Imerys S.A. (NK) Earnings Call Transcript & Summary

Good afternoon to all of you and thank you for joining us today with such a short notice for this call about Imerys Lithium, which we've called EMILI. And for the French-speaking people, the meaning is [Foreign Language] For once, we're not in the office, but we are on site in Beauvoir [indiscernible] Allier, so in the central part of France where the mine is located and where today, we have presented to the press and to all the local institutions this very significant project. Let me start by giving you a bit of background information. The world is clearly moving towards net zero greenhouse gas emissions. This will necessarily lead to a reduction to say the least, if not the elimination of fuel combustion engines for road transportation. The EU has already banned new gasoline and diesel cars from 2035. It is just 13 years down the road. This energy transition and achieving the European Union decarbonization targets, will require the lithium-ion technology for batteries and therefore, lithium. Lithium is an essential resource for the future. For the European lithium demand will be multiplied by 10 by 2030. Europe is investing -- is investing a lot in battery production, as you can see on the left part of the slide, with many recent announcements. It is certainly a step in the right direction. However, Europe is currently entirely dependent on imports for its lithium typically from South America, from Australia and from China. Today, no lithium producer is present on the European soil. Yes, there are lithium expected projects but even if all of them, all of the announced and known projects today succeed, they will cover less than half of the demand expected in 2030. Let's introduce you now to our EMILI projects, few milestones a bit of a history. It is located, as I said, in Beauvoir, in the middle part of France. The site is a small site in the Department of Allier, is a long industrial and mining tradition. We started operation in 1850 to produce kaolin for ceramics. If you have at home a nice porcelain [indiscernible], probably it is made with our kaolin. We still produce kaolin today every day up to 30,000 tonnes. In your [ cups and ] [indiscernible] , in your plates, on the table next to you now, you might have some of our material. In the 60s, the granite deposits containing lithium located exactly below underneath the quarry was discovered by the BRGM, the Bureau of Research, Geological and Mining translated in French. Imerys acquired the site in 2005 and continued mining and processing kaolin ever since. Faced with climate challenges and the energy transition, we have decided to launch a project to understand what we have to understand the potential of these deposits in order to confirm the quantity and the concentration of lithium in the ground. Today, and here, we are here to tell you that the results of the survey -- of the survey campaigns carried out are more than encouraging. As it is the technology for its extraction and exploitation from mica. Thanks to the EMILI Project, Imerys aims to become one of the major player in lithium supply in Europe. The envisaged target capacity will be 34,000 tonnes of lithium hydroxide per year enough to equip the equivalent of approximately 700,000 electric vehicles per year. As you can see on the right side of this slide, this will make as one of the largest potential producer in Europe in the future, even more so considering that on the bottom, the Rio Tinto project for the moment has been called off. It will be a competitive local source of lithium produced in a responsible mine, respecting the IRMA Standards and engaging from the beginning with all local stakeholders. That's what we have been doing today here in Beauvoir. IRMA is the initiative for responsible mining assurance, and I invite you to check the website to let you know the importance of these voluntary standards that we have chosen to lead us into the future. In the region here, it will create potentially about 1,000 jobs once up and running. When we need to be up and running here are a few key milestones going forward. It is a big project, and it will require it's time. In 2023, next year, we plan to complete our studies on the deposits and on the technology. In 2024, we will launch the construction of an industrial pilot plant with a capacity of 400 tonnes of lithium, so a real factory and completes the pre-feasibility study for the big plant. In '25, we will run the pilot plant and receive the final confirmation of our technology, but also launch the Engineering and the Construction successively of the big plants. By beginning of 2028, we plan to commission the site, start production and reach rapidly the capacity of 34,000 tonnes in lithium hydroxide per year. How is the industrial process structured? It will consist of 3 main stages in Mining and Crushing parts. At the mine, which would be entirely underground, but I will come back on this later on. A Concentration plant on site above the ground. At this stage, we will separate the different minerals. Mica, which is the granite-rich in lithium, feldspar, which is a core product that we would like to pulverize especially into the ceramic industry. I remind you is half of every tile is containing with half [indiscernible] is feldspar. Tin and Tantalum, strategic raw materials according to the European community. And finally, a Conversion unit to be located, not on site, but at an industrial existing industrial site in the region through calcination, water leaching, purification and the crystallization, we will extract lithium from the mica concentrate. The group has built a strong team of experts, including geologists, mining engineers, health and safety specialists as well as experts in mineral processing and in the construction of large industrial projects fully dedicated to develop this project from R&D to industrialization. Today, we have around 25 to 30 people fully dedicated to this project. Half of them are for [ Marimar's ] employees. The other half are greatest expert we have recruited everywhere in the world for their experience and know-how. Let's come a bit to the core of this project, which is the deposit. The results of the surveys we have carried out over the last 2 years confirm that the deposit is very attractive with high concentrations and quantities of lithium. In average, we have determined a concentration of 0.9% of lithium oxide representing more than 1 million tonnes of resources or inferred resources of lithium oxide with peaks up to 1.3%. The red part on the 3D model is the part with the highest concentration of lithium. The deposit is located underneath the existing kaolin quarry operated by Imerys, which you see on top of the drawing. We are contemplating underground mining to minimize the impact on the environment and to avoid noise and dust. Processing tailings will be backfilled underground and fill the void that we create as we mine along. Based on these figures, the life of mine is assessed at 25 years based on a production level of 34,000 tonnes of lithium hydroxide. But that's not all. The very good news is that the deposit does not end where we thought. It continues at depth and towards the south. So we have launched a further drilling campaign, a new phase, and we plan to assess the full potential of the deposits. We are very confident that we will be able to extend the mine of life significantly. At all stages, of this process, we will make, and we have made responsible choices. Let's look at mining first. We will operate exclusively underground with waste rock backfill underground to minimize the environmental impact as well as noise and dust. In the mine, an electric fleet would be used to minimize the emissions, save energy, improve health and safety. Transportation, once we have separated the concentrate from Beauvoir to the site where we will load on a train will be done by underground pipes in order to avoid CO2 emissions and noise associated with typically truck transportation. After the loading, we would separate the ore from the water. The ore will be loaded on a train and sent to the concentration plant; the water will be sent back to the concentration plant in order to maximize its recycling for a sustainable future. We will -- we would like, but we will settle our conversion plans in an existing industrial zone in order, again, to minimize the impact and maintain our responsible approach guideline. We would also like to maximize the use of rail in order to limit truck transportation. As you can see, all of this on top of Imerys experience and knowledge, it means a responsible project. But not only in terms of environment, local biodiversity and respect and in cooperation with local communities. We target to produce lithium with less than half of the CO2 emissions compared to the typical currently existing hard rock lithium operations in the world. This next to our own choices, also thanks to the French low carbon electricity mix. Here you see a bit -- a summary of what where we started from. So solid assets in terms of sustainability, local knowledge, experience, responsible existing quarry to develop a responsible mine in line with IRMA standards and will be a lighthouse in the -- for sure in -- in France, but also in Europe and in the world in terms of responsible mining. To summarize, we have a few key fundamentals of the EMILI Project, 34,000 tonnes per year of lithium hydroxide from 2028, making Imerys a leading supplier of lithium to the European battery market and a key player in the global retail industry. At least 25 years, and I underline at least 25 years of life of mine, cash costs of lithium produced at Beauvoir estimated to be between EUR 7 and EUR 9 per kilo. The estimate costs would be competitive, especially in the European market and would secure an attractive return for the project at the end in line with the group's long-term value creation goals. The project is estimated to involve a construction CapEx of approximately EUR 1 billion. We are still in a preliminary scoping study. We have not indicated the price of lithium on the slide because it changes every day. But I'm sure you all know that the current price is around EUR 75 per kilo with a drop expected after 2030 according to many studies to EUR 20 per kilo or dollar. I remain a bit skeptical on this drop because of the rapid increase in demands and the difficulty to get supply on stream on time. A recent article published by PCG last week indicates that demand might not be balanced by 2030, but rather by 2035. With these projects, and I conclude here, Imerys aims to become a benchmark player and one of the top producers of lithium in the world by the end of this decade. A dedicated structure and financing will be put in place in due time to support the rapid realization of the project. This could involve many scenarios among which going along, partnering with industrial companies, being these customers, peers, even car producers or leverage financial or institutional investors. The project aims at strengthening Imerys leadership and expertise in lithium-ion battery components, and complete what we already do, our offering, Carbon black, synthetic graphite in our sites in Europe. This as well as more plans for the future of this group will be provided to you during the Capital Market Day, which I remind you, will be held on November 7, Monday in 2 weeks. I believe this project can be a game changer for Imerys. Thank you for your attention, and I now open the floor to your questions.

[Operator Instructions] And the first question comes from line of Sven Edelfelt from ODDO BHF.

Yes, congratulations for this very good -- on this very positive news. A couple of questions from my side. When I look at the CO2 emission at your mine, you mentioned emission twice lower than Australia. But if I look at Europe in 2025, there will be a carbon border tax adjustment mechanism. And therefore, lithium would be charged to heavy stamp duty. So the question is why should your lithium be sold at EUR 20 per kilo, shouldn't it be more than that? That's the first question. Shall I continue or?

Yes, Sven. Please pose all the questions, and then we will address them one by one.

Okay. So the other question I'm not sure I understood, but are you going to team up with a partner to do the transformation, the chemical transformation of the crude carbonate because this is not your core business? And if you're doing it with a partner, shouldn't we expect your partner to take a stake in your mind to help crystallize value, or at least are you open to the idea? And then I would have a third question. Beauvoir is one thing, but I think you have also an important deposit in [indiscernible] I believe there has been a pilot project with British lithium. And my understanding is that the deposit might be as important as Beauvoir? So can you help us understand the potential of this additional mine that you have? And if it's not today, perhaps you could prepare something for the Capital Market Day.

Thank you, Sven, for your questions. Let's start talking about price. I never said that we are going to sell our lithium at EUR 20 per kilo. I really hope not so, and I do not believe so. I was just interpreting what many studies currently available in the markets by large institutions or consultants indicate there's a potential midterm, long-term level. This, for me, relatively low price is more related to the fact that one day demands and offer will balance. I'm very skeptical because I believe demand -- the estimations on demand are very realistic. We have launched the technological transition. It will not stop. So I do believe -- and by the way, we are building giga factories of batteries. So demand will be there long in line with the curves expected. I'm very skeptical that production will be there in 2030 or later at the levels today imagined. And I'll give you a very simple example. You have on our slide -- and on Slide 5, the 12 non-European projects currently being investigated. All of these are included in the future supply availability. The largest one, Rio Tinto at the moment is not only on hold, but has been formally canceled. But still, this production is included in future supply projections. For this reason, I do believe this market will remain unbalanced and therefore, will drive higher prices for many years. In the fourth, to conclude, we will not sell at EUR 20, but we will sell at the right price at the time we would be in the market. And I'd like to add the second comment, which is very important, what you said. I do believe that the market will pay a premium for clean lithium. It is for me a total contradiction to move mobility to an electrical way to clean or to save this brand and then accept to buy and use raw materials that pollute significantly. For this reason, first of all, projects in the future will require to meet much stricter specifications in terms of emission. And second, there will be a strong premium on clean producers and clean products. And this was one of the reasons when by the way, that it took us longer to complete our studies because from day 1, if you remember, we always said, we will launch the project if we have the deposit, the technology, economically and environmentally viable and environmentally viable was -- is not only the impact on the environment, but also the CO2 footprint. So we are very proud today. Thanks also to not only to our choices, but to the low carbon mix of energy in France to say this at the moment, could be the cleanest lithium produced from rock in the world. The second question is, if we will choose partners. As I said in the last page of the presentation, it is an option. We have not excluded at the moment. We are not excluding any option. It is simply a bit too early to make the decisions. we would like next year to finish all our assessments to really understand the volume -- the value of this project. Only at that time, we will decide if we go along. If we go with partners, technological partners, customers, peers, competitors, institutions or financial institutions. We are very open, and we will discuss in due time -- when ready. And I would like to make a precision to your question, our conversion units that you call a chemical transformation in reality, is not really a chemical plant. It's a calcination. We calcine, which is basically a small rotary kiln at low temperature is what we do today with many minerals. And I'm referring to Page 7 of the presentation is leaching. And to be precise is a water leaching, basically, we wash the product. The lithium dissolves into water, we crystallize as we do with many other minerals, precipitated calcium carbonate is the same, is precipitated from the water, and then we drive the crystals that come out and here you have your lithium hydroxide. So I do not see in this process, nothing really chemical first, second steps, each single one, which are very well present in many of our clients today. So increase mastered by Imerys technology, each single step, then once again, we might consider a technological partnership if we deem as useful, especially if it can allow us to accelerate this time to market. Last is around -- are there other places and then let me know if I forgot some. Are there other places where there is lithium? The answer is yes, Lithium is present largely in the world. The only problem is that the concentrations are always very, very low. I think the deposit in Beauvoir is unique. Having in Europe something around, let's say, 1% with some peaks of 1.3%, 1.4% even, it's really unique. But we have launched a campaign worldwide in all our properties to understand if there is lithium in which quantities and in which concentrations. Today is way too early to tell you if there is something worth discussing. But as we move along, I'm not sure in 2 weeks, I will have the answer. So I'm not sure at the Capital Market Day will be there yet. But we have launched this kind of investigation everywhere. What I believe is what we are creating is not only a business case and a plant, but extracting from granite, this kind of granite, lithium it's the first time because it's different from the spodumene used in Australia. I think this will become the center of excellence for this kind of technology. Our pilot plant will be available for the world, and I think we will become the preferred partners to many people that maybe don't have the size and the scale to do what Imerys is doing. So I see this is the beginning of really a potential future interesting stories. Sven, I hope I did not forget it.

No, no, that's very useful. I have other question, but I'll go back in the queue and I'll wait for...

We are here for you. We'll take the lead time, but thank you for letting the next one on.

The next question comes from the line of Jean-Christophe Lefèvre-Moulenq from CIC.

[Foreign Language] I have 2 questions, if I might. First, do you fear some actions stemming from green [ rubies ] products? And secondly, to be sure, having properly understood the Slide 7. You don't need to refine the product externally or if needed?

Good afternoon, Jean-Christophe. Thank you for your questions. Do I see actions from what you call a green [ lobby ], yes, unfortunately, today launching the project of this size will raise next to a lot of interest, a lot of support, and we have met today really all the local institutions that offer their full support? You've seen probably the quotations of 3 of our French ministers this morning that has happily joined our press release offering their support. It is a strategic product for France and for Europe. But we cannot include, and we do expect challenges from the environmental side. For me, the key is transparency, is engagement, in its communication. We have done it on site since several months. Today, the [indiscernible] as well as the President of the department stated publicly, we aim is for the transparency since months and for involving us from the very beginning, which we will continue to do. And in large now that the information is public, is consultation to all the stakeholders. It is a key, will be transparent. We will face the issue, address them and treat them. I can tell you that many of the choices we are taking in terms of technology are more expensive than what it has done in China or in Australia. Going 100% underground has a cost in terms of CapEx and in terms of OpEx, transporting everything by pipe underground, it has a cost. Many decisions we are taking do have a cost, but we do believe this is our mission to make this mine an example in France, in Europe, in the world and to address many of the typical questions that will be posed by environmental institutions. On the refining, you're right, Jean-Christophe, the product that will leave the conversion plants at the end of this process will be the lithium oxide -- sorry, the lithium hydroxide or carbonate at the end are similar products. The white powder that a battery maker will buy one-to-one put in is better. It's a finished product ready for use.

Two subsidiary questions, maybe in term of CapEx, do you expect getting subsidies from the government or private partners?

We have received support in the very initial stage of the process within the [ ones reloans ] 2020, we have received a bit more than EUR 1 million for the initial research and development studies. We have currently -- we have currently applied for the next what in France is called [indiscernible]. So we are a potential beneficiary of the France 2030 program, which will be decided by the way in the coming days. Again, this is addressing the development, the pilot scale production. In terms of the big CapEx, the one that you mentioned, again, it is too early. It is an option, and I do believe that the European community as well as the French government will support these kind of projects, in which as they are supporting heavily the construction of battery factories. So -- but it is too early again to give you an answer. We will see it will be a discussion that will happen in the next, I would say, 12, 18 months. Thank you, Jean-Christophe. Just of the possibility you can come back after if you have more questions.

The next question comes from the line of Adrien Tamagno from Berenberg.

I have a couple of questions as well. First, on the CapEx, can you just please tell us if the EUR 1 billion does include possibility to extend the resource base and maybe the production figures? And associated [Audio Gap] with that, from the slide where you showed phasing it seems that no big CapEx is expected until 2025 for the construction. So does it mean you're going to run a conservative balance sheet until then for another first part? Then on the OpEx, if you can maybe tell us your assumption for power pricing for your EUR 7 to EUR million per kilogram range in terms of costs that would be also appreciated. And lastly, you also mentioned that you were skeptical that you could sell your lithium for EUR 20 per kilogram. So I was just curious what sort of pricing assumption you would have modeled before going for this decision?

Thank you, Adrien. The answer on the size of the CapEx, EUR 1 billion as well as the OpEx, EUR 7 to EUR 9 per kilo are based on what we know today, which is a scoping study, how technically it is defined. So it's a preliminary study. It is based on the technology we have chosen on the laboratory outcome of our tests and therefore, the estimation of what could be the CapEx as well as in OpEx. It will be better refined as you move along and if you are familiar with large projects, you will understand the words. Next year, we will talk about the pre-feasibility study that will reduce the potential variation and then a bit down the road, it will be a feasibility study that should really define the exact amount of CapEx or pretty much exact as well as the consequent OpEx. So today, based on what we can assess it is -- these are the numbers that will be refined at the later stage. In the EUR 1 billion, there is no potential more resource in normal production. This is based on what we have communicated. The deposit as it is today, 1 million tonnes, 25 years, 34,000 tonnes capacity of production at target from 2028. We are launching a new drilling campaign. Actually, we have launched a new drilling campaign. It will take, again, a few months to finish it, then we will know and -- we are talking about a few million EUR of investments, like we spent at the beginning of this year, then we will know really the potential of this deposit. The target is today to fundamentally to increase significantly the life of mine. So to know that there is lithium not for 25, but maybe 35, 40 or more years. As soon as we have these numbers, we will do our final considerations on how to treat the number. In terms of CapEx in our balance sheet, as I said, this project is of such a size that it will be analyzed in detail separately when the time for decision comes, which as you say, it's more a 25 -- probably commitment. So we do have time. Between now and then, we will continue to spend money. We'll continue to spend money on our drilling campaigns. We will continue to spend money in building a pilot plant. But I think these are level of CapEx, which are within our normal budget scope, budget discussions and therefore, will not significantly change the picture of Imerys. Last is on the price. I did not put any assumption in my business case. As you can see in our press release, I have considered that the worst-case scenario for me are today the EUR 20 that most of existing current -- it is still existing studies show as a midterm value. At this level, it still makes a lot of sense to continue, and we will see what the future will show. I'm convinced that our CO2 footprint, the quality of our lithium will pay a premium, plus, as I said, I do believe that this market will remain heavily unbalanced for a long time. So I hope the price will be better than EUR 20.

And the next question comes from the line of [ Laurent Runacher ] from Advance AM.

Congratulations for the project. Maybe to help us with the pricing because everyone is asking for the same question, the assumption on long-time long-term pricing and lithium, is it fair to assume that you compete mainly with the Australian lithium? So I guess you must have the quantities. If we just add transport on top of, let's say, let's assume the long term is 25 -- 20,000 for an Australian lithium. Then we had the transport, then we add the border tax, and then we add the premium and the fact that we are producing -- you are producing clean lithium, you are meeting half of the CO2 of your Australian competitor. So here, maybe you can help us what is the average premium on lithium that are produced with I would say, half the benchmark, which is Australia in terms of CO2? I guess it's, what, 20% premium. Just for the [ cleanliness ] of the lithium plus [ export ] and border tax, which you must know, I guess, and share with us?

Unfortunately, I will not be able to give you an answer on this one. And frankly, it is impossible. What will be the transport in 3, 4, 5 years down the road, look at what happens in the last 3 years, rates were multiplied by 5 by 10, went down. I have no idea what the political decisions will be in terms of taxing, as you say, less clean products going forward. What will be the premium that a European producer will be willing to pay for a cleaner lithium? It's really impossible. I'm not doing this exercise, and I cannot help you. What I profoundly believe is that Europe cannot continue building his ecological transition without a local source of lithium, being entirely dependent with exactly all the risks you have mentioned, transportation, CO2 footprint, exposure to other countries. Europe cannot build a serious ecological transition without becoming independent or at least largely independent -- partly independent on such an important key raw material for a battery, especially knowing that today, again, it's not Imerys saying that it is a much bigger expert, especially considering that the lithium-ion technology is unavoidable and substitutable for the next 10, 15 or 20 years. So there will be a serious advantage of being European, sustainable, clean, but don't ask me today to put a number, really, really difficult.

Because on other mining stuff, I've been asking many, many mining area. They believe and they were telling me that a premium of 20% is the least we can expect and is already observed in other mining stuff which enjoy an advantage in terms of CO2 emission to cleanliness in terms of production. So that this is a benchmark that was proposed by many analysts on other stuff than lithium. And I was also -- I know you've been alluding to maybe more reserves than the 1 million tonne been communicating on. I've been reading the [ Lumo ] the article which says very several million tonnes of reserve. I understand you are currently doing an additional study to, to be -- to assess the real potential of the mine. But in the blue-sky scenario, you must have an idea, 3 -- 4,000,000-ton at least?