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

All righty, I think we'll get going here. A few housekeeping items before I hand it over to Matt. Please note this webcast is being recorded, and a replay will be available on our website in due course. We'll be broadcasting live for today's call. [Operator Instructions] 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 December 14 highlights our fourth full quarter financial position. This should be read in conjunction with our management's discussion and analysis and financial statements for the year ending September 30, 2023, both of which are available on our website, SEDAR+ and the ASX. Over to you, Matt.

Thanks, Louise. Good morning and good afternoon to everyone. Thank you for joining us to review developments during Euro Manganese's fourth fiscal quarter. Joining me on the call today are by Martina Blahova, Chief Financial Officer; and Louise Burgess, Senior Director Investor Relations and Corporate Communications. I'll pass over to Martina in a moment to go through financial highlights for the quarter and the company's financial position. Then we'll tag team to run through key developments during the quarter and how we performed against our key 2023 catalysts. I'll also go through upcoming catalysts for the year ahead. We'll wrap up with a question-and-answer session. Over to you, Martina.

Thank you, Matt. Just a reminder that we report to a year-end of 30th of September. So our Q4 references the period July through September 2023. We also report in Canadian dollars. I will briefly comment on our cash position at the end of the quarter. We started the quarter with $10.9 million in cash. We spent $0.5 million, all to advance the commissioning of the demonstration plant, which is nearing completion. $2.8 million was spent on operating expenditures, which covered the advancement of Chvaletice permitting, including preparation of documentation for land plan and construction permits, the GAP analysis performed by Wood on the Chvaletice project feasibility study and other corporate costs. We also made land option and lease payments of $0.1 million, and we closed the quarter with $7.6 million in the bank. Following the period end, in late November 2023, we closed the first USD 20 million tranche of the Orion convertible loan to royalty facility. The net proceeds are expected to provide sufficient funding to complete project permitting, demonstration plant commissioning and batch operation, and acquisition of remaining land parcels required for the project. We also expect to be able to initiate the FEED phase of the EPCM contract and certain site preparation works as well as fund general and administration expenses for more than 12 months. Funding of our North American strategy is expected to be provided by our cash remaining before the Orion funding deal, future equity raises and funding by strategic industry investors and government programs. Additionally, subsequent to the closing of the first tranche of convertible loan, we made the final option payments to acquire the company that owns the land where we intend to build the Chvaletice processing plant and related infrastructure. As disclosed in our year-end financial reports, we made one payment of approximately $1.2 million on November 29 and the final payment of approximately $3 million was made on December 28, thus completing the addition. I will now turn it back to Matt.

Thanks, Martina. Here's an overview of the key highlights during the quarter and to date. The headline news is a USD 100 million non-dilutive funding package with Orion Resource Partners. Martina will provide more detail on that in the coming slides. Other highlights included production of on-spec high-purity manganese sulfate from our demonstration plant in the Czech Republic and securing a lease agreement with CEZ, which now provides us with access to a total of 85% of the manganese reserves in historic Chvaletice tailings area. Back to you, Martina.

Thanks, Matt. We were very pleased to announce the USD 100 million funding package with Orion at the end of November 2023. This culminated a 6-month process where various funding structures were evaluated and extensive due diligence was conducted by expert consultants. It was a whole team effort and a significant accomplishment to conclude a financing of this nature in such challenging markets. We believe the funding package reflects the robustness of the Chvaletice project and our ability to deliver the project to the highest of standards. The USD 100 million is split into two $50 million components: a $50 million loan facility with a 12% per annum interest rate convertible into a 1.29% to 1.65% royalty on project revenues and another $50 million in exchange for 1.93% to 2.47% royalty on project revenues following a final investment decision. The USD 50 million convertible loan to royalty facility is further split into two tranches: USD 20 million on closing, which was received at the end of November 2023; and USD 30 million upon meeting certain commercial milestones. All aspects of the funding package were structured to meet project finance bankability requirements and will sit alongside and reduce the project finance debt and equity required for the full project financing. Furthermore, the tranche structure minimizes the cost of funds and ultimately affiliates a pathway to a final investment decision. In connection with the funding package, Orion also have an offtake option of between 20% to 22.5% of the project's high-purity manganese total production for a term of 10 years from first delivery and matching the commercial terms of the company's sales. Such right is exercisable until the company signs 60% of the total project offtake. Back to you, Matt.

Thanks, Martina. Moving over to the Chvaletice project and advancements there during the quarter and to date. I'm pleased to report that we produced on-spec high-purity manganese sulfate in November 2023, which further derisks our process flow sheet. Two independent external laboratories confirmed samples sent for testing met the demonstration plant target specifications for high-purity manganese sulfate with low levels of impurities. Third-party high-purity electrolytic manganese metal, or HPEMM, with similar product impurity levels to those of the Chvaletice HPEMM product, was used as feedstock during the commissioning of the dissolution and crystallization module. As part of the final commissioning stages of the demonstration plant, the company will use HPEMM produced from the electrowinning circuit for HPMSM production, high-purity manganese sulfate production. The team is gaining valuable insights from operation in the demonstration plant, which are leading to engineering and operational process improvements. On the permitting front, the revised environmental and social impact assessment was submitted to the Czech Ministry of Environment in September 2023. As a reminder, this addressed comments received from one authority related to noise abatement. We passed through the public commentary period during the quarter, and no comments were received either from the public or municipalities. And therefore, we anticipate a positive decision on the revised ESIA later this month. Preparation of the other key permit is progressing well. Our team has substantially completed the documentation required for the land planning permit, which can be submitted upon approval of the environmental and social impact assessment. The approval time line is typically 3 to 4 months. Thereafter, the next key permit is the construction permit. Documentation for that is a deliverable of the front-end engineering design phase. Once submitted, the approved time lines on the construction permit is also 3 to 4 months. We made significant advancements on both land access and land rezoning associated with the Chvaletice project in October 2023. We concluded a definitive lease agreement with CEZ, which provides us with access to approximately 60% of manganese reserves in the historic tailings area. CEZ is an integrated energy group headquartered in the Czech Republic. Its market cap is approximately EUR 18 billion and its largest shareholder is the Czech government with approximately 70% stake. Land access is granted by CEZ in return for royalty on gross sales from the project. The royalty's sliding scale is between 0.2% and 1.8%, depending on the average price it received for our high-purity manganese products. The sliding scale is to be in effect during the debt period. Thereafter, the royalty is set at 1.8% for the remainder of the project. This structure is designed to ensure anticipated project finance debt covenants can be met. Together with the previously announced land access agreements and the CEZ lease agreement, the company has secured an access to approximately 85% of total project reserves. Negotiations are progressing on the final 15%. Also in October, the rezoning of land for mining use was completed. At the same time, rezoning on all required areas within the commercial plant summit were reclassified for heavy industrial use. This concludes all rezoning requirements for the Chvaletice project. Over to the offtake tender process. Our offtake funnel is growing with significant new interest. Volumes under discussion now exceed our plant capacity by 45%. With the new offtakers having entered the funnel, we now have more than 30 parties at the top with more than 50,000 tonnes of high-purity manganese sulfate per annum collectively under discussion. And given many of these new additions and yet-to-provide tonnages, there is significant upside potential. A total of 11 parties are in the middle of the funnel, with collective interest increasing from 30,000 tonnes per annum to approximately 50,000 tonnes per annum of high-purity manganese sulfate. We've had one party advance to the sharp end of the funnel and a timing of Q1 for the next signed term sheet. As a reminder, we already have a term sheet with Verkor and full documentation is in progress. I would reiterate that it meets our tonnages from offtakers. Offtakers had indicated a potential need for higher tonnages as the market grows and as manganese-rich chemistries evolve. We continue to see increased news flow of commercialization of manganese-rich chemistries, including NMC, nickel, manganese, cobalt; LMFP; and sodium-ion chemistries. We are also seeing the demand for manganese grow as cobalt-free chemistries, NMX and LMNO, continue to fall. Additionally, several larger potential customers are yet to disclose their allocation of tonnages to the company, however, have expressed an interest and an expectation to do so in the near future. 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 increasing developments for a local, responsibly produced source of supply. The rapidly evolving regulatory environment and government support for critical minerals is becoming more and more important within the industry. Martina will run you through this.

Thanks, Matt. Both the EU and the U.S. have either passed or clarified affecting battery metals in the past 6 months, and we believe Euro Manganese is well positioned to meet and benefit from those regulatory requirements. What's clear from the new regulations on both sides of the Atlantic is the requirement of supply chain due diligence by OEMs and battery manufacturers to ensure the use of responsibly produced and local or friendly sources of supply of critical raw materials. Under EU Sustainable Battery Regulation adopted by the European Council in June 2023, supply chain due diligence will be required on critical raw materials used in batteries to assess both human rights compliance and carbon footprint. The due diligence process must also be third-party verified. From 2025, declaration requirements, performance classes and maximum limits on the carbon footprint of EV batteries will be required. And from 2027, a battery passport will be required for every EV battery sold in the EU, which will be a digital record to enable stakeholders in the supply chain to share information about a battery and its history to maximize safety, optimize battery use through life cycles and ensure responsible recycling at the end of life. Equally, the December 2023 Clarification of Foreign Entity of Concern Compliance under the Inflation Reduction Act outlines that supply chain due diligence is required by battery manufacturers to ensure that EV batteries eligible for the IRA tax credit from 2025 onwards must only contain critical minerals extracted, processed or recycled from a non-foreign entity of concern. The update specifically identifies China as a foreign entity of concern, which is significant for us given more than 90% of the world's manganese sulfate is currently processed in China. Our project continues to receive high-level support from both the Canadian and EU government. In October, the Chvaletice project was selected for support under the inter-governmental Minerals Security Partnership, or MSP, a collection of 13 countries and the European Union, that aims to catalyze public and private sector investments to build diverse, secure and responsible critical mineral supply chains globally. Projects are to receive support by leveraging the collective financial and diplomatic resources of the MSP's 14 partners and private sector financiers partnering with the MSP. Sponsorship by the EU and Canada and selection as a strategic project indicates high-level inter-governmental support from the MSP partners for the Chvaletice project. The project's nomination was also supported by the Czech Republic. We were also pleased to see the announcement of the proposed EUR 3 billion fund by the European Commission to boost growth in EU battery industry in mid-December 2023. The impact of this is expected to reach across the battery value chain, including upstream raw materials, and is to be focused on sustainability criteria. These pieces of legislation are starting to be absorbed by OEMs and the battery supply chain, and we have started to see the positive impact in the dynamics of the offtake conversations we're having with the potential customers. Back to you, Matt.

Thanks, Martina. We made good progress on the key catalysts we set out by ourselves in 2023, particularly on the demonstration plant, on the engineering procurement construction management contract, land access and permitting, and in advancing our North American Bécancour opportunity. However, while we delivered against plans, the global macro environment in 2023, particularly rising interest rates, had a negative impact on equity markets, drastically reducing capital inflows into small caps. Our share price suffered as a result. The demand for electric vehicles has slowed versus forecast. However, it's still growing rapidly. Sales have also been impacted by battery availability due to supply chain issues. This has seen battery metal price corrections for lithium, nickel, cobalt and continued softness for high-purity manganese. When you look across battery metal equities, our share price has been impacted in line with our peers. It is a reminder that the energy transition is a transition to new technologies and markets with new challenges but also with new opportunities. Euro Manganese remains very well positioned to benefit from the energy transition. We remain focused on advancing our flagship project in Europe and on delivery on our 2024 goals, which include full commissioning and operation of the demonstration plant, initiating the remaining work of the FEED phase of the EPCM contract, completing the remaining land access agreement, advancing project permitting, securing more offtake term sheets and contracts, initiating the project finance debt process, securing a strategic investor at the project level, and progressing with feasibility study for the Bécancour dissolution plant subject to financing for that activity. I would like to express my gratitude on the team's efforts over the last past year and for the ongoing support from our shareholders, particularly in these tough markets, as well as the support of national and local governments, community members, partners, suppliers and prospective customers. Thank you, everyone, for listening today. I'll now open it up to questions.