you expect for the year came out. At the conclusion of this presentation, there will be an opportunity to ask questions. And I have to apologize first because I actually have to jump on to fly back to Melbourne. So I won't be here throughout Rowena's presentation. I'd like to leave [indiscernible]. So thank you very much, everyone, for coming. Rowena?

So I think we're going to start with a video. Just taking you through some [ highlights ] of the year. So we'll look at that first. [Presentation]

So it is a real pleasure to be able to be presenting today at the Annual General Meeting. I have been presenting the ASM story many, many, many times over the last year and particularly over the last 6 weeks. But it's very rare that I actually get the opportunity to speak directly to shareholders. So thank you very much, particularly, who really have traveled through extreme weather to be here today, a very, very hot here in Perth. But also for everybody who's online, it really is a pleasure to [indiscernible] company here with us today. So I do need to -- I think, say when I'm on the slide to move forward -- so we can just move forward into the presentation. That is our disclaimer. You will be able to see that online, should you choose to read the detail of it. I am going to present to you today what I have been presenting, as I have gone through all the various different quarters. So that you get here the story as we're telling it and providing an update on where we're at and what priorities are for us this year. So I appreciate some of this [indiscernible] already. But I wanted to give you the opportunity to hear the story as being similar to investors and partners and governments, as we have been presenting in recent months. So ASM, we're building a global rare earth & critical minerals business to provide the high-tech metals that are needed to solve the challenges of both today and into the future. And in particular to support that clean energy transition. So the next slide just shows what our management team. So one of the things that has changed through the year is the [ micro ] management team. And I just want to call this out because, again, it's rare that I am able to actually introduce them in person. But I have [indiscernible] today and those of you who are observant would realize also. I had one -- a team now that is back to Brisbane [indiscernible] who has joined the [indiscernible]. So I have a Steele Bromley. Steele, who is the acting CFO for us at the moment and also our GM Finance, very [indiscernible]. We have Chris Jordaan, who is our Chief Operations Officer, been with us now since August. And he has been spending a lot of time in Korea and [indiscernible] that we haven't hit and Chris -- we have a Agata Krupa who is our Vice President, Risk and Corporate Services. For those who had went through the annual report, you will see that it's quite a comprehensive report on both our risk work and also our ESG work and all of that work, Aggie works. Thanks, Aggie. We have Annaliese Eames, who is our General Counsel and Joint Co-Sec who again joined us at the beginning of the year. And this is an integral part of the work that we are doing, as we are progressing just government's [indiscernible] what we're doing but the commercial aspects and brings a very deep commercial experience set, who has really been an [indiscernible] working together in those components of work. Thanks, Annaliese. And then we have Peter Finnimore, who is on screen. As I said, Peter is joining us from Brisbane. He is having [indiscernible] traveling in Singapore, Vietnam in the last couple of weeks progressing work in those jurisdictions for us. But Peter is our Vice President, Sales and Marketing and [indiscernible]. So that's the team, and the team is to go forward, is delivering as per our strategy next slide, which is a mine to metal strategies. So as for really working and establishing this alternative supply stream, we have to really think about how we're going to establish the end-to-end supply chain because at the moment [indiscernible] is really established in only 1 jurisdiction and that is China. So what we are working on is establishing that alternative supply chain, and we've made a strategic commitment to our sales delivery from mine through metals and then working partnership with others for the rest of that supply chain. So let's start with our Dubbo Project, which is obviously very advanced, and we will mine separate and refine our products here in Dubbo and for oxide parties for Dubbo, they can either choose to take it as 1 of the highly refined oxides that will produce in Dubbo or they have the option of taking it in further through one of our metals plant. The first of our metal plants, we have already built [indiscernible] in Korea, and we are making a [indiscernible] through that specialist alloy that is the feedstock into the producers of those high-performance permanent magnets that are essential in a number of the clean technologies, the EVs, wind turbines and many others. The obvious challenge is if we have our metals plant in Korea already in production, but Dubbo is still in development in [indiscernible] and it is part of our strategy, in addition to our Dubbo products to supplement our business both in the short term before Dubbo comes online, but also as we go forward to supplement -- to help us grow the business in particular for the metals part. As we go forward, we are seeking third party oxide as supplementary fees. We're working with a number of parties, in a number of jurisdictions at the moment to be able to secure a third-party oxides. And I [indiscernible] as we go through the presentation. So that is our mine and metal strategy. So I think in the next slide, will take us through the first of the key projects, which is the Korean Metals Plant. A little bit of a video here again. Just so you can get a sense of actually what we have got there in Korea because I caught up and get ask, is this a product facility? And no, it's not a product facility and it's a very significant commercial side facility. Yes, we're still doing the ramp-up of that facility. But what you can see there is a very high-quality facility and it's substantial. One of the things that we're very proud of is that we set ourselves a target to be -- target the carbon net zero Scope 1, 2 emissions for the plant from first year of operation. We were able when we released the ASC report just to confirm so [indiscernible] in the annual report that we delivered that for the first year of operations. So we did operate our Scope 1 and 2 emissions at the net zero for carbon in that first year. That was a combination of some of the emissions reduction activities that we have been able to report in the design of the facility as well as an offset project that we had in Korea. So that was pleasing. What we're doing there is in Korea at this point is producing [indiscernible] and ramping up in line with customers. I would know that we had our first metals customers that a Korean metal producer start to take products in September of last year. So we have done regular deliveries to that customer of that [indiscernible] earth metal sites. But we've started -- also this year, we announced that we had our first commitment to sales into the U.S. for alloy -- that specialist alloy that I was talking about before. The first of that is a contract to Noveon Magnetics, who are emerging magnet producer in Texas in the United States. They're entering their commissioning of their facility. They're committed to [indiscernible] of alloy product [indiscernible] the support of commissioning, and we're in conversations with them about longer-term arrangements beyond that. But then more recent than the assets first is our long-term sales arrangements going into U.S. the rare earth. They've committed to taking 60% of their feed over the next 5 years from the Korean Metals Plant. They have commenced their commissioning of their facility next year. And so again, we will be growing with them, as they grow their facility. Third, the process for securing customers for the Korean Metals Plant is a little different when we're working with emerging producers versus when working with established producers. And the 2 things that aren't that many established produces outside of China today. So we are working with a number of the emerging producers in a number of different jurisdictions in the States, obviously, but also parties in Korea and in Europe. And generally speaking, their technical validation processes are less involved than the processes with the establishment produces. So we're also very advanced in discussions and technical validation with the established producers, predominantly from Europe. And that is an important part of our [indiscernible] Facility as well. What we have seen in those process is that, that may take up to 12 months with those individual companies as we've worked through all the various different steps in our customer validation process. And what we can also see is that -- whilst we're going to the end to the conclusion of some of those processes with some of those companies, we can see that then they will integrate into their orders but more likely today from -- in the next calendar year when those orders will start to be integrated. So we've got 2 processes, the emerging producers and the established producers, but we are anticipating while those validation processes progressing very well at the moment. We are anticipating that we'll continue to see a slow ramp-up through '24 and that will be really in the second half of '24 and '25 what we'll really start to see those volumes increasing significantly. In parallel with that, we're doing the work of securing raw materials. We have been in the -- publicly we've announced that we're working with parties in Vietnam. And Vietnam is a very important jurisdiction. It's not as mature as some of the other jurisdictions, and there's certainly a lot of work there to be done on establishing good ESG credentials [indiscernible] to make sure that they will meet what our customer requirements are on today. So that's an important part of the due diligence work that we're doing in Vietnam at the moment. But it is a very richly endowed country and has very high-quality rare earth deposits. So we're still very interested in finding the right partners to work with to be able to secure those additional raw materials. But we also are in conversations in Australia, in China, in the U.S. and in Europe at the moment about potential for oxides to come through either through toll trading or through a purchase arrangement into the Korean Metals Plant. There are a number of parties who are considering moving into production of oxides next year. And there the challenge is well how do I get it through to the end point of [indiscernible] they want to know if they're going to do it. They want to be able to see that and get it all the way through and alternative supply chain. So we've had a number of inbound inquiries on whether or not that can sit product through our Korean Metals facility, which will then accelerate their ability to develop their oxide production. So those are all contractions that are alive at the moment. Currently, the installed capacity at Korean Metals Plant 600 tonne per annum. And we will continue to work towards filling that capacity first, but it is a very straightforward expansion to take it from 600 tonne per annum to the design of 3,600 tonne per annum of alloy. The current installed capacity is constrained by a number of furnaces we have. We have 3 furnaces and where we run them all in parallel that [indiscernible] to enable that 600-tonne per annum. But the strip comes to itself if it has actually got capacity that is closer to 1,500 tonnes per annum. So the first bit of expansion will be just to install the additional furnaces to match those capacity to the installed strip caster capacity. And then the second part of the expansion will be to put an additional strip caster with the additional furnaces. But it's very much recognizing the technology and the authorization capability that we've already established. We are continuing to do the technology development work. As you would know that in addition to having the operational team there in Korea, we'll also have our own research and development team who have been, firstly, developing the technologies for [ mobilization ] over a number of years, leading to the commitment to the plant in Korea but also have been absolutely instrumental in commissioning of both the metal and the alloys. And it's one of the real benefits that we have when we see customers coming in for those product validations that they're not just working with an operating team that we've actually got a fully qualified technical team there to be able to work with -- to work through those product validation processes. But in addition to supporting what I'd call revenue streams -- current revenue streams, they also are continuing to do the development work on our new technologies, which we're focused on, titanium. And [indiscernible] work out to include also the 2 heavy rare earth, the terbium and dysprosium. So there's development work going on for that technology for all 3 of those metals at the mine. And we brought those heavy rare earth because of the now interest that we have from those customers to have a heavy rare oxide [indiscernible] facility as well to be able to then be incorporated into those specialist alloys. So that's a bit of an update on what we're doing in Korea. So the next slide then takes us through to Dubbo. And Dubbo is a very unique ore body positioned at this [indiscernible]. It has a very unique combination of metals in it. It has micro rare earth neodymium praseodymium, but also we have a [indiscernible] particularly outside of Ochang, and higher value. So we have [indiscernible] in that ore body as well. And then we have 3 other materials that are on many of the Western world's critical minerals lists. We zirconium, we have hafnium and we have the niobium. So as we move through to the next slide, you can see that this is a very long-life resource. We have a 20-year life mine based on the drill preserves that we have established, but there is an additional 50 years of resource there as well for future commercialization. It is construction ready. We have all the major approvals in place. We have gone through a process in the last 12 months. So updating those approvals to reflect design work that was incorporated into the oxide study that was released in December '21. So we went through that process of public -- [indiscernible] Thank you. It's a public consultation and has that confirmed earlier this year. We've got all the land and water licenses, and we are advancing the final engineering. We've got Hyundai Engineering doing work on processing engineering. And then more recently, we have awarded the contract for the nonprocessing infrastructure engineering work to [ Bechtel ] Engineering. We continue to work with ANSTO. We've obviously got a very long-standing relationship with ANSTO. We've been working with them over 16 years. And again, this year, we've continued to test work. The most recent results that we published were from the [indiscernible] work, where We had done work at the [indiscernible] the only part of the circuit that we have taken through at the demonstration plant level, and we wanted to compare the results. We were very, very pleased with the results that we were able to show. And for anyone who missed those results for the dysprosium [indiscernible] an oxide to 99.999%. And for the terbium it's even higher at 99.999%. So that's the -- the technical risk for rare projects in the [indiscernible] is one of the challenges, and it is one of the key advantages for the Dubbo Project that we have such a long-standing comprehensive testing program of our flow sheet. So we feel that, that part of the risk profile of this project is very well managed. We are continuing at this point in time on all of that work done to really focus our efforts from securing the objects and progressing the funding for the project. Our target is to have it at the end of the next calendar year. And what we've done this last 12 months has really broadened out the jurisdictions that we are targeting all those discussions. Whereas previously, we were almost exclusively talking in Korea for auto parties and strategic investors. Over the last 12 months, we have broadened it out and we've been in discussions in Korea, but also in United States and in Europe and in Japan. And what we are seeing is a significant amount of momentum now in those discussions. We had noted that we would have the first of the offtakes completed at -- Christmas. That's unlikely at this point. These conversations are going to continue on into the New Year, in part because the products that we're talking to in North America are predominantly those large car manufacturers that are going to be manufacturing in the EVs. And some of them, you may be aware that there's been quite a lot of industrial action in recent months that has slowed down their procurement processes. So we cannot go as fast as their processes. The parties in Europe that we're speaking to are not [indiscernible] specifically, but their processes are also taking longer than the original time line in U.K. On the positive, we've been in regular cadences with a number of those companies now for many, many months. And they started out with a large pool of potential suppliers that they were speaking to. And they've gone through a number of days through the last 12 months. So the fact that we are in process still at this point is very significantly positive, but they are competitive processes. So we don't know [indiscernible] which is one of the reasons why we are maintaining a number of these processes in parallel. So firstly -- so we can make sure we don't providing [indiscernible] number of the conversations that are well advanced. Specifically, also so in a perfect world, we get to a point where we ourselves can then choose, which is the best of these deals to be able to proceed with. It will be much easier to do a bad deal, and we are very conscious of that. And it's critical for us to secure [ long debts ] but it's also critical for us to secure offtake arrangements that are going to support the first 10 years of operation for this business. The challenges are not insignificant as we go through that first 5 to 10 years of operation, and we want to make sure that we've got the right parties and the right commercial arrangements and the offtakes are going to enable the rest of the funding that is needed to be able to get a project into operation. So one of the other conversations is well progressed at this point is with the various different either strategic investors or government's export financing. And we have been in concession over this 12 months with the export clients, obviously in Australia, but also in the U.S., in Korea, in Japan and in a number of European countries. And that's an important part as well where there has been money in parallel discussion with the offtakers. So once we've decided which jurisdictions the offtakers are in, then we can very quickly start to work with the jurisdictional [ ECAs ] to be able to provide support to funding for the project. I do -- when we are talking to customers, actually the [indiscernible] is a very thorough review of our ESG credentials. It is very beneficial for us to have a Dubbo Project in the Tier 1 jurisdiction. And we did go through a public rating of our ESG program earlier this year. So I will talk about that in a couple of slides time. But perhaps if I just to roll around Dubbo Project, if we just move to the next slide. The financials are very strong for this project. This is based on the December '21 optimization study, but we did publish then that the [indiscernible] very strong cash flow, once is up and running of over [ $400 million ] a year. And you can see there a very strong margin. And this is a point that we've been making very strongly in recent discussions. Particularly given that this was based on the December '21 long-term price assumptions and the rare earth prices have the long-term [indiscernible] since then. So what we would expect from the update is that we will see that the rare earths are a large proportion of the revenue, again. But what you can see here is that essentially, when you take the revenues from the niobium, neodymium and zirconium, you already covered all the costs of our operation. So the rare earth -- one view would be [indiscernible]. So it's a strong position as the actual prices for revenue to sort of those rare earths become stronger. But the challenge with well now is that the capital cost is significant. So again, we're continuing to really challenge ourselves on this. We know that there's inflationary pressure. We know that we'll see some of those costs come up from the December '21 estimate, but we have been working with a listing opportunity for us to lower some of the original cost assumptions that were [indiscernible] modular design. So that's one of the areas that we're exploring. We also, in that original estimates in December '21, we included all services. So another area that we've been exploring is whether or not we could purchase those from the third-party provider, which would reduce the CapEx requirements. For example, the sulfuric acid plant, we had that -- has been a service that was provided from a third party and that would reduce our overall capital hurdle to be able to get started. And we're continuing to do work with ANSTO on how we can optimize the flow sheet. And again, working with our offtake parties as we are able to determine really what products they want, there are potentially opportunities for us to reduce some of [indiscernible] that's actually required, which again, obviously, is helpful. So there are things that would value for us. There are things that go against us. We're not expecting to put out an updated CapEx and [indiscernible] streams updated, and that will [indiscernible]. So we're going to do that late next year. So just to the next slide is just then -- just, I guess, reconvert those milestones. We do continue to have very strong support from government. We have got a letter from the EFA that was the [ $200 million ] support but we're in very [indiscernible] last night having been their annual conference for the export finance groups from Asia. They have an annual conference and they were holding at city yesterday, and I've invited to speak on one of the panels. And it was very evident there in that forum they announced for that there is not just from the Australian EFA, but from a number of the ECAs or the Dubbo Project. The recent announcement by Prime Minister of increasing the critical [ minerals ] facility from $2 billion to $4 billion. That money will be managed by the EFA. And so certainly, our hope is that when the time comes to -- for us to go back to confirm EFA funding that we will be able to access that facility and be able to see an increase in that better support. Nonetheless, since then, we continue to see the New South Wales government as well as the federal government [indiscernible] grant to help us with some of the early works. We've got $10 million. We'll just drive over it late last year from the New South Wales supplement to help us with some of the roadworks and infrastructure that's needed to be done or in the project in preparation to construction. And then more recently, the federal government gave us $6.5 million to assist us with some of the work around updating the design of the storage facility and also in the actual process infrastructure to meet the higher ESG levels, in particular, the carbon footprint but also long-term standards. So that work has been ongoing. But where we're at now is progressing our valuable strategic offtake working with strategic investors and really targeting to have our FIP or final investment position at the end of our next calendar year to be able to then commence construction with first production targeted for 2027. So next slide, then I think takes us into the ESG comments [indiscernible] before closing. And that is -- this is obviously absolutely core to our purpose. We're making the metals [indiscernible] clean energy transition. So clearly, it is core to our purpose, but it is also important for us to recognize that it's not just to do the right thing. We have to do it the right way. So on the next slide, we will see -- we have a very comprehensive ESG program, much more so than most businesses of our age and redevelopment. And I know many of you know in my previous role as Chief Sustainability Officer [indiscernible] for me. But one of the reasons why I came to work in ASM is because this was already very strong and embedded in the work program. And many of these initiatives are understanding. I have spoken before about the fact that we did the Sustainalytics public assessment earlier this year. And we were assessed in the top [indiscernible] this performing [ those 5 metals ] producers through that assessment, which is very pleasing indeed. We will continue to work and experts where our progress is work. Our focus this year is on continuing to progress our carbon net zero plans. And so in addition to our target Ochang Metals plant, we have recently released our 2030 targets for Scope 1 and Scope 2 emissions for the Dubbo Project. We are using that funding [indiscernible] to develop the action plan so that everyone can see what our pathway is to delivering on those targets, and also sure what our 2040 target is. Because most of the EV producers have themselves got a commitment that their whole supply chain will be carbon net zero by 2030. So when we do that early assessment with our offtakers around our ESG prudentials, which, as I said before, is the first piece in their process. These are some of the questions that they're asking, can you demonstrate that we're actually going to be able to move on in? So I think that has been coming to the end. You could just move to the next slide. So I think we are building an alternative [indiscernible] to provide the world in those rare earth and critical minerals. We're already producing in Korea in technicals and alloys. We have the Dubbo Project way of the construction, and we have got very advanced discussions happening with both our offtake -- potential offtakers as well as our funding bodies. We are in the business with very strong ESG credentials and we have a terrific management and Board. So with that, I open the floor to questions.

Are you still thinking [indiscernible] Dubbo?

Well, I'd like to think that as I was still welcoming investment in Dubbo right now. Yes, absolutely. So when we think about how we're going to fund the project, predominantly, we're looking forward to investment at the project level and selling down at the project level [indiscernible] Yes?

[indiscernible] coming from?

So I could be very domestic. They do have a [indiscernible]. But there are -- there's more table there, and the water licenses we have already acquired that are sufficient. When we did the December '21 study, actually reduced the water consumption by over 50% at that point. So we have, through some of the improvement work we've been doing, reduced that we placed on our water requirements. But we have also already acquired the licenses. At the moment we don't need them because [indiscernible] at the moment.

I have a couple of questions, so let me start with the first one. And it's in relation to the Korea plant. I understand management's strategic intent around wanting to secure offtake agreements to -- at least for the 10 years of operation, which is fantastic. And get that...

That's the Dubbo that is the question is from?