Euro Manganese Inc. (EMN.V) Earnings Call Transcript & Summary

Okay. Good morning, good afternoon. Hello, everyone, and thank you for joining us for Euro Manganese's Quarterly and Year-end Results Highlights Call today. Before we begin today's session, I'd just like to go over some small housekeeping items. [Operator Instructions] With all of that said, I would now like to start the session by turning things over to Matthew James. Matthew, the floor is yours.

Thank you. Good morning, good afternoon, and good evening to everyone dialing in today. Thank you for joining us to review our fourth quarter and year-end highlights so close to the holidays. The slides for today's call can be downloaded from our website. Before we begin, I must remind you that this presentation involves forward-looking statements. Please refer to our cautionary statement here as well as the risk factors set out in our Annual Information Form. Our news release yesterday highlights our fourth quarter and year-end financial position. This should be read in conjunction with our Management Discussion & Analysis and Financial Statements, both of which are available on our website, SEDAR, and the ASX. Joining me today on the call are Martina Blahova, our Chief Financial Officer; and Louise Burgess, our Senior Director, Investor Relations and Corporate Communications. I'll pass over to Martina in a moment to go through our financial highlights for the quarter and the company's financial position; then I'll run through our performance in Q4 and for the year, looking at key catalysts for 2023; and wrap up with a question-and-answer session. Over to you, Martina.

Thank you, Matt. I will briefly comment on our cash position and the intended use of these funds in the coming 12 months. Please note that all figures are in Canadian dollars. We started the quarter with $28 million in cash, $2.3 million was spent on operating expenditures and completion of the feasibility study. The operating expenditures also covered advancement of the environmental and social impact assessment, corporate office costs as well as the cost of the Czech office; $1.8 million was spent on the completion of improvements to the buildings which now host the demonstration plant and on the transport and setup of the demonstration plant equipment. The demonstration plant is now installed and commissioning has started; and we also spent $2.3 million on the third or fourth option payments for EP Chvaletice, a company which owns the land for the project's proposed commercial plant. We closed the quarter with $21.6 million in the bank. Our cash position will allow us to complete the final environmental and social impact assessment, which will be filed with the Czech Ministry of Environment shortly. The funds we currently have are also expected to cover our other permitting costs for the project as well as commissioning and operation of the demonstration plant for approximately one year. We also intend to use these funds to complete or advance certain land acquisitions for the commercial plant area to complete the EPCM tender process and to cover our corporate and Czech costs for the next 12 months. I will now turn it over to Matt.

Thanks, Martina. I wanted to share our purpose, vision and values created by the team earlier this year. These set out a clear North Star for who we are as a company, what we're focused on and the values we believe will underpin our success. Our global team is now 40 people and everyone at Euro Manganese exhibits a strong passion and belief in our ability to succeed. And it's of utmost importance to me to foster this energy going forward as we deliver on our vision of being the leading environmentally responsible producer of high-purity manganese globally, guided by our corporate values. Moving on to the highlights in the quarter. This is a quick overview, which I'll speak to each of these in more detail in the coming slides. The key takeaway is we continue to deliver important key milestones as well as growth initiatives and are well positioned to continue that momentum as we head into 2023. We made great strides in advancing the Chvaletice project this quarter and over the year. Having taken delivery of the demonstration plant modules in early September, the team installed these into 2 fully refurbished buildings adjacent to the intended commercial plant site. We hosted multiple site visits where we were able to show the buildings and plant modules in place to customers, investors, and also our Board visit. Commissioning of the demonstration plant is now well underway on a module-by-module basis. We have commissioned the front end, that is the slurry preparation, magnetic separation, and filtering modules, which produce concentrate and tailings. We're now commissioning the leaching and the first step of purification of that concentrate. A video of our demonstration plant flow process can be viewed via the link here or on our website. On-spec samples of both high-purity electrolytic manganese metal, or what we call HPEMM, and high-purity manganese sulfate monohydrate, or HPMSM, are expected in quarter 1, 2023, with delivery to interested parties occurring thereafter; 6 companies from across the EV supply chain have requested samples from the demonstration plant; a further 6 companies who are currently testing pilot plant samples are also expected to request demonstration plant samples after that. We filed the positive feasibility study at the end of September on SEDAR and on ASX. As a quick reminder, that outlined a robust post-tax net present value of USD 1.3 billion using an 8% discount rate and IRR of 22% with a 4-year payback period. Following the release of the feasibility study, we began preparing an engineering, procurement, and construction management tender package to solicit bids from firms interested in developing the commercial processing plant at Chvaletice in the Czech Republic. Bids have now been received from 5 Tier 1 EPCM firms, and I'm very happy with the number and the quality of the bids. We're looking to appoint a firm who has experience in building similar types of chemical plants in Europe. Selection of the EPCM contractor will allow us to advance basic engineering design and commence procurement of long lead process equipment. On the permitting front, we are targeting to file our final environmental and social impact assessment by year-end with the Czech Ministry of Environment. That could enable final environmental permitting for the project in mid-2023. A key area of focus for us this quarter was advancing offtake discussions. We commenced a structured offtake tender process for our high-purity manganese products in September and are now driving towards term sheets and offtake contracts. We have made a data room available and have hosted site visits for interested parties. Multiple indicative bids have now been received in addition to the 5 MoUs currently in place, and we continue to hold active discussions and negotiations with parties across the EV supply chain in Asia, Europe, and North America. Also, part of our offtake discussions is exploring additional financial support for the project itself. There has been an increasing trend on backward integration across the battery supply chain with automotive OEMs investing in resource and processing projects to secure their raw materials needed for EV vehicles. For example, we have seen this with GM investing into Pacific Metals in Australia, Stellantis' investment in Vulcan Energy in Germany, and Ford's loan to Liontown in the U.S. That is a good segue into an overview of our project financing strategy. We appointed Stifel earlier this year to advise the company on project finance debt. On current pricing forecasts, their model supports a 65% to 70% debt gearing, which based on initial feedback, could be largely supported by European institutions. Both the European Bank of Reconstruction and Development, who are currently our second largest shareholder, and the European Investment Bank, have expressed interest in being significant debt providers for the project. That should benefit us as it will be lower-cost debt compared to commercial banks, ESG funds, and export credit agencies, from which there has been also a positive interest. That will leave the project with a project finance equity portion of approximately 35% -- 30% to 35%, and we are in the middle of a process to appoint an equity adviser. The ideal equity strategy is to have a strategic investment with an OEM and/or industry strategic at a project level, just as we've discussed above, and basing that on the project's net asset value, which will be a discount to the net present value of the project as we discussed previously. This would then be followed by a private placement to interested parties that we're already in discussions with and a public offering potentially at a re-rated stock price, making the project finance equity rate more achievable and less dilutive for current shareholders. As part of our commitment to environmental excellence and transparency, we have completed 2 Life Cycle Assessments this quarter. The first LCA measured the environmental impacts of our high-purity manganese products. Results showed a net positive benefit to soil and freshwater quality as a result of the tailings remediation. The second Life Cycle Assessments shown here compared the carbon footprint of a high-purity manganese products with those produced on the current China-based incumbent industry. Results indicated our products have a carbon footprint approximately 1/3 of the incumbent industry. Analysis of the carbon footprint of each of the ternary battery metals shows that our high-purity manganese metal has the lowest carbon footprint. As automotive OEMs seek to meet their net zero commitments, they are increasingly looking at their supply chain to ensure their raw trials are low carbon and ESG compliant. We are very well positioned on this front to supply the market with responsibly produced low-carbon manganese projects. Shifting over to North America, which is a growth horizon for us. We announced a potential investment opportunity in Quebec, Canada in November. In response to conversations with parties across the EV supply chain, we are exploring the development of a dissolution plant to produce high-purity manganese sulfate for the North America market. And this will give us first-mover advantage in North America. North American demand of high-purity manganese is expected to reach approximately 200,000 tonnes by 2031. And there are no current processing facilities in North America. As you can see from the map here, Quebec is strategically located on the North American plants currently under development. So Quebec is shown in the green section, just above the U.S. These plants are seeking a localized supply to comply with the recent U.S. Inflation Reduction Act regulations. So why Becancour and Quebec? Well, within the Port of Becancour, the Industrial Park, both GM POSCO and BASF have announced plants, with a third plant associated with another OEM to be announced shortly. This will allow high-purity manganese sulfate to be delivered as a solution, which we term HPMSS, high-purity manganese sulfate solution to these plants, directly from our dissolution plant, saving the cost of crystallization, drying, and packaging as well as working capital for both parties. Site due diligence is underway on a proposed 15-acre parcel within the Port of Becancour. The company has now signed an option agreement allowing it to purchase the site, subject to the outcome of due diligence and other conditions. The option agreement is valid for a 21-month period. Concurrently, we announced a scoping study is underway to evaluate the development of high-purity electrolytic manganese metal dissolution plant to produce the HPMSS as well as HPMSM powder, so both the solution, but we will also have some crystallization capacity to service other plants outside of Becancour. The study will leverage the extensive process development and engineering work already completed at the Chvaletice project. The growth opportunities in the North American market look compelling, and we shall provide updates on our growth plans as they evolve. A quick snapshot of our performance against 2022 catalysts. I'm not going to go through these in detail, but the key takeaway is we've delivered against the majority of our goals and those outstanding are progressing well. All in all, I'm very pleased with the tenacity of the team in achieving significant milestones during the year. So what's next? 2023 is an important year for the company with a focus on appointing an EPCM contractor to commence the front-end engineering design for the commercial plant. We'll be looking to get on-spec samples from the demonstration plant in the first quarter, followed by sending samples out to customers thereafter. We are working diligently to advise the 2 remaining land access agreements. We are also preparing the land planning permit to have it ready to submit once we receive approval of our Environmental and Social Impact Assessment. In the early new year, we'll be looking to appoint our project finance equity adviser, and we'll be driving hard to conclude discussions on offtake contracts. I look forward to updating you on our North American growth plans in Q1 as well. So that concludes our presentation. I'm extremely proud of the ongoing commitment of our team and advancing our flagship Chvaletice project and look forward to continue delivery of key catalysts in 2023 and beyond. Together, we're moving closer to our vision of being a leading and environmentally responsible producer of high-purity manganese. Thank you. I'll now open it up to questions.

[Operator Instructions]

Thanks, Dave. We'll just hold for a minute to see if there are any questions that come in. I am not seeing any from this group on the call. So if there's nothing else, I will pass it back over to Matt for final commentary.

Thank you, Louise. Well, this is an exciting time for the battery raw materials sector and Euro Manganese is very well positioned to take advantage of the localization of supply to the EV market. So it really just leaves me to wish everyone happy holidays, and we look forward to holding our next quarterly call in the new year and to update you on our progress on those key catalysts that we outlined previously. Thank you very much.

I do see we actually have a raised hand, Matthew, if we have time for it. I have unmuted your line if you would like to do 6 to toggle your mute.

So the question we received is, can you remind us of the manganese supply-demand disconnect. Yes. The global supply, the analysts forecasts going forward show a deficit in the market being created through towards the end of 2023 into '24. That demand deficit grows quite substantially by the time we're in production in 2027 and continues to widen out to 2031. That demand is simply driven by the underlying growth of the EV market. It could grow even faster as high manganese chemistries, particularly LMFP or some of the NMx or other ternary battery metals which are removing cobalt and increasing the manganese and decreasing [indiscernible] content come into the market in greater volumes. The supply side of that forecast is really every project that's known to be being discussed and a significant increase in volumes within China itself. So that definitely sort of highlights that supply deficits coming forward.

And we do have a question --sorry, Matthew.