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

Good morning, and very welcome to Bergen Carbon Solutions' Q3 presentation and the company update in this 1st day of November, I'm Odd Stromsnes, and I'm the CEO of the company. The agenda is a pretty straightforward financial and operational business update. We will continue to talk about the batteries. And we will have a deeper dive into the importance of the different battery designs and chemicals, and what role BCS can play. This is especially relevant for a next-generations battery design. The relevance of BCS is apparent as even though nano carbon and graphite do have different functions within the battery, it is the different functions for different battery designs. It's all about enhancing the battery's functional quality. Q3 continues to take us in the right direction in a very promising, extremely dynamic and a very exciting market, as we are continuously pushing towards improving our process, make quality products and, very importantly, reduce costs. And these are the highlights. Q3 is very much a reflection of the progress we announced in Q2, where it's all about continuing the technical qualification progress of the nano carbon enhancing the batteries functional quality, make the battery charge faster, replace scarce material, make it cheaper and extend the duration and overall battery lifetime. We continue to make good progress with no red flags to report, closing in towards the specified requirements, solidly reconfirmed by the extension of the Huchems agreement. Implementation of the new testing and verification reactor for faster turnaround time from characterization of tester cells into revised production optimization program is completed. Basically, we're speeding up our development process. An improved sustainable battery production program is very high on the global electrification agenda. As such, new battery regulations are being established by EU confirming the environmental footprint among other aiming for local sourcing of sustainable carbon for the battery industry, spot on for us. And finally, the financial burn rate also on budget. We have, all in all, delivered a very productive and promising quarter. Our financial number confirms that we continue to have the finances to execute on our strategic plan, a solid cash balance with a cash burn rate of NOK 20 million per quarter including one-off cash items of NOK 3.2 million, accumulating to close to NOK 54 million during this last 9 months. This is a NOK 10 million increase from last quarter, which is as expected. We have a solid cash position of NOK 240 million. With the current burn rate, which is expected to continue to grow slightly, we have the robustness to successfully conclude on our strategy I have described until being ready for a subsequent scale-up. We're still running with 0 debt and net position of 90%. Bergen Carbon Solutions in brief, and I encourage you all to have a look on our new and exciting website. I said last quarter, I believe the U in the bigger CCUS picture, carbon capital utilization and storage, 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 continue to be something rare, as a Norwegian technology company, creating industry independently from local natural resources. The concept of producing an advanced carbon product, which the words electrification transformation is solely dependent on from the greenhouse gas itself is still a second to none equity story. Importance to produce sustainable batteries are growing on the international agenda, which is obviously good for us. This is why 2023 is, as we have said several times, it's a year for consolidation, it's a year for product quality improvement, we're spending most of our time on process optimization, reducing costs and building organization. We are, after all, building a new industry. We are continuing to build our team with battery expertise as well as general electrochemical process components. In a highly competitive Norwegian labor market, where upcoming new green industries like ourselves shall compete with the petroleum industry, now back on speed and steroids, BCS continues to attract international talent. It's all about competence. And I feel we are now in a position to attract the right mix we need with the right background. Our equity story and our technology attracts a lot of enthusiasm when being presented on different events. We are going to be 32 employees at the end of the year, and we anticipated to grow also in 2024. China has a massive hold on the worldwide supply chain of critical minerals needed to make electrical vehicles' batteries. China is also the world's top graphite producer and exporter. It also refines more than 90% of the world's graphite into the material that is used in virtually all electric vehicles, battery anodes. The market for graphite used in batteries has grown more than 250% globally since 2018. Carbon materials and batteries are at the center of global geopolitical discussions. And as such, we see a number of policy programs being established to accelerate and attract the green industrial initiatives in order to create new sustainable industry and be less dependent of Chinese export. BCS value proposition is well placed in the middle of this huge geopolitical challenge as we are responding to many of these requirements by offering a local, sustainable production of clean nano carbon and graphite. We have previously been communicating comparisons of our green carbon from BCS with the prevailing fossil carbon production taking place today in China based on petroleum and mining. Obviously, these product groups are being produced with significant negative environmental impact and large CO2 emissions, which, again, is a huge paradox as the energy transition should be based on a global green electrification. So we are, for all practical purposes, talking about the perception of green batteries. But in reality, they are made of nonsustainable components. And as we respond to this EU, through the European Green Deal program, we'll create a framework that ensures legal certainty for all operators involved, avoids discrimination and enables the battery industry to be at the forefront of this green transition. The regulations presented as Battery Passport intends to prevent and reduce the adverse effect of batteries on the environment and ensure a safe and sustainable value chain for all batteries, while taking into account the carbon footprint of battery manufacturing, ethical sourcing of raw materials and security of supply, among others. The Battery Passport will apply to all categories of batteries placed in the EU internal market, and it will be obligatory from February 2027. And we recently attended and held a speech at a key conference in Amsterdam. Concerning exactly this, the criticality of battery raw materials. And obviously, our value proposition resonated extremely well to this new EU initiative. It's a fair assumption that batteries with a Battery Passport made with BCS nano carbon and graphite should have a competitive advantage. So over to description of where we are today and what we do in terms of technology and business development. This illustration, which you have seen before, which is quite good, illustrates overall in a full carbon-based value chain, where BCS can indeed play a critical role, both upstreams in terms of carbon capture close to a CO2 point-meter, and downstream in terms of carbon utilization close to a carbon end user, like a battery factory. Today, many of these planned battery factory startups are being based upon imported anode graphite from Asia, as previously said, produced from petroleum, coal or mining. And when we know that 1/3 of the battery CO2 emission actually comes from the anode material itself, it should be paramount to seek local solutions in order to drive also the battery component emissions down. I believe this challenge has not gained enough focus. And 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, again, 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 geographical location as long as we have Tier 2 and electricity. Based on clean hydropower, the production is a true net CO2 consuming exercise. And as many of you know, we documented this successfully last year with a proof of concept with BIR. We need to focus on and to talk about cost. So we announced a pretty aggressive cost reduction program earlier this year. And now, we are delivering on it. Our new CO2 separation and filtering methodology is now commissioned and in full operation. It will reduce our electrolyte consumption, which we call the salt, by more than 90%. We are basically able to recycle the salt consumption with over CO2 based on this technology and almost eliminate the use of hydrochloric acid as we're using today. It's basically a win-win. And this is very important to Bergen as the cost of the electrolyte is a substantial part of our total operational cost picture today. So our target of bringing down the cost towards the fossil market alternative within next year remains fixed. Another important message worth repeating is the fact that we do have tailor-made products, not [ belt ] materials, which fits all. Each customer has its own recipe for the confidential battery chemistry. This has indeed a stronger bearing towards the specification of deliveries as the characteristics of both the nano carbon and the graphite plays a key role of the battery performance. New equipment is now being implemented to speed up the testing and reduce the turnover on timing from carbon characterization and the subsequent operational adjustments. As previously announced, we are relentlessly optimizing our process to meet the Huchems specifications of the nano carbon in terms of diameter surface and impurities. We have made massive improvements and are now so close that we have initiated samples to South Korea for Huchems' verification and check into several of their battery applications. Hence, we announced a 1-year extension to this agreement in order to secure ample time to conclude on the characterization before commercial discussions are initiated. BCS is an attractive partner and is currently involved in several important industrial development projects, with key partners SINTEF, the Norwegian Research Council, Vianode and Elinor. There, we have listed a few ongoing projects related to sustainable battery raw materials and manufacturing of next-generations battery technology. Many of these are driven by Innovation Norway and will, to an increasingly level, also include larger EU projects. Batteries are complex, and it's important for us to make sure we are communicating the fundamentals of overall in this landscape, both into days battery chemistry, but more importantly, in the next-generation battery design. The dependency of nano carbon into tomorrow's battery design is increasing, almost all batteries will contain nano carbon going forward. Today, I want to deep dive into the different battery chemistries as overall varies among the different designs. The good news is that our product is needed in all the applications. A quick repetition into the basics of the world of battery chemistry. As many of you know, carbon is a key material for all batteries and BCS do have a key role for supplying noble clean material, introducing different functions, both for anode as well as the cathode. I think carbon nano tubes to the cathodic material will enhance the conductivity and enable faster charging of the battery. For other battery chemistries, it will also act as a reinforcement agent, if applied on the anode side. The cathode is a lithium metal oxide compound, releasing lithium ions and electrons during charging and accepts them during discharge. Anode graphite, however, acts as a carbon-based host material for lithium ions. The graphite structure is able to absorb and stack large amount of lithium-ions, except lithium-ions during charging and release them during discharge. Graphite has a superior quality to other carbon alternatives in terms of the ability to store lithium-ions. And the fact that we have a role to play in the entire battery design opens up a variety for us of different supply chains solutions. Our solutions do have an interest across the entire battery value chain as we can offer raw material essential for companies with many different interests in this field. This means our market interface intersects on different levels in the vertical supply chain, from the raw material suppliers to the car manufacturers. As the battery is so critical for electrical vehicles performance, many of the electric vehicle producers wants to control entire battery supply chain, like Tesla, BYD and others. As we are a CCU-based raw material company based on negative emission technology, competing with fossil-based CO2-emitting producers for nano carbon and graphite. However, many of these companies are looking for blending in a green precursor material to reduce their own CO2 footprint, meaning that our fossil-based competitors can also be our clients. The suppliers of the entire battery chemistry, blending in our product with the electrode chemistry itself, like Huchems, is obviously a very important client base for us and, in many cases, the most likely entry point. Obviously, enhancements of the battery performance is, in the end, ultimate verification of our product and of paramount importance to the battery manufacturer. So in any cases, they will be our main point of contact. Our CCU offering, enabling nano carbon production close to or as an integrated part of the battery fabrication infrastructure will offer additional cost and quality competitiveness. Battery development is all about driving the cost and energy density. The energy density is really a measure of the battery's ability to store energy per weight unit. An additional key driver is the obvious geopolitical necessity in reduction of abandoned material. Here is an overview of what we see is the development of the different battery chemistries going forward, different batteries based on different components. As you can see today, market is close to 100% lithium-ion based batteries, mostly NMC and LFP, and we believe this will also be the basis for the next 5 to 10 years. However, in the coming years, we can anticipate advancements in safer and more available and cost-effective sustainable materials, like silicon, like sulfur and like sodium, enabling batteries tailored for specific applications from electrical vehicles to grid storage. The main message from us is that all these present and, in particular, future battery chemistries are dependent of conductive additives in order to boost the energy density and increase the performance of the battery itself. Hence, demand for nano carbon blended into the electrode will increase dramatically for the foreseeable future. More than 60% of all batteries today are expected to contain nano carbon connective agent, and this is up from 27% for 2 years ago, so a substantial market increase, which will continue to grow. Different battery chemistry possesses unique specifications due to the distinct materials and the actions involved in their makeup. These variation influences factors such as energy density, lifespan and charging speed. Development from today's NMC and LFP to silicon, sulfur and sodium-based batteries. The sodium ion-based batteries will replace the lithium-ion batteries as a whole due to cost, availability and safety. And from 10 years alone, solid state and lithium air batteries are then the next energy-intensive chemistry. So again, we are adapting to very different technical requirements pending the final carbon application. For both 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 key. A good illustration is that the optimal surface area for the graphite particles to store lithium-ions is 1 square meter per gram, while the nano carbon tubes shall produce as much surface as possible in order to be as conductive as possible, with an ideal surface area of more than 200 square meter per gram. All in all, our 2 product groups are used to achieve total different effects in the battery. As we have said, different structured carbon does, therefore, hugely affect the end result. And that's why our characterization and initial material testing is the most important thing to do first. We are still concentrating on quality. We're not concentrating on volume. We said this last time, and we will probably say this next time as volume will come when we are ready for industrial scale up. We believe we are very close in meeting this specification based on process consuming CO2 instead of releasing CO2. And currently, we have talks with more than 10 different potential customers all over the world confirming these specification levels. The entry barrier is high, but so is the reward for improved battery functional quality for the end user. That's why we see a market with high willingness to pay for the right product quality and the long-term offtake contracts for higher volumes. For us now, it's all about quality. Bringing the technology to the market is a time-consuming exercise. We have made huge progress over the last 5 to 6 months concentrating on the specifications and our product behavior in the battery application itself. The summary and outlook is, hence, basically a continuation of this progress development. So we are fully funded to deliver on the following 5 key priorities: cost reduction initiatives, they are significant and paramount for the success of BCS; a systemized process optimization and continuous improvement, meeting technical specification of the clients; we are working in a growing market with European focus, today totally dominated by China; and secure and develop contract and partnership with reference to our previously communicated 3-legged market strategy recently confirmed by the Huchems agreement; and finally, capital discipline to support these ongoing activities until we are ready to take the next step. So to conclude, we continue to deliver on cost reduction initiatives and promising technical qualification progress, customer and partner interactions, burn rate under full control and a very clear strategy going forward. That concludes my presentation and brings us into the Q&A session. Thank you for your attention.

Thank you, Odd. Then we are going over to Q&A. This session is hosted by the COO, Fredrik Oksnes. The first question is what's the main focus of the company now and for the next half year, future research/lab work only? Or do you already have significant resources on planning the first production plant?

First of all, thank you for the question. I think that the intention, of course, is that our presentation is a response to this question. I mean we are working on, as I said, quality not volume. We were working on the cost reduction initiatives. We're working on the specifications and quality. We have implemented 2 new projects which will bring the cost down, but with also speed up the results of our testing. And we are building the organization and we are developing partnerships. This is what we are spending all our time on, and we'll probably do so also for some time going forward.

Thank you. Do you have any updates/plans that you can share for our large or medium scale production facility, where, when, target volumes, et cetera?

Again, we are working to understand the market requirements with a focus on batteries. I mean this was a strategy taken for more than a year ago focusing the company into the electrification market in general, batteries, in particular and meeting the quality specification there is what we are working on. We have not spent much time lately of an upscaling initiative. This will follow automatic as we have the right specification in place and we have the right client equipments in place.

The downstream purification and recycling process developed fairly recently in lab only, I presume. Is this now ready for large-scale production?

This project is implemented and it's in operation. And the sole purpose of this was basically, again, to significantly bring down our unit cost by the fact that we are able to recycle the electrolyte, which is, as I said, a substantial part of our cost base. This is all in place. We have confirmed that we're able to recycle more than 90%, and we are producing carbon as we speak. This piece of equipment, together with the other equipment we have at Flesland, will all be subject to adjustments at a point in time when upscaling is relevant.

Okay. Over to question 4. If Høyanger is the production plant first in line, do you have the higher capital/funds to finance the production facilities there? If no, how are you planning to finance this plant? So I assume you will rent locations in old [indiscernible] building, but maybe a fitout will be at your cost.

Again, we are spending time on quality and not upscaling. We have, as previously announced, an optional agreement with Høyanger Kommune. If we decide to scale up in Norway, Høyanger is a very realistic alternative. But I mean we are talking to many of the potential client environments. Many of them are in Asia. Our Huchems agreement, as we have announced, talks about the 10,000 tonnes factory in South Korea. So there many options, and we have to come back to this. And at that point in time, where we are, we have decided to scale up, either alone or together with a partner or we are licensing out our technology, I mean, there are any options for commercializing this. We will come back to how we will do that in terms of financing.

That leads us over to question #5. Are there any news you can reveal about the MOU agreement with Huchems?

Yes, I think I said that in this presentation. We have sent over samples. It's currently being investigated and characterized by Huchems in South Korea. And we will have a dynamic discussion with Huchems going forward and hopefully be able to sit down and initiate commercial talks going forward.

And then the last of the emailed questions. In light of the recent Chinese ban on export of certain kinds of graphite, are you proceeding with resource allocated to Project C as well? Or are you all focusing on CNT at the moment?

I mean the process with Huchems is a process on CNT. We have said before, we get more traction and market interest in Asia than we do in Europe for the time being. We believe and we see that the Asian battery developers have much more focus on next-generation battery design than we are experiencing the European battery developers. And as such, we have been focusing on CNT and we have been focusing on Huchems, as we also through this process is really understanding and grasping the real requirements of the market. I mean we are a small organization, and we have prioritized CNT now versus graphite and we will -- but we will come back to what we do with graphite when we have progressed this a bit.

Okay. Thank you, Odd. Do we have any questions live from the audience?

Yes. So this will be the first time you sent CNTs to South Korea for [ TG ] to Huchems then, or has it been a sort of iterating process where you send stuff got it back.

I mean we are sending products for many different potential clients, without announcing names and all that in detail. The process with Huchems has progressed for a long time and they have -- this is the first time they have received product from us, yes.

Okay. And you -- and has it been sort of a very difficult process to get the product into the specification that Huchems has? Or has it been -- and the variability in your production process, are you able to consistently meet the criteria that they are -- or the threshold that they are...

That's a good question. No, we have consistently improved the quality of our CNT the last 4 to 5 to 6 months. And we have now reduced the sizes such that we are very close to meeting the specifications. We're not exactly there yet, but we are so close that is interesting to start the dynamic testing with Huchems because this will take some time. And we believe that based on the progress we have done and which we talked about in Q2, we are close to meeting the Huchems specification, which represents the market in many ways. And we are pretty optimistic that this is -- we are very close now to meet what they want.

And it's a relatively binary thing. You need to meet them or you're out?

This -- it's binary in a way for the specification. But what is interesting and what I try to say here is that what is really interesting is how our product is working in the battery application itself. So what we are keen to understand more is actually how is our product acting in the battery and how is it impacting the battery functionality, which could not -- which might not be a pure reflection of exactly the specification definition.

And the -- I know graphite might be a bit easier to meet the quality thresholds or...

It's different. It's different. If you are a small organization, we don't have resources not to run on all different alternatives there. So we have decided to prioritize CNT now in the Huchems process. Graphite has different challenges and different operational parameters, which we will be able to handle. But we will come back to how we will do that.

The focus now is on CNTs and Huchems.

Yes.

And you said that 2023 was a year of -- what did you call it?

Consolidation.

Consolidation. What's your guess for 2024 then? Which year would that be?

We will continue this consolidation process in 2024. I think I said last time in Q2 that, in my mind, I have some kind of a 6-month window for the specification, and this will bring us into March-something. And I guess I still have that type of forecast. We will not say anything in terms of when and how and with who in terms of upscaling our business. But in terms of meeting the specifications of the work, you should be able to do that definitely within the first half of next year.

Okay. Thank you, Petter from Norne Securities for these questions. I think that was all. Thank you Odd.

Thank you.