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

Please note, this webcast is being recorded, and a replay will be available on our website. You can download the slides that will be used today from the website as well. And after the presentation, we'll have a question-and-answer period. [Operator Instructions] But we also welcome questions post the call, so please feel free to reach out to Matt, Martina or myself. Before we begin, note that this presentation involves forward-looking statements. Please refer to our cautionary statements here and the risk factors in our annual information form. Our second quarter financial statements and management discussion and analysis for the 3- and 6-month periods ending March 31, 2024, were filed on May 15, 2024. All of these materials are available on our website, SEDAR + and the ASX. Over to you, Matt.

Good morning, and good afternoon to everyone. Thank you for joining us to review developments during Euro Manganese second fiscal quarter. Joining me on the call today is Martina Blahova, Chief Financial Officer. 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 run through key developments during the quarter and how we are performing against our key 2024 catalysts. We'll wrap up with a question-and-answer session. Over to you, Martina.

Thank you, Matt. Just a reminder that our fiscal year end is September 30, so our Q2 references the period January 2024 through March 2024. 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 $24.3 million in cash. $0.4 million was spent to advance the commissioning of the demonstration plant, which is nearing completion. $1.3 million was spent on operational expenditures, which included the advancement of Chvaletice permitting and other corporate costs. These expenditures are net of $0.8 million of cash generated in operating activities by EP Chvaletice, a specialty steel fabrication product company acquired at the end of last quarter, as its key asset is the land it owns, which is intended for the project's processing plant. Interest on the convertible loan was $0.3 million. We also made land acquisition and lease payments of $2.2 million. We closed the quarter with $20.1 million in the bank. Our cash balance is expected to provide sufficient funding to complete project permitting, demonstration plant commissioning and ongoing operations as well as continuing to make lease and option payments for land parcels required for the project. This cash is also expected to enable us to continue with the initial FEED phase of the EPCM contract and certain site preparation works as well as fund general and administration expenses. I will now turn it back to Matt.

Thanks, Martina. Here is an overview of the key highlights during the quarter and to date. The highlights of the second quarter was obtaining approval for the environmental and social impact assessment for the Chvaletice Project from the Czech Ministry of Environment. I'll provide more details about this in the following slides. Turning to project updates. Our demonstration plant in the Czech Republic successfully produced high-purity manganese sulfate from high-purity electrolytic manganese metal produced in the demonstration plant over the quarter. We also continue to make progress with our offtake negotiations with potential customers. During and subsequent to the quarter, we saw significant regulatory updates in our key markets, including the final approval of the Critical Raw Materials Act in Europe and the finalization of tax credit regulations under the 2022 Inflation Reduction Act in the United States. These regulations have significant positive implications for the adoption of electric vehicles and, in particular, for manganese demand from local sources. And therefore, we welcome these significant pieces of legislation. Finally, as I outlined during our last call, the Chvaletice manganese project has support from the European Investment Bank for debt funding. Now listed on the EIB's website under the list of projects to be financed, which we view as a key step towards securing the required debt component of the total project financing required. As I mentioned earlier, in March 2024, we received a positive Environmental and Social Impact Assessment binding statement from the Czech Ministry of Environment, approving the environmental and social conditions set out in the ESIA. This assessment is the key gating permit from which subsequent more procedural permits can follow, including the land planning permit and the construction permit as well as progressing to the final determination of the mining lease for the project. I'm particularly pleased to note the excellent stakeholder engagement on the part of our Czech team, resulting in no comments or opposition from local stakeholders during the ESIA commentary period. During the quarter, we produced high-purity manganese sulfate for -- from our high-purity manganese metal produced by the demonstration plant. Our internal analysis indicates that the product should meet the demonstration plant target specifications with low levels of impurities. External lab testing is currently underway to confirm these results, and we expect to receive the results within the next few weeks. Operation of the demonstration plant is a key step in de-risking our project through, one, demonstrating that the process steps produce the correct specification in products at the correct yields. Also, the collection of sufficient operational data at a scale that ensures there is confidence in the extrapolation to full scale during engineering. And finally, gaining valuable insight, which are leading to further engineering and operational process improvements, which we can incorporate in our final plant in design. In the early part of 2024, we witnessed important regulatory updates across our key markets. In Europe, the council of the EU announced final approval of the Critical Raw Materials Act in March. The act, coming into force this week, establishes 3 benchmarks for domestic mining, processing and recycling. All of which, we believe the Chvaletice Project will help meet. This positions Euro Manganese to become the sole European integrated producer of high-purity manganese in the battery value chain. Additionally, earlier this month, the U.S. issued the final regulations for tax credits under the Inflation Reduction Act of 2022. A key point of clarification is that the foreign entity of concern compliance rules cover the whole supply chain, e.g., no critical raw materials may be extracted, processed or recycled by a foreign entity of concern, though graphite has a 2.5-year grace period. This has significant positive implications for Western producers of battery metals, in particular, high-purity manganese. With China controlling over 90% of the high-purity manganese market, manganese can now be thought of as in the bottleneck for foreign entity of concern compliant material. Our Chvaletice Project is the most advanced Western project under development and notably, one of the very few non-foreign entity of concern projects globally. In addition, just last week, the Biden administration announced a series of tariff hikes on a wide range of Chinese imports. Under the new policy, U.S. tariffs for certain critical raw materials sourced from China will increase from 0 to 25%. And the tariff on electric vehicles from China will increase from 25% to 100% in 2024. Chvaletice remains the only sizable proven and probable reserve of manganese in the EU, uniquely positioning Euro Manganese to provide a secure, traceable and responsibly produced supply of high-purity manganese products to the North American and European EV markets. There has been a marked uptick in proactive discussions with offtake customers, partly driven by the recent regulatory updates I just mentioned. We are seeing an increase in interest in our high-purity manganese, with offtakers reaching out proactively as planned tonnages increase, combined with concern on supply constraints. Additionally, we are actively engaging with organizations at a more senior level. Three new offtakers have entered the funnel and 3 have progressed down the funnel, leaving 30 parties in the top tier with more than 70,000 tonnes of high-purity manganese sulfate per annum in aggregate under discussion. Many of these new potential customers are yet to provide tonnages, so there is significant upside potential. There are now 16 parties in the middle of the funnel, 2 parties from the top who have moved down and 2 parties directly entering the middle tier with greater than 100,000 tonnes of high-purity manganese sulfate per annum. At the sharp end of the funnel, we now have 11 parties in advanced stages of negotiations, where one party moved directly from the top tier to the bottom tier, now with a combined interest of over 130,000 tonnes of high-purity manganese sulfate per annum. I will reiterate that these are initial tonnages from offtakers, and these potential customers have indicated the need for higher tonnages as the market grows and as manganese-rich chemistries evolve. Euro Manganese remains very well positioned to meet the increasing need of high-purity manganese in lithium-ion batteries. Overall, as this slide illustrates, Euro Manganese has a distinct competitive edge over other producers. We have the only manganese resource in the EU and stand to benefit from increasing demands for a local responsibly produced source of supply, while benefiting from stricter regulations on both sides of the Atlantic. We're the only project at FEED stage with an operational demonstration plant to de-risk the project. Furthermore, as the only project to utilize circular tailings reprocessing with 65% lower CO2 emissions compared to the encumbered producers, Euro Manganese has a clear competitive advantage in sustainability. We made significant progress on several key catalysts during the first part of the year. On a project level, the ESIA approval for the Chvaletice Project was a major permitting and project milestone. We also appointed Mr. Tim Kindred as project director of the Chvaletice Project in January of this year. Tim is a highly skilled project and operations leader in the mining and metals industry, with a proven track record of delivering large-scale billion-dollar projects on time and on budget. He is a valuable addition to our team. Land acquisition and access agreements for the commercial processing site are now 100% complete, following the acquisition of EP Chvaletice at the very end of the previous quarter, as Martina mentioned. With respect to land agreements for the tailings area, 4 out of 5 are complete with one ongoing. Furthermore, with high-purity manganese metal and soon-to-be-verified on-spec high-purity manganese sulfate produced from our demonstration plant, we can now supply bulk samples required by potential offtaker customers for their large-scale tests. On the project financing front, the Chvaletice Project has advanced to the formal under appraisal stage with the European Investment Bank for debt funding on the list of projects to be financed. Under appraisal means the project has progressed through the EIB's initial due diligence process. This underscores the EIB's commitment to support sustainable opportunities in the battery supply chain. With the European Bank for Reconstruction and Development already a key shareholder and having also expressed interest in providing debt financing, this advancement is another key step towards securing the required debt component of the total project financing required. Finally, work continues to progress with the FEED part of the EPCM contract. During the remainder of 2024, we remain focused on advancing our flagship project in Europe. Our key goals include securing additional offtake term sheets and contracts, securing a strategic investor at the project level, progressing the work of the FEED phase of the EPCM contract, completing the remaining land access agreement in the tailings area, advancing the more procedural project permits now that we have received the ESIA approval, commencing the formal project debt finance process, and also progressing the feasibility study for the Bécancour distribution plant subject to financing. To conclude, I would like to express my gratitude for the team's effort this quarter and for the ongoing support of 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.

[Operator Instructions] Not seeing anything just yet, Matt. But let's just take a few more seconds.