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

Good day, and thank you for standing by. Welcome to the Imerys and British Lithium Strategic Partnership Webcast. [Operator Instructions] Please be advised that today's webcast is being recorded. I would now like to hand the webcast over to your speaker today, Alessandro Dazza, Chief Executive Officer. Please go ahead.

Thank you, and good morning to all of you, and thanks, first of all, for joining us today with such short notice for an important announcement. We are proud and happy to announce that Imerys will form with British Lithium, the joint venture with the objective of creating the United Kingdom's first integrated producer of battery-grade lithium carbonate. The venture will rely on Imerys' large lithium deposit in Cornwall on our experience, on our scale, and expertise in developing large mineral extraction and transformation projects. We confirm we have found more than 160 million tons of inferred resources at 0.54% lithium oxide, giving confidence of a life of mine exceeding 30 years, and I will come back on this. British Lithium will bring its bespoke lithium processing technology, its technical team, and a brand-new pilot plant. Cornwall, as a consequence, we've become the leading lithium hub in the U.K. with target production of 20,000 tons of lithium carbonate equivalent per year, enough to equip the equivalent of 500,000 electric cars per year by the end of the decade. The project will include a quarry, beneficiation plant, and conversion units altogether co-located on the Imerys existing site, and we'll adapt the highest social and sustainability standards, including the Imerys standard, which is today definitely the international reference for responsible many. If you combine the British lithium project that we are announcing today with the project in France, which we have called EMILI, the 2 of them combined will make Imerys the lithium producer in Europe, accounting for more than 20% of the projected planned 2030 European production capacity. A few words. Let me remind you a few words on lithium. It is a key resource for the energy transition. Governments being the U.K. through their net 0 strategy or Europe with the green deal, fundamentally, governments are all aligned to the trajectory, which is net 0 greenhouse gas emissions by 2050. As far as road transportation even shorter, 2035 as we know very well, fuel combustion, internal combustion engines, road transport represent today depending on the country and the statistics you take between, I would say, 20% and 30% of total CO2 emissions in Europe, in the U.K. Therefore, it is a subject that needs to be addressed. The technology is lithium-ion batteries. It is the key 1 and therefore, lithium is a critical mineral for the future. Its demand will grow. You see on the bottom right, expected in the almost worst-case scenario sevenfold to 600,000 tons. Other statistics put it even at 1 million tons requirements in Europe by the end of the decade. And it would be a key for Europe's independence. Top right, you see the plans in construction or announced battery factories in Europe, a lot up to 40-50 by now, EUR 100 billion investments. So the future is set. But how do we feed these batteries, these giga factories. Today, Europe and the U.K. import most of their lithium. -- therefore, it becomes a key for the independence of the country, securing lithium production and supply. It's a matter of severity. On the next page, you see, and I will not go through some of the programs launched by the U.K. government around net 0, building by greener, support for battery chain. It's aligned to what also Europe is doing with the Critical Raw Materials Act and other programs. So the alignment is there. The U.K. government will support electrification and the battery supply chain. The last 2 bullet points I would like to highlight for a moment because they are quite new. The Atlantic declaration very recent will make once implemented, the U.K. comparable to a domestic supply to the U.S. before the IRA U.S. program will consider supplies from the U.K. as their own domestic with all the advantages that this will bring. Secondly, the main market for the U.K. automotive industry is Europe into exporting to Europe, tariff-free vehicles will need 55% local content and tomorrow, 65 for battery cell. So having an integrated supply chain and industry in the U.K. will be a key, our project plays exactly in this direction. Let me tell you a bit more about the project on the next slide. You see the 2 partners that join forces on the left side is Imerys. I said, what we bring is to the joint venture is our mines, our deposit, our lithium deposit, our experience our know-how in scaling up, building large project, large mines, and in a footprint in Cornwall where we -- and you will see in the next slide where we today employ between 800 and 900 people, 25 years of history in the area. On the right, British lithium started from 2 entrepreneurs that have already built similar projects in the past in different minerals around the world. They have developed a unique technology. They've built a state-of-the-art plant plus their entrepreneurial ship will create, I think the partnership will really everybody contributes to this partnership, the best of the 2 sides and for me, a guarantee of future success. As said, a snapshot of what Imerys is today in the U.K., about 1,100 direct employees, so probably 2x as much indirect, around EUR 300 million revenues. Most of it, as you can see on the bottom of the boxes, most of it in Cornwall. So this is our home turf. This is where we play a big role. And Cornwall is a place of mining. Cornwall is almost 300 years of mining history, team in copper before, since 200 years, Clay, China Clay, exported everywhere in the world, even into China. The quality of this product is unique. Today, we mined around 1 million tons we might and sell and export around 1 million tons per year, 800 to 900 people, strong infrastructure, in general, a strong infrastructure. Roads, ports, gas lines, electrical lines, everything available on site, a power grid that is up to 50% renewable. So local community that has a strong heritage in mining schools that create great mining geologists and engineers. So the best background of the best base is to build a successful project. And a word on British Lithium on the next slide, created in 2017, started drilling and analyzing the content and the quality of lithium in the ground, mostly on Imerys land through an agreement we have reached at that time. They developed a specific process, very environmental friendly, very cost competitive, 7 U.K. patents to international a file and pending. They built a state-of-the-art pilot plant that I hope one day to be able to show you because today, this plant produces lithium battery grade lithium every day in kilos. So clear, a great starting point for the project. They received support at the very early stage from the U.K. government through the Innovate U.K. fund, most dedicated to R&D and piloting. I think it was very important because it allowed them to start. And I think the result of this investment is in front of us today. If you now combine what we have in France, 34,000 tons of hydroxide, 20,000 tons of carbonate, in the U.K. potentially tomorrow, so 50-plus thousand tons of lithium carbonate hydroxide production in Europe will make Imerys by far the largest producer in the continent, covering more than 20% of the announced future capacities. Not only the 2 projects will carry significant synergies. Both of them are based on granite on mica, the pilot -- the local pilot plant, the future industrial pilot we will build both will help each project to advance more rapidly with higher efficiency and of course, with the reduced cost. Last but not least, both will follow the Imerys standards, and we will be built using the highest environmental and social standards. Few words on the specific projects here. It is a brownfield. So the granite lays below an exhausted scaling beat. So large deposit on the surface. So we will simply continue mining what is today our quarry, which is empty from kaolin, but full of rocks, granite, mica, lithium, we will use an electric mining fleet as we plan to do in France. We will build everything on site, mine, the beneficiation of separation plant, and the full conversion unit with very low strip ratio because the deposit is really on the surface, very high beneficiation recovery, thanks to the innovative technology that British has developed using sustainable power, thanks to the energy mix in the region, all factors for success. Timing, we have just joined forces, so it's a very preliminary timetable you are there, but we do expect about 12 to 15 months for the pre-feasibility study, the same time to run the full engineering of the big-scale plant, which will lead us to a commissioning and a production start before the end of the decade will be '28, maybe '29. So in parallel to what we are doing in France, the 2 will be pretty much aligned. So let me conclude. This is the very same slide you saw at the beginning, so I will not go through again. The message I'm saying is we have here an incredible opportunity to produce lithium in the U.K. to integrate the value chain in this country and to make Imerys really a player in the energy transition, a partner of choice in the electrical mobility and the largest producer in Europe of lithium. Thank you very much. And of course, I'm available for questions.

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

So 3 questions, if I may, from my side. So congratulations first for this announcement. That's very good news. The first question, I would like to know how did you decide on the dimension of the mine. Why 20,000 annual production? Why not more? Because my understanding is that there is at least 3.3 million tonnes of lithium around your quarries. So that's the first question. Second one, would be on the transaction price with British lithium. Can you give us more flavor about this transaction? How did you come to 80%, 20%? Was it on a, let's say, asset based? In that case, what were the CapEx spent from British Lithium so far or on EBITDA? Can you give us some metric here? That's the second question. And the third question is very quick. If you are using the pilot project in Beauvoir, why are you not coming to production earlier?

Thank you, Sven. I will address all 3. Why 20,000 tonnes? As we discussed for EMILI, when you launch a mining and conversion project of this size being lithium with others, you want to have ahead of you at least in this industry, we say at least 20, 25 years because of the complexity, the time required, and the CapEx. So that's a typical, let's say, a rule of thumb in the mining world. When we started the investigation in M&A, we assessed that that should be the size of the deposit. And if you recall, what we have communicated, we said 25 years is guaranteed, and that's why we sized the plant at 30,000, which is also a typical size in the lithium world. Here, what our partner has done until yesterday, and we are taking over now the leadership in this company, in this joint venture. So we will do our own analysis going forward. They have done a similar thing. Based on the drilling results, they have assessed around 30 years. And therefore, the proper size is 20,000 tons to guarantee the mine -- life of mine. So it's a combination of the 2. As for EMILI, they have not stopped drilling. So British Lithium is not stopping the drilling because the deposit continues. So we might reassess through. But today, the knowledge puts the right size at 20,000 to guarantee the duration and the CapEx is a good compromise. We might revisit, but I feel quite comfortable in saying 20,000 is a good size production. The second on the transaction, the 2 parties contributed assets and know-how and intellectual property. So there is no monetary or economic movement or monetary movement or transaction. So it's a contribution. It is the result of a negotiation. So there is no, let's say, asset base, there is not a mathematic calculation. We bring lands, where to build the plant. We bring the resources, which are ours. We bring our know-how and expertise in scaling up and knowledge. We bring our infrastructure. We make available our infrastructure in Cornwall. On the other side, British Lithium brings 6 years of work, all the results of their drilling, a pilot plant, which is up and running successfully produces lithium and some IP. The parties have agreed that the proper valuation is 80/20. No numbers have been disclosed to attach to this 2018. There is no EBITDA valuation. The company has never created EBITDA because it's still in the development phase without sales. Last comment on the pilots. Here, we have the lab pilot scale. I mean it's a building, but it still produces kilos. What we will do in Beauvoir, it's industrial pilot. It will produce hundreds of tons per year on industrial equipment, for homologation and for testing the technology. So it's nice to have both, but one does not substitute the other. What British Lithium does here on site today, we do outside with partners in laboratories around the world. So it's lab. Then you need typically an industrial pilot and then you build the big one. So I believe great synergies because one day, we will have both, and I'm sure EMILI with profit from having here this pilot, British late will profit tomorrow from having an industrial pilot in France. And I think both will accelerate, thanks to this. Does it mean that we will be faster than 28? It's tough because there is studies, there is engineering, and we're talking about hundreds of millions of CapEx, there will be a construction time. So accelerating above this and permitting in parallel, which we assume will happen, accelerating further, it's a challenge today, at least today as where we stand today.

Okay. And what's the CapEx for Cornwall to deploy?

As you have seen -- no, as you have seen in the press release, we have not published a number because we are not there yet. There are estimations made by British Lithium. We would like to have a better understanding and progress a bit further with our pre-visibility study before we mentioned a number. What I can say is EMILI, 30,000 tons, EUR 1 billion or slightly above EUR 1 billion. Here, we are at 20,000 tons. So you can do your proportions. It will probably be a bit bigger because there is less concentration. So you will need more machinery to reach a ton of lithium. But it will be a bit easier because you have no underground, you have no transportation, no canalization, no train loading, and unloading. So it will be all in one location. So it will be definitely easier and cheaper to build per unit, although with a lower concentration. You can do your proportions, and you will not be very long, I'm sure.

And your next question comes from the line of Aron Ceccarelli from Berenberg.

My first one is on CapEx. When I look at Imerys CapEx for the next year, so you clearly have the ramp-up of the synthetic graphite, carbon black plus the CapEx from Imerys. You said you are open to financial partners for Beauvoir. Would you be open as well for the financial partners in order to offload some of this CapEx when it comes to the Cornwall project?

Aron, thank you. Definitely, yes. I mean, as you correctly said, there is a new Imerys, which has its own development, it's on growth, meets its own CapEx, and it has an avenue of growth, which is fast, carbon black, synthetic graphite for the same industry, batteries and one day, we might discuss the next step in new plants probably in Asia. This can be financed out of the, let's say, running business. Then we have a great project in France and another one in the U.K. that are very large and will require a dedicated specific financing. You're right, we will -- we are considering seriously to open the door to a partner in France as well as in the U.K. My preference would be the same one to avoid any competition between the 2 projects. But we will consider options as they arise. It will depend a lot, as I said, for France, the same is valued for the U.K. It will depend a lot on which kind of support the governments will make available. These are strategic projects for the countries. Europe is moving and the for France will adjust to the general decisions of in Europe. U.K. is a bit more independent. So we will see. We're not there yet. We have to finance our studies. We have to understand what we need. Discussions will follow. And based on these results, is one of the variables in the equation partner, government, and investment, but definitely also for the U.K. we will open the door to partnering.

My second question is on cost. I remember you're targeting EUR 7 to EUR 9 per kilo in Beauvoir. Would it possible to have a ballpark here for Cornwall, please?

Aron, we do not publish because again, we are not there yet. We need to do a bit more studies to assess and finalize the technological study then as a consequence, you will have your costs. If I can comment from a qualitative point of view. On the negative side, compared to France, you have a lower concentration. And therefore, by definition, we will need more resources, more energy, more processing to reach 1 ton of lithium carbonate. But you have some significant advantages because you are in an open pit. So you're the quarry, much cheaper in terms of processing costs. Everything will be on site, separation conversion, which, again, will bring an advantage to these projects. So I believe it will be very competitive for sure, in Europe, but in general, on the cost curve. Too early to give you a number, but I am quite excited on the potential of this project.

We will take our next question. And the next question comes from the line of Jean-Christophe Lefèvre-Moulenq from Exane BNP Paribas.

Just a little. I'm not based at Exane Paribas, but at CIC, and just to correct this mistake. Second issue, this project with British Lithium, there is an issue with the homologation proceeded. Could we have -- could you maybe be more specific on this matter? What is different with France? Is that easier or more difficult? How much time does it take?

So I hope I interpret your question correctly. If not, please ask me again. Homologation by battery makers and carmakers, I think every single project or mine in the world will need its own homologation. In the car industry, homologation is a key. And therefore, even if it's the same rock, the same technology potentially one day, made in France, made in the U.K., there will be a separate independent homologation needed for sure. It's a must in the industry.

The homologation targeted permitting with the government both in France, in terms of...

It is different in the 2 countries. In particular, I would say, in France today, lithium extraction is considered a mine, and therefore, will require a specific permission, which is called concession. So it is -- it was -- it is a more -- it's a longer process and a bit more complex. Second topic in France, you will need a CNDP. So Commissioner under the [indiscernible]. So you will need a public discussions, which is fine, but will take some time. So these are, I would say, the next steps. And then we need a building permit, but this is a more standard for every industry. So specifically on a large mining project, you will have these 2 steps, concession and CNDP in France, none of them exist in England. In the U.K., you own the underground, so there is no discussion on concession. As we mine China Clay, we will mine lithium in the very same way. So it's easier. And there is no CNDP. There will be permits as well as in France, but no CNDP as such. So I believe in this sense that the U.K. planning and permitting process should be easier and faster. However, these countries will support us, both countries are very interested to make it happen for their own national sovereignty. So I do count that permitting will not be a bottleneck of these 2 projects.

We will take our next question. And the question comes from the line of Mourad Lahmidi from Exane BNP.

I have 3 questions. Could you confirm that the scope of the JV covers all lithium operations and not only the U.K.? Second question, could you also confirm that there was no financial transfer as part of the transaction? It's only assets that are being brought the new entity. And finally, when I look at British Lithium website, they say that they invented the low energy chemical-free process for physically separating granite that contains lithium. Could you elaborate on that, give us more detail? What does it mean low energy, chemical free? How does it compare to other processes out there? And is it applicable across the 2 sites? On a scalable basis, of course.

Of course, Mourad, thank you very much for the questions. On the first one, no, I will not confirm because it is not true. The joint venture covers exclusively the U.K. project. It's totally separate from our MD project in France. For British Lithium will be only the U.K. projects, 80% [ Imerys ], 20% current shareholders, mostly the Smith family, the founders. On the financing, I confirm what you said. There has been no monetary transaction, no payments to make it simple, but the contribution of both parties of their assets into the joint venture to make it happen. And the third topic, which is technical, it is true now that we have access, full access to the pilot ends and to their technologies. They have -- first of all, let's say, the message is to compare mostly to Asian productions, which use acid attack and a lot of energy. So the process here has one big advantage. They have developed a magnetic separation. So no chemicals at all and a low-temperature dissolution of lithium in water. So no chemicals, low energy, and magnetic separation, which is a very cheap intelligent, simple technology. Can you use it elsewhere? If I look at our projects in France, part of it is very similar. So we do not use assets to dissolve lithium, but we use also low temperature and water leaching. On the magnetic separation, it might not -- this part might not be totally usable because it depends if you have some magnetic elements in your lithium. And so far, we don't believe there is this kind of presence in the MacGen in France. Most of it is the same. One specific step might be a bit different. But largely, we will -- that's why we see a lot of synergies, largely will be the very same process.

Okay. And you don't -- you have -- you already have a good view on whether this process is scalable on large volumes. Or is it too soon to say?

To be honest, it's a bit too soon. I've been through the plant all day yesterday, the pilot plants, and I invite the people on the phone today to organize a visit because it's impressive. You really see a crushed rock at the entrance, and you go home with a kiloliter in your pocket. It's impressive. It really produces kilos per day, and it's battery grade. It's usable as it is without further processing or what I've seen gives me a lot of confidence. I've not seen any machine in the pure plant that is extremely complex, extremely precise and I've been through a lot of let facilities. I know when you work with the precision of laboratory, difficult to scale up, large and thousands of tons. I've not seen today anything that scares me because it's lab scale. It's simple machines, many handmade or made from artisans around here. So it looks like there is a very strong hope to scale it up easily. I'm very excited about what these people have developed.

We will take our next question. And you have a follow-up question from the line of Sven Edelfelt from ODDO BHF.

Yes. I apologize, Alessandro, but I would have liked to ask another question, not only them, but I will try my chance. I think there has been a hearing yesterday in the court regarding the Asbestos issue. Can you maybe tell us if there has been some positive development there?

No, I don't have any further news. The mediation is continuing. There are small steps in the right direction, meaning find an agreement between the different law firms on what they wish. We are not at this mediation table because the agreement with us for the time being stands and is not in discussions in any of these terms and conditions, is a bit disappointing that it takes so long, but it's mostly due really to the distraction caused by the Johnson & Johnson ups and down, changes refusal approval. So it's -- I see that really as the main impact on the slow progress. But I don't have any specifics really, but also not bad news at the moment, unfortunately, no. Very good. Thank you all for listening to us today and for your interesting questions. Once again, to remind I see here an opportunity, a great opportunity. It's not tomorrow, it's down the road. We need to do our job in terms of engineering and studies. We have to find the proper financing structure for it. We have to collaborate with public institutions and governments to secure the value chain in the country. But once again, I think we have, in our hands, an incredible opportunity for the future. Thank you very much, and talk to you soon. Goodbye.

This concludes today's conference call. Thank you for participating. You may now disconnect.