Jervois Mining (ASX: JRV) – Cobalt Has Been “CRUSHED.” Now What?

The Jervois Mining Limited company logo
Jervois Mining Ltd.
  • ASX: JRV
  • Shares Outstanding: 642M
  • Share price A$0.19 (14.05.2020)
  • Market Cap: A$122M

Have a watch of our recent interview with Bryce Crocker, CEO of Jervois Mining (ASX: JRV).

Jervois Mining is an ASX-listed mining company with a focus on cobalt, but with significant exposure to nickel and copper. Jervois Mining has assets in Uganda, Australia, and the United States (the main focus).

Crocker was incredibly honest during our interview. He is clearly aware that COVID-19 has thrown a spanner in the works of the EV revolution, especially on a consumer level: will they even be able to buy cars after this crisis is over?

The EV market is already relatively small (2M) compared to conventional gasoline vehicles (100M), but Crocker thinks that the position of his cobalt assets, in America rather than the unstable DRC, could be highly advantageous. Will the U.S. government see cobalt as a strategic commodity? This has been touted before, but it remains to be seen. Will green energy and, therefore, cobalt, win the day?

We Discuss:

  1. Company Overview
  2. Grim Outlook for EV Revolution: Predictions Post-COVID-19
  3. Jervois Mining: Survival Tactics Involving the US
  4. Green Mining to Prevail: Hope for EVs
  5. BFS Completion Timeline
  6. Negotiating Deals at Present or Waiting for the Pandemic to Pass?
  7. US & Cobalt: Outcomes of Nationalisation
  8. Contributing Value to Jervois Mining: What Takes the Cake?
  9. Plans for Non-Core Assets: The Future
  10. On Listing in the US

Company Website: https://jervoismining.com.au/


If you see something in this article that you agree with, or even disagree with, please let us know in the comments below.

Any advice contained in this website is general advice only and has been prepared without considering your objectives, financial situations or needs. You should not rely on any advice and / or information contained in this website or via any digital Crux Investor communications. Before making any investment decision we recommend that you consider whether it is appropriate for your situation and seek appropriate financial, taxation and legal advice.

The Jervois Mining Limited company logo

Jervois Mining (ASX: JRV) – Thought that was always the plan (yeah) (Transcript)

The Jervois Mining Limited company logo
Jervois Mining Ltd.
  • ASX: JRV
  • Shares Outstanding: 642M
  • Share price A$0.19 (14.05.2020)
  • Market Cap: A$122M

Interview with Bryce Crocker, CEO of Jervois Mining (ASX: JRV).

Jervois Mining is an ASX-listed mining company with a focus on cobalt, but with significant exposure to nickel and copper. Jervois Mining has assets in Uganda, Australia, and the United States (the main focus).

The company is hoping to benefit from the much-discussed and much-distressed EV revolution by producing raw battery materials. COVID-19 appears to have put a real spanner in the works of the EV thematic, though Crocker suggests the US government is viewing cobalt as a strategic commodity, and Jervois Mining could benefit.

Crocker paints a “profoundly negative” picture of the impact of COVID-19 on EV global supply chains. COVID-19 hasn’t just compressed cobalt demand, “it has DECIMATED it”. China was down c.80% in Q1/20 and the West is down 40%-50% in Q2/20. Some companies are losing as much as “US$100M per day.” There is no positive scenario near-term. Crocker expects a massive “dislocation” of the supply chain across 2020, and says people aren’t expecting it.

How does Jervois Mining plan on taking advantage? Do its hopes lie in the hands of the US government? Government subsidies for EV manufacturers are starting to flow back in, but they have been crushed because their export markets are off; this is particularly true of China. It’s also very difficult to be bullish when it comes to aerospace right now. Who knows when the airline industry could recover? There is a lot of uncertainty right now.

Crocker claims cobalt is a unique commodity, with 75% of cobalt coming out of the unstable Democratic Republic of Congo. The supply chain looks incredibly fragile as it is, and COVID-19 has worsened problems. The major mines in the DRC are still operating. Some borders are still open, but the border with South Africa is closed, and the border with Zambia is an “unmitigated disaster,” with queues stretching as far as the eye can see. The cobalt mines are stockpiling aggressively, and a lot of the highly-technical major projects are being canceled because of key minds being repatriated. The outlook for cobalt is very binary as to what is going to happen in the DRC. Crocker expects to see COVID-19 peak in the region in the first few weeks of June. Cobalt investors will need to keep their eyes peeled. The impact could be “profound.” COVID-19 is going nowhere in the short term, and the DRC already has logistical issues: the cost of trucking copper and cobalt out of the country is US$300/t.

Crocker is actually very happy with Jervois Mining’s own position in a stable jurisdiction with a “half-built” cobalt project. He has always claimed the US is the most strategic market in the world for cobalt, and claims the country is fast catching up China. The US has no domestic cobalt mines, and Crocker thinks it is timely for Jervois to be at the forefront of this.

Cobalt has always been of geopolitical importance to the US, and now it is even more so. Crocker expects green mining to prevail as the US government tries to create jobs in 2020. Crocker remains coy on the government’s plans for possible nationalisation, but claims cobalt is “up there” because of its importance to aerospace and critical industries.

Crocker expects the BFS by the end of the year. It’s nearly finished, there are just a few things to sort on the offtake side (metallurgical test work). Travel restrictions have caused delays. Jervois Mining has c. US$7M cash to see the company to midway through 2021. Away from Jervois Mining’s core Idaho assets, Jervois has been clear it wants a partner to form a JV for the Nico Young nickel-cobalt project in Australia. The rest of the projects will have their day in the sun, but right now there is an emphasis on keeping a tight balance sheet. This seems sensible. A Tanzanian acquisition is also on the cards.

We Discuss:

  1. Company Overview
  2. Grim Outlook for EV Revolution: Predictions Post-COVID-19
  3. Jervois Mining: Survival Tactics Involving the US
  4. Green Mining to Prevail: Hope for EVs
  5. BFS Completion Timeline
  6. Negotiating Deals at Present or Waiting for the Pandemic to Pass?
  7. US & Cobalt: Outcomes of Nationalisation
  8. Contributing Value to Jervois Mining: What Takes the Cake?
  9. Plans for Non-Core Assets: The Future
  10. On Listing in the US

CLICK HERE to watch the full interview.

Matthew Gordon: Hey Bryce, how are you doing, Sir?

Bryce Crocker: Matthew,I’m well. How are you?

Matthew Gordon:  Not too bad. Not too bad. Surviving. What’s that bike in back? I meant to ask you. What’s that bike in the background? You look like a serious road bike kind of a guy.

Bryce Crocker: That bike is a specialised brand; a bit of free advertising, but it is a lot more technically advanced and capable than its jockey.

Matthew Gordon: Blimey. That seat looks terrifying. That’s the thing I would say to you, not sure I could cope. Right, why don’t we kick off with a one-minute overview of Jervois mining then I will pick it up from there?

Bryce Crocker: Yes, thanks. We are ASX-listed and we are excited to be a creating battery raw materials company, a producing battery raw materials company. We are focused on security of supply chains, supporting the rest of the industry which has clearly become more topical in recent weeks and months with the unfortunate arrival of COVID and the impact on global supply chains.

So, we are a group of executives who came from larger mining companies, and I guess, what I wanted to cover today is that we don’t typically talk about the commodity; but I did want to talk about Cobalt because it is very interesting, and if you look across all of investor presentations, you will see nothing in Cobalt and nothing in any of our statements, but it is an area where collectively as a team, we do have a lot of background. We do look at what we have as a competitive advantage, and it is. It is fascinating what has happened.

Matthew Gordon: I think we both want to talk about the same thing actually, because we talked to you previously about the company and where you are at, and we will get on to that but I wanted to talk to you specifically about what you think is happening, because of COVID-19, how you think it is going to affect buying behaviour, investment in the EV thematic, which obviously you play into with your Cobalt. What do you think the impact is going to be on all of that?

Bryce Crocker: Profoundly negative. Profoundly negative. Anyone who gets up and says otherwise doesn’t understand the physical dynamics of what is happening in the market and hasn’t really thought around what the implications are. I think Cobalt, it is interesting for a couple of reasons; I mean demand, it is not weakening – it is getting crushed. Completely decimated. I’ve never seen anything like it. You have got China orders, probably down 80% in Q1/20. All of the Western order makers: 40, 50% in Q2/20. Most of the big oil producers losing USD$100M per day, per day. And so you have had, from a supply chain perspective, you have had this massive disruption and we are just really at the start. And I think this is where this is interesting, if you look at what is going to play out over the next 3 to 6-months. We are really at the start of this process because COVID-19 from a supply perspective has really just started. We have got customers who aren’t buying or can’t buy because they are locked in their homes. Manufacturing facilities that are shut. So, if I am a steel mill, and I am getting ferronickel, ferrochrome, ferro cobalt – all of these deliveries, I don’t want that. That’s getting pushed back to the traders who are pushing back to the producers, and this shock is getting pushed through the system and is going to take time to flow through.

 But if you look at what is happening to end demand on Cobalt, I mean, electric vehicles, there’s no positive scenario in the near term as to what is happening for EVs, clearly. Orders are being crushed. But as you look forwards, I do think that the Chinese are trying to come back on. Their biggest challenge, from what I understand, is that really their export markets are off. They are trying to turn their economy back on, get those order flows to try to start again. They are obviously, again, it is the incentivisations, the government prioritisations for electric vehicles, that’s flooding back in.

But any way you look at it, electric vehicles, the numbers are fluid but it is going to be a significant, significant reduction. Even over last year, and we are talking growth rates that have gone. So that’s the bad news on EVs. But is that a structural, permanent shift? I can’t talk about that. I don’t believe so, but it is going to create a massive dislocation in the supply chain across 2020 that people weren’t expecting.

 So that’s on the electric vehicle side, which is obviously Cobalt Chemicals, Cobalt metals – aerospace: it’s pretty hard to be positive on aerospace right now. I would suggest that this is 30% to 40% down. Oil and gas – it is pretty difficult to be positive on oil and gas type exploration drilling, so cobalt gasses etc.

So, demand is bad, but I think, taking away from that, Cobalt is kind of unique because you have three quarters coming out of one country that is highly unstable so, we all hope that Africa, including the Congo, gets through COVID. We are sitting in a part of the world where we are relatively very fortunate. There are some other parts of the world that don’t have the health infrastructure. The majority have immunocompromised complications because of HIV which don’t have the efficiency of the governance, perhaps, that we are able to rely on in the West. We are all hoping that Africa holds together as a continent, particularly the DRC because there is no safety net in the DRC if something goes wrong. But clearly, with three quarters of the Cobalt coming out of the DRC, for context, it is twice the size of OPEC on the oil market, so, it kind of matters.

In terms of what we are seeing and hearing on the DRC, the major mines are still operating. Some of the smaller ones: KiPOI*, Isoko, Kisavari are shut. But the big mines, the Katanga’s, TENKE’s etc, they are continuing to operate. The border currently is back open, obviously you have two borders to get the product out of the DRC: you have got to get through Zambia then you have got to get across from Zambia to South Africa. South Africa is shut, so the port of Durban is shut. There is material coming out to the east, through Dar es Salaam, material is coming out from Mombasa, traders are using alternate exit routes.

For the trucking, I mean, if you have ever been to the DRC, the border with Zambia is an unmitigated disaster at the best of times: just queues stretching as far as the eye can see and a lot further. So that is obviously there now. You do have Sulphur and Lime and consumables coming across. The mines in the DRC are stockpiling aggressively on the expectation that there could be some disruptions. Expats are gone. In a simplistic and broad statement, but a lot of expats with their families in South Africa, they didn’t want to be sitting in the DRC, so a lot of the critical technical expertise, major projects are being cancelled.

So, I think it really depends. So, the outlook for Cobalt is very, very binary to the situation in the DRC. They are behind us. The advise that I have seen is that the COVID-19 peak is coming; you are looking at June, week 1 June, week 2 June, in terms of when it is likely to genuinely flow through. Clearly, the potential market impact is profound. Cobalt, Metal Bulletin SG grade is trading at about, I think, around USD$14/lbs, USD$15/lbs, so that is inconsistent with demand getting completely destroyed. If you look at what has happened in the oil market, obviously, that shows what happens when demand disappears, which illustrates with the Cobalt market, there is this uncertainty there about what is going to happen in the DRC.

The Chinese refineries have inventory for now, but that inventory is not going to last multiple months. There’s material obviously sitting in Durban, which is waiting to get out, as and when the ports open again. But COVID-19 is also not going to go away. One of the greatest challenges of the DRC is logistics. It is one of the most painful places to get consumables in and to get a product out anywhere in the world. It will probably cost you USD$300/pt to get it out on the back of a truck; whether it is Copper, Cobalt hydroxide.

Zambia has installed a 14-day quarantine period, so if you are a truck driver, you come in from South Africa, you get a 14-day quarantine period upon entry to Zambia, you go into the DRC, you come back, you get another 14-day quarantine period. Trucking delays are probably up only 2 to 3-days currently. There is no shortage of guys wanting to drive the trucks, for now.

If South Africa, Zambia and particularly the DRC, they are different, there is potential for social unrest in the event of these big mine closures, clearly, to use the artisanal supplies as an example, people aren’t mining, you don’t get women and children mining artisanal Cobalt because they choose to do that versus open a corner stall selling clothes, they are doing that because it gives them the option to put food on the table. Many people are working at the big mines; they are big employers. The social implications of these sites shutting is profound. I don’t profess to have a crystal ball. I don’t know which way it is going to go but the potential market dislocation is obviously enormous.

What is highlighted in our conversations with other ERMs and other end-users, clearly the DRC has been there and people have been uncomfortable with certain aspects of the DRC, whether that is governance, whether that is the artisanal mining, for a long time, but now they are looking at the security of supply chains and realising that this really is a profound risk to their business. Being reliant on a critical component for electric vehicles, or for steel production from a part of Africa which is obviously a long, long way from you having the confidence that you are going to get the product that you need on time.

Matthew Gordon: Okay. That’s a fairly devastating picture you are painting with regards to, obviously, demand, which, as you say, you are not quite sure when that kind of comes back on because it is a kind of slightly dislocated logistic supply chain at the moment. So, if the Chinese come on earlier than the rest of the world, we are sort of playing catch up there. I know that you were talking about Cobalt in the DRC because Cobalt is a big part of the DRC economy. Can I just ask, before we get onto you, what do you think it is going to mean for the other battery commodities: the Nickels of this world, the Lithium, the graphites, et cetera. Are they as disrupted as Cobalt?

Bryce Crocker: No commodity has 3/4 of supply coming from one country. Clearly, Indonesia is incredibly important for the Nickel market, and clearly other countries are important for Lithium. I don’t pretend to know as much about the Lithium market, but from what I see, there was an expectation that Lithium was in over-supply before this began, so that kind of implies that Lithium is in for some challenges.

Lithium ion batteries, the components are subject to discrete market forces. Nickel is going to be a core component of the battery, moving forward. Everyone wants a car that is going to go a long way and gets there quickly. That’s obviously a big part in what is going in with the success of electric vehicles because everyone wants to get there quickly and get there fast and gets there safely, hence the significance of Cobalt. If Cobalt was easy to engineer out, we wouldn’t be having this discussion. There have been a lot of smarter people than I am, looking at this for a long time, but as of today, it hasn’t been possible to engineer out in a way that provides the same performance et cetera, as an 8.11 or one of the high-Nickel NCA chemistries, Panasonic, Tesla’s…

Matthew Gordon: Okay. Well, I guess the whole EV market is going to be dependent on the lowest common denominator coming through, and you are suggesting that is Cobalt, because of the dynamics in the DRC. So, let’s get back to you; what are you going to do about that? How is that going to affect your business? Because we have been reading about your and talking about your Idaho business. There has been lots of conversations about conversations that you have been having in the US with US funders. Is that your route out of this?

Bryce Crocker: Well, if you gave me a choice of, in this type of environment, what mining project would you like to have? I would take a Cobalt project in the United States with moderate capital, that is half-built. That is, as opposed to other alternatives that I could have on my plate, that is not bad. I think that I’ve always said that the United States is the most strategic market in the world for Cobalt, period. Because of the importance to aerospace, because of the importance to the steel industry and increasingly, because of the importance of electrification. The US automakers have been behind those in China but they are catching up fast, or they are planning to catch up quickly. I think that being in the United States, the United States has no domestic Cobalt mining, it is all imported, so, for us to be at the forefront of that is obviously, it’s timely and I think it does provide an opportunity.

If you look, Cobalt was always geopolitically important to the United States, now you are in a situation where anything you can do to create economic growth and jobs in the second half of 2020 and into 2021 in the US is going to be enormously important. I mean, we are all seeing the news out of the States. We are all seeing the levels of unemployment rising at quite terrifying rates.

We are already getting traction with what we want to do. Now, I think there is an opportunity to really have a profound impact and build a mine during a period when the US and Idaho is looking to create economic growth once we come out of this situation.

Matthew Gordon: It sounds logical, but it is also enhanced, I guess, by this wave of nationalism which is spreading across the US; US first. We have also read about the support that you are getting for this. You say that this is timely. This is absolutely timely for you. You have recently submitted some RPFs, is that right?

Bryce Crocker: So, this is in terms of our debt financing process. We are working the site pool with potential lenders. We will be finalising the bankable Feasibility Study for Idaho shortly to provide that to the banks on an NDA level, so they get an updated financial model. We did provide indicative term sheets in January. We have made a decision at that time not to make a final appointment. We want to progress the PFS and get to the position where we can really differentiate between the options that are available.

This is an asset which, there has obviously been USD$100M which has been spent so it is a part-way constructed mine in a great jurisdiction. Clearly, I mean, the capital markets, I spoke a little about what has happened in terms of industry on the supply chains. Capital markets, again, they have lots of volatility, but equally, lots of liquidity getting pumped into the system, I guess. USD$10Tn between fiscal injections in the US and monetary easing, certainly that is having an impact in terms of debt capital markets remaining open and banks willing to lend. And clearly you will have seen an impact in terms of what’s happened to the Dow in terms of the last 30 days or so,

So, I think as we move forward, we have moderated the timeframe because we didn’t think it was the right time to be pushing someone to go through credit right now, just given the uncertainty. I mean, we are optimistic on the future. I am in transparent in that I think demand right now is crushed but I don’t expect that to last indefinitely. I do expect there are also going to be pushes that come out of this, if you like, like COVID-19, that are difficult to judge now. I think everyone in the city is getting to like having clean air with oil use being down by 30M to 40M barrels per day. People are going to Venice and seeing jellyfish – it is things like that. But I think that it is difficult to judge what the environmental flow-through will be in our governments when they come back on and revitalise the industry, are they really going to want to revitalise industry and reallocate their capital towards ICEE production rather than taking the opportunity to use it as, essentially, a step change on the EV side.

Matthew Gordon: Right, just tell me a little about the types of institutions that were submitting bids? Because if you look at people like BlackRock, I mean, that’s the one that people are talking about, they are segueing away from coal, they are segueing away from oil, and they are moving into and investing into cleaner and greener opportunities. So, are you seeing more of that? Or is it just the usual players?

Bryce Crocker: No, I think that ESG is a big deal. I mean, I know there is a debate between you and the companies you speak with. What does COVID-19 mean for ESG? Is it on the backseat for a period? My personal view is that I don’t think it will. I think that ESG is here; it is an important part of investing. It is in the matrix of any decision-making. Also, the electrification of vehicles is something that is fundamentally important, and I think that it is going to be a criterion, if we had a coal mine up in this part Idaho, we would be having very different discussions. We would be having discussions with many of the lenders, the commercial banks aren’t in the business of funding coal mines, and equally on the equities side, a lot of investors are also, I think looking at ESG. If you want to invest in Cobalt, you have either got to go to the DRC, which is very difficult within an ESG type framework, or a lot of the other projects are large capital, long lead time, high technical risk in varied jurisdictions, not without exception, but as a general rule, some of the better projects are located in more challenging jurisdictions than the developed world.

So, again, this is where Idaho is nice; I mean, it is small. You know, I like small, I like low-risk. It’s a good way to start a business.

Company Website: https://jervoismining.com.au/


If you see something in this article that you agree with, or even disagree with, please let us know in the comments below.

Any advice contained in this website is general advice only and has been prepared without considering your objectives, financial situations or needs. You should not rely on any advice and / or information contained in this website or via any digital Crux Investor communications. Before making any investment decision we recommend that you consider whether it is appropriate for your situation and seek appropriate financial, taxation and legal advice.

The Jervois Mining Limited company logo

Neometals (ASX: NMT) – Transforming Battery Recycling Recovery Rates for the Electric Vehicle Revolution

Neometals portfolio of projects are progressing on schedule, so we thought this would be a good time to catch up with them. Chris Reed, CEO, talks to CRUX Investor. Click here to watch the interview in full. Neometals has converted from miners to project developers following the Electric Vehicle thematic. It’s clear that they are rather good at taking complex problems that are challenging, and work out how to commercialise it efficiently. Reed is a sharp and driven individual, who has built an eco-system of smart people around him to deliver financially sustainable solutions.

Neometals made its money with a Lithium mining project, Mt Marion in Australia, and timed their exit beautifully. They pocketed c.AUD$130M, and has returned c. AUD$45M to shareholders in the shape of dividends. And they have retained an option on the Lithium spodumene component which will be a revenue stream for them at the point the market comes back. A smart piece of negotiations. And that typifies their approach to business.

Reed views Neometals as a “project development business.” Neometals has a variety of assets with differing commodities, but the battery thematic is the key driver. There are 3 core projects with Neometals’ focus: the Barrambie Titanium Vanadium Iron Project in Western Australia, a Lithium Refinery Project and of course it most advanced project, the battery recycling business. Reed updates us on their battery recycling portion of the business. They are at an advanced stage of proving up their MOU terms with the billion dollar German industrialists, SMS Group. Reed talks us through the deliverables for this year and how they will become a significant global player in an accelerated time frame.

Neometals is valued at cash in the bank. Some investors are struggling to understand why. Perhaps Neometals need to start telling their story and investors need to pay attention. Barring a global meltdown, the battery recycling industry looks set to grow at a phenomenal rate. Having identified the growing demand to recycle Lithium batteries as a focal point, the company is working towards commercialisation of its proprietary process for recovering Cobalt, Nickel, Lithium and other valuable materials from spent Lithium batteries. Neometals’ pilot process has generated a high purity (+99%) Cobalt sulphate product at a high recovery rate (+98%).

Neometals’ management has created an eco-system of experts in their field with the ability to solve complex problems currently related to Lithium, Titanium and Vanadium. Neometals hydro-metallurgical recycling method is unique. And with strategic partnerships, supply lines and MOU’s already in the bag, the eco-system seems to be close to delivering on its ability to move the pilot in to commercial reality at scale in Europe.

What did you make of Chris Reed? Is Neometals the answer to our waste-related problems? Are they a better bet than a conventional junior mining company? Comment below and we may just ask your questions in the near future.

Company page: www.neometals.com.au

Any advice contained in this website is general advice only and has been prepared without considering your objectives, financial situations or needs. You should not rely on any advice and / or information contained in this website or via any digital Crux Investor communications. Before making any investment decision we recommend that you consider whether it is appropriate for your situation and seek appropriate financial, taxation and legal advice.

Base Resources (AIM, ASX: BSE) – Mineral Sands in the Pink (Transcript)

Can Base Resources build on the success of their first project in Kenya without shareholder dilution? We interviewed Tim Carstens, Managing Director of Base Resources to find out.

Their ‘new’ project in Madagascar has a lot of similarities to the first project so a lot of learnings and complementary skill sets. Mineral Sands is little understood by investors as it is small market with few players, but it can have very high-margins. Rutile and Ilmenite are both used in the production of pigment ie: to colour paper, plastics, cosmetics. Plus Zircon is used in ceramics & tiles.

They produced some good numbers last year so we discuss the future for the business and find out where that growth comes from. Carstens tell us what he thinks it is going to take for investors to see a movement in the share price. We discuss their plans for project financing at the new project. They are debt free but there is no movement in the share price. When does the plan kick in for shareholders? Carstens also breaks down the shareholder register and what type of investor he is looking for.

Carstens says East Africa is better for business than West Africa but how is he planning to spend the money they made in Kenya? With no dividends on the horizon, where is the value being created? Lot’s of deliverables in the next year to build this Mineral Sands company in the hope of becoming a mid-tier company with only a few peers.

Interview Highlights:

  • Overview of the Business: What are Mineral Sands?
  • Review of Last Year and Focus on Safety.
  • Madagascar Asset: How Will They Get it Financed?
  • Share Price & Shareholders: What are They Doing to Bring Value to the Company? What’s Their Strategy for Growth?
  • When and Why Should You Invest?
  • Deliverables for Next Year.

Click here to watch the interview.


Matthew Gordon: Thanks for joining us Tim. You’re doing the rounds in London. Are you going anywhere else?

Tim Carstens: No, not on this trip. This is one of our regular visits to support the listing over here.

Matthew Gordon: Let’s start off with a minute summary on the business.

Tim Carstens: We’re a pure play Mineral Sands Company listed in Australia and here in London. We’ve got a highly profitable, successful operation that we developed in Kenya. It was Kenya’s first Large-Scale Mining project, and we’ve now picked up the learnings from that and looking to apply it in a new project we acquired about 18 months ago in Madagascar. A very similar style of mineral sand operation, a little bit bigger in terms of capital and looking to bring that into being and create a pretty unique mineral sands company that’s got a very clear growth path, highly profitable. And, something we think is going to have strategic relevance in the sector.

Matthew Gordon: For people new to mineral sands, please explain what it is.

Tim Carstens: In our terms, mineral sands… we basically produce three products. Rutile is the biggest component of our suite in Kenya. It’s the highest-grade form of Titanium Dioxide. It’s about 95%. We also produce a lot of Ilmenite, which is a lower grade form of the same material – Titanium Dioxide. And the majority of both of those go into the production of pigment. That 95% of all of Titanium Dioxide materials go into production of pigment. So, everything you see with a colour.

Matthew Gordon: So, paints, plastics, paper inks…

Tim Carstens: Food dies, you name it, make-up all has Titanium Dioxide pigment. And so, consumption is very tightly tied to a global GDP. Now it’s more of an urbanization and wealth driver, I guess, than industrialization. And then the third component for us is Zircon, which is quite different, predominantly used in the ceramics industry, in glazes and tiles and the like. Also has some other sort of industrial uses as well.

Matthew Gordon: You’ve said this project’s been going 18 months. How did last year go for you, 2018-2019?

Tim Carstens: Well, there’s two parts of the business – first is Kwale the operating mine in Kenya. We got our first shipment away in February 2014. So, we’ve been going for a while there.

Matthew Gordon: That’s cash producing, profitable

Tim Carstens: Significantly cash producing.

Matthew Gordon: Give us a sense of those numbers.

Tim Carstens: I mean last year was USD$113M. That was a record year, revenue was at USD$209M, so very, very significant producer.

Matthew Gordon: Debt free?

Tim Carstens: Debt free. We have now paid out the original $235M project financing that was used to part fund the construction with net cash of $20M. So, a very strong year last year from an earnings perspective. Another very strong year from a safety perspective. We haven’t had lost time injury since February 2014 right across the business. We haven’t had a medically treated injury for two years. It’s an extremely strong safety culture in our business.

Matthew Gordon: Let’s touch upon that, because most people don’t bother talking about.

Tim Carstens: Ours is a less inherently dangerous form of mining than compared to Hard Rock Underground, for example. But yet there’s still an awful lot of moving parts in our business. You know, road transport, a lot of risks. The reason we focus on it is 1. It’s central to sort of how we want to go about doing business. 2. But it’s also a pretty good window in on the performance culture of the business in general. Because you never find a business or an operation that has really good safety performance and poor operational performance because the management disciplines that drive one, drive the other. The other reason it’s really important for us is we’ve come into a country with no history of mining in Kenya, in terms of no large-scale mining. We’re 98% Kenyan workforce. So roughly 1,000 people on site. So being able to embed that sort of safety culture in an environment that’s not used to it is a significant achievement.

Matthew Gordon: You’re also spending a bit of money on some CSR activity.

Tim Carstens: We do spend a significant amount each year. It was about $3.8M last year on community development and environmental enhancement programs. We’ve actually banned the use of the phrase “corporate social responsibility in the business” largely because it’s the language of obligation. Its what companies feel they need to do to be seen to be corporately socially responsible. We take a slightly more strategic view on it. In that for us, we need to have a community and a government that has a felt fair exchange of benefit, mutual benefit with us so that at one level we have a really proud, happy workforce. We have a community that will defend the project or the mining operation against any sort of political interference. And then at the other end of the extreme, we have a community and a government. They’re a fantastic reference for us when we want to move into somewhere like Madagascar, where we’ve now gone. We’ll be able to point to what happened in Kenya. And you very quickly have a government that recognizes you as someone they want operating in the country.

Matthew Gordon: Let’s talk about Madagascar. That’s a relatively new operation. How are things going?

Tim Carstens: That’s going really well. We bought it as a project, so it’s going through the study phases at the moment. We completed the Pre-Feasibility Study (PFS) in March, which reinforced our view of it being probably the best undeveloped mineral sand asset in the world. We’d looked at a lot of projects before we decided it was the one we wanted to go for. We’re now completing the definitive study, which will be out in December 2019. And that will then form the basis for completing the financing for development.

Matthew Gordon: So how are the conversations on financing are going? What are you looking for?

Tim Carstens: They’re going well. We’re looking at a combination of things at the moment. There will be a fairly significant debt package as part of the funding. We’re pursuing two options. One is a classic project financing, very similar to what we did in Kenya. And in fact, involving a lot of the same banks who had a fantastic experience with us first time round. They like the way we do what we do. They like the project and the way it gives them an entry into Madagascar in ways that probably haven’t had a lot of access to before. So that’s one debt funding option. We’re also pursuing in parallel a Nordic Bond, exploring that possibility and looking to put in place something around $350M debt facility. And in parallel with that, we’re also progressing a few joint venture discussions just to sort of understand what might be possible in with some industry plans.

Matthew Gordon: So, things are obviously going well on that front. The share price though. If I look at the history, in 2016, things took off in Kenya. The share price went screaming all the way up to $0.19. Very nice.

Tim Carstens: It’s been a bit of a wild ride almost from the moment we turned the plant on in Kwale in early 2014, our commodity prices were falling. And so, we actually got to the point in February 2016 of having a market cap of $16M. That was the low point when it was A$0.026 cents. And then we saw commodity prices turn and in about the middle of 2016 and share price shot up. We were up in the $0.30s. But we’ve largely tracked sideways since we acquired Toliyara sort of sat in a channel, $0.24 to $0.30 cents somewhere in that range. And to a certain extent, that’s explained by the market needing some more clarity on exactly how we’re going to fund the project.

Matthew Gordon: And that’s what I want to get into in now. If I look at some of the statements in your PowerPoint, you’ve mined more ore, your numbers are generally positive. You’ve paid down debts, you are net debt free. The share prices continued on a general downward slope. It’s been fairly up and down, but the general trend is slightly down.

Tim Carstens: I disagree with that. It’s been trending up for the last 12 months, but I see it’s exactly where it was twelve months ago.

Matthew Gordon: People can get have a look at the chart and work out how they feel about that statement. What is the go forward strategy here? Where are your loyalties? You’ve got loyalty to employees, loyalty to the community, loyalty to shareholders. But what are you doing for shareholders going forward? What’s the growth component to the story?

Tim Carstens: Well Toliyaras is clearly the growth component.

Matthew Gordon: But when does it kick in?

Tim Carstens: Well, on the sort of timetable we’re on, we’re aiming to be in production by the middle of 2022, which will still see us with overlap with Kwale – two operations running. You’ve got that diversity of earnings and extremely powerful earnings profile. I mentally Toliyara based on the PFS numbers is going to spin off free cash flow each year of around $13M. So significant cash flows across the two. One of the challenges in developing an asset in Kenya or Africa generally is getting full value in a share price sense for the earnings you generate simply because of this perception of risk. And that’s particularly exacerbated when you’re a single asset, single jurisdiction company. So, our strategy had always been to let’s go get Kwale up and moving. Use it to build our business model. Use it to build our capital base, our reputation, our scale with a view to then taking all of that to move to the next asset, to get that diversity happening and build a company with a number of operations that smooths that out and starts to unlock the latent value of the earnings.

Matthew Gordon: Do you think you’re telling that story well at the moment?

Tim Carstens:  We’re telling the story as well as we can at the moment, because the key unknown for people is exactly how we’re going to fund it. And we can’t explain it any more than we are at the moment, because we’ve got all these components that are moving forward sensibly. They can’t move forward any faster because obviously completion of a DFS is central to that. It’s a long-term exercise building a business from scratch.

Matthew Gordon: You are throwing out cash, you are paying down debt, and you’re looking after the administrative side of things. At what point do current investors or new investors get interested in you again. Are they going to wait until you get your debt package in place in the new year? Is that the moment they should really be looking at you?

Tim Carstens: I think people are crazy not getting involved now. But I understand why they aren’t. Because, we’ve got a very clear picture of what the value is in this business. And it’s a question of time before people actually see that. As I keep repeating, for a lot of people the lack of clarity around exactly how we’re going to fund it gives people a sense of maybe they’ll go fund raising and that’s something that we need to dispel. The other part to it is that we have a ridiculously supportive shareholder base where the top 20 hold 91% of the stock. The top three hold 65% of the stock at the current share price. No one’s really interested in letting any stock go.

Matthew Gordon: Isn’t that part of the problem?

Tim Carstens: Well, it is part of the problem, no question. But it’s why we need to be a little bit patient with this, because for someone looking to get in in a meaningful way as an institution, you’ve got to get yourself comfortable with the value proposition. You’ve then got to be able to see a pathway through to acquiring some stock in the first place. And then you’ve got to get yourself comfortable. You can exit if you wanted to. So, this liquidity share price standoff is unquestionably one of their challenges. The catalyst for breaking that is quite clearly getting the DFS out. So, that’s the next level of resolution around the shape of the project. But the critical catalyst, as far as I’m concerned, is when we’re able to go out quite clearly and say, here’s what the debt looks like, here’s what any joint venture looks like, here’s how the rest of the funding comes together. And this is what that means for you shareholders. Now, I think if people sit and wait until that happens, they might find they miss out.

Matthew Gordon: So that says to me that you’re interested in institutional investors, not so much retail?

Tim Carstens: No, not necessarily. We’ve made a concerted effort now to really reach out to retail. We just seem to have been more successful in getting to the institutional side of things, we’ve done quite well there. But the retail is somewhere we need to spend more time focusing on.

Matthew Gordon: Why’s that?

Tim Carstens: When you’ve got limited liquidity, they’re the people that are going to set the share price and then the price becomes the price at which blocks trade. And it’s something we do need to…

Matthew Gordon: And do you find that’s a much harder story to tell to retail? You mentioned the Africa component here. Also, mineral sands being little understood.

Tim Carstens: Yeah one of the challenges with mineral sands is there are so few pure play mineral sands companies in the world. It’s not a story that people get to touch regularly, even amongst institutional investors. They don’t see too many mineral sand companies coming around. It’s a less immediately clear sector in the sense that you don’t get a lot of commentary about it, it’s not like people talk about it like what’s happening in the copper price or nickel or whatever. And then you’ve got the Africa factor as well, which a lot of people just aren’t really quite comfortable with what Africa’s about.

Matthew Gordon: With gold, more so than most other minerals in Africa they might be a little bit more comfortable.

Tim Carstens: I always find it interesting that people seem to be more comfortable with gold in West Africa than super simple mineral sands in East Africa.

Matthew Gordon: Gold’s a very big market in terms of value terms and it’s been around a while. And mineral sands is new and it’s a smaller market.

Tim Carstens: It’s more the nature of the countries you’re talking about. There’s a lot more policy volatility in West Africa than there is in East Africa at the moment, except for Tanzania.

Matthew Gordon: I like Tanzania, I’ve worked there.

Tim Carstens:  It’s a great country, an interesting policy environment. People are waiting to see if there is a knock-on effect.

Matthew Gordon: Shareholders are sitting around patiently waiting for this pop. And you think it’s going to come when there’s clarity on your debt package. What are you going to do for them? Kenya generated a lot of cash. You’re hoping to replicate that in Madagascar. Is there some kind of dividend coming down the line or some share buybacks?

Tim Carstens: Shareholders fall into two categories in our world, the shareholders who would suggest that a dividend to be good. And then there is the vast majority who say, don’t be stupid because we’re looking for that growth. We can see the project coming next year. Why would you issue a dividend now ahead of making a major investment next year? So now, while we have every desire to be a dividend payer and its part of the business that we’re building and the diversity of cashflow we’re building, right now is not the time.

Matthew Gordon: Isn’t that the trap that producers fall into, that they create cash and they go, ‘oh, we need to grow, so we need to make an acquisition’. They spend a lot of money on an acquisition, spend money on the CapEx getting that into production to produce more cash, but they kind of forget about the shareholders along the way.

Tim Carstens: As a generalization, that’s fine. But to suggest that we’ve forgotten about shareholders is not really appropriate. Every company has its own peculiarities and its own circumstances. We started at Kwale with an asset that had to short mine life, it had mine life of 11 years. We’ve built an extremely robust business and business model and team. And, the option that you’re talking about would be for us to run that for cash and close the business and moved on.

Matthew Gordon: It’s not quite…

Tim Carstens: Well yes it is, because, you can’t get too close to the end of the mine life at Kwale when we’re talking about mid-2024 without having somebody to replace it. We’re not making the most of our platform that we’ve built if we’re not applying it to something else. And our shareholders have certainly been encouraging us to go down that path and we can see such significant opportunities in the sector because we had been so profitable during the downturn. Even in a downtime, we were still able to service our debt. We were not financially stressed in the way a lot of our competitors were. Which meant we’re able to grab what we think is the best project to add to the portfolio and get to that next level, at which point we will be a very significant cash generator and a completely different set of options at that point. For us, this was absolutely, unequivocally the clear path.

Matthew Gordon: What I’m saying is for institutions who will sit back and play the long game, that’s one thing. For retail, family office, high net worth looking for quicker return, it’s a very different model, Everyone’s got different investment models. Your focus at the moment is around the institutional guys, because it’s around 90% of the business.

Tim Carstens: Not necessarily. We actually found we have a huge number of very long-term retail. I actually take a different view. A lot of the institutions are actually much more focused on short-term performance. A lot of our retail shareholders understand the long game of building this company and they’re involved in it. And the point I’d make to shareholders who are looking for that short-term hit in the yield in the next two years, we’re probably not the company for you. So, I suggest you go somewhere else.

Matthew Gordon: That’s what I’m hearing loud and clear.

Tim Carstens: People can vote with their feet. I got no problem with that. We’ve been very clear about what we’re doing with this business and we’ve got a very clear path on how we develop it.And the shareholders need to choose whether it’s their profile.

Matthew Gordon: So next year, few things happening; the DFS and the raise.

Tim Carstens: Well the DFS will be in December then the rest of the year will be spent very much on bringing together the funding components, working towards being in a position to make a final investment decision to stop the major construction over the course of next year. Now, we’ve given ourselves a fair bit of runway through until probably the end of the third quarter next year to get all those pieces to come together, because there’s a fair bit of complexity in it and when you’re talking about potential minority joint venture participation, debt facilities, we’ve still got to pin down the final fiscal terms with the government in Madagascar. So, all of those pieces need to come together over next year. The other thing that’s getting a lot of focus for us is mine life extension at Kwale. We announced there is a large resource on a separate dune called the North Dune during the year. I’s very big, 171Mt, but quite low-grade. So, we’re doing a study on that at the moment to see what subset of that could make sense as mine life extension. Then we’ve got another couple of areas around Kwale that we’re exploring to see if we can identify more.

Matthew Gordon: Do you want to give us a little summary for investors looking at this from new as to why they should be investing in you guys?

Tim Carstens: We’re trying to build what is a very unique mineral sand company in terms of being a mid-cap company, heading towards having two operations at the moment. We’ve got one very profitable one we think we can extend. We’ve got another world class development asset. We’ve got a business model that’s been very successful in Africa. We do win quite a lot of awards for our environmental stewardship and community engagement. And the whole team that brought Kwale together is still with us. So, the whole team that did it the first time around is there to do it again. We’ve got a very robust financial platform to be able to build that business. But the long term aim here is to create something pretty unique, because in our sector, there is really only Aluca at $3Bn – $4Bn market cap. And then you drop down to Kenmare and ourselves around the USD$200M-$300M market cap. And we’re trying to create something quite unique in that space with a multi-asset sort of business with a growth profile.


Company website: https://www.baseresources.com.au/

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European Lithium (ASX: EUR) – A Giga Factory JV with a Junior Lithium Developer? (Transcript)

Interview with Tony Sage, Non-Executive Chairman of European Lithium (ASX: EUR, FRA: PF8, VSE: ELI)

Can European Lithium plug in to the European EV and battery revolution? They talk about how they think they can attract EU debt funding and a strategic equity partner. Will that partner be prepared to pay more for buying local / greener? Tony talks to us about the realities of how junior miners attempt to get funding and why he believes European Lithium is in a unique position in Central Europe. We are interested in understanding the terms and conditions to their recent €10M convertible note funding facility. If you are a shareholder, do you like terms?

We get his take on the Lithium pricing cycle and timing for recovery. Their Feasibility numbers need the price of Lithium to rise significantly to be economic. Do you agree with him?

We are also fascinated by the fact that European Lithium sits on the ASX (ASX:EUR), Frankfurt Exchange (PF8), Vienna Stock Exchange (ELI) and NEX UK (EUR). Find out which exchanges work for them and why.

Interview Highlights:

  • Overview of the Company
  • The Background Story of European Lithium
  • New Shareholders: Who Are They Targeting?
  • Lithium Market and Geopolitics
  • Standing Out: Can They Get Financing in Today’s Market?
  • Cash Position
  • What Are The Board Preparing For? What Are The Main Concerns Going Forward?

Click here to watch the interview.


Matthew Gordon: Why don’t you kick off with a 1 minute history of the business.

Tony Sage: mine was developed by the Austrian government back in the 1980s. They were looking for uranium but they found Lithium. Unlike any Western company, they actually went out and built the mine straight away without doing all of the work that is required before you start building a mine. What they did is they followed the Lithium from the ceiling of the opening and just followed it all the way down. It’s a beautiful structure inside the mine. But unfortunately, when we took over in 2012, there wasn’t data to prove how they found it. So what we’ve done in the 6 years that we’ve owned it, is mine it So we mined 1,500t. And we also drilled. So that proved, as all Western companies need, is a JORC compliant resource. So we know we’ve got 11Mt of ore there. That that will last 22 years as a mine life. And we completed in that time frame a PFS. So a Pre-Feasibility Study has been completed. It was completed by one of the leading engineering groups in the world, DRA. So that’s basically the premise of our story.

Matthew Gordon: How this has come about? You’re involved with Cape Lambert. Cape Lambert is a shareholder in this project.

Tony Sage: It’s a very interesting background. It started off with a cocktail party. One of my colleagues met The Count of that district in Austria, near Wolfsburg. And they got talking and he’s introduced himself. He was in mining. And The Count said, ‘I’ve got a mine on my property’. That’s where it started. So in 2012, we had a look at it, and invested in his property. We paid him a lot of money for access. And then over time, he enjoyed what we were doing, and he became a shareholder of the company. I didn’t have the funds myself personally. So I used my investment vehicle, Cape Lambert Resources, and we invested some money in. And since then, we’ve got other investors in. In 2012, Lithium wasn’t flavour of the month but in 2016, it became flavour of the month. We kept it private for 4 years. And then we listed it on the Australian Stock Exchange back in 2016-17. At the time Lithium was exploding around the world. But in Australia, there were 41 separate ASX listed Lithium companies at the time. And a lot of those were in Australia, some of those were in Africa, and obviously some in South America. So we were being drowned out by all of the Australian ones. So if you’re an Australian investor, and you say I want to operate a mine in Austria, I would just say you’re crazy. Mining doesn’t happen in Europe. So listing in Australia was an error of judgment. But we got the money when we listed, and we were able to progress the project. But then in 2017, we listed it in Frankfurt, Hamburg, Munich, Stuttgart and Berlin. And from that moment on, it exploded. The investor base moved from 100% Australian shareholders to now 55% shareholding base in Europe. And most of those European shareholders are German or Austrian. There’s a splattering in UK, France, Switzerland. So we realised we hit on something extremely good. If you look at a lot of the social media, our company is clicked a lot more than some of the bigger companies in Europe because of 1. EV, 2. it’s a unique story that a mine is going to be actually reopened 20 years later in a little country called Austria.

Matthew Gordon: I do want to say over the management since experience and so forth, but you talk about shareholders and the split between Europe and ASX. Obviously, it’s a European asset. So you’d hope that people would be interested in Europe, but just looking at your share price. Lithium companies across the world have been absolutely hammered. In fact, what is the Lithium price at the moment?

Tony Sage: We’re going to produce is Lithium hydroxide, at its peak was $22,500 per tonne. And you’re looking probably at $15,000 – $16,000 a tonne now. So it’s dropped a lot in the last 12 months. The actual raw Lithium price, got to just over a $1,000 a tonne. It’s probably trading at $450 to $500 a tonne now. Hydroxide has gone down about 35% over the last 4 months.

Matthew Gordon: Most of the numbers I’ve seen from you is using $16,000 a tonne. So obviously that’s taking a bit of a hit. I’ve read various things from JP Morgan that suggest that it’s going to go lower. What do you think?

Tony Sage: We look at benchmark. We look at Roskill, but we also look at the broader world. China has just announced, it wants to build 1M electric buses. Now you just think about the amount of Lithium required for 1M electric buses. The slide started when one of the biggest producers out of Chile said that they were going to double production, because they had an agreement with the Chilean government to increase their production. It didn’t happen. But that was the initial scare. From that date that was announced the Lithium price actually fell about 15% on the day. Lithium stocks all around the world just went down 10%, 15%, 20% because they thought all this production was coming off. However, 1. that production is not coming on. 2. you’ve got countries like China, who are now announcing that they’re going to be a 1M electric buses. Now, there’s not enough Lithium around today to produce those 1M buses in the timeframe they want. The price will go up.

Matthew Gordon: You’re projecting that. I think like most supply demand stories, there’s two sides to it. We accept that the demand is probably going up because of the whole EV story.  But likewise, as soon as the demand goes up, new entrants come into market or production, which is sitting idle at the moment or on a very low level, goes up. JP Morgan would suggest that there’s going to be double the amount of production out of South America alone into the marketplace. So that is going to affect pricing. It’s a question of where it settles. Production is not going to stay as is. It would be insane to think that. I think people will be attracted to come into the Lithium market again. It’s a question of can they do it economically. And we’ve spoken to a lot of Lithium businesses. You’re right, in the ASX lithium is a dirty word at the moment because people’s shares are underwater. It’s a question of when does the price start to move again? You’re going to get through this cycle into the next cycle. Can you get financed at current levels?

Tony Sage: I think we can. I wouldn’t be pushing ahead, spending already $12M-$13M on the Pre-Feasibility Study (PFS). Spending another $10M on the definitive or bankable, unless I was very confident. We’ve been in discussions with project financiers, quite large ones, European-based. What you’ve got to understand is the broader geopolitical situation. You’ve seen it now with Rare Earths. China has said to the world, we’re not going to export any more Rare Earths. At the moment China produce over 80% of the Cobalt required for EVs and 85% of the Lithium for EVs. Now, if they’re going to build 1M electric buses. And of course, with cars and obviously battery storage… how many batteries do you think they’ll be exporting in 10 years time? So the EU has made Lithium and Cobalt critical minerals. There’s only a few players in Europe that can produce in Europe. 25% of the world’s Lithium ends up in Europe. They produce none at the moment for electric batteries.

Matthew Gordon: Let me understand the terminology. You say critical minerals need to be produced from within Europe. Or have they got the ability to buy out in the wider market?

Tony Sage: Well, OK, let’s go into Hydroxide and Carbonate production. All comes from China. They’ve built one plant here in Western Australia. Who owns it? The Chinese. At some point like they have done with Rare Earths, they could say for their own critical needs, that they can’t export any more Lithium Hydroxide or Cobalt Hydroxide, or Cobalt Carbonate or Lithium Carbonate. At some point, it might not happen, but the security countries like America and Europe as a whole need to have is some production in their own backyard. Ours isn’t going to anywhere near create the supply that is needed by BMW, Volkswagen.

Matthew Gordon: So again just so I understand. Are you talking about production or are you’re talking about processing?

Tony Sage: I’m talking about production of Lithium Hydroxide or Carbonate in Europe.

Matthew Gordon: Right. Because it’s a fairly abundant resource, isn’t it? That’s the problem.

Tony Sage: It is. But mining it economically is the key point. So it is abundant everywhere. So, for example, we just take Pilbara Minerals, for example, 4 weeks ago, they were in big trouble. They got rescued by the Chinese because the price has fallen down, because they’re in a remote location. We’re in Wolfsburg, right near the railway line, 40km from Graz, where Samsung have a battery factory. We’re in an industrial area in Europe where we can export to any country in Europe by train for very little compared to having it from Australia or South America, shipping it to China to get produced in China. All China does buy it for $450- $900 a tonne, and sell it as Hydroxide at $16,000 a tonne to battery makers in Europe. The EU have recognized that. They’ve recognized that with Rare Earths. They were scared by the Rare Earths announcement by China on 2020 no more export. So they’re madly, as with the Americans now, trying to find Rare Earths. But it’s the same problem that will be with Lithium Hydroxide and Carbonate. Forget the raw stuff. I mean, there isn’t a plant in Chile that produces Hydroxide or Carbonate. They ship the raw product to China to get the Hydroxide.

Matthew Gordon: Are you’re saying that Europe is coming up these protectionist policies to be able to produce and process their own Lithium in their own backyard?

Tony Sage: Encouraging policies, encouragement for European mines to be able to produce Hydroxide, Carbonate for the European market.

Matthew Gordon: An encouragement! We’ll talk about the funding program launched by the German ministry, which you mention, in a minute. But if I’m Gigafactory producing batteries, I’m going to go to the cheapest supplier, aren’t I? I’m going to go to the South Americans. So how do you stack up against that?

Tony Sage: Well, 1. the freight cost. We’re not paying $22 – $25 a ton to ship it from there to Europe. 2. if you look at and read our Pre-Feasibility Study (PFS), our cost structure is very good. The number is $6,500 -$7,000 a tonne, whereas 12 months ago we could have got $22,000 for it. Now we can get $15,000. It’s still a very big margin of profit, excluding financing costs, for our shareholders. So we believe we can produce for the European market a safe green, very green supply of Lithium Hydroxide to the European market without any problem with geopolitics. If the suppliers, for example, as we saw 7 months ago, the Argentinian government slapped a tax of 10%-12% on every export, including Lithium. So if you’re a Lithium producer in Argentina, you’ve just dropped 12% of your profit.

Matthew Gordon: Yes, but they’re also producing at $3,000, so they got some margin. Lowest quartile producers.

Tony Sage: Well, in Chile they are, Argentina not so. But in Chile. Yes. Chile is very un-environmentally friendly.

Matthew Gordon: Meaning what?

Tony Sage: Well, they’re producing this from brines, which takes up a lot of water. And which is causing all the grief with the local population. And they don’t want any of those mines to be increased, because if you’ve seen a brines production facility, it’s pretty ugly to the environment. So environmental, ours is all underground. So we can get a big green tick and we’re producing Hydroxide for EVs or other environmentally friendly industries. So I think we get 1. a big green tick 2. the German car manufacturers for example, I think one got into a bit of trouble investing in a Cobalt mine in DRC.

Matthew Gordon: That’s a well-trodden path with regards to Cobalt and DRC and child labour and so forth. Let’s stay away from that. Let get into this. So what I want to understand is how does your project get financed today? I know you did a raise earlier in the year. What are the terms of that. $10M was mentioned. But it was a bit more complicated than that, wasn’t it?

Tony Sage: So it’s a financing facility that we can draw down on. It’s complicated because it depends on the share price at the time. They get a 10% discount to the market. Say we are trading at $0.10. They get it at $0.09. And they don’t do it all at once. So we’ve got the facility there. They can do it when they feel like. So, we’ve only drawn down on that facility $2M and so we got $8 million left.

Matthew Gordon: And you can drawdown in $1M tranches upon conversion of all the notes from previous rounds. That’s the way it works?

Tony Sage: So when they finished when they finished selling those to recoup their money, we can then draw down the next one.

Matthew Gordon: Got it. So it’s a real stagger. It’s not $10M per se. It’s a facility, as you said.

Tony Sage: It’s a facility and it can last 3 years.

Matthew Gordon: So let’s come back to financing, because that’s where the fascinates me. At $15,000-$16,000, you’ve shown your what the economics are here for you. But if I’m a banker, I’m discounting today’s price by up to 40%. So it becomes a question of, can you persuade people that your thesis about price going up is true? And if you can, that’s great. If you can’t, then what are your options in terms of getting this thing finance? Once your DFS is complete?

Tony Sage: Well, 1. the DFS will say whether we’re robust enough. So if the DFS comes out saying this is a very marginal project, I wouldn’t go to any bank with this. That’s one scenario. We’re expecting the opposite because the Pre-Feasibility Study (PFS) was very robust. So I’ll have a very robust DFS. So I go to the bank and I will say, ‘this DFS proves there’s a 40% margin in this. How much can you project finance this?’. They will say, ‘this much’. We will seek some EU funding, whether it’s a soft loan, whether it’s a…

Matthew Gordon: Tell us about that? You talk about the German ministry putting a battery production funding program together of €1Bn. That’s quite a lot of money. But how much of that would be applicable to you? How much of that €1Bn would be set aside for mining?

Tony Sage: Unknown. If we, for example, link up with a battery manufacturer, as a joint application for use of these funds, it might be a larger number. As a miner, by ourselves, I don’t think we would be able to do it. We’d have to link up with maybe an end user. I’m just throwing out names. An automotive maker in Germany or a battery maker in Germany. We can partner up and then apply for that. But separate to that there’s EU funding. It’s called Horizon 2020, and under that, there is a direct application for us as a critical mineral for Europe. We may be able to get a soft loan. So that soft loan might be €50M at a very attractive interest rate, which is probably almost zero repayable over X amount of years. So at the same time, say the number is $400M that we’re looking for. We would do $70M of that in direct equity, and the rest in project finance and or funding from a source like Horizon 2020, or from the €1Bn fund from the German government.

Matthew Gordon: How does someone like Horizon 2020 assess your project and the economics of a project like this.

Tony Sage: The credibility of being the… the PFS is done and the DFS is coming. We would have to present a case to them that 1. it’s very good for Europe. 2. it will create jobs in Europe. 3. it is green. We’re not going to hurt the environment by doing what we’re doing. The three key criteria in Horizon 2020. We take every one of those boxes.

Matthew Gordon: It’s interesting that none of those criteria are about the economics.

Tony Sage: No. Again, it’s about creating jobs. If you look at virtually any government around the world, it’s not really about economics. It’s about creating jobs. This is a fiscal investment by the EU into something that’s going to create jobs and solve the problem, albeit in a small way of producing a critical product for the European industry, rather than being reliant on China.

Matthew Gordon: So potentially that type of money is quite important, because it’s… I’m not saying dumb money but it’s money which is a different set of values or needs from institutional money, who does care about the economics, because they’re buying shares in your business, presumably on the equity side, and want some guarantees that you’re going to be able to mine economically and pay back the debt. So have those conversations been had? How do you know that Horizon 2020 is interest in investing in something like you?

Tony Sage: Well, because we’ve applied, and we’ve talked to the right people at the right agency. And we will await the outcome of the DFS. They’ve got a stringent programme as well. We’ve got to have a document that shows that we will be economic. We will create jobs in a low job area, especially for youth near Wolfsburg in Austria, where we are. So that would create long-term 300-400 jobs, short-term 1,500 during the construction phase. So we are going to create jobs in that. And if you go to the local government in that area, we’ve got two sets of competing mayors who want us to build the plant on their side of the fence. So we’ve got so much support from the local government. We’ve got so much support from the Austrian government. So now it’s one step higher, which is the EU in total. And they’ve got so many other factors to look at geopolitics, which we’ve talked we’ve touched on environment, which we’ve touched on. And most important jobs.

Matthew Gordon: Most important for them. But I’m talking about shareholders wanting to come in and invest.

Tony Sage: But if we get that money. That’s a big chunk of shareholders who will go, ‘wow, that’s great’. That’s $50M, $70M. How are you going to get the other… $300M. $70M of that is going to come directly as direct equity. So that’s roughly 25% of it. We’ve done the numbers with banks. What they’re looking at for the project finance side, and they can project finance probably 60% of the project.

Matthew Gordon: So let me get this straight. I want to get the numbers right. You say $400M required. You’re getting potentially, let’s just say for a second argument, $50M of debt from Horizon 2020 on a 70/30 debt / equity split.

Tony Sage: Half of that.

Matthew Gordon: So I’m just trying to think as a retail /high net worth /family office investor looking at your company going, ‘I think this is a great story. I’m going to invest. How do I feel about Horizon 2020 coming in?’. I guess if they’re putting $50 million towards the debt. Great. But it’s still costing the company, whatever nominal rates that these people are charging…near zero. You’re suggesting. That’s great news. Do I look at that as some kind of endorsement of the project? I guess not. It’s about job creation, and is it green etc. So I’d need to some see who else would be involved with this, is what I’d be thinking. You talk about advanced stage discussions with some of the off-take agreements as a means of… would that be pre-funding in terms of the off-take? Who are some of the names involved with this who would give me some comfort around the validity of the project?

Tony Sage: We’ve signed NDA’s with these companies. But rest assured that a large German automakers and builders of batteries themselves is another company. And let’s go for one other one, which was in the industry of producing electronic tools. Now, the reason I don’t pre-sell the off-take now is, once this DFS is done and people see how robust the project is, you’ve got other suppliers around the world that will say here’s a foothold into Europe. So if we’ve already sold our off-take pre the DFS, we won’t be a takeover target.

Matthew Gordon: Ok.

Tony Sage: If I don’t and the DFS comes out, here we are. There’s a small player in Europe is only going to produce 11,000t of Hydroxide per annum. They are in Europe. They’ve got all these contacts. Wouldn’t it be great to have in our portfolio? So if we’d already sold the off-take is very much more difficult to have that story. I’d like to be in a position where we’re completely transparent. We’ve got no-offtake partner now. We don’t want one now. And we will wait until the DFS is done and we can sign 4 agreements today, if I wanted to. And a couple of those are outside of Europe, but I don’t want to sign one now for that reason.

Matthew Gordon: And I appreciate the insight into the strategy and the thinking. That’s well-noted. So, if I look at the project now, $16,000, which is what you’ve done the numbers on, and let’s say it’s roughly give or take that on any given day at the moment, you’ve got a 25% IRR, which is reasonable. But you’re right on the margin in terms of price in the market at the moment. So you’re looking for this price appreciation to drive not only the IRR, but the NPV of this project up. Are there institutions that you’re talking to or begun conversations with, in anticipation of what the DFS is going to tell you?

Tony Sage: Yes, we’ve got a couple of institutions already in the stock. They bought through the last equity raising we did. So they’re sitting back. I’m going to be completely honest now. Virtually everyone, the two major banks, European banks, and two off-takers want to wait for the DFS. The Chinese obviously don’t care about the DFS. They’ve seen the PFS. But we don’t want to send concentrate from Austria to China for $400-$600 a tonne, and it comes back in to Europe at $16,000-$17,000 a tonne. So we can take easy money now and breeze through the next 6 months, or we can hold tough like we have. Be true to what we want to be able to do, which is finish the DFS. And then go to the two major banks that we’ve talked to and say, ‘right, this is it now. You’ve asked us to be our clients. Can you raise X amount of dollars on the IRR based on this final report from DRA’.

Matthew Gordon: Those are an investment banks as opposed to debt providers. And the current investors are going to be very different from the types investors you’re looking for going forward, aren’t they?

Tony Sage: Absolutely. Yes. Completely different. At the moment, we’ve got, in Australia, we call them mums and dads; in Europe they are called family houses. So we’ve got a lot of family house investors in Europe based in Austria and Germany. We’ve got a little bit of investment, now that we’re listed in London on the NEX. And a few are coming through that. The reason we did that is to broaden our investments spread of investors from Europe, and a lot of family houses in London, and a lot of municipalities can’t invest unless you’ve got some sort of listing in London. So we chose the NEX because it was the quickest to get on. And since we were on, it doesn’t trade very well, because most of the family houses buy on the Frankfurt Exchange where we trade millions and millions a day.

Matthew Gordon: It’s cheap and quick on NEX, but doesn’t necessarily trade or give you the volume of liquidity you need. So how much cash are you sitting on?

Tony Sage: $1.7M in the bank right now. Our next drawdown is $1M, which should come through by the end of October, halfway through November. And that will continue. So in another 3 or 4 weeks, we can draw down another $1M or so on.

Matthew Gordon: So they let you know how they’re doing with regards to selling down the shares.

Tony Sage: Well, we see it because they have to come through us to convert their shares. We’ve obviously got the share register, so we know when they are selling it. So we’re okay for now. Would we want a different funding, partner? Maybe. So, there’s lots of different options on the table. We’re not going to say we’re stuck with this one, but this one will suit us for the time being until we finish the DFS.

Matthew Gordon: You mentioned part of your strategy is, you don’t necessarily want to take off-take partners on board yet, until you get clarity on the DFS, because then you’ll understand what your options are. You’re a small Lithium player. You’re in Europe. That’s a USP for you or your positioning it as such anyway. What are you doing? Some companies choose to hunker down until there is price discovery. The price gets back up. Or some people like charge on at 100 miles an hour. Some people JV. What’s going on with the board’s thinking. What are the things keeping you awake at night Tony?

Tony Sage: Well, the biggest one right now, believe it or not, is geopolitical. Because everything affects everything in this world. Trump’s fight with Xi Jinping, everyone should be worried about, the whole world should be worried about.

Matthew Gordon: We are. That’s why Gold has gone up.

Tony Sage: Yeah, $1,500. I’ve been reading reports over $3,000 an ounce by mid-next year. But if I’m thinking purely of business, that is my number one concern. China already has proven with this Rare Earth announcement that it will try and hold the rest of the world to ransom if it doesn’t get its way. Trump is belligerent on the other hand, and he wants his way. So, that negotiation is very important for a lot of things in commodity prices around the world. So that’s one thing that keeps me awake at night. I think part of the reason that the US now says, ‘I want to buy Greenland’, because I know there’s a whole lot of Rare Earths in Greenland. So that one maybe a parody or a joke from him. But he’s quite serious about getting investment in Greenland. And I think now with the Prime Minister going to visit Trump. He’s come out and said, ‘we want to really be involved in Lithium, Cobalt, Rare earths’, anywhere in the world with any Australian company. So geopolitically I think there will be a resolution coming up, whether it’s in Trump’s favour, China’s favour. Who knows? But that will settle a lot of the nervousness. You’ll see Gold maybe come down a little bit. But I think everyone then will think, right China’s ready to go again. We just saw the spurt in iron ore prices, for example. It went from $60 a tonne back to $125. Because they’ve got rid of their stockpiles and they needed it very quickly. If there is some sort of resolution, China will need to fiscally spend money again and that will increase the Iron Ore price. But that goes on to other things. If they’re building 1M buses, they still need Iron Ore. But they still need Lithium. I look at the whole of the world and think about things that can happen, cannot happen. For the board, we’ve got a very good project in a very good country. The government of Austria wanted to go ahead. The local government there wants to go ahead. We’ve had no environmental issues come forth for us. Being in Europe, you see every time there’s a new mine set up, there’s greenies everywhere trying to stop it. Ours is not like that. It’s all underground. I think we’re in a unique position to go ahead, finalize the DFS, have a document that we can present to project financers, institutions that will take chunks in an equity raising and obviously go to the $1Bn fund people out of Germany and also the Horizon 2020 out of the EU. I’m looking forward very positively and I believe that the Lithium price will start to move upwards from January next year.

Matthew Gordon: We shall see. I think lots of people want to see some movement there. And then it’s a case of what happens next. Do we get a slew of Lithium miners coming into market or not? And how do you take advantage of your unique position in Europe and capitalize on that? Tony that’s a great first introduction to the company. I would love to stay in touch and see how you get on.

Tony Sage: Thank you very much.


Company website: https://europeanlithium.com/

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Vimy Resources (ASX: VMY) – Production in 2 Years with 2.9Mlbs! (Transcript)

Interview with Mike Young, CEO of Vimy Resources (ASX:VMY). Vimy is on a non-deal roadshow in London meeting investors and potential investors. They report that the mood in the market is good because the macro story is well understood.

Mike Young is great value entertainment but he also knows a lot and is very well connected. He does a very good job of explaining the short-term micro and how the financing in the space operates. As well as what is happening with the supply deficit.. Do both sides of the Demand/supply equation understand each other? Mikes doesn’t think so.

Vimy is doing a refresh on the cost-side and they have been talking to debt providers. How are the conversations going? How are they going to market to finance their project? Mike says they are looking for strategic partners, but where? And what does that look like?

Interview Highlights:

  • Mood at The WNA
  • Overview of Vimy Resources
  • DFS: Going to Market and Transport Costs
  • When Will Vimy Resources Go Into Production? When Will We See Contracts Being Signed?
  • Some Juniors Aren’t Going to Make It: Why and How is Vimy Different?
  • Message to Investors

Click here to watch the interview.


Matthew Gordon: You’re here at the WNA Symposium London. What are you here for?

Mike Young: We’re here for the World Nuclear Association Symposium. But we’ve also spent a couple of days on the road with Bacchus Capital.

Matthew Gordon: You’ve been talking to a few institutions, family offices about the potential of raising some money?

Mike Young: Well, it’s called a non-deal roadshow. So basically, what you’re doing is just introducing Vimy to these people in the event at some point the future you might raise money. What’s been good is that the calibre of people we’re seeing is high.

Matthew Gordon: And what’s the mood?

Mike Young: The mood is actually good. I think we’ve come out of a couple of years where the mood’s been bad. And what’s interesting is that the mood of the investors is quite independent of the WNA, because most of these people won’t be at the WNA. But the WNA itself is releasing the WNA Nuclear Fuel Report is the best one that’s come out in the last seven.

Matthew Gordon: But back to these investors.

Mike Young: These investors are people who understand the uranium macro story. Some of them already own uranium shares, and some of the people we saw have small uranium funds. We picked Bacchus Capital on purpose because they did the Yellow Cake float. So, they understand uranium.

Matthew Gordon: So, these investors that you’re seeing, they understood the macro situation, the supply / demand and the economics. What were most of the questions about?

Mike Young: When’s the price going to go up? The constant theme was when are you going to write a contract? They understand the uranium macro. But unless you live in the industry, you don’t understand the micro and there’s a lot of different micros that are pushing in different directions.

Matthew Gordon: Like what?

Mike Young: Well, for example, contracting. I think people expected the Section 232 petition decision to have some sort of effect on the spot price, like it would have in, say, gold, copper, nickel, where there’s a market in a speculative market and it just didn’t. The spot price is basically a reflection of the contracting that’s going on. There was just no contracting. Nobody wrote contracts the day after the Section 232 petition. Now, part of the reason was it was August and it was North America. I mean, the place closes down.

Matthew Gordon: Did you have to explain that to them? Or were they aware of what had been going on there?

Mike Young: A lot of the discussion revolved around exactly how the utilities operate. Why they’re taking their time. The timing and what our expectations were. And as we explained to them, the early contracts aren’t going to be much more than the current term price. And that’s because you’ve got lower cost producers. There’s definitely demand, and we know that open requirement has to be filled.

Matthew Gordon: Well, you say there’s definitely demand, but there’s still timing issues on that. There is no demand today.

Mike Young: No, they’re burning material they bought three years ago.

Matthew Gordon: Demand is coming. The demand story is understood. But did these investors understand that?

Mike Young: No. A lot don’t. A lot of investors are commodity investors. And I made the same assumptions when I started in this space that there’s more immediacy in most other commodities than there is in the uranium.

Matthew Gordon: There’s a lot more understanding of other commodities than uranium?

Mike Young: Correct. And uranium is more like LNG (liquefied natural gas), which are long term contracts. In fact, I was having a discussion in Perth with someone in government and I remember one of the policy advisers say, ‘hey, that sounds just like LNG’. And I went, ‘well, it’s kind of like LNG’. There’s a very small spot market and there’s this time lag. So, I think I think there’s a couple of things at play. People have uranium fatigue. I heard it all before. It’s going to come. It’s going to come. And this is what I mean about the micro. So, some of the things like Yellow Cake, for example, we’ve never seen that before, where a group comes in and buys that much uranium and sequesters it. It’s basically parked. Because they trade on net asset value. You’ve got KazAtomProm which is now Westernised, so two years ago they were behaving…

Matthew Gordon: Partially westernised, surely?

Mike Young: Well, but they still have they still have an accountability to their guidance. They never had before.

Matthew Gordon: Ok, let’s say that’s true.

Mike Young: Well, Riaz Rizvi who’s their chief commercial officer and does the marketing says that’s true. He says that we have to be careful now because we have a responsibility. But not only that, they have westernised their accounting. I mean, when Riaz went in there, they had old Soviet style accounts and they were just churning out the pounds. That’s how they measured it, they weren’t looking at margins. So that’s different. I think the utilities; their buying habits may change. They used to write these 10-year contracts. I think I think that may change. The contract cycles may come down lower. So, there’s a lot of a lot of different things that are interconnected, and some aren’t that are different this time. But the thing is, the Section 232 really focused everyone’s attention here or outside the industry on it, because it was got a lot of airplay. But in terms of the contracting cycle, what will happen over the next 18 months as they fill their forward requirements? The early bird will get the worm, right? The early contracts will get the cheaper prices and they’ll basically climb up the price curve. And because we sit in the third quartile, happily, we’ll be one of the people getting contracts as they creep up the curve and the price increases, because as they continue to write contracts, the lower price material will start to disappear. And as Julian will talk about, the long-term macro. There is a supply deficit. We can see it. We talk about investors not getting part of the or any market. What’s interesting is people in the uranium side don’t get investment side now. What people on the buy side of uranium are missing is just how long it takes to put new production into the marketplace. And that’s really fascinating that both sides don’t quite get the other.

Matthew Gordon: I want to talk about you. You’ve got a couple of assets, Mulga Rock etc. Where are you with those very quickly for people, because I want to talk about them.

Mike Young: Ok, Mulga Rock, DFS finished. We’re looking at a refresh. We want to try and get our capital costs down. Particularly on the mining fleet side. So, there’s S100M there of Australian mining fleet. And we think we’ve got a solution to that. So, we’re working with people on that.

Matthew Gordon: Solution to do what?

Mike Young: In the DFS, we assumed that we would manage and own the mining fleet. Now, that has inherent risk. It’s the cheapest option on paper. But if you have problems in your mining fleet or mining, then it becomes a more significant problem. Whereas you can you can put that risk onto an earthmoving contractor, but you pay a bit more. And it goes onto your operating side. So, things like that, you know, staffing levels, cost of people. 18 months ago, a mine manager was different price than he is today. Things like that. So, we’ve called it a refresh, if you will, that we’re doing that. There’s not much else to do on that. That’s just going to be market driven. So, you know, you get the contracts, you get the debt. We have talked to debt providers on this trip.

Matthew Gordon: This is what I want to talk about. I want to get into the numbers, because you’ve got a couple of good assets. You’re at DFS stage. You know what you’ve got you got a sense what you’ve got your refreshing that. But you’re in this waiting period, this twilight zone, like everyone.

Mike Young: No man’s land.

Matthew Gordon: You’ve now got a sense of the economics of this project. Have you made decisions about how you’re going to go to market? You’ve got lots of options. The DFS tells you a lot of stuff. It doesn’t necessarily mean you’ve got to follow that path as laid out because the market changes, prices change and financing will drive this, the type of financing you get can drive this. You’re having some debt conversations at some point and have some equity partner, strategic partner type conversations too.

Mike Young: We’re having those.

Matthew Gordon: So, tell us about those.

Mike Young: We have put feelers out there saying, if you would like to partner with us coming on as a JV partner.

Matthew Gordon: Where have you gone to?

Mike Young: Everywhere and anywhere you can imagine. China mainly. The US utilities don’t do that. That’s off the table. They just don’t take that risk. They tried it once. They took some shares, but they don’t do that sort of partnership. So, you know, China’s the main one for strategic partners. But we’ve basically started the process of just letting people know that if you’re looking for a strategic partnership, that could be a large equity group, it could be a PE fund. I mean, they do that in gold.

Matthew Gordon: Is this a case of I’m going to hand the keys over this is a strategic partner?

Mike Young: Yes. For example, you earn into 40% of the project through a sale on a fair evaluation and then you have 40% of the offtake.

Matthew Gordon: So where are you with these conversations??

Mike Young: We’re not that far down. In terms of pure debt, we did announce some time ago that we had SOC Gen doing some work for us. Nataxys is now upping their presence in Australia. They’ve just done a merge with a boutique advisement firm. They’re a French bank so they get uranium. We talk to Australian banks all the time. And then there’s some non-traditional style debt here in the city that we’ve said, look, this is our model. We have a minimum contract price. We’ve made it public. It’s fifty-five dollars. We need 55. That’s our floor. We get more. The study was done at 60. The feedback from the utilities is that your price expectations for 2023, when you would likely be in production, are realistic. That’s the feedback. Now, they’re not signing contracts today for that, but they do the maths as well. So, what we do with that is we say, here’s our financial model. Here’s the numbers that we’re inputting. This is the debt we need. And then we sort of flex, how much offtake will you have? Will it be 50%, 75%? And the answer is, well you tell me because you’re lending me the money, we need to know what they payback is. And they’re not things that are announceable. Anybody who understands the space would assume I’m having those conversations.

Matthew Gordon: So, help me understand a little bit of it technically around what DFS has got in it. I imagine it tells you what it’s going to take to get the uranium out of the ground in terms of cost in terms of cost, economics around that. Does it factor in transportation from port to end user? He’s nodding. He says yes. That’s the economics guy.

Mike Young: That’s right. So, he that you’re pointing at, Julian Tapp. He’s sitting way over there because his brain is too big. We couldn’t fit him at the table. So basically, the ownership transfer is at the converter. So, we deliver to the converter and then they take possession and pay us.

Matthew Gordon: And that’s your $55?

Mike Young: Yes.

Matthew Gordon: So how do you do that? Surely it depends where they are in the world and what the cost of getting there right?  Like, you can’t say it’s $55 if you’re selling to China. It’s going to be different price if you’re selling to…

Mike Young: There’s only three places it can go. And that’s France, Blind River Ontario, which it’s delivered at Halifax and then railed.

Matthew Gordon: There’s got to be some variation but not meaningful.

Mike Young: There is a little bit.

Matthew Gordon: I know you’re keeping a really tight ship. You’re not hiring people. You don’t need to hire now, you’ll hire them when you need them. If the price hits $55 and you can get some contracts in place and you can press the big green button, how quick are you to production?

Mike Young: Two years. FID to production is two years.

Matthew Gordon: Build and spitting out product at the other end?

Mike Young: Yeah. So, I think the first year 2.9Mlbs, in year one and then we ramp up to 3.5Mlbs by the end of year two.

Matthew Gordon: So that’s kind of quick into production, there’s no kind of ramp up stage?

Mike Young: To me It’s not. There is a ramp up but it’s because we pre-dig some of the pits and stockpile because the pits will become the tailings facilities. So as part of a build, we actually dig some of the pits and we have stockpiles sitting on the surface so that that assists with your ramp up. So, we’ve got the ore ready to go. So, two years to me, it seems really long, because when I ran that iron ore company, we went from our very first drill hole to ship in four years. Our previous COO, who’s still on our board, Tony Chamberlain, shook his head at me and said, this isn’t an iron ore mine.

Matthew Gordon: He’s right.

Mike Young: I know he is. But, you know, we have to build a camp. The plant’s relatively small. It’s a big mine. It’s 8KM long, 2.5KM across at its widest. We’ll mine it a strip mine. You know, since there’s a lot of dirt to move. But the plant itself is actually relatively small because the front end, we do beneficiation. We wash sand at of the ore, reduce the volume by 50% with no loss in uranium. And so suddenly you’re dealing with a relatively small amount of material.

Matthew Gordon: Relatively compared to a lot of people, two years is a short time just to let you know I haven’t heard anyone today say less. And for some of the juniors who are not producers, it’s three years. So, you’re ahead of the curve there, that’s actually something people should take note of. But what does that tell you in terms of timing for the conversations that you do need to have? I know you’re speaking to utilities, but you can have a different conversation with them today than you will maybe in a year’s time. They’re giving indications about what makes what makes sense to them. But at what point do you actually start talking about contracts?

Mike Young: We’ve been doing that for two years.

Matthew Gordon: No, I mean meaningfully talking about contracts.

Mike Young: Let me let me take you through the process. Let’s go back to our strategy. So, we had to think about where do we want to sell uranium? So, you look around the world, you go, ‘who are the five top countries using this stuff?’. Well, it’s the US, France, China, South Korea and Russia. So, of those five, Korea only buys at spot. And they have some pretty arduous contract requirements, so they’re gone. China and Russia, they’re sourcing their material from the stands. So, they’re not real unless you have a strategic partnership. You’re not going to be selling a lot of material there. And China’s probably going to buy on the spot anyway. So, to be frank, the two countries you want to be looking at are France and US. EDF fuel buyers have told us we’re only going to buy from people in production. So, now you’ve got the US. What’s interesting about that is they’re about 28% of the market. So that’s a big part of the market. So we’re going to do the US. Is there a market for our material? The way the US utilities manage their portfolios is they like to spread the risk and they actually layer cake it. They baseload it with a Cameco and then they’ll actually have these little tranches that are that are absolutely set for juniors from Australia. So, what we did, we went around to all utilities and we said, price being no object, what’s your requirement from Vimy?

Matthew Gordon: Who’s your guy in the states?

Mike Young: Scott Hyman.

Matthew Gordon: He’s full time? You have been thinking about this. You have been having these conversations. You’re readying yourselves.

Mike Young: Correct. And one of the things we’ve addressed previously is our DNA and our overheads. And what was interesting is that conversation came up. What’s your spend? What’s your burn rate? And what we did recently was we had an AGM where we voted. We got permission to do salary sacrifice. The reason for that is I wanted to buy shares in the company, but I don’t want to reward someone for selling them. And this keeps money in the Treasury. And some of our staff, some of our directors have gone to 50%. So that’s one way of saving money.

Matthew Gordon: 50% of what?

Mike Young: Of their salary, they actually receive in shares. So, we’ve done that as a way of saying to people, you can buy shares in the company, but the money stays in the company, which is a really good win-win. It’s a way of saving money. One of the things we had to look at was, how ready do we want to be? To answer your question, when can you push the big green button? You can’t downsize to a point where it’s going to take you two years just to person up again right before you press the button. You want to have your team ready. So, we that’s why we’ve got Scott on board. That’s why we’ve got Julian working part-time. Scott’s working part-time. So, we’ve sort of struck a balance. We downsized the office. We’ve done a lot of cost-cutting, cost savings. We’ve got the team ready to go because this is the sort of market that’ll flip very quickly. One day we’ve got a contract and they’ll cascade.

Matthew Gordon: It may well flip quickly, but the point at which it flips is undetermined at the moment. Today I’ve heard very different views as to where it’s going to go from people inside the industry. And you’d think they would have a bit more of an insight. What’s your take on when this thing starts to motor because some junior companies won’t be able to make it through to the end, because either they need to raise money and can do that, or, because investors are getting better at understanding of the fundamentals of uranium, perhaps that company had their moment in the sun when they could raise money, may not be able to do now.

Mike Young: That’s a really interesting question. And one of the things that Fuel Report does talk about is who is ready. Think of a Formula One race, who’s in grid, who’s in pole. And when you look at that, there’s not very many. And that’s our point of difference. That we have kept the guys on board ready to go. We’ve got no reserve. We’re going through those secondary approvals, the building permits, if you like. Those will be done well before we have all the contracts we need for the debt. My window is the next 18 months. We get contracts and we move into if FID towards the end of next year. That’s my working hypothesis.

Matthew Gordon: We’ve been asking people of the 55 old companies which are around. Do you think many will be around if this thing does go on another 12 months, let alone 18 months? What do you think?

Mike Young: I think some people will fall by the wayside, partly because they were in it for a speculation, not to build a long term mine. And we’re about building a mine and building long term value. When I ran BC Iron that was a $13M listing. And by the time I left, it was a $650M company and it got up to $800M before the iron price fell. We generated a lot of value and that was by getting into production, paying dividends. You just bring on a different class of shareholder. So, we’ve got some major shareholders in Andrew Forest, Sachem Cove, Mike Elkin, Paradise. They’re all there all long. They’re not in this to make a quick buck.

Matthew Gordon: What’s your message to existing shareholders?

Mike Young: Thank you for supporting us and continuing to support us. And we’ve always said this is a long story. And you know, the people that are in, they get that. We’d like to get some share appreciation along the way. That’s what Alligator River does for us. So that’s a shorter-term exploration play with a longer-term development play. So that was part of the reason we brought that in. Because I know through my experience that if you’re building a project, there’s two years of not a lot of news. Isn’t that sexy?

Matthew Gordon: But your point is, so existing shareholders, they’re in it for the long haul. It’s going to be fine. You may get a bump with Alligator River or not, depending on how the market reacts to what’s going on. And it is a question of waiting for this price discovery. That’s the only way you can affect share price, because the reality is it’s out of your control.

Mike Young: It’s existential. Absolutely. Thanks mate.

Matthew Gordon: Good to see you. We love talking to you every single time we speak to you, over here.

Mike Young: Well, hopefully it’ll be more because I hope we get some of these London groups to come in and that’ll give me an excuse to pop by.


Company website: https://www.vimyresources.com.au/

If you see something in this article that you agree with, or even disagree with, please let us know in the comments below.

Any advice contained in this website is general advice only and has been prepared without considering your objectives, financial situations or needs. You should not rely on any advice and / or information contained in this website or via any digital Crux Investor communications. Before making any investment decision we recommend that you consider whether it is appropriate for your situation and seek appropriate financial, taxation and legal advice.

Vimy Resources (ASX: VMY) – WNA Nuclear Fuel Report Contributor, Julian Tapp, Talks Price Manipulation (Transcript)

Chief Nuclear Officer and economist Julian Tapp of Uranium company Vimy Resources (ASX: VMY) did his own research in to the nuclear market and his findings told him that the WNA Report was inaccurate. So he got involved in putting this new and improved version out.

As an economist Julian loves getting in to the detail. He helps us understand what investors should be focused on. And who the winners and potential losers are. Can the 3 biggest players control pricing and effect the chances of juniors getting into production? Julian gives us his opinion. The pricing matrix is very delegate. Manipulation or markets?

If you believe the WNA Nuclear Fuel Report is an important catalyst you need to understand what is in this report. Julian tells us why the report is more commercial and has more rigour in the process of putting the information together.

Interview Highlights:

  • WNA Expectations and The WNA Nuclear Report Overview
  • What is The Importance of The WNA Nuclear Report? What Needs To Be Improved?
  • Big Nuclear Players Could Affect Prices, So Why Don’t They? What Does That Mean For Junior Players?
  • Winners vs Losers & How To Tell The Difference
  • Vimy Resources: Can They Affect The Share Price Before Prices Change?

Click here to watch the interview.


Matthew Gordon: You’ve been meeting and greeting lots of people, sort of finding out what’s the mood is.

Julian Tapp: Everybody turns up for the WNA Symposium. So, you just hang around, talk to people, find out what the views are.

Matthew Gordon: What do you think the general mood is, positive or negative?

Julian Tapp: I think there’s a certain amount of optimism. I know it might sound odd but the past the past few reports, every time the WNA Report has come out, the forecast has got worse.

Matthew Gordon: You’re talking about the WNA Fuel Report. You’ve been involved in it. What was your role in that?

Julian Tapp: Yes, I have. Well, it is quite interesting. Going back a couple of years, when we did the (Vimy) DFS, I actually built a model to forecast world demand for uranium on a reactor basis. When I finished I wondered how it compared to what the WNA had done. I looked at their model and we got similar answers in aggregate. But regionally, there were big differences and wondered how they got those numbers?

Matthew Gordon: Why is that important?

Julian Tapp: I think actually their assumptions were wrong.

Matthew Gordon: That was a couple of years ago.

Julian Tapp: If you look at the current one, you’ll see that the projections are more optimistic. They’ve been raised, particularly the lowest scenario.

Matthew Gordon: What has been raised?

Julian Tapp: The forecast capacity of nuclear reactors operating and getting uranium over the next 20 years.

Matthew Gordon: Got it. And why is it better?

Julian Tapp: A couple of prominent reasons. Firstly, the assumption used to be that the French were going to reduce their nuclear capacity to meet 50% of electricity target by 2025. So, although the previous Fuel Report didn’t have them getting there by 2025, they were trying. Everybody now recognized Emmanuel Macron (French President) had kicked the can down the road. It’s 2035, if you actually listen to what he says. It’s isn’t ever going to happen. So for the pessimistic forecasts they put out, that lower case scenario used to have them losing 20Gw capacity. And that’s now not forecast to happen. In America there was an expectation that nuclear reactors, when they reach the end of their license life or when they just won’t get extended. And again, we had a lot of discussion about this. I kept saying when it gets the end of its life, it doesn’t get an extension if it’s not safe. But please tell me who thinks these reactors aren’t going to be safe after 40 years? They’ll be perfectly safe. Well, same argument where they get 60 years. Will they be safe? Now, sometimes you have to spend money to upgrade them, to keep them going. And if the economics are not good, maybe you wouldn’t pay for that upgrading.

Matthew Gordon: Are they safe? Have there been any incidents?

Julian Tapp: None. There’s never been a nuclear accident that was related to the age of the plant.

Matthew Gordon: That’s semantics. So, have there been incidents? Deaths?

Julian Tapp: Not in recent times. It’s interesting you should also ask that question. Even Fukushima. A vast majority of deaths were nothing to do with it, it was all to do with the tsunami. Now you will see people walking around saying “oh, there’s been one reported death.” Not true. There was a guy who worked at TEPCO who went to the site. He was like a radiation inspector and he got lung cancer.

Matthew Gordon: Unconnected?

Julian Tapp: Well, when you look at the time between when he was exposed and when he got the lung cancer, it was like two years. Usually it’s ten years between being exposed to radiation and radiation he was exposed to wasn’t high enough to trigger that sort of reaction. A different subject to be talked about but nuclear reactors are incredibly safe. A horrible way to talk about it, but if you look at the fatalities or deaths per thousand terawatt hours produced. There was a comment about it in the WNA Nuclear Fuel Report that comes from Lancet in 2007. They said that nuclear is safer than any other form of power. 90 deaths per thousand terawatt hours. I looked to that number and asked where did they get a number that high from. Do you know how much electricity is produced a year by nuclear reactors?

Matthew Gordon: Tell me.

Julian Tapp: About 2,500 terawatt hours. If you’re getting 90 deaths per thousand. Where all these deaths are coming from? Sometimes it’s because they included Chernobyl in the numbers. But I went and found that Lancet article, found out where they got their data from. Traced it all back to a French report in 1991 that assumed that very low levels of radiation spread over a large population would kill a small percentage of those people. The science has moved on from there. That’s simply not true.

Matthew Gordon: Let’s not focus on that, because I think that there’s too many reference points required to have a in-depth conversation. So, let’s come back to why is the WNA Fuel Report important for the industry?

Julian Tapp: I think it’s important for the industry, because love it or loathe it, it’s a reference document that everybody has a copy of it. Financial community, utilities, everybody gets it.

Matthew Gordon: But why this year is it more important? Obviously there have been some changes. It’s a little bit more commercial. Is that fair to say? I don’t mean in the sense that it’s commercial telling you what that nuclear industry is going to do but it’s a little bit more commercial in the sense that it’s giving people in the industry more information about what’s going on.

Julian Tapp: And I would say more rigor in the analysis. Don’t get me wrong, when I say it’s a little bit more positive. Nobody sat down and said it needs to be a little bit more positive. The way the forecasts are done are, literally country by country, reactor by reactor. Which ones are going to be built, which ones you don’t think are going to be built. They just all added up. And that’s was the answer.

Matthew Gordon: It’s on everyone’s desk, on fund managers desks, institutional investors desks, all the utilities, everyone who sits on this thing. What’s it going to do for them? Is it going to change behaviour or is it just a kind of the broad sentiment and things are better? We know the macro story. It’s fine. We’ll just park that. I’ve got that. Read the summary and move on.

Julian Tapp: I think there are a number of things in it. The first thing is since the last fuel report, Cameco have closed McArthur River. They’ve also shut in Rabbit Lake. Langer Heinrich is closed so there’s a new category of what’s called’ ‘idle mines’. And you need to pull them out because traditionally when mines idled, they put them in a basket with reserve projects that might come back at some point in the future. You know, the dynamics are very different from an idle mind than they are for a reserve project. They might get to be developed some time in the future. And that the economics around them coming back are very different. Mostly idle mines are owned by producers, that have other producing assets. And roughly 80% of the market is controlled by three companies. And they’re the three companies that have shut production down because market prices are unsustainably low. People say “oh, well, they’ll turn on this mine when the price gets to a certain level” but when the price gets to that level they will have just seen the profit on their existing mine go up a lot and what they don’t want to do is turn back on supply and see the whole thing collapse again. So, they’ve got a completely different way of looking. And I’m not suggesting that they collude in any way, but it’s the nature of economics. You have an oligopoly and there would be a classic description oligopoly. They’re going to look at the other guy and see what he’s doing.

Matthew Gordon: We saw recently with KazAtomProm and Camecos’ announcements, the marketplace is a little bit of jousting and a little bit of kidology, etc. around what they were saying or what they weren’t saying. Early days when I was getting into the uranium space, trying to understand it, because it’s not like mining. It is mining, but it’s not mining. I was intrigued by this potential control of will it be duopolies or oligopolies. And how you use that to your advantage. New entrants can come in and ruin things for everyone. You’ve got a group of juniors who can’t get the money that they need right now. So maybe this is a chance to take out some of the competition and starve the market of the supply. You can start affecting pricing. Those three companies can affect pricing. I’m not saying it’s a good thing to do or that they’re doing it, but they could do that. Why wouldn’t you?

Julian Tapp: I would say to you what the dynamics will be. They will keep these mines shut, until the price gets to a level where they will make the decision as long as the others haven’t broken. Because being oligopolies, they’ll be watching each other.

Matthew Gordon: There are going to be smaller players who are significantly advanced. Vimy potentially is one, where you’re quick to production. It’s potentially two years from pressing go, assuming it’s fully funded, and getting into production. You could get back into the market before some these big boys could de-mothball some of these operations. Surely?

Julian Tapp: Their lead time would be not dissimilar to ours. They can get back into production two years. KazAtomProm much faster than that. They don’t want to because when the price starts to rise, they’d much rather price kept rising than they turned on production and killed the rally. What about the juniors? When they’re looking around, what they do not want to happen is a 10Mlbs or 15Mlbs a year mine to get started.

Matthew Gordon: Well, that’s my next point. We’ve been told by the past couple of days by some other juniors who are quite close production, that are three years to production. So, if you’re saying the big boys can get into production before them, they’ve got no chance. These juniors have got no chance of being funded, have they?

Julian Tapp: Well, I’m not going to throw stones. If you look at Vimy’s DFS, I haven’t changed my mind since I did the economics behind that. My conclusion was these guys will keep their production shuttered till about $60 a pound. And let’s not discuss whether that’s contract or spot price. Just roughly when they think that $60 is like the sustainable price, they’re going to say if it goes any higher, there’s going to be too many entrants into the market. And once they’ve started, they’ll keep going. So, my view was the price would get to $60, but not go any higher.

Matthew Gordon: That’s price manipulation isn’t it?

Julian Tapp: No, it’s not. It’s perfectly rational behaviour.

Matthew Gordon: Sure it is, someone’s controlling it.

Julian Tapp: One would say, I’m prepared to keep supply cut until it gets to a certain point. And it’s perfectly rational for me to say at, look, if it gets to $70, I don’t know. Some big project in Tanzania is go getting to launched. I don’t want that to happen. I’m going to make sure these guys don’t get the signal they want, when it gets to $60 I’m making a handsome margin now. I just don’t want anybody else coming in

Matthew Gordon: That’s my point. If I’m one of these junior companies and I’m trying to raise money. I’m talking to the institutions and they’re cognizance that this could happen. I’m not going to find institutional investors to give me the money I need, because it’s not in my control. The pricing is being controlled at $60 bucks, is what you’re saying.

Julian Tapp: Yes but bear in mind also that for somebody like Vimy, in order to get finance, we have to we have to be writing some contracts. We’re talking about long-term contracts. Once you’ve signed those long-term contracts.

Matthew Gordon: I want to be clear, I wasn’t talking about Vimy. I was talking about some companies that are in a similar position to you but have got a longer lead time, which I think potentially could cause problems. I want understand winners and losers and what the factors are around that.

Julian Tapp: Yes, the longer your lead time, the more problematic. It’s not just because idle production could get in. But when you have a very long lead time, it’s more problematic in being able to write contracts. So, we’re in a position where we want to write contracts with utilities and you’ve got to write the contract and then go into production. The longer that window into production is, the riskier you’re going to be perceived to be to them, and the less willing they’re going to be to write contracts with you.

Matthew Gordon: Vicious circle.

Julian Tapp: Being two years away from production, it’d be much better if we could be one year away. And two years is fine. Because most long-term contracts deliveries aren’t normally for a couple of years. So, we’re in that window now where we know utilities are looking for deliveries, 2021, 2022, sometimes even 2023 for the beginning date.

Matthew Gordon: Let’s come back to the report, because the question I asked was what is the commercial use of that when people buy that, read that. What are they thinking and doing? And what I’m hearing is the sentiment is positive, but it’s not going to give people necessarily the commercial data they need to make a decision and on its own. Do you think the WNA needs to rethink the way that the report is being constructed again? Are you happy with the structure of it?

Julian Tapp: No I am not. I don’t think it’s any surprise to anybody. Everybody would like to see some discussion around price. Price put into the dynamic. So anti-competitive guidelines, nobody wants to sit down and agree what the price is going to be, which is what the guidelines are designed to stop you doing. It doesn’t seem to me sensible that you can’t have a discussion with people about, let’s say, what happens if the price stays at today’s level for forever? It’s how people do it with things, economic forecasts they don’t know. Let’s just assume the exchange rate stays forever. What does it mean? You know what happens? What interest rate can I use? Well, let’s just leave it at that current level and see what the model says going forward. So, there’s no reason why they shouldn’t put a price in, say, today’s price, spot price $25, $30 a pound. Run that out for the next 20 years. What does that do? That shows a really interesting picture. Basically, supply goes over a cliff and never comes back. So I don’t know if there’s a higher price that would be sensible. Maybe $50, maybe $60, run assumption again but you’re still a bit short. And then that’s the message doesn’t really come across at the moment basically that there’s a problem coming.

Matthew Gordon: If I look at people like TradeTech and UXC, you see the data which they gather and they put together and reports that they put out compared to the WNA, it seems a bit more robust, a little bit more goes into it. And they do talk about price. They need to and they do it on a company, country, industry basis. WNA needs to up its game, it seems to me, if it’s it wants to be a kind of commercial venture? So, what I’m hearing and seeing, and it’s not just you, there’s other people I’ve spoken to about this one. This report needs to do more, doesn’t it?

Julian Tapp: I think there’s measures to try to see what extra can be injected into it for next time round. I mean, this was an improvement on last time. I think there are various people who would like to see some pricing brought into it some way. If you be smart, you don’t have to sit and agree what you think the price is going to be. I said to you, you could use different price decks to show the impact. And to get better understanding. So, what you got now in the forecast is this unspecified supply, and nobody makes a judgment on who’s going to come into it, because you can’t without some sort of price assumption. Some of those are sitting at $80 a pound.

Matthew Gordon: Well, let’s how it’s going to be received. We’ll know in the next couple of weeks what people what people are thinking and we can get that feedback. Just to finish off on Vimy, you’re working there with Mike. Things are going well?

Julian Tapp: Very well.

Matthew Gordon: Confident?

Julian Tapp: Well when the price gets up.

Matthew Gordon: Do you think there’s anything your company can affect to help with share price? Or do we just wait for the price?

Julian Tapp. Look, there’s not much more we can do with the Mulga Rock project that can affect the share price. So, we’re going through the final stages of getting all the secondary approvals ready. That’s not regarded as a job stopper so when we’ve got them I’m not expecting a big uplift. Oh, you’ve got secondary approvals. So, in Angelaly, Northern Territory stuff we found a big haystack. Bigger than we thought it was the haystack. We think there are some valuable needles in there, we’ll continue to look for them.

Matthew Gordon: Thank you for your time, sir. Really appreciate that insight into the WNA Fuel Report. Fascinating what’s happening in the industry at the moment. And I like speaking to an economist. You look at it differently from everyone else which really helps.


Company page: https://www.vimyresources.com.au/

If you see something in this article that you agree with, or even disagree with, please let us know in the comments below.

Any advice contained in this website is general advice only and has been prepared without considering your objectives, financial situations or needs. You should not rely on any advice and / or information contained in this website or via any digital Crux Investor communications. Before making any investment decision we recommend that you consider whether it is appropriate for your situation and seek appropriate financial, taxation and legal advice.

Australian Vanadium (ASX: AVL) – Hitting Milestones and Moving Towards Supplying 5% of the Market (Transcript)

We spoke with Vincent Algar, Managing Director of Australian Vanadium (ASX: AVL) whilst he was in London.

Highlights of the Interview:

  • Company Financials, Investors and G&A
  • Priorities and Focus
  • Value Creation for a Junior Company
  • Vanadium: the Market & Promotion

Matthew Gordon: What are you doing here in London?

Vincent Algar: I decided to come over to London to make some introductory meetings to some funds with a corporate advisory company we working with out of Singapore. So just getting to meet people, following up from our 121 meetings.

Matthew Gordon: And the purpose of that being what?

Vincent Algar: Twofold really. 1. To open ourselves to a new group of investors, primarily an institutional base, PE and family office space. But also to investigate coming here with a potential listing, probably which now looks like around March next year, if it goes ahead in that timeframe.

Matthew Gordon: We should come back to that another time perhaps. For people who are new to your story, why don’t you give us that 2 minute summary and we will pick up some questions.

Vincent Algar: Australia Vanadium is a company that’s been listed for over 10 years. Our main focus is our project South of Meekatharra, which is in the central part of Western Australia. Active mining region and we are developing a project that’ll be about 5% of global Vanadium production out of a magnetite deposit. Very similar in style and geology to that being mined by Bushveld and by Largo.

Matthew Gordon: And that’s a nice summary. So I want to start off and talk about junior miners first of all. So give us a rundown of the finances with regards to the company in terms of market cap share price etc.

Vincent Algar: Currently 1.7Bn shares on issue, which is a lot. The company’s been around for 10 years. We know that, that’s what it is. We’ve got 670,000 shareholders, which is also quite a large number for a company of our size. Market cap currently around $29M-$30M, depending on how it went this week. If we had a good week which is always good in the first part of financial new year in Australia. Sitting with about $4.5M in cash working our way through and deep in the process of doing a pilot study as part of a Feasibility Study.

Matthew Gordon: And you mentioned are you’re working towards the DFS as well.

Vincent Algar: Yes. That is definitely part of the DFS work is to do that part and we’ll spare I’ll spend a bit of time in saying why that’s important that we doing that in a particular way.

Matthew Gordon: So you’ve got $4.5M left. That takes you through to when?

Vincent Algar: Probably take us through to the end of the year. On the run rate that we are going. We are a very small team focused both in our consulting team and internally. And they were focused really on getting that work done in the best possible timeframe.

Matthew Gordon: And are you seeing any pressure from retail investors, institutional investors in terms of managing that G&A a little bit further out? Or that’s what you need to get to and you’re going to have to raise at the end of this year no matter what?

Vincent Algar: Look I think everyone looks at the capital. They look at what needs to be done and everyone will know that we have to do something to make sure that we keep on our time lines to get to the end. There’s two ways to do this. We sit on our hands and go slow, and we know where that goes. That it doesn’t get the project done. Or we push our sleeves up and get on with the work. And that will require us to have the money we need to get it done. Which is one of the reasons why I’m here as well. To make sure we understand the capital markets around what we need going forward.

Matthew Gordon: Because you used the phrase with me when we spoke. And we did this on line but previously. So the thing that can affect dilution most is not being able to raise capital.

Vincent Algar: Running out of money is the worst form of dilution the shareholder can have. That’s a very relevant thing in a junior resource company. Knowing what you’re spending. How you spending it. So being very tight on a budgetary level. Have a budget which is often quite an anathema to some people. But knowing what your budget constraints are. Knowing that you are well ahead of time how you’re going to be spending that money and where it’s going to be going. And what deliverables it’s giving you.

Matthew Gordon: You going to be raising how much do you think? You got a sense of that? It’s a long time between then and now.

Vincent Algar: We could We could finish the work we need to do down to the end of the feed study with between $5M-$10M. So that’s a additional amount of money that at some point we’ll have to put in the bank. And that’s what we were working towards, to either saving our cash to get to that point and then putting that in. But we need to deliver some deliverables to add some value along the way.

Matthew Gordon: And what do your institutional shareholders think of this process?

Vincent Algar: We don’t have a lot of institution al shareholders. One of the reasons I’m here again. We have on our register a couple of people around 2.5%-3% mark. We have people that we may think are institutional shareholders sitting behind nominee companies in that top five.  But there’s quite a lot of high net worth money in our company. And that’s become come in through my Director Les Ingraham who’s nursed the company until I joined in 2014, where he was strongly supported by people around him. He kept the company going and kept the company on its feet. A lot of his own money in and his high net worth friends’ money. That’s where we got to today. That shift of bringing the project to a new level is one of the changes we were looking to make in share register.

Matthew Gordon: I’m going to come back to overhead again, because the conversations I’m with a lot of juniors at the moment, is there are a lot of disgruntled investors. They’re looking at the salaries. They’re looking at the overheads. The way that money is spent. It’s all public information but very few people look at it. But when they do they’re stunned. Mining executives are extremely well remunerated.

Vincent Algar: I certainly can look at what we do, and I don’t turn up on the top 200 lists so I’m okay. But I think junior resource company CEOs. We’re doing something that other people are not doing. We are having a crack at something that is almost impossible to do. You’re trying to find something that is unfindable. You’re trying to then turn that into a resource; 1:100, 1:1,000 will make it to that next level. You’re trying to turn that Resource into proper Feasibility Study. We’re out there on the risk margin taking chances and when we pull that off our shareholders often benefit significantly.

Matthew Gordon: You’re taking these chances with some else’s money and they expect you to behave a certain way. When people are taking not a lot of that risk on their own shoulders. And by that, I mean taking big salary, not necessarily aligning themselves with shareholders and taking a smaller salary with more equity or shares. I can see why that stick in the throat.

Vincent Algar: No of course I can see that as well. But there’s a balance in there for everybody. I think that the best way that I see that in junior company sector is for there not to be so pointy at the CEO end. I think a lot of junior companies are CEO heavy. And they would be far better service by having a technical team at the top. Where those top players are equally remunerated and they all focused on the core objectives of the company. So for example, we just put Todd Richardson on our executive team and COO. He’s come in with a very specific objective of delivering that project and the approvals that go with it at the technical level with his team in budget and on time. My role is to make sure that he has the funds to achieve that. So that’s my role. We’re equals in every other way. And that’s really important part of our structure. I don’t feel that if I go out of the office like I am now that the ship’s listing at the back. It’s very much under control and the projects definitely working.

Matthew Gordon: But in terms of how you remunerate yourselves, are you more incentivise against deliverables, against share price, against those sorts of things or is it all front loaded?

Vincent Algar: Todd got some shares when he came in. I got some performance shares given to me on the way in when we delivered some of our Resources. We have now reached a point at the end of the PFS where we have to lock in some new remuneration for us on the incentive side. But at the same time you got that shareholder view that you don’t want to do that too early for the wrong reasons either. So it’s definitely on our cards to do so. We haven’t locked it in. You want to do that with the blessing of the shareholders and in the Australian market in any market probably other public company you do have to go to shareholders with those direct remuneration opportunities. And they have to approve. I don’t think that in our company where we’re over the top. I’ve definitely seen a lot worse. But I think the most important thing about that is that the executive team is has got a load that I can deliver in the projects. And that is strategically split across key members. I think we’ve got a very good structure in place now in our company.

Matthew Gordon: Generally, I always advise people to take a look at this prospectus and actually understand what they’re getting into to. And if the management team look like they’re keen to get as much money out as possible, as soon as possible then it’s something that you should think about twice.

Vincent Algar: I’d say it’s a good lesson for anybody from a due diligence point of view. Investors should read the accounts. Read the notes. That’s what I was taught. Therefore, you make an investment, look at everything and then form your opinion from there.

Matthew Gordon: Let’s get onto the money side of things. You’re here in London having a few meetings with some institutions and family offices as well.

Vincent Algar: And interviews as well.

Matthew Gordon: So what are you telling them? Because when we spoke last I was impressed by a lot of what you said. You seem to know what you need to do. That’s a big list. So what I’d like to understand is what you think your 3, 4, 5 priorities are? And tell me how you’re going to actually deliver those. Because we’re going to raise money, you need to be clear about that story with people. So what do you think your focus is?

Vincent Algar: But so just take you through a typical scenario when you’re meeting with one of these guys. It either focuses on the on the market. Sometimes quite heavily and what the market is like, because we’ve got a commodity here that when you look at the vanadium price chart, it’s not a pretty thing to behold. It’s very spiky. If people don’t know the commodity, why would you believe that that the price over the next 10 years would be any different than it is now. So a lot of time understanding what the market behaviour is and what we see the forward growth is. And we have to have a view on the forward growth, not only on the price but also on the market demand before you can even entertain looking at the project at all. So that’s part of the conversation. The second point is what have you been doing to get you to this point. What if what have you really achieved in terms of the milestones?

Matthew Gordon: So what are they?

Vincent Algar: I joined four years ago. We’ve taken the company through drilling it out, and pushing the resource up to 90Mt in terms of our target horizon, and getting that through the PFS which allowed us to declare that maiden reserve of 18Mt. Which looks like a first pass mine life of 18 years. If you take that from the total remaining inferred resource that gives you another 2 times that life if you like. Another 30 odd years of life after that, which really is something that people want to see. Is it a long-life project? Yes. Does it have the grade? Yes. Then we talk about the technical side. We’ve found this great Vanadium deposit. Is it special in grade? Is it special in thickness? Those are the things they want to hear. What is it like? Who’s done the same thing?

Matthew Gordon: Is it economic is where you want to get to.

Vincent Algar: Exactly. The PFS indicated that at the price ranges we gave. It’s economic. Is it’s fantastic at today’s price, which is when we look at and go, ‘well it can be a lot better’. What are we going to do to stay in business when we’re in business? And then last thing where are we going to get the capital.

Matthew Gordon: All great questions. Let’s answer a few of them.

Vincent Algar: The project itself from a metric point of view is very comparable to the Largo and Bushveld Projects in terms of the geology. So we know we’ve got tonnages. We’ve got concentrate grades, we’ve developed from our test work and we’ll be confirming in our pilot work, are in line with delivering a high-quality concentrate. Not the best concentrate in the world, not a 3% or 2% like Bushveld has, but certainly at that 1.4%, comfortably for the life of the project. So that’s a really important cornerstone of our delivery. The silica grade needs to be in a very tight space, very low. And that has implications for operating costs so you need to keep it down. We’re very comfortable with what we’ve done so far. We’ve continued to deliver far more work and again the pilot study will confirm that we can get good value at that.

Matthew Gordon: You’re looking for the $4.15.

Vincent Algar: Anywhere South of $4 is good. I think is good. Let’s say you’re looking at an operating margin of $4 on a price it’s $8.60 even if you say in the worst scenario for. So it’s the key thing in operation for us. We want to show in our study work that our operating cost can be comfortably and safely below $4 or at $4. And we’ve shown it in our PFS and we’ll continue to show that in the work we’re doing in the DFS. That is our goal because without that we’re not an option for people going forward.

Matthew Gordon: Okay.

Vincent Algar: The pilot study is about confirming everything and de-risking everything around the process route, to give people a comfort, whether it’s a bank or a small investor or institution, that the work is being done well, it’s being done properly and it reflects the feed that’ll go into the mine.

Matthew Gordon: And presumably a strategic partner? And institutions for sure on the money side, but that’s not necessarily going to come from banks or institutions. Are you having conversations with strategic investors?

Vincent Algar: So now you get to the point of the capital. So the operating cost is part of the study work. But the key thing is then we’ve got a capital number that has scared some people to be honest. And people look and go, ‘Oh it’s a big number’. You look at big projects around the world and it’s not a big number, compared to other projects. But people still look at and go. How are you going to get that money? You’ve got a $30-$40M market cap. You need to raise somewhere along the line you need to raise this to $350M. Now what we are doing in the DFS, is looking at all the options you’ve got to reduce that capital. So by taking things or not taking them away but engineering them out, they don’t have to be there. That’s the first thing. And that’ll allow us to a optimise the capital that we need to get from a strategic investor. They will also help us with de-risking the project as well significance.

Matthew Gordon: I mean that’s not a new model. Tried and tested done before. It’s a question of who you partner with and what they think of the asset that you’ve got. You’re doing something with the pilot plant. I can understand why they would find that particularly interesting because it gives them a better sense of what the economics and how hard this is going to be. So with those conversations, do you then step back let them come in on a project level and take over. Are you incubating this? Or do you think that actually, no I want to bring this into production. I’ll just take the money.

Vincent Algar: So you asked earlier about the key partners. We’ve got a target space that is cross that’s both incoming and outgoing if you like in terms of targeting people who are in the vanadium space, either as converters or as producers, across the world. We obviously we’ve got one MOU in place already. They are a converter. A converter being someone who either makes Ferro from vanadium or who makes VCN and from vanadium. So those are those are the converts space. They’re a very interesting market because they have got money, but they don’t have feed. Then you’ve got the smaller steel mills in China who are probably more likely to be ones that are going to be looking at it.

Matthew Gordon: Those conversations haven’t started yet? You know where to go?

Vincent Algar: There are conversations that we have ongoing. Conversations under CA (Confidentiality Agreement) mainly. Those are not at the MOU (Memorandum of Understanding) level. They’re at the data review level. So we have an active data room.

Matthew Gordon: Those people may have been talking to lots of people. You’re one of them, if they like what they see, they may take it up.

Vincent Algar: It’s more pointed than that. It’s one-on-one MOU review of data. We have a data room. It’s very active. We have a full financial model which is at close to or at banking level.

Matthew Gordon: What I think is interesting is that a $30M market cap company has got this full data room available, because it knows now is the time to be having those conversations. Which means that your market cap is it going up the chance to grow or how does it grow? Where’s the value come from with a small company like this, where someone’s going to come in and take a sizeable piece of the action.

Vincent Algar: Well if someone comes in and takes a portion of the project say the project. Let’s just say hypothetically a corporate comes in. They like this for whatever reason they decide and then they want to make is that the proposal for a project level in. That earn amount and their ability to go through will be at the project level, not at the shareholder level. And that’ll reflect the value that we’ve put in the company. We would say in our presentations, in our model that this is where we think the projects worth. By them coming in validates that whole project for us.

Matthew Gordon: But others I’m trying to get at. I’m trying to understand your strategy. Your model. You’ve got an asset. You’ve only got one asset. Someone going to come in with cash, a strategic., It’s not coming in at the Australian vanadium PLC or Ltd state. They are coming in on the project level, so it doesn’t affect your share price, but it doesn’t leave much room for equity growth there unless you go and do something with either the cash you may receive for their portion, if there is any. You don’t have any other assets. How do you continue the growth component to your story?

Vincent Algar: Well you asked earlier to follow up one of your other questions. Do we want to stay there and do that. So our team is ideally equipped to actually build this thing. So the value creation really sits in the team sticking around and making it happen.

Matthew Gordon: So that will be the type of conversation you want to have.

Vincent Algar: That’s the conversation. We’re saying listen guys, ‘you want to come in and do, but we know that you will not be able to find a better Vanadium team with experience than you’ll find here’, both from a consulting point of view and an internal team point of view. We know what to do here, and we know you know what we what to do here. So we’re going to go and do that. So you come in and we’ll help you do it. At some point that goes past them wanting to do it but we’re then part of the team. So it’s adding value on our side, along the way while they help us do it. So that strategic investor will soften the blow of that funding requirement. It will allow the company to grow the valuation. We just have to look at the valuations of Largo and Bushveld today. A billion dollars and half a billion pounds. That’s where you can head to. So if those valuations are even partially reflected in the share price with those partners in play.

Matthew Gordon: You’ve got to do peer analysis at this level. It’s nice to say, ‘we’re like Bushveld’, but you are where you are.

Vincent Algar: We want to be like Bushveld.

Matthew Gordon: You want to be like Bushveld. But we’ve got to talk about where you are today. And what I’m trying to get out of you is, how do you move from $30M market cap. To $100M to $300M. What are those steps that you’re going to take, apart from the vanadium price going through the roof?

Vincent Algar: No of course. I’m not relying on that because that’s not a thing you can or should rely on. You’ve got to believe that the demand is there. So then when you’re in production you can sell it in to the market.

Matthew Gordon: Give me those steps then?

Vincent Algar: So we’re right at the point where our workflow really is cut out for us over the next six months.

Matthew Gordon: You know what you are doing. Okay.

Vincent Algar: Each of those workflow items are about value. Convincing everyone around us that we have each of those milestones ticked off and moving towards production.

Matthew Gordon: They are. 1. Get the DFS complete.

Vincent Algar: Absolutely

Matthew Gordon: 2. Get a strategic on board. With the prerequisite cash to do so. Then what?

Vincent Algar: Get our environmental approvals in order. And on the table and done. Decide on how the actual final layout of that plant looks. And then start to work on who our vendors are and how we’re going to deliver it. So get down to the dirty part of the engineering as soon as possible. But the environmental approval for us is always going to be a critical path. So as much work we do on the technical side. De-risking technically is very key for us. Our pilot study is essential part of our work. It precedes the DFS engineering component and the FEED study component. It’s something we’re doing now. We’re doing it in a quite an aggressive big way. Just to touch on that point. That will be the thing that defines what the circuit looks like and what the engineering will be. How much it’s going to cost us to build it. So we have to do it properly and do it well. So that is a body of work. But the environmental approval running alongside it is a time critical issue. You might have seen we put out an announcement last week. We signed an MOU with the neighbours West Gold. They’re pretty big fishing in our area, in terms of Gold production. They’re sitting with a lot of water in their pits. Us being able to access their water for our mining operation for the duration, significantly de-risks our water supply. And also it significant risks our environmental approval process, because we’re not risking any access to a deep aquifer. And all the Australian issues around these issues and we’re trying to avoid that because that is a red flag to them. And if we don’t have to go there it’s great. So active things like the MOU with West Gold is a really positive step for us. And we have to put those milestones on the table aggressively. But the pilot and the DFS that follow it are really most important. Those are where the value add comes in, because we can do those two things I mentioned earlier. We can lock in, plus or minus 15% of the operating cost that we would expect. And we can lock in our best shot at the capital reduction.

Matthew Gordon: That’s what I wanted to hear. So in a year’s time looking back, you’ll have done all of those things. What else would you have done?

Vincent Algar: By the end of next year? We’ll have moved through the DFS and started what’s called a Feed Study, a front engineering design. That starts to count how many rivets and pop rivets and pipes and everything that you need to have in the project. That’s really an important part because it finalises down to plus or minus. And getting people involved on the on the engineering EPC itself.

Matthew Gordon: So 18mths plus a little bit, you’re in production?

Vincent Algar: That’s right.

Matthew Gordon: So that’s quite exciting people know where they are. Let’s see what happens in the Vanadium market between now and then. Something you mentioned last time, which might smooth out the spikiness of Vanadium as it currently is, and you hope it doesn’t remain spikey, was the Vanadium Redox Flow Batteries. As a market, we know about the steel rebar etc. But this battery market, everyone’s excited about it. But it’s a nascent industry. It’s early days. You’re all learning. Gives us an update about what you’re doing.

Vincent Algar: I’m in London but I’m on my way to France to the International Flow Battery Forum. That’s a collection of Flow Battery scientists and companies that are involved in this space. Obviously because of the development of Vanadium Flow.

Matthew Gordon: Remind people, these are large, long-life storage of energy which is different from lithium, which is a shorter life cycle.

Vincent Algar: They are large scale stationary energy storage battery, not for EV market. But they are ideal for true load shifting. And where they come into their own is when we are applying lots of renewables to a grid, we need to really learn, on a global level, how we’re going to shift our energy that we capture from our renewables and use it at other times of the day. So Flow Battery sweet spot is around 4hrs-8hrs. So that’s a difference from the high punchy energy that we get of lithium ion.

Matthew Gordon: But these things because the electrolytes, it’s kind of liquid, they can build these things larger and larger.

Vincent Algar: They’re infinitely scalable.

Matthew Gordon: Scalable and reusable which is which is very interesting.

Vincent Algar: And they use a lot of Vanadium.

Matthew Gordon: So vanadium companies, you should if you’re watching this, should also consider them as a battery company going forward. But early days. You are all learning. So what’s something at this conference in France?

Vincent Algar: So the Flow Battery forum has been running for about 9yrs, I believe.

Matthew Gordon: Why is only now that people are taking notice of this?

Vincent Algar: I think if you look back to the history of Lithium Ion you would have found that they had probably a few years of conferences. They took off. And as a group of electro-chemical engineers mainly lots of thesis and proposals.

Matthew Gordon: But almost all of it centred around the benefit rather than any because vanadium is the core of the flow story. We get together but vanity which is a body that ourselves Bushveld and Largo like a belong to, and we have an active promotion effort within Vanitech that is centred around the development of the Flow Battery market. It’s a subcommittee on energy application of vanadium. We promote this to the to the flow battery companies. Principally because they are the ones who will be buying our vanadium to put in their batteries. They’ll require vanadium for their batteries to run. They are our key future customers.

Vincent Algar: And that works a couple of different ways. Okay. So again vanadium companies. Some are going to be fully vertically integrated. Some are not. Depends on capital constraints and skill sets in-house. The reality is for small companies like you. That’s too early to be thinking about but I know you’re spending a lot of time learning about it. Where do you hope that goes? As a collective we would need to create a market. So that’s why as a group, we’ve decided to use the Vanitech marketing platform to promote the use of Vanadium Flow Batteries globally. We do it via aggressive work on Twitter, on social media. By telling people what these batteries are. How they work. Where they go. What they do. And how much vanadium they use. But with the flow battery companies, they need to be educated about us as potential producers. We need to talk to each other and say ‘well what I need to do today?’, that I can produce a product that you can use in your battery. If your battery is different from your friend’s battery. What is the difference in the recipe that I have to give you versus giving him? And do you want to come to me with a long-term agreement to buy vanadium from me. That validates my new market. It is not too early to do that. It validates my reason for incorporating any design. Incorporating in my planning. Incorporating my off-take agreements that I’m trying to get.

Matthew Gordon: Which you hope you’ll get some value tribute to?

Vincent Algar: Absolutely. And we’ve seen it. That’s worked. One of our best early moves in the space was when Cell Cube out of Austria. We signed a sales deal with them while we were their agent in Australia. We’ve probably got $4-$5M on our market cap just for doing that in a few years ago I saw an article about Bushveld the other day and there was a value attribute put on value Bushveld Energy. So that’s a very interesting concept that there is actually a value of this energy component in what we do. We as vanadium companies need to create a market here. And we need to know exactly what that market is. If it’s real. What the requirements are of the products we need to produce for specification for example. So they all need a 99.4% or 99.6% with none of this, none of that. Minor element chemistries are really important. So we have to do some work on that. We can’t just take it out of our plant and there it is. It’s something you have to plan for. But it’s really important because if you have a market like this. It’s worth one or two additional mines at a minimum projection of new production. Again it gives us a differentiation between steel and another market, which at the moment the Vanadium market, spiky as it is, is driven by the steel market. We need to diversify.

Matthew Gordon: That’s the market as a whole. You’re going to follow the crowd. See what happens. Make your mind up some future point. Could you, for me because I think I’ve been maybe describing a company, and I shouldn’t be. How are you describing your company? You’ve got a big asset potentially 5% of the world’s Vanadium market. Depending on what happens now then. How are you positioning yourselves?

Vincent Algar: Some of those words, as you know, because you’ve heard them all before. They’ve been used very often right.

Matthew Gordon: Be honest.

Vincent Algar: So I think you’ve got to look at being able to show is the asset different from other assets. So in this case I do believe it has unique characteristics. It’s not totally unique. But it is a valid asset to take down this path. The only way for me to validate that the best way is to compare it to operating peers. Look at their metrics. Can I match their metrics? And the only way I can do that is match that in my study work. And I believe I can do that. So that’s for me how I validate. We are we good enough basically. Are we good enough to be in production. And the answer to that in my view is yes.

Matthew Gordon: It seems you’ve got the scale. You haven’t got the grades. You’re okay but you’re not 2%-3% as you said earlier. You’ve got to work on the economics in other ways. You talked about innovating and privatisation et cetera. Which was I’m a buyer of. So tell me the second question I ask you. So that’s how you want to characterise your company. How do you characterise your ability to your own investors to deliver in the next six months… the next 18 months?

Vincent Algar: My skill set is being able to sit here and talk to you and get some sort of message across. Being able to work and build a team around the right people to get the job done. So my own experience being resource based and having a corporate history of some sort enables me to be here. But it’s all about building a team that is able to deliver and at any stage I do believe we’ve really got the core of that team in place. With the vanadium experience which is a stand. We mentioned the leadership of a company of the size is really needs to be focused on people doing the job they need to do, and being empowered to do so at the right level. So we think we’ve got a good structure in place. Daniel Harris has got over 40 years of experience in the vanadium space but more importantly as a corporate guy. He’s been in a lot of corporate situations. He’s able to give us the guidance as a mentor, as well as a director that we structure ourselves properly and that the right people are doing the right things at the right time. I’m advancing the cause of funding. Is Todd doing the right thing being back working on the pilot study? Absolutely. He’s advancing the project. Those are the right things to be doing. So it’s about that it is a totally team structure thing. Trying to keep ego out of the structure of a junior company is absolutely essential. And the easiest way to remove ego from the project problem is to share the load at the top. And if you do that you are less likely of having a myopic answer or an egotistical answer which the ore body will always beat you.

Matthew Gordon: Thank you very much for that update. I really enjoyed that.

Exore Resources (ASX: ERX) – Gold Explorer with $10M in cash. Maiden Resource in September (Transcript)

Interview with Justin Tremain, Managing Director of Gold explorer Exore Resources (ASX: ERX).

How does Exore Resources stand out in a busy field of Gold Explorers? The Birimian Greenstone Belt has over 60 +1Moz Gold Resource companies. Which one should investors choose? Exore is in the right region but also leads to a challenge about how to get investors to notice them. We listen to what Justin Tremain has to say on the matter. One of the big plus points is that they have $10M in cash to be able to choose what to do next. We find out how Exore intends to spend their money to create actual shareholder value. What’s the exit?

They are looking to deliver a maiden Resource in the next few weeks. Hoping to deliver 400,000-5000,000 oz. What is Exore doing about promoting their company to retails and what are they saying? We want to find out how they are differentiating themselves in front of institutional shareholders. All licences and permits in place for now and hitting comparable grades for the region if not slightly higher.

Interview Highlights:

  • The Overview of the Company
  • Mining in West Africa and Companies of Côte d’Ivoire
  • Promotion: How Do You Stand Out From the Rest?
  • Cash is King and They’ve Got It
  • Strategy of the company: Why Put Out a Maiden Resource Now?
  • Share Price and Shareholders
  • Assets, Drilling and Permits – Do They Know What They Have?
  • Management Team and Relevant Experience
  • Are the Markets Treating Them Fairly?

Click here to watch the interview.


Matthew Gordon: Could you give us a one-minute a summary of the company and then we could look into some questions after that? 

Justin Tremain:  Exore is a very new company in its current form. It’s only been around for less than one year. We’re a gold exploration company listed on the Australian Stock Exchange with a head office here in Perth in Australia. But our project and our sole focus is on a gold expiration project in the Northern part of Cote d’Ivoire, which we acquired in December last year. So we’ve be aggressively exploring that project over the last 7-8 months, we’ve had a lot of success as our drilling results will show over the last 6 months. 

Matthew Gordon: You’ve been in the current form for less than a year. What was it before? 

Justin Tremain: Before it was just a cash shell, going back some time and had some lithium assets and that’s where the cash came from and then I joined the company. When I joined the company last year it was just a well-funded cash vehicle without a project and looking for a project. We had a $15MIL market cap with $15MIL in the bank.  

Matthew Gordon: Cote d’Ivoire, West Africa, well-known gold producing area, lots of companies in the area. I assume that’s why you decided to go there? How did you get into the project? How did you find it? 

Justin Tremain: It was really the project that attracted us first and foremost. It was a project that I was familiar with, when we looked at the project, we could say that there’d been a lot of early reconnaissance exploration work done by the previous explorer, but not a lot of drilling. And there was a really stellar walk up drill targets, and obviously we had the money to be able to do the project justice. And then when we looked at the country, we really saw a huge opportunity in Cote d’Ivoire. It really is the most stable place in West Africa now. And there’s long been an argument that it’s got the greatest opportunity because it has a very large percentage of the Birimian greenstone belts situated in Cote d’Ivoire, but it just hasn’t had the same exploration focus of the neighbouring countries. Yet it is that now over the last five or six years, the more stable countries now. So, it was really a project that got us that interested first. But then when we looked at the country, we could really see a lot of activity and a lot of interest building in Cote d’Ivoire of the next couple of years. 

Matthew Gordon: I noticed a very interesting chart at the back of your power point, ranking for terrorist activity. I see Cote d’Ivoire is actually below the UK and the US which I thought it was quite amusing. 

Justin Tremain:  It’s a very topical issue for West Africa and really for the world. But in West Africa, in some of the Northern countries, it’s becoming a major issue and it becomes very difficult to take exploration when you have those security issues. And unfortunately, Cote d’Ivoire did have one incident a number of years ago, but it hasn’t had any recent experiences. 

Matthew Gordon: You must get that question a lot with regards to safety. I think there are some countries slightly further North of you that perhaps do have that consideration. Cote de ’Ivoire, great country, I’ve worked there, nice people as well. So, if we look at the Birimian greenstone, it is prolific. In your PowerPoint you say there are over 60  +1Moz businesses there already so it is prolific. But isn’t that part of the problem? It’s all it’s very attractive but isn’t that part of your problem too in that you are one of many gold explorers in the region and you’re trying to stand out. Do you agree that’s a problem? And if so, what are you doing about it? 

Justin Tremain: I don’t really see it as a problem. At the end of the day, large gold discoveries are going to get interest from the market. The issue is getting a land position in the country because all of West Africa is highly sought after. But the ground we have managed to put our foot on, it’s very difficult to get a position like that. We have over 1,000km2 under tenure now and we’re very fortunate that the exploration company prior to us spent 4 years in putting together that package and spent 4 years before they could get on the ground and do any exploration, which obviously becomes a very frustrating and costly period. And when it was done we were able to step in and get started straight away with our exploration. So, the challenge there is more just getting that ground position and we’re able to do that in one transaction. 

Matthew Gordon: That’s a factor of getting land and being able to do mining. But your team also needs to worry about financing, share price…. You have a lot of cash in the bank, and we’ll come onto that in a second, because that’s your plus point. But in terms of promoting the company, is it not a concern of yours that you’ve got lots of people going around telling pretty much the same story and they’re sitting with Resource as well? 

Justin Tremain: For us it’s all about just adding value to the project and undertaking exploration in a very financially prudent and efficient manner. And then drilling results, as we’ve being put out over the last 6 months, will ultimately attract the attention of investors. Then obviously as an exploration company you are beholden to your share price. Do you need to raise further funds at some point in the future? And therefore, it’s important to be able to set yourself apart. But ultimately, that’s just in drilling results and then being able to find Resources. So, I think new discoveries, which we think we’re on to 2 such new discoveries, are always going to generate quite a lot of excitement. 

Matthew Gordon: You do have to do those things, but there’s a bunch of other companies doing exactly the same thing and they’re going to be going back to the ASX or AIM  and reporting the same story as you. So how do you stand out? What is the plan going forward? I know you are early stages, but I’m just interested in your think thinking. 

Justin Tremain: It’s a good question. What actually got me interested in Exore as a company before we had a project was its cash position. I mean, most junior exploration companies don’t have the benefit of having $15M in the bank that they can put to work and therefore really are beholden to exploration results and market conditions over the next 6 months. Whereas we were able to not worry about that, well-funded and not having to worry about raising any capital in the future and able to go about our business. 

Matthew Gordon: Let’s talk about the cash position, because I think that the two things in your favour I think, Aussie gold price. 

Justin Tremain: I mean, really, it’s the US gold price that is generating up interest for us with as we’re sort of US dollar environment in Cote de ‘Ivoire.  

Matthew Gordon: And so, cash. You’ve got what, $10M? 

Justin Tremain:  Yeah, that’s right. I’m just under $10M now, right around doing very active exploration programs. 

Matthew Gordon: So how are you going to spend that? When will that last you through to? You’re going to $30M-ish market cap today. You’re going to spend $10M. What do you want to see at the end of that? 

Justin Tremain:  Well, what got us interested in this project is we wouldn’t be here if we didn’t see the potential for a multimillion-ounce gold project ultimately. And for us that’s 2Moz-3Moz plus, which is a standalone project, which you could then take through to feasibility and ultimately development and production. So that’s our goal, where we sit today. It’s been 6 months and we’ve spent about $5M. I believe we’ll come out with a Maiden Resource in the next few weeks. And that should be a stepping stone towards that ultimate goal of a 2Moz-3Moz project. And I think it would be quite a significant stepping stone towards there and we’ve been able to achieve that with about $5M of expenditure. And so hopefully we can continue to continue to grow that Maiden Resource going forward over the next 12 months. And then when we next come back to the market, we’ll be based on a project that has a Resource firstly, and a much more substantial Resource, than what we’ll be putting out in the next few weeks. And a far more advanced project. 

Matthew Gordon: A Maiden Resource. That’s good. And so, you’re expecting what sort of level? 

Justin Tremain: Oh, it’s difficult to say until we put it out as an announcement. But I think, for us to say it is a material milestone, we’d be really looking for an initial position of for 400,000-500,000oz of gold. And that to us would be a pretty significant milestone to achieve in just 6 months of exploration. 

Matthew Gordon: And why did you feel the need to put out a Maiden Resource now? Shouldn’t you just be drilling, drilling and drilling and put out a meaningful Maiden Resource, 1Moz plus, that sort of level? You’ve got the cash. You’re not under any pressure. Why do it? 


Justin Tremain: Once again, that’s a very good question and something of much debate. We are an exploration company. So, going back to what you’re touching on before, what sets us apart is we want to be able to show that we’ve achieved something tangible in the first 6 months rather than just a whole lot of drilling results and be able say, what does this mean? And that sort of leads us to putting a Maiden Resource out, albeit very much an interim position, that then allows the analyst to say, well, they’ve actually achieved what they said they were going to do in the first 6 months and gives people confidence in what we’ll do in the next 6 months. 

Matthew Gordon: But it’s a very conventional response to mining, is to do it the way that you’ve done it. So, there’s nothing wrong with it because it’s conventional. But if we look at companies like Great Bear in Canada, they’re just drilling. There’s no Resource being put out because they’re hitting the grades. They’re drilling, drilling, drilling. But the analysts understand that. Again, coming back to the thinking of management team.

Justin Tremain: Again, I think it’s a slightly different model for TSX listed companies vs. ASX listed companies. TSX listed companies just like to drill, drill, drill until they have a very substantial Resource, a Maiden Resource. Whereas ASX companies tend to try and show a little bit more progression as the project ways forward. Really for us, we started out as a cash shell, no institutional shareholders, no analysts following. And I think just putting a Resource out allows us to attract some more institutions and we’ve been able to do in the last 6 months, but hopefully attract further institutions to our register, on the back of also some analysts picking up coverage of the company going forward. 

Matthew Gordon: You’ve got all this cash, so you’ve got all the optionality. You can decide how you’re going to spend it, how quickly you going to spend it, how many drills you’ve got running at the same time. But you’re conscious of the share price. What are you, $0.07 cents, something like that? 

Justin Tremain: Yeah, we’re trading around 8-8.5 cents. I wouldn’t say we’re too conscious about the share price over the next 6 months. But we are conscious where the share price may be in a years’ time the share price, it doesn’t happen overnight. So, gaining exposure doesn’t happen overnight. It’s a gradual process. 

Matthew Gordon: But it’s something that you’re conscious of, that you need to be speaking to institutions and Retail. You’ve got about 50% Retail following, mostly Australian. 

Justin Tremain: Yeah, look I think all expiration companies are conscious of the share price because it is ultimately the way they fund the company going forward. And the most critical thing for an exploration company is to try and minimise dilution for its shareholders going forward and therefore the share prices are always a critical thing for our junior exploration company. 

Matthew Gordon: How are you differentiating yourself with your story to those analysts who’ve seen a lot of gold stories out there, there’s a lot of West African gold stories out there, you’re an explorer, high risk stage of  Exploration.

Justin Tremain:  Well, there’s 2 things the really that differentiate us. One is our cash position and therefore, if therefore people who invest in Exore today they are unlikely to be facing dilution in the short term. And then secondly, and ultimately the most important, is the drilling results that we’ve been able to put out which shows that we’ve made a discovery of what we call the Antoinette area and looks like we’re making a second discovery in emerging discovery at Veronique. And that really differentiates us and the grade of those intercepts. And ultimately that’ll come out in our Maiden Resource, we think we’ll be able to show a modest start in terms of quantum. It should be at a pretty good grade for our Resource, which is sitting at surface. 

Matthew Gordon: Right. If I’m looking at comps, like at Cardinal next door, Ghana. They’re sitting up 5Moz, heading towards 7Moz, market cap $130MIL… They’ve been drilling, but they haven’t got the response in the market that they had hoped for. So, are you nervous about the current strategy delivering for you? Or do you have some degree of confidence? If so, where do that come from? 

Justin Tremain: We have a lot of confidence because what we’re talking about is an initial step, it’s just on one very small area at Antoinette. We’ve been drilling elsewhere, step out on that particular area that we’re looking at putting a Resource around within the broader Antoinette area. But also, at this new discovery, Veronique, which we’re not featuring any Maiden Resource but at some point in the future we hope that that will provide a step change to the project in terms of scale. 

Matthew Gordon: You’ve got all the licenses and permits that you currently need to be doing this drilling and you are drilling without any interference or obstruction. 

Justin Tremain:  Correct, actually, it’s a very important point. So, obviously tenure is always topical in a developing country and in Africa. And so it is part of the acquisition of this project at the end of last year, one of the critical conditions was the government approving the transaction, which they did, but also to renewing the permit which happened in the beginning of December. And that was really the final condition to the application. So, in Cote d’Ivoire, we had our permits renewed as part of the mining code for 3 years. And then we have the right to renew those for a further 2 periods, subject obviously to meeting our work commitments. But given the amount of drilling that we’ve been doing over the last 6 months, there is no question of meeting our work commitments.   

Matthew Gordon: You’re hitting similar grades to lots of companies in that Birimian greenstone belt. They’re good grades. Your focus going forward is about understanding how much of it you’ve got, right? Because at the moment, you don’t quite know what you’ve got. 

Justin Tremain: That’s right. I think the grades we’re hitting are at the upper end of some of the other round operating gold mines and just deposits around us. So, I think the grades is reasonably good, reasonably high-grade for surface mineralization. But you’re absolutely right. It’s all about how much gold we can define and the scale of the soil anomalies that we’re drilling definitely demonstrate that potential for that multimillion-ounce discovery. And the area that we’ve been drilling at Antoinette, represents probably, I think 10-15% soil anomaly within that area there. And as I said, we have a number of other very large-scale soil anomalies and one of which we’ve started to drill and have some success there. 

Matthew Gordon: So, let me just understand it better. You’ve started a process. You’ve got a land package, got the licenses, permits, the grades are at the upper end of the Birimian type usual numbers. But where’s this thing going once you’ve kind of built out some scale to it? Where’s the exit point for you guys? Because all of the mid-tier or the big boys are looking for ounces in the ground. And you must be conscious of that. So, what are you doing about it? How do you stand from the 60 other explorers in that region? 

Justin Tremain: My view is, you take the project forward. We’re at the stage of exploration, which I think is really where the value is created, is discovery and defining a Resource. But once we have the critical mass, which in my view is 2Moz-3Moz of gold Resource, then the company will evolve. The team will evolve. And we take that that Resource and project through Feasibility and ultimately develop. That’s where we’ll go. Now, if there’s interest along the way, so be it. But if we’re not taking the project forward and adding value to the project, then we’re not going to attract any interest in the future. So that that would be our strategy. But also, the area that we’re operating in, there is 2 existing operations in close proximity to us already, which have reasonably limited mine life as well, which when we look to these projects was always a little bit of a fall-back position, that there are 2 operating mills in close proximity, which in the next couple of years we’ll probably need additional mill feet. 

Matthew Gordon: And from what perspective? Go and buy those mills or just offer feedstock? 

Justin Tremain: We’d be way too early to tell at this stage. As I said, that’s very much a fall-back position for us. Our current strategy is to go into line and discover a Resource that has the economies of scale to development as a standalone project. 

Matthew Gordon: Have you seen any examples of companies being taken out with 2Moz-3Moz? Is that a normal scenario in West Africa? 

Justin Tremain: You know, there’s a lot of cases of West Africa companies getting to that 2-3MIL ounces and then being taken out. No question about that. I mean, it was a recent transaction within Cote d’Ivoire a few months ago, it was only 0.5MIL ounce Resource. Not a company, but a project held by the company, Newcrest, which Rosco came in and bought. So, that’s an example of a transaction I think that pays from maybe $20M with another $20M to come for 0.5Moz Resources. So, you can put that sort of that as the benchmark against Exore. 

Matthew Gordon: That’s a good one. I think there’s a lot of data that came with that project as well. So that’s a fair point. So let’s talk about the management team, track record and experience in the region and creating shareholder value ie making people money. Tell us a bit about the team.

Justin Tremain: Yes. So the county is chaired by John Fitzgerald. He’s a very well-known mining financier here in Australia. He sits on the board of Northern Star, which is obviously one of the most successful gold company in Australia over the last 10 years. Then myself, I joined the company 12 months ago really with the mandate to secure a project for the company, to put money to work on a project that offered a lot of upside in terms of our exploration potential. Prior to joining Exore, I founded and ran a company that defined and completed a feasibility study on the first gold mining project in Cambodia, so another developing jurisdiction. That company got taken over in 2016 and that company is now taking that project through development. And I remained at that for 12 months before coming across into Exore. And then on ground we have an Exploration Manager who is highly experienced in West Africa, spent the last 12 years purely in West Africa on a gold projects and has been involved in 2 quite significant gold discoveries in the Burkina Faso and some exposure in Cote d’Ivoire. He saw the potential of our projects and that’s why he was keen to join us on the ground as our exploration manager. 

Matthew Gordon: What’s the shareholding structure look like? There’s a big retail component to this, but how much of the management sitting on? 

Justin Tremain: On a diluted basis it’s just under 10% of the company.. A lot of that has been actual shares bought on market. 

Matthew Gordon: Any significant shareholders or significant parties that we should be aware of?

Justin Tremain: As I touched on before, as a cash shell had no institutions on our register yet, in December last year and now we have a number of institutions on our register which our drilling results have attracted that interest and that sort of set us apart from these companies that you refer to. We’ve been able to attract these institutions on our registry in a market that’s reasonably challenging still for exploration. One of those is a North American institution that’s a very active gold fund. It owns over 6% of the company. Then we have a number of Australian institutions sitting below that 5% disclosure level. 

Matthew Gordon: And do you think the market’s giving you fair value at $30M for what you have? 

Justin Tremain: I don’t think too many managing directors would think that. But look, as I said before, there’s a reasonably recent corporate transaction, where hard cash is being paid for fairly modest size Resources of I think 430,000 ounces at the time, which was a transaction at higher than our current value. But ultimately, we’re well-funded. So the share price is what it is. We just keep going and stepping out and producing the drilling results that we’ve been putting out over the last 6 months, which show these projects grow and grow. And ultimately, I think the share price will react accordingly. 

Matthew Gordon: You’ve got 4 projects – there’s  a great chart on page 16 of your most recent presentation. Antoinette, Veronique, Liberty and Project Wide. So they’re all at different stages. You’ve got to allocate your $10M somehow. So where’s it mostly being focused and directed?

Justin Tremain: Really, we have 2 permit areas, the Northern one we call Bogoe project and then the southern one, the Liberty Project. And whilst we call them different project names, they’re actually only about 35km apart. So if we define Resources, depending on the grade, obviously, on either of those projects, they definitely are complementary to each other. 90% of our focus has been on the Bogoe project which within that sits the Antoinette Prospect and discovery and also about 12km to the South, the Veronique new emerging gold discovery. So that that’s definitely our focus and both those areas are quite large. They’re about 7-8km, by 3-4km in width and we’ve really just touched the tip of the iceberg on both of those areas.

Matthew Gordon: And these are relatively shallow deposits as well. Is that right? 

Justin Tremain: Everything we’re drilling is. Open pittable Resources is what we’re targeting. So really in the top 150m. Everything is mineralization, is outcropping at surface there. And our priority is actually drilling the at the top 100m, which is predominantly where the oxide material is, which has also metallurgical and mining benefits. And that is actually one of the advantages of this part of the well in Northern Cote d’Ivoire, the weathering is very, very deep. So to be talking about 60m or 70m of weathering, which is very deep. 

Matthew Gordon: The other thing that’s an important point for people to understand about the gold in this region in the Birimian, is it does make it easier and cheaper to mine. So you’re expecting reasonably good ASIC numbers when you get to that point of understanding it. There are 60 other explorers and developers there who we can use some of their data to extrapolate from.

Justin Tremain: I would say about Cote d’Ivoire as well, which is surprising, is the infrastructure is very good, which then has some advantages particularly in capital cost. We’re no more than 30 kilometres off Silk Road. There’s high voltage power lines throughout northern Cote d’Ivoire, probably no further than 30 kilometres from a high voltage power line, so they have some cost advantages as well and the ground is all very open and the ground is very flat. So we have all these significant advantages when we get to that point. But ultimately, grade is king and what we are defining is pretty good grade when we compare ourselves to other deposits in the region. 

Matthew Gordon: I think I think that’s fair to say. Justin, thank you very much for your time today. That’s been a wonderful introduction to Exore. Very interesting indeed. That’s a fantastic part of the world. We look forward to hearing more from you as things develop.

Justin Tremain: Thanks for your time today and look forward to chatting further in the future. 


Company page: http://www.exoreresources.com.au/

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Argosy Minerals (ASX: AGY) – Technically Competent But Are They in Control? (Transcript)

Jerko Zuvela, Managing Director of Lithium explorer and developer Argosy Minerals (ASX:AGY) joins us for an introduction to the company. They have recently made a Lithium Brine acquisition in Nevada, USA. We ask why, and if this could be a distraction to their core Lithium business in Argentina. We appreciate the mitigation of country risk especially considering recent political and exchange rate turmoil in Argentina.

Jerko also gives us an update on their PEA (they have not updated the numbers since the drop in the Lithium price) and talks to us about Argosy’s hopes to convert the Mitsubishi relationship from an off-taker to a being a strategic partner.

Argosy Lithium has raised AUS$9M in April and have AUD$7.5M at the time of this interview. They also tell us about the need to raise an additional AUS$14.3M to finance their interim 2,000t plant and their hopes to get in to small but economic production. How will retail investors react to this dilution and what precisely does this prove and to what end?

Their main asset is in the Salta Province in Argentina which is a prolific low-cost brine Lithium region. Argosy has a team of chemical processing experts which was a key deciding factor as to why they took up the option to buy the Nevada project. It was a cheap option but possibly a distraction and a cost. They need to decide where they are going to spend their time. Jerko says it is low risk and low cost to move it to the next stage and at that point they will decide how to develop this option.

Jerko feels that new entrants to the space don’t have chemical processing expertise which will stop these newbies getting in to the market. Morgan Stanley suggests that Argentina, Australia and Chile will contribute to an additional 500,000 tonnes of Lithium in to the market by 2025, which is twice the current levels. The question then is, will demand outstrip supply or will this new tonnage drive the price down? Again Morgan Stanley is suggesting that the price will go to circa AUD$7,300 by 2021 (almost half the current rate).

Argosy Lithium has the usual small company problems in a challenging Lithium price market. Lithium is a dirty word in Australia and ASX Lithium companies are struggling with liquidity and to raise finance. Argosy is no different. Existing shareholders need to believe it will work but the share price has been dropping for over a year. Management hope that the upcoming milestones and deliverables will make a difference. That is the hope of many companies in the market.

Interview Highlights:

  • Overview of the Company
  • Recent Acquisition in Nevada: Why Was it Sold and Why Did They Buy it?
  • Why Invest in Argosy Minerals? What Makes Them Unique?
  • Company Financials and Cash Position: What’s Their Focus?13:00 – Deal with Mitsubishi
  • Argentina Asset: PEA Reassessment & Jurisdiction Challenges
  • The Lithium Market: How Does a Challenged Market Affect Strategy?

Click here to watch the interview.


Matthew Gordon: We’re very keen to talk to you about battery metals companies at the moment. It’s very topical. So can you give us a one minute summary on the business and then we’ll get stuck into it? 

Jerko Zuvella: Argosy Minerals is focused on its Rincon lithium project in Argentina in the Salta province. We’ve gone about it in a slightly unconventional way where we’ve gone to produce a pilot plant to produce lithium carbonate product. We’ve been doing that over the last two years where we’ve been in Argentina and really pushing hard to achieve these milestones over the last couple of years as stated. Also we’ve recently acquired a lithium brine project in Nevada as well. So we’re very much focused on the Rincon project, but also adding in the US project as an option down the track as well. 

Matthew Gordon: Fantastic. Let’s talk about the recent acquisition in Nevada. Why have you done that and what’s the problem you’re trying to solve by doing that? Jerko Zuvella: No problem to try to solve. I think what we looked at it for was another potential brine project in a world-class jurisdiction, which Nevada is. Further to that our expertise is very much in chemical processing. Many people think the lithium industry is very much a mining game, but given we produce an end product, lithium carbonate or potentially a lithium hydroxide, they are very much chemical products. And that’s where our processing expertise is via our local partner Pablo Alurralde who was a former director of Processing and Technology at FMC’s operations in Argentina. So with that background and with that knowledge and the fact that we’ve gone and produced battery quality lithium carbonate to date so far in our pilot plant in Argentina, we figured another project to take on that Argosy strategy, to fast track development of projects was a good option for us given the fact that the current vendors weren’t able to develop the project or advance the project. We were able to pick it up very cheaply and therefore we thought a cheap acquisition, a cheap entry point, a low risk opportunity. And if we can do something with it that takes the project further given it’s within 4km of Albemarle’s silver peak operation, the only lithium carbonate production operation in North America. We thought it was a good location adding to our experience and expertise that maybe we can do something with in the future. 

Matthew Gordon: People don’t tend to sell their good assets. So why were they a seller at this time? Is it because of the state of the lithium market? They didn’t have the expertise? They didn’t have the cash?

Jerko Zuvella: They IPO-ed off this project, Lithium Consolidated about three years ago. I think they obviously had limited funds, drilling and associated works in Nevada. Especially in that part of the world brine is not cheap andthey werecognisant of spending all their money on one project even, they’ve got a few other opportunities and they didn’t do a lot of work on it. So, I don’t think it’s quite a fair to say that they’ve given away a good project. We think we’ll turn it into a good project but they very much gave away at an early stage project to focus on other opportunities. 

Matthew Gordon: So you decided to mitigate your risk by moving jurisdictions. You’ve got Argentina. You’re now in the US. It’s slightly safer jurisdiction obviously with what’s going on in Argentina with regards to the politics and exchange rate, etc. Have you got enough money to develop that? What’s your cash position at the moment? 

Jerko Zuvella: We raised on just over $9M in April of this year. So we’ve still got, I think as per the last quarterly about AUS$7.5M in the bank. So that gives us enough funds to be able to do a first stage of exploration at the Tonpahproject in the US, which based on the existing gravity works or geophysical works that are being done. We don’t have to invest too much into the ground to understand the potential of the project. So again, low risk without too much exposure to understand what might be there. And if we’re lucky enough that we do find some good quality brine, as we’ve got obviously next door in the Albemarle project, that’s when we start putting the Argosy strategy tool and look at a fast track development strategy. 

Matthew Gordon: And what does fast track mean reality? Is it permitted? What do you need to get in place and how much cash are you going to need to actually move it to the next stage? 

Jerko Zuvella: Just that first part of your query there, fast track. What we’ve made it out to mean is taking a project from very early stage next to nothing in Argentina to producing battery quality lithium carbonate within the space of a couple of years. Now, when you look at our peers, there’s not a lot obviously in the South American space and given that Albemarle or Silver Peak operations have been in operation for 50 years, there hasn’t been too many other companies progressing into lithium carbonate or lithium hydroxide operations and production. Obviously Orocobre is their main peer and, and they’ve done that over the course of probably about 7-10 years. Obviously we’re not at their stage yet, but we think by proving the process in technology, which is the most critical part of the lithium business, prove your chemical process, prove your product. That means you can obviously fast track development to full commercial scale production at some point in the near future. 

Matthew Gordon: I appreciate you’ve done it in two years and when you compare it to others before you, that’s much quicker. Have you got unique or proprietary IP or do you think new entrants will get into production quickly too going forward? 

Jerko Zuvella: That is the challenge. I think that’s what’s halted a lot of those companies that have gone into Argentina and South America in general, and probably North America around that Clayton Valley area. They all get to the stage where they do feasibility studies and they stopped there. I think the critical part is they don’t have the chemical processing expertise to produce battery quality lithium carbonate product. Now, we’ve seen it in South America, you’ve had the big boys. You know, Poscohas been there for a long time, Eramet has been there a long time,The Sentient Group’s been there for a long time. These guys have been there well over 10 years and none of them are in production. The chemical processing is very much the critical component of this business. And if you don’t have that processing expertise or a person that’s been there and done that for numerous years, like our partner FMC, you just can’t take the project into production.

Matthew Gordon: So it’s not necessarily a proprietary technology, it’s a case of there’s very few people with the relevant experience and track record of doing it. That’s the major barrier to entry. So just coming back to what you’re doing in Nevada in terms of fast tracking that. $7M is not a lot of money. You’ve got two projects now. What’s your focus going to be? How you’re going to spend that money. Because you’re going to need to raise some money presumably at some point in the future too. 

Jerko Zuvella: Definitely our focus and priority and full commitment is still on the Rincon project. We’ve constructed the pilot plant and we’ve got a sales agreement with Mitsubishi Corporation in Japan for the product from that pilot plant. And we’ve also just announced last week non-binding heads of agreement with Mitsubishi again.

Matthew Gordon: I do want to come onto that, but I want to just want to finish off in Nevada because it’s a new thing. You’ve decided to do it. It is cheap but you’re going to spend some money and some time there. I want to understand why you’ve done that. What’s the thinking in terms of the strategy. Why Nevada? Why a new project? And how much time and effort you’re going put into this to take it to what point?

Jerko Zuvella: In the short term, we expect to do some geophysical surveys which won’t cost a lot of money, less than $0.5M. So we don’t need to spend a lot of money to understand what we may have there. Once we know what we have there, then we can set our strategy up. But in the short term or the immediate term, it’s really just going to be finding out what is there to then understand what we need to do thereafter. Without labouring the point, that is not a priority for us at the moment. 

Matthew Gordon: The board or the management teams made that conscious decision. Part of your strategy was to diversify. I appreciate where you say you are going to spend your time but given the current market, the lithium price is coming down, forecasts are coming down, as low as $7,000, if you believe Morgan Stanley, by 2021. The market is challenged. So why go and spend money, time and effort now on a new asset. What’s the strategy?

Jerko Zuvella: Well, the end game is to replicate what we have done in Argentina and obviously what we are looking to do in Argentina. So given there’s an existing operation within 4km or 5km, we think we can do something similar ultimately at our project in Nevada also. 

Matthew Gordon: And what is it that this nearby project is doing that you think is so good, that you want to replicate? 

Jerko Zuvella: It’s the only lithium brine operation in North America producing lithium carbonate. They produce approximately 4,000t per annum from the project and given what we’ve done and what we’re looking to achieve in the near term at Rincon, we think we can apply the same strategy and do the same at Nevada over the course of the next few years. 

Matthew Gordon: Are they making money? 

Jerko Zuvella: Very difficult to understand the financials of Albemarle and SQM at the moment. You don’t keep an operation going for 50 years if it’s not making money, so I presume they are making money. Presuming probably make more money prior to the price coming down. I presume there’s not too much cost there besides the operating costs so you think it’d be, based on industry standards, that it should be a profitable operation. 

Matthew Gordon: I understand that they have been a lowest quartile producer which helps. But as perhaps you don’t necessarily understand the full economics to be able to make that evaluation today. I’m not quite sure I totally understand that the logic of going and spending time and effort on the new asset, but you’re going to make an evaluation and come back to the market and tell them what you’ve learnt, right? So let’s move on to the existing operation. You’ve got a pilot plant, which is fantastic. You’re producing. That’s great. You’ve signed an off-take agreement with Mitsubishi. A big company, well known company. What was the point of doing that? I mean an off-take is just an off-take. It’s just an option, right? And given the market, there’s a lot of lithium around. Is this the beginning of a strategic partnership or is it just a pure off-take? 

Jerko Zuvella: We’d like to think it’s a strategic relationship. As I mentioned for the pilot plant, we signed a sales agreement back in March with Mitsubishi. And prior to that they’d been working with us to get to that point for the previous 12-15 months. We’ve established a good long-term relationship with them. We’ve made it very clear or I think the market has made it very clear, the lithium market, that you do need a strategic partner to develop a lithium project and the reason for that obviously is the limited funding options available. These large companies that we’re seeing enter into the lithium space want security of supply. That’s the trade-off. They’re looking for long term security of supply. We’re looking for finance to build a project and these small baby steps that we’re taking, given we’ve seen some difficulties arise in the lithium market, we saw in Nemaska earlier this year and some others, it’s very difficult to bring new lithium projects into production and therefore these baby steps, the pilot plant moving to the 2,000t per annum plant, which we signed the HOA for our last week. These are the steps to give comfort to these potential strategic partnerships. 

Matthew Gordon: I just want to clarify for your investors, because there’s a lot of chat and confusion in the chatrooms and forums around what it’s going to mean. Mitsubishi presumably have lots of options. Lots of off-take agreements because they are traders. They have lots of options. So it doesn’t necessarily mean that they’re going to give you the money to build a plant. Have you spoken to them or given them indication that that’s what you would like from that relationship? 

Jerko Zuvella: We’ve been very direct with them. Their Japanese counterparty Toyota and Toyota Tsusho have done the same thing with our Orocobre in the past. So we’re using that as a guide, what we’d like to achieve with Mitsubishi in the long run as well. So very much a comparable situation to reference and we’re hopeful that we can move along that same sort of pathway. 

Matthew Gordon: How much money are you looking for? What type of money and what would Mitsubishi’s contribution be to that? 

Jerko Zuvella: In terms of our Capex funding we did a PEA and released that back late last year, which outlined $140M CapEx cost for the full 10,000t per annum commercial operation. And we’ve also released information on this interim step to 2,000T per annum plant and we’ll need about AUS$14.3M Capex requirement to construct that. Now that’s a little bit lower than what we initially required, but that’s because we’ve already invested in the evaporation ponds. We’ve built enough evaporation ponds, currently 38hectares are in operation which can produce enough brine lithium concentrate to produce 2,000t of lithium carbonate product from the planet per annum. 

Matthew Gordon: The PEA came out late 2018. What numbers were you using for that? Because obviously lithium price was very different from what it is today. So the IRR, the NPV… it’s all changed. So have you reassessed those numbers? 

Jerko Zuvella: No, so obviously a lot of those numbers will come down because we use benchmark minerals as price forecasters and they set a price of $13,000 per ton. Obviously, it’s a lot lower now, so we need to revisit that and that’s the reason early this year we made the conscious decision to turn our attention away from moving to full scale production or an operation to this intermediate step of 2,000t. Just a smaller step, lower risk, less cap ex requirement, hopefully a little bit easier to achieve than waiting around for that $140M to come through the door. 

Matthew Gordon: And so you hope that gets you into some sort of cashflow, it won’t get you into positive cash flow presumably?

Jerko Zuvella: No, we expect it to be positive cash flow. We expect our costs to reasonably a little bit higher than what it would be for a full commercial scale operation. But, even at these lower prices, we think we can make some good profits on the stage two 2,000t per annum plant. 

Matthew Gordon: That’s based off of the pilot plant numbers. Can you give us an update on how that’s performing?

Jerk Zuvella: The pilots only been running for about a month and a half now. The first month was just getting things going in a continuous manner, ironing out the few little issues that you do have whenever you start a plant. But we’ve been producing lithium carbonite product. That’s still in its infant stages, but we expect over the next short while to produce at a consistent rate that we can feed into the sales agreement that we have. At the same time, given our limited human resources, we still need to keep fully focused on that 2,000t per annum plant. That’s where we think our best bang for buck is. The pilot plan really is to be able to show the customer that we can produce a consistent quality battery grade product and use the pilot plant for that means. The pilot plant was never really set up to be a continuous production operation. But given the state of the market, we felt that that’s been able to assist us to procure good quality customers and obviously show the market that what we’re capable of. 

Matthew Gordon: That’s going to show the market what you’re capable of technically. Can we talk about the economics around that? Tell us what you think you’re going to be able to do. You’ve got $7.5M in the bank. You’ve got G&A costs and some committed costs. So of the $14.3M for the interim plant, how much are you going to go need to raise to get that going? 

Jerko Zuvella: Well, we’ll need to raise the majority of that amount, if not the full CapEx amount, like you said, we don’t want to be left with minimal funds in play. The existing funds can be used as a bit of a contingency if required but we’d be looking to raise the full CapEx amount and that’s what we’re working on with various parties. Unfortunately, the lithium market is not what it used to be 18 months ago, where companies were making pre-payments and so forth. It’s a little bit more challenging but we’re working as best we can to bring that money in under the most favourable circumstances for our shareholders and try to avoid as much dilution as possible. But being able to bring a project into production, we are obviously very cognisant of some of the debt issues coming around with Australian lithium producers as well. So again, it’s a fine balance to consider the best way to fund this intermediate plan.

Matthew Gordon: It is very challenging to work out how to do this because your existing shareholders will be say, ‘we’re anti-dilutory’. You’re cognisant of getting yourself into a position where this plant will produce. You’ll be able to sell, but is it going to be enough to be able to pay back any debt that you may be able to secure? It’s a tough one. It’s really, really tough. On the ASX, lithium’s a dirty word at the moment. A lot of companies are struggling at the moment. There’s a lot of new entrants thinking of coming in should the price recover. Forecasts suggest it’s not going to. Shareholder’s are a little bit disillusioned. How are you managing this? You’re trying to run a business, but you got to talk to investors. What are you saying to them?

Jerko Zuvella: Yeah, very hard. It’s very challenge.Very hard. It’s been challenging and perhaps that’s why we’re still in a position where we’re in at the moment. We haven’t secured that funding yet. We were lucky enough, we did a good capital raise like I said a couple of months ago to at least give us some options. Perhaps another reason for that optionality in Nevada as well to be able to move that project forward for little or minimal funds. But we feel very confident that we can go and raise hat 2,000t per annum Capex funds in the near term. And once we get that obviously we’re very committed to get up and running on that. We’re obviously started procuring and looking at solutions for plants and equipment. But how do you manage and keep shelve expectations high? Very difficult. What we keep selling to our shareholders is that we think we are one of the very few lithium production companies that we’ll get into production and that we do have the necessary skillset and expertise to take it all the way through. And I guess, the light at the end of the tunnel or the pot of gold at the end of the rainbow really is the fact that we can get into production. We will hopefully be a producing company and you can see with some of our peer comparisons, whether it’s Orocobre or the bigger guys, there is a very large a gap, a market share that could be created if and when we can do that. So the potential upside is still large enough to, to keep out shareholders reasonably satisfied. But obviously that’s very hard to achieve that at the moment, but that’s what we’re aiming for. 

Matthew Gordon: Morgan Stanley forecasts say that Argentina, Australia, and Chile could add as much as 500,000t of lithium into the market by 2025. That’s double what it is today. There’s a lot of new product coming in. It doesn’t bode well for the price. But if you can mine and process cheaply, maybe it’s not such a problem. Brines are well known for being cheaper to produce than a lot of the Aussie rock lithium. So, how are you adjusting your strategy given the change in the market since when you started to today? Very different market place. What’s the mindset here? What are you talking about? What’s keeping you awake at night and what are you doing about it?

Jerko Zuvella: I think we have to be dynamic and we’ve had to be flexible and we’ve gone down this intermediate step now, this 2,000t per annum plan. I think our $48.3M Capex is not insurmountable for a company our size, which is at the moment about AUS$95M market cap company. Worst case scenario eventuated we think we can raise equity to do that, obviously that’s not the ideal situation.  But if we can have a hybrid of structures for financing that we think that is a very much a near term potential goal and something that is achievable and that’s where we’ve had to be a little flexible at the same time. What’s keeping you awake? Obviously maximising shareholder returns, which means we can get our best bang for buck is getting into production of 2,000t per annum. From the discussions we’ve had with various strategic groups. I think that will de-risk the project greatly. It will be a pathway to the full commercial scale of the project, the 10,000t per annum, and sometimes you have to take a step back to go two or three or four steps forward. And we think this intermediate step, secure the funding, once we show that, again in the knowledge that it’s very difficult to do that and they perhaps won’t be as many companies around doing that at that point in time, the market opens up and our strategic partner or partners can see what we’ve achieved, and obviously the main issue is the product quality. And we will obviously be testing that with potential parties all the way through this pilot plant process. And as long as they get the quality specifications that they require, and I don’t think there’s any issue from going from 2,000t to 10,000t in an orderly fashion. 

Matthew Gordon: You’ve got to be able to do that economically, you got to be able to make money. For lithium companies it’s been a brutal year. It’s been especially difficult in Argentina, obviously with what’s gone on with the election, the political scene, the exchange rate has taken a hammering. People forget it’s a really good mining jurisdiction. What’s your perception of what’s going on in Argentina? How’s it affecting Argosy? 

Jerko Zuvella: Touch wood, it hasn’t affected us greatly today. We obviously came into the country in 2016 and President Macri had been elected, so he obviously opened up a lot of business opportunities for foreign investors. We’re obviously still at that position. We’ve got a very good relationship with our provincial regulatory bodies, which obviously control the mineral rights in the country. The provinces own the mineral rights. So we have a very good relationship with the mines department in Salta. They’ve been giving us all of our approvals in good time so we’ve got a very good relationship with them. We don’t see that changing, depending on whatever happens with a Federal election but as we’ve seen if there is a change of government, and what that’s causing in terms of currency devaluation, again, it doesn’t affect us too much.  Most of our costs are in US dollars. The chemicals that we buy, which is the largest of the operating costs, is all based in US dollars. Our local employees are paid in local currency, so when there is a devaluation in the short term, until inflation sort of catches up, it’s actually a benefit for us because our USD is getting us further than it was previously. So as long as the country doesn’t shut down and there’s no protectionist policies coming to play in the near term, we think it is business as usual and will continue being business as usual. And again, quoting Orocobre who built their project and did a great job at doing that, they did that during the former regime. So we don’t think there’s any issues that may impact us too greatly to build a project, no matter what the government at the time or whatever governments elected in a few month’s time. 

Matthew Gordon: Let’s talk about why investors invest in your business. They want the share price to appreciate and want it to grow. We’ve been talking about some dilatory components here. So why should current investors or new investors thinking of investing in you have reason to be hopeful about what the future looks like in terms of share price appreciation. 

Jerko Zuvella: We’ve had some great share price appreciation during the times when lithium was obviously a lot more in favour. But even in recent times, over the last, let’s say 12 months, we’ve been able to have our share price jump substantially based on good announcements, on achieving good milestones year. 

Matthew Gordon: But you’re down. Your year high is $0.28, you’re sitting around $0.08-$0.09 cents at the moment. That’s what people are going to be looking at, isn’t it? 

Jerko Zuvella: Well we think so and obviously our job is to try to get it back to those levels as quickly as possible. Even when we announced the Mitsubishi Sales Agreement back a few months ago, the share price jump from 9 to 16. Those sorts of things, for the short-term retail shareholders, there’s milestones that are coming up that can have immediate impact in the share price. But if you play a bit of a longer game, starting production and selling product to Mitsubishi from the pilot plant in coming months, getting started on the 2,000t per annum plant, again, another big milestone. And building that over the course of the next 12-15 months, we think the closer we get to production, the more the market will appreciate what we’re doing and start valuing us closer to our peers that are above us, which is obviously Orocobre the main one. But even Orocobre who’s in development at the moment, they’ve got a market cap substantially higher than ours, three or four times higher than us. So we think there’s some share price appreciation to be made based on developing our project further. 

Matthew Gordon: Those are hardly your peers though. You can’t compare yourself to Orocobre at this point. I think that’s a bit of a leap. I appreciate there are some good things happening. You’ve been active keeping some things moving, but do you think with the dilution component or your requirement to raise equity, it’s going to be enough to see a meaningful bump? You need to see a sort of three times, three and a half times bump in your share price today. And that’s not going to come from an off-take agreement off the back of an interim plant, is it? 

Jerko Zuvella: Well firstly, let me just say that obviously say we’ve been high share price, but some of our peers, even on the ASX in the spodumene market, they’re valued at probably 2-2.5X our value. Now, they’re probably behind us in terms of development of their projects. So again, sometimes you need to be flavour of the month to get that appreciation in the market, but once we start building and we can show, not only retail shareholders, but institutional shareholders or potential investors, what we’re looking to do and how we’re achieving that. I think once you get interested in the stock, based on what we’re doing, it’s achievable. Going from $100M-$200M market cap in the short term is very much our target and very much something we think we can achieve on the back of moving with those immediate milestones and achieving them in the short term. 

Matthew Gordon: If I look at the people like Millennial Lithium who seen great peaks and they’ve dropped off and they’re trying to do deals in Asia, but the share price has been hammered. I think the general perception in the marketplace, ASX especially, lithium is a lot of white noise, it’s all just chatter. But it’s out of favour. Is part of your strategy sitting back and hoping that the lithium space recovers? Or do you think you are in control of the moving parts? 

Jerko Zuvella: We can’t afford to wait for the lithium market to recover. Obviously that would be a very good advantage and a big advantage for us to do that but these are the times, and these tough times, that you can develop and build projects. And obviously perhaps don’t get the same reward in terms of value as you would have in good times but we think by doing it now when the good times do roll back around, hopefully not too far away, that our appreciation can be multiplied based on the work we’ve done in these leaner times. Now a lot of companies may sit back and wait or put their projects on standby. We’re very much focused on, again, using that word fast tracking our development, building that 2,000t plant, because that would put us in the category of a commercial producer, an economic producer and a profitable producer which gives us cashflow and it makes us very much more marketable to, not only retail shareholders but institutional and much larger funds, because we are going into a space that I think people do realise in the next, you mentioned 2025 the production sort of supply amount and so forth, but in that sort of time frame and sure that’s probably a lot longer than current shareholders would like to think, but there is a game changing event coming along and we have to be patient. But when that does come along, our focus can’t be just on near term share price appreciation, it needs to be on building a business and it’s very much our focus on building a business that’s going to be around for the next 20 years and we need to be able to be patient at times but also at the same time look to maximise value over the longer term rather than just immediate rewards for existing shareholders. If people believe in us, we know we can achieve it and when the good times do roll back we think we can really reward our patient shareholders. 

Matthew Gordon: So you’re looking for investors to get behind you, not traders? 

Jerko Zuvella: All shareholders are very good, whatever shareholders they are. But definitely if people can appreciate what we’re trying to achieve and have got that bit of patience, we think we can do very well for them, yes. 

Matthew Gordon: So what’s the only thing that’s going to stop you? 

Jerko Zuvella: Well, obviously securing the finance. We don’t want to be jumping into any dilutory equity raising, that’s very much last resort but again, sometimes, you need to take a step back to go step forward. But it really is just securing that funding. We are reasonably confident that that will happen at some point in time in the near term. We have a great relationship with Mitsubishi. We have a great partner with that processing expertise in Argentina. We think we’ve got the jigsaw pieces. We’ve been putting them together for the last couple of years, a few more to go. But we really think we can achieve that. I don’t think there’s anything that will stop us. I don’t think I’m being an optimist by saying that. I really do think we have all the jigsaw pieces. We probably even have them numbered so we know exactly where they go. It’s just that taking the time to put them in the right places to allow us to get to where we want to get to. 

Matthew Gordon: So you have all the permits that you need for now. Obviously, you’ll require further, secondarily, tertiary permits as you go forward. Your message to shareholders is, don’t worry, we’re not distracted by our new acquisition. We’re focused on core business. We think the pilot plan has shown us that we can produce and with this interim plant we can get into some kind of revenue, whether or not it’s economic, but it should show that we can move forward with a 10,000t per annum plant, if and when we get that financed. 

Jerko Zuvella: Yes. Our estimates show that based on current sales prices that the interim plant will be a viable proposition. We think that will really jumpstart us moving forward. But very much agree with all your other comments there and wrapping up and obviously we’re very keen to try to achieve that as quickly as possible. 

Matthew Gordon: Just finish off on that because you made the point, are you going to update your PEA financial assessment? I mean given the PEA’s can have a kind of big variance. Are you going to update that based on up to date numbers? 

Jerko Zuvella: It’s not in the immediate term at the moment. We’re very much focused on securing that funding for the 2,000t per annum plant. Once we do that, obviously if there is a strategic partner involved, we will work together with them on whatever is required to achieve the outcome for the commercial scale and if we need to update the PEA to a full feasibility, that’s what we’ll be looking to do. 

Matthew Gordon. Brilliant. Jerko, thank you very much for your time today. Honest appraisal of the situation. I appreciate it. We look forward to staying in touch and hearing how you’re getting on, exciting times. 

Jerko Zuvella: Thank you very much. Appreciate it.


Company page: http://www.argosyminerals.com.au/

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