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

Good morning, and welcome to the Bergen Carbon Solutions Q3 presentation and the normal company update. I'm Odd Stromsnes, and I'm the CEO of the company. The agenda is as follows: Introduction, Q3 highlights, status and outlook, latest technology development status and a summary. And we're rounding it up with a Q&A at the end, both for the live and the web-based audience. Bergen Carbon Solutions continues to be one of very few pure-play CCU companies, carbon, capture, and utilization with an attractive proposition based on local development of sustainable carbon from the CO2 itself for the world's electrification needs. And this carbon is key component for all batteries and today, produced with a massive greenhouse gas emission in China. Through our CO2 consuming electrolysis technology, we develop carbon nanotubes, synthetic graphite and carbon black, all critical for various battery chemistries. Focus for us now remains on quality and process optimization by stabilizing and controlling our process. Document precisely and repeatability of the process is paramount. From a CCU perspective, we have already proved the concept of a complete carbon value chain as we have documented carbon produced from CO2 by capture directly from the flue gas emitted by a large waste incineration plant here in Bergen. The world's massive electrification transformation needs more batteries. Hence, the global battery demand is expected to grow more than 6x until 2030. The increased focus going forward will though be on sustainable and locally battery production. Norway has indeed good fundamentals in place for production of critical battery components based upon our long and sophisticated material technology knowledge and our process experience from other industries. So the fundamentals in our process is simple and based on exactly that, splitting CO2 into oxygen and carbon through an electrolysis process, emitting the oxygen and harvesting the carbon on the cathode side of the process. It sounds simple, but it's difficult. Development of a cheaper and more effective battery is ongoing on the global scale. New chemistries are continuously being developed with the aim to develop more energy per unit weight. CNT is a key component into all this and an important element in many of these new chemistries, and we see that the demand will increase significantly. CNT increases the batteries' conductivity, which makes the battery faster and more durable. Our technology is indeed novel, it's sustainable, and offers a local alternative to the fossil CNT production with large emissions. Our electricity consumption is a fraction of existing production methods. And in a scaled production, implementing our new process steps, we believe we can't compete on cost. And in the geopolitical context, BCS basically ticks all the boxes in a world where the price of CO2 emissions will probably increase and protective incentives for sustainable and local production will stimulate industry like ours. Then going over to the last quarter's highlight. And I would say the last quarter gave us highlights in 3 main areas. We continued our activities for verifying our technology and process development, and that is still key focus for us and continues with an accelerated speed. And that includes improvements and extensions of our equipment facilities, which speeds up our technology development. I will come back to that as well. And we are working on creating a stable and repeatable process. We have seen positive market activities during the quarter with several intentional partnership agreements signed in LOI with Morrow in August, with Beyonder in September, and indeed an extension of the existing Huchems MOU in September here. And we have interesting discussions with several other potential partners. And thirdly, I would say that we are working hard on the organization, reshaping it to fit with the new strategy and the status of the company. And we have new competence on board. And following starting as a Board member earlier this year, Rita Glenne, acting now as CTO, adding significant competence with more than 30 years of industrial experience, and she will definitely assist us in driving forward the company and the product and process innovation. On the financial numbers, we continue to document that we have the finances in place to execute on our strategic plan. We're showing a reduced cost picture, and we have limited further CapEx investments. We have a cash balance with a cash burn rate of NOK 17.9 million. [Audio Gap] We still have a solid cash position of NOK 174 million with still 0 debt and a good equity position. We are really documenting a good cost control, and we are anticipating further cost reductions with a reduced burn rate going forward. Then over to status and outlook. We have today established a blend of different partnerships, where we have, during the last period, secured and extended intentional agreements with Morrow, Beyonder and Huchems. All of them are either directly or indirectly battery producers interested to pursue our technology in order to develop more sustainable battery chemistries. We believe a mix of different partnerships is always a good strategy, including larger global companies with smaller local start-ups. We will always be interested to cooperate with industrial development companies with good technical know-how. Experience shows us that this is good for us now in the phase we are in. We continue also our cooperation with Universitetet i Bergen, [indiscernible] and the Research Council for development of domestic battery value chain. As our change in strategic direction during the last 2 years, focusing more on our core process and material technology directed towards the battery industry, putting factory expansions and further upscaling on hold, we have been very successful attracting top competence, reflecting this change of strategy. It has actually made the company more attractive as an employee. Our total headcount is reduced, but I would say that our accumulated know-how and expertise in our field of technology has dramatically increased. EU's geopolitical status is getting increasingly focused as Europe is losing its relative competitiveness. As an example, we are seeing natural gas prices in Europe 4x to 5x higher than in the U.S., and EU's dependency of critical raw material for building a new green industry is increasing. And the latest report from Prime Minister, Draghi, previous Prime Minister, confirms this. The push for creating a new and sustainable industry within Europe will increase. CO2 prices and potential other incentive mechanisms will make local and sustainable products more competitive. And our equity story fits perfect into this geopolitical framework. Then technology update status. For us now, it's all about further developing our technology, and we are defining that into 3 stages. Firstly, transforming the CO2 into solid carbon through our electrolysis process, then material processing by separation and filtering out the carbon. And thirdly, testing our carbon product into different battery chemistries in order to verify and benchmark the performance. The first and of utmost importance is the electrolysers. And for our equipment, it's all about operability, it's about size, and it's about speed. The smaller volume we test in, the faster we get the results and the cheaper the testing process is. So during 2024, we have been investing into new equipment, and we now have 4 different sized test cells, basically the same principle functions, but slightly different purposes. We do our most fundamental studies in the smallest unit we call the micro cell. For further technology verification and the cell we now run 24/7, we use the lab cell, which has a volume of 4 liters. End of the year, we will have a 40-liter scale cell installed where we will do pre-pilot testing work to monitor larger volumes. And for more extensive volume testing, we can use the 100-liter production cell, but we're not using that much for the time being. And we expect that this equipment will be sufficient for us to conclude on our technology going forward. And as such, we don't expect further larger investment into this area. Secondly, the separation unit removes carbon from the electrolyte and rinses and recycle the electrolyte. And we have developed a method for more than 95% electrolyte recycling. And this, which I believe we have also communicated before, is extremely important for our cost cutting and effective competitiveness. And finally, we have filed a patent also for this equipment. Thirdly, on the battery lab, which is now up and running, we have equipment for testing of product in different battery chemistries. The lab will allow us to conduct in-house coin cell manufacturing and performance testing, significantly reducing the development time and time to market. Material testing and production of battery cell has started, and we have successfully fabricated a number of reference test cells. This initiative is also very much welcomed, and we have received very positive feedback among key stakeholders. So we continuously develop our technology, I would say, in all aspects of our process. And our testing shows steady improvements, but our process still requires optimization to meet the quality requirements from the industry. This is also something we communicated during the last quarter. So we are not there yet that we are meeting all the market specifications for the battery industry, as the requirements are stringent as we have seen for Huchems specifications. But while the complex process has taken longer time than anticipated to develop, we are indeed narrowing in on the process window by exploring optimized routes to also close in on the specifications. The technology barrier is high, but so is the reward when we are there. I am confident that what we do now is the right thing to do, that our efforts and our full focus towards technology is the correct priority, that 100% of our focus remains on process quality and advancement in testing equipment that speeds up our progress. So in order to summarize, I will say that we are continuing with the activities for technology development, and that remains as a key focus as the European battery value chain is still very early into the cycle, and that is important to remember, it takes time to build this new industry, improvements and extension of our production facilities, speeding up our technology development. Several new partnerships are signed, ongoing discussions with other partners, reshaping the organization to fit with the strategy and the status of the company. We are documenting a reduced burn rate, and we are anticipating a further reduction going forward. And our focus and strategy remains on this process optimization, product customization and on securing technology development agreements with major industrial players. That concludes my presentation, and we are opening up for questions.

We are indeed seeing a lot of bad news in terms of European battery initiatives. But it's important to remember that Bergen Carbon Solutions is a raw material supplier. We can deliver our carbon to many different users. And when I say users, there are many different potential customers in the battery value chain. We are not dependent on European players. We have a global footprint. So I would say that we are not that dependent. And it's also important to remember that some of our customers can be chemistry companies. It can also be fossil-based graphite producers, which want to have a greener mix in the product. So we are seeing a lot of varying potential clients. I would say that our dependency is very much limited. As I said, and I think that is important, European battery industry is new. We are seeing a lot of companies which are reporting delays to the progress. I would say also that what our progress is showing now is good news. We have a good progress. We are doing good improvements in the technology side. We're signing important intentional agreements with partners. We have a reduced burn rate. We are in a good financial state. We're building the organization, and I'm confident that we will meet the requirements and be able to deliver in the end, but I will not today give exact timing forecast to that.

Will the company be relying on various support initiatives and policy solutions like public grants, et cetera, to be active?

I mean we are active into that market. We are applying towards different environments, but we are definitely not dependent on that. But we think that many of the geopolitical framework is benefiting us going forward in terms of how it fits our equity story.

I'd like to -- just on the electrolyte recycling business, do you see any scope for commercialization of that on a stand-alone basis? Or do you think it will just be an advancement of your process?

Yes. I mean the consumption of electrolyte has been a major part of our cost rate previously. I mean what we will do with the recycled electrolyte, we will basically reuse it into our process and basically keep this as a closed cycle. So we don't have a business proposal for that particular area in itself.

It seems appealing.

Very appealing.

It could probably have effects on many sort of electrochemical processes throughout the world, I guess, I would say.

Yes. And that's why we are patenting this as well, because we think it's so important.

But yes, can you elaborate a bit on the cash burn that you've been able to cost in this after you've ramped up your testing?

I mean the fact that we are investing in smaller equipment means less electrolyte. It means less consumables in all aspects. So it's considerably more cost effective to run testing at these new units instead of the 100-liter big unit previously. That is one element. We have standardized on many of the input permits for that testing. But I would say the most important is the headcount. We are seeing a reduced headcount, different profile of competence. And that is the major contributor to the reduced cost burn, hardly any consultants, staff, people. That's basically the most important element of it.