Endomines AB (publ)

Welcome to the January 2022 result presentation by EndoMines. My name is Karvi Yhtinen. I'm the CEO of EndoMines since March 2022. And with me, I have Mikko Sopanen, who is our CFO. He started in January 2022. And agenda for today, I will first start, and I will start with the key observations after 170 days in the company. Then we will share some lights on the highlights of H1, go through the updated strategy and Karelian Gold Line. And this is really the exciting part to look forward to. Then there is a short summary on the USA. We will look on the environmental, social and governance side, ESG, and then go through the focus areas for the next six to 12 months. Then Mikko will take over and he will continue with the CFO update, which includes the financial highlights and outlook for H2 2022, and then also some information on the market update. And then we have a questions and answers session at the end of the presentation. And there is now a chat function. Please send any questions you may have to the chat, and then we will answer those after the presentation. Okay, so I started in March, and when I started, I went to visit our facilities in the USA and in Finland. And what I was most pleased about is that we have really extremely engaged, friendly and professional people at all locations. And to me, people are the key to the success, so that was really nice to notice. Endomines as a company is in an exciting phase. We are starting production in Pampalo. We also had the Friday mine in a ramp-up phase, so really exciting times ahead. Then one thing that was really surprising to me was the Karelian Gold Line. because that really presents a hidden secret, where there is a lot of unlocked potential. And when we had the meetings with our geological team, it was really exciting to see how much potential there actually is. Many people were commenting that they were hoping us to update the strategy. There was a lot of projects ongoing. There are a lot of assets in the USA, and just to prioritize what we should do this year, what we should do in three years' time, and what we should do on a long-term basis. ESG should be an important part of the strategy, so we took that into the strategy. It's a really important focus area. And what was also really positive is that many people were enthusiastic to be involved in the strategy work. And to me, that is a clear signal that people care about the company and they really think about the long-term benefit of the company. So what we did, like the key actions, we rolled up the sleeves and started a strategy project in April and that was completed in June. The strategy was approved by the board of directors and now we are implementing the new strategy. We also geared up the organization to match the strategy. For example, what we did, we have six people in the management team. So now two people out of those six, they are fully focused on growth and development. And that's a clear change. We also decreased the organizational layers, which is To me, it's a really important thing that we have an efficient and fast, agile organization and not so much bureaucracy. Highlights of 2022. I'm happy to tell that we had a good gold production. We had 108.2 kilograms, which is 3,478 ounces in Pampalo. The company is in a phase that if you look the first six months, it doesn't give the full picture where the company is. I think it's a lot more important to look at the development between the quarters. And if you look, for example, the production, the Q2 production was 69.3 kilos, which is 78% higher than Q1 2022. Really, really pleased about that. The ramp-up has been going extremely well in Pamplona. In the USA, we have the Friday mine. It has been on temporary care and maintenance. When we think about the financial result, the increase in the production level, it also affected the EBITDA positively. If you think about Pampalo EBITDA, there is a huge turnaround from minus 5.7 million SEK in Q1 to positive 7.7 million SEK in Q2 2022. And the EBITDA margin during Q2 was 21.6%. Due to the situation in the USA, we did major restructuring to decrease the cost base before there is more accidents in the USA. And the EBITDA improved also in the USA from minus 27.5 million sec to 3.1 million sec in Q2. So also there, I think we managed to make a successful restructuring. Other significant highlights, we had a 49% increase in the Pamplona reserves. We also had encouraging drill results at Friday Mine. We did a small campaign, eight holes and five out of the eight intersected high-grade gold, so that was really positive. And we made a decision to start the East Open PIT. And when we continue the strategy part, I think that shares the light why it is so important for us, even if it seems like a minor item. So the strategy part. So we wanted to make a clear strategy where we have clear long-term targets, which is easy to communicate, and we can get people to execute the strategy continuously. And key points in the strategy that we created are that Pampalo is the foundation, and Pampalo creates positive cash flow for the company. So a lot of focus on Pampalo. Then in the Karelian Gold Line, we have two kinds of areas. There are known deposits that we know, and some of them are already permitted, investigated, and those we plan to bring to Pampalo, and that will increase the production levels in Pampalo. Pampalo is very centrally located, so it's very easy to bring additional materials to Pampalo. and we are currently using only 50% of the capacity, or less than 50% of the processing plant, so there is no bottleneck in that respect. The idea is that USA doesn't require major funding from the company. We will look for partnerships. There are several options what kind of partnerships we could have. One is that we have joint ventures. We could sell some of the assets to fund development with the others. We could have partnerships where some other company is using our processing plant and we share the profits, for example. Then there is a new item in a way that the Karelian Gold Line exploration brings value to the shareholders. And here we want to develop greater than one million ounces deposit. I think we will come back to that, but there is a lot of potential in the Karelian Gold Line and this will create a lot more focus. So how we see it, it's a two-phase strategy. We first develop the base business, so develop the company to have a stable business and create the strategy and make the organizational changes. And this is a phase where we are now and we are going to the phase two in the during 2022, where we just focus on growth and development, because we need to grow also from the size where we are now to be a bigger company. And here we are looking for increased production levels from the satellite deposits at the Karelian Gold Line. Then we have the exploration and all the opportunities related to that, and then partnerships in the USA. And then we can also, now we have been just focusing to increase the production levels, but then when the production is actually more steady, we can also focus on the operational efficiency. And then there is an important part, which is the ESG, and that will guide the general development of the company. If we have a good ESG program and execute the program, it will make the company better. Here is information about the six satellite deposits we have close to Pampalo. There are six deposits that have been investigated. Five of those, there is an existing mining lease. Three of those, we have an environmental permit. All of them, we have done the environmental impact assessment. So there is a lot of potential here and the idea is that we will investigate all of these and start making actions to bring materials from the other deposits to the Pampalo processing plant. And why the decision to start the Pampalo East was so significant is the fact that Pampalo East is one of these. And usually what happens in the mining business, when you start a production in some area, then you also do drilling and you do investigation and you'll find more and it expands. And at the end, there is a lot more resources than what you initially thought of. So we believe this also will be the case. We have started a drilling program now, which is focusing on Pampalonlammit, Remeppuro, Korvilansuo, and also a little bit north from Horsko. And that will support to take those areas into production, and at the same time, it supports the exploration idea. Then the Karelian Gold Line. Background on the Karelian Gold Line. It's a 300 kilometer long Ilomansi Kostamuska greenstone belt. And in 2016, Geological Survey of Finland stated that there is over high, over 50 percent chance of finding more than one million ounces of gold in Karelia. It seems to be really a potential area in the world, actually. And luckily, it's located in Finland. It has similar features, geological features, than other Akean greenstone belts. And to give examples of these kind of areas, there is the Kalguuli in Australia, Abitibi in Canada, Witwatersrand in South Africa. They are very significant gold production areas. Witwatersrand, approximately 40% of the world's gold has come from the area. Kalgoorlie, I lived in Kalgoorlie for one year and can say that, for example, the Super Pit is just unbelievable. There is so much gold mining in the area that it's amazing. When we looked for what would be a good comparison to compare Pampalo with, we got the advice that Southern Cross is a similar size and similar geological features. This is located in Australia. And if you look at the picture in the right, like all these yellow dots, they are similar gold mines than Pambaloi is. Then the ones with the red circle, they are gold mines with over one million ounces of production. And then all the mines that have the figures on the right side, they are still in production. So very significant gold production area, over 10 million ounces produced. And if we compare Paampalo or Hattu belt and Southern Cross belt, why is the situation so that there is so many mines and not so many mines in Finland? I think one of the key factors is that this has been investigated over 130 years and not so much investigation has been done in Finland. So that's something that we want to change and really go full on to to find similar potential in Finland, what is in Australia. One good example of exploration target is Korvilansuo. This is very much an unexplored high potential area. And if you think about the history, like, for example, 80s, 90s, the world was different. The world was very different 20 years ago, even 10 years ago. Currently, the gold price is much higher. And when 20, 30 years ago, the exploration activities, they focused on these small high-grade lenses, similar to Pamplona. However, that's not the optimum anymore. Like if you think about the world today, we believe that we need to go for larger volume and lower grade deposit. And there is a lot of potential in this area and a lot of samples which have been analyzed in the 80s and 90s and nothing has happened since. There is for example in this picture there is usually when you start gold exploration you take a moraine sample and if you have more than 0.1 grams in a sample then that's a potential area. We have a sample which has a 6.7 grams and it has not been followed so that's that's amazing that there hasn't been any activities but the reason is that nothing has been done wrong the reason is that the focus has been to follow the higher grade lenses and not to go really to the bigger area and find a larger lower grade deposit so that's something that we want to change and we have now started a drilling campaign and we it will continue this H2. Change of strategic direction in the USA. First of all, like mentioned, we have changed, restructured the operations to reflect the status. As we have stated before, we have the Friday in temporary care and maintenance due to the fact that we need to do additional drilling. And if we go back to these high-grade trill results that we had earlier this year, so five out of eight, we got really encouraging results, but we still need more to start the production. And just to mention that this Oro Grande processing plant, which is next to Friday, is located in an area where other companies could utilize the plant. So that's important to also point out. And we have a similar situation also at ResQ, for example. We have a plant that could be used by other companies. We have made a decision to focus on partnership negotiations and small-scale activities. We don't want to jeopardize the assets. They are valuable assets. It doesn't mean if we don't go investing now a lot, that they are not valuable, they are valuable and for example at Friday there is definitely a gold deposit there and so on but we just have to choose what we do and our idea is that in the USA we would like to get a partner who has operational experience and also could take part in the investments and I'm sure we can find a model which would benefit both parties. And here we are getting external help also to help us with the partnership negotiations. Environmental, social and governance, CSG, This is really the important part of the strategy, and the way we see it is that, like also mentioned before, but it's worth mentioning twice, that the best way to develop the company is to have a good ESG program and complete the actions, because ESG covers so many aspects and is so important. And it brings also the improvements to the company culture and happiness of the people. We have some examples what we are doing. We want to create a program which is not just really ambitious and large scale, but then there is no actions so much on a short term. So we want to have a program which is focused on the short term actions, but then you have also the long term items, which you, of course, need. And during H2, the improvements what we are doing, we are launching a whistleblowing channel. We are updating our website and including a lot more information about ESG. We will update our code of conduct. It was actually approved today and supplier code of conduct. We are starting to report our ESG parameters to NASDAQ. ESG database, so I think it's very important to be open and share the company information so that everybody can see it. And we are performing a local information session near Pampalo, just end of this month. And then on a longer term, we are creating the targets during H2 for environmental, social and governance, and then KPIs for each of the focus areas. And then we will follow the progress based on the program. We also created together with the strategy team, we created the key principles for the company. We want to ensure that we are safe and good place to work for our employees and partners. We also want to ensure that the world is good place to live for future generations. We are actively acting in the local community and supporting local businesses. If we have to choose to buy from a local or buy from some other country and save $500, we of course buy local. That's our key principle. We work together with the local network. We respect our partners and stakeholders. We utilize the best available technology in the production processes. And we ensure that we have a financially sustainable business. So this is something that will guide us in the coming months and years. So focus areas for the next six to 12 months. One of the key focus areas is to continue to work to increase the production levels at Pampalo. We have done good progress during H1 and especially the last quarter was really significantly better. But we need to take the production to the higher levels still. And that will come from underground mine and then the satellite deposits. And the first one is the Pampalo East. That has actually now started. So we are ahead of schedule. Then we will continue the drilling below the current operational levels and that has been ongoing and we estimate that we will have information available in two to four weeks. We have the results from the levels below. Then we will continue the partnership discussions in the USA. We still need to make some organizational fine tuning to meet the requirements of the new strategy. And this is mainly that we need to strengthen the exploration organization. That's really key. And then we plan to start exploration campaign at Karelian Gold Line, and then continue with the ESG program development. Thank you. That was my part. And now I will pass on the floor to Mikko.

OK, thanks Kari. And let's have a look at some numbers and final sales for us. So as was told already that on the operational side we can see also in the numbers that the first quarter has been not been easy and but the development and direction has been very good so we were able to very well increase the sales and production in Pampalo which has been improving then the profitability and the key message is that we have the Pamplona operation is healthy and EBITDA, we have the cash flow positive and such and we can see that and that's the target to improve that. on the same time in the US operations where there has been facing different challenges in last year and certain type and was some delay. So we've been able to kind of restructure the operations there. And then as we see in the Q2 that we have there, three million, negative three million is the EBITDA which reflects pretty well also the cash flow there and the current status of the operation and cost base. On the cash, we had 37 million Swedish crowns cash, which is very good level currently and going forward. About investments, we had 3 million SEK, what has been invested. This has been mainly done in Pamplona. Pambala operations, but then when we look at actually the further now that the aim is to start also reflecting the outlook 22, so definitely we will now use this great opportunity about the Karelian Gold Line and other to increase the gold deposit and investing there. and that's something what we have started and that will be definitely visible in the on the second half of already at 22. Regarding those investments some of them will be about the exploration will be then cost as seen as a cost and some as our investments but further also we will have a Karelian Gold Line and the whole development as our own segment. So to follow that, the key message here is that we have the Pamplona operations, which we are improving and developing and where we see positive cash flow. And then we have this Karelian Gold Line where we will heavily invest. And that's the target really at the one million ounces. So for the Karelian Gold Line, we have started already the funding and financing, as we have announced recently in June. And as it was also mentioned in the report, we are planning to do further funding and seeking alternatives with the existing investors, as well as looking at other options. Currently, all our funding is very good. We have all long-term funding now, and it's all convertible funding. In that sense, that gives a very good base and status right now for the company going forward. We have a much healthier and better balance sheet right now. For the outlook then looking forward, so we have stated that we have Pambalo production growth stirred from 30 to 70 percent during H2 for the coming, for the rest of the 22. Same time we are looking really the improvement in the efficiency as well. At Friday, we will have no production expected during this year. It's mostly depending based on the new strategy as told that how we go forward there. We haven't given, the only guidance what we give right now is regarding the PAMBALO. There's no numerical EBITDA It's basically due to the ramp up period and still the starting and development phase in Pampolo as well as the cold market price. It's definitely depending on our profitability. The sales is directly related to the market price and therefore also the profitability comes from there. But the key message really on this is that further take the full opportunity and see what we can do the best with the Karelian Gold Line. About the market gold price and FX, which I said is very much in... Depending on us, I mean, we have been... The first half has been really good and it seemed to be continuing. So the average gold price was almost 1900 USD per ounce. And of course, the fluctuation for the gold price seemed to increase, but it's still been quite well, always bouncing back after certain. But I mean, long-term use, there's different use naturally for depending who to ask and who is but we see that at least that our own view is personally that we will be at least around the current level in the near term. The one thing what has been very much now recently supporting us is definitely the strengthening USD, so all our sales is in USD terms. And then when we look at all the Pambala costs are practically in euros. So over 80%, looking forward even higher, will be in euros on the cost. So that's giving us a good benefit for the profitability. And then let's move to the questions. Please send more all the time, you can still have the questions. Let me start here. One question is actually about this, how is the... I can take this, about our sales price. How is the sales price defined? We are selling actually... The sales price is directly led from the gold market price. It's part of the monthly price average from the following month, which defines the previous month's production. Since we are selling the enrichment, there's a certain deduction of the market price. what we will get then. So it's really much related. And currently, the company, we don't have any cold hedging, which we will, of course, announce. So in that sense, for the investors, we are kind of directly impacted of the gold price, and lower negatively, but then also positively when the gold price is higher. One question then, maybe to Kari more, is about our... When we have this guidance for the data, that where it comes from 30 to 70%, so what are the main factors that will impact whether it's plus 30 or plus 70%?

Yeah, that's a good question. I think we have been ramping up the production, and during ramp up, there is fluctuation in the production levels. And that's like every month, I think the fluctuations become smaller and smaller, but there are still some fluctuations. And the fluctuation, it comes from the grade. What is the gold grade of the ore that we mine? and then also from the tonnage that we mine and still because we are in the ramp-up phase we want to be in a way safe that we don't promise too much and we have a fairly wide guidance but but we expect the fluctuations to be smaller than what they have been during H1, and it mainly comes from the grade that we mine. We have two different areas in the mine, and currently what we have seen that there is some fluctuations that if you go to the north side and then to the south side, then there is a difference in the grade of the ore.

And then there's actually several questions about the funding and funding need going further. It's really like mentioned that we will now heavily investigate and research to the Karelian Gold Line, and that's been something what seemed to increase. Okay, since we have told about this, it's been very much interest on that and we see that it's also basically on the, when we start and going forward, how we see that and what are the possibilities as well as what is the funding available, so there will be more funding, I mean, in the positive ways needed for that.

Maybe I can add one thing. Yes, I think it's... I would like to just point out that the company situation now is so much more stable and we have production running and we are generating income. And the funding that we look for will be for the growth. And this we really see that this will bring shareholder value. There are many examples in the world of the companies that when the reserve base expands, then the value of the company is in a completely different level. We changed the strategy. That was one of the key items why it was done. We had a strategy that we We have a production in Pampolo, then we go to the next place, then we go to the third place, and then the following place. But we see that the best way to actually create shareholder value is to have a steady production, have partnerships, but then really find a bigger deposit, because that's the way to bring the company to a totally different scale. And that's also helpful for the shareholders. And there are many examples like, for example, Ikkari deposit when it was found in Finland. And that was sort of, the work was started in 2016. And if you look at the Rupert resources, how the development has gone, it's really significant.

Yeah. One question here was about the US cost level and how we expect it going forward. So as a bit already mentioned that it will be, we see that it will be similar as we had with Q2. So going forward, probably might be even we see some improvement there, but that's a good view on that. There were actually questions about a bit going back to the US and about that are we going solely through partnerships with this?

Yes, we are actually. We still have some key people in the US and we are we can do small scale activities to keep the assets in a good condition also maybe some permitting activities so the time to take assets into production will decrease however otherwise we have now chosen the the path that we will look for the partnerships and that's the way. We have many assets and we have many potential areas where we can go to and the company size is fairly small, so this is what we have chosen. and strongly believe that that's the right way. In the current market conditions also, there is interest on these kind of partnerships and the assets that we have, they are potential and they are valuable. And so we believe that there is potential to have good win-win partnerships in the area.

One question regarding this was about the Buffalo Gulch and Deadwood.

Yes, those deposits, what we have, they are on a longer term. So those deposits, they need still investigation and then permitting and then investments to take into production. So those are more than five years to actually be in operation. Buffalo Gulch, I visited that also, and there is a lot of work done by Kinross before, so actually millions and millions of dollars have been spent on the area, and there has been a lot of investigation, so there is potential. Again, their market is different from what it was a few years ago, when the gold price was lower.

Then actually getting back to Finland and to Karelia, our favorite topic is that what is kind of the timeline for the Karelian Gold Line in terms of the development and as well as if we think about the future, maybe even production.

Yes, we have activities ongoing. So when we have these two items, that one is that we take the existing satellite deposits into production, so there the EAST is now started and we are doing work for the others. And also on the exploration side, we have started in August drilling in the area and the drilling will go to both places, like the existing satellite deposits and then also the exploration. and we are now strengthening also the organization to support. As we stated in June, we raised some funding and part of the funding we used to start the work and our plan is that this is something that we really focus on in the future. We see there is a lot of potential and then Like Mikko mentioned, we will look also at the financing options, how much and what we should do, and what are the options in the market, and then we decide how large scale the exploration will be. To take it to production, to Pamplona we have capacity, so if there is the existing permitted satellite deposits, we can take them almost immediately. In a way, it just depends what kind of actions we need to do at each satellite deposit. Exploration, that will take, depends on location, what is the permitting situation that can take take more time. However, just to point out that we strongly believe that the benefits for the shareholders, for example, they become obvious already before they are in the production. If there is a significant gold deposit, then that's also beneficial for the shareholders, even if it's not in production.

Yeah, there's been also like about this investment numeric questions. So we haven't given anything yet out in the report either, but we can say that it's what we're looking is a significant amount what we are looking to execute this strategy and this work has been started and we expect to do something already during 22 for the funding for the Karelian Gold Line. Yeah, and please still, you can send any more questions, there's time for them. Yeah, there's one like, Okay, one question which I saved last is that, so as an experienced mining person, how you see that now the company and based on your experience going forward?

I see the company really to be in the exciting phase. And if I share a little bit background from myself, I came from Nordkak. Nordkak is a company that has made a profit 120 years, never made a loss. And when I changed, I was thinking that before I started that this is the right choice, but I can say after six months or so that definitely yes, I think we have a lot of potential and especially the potential in the Karelian Gold Line is really exciting and what is really Key to the success is the people, and we have the people in the right place now. We did some changes, and we needed more people in the development and growth, and we have done the changes, and we have exciting times ahead. I strongly personally believe in gold. That was the reason why I joined the company. I have a strong belief that the gold is going to be strong in the future. And then it's all about the people. We have good owners, we have good board, we have good people working everywhere. So I think that's what you need. Mining is mining, but people is something that makes a difference.

Okay, here were all the questions. Hopefully, you got also very good questions. I'd like to thank those, and hopefully, you got good answers as well.

Yes, thank you. Thank you, everybody, and thank you for the good questions. And if there is further questions, of course, you can send emails to me personally. That's okay also. But anyway, see you next time.