Euro Managanese Inc

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Good morning, good afternoon, and good evening to everyone dialing in today. Thank you for joining us to review our first fiscal quarter highlights. Please note the slides for today's call can be downloaded from our website. Before we begin, I must remind you that this presentation involves forward-looking statements. Please refer to our cautionary statements here, as well as the risk factors set out in our annual information form. Our news release filed last week highlights our first fiscal quarter financial position. This should be read in conjunction with our management discussion and analysis and financial statements, both of which are available on our website, CDAR and the ASX. Joining me today are Martina Blahova, Chief Financial Officer, and Louise Burgess, Senior Director, Investor Relations and Corporate Communications. I'll pass over to Martina in a moment to go through financial highlights for the quarter and the company's financial position. Then I'll run through operational highlights achieved in the quarter and look at key catalysts for 2023. We'll wrap up with our Q&A session. Over to you, Martina.

Thank you, Matt. Just a reminder that we report to a year end of 30th of September. So our Q1 references the period October through December 2022. I will briefly comment on our cash position and the intended use of these funds in the next coming 12 months. Please note that all figures are in Canadian dollars. We started the quarter with 21.6 million in cash. 0.6 million was spent to complete the installation of the demonstration plant and the purchase and refurbishment of an administration building next to the demonstration plant, which also serves as an additional facility for the plant's staff. 2.8 million was spent on operating expenditures, which covered the start of the demonstration plant commissioning, the completion of the environmental and social impact assessment for filing, which happened on December 30th, and other corporate costs. We made a payment of 0.2 million on an option for land plant for the rail spur in the commercial plant area. And we also received 0.2 million from the exercise of share options. We close the quarter with 18.3 million in the bank. Our cash position will allow us to complete commissioning and operation of the demonstration plant for approximately one year. These funds also are expected to cover other permitting costs for the project, as well as completing or advancing certain land acquisitions for the commercial plant area, completion of the EPCM tender process, and corporate G&A costs for the next nine months. I will now turn it back to Matt.

Thanks, Martina. Here's a snapshot of achievements during the quarter and to date. I'll speak to each of these items in more detail in the coming slides, but the key takeaway is we met our milestones for 2022, and we've maintained that momentum in the first six weeks of 2023. We began the year with quite a bit of news flow, the most significant of which was the off-take term sheet with Vircor, who are to be a key battery supplier to Renault. The term sheet outlines minimum tonnages on a take or pay basis for an initial tenure of eight years, with deliveries commencing from first production, which is expected in 2027. The term sheet also outlines pricing, which is based on an index adjusted Western price benchmark for high purity manganese sulfate and also correlates to the CO2 footprint of our production of high purity manganese sulfate at Kuala Lumpur. It also has a floor price. Alongside this, we also continue to advance offtake discussions with other interested parties from across the EV supply chain in Europe and North America. These are a result of the structured offtake tender process for our high purity manganese products that we commenced in September 2022. We made a data room available and hosted site visits for interested parties. Indicative bids have been received in addition to the five MOUs currently in place. I spoke to the increasing trend of automotive OEMs investing in resource and processing projects to secure critical raw materials for electric vehicles on our conference call in December. Since then, we've witnessed a watershed investment from GM into Lithium Americas to finance their Thacker Pass project. GM's $650 million investment is the largest to date by an OEM into factory raw materials, and I feel it's a transformative precedent for critical minerals partnerships. It is yet another example of the importance of local raw materials supply security in accelerating the energy transition. We released our life cycle assessment last year, and I wanted to highlight the results of the benchmarking assessment again. As mentioned in the previous slide, the pricing mechanism in the Virchow term sheet directly correlates to the carbon footprint of high purity manganese sulfate produced at Kolevitsa. This demonstrates the tangible commitments of both parties to deliver low carbon products for the EV market. We are leading the pack in having the lowest carbon footprint versus the current incumbent IPOE manganese industry. This is hugely important for us in our conversations with battery makers and automotive OEMs who've made their own commitments to net zero and reach that goal. On the 18th of January this year, the Global Battery Alliance launched the European Battery Passport Pilots, including dedicated rule books to establish key sustainability performance indicators batteries sold in the EU from 2026 would be obligated to report the carbon footprint associated with the overall lifecycle of manufacturing batteries, the percentage of recycled content of a battery and human rights and battery supply chain due diligence. Three main key takeaways are one, we're following this very closely. Two, we're in a very strong And three, we believe the superior nature of our high purity manganese products positions us very well to meet current and future demands of the EV battery supply chain. Over to the project itself. We made great strides in advancing quality during the quarter and to date. Commissioning of the to produce on-spec material by the end of calendar Q1 2023. Deliveries to interested parties will commence thereafter. Six companies from across the EV supply chain have requested samples and a further six companies who are testing pilot plant samples are also expected to request demonstration plant samples in due course. A video of our demonstration plant flow process can be viewed at the link here or on our website. Parallel to commissioning, we are also advancing on the engineering, procurement and construction management front. Bids have been received from five tier 1s. We are finalising the evaluation of the bids and aim to appoint the contractor in the near term. Of importance to us is a firm who has experience in building similar types of chemical plants in Europe. Selection of the EPCM contractor will allow us to advance basic engineering design and identify long-leaved plants. Another milestone achieved in the quarter was submission of the final environmental and social impact assessment to the Czech Ministry of Environment. This was based on the previous impact assessment study, engagement with key stakeholders, which included outreach with relevant authorities and local communities, project parameters outlined in the feasibility study, and environmental and social which were fed into our final EIA submission. We anticipate a six-month approval process from the December 2022 submission, potentially enabling final environmental permitting for the project by the middle of this year. To further demonstrate our commitment to putting sustainable practices at our core, we published an inaugural sustainability 2022 in December. This details a thorough materiality assessment we undertook earlier last year to identify the environmental, social and governance issues that matter most to us and our stakeholders. Outcomes indicate we are on the right path importance to our stakeholders, such as environmental stewardship and mitigating climate change. The report was also an opportunity for us to crystallise the company's purpose, vision and values. Again, I spoke to this on the last quarterly call, and as our global team of approximately 40 grows, It is of utmost importance to me to have a clear north star for who we are as a company, more focused on and the values that will underpin our success. The passion that our team exhibits demonstrates that desire to deliver on our vision of being the leading environmentally responsible producer of high purity manganese globally. Shifting gears to our exciting opportunity in North America to build a dissolution plant at Bank & Core in Quebec. The growth opportunities offered by the North American market are compelling, and the plant at Bank & Core would give the company first mover advantage in this region. As a reminder, North American demand manganese is expected to reach 200,000 tons by 2031. However, there are no current processing facilities in North America. Behnken Core in Quebec is shaping up as a major EV battery material supply chain cluster with two large cathode active material projects as well as other critical battery warm material projects announced. high purity manganese being the missing ingredient there until now. We have secured a long-term option on a central site in Bencon Core to enable site due diligence and a scoping study for the processing plant, both of which are nearing completion, through leveraging and localising the extensive process development and engineering work already completed for the Qualivista project. These plans are warmly welcomed by both the Quebec government and the Canadian federal government with whom the company has entered discussions regarding the clearly structured incentive support programs which may be available for the project. I've spoken to most of these deliverables already today. However, I will just note we are close to appointing our project finance equity advisors. The key takeaway is we have a busy first half of the year ahead of us, both advancing the project and putting in place off day contracts to underpin our project finance. In the second half of the year, we envision being focused on project finance and completing the front end engineering work with our EPCM contractor. We are driving towards executing are key catalysts to realise long-term value for our stakeholders. Thank you everyone for tuning in today. I'm now pleased to open it up for questions.

It looks as though we had one raised hand there for a second. I'm not sure if the operators are able to help with that one and opening up the line if it was on a line.

Yes, he is now able to participate.

Hi, Matt. It's Frank Spann here from Invest Energy. Just a couple of quick questions and a follow-up, if I may. The CapEx estimate that you mentioned earlier, Has that been generated internally or was that part of the tender process from the contractors?

Thank you, Frank. So that was from the feasibility study, which was undertaken by Tetra Tech, obviously with our customer support, sorry, with our support and with process input from the Beijing General Research Institute of Mining and Metals, Big Rim in China. So it is a estimate from July 2022, at a time when prices were high. And in that 750, I'll just remind everyone, there is over $100 million of contingency in that number. As we move forward with our EPCM basic engineering project, then we'll be able to reduce the variability or confidence level of that CapEx estimate.

And related to that, does that include the Barrancourt plant or is it premature to come up with an assessment on that?

So that's at scoping study level, which we're just finishing. So that number is just for the Kuala Lumpur project.

Thank you. And then just on another issue, on the license terms, since the Televize project is a brownfield, are remediation costs included in your cash flow estimates?

Absolutely, yes. The remediation of the tailings is included in our operating costs. and the demolition of the processing area and rebuild of that is also included in our capital costs.

Roughly, I mean, what are those remediation costs come to?

They're part of our mining costs, which is a very small part of our overall costs. I don't have the number off the top of my head.

And presumably an EU carbon tax is included in your economics?

No carbon taxes or other potential benefits are included in our forecasts.

You say no, they're not included?

They're not included, no. The benefit of any carbon taxes created by using 100% renewable power are not included in any of our analysis.

Okay. Thanks for taking my questions, Matt.

No problem.

Matt, it looks like there's one other here coming in and again is asking, do we have a partner for cathode production?

So those people who are producing the cathodes will be our customers. We will be supplying our raw material to those customers. And even if an OEM... is the off-taker, which we've seen in many cases. It is their supply chain we'll be supplying into their cathode and battery manufacturing supply chain. So anyone who's in cathode production industry and needs, main needs, you know, obviously they're the people we're talking to or should get in touch.

I, sorry, there's just a couple that are coming in here. I had some thoughts. Nick is asking what's the primary reason that the EV supply chain are giving us for interest in buying our product?

So our key value proposition in the market is the fact that we're the only European supply source for manganese and we're producing a high purity manganese. So those customers who are looking to secure local supply material for supply security and who want to have the lowest CO2 footprint buying we are the only game in town in europe so that is our key value proposition to the market and you know the demand for the materials is forecast to outstrip supply thank you matt um a a question on recent um

elections in the Czech Republic and that is what positive or negative impacts can you foresee for the change in presidents in the Czech Republic?

Yes, we obviously noted the result in Czechia. I don't think it has either a positive or a negative impact for our project. We are working with the relevant agencies in the Czech Republic for our approvals. And that's going along track with the EIA at the moment.

Thanks, Matt. Another one here from the chat. And that is, what percentage of outstanding shares are held by insiders? and institutional investors.

So I think the management, including ex-CEO who is a consultant, I would consider him an insider. Correct me if I'm wrong, Martina, it's probably about 8% of the total shareholding. Yeah, it's about that. And then institutional investors, we estimate, we don't have full transparency in some of the holdings, but to be over 50%.

I believe there's one other question on the phone line, if they would like to go ahead.

Yes, Mr. FJ, you're now allowed to speak.

Thank you. It's Frank Spanigan. On the Veracore take-a-pay term sheet, initially eight-year term, is there mention of volumes in there?

There are volumes mentioned in there. They're at the moment commercially sensitive. So we are not allowed to disclose those volumes. But there are volumes and price mechanisms. And both of those are binding when we go to a full offtake contract. But they're not obligated to go to that full offtake contract with just the term sheet.

Can you share with us a rough idea of what sort of percentage of your estimated production might be, or is that too close?

Not at the moment, yeah.

Okay, thanks.

A question here for Robin. Hi, Robin. Matt, can you quantify or frame the fixed price parameter in the VRCOR deal?

So it's not a fixed price. There is a European reference price, which will track against a high purely manganese sulfate index and also be related to our CO2 footprint. What there is, is the floor price. And that price is the price which will cover all of our costs and we'll recover our debt service covenants. And at the moment, that's all I can say about that in terms of quantity or level of that floor price.

I'm just gonna take a moment here to see if there's any kind of questions that come in.

Just give me one moment.

I think for anyone that is kind of providing commentary rather than a question, we'll be more than happy to take that offline and communicate directly. But I think that kind of wraps up the question and answer period for today. So Matt, I'll hand it back over to you in case there's any kind of final notes that you'd like to say.

Thank you, Louise. Yes, this is an exciting time for the battery and raw material sector. We feel we're very well positioned to take advantage of the drive to source fully traceable local low-carbon battery materials. There is one other point that I'd like to mention. Previously, we've talked about the drive to manganese-rich chemistries to lower the cost of the cathode, lower the cost of the battery to make EVs more affordable. Well, it was quite exciting today as Umicore announced today the industrialization of their manganese-rich cathode chemistries for EV batteries. If you Google Umicore industrialization of manganese-rich chemistries, you'll come to that announcement. We also plan to put it up on our social media links later today. But that is news hot off the press. So thanks again for joining. We look forward to talking to you next quarter.