Savannah Resources Plc (SAV) Earnings Call Transcript & Summary

Good afternoon, and welcome to Savannah Resources Plc Investor Presentation. [Operator Instructions] Before we begin, I would like to submit the following poll. And I would now like to hand you over to CEO, Emanuel Proenca. Good afternoon.

Thank you, Alex, and good afternoon to everyone who is with us today. As referred, we'll go through a set of slides that summarize the current situation at Savannah and the progress that has been made more recently, we will want mostly to hear from you, your concerns, your doubts, your questions and your ideas. Please feel free to pop them on to the system as you go. We will have at least 2 opportunities to go through them. Asa will help, Henrique and I do just that. You all know what Savannah Resources is all about today. We are 100% focused on delivering the Barroso Lithium Project, Europe's largest spodumene project and certainly one of the important tankers that will help Europe be a bit more successful in this sector and improve its thoughts of fully doing its energy transition over the course of these [indiscernible] next years. The Barroso Lithium Project is important to recall everyone, a very particular project, both in terms of its size and its competitiveness. And I think that this slide kind of summarizes well 5 of the key highlights of what we represent and where we are right now. The first point being that this is a globally competitive project. So it's not a project that rests on the laurels of being in European territory. It is one that wants to be competitive versus the best projects out there in the world, be them Australia, China, in Africa or within the EU, you have also the projects in Finland, in Canada, in other places. We want to make sure that we build a very competitive project versus all the others. And the numbers and the evidence that we have built over the last months have proven that, that is on track to be delivered. C1 and All-In Sustaining Costs at the FS stage are estimated to be in the second quartile of the global cost curve. And obviously, that's from within European territory following European rules and legislation with an achievable CapEx and potential returns, both measured as NPV and IRR that are really potentially impressive. So it is a very high-quality project in terms of competitiveness. It is also Europe's largest and starting to become globally significant. So it is important to recall everyone that the DFS that we released in July is only Phase 1 for the first 20 million tonnes of reserve and 14 years of output. And on top of that, the resource is already twice as big, and we believe that if we do things right and we execute with the right quality and fair bit of everyone involved, we can be granted the opportunity to continue exploring and continue working on an area inside the concession that has still a lot of potential to be unleashed. The third message that is important is that this is a validated project at all levels. It is validated and supported today by the European Union, European Commission, the Portuguese entities as proven by the grants and the support by ISP, the German ECA and KfW LOIs that already have a few years, the offtake with AMG. All of these fronts show that we are building a project of very high quality that is of interest and of importance for all levels that it impacts. And the level that is most important at [indiscernible] is the one locally. And the local ties and presence have continued to grow and will continue to grow as we progress and as we execute the project because more and more people are involved. More and more people see here their opportunity to come back to their homeland and their home region, meet -- live again close to their elders, have a good job, a good offer in interior Portugal and be part of a project that can make them proud. Fourth message that this is a low execution risk with high optionality, the fact that it is open pit, that the flow sheet is very well known. All of this helps and puts us in a good position when compared to other sources of lithium that are either less competitive or more challenging from a technology perspective, more risky on their industrial ramp-up and other things. And then we have full control of the asset. We have full control of the project. We have now a very good cash position for the next few months. We will talk a bit more about this $53 million and what they allow us to do. And so we are in a good position to deliver a very high-quality project that benefits all those that are part of the journey. And of course, now that we are post DFS, we have delivered this additional fund raise on the week of September 21, only 2 weeks ago. That was also one of the important objectives that we had for the second phase of the year, but there are many others. And so there are plenty of news that we are working on right now and that we will want to deliver that will unleash further potential, further value for everyone. Let me tell you a bit more about this fund raise that we just did. It was a very successful fundraise. And so I think it is worth highlighting a few things. The first one is that it was very strongly supported by all kinds of institutionals, kinds of funds from deep mining specialist funds to battery raw material specialist funds to energy transition funds and to very generalist funds who are eager to be part of the macro trend that is electrification and the increased use of lithium in so many other aspects of life of the future. It has also been very supported by all the largest shareholders. We have here the participation level of the 4 largest shareholders, but the 5th, the 6th and the 7th shareholder also did participate in the raise. We're very happy to see that level of support to a project that is meant to deliver at every step. So every step that we have done in the last few years has delivered more value, has gotten us closer to the objectives. And that builds trust and it builds the confidence that allows these investors to continue to support us as we progress. The other important bit is that we have this fund raise kept at 10% of retail participation. It is always not very easy to have retail to participate in these operations with the speed and the size that they need to have. But we have that cap at 10%, and we almost filled it all. And that's very good news. It shows that many people want to be part of this story. And those start from locals, people who are either from the Boticas region or from the Covas do Barroso [indiscernible] to people who are part of this team, to people who are just curious and know what we are doing and want to be part of the story. So we were very happy to see also that level of participation from retailing operation like this. We are now well financed and more than $40 million raise, $40 million gets our cash position to over $53 million, about GBP 40 million. This is important. It allows us to be very well financed for this next stage in which expenditure and investment accelerates, of course. Also important to say is that the level of participation with institutions was such that we needed to scale back the operations. So not all demand was met. And I think that was also in the interest of everyone. It allows the existing shareholders not to be overly dilutive in this phase. We will still have another round to go, and we wanted to be well financed for this phase, but at the same time, not overly financed because we don't want existing investors to bear excessive burden of dilution at this stage. We know that we have a lot of value to deliver and that delivery of value will also be transformed into share price appreciation, hopefully, which will help in the subsequent efforts. A lot of participation by Europeans from throughout Europe. It's 99% was subscribed by European entities and retail holders. Portugal represented almost 30% of the raise, the U.K., about 23%. Spain has grown a lot in its participation, but we also have seen very prominent funds from Switzerland, from Denmark, from France, from Italy and from other places participate. We also saw it of Australian investors in, but that was not a focus for this operations. So it was only symbolic, I would say, and we did not have the rounds open to U.S. participants and to other locations. So a quite successful operation, I would say, and one that gives us extra confidence and also extra responsibility for the next steps. The shareholding structure hasn't changed too much because of the level of participation of the key shareholders, but [indiscernible] has diluted its position, which was that we expected. And the other institutional base has grown significantly. It's now at over 18%. Very high-quality investors again in this bucket. And so we're very proud to have them on board and conscious that we need to deliver at increasingly high quality so as to continue to benefit the trust of those who are now part of the journey. Our share price continues to perform a bit better than the markets over this last year, which is good. It follows what is supposed to happen when we are delivering and progressing to execution. We still believe that there is plenty of additional potential to unleash. So really looking forward to do next development. This slide is just meant to help you better understand where we were before the raise and where we are now after the raise. So we had told you that we -- with the existing cash position before this raise, we could go with the FID, and that was part of the plan and continues to be. Actually, the cash used for the period until this fund raise was totally in line with what we expected only for a delay of 1 to 2 months, I would say. And so the use of those funds continues to be the same. But now with the extra support that we have, we can do a lot more things in parallel. And these other things done in parallel are tremendously important because they are already capital employed for construction. That's something that is important to mention. And what is not capital employed into construction, like associated to the equipment that needs to be built ahead of the start of construction is elements that prepare us for that construction phase and for afterwards. Recruiting another 40 staff now over the coming months is very important so as to have the team fully prepared for the challenges that we have ahead. And the sooner we start to do that now, the better prepared we are to do a very successful construction phase and to stay on the time line to production so as to deliver production. So if we were financed to FID before the raise, we are now financed until just before start of construction with many elements associated to the start of construction being now possible over the coming months. So very important development in that front. And we're not talking anymore about prospective speculative projects. We're talking about a project that is in delivery mode and in preparation for its construction. This is, I would say, a very important part of the achievement. So what do we have ahead? On top of the various things that I have also already referred, let me just highlight a few more. We have field work ongoing under this second easement program. That field work is almost finalized. To date, it has been very successful. We are achieving all the objectives in terms of additional geotechnical and hydrogeological information. We are also progressing a bit on the resource on the verge. It's very selective, but it is important also. And so we're happy with the progress. The team has been working very well on the ground. There are always obstacles here and there. It was fire season. We had to work without working on the highest temperature hours of the day. We had a few mechanical issues here and there with some of the equipment, but that was solely normal, totally expectable for this space. And so I'm very happy with the progress to date. We are also in the final stages of preparing the submission of RECAPE. It will happen later this quarter, in this last quarter of '26 as previously planned. And I think we are going to deliver a very high-quality document that will make it -- the work easy for the regulator, which is also important. We have also announced today, I think that we -- with whom we have signed the FEED contract, and we have referred that we have started that work. Front-end engineering and development of the key equipment is an essential step of making sure that the equipment will work properly and will be on site for the construction phase on time. So an important work to be done over the coming months in this front. I have also referred recruitment. We're just opening a lot of new job opportunities. They are starting to be broadcast and given the success of the last opportunities that we have put out to the market in which we have had thousands of participation. We are, I think, over 3,000 applicants for new jobs right now. Given that success of the previous steps, we believe that we now have the machine, the recruitment machine ready for the next phase. And so it will be also important months ahead to make sure that we bring the right talent team that they get used to the culture of Savannah to get used to the region, that those who are part of the region can also be part of this project. So it is an important step forward also in this front. On the offtake front, we have kept you broadly informed. You know that we are quite advanced in terms of negotiation for a second offtake. It will be finalized in the current quarter. Same thing for the project finance. We have already done all the due diligences with the banks. They have been, I would say, quite successful. The results have been put back to the banks, and that allows the work to progress to conditional agreements by end of this year, which is exactly in line with the plan that we had. And then the environment and the environment team has also achieved another important milestone. We just got an ISO 14001 certification. It is important to make sure that we provide to these standards that we are put to the scrutiny of these standards and that we show the world that we continue to execute our work with the best quality possible because we want not only to be a very successful project in the lithium space, we also want to be a responsible company that does things right and that grounds its work on solid emissions. This time line, you have seen it in the past. This is just an update, but to tell you that we are on track to deliver all the steps that we promised we would deliver in 2026. We have the state grant from the start of the year. We have completed the DFS. We are on track to deliver the second offtake, the conditional closure of the project finance and the build-out of the construction team. We have also already started working on 2 of the fronts that we want to deliver for '27, confirmity check and some of the selective geology work that may help us show more evidence of additional resource in coming months. So this is, I think, very important, and we continue to be on track. There are -- there will continue to be obstacles. There will continue to be challenges here and there. Delivering a greenfield project in any industry is demanding, but we are on track. We are well equipped. We have a good team, and we are delivering according to plan at this stage. I will pause here for questions before I then go through the additional information we use [indiscernible]. Asa, can you help us with going through some of that?

Yes, of course. everyone. Just a handful of questions based on that first part of the presentation. There was a question actually about the breakdown on the type of funds who are invested. I perhaps can answer that one. We've got about 18%, 19%, about 5% of that is accounted for by battery metal funds and mining specialist funds, which is great, mainly from within Europe, of course. And the remainder is generalists. And that's quite a broad church, obviously, that's small cap specialists, Iberian specialists, European specialists. So it's a good demonstration, I think, of the appeal of the project to a pretty wide audience. We had a question about the long lead items and what's the approximate value of the down payments we're expecting to make before we get to the construction phase of the project. I don't know, Henrique, if you're best placed to answer that. We gave a bit of a clue there with the $20 million figure on one of the previous slides, I think. But do you want to talk about that a little bit more?

Yes. The amount for each item was calculated based on some more, let's say, educated guess based on the experience of the team, and you will get around 10% to 20% for the major equipment depending on the equipment, no more than 20% for each one. So you did the engineering, you have the vendor data, then you give the order to produce and then typically, you have a down payment of 10% to 20%?

Excellent. And the other question that came up in related to that is on the dual listing, which we've flagged previously. Obviously, we need to be cautious in what we say, but I don't know, Emanuel, it's worth just reminding people what we've said to date on that and why we're thinking of doing it?

Can you please just repeat the question, Asa, sorry.

On the dual listing?

Yes.

And what we've said to date and why we're thinking of doing it?

Yes. Let me just reinforce part of your first answer. I think it is useful. As you rightly referred, 5% of the 18%. So that's 25%, 1/4 of the institutionals were specialists. I would also refer that in those that are more generalists, many of them have already significant experience in investing both in mining, in energy transition and in battery-related projects, but mostly in mining and in energy transition, which is also good. So it's part of the exercise of diversifying, but also a conscious exercise of those who know how the system and these projects work. On your specific question for this fundraise, we have always been quite transparent about our investment funding needs. And we will be able to tell you a bit more about that but we are also conscious that as we progress, AIM continues to be a good house, but at some point, needs to be supported by an additional regulated markets. And we have also referred that we were preparing to dual list the company. And that work has already been started. We have already appointed a set of advisers to support in that exercise. So I would say that at this stage, it is very likely that we will do at least in the first half of next year. And it is also very likely that second house is a European venue. You know about our growing exposure to Portuguese and Iberian investors. So it wouldn't be a surprise, I would say, if the venue would be Euronext. That will be always in complement to AIM because we're very conscious that we have deserved the confidence of many who invest through AIM, and we want to continue to deserve the confidence and also to serve them well.

Excellent. Thank you. We're getting some more questions in now on more general topics. Do you want to carry on with a few more slides, and we can come back to the questions?

Of course, I'm very happy to do that. I will key in through the next slides because there are a bit too many. So I will just reinforce the key messages each and feel free to ask questions that make us go back if and as required, okay? We calling the results of the DFS is very strong IRR and pretax payback that we aim to achieve based on a future price that is done with external PRAs doing their numbers. More important than that is very competitive C1 and All-In Sustaining Costs position us better than some of the best lithium projects out there in the world. So we're talking, for example, about projects like PLS, Pilgangoora and Jianxiawa from CATL, Again, some of the best projects in some of the best jurisdictions in the world are projects against which we can compete so as to serve well these markets. You already know the key features of the project. You also know that the DFS was only for Phase 1. Phase 2 is mostly focused on reserve growth. And there, we believe that we can go from our current reserves at 20 million tonnes until much more target of going significantly beyond 40 years of life of mine, potentially beyond 100 million tonnes at some point is obviously an ambitious target, but one that seems to be very possible with the geology knowledge that we already have. And the Phase 3 will be an industrial expansion with growth in capacity and other things. Of course, for each of these phases, there is a lot of work that needs to be done, and we need to be doing the right thing. So first things first, we focus on this first phase. We show the world that this is a very high-quality project and that it is good for everyone. We get a very solid team on the ground. And then we continue to work on the other elements as we deserve them, as we earn the rights to develop them. You also know the size of the CapEx for this phase with a set of pre-strip costs that are capitalized and with the contingency that has been audited and confirmed to be valid with current information, we are looking at a full investment of $418 million to which you need to add a bit of working capital and financing costs. So we're talking about a full financing package of $450 million. You also know that we already have a grant that supports a significant portion of that investment. You also know that project finance can support a very big additional portion of that investment. Obviously, these raise that we have just done also contributes to this number. So there is not much to go before we are fully prepared to build from a financing perspective. But obviously, we still need to deliver these various fronts. OpEx composition, how you define C1 and All-In Sustaining Costs, as the value of the byproduct credits here, the cost of closure that we expect to happen significantly later than what is anticipated in this exercise. You also are already quite familiar with these numbers. So I'll spare you the details. You will know that the business model, the business plan is obviously quite geared to the spodumene price. It is not heavily geared to other factors such as fuel prices, electricity prices, financing costs, CapEx and OpEx. It is a very robust project. And so obviously, we will want to manage all these items well, but the future of the project does not depend on them. It's delivery that is important. You will know the industrial flow sheet, very traditional one for this space. The industrial area that we are about to build in that valley in which we have abandon land and industrial factory forest. You will remember that no one needs to be relocated and that many jobs will be created by this and the broader industrial footprint with the roads that we will build the power lines, the substation, the water reservoir that will help the region, all of these elements are also important elements of the construction phase. Last but not least on this portion, all of the additional exploration target is within holding distance from the plant. So we're not saying that we could eventually get to 100 million tonnes with resources that are elsewhere and that require other plants. No, it's inside the same area, and it will continue to contribute to a very competitive and very robust project. This critical path to production also helps you understand that we're not sticking to an objective of getting to construction. We are already very much looking at how that construction unfolds and how we get from start to end and to first concentrate at the end of '28 to early '29 with the ramp-up. So it's a lot of work that will be done over the course of the next 2 years, but the plan is starting to take very solid shape, and that's encouraging to see also. Very fast on the financing structure. I have told you already as a summary, Henrique and his team have been working very well on the various sources of funding that can support this project. We are lucky that we have a set of options on the table. And with that luck, the responsibility to make decisions and to serve well all those who participate in the project is reinforced and comes. So we -- these next few months will be months of decision-making of trying to make sure that we set the right level of gearing for the project, that we use wisely other sources of financing that we define well the strategic partnerships that come with offtake deals and then we define whether we want to take prepays or not. All of these is, as I referred on the table right now and is progressing quite well. And I would say that we are getting closer and closer to being one of these few projects in the system that can deliver very high-quality project finance schemes that reduce brutally the burden on equity holders and the burden of dilution, which is also obviously a very important consideration for us. Last but not least, I would say that the progress in the region is also -- continues to be a very important part of the success and the progress that we have made recently. We have told you a bit more about some of the partnership agreements that we have reached. I'll tell you just as a site detail that, for example, the hunting and fishing associations part of the partnership is already showing results. The Coverage River will now have a new fishing CC area, for example, in coordination with our project and with the fishing association locally. The communal lands related entities, the work that we have done with them, we are already renting the some of these land plots 150 additional hectares of rentals that we have put into the mix over this summer. The relation continues to be very, very strong. And with that strong relation, new opportunities to work together have come. And so on and so forth, I will spare you the details, but we continue to see very good momentum there. We continue to see also that opposition groups that will never go away, but smaller and smaller, and more and more radical, more and more basing their position on lives. And that's -- it's unfortunate we have to deal and live with that. But it is also encouraging to see that it is only a minority today and that everyone understands that it is a minority. And the more we can work with everyone else, the better. And if this opposition group at some point has more elements that wants to be more reasonable and wants to work for the good of the region, then they will be most welcome to join us. Hiring will be a very important elements of -- in growing our local social engagement and footprint. We have told you about how many good stories we already have in our team, duplicating the team almost, which is what we're going to do over the coming 6, 9 months is obviously going to duplicate the opportunities for actual impact on lives of people. And we're seeing a lot of enthusiasm around this, and that's very good to see and certainly something that we will want to continue. We've talked about these 5 key points. Before I open the floor to questions, I would just reinforce these good achievements with the Portuguese state that's supported by -- with the grants with ISF involvement, with the easement and the resolution. All of these were key moment in which we understood that we are doing the right thing and that the Portuguese want this project to be delivered. We're not always going at the best speed with local and national entities, but the fundamental is that we are progressing and heading in the right direction. Again, the local deals are very important for us. It's a lot of people behind those agreements and partnerships, a lot of engagement, a lot of new stories that wants to be part of this new massive positive ways that a project like this can bring to the region. The DFS and the reserve are very solid validations by globally recognized sector experts that we have achieved and shown to the outer world in July. We continue to be a strategic project, but more important than a strategic project is a project that is delivered that can be an anchor for the European value chain and for the world to run away from fossil fuels and from diesel and be more prepared for so many technology and energy-related transitions that are happening as we speak through batteries and through lithium. We now have 5 well-reputed houses covering the story. They all have high ratings with good and interesting price targets, but more important for us is that this continues increase in coverage and in reach for the project is associated to continued increased credibility and to the execution of the project being closer and closer, and the materialization of all the value that is in place. So we are on track, and we are proud of the progress that we have achieved recently, but also very conscious that there's still a lot to be delivered. Asa, I imagine that -- you already had a few more questions. You may have had a few more.

Yes, absolutely. Yes, a few come in. We could start with some questions around financing, if that's okay, Henrique. Someone is asking -- thank you, everyone, for your questions. There's a question about rising interest rates and whether we think that's going to alter our plans around financing at all?

Well, interest rates always impact financing. But let's say that debt sizing on this industry. So yes, the restrictions come as a level of covenants relatively high. So I wouldn't say for those level of covenants that the industry works doesn't impact much. You also see the total level of the leverage that you get like 60%, 65%. You don't get more than that. And let's say, with the business plan we have, I think that's the active restriction, this 60 and 65. So it wouldn't be that interest would reduce the debt sizing. Obviously, that this is a balance on equity and debt always interest as a whole, but we would be exposed on floating at this stage. So still some timing for doing that. So let's see how it progresses, but it wouldn't impact significantly the debt sizing.

And actually, to follow on from that, we've had a few questions about debt sizing, equity sizing. Do you just want to run through and obviously, the grant is a major piece in the financing as well. Do you want to just run through your sort of assumptions on how that breaks down?

Well, let's say that at this stage, it's not the easiest to put a number. I didn't want just to tell a number, but building up about this. So we have close to $420 million, so $418 million on CapEx. That's the number from our DFS in this presentation. You might need for the total fund some more for working capital interest during construction. So typically, you would have some more money on top of this $420 million for pure CapEx for that, so on that fund. So you would have like 60% to 65% of that. You have the grant. Already have some cash, at least $20 million out of those cash would be seen as part of the CapEx. So remaining will have to be equity based on that. And that's what we're working on. So this gives you the idea of the building blocks of the exercise we're doing, but it's maybe a little bit too soon to come over exactly with a final number.

No, I think that's very useful in terms of just sort of putting some scale on to how that structure breaks down. And just in relation to that, we've got some questions about offtake. Can you just reiterate what we're expecting to achieve with the second offtake, what we think we need for the bank financing and what we expect to leave for the spot market?

Just a brief view. So we introduced on the -- so we went to a market sounding with the banks even before to fine-tune a little bit on our offtake strategy. So we believe we should have, I would say, 75% of our production covered by offtake agreements on a take-or-pay basis and keeping some flexibility issues, the remaining 25% around that number, less, I would say, 3 for spot. That would be the main idea of our strategy. Emanuel, do you want to bring some color on the offtake?

Yes. Happy to. Thank you, Henrique. As you rightly referred, 70% to 75% in contracts is a very valid and balanced number. It allows for the operational flexibility and for the exposure to spots that we want to have, but it also allows us to build strong relations with very credible counterparties. So when we're screening through the market and through the options for offtake, we will be -- it will be much more likely that we end up working with a first-tier global company in this sector. AMG is certainly part of that category. There are also another maybe 25 companies in the system today that corresponds to the right level of credibility, knowledge, established industrial footprint, strong balance sheet, all of those things, proper strategic alignment with us and that can show good terms for everyone involved. So we're not at the stage in which we can share with whom we're closing the partnerships. I can tell you that we are now working with a very final short list of candidates. And all of them are very credible players in the global scene as lithium and so it's encouraging to see them interested in the project and presenting what I would say are interesting to very interesting terms for the future of the project.