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

Good morning and good afternoon, everyone. Welcome to Euro Manganese's Third Fiscal Quarter Conference Call. I can see people are starting to join, so I'm just going to give it another 30 seconds or so before we get started. All right. I can see people are coming in. So I will just do a few housekeeping items to kick off before I hand it over to Matt. The slides for today can be downloaded from our website, that's www.mn25.ca. We will go through these followed by a question-and-answer period. If you would like to ask a question, please use the Q&A function at the bottom of your screen. And only we can see the questions, so don't be shy. And you can ask a question at any point during the presentation and we will cover it during the Q&A period. We also welcome questions post call, so please feel free to reach out to Matt, Martina or myself at any point. Over to you, Matt.

Good morning and good afternoon to everyone. Thank you for joining us to review developments during Euro Manganese's third fiscal quarter. Before we begin, I must remind you that this presentation involves forward-looking statements. Please refer to our cautionary statements here and the risk factors in our annual information form. Our news release filed on August 14 highlights our third fiscal quarter financial position. This should be read in conjunction with our management's discussion and analysis and financial statements, both of which are available on our website, SEDAR and the ASX. Joining me on the call today are Martina Blahova, Chief Financial Officer; and Louise Burgess, Senior Director, Investor Relations and Corporate Communications. I'll pass on to Martina in a moment to go through financial highlights for the quarter and the company's financial position. Then I'll run through key developments during the quarter and how we're progressing against key catalysts for 2023. We'll wrap up with a question-and-answer session. And over to you, Martina.

Thank you, Matt. Just a reminder that we report to a year-end of 30th of September, so our Q3 references the period April through June 2023. We also report in Canadian dollars. I will briefly comment on our cash position and the intended use of these funds in the coming quarters. We remain funded to deliver certain near-term project milestones and for corporate G&A for the next 6 months. We started the quarter with $13.8 million in the bank. $1.2 million was spent to advance the commissioning of the Demonstration Plant, which is now close to completion, and to make a milestone payment to the plant equipment supplier. $1.6 million was spent on operating expenditures, which covered the advancement of the Chvaletice permitting, including preparation of documentation for land planning and construction permits, the scoping study and other due diligence costs for the Bécancour site in Quebec and other corporate costs. We closed the quarter with $10.9 million in the bank. Our cash position will allow us to deliver on our near-term project milestones, including commissioning of the Demonstration Plant and its initial operation on a batch basis, advancing permitting for construction of the Chvaletice project, advancing certain land acquisitions for their commercial plant area, initiating FEED, front-end engineering design engineering and corporate G&A costs for the next 6 months. Additional funding will be required for the EPCM, engineering, procurement and construction management services for the project, future payments for land acquisitions, the future construction of infrastructure and facilities for the project. Funding will also be required to advance the company's North American strategy, including land payments and completion of the Bécancour feasibility study. Financing is one of our top priorities and we continue to work diligently on it with our financial advisors. I will now turn it back to you, Matt.

Thanks, Martina. Here's an overview of our achievements during the quarter and to date. We advanced on both technical and commercial fronts, including our North American strategy. And I'll speak to these in more detail in the coming slides. Specifically, we remained focused on 4 key work streams to deliver our Chvaletice Project. These include advancing engineering, permitting, offtakes and financing. We made excellent progress on our engineering workstream this quarter. In June, we awarded the engineering, procurement and construction management contract, or EPCM for short, to Wood. The contract covers all phases of work through to commissioning and handover of the commercial Chvaletice plant. Awarding the contract followed a rigorous selection process and we're very pleased to be partnering with such a high-caliber Tier 1 engineering company. In addition to Wood's technical and engineering capabilities, it was of importance to us to work with a team who had experience in the European Union and a proven track record of delivering large-scale chemical plants. The contract is cost reimbursable and structured in 2 phases. Phase 1 includes a gap analysis, which is an in-depth review of the Chvaletice plant feasibility study deliverables, including evaluating test work and the flow sheet development by our team. Following this initial piece of work, front-end engineering design, or FEED for short, will commence, which includes value engineering, identification of long-lead items, vendor engagement and a project implementation strategy, which will form a baseline schedule in the EPM phase. Deliverables of Phase 1 also include the preparation of a construction permit documentation and an updated capital cost estimate for the plant to a plus or minus 10% accuracy. As a reminder, our feasibility study for the Chvaletice plant outlined in our initial CapEx of -- outlined an initial CapEx of approximately USD 750 million, which included over $100 million of contingencies. The feasibility of the study was completed in mid-2022 when prices for materials were higher than we're seeing today. My main point here is our initial CapEx figure is robust, and we may potentially see some benefits from costs returning to more normal levels. On completion of Phase 1, expected to be in mid-2024, we expect to make a final investment decision before Phase 2. Phase 2 is the engineering, procurement and construction management stage, where Wood will provide overall project management services, including detailed design, procurement, construction and commissioning of the main Chvaletice plant. Over to the permitting workstream. And here, work is progressing well. On a positive note, 13 of 14 relevant authorities approved their relevant studies in the environmental and social impact assessment, indicating an overall positive perception of the project in the region. However, we received comments from one authority related to noise abatement during the quarter. We have now addressed and resubmitted this section to the relevant authority. For background, our projects anticipated noise levels all within the legislative limits for a industrial project. However, the cumulative effect of noise with other industry in the region marginally exceeded permitted noise levels at the measurement points located at the closest residential areas. We expect to resubmit the full ESIA in the coming weeks and anticipate a positive decision on the revised ESIA before the end of 2023. In parallel to the work our team has completed on the revised ESIA, they have also substantially completed the documentation required for the next stage, which is the land planning permit. This permit can be submitted on approval of the ESIA. The approval timeline is typically 3 months to 4 months in the land planning permit. Thereafter, the next key permit is the construction permit, which is a deliverable of the FEED phase, which will produce the documentation required. The approval timeline for that is also 3 months to 4 months. Over to the Demonstration Plant, where we produced 99.9% pure high-purity electrolytic manganese metal, or HPEMM, during the quarter. External lab tests confirmed the HPEMM met Demonstration Plant's specifications, which derisks our process flow sheet. Production of on-spec high-purity manganese sulphate monohydrate, or HPMSM, has been delayed due to a manufacturing fault with the crystallizer. An incorrect welding material used by the manufacturer caused corrosion inside the vessel. Our team has identified this issue and addressed the issue, and production of HPMSM has recommenced. Samples need to be tested and assayed by external labs. I want to remind everyone that HPMSM is an almost pharmaceutical-grade product in terms of purity, and therefore, specification of impurities is tight. The Demonstration Plant is a crucial step in our development. Lessons learned can mitigate risk on the commercial plant, and it also provides experience to our operators with our production processes, as well as enabling production of large-scale samples for potential customers. Samples are not expected to be required for completion of offtake contracts. That's a good segue to our offtake workstream. Our offtake funnel remains full with tonnages under discussion increasing, and now exceeds our plant capacity by more than 30%. In addition, new offtakers have entered the funnel. We now have 22 parties at the top with more than 50,000 tonnes of HPMSM per annum collectively under discussion in that section. A number of parties have advanced to the middle of the funnel, with a total of 11 parties now interested in more than 30,000 tonnes of HPMSM per annum. We remain focused on advancing the 6 parties in the sharp end of the funnel to term sheet. Verkor is the seventh party here with whom we already have a term sheet and are moving forward with full documentation. These 7 parties now account for more than 30 -- sorry, for more than 120,000 tonnes of HPMSM per annum, which amounts to 80% of our production capacity. We are targeting 80% of our production capacity under offtake to underpin our debt financing. I would mention that these are initial tonnages from offtakers. Offtakers have indicated a potential need for higher tonnages as the market grows and as manganese rich chemistries evolve. We are seeing increased news flow of commercialization of manganese rich chemistries, including NMC, nickel-manganese-cobalt, cathodes, where there is a significant increase in manganese and a decrease in nickel and cobalt; LMFP, where manganese is added to the LFP chemistries increasing energy density; and recently Samsung has announced they are also producing LMFP; and sodium ion chemistries, which could have up to 30% manganese in the cathode. Additionally, several large potential customers are yet to disclose their allocation of tonnages to the company. However, they have expressed an expectation to do so in the near future. So Euro Manganese remains very well-positioned to meet the increasing need for high-purity manganese in lithium-ion batteries. We have the only manganese resource in Europe and stand to benefit from the increasing demands for local responsibly produced source of supply. Switching gears to Bécancour, where we made good progress and its growth opportunity in Quebec. Bécancour is fast becoming a battery materials hub and we are well-positioned to take advantage of being in the heart of a mainly North American EV supply chain. Our 15-acre site, on which we have an option agreement to purchase, is strategically located adjacent to a cluster of planned cathode active material manufacturing plants. These include investments by GM/Posco, BASF, and recently announced, Ford EcoPro. After the quarter, we released highlights of a scoping study that evaluated the development of a high-purity metal Dissolution Plant in Bécancour, capable of producing just over 48,000 tonnes per annum of HPMSM based on sufficient supply of HPEMM feedstock. The scoping study delivered strong preliminary economics with a post tax NPV, net present value, of CAD 190 million using an 8% discount rate; a post tax IRR, internal rate of return, of 26%; and a payback period of approximately 4 years. The economic analysis was run on a constant dollar basis with no inflation and no government grants included and was unlevered. Initial capital was estimated at CAD 110 million, including contingencies of CAD 15 million. A key aspect of the plant is a short build time. The scoping study estimated approximately 2-year engineering and construction duration from the end of the Bécancour feasibility study. Minimal infrastructure is required with offsite infrastructure limited to a powerline connection and a potential rail -- development of a railway spur from the Bécancour site railway line. Onsite infrastructure includes roads, plant and administrative buildings, power distribution and storage buildings for metal stock, solution and sulphate products. Parallel to this, we continued to engage with both the Quebec provincial and Canadian federal government on the incentive support programs available for the plant. Precedents in the region indicate that Bécancour plant may be eligible to receive support for up to 40% of CapEx. Additionally, we are investigating whether the recently announced clean technology manufacturing tax credit, which would refund 30% of the cost of machinery and equipment used to process critical raw materials essential to clean energy and technology supply chains would be available for the plant. We have appointed WSP Canada out of Montreal to complete a feasibility study for the Bécancour plant, which will further refine costs, economics and customer offtake opportunities. The feasibility study is expected to be complete in mid-2024, subject to financing. We aim to permit permitting in parallel with the feasibility study. In addition to the initial economics, what makes Bécancour an attractive opportunity is the feedstock optionality that the MoU with the Manganese Metal Company offers. MMC, as they are known, is the leading producer of selenium-free 99.9% HPEMM and they're based in South Africa. The MoU allows the Bécancour plant to be fed with HPEMM from MMC and/or from Chvaletice. It allows for flexibility on the supply of HPEMM depending on market demand, MMC product availability and Chvaletice metal sales. The MoU is strategically significant as this metal stock enables the potential acceleration of the Bécancour plant to supply in the North American market as early as mid-2026, thus potentially enabling us to be the first to market and to bring cash flows forward by at least a year. As a reminder, the North American demand for high-purity manganese is expected to be over 200,000 tonnes by 2031. However, there are no current processing facilities in North America. MMC has provided HPEMM samples for test work as part of the feasibility study, and we intend to work together to conclude a definitive agreement. I'm also pleased with the cooperation agreement we signed last month with the Grand Conseil de la Nation Waban-Aki, a tribal council of the Abenaki communities on whose ancestral territory the Bécancour plant will be situated. The agreement defines how we intend to communicate openly and regularly and to work together for the mutual acceptable development of the Bécancour plant, especially during the evaluation and planning phases. Perhaps a few words on the Bécancour process flow sheet before we wrap up. The plant design allows for production of both high-purity manganese sulphate solution, or HPMSS, which will be for local consumption, and high-purity manganese sulphate monohydrate powder, which provides customer offtake flexibility. Producing HPMSS provides both cost and environmental benefits as delivering a solution eliminates the need to crystallize, dry and package an HPMSM powder product. The plant design leverages extensive process development and engineering work already completed at the Chvaletice project. I've given an update on most of these deliverables today. One to note is the commencement of the formal debt process by the commercial project finance banks. That's expected to commence in Q4. The European Bank for Reconstruction and Development and the European Investment Bank have already commenced their due diligence processes. We remain focused on our flagship project in Europe, producing a non-spec HPMSM, advancing the remaining land access agreements. And I will note that they remain at 3 of 5, which was the case for the last 2 quarters. But I would stress that significant progress has been made in these land access agreements. Securing more offtake term sheet of contracts is a key priority and securing financing. Thank you everyone for tuning in today. I'll now open it up to questions.

Thank you, Matt. We're just going to pause for a moment. As a reminder for everybody, if you would like to ask a question, please use the Q&A function at the bottom of your screen. Only ourselves can see the questions. And we will answer those live if there are any. So just 1 more minute here and then we'll start getting over to Q&A. I am seeing just a couple of comments in terms of thanks around the update. There is one actually that has just come in as well. So it is could you comment a little bit, Matt and Martina, on how we plan to fund construction? Is that an equity, JV project finance, et cetera?

Sure. I can start on that. I assume you're referring to the Chvaletice project in the Czech Republic. So we didn't include the slide in this presentation, but it is in our corporate presentation. We have engaged financial advisors for the debt process. So we do have, as Matt mentioned, interest from the European Investment Bank and the European Bank for Reconstruction and Development to be part of the debt financing. Then there has been inbound interest from commercial banks. There are some green funds and other sources of debt. On the equity side, we've engaged our advisors to help with a potential strategic investor and also with the equity public and private base.

Would you like to comment as well just in terms of how the equity portion is expected to be kind of constructed in terms of being as nondilutive as possible kind of going through perhaps those different stages?

So the -- a strategic investor, if they come in and that could be an OEM preferably with like a term offtake or another good partner now will come in at the project level, which would not dilute the current shareholders and then hopefully, throughout completing all these catalysts that Matt mentioned, the share price should respond positively to our progress and the equity raise would then follow that at a better share price than now. With the debt, obviously, there, our equity piece has to be in place before we raise any of the debt, but we hope to get to the final investment decision and we have this financing -- we have in place in the second half of next year.