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

Good morning. I'm Odd Stromsnes. It's again a pleasure to be here and talk about Bergen Carbon Solutions. I will give you an update of Q1, much in line with the presentation held on the 29th of March. It is going to be pretty quick as well as talking deeper into the business drivers in general and Bergen Carbon Solutions customer ecosystem in particular. The agenda constitutes of Q1 financial highlights and some repetition of the BCS technology end markets as a good thing cannot be said often off before we look closer into the customer dynamics and the way forward, then we will end up with a Q&A session. Our key events so far in 2023 is obviously in line what we communicated 29th of March. We are indeed following our plan. We have broadened our strategy both with respect to market, products and partnerships. We are working in a growing market, focusing on the global electrification, driving the battery market for both graphite and multiwalled carbon nanotubes. And importantly, we do have a role to play, both on the anode and on the cathode side of the batteries. Carbon production is back to Europe, replacing Chinese production, reducing costs. Competitive levels pushed down to the existing fossil-based carbon products, a true CCU player. And finally, our operation cost expenditure as planned. Financial robustness to conclude the ongoing activities. Our financial numbers confirms that we are, and we do have an execute plan to execute on the strategic plan. A solid cash balance with a steady cash burn rate of NOK 16 million to NOK 18 million per quarter, accumulating to close to NOK 60 million during the last 12 months, a solid cash position of NOK 277 million. And with the current burn rate, we do have the robustness to successfully conclude on our strategy plan I have described until being ready for a subsequent scale up. We do have zero debt and an equity position of more than 90%. You have seen this before. BCS is offering a true CCU solution, carbon capture and usage instead of storage. The U can form the basis of a full carbon value chain from large single-point CO2 emitters to delivery of carbon critical battery components. And this is the BCS team. Recruitment is ongoing to attract talent and competence within electrochemistry and process technology. And this we need for process optimization and technical sales. Our clients are indeed technically competent. So successful sales and BD require technically skilled persons. Carbon is obvious the basis of our business. Carbon is strong, it's light, it's durable, and it can be conducted in a normal form. The product application range is somewhat limitless. CO2 as the major greenhouse gas contains, as we know, 27% pure carbon. So we can theoretically make 1 kilo of carbon from 3.7 kilos of CO2. When it comes to graphite, it is a key macro carbon component to battery anode material. It can be found as natural graphite or coal through mining or produced synthetically from petroleum or coal. Both methods have a significant negative environmental and CO2 emission consequence. Pet coke is a petroleum-based precursor making needle coke commonly used for active anode material today. When it comes to multiple carbon nonotubes, which is a key nanocarbon component also very important for batteries, it's typically made today from natural gas in an energy-intensive process called CVD, chemical vapor deposition. Fossil-based graphite carbon emits up to 5 kilos of CO2 for each kilo of produced carbon. For nano, we have seen a number much higher than that. However, it's very important for us to understand these markets and their customers as it's towards these products, we need to be competitive. BCS, however, consumes the CO2 producing the same carbon products through our electrolyze process. Today, we absorb in the order of 2 kilos of CO2 for each kilo of carbon produced. And we believe we will be able to increase this CO2 observation rate going forward. But anyway, this delta of CO2 towards a traditional petroleum-based carbon production producers is significant and will play an increasing important role. Over electrolyzed process is well known to you. CO2 injected into a crucible, which is a metal container with melted substance at high temperatures, a positive anode and a negative cathode with an electrolytic salt melts at 700 degrees in 10 hours. We will isolate and solidify the carbon from the CO2 emitting only pure oxygen at that stage. The electrolyte is then subject to separation and filtering which is then done with hydrochloric acid, separating out the carbon. Our new separation and filtration methodology, which we previously described in March, is also based on CO2 and will be the basis for our in-house process going forward, a low energy-consuming process enabling more than 90% recycling of the used electrolytes, which today is the major part of our total cost picture. The project schedule is maintained. The critical parts are ordered, and we will be initiating the first trials 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 we need. So over to our customer base and their drivers for our products. The contract situation of today is indeed a reflection of our revised strategy, and contains the recently announced MOU with Huchems, a potential Korean multiwalled carbon nanotube factory scale-up; and MOU with a major Japanese partner to develop carbon nanotube-based additives for lithium ion batteries. This has previously been communicated. In addition, we have the Inabata contract, transforming from last year's LOI into a recently signed MOU. Inabata is a trading house assisting BCS in market adoption with different partners and networks. The Nanoshel contract announced last year is for all practical purposes sleeping, and we don't see any progress on that contract for the time being. As a true CCU provider, we will add value both in the CO2 capturing mode in the vicinity to large point source emitters like waste plants or aluminum factories as well as we are delivering high-end carbon products, call us an upstream and a downstream provider. We will reduce the CO2 footprint from large single point emitters by setting up our process equipment nearby, either pre catch CO2 in a more concentrated form or carbon production directly from the fuel gas. Both could mean carbon production for offtake directly to nano or graphite end user. An alternative setup is to integrate our production facilities close to existing anode battery fabrication infrastructure. Their over carbon products could be used. Both scenarios gives a pretty intriguing direction for a full carbon value chain and is something, which attracts a lot of attention. On-site production close to such a nano or graphite end user will secure local supply and could absorb local CO2 emissions. It will obviously remove transportation and logistic costs and become an integrated part of end users' production facility. This is cost effective, it's flexible and it's reliable. As we announced in March, carbon production to support the battery industry is now our prime focus of attention. It is also worth keep mentioning, however, all the other application over carbon product range can support in terms of developing conductive and strengthening agents for different polymers and metals. What we know is that the anode material alone represents as much as 1/3 of the overall emission for a battery. With BCS technology, the potential for reduction in CO2 emissions and the forecasted demand growth of battery anode materials will have a net CO2 reduction of close to 6 million tonnes. Basically, for the sake of argument, a saving of 20 million tonnes of CO2 compared with a fossil material production until 2025. When we're talking about battery, it's important to stress that BCS do have a key role for supplying mobile clean material, both for the anode as well as the cathode. Adding nanotubes to the cathodic material will enhance the conductivity and enable a faster charging speed of the battery. For next-generation batteries, it will also act as a reinforcement agent if applied to the anode. Similarly, adding green graphite as the anode active material will increase the overall battery capability in a much more sustainable way. Anode graphite acts as a carbon-based host material for lithium ions. The graphite structure is able to absorb and stack large amount of these lithium ions, accepting the ions during charging and releasing them during discharge. Graphite has a superior quality to other carbon alternatives in terms of ability to store these lithium ions. The cathode, however, is the lithium metal oxide compound, releasing lithium ions and electrons during charging and accept them during discharge. The multiwalled carbon nanotube acts as a conductive agent and increases the conductivity between the particles. We have done a lot of progress this quarter, customizing our product portfolio, and the respective specifications for different client applications. That's why we are currently producing sample of multiwalled carbon nanotubes and anode graphite for our clients' review. In order for multiwalled carbon nanotubes to increase the conductivity sufficiently, the specific surface area, for example, is important to be more than 200 square meter per gram. Think about that, 1 gram covers 200 square meters. For anode graphite, that particular specification is very different in order to optimize the lithium ion storage potential. As we are progressing over client discussion, we see that 3 key performance criteria are of high importance. None of them are particularly revolutionary, but we do have a much better understanding of what it means in our business for us now. The first, of course, to deliver quality in order to the client specifications. The second to be a stable manufacturing over time and be able to demonstrate repeatability. And the third is to show long-term commitments as these contracts tend to be multiyears. 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 is also the fundamental for our shift in strategy. Our sustainable graphite carbon production will be a key input for this extreme growth in the battery fabrication market, and the demand for our material with a stronger and stronger aim to be made in Europe. Our typical customer is an early mover in the battery value chain. It can be a battery manufacturer or more likely a battery component supplier. Very clearly, our competitive advantage is around our ability to produce locally as well as our CO2 negative footprint. In addition, with our ongoing cost reduction presented in March, we will be cost competitive without taking the low carbon premium into account. To repeat myself, current priority for BCS is quality. It's not volume. We need to ensure we are acknowledging our client specifications on all areas. As in any other technical advanced business, our carbon product 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. We need now to understand these dynamics. That's why we are currently sending sample tests for our products, altogether to approximately 10 different client groups for their review and their acceptance. That's why our current production is around making test samples for many of these different client reviews. It's a qualification process. This is also a process we are now doing with Huchems as we are entering into commercial discussions going forward. We know we are attractive on the basis of our negative CO2 footprint, local production and cost competitiveness. But we need to continue our process optimization in order to further improve some of these product characteristics. This goes both for anode graphite as well as nanotubes, either as a substitute or a blend product to other petroleum-based alternatives. BCS' strategy has evolved since early last year, where fabrication scale up was announced. Today, we are working along the 3 axes we talked about in March, 3 axes of go-to-market, pending variations in client base, product group and geography. The first on establishing a pilot factory today, most likely in Høyanger, if in Norway at all, but it could also be elsewhere where BCS will produce and supply nanomaterials or graphite. Following a successful implementation of such a pilot setup, it's natural to think a full-scale facility as the next step. It can be a technology provider, licensing out our technology services to existing industries, like chemical industry, graphite suppliers, et cetera, or creating joint ventures with existing industrial players. I would say today, we have talks with potential clients relevant towards all these 3 commercial strategies. The ideal partner for us is an offtaker of our product combined with the need to get their emissions reduced like Huchems. As such, we see a growing interest among other petroleum-based input providers through the global industry, both on the anode and on the cathode side to reduce or to replace their fossil-based carbon production with our CO2 consuming carbon products. The Huchems agreement is indeed a clear indication of this strategy and a good direction from an important chemical company that they believe in BCS and our technology going forward. Closing remarks for me before the Q&A session is that we are continuing the cost reduction initiatives. They are ongoing. They are significant and paramount for our success. We're working to optimize a systemized process and a continuous improvement regime. We're working in a growing market with high European focus, secure contracts and partnership with the market strategy recently confirmed with the Huchems and now the MOU with Inabata. And finally, we have the capital discipline needed to support the ongoing activity until we are ready for the next step. Thank you. Now we are opening up for Q&A.

The first question, what can you say about the plants at Høyanger and Mosjøen or are there other options?

As I said in the presentation, today, there are no plans in Mosjøen. We have a very good dialogue in Høyanger. We have all the practicalities in place to do something there. But as I said, we are focusing on quality and not volume for the time being. We need to make sure we are delivering the right products before we are taking the next step to a pilot scale up. If and when we do that, and when we do that, Høyanger is a very likely candidate.

So far, have you come in verification of the separational technology?

We announced a project plan in March. We are on that plan. As I said here now, we will kick off the project with all the hardware in June, and we will work over the summer and into the second half of this year to optimize that process and we will have results of this, I would say, in Q3. But we are very optimistic that this will go great.

What is the main attractiveness for you to cooperate with a company such as Huchems?

There are many attractive points there. First of all, Huchems represent, I would say, a generic ideal client for us. And we are really understanding the client market, the dynamics and their needs and the product specification through our Huchems' relationship. They have a huge network, particularly in Asia, with very -- with a lot of very interesting and relevant end users for us. They do have a CO2 reduction requirement. And they could be a very interesting potential financial partner for us for later scale up, matching our revised strategy. It can be a factory ownership partnership, technology licensing relationship. There are many financing partnerships with them going forward. So there are a huge amount of benefit for us with a partnership like that.

Could you say anything about when you're able to maybe deliver volumes to Inabata? Will that be after the testing phase towards, for instance, Huchems.

The question is regarding the Inabata MoU, and then we are able to deliver -- or when we are able to deliver products through that contract structure. I would say that, that process is ongoing. I mean we have spent some time transforming that LOI from roster into a binding signed MoU today. Inabata is, as you said, a trading house with a huge network with a huge contact towards very interesting end users for us. That dialogue is ongoing. So I would say that process is going in parallel with our qualification process towards Huchems. And we will be able to understand precisely where we are in that landscape during this year.

Interesting what you said about the conventional products emitting 5 kilos of CO2 for every kilo they produce. Obviously, 1 kilo of carbon nanofibers is quite a volume, but still it's a very sort of significant CO2 saving that you would probably be compensated with the green product? And what is your carbon footprint, for instance, for 1 kilo produced of your products in comparison?

I mean what we are saying here is that, I mean, in theory, you are able to consume 3.7 kilos of CO2 to produce 1 kilo carbon. That's the laws of nature. Through laws of efficiency, we say that we can produce the same amount of carbon by consuming 2 kilos of CO2. So we are a net CO2 consumer. And we are comparing that minus 2 with plus 5 of our competitors. And if you apply that calculations to all the batteries in the world for the next 3 years, that's a CO2 saving of 20 million tonnes. And that is the same amount of carbon storage, which the Longship CCS project in Norway is operating with. And we do believe that these type of comparisons are going to be much more interesting going forward than it is today. So all the big ticket, macro points is, I believe, going in our favor.

Interesting. So you gave us earlier a sort of a price range for the carbon nanofibers, I believe it was, between NOK 125,000 per kilo. Obviously, this is moving in all directions, and you've seen sort of abandoned that particularly. Could you give us some guidance on the anode graphite pricing? How is that sort of a...