Endomines Finland Oyj (PAMPALO) Earnings Call Transcript & Summary

Hello, everyone, and welcome to our webcast. Today, we will present our new long-term business targets and the updated strategy for the years 2025 to 2029. Our CEO, Kari Vyhtinen, will soon explain the strategy, detailing its components and describing how we plan to achieve our goals. My name is Anni Turpeinen, I'm the Chief Communications Officer here at Endomines. I will be hosting the questions-and-answer session right after Kari's presentation. Feel free to send your questions via chat during Kari's presentation, and we will go them through together afterwards. And please type your questions in English. Thank you already for joining us. Now let's get started. Kari, the stage is yours.

Thank you, Anni. Welcome, everybody. Very happy to be here today. I will try to answer 3 questions today. Why this was done? Why was the strategy update done? What were the main reasons? What does it mean? What are the long-term targets? And how do we get there? What actions are needed and how do we get to the targets that we have published. And then we will -- at the end, we will also discuss about financing that how do we finance the strategy journey during the years. If we start with a little bit history. In '22, we introduced a new strategy for Endomines, and it had 4 main points, like the Pampalo was the center of production, very strong focus in exploration. And then U.S.A., we concluded that we don't want to invest in the U.S.A., we want to have a partner to help us in the local market. And then ESG is really important and center for the business development and also our strategy. And since then, we have achieved exceptional turnaround. We have managed to go forward in the strategic fronts and the revenue has increased by 113% and it comes from 2 main points that we have successfully increased production volumes each year. And then there is also the gold market, which is very strong and supports the revenue growth. In exploration, we have gone from less than 200,000 ounces gold resources in the Karelian Gold Line to almost 0.5 million ounces in the gold line. So significant increase, 148%. And if we continue with the resource upgrade, here, you can clearly see that before we changed the strategy, the gold resource level was almost the same for some years. And since the start-up, we have successfully increased the resource every year. So this means the amount of gold that we know exists in the Karelian Gold Line. Now we are entering a new phase, and therefore, it requires update in the strategy. We are entering a phase where we have to prioritize permitting. We have to prioritize permitting and technical financial planning, how do we get these assets into production. Like we are now confident that there is gold in the Karelian Gold Line. There is more potential. We know how we will find and upgrade the gold resource in the future. But how do we get it to production and what kind of production facilities will exist in the Karelian Gold Line on a long term. We also want to incorporate tungsten and molybdenum. Tungsten is a critical mineral. We will come back to that later, but we want to incorporate that into our long-term plans. And then the sustainability program, we have a very ambitious sustainability program, and that's something that we want to ensure that, that program gets also implemented into the actions that we conclude. And really important to note is that we want to use -- now we have a lot of information from '22 to '25. Like when we started, for example, the exploration in '23, we were mainly using the old data from geological survey of Finland or Outokumpu. But now we have a lot of Endomines data. We are very confident that this data will guide us through the next strategy period, and we can deliver the results. And the new strategy, we have 5 main points. So it's updated. It's not completely new. It's an updated strategy. So there is also same points exist than in the previous. Pampalo remains the center of our production. So we want to focus in Finland. We want to focus in the Karelian Gold Line. It's archean greenstone belt with a lot of potential. So that remains the same. Exploration, that's the tool that enables the long-term growth. So also that point will remain the same. But however, now we have a lot more -- a lot clearer targets that what do we want to do and how we are going to do it like before it was more generic. Then the next point is very interesting. We want to lift the critical minerals into the strategy. We see that this is very important for the company, and during the next 5 years, the importance of the critical minerals will grow. Like we truly believe that we have just seen the start of this kind of geopolitical tension and countries trying to secure the minerals, and there is a lot of potential to develop the tungsten and molybdenum into products. Then the financial stability, that's very important also that we want to separate us from many junior mining companies who are making many financial rounds per year, so that have a more stable financial backing in the business. And then the sustainability that we perform all the actions in a sustainable way, very important, like that's the only way we want to do things, we want to do things in an ethically correct way. And therefore, we have published new targets, and we start from the exploration. We want to define a gold resource of 1.5 million to 2 million ounces by the end of 2030. So more long-term target gives us flexibility between the years, but then clear target that this is ambitious level, requires a lot of actions to get it done, but we are confident we can do it. The annual gold production level raised it to 70,000 to 100,000 ounces around 2030. So this is a target that we have had before, but just to highlight it that this is also our strategic target. And then the tungsten and molybdenum production that we started at the same time when the gold production level is increased to the higher level. And then the fossil-free gold production by 2035. So one of our main targets from the sustainability program is lifted to the long-term strategic target. And if you look the sustainability program as a whole, this was approved by the Board of Directors in December last year, and it has ambitious targets like the biggest focus, I would say, if you think about the environmental side, will be the water. Finnish people love lakes, love nature, and we want to ensure that the water is always clean, like if there is something discharged from the mining area, then that doesn't pollute any rivers or lakes or other water reservoirs. And then the climate, very important that we make the actions towards the fossil-free production. Biodiversity, there we have -- that we want to do the restoration of sites or areas that are not used ongoingly. So when we go to the new place, then we restore the previous place and don't leave a big backlog for the future. It's all about the personnel. In every company, personnel make the success. So we want to keep the people that work for us, that they are safe and they're also happy. They want to work for Endomines today and also for the long term. Community, we keep a lot of information sessions in the Karelian Gold line, and we want to be a partner that openly shares the information, continuously has a dialogue with the local people and local businesses. And then the governance that we ensure that the business is -- that there are ethical practices and most importantly, that our people know what the practices are. So if they are faced with difficult situations, they know how to act in those situations and that there is a certain way of working within the company. So how are these ambitious targets achieved? We see that these 2 targets are very closely connected that we have the gold resource, and then the production. And current level is that we have approximately 0.5 million ounces gold resource in the Karelian Gold Line and the production last year was 14,300 ounces of gold. And then the long-term target on the exploration is 1.5 million to 2 million ounces by 2030 and then 70,000 to 100,000 ounces of production around 2030. So we increased the resources and that enables the growth in the production as we have more resources that we can utilize in production. So it requires significant focus on exploration activities. And the exploration is done in 2 main areas, like we have -- the production is in Pampalo area, but then we have the Southern Gold Line and we have the Northern Gold Line. And if we think about today's situation, we have the 0.5 million ounces resource and a little bit over half is in the south. It's in the Southern Gold Line, and that has increased by almost 400% during the last year. So in '22, there was only 70,000 ounces and now 270,000 ounces, very, very significant increase. In the area, there is also tungsten and molybdenum. And this is the area that we want to take the production in 2030. In the North, however, we have defined very interesting mineralization. However, there is no resource yet because the resource is what you need to do to classify that you have a resource is that you need to have a certain drill like the spacing between the drilling that you do in the area. And we have been looking at the wider space until now. So we don't have the resource yet, but it's very simple to change it to resource by doing additional drilling within the same area. So that's something that we will focus in '25, '26. And how it's done, like we have now identified that, for example, in the Southern Gold Line, we have drilled approximately 20,000 -- a little bit over 20,000 meters and the resource has increased by 200,000 ounces. So we are using the same guidance that we -- when we drill 10,000 meters, we believe that we will get approximately 100,000 ounces of gold resource. We also have -- to support this, we have these areas like the Northern Gold Line, where there is yet to be defined the resource. However, we are very confident that we know where it is. So a lot of the work has been done, but there is no resource. It just requires a little bit more drilling. And if we think about last year, 0.5 million, now we see that in the next 5 years, we need to drill approximately 120,000 meters. And that means that the investment is approximately EUR 20 million to EUR 30 million within 5 years. So EUR 4 million to EUR 6 million per year. And that will result in a much higher resource, and we estimate that, that will be somewhere 1.5 million to 2 million ounces of gold in the Karelian Gold Line. And at the same time, we are also doing drilling to define the tungsten and molybdenum resources. So when we do the drilling to define the gold resource, we are also looking at the tungsten and molybdenum and making the resources that supports later to take also those metals into production. And the larger resource that enables us to increase the production volume to the higher level. And here, we -- if we think about last year, 14,300 -- approximately 14,300 ounces, we have excess capacity in Pampalo. We don't need to invest a lot in the production plant, so we can increase the production volume steadily. And we see that in '29, it will be somewhere approximately 25,000 ounces, could be a little bit more or a little bit less, but approximately 25,000. And then when we take the Southern Gold Line into production around 2030, that will take it to 70,000 to 100,000 ounces. And if we think about the situation in '29, 25,000 and then the situation in 2030, 70,000 to 100,000 ounces. So the difference is approximately 60,000 ounces. And we see that to make it happen, we should have 600,000 ounces, clear resources in the Southern Gold Line, which means approximately 10 years production. So we need to increase the resource in the Southern Gold Line to be able to increase the production level to this level that we wanted to be in 2030. And at the same time, we will then also take the tungsten and molybdenum into production. And that's a big step for the company. But after that, the goal is to look at the next areas, like this could be the Northern Gold Line, for example, the Kartitsa. So we take that one into production 2, 3 years later. So the journey will not end in 70,000, 100,000 ounces. Our long-term -- longer-term targets are much, much bigger. And the Southern Gold Line development plan in a little bit more detail. last year, we did the nature surveys. We also started the environmental impact assessment program, and that will be launched in around August. And then we continue to the report phase. We continue to the environmental permitting phase. And we will also start next year to prepare the pre-feasibility study. The situation with tender mines is a little bit different than with many greenfield projects as we have production in Pampalo already today. So we know exactly how much it costs, like we know how much the mining cost in this area. We know how much the processing costs. So we are very confident with the results that we have today that at the end, this will be also financially feasible to take into production. And then from the environmental permit side, we are estimating that we would get the permit in 2028. And then we continue with the financing negotiations, have an investment decision and then proceed to building and then commissioning and lifting the production level to the new level. And then the next step after 2030 and also the activities that we are doing this year and future years is the Northern Gold Line. So there is a very potential deposit called Kartitsa that we defined last year. And this year, we want to investigated more so that we can define a gold resource late this year, early next year. And it seems to be very potential like there is a wide continuous high-grade gold mineralization, which is not common anywhere in the world. And the Northern Gold Mine development plan, it will focus a lot in exploration and then planning during the years. Next year, the plan is to start nature surveys in the area and then start the permitting activities in a little bit later. And then we will see and define next year, year after that what is the actual realistic schedule to take it to production. But first, we need to just do the exploration activities and really define the resource and then grow the resource. And then after that, we will start the activities towards production. Critical minerals. This is very, very interesting subject. And if you think about tungsten, it's 1 of the 14 critical minerals defined by European Union. And it's used in the defense industry. It's used in applications where you need extremely hardness -- extreme hardness. And it's very much controlled. The supply chain is very much controlled by China. So approximately 80% of the world's tungsten comes from China or is controlled by China. And then the other suppliers, they are Russia, Canada, Bolivia, Vietnam, Portugal and Congo. So it really is a mineral that is desperately needed in many applications and very much controlled by China. And if you have been following the news when Trump published the first trade tariffs, then China replied that they will not deliver tungsten anymore. So tungsten was used as a weapon in the trade war. And this is clearly seen that these kind of activities are more and more increasing in the world. And tungsten and molybdenum , they are found in the southern Gold Line. So in the area that we are currently permitting. And we estimate that if you think about the current supply, global supply, then approximately 0.5% to 2.5% of the global supply could come from Karelian Gold Line. Of course, we need to still -- we need to define the resource, need to do more drilling, but there is a lot of potential in the area. And the base of till samples, like in the exploration, it starts with the base of till samples. And then after that, you do drilling. The base of till indicates where the gold is and then you do the drilling to define the resource. And in this slide on the left side, you can see like all these blue colors near Kuittla, they are actually base of till samples with tungsten in the area. So there is -- the base of till samples, they indicate that there is a significant amount of tungsten near the gold resource. And we haven't investigated that area yet. So that's something that when we will do the drilling to increase the gold resource, we will, at the same time, perform activities to define the tungsten and molybdenum resource. They are very much linked together. So in the area that there is tungsten, there is also very often molybdenum. So in that sense, it makes the investigations easier. We are also assessing the opportunities to get critical mineral producer status. That is something that is currently -- it's not clear when the next application is going to be launched. So we haven't -- we cannot give the exact date, but next time there is a window that you can actually apply for the status, then we will do it. And most likely, it will be within 2025. So this year, very much production planning and permitting to get those also part of the overall expansion that we will do by 2030. Then the financial stability. Like mentioned already in the beginning, we want to separate us from junior mining companies that make several financing rounds each year. So have the stability to make more long-term planning and to have the flexibility to perform actions and scale up actions if needed, look at the opportunities that exist in the marketplace. And we now have -- very happy that we -- this year, we got the financing arrangement done, and that includes the up to EUR 8 million of loan. There is no commitment to withdraw all the loans. So it's flexible, but it gives us the flexibility. And then we also agreed to have an account limit of EUR 3 million from [indiscernible]. And then there is a bank guarantee and financing limits, which total up to EUR 1 million. So it was altogether EUR 12 million financing package. And very happy about it and very happy that it's a flexible package. So we can use it when we need it. We don't have to use it so that we can also save on interest cost and so on if we want to. And the plan is to use these funds on exploration activities, use them for permitting activities and process and technical planning. And then also to have the stability, I can't emphasize it enough that we have the stability that we have financing secured for a longer time period and don't have to think about it all the time. But part of the financing, of course, is the operational cash flow. And to conclude the presentation, just to show the gold price development. The gold price development has been very favorable. So we are currently above USD 3,200 per ounce of gold. And the reasons for that, they are the global geopolitical uncertainty, especially in the U.S.A., what will happen with the Trump administration. There was the trade tariffs. Now it seems that they are a little bit lower than was feared maybe a few weeks ago. But who knows about the future and then also what is the next item that will come to the surface in the coming months. And then there is also countries that would like to have -- like to be less dependent on U.S. dollar and gold might have their very important role, how that will be introduced. And then also, if you look at the history, if you look 25 years history, then when there has been interest rate cuts by Fed, then the gold price has increased. And now those interest rate cuts, they have been delayed in the -- if you look last 6 months. So when those are also commencing again, then the forecast is that, that will affect the gold price positively. The gold price exceeded $3,000 in March this year. So that was the first time ever. And since then, we have increased to approximately 6%, 7% to $3,200 level, and the outlook is very strong. So of course, we want our operations to be profitable and this cash flow from the operations will fund part of the strategy implementation. And then we have the financing package, which also gives us the flexibility and also the possibility to scale up activities if we so want to. Thank you very much. And now we have the questions-and-answers session.

Yes. Yes, it's time to move on to the questions-and-answer session. We have had plenty of questions here. So thank you, every one of them. But we have plenty of time as well. So let's start. The first question is related to the exploration and the huge target that we have there. The exploration target is quite massive. It's really -- is it really possible to define 1.5 million to 2 million ounces of gold resources on the Karelian Gold Line by the end of 2030?

Yes, that's a good question. But I think absolutely, it is. And like if I think about the situation in beginning of '23 when we started the exploration activities. And we used -- as a base for the planning, we used a lot of the historical geological survey of Finland and Outokumpu data that was quite old. And from the data, we defined that here is the potential and then we started to do the activities. But during the last few years, now we have a lot of own data, and we have more -- also the team is a lot stronger. We have hired more people. We have done modeling of the geology in the area, and we are very confident that we know several places where there is very high potential of increasing the gold resource, and we can target those areas with our activities and increase the resource. We are in a much better position now. And then we have this also like we have published that we have this Northern Gold Line, Kartitsa, it's something that is yet to be resourced, but we are confident it will be in the next 12 months. And then [Ukkolanvaara], published a lot of potential. And we still don't have even the results, but there could be a lot of potential there. And so we definitely believe that this can be done, and we can scale up the activities if there is -- if we see that we need to do even more than 120,000 meters of drilling, we can scale it up.

How do you see production developing between 2025 to 2029? When will be the 25,000 ounces production rate reached?

We haven't given an official time, but we are increasing the production levels like we have had the target to increase the levels each year. And like this year, we had a very good start, over 19% increase from previous year during the Q1. So we were very happy about it. And our guidance this year is that we increased it between 12% to 54%. So there is very -- we are -- the communication is that we are estimating that this year, it will increase a lot. And then after that, the goal is to increase it each year steps towards the '25. When it will be there, I don't know yet, but we will see in the coming years.

Could you elaborate the role of Pampalo, Southern Gold Line, Northern Gold Line in current strategy period?

Yes. Pampalo is the center for production. So we have the underground mine, we have an open pit mine and then there is the Hosko mine a little bit north, and then everything is processed at Pampalo. The Southern Gold Line is the tool to lift the production levels to 70,000 to 100,000 ounces. And there, we have some -- we have different options that we increase the size of the plant in Pampalo and deliver the material from the Southern Gold Line or build a new plant in the Southern gold line and that we are evaluating this year and next year. And then we make a decision which is the option that we want to pursue. And then the Northern Gold line is -- it just looks so potential like we -- of course, we could focus just in the south and get the resources higher and focus on upgrading the production level. However, the results we got last year, they are so promising that we really want to see what's there. And it's a different kind of geology. It goes a little bit technical, but in the south, there are a lot of these small veins and requires a lot of drilling to define where they all are. In the North, it seems to be sort of wide continuous gold mineralization -- so then it's a lot easier to predict -- to follow it and predict where it goes and that could be a lot faster way to increase the gold resource because then you can sort of plan that it seems to go there, let's drill there. Like in the south, you just have to drill everywhere and then the gold is there, but it requires -- it's more complicated, let's say.

Which is more likely processing facility in the Southern Gold line or expansion in Pampalo?

Yes. I have always said that personally, I think often, like if I look at the history where I have been often -- the result is that the existing plant gets upgraded, just because there is the infrastructure and so on. But here, I'm not sure actually, they both look potential options and then there is the distance between, is it 20 kilometers or so. So you don't have to transport the materials. And here, the situation is that it's so much bigger, the expansion is so much bigger than the existing, so it could be actually feasible to just make a new production plant and have 2, but that's yet to be defined. I think currently, it's 50-50 which we will choose.

What is the tolerance regarding the around 2030 production target?

We wanted to leave -- to say that it's around 2030. And we see that if you think about just the time schedule, the biggest item there is the permitting and how quickly the permitting goes. Like we have permitted 4 mines in the Karelian Gold Line. So we know how it goes. However, there are -- of course, there is -- there are items which could change a little bit. So therefore, we have put this around 2030. We believe that it's very close to the actual time, but there are items that could move like 1 year there, and then there is also the critical mineral status that if we get it, will it enable us to make things even faster. That's also yet to be seen.

And regarding the exploration targets, why the gold resource range is so wide?

Well, it's -- yes, well, I haven't thought about that before, but I think it's -- we just believe that it will be there during that time. And it's a good range. Like I think -- like when we had the previous target of 1 million ounces, it has become quite evident that, that target is too small. And we are now at 0.5 million ounces level, and we have the past experience that seems to indicate that when you drill 10,000, you get 100,000 ounces. So we drill approximately 20,000 to 30,000 per year. And then the end result according to our estimations will be somewhere 1.5 million to 2 million. But we just chose the range because we think that it will be there.

When you -- do you think you can publish pre-feasibility study regarding Southern Gold Line?

'27 -- during H1 '27, that's our schedule. Like we are doing a lot of the calculations. We have -- of course, we have internal calculations, and we are doing the studies. But just to get the process design done, it will take time, and '27 is the time.

Then we have questions about U.S. assets. Why there is no mention about U.S. assets in the new strategy or long-term targets?

Because they are not a strategic focus area for us anymore. And of course, we are doing now currently activities to get a solution for the U.S.A. and it has been an item that we have -- we are disappointed that we haven't been able to get it done until now and the work still continues. We are also confident that we find a solution during the strategy period and hopefully, as soon as possible. And it's not a strategic focus area at the moment. And we -- like after we have the solution and we know what's the future in the U.S.A., then of course, we can highlight it if we want to. But currently, there is just so much potential in the Karelian Gold Line. We just don't want to look the other way. It just looks very, very promising, and we are confident we can achieve great things in the area.

We have also a question about Friday mine. Why don't we open the Friday mine even though there are a lot of resources there?

Yes. Yes, it has been -- sometimes it has been tempting to think about it that you can increase the production, but it's just due to the focus we want to focus in the Karelian Gold Line. And if you think about investing that do we spend EUR 5 million in Karelian Gold Line or do we spend EUR 5 million in Idaho, we have chosen that we only spend the money in Finland. At the current gold price, of course, it's tempting to increase the volumes, but it's -- we are a fairly small company, and we just want to have all our people to have 100% focus in Karelian Gold Line and our Golden journey.

Then we have questions about critical minerals. What are the benefits for Endomines to become a producer of critical minerals? And wouldn't it be better to focus only on gold?

Well, there are many benefits how we see it. Like there is the critical mineral status, I think it could lift the importance of the Karelian Gold Line to a new level because there is also this kind of really shortage of tungsten in the world and especially in the Europe. But then it could also open opportunities like there is many cases in the mining world that when there is this kind of side product, then you -- then you have a partnership agreement with the industrial partner. And they -- what they offer is financing and might build the factory, for example, give some other financing so that this can be produced and then they take the offtake at a little bit lower price. So it's a tool that we can also increase financing opportunities within the company, like that's clearly one. But then there is also financial side that we believe it can be a business to have tungsten and molybdenum as a product. Like that's something that we are very confident on gold. But with tungsten and molybdenum, we still need some more calculations, but it's changing very fast, like it's also like the price of those products is changing because of this shortage of supply. But we want to do it that there is also business sense, like we believe there is. And that comes mainly from the fact that within Southern Gold Line, the gold is in one area, but then the tungsten and molybdenum is usually on the side. And we would need to mine the material anyway because it's just next to the gold. And then it would be this kind of side rock that is not used in anywhere. So -- but we would have to use a lot of the expenditure anyway to get it -- get the gold out, and this gives us the opportunity to mine it very in an efficient way and hopefully also produce it to the final product in an efficient way and get a good payment.

Let's continue with this topic. Do you think that the tungsten opportunity in Southern Gold Line is meaningful enough to achieve the critical project status?

That's interesting because currently, the European Union is changing the criteria, and we don't know exactly what the criteria will be. But we would like to emphasize that whatever the end result will be that will we get the status or not, we will go ahead. That's the current view because -- our planning has already started in '24. We are in the middle of the permitting. So we want to go ahead with these plans. And if they -- if it shows that it's feasible, then we want to go ahead even if we don't get the status. But the status would have benefits and like lift the whole importance of the Karelian gold line, but it doesn't affect our decision process, I would say, that we will evaluate it based on the financial feasibility and also if there is any other opportunities within the industry that we have, for example, industrial partner financing, some other benefits. So those are the main factors. So difficult to evaluate if we get it or not, we will apply and then we see if we get it.

What about permitting? Will the recovery of tungsten and molybdenum complicate permitting and technical planning for the Southern Gold Line mine and processing facility?

It complicates the technical planning and the process design for sure. However, permitting, it improves the permitting process for sure. That's something that -- like when we have discussed with the authorities, for example, they see it very important that this kind of production would be in Finland. And so we see that it eases the permitting side, makes the process faster. Of course, there is same criteria and same actions need to be taken, but it could fasten the process, but otherwise, yes, it complicates the production planning.

Let's continue with the time line. Is it -- is the time line realistic for Southern Gold Line even without the possible critical project status that would fast track permitting process?

Yes, we see it, and it is realistic, like we started the permitting in January last year. So we have done zoning for now almost 1.5 years and also the environmental impact assessment program is almost completed. And we have also completed the nature surveys. So we have started and now it goes more into technical planning and because in the program phase, you still have options that like, for example, that the production is 100% in Pampalo or there is the Southern Gold Line and then the next phase is, there is only one road that we need to choose. So we are well on track, and we have a very good team doing the work, and I'm confident that we can achieve in the time line presented.

I think the following question would be the last one, and it's about dividends. When is the company major enough to pay dividends? Last fall, you mentioned that a production of 25,000 to 30,000 ounces would be such a stage. At that time, the price of gold per ounce was $2,400. Now it's $3,200.

That's a good question, and that's something that we have to evaluate every year. Currently, just the focus is to ensure that all the activities we have to make the company bigger and in a sustainable way that they go ahead in -- according to our time line. And -- but then each year, we have to evaluate that when is the time to -- that we pay dividends. I don't know yet, have to review it annually.

Thank you. I think that concludes our questions-and-answer session. Thanks for the excellent questions.

Thank you very much.