Euro Managanese Inc

Hello, everyone. Good morning. I am just going to give it a minute for people to join. I can see a number of people are starting to log on. So I will just put myself on mute and we will be back to you in a minute.

For those of you who have just joined, we're just giving you a minute to get people online, et cetera. So we'll be back to you in a moment.

Okay, Matt, I can see that a number of people are with us now. So if you'd like to get started, I will put myself on mute and pass it over to you.

Thank you, Louise. Good morning and good afternoon to everyone. Thank you for joining us to review developments during Euromanganese's third fiscal quarter. 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 and the risk factors in our annual information form. Our news release filed on August 14th highlight our third fiscal quarter financial position. This should be read in conjunction with our management's discussion and analysis and financial statements. both of which are available on our website, CDAR and the ASX. Joining me today on the call are Martina Blahoba, Chief Financial Officer, and Louise Burgess, Senior Director, Investor Relations and Corporate Communications. I'll pass on to Martina in a moment to go through financial highlights for the quarter and the company's financial position. Then I'll run through the key developments during the quarter and how we're progressing against key catalysts for 2023. We'll wrap up with a quick question and answer session. Over to you, Martina.

Thank you, Matt. Just a reminder that we report to a year end of 30th of September, so our Q3 references the period of April through June. We also report in Canadian dollars. I will briefly comment on our cash position and the intended use of these funds in the coming quarters. We remain funded to deliver certain near-term project milestones and for corporate G&A for the next six months. We start the quarter with 13.8 million in cash. 1.2 million was spent to advance the commissioning of the demonstration plant, which is now close to completion, and to make a milestone payment to the plant equipment supplier. 1.6 million was spent on operating expenditures, which covered the advancement of the qualitative permitting, including preparation of documentation for land planning and construction permits, the scoping study and other due diligence costs for a back-and-forth site in Quebec, and other corporate costs. We closed the quarter with 10.9 million in the bank. Our cash position will allow us to deliver on our near-term project milestones, which include commissioning of the demonstration plant and its initial operation on a batch basis, advancing the permitting for construction of the qualitative project, advancing certain land acquisitions for the commercial plant area, initial feed, front-end engineering design, and corporate G&A costs for the next six months. Additional funding will be required for the EPCM engineering, procurement, construction management services for the project, future payments for land acquisitions and future construction of infrastructure and facilities for the project. Funding will also be required to advance the company's North American strategy, including land payments and completion of the Beckham core feasibility study. Financing is one of our top priorities, and we continue to work diligently on it with our financial advisors. I will now turn it back to Matt.

Thanks, Martina. Here's an overview of achievements during the quarter and to date. We advanced on both technical and commercial fronts, including our North America strategy, and I'll speak to these in more detail in the coming slides. Specifically, we remain focused on four key work streams to deliver our Kvalovica project. These include advancing engineering, permitting, off-takes, and as Martina just mentioned, financing. We made excellent progress on our engineering work stream this quarter. In June, we awarded the Engineering Procurement Construction Management contract, or EPCM, to wood. The contract covers all phases of work through to commissioning and handover of the commercial Kuala Lumpur plant. Awarding the contract followed a rigorous selection process. I'm very pleased to be partnering with such a high caliber tier one company. In addition to Wood's technical and engineering capabilities, it was important to us to work with a team who had experience in the European Union and a proven track record of delivering large-scale chemical plants. The contract is cost-reversible and structured in two phases. Phase one includes a gap analysis, which is an in-depth review of the quality plant feasibility study deliverables, including evaluating test work and the flow sheet developed by our team. Following this initial piece of work, Front End Engineering Design, or FEED for short, will commence, which includes value engineering, identification of long lead items, vendor engagement, and a project implementation strategy, which will inform a baseline schedule for the EPCM phase. Deliverables of phase one also include the preparation of the construction permit documentation and an updated capital cost estimate for the client to a plus or minus 10% accuracy. As a reminder, our feasibility study for the Equality Project outlined an initial capex of approximately $750 million, which included over $100 million of contingencies. The feasibility study was completed in mid-2022, when prices for materials were higher than we're seeing today. My point here is our initial capex figure is robust, and we may potentially see some benefits from costs returning to more normal levels. On completion of phase one, expected to be in mid 2024, we expect to make a final investment decision prior to entering phase two. Phase two is the full engineering procurement and construction management stage, where Wood will provide overall project management services, including detailed design, procurement, construction and commissioning of the main Kvalovica plant. Over to the permitting work stream, and work there is progressing well. On a positive note, 13 of the 14 relevant authorities approved their sections of the study in the environmental and social impact assessment, indicating an overall positive perception of the project. However, we received comments from one authority related to noise abatement during the quarter, and we have now addressed and resubmitted this section to that relevant authority. For background, our projects anticipated noise level fall well within legislative limits for an industrial project. However, the cumulative effect of noise with other industry in the region marginally exceeded permitted noise levels at the measurement points located at the closest residential areas. We expect to resubmit the full EAA in the coming weeks and anticipate a positive decision on this ESIA before the end of 2023. In parallel to the work our team has completed on the revised ESIA, they have also substantially completed the documentation required for the land planning permit. This permit can be submitted on approval of the ESIA. The approval timeline is typically three to four months for the land planning permit. Thereafter, the next key permit stage is the construction permit, which is a deliverable of the feed phase, the documentation. The approval timeline for that is also three to four months. Over to the demonstration plant, where we produced 99.9% pure high-purity electrolytic manganese metal, or HPEMM, during the quarter. External lab tests confirmed the HPEMM demonstration plant specifications, and this de-risks our process flow sheet. Production of on-spec high purity manganese sulfate monohydrate or HP MSM has been delayed and this is due to a manufacturing fault with the crystallizer. An incorrect welding material used by the manufacturer caused corrosion inside the vessel. Our team identified this issue and has addressed the issue and production of HP MSM has recommenced. Samples need to be tested and assayed by external labs. I would remind everyone that HP-MSM is an almost pharmaceutical-grade product in terms of purity, and therefore specifications of impurity is tight. The demonstration plant is a crucial step in our development. Lessons learned can mitigate risk on the commercial plant and it also provides experience with our production processes for our operators, as well as enabling production of large-scale samples for potential customers. Note these samples are not expected to be required for completion of off-take contracts. That's a good segue to our off-take workstream. Our offtake funnel remains full with tonnages under discussion increasing over the quarter and now exceed our plant capacity by more than 30%. In addition, new offtakers have entered the funnel. We now have 22 parties at the top with more than 50,000 tonnes of HP MSM per annum collectively under discussion in that section. a number of parties have advanced to the middle of the funnel, with a total of 11 parties now interested in more than 30,000 tons of HP MSN per annum. Obviously, we remain focused on advancing the six parties at the sharp end of the funnel term sheet stage. WorldCore is the seventh party here, with whom we already have a term sheet and are moving forward with full documentation. These seven parties at the sharp end of the funnel now account for more than 120,000 tonnes of HP MSM per annum, which amounts to 80% of our production capacity. That is the number we are targeting under offtake to underpin our debt financing. I would mention that these are initial tonnages from off-takers. Off-takers have indicated a potential need for higher tonnages as the market grows and as manganese-rich chemistries evolve. We are seeing increased news flow of commercialisation of manganese-rich chemistries, including nickel manganese cobalt which are increasing the amount of manganese and decreasing the amount of nickel and cobalt we're seeing lmfp and with manganese being added to the lfp chemistries with a big announcement that samsung are now launching an lmfp chemistry And sodium ion, a new battery chemistry, also can contain up to 30% manganese. Additionally, several larger potential customers are still yet to disclose their allocation of tonnage to the company. However, I have expressed an expectation to do so in the near future. Neuromanganese remains very well positioned to meet the increasing need for high-purity manganese in lithium-ion batteries. We have the only manganese resource in Europe and stand to benefit from increasing demands for a local, responsibly produced source of supply. Switching gears to Benck & Co, where we made good progress at this growth opportunity in Quebec. Bank and Core is fast becoming a battery materials hub and we are well positioned to take advantage of being at the heart of a made in North America EV supply chain. Our 15-acre site, on which we have an option agreement to purchase, is strategically located adjacent to a cluster of planned cathode-adapted material manufacturing plants. These include investments by G.M. Posco, BASF, and just recently announced Ford EcoPro. After the quarter end, we released highlights of a scoping study that evaluated the development of a high-purity metal dissolution plant in Benken Core, capable of producing just over 48,000 tonnes per annum of HP MSM. based on sufficient supply of HPEMM feedstock. Just a reminder, a metal dissolution plant uses HPEMM as the feedstock. The scoping study delivers strong preliminary economics with a post-tax NPV net present value of $190 million CAD using an 8% discount rate. a post-tax IRR, internal rate of return, of 26%, and a payback period of approximately four years. The economic analysis was run on a constant dollar basis with no inflation, no government grants were included, and was unlevered. Initial capital was estimated at $110 billion, million canadian dollars including contingencies at 15 million dollars canadian a key aspect of the plant is a short build time the scoping study estimated an approximate two-year engineering and construction duration from the end of the bank of core feasibility study Minimal infrastructure is required with off-site infrastructure limited to just power line connection and potential development of a rail spur from the bank and core site railway line. On-site infrastructure includes road, plant and administrative buildings, power distribution, storage buildings for metal feedstock, solution and sulphate products. Parallel to this, we continue to engage with both the Quebec, provincial and Canadian federal governments on the incentive support programs available for the plant. Residents in the region indicate the Benconcourt plant may be eligible to receive support for up to 40% of capex. Additionally, we're investigating whether the recent announced clean technology manufacturing tax credit, which would refund 30% of the cost of machinery and equipment used to process critical raw materials essential to the clean technology supply chains, would be available for the plant. We have appointed WSP Canada out of Montreal to complete a feasibility study for the bank and core plan, which will further refine costs, economics, and customer offtake opportunities. The feasibility study is expected to be completed in mid 2024, subject to financing. We aim to advance permitting in parallel with the feasibility study. In addition to the initial economics, What makes Benconcore an attractive opportunity is the feedstock optionality that the MOU with the Manganese Metal Company offers. MMC, as they are known, is the leading producer of selenium-free 99.9% HPEMM, and they're based in South Africa. The MOU allows the Beckencourt plant to be fed with HPMM from MMC and or from our Qualivista project. It allows for flexibility on the supply of HPMM depending on market demand, MMC product availability and Qualivista metal sales. The MOU is strategically significant as this methamphetamine stock enables the potential acceleration of bacon core plant to supply the North American market as early as mid-2026. This potentially enables us to be the first to market and also to bring cash flows forward for the company by at least a year. As a reminder, North American demand for high-purity manganese is expected to be over 200,000 tonnes by 2031. However, there are no current processing facilities in North America. MFC has provided HPEMM samples for test work as part of the feasibility study, and we intend to work together to conclude a definitive agreement. I'm also very pleased with the cooperation agreement we signed last month with the Ground Council of the Latin Nation of Abenaki, a tribal council of the Abenaki communities on whose ancestral territory the Benconcourt plant will be situated. This agreement defines how we intend to communicate openly and regularly and to work together for the mutually acceptable development of the Beckencourt plant, especially during the evaluation and planning phases. Perhaps a few words on the Beckencourt process flow sheet before wrapping up. The plant design allows for production of both high-purity manganese sulfate solution, or HPMSS, which will be for local consumption, and high-purity manganese sulfate monohydrate powder, which provides customer off-take flexibility. Reducing HP MSS provides both cost and environmental benefits, as delivering a solution locally eliminates the need to crystallize, dry, and package an HP MSM powder product. Plant design leverages extensive process development and engineering work already completed for the Kuala Lumpur project. Moving on to our 2023 key catalysts. I've given an update on most of these deliverables today. One to note is the commencement of formal debt process by the commercial project finance banks. This is expected to commence in Q4 this year. The European Bank for Reconstruction and Development and the European Investment Bank have already commenced their due diligence processes. We remain focused on our flagship project in Europe, producing on-spec HP MSM from the demonstration plant, advancing the remaining land access agreements and you'll see that they have remained at three of five, which has been the case for the last two quarters or so, but I would like to stress that significant progress has been made on these commercial agreements during these last few quarters. Obviously, securing more offtake term sheets and driving customers through that offtake funnel and to contracts is important. And finally, securing finance. Thank you, everyone, for tuning in today. I'll now open it up to questions.

Thank you, Matt. We'll pause for just a moment while people wish to enter questions. Please use the chat function. or the Q&A, I apologize, at the bottom of your screen to enter your questions.

So we'll just take a moment now.

So one question that we had via email before the call was on progress of the land access agreements. And as I mentioned earlier, we have made significant progress in those negotiations and we expect those to be completed in the near term.

Thank you, Matt.

It is looking like we don't have any other questions at this time. So unless you'd like to enter a question now, we may well wrap up. Alternatively, please do send us questions by email if you have any. But sorry, apologies, one has just popped in here. Matt, perhaps you can take this one. Can you talk about what you've learned about the high purity manganese industry in China and investments in capacity expansion there?

Yes, we have obviously been, we monitor what's happening in China. I think all of the forecasts for global demand for HP MSM indicating a deficit in supply globally, including in China. There have been announcements by a number of Chinese firms, both incumbent producers and new producers, announcing planned investments in capacity. groundbreaking activity as yet. There is a small amount of surplus as demand grows. We're not yet in that deficit situation. So I think we'll probably wait and see. I think to see that deficit I would also say that the market is definitely splitting between in China and non-China from a demand perspective. And the demand for local source material, both in Europe and the US, is obviously where our focus is. And we're hearing from customers there needs to be a demand for locally sourced material. So whilst I do not underestimate the Chinese ability to grow production capacity quickly, They won't be able to supply all the requirements of a North American and European market from a legislative or incentive perspective.

Second question.

If all the remaining six term sheets are signed, what will be the impact on the financial requirement for the European project? so if all of those are signed then it means we will have met the requirements of the project finance banks because they require 80% of our production to be under contract because in this market where you cannot hedge like a gold or nickel or copper production, they need to see offtake contracts secured for 80% of the product. So it'd be a very significant impact on the positive impact on the financing for the European project.

Another one here, Matt. What level of premium do you envisage for an EU and US price? compared to current Chinese battery-grade manganese sulfate?

So it's a great question. Thank you. If you look at the only index which is available for manganese sulfate, it's a Chinese X-Works index. So if we start with that as our baseline, when you look at that index, it's actually a mixture of different qualities. considered in China high purity. But then if you look at the battery grade within that index, we see that at about $1,600 a ton, Ex Works China. You then add transport costs to bring it into a European or US context. And you're adding about $250 per ton. Now, just to be clear, if you go into a FreightOS or website, you'll probably see container costs are about $150. But you've got inland transport and then inland costs and customs costs, processing costs, etc. That adds about another $100. So about $250. So we're close to $2,000 once you've added transport. We're seeing the local market in Europe today, our pricing around 2,500. Recent information we got from the market was Japanese material landing at around 3,000. So that $2,500 to $3,000 represents premium above effectively a Chinese project landing in Europe for $2,000. So it's a 20% to 40%, 25% to 50% premium. I think the lower end of that is what we are also seeing in markets like rare earths, for example, where non-Chinese supply of rare earths is commanding about a 25% premium. We're also seeing it in steel, interestingly, in Europe, where green steel, low CO2 steel, is commanding about a 20% premium to non-green steel. So there are a number of analogies we can draw parallels to to confirm that value.

Thanks, Matt. Perhaps maybe staying on pricing, another question here. Can you remind us, offtake pricing is not necessarily fixed. Can it be relative to a benchmark? Can you perhaps talk a little bit more about the pricing dynamic within offtakes?

Yes. So what we announced with our term sheet is a good example. We have agreed that Western price level, and we will link it to the Chinese index in such a way that as the Chinese index rise and falls, the Western price we have will rise and fall proportionally, subject to a floor price that we have. And that floor price is required, again, by the project finance banks. So it's not just HSBC. contracts, which meets their debt service covenant. And that's an important conversation that we're having with all of our customers. They understand that this is effectively an incentive price for new production outside of China.

Martina, I'll perhaps pass this one your way.

You mentioned the potential of Canadian government support for the back and core plant, can you share any kind of more color around those discussions.

So from what we can share, I can say that we are in active discussions with both the provincial and the federal governments. And there are several sources of funding that can be used for the project, and they come in different ways. It could be loans, partially forgivable. It could be tax rebates, power cost rebates. For us to advance and secure the financing and any support from the Canadian or provincial government, we need to also progress the project, meaning we need to advance or complete the feasibility study on the Concours, but as we progress, we'll get more certainty on any funding. So we're actively doing that, and there's a good chance because of what the project is, where it fits in, and it fits into the mandate of both governments, there's a good chance that we will secure some of that financing.

Thank you, Martina.

I'll also perhaps start this one and send this your way, and Matt, you can jump in as required. Martina, might you be able to speak to the percentage of our Shares that are owned by the EIB is the question.

So EIB, the European Investment Bank, doesn't own any of our shares. It might even be referring to the European Bank for Reconstruction and Development. They invested last year about $8.5 million Canadian dollars, representing 4.4% of our shares. About 9% to 10% of our shares are held by management and the board, and up to another 3% by our former board members and management members. We do have about 20% held by institutions, also about 40%, and then the rest of it, it's not... as transparent, but we believe that some of that is similar to institutional shareholders.

I would say we have a very supportive shareholder group, particularly from the institutionals. They, you know, there are a number of which are very supportive, been visiting sites and have been building their positions.

We have a lot of long-term shareholders that are

either increasing their shareholding and waiting for the financing to become, to increase their shareholding and to be part of the equity financing as well.

Thank you both. We'll perhaps take a step back into a broader question here. Are you aware of producers within the manganese supply chain for steel, particularly in other alloys? and that area moving toward production of battery-ready manganese. Matt, perhaps you might be able to comment on that one.

Yeah, so the manganese supply for the steel industry is a lower-grade product. It's actually 99.7, which doesn't sound a lot, but again, just coming back to the level of impurities that we are producing to are effectively pharmaceutical-grade. The difference between our product product is quite significant the production of 99.7 product they add selenium into the electro winning circuit because it lowers the power consumption that material cannot be purified down to a sulfate level as far as we are aware and we've studied that in quite a lot of detail We actually have some companies which are producing agricultural grade material, for example. So if they come to us and say they've been trying to produce battery grade for a number of years, they can't do it, can't get down to the specifications required. Can you help us? And again, it points to, you know, that plant we are building or going to build in the Czech Republic. That's $750 million investment. About 90% of that is in the production plant. Only 10% of it is on the tailings reclamation side. And it just shows you the level of process and cost of that process required to get to these levels of impurities is significant. So we have not seen any producers of manganese for steel go towards production of battery-ready manganese.

There are some high-purity manganese methyl producers. that have announced they plan to produce sulfate and we are again monitoring that but the scale of their production will be relatively limited compared to the market market. And again, we are producing into...

extremely strong growing market so there is plenty of room in the market for these new supplies in fact we need it to give the OEMs confidence that they can increase their manganese content in their batteries to lower their battery costs Because that is one of the key ways that EVs are going to become more affordable.

Thank you, Matt. One other question here, and I just remind everybody, if they'd like to ask any further questions, please use the Q&A function at the bottom of your screen. At what point, Matt, in the process would a strategic partner at the project level be considered?

Yeah. So we didn't put the financing side of this presentation because we've been over a couple of times.

But in that financing structure, the strategy. We are working with the Bank of Montreal and New York already to Seek a strategic partner at the project level. Ideally, a OEM associated with Off-Cake or a someone in the industry, although we are also considering critical metals focused funds. who would be interested in becoming a project level partner. So that is ongoing. Part of our discussions, you know, probably put a timeline on that obviously a strategic partner that's bringing an investment is going to take longer than just an off day contract. So those those projects, those discussions are ongoing at the moment. Fantastic. I think that wraps up all of the questions for today.

So I really appreciate those of you who have asked some fantastic questions. Matt, I'll pass it over to you for any kind of final comments and wrap up.

There's one other question.

One last question. I'll read it out. What's your read of the LMFP supply chain developments in China as differentiated from NMC? I've heard rumors of using different feed source than sulfate or metal. So our understanding is producers of LMFP may use a different salt as their precursor.

We have also seen LMFP producers who do use sulfate. If a market moves to a different salt, like a carbonate, for example, our plant has the flexibility to adapt that we have that flexibility is that we go through a method first as part of our processing. we don't go straight from ore to sulphate we go from ore to metal we get a very good high purity intermediate product And we would have the flexibility to take that to a carbonate if required. At the moment, all of our octahedrons discussions for over 200,000 times. Okay, I think we'll wrap it up there. I really appreciate your attendance, your insightful questions. Thank you for your support. And we look forward to updating you at our next call.