Nordic Mining ASA (NOM) Earnings Call Transcript & Summary

Okay. Good morning, and welcome, everyone. My name is Ivar Fossum. I'm the CEO of Nordic Mining. A warm welcome also to our webcast audience. I hope you can see and hear us clearly. A bit of practical information to start with. After the presentation, we will have a Q&A session here in the audience. And it will also be possible to post your questions on the webcast, and we will read them loud here, and we will answer. Secondly, the presentation we will give this morning is a part of a complete package. It is next to our press release this morning, and a full 75-page summary of the DFS is now published on our web page with a lot of details that should give you a very, very good overview of the DFS study. So let's move on. I want to start by saying that on behalf of the whole team, in Nordic, our Board of Directors, and on behalf of all the shareholders, I'm very, very pleased to be able to present DFS study for Engebø project today. It's been a long journey. We spent most of the time up to 2015, mitigating the permit risk. After we got that, in 2015, we have embarked on developing the projects. Two drilling campaigns, lot of investigations, research, test work, bidding rounds, engineering, which have led up to this big milestone. So let's move on. We have divided the presentation in 4 sections. So after a brief introduction, I'll take you through a little bit more of the details, hopefully, not too technical. We go through the financials, and we'll share with you how we will move forward from here. Since we started Nordic Mining, our mission and our focused strategy has been on high-end industrial minerals. Minerals, which we think have increased demand and increased use in a modern society. And over these years, we have seen a transformation. It's been a big change in the world's perception and understanding of the importance of minerals in our society. Not at least as enablers in the new green energy value chains, but also in a lot of other applications. And to be honest, I don't think we have seen the start even all this new era of how the elements will transform our lives. But as a junior miner, we have to focus and our focus is staying Engebø rutile and garnet project in Norway and our stake in Keliber Oy, the lithium project in Finland. But we're also glad that we jointly together with IFE can move on and carry out research with regard to production of alumina with new minerals and with a new process. Actually a process that consumes CO2, and it's not emitting CO2. And our minerals also have their place in the modern society, lithium in the renewables energy value chain. We all know it as a key element in modern batteries. Garnet, which is unique in cutting and blasting operations in an environmentally friendly manner. And alumina as a recyclable material and not at least, rutile, titanium dioxide with very many environmentally friendly applications. First of all, the most effective and environmentally friendly pigments, but also the reason why new aeroplanes are significantly lighter today and to a range of health applications. And we see constantly new applications for the element titanium from superconductors to new batteries and to surface cleaning services. But as miners, we have to think beyond only be miners and building industry. We have to have in mind sort of something beyond that and consider ourselves as caretakers of global resources, which we have to handle carefully. And we will, as Nordic Mining, commit to develop and operate our projects according to the highest principles internationally. Principles, which are all based on United Nations sustainable goals. And mining industry globally are touching on all of these goals in general. In Norway, one of the richest countries in the world, we will focus on climate responsibility, how to efficiently take out the ore with minimum footprint. We will seek to use renewable energy where we can find it, and we have plenty of it in Norway. And we will follow the sort of speedy development on how we could electrify all of our vehicles in the mining operations. Secondly, environmental footprint, both on land and in the marine environment. We want to ensure ourselves and our stakeholders that we are avoiding irreversible effects on biodiversity and ecosystems, and we want to monitor and mitigate these effects. As you can imagine, health and safety is paramount in the mining industry with heavy machinery, lot of tonnes that are to be moved. But we want to take care of health and safety also for our neighbors, and we want to seek that there is more girls coming into the mining industry. It's been a men's world for decades. Now we are moving into automation. We are moving into IT. We think mines will be better with a more sort of balanced picture between the sexes. And finally, but not least, we will establish a new industry for a long period of time in a local community. We want to be a part of that community. So we want to engage with our neighbors and be conscious that it's not only our shareholders, who is going to get something back, it's the local community in a wide range of elements. That's in our blood, building new industry in Norway. DFS study, it used to be called bankable study for a good reason. It's tremendous de-risking milestone for any mining project that needs financing, and particularly for junior miners, and it's the start gate. It's a start gate for getting into financing the project and building the project. And it also represents a transformation of Nordic Mining as a company for being a tiny small developer, investigator, researcher, communicator to becoming a full-fledged operating company. So it is really a big milestone in -- for our company and for the projects. And it's very, very good to see that DFS is coming out with very solid figures after tax, both on NPV and rate of return. But in addition, also very strong cash flow, the first 15 years, which is crucial when you want to finance a project from the market. We have an impressing EBIT margin of over 70% also, which is extremely important going forward. And combined with that, a limited payback period of just about 4 years. Our perspective from the study is just about 40 years, [ about ] 40 years, as a project lifetime. But to be honest, we don't really know what will be the total duration of the Engebø project. Because in this study, we are using a part of the ore body to fuel sort of our financials, which I will come back to later. So let's move more into the project and the details of the Engebø project as such. Location, you can't move around the deposits. They are sort of sitting where they are sitting, and we have to make the most out of it. And our location is one of the best ones. Norway has one of the longest coastlines, which means blue infrastructure. We can ship our products. We can ship in equipment. We can actually also ship in part of our staff in the future. So being close to sea has tremendous advantages for a mineral deposit in general. Adding to that, Norway, as we know it, a very stable country. Yes, we have political risk, but the constitutional risk is extremely low in Norway. And we have infrastructure. There is actually a road virtually going through the deposit at Engebø, and we can drive 50 minutes to the west to a local airport or 50 minutes to the east to another airport. And it's a regional town called Førde, which is 40 minutes away. These are extremely important elements when you want to build a long-term industry, in particular, in our part of the world. And finally, we have ample source of hydropower in the area, fresh water. And it is a region also with quite a bit of skilled labor, a lot of labor, which is today commuting to platforms and also into other industries. And there are quite a few vendors which are keen to get the project off ground and which are keen to be there and assist us with service and maintenance going forward. I'm not a geologist, but just a few words about the ore body. As you see it, and I picture this sort of some million years back coming up from the ground, and which has sort of outcropping on the top of the Engebø ridge, and then it's fading out to the east. But it really is a big ore body 2.5 kilometers long. And we have got to know it's quite extensively through drilling and through numerous investigations. During the last years, we have also got better grip on the geotechnical parameters for the deposits, which enables us to carry out quite sort of efficient, and how to put it, aggressive mining solutions in an ore body as such. And as most Norwegian rock types, it has very low levels of heavy metals and radioactive elements, which also is an important parameters when we are going to go down the value chain and make products. On the picture down to the right, you see a 3D image of the ore body. The red colors are rich ore, and we made a very early understanding with the local municipality. We both wanted to develop and make industry and long-term employment, but we saw that we needed to compromise. We saw that we needed to make a rich open pit mine and then go underground. And that has stuck to our plan and seems to hold very good in our strategy. I won't dwell too much on these figures, but the mineral resource statements and the reserves is really sort of the backbone of any DFS study. That's what's fueling our financials and are crucial for the lifetime of the operations. And the more we sort of looked into the Engebø project, the more we understood that this deposit, this mineral resource, is unique on a global scale. We haven't seen any other place. These high grades of rutile and garnet and certainly not together. So it is quite special, which means that we can make a very robust mineral project. We are reporting according to the Australian code called JORC, which is sort of coming from the stock exchange in Australia. So these figures are kind of the Holy Bible and the background for all we do in this study. You can note that in addition to the measured and indicated categories, which are the numbers we are allowed to use in this study, we have a huge potential in the so-called inferred resources. These are resources which we can qualify going forward by more drilling. And still, we don't really know the final depth of deposit itself. We have drilled it down to minus 200 below sea level, but still in ore. So it is a tremendous potential. And as I said earlier, permitting was an important part, and we got all the major permits granted, which is not an automatic in Norway at all. We have the zoning plan. We have a full environmental plan. We handle -- we have landowner agreements for the full open pit. We actually got detailed zoning plan approved in 2019. The first one in 2011, and then a second one in 2019 because of change of the law. So it's really been sort of a comprehensive approval of the industrial area as such. We have had our application for the operational license in process for a year. We think it's around the corner, which is a license not really about if we are allowed to mine, but how, focusing on safety, for taking out sort of how we are actually mining. It's about the utilization of the resource, short term and long term. And it's about reclamation of the mining area in stages as we move along. And finally, we also need a tiny small zoning plan for the fresh water pipeline, sourcing processed water to the plants. Then ore body, as I said, has some interesting parameters that enables us to optimize and to really choose a schedule on how we do mining. And the last 3 years, the team with Hatch in Johannesburg has rescheduled and optimized the mining and found out that by doing 2 stages of the open pit mining, we can reduce the waste ore dramatically and increase the ore. We have also reclassified some of the rocks that we thought was kind of intermediate into ore. So we are now sort of sit within open pit, where we will take out more ore than the plant can actually handle for the first years, and we will stockpile that, and we will pull it back it in to the end. So waste rock has sort of -- is less than half approximately from what we had before. And you can see sort of an image a little bit of these 2 stages on the top picture. Then we will go underground for 19 years, partly overlapping with the open pit mining, and then we will pull in the stockpiled ore for the last 8 years. And since the deposit is outcropping, we're actually starting to mine right into ore at the first year. And there are very limited waste rock, which we had to take out in connection with the ore. These are important sort of cost driving elements, which is very positive for our deposits. Another picture indicating the schedule, and you can see the blue areas of this graph, which is the open pit extraction of ore that we actually are pulling out more ore from the open pits then we are feeding to the plant. And this ore will be stockpiled as a reserve, which we will take into the process plant after the underground. We will focus for the first 15 years. That's where we have optimized our plans. And we have options to do overlap and optimization of the underground and the stockpile as we move forward. But this whole sequence is just about 40 years of operation. Our process team in Naustdal together with the Hatch team in Joburg has done an impressive work testing the flow sheet over and over again, and the DFS is really about variability. It's about repeatability. It's really to design a flow sheet that can withstand the variation that the process plant will meet as they go along the deposits. All the units we are using is standard technology, but how they are put together, the mass balances and the flow of this is unique for our rock. And that is testing and testing and even more testing, most of that in scalable equipment. So we have shipped ore to Joburg, we have shipped ore to Brisbane to be able to test it in full-scale process equipment. And it is an art a little bit to make this flow sheet integrated so that we can take out high-grade products, both rutile and garnet. It will be a very sort of monitored process. We are in Norway. There will be a lot of instrumentation and a control room so that we can really be as efficient as possible, but it will be a 24/7 operation. So there will be a need for certain amount of people. In addition, we have catered for heat recovery system so that some of the dryers will recover the heat, which we are using all the places in the process plant. Then I'll move a little bit into markets. Some of you know these products from before. But for many, they are very new. Rutile, which is 1 of 3, 4 various feedstock, titanium feedstock, but it's the purest form of titanium feedstock. The 2 main market segments is making pigments, like all the white we see in the room here. The second one is making titanium metal for a range of applications. And then we have a smaller sector, but also a vital one, called welding rods because rutile is used as a cover for the welding rods in order to make the weld nice and to avoid sparks for the welders as such. So it is a specific one for rutile. But it has sort of unique properties that is impossible to replace both as oxide and as metal. And that's why sort of the underlying demand for titanium and for rutile, will always be there. Garnet is a different product. It's not to be processed in [ aluminum ] plant. It's an end user product, but still, it has sort of certain specific properties that make it unique. It's the only mineral that has the right balance between density and hardness so that it can be used in waterjet cutting. It is light enough to be accelerated, but strong enough to actually cut. So it's the only mineral that are sort of have been able to make waterjet cutting a big industry. And it started out to be having 2-dimensional cutting boards. Now we are moving into 3D cutting with waterjet, and I think that will be a very, very fascinating development to follow. The other big market segment for garnet is abrasive blasting. And there it's competing with a range of other materials like slags from other things, coal slags and metallic slags. But there are legislation coming into that picture. Garnet is inert. There is no health problems associated with it, and it can be recycled. So we see that it's gradually sort of growing its place also in that market. We get help from TZMI in Australia, which are research experts on the titanium space, and they have, for some years, indicating a decline in the supply of rutile. But recently, the forecast have been a little bit more dramatic. We see that current suppliers for rutile from Australia, from East Africa and from West Africa, are stopping their production simply because they are running out of mineral resources. Even Ukraine, here in Europe, which is the only producer, will also stop in a few years from now. So it is a sudden decline of rutile supply as it looks. But of course, there are new projects in the pipeline, and there will be sort of expansions in the current suppliers. But at the same time, demand for rutile is increasing. We see a strong sort of demand for rutile, in particular, in the metal segment, which have been flat historically, but now is -- really has a surge. Most of the sponge producers are running sort of and pushing their capacity. And then they need high-grade feedstock. And this, of course, is impacting over to the price landscape for rutile. And since 2015, the prices have gradually ticked upwards and TZMI's long-term outlook has also been sort of increased gradually over the years. And we are sort of adopting their so-called [ low-called ] inducement price. That is the breakeven price, where the producers of pigment and metal, where they find it right to take in for them the highest grade feedstock compared to other feedstocks. And it seems to be a price that will continue to increase in the future. So we will follow that with great excitement. Right now, the price is actually somewhat above our assumption, but we want to be on the conservative side with regard to the rutile price. Garnet is a different story in terms of supply and demand. There is no producers in Europe. Europe and North America has been, historically, the big drivers, the big markets for garnet. Then Middle East came along. And recently, Asia is becoming a big market. Not at least because of the waterjet cutting. The growth in the waterjet cutting is quite healthy, and more and more machines are being pushed out in the market into automated industrial applications. I move on with that. The garnet market is harder to read. It's a younger industry and analysts are struggling maybe to see where it's going. But again, we have a good study from TZMI, and we have put our price on the conservative side. But we see a healthy growth, in particular, in the waterjet market. So we think that prices on garnet is also coming upwards in the years to come, and our position in that market will be a little bit special. We will be the only producer in Europe. So we'll be very close to the European market. We are ideally located to serve the U.S. market on the East Coast. And we will be one of the few with high-quality garnet from hard rock, which will give us an edge in the markets. And as we have announced over the years, we have entered into partnerships, both in the titanium space and on garnet. On rutile, we have signed an intention agreement with a Japanese trading house. The understanding is that they will actually buy the majority of our rutile production, and they are also looking to how to finance our project, both with equity and debt financing. We may, of course, also serve important customers in Europe. So I think it's a luxury that we have this strong demand for rutile from Norway. Barton is one of the leading producers and distributors of garnet, and we have had an understanding with them for many, many years. And our garnet products have been tested in their machinery, and they have assisted our team also to design the process plants. And they are currently also one of the biggest shareholder in our company. Then we move over and touch up on the financials. We briefly told you already, but just a few sort of highlights on that, in particular, the post-tax figures, again, which we think are strong. And also the EBIT contribution from the project of above USD 80 million in average per annum the first 15 years, I think really demonstrates a robust project and a debt serviceability, which we think is extremely important in the times that we are moving into. Sensitivities. We see that it's quite robust even with quite significant variations in both CapEx and other -- all these parameters. We're holding at, what we call, a decent level of returns, which we think is good. It's proving a good robustness. In particular, with IRR, net present value, little bit more sensitive to the garnet revenue, but still, in our view, very healthy figures and in particular to variations in OpEx and CapEx. Cash flow profile, and it's -- here again, you can see the strong cash flow for the whole lifetime of the project, in particular, in the first years. And I would like to add here that we have spent tremendous time to optimize the open pits. That's where we are going to pay for the projects. When we move forward and get into operation, we will optimize the underground continuously, and we have a lot of options how to sort of fine-tune that. But we really know how to focus the first 15 years of operation, that's where we're going to pay back the project and the lenders. And you can also see accumulated here that we have a very, very short payback time. Our friends in Perth, every year, they produce peering among titanium feedstock producers and sort of rating them. Based on TiO2 units, regardless of the source of titanium, whether it's ilmenite or rutile or any in between, and they credit the side products. And because we are completely alone, having garnet and rutile together, we get a fantastic high revenue to cash cost on TiO2 units, which only indicates that we will be a very, very robust producer of rutile compared to our peers. And then I will finalize my presentation and share with you a little bit how do we view our journey from here because it will be a new journey. We have some big impressive chapters of work laid behind us, and now it will be a different time. And we are entering into a phase of the project with 3 different activities. We'll go into the so-called FEED phase, front-end engineering and design. We'll work on offtake along with product financing. Time schedule-wise, kick off construction by year-end 2020. And we have managed to squeeze the schedule for construction down to 22 months because of this modular strategy, which we have applied. So we should sort of at schedule be producing first product towards the end of 2022. The FEED phase is about detailed engineering. It's about finding and bidding for the right EPCM contractor. It's about negotiating some of the bigger packages, and it's focusing on procurement, the long lead items. And then we have smaller activities, but also important, like applying to the municipality for building permits, getting our baseline environmental monitoring programs off the ground. That's important for us. It's important for our stakeholders. So this will start this summer. And the overall focus for this phase will be to continue our strategy to have an EPCM partner to be able to construct the modules offsite and then follow-up with a stage sort of installation at site. And we'll try to see, is it possible to optimize some of these bigger packages to get some synergies. But as I said before, it's also about transforming our company. We need different type of people into our organization, and we need to grow the organization. And we really want to focus on key personnel, and we'll build our team in Naustdal. We want to focus on procurement. We want to focus on construction. We want to focus on key persons that can follow the projects from when we start detailed engineering throughout to commissioning because we don't consider the risk on mining to be that big, but always a new process plant is always a risk to be able to start that one up efficiently and on time. So that's important. We will be a team of around 10 people in Naustdal during construction. And we'll stick to our current plan of having contract mining for the first 5 years so that we know that we get the right ore and the right feed into our plant to start with. In parallel with that, we will develop plans according to our environmental and social management strategy, plans related to environmental monitoring, engagement in the local community, extractive waste, energy and closure plan and probably, some others in addition. And finally, we are stepping up our activity with regard to project financing. They have started. The banks have started a little bit on their due-dil process, but the DFS results, the DFS report is really sort of the point where we can accelerate that work and give the possible lenders the necessary background to evaluate the production -- the project -- and based on the meetings we've had so far with advisers, with possible guarantors and banks, we think it's wise to stick to our base plan to traditional project financing to see if we can maximize the debt at best possible terms. But we will, of course, also consider what other possible financing sources that may come into play as we move along. And it is a project -- in the project, the project financing. I think we should underline that, and we try to indicate a little bit of those important steps at the bottom of the slides. And then I come to the end of my presentation. I want to conclude it by saying that this is certainly a team effort from Nordic Mining, but also our technical adviser, Hatch, in Johannesburg. And project manager, Kenneth Nakken is also here, which you can talk to afterwards. And we have got tremendous contribution from a number of other advisers and consultants and test laboratories and experts here in Norway and around the world as such. So with that, I just want again to thank our own team, the whole Nordic team. Most of them are here, and I would like you to come up to the stage so that we can prepare for the Q&A session. So please come up, Mona, [indiscernible] and Kenneth, Birte. And Lars will be our director for the Q&A session, and you will take it from here, Lars.

Okay. Thank you very much. I suggest that we start with questions from the audience, here in Oslo, whilst the webcast audience are warming up their keyboards. Any questions? Yes.

Okay. I'm a little bit curious about the future resources.

Excuse me, can you please present yourself, please?

Yes, I'm sorry. I'm sorry. My name is Hans Lund, Clarksons [indiscernible] I'm curious about the future resources. You talked about potential for -- in line with the tradition for the Norwegian mining industry, maybe 100 years of operations. You didn't say 100, but I figured out it could be that. Where do you find these resources, potential resources, say?

Yes. I think I'll leave that question to Mona. Maybe you can give a few words about the resource and potential.

Sure. So the resource in Engebøfjellet has been qualified according to JORC standards, which means that it's really high-quality standards in terms of the knowledge you need to have for the resource, but we know that the resources is much larger than that. There is substantial amounts of inferred ore in the eastern part of the deposit, and there is also a substantial amount of inferred ore in the western part and also in the depth. And as Ivar said earlier, some of these drill holes, which are long and in ore, 200 meters below sea level. So we know that potentially, there could be even more ore into the depth of the deposit, which could be accessible in the future through underground mining. I hope that answers your question.

Just in addition, is there potential for ore in the, say, neighborhood, in the area, general area outside Engebøfjellet?

I think that's too early to say. There are other eclogite bodies in the area, but we -- they haven't been drilled and sampled extensively. So I think that's for the future to show.

Any other questions from the audience in Oslo? Yes.

Morten Normann, Carnegie. In the PFS, CapEx was about USD 207 million, now it's USD 311 million, and NPV has changed by 10%. What has happened on the revenue side?

Yes. I think I can start to answer and maybe others can follow. But I think there are a couple of sort of very important elements. First of all, what I told you about the open pits that we have been able to increase the ore output from the open pit and significantly reduced the waste rock. That has a massive impact, both on revenue and on cost. And then in addition, we have seen a price increase of rutile. And on both products, we have seen increased output for the first years. So I think these are the most important factors. And I should also add that the PFS results were calculated with a slightly different discount rate. So if you correct for that, we have approximately USD 100 million increase in NPV.

Yes, please?

[ Geoffrey Johnson ], shareholder. I'm a bit concerned about the project plan for going forward. I think it's fair to say that so far Nordic Mining hasn't been very good at sticking to the project plans always. But now you indicate startup of full production in Q3, Q4, 2023. Is it fair to say that there is a kind of robustness in such a project plan? Or is there a risk of being -- of having delays?

These stages we are passing through as a project is all about de-risking and maturing and actually taking away risks that are out of control and continue forward with the risk that we are able to mitigate ourselves. And I think we are sort of continuing on that path. The big next task is to get robust financing for the project, and that's why we have, in our current plans, we have allowed for more time to actually put that financing package together. And we hope that, that is kind of an ample schedule to do that.

Any more questions from the audience in Oslo? Apparently not. While you are thinking, guys, we take a question from one of the webcast viewers. It's -- please comment on the increased CapEx and the drivers for this.

Yes. I think I'll leave that question to you. Kenneth, maybe you can add some comments to that?

Yes. So we have a different CapEx from before, but it's also a very different methodology to get to the CapEx. If you look at significant changes, I think the major, major change from CapEx in PFS to DFS is related to the underground and the civil and earthworks. So based on the updated DFS plan, the zoning plan and everything we now have a fixed and firm quote from reputable vendors for that work. We also have changed a little bit the way we do the underground infrastructure by moving tunnel entrance due to geotechnical conditions to get access to the upper level of the underground. We also see that in the time of the quotations related to steel, et cetera. There was a quite high spike in the steel prices in the market, which also affects this CapEx. We do see that in the FEED stage, as mentioned, we will work with value engineering. We will also work with how to combine packages and look detail into negotiations of these big and major contracts, which has not been done at this time.

Okay. Then we have received some questions regarding financing. What plans do you have for short-term financing up to the third, fourth quarter of this year?

Birte?

Yes. The company continues to assess methods of financing our short-term liquidity need. And as we have communicated before, amongst those potential sources of capital is sale of our Keliber shareholding, strategic investors and also capital raise in the market and further information on that will come in due course.

There is a question regarding the financing schedule. Do you have any financers already? What about export subsidies?

I wouldn't say that we have them already because this is just now starting, following the publication of this DFS. But we have been in dialogue with several banks internationally and also locally, including guarantee institutes. But -- and also, the due diligence process has started. But now it's time to develop further with the banks and agree on a term sheet. And our intention is to have more than 100% secured so that we have some flexibility when the banks go to credit.

An additional question. How will year 2020 be funded?

I think I'll refer to my previous response on that question.

Yes. One question regarding the tailings deposit. Is deep sea tailings management still anticipated?

Yes, it is. Mona, you can add your comments to that maybe.

Absolutely. We are now forming a quite substantial monitoring program for monitoring the effects on the environment from the tailings management, but also terrestrial effects of the mining operation. So yes, definitely. And this environmental monitoring program will be also approved by the environment agency.

Back to the financing. Do your answer means that we will have to see a share issue in close future?

As I said, further information on this will follow in due course. It's -- yes, it's not appropriate to comment. But we do have the same options as we've had before, and we are continually working on this.

Thank you, Birte. Any questions from the audience that has arisen since? Apparently not. And no further questions received from the webcast viewers. So I think that's about it.

Thank you very much, Lars. Then thank you to all who have followed us, and all of you here in the audience. Thank you.