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

Good morning. and very welcome to Bergen Carbon Solutions Q2 presentation and company update. In this last day of August. I'm Odd Stromsnes, I'm the CEO of the company. The agenda is a pretty straightforward financial and operational business update with a deeper dive in the importance of product quality, especially in terms of meeting client specifications relevant to the battery market. Even though nano carbon and graphite do have different functions within the battery, it's all about enhancing the batteries functional quality. Q2 has definitely taken us in the right direction as we are continuously pushing towards improving our processes making quality products and reduce costs. And these are the highlights. As I said, nano carbon as well as graphite do have different applications and functions within the battery. We [indiscernible] come back to in greater details as it's all about enhancing the batteries functional quality, make the battery charge faster replace scarce material, make it cheaper and extend the duration and the overall battery lifetime. And in order to do all that, the carbon particles we are producing need to have a certain size and a certain physical form called morphology and a certain purity. The fact that we made a strategic change last year, focusing primarily towards the battery market. made this technical qualification process so important. As such, I'm very pleased to report that we have made a huge leap forward in this respect. We have been producing large amounts of mostly nano carbon more or less continuously from two of the reactors throughout the summer. And we are now delivering product very much in line with the required specifications, and we are soon to start producing from the third reactor. As a consequence of our production, we are delivering produce samples now to several potential clients in China, South Korea, Japan and Norway for them to test, confirm and verify in their different battery chemistry applications. Huchems, the South Korean chemistry company, which we announced an intentional agreement with earlier this year, is one of these companies. And as such, we expect the contractual and the commercial discussions around the Huchems corporation to proceed. Our implementation of the electrolyte recycling and filtering project is completed and is now installed. This will significantly bring down our cost base. A new small laboratory test reactor is now up and running, which will reduce the production and the characterization turnaround time of small-scale test samples and verification. And we have been strengthening our team with battery expertise as well as general electrochemical process competence, all secured with the PhD and Masters background. And finally, with the financial burn rate also on budget, we have, all in all, delivered a very productive and a very promising quarter. Our financial numbers confirms that we have the finances to execute on our strategic plan. We have a solid cash balance with a steady cash burn rate of up to NOK 17 million per quarter, accumulating to close to NOK 33 million in the last 6 months. This is a NOK 10 million increase from last year, which is expected a solid cash position of NOK 260 million. And with the current burn rate, which is expected to grow slightly, we have the robustness to successfully conclude on our strategy I have described until being ready for a subsequent scale up, still [ sale debts ] and an equity position of more than 90%. So Bergen Carbon Solutions in brief. I believe the U in the bigger CCSU picture carbon capture, storage and utilization will play an increasingly important role going forward. Bergen Carbon Solution as a high-end technology material company is one of the very few Norwegian-based pure-play CCU developers. We are something rare as a Norwegian technology company, creating industry independently from local natural resources. We need only smart brands and lots of CO2 to consume. And the concept of producing an advanced carbon product, which the world's electrical transformation is solely dependent on from the greenhouse gas itself. That is a second to none equity story. This is why 2023, as previously announced, for us, is a year for consolidation, a year for [ that ] quality improvement, spent time on process optimization, cost reduction and organizational development. We are, after all, building a company for the future. One of the lesser communicated messages being addressed in Norway, is the nation's total dependency of imported high-end technical competence from all over the world, as competence is indeed a scarce commodity. The Norwegian oil and gas companies and in particular, the service companies have benefited from this for decades. And I would say -- it's a prerequisite for a nation's success story. We all love to tell. And I believe also that this is an under communicated narrative. It will be the same for energy transition companies, and we, in BCS, have been so fortunate to attract very skilled personnel from many different nations. We are now around 30 employees -- with more than 75% of our workforce with the Bachelor's Master or PhD background. And importantly, we are still recruiting. For an export company like BCS, which will have a broad international client base, I would argue this is of strategic importance. Now over to technology and business development. We all know that the picture explains more than thousand words. And this picture illustrates overall in the full carbon-based value chain, where BCS can indeed play a critical role, both upstreams in terms of carbon capture close to CO2 point meter and downstream in terms of carbon utilization close to a carbon end user like a battery factory. Today, many of the planned battery factory start-ups, are being based upon imported and on graphite from Asia, produced from petroleum or coal or mining and when we know that 1/3 of the battery CO2 emission comes from the [ unknown ] material itself, it should be paramount to seek local solutions in order to drive also the battery component emissions down. I also believe this challenge has not gained enough focus. And again, this has obviously a huge geopolitical [ implifications ]. Many companies are interested to talk to us merely as a capture company as they have a lot of CO2 to get rid of. So it's important to emphasize that our business case is absolutely dependent of the utilization element. By the fact that we need a commercial viable agreement of our product take off. We are independent of geographic location as long as we have CO2 and electricity. And based on clean hydropower, the production is a true net CO2 consuming exercise. And as many of you know, we documented this by a successful proof of concept with [indiscernible] here in the area last year. We need to ensure that we are delivering on cost always. And that we can compete on a cost basis towards their traditional fossil-based carbon producers with the large CO2 emissions into the existing market. And with the right cost base is established, further carbon taxation increase will for us come as a pure upside. So we announced a pretty aggressive cost reduction program in March. And I would say now that we are delivering on it. Our new separation and filtration methodology is now commissioned and in operation. It's also based on CO2 and will be the basis for our in-house process going forward. It's a low energy consuming process, enabling more than 90% electrolyte recycling, which is today is our major part of the cost basis. Another important message worth repeating is the fact that we do make a tailor-made product [ specification ] not bulk material, which fits all. Each customer has its own recipe for their confidential battery chemistry. This has indeed a strong bearing towards the specification of our deliveries as the characteristics of both nano carbon and graphite plays a key role for the battery performance. Now clean carbon. Carbon is obviously the basis for our business. It's strong, it's light, it's durable, and it's conductive. And more importantly, it reduces the volumes needed of other scarce material. The product application range is somewhat limitless. But from last year, we have decided to focus primarily on the battery market. CO2 as the major greenhouse gas contains 27% pure carbon. So we can theoretically make a kilo of carbon from 3.7 kilos of CO2. In a massively growing carbon supply market, totally dominated by China today, based on a non sustainable CO2 footprint, we do see ourselves playing a role in the increasingly demanding geopolitical landscape, bringing local control to a sustainable industry critical to the world's electrification needs. And here is what we make. I have shown this slide before. Multi-walled carbon nanotubes called nanocarbon and graphite and hard carbon called macro carbon. All product groups have different functions towards the improved battery performance. Electrolyte carries positively charge lithium ions from and to cathode and vice versa. Anodes are typically graphite, used as an active host material has an optical structure to receive and store lithium ions, the more lithium ions, the longer the battery cycle time. The cathode contained lithium and battery metals like nickel, cobalt, manganese. This is called M&C chemistry. And over a multiple carbon nano tube acts as a conductive agent as it adds conductivity, charging speed and strength to the battery. For both these electrodes, certain characteristics are important, such as surface area, level of graphitization and level of metal impurities. As such different structured carbons hugely affect the end result, making early characterization and initial material testing so important. For instance, you can see that the optimal surface area for a graphite particle to store lithium ions is one square meter per gram. While our multi-walled carbon nano tube particle, they shall produce as much surface as possible in order to be as conductive as possible in an ideal surface area of more than 200 square meter per gram. Think about that, 200 square meter per gram. So we can see we are adapting to very different technical requirements, pending the final carbon applications. Since carbon conductive properties are dependent on the specific surface and area, smaller tubes will automatically be preferred over bigger as long as you are able to use them. Nano carbons will therefore often have a specific service area that is larger than 200 [ meter ] square meter per gram. The graphite typically is around 1 square meter per gram. Diameter shall be around 5 to 30 nanometers. And more than 60% of all the batteries in already growing battery market are expected to contain nano carbon conductive agent. And this is up from 27% just from two years ago. So it's a substantial market increase. BCS have dramatically improved the key specification criteria to meet these industrial-grade no carbon. This we have achieved first of all, by establishing a systematic qualification program. This work has taken all the focus during the last period and I would say all -- for the whole company. Remember that the established specification level is defined from fossil-based CVD methodology, the existing methodology of producing nano carbon and that we are now homing in on the specification based on a completely different process. And the situation is pretty much the same for macro carbons. Also here, we have taken huge qualification steps in the right direction, homing in on meeting a full industrial grade back. Even though this is more of a commodity material, applied in more than 95% of all batteries, certain specification also needs to be met here. So all in all, these two product groups are used to achieve totally different effects in the battery. The graphite is used as an anode host material to store lithium ions, multi-walled carbon nano tubes are typically used to increase the conductivity of the electrodes. As we have said, different structured carbons, thus, therefore, hugely affect the end results and that's why characterization and initial material testing is the most important thing to do first. And we are still concentrating on quality and not volume. We said that last time, and we will probably say it also next time as the volume will come when we are ready for industrial scale up. We believe we are close in meeting all the specifications based on the process consuming CO2 instead of a process of releasing CO2. Currently, we have talks with more than 10 different potential customers all over the world confirming the specification levels. The entry barrier in this market is high, but so is the reward for improved battery functionality for the end user. It means a lot for them. That's why we see a market with high willingness to pay for the right product quality and long-term offtake contracts for higher volumes. Then we're going over to the summary and the outlook. So we are fully funded to deliver on the following key principles. Cost reduction initiatives, they are significant and paramount for our success. Systemized process optimization and continuous improvement, meeting the technical specifications. Growing market with European focus in a market with total Chinese dominance today. secure and develop contracts and partnerships, REF -- the announced market strategy recently confirmed with Huchems and others. That could be based on a pilot factory where we are producing and supplying our own material -- it could based on being a technology provider, licensing our technology or creating joint venture with existing industrial players. And finally, we have the capital discipline to support all these ongoing activities until we are ready to scale up. And like you said, I can say this in a more direct way, six good reasons to invest in Bergen Carbon Solutions. Strong market demand for carbon products and emissions solutions, unique robust technology road map, bringing carbon production home, competitive cost advantage with road map for cost reductions, multiphase go-to-market strategy, and a solid financial runway towards scale-up. So to conclude, we are delivering on cost reduction initiatives and promising technical qualification progress, customer and partner interactions. We have a [ full ] burn rate under control and a very clear strategic strategy going forward. That concludes my presentation and that brings us into a Q&A session.

Okay. First question. How far from commercial specs are you? And when do you anticipate being ready to deliver on specs?

We are building a new industry based on the new technology. So it's always difficult to give exact estimates of time. But we have seen great progress the last period. And I would say, much faster than anticipated and delivered results much faster than I had thought. And we will continue in that route. And I will -- I'm confident that we'll get there. So I will be surprised if we are not there within half year.

A new question, it seems like the main focus these days are carbon nano tubes, -- why are you not focusing more on graphite, Isn't that a much bigger market?

I mean we have a clear and very good dialogue with South Korean Huchems company. We have very concrete specification -- and it was pretty natural to start working on that client demand. The graphite market has a lower technical barrier. It's more of a commodity market, even though we can say it's bigger. And we believe it's easier there to catch up. Having said that, we will start a more intensified graphite production this fall.

And then it's a question about Huchems. When do you expect the MOU to be updated? And how can we expect the business set up to look like?

I mean we have represented a 3-legged go-to-market strategy where we can produce and deliver the product, we can license it out to technology, and we can create joint ventures. And I will say that the dialogue with Huchems will be based on one of the three. But I think what is important though is that we are doing the material testing, we're gaining their confidence -- we are meeting the specifications and then the commercial discussions will be initiated, right?

Okay. Next question. Why are you mainly focusing on batteries?

I mean the battery market is a massively grown big market with a huge growth. It's a high willingness to pay. And what I tried to say in the presentation here that as Bergen carbon solution is pure-play CCU company. We think that we have a lot to add in the green transition of the battery production itself. I mean you are talking a lot about battery fabrication as part of the electrical solution going forward. But what we don't talk about is what these batteries contains of -- and the fact that we need to have a much bigger focus on that they have a good CO2 footprint. And there, we can play a big difference.

Yes. And in March, you talked about multiple cost reduction initiatives. When will the rest of them be addressed?

We mentioned four concrete cost reductions in March. Two of them is what I have mentioned and which will contribute to a substantial part of the total reduction. The two remaining ones is really linked to upscaling and get the economy of scale benefits.

So 1 question then from Norne Securities. With the electrolyzer circulating. You said that you save 90% -- does that sort of equate the electricity build? Would you save up to 90% of your power usage? Or is that a different and it will affect the power?

it will bring down the power consumption -- the power consumption or process is not material part of the total cost picture. But the electrolyte part is very much so. And today, I mean, we are producing a certain number of times, and we need to clean the electrolyte with acid, et cetera. Now we are able to reuse the electrolyte almost all of it continuously. And that will bring the cost down, we said totally 90% last time and the electrolyte part is close to 70% of that. Okay.

So is it right to assume then that you would expect the Høyanger plant to be in a place where you will start your operation?

I mean if you are taking off a pilot factory and if you're doing it in Norway, it's very likely that we do it in a Høyanger -- and the Mosjøen area is perhaps that something we don't discuss for the time being.

Okay Yes. So can you again just take us through the CO2 emission savings on multi-walled carbon nano tubes and on the graphite because it can be quite substantial on the multi-walled carbon nanotube I mean, right?

Yes. I mean we -- what we are -- I mean, theoretically, we are consuming something between two and three kilos of CO2 for producing one kilo of carbon nanotubes consuming the CO2. While the competition, I mean, the world is producing lots and lots of carbon as we speak, and it's all very fossil-based. And it's emitting large amount of CO2. And typically, what we are competing against, they are emitting five kilos of CO2 per kilo of carbon. So that's a delta of seven kilos of CO2 for each produced kilo of carbon. And if you multiply that in the number of batteries in the world, that's a huge saving. Of course, it's a theoretical exercise. But I think last time we showed the presentation where if you're using our methodology of replacing the anode graphite to all the world's battery until 2025, we will save 20 million tonnes of CO2. And we compare that to [ long ship ] ,; which are saving pumping down 1.5 kilo, 1.5 million tonnes of CO2 per year. It's a pretty cool comparison actually.

Absolutely. So back to the recycling process. Is it -- have you patented any step in the process?

I mean we are in the process of patenting some of these steps. But what we have explained previously that we have embarked on the route for secrecy versus going in the patent mode because we believe we are a step ahead of many competitors. And we are afraid of sharing too much of that while initiating these patent processes. And that has been the strategy so far. And we still believe that is right. But I think there are steps we're taking now, which is probably something we will explore more in IP context to do some patenting. We are working on that.

One thing about the cost savings, obviously, but -- could you say something about the process targeting at reducing the variability in the different compounds and making you enabling you to sort of making tailor-made products for different customers and the process here?

I mean, of course, there will always be a huge element of economy of scale here. The more we produce, the cheaper unit cost it will be. And that is something we have internal figures on and we have a view on that. We believe we are closing very much down now to a unit cost comparison with our fossil-based competition, as I said. We also know that customers have different specifications, other requirements, even though ballpark, they're pretty much the same. But -- and we believe that if you are meeting the specification based upon our method, the willingness to pay is something which can be quite attractive. And we believe also that we will not have a lot of clients. We think that we will have a few clients in big volumes.

I think that's -- yes, the Q&A is concluded. Thank you all.

Thank you.