Bergen Carbon Solutions AS (BCS) Earnings Call Transcript & Summary

Good morning, everyone. My name is Odd Stromsnes, and I'm the CEO in Bergen Carbon Solutions since 16th of January this year. It's a pleasure to be here and give you this important company strategy update on behalf of Bergen Carbon Solutions. The value proposition of BCS is overall very attractive. And on that basis, it was easy for me to decide joining the company. Even though I have experience from both solar and offshore wind, I've had most of my career within subsea oil and gas. Joining a smaller company located in Bergen with a very comfortable Board and organization, producing carbon from CO2 basically had it all for me, and it was very impelling. Taking part and have the opportunity to lead this green growth, scaling it up, attracting talent and commercializing it is something I really like. I'm good at and I have experience with it. It gives a personal satisfaction working in such a sustainable company, producing the green super material of the future. But obviously, that's not enough. We need to grow it and scale it and turn it into an increasingly profitable company. [Foreign Language] This is the agenda of today. We're starting out with an executive summary what we do, our technology, the markets and where we're going. And then we are finalizing with a Q&A session. Our executive summary is a top-down reflection of why we are relevant and why our process and our products can play a key role. And here are my main points. We have a unique and matured, sustainable process technology. We're working in a very growing market for graphite and multiwalled carbon nano tubes. We have a role to play both on the anode and cathode side of the batteries. Carbon production in Europe, replacing the Chinese production, competitive cost levels, cost levels pushed down to the existing fossil-based carbon product level. We are a true CCU player and finally, financially robust to conclude the ongoing activities we are involved in. In Norway, we are used to talk about CCS. The Bergen Carbon Solution is offering a pure-play CCU solution. Carbon capture and usage instead of storage that you can form the basis of a full carbon value chain from large single point CO2 emitters to delivery of carbon critical battery components. On the right here, we can see the BCS transition from 2016 to 2023, where we last year did announce some strategic changes, which will form the basis for our position, for industrialization and what we will talk about here today. This is the Bergen Carbon Solutions team. It's a skill and well-educated workforce. We have an experienced Board and an experienced management team. Recruitment is ongoing to attract talent and competence within electrochemistry and process technology for our world class leading process optimization and technical sales. Clients are technically competent. So a successful sales and business development and all client interface requires technically skilled personnel. That's important. Among all the other contributors for renewable energy, CCUS will play a critical role in decarbonizing the industry. In order to reach a net zero by 2050, the CCUS part of these investments needs to be scaled and increased with at least 120 -- to around USD 120 billion to USD 150 billion per year after 2035. CCUS do have an increasingly important role to play. And this is also very much reflected in the articulation lately we hear from EU. Decarbonizing means for all practical purposes, more electric and more batteries, driven mostly by the electrical vehicle battery supply, which means more durable, stronger and more conductive materials, meaning more carbon-based anode input to the battery industry. This is indeed critical and was also the fundamentals for our shift in strategy. Our sustainable graphite carbon production will be key input for next stream growth in battery fabrication and the demand for anode materials. With a stronger and stronger aim [Foreign Language]

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[Foreign Language] Yes, we start again. Decarbonizing means for all practical purposes, more electric and more batteries, driven by mostly the increase in electrical vehicle battery supply. This means more durable, stronger and more conductive materials, meaning more carbon-based anode input to the battery industry. This is indeed critical and was also the fundamentals for our shift in strategy. Our sustainable graphite carbon production will be a key input for an extreme growth in battery fabrication and the demand for anode materials. The stronger and stronger aim to be made in Europe. And the growth we see here in demand for battery anode materials will increase even more beyond 2025. As a true CCU provider, we will add value both in the CO2 capturing mode in the vicinity to point source emitters like waste plants or aluminum factories, as well as we are delivering high-end carbon products. Quality upstream and downstream provider. We've reduced the CO2 footprint from large single point emitters by setting up our process equipment nearby, either pre-captured CO2 in the more concentrated form or carbon production directly from flue gas. Both could mean carbon production for offtake directly to the battery production. An alternative setup is to integrate our production facilities close to existing anode battery. Fabrication infrastructure where our carbon products could be used, taking down costs like transport and logistics. Both these scenarios gives a pretty intriguing direction for a full carbon value chain and is something which attracts a lot of interest. BCS strategy has evolved since early last year, where fabrication scale-up was announced. Today, we are working along 3 strategic go-to-market access, pending variations in client base, product group and geography. Establishing a pilot factory today, most likely in Høyanger, but could also be elsewhere. BCS will produce and supply nano materials or graphite. Following successful implementation of such a pilot setup, it's natural to think a full-scale facility as next step. Being a technology provider, licensing out our technology services to existing industry like chemical industry, graphite suppliers, et cetera, or creating joint ventures with existing industrial players. I would say today, we have talked with potential clients relevant towards all these 3 commercial strategies. The ideal partner is an offtaker of our product, combined with the need to get the emissions reduced. As such, we see a growing interest among other petroleum-based input providers to the global battery industry, both on the anode and on the cathode side to reduce or replace their fossil-based carbon production with our CO2 consuming carbon products. This morning, we recently -- we announced an agreement with Huchems, a big South Korean-based chemical supplier, where we announced that we are entering into minutes of understanding, and this is a good direction from an important chemical company that they believe in BCS and our technology going forward. So why is BCS attractive? And why are we taking so many strategic, critical points in our acuity story? There is a significant global market increase for carbon products, driven by electrification in general and battery growth in particular and the massive push for CO2 emission reduction. Our CCU technology is proven and it's scalable for both larger factories on transported CO2 and smaller flexible units for implementation and integration towards large single-point CO2 emitters or close to the facilities to battery and anode graphite producers. We're bringing key battery component production back to Europe, important in the geopolitical rivalry context. With ongoing cost initiatives, we will deliver competitive prices. And we have a 3-pillar go-to-market strategy, as previously explained, and we have a financial robustness to conclude and be ready for scale up. This is about carbon, carbon 101 or carbon for [ dummies ], if you like. Carbon is here to stay and fundamentals of our business. Carbon is everywhere. It's strong, it's light, it's durable and can be conducted in the nano form. The product application range is somewhat limitless. CO2 contains 27% carbon, so we can theoretically make 1 kilo of carbon from 3.7 kilos of CO2. Here is an overview of the most relevant carbon materials applicable for Bergen Carbon Solutions. Today, we are producing small volumes of both multiwalled carbon nano tubes and graphite at Flesland through the same fundamental electrolysis process, primarily by adjusting some key input parameters where current density is 1. When it comes to graphite, which is a key macro carbon component to battery anode material, it can be found as a natural graphite through mining or produced synthetic from petroleum or coal. Both methods have obvious significant negative environmental and CO2 emissional consequences. Pet-coke is petroleum-based precursor making needle coke commonly used for active anode material today. When it comes to multiwalled carbon nano tubes, which is a key nanocarbon component of important for batteries. It is typically made today from natural gas in a very energy-intensive process called CVD, chemical vapor deposition methodology. Fossil-based carbon emits up to 5 kilos of CO2 for each kilo of produced carbon. For nano, we have seen numbers much higher. However, it's very important for us to understand the dynamics of these fossil-based carbon markets as it is towards these markets, we need to be competitive. BCS, however, consumes still producing the same carbon products through electrolysis process. Today, we absorb in the order of 2 kilos of CO2 for each kilo of produced carbon. And we believe we will be able to increase the CO2 absorption rate going forward. But anyway, this delta of CO2 towards the traditional petroleum-based carbon production is significant and will play an increasing important role. Now into describing the technology, the cleanest way to sourced carbon. We are working full steam on several cost reduction initiatives as we develop our maturity level step-by-step. Someone said that the biggest room in the world is the room for improvement. And there is no secret. We had some homework to be done, as we announced in November last year. We will not be successful if we don't get our cost basis down. And I would say the improvements we have been identifying are indeed significant, maturing our process and pushing us down to competitive market levels, which is a prerequisite for a later scale up. I will come back to that. Being cost competitive, already before taking a low carbon premium approach is crucial. We need to work our cost base such that all future CO2 taxation premiums will come as a pure upside. The electrolysis process is well known. CO2 injected into a crucible, a metal container with melted substance at high temperatures, a positive and a negative cathode with an electrolytic salt melts at 700 degrees and after approximate 10 hours, we have isolated and solidified the carbon from CO2 emitting only pure oxygen at this stage. The electrolyte is then subject to separation and filtering today done with hydrochloric acid, then separating the carbon. Our new separation and filtration methodology is also based on CO2 and will be the basis for our in-house process going forward. A low energy consumption process enabling more than 90% electrolyte recycling, which today is a major part of the total cost picture. The critical parts are ordered and we will be initiating the first trials of this in June this year with results during second half of this year. This new project will contribute substantially to the overall cost reduction initiatives, which I will come back to. When we talk about batteries, it's important to stress that BCS do have a key role for supplying noble, clean material both for the anode as well as a cathode. Adding normal tubes to the cathodic material will enhance the conductivity and enable a faster charging of the battery. Similarly, adding graphite to the anode material will increase the battery strength and the durability as a reinforcement agent to the next-generation silicon-based batteries. What we know is that the anode material alone represent as much as 1/3 of the overall emission for a battery. The BCS technology, the potential for reduction in CO2 emissions and the forecasted demand of growth for battery anode material globally, we will have a net CO2 reduction of close to 6 million tonnes, basically saving of 20 million tonnes of CO2 compared with fossil materials only in a couple of years. And for comparison purposes, the longship CCS projects in Norway has a CapEx of NOK 28 billion. And for them to get the breakeven costs down, the need to store more than 5 million tonnes CO2 and to be profitable more than 20 million tonnes of CO2. So our current focus in the next 6 to 9 months lies all in cost reduction and process optimization. Achieving this, we believe client commitments will go hand-in-hand. On-site production close to a nano -- a graphite end user will secure local supply and could absorb local CO2 emissions. It will obviously remove transportation and logistics costs and become an integrated part of end users production facility. This is cost effective, it's flexible and it is reliable. So over to a cooperation project worth talking about with BIR, [Foreign Language], the largest waste management company in this area. A true and very successful CCU project funded by Enova last year, producing carbon nano products directly from flue gas, with very low CO2 concentrations, less than 10%. This is a project which basically confirms the flexible on-site production concept previously described and will open up a number of interesting business opportunities going forward. IP status normally attracts certain interest. We have chosen a strategy keeping our process parameter secret instead of protecting them in the form of patenting. The reasoning for this is that by patenting, we are obliged to reveal the technology and the parameters we are using. We have come further in upscaling and commercialization of the process, and we do not want to give this edge away. We are also continuously evolving old process and do not want to spend time and resources on patenting obsolete solutions. In recent years, we have matured our process further and have made a handful of breakthroughs that will ensure our competitive edge. So we are contemplating patenting some of the inventions that do not directly reveal our core process to protect our edge and in time, build up a portfolio of technology. So we have reviewed our freedom of operate by a third party in all areas deemed commercially attractive for us. And the conclusion is that there are no identified restrictions on IP or patents in these areas that limit our operating space. We do, however, constantly monitoring the patenting activity in the same areas to catch early notice if something is happening. And that will need to -- and that we needed to file objections to or react on in any way. One of today's most powerful messages as far as I'm concerned, is to share our initiatives for cost cutting. Since last year, we have changed the strategy more towards the graphite and battery market. The industry optimization and competition is key in the high-volume market in growth. So we have 4 main cost-cutting initiatives ongoing, which in sum will have a substantial cost reduction impact, and I will present them in sequence of importance. Recycling of electrolyte, I described it before. We are reducing our unit price with 70% to 90%, and we will conclude this project by end of this year. Reuse of electrodes, thermodynamic and electric design optimization. That increased the lifetime of these by more than 5x. We will conclude this project by end of the year. Energy efficiency, which is very important these days, reducing thermal losses, reducing therm -- power consumption with more than 2/3 from 150 to 40-kilowatt hour per kilo. This is also something we will conclude on this year. And finally, reduce factory CapEx by scaling, more carbon products from less complex machine and creating less waste. So in short, applicable to both normal and graphite production, a unit cost reduction per kilo carbon of more than 70% from 2025 -- 2024, in an industrial scale-up mode. This will bring us into a very attractive landscape towards our competition, which are based upon existing fossil producers. Over to the carbon markets. We do see a global demand for graphite for batteries growing more than 4x until 2030. We're seeing that to the left here. Today, most of this is supplied from China, but we will see a clear trending towards an increase in European-produced battery components. The more than $3 billion global carbon nonmarket we see to the right, we'll see a 15% annual growth, but we'll continue to be fairly Asian-centric with China as the big player. We do, however, have a substantial interest from Asian players to our technology, and we have several process ongoing, and we had the Huchems MOU signed and announced also today as a proof of this. In short, the battery production growth will be significant until 2030 and will be driven by the electrical vehicles and the mobility market. The geopolitical situation will push Europe to establish local battery industry, with close to more -- close to 50 battery plants currently being planned. As a consequence, the drive for European-produced battery components like graphite will increase to more than 25% market share in 2030. Our graphite and nano products are relevant for both towards today's battery chemical as well as the battery chemical composition for tomorrow. The quality criteria for battery graphite vendors are a set of techno-economical factors. The high-end mobility segment with premium electric vehicles will be driven by top technical performance and low price sensitivity, but also the emission element will play an important role. We believe this high-end market is the most relevant market for us and not the mass market consumer level. As in any other technically advanced businesses, our carbon products needs to be technically qualified in terms of particle shape and size, definition of impurities and surface and volume characteristics. These are tailor-made products for different applications, and we need to fully understand these dynamics. That's why we are currently sending test samples of our products already to approximately 10 different potential clients for their review and their acceptance. Our entry point to many of our potential clients are indeed through technical qualifications and technical discussions. So it's paramount that we are meeting their technical expectations, both in terms of product, but also from our own personnel. From where we are today, I believe this is the most effective sales and business development activities we can do before later enter into contracts, many of them probably long-term frame contracts. CO2 taxation, as I said, it's not critical for Bergen Carbon Solutions as we are aiming to be competitive without it. We are focusing on internal improvements and on commercial areas, we can do something about, we can impact. An increased CO2 taxation will only contribute to an additional commercial upside. A sustainable battery production will get increased importance. The anode material drive as much as 33% of the total battery emission. Way forward and key priorities. As we have been communicating on a number of occasions last year, we have secured very attractive locations and terms in Høyanger for potential pilot production facility. We have a very constructive dialogue with the local government as well as interesting potential business opportunities with nearby CO2 emitting industries. As announced before, a potential investment decision here will follow conclusions of our cost and process optimization initiatives as well as progress towards strategic partnerships. Our financial numbers confirms that we have the finances to execute on our plan. A small NOK 1.5 million revenue primarily driven from grants. We have an operating cost last year of close to NOK 60 million. And we have a very solid cash position of close to NOK 300 million. With the current burn rate, we have the robustness to conclude on all the necessary ongoing processes I have described. We have 0 debt and an equity position of more than 90%. So my closing remarks, we're running cost reduction initiatives. They are significant and paramount for our success. We have a systemized process of optimization and a continuous improvement plan. For us now and during the most rest of the year, process optimization beats volume. So we have more focus on process than on producing volume. We are in a growing market with European focus, secure contracts and partnership, breathe market strategy, now confirms -- now confirmed with the Huchems announcement. And finally, continue with capital discipline to support ongoing activities until we are ready to take the next step. Thank you. And now we go to Q&A. That MOU is still valid, but there has been little work related to the MOU today. So I would say somewhat a sweeping agreement we enter into.

Okay. We have some prerecorded questions from -- that we have gotten in from on e-mail. I believe most of them are already actually answered in the presentation. But one of them that you could probably talk a bit more about this, how far have you -- it looks like the separation of technology is very important. How far are you from verification? I think you said that we are planning to do it in the first half this year. But yes, can you tell us anything more about it?

Yes. So the project has kicked off. We have selected the vendors. And we will receive the project equipment in May, June this year. So we start the process internally in -- during the summer, and we issued during, I would say, early fall and the fall, get the results have confirmed that this works. We are very confident that this is going to be a success, but we need to confirm it through the equipment.

Good. One other one is regarding BIR. What happens with the container at BIR?

That is now being mobilized, is being packed and transported back to our facilities and made ready for, hopefully, a similar type of project going forward.

Can you have a -- it's in Norwegian, so I need to translate it, but we have a question here regarding cash. Will it be a need to bring in more cash in the upcoming period?

As I said, we have finances sufficiently to support our ongoing activities. So all the initiatives we have now kicked off which we will work on during the next period. We have the backing -- financial backing to do that. Then we have the conclusions and the results of that, and we are ready to scale up, then we need to reinitiate some financing activities.

I guess that's also an answer to the next question regarding Høyanger when -- regarding the findings that we have presented here today, when do you think that Høyanger is ready to be built?

I think everyone understands and everyone agrees that these costs initiatives we are working on is very important. And I mean, we need to conclude on them before we are pushing the button for any scale up. We need to know that we are competitive. I mean we need also to have full confidence that we have optimized all of our process steps sufficiently. And when we do that, then we are ready.

Well, I guess the NOK 300 million is a substantial amount will you -- will it be revenue generating? Will you have interest on it, probably have a scale to NOK 10 million to NOK 15 million coming up the next 12 months? So that you will see a revenue increase from that perspective. Are you working on this [indiscernible]? The short-term investments, if you understand what I mean, shortly for bank accounts to increase the interest rates?

That we haven't discussed, but that has no real priority in our business for the time being.

So the small lift up in revenues is not related to interest income?

No, that is from grants, as I said it primarily.

Yes. So when it comes to the BIR [indiscernible], it looks from my perspective, at least that moving away from the capturing of the flue gas. So that might not be the future for the company to have the containers at the emitting source, but you will source CO2. Is that correct?

No. I tried to say exactly the opposite. And I think we are able to have several thoughts at the same time going. So I would say this is 1 strategy for some clients in some areas. So both BIR-like type of project or a bigger scale based on more concentrated CO2. So I think we can do both. And I think both will be interested -- interesting.

So you say [indiscernible] or are you expecting your partners to carry any costs at any point in time in the foreseeable future? Is that on the table at all?

I think I mean the relationship here with Huchems, of course, needs to mature. We will start off by doing test samples, sending them over. They really do the investigation and the checking of this, as I described, then the parts we bear their own costs. And then we have -- then we are embarking into a more detailed negotiation and agreeing on the business plan going forward. And then we will discuss these things as you asked.

So having a full on partner isn't quite on the table?

Yes. but that's the aim of the agreement, of course yes.

I think that's all.

All right. Yes, we have one question here regarding the electrolyte issue? And that is what is the likelihood of the success in this project?

Very high.

Who are your biggest competitors?

Our biggest competitors are the fossil-based producers, as I described in the presentation, and there are quite a few. So we need to make sure that we are competitive on that pricing level. And then we have the CO2 emitting competitive advantage compared to these guys.

In order to show file project in my end, do you need to have uptake agreement to [indiscernible] by that at that time?

Ideally, yes.

Okay. If that was so, I think we're ready with -- we're finished with the Q&A session and finished with the presentation.

Thank you.