Eramet Sa Unsp/Adr

everyone, and thank you for being with us for this half-year results presentation. I know it's a busy period with a lot of results released from many companies the same day. So, thank you for being with us. Clearly, after a very good performance and record financial results in 2022, we have experienced a much more challenging first semester in 2023. And the first reason for this difficult semester, and by far the main one, has been the deteriorated market environment with very sharp reduction in our commodity prices. And as you can see on this slide, we have experienced a significant drop mainly in our manganese alloys businesses with almost minus 50% on our price, minus 23% on the manganese ore price index, and more than 30% for the ferro-nickel, just to name the main ones. Overall, the price impact for the semester has been higher than 720 million, which is huge. And if we take into account the high level of inflation that we have experienced in our activities and still high cost of some key inputs like the reductant, The overall external impact on our account has been as high as 750 million and represents about 90% of the drop of our EBITDA. The second reason for this difficult start of the year has been the significant logistical incident that we have experienced in our manganese activity in Gabon. It started with a big landslide end of 2022, end of December, resulting from a major seism of more than 7.5 on the Richter scale. And it considerably damaged the track and stopped the transport for more than one month. And it was followed by a rupture of civil engineer structure bridge at the beginning of April, which again stopped the transport for several weeks. So this not only impacted our ore deliveries, but it also reduced our production since the mine had to be stopped during several weeks due to the lack of fuel and parts necessary to the mining activity. And so the volume of manganese ore produced is down 27% to 2.6 million in the first semester of this year, which is obviously a significant impact. Those incidents are now behind us, and when we look at the June and July results, they are back to the best historical levels in terms of both production and transport. Manganese alloy has also encountered a challenging semester with some planned relining. We had two relining planned this year and an adjustment of our production due to the poor market condition and poor market demand, especially in Europe and in the U.S., And fortunately, our Ueda Bay mine continued to perform very well and continued its expansion with a growth of volume of 80% to more than 16 million during the semester. So overall, mixed performance in H1 leading to disappointing results. that you can see on this slide. So indeed, our adjusted EBITDA is significantly down to 339 million. Our free cash flow generation has been negative at minus 120 million. And due to this negative free cash flow and the payment of the dividend in H1, our net debt has increased to 712 million with an adjusted leverage of 0.7%. Of course, in front of this challenging environment, we have reacted rapidly and we have implemented action plans to reduce our costs and save cash. And Nicolas, our CFO, will explain that later. We are also reviewing our production plans for the second semester to make sure that we optimize our production with higher grade and mix in addition to improved volumes. In this challenging environment, we have continued to implement steadily our demanding CSR roadmap with further key achievements that you can see on this slide. We are proud to communicate our safety results. Safety is a key value at Eramet and a number one priority. We continue to progress. Our FR2 has reached the level of one during the semester and position us among the top three performer of the ICMM ranking. ICMM rank all the mining and metal industry in the world. And we are the level of the top three performer. So I think we should be proud of that. We have also created the Eramet Global Forum. We are the first mining company in the world to set up a transnational social dialogue body to be able to negotiate and also sign agreements. agreement at a world level on things like quality of life, social protection, and other things at the level of all our countries. We have also launched the first independent assessment of our mines according to the IRMA standards. You know that IRMA is the highest CSR standard in the mining industry for responsible mining. We are one of the first mining companies committed to have all its sites certified by IRMA, and the first independent assessment has been launched in Senegal. And we continue to contribute heavily to the regions in which we operate. And you see the economic contribution that we have in those regions. And above almost 130,000 people are benefiting from the group social programs in those countries. So many key milestones in this journey. These are just examples, but we continue to lead the pack in terms of CSR. Also, despite this challenging environment, we are staying the course and progressing on our strategic roadmap. Our first and main priority is the development of our great lithium deposit in Argentina. The construction of the phase one of the project is going well and should start production as planned in Q2 next year. Thanks to the good market dynamic and the first quartile cost positioning of these assets, we are also accelerating the phase two, as we announced earlier this year. We should be able to make the final investment decision of a first tranche of 30,000 tons of this phase two during the second semester of this year. And we have also secured additional financing for these projects with an advance on sale of lithium carbonate of $400 million from Glencore, as announced this morning. Regarding our nickel-cobalt H-PAL project in Indonesia, we are still working on the best execution model and financing strategy. We will only make our decision when these topics are satisfactorily finalized. and which could take a bit longer, and that's why we may postpone the FID to 2024. Regarding our battery recycling project, we have finalized the pre-feasibility study, and we are now successfully moving to the next step, feasibility studies. The pilot plant is being finalized and should start in September. And also, and it's important, we continue to build a portfolio of opportunities in our key strategic markets through exploration and business development in two main areas, lithium brines mainly in Chile and nickel limonite in Indonesia. In Indonesia, we have recently formed a consortium together with a local provider of green energy and two Western OEMs in order to apply for new exploration licenses. And finally, as you already know, the group has finalized during the semester the divestment of its non-core activities with the closing of both the Aubert et Duval and the Erastil divestment. So now I will hand over to Nicolas for the financial performance and the operational performance. Thanks, Nicolas.

Thank you Christelle. Good morning everyone. So indeed I will now provide a bit more details about our financial performance and as well as operating performance in the first half. Starting with some key numbers, I won't detail them because most of them have already been mentioned by Christelle. A couple of them I would like to highlight. The first one is a positive net income group share at 98 million euros. And I will come back in more details later on. And the other one is the level of leverage, adjusted leverage, which is at 0.7 at the end of June. And also with a gearing, which is at 33%. You may remember that we are much, much, much higher level in, I would say, a couple of years ago and even a year and a half ago. So that's also something I will highlight a bit later on. So how did we get to this picture of adjusted EBITDA in the first half? So divided by 3.5. As Christelle was saying at the very beginning, the main driver by far is the price impact leading to a negative external factors of 749 million euros. This means that 90% of the reduction of the performance was coming from this significantly reducing selling prices, comparing of course to a record level where they were at the beginning of last year. So this is by far the big driver. And just to complete on these external factors, and Christelle has also mentioned it at the beginning, 43 million euros is also adding to that in terms of other input costs. And I will explain the drivers and what we can expect in terms of evolution on this area going forward. On top of that, indeed, we had this 77 million euros of negative intrinsic performance. Most of it, and even more than that, has been driven by the very unusual events we faced on the Manganese ore business with the railway in January and in April. And the same, I will come back to what it means going forward. And that's really something important to share with you this morning that we are back to normal in this operation. So that's why it's important to highlight and to isolate this impact in this variance. Two things now I would like to focus on which are positive. As said, Ueda Bay has been performing very well in the first half. It's been an additional 63 million euros of performance year over year. So that remains a very successful story. And the other thing I would like to highlight is the 21 million euros of positive variance in terms of cost reduction and productivity. This is a start of actions we have implemented to cope with the evolution of the environment. And that's something we are developing, accelerating, and the same I will detail that a bit later on. So I said it's really a strong news to share that despite a very challenging environment, and that's really the result of having now Ueda Bay as strong in our performance versus what it was a few years ago, despite this very challenging environment in H1, we've been able to generate a positive net income close to 100 million euros. So that's really a strong message explaining what is the new Eramet. And again, this number, let's keep in mind, it is before we will be in the lithium business, which is still expected to come in production at the beginning of next year. So that's something we'll also detail a bit later on. Given the evolution of the environment, we have also ensured a strict control of our capex because clearly the generation of operating cash flow was not as strong by far as it was last year. So we were still planning to invest in our activities. And we have decided to keep it under strict control. And you will see what it means also for the full year. We keep investing and we believe it's important. We don't want to do what we could have done in the past to stop and go on some projects. So here, that's why it's important to keep the pace on the growth project. One of them is, of course, the lithium project. And the same will be a bit more later on. The other one is to make sure that we sustain the significant growth we have generated on our manganese ore business, both at the mine and also on the railway, to make sure that we have a strong capability to support the growth we have generated there. Actually, the Manganese ore business between Comilog and CETRAG was 81 out of the 85 million euros of gross capex we generated for the first half of this year. Also, and that's something which is to be highlighted in terms of strong control on our side, we have reduced in H1 our working capital. And I want to emphasize the fact that we are usually building up working capital in the first half. So being in the situation to reduce the working capital in absolute value in the first half is a strong performance. So it was generating, as you can see, close to 100 million euros of cash in this first half. The receivables are clearly reducing because the selling prices are reducing. This being said, when we make the analysis in terms of days of sales outstanding, in terms of DSO, it's also reducing versus what it was at the end of June last year and what it was at the end of December. And in terms of inventory, Being in the situation to reduce the inventory value both versus last year in June and in December is a strong signal in a context where we have not yet seen the reduction of our input cost. So all of that in terms of cash management is also adding, as I said before, to what we have started to do in terms of cost reduction. We have detailed plans with all our operations and it's something we've done with them to improve ABDA via different items, different toolbox we have in this kind of situation, ensuring that we put strictly our fixed costs under control, that we also optimize the productivity of our operations, both in terms of volumes, in terms of mix, in terms of grades. And I will give you a detailed example afterwards when we'll talk about Morganis or business. and also to continue to optimize the production in situations, in our smelting activities especially, where we have demonstrated in the second half of last year that we are agile to adjust where it is necessary, when the market is not there, when the pricing is not there, to actually reduce the production and to optimize our energy costs. And again, I want to emphasize in H1, we have reduced, we have improved our productivity and we have reduced our cost by 21 million euros versus the same period of last year. With the plan we have developed, we are targeting at least twice this amount in H2. In terms of net debt evolution now, so as Christelle was saying at the beginning, we have increased the debt in the first half. Clearly, I won't detail all these numbers, but a couple of items I want to provide. The first one is when we looked at the capex earlier, so I said the reported capex number is 356 million euros. Let's keep in mind that out of that, 93 million euros is financed on the lithium project by our partner, Shenzhen. So it means that net cash, the effect on our debt in H123 has been 263 million euros. That's the first topic I wanted to highlight. Second topic, it's also confirming what we said during the finalization of the session of Aubert et Duval and Erastil, that between the negative cash flows of these two businesses and the proceeds of sales, it will be more or less neutral to our debt and to our free cash flow. This is demonstrated here, as you can see, because it's the two boxes in green, more on the right of the graph, which is showing that we have minus 5 million euros altogether. And again, this is helping us to focus on the new Eramet, on the value creation activities that we have, And doing that with a neutral effect on our financials and our debt is actually something to be positively highlighted. We have been very active in the first half in improving our financial profile and especially our debt maturity. So one item was to extend and actually to expand the term loan, which was expiring at the beginning of next year. So now it is with a maturity in 28 for an overall amount of 550 million euros. That's one. Second, we have issued a bond in May, and I will detail that afterwards, for a value of 500 million euros expiring in 28. Our RCF has also been extended by one year until June of 28. So altogether, We have increased our maturity by almost one year. So it was a bit more than two years at the end of last year. Now it's three years. So this is already a very significant improvement. Our liquidity is also very strong. It was the case at the end of 22, if you remember, it was 2.6 billion USD. And at the end of June, it is 2.5. So this means that despite the consumption of cash that I was detailing before, we have been able to maintain a very strong level of liquidity. And this is before what we have announced yesterday. which is the signature of the prepayment on the lithium carbonate with Glencore, which will add another $400 million of liquidity that we can withdraw and will more than likely withdraw in the second half of this year. So the deal itself is only positive for Eramet because it's providing money. That's a co-marketing agreement that we have agreed with Glencore, which means that we will also have access to the market. And that's something which is very important and we'll be able to benefit with Glencore of their knowledge of the markets altogether. And the last piece I want to be really clear, it's an agreement which is indeed linked to volumes of lithium carbonate, but this will be sold at market price. So we have not locked in any fixed price. So as I said, it's only positive items for our financing. And it was confirming actually the value the players on the lithium market are seeing on our assets in Argentina. And that's something we are really very happy to announce today. As I said before, we have indeed issued the first time a sustainability linked bond in May, and for the first time as well, a rated bond, which, by the way, with the rating which was provided by both Moody's and Fitch, is confirming the financial solidity and robustness, which is something we confirm and which will definitely help us to develop the growth projects we have on our portfolio and we keep working on as Christelle was mentioning earlier. So what does this mean? This means that we are keeping a disciplined capital allocation, and this remains our priority. We have not changed a needle to what we have seen in the last couple of years. The first priority is to ensure a low leverage, which means a targeted leverage of below one on average through the cycle. I say that if we look at the situation at the end of June, despite a very challenging semester, we are 0.7. And we are also willing to maintain a very strong balance sheet. I couldn't be more detailed in what I've said before about the level of liquidity and the extension of the maturity of our debt. We, as a second priority, are focusing on gross capex, and that's something we have done in H1. We'll continue in H2. We'll come back to that later on. And the third priority, and we have done that in 2021 and 2022, is of course to reward our shareholders for their long-term commitment. These remain the three priorities in that order. So I will now provide a bit more details about operational performance in H1. First, clearly, I said it's been a very complicated semester for Morganese ore. I will be a bit more detailed afterwards. With a minus 27%, all of it is linked to the situation with the landslide at the end of December stopping all the activities in January, and the additional issue we faced in April. We have had a very strong performance in Ouedabe-Nikel, same I will detail that later on. SLN has been a challenging semester in terms of financial performance, but in terms of operational performance, as you can see, it was up versus the same period of last year by 18%, a 1.8% in terms of operating mining production. And the last piece, which has been problematic and it's very specific to H1 as well, concerning mineral sands, because on GCO, and we'll see that in numbers afterwards, We have faced issues with the dredge in January. Everything is solved. It's back to normal, but it was impacting the first half. We are also in a much lower grade zone, and we knew that to start the year. It will be improving going forward. And ETI, we have stopped, or we have actually relined the furnace, which was stopping the production for three months. So that's the reason why you can see such a significant reduction year over year. The same, it's the usual 10 years maintenance we have to make on this kind of furnace. And this was anticipated, so no surprise there. One thing which requires to be explained with a bit more numbers and figures is indeed a very sharp decline we've seen in our selling prices impacting all our products. Again, most of it was anticipated, but it is very sharp and the best example I can give is on the manganese alloys business. As you can see on the bottom left curve, it has been reducing by 48%, so divided by 2, between H1 of 22 and H1 of 23. This is back to historically more normal pricing. This being said, it's been on a very quick manner, a strong reduction of these prices. And by the way, it's also, as we said before, in a still pretty high input cost consumption. And I will provide you a bit more detail afterwards. The other one, which is also significantly reducing, is Ferro-Nickel and NPI, because it's been reducing by 31%. So this is divided by, or not divided by three, it's actually one third of reduction. So that's the reason why the financial performance of SLN was complicated in H1. So I said I wanted to explain a bit more why we don't see yet the reduction of input cost, especially the reductions that we could have anticipated. It's because of two reasons. The first one is because following the war in Ukraine at the beginning of last year, we had to change the supply of our reductants and mix accordingly, moving more out of nut coke to low-force coke out of Colombia. And this is more expensive coke. And also, and that's the second reason of the increased cost, We have a lag between the time we purchase and the time we consume, which sounds pretty natural when I explain it like this. But this is something to be taken into account. And the lag is between three to five months. So when we make the overall analysis between H1 of last year and H1 of this year, we have actually seen an increase of the average cost of consumption by 39%. So as you can see, it's reducing versus what it was in H2 of last year. So we start to see the reduction, but it was not yet reflected in our financial performance in H1. This also suggests that it will and should go better in H2. Freight cost won't spend too much time there. At least there are some positive news in this overall challenging market environment. So we've seen a reduction, a pretty sharp one. And I didn't focus there on the variance analysis before, but it was representing 50 million euros in the comparison versus H1 of last year. And as you can see, this is expected to stabilize in H2 of this year. So it won't be such a strong positive comparison to last year because it was already starting to reduce in H2 of 22. But this will remain normally something supportive to our margin. Moving to Morganis BU, so we've said it a few times, significant drop and the major drop actually of IBD and free cash flow in H1 with two main drivers. We have detailed enough, I think, the selling price not to come back to that. The other one, and we have also mentioned it a few times, but I think it's important to say that, again, a big portion of the drop of the ABDA on the Morganisor business is coming from this very exceptional logistic incidents which happened in the first half of this year. Now we are back to normal and that's the most important message I want to convey today. We are back to normal. We've transported more than 700,000 tons in June. The trend in July is also very positive and we are forecasting to be in the same trend going forward. So that's the most important is and the work which has been done by the teams to solve the issue which was faced after the earthquake in December leading to this landslide honestly has been a tremendous work to be back on track And that's also something we want to highlight and showing the agility we can demonstrate in a very tough situation. So now if we move to the market, all the trends we are seeing are not suggesting that we would expect a strong increase in the coming months. So there will be recovery at some point in time, but we expect H2 to be more or less stabilizing. And you can see the fundamentals of the market during this first half. In terms of production, so I've already mentioned what happened in H1 and what we expect for H2. We need also to keep in mind from Organisor that it follows four years of just outstanding growth because we have generated this 80% growth between 2018 and 2022. So clearly H1 is an anomaly in this situation. We understand why. We explained why. And again, we still target to achieve more than 7 million tons of both production and transported volumes in 2023, which will be led by a very strong H2. And again, this H2 is in line with the pace we have recovered in the last couple of months. Manganese-Alloys margin, so I've said what the reasons of the quiz, of this quiz, I'm sorry. The very sharp drop of selling prices combined with a maintained pretty high level of input cost. And by the way, what I was detailing for the is true as well for the manganese ore cost for manganese alloys because what was actually consumed and what was in the cogs in the first half was coming from purchase in the second half of last year. So this is the reason why the margin were dropping that significantly in H1 because it's really a squeeze effect and some kind of scissor effect that we have suffered in H1 due to the evolution of the input cost, which were higher versus what we had in H1-22, and a very significant decrease of selling prices. Moving to nickel, as it's been the case for the last couple of years, it's still a story of two tails with a very significant success story with Wedabe and with a very challenging financial performance for SLN. I've said it before, SLN really needs to be analyzed with the evolution of the market because in terms of both operations, especially mining operations, and in terms of fixed cost management, it's been actually a pretty solid first half. Moving to the market, so I said a very significant decline of selling prices in the first half as well. We are not expecting a strong recovery in H2, given the same comment as for carbon steel. the expected evolution for the coming half on the overall market evolution, especially on the stainless steel, because it's been honestly very depressed in other areas except China in the first half, and it's been especially the case in Europe. We don't really expect to see a significant increase. I want to remind you one thing when we talk about nickel prices, even if we've said it a few times already in the last two years. But this is a confirmation in H1. the prices of ferro-nickel are not anymore at all linked to the LME. So indeed, LME has been still at a very high level in H1, even if it was also reducing versus what it was last year. But now, really, the prices we sell the ferro-nickel are much closer to the NPI. In terms of performance for Wedabe, again, I cannot say it differently that it's been an amazing performance, a continued one. So as you can see, between 21 and 22, it was multiplied by two. between H1 22 and H1 23 it's been almost the same because it was an increase by 80 percent and this is not over because overall now we have confirmed a new guidance for the production and sales of nickel ore out of Fueda Bay sold to its customers at 35 million tons in 23 The previous guidance was at 30 million tons. So this means that we'll compare a 35 million tons to a 21 last year, which was already, as a reminder, the biggest nickel mine in the world. So now we are becoming even stronger. So this means that the very strong result, EBDA and cash generation we have seen in the last couple of years is expected to continue. And now, if I move to SLN, clearly more challenging in terms of financial performance for the reasons I was describing with negative ABDA as well as negative cash flow. One comment I didn't make before, and I think it's important to understand it, is SLN is facing same situation than for Morganis Alloys, and with unfortunately much stronger effect in terms of overall performance. drop of selling prices with maintain very high level of input cost. So that's something that's the main driver of this financial performance. As I said before, in terms of our production, it was increasing by 18%. So it's not a small increase. The level of exports has not been increasing, on the other hand, for two reasons. The first one is because we want and we are optimizing the ore which is sold, which is sent to the plant to be able to optimize the ferro-nickel production. That's one. Second is also because, unfortunately, we are facing permitting issues which generally are not acceptable on some of our manning sites, and that's something we have said in our press release, especially at the PUM site. To finish this description of our operations in the first half, we have this also strong evolution in mineral sense. I won't provide much more details. I've said it before. The main two drivers, issues on the dredge in January, fixed now. So we expect a much stronger H2. And so it's totally back to normal. And ETI, very specific semester because of the relining, which was for more than half of the semester. So that's the driver of the decline in terms of production, ABDA, and free cash flow. Being precise that the operations are back since the beginning of June, and they are running smoothly currently. So these are the details of our H1 performance, both financial and operations, and I hand it over again to Christelle, who will detail where we stand on our projects.

Thank you, Nicolas. Clearly, I updated you on many of our projects in my introduction, What I would like to do here is to zoom on the one that is the most advanced, which is our project in Argentina, in lithium. So clearly, and you can see that on this slide, the lithium market dynamic remains very positive, very good, with a steadily growing demand, with still very high prices. And yes, they have dropped from $80,000 per ton to around $40,000 per ton today. But it's still a very high price. The long-term outlook for the prices, according to the consensus, is today between $15,000 and $20,000 per ton, which is still far above our planned cash costs. It's a very good business model for us. Our phase one project in Santonario in Argentina is progressing well. As you can see on this slide, the construction that has been launched in 2022 has achieved a 60% completion rate at the end of June. The production should start as planned in Q2 2024, and the achievement of the full ramp-up to 24,000 tons of lithium carbonate battery grade is expected by mid-2025. So the total capex for this phase one should be around $735 million, mainly financed by our partners in China through equity increase. And based on the projected long-term price consensus and the very competitive cash position, because we expect to be in the first quartile of the cash growth curve, this plant should deliver an annual EBITDA of around $300 million, so quite significant. This project, as you know, uses the DLE technology, direct extraction, which is the most environmentally friendly today due to its very high yield and very economical use of the brine resource. We also apply there our highest CSR standards as everywhere in connection with the local communities and also with a lot of improvement even on the fresh process water recycling. And because we have a very competitive positioning on these deposits and with this technology, we have decided, as already communicated earlier this year, to accelerate the phase two. And we should be in a position to make the final investment decision of a first tranche of this phase two of 30,000 tons of lithium carbonate during the second semester of this year. This would trigger an early capex of $90 million as soon as 2023, 50% of which being financed by Eramet. And as mentioned already by Nicolas, to finance this project and potentially others, we have signed a joint marketing agreement with Glencore with a prepayment of $400 million and a volume of 50,000 tons of lithium carbonate from phase one of the project, which is equivalent to a commercial contract of approximately five years starting in 2025. So the first tranche of this phase two should be followed by a second one in the future. And so we plan overall to have a total production higher than the 75,000 tons of lithium carbonate per year battery grade in the future. So as a conclusion, we clearly don't expect significant improvement coming from the market in H2. You all know that. The geopolitical and macroeconomic environment is today very uncertain, not going in the right direction. We keep... high interest rates, high level of inflation, which continue to wait on all the group's markets. The rebound initially anticipated in China has not yet materialized in 2023, even if we see now some incentives coming, and we have seen that it has already had an impact on the stainless steel market. But nothing material, I would say, so far. And the decline of the construction sector in Europe and North America, as well as in China, continue to wait on many groups' activities. So overall, the demand from all the underlying markets for our products remain quite sluggish. and resulting in a continuation of the downward trend in prices in line with what we have observed during the first half of the year. So in line with the market consensus, as you can see on this slide, we have revised down our manganese ore price assumption and nickel prices assumptions. And on the operational front, as explained by Nicolas, we should be back to a much better operational performance with higher volume, being back to normal operation in Gabon, which is a strong contributor to our results, and in Senegal. And also we should benefit in H2 from a better seasonality. As you know, H2 is always better in terms of... seasonality and for the mining activities so we should have a much better second half and moreover we should benefit from our reinforced focus on cost reduction and cash control and also from the decrease of the reduction price as already mentioned by Nicolas. So our key volumes objectives shown on this slide are now the following. We should be above 7 million tons of manganese ore transported in Gabon to reflect the H1 issues, but also the fact that we are back on track for H2 with strong performance expected. And we have upgraded our volume guidance on Wedabe because of the extremely good performance of Wedabe and the steady demand for this ore in Indonesia to 35 million tons of nickel ore at Wedabe, so plus 5 million versus our last guidance. So overall, all this leads to a revised adjusted EBITDA of around 900 million, which is lower than before, but still a significant level. And due to the active cash management, and despite the planned spends of lithium phase two starting this year, We have also revised down our capex from 600 million to 550. So clearly, unfavorable prices and logistical incidents not resolved have penalized our result in the first half. And in the second half, we, of course, remain focused on the performance of our operations and the strict control of our expenses. and we should be able to deliver much better results. And thanks to the transformation that we have achieved in the recent years, the refocus on core activities that are much more robust and also more solid financial structure that has been explained by Nicolas, we... remain agile, and we are staying the course, pursuing our key growth projects in the energy transition. And so last but not least, I would like to conclude this presentation with a save the date, because we will organize on November 13th our first Capital Market Day, marking Eramet's entry into its new era. It will give you the opportunity to attend in person or remotely an event where you will be able to learn much more about our operations, our strategy and our new CSR roadmap. You know that we will communicate a new CSR roadmap for the next three years. And I'm sure it will be very useful as Eramet is still quite unknown to many of the investors. And I think it will be very also useful to meet the management and the key operational people of our management team. So thank you very much for your attention. And now Nicolas and I are ready to answer your questions. So we'll start with the questions in the room. We have one here. So if we can have one mic.

Hello. I have five questions. First of all, what is your target for your reduction cost plan, if you have one? My second question is on SLN. What is your plan to reduce your cash cost? Because you have a huge loss, and it's not the first time. So what is your plan for SLN? Third, you have talked about a bidder for your... ETI plant. Can you talk a little bit about that? Is it the same buyers at the last time in 2020? First, Why is there two trench in your phase two project? Is it because in terms of capex, you are not able to do the phase two in just one trench? Or is it something else? And my fifth question is about you have other operating non-railcreen expense of $27 million. What is it about? Thank you.

So, Nicolas, I suggest that you answer the first question on the cost reduction plan and the last one on the 27 million, and then I will take the other three.

Okay, thank you Nicolas for this detailed question. So for the cash control activities I said in the presentation that as you have seen we have generated 21 million euros in H1 and with the additional activities we are putting together It is, we expect, or we can target at least twice this amount in H2. So you can make the addition. And I didn't actually mention it when we talked about the cash cost of Morganese ore. But one of the key activities, now we have all the modular washing plants in Okuma, in the new plateau of Okuma, which will have especially one very positive effect of increasing the average grade. We are likely targeting to be improving the grade by one point, which would actually be also one of the strong supports of these actions. And it's one of the numerous actions that we have on the productivity improvement as well as cost reduction plan. I will name another one, which is something once again we have already done in the past, which is given the evolution of selling prices in some of the products of manganese alloys, especially the commodities, we may actually reduce further the power to be able to avoid additional cost and to actually be potentially able to resell electricity and the solid hedging positions we have in these businesses. But back to your question initially, so we plan to accelerate what we have already been able to do in each one. So I will give the number by definition if we double the effort, so it will be at least 60 million euros.

You have the other one on the 27? Yeah, maybe that one.

So I will just make the link with the presentation and I will come back to that.

Okay. So maybe on the other three. So on the offer that we have received on ETI, first it's an unsolicited offer. ETI was not and is not for sale today. We have received it two days ago, so we need to analyze it. Of course, there is a number, a price attached, but there are also elements of SPA. And what we don't want for the timing, I think it's too early to comment on the buyer because we just want first to analyze the offer. We will obviously be sensitive to the feasibility of execution of this deal. We don't want to be trapped as we did in 2020 with the process with the antitrust authorities that could last many months and then come to a negative conclusion. So we'll be very sensitive to that, analyzing the offer. And in terms of pricing, because I anticipate just a question that we may have on that, just to give you an order of magnitude, it represents 12 times EBITDA 2022 for the asset. So it gives you an order of magnitude because it's something that we don't publish separately. On the SLN cash cost, I think the issue at SLN, unfortunately, is not in what kind of cost reduction we could do ourselves in managing better the personal cost, the productivity, here or there. As you know, the nickel in Caledonia is facing very structural issues, and all the metallurgists are losing a lot of money in Caledonia. And by the way, we are the one losing the least. It's... I'm not proud of it, but it's the reality. So I think we are operating in the best way possible in Caledonia. The structural issues are the energy price that remains very high and much higher than any other competitors. And the second structural issue is the access to the mines. And we are in the process of putting the Poum mine in care and maintenance just because we are not receiving the permitting that we have asked four years ago from the northern province because of political issues. So it's absolutely key now that those structural issues are solved. It's not in our hands. As you know, in fact, President Macron was in Caledonia these last two or three days. They have started a new process. They have made a thorough study at the level of the French state on the situation of the nickel in Caledonia. Now it has been communicated, the result of these studies has been communicated to the Caledonians and now they are working, they have created a task force together with the Caledonians to bring solutions, long-term solutions to the nickel in Caledonia. So it's not in our hands. What is very important, and we keep repeating and it's clear for everybody among the states or in Caledonia, is that Eramet cannot continue to have this burden on its balance sheet. So we will not inject cash anymore. We cannot continue to accumulate debt on our balance sheet because of SLN. So this is part, I would say, of the facts of a diagnosis. And so we will see what kind of solution is brought in the coming six months because the Minister Darmanin has stated that he would like to have a solution by the end of the year coming from this group. So these are structural issues. And of course, we are doing our best to optimize the cash cost. But without this being solved, it will not be possible to move the needle significantly. And on your last question, why two tranches for the phase two? It's because it's the optimized size for the technology that we have. And it's something we are preparing the infrastructure for the second tranche. So there are some costs in common, but just the large infrastructure around. but it's optimized to go that way. So we have de-bottlenecked, as you can see, versus phase one, because phase one was 24,000 tons. Now we have a tranche of 30,000 tons, which shows that we continue to improve the process. And also, this new... new, I would say, generation of DLE will use even less water, and much less water even than the first one, which was already much more economical of the resource than the other technologies. So we are progressing, but it's an optimized size in order to progress.

And now I will go to your fifth question, Nicolas, on the non-operating expense. So it's actually twofold. One is the additional impairment, which is to be booked. And I'm sure you have in mind that we booked an impairment when we talk about SLN at the end of last year. So especially... When we talk about the necessary investments we do in the plant, now what we are doing is actually to book an additional impairment, which is in line with the accounting practices. The other half, to make it simple, is coming from the expenses, which is not booked into CAPEX, but the expenses we are spending for the projects, especially for the Elysium project we just talked about. as well as for the Sonic Bay project.

There is another question here.

Yes, Julien Nillon, Stifel. I got two questions. First, I would like to come back on SLN. There are structural problems, clearly. At $15,000 for ferro-nickel, you make losses, where nickel-pigiron producer makes money, makes a lot of money still. So it will not be solved if you were a rational company, or let's say a fully private company, you will have closed your ferro-nickel production plant, probably, because you make cash losses and it will continue for a period of time. Beyond that, what you mentioned about structural solving problems, but is it any other solution than closing this ferro-nickel plant fundamentally? Second question, I would like to come back on the HPL project, which we are delaying eventually the decision. How confident are you on the cost competitiveness of this project compared to the new route which has been developed to produce a nickel battery, which is using nickel and mate? It's developing quickly. We don't know exactly how cost effective it is. What's your view on that? Because it's a huge investment project, potentially for you. And for BASF, it's small compared to the size. But for you, it's big. So you better not to make a wrong decision on that. So how is your vision or visibility about effectively how cost-effective is, let's say, the T-Chan project, the T-Chan or other development using the Pigaron route and Mate route compared to your route you are working on?

Thank you for these questions. Just on SLN. SLN, you said that the only solution would be to close the Nyambo, so the plant. Yes, the plant is much higher cost. Because of, and a big part of that is the energy price. Today we would have the energy price that we have with the ARN in France for our manganese alloys plant in Metropole. We would have today a positive cash flow at SLN, or break-even cash. So a lot is coming from the energy cost that has to be subsidized in the future. There is no other way than for doing it. And if the ferro-nickel price continues to drop, there should be also other kind of subsidies or help in order to maintain this kind of businesses in Caledonia. That's why I'm saying that it's not anymore a solution that is in our hands, and we need to make sure that it does not bring any additional burden on our balance sheet. So there are several solutions of doing. If there are massive subsidies coming from the French state, then... SLN will not make any more losses, so it will not be again a burden on our accounts. Or we can be diluted in the shareholding and not consolidate SLN anymore. There are many other options, but for the time being, It's something that is, again, discussed. There are many options on the table, and we don't know which one will be chosen. To answer your question about the closure, we are also a responsible player. We know the huge impact that the closure of Donombo would have in Caledonia. So, yes, maybe we would have closed this plant, but it's not that straightforward when you look at all the ripple effects and the consequences it could have in Caledonia. So it's not an easy decision to be made.

It's clear. I put that, of course, as a real, of course, you know, tough decision and with a strong consequence for New Caledonia. But my question behind that is what power you have to effectively get, because to make it profitable at the end of the day, the only way to be highly subsidized in terms of electricity, in terms of energy cost, and the only way where your plant could come back profitable some way, which means the state some way to take its help, What's your power in that?

The power is not to inject money anymore.

Yeah, but it's not to say, well, if we not be subsidized, we close the contract.

But then there will be a bankruptcy, and then it will be the decision of the local court to decide what will be the future of the company. doesn't mean that it will be closed. Maybe somebody else, the local authority, et cetera, will take it over. That's why I'm saying bankruptcy doesn't mean automatically closing. And so there are... the only, the red line that everybody knows, and you all know, and I've kept repeating that for a long time, is that we'll not inject any more cash in this company, and we don't want that accumulated debt will affect our balance sheet. That's the point. Then, having that as a base fact, there are many other options, and again, if they don't I mean, in five other options, the bankruptcy is one. And we are ready to go there. Just to answer your second question, the second question is the asphalt versus nickel to matte, I mean, in terms of cost. We know very well the cost of the nickel to matte wood because we have an NPI plant, as you know, in Ouedabé, together with Sinchan, so we perfectly know the cost. There are many NPI plants in the Ouedabé industrial park that are producing matte, so we perfectly know the cost. The cost is much higher than ash pile. So today... It's an easy way, because it takes time to build ash pile, et cetera, but it's an easy way to have nickel for batteries. But to give you just a clear answer, Tsinshan themselves, they are building two big ash pile plants right now because they are convinced that it's the best route in terms of cost and in terms of CO2 emission to do nickel for batteries. Presently, on Almaira, on the Wedabe Island, they are building two asphalt plants. So it's the best technology today, and the nickel to matte is an interim technology because it's high CO2 emitting and it's much higher cost than asphalt. Any other questions?

Hello, everyone. So I have three questions. Could we expect a rebound in terms of manganese alloys production in H2 or a stabilization versus H1? Second question, in the lithium business, will you try to negotiate purchase price agreements to lock in prices, for instance, with European car makers in the future? And the final one, we saw some nationalization plans in Chile, and you recently opened an office in the country. How could you operate in this kind of environment, and what is your take on this decision? Thank you.

OK, so maybe you want to take the first two?

Yes, I wanted to offer that. So thank you, Fabien. Concerning manganese alloys, two things which we've tried to clarify in the presentation. First, we are not really expecting a strong remand of the activity of carbon steel in H2. So it's not a matter of production, actually. It's a matter of having the market opportunities. Second thing also I was saying is that we will also be agile as we have done in H2 of last year. And if we see that due to potential pressure on pricing coming from other players, especially out of India, for example, which would lead to very low pricing with still too high input cost, we'll do what we have done last year, meaning that we'll adjust the production. So again, could there be opportunity? Yes, there will be opportunity. In the case, there is a market rebound. Today, it will not be responsible on our side to say that we see that market rebound. So it's more something we'll adjust, and we have done that already to ensure that we remain profitable in what we are producing. That's concerning the first question. Concerning your second question, which is indeed important, so we are clearly, and that's something we have already said in other instances, that we are in touch and in discussions with OEMs for especially the coming phase two of our lithium project. I really want to clarify one thing to be careful. We won't take any agreement which are locking prices. It will lock potentially volumes. It could lock premium or discount depending on discussion we have with the customers, but it will be to market price evolution. So we will not do what we have never done in our businesses is to lock prices, which honestly will be a pretty... difficult situation or decision to make with such a market like lithium where we indeed anticipate a pretty strong steel evolution of the market and of the prices so to summarize yes we We are in touch with OEMs and we see the value to ensure that we can also work with them, value on both ways, value for them, value for us, to ensure that we can get commitments, especially for the volumes of the second phase, but it won't be to lock prices.

And I can tell you that there is a lot of appetite of OEMs for this production. Just to answer your last question about Chile, Chile has the best resources in terms of lithium brines, high grade, very good cost positioning, everything. But just to give you an idea, today there are 20 projects in Argentina. There are none in Chile because of the difficulty of this national policy. The Chilean government and President Boric was in France last week, and I had the opportunity to meet him. and the ministers, they are fully aware of these difficulties. They definitely want to diversify their source of investors. They don't want to be, to say bluntly, too much dependent on Chinese investment. So they are welcoming Western partners. We are positioning ourselves as a responsible partner with a good technology. They like our DLE technology. And you may have read, by the way, that they say that they will give exploration license or permitting only to DLE technologies. So it's restricting the number of potential players. So we are quite well positioned. We know how to operate with state-owned companies, because in front of us we have companies like Codelco and AMI. We are operating in other countries with state-owned companies, in Africa notably. So at the end of the day, we think we can find a way to have deals and be well-positioned to get access to new concessions in Chile. But today it's taking a bit of time. But again, this government is well conscious that they have to accelerate if they don't want to miss the opportunity of the new projects in the lithium industry.

Thank you.

Any other questions? So there are questions on the web.

Thank you. We have three remaining questions from Maxime Koch at Adobe HF. What could be the start date for lithium phase two? Will you be able to deduct the $400 million advance from Glencore from your net debt, or will the cash-in be offset by your financial liability? And again on Sonic Bay, do you think that the battery grade project in Sonic Bay still makes sense given nickel price have fallen a lot and a lot of Indonesian capacity has already come on stream in recent months or is about to be launched?

Just maybe you can answer on Glencore. I will answer the other two. So potentially start date, and again, the FID will take place only in S2, so we'll be able to communicate the start date once we know when we'll start construction. But basically, if we have the FID second semester, we could be in production beginning of 2026. On Sonic Bay, of course, we are monitoring all this, and it will be part of the FID decision if we, again, have the feeling, or more than the feeling, but we make the analysis that the profitability of the project is not anymore in line with our targets and our criteria, economic criteria, because of the nickel price, we will not make the final decision. For the time being, it's still a profitable project with the data that we have. Also because the cash cost position in Indonesia is very low. Operating costs are very competitive. We will process the ore of Wedabe and you know that the ore price in Indonesia is lower than in the rest of the world. I'm not talking about the cost, but the price. And the cost is even much lower. So today, we still have good economics for this project. But of course, we are monitoring that very carefully. And it will be part of the decision, of course. And we will not make a stupid decision, especially because it's a significant capex for Eramet. So we'll have to be fully convinced that it will create a value.

And on the Glencore prepayment, so $400 million. So at this stage, the accounting analysis of this agreement is that it will be booked as a financial debt to your question, Maxime. So this will mean indeed that it will improve the liquidity, but it won't improve per se the net debt. It's as of today's analysis. Clearly, we will look at the way it could be considered differently, but that's the best answer I can give for today.

No other question? No question in the room? So we are, I think, right on time. So thank you very much for your attention. And so we definitely are more optimistic on our performance for the second half. And I can tell you that all the teams are very focused to deliver a much stronger H2. So thank you.