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

Good morning, and welcome to Bergen Carbon Solutions Q1 presentation and the company update. On this fairly symbolic day, I'm Odd Stromsnes, and I'm the CEO of the company. Today's agenda is describing the Q1 highlights, the summary and the outlook as well as describing a fairly complex client and partner universe as this is a fairly new industry. BCS is one of very few pure-play CCU companies, with a value proposition second to none, local production of sustainable carbon for the world's electrification needs. It is important to remind you that BCS is currently producing around 2 to 3 tonnes of carbon per year through our CO2-consuming electrolysis process. So we are actually today already in the pre-pilot maturity phase. Carbon nano tubes, CNT, synthetic graphite and carbon black are all carbon allotropes, important for various battery chemistries. Focus remains, however, still on quality and process optimization. Quantity, we have said before, will come later when we are ready for a scale-up. We have also approved the concept of a complete carbon value chain as we produce carbon from CO2 by capture directly from flue gas. Q1 is a natural evolvement of progress from exit of last year, evolution more than a revolution with steady process and quality improvements. This could sound dull, but it is actually very important as what we do is indeed complex and have a high [ entry ] barrier. This is a process of continuous improvement of a novel technology. Key events during Q1, we continued to test our carbon in varying battery applications with different partners. The response we get is very useful and is fed back as input into our electrolysis process. One of the reasons we established an in-house battery lab is exactly that acceleration of the CNT testing feedback [ group ] as this is a very time-consuming exercise. We have received a valuable information and test results from Huchems during this last period, where we clearly have made a lot of progress, but there are still areas we have to improve on, in particular, towards the requirement for surface area and metal content. In parallel, we have other ongoing CNT tests with several other interesting industrial partners. In line with previously communicated IP strategy, we have indeed filed an important patent. And finally, we have entered into 3 new technology partnering agreements, where one of them is a battery company. Our financial numbers 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 20.5 million during first quarter. We have an adjusted net loss of NOK 18.4 million in the first quarter and the solid cash position now at NOK [ 230 ] million, still zero debt and an equity position of 89%, fully funded to deliver on our key priorities. We are already receiving promising results from battery testing at third-party testing facilities. However, as previously communicated, our new battery lab is close to finalization here at our headquarter in Bergen, where the lab will have equipment for testing of our product in different battery chemistries. This will enable us to form an opinion faster of which battery chemistry fits over product characteristic bests. This lab will increase the speed of our product development towards the battery industry. As we have said before, sustainability, quality and costs are the 3 factors determining our success. We need to produce a material of industry-grade quality for battery production at competitive prices. And we are now delivering on our IP strategy in terms of advancing our patent range by filing for a novel carbon filtration method contributing significantly to reduced OpEx costs, which will give us a competitive advantage. During Q1, we have had a number of very interesting meetings and interactions with global industry companies, and they're all interested to explore our CCU equity story. Several of these companies are now testing our product and giving us valuable feedback on our carbon materials. The established fossil-based industry of CNT production has, for many years, been fairly small, with limited focus on the environmental consequences. The fact of that CNT is a key component into a massive growth of battery production, all to be produced with limited greenhouse gas emissions, creates a new but less mature industry and with many opportunities. The greenhouse gas footprint from the battery industry as a whole will undergo a strict surveillance. And as such, BCS is meeting absolutely all these key geopolitical objectives with EU's Critical Raw Materials Act and the Battery Passport initiatives as the most important. We are also fulfilling domestic industrial objectives. Our CCU equity story continues to be very attractive, and it draws a lot of interest also among large industrial players, who are seeking clear greenhouse gas reducing measures. Local sustainable carbon production of CNT, carbon black and graphites, of which we know are all critical components for many of the battery chemistries, is indeed an offering which is attractive. This is an overview of today's fossil versus green CNT production. We have shown this before as an important message, cannot be said too often. It's a comparison over CO2 emissions per kilo produced CNT as well as the relatively electricity consumption. From an academic literature and compared to the fossil-based conventional method, you can see there are several hundred kilos of CO2 in saving per produced kilo of carbon and with an energy consumption of less than [ 10% ]. The world's total production of CNT is soon approximately 70,000 tonnes. And most of it is made from natural gas in Asia through the CVD process, a process producing similar CNT to ours, with massive greenhouse gases here as emissions. As the global CNT production will increase dramatically, as a consequence of our growth in the battery consumption, the world needs urgently and more sustainable carbon production to get the greenhouse gas emissions down. The sustainable battery value chain is fairly new and fairly complex. And as a producer of critical battery raw materials as synthetic graphite and CNT, we can play a role in many of these phases. Norway has a prerequisite in material technology and process competence. And that's very fit in with the production of sustainable carbon as conductive and strengthening agents for both the cathode and the anode side of the battery. With many of our potential industrial partners, we have had several meetings, and they all acknowledge that the CNT, the carbon black and the graphite are critical for the batteries' electrical network. And for the battery companies, especially in Europe, much of their efforts appear to be on their expansion projects, mainly based on existing non-European battery chemistries. We believe it will be a strength and focus towards meeting the expectation on sustainable and locally produced raw materials, going forward, to be in line with EU's coming Battery Passport requirements. And for electrical vehicle manufacturers, sustainable local battery development is high on their strategic agenda, and we are indeed talking with several of them. Producing CNT and synthetic graphite through a CO2-consuming electrolysis process, it's smart, it's novel, it has a huge potential, and it has never been developed in this scale before. We have only seen the start of a local sustainable component industry feeding the growing battery demand. So as part of this new frontier, validating our electrochemical process is complex and it takes time, probably more time than we had anticipated. It takes time actually to build an industry. We are, however, going in the right direction and have absolutely faith that we will succeed and that we have the right approach and strategy. The entry barrier, as I said before, is high, but so is the reward for improved battery functionality for the end user. That's why we see the market with high willingness to pay for the right product quality and long-term offtake contracts for higher volumes. As communicated previously, BCS has received test results from the validation process with Korean chemical company, Huchems. The specification is rigorous, we knew that. Our CNT have, however, been tested at the third-party world-leading CNT test [ house ], and the results are indeed benchmarked against a major global chemical company. We have made a lot of good progress over CNT works well in the coin cell, but we are not yet there that we can say that we have met all the required specification. However, in some areas, we are close. This is indeed results from one of our first real coin cell tests. And it is worth reflecting if our CNT product, due to our sustainability process, has unique characteristics making direct comparison with the fossil CVD. Spec, not that relevant as long as we fulfill the end purpose of increasing the electrical performance within the battery. That's what's important. We will study this in greater detail, going forward. However, a new batch of CNT test with Huchems is ongoing. BCS has entered into a technology development with BroadBit Batteries. Our material has already shown promising initial results from their testing with LFP batteries. And incorporating BCS CNT material as a conductive additive will have beneficial effects. BCS will now conduct battery coin cell testing at the BroadBit Batteries in Finland, going forward, and we are exciting on the results. Through this collaboration with University of Bergen, BCS gains additional access to state-of-the-art characterization equipment, including transmission electron microscope and other cutting-edge facilities within their microscope laboratory at university. This collaboration will increase our characterization capacity and give us access to additional competence, excelling our progress, while at the same time, strengthening our relationship with University. A tight connection with academia is important as competence is a scarce commodity. And with our participation into the FME battery project, Forskningssentrene for miljøvennlig energi, BCS takes part in all the important battery-related industry projects with all the key participants. With FME battery, we contribute with local green CNT into the different battery chemicals. We are indeed drawing attention and heading in the right direction as both the strategic partnership within EU and Norway as well as signing of EU's Critical Raw Material Act were taking place last period. Our exposure to the market has seen a positive development as we have recently been presenting on a number of important events and arenas, including Hannover Messe through Battery, Norway. In March, we were invited by the German Automobile Association to Berlin to present for many of the German electrical vehicle manufacturers. As obviously, development and control of the EV batteries are considered top strategic priority to the European automobile industry, going forward. So in summary, our operational priorities will be as follows: the summary of progress during Q1 is in line with what we communicated in Q4. Activities for verifying our technology and product toward customers are progressing slightly later than planned. New agreements with technology partners signed since Q4 presentation. We have an extensive market activity in the quarter, with several ongoing partnership discussions. We have patent application for filtration process filed. Construction of the battery lab headquartered in Bergen is close to finalization. We have the burn rate and control of the finances. And our focus and strategy remains on process optimization, product customization and concluding the ongoing partnership discussion. That concludes my presentation and brings us into the Q&A session. Thank you for your attention.

Okay. Our first question today, I think you have already answered it. But how close are you to meet the technical specifications for the Huchems spec?

Okay. Thanks for asking. I think this was covered in the presentation. We are working on it. We will continue to work on it. We are closing in. What's important for us is hold CNTs acting in the battery itself. And that's what we're going to study. And that will accelerate with our internal battery lab, going forward.

How close is this -- this is a complicated question. But is the technical specifications similar for other potential clients? Or is it a huge difference here? Or is it like when you are fulfilling the Huchems specs, you will also fulfill the requirements for a lot of others?

Yes, we think that the Huchems spec is fairly representing based upon the CVD or the fossil-based production of carbon. And of course, the particle size is important, but what's more important is how the product is acting in the battery itself, the increase of electrical conductivity. We believe we are making a slightly different product than the fossil carbon, and that's what we're going to test and prove into our battery application.

When the technical specs are -- when you are there on the technical specs, how long time do you think we should -- how long time will it take to negotiate a deal?

I mean, the closer we are meeting the expectation of the market, the -- our ability to secure contracts and technology agreements with solid partners are increasing. And that's what we are focusing on. So today, we are working in parallel, improving the product, improving the quality, obtaining to meet the spec and test it out in the battery applications as we are working on a number of different partner initiatives to land agreements.

Then we have a question about costs. How is the cost level compared to the more traditional alternatives?

I think we have talked about that before. I mean, we have not prioritized running large cost models lately. We took a strategic change decision last year. We are working on process and quality. But however, our preliminary analysis tells us that we are competitive towards the existing fossil-based carbon market today.