Nordic Mining ASA (NOM) Earnings Call Transcript & Summary

Good morning and welcome everyone to this third quarter presentation here at Nordic Mining. My name is Ivar Fossum. I'm the CEO. And together with CFO, Tord Meling; and Managing Director, Kenneth Nakken Angedal of Engebo, we will give you the presentation this morning. Please note that the full presentation and the quarterly report has been published in our release this morning and that the webinar will be recorded and posted on our website. As usual, you can post your questions during the presentation and we will arrange a Q&A session after we have finalized our presentation. So let's start. We have quite a normal agenda today. After my brief introduction, Kenneth will give you a much more detailed update on where we are on Engebo. I will tell you a little bit about the markets before I give you an update of the quartz project in Kvinnherad and Tord will finalize with an update of financials and economy. As you know, safety is our priority, and as usual, we are extremely proud to see the fantastic statistics. So far over 900 days without lost time injuries. And Kenneth will explain more on this topic. It's [ a lot ] of weather going on in Norway during fall season, so there's been also focus on water and water management around site and surroundings. In the third quarter, NOK 278 million were invested in Engebo, around NOK 100 million down from the last quarter, which indicates that we are tailing off in our construction phase. Altogether, NOK 2.6 billion have been capitalized in the project. And I'm glad to see that we are on schedule to start production ramp up during this quarter. And we will tell you a lot more on how we are going to do this in a second. We have also kicked off the mining contractor to do the open pit mining for the first 5 years in this quarter. And we have seen the first ore coming through the primary crusher. That has also been verified so that we know that it works according to the design parameters for the crusher, a vital part of the whole plant. We have already established shift work for our operators so that they are getting into the routines in how to operate Engebo when we come live. It's also good to notice that we maintain our guiding having a project reserve of USD 25 million for the project, which we consider robust. And we see that Engebo now is fully financed until positive cash flow next year. Altogether in the group, we have just below NOK 600 million in cash and cash equivalents as we speak. So with that, I'll leave the word to you, Kenneth, to continue with Engebo.

Thank you, Ivar. As always, we start with health and safety. Ivar mentioned that our statistics are excellent at Engebo and we continue to show no reports on LTI from the EPCs with a total of 924 days LTI free in the project. In Q3 we averaged around 160 workers at site as we were closing out mechanical completion and starting up commissioning. All heavy lifts have been finalized. We have some small lifts left around the key, but the critical lifts have been finalized during last quarter. We also see that work related to heights and under suspended loads are now reduced significantly and risks related to these items are much lower than before due to finalization of buildings and mechanical completion. We have and will continue to have focus on safety regarding energization of our plant. When we are now starting up equipment and machines it's not only the electricity we are worried about, it's also the moving of conveyors, motors and other equipment in the plant. So it's vital that we now are under a different regime than during construction. The pictures you see on the right side is from a few weeks ago and the following pictures will be the same. And to show the main events in the last quarter, we have completed and installed all the CPI equipment which is the process mechanical equipment provided by the company to EPC 3, the SMPP contractor, to install in the plant. All this equipment is ready for commissioning. The civil and building contractor EPC 2 has completed majority of their work, and are doing minor work outside the buildings right now and not interfering with our commissioning and ramp up. The SMPP contractor Nordic Bulk has completed mechanical installation in October and are now working to close out minor outstanding work as part of our punch lists. And they will also retain a small team in the next few months to support and help out with the commissioning going forward. The E&I contractor has now energized the plant. We are connected to the regional power grid and we have taken over the operation of the power component of our site as part of our approved license to operate the power plant. EPC 4, the E&I contractor are also a vital part of the commissioning as they are delivering the automation system for our process plant and are finishing up this as part of the commissioning going forward. Various process circuits has been taken over. This is because we are now getting ready for hot commissioning, which means ore into the plant. When we are processing and starting up the hot commissioning we have started, as Ivar mentioned, regular shift work for the process operators. Looking up on the mining area, looking from south towards north, we can see that we have started preparing the next phases of the mining activities. In the right top corner you can see that we have taken away soil and getting ready for drilling. You can also see on the bottom right corner that we have filled the ore pass that was drilled and finished last year. The stockpile in the middle contains sufficient ore for the first 3 months of operation. Down at the process plant area, we can see that we have finalized part of the construction on the northern side of the county road going through the area, and we have started finalizing asphalt from west towards east, left to right in the picture. Inside the 3 main process building, we are also mechanically complete. And the picture showing the comminution and milling building is representing how it looks in all the buildings. It is focused on using the height as gravity separation and gravity flow into equipment. This area is now ready for hot commissioning and the next buildings are very close to the same. A little bit more details on the mining area, which is ready for production ramp up. All the infrastructure is in place. We have completed a whole road tunnel from the open pit area to the service area that you can see on the back of the hill in the picture on the right side. As mentioned, we have stockpile for the first 3 months of operations already available close to the ore pass. We have completed a lot of forestry work by ourselves, but also some of the landowners has taken this into their work to finalize more forestry than what we actually need in the startup. We have completed sedimentation pond and waterways from the mining area to the process plant to be aligned with our permits. The drilling units as part of the mining alliance agreement has come to site and has started drilling the first benches for ore after the first 3 months of operation. There will also be more excavators and other items coming to site along with the mining staff that will ramp up throughout fourth quarter this year. Going back to more details in the process plants. We are mechanical complete in the process circuits. We see that we are also now testing and filling up water in the water lines, completing all the water lines from comminution all the way through wet processing and recirculating of water. We have ready for hot commissioning, comminution and milling and are ready for ore into the plant. In the mineral processing, we have partly cold commissioning and close to ready for ore. During the commissioning and ramp up, we will have staff from both the construction team and operations together with the EPCs filling out our commissioning team going forward. We have made detailed planned for the ramp up and also according to responses and responsibilities now that we are going into hot commissioning. Our focus will be first and foremost to meet the quality of our mineral concentrates when we start up and slowly ramp up production volume and retaining quality during 2025. We now have all required personnel in staff for our production. The 5-shift schedule was implemented in October and will remain until full production and throughout production. The process operator on shift rotation now are also focusing on inspections and following up the site during night and weekends. So a little bit back to hot commissioning. Last quarter, we talked about and presented the different stages in our commissioning through cold commissioning, hot commissioning and into tuning of the process plant. As we are now coming into the full hot commissioning phase, there is 2 main and major milestones coming ahead of us. It's the first ore to mill and it's the first mineral concentrate. We will inform the market when we have achieved first mineral concentrate. When the first mineral concentrate is achieved in our product silos, we will start ramping up towards the planned production. And then it's the part of the tuning of the process plant that will take time out and during 2025.

Thank you, Kenneth. I'll give you a brief update of other markets that we are entering into. As you know, the world has been uncertain in the last year with high interest rates and modified growth in most major economies, and this has also impacted the pigment market around the world. We saw a soft end of 2023. The spring in this year was quite encouraging with some pickup of demand. However, again, we have seen a soft third quarter of demand of titanium dioxide pigment. And as normal, we are entering into the fourth quarter, which is winter season in many economies, which normally also takes demand a little bit further down. However, we see that the major pigment producers are keeping their production rates at a fairly stable and high level due to the fact that they have been quite disciplined in managing their stock levels. So they are now also producing partly to build up their stocks being ready for the next season beginning of next year. If you look a little bit longer into the future in the mid-longer term, we expect that the pigment prices will be supported by different measures. We are looking at a world where the trade dynamics have shifted completely compared to a couple of years back, so we expect interest rates to come down a little bit. There will be more packages to stimulate the trade in the major economies. I'm thinking in particular on U.S. and Europe, and we expect that these measures will have an impact on pigment demand going forward. We see that the operating rates of the pigment plant has kept the demand for feedstock at a fairly decent level also in the third quarter, and I'll come back to the prices in a minute. And we think that especially for chloride feedstock, which is the segment for rutile, will be upheld fairly stable in the next quarter and the quarters to follow. A few words on garnet, follow demand-wise a little bit the same pattern with slow markets both in the U.S. and in Europe due to the same reasons, mostly the interest rates and lower industrial activity. However, we see that Barton being our marketing partner for our garnet has come in a very strong position and are doing an excellent job to prepare themselves to enter into the market space with the Nordic Mining garnet. So they are in the process of rolling out the new garnet coming from Norway, and we get very positive response from that marketing efforts. Coming a little bit back to the prices. As mentioned, demand has been slower than we have seen in the previous quarters this year. That has also hampered the pricing regimes. However, we expect this to pick up a little bit into the future. I'd like to mention that in our offtake contracts, the majority of the volumes for rutile are regulated by a price index mechanisms, which is leaning on to the research analysis company, TZMI of Australia, which are utilized exactly for these purposes, for a lot of the trade in our feedstocks. And we continue to see a strong demand also from metal, which, of course, adds to the demand of rutile, although pigment is the biggest sector that impact prices in general. On garnet, we have fixed volume and prices in dollar terms for the first years. So they will not fluctuate with markets compared to the rutile prices. So that covers what we had on Engebo. Then a very brief update on our activities on the west coast of Norway on the Kvinnherad quartz deposit. As we told you in the last quarterly report, previous this year, we took over as sole owner of the rights of the Kvinnherad quartz project. We are, as we speak, taking out larger bulk samples from the deposit, several places, as you can see from the picture. And the purpose of these samples is to carry out large-scale pilot test work to go through a full process flow sheet, full process cycle to produce end product so that we can actually leave that to our customers, so they also can do large-scale testing with the high-purity quartz product. This is to verify that we really can produce the ultimate pure products that our customers really see as strategic from these deposits. Looking a little bit going forward, these tests will take some time, but pending positive results from these test work, we plan to kick off a new drilling program in the deposit and the pre-feasibility study sometime mid next year, just into the second half of 2025. And finally, just a small reminder, a few weeks back, the hurricane named Helene had devastating effect in North Carolina and heavily impacted the Spruce Pine mining complex, which are supplying the majority of high-purity quartz into these vital segments. Fortunately, they came up to produce quite rapidly afterwards, but it really indicates the vulnerability of these value chains when there are few suppliers of a very, very strategic mineral like high-purity quartz. So with that, I leave the word to Tord to give you an update on the financials.

Thank you. So on the finance side, much is the same as we presented last quarter. The topics are the same as we presented last quarter, but we are definitely heading towards an end of the construction period. And by that, we have -- we are preparing now how to report when we go into operation. So that will follow in the coming quarters. So far, NOK 2.6 billion has been invested in Engebo project. This quarter, NOK 278 million was capitalized on the balance sheet. NOK 26 million was moved from mine under construction to property, plant and equipment. This is another building that were a workshop on the plant area that was -- we were starting to use. Engebo project is now fully financed until we have positive cash flow with the release of the final -- announcement of the final release of the USD 48 million bond we drew in August. The bond is now fully drawn. The group has a solid source of funding available for the project, NOK 586 million in cash and cash equivalents at quarter end, whereof NOK 490 million is in the Engebo company. We maintain the guiding from previous quarter that the estimated remaining project reserves is USD 25 million, and this is to cover the minimum liquidity requirements of $15 million in the bond and any unexpected costs. As also announced earlier, application for admission to trading on Euronext Oslo Bors has been filed. And without concluding on their behalf, we hope this will materialize before year-end. So with that, we go to Q&A.

We do only have a few questions this time. So you may still post them during the next minutes here. Ivar, the questions are about the new project. When are you waiting for the start of the project? And what is the outlook for the strategic ownership in other mineral projects going forward?

Let me start with the last part of that question. First of all, we are very positive about the outlook for the mineral sector in general, a lot of positive indicators, both here in the Nordics, but also in Europe and internationally. Our strategy is clear. We would like to embark to engage in new mineral project that fits into our strategic view with high-end industrial minerals and metals. We are a bit agnostic whether it will be to engage at an early stage or at a later stage. And we think that Nordic as a group are in a fantastic position to leverage on our experience, but also to carry out the important value increasing steps with sole financing from ourselves in the first phase of projects. With regard to the second part of the question or the first part, as we said regarding the Kvinnherad quartz project, we point at a time plan where we start a drilling program during summer next year in parallel and followed by a pre-feasibility study. But we will give you a more detailed guiding on that going forward in the next quarters.

We have some questions coming in now. And Kenneth, will there be a defined date for start-up of the mining? I understand that you have advised before end of this year.

What we have still remaining on is that we are starting up the production in fourth quarter this year. But as mentioned, we will come back to announcement of the first concentrate -- the first mineral concentrate into our silos.

Do you expect to sell product in first quarter 2025? And if so, how much? And could you say how much garnet and rutile you do expect to sell next year?

I can answer that, [ Martin ]. So in terms of product volumes, we have no changes from the UDFS, where we expect, when in full operations, to have roughly 35,000 tonnes of rutile produced every year. And from a sales perspective, the first year of operation in stable and running at capacity, 125,000 tonnes of garnet. We still aim to sell and plan to sell and send the first shipment first quarter next year without any details on volumes, et cetera, at this point in time.

Could you tell us what is the discount given to Barton in the offtake agreement of garnet? That might be a question for Ivar, perhaps.

No, we have agreed prices for the first 5 years with fixed volumes, and we are not in a position to disclose any specific numbers or rebates on that.

How much expansion CapEx remain for Engebo?

Yes. As we have guided today, we are guiding on the project reserves. So we have now -- the CapEx in total is NOK 2.6 billion. And then when done with the CapEx program, we expect USD 25 million to remain.

There is another question in the same [ gather ]. Is the project reserve of $25 million, the expected low point in liquidity free cash once all cost CapEx related to Engebo is taken?

Yes, you can say so.

Ivar, hypothetically, if Norway state loses in court in the ongoing case against the environment group, how would it affect Nordic Mining?

We wouldn't speculate too much on that. We have a fantastic record on some of these cases previously. We are very confident and the permits and all of our license are very solid. So we remain calm on that question.

Another financial question. Can you provide estimates for cash cost per tonne next year?

We have -- now we're setting up the mine in plan with the feasibility study and that's our plan now, that's what we're working towards, and that's what we are giving. So nothing else than that.

Kenneth, is the project entering its most challenging phase before production starts, given that it has gone very well so far?

I think the answer to that is that, along the way through the project we have always and often met small challenges along the way, but we have always been able to rectify and mitigate them. I think we should be humble to the task that we have for us in terms of starting up and ramping up the first new mineral industry in Norway in almost 40 years.

A technical question here. What is the primary crusher, C120?

It's a good question, but it's close, but it's not exactly. But it's -- as informed the market before, it's a Metso technology that we have for our crushing and milling package. But the details on the machinery sizing, we are not wanting to go out with as of now.

There's one question that repeats itself here. Do you have a date for the start of production, Kenneth?

Yes, it's fourth quarter this year.

It doesn't seem that we have any other questions. Ivar, do you want to wrap up?

Well, thank you, Martin. Thanks again, everybody, who had followed us on this quarterly interim presentation, and thanks for all the questions. Don't hesitate to contact us if you have any further inquiries per mail or phone, and we will get back to you. Thank you very much.