Green Minerals AS (GEM) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to this fourth quarter conference call for Green Minerals. My name is Stale Rodahl. I'm the Executive Chairman of the company, and I'm here -- or rather, I was supposed to be here with Oivind Dahl-Stamnes, our new CEO. There's been a technical glitch, so we'll see if Oivind makes it on during the call. If not, I will guide you through it. Oivind, while being new as the CEO, certainly is not new to the company. He was my copilot in founding the company 5 years back and has also been on the Board during this entire period. Oivind has close to 40 years experience from the petroleum industry in Norway and internationally. He has held executive positions in Exxon and Equinor for more than 15 years. This is within exploration and production operations. And the recent assignments for him in Equinor included the Vice President positions for the Troll field as well as the North area initiative. He has also served as Chairman and a member of numerous production licenses committees for both Exxon and Equinor. So just to take you through the quarter in brief. I guess, the main thing -- the main takeaway from the quarter is steady as she goes. We had an underlying EBITDA of NOK 2.6 million loss. This is excluding the effect of NOK 2.4 million noncash gain on the company's share incentive program. So this run rate is very much in line with previous guiding. Cash by the end of the quarter was slightly above NOK 3 million, and this is to be compared to NOK 11.7 million by the end of fourth quarter last year. Highlights for the quarter. The first license round was very surprisingly and notably delayed by 12 months. I will get back to that. But this happened. Surprise lies in that there is an 80% majority in the Parliament and a clear go-ahead to the government to start deep-sea mining in Norway. And the delay actually happened as part of budget negotiations with the social left, which I will get slightly back to it. But it's a highly surprising pivot as it lets the far left socialist into both Norway's industrial policy and also defense politics actually through NATO and NATO's ability to source these critical minerals. Green Minerals has responded swiftly. We have been able to secure runway extension, and this is -- and thereby maintain the optionality in the company. We've done this through deep cost cuts and a guaranteed rights issue. And the cost cuts have been done in such a way that we maintain competency while we reduce capacity. The authorities preparations towards the first license round in Norway continues unabated. There was NOK 150 million allocated to exploration in the 2025 budget. This is up 5x versus previous years. The hearing round on regulations was initiated in the first quarter of this year with expected finalization in the second and third quarter this year. And we expect the license round to be opened in the fourth quarter this year with awards in the second quarter next year. Subsequently, after the end of the quarter, I think it's important to note that WWF lost a high-profile deep-sea mining opening case against the Norwegian authorities. This happened just a few days ago, and this happened the same week actually as New Zealand said that it's considering withdrawing its ban on DSM due to opposition based on what it said was shrill environmental alarmism. So with this, we are seeing more and more countries moving towards opening for deep-sea mining globally. Before we go back to the company and our positioning and what we've been doing after the December 1 decision, just want to look at a couple of key market variables. One is the gap between investments into copper and what you actually get out of that exploration. So you will see that the mineral exploration budgets have increased 5 or 6x for copper over the last 2 decades, while the outcome of this exploration, that is new copper deposits that have been found, is steadily decreasing. So that means it's increasingly marginal resources that is being explored on. And meanwhile, demand for copper is continuing to increase. And indeed, the green energy transition, the electrification of societies globally adds to this demand. So without any new copper being found, we are now approaching a situation where we see peak copper, that is peak copper supply in absolute terms. And probably only 2 or 3 more years, so in '27, '28, this situation will occur and demand continue to increase. How this equation will be solved will be interesting to see. Normally, the price mechanism, at least to some extent, will be involved. And here, I need to remind you that Green Minerals sits on one of the world's foremost copper resources that has the ability to make up some of this shortfall, at least. When it comes to the geopolitics of advanced energy, it certainly adds to this picture. So one is that it's very difficult to find the copper. And the other question is who sits on it today. And if we look at the processing column, to begin with, you will see the Chinese flag all over that column, no matter which mineral you look at. And of course, the reason for this, the reason that China has been able to secure processing within Mainland China is the fact that they control also to the left of that column, that is the mining column. So while the flags are showing where the deposits are found, they are not showing who is actually controlling them. So China is definitely present in several of these countries and all these minerals other than rare earths, amongst others. I think many will know that in the DRC, China is a dominant force. So this poses some -- this poses security issues, of course, for the West as we are deeply dependent on these minerals, not only for high-tech industries, but also for our defense industries. I won't go through all of this, but you will see also to the right within the battery value chains, within solar and wind, you have the same situation with China being present and a very competitive force in all of this. So this has now become a major issue for the U.S. and Europe. And in that respect, considering that Norway sits on the second richest find of deep-sea minerals after Fiji, it's particularly notable, I think, this short-term pivot by the Labor Party and the Prime Minister to give away the licensing round that was where the licensing papers was ready with the energy department to be distributed to the industry. So we'll leave it there and go to the company. Green Minerals is 1 out of 2 deep-sea mining players listed globally. And we're going to take this call -- this opportunity on this call to go a bit back into the fundamentals behind the company and this resource on the Norwegian Continental Shelf. So Norway opened up for deep-sea mining on January 9, 2024, with that being the first country in the world with a full opening for deep-sea mining. And as I said, we were ready to receive the license papers in December last year. The area in question here is the one that you see within the green lines on the map to the right, so this is between Norway and Greenland. And Norway has opened up for 280,000 square kilometers within the lines that you see there, and these contained the Mohn and Knipovich ridges where the Mohn's ridge is the one of initial interest. The ambition for Green Minerals is based on this world-class copper resource that Norway sits on, to become a license holder in this resource with the lowest use of capital possible. And subsequently, to deliver 1.5 million tonnes of world-class quality ore for offtake. Our strategy to get there has always been, throughout the journey, a partnership model and an asset-light approach. So the status on the project, as I said, opening on January 9, the company is the only one in the world that has a harsh environment, deep-sea mining production concept in place, which is a major differentiator between Green Minerals and our peers. And also we have done a world-first study on joint processing with our SMS with terrestrial ore and proven that these indeed can be jointly processed. I think this and this understanding of the value chain and these results, these 2 bullets, if you like, is something that is really important to understand Green Minerals, to understand Green Minerals' position, to understand the industrial value that we add to any deep-sea mining project and, therefore, our position with the mining industry at large, which I think is a really important takeaway from this. Further, we were invited by the authorities to nominate areas of interest in the second quarter 2024, and we were very pleased to see that our 3 top priority areas were all included in the first licensing route. The company is en route to deliver our stated ambitions. License holdership, as I said, in a little over a year. We expect first ore from pilot production in 2030, and we expect -- or we will show you a little bit later on that the company indeed will have an unmatched capital efficiency versus traditional onshore mining, which we think is a major feat and something that will have to spur interest from the traditional miners. When it comes to license, we hold $50 million worth of exploration data, which is about, I don't know, 10x or so the market cap of the company at the moment. And interesting to note is that this delay this year will probably mean that we will add another $15 million or so to the worth of that data. So more than $65 million of exploration data by the end of 2025. With this, we believe the company is well positioned -- very well positioned for a license win, and we are ready to execute on any awarded acreage. So to take you back to the resource then, this is really a significant resource, and this is what adds to the surprising pivot by the Prime Minister a couple of months ago. This is a resource that is big enough to actually mean something in terms of global production within several types of minerals. If we look at copper first, it's 38 million tonnes estimated by the Norwegian Petroleum Directorate. And this is to be seen against a global annual production of 21 million, 22 million tonnes. So this is 1.8x the global annual production of copper. To put that in perspective, it's almost the same resource size as China has. When it comes to cobalt, as we have said, there's no guarantee that we will be able to process cobalt from this. We have not tested it, but we are going to try. And so there will be a second round processing on cobalt. And here, we're talking about the resource size that is 6x annual global production. So very, very meaningful resource indeed on a global scale. When it comes to candidates for mining, as I said, we have received a lot of data. And then just back to this so everybody understands the nature of the public-private partnership context that we operate within in Norway. It is such that the authorities is fronting the exploration cost, if you like, for the industry by doing extensive research on the ridge and have been doing so for many, many years, ahead of the opening. The data that the Shelf Directorate that they gather is then made available to the entire industry, so not only Green Minerals, but for every single player. It means that you have a saved exploration cost to the same extent. So using this data, we have a pretty good picture of the ridge, and you will see some arrows here pointing to particular interesting areas and deposits, concrete deposits of interest that is guiding our exploration planning. For major discoveries, I can mention the Deep Insight, which was discovered in 2023. I think it's the most notable one. It's at 1,100 meters of depth. We are talking about an average between 1,000 and 3,000 meters in these waters. This one on 1,100 meters depth. The size is quite typical, 300 x 300 meters. So it's a couple of football fields in size. And the copper values that have been proven through course have been up to 13% in this deposit. On a 1-meter average zone, the copper values have been proven around 5%. And then a little bit later on, in 2024, the Grøntua deposit was discovered, which is around 1,200 meter depth, slightly smaller, 150 x 150 meters wide. And Grøntua then is next to Deep Insight and confirms the cluster theory that we've had on this resource. So when it comes to the first licensing round, the yellow areas is the area that has been proposed -- or that has been recommended for opening. And these are 386 blocks that are included. The public hearing deadline was finished on September 26, 2024. All our priority areas in the nomination are included in this area. And from this area then, we expect the licensing round to start in the fourth quarter this year with awards in the second quarter 2026. And again, I think it's interesting that the authorities with the same budget that was used to delay the opening round, they have actually quintupled the allocation to exploration for marine minerals to $15 million for the year. So ironically, while we are waiting, while we have a year wait to get going with our own exploration, we are building value, to an extent, in exploration data to the tune of $15 million for the year. So of course, these are data that will be implemented in our models throughout the year and that will actively be used to improve our exploration planning further ahead of the licensing round. Yes, I will not go into further details on this, but this is a bit of a detail on the various institutions and the areas that have been explored. Yes, this shows the allocation to marine minerals in the 2025 budget. And as I said, it's up around 5x from previous years. Before we head into how we are going to extract these minerals from the seabed, I think it can be interesting to take a look at the perception versus reality, if you like, in terms of the environment that we are diving down to. To the left, you can see, I would say, what is a typical picture more or less of what you will see from -- call it, to put it in the same words as the New Zealanders, the environmental alarmism about what deep-sea mining is all about and what areas are going to be affected. This is not, of course, the reality. The reality is what you see to the right. This is a collapsed chimney on an extinct SMS from the mid-ocean ridge. This is done by the Shelf Directorate. And what's important to note here is, of course, we are not going to be exploring. We are not going to be producing at all, of course, from active chimneys. We're not going to be producing from areas with temperature. We will be producing from areas with the -- that are extinct. And that you typically see that the formations have even collapsed. And what you find is purely ruble. That will be chewed, mixed with seawater and sent up to the surface. We have formed what we call a partnership for responsible production. We have done so together with Oil States who is leading the consortium together with ourselves. And amongst others, SMD is part of this consortium and a couple of other companies that will remain unnamed until we get closer to putting the system into production. Here, we are going to take a look at -- how the production is done. [Presentation]

Okay. So to the benefit of new listeners, we showed the production system. And I think what's important to take away from this, and this is why I wanted really to put it into the environmental section, is the lack of disturbances on the outside environment from the production concept that we have created together with OSI and our partners. What you're seeing here is then the semi-closed loop system. There is -- there are no pumps along the riser. The noise of the system, at any point, is lower than the natural noise in the environment around us. And the only thing coming out of this system is filtered seawater from the bulk carrier that you see up there. So the ore is then going -- or the slurry is then going to the bulk carrier, and it's being drained and filtered and pumped back down to where it came from. The filtered seawater is the only emission from the system. So we're pleased with the solution, and we believe this in itself is a strong argument against the environmental alarmism. If you compare this production system, I would say, to anything that you will find terrestrially, it -- I would be happy to take any views on your views then after such an exercise. What's adding to this? And I think it's important because there's been an impression out there that, for example, the EU is against this. We are seeing EU countries opening up for this, Belgium amongst others in May. Last year, they said that they would be taking a science-based approach, the same as we are doing, to see if deep-sea mining can be done. And I can add there that the more you look at it, the deeper you get into the science, the clearer it gets that, yes, this is definitely something that can be done. So the Draghi Report on the future of European competitiveness that was delivered to the EU a few months ago had a statement in it when looking at deep-sea mining, which I will read. And what Draghi is saying is that the EU should also carefully explore the potential of environmentally sustainable deep-sea mining. Estimates suggest that the deep -- the seabed holds large multiples of the known land-based reserves, for example, for copper, titanium, manganese, cobalt, et cetera, et cetera. And yes, this is indeed in line with what we ourselves have found and, I believe, what Norwegian authorities have found. So when we say that the world, not just Norway, but that several countries in the world are moving towards deep-sea mining. This is only one report underpinning the drive to do this. When it comes to our blendability study, I'm not going to go through this in detail again. But to the benefit of new listeners, we did a world first study proving blendability between our deep-sea SMS with the terrestrial ore. And this has great industrial value, as it means that we can jointly process our ore with terrestrial ore rather than building a new processing plant for that. That doesn't mean that it will be done or that the new processing plant won't be built. It just means that we have the potential to add this great industrial value to any other mining project. So -- and for example, if you look in the Nordics, you will find copper mines that are down to as low as 0.16% ore grade producing for 2025. One of these are producing more than 40 million tonnes of ore at only 0.16% ore grade. So it's -- of course, we can both improve the ore grade by mixing our ore in there. And we can also improve the life of mine for mines like that. So we are -- we were really happy to see the results of that study and a study that was necessary to do and that we took the responsible -- responsibility to do for the first time globally. Now getting into the economics of deep-sea mining -- or let me say, SMS mining because we haven't tested for deep-sea mining at large. We have tested for mining of SMS deposits with a harsh environment deep-sea mining system in Norway. But what we find is, indeed, superior financial metrics. Superior enough to say that they are disruptive to the economics of traditional copper mining. An important reason for this is that no infrastructure investment is needed. We simply take our equipment. We put it out on the deposit we want to produce, produce to the level that we like, and then we pick up the equipment and go to the next site. And this ability to optimize our production in terms of ore grade is also something that's unique to deep-sea mining compared to terrestrial mining. So we will never produce a deposit down to 0.16% as you do terrestrially. Where the cutoff rate is, I will not say, and it will be different from deposit to deposit. But whether that cutoff rate is at 2% or 1% copper, whenever we get there, we will have the ability to pick up the equipment and move to the next site without any large costs to speak of. This is a major advantage of deep-sea mining, keeping average ore grade production at a high level. The CapEx per ton of equipment naturally is much lower than what you see onshore. So we're talking about $17,000 per tonne versus $30,000 per tonne onshore. And in addition to this, as we've said for some time, we will introduce the offshore oil and gas services business model to Green Minerals operations, which speaks well for capital efficiency and returns in the project, which I will get back to. On the environmental side, I showed you the production system. I don't think we're going to penetrate this any further, just to add to what I showed in the -- on the production system that, of course, the deep-sea ore has a sharply reduced overburden compared to what you find onshore, which means less waste and less tailings. So the starting point is really, really good with such an exceptional quality on the ore. And then the production system, the way we extract it, simply adds to this. This is the cash flow profile of Green Minerals, and it shows you the expected drawdown of up to or down to, if you like, of $35 million while we are preparing ourselves for the licensing round and thereafter for some exploration basically -- or the most important part of that is environmental and biological monitoring. Anyway, it needs to be done for our -- to get our production concept allowed. And thereafter, when in production, and this shows only one system producing 1.5 million tonnes of ore and with a 5% ore grade around 75,000 tonnes of copper. On current metrics, on current copper prices, that means a steady-state EBITDA of between $150 million and $200 million for the company. And mind you, this is one production system. There's nothing here that prevents us other than access to capital that prevents us from putting out 2 systems, 3 systems, 5 systems and so on. Three systems would mean that the company will have 1% of global annual copper production, for example. So it's a significant resource, and it's -- we have the ability to ramp up quickly, much quicker than what you see onshore, where typically a new mine will take 12 to 15 years. Actually, the 12 to 15 years is increasing steadily as we go. So now probably, in the very high end of that while we can ride from the get-go, we can get our equipment out there in a remarkably short period of time, say, 3 to 4 years and start producing a meaningful amount of copper. Average peer mining group multiple is 6 to 9x. So for those who have a spreadsheet, it's not too difficult to start to bear around with these numbers. I think when it comes to the multiple, what I can add is the asset lightness of this company and the flexibility in our production and also the environmentally friendly way. We are doing it means that it could be that we will see a multiple for companies like this that are a bit different from the traditional miners as well. So I mentioned capital efficiency, asset light and partnership a couple of times already. And I'm going to show on this slide what this means in practice. This is then the CapEx and -- the CapEx versus funding, I would say, in a partnership model and how it has worked for us so far. So CapEx item #1 is the production concept. It's a significant item. It has had a 0 funding requirement from Green Minerals, and this concept is now ready in place. We have performed 2 research cruises on the Atlantic mid-ocean ridge. The CapEx is, of course, significant for these cruises. Anyone with knowledge of this would know that we talk about at least $10 million, maybe a little bit more. And the funding needed from Green Minerals has been negligible in this respect. These cruises have all been finished -- or both been finished. Moving to exploration data, I mentioned the PPP model that we operate under Norway at the moment. We have exploration data with a projected cost at -- or estimated cost at slightly more than $50 million, with the funding need from Green Minerals of 0. And as I mentioned, this year, the authorities are out there continuing their work, adding to this number. So by the end of '25, that number will be above $65 million. The status on that is ongoing. Then the blendability project that we did together with GTK, it's a fairly low CapEx on that project. And indeed, our cost for that project have also been very low, but an important project to have done nevertheless. Then we are doing a model that we've called DeepMineX with a low CapEx and 0 funding need also from our side. This is -- project is in progress. This is a deep-sea mining decision/gating type of model. Then when we look at the projects in the end here, which is really the ones that are remaining for Green Minerals and that has, of course, the highest CapEx attached to it, it is the remaining exploration program before our production application, and it is the production system itself. These are significant items on exploration. We believe that we, over a 2-year period, will need around $25 million for that CapEx -- or that the project will need $25 million. We estimate that Green Minerals funding it for the project will be 0, just as what you've seen in the previous projects that we've done. There's no guarantee for this. Nothing has been signed yet, but this is what we are working towards. And I think this is really important in terms of understanding any potential future dilution of our shareholders for -- to ready the company for production. And then when it comes to the production system, we're talking about CapEx of around $1 billion here, and this is something that we're aiming to put outside of our balance sheet debt. And again, the 2 last items are both pending, but we have a pretty good track record, at least, on what we said we would be able to achieve so far and indeed putting that to bed. Now back to the delay, the unexpected very surprising delay that was caused by our Prime Minister and the Labor Party on December 1. It warranted a response, of course, from the company as simply we had taken all the costs. We were ready to file an application, having received all the terms in the licensing papers, of course. And so what we have done, given the solid position that the company has, we're only waiting for the authorities to push the button, is that we have decided to reduce our costs deeply. So we are taking costs down with 80%. This is the run rate costs as of the end of this quarter. And the annual run rate cost for the company is then around NOK 10 million per year. So by extending the runway with 3 years, we -- the in-kind commitment from the founders then who will run the company this way is around NOK 24 million. So the calculation is NOK 10 million with an NOK 8 million cost saving over 3 years adds up to NOK 24 million in kind commitment. What we are doing at the same time is that we're increasing the business development activity, the reason simply being that we have really everything in place that we can get in place. At this time, Green Minerals is ready to go on any awarded acreage. And so as such, on that basis and we think sort of unique position that the company has in terms of how we have looked over the entire value chain in this business, this increased activity is warranted. And any further news -- or future news from this will be announced, of course, as they happen. The ecosystem of potential partners is expanding on the heels of this. And also, in order to change, call it, the model of affiliation then of our team to the company, we are also doing an option scheme of up to 15% of the company to a team of 6 people. The strike price for this option scheme will be the same as in the private placing that we have announced. So this is NOK 2 per share. The vesting period will be on average 2 years, and there will be a 5-year total period that one can hold these options. So if you look at the dilution for our shareholders from this, pending the size of the offering then, it would be around a NOK 5 million dilution for the shareholders. And that is to be compared to the NOK 24 million cash savings then on the annual run rate cost over 3 years. Importantly, the company will maintain and retain its competency. So we are changing our, call it, workload capacity from being fixed to being flexible. This will happen through Board directorships and consultancy contracts. Yes, and as I talked about the cost, of course, another important pillar of the reset business case for the company is a guaranteed rights issue that we announced this morning. And here, the minimum amount in the rights issue has been guaranteed by a group of large existing shareholders and also some new shareholders. The maximum amount of that rights issue will be EUR 1 million. This is for legal -- this is a legal requirement -- prospectus requirement in Norway. So we keep the issue then between NOK 5 million and a maximum of -- the NOK equivalent of EUR 1 million. What it means is up to 5.5 million shares to be issued. This will take the runway to the numbers that you see above in the low end of the offering and then some runway extension on top of this if we get to the higher end of the announced offering. The subscription dates there, you can read it all in the press release, but the offering is expected to commence on February 25 and to end on March 11, 2025 there. And yes, that's it. I think there are more details in the press release, and that's for anyone to read up on. Consortium maintained, I could say the technical work in terms of developing the production concept, of course, is ready. It's finished. So we are just waiting to push the button to move on to engineering and production phase. When it comes to our license, the first round license application, it has a high readiness level, we can say, already in this quarter. So the company is -- barring some final adjustments, of course, when we receive the license papers, we are largely done even with our license application. So I don't want to put an exact percentage of that, but if you say, that's probably 8 to 9/10 of the work has already been done. So we will be ready to swiftly respond on the license papers from the authorities when they arrive, yes. And then I mentioned the exploration data being added this year. It's a major advantage of the PPP partnership. We are getting significant additions to our exploration data this year, and these are continuously being worked into our models and improving the exploration planning in the company. So definitely more work to be done, but looking at what we have developed in part of the projects previously, of course, less than previously while waiting for the license papers. Yes, and with that, I will sum up the presentation. And I think the main takeaway here from this presentation is that Green Minerals is building value while we are increasing our runway significantly. So I'm really, really happy on behalf of the shareholders that we have increased -- effectively increased the optionality in the Green Minerals business case a lot over the last 2 months since we got the surprising announcement by the labor government. So in that sense, and in the sense of adding $50 million of exploration data, the company could well be viewed as being actually in an even better position, at least, with more optionality given our runway than what we have previously been able to make visible at least to U.S. shareholders. The January 9, 2024, opening derisked the business case. We nominated areas in the second quarter. And as I said, they were all included in the hearing round for the first licensing round, and we are in pole position for a license win. Production concept, that has been developed together with globally leading partners and is ready. We have done the VMS/SMS processing study that confirms our business plan and add significant industrial value, I would say, not only to the project, but also to the industry. And there are some interesting discussions to be had here with potential partners going forward. The mining infrastructure in the Nordics is well developed. Offtake agreements can be expected closer to first ore. As I showed, the economics in deep-sea mining is really superior to traditional terrestrial mining. We have gone through our business model and the economics of that and also perception versus reality in terms of what this production system will do to the environment around this. The investment case financially is unusually strong. It's more than $170 million in annual EBITDA from 1 harsh environment, deep-sea mining system on current copper prices. That leaves us with a pretax cash return on investment of more than 300% per annum and a pretax cash payback time of no more than 4 months. So with this, I'm happy to say that long-term optionality has been secured through the in-kind commitment -- the significant in-kind commitment by the founders and the guaranteed rights issue. And with that, I will leave it for Q&A.

Let me see. Yes, there are no questions in the Q&A, so far. So I guess that means everything is clear then. Let's give it another second to see if something shows up. No. I think with that, it was an extensive presentation. So no wonder if the audience feels that everything was answered. Yes, here, there is a question about the Clarion Clipperton Zone opportunity. So this opportunity is still there. Just sort of the work is on this. It is, of course, that these licenses are held by nation states in need of a commercial miner to take the project further. What we are seeing though is that things are taking time in the group, small group of nations that is included in the license that we have this MOU on. And it is really hard. There are certain mechanisms that need to be resolved between these nations, but it's hard for us to estimate the time line on that. So this is the reason why we are not going more in that -- into that license. We really want to see that situation being solved within the current owners of the license, so that the transfer of rights can start to Green Minerals. And as soon as we see some movement there, we will get back to you. But I can you just repeat, it's a really, really large license, $40 million of exploration has been put into it. And the resource looks to be above 200 million tonnes of wet nodules. And this is over an area of more than 70,000 square kilometers. So it's truly, truly large and an exciting prospect for the company. We -- but we just need to be patient and take the time to get things sorted out in -- within the current owners of the license. Yes, with that, I think we will end the prepared presentation. Thanks all for your attention, and we will see you again in a quarter or so. Thank you.