Endomines Finland Oyj (PAMPALO) Earnings Call Transcript & Summary

Welcome to Endomines' webcast. Today we are talking about the '24 financial result presentation, and what it will show is the significant turnaround that was achieved last year, creating the foundation for the future growth. My name is Kari Vyhtinen, and I'm the CEO. With me here today is Minni Lempinen, our CFO.

Hi.

And Anni Turpeinen, our Communications Manager.

Hello. Good afternoon.

And Anni will help with the Q&A session after the presentation. So today, I will start with the presentation and I will go through the highlights. And then we go through the strategy update, including production and exploration. Then Minni will have a financial review. And after that, I will finish with the strategy and with the guidance, and then after that we have a questions and answer session. So please type your questions to the chat, and questions can be presented in Finnish or English language, and we will reply in the same language then the question was asked. But let's go to the details. We start with the highlights. The July-December '24 was really significant time period for Endomines. We really had a significant turnaround in the business, both operationally but also financially. Like if you look at just our revenue, the revenue grew by 74% to EUR 15.6 million, and that came from 2 sources. So we had a successful production, we increased the production by over 20%. And then the gold market was extremely strong, so that also helped us during the second half of the year. The group EBITDA was 25%, so also they are very healthy level. But if we look at the Pampalo production segment figures, the EBITDA was 40%. So we are extremely happy with that, actually, that we have reached this high level compared to previous year, when it was 10%. And the net result of the group was also EUR 1.3 million compared to previous year, minus EUR 3.5 million. So very pleased with the result, and really want to thank everybody at Endomines and also our partners for the great work done. If you go back on what is Endomines and what is our vision, so we are a Finnish gold producer. Our operations are based in the Karelian Gold Line in Eastern Finland, very close to Ilomantsi. It's an Archaean greenstone belt where the geology is very favorable for gold mining and exploration, very similar to the biggest gold production areas in the world. And our vision is to make this significant production area in world scale. And what does this mean? It means that there is millions of ounces of gold production, several production locations. Naturally, it will take time. We are still in the early phases, but the potential is there and the geology is there. That's the most important because that you cannot transfer. And we own the rights for the belt almost as a whole. But there is also now changes. In the previous year, we also discovered that there is tungsten and molybdenum in the area. So that's something that we will focus more in the future. So -- because those are critical minerals in the European Union, and we will focus more also on those minerals in the future. In the Karelian Gold line, we have a place called Pampalo, and at the Pampalo we have -- we are mining gold and then we have a mill where we produce a gold concentrate and that goes to Boliden for processing. And then we perform exploration in 2 main locations, the Northern Gold Line and then the Southern Gold Line. We also have some mining operations in Hosko that was started last year. If you think about our strategy, we changed the strategy in '22. And the change has been absolutely fantastic since we did it. So we have -- like we have 4 main areas in the strategy. One is that Pampalo is the center for our production, and we grow the production volumes each year. And we have -- very successfully have done it. And if you look last 2 years, our revenue has increased by 113%. So we have over doubled the revenue, and we have successfully each year increased the volumes. Then one of the most important points, if you think about the long-term, where does the growth come from? It comes from exploration. So we started large-scale exploration in '23. And in the last update, we increased the resource base significantly. Now we are actually just reviewing the '24 drilling results and updating the resource, and that will come out in the next 4 to 6 weeks. But that's very important to have a large resource, first, 1 million ounces so that we can take the company's production to a new level and then beyond. We also have some assets in the U.S.A., and those are not the strategic focus area for us. So we are looking for a partnership arrangement, that can mean that we divest some of the assets or we have a joint venture or something like that. We have been doing the negotiations now for some time, but we are still confident that we will get to the result. And then ESG is really center of the business. So we want to do things in the right way. So we want to take care of the environment. We want to take care of the people, our partners and the people who live close by. So be very open in the discussions that what are we planning to do and how we do it and take the feedback from all the stakeholders and then design our operations based on the feedback. And if you look last years what we have achieved since we changed the strategy in '22. So for example, just the group EBITDA, so we had a negative EUR 6.4 million in '22, now positive EUR 5.8 million, so absolutely huge change. Pampalo EBITDA, even bigger, so we had a 5% EBITDA in the Production segment in '22, now 36% and over EUR 10 million. So increase in revenue, at the same time increase in profitability, and that has really made a huge difference. And then EBIT in '22, it was minus EUR 15.5 million and now EUR 2.6 million positive, so also there a very significant turnaround. U.S.A., there has been a lot of questions that what is happening with the U.S.A., and we have been negotiating for quite a while now. We still don't have an answer. The assets were bought in 2018, 2020 for EUR 44 million. And our aim is to achieve the partnership agreement as soon as possible. When that will be, we don't know exactly as yet, but we want to get to the finish as soon as possible because we have also some costs in the U.S.A. We want to keep the assets in a good condition. So last year, our operating cost in the U.S.A. was EUR 0.7 million. But there are also other things that it takes time of our key people, and we want to find a solution as soon as possible. Sustainability. We published a new ESG program that was approved by the Board of Directors in December last year, and there are 6 points. It's an ambitious program, but we want to be ambitious, clearly above all the minimum requirements. We want to really achieve change in the industry. So there are 6 main areas, like one is the climate, we want to have a CO2-free production by 2035. Water, it's a key element in Finland. Everybody in Finland loves nature and lakes and so on. And if there is any discharge waters, we want to keep -- ensure that those waters are clean. We don't want to pollute any lakes or anything like that. We love the nature. Biodiversity, so we restore any areas that are not anymore used, at the same time when we finish, so not leave like big areas unrestored when we leave the area. As soon as some area is mined, then do the restoration and move to the next area. Personnel, safe and pleasant place to work. That's the key. No accidents. Everybody comes to work and returns home safely. And then the community, we have a very strong support locally, but it's because we communicate a lot. We tell what we are doing. We invite people for a visit. We have information sessions and take into account the feedback that we receive from the community. And that's something that is extremely important, and we want to continue that way. And then on the governance side, we want to work in an ethical way and train our people so that everybody knows what does it mean. How should they operate that we do the right things in all the situations. This is something that will now go to implementation. It was just approved in December, and we are very excited about it and believe that it will really make a difference. If you look at the production in '24, we had -- first, the market -- the gold market has been extremely strong. And like when you follow the newspapers and news, there is a lot of discussions about the gold market also. And currently, even today, I think the gold is hitting all-time high levels. So we are above USD 2,900 today per ounce of gold. If you think about last year's result, the gold was actually at the $2,400 level. So currently, the gold price is approximately $500 per ounce at a higher level than last year. So when you look at our results, they are based on $2,400 gold price. And currently, we are at $2,900 level. So the gold price has really increased significantly. And the main reasons for that is that there is so much uncertainty in the world. And now Trump being a President, that has also affected the gold price because there is talks about tariffs and so on and China and U.S.A., what is the trade situation and so on. There is also a forecast that the Fed will lower the interest rates. Like when you look back last 25 years, every time that has happened, then that has affected also the gold price in a positive way. So the outlook is very strong. There is also speculations about currencies -- new currencies that could be linked with the gold. And -- so it's very interesting times. And currently, the outlook is very strong. In Endomines, we haven't hedged any of the production at any level. So we strongly believe that this strong price level will continue. And therefore, we haven't done any hedging on the gold price. Any changes will affect our revenue immediately. So we are working on a, sort of, every month spot price. If you look at the production last 2 years, we have increased the production by 66%, so it has been a big change also on the production side. And each year, this is something that we want to continue. Last year, we produced 14,300 ounces and the growth was over 20% during the second half of the year. So we had a -- even there were some production difficulties, we had a still strong growth on the second half. And we estimate that in '25, the annual production will be between 16,000 to 22,000 ounces, fairly wide range, but that's due to the fact that there are some variables that will happen this year, and we are still fine-tuning the plans, and therefore, we have a fairly wide range in the guidance. But I think the main point is that we forecast strong growth on the production volumes also for this year. And our target is to increase the volumes every year. Then if we go to exploration, and look at the big picture in the Karelian Gold Line. So at the Pampalo and Hosko, we have the production facilities. Hosko is the new mine that we started last year, and now it's operating underground. So we want to also increase volumes from Hosko and we increase volumes from Pampalo. And at Pampalo, we have excess capacity. So that's very important. We can increase the production volumes without any major investments at the mill. So that's very important. But then the exploration focuses on 2 main areas. We have a Southern Gold Line, and we have a Northern Gold Line. And at the north, we have Kartitsa, where we did some exploration in '24, and we want to continue in '25, '26 and make a resource. Currently, there is no gold resource yet. And in the South, we are looking -- we have a significant gold resource, and we are looking to increase it and then take it to production. We have done permitting now for 1 year. So we estimate that this area will go to production in 2030, and that will take the company to a completely different level in size. So we are doing the permitting and environmental impact assessment as we speak in the South. And Southern Gold Line, there is -- the resource is currently -- in the last update in '23, it was approximately 150,000 ounces. And since then we have done drilling, so we are currently updating the resource, and that will be published in the next 4 to 6 weeks. We have done a lot of base of till sampling, which is done before the drilling. And from the base of till you get indications where there is gold and what are the areas that you should be drilling at. And we have hundreds, or several hundred samples where there is indications of gold, and those areas we will be investigating in '25 and beyond. But we believe that there is a lot of potential in the area. There is also tungsten and molybdenum in the South, especially in Kuittila. And tungsten is one of the critical minerals in the European Union. There is 40 minerals that European Union has defined, that they are critical. And that's something that we really want to investigate and take also the tungsten into production in 2030. Very, very important item. So we see that there is a lot of potential. Currently, we are doing the permitting and this will take us to the next level of 70,000 to 100,000 ounces, and it will also include tungsten and molybdenum. If you look at the development plan and how this will happen, so in '24, we did nature surveys. We did also the environmental impact assessment program draft. So it's almost done. We will launch the program in March, April, and then it goes to the report phase and permitting phase. So we estimate that we have the environmental permit in place in '28. And then at the same time in '27-'28 when there is the technical design ongoing, we will finalize the financing negotiations. And then in '29, we are building the new facilities and 2030 take the area into production, and then the production will be raised to 70,000, 100,000 ounces. And if you think about today's production or last year's production, it was 14,000 ounces. So this is 5 to 7x more than the current production. So there is a significant increase that we are planning to do. And we would like to emphasize that we have permitted 4 mines in the area. So we know quite well how it's done and what is required to start operations in the Karelian Gold Line. Northern Gold Line, also very, very interesting. This is a new area. There has been some preliminary studies done in '22, '23. But in '24, we actually went there first time and we did some drilling. And on this picture, on the left side, you can see some magnificent drilling results that we got in the area. So we did 2 campaigns, one in June, and we got some promising results. So we went back immediately in September, October. And those -- the second campaign confirmed that there is actually a wide gold mineralization that is very continuous. And in this Kartitsa area, this is just scratching the surface, like there is a big area where we have done magnetic surveys, and these surveys indicate that there are similar structures in the other places of the Northern Gold Line. So we have a lot of work to do in '25, '26, but we are very excited about the potential that this will create. Then just what we published this week, Ukkolanvaara, this is like a textbook example of a gold -- potential gold deposit. So when you look how the gold deposits in the world, how they usually occur, they are often in the shear zones connected to iron mineralization, and this is exactly how it is here. And that was the reason why we went to take some samples. We took 73 samples and 30% of them had gold, and they were actually significant grades also. So we will -- we see that the potential is so great that we will go here in April, May and start doing some drilling. And hopefully, those drilling results will confirm the potential that we now see. And then the critical minerals, like this is really, really important item. And when we think about tungsten, when we think about molybdenum and when we think about the world today, there was just -- last week, there was -- in the news, there was stories that when Trump was raising the tariffs towards China, then China replied that they will limit the exports of tungsten to the U.S.A. So this is really important mineral. It's actually used in the military. It's used also in, for example, in drilling, like U.S.A. has a big ambition to drill oil in the next 4 years. So tungsten will be required, and there is a shortage of tungsten in many areas, like the tungsten supply, because China controls 80% of the global supply. Then the other big suppliers, there is Russia, there is Vietnam and so on. So it's something that we see that the importance will grow over the years. Like we are still in the early phases. In '22, '23, when we were exploring the Southern Gold Line, we were focusing solely on gold. And if we hit tungsten, then that was -- that didn't get much attention. But currently, we are looking both options, really focusing on both minerals because it's -- we see that the importance will grow on the future years. Okay. So then that's my part. I will give the floor to Minni and continue after Minni's presentation.

Thanks. Let's start with 3 main points of 2024. We had a positive turnaround in group financials. EBITDA, operating result and net result, all positive. The cash cost has remained at a low level, even though we had some difficulties in production in H2. And the gold price is high and it's supporting financials. Here, we can see the group financials for H2 and full year 2024. In H2, the revenue increased by 74% compared to the previous year. Group EBITDA was 25% and operating result 16% of the revenue. In full year 2024, the revenue increased by 46% compared to the previous year and group's EBITDA was 20% and operating result 9% of the revenue. The turnaround from negative to positive has been significant. Here, we have the financials divided into reporting segments. Pampalo production, here in red, is the most important segment. The group's revenue comes entirely from Pampalo. Pampalo's EBITDA, 36% and operating result, 30% of the revenue. The Karelian Gold Line segment includes only payroll and other operating expenses. Exploration costs are investments in the balance sheet. The U.S.A. Operations segment's expenses remained moderate, around minus EUR 0.7 million in 2024. The amount was around minus EUR 1 million in 2023. Other operating expenses in common functions and unallocated items include, for example, legal and advisory expenses and also other expenses that are common to Endomines Group. In 2024, the cash cost in Pampalo has remained at a low level. And at the same time, the gold price has been 24% higher than in 2023, on average. The high gold price together with the strong USD rate has supported the growth in revenue and cash flow. The gold price is estimated to stay high also in 2025. Group's financial position at the end of 2024. Cash balance was EUR 2.1 million; net gearing, 32%; and equity ratio of 54%. In 2024, new convertible loans of EUR 3.8 million were agreed with the current owners, and EUR 7.4 million were converted to shares. This year in January we announced that we are preparing a financing package of around EUR 10 million to speed up the development of the Karelian Gold line. We have already announced that EUR 2.3 million of the package are convertible loans, and that's basically all we can disclose now. We'll tell you more about the new strategy and financing in spring '25. Thanks.

Yes. So to finish the presentation, just to say that we are entering a new phase, like we have made a significant turnaround. We are very pleased with the result. But the journey is still just in the beginning. Like we want to take the company to a completely new level. So we want to increase the production each year. We are taking the new areas into production, like, for example, the Southern Gold Line. And then after the Southern Gold line, hopefully, the Northern Gold Line and then there is the potential for Ukkolanvaara. So we are looking for strong growth. And the strong growth means also investments. So we are entering a new phase where the focus will be more on the technical and economical design and studies related to the expansion. So we have done now permitting for 1 year. And now it's time to go a little bit more detailed and start to really design the process. How do we get the tungsten also product included. How do we get the molybdenum. How do we ensure that the expansion to 70,000 to 100,000 ounces can be done in the most cost-effective way and sustainable way, taking care of the -- also the environmental side. So this is the next phase. So we will update the strategy. Like this is something that we are now planning to do, and this will happen in the next -- I would estimate in the next 3 months we will update the strategy. And it's not going to be a huge change that we completely change everything. But we want to include, for example, the critical minerals. We want to be more precise on the actions that we -- what we plan to do in the next 5 years, and give a little bit more light to our plans to everybody who is following our journey, our golden journey. So this is something that we will do. And therefore, we have also announced just like Minni said, that we are looking for a financing to ensure that this can be completed. How we see it is that there is -- of course, now there has been a significant turnaround, so that helps us. There is a strong gold market that helps us. But just to ensure that everything can be done, we are looking for -- looking also that our financing has to be solid and our financial position has to be solid. But it can be also that this is something that is agreed, but could be done in phases because currently we are in a situation that also the financial situation and the growth and the gold market supports our journey towards higher levels. And the next step that we want to take is to increase the production to 16,000 to 22,000 ounces this year. So it's a significant increase. So if you think about we are now in the 14,300 level, and we want to increase it to 16,000 to 22,000. That's a significant increase. It will not require investments -- significant investments for the mill. However, it will require that we invest into the mines. So we accelerate the work at the mines so that we can go to the higher production level. And our target is to increase production each year. This year we estimate that the growth will be higher during the H2 than H1. But very pleased to be here, significant turnaround, exciting things happening, good results in exploration in '24. Everything is proceeding as we have planned, and we aim to keep it that way also in the future. So thank you very much. And now it's time for the Q&A session.

Okay. Thanks. So we will now move on to the Q&A section. We have had actually quite many questions here in the chat, and thank you all of them. We have received questions both in English and in Finnish, and we will answer the questions in the language in which they are sent. The first question is, in which locations in Ilomantsi and in the U.S.A. does Endomines have critical minerals? And what kind of business opportunities could critical minerals bring for Endomines?

We have the critical minerals, they are in the Karelian Gold Line, and they are actually in the Southern Gold Line area, especially near Kuittila. And like we -- it's a situation where there is the gold deposit. And these critical minerals are not actually connected with the gold, but they are in the side rock, but they are so close to the gold ore that we would need to mine the side rock anyway to be able to access the gold. So it's a very exciting opportunity. We see that there is -- there are 2 points, like with critical minerals it's very difficult to predict the future because the demand is growing so fast, and also the importance that the supply is close to the place where the mineral is consumed. So we see that there is a lot of potential. Like in the Kuittila area, currently, the global supply is 60,000 to 80,000 tonnes, and we estimate that from Kuittila, it could be 0.5% to 2.5% of the global supply. That's just roughly, it can change. And what it would mean in money, it could be anything from EUR 5 million to EUR 100 million per annum. But currently, the prices are really increasing a lot because of this trade war and so on. So it's very exciting times. But it's also the thing that it's important for the European Union. It's important for Finland, and we want to be there to help with the supply.

What are the main drivers behind production growth this year? And what are the reasons behind your estimate growth to be greater in H2?

The drivers are that we have been continuously investing into the mines. So if you think about the underground mine, for example, what does it mean? You have to -- in the underground mines, you have to build tunnels to access the gold. So we are accelerating that work continuously. We're also accelerating Hosko, like that's a new mine that we took into production last year, and it's now going underground, and we are accelerating the work. And then we continue the Pampalo, there is the open pit. So the growth will come from having a steady flow from free sources. There are also options that we are reviewing. Like for example, at Ramepuro, there has been gold mining done and the permits are in place, and we are reviewing that should we take that one into production. It won't be like a very big change, but still bring some additional growth for '25 and maybe also beyond. So that's something that it's -- so we speed up the current locations and at the same time, look at the new options that we have in the area.

What was behind the positive development regarding cash cost despite production difficulties? And do you see still room for improvement?

Yes, that's a good question actually because we had to lower the guidance last year. And -- But still we had a significant growth. Like during H2, we increased the production by over 20%. So the positive development -- even there were some difficulties, the positive development came from the increased volume. And that's how we see also the future, that we have to increase the volumes continuously to also lower the cost level in the future.

Would you give a little bit more information on the process in the U.S.A asset solution? What sort of parties are interested in them?

Yes, there has been many discussions on the U.S.A. assets. Usually, the assets are fairly small. So like the big major mining companies, they are not so interested. There are other smaller or medium-sized companies that are interested. And usually, they have different agenda. Some companies might have some assets and they would like to combine these assets and go public, for example, or just create a growth story that is a long-term story. And then some companies would just like to go to production, Friday's is almost ready to go to production. So they would like to go to production as quickly as possible. So there are several companies. It has taken longer than anticipated. Like I think in the beginning, the financial market was not so strong. Currently, the strong gold price supports the negotiations. There is quite a lot of interest. But in this kind of situations, when you discuss about selling, for example, assets or joint ventures, the process goes often so that when you go to detailed negotiations, you only discuss with one. And it can take a few months and then either it goes ahead or it doesn't go ahead. And if it fails, then you have to start with a new one and you sort of start from the beginning. So it's a long process. It often takes 2, 3 years. And in my opinion, it's okay. The main thing is that we get a solution that is good for the company, good for the shareholders and also good for the party who is -- who we discuss with. So it's a win-win for everybody.

What are the variables that effect on where you land between the guidance, low and high?

The variables are -- it's -- there are some -- like how fast we can accelerate the production at the mines. We are fairly conservative because sometimes there has been also challenges, and we want to be on a conservative side. But that's the thing that how fast we can develop the infrastructure and accelerate the production at the mines. It's not so much related to, for example, permitting or something like that because we have all the permits in place. So it's just that there are several locations and how do we balance the production from each location. Because, for example, at underground, the grade is the highest. So if you manage to increase that production side a lot, then the effect on the total gold production is the highest.

The following 2 questions are in Finnish, so we will also answer it in Finnish. [Foreign Language]

[Foreign Language]

[Foreign Language]

[Foreign Language] Maybe I can also explain in English that just -- there was a question about the permit situation that how -- where do we have permit applications in place? So we are currently permitting a small open pit, which is Pampalo Northwest, and we expect to get a permit decision next year, hopefully. And then we are also permitting the Southern Gold line. So we have been doing that for 1 year and expect the permit decision in '28.

[Foreign Language]

[Foreign Language]

Endomines has been releasing promising exploration results from Kartitsa. How do you see the potential of Kartitsa in the future?

Kartitsa is really exciting. It's really exciting place because often in the gold exploration, it's fairly scattered. So you have gold grades in different areas and then you have to mine a larger area to actually have a gold production. But in Kartitsa, it seems to be wide and continuous mineralization, and we just discovered it. So we have just scratched the surface. So we are very excited and believe that there is a lot more that can be found. And it's also like these magnetic maps, so we have done surveys with drones. And these maps on the larger area, they really -- they indicate that there are similar structures close to the place where we did the drilling and where we got the good results. So it's not very common to have this kind of 20 meters, 2 grams, what we got in Kartitsa, in many places. Usually, like for example, if you think about gold production in the current gold price, to have an open pit mine like 1 gram per tonne is enough to make profit. And here you have like 20 meters, 2 grams. It's a very, very potential area to have a profitable gold production.

And how much drilling is planned for this year as a whole?

We are going ahead full speed as we have done now after '23. So I think we are somewhere between 20,000 to 30,000 meters. And we are starting the drilling in April. So we now -- January, February, March, we will do the resource updates, the planning. And then in early April, we start the drilling, and we will go full steam ahead. And that's also the reason why we have published about plans to look at also the financing options.

And the next question would be the last one. You recently launched a new sustainability program. How do you plan to turn these -- the goals into actions?

Sustainability is really key in mining. So you really have to take care of the environmental side. You really have to take care of people. It's all about the people. And how we plan to do it now, we have ambitious program. So each of these targets, ambitious targets that we have, we will have a project group, and there is a leader who is leading the group to take the actions into reality. And then we have steering groups, and I will personally be involved to ensure that this will go ahead because we really want to be a company that is making a difference and doing things in the right way and really in an ambitious way. And this will be incorporated now when we are planning to take the Southern Gold Line into production in 2030. So this new program and the principles of the program will be incorporated also into these investment plans that we have in the Southern Gold Line. So we believe that it will be a world-class gold production facility, or should I say, gold, tungsten and molybdenum production facility that we will create in the Southern Gold Line. Thank you very much for good questions and for following the presentations. And -- thank you.

Thank you.