Keweenaw Land Association, Limited (KEWL) Earnings Call Transcript & Summary

Good morning. The meeting will please come to order. I'm Jamie Mai, Chairman of Keweenaw Land Association, Limited. On behalf of the Board, the management team and the employees of Keweenaw, I welcome you to today's virtual-only meeting. The agenda for the meeting is to vote on 2 proposals: first, the election of 3 director nominees; and second, the ratification of Anderson, Tackman & Company PLC as the company's independent auditor. We thank those who have submitted their votes via proxy in advance of this meeting. Formal part of the meeting will be followed by an informal part where Tim Lynott, our President and CEO, will make a presentation. We will then host a Q&A session with the management, independent auditors and legal counsel of Keweenaw. And lastly, we will declare the preliminary voting results of the meeting. A notice of this meeting was sent to each shareholder of record. Prior to this meeting, the company appointed Equiniti Shareholder Services as inspectors of election for this annual meeting. Daisy Kuhn from EQ is present on the call today to coordinate on their behalf. Keweenaw's transfer agent has certified a list of shareholders of the company as of the close of business on April 3, 2025, which is the record date fixed by the Board shareholders entitled to notice of and to vote at this meeting. This list shows there were 1,126,284 shares of common stock of the company outstanding and entitled to vote. A majority constitutes a quorum for this meeting. I'm advised by EQ that the quorum requirement is satisfied and that the business of the meeting may proceed. I would now like to introduce our directors who are present. In addition to myself, we have Eric Speron and Mark Sherman. Next, I would like to introduce Tim Lynott and Paula Aijala. Mr. Lynott is the President and CEO; and Ms. Aijala is the Secretary of the company. Ms. Aijala and Mr. Lynott are serving as proxies for shareholders who voted by proxy. Our proxies for the meeting will also be responsible to make and second the motions to approve the proposals set out for today's meeting. I would also like to introduce Dan Bianchi of Anderson, Tackman & Company PLC, our auditors for the fiscal year ending December 31, 2025 and Brad Wyatt of Dickinson Wright PLLC, our legal counsel, who are participating in today's meeting. Dan has been given an opportunity to make a statement if he would like. At the end of the meeting, Dan and Brad will be available to answer any questions. The minutes of the 2024 Meeting of Shareholders were made available electronically to you prior to the meeting. I would accept a motion approving the minutes. I would suggest that one of the 2 proxies make the motion.

My name is Tim Lynott. I move that the minutes of the 2024 Annual Meeting of Keweenaw shareholders be approved as presented to this meeting.

Thanks, Tim. Is there a second for the motion?

This is Paula Aijala, and I second the motion.

We will now vote on the motion to approve the minutes. All in favor, say aye. [Voting]

The motion is carried. The minutes of the 2024 Annual Meeting are approved as presented to this meeting. Ms. Aijala and Mr. Lynott as proxies were among the persons voting for the motion. First item of business is the election of 3 directors. In accordance with the notice of the annual meeting, the Board of Directors of the company has nominated Eric H. Speron, Mark A. Sherman and me, James A. Mai for election to the Board of Directors to hold office for a 1-year term expiring at the 2026 Annual Meeting. In accordance with the bylaws of the company, stockholders are required to provide advanced notice of their intent to nominate candidates for directors. No such notice was received. Therefore, I declare the nominations closed. I would like to accept a motion regarding the election of the directors. I would suggest that one of the proxies make the motion.

I move that the following resolution be adopted. Resolved that James Mai, Eric H. Speron and Mark A. Sherman are hereby elected as Directors of Keweenaw Land Association to serve for a term expiring at the annual meeting in the year 2026 and until the election and qualification of their successors.

There a second for the motion?

I, Paula Aijala, second that motion.

The second item of business is the ratification of Anderson, Tackman & Company PLC as our independent registered public accounting firm for the fiscal year ending December 31, 2025. I would accept a motion to ratify Anderson, Tackman as our accountants. I would suggest that one of the proxies make the motion.

I move that the following resolution be adopted. Resolved that the appointment of Anderson, Tackman & Company PLC as Keweenaw Land Association's independent registered public accounting firm for 2025 is ratified.

Is there a second for the motion?

I second the motion.

Okay. It is now 10:12 a.m. The polls are open for voting on the 2 motions just received. Most of the matters to be voted upon today, I would ask the proxies to submit the proxy votes to the inspector on the motion. Give a moment for the completion of the vote. [Voting]

Okay. It's 10:13. The polls are closed. The Inspector of Election has informed us that the preliminary results of the 2 items voted on today will be available following the informational portion of this meeting. The company will issue a press release announcing the final results after they become available. If there's no further business to come before the meeting, I would accept a motion for adjournment of the formal portion of the Annual Meeting of our Shareholders. Would one of the proxies make the motion?

I move that the formal portion of the meeting be adjourned.

And I, Paula Aijala, second the motion.

You've heard the motion to adjourn. All those in favor, say aye.

Aye. [Voting]

The motion is carried. The formal portion of the meeting is adjourned. So with that, we'll now move to the informational meeting of the agenda. As a reminder, we will be following the rules of order attached to the agenda. Tim Lynott will make a brief presentation. And if after Mr. Lynott's presentation, you wish to ask questions, please enter your questions into the Q&A box located on the right-hand side of your meetings button. Company representative will direct them to management or the Board as appropriate. There will now be a brief Q&A period. We'd be pleased to answer any questions you have. Because of time limitations, we're allocating 2 minutes to each person who is asking the question.

I'm going to -- I'll do the presentation there, Jamie. Thank you. So thanks, Jamie. We'll get into the presentation, and then we'll get into the Q&A. This is our safe harbor statement saying that there may be forward-looking information in this presentation. The presentation outlined this year will consist of a brief 2024 year-end review with highlights and updates from our mineral activities, a peek under the hood at a spotlight transaction from 2024, a 3-year look back since the timberland disposition, a high-level overview of the first quarter Q1 2025, a couple of transactions from Q2, an update on our key mineral asset at Copperwood, 2025 financial forecast, a look ahead at mineral economics, we'll call it. And lastly, a brief Q&A at the end. In 2024, for about $1.52 per acre, Keweenaw more than doubled our mineral ownership and enhanced several of our target areas across copper, nickel and gold where we have compiled minerals [ and data ]. Additionally, we acquired volumes of data and approximately 17 miles of drill core. And this opportunity came to us from shareholders and a service provider who made us aware of the opportunity and KLA was able to execute. I will continue to highlight the source of some of these transactions throughout the presentation because we ask for your suggestions, and we want you to know where it has been successful. This transaction still has us very busy with data and drill core. Our increased ownership makes us the second largest mineral owner in the entire state of Michigan, second only to the state of Michigan. We own approximately 10% of the mineral acres out of all of the acres in Upper Michigan. With this increased scale, we believe Keweenaw will be included in any future mineral development that comes to the UP. Also last June, we continued to reduce shares outstanding, this time by about 51,633 shares for $27 per share. The total shares that we have repurchased since 2022, including the tender, are 169,889 shares at an average price of $22.12 per share. Lastly, we completed the mineral exchange with the State of Michigan last fall, which was a net gain for Keweenaw of 1,120 acres by exchanging 9,551 acres with the state and acquiring 8,431 acres in areas more prospective and capable of being developed. The exchange reduces our state lease expense by around $28,000 permanently. The acres acquired were part of our leasing activities over the past 3 years. Owning these acres outright consolidates a number of areas and will offer KLA flexibility in terms of future lease and royalty partners. The areas offered to the state lie underneath the Porcupine Mountain State Wilderness Park. And with completing this transaction, Keweenaw is truly protecting the porkies. Slide 6 shows the mineral ownership prior to the 2024 transaction. And I'm going to toggle between that and the next slide just to show you the increased acreage and density across Upper Michigan. Keweenaw mineral ownership after the 2024 transaction now totals 1,048,631 net mineral acres. I say net because some of the areas, we only maintain partial ownership. For example, if it's a 40-acre parcel and we have a 50% ownership, we enter that into our GIS system as [ 20 ] net acres for recording purposes. Once, during 2024, we identified the White Pine area around the old workings and the old mine near to where Kinterra Copper USA is currently conducting, permitting and pre-feasibility activities for its White Pine North joint venture with Highland Copper as a prospective area where we could put more minerals potentially under lease. Ideally, Kinterra or any future operator there would see the same potential. As we conducted our diligence, we identified that we had a 75-year-old lease agreement dating back to 1961 that appeared as it had never been fully terminated. And it was actually -- it actually earned Keweenaw a royalty until the late '80s when White Pine was still in operation, and it was one of the last royalties that Keweenaw saw from White Pine. We identified the current lessee, made them aware of the delinquency. No one remained from either company that had any knowledge of the lease. The current leasing company was not interested to renew or pursue or renegotiate and in good faith, we agreed a settlement and termination would be the best path for a windfall of $85,200 to Keweenaw. We now have these areas available for future partners as Copperwood and White Pine continue to develop. It is this relentless focus on our minerals and prospective areas we will continue to deploy for our shareholders. This slide offers a good visual comparison of the progress we have made since the disposal of the timberland at the end of 2021. Since that time, we have increased our mineral ownership by 261%. Our acres under lease have doubled. It was during this time that we unified Keweenaw ownership around Copperwood. Keweenaw now owns the minerals under any satellite areas at Copperwood, which are directly adjacent to the permitted property, should Highland choose to expand its operation beyond its planned 11-year mine life. Our mineral target areas have increased from 2 to at least 6 now. And with our recent mineral acquisition and leasing activities, we believe we have identified the next-generation copper assets after Copperwood and White Pine. We have developed an inventory of copper, nickel and platinum group element targets that should be of interest to potential partners. The only domestic source of nickel in the U.S. is currently being mined in Upper Michigan, about 40 to 50 miles from some of KLA's best ground. These are critical and strategic minerals that warrant further exploration if our country truly wants to control our supply chains. Our state leases peaked at about 20,430 acres. However, with the completion of the mineral trade, we have reduced that amount to 12,223. The acres we had under lease with the state are now owned by Keweenaw. We finalized the strategic mineral exchange with the state, preserving State Park assets, but more importantly, acquiring prospective areas we believe could actually be developed in the future. Our share price has doubled, while our share price -- shares outstanding have decreased by about 13%. And we've done this all while maintaining a strong balance sheet, which continues to offer Keweenaw flexibility to complete transactions like we highlighted in 2024 and still be in the market for more as long as they meet our strict capital allocation requirements. A side note, minerals are traditionally long-term assets, which may be -- which may not be harvested on an annual basis. Keweenaw's activities are intentional and focused on optimizing our assets for when harvesting is an option. We have talked and written about our exploration-ready project areas, and we felt it was time to show you on a map where some of these areas are. Our 2024 acquisition was important here for both an industrial scale logic to scale up our historical ownership and also gain economies of scales in our marketing efforts. Working from left to right, our copper targets surround the Copperwood and White Pine. Our nickel targets cover a broad area in the central Upper Peninsula. Our gold targets encompass an area in the South Central Upper Peninsula. And lastly and notably, our hydrogen targets are also in the Central Upper Peninsula. I will talk a little bit more about hydrogen in a minute. Moving into 2025, Slide 10 is a snapshot of some of our results from the first quarter of the year. We have earned $140,000 in recurring revenue from our mineral lease at Copperwood through Q1. We will see an additional $209,000 in revenue from Copperwood in Q3 as well as an option payment of $5,225 from our solar partner for a total of $354,925 in annualized recurring lease income. We did receive an additional unbudgeted payment from our solar partner of $15,000 earlier this year as they firm up their contracts in advance of financing their solar project possibly next year. Topline revenue from our working capital agreement is $3,756 through March 31. Our working capital arrangement was also sourced to a shareholder. We did not sell any real estate assets, but we did have a mineral sale of 37 acres at $100 per acre. We understand that not all of our mineral acres will be mined, and we have developed a framework where we may sell mineral rights from time to time on a small scale. In this case, we also maintained a 4% royalty on the property should the area ever be developed in the future. This transaction was also sourced to a shareholder and service provider. We continue to earn income generated from our T-bills, which totaled just over $60,000 through the first quarter, and we continue to be invested in 1-month, 6-month and 2-year treasuries for duration. A couple of the Q2 transactions. To date, one includes an option deal for a new mineral that was found 100% within our 2024 acquisition properties. That mineral is hydrogen. We just completed an exploration option agreement at $3.50 an acre on 5,742 acres in 3 specific areas within our mineral portfolio. This nets us just over $20,000, which is a 2% return on our invested capital from 2024, something that could grow with good exploration results. Natural hydrogen is becoming an emerging mineral for companies looking to diversify away from fossil fuels and Keweenaw's geographical location near the Midcontinent Rift make it a good candidate to find natural hydrogen. This opportunity was also sourced through a shareholder. One more transaction from Q2, this one on the acquisition side is the addition of 2,120 acres of minerals in prospective areas where we have had some discussion with potential partners for exploration in the past. We acquired them at $3 an acre. We believe this to be an attractive and accretive rate at which to be a buyer. This came to us as a result of our state mineral trade. The state selling company, a regional service provider, saw our press release with the state of Michigan and believing KLA to be a responsible mineral owner reached out. With our current balance sheet, Keweenaw can provide liquidity to long-term mineral owners looking for an exit. Of course, the terms need to meet our strict standards, but we would love to identify other opportunities like this. Our annual meeting would not be complete without an update on Copperwood. I will reiterate for the most part, what has been press release by the company during the first part of this year. Highland has engaged in detailed engineering activities designed to optimize and zero in on the capital required to build the mine. They have also commissioned a metallurgical study regarding ultrafine flotation, which could define how big of a footprint is needed for their mill and also improve their copper recovery. The $50 million grant for regional infrastructure like roads, communications and power remains in play. The Copperwood project is Keweenaw's major asset in our portfolio. It has been in development since 2008 and remains under the terms of the original 20-year lease. 3 years remain on the original term. The Copperwood project remains fully permitted, construction ready and is economic at $4.02 per pound. If it were to begin construction today, it could be online in 24 to 30 months. It is one of the very few critical mineral projects in the U.S. at this stage of development. Copper prices have remained strong over the past year. Since our last meeting, prices were at $4.66 per pound. And as of yesterday, copper prices were trading at about $4.78 per pound. And again, we will continue to operate our business as if Copperwood will not be in our forecasting horizon. The 2025 financial forecast. Our goal is to have recurring income cover expense. The mineral estate is not income generative enough yet, though interest income earned from our balance sheet continues to aid Keweenaw in covering our cash burn. We anticipate our net operating cash burn in 2025 to be less than $160,000. This number continues to inch downward and will be slightly lower than 2024. We continue to focus on areas where we can further reduce our overhead costs. As we have defined previously, we consider our run rate cash flow to be defined as long-term passive income generated from recurring sources less nondiscretionary fixed costs, essentially the cost to run the business as a public company. Our cash position remains strong. And at the end of Q2, we expect to have about $6.2 million in cash and cash equivalents. We plan to release our semi-annual results on August 14 of this year. Over the past few years, we have listened to shareholder feedback on items such as the 2024 mineral acquisition, our recent 37-acre mineral sale, copper recycling and even the hydrogen deal came through a mutual shareholder. Between what we have in the boardroom and our owners, we should be able to source additional opportunities that management can work on to prove worthy of additional resources and allocations or not. So as we mentioned in the annual letter and throughout this presentation, please keep your suggestions coming. Copperwood is our first priority, followed by selective capital allocation on high-return opportunities, and we firmly intend to attract partners like the hydrogen deal to work across our ownership, which will enhance the intrinsic value to our shareholders. And I cannot stress enough the importance of private minerals in a favorable jurisdiction like Michigan, which has historically hosted copper, gold, iron and nickel mines. Looking ahead and perhaps talking more in terms of mineral economics, both copper and gold have been trading at or near historic highs. This should mean good things for mineral companies' profits, which could translate into capital allocations into new areas like Keweenaw Minerals in Michigan. Copper is projected to be in a supply deficit as noted by Sprott and other copper prognosticators with most demand coming from construction, electronics, grid infrastructure and transportation like electric vehicles over the next decades. The orange line, which may be hard to see on this particular slide on the chart, shows supply over the next 25 years. In short, more copper is needed, and we think Copperwood is the perfect candidate to begin meeting that demand as America's next copper mine. Additionally, and almost daily, news headlines are published regarding executive orders such as the one from March 20 regarding the need for new domestic sources of minerals to firm up our supply chain and end the reliance on other countries. We believe KLA can play a role in offering a solution for that. And lastly, the U.S. Geological Survey kicked off a geophysical survey in Upper Michigan across all of its 15 counties, which just happens to coincide and include all of the counties that Keweenaw just acquired minerals in 2024. We could not have drawn a better survey outline if we had done it ourselves. The data capture will take place over the next 4 months, and the reports are expected to be released in early 2026. As they say, sometimes it is better to be lucky and good, but our actions over the past few years have certainly locked us into this position. That brings us to our Q&A portion for the meeting. And at this time, we can address any questions in the queue. And Jamie or Eric -- Jamie or Brad, do you want take the questions...

Okay. I'll start with the first question on the list, and it is, does the company own the oil and gas rights and non-hydrocarbon gas rights on its properties? Tim, I'll let you field that one.

I'll take that one. And the short answer is it depends. We know with historical Keweenaw ownership, we do own the oil, gas and hydrocarbon rights. With the new acquisition in 2024, it's on a deep-by-deep basis. For the areas that we have put under the hydrogen option, we certainly do, but it's not all of them. So that's -- as I said, we're still busy with that transaction. So that's the short clean answer, but we're certainly working our way through the details on it.

Okay. The next question is a couple of parts. The first is, can you clarify what Keweenaw's position if Highland doesn't begin production by 2028, would Keweenaw try to negotiate a higher economic interest in the project? So I'll field that part of the question and then just say that recognizing that 3 years is not a long time, as Tim noted, that it's not in the company's interest to discuss this matter at this time. The second is, will we have any revenue from White Pine beyond the minerals that were discussed earlier today on the edges of that deposit? And then Tim, if you have any color to add there, please do so.

Yes. So the where Kinterra is operating and doing their pre-feasibility work today does not include any Keweenaw minerals. And if -- however, if they were to expand to the Southwest, again, looking on a map heading in the direction of Copperwood, those minerals would come under Keweenaw ownership. So not today, but again, as mines develop, they like to grow and get bigger and keep feeding any potential mill or activity that they have there. So that's it.

Okay. The next question is -- relates to the slide showing the development opportunities. And there's a question about the 6 unique opportunities with the potential to evolve into developed contracts. And what are the key milestones or other important ways to measure incremental maturity on the progress of these pipeline projects? Tim, I'll turn that one to you.

That's a very good question. And the goal remains to attract mineral experts, so to say, that have both the expertise in geology and access to capital markets to do the exploration work required to upgrade some of these minerals. So the milestones along the way on incremental activity would be similar to what I've explained on the hydrogen option. Ideally, there's copper, gold, nickel companies out there that want to do the same type of thing and select an area of interest and start exploration work to advance and prove it up or prove it out one way or another if there is potential for a mine one day. And those -- that's the initial step in the process. Exploration leads to environmental permitting and feasibility studies and very similar to the path we've gone down with Copperwood over the past 2 years. Ideally, it doesn't take that long, but the standard timeline out there is about 17 years from discovery to first production. And in some cases, it can be longer. So that's the path.

Okay. The next question is, I would love to better understand the company's viewpoint on hiring a team of additional in-house geologists to further advance and expedite internal capabilities.

So I'll kind of tackle that one. We do work with consultants now. We have a good handful of external geologists that we work with that are familiar with both Upper Michigan and the Midwest. And we've been working with them over the past few years to get these project areas to exploration-ready status. And in a lot of cases, the next step in some of these areas is the expensive step of drilling. So that's where we've kind of stopped. But we do work with, I would say, I would call it a team of geologists external to Keweenaw right now.

And Tim, perhaps it's appropriate just to elaborate a bit on the work that we did back in 2021, I believe, or 2022, some in-house expense and then where that's gotten us.

Yes. So back in 2020 and 2021, we did actually do some drilling, and it was in and around some of these gold areas. Historically, we found some drill core that had been drilled by previous companies that was in the Michigan geological repository and we that we sampled that core. It came back at around 7 grams per ton. When we twinned those holes, the results were actually better, and we got results north of 9.7 grams per ton. So 9.7 grams per ton is about 1/3 of an ounce. And these holes were initially drilled for iron ore. So we weren't even drilling in the ideal spots. And that's why we believe we have a very good gold prospect in these areas. So we flew it with geophysics, we drilled it, and we've done the necessary assays and sampling to put numbers behind these activities. And again, the next step is most likely more drilling, which gets pretty expensive pretty quickly.

And I think just to be clear, the decision of the company at this point is that we would look to a strategic partner to conduct the drilling rather than having it done by Keweenaw.

That's correct.

Okay. The next question reads to the degree it's appropriate to comment, if any pipeline projects have been shared with possible development partners, what has been the nature of the feedback received from these possible partners? And what have been the company's key learnings from the feedback?

Yes. So short answer is yes. We've had numerous discussions and presentations with companies that are involved in all of the minerals that we've discussed here today. And for a variety of reasons, we haven't struck a deal just yet. And just anecdotally, one of the reasons was with -- even with record gold -- record high gold prices, a lot of these companies are exploring near-mine opportunities, and they're putting their capital into extending what they're currently producing already to take advantage of these high gold prices. So they're not looking 5 years down the road or 10 years down the road, which is unfortunate. But that's some of the feedback that we've gotten. We've also talked again to base metal companies, and they all love the jurisdiction and the private nature of our minerals. It's just -- it's getting them to expand beyond their -- the 4 corners of where they're currently comfortable exploring or operating.

And the one comment I'd just add is that the company obviously has discretion regarding the types of deals to accept. And so in our view, the marginal benefits of having announcements without real commitments to put meaningful amounts of CapEx into the ground is not interesting. And so the bar for us is high because, obviously, as the mineral rights owners, we benefit when something goes into production. So it's a long haul, and we want to make sure we have strongly capitalized partners from the get-go.

Good point, Jamie.

Okay. Well, if there are no further questions related to Tim's presentation, I'll make our accountants and legal counsel available. Excuse me, there's another question here. Apologies. Thank you all really for the details. I'm happy to see other projects. I'm curious, has there been any contact with Talon about their nickel discovery near some of KLA's acres? That's something that's on our radar.

And I'll steal the line from Jamie earlier. We're not necessarily going to disclose who and what we've been saying with folks, but we do know who our neighbors are in the region, and we believe that's a logic place to start some of these discussions.

With that, I'll open it back up for a moment for questions to Dan or Brad as representatives of our auditors and legal counsel. Okay. Well, then I'll now ask Brad to read the preliminary voting results if they're ready.

Thank you, Jamie. The votes have been counted. Regarding the election of directors, the inspectors report that more than 95% of the shares represented at the meeting have voted for each nominee. Accordingly, James Mai, Eric Speron and Mark Sherman have been elected as directors of Keweenaw to serve 1-year terms. The 1-year terms will expire at our annual meeting in the year 2026 or upon the election and qualification of their successors. Regarding the motion to ratify Anderson, Tackman & Company as our accountants for 2025, the inspectors report that over 97% of the shares voted were for the ratification. The preliminary tally shows 755,424 shares were voted for ratification, 20,878 were voted against ratification and 210 shares abstained. Based on the vote the appointment of Anderson, Tackman & Company has been ratified.

If there's no further business to come before information, I would accept a motion for adjournment.

I move that the informational portion of the meeting be adjourned.

And I, Paula Aijala, second the motion.

You've heard the motion to adjourn. All those in favor say aye. One of the proxies may speak.

Aye.

Okay. Thanks, Tim. Great. Okay. Well, thank you, everybody. And with that, the motion is carried and the meeting is adjourned.