- ASX: NMT
- Shares Outstanding: 545M
- Share price A$0.17 (18.03.2020)
- Market Cap: A$90M
Interview with Chris Reed, CEO of Neometals (ASX: NMT), and Accompanied by Darren Townsend, Chief Development Officer, and David Robinson, General Manager.
Neometals’ management team’s track record of success extends from the Mt. Marion Lithium Project, where they timed their exit to a tee, selling their 13.8% stake for AU$103.8M. We’ve interviewed them several times. Each time, they’ve described a new project that fits neatly into a green narrative. It’s a cookie-cutter approach of finding value that’s gone under the radar, acquiring it cheaply, and developing it efficiently. The retail market hasn’t clocked the potential of Neometals yet, with their market cap valued at less than the cash they currently hold, and without taking in to account their project portfolio. We wonder why.
We’ve previously questioned Neometals’ marketing strategy; however, today we’re questioning its latest in a long line of green projects. As of last week, Neometals has entered an agreement with unlisted (but public) Scandinavian mineral development company, Critical Metals, to consider developing a recycling facility to recover and process high- grade vanadium products from vanadium-bearing steel by-product in Scandinavia from SSAB. The green qualification has already been ticked off! The steel by-product is slag, not tailings, though we’ll get into that in a moment.
So, what exactly does the agreement entail? Reed states that what Neometals believes it has acquired is a “call option to acquire what is the world’s largest stockpile of high-grade vanadium slags.” The 27-month consideration period will allow Neometals to conduct its extensive dude diligence on the potential vanadium plant, which will result in a Feasibility Study to be completed by 31st December 2022. At this point, a final investment decision will be made. If Neometals agrees to go ahead, the company will enter into a 50/50 arrangement, with the certainty of a supply agreement from SSAP, the largest fuel maker in Scandinavia. Total CAPEX prior to FID will be A$5ML: a figure Neometals can easily afford, and one that fits into the project generator narrative the company has been pushing.
Slag vs tailings? Tailings is the waste rock at a mine after the raw ore has been processed to remove the metal, whereas slag is a glass-like by-product left over after a desired metal has been smelted from its raw ore. The process of dealing with the slag is not only immensely economic but is also a remediation process, as the glass itself will change colour and no longer be a sea-adjacent eyesore.
What is the upside in terms of revenue? The steel slag with vanadium content has a standard benchmark vanadium grade of 3.9% V2O5, 2-3X higher than any producer can make in a concentrate before a similar level of processing. There is no mining cost, no crushing plant, no grinding plant, no magnetic gravity separation plant, and no kilns for the traditional salt-roast-leach process. 50% of the CAPEX had been wiped out straight away. Moreover, while vanadium is a volatile commodity that hasn’t had its best few years, the macro story, including fundamental demand for stainless steel, and the potential growth of VRFBs, still places vanadium as a promising commodity.
Once the process is completed, what happens to the inner pile of largely calcium/iron-bearing residues? Reed states Neometals will take ownership and either safely dispose of it, or reinsert it back into the front end of the steelmaking process. The green thematic is consistent throughout Neometals’ operations.
Reed actually sees COVID-19 as the element that forced Neometals and Critical Metals to get the deal over the line when it did but also says it will have little impact on operations, especially considering mining is considered an essential service, and the population density of Australia is low.
- Company Overview
- Innovative Business Model: Diving into the Details
- Agreement with Critical Metals: Who are They and What are the Terms, Commitments and Upside Potential?
- Tailings vs Slag: What’s the Difference?
- V for Volatile Vanadium: Concerns for the Commodity & Opportunities Ahead
- A Different Approach to Vanadium Mining: A Detailed Look at the Processing, Efficiencies and Bi-Products
- Green Mining Approaches: Recycling is Key
- Impact of Covid-19 on the Business
- The Future: Finding the Right Markets
CLICK HERE to watch the full interview.
Matthew Gordon: Good afternoon guys. How are you?
Chris Reed: Very well, thanks Matt. Greetings from down under. I’m joined today by our Chief Development Officer, Darren Townsend, and our Chief Metallurgist, David Robinson.
Matthew Gordon: Hi guys. Pleasure to meet you. It’s the first time I’ve spoken to you chaps. Well, I think you’re all holed up like we are at home doing your social distance thing; being responsible citizens there, right?
Chris Reed: That’s correct. I’m the only one in our head office today. So the CFO and I alternate days in head office, work from home or remotely. The rest: Darren and our chief operating officer and the financial controller sort of run a shadow management team in case we get Covid-19.
Matthew Gordon: Well, I was speaking to Darren just before you joined, he said that productivity is higher now he’s at home. That can’t be bad, right?
Chris Reed: Well, I must admit, you know, you do have less background noise and less interruptions and look, he’d be coming off a low-base [laughter].
Matthew Gordon: Okay, well, look Chris, we wanted to talk to you about the announcement that you guys have put out with regards to the high-grade Vanadium recycling deal because I think you are very much moving into this battery recycling space, this battery minerals space now, having been a miner previously. But why don’t we kick off and remind people where you’ve come from, what the background is and why you find yourself in this position today, by giving them a one minute overview please?
Chris Reed: Yes, Neometals is a project developer; we use innovation, essentially, to develop industrial minerals and advanced material projects for sustainable future. And so we targeted the EV and energy storage, you know, almost 10-years ago. And we went out and procured a Lithium project and we developed that into what is now currently the world’s second largest hard rock source of Lithium. We exited that project, we retained off-take from the Lithium mine. And so we’ve got a number of projects that, you know, are not really upstream; there’s a slight pivot away from the upstream, traditional hard-rock mining into further downstream processing. So we’re looking at a Lithium hydroxide refinery. Obviously, the Lithium battery recycling project is our main project: that’s taking the Lithium batteries at the end of their life. We’ve got the brand new Titanium, Vanadium project, which is an upstream asset, they’ve been working on a downstream processing technology. And this lightest agreement with Critical Metals to look at recovering Vanadium, essentially recycling a slag product from steelmaking, is consistent with that pivot away from upstream, and also in terms of recycling and you know, I guess becoming more sustainable.
Matthew Gordon: Okay. Now again, I just want to, before we kind of get into the detail of it, I want to again, if I can get your help to remind people, because we look at your business model and we think it’s really attractive. It’s kind of unusual. There’s very few people approaching this the way that you do. Because we get a lot of people coming on the show, telling us about what they’re going to put into a battery, and you guys are saying, well actually there’s, you still got to deal with stuff after batteries are made, you know, you’ve got your battery recycling project as well, which we’ve talked about on previous occasions. But can you give us an insight into your business model? Because you’ve got a lot of cash from the Mount Marion deal, but you’re spending it frugally by doing this project generator model. So give us an idea of what that looks like.
Chris Reed: Yes, certainly. So first of all, we identify a thematic that we want to exposure to, you know, which is the energy storage thematic and electric vehicles, that then drops down the commodities within that thematic that will be most impacted in a positive way. And so what then we do, we either acquire an opportunity in M&A, or we develop one internally. So the Lithium battery recycling technology was to develop the process to take those batteries at the end of life. We realised that we could see the Lithium battery plants being built. We could see the volumes of Lithium batteries that would ultimately hit the market. We knew statistically about 10% production, or a scrap in the production process, and that they have an effective life of 7,8, 10-years. So there was going to be the opportunity for these significant volumes of essentially, which is a, you know; an amalgam of lots of battery minerals or battery commodities all together. And currently, they are either being melted at pour recoveries or put into landfill, and that’s not sustainable so we developed that internally.
So what we tried to do is identify the opportunity, secure it, build the value in terms of, you know, the metallurgical test work to prove our advantages: our low cost nature, our high recoveries, and we take the risks there. Then we do the engineering studies, and then what we like to do is to bring in big partners to commercialise these at the optimum scale, which is quite often beyond companies of our size.
Now, we have a fantastic balance sheet, but we’re not going to roll the dice and put all of it into one project. And so what we did with the Lithium project; we acquired the Lithium project, we took the risk with the drill bit and made it bigger. Then we did the test work. We were able to capture a multibillion dollar company to build the world’s largest hard-rock Lithium concentrator with no up-front capital. We then took that as a package to the world’s fastest growing Lithium convertor Gan Feng, offered them to be a partner. We were able to ultimately build a plant four times bigger than we’d evaluated ourselves. We sold out on the way and we made USD$200M out of a USD$3M investment. And last Friday, we returned another USD$11M, taking our total returns to shareholders to over USD$55M over the last 5-years. So identify it, build it, monetise it, and return the value back to shareholders.
Matthew Gordon: Yes, thanks for that. Again, it’s something that we, when we first came across you guys, we weren’t quite sure of what you were, but you know, after investigation you look at dividend paying, that’s a lot of dividends.
Chris Reed: I can synthesize it for you: it is the highest return on invested capital in the shortest period of time.
Matthew Gordon: Quite nice. I’ve got nowhere to go with that.
Chris Reed: That’s right. It’s just arithmetic.
Matthew Gordon: Just arithmetic. But the other bit of the other component of that is that you spent USD$3M to be able to generate that kind of return. And that seems to be, and I don’t mean to sort of, oversimplify this, but that kind of cookie cutter approach to what you’re doing, I mean, this is what we’ve heard with the recycling story, and I think it’s what we’re about to hear now with the agreement with Critical Metals. So why don’t we get stuck into the Critical Metals agreement? So the announcement came out last week. In your words, tell us what it is that you’ve put together.
Chris Reed: So essentially what we’ve procured with our partner, Critical Metals is a call option to acquire what is the world’s largest stockpile of high-grade Vanadium slags. In that 27-month period we are able to conduct an extensive due diligence, and that will be in the form of a Class V, a Class IV, a Class III engineering study, which will result in a Feasibility Study to be completed by 31 December, 2022, at which point we’ll consider a final investment decision. If we decide to go ahead, Neometals and Critical Metals will own 50/50 equally in an incorporated joint venture vehicle, which will have the certainty of a supply agreement from SSAB, which is the largest steel maker in Scandinavia.
Matthew Gordon: And how much will you have spent at that point to get to that point?
Chris Reed: So we envisage that the total investment prior to FID will be around AUD$5M.
Matthew Gordon: Okay. So it kind of maintains that project generator feel. It is the same level of spend. What are you, actually, let me start with, who is Critical Metals? SSAB, obviously, I think people will know; they are obviously huge – a billion dollar industry, but who is Critical Metals in all of this?
Chris Reed: So, Critical Metals is an unlisted Australian public company. Neometals is the largest shareholder owning approximately 15.4% of its issued capital. Critical Metals also holds a license for the Neometals Lithium battery recycling technology, geographically limited to Scandinavia, so Sweden, Norway, Finland and Denmark.
Matthew Gordon: Right. And is this the first time, I mean, it’s isolated to those countries. Is there scope to go beyond that at some point? I want to talk about scale in a second, but while we’re talking –
Chris Reed: At this stage for the Lithium battery recycling, we’re entertaining going exclusively for the non-licensed jurisdictions with German engineered SMS Crew.
Matthew Gordon: Okay. Okay. We’ll come back to that another time. So you’re talking about recycling high-grade Vanadium bearings steel from slag. Can you, again, just in terms of terminology, help people understand what the difference is between tailings and slag?
Chris Reed: Sure. So, in the steel-making process up at SSAB, they use iron ore and limestone in their smelting method. And so what is left is an iron bearing, a calcium product after they’ve tapped off the steel and that goes in for further processing. The slag, so to speak, gets cooled in pits, and then when it’s cooled enough they break it, put it in trucks, take it to another site on their plant, crush it, screen it, scalp some of the iron, the discreet iron, and stick that back into the furnace. The rest gets stockpiled as what they call LD slag. LD slag is the steel-making process that they use.
Matthew Gordon: And what typically happens with this? I mean, I’m guessing there’s going to be other people with other technologies which will process slag, right?
Chris Reed: Well, look, occasionally these guys sell the little bits here and there for road base. But essentially there’s nothing you can do with it. You know, what we’ll be doing is taking a material that has been stockpiled on these sites, recovering the Vanadium and actually changing its colour from black to white, and actually making it safe to store.
Matthew Gordon: So what’s the problem you’re solving for them? Obviously there’s a financial opportunity for you, you know, but you must be also in terms of remediation, et cetera –
Chris Reed: I think it does a number of things: certainly it removes visually a stockpiled black material from sites, and these steel mills are all adjacent to the sea. And you know, rendering them in an inert form that is safe for storage, either backfilling old pits or, you know other applications. You know, you are providing a remediation service of sorts. It’s obviously highly economic to do that in the process that we have developed.
Matthew Gordon: Okay. Let’s get into the terms then. So in terms of what it is that you’ve got today and what you think when the 50/50 joint venture is in place, what are your commitments to that financially? What do you think the upside is in terms of revenue and where do you think that can go?
Chris Reed: Yes, certainly, I think if you have a look at the purchase agreement that we will have after FID, which is a conditional agreement now, just to be satisfied, essentially, by our final investment decision. You know, we would purchase the steel slag with the Vanadium content, the benchmark grade that we pay is 3.9% V205, which is two to three times higher than any primary producer can make in a concentrate before a similar level of processing in a hydrolat circuit. So it has exceptional grade. One, you don’t have to build a mine and you don’t have to build a crushing plant, or a grinding plant, or a magnetic gravity separation plant, or indeed, you don’t have to build kilns for the traditional salt roast leach process. So in essence, you strip more than 50% of the capex straight away. You don’t take the mining risk. It’s already stockpiled. It’s been accumulated over 30 years and sampled almost daily. So, your confidence in the grade is almost without precedent. So you’ve got a very, very long life supply of a very, very high-grade material, and you know, ceteris paribus that should lead you to be at the bottom end, and certainly our project strategy is to drive this project to be the lowest cost Vanadium production facility in the world.
Matthew Gordon: So that, I mean, that gives you, I guess comfort; whether your lowest or lowest quartile, or even lowest decile, it gives you comfort that you’re going to be able to make margin where others can’t. Because, I mean, Vanadium is well known for being highly volatile. It’s been on a dip, I think it’s recovering at the moment. But it’s essential in the rebar, so you know, there’s a market for it. So are you at all concerned about the commodity itself or maybe getting into a project with that commodity?
Chris Reed: No, certainly not, if you are at that point in the cost curve. If you are anywhere north of the 50th percentile, it is a volatile commodity. I think the only more volatile commodity are fertilizers. But you know, having the high grade, the long life and like I said, all things being equal, the lowest, certainly the lowest quartile, if not the lowest. You know, being a low cost producer and innovating and always driving yourself down in that direction is the only sustainable long-run strategy that a miner or developer can have.
Matthew Gordon: Okay. And so talk to me about scale then, because if I look at people like Bushveld or Lago, you know, one of the two of the larger Vanadium producers in the world, their market cap is phenomenal. But you know, and we’ve also spoken to a lot of Vanadium, or wannabe Vanadium producers, who’ve got kind of lower-grade projects but who just can’t get into the market. I mean, what do you think the scale of the opportunity is for you here? You have obviously got 2.7Mt of existing stores. What’s the incremental production from these 3 sites? Or these 3 operating steel mills?
Chris Reed: So look, currently the contract with SSAB covers 2Mt of slag at which we would prepay to start off at the start of that contract 700,000t of slag from Lulea. The net additions per annum across the three sites are forecast to be 180,000t per annum. Initially, we will have a look at a processing facility that is capable of producing 200,000t per annum, sorry, of processing 200,000t per annum of slag. You know, if it’s got a head grade of just below 4%, and some of the recoveries, not that this is a production target, but you know, it will generate less; perhaps somewhere around 5% of the global Vanadium supply. You know, currently the Vanadium market would be growing by those sorts of percentages, and certainly at the lower end of the cost curve, you know, we do not expect anyone to negatively respond to our presence.
Matthew Gordon: Okay. And how did this deal come about? I mean, how did you find this?
Chris Reed: Critical Metals have been operating in Sweden for 10-years. They have a portfolio of iron ore and base metal assets there. They have some fantastic local talent on the board and in its management team. And it was through those relationships that we were presented the opportunity to evaluate the stockpiles. You know, we started off with a sledgehammer to crack a nut, and then we have optimised that into our current patent-pending flow sheet that generates the low-cost, the potential to achieve the lowest costs.
Matthew Gordon: Well, let’s talk about that because you’ve got these two clever guys on the screen here, Darren and David. So you talk about a sledgehammer to crack a nut, you’ve simplified and simplification means cheaper. So what is it that you’ve got that other people don’t? Why aren’t there lots of people doing this?
Chris Reed: I might throw over to Doctor Dave Robinson, we procured his services from the CSIRO, which is the Australian government-owned industrial research organisation. He has a fantastic background in Titanium-Vanadium and those sorts of metals. I might let him comment about, you know, what are the flow sheets that are generally used and why they won’t work here.
Dr. David Robinson: Thanks Chris. Yes, so the traditional routes of treating a slag would be most likely, most people would look at a pyro-metallurgical option. So putting that material, that slag, back into a furnace and reheating it. And trying to be more selective about pulling that Vanadium out, using a lot of energy.
My background is, as Chris said, much more hydrometallurgical, and so first my first thought was to hit this material, which is very alkaline in nature with an acidic reagent, that is the sledgehammer that Chris referred to, and we can get a very good recovery of Vanadium that way. There’s some other downstream issues that make it less attractive and so we started thinking of a more sophisticated way of approaching it, and actually using an alkaline system that’s very selective for Vanadium leaching. We can get a very nice clean leach solution from that, and as Chris mentioned earlier, making the slag inherently more stable as well. So you’re converting a material that contains quite a lot of reactive lines to a material that’s much more stable, much more environmentally responsible for dumping or for putting it up in a hold. And at the same time, getting a very clean leach solution. And we are at the tail-end of developing and finalising that flow sheet, but we’ve got very good recoveries of Vanadium from the minor impurities that are there, and we’ve got a couple of options that we’re finalising right now in terms of the actual form of the Vanadium recovery, in terms of the most valuable for it and the lowest cost flow sheet that Chris has already mentioned.
Matthew Gordon: How long has that process taken? I mean, how much time, money and effort, and is it indeed now therefore proprietary to you?
Dr. David Robinson: The sledgehammer was a quick development so it was within a month we were ready to put a patent application in place. And the most sophisticated and collaborative flow sheets have probably been three or four months of board developments. And we have got that second patent application in place at the moment. So all up, probably six months for the test work.
Matthew Gordon: And how much more efficient is it?
Dr. David Robinson: In terms of the Vanadium recovery, we’re getting good recoveries: we’re getting up in the 80% in terms of overall recovery for the flow sheet. It’s, if you use the sledgehammer, the acid approach, you can get a higher recovery, but you’ve got an awful lot more cost involved later on in terms of the recovery. So by far the most economic approach is the selective leach, and without disclosing any details, it’s a much more environmentally friendly process. It’s highly recyclable. So you’re getting a single passive reagent and then a waste, we are actually recycling that reagent. So the reagent sits and stays in the system many times and cycles. So we’ve got a whole lot of benefits in terms of the nature of the flow sheets that could improve the economics as well as the metallurgy.
Matthew Gordon: Okay. And if I may, just one last question. So at the end of this process, what is left? I mean, you’re recovering from it, from the slag, so what, we know what you recover, but what’s left and what happens to that?
Dr. David Robinson: Essentially it’s a much more rich material that contains all of the elements except for the Vanadium. We do leach a small amount of the iron and a little bit of the silica goes into the solution, but very little else. So pretty much all of the calcium containing minerals that were there, most of the silicates, the aluminium minerals and many of the impurities that remained completely untouched and would probably not get on the central iron-ore which remains untouched as well.
Matthew Gordon: Okay.
Darren Townsend: It is worth mentioning too that it’s conventional equipment as well so even though we’ve got a patented process, it’s using just standard technology and standard equipment.
Matthew Gordon: Okay, fair point.
Chris Reed: For those that don’t know, Darren’s the engineer.
Matthew Gordon: Darren is straight in there.
Chris Reed: He has got to make what Dave says actually happen.
Matthew Gordon: Yes. Good luck. No, I mean it’s a fair point actually, because that was going to be my next question, which is, you know, it always comes back to IP and proprietary and et cetera, which is that new things frighten bankers because they’ve maybe not been done before, but you’re saying it’s kind of conventional technology, but your flow sheet works differently so there’s nothing onerous or to be concerned about with regards to how you go about and deliver this. Is that right Darren?
Darren Robinson: Yes, that’s right. I mean we’ve come up with, obviously, a novel process in terms of how it fits together, but it is using pieces of conventional technology. So there’s nothing there that’s concerning to me in terms of how we may move forward with the buildability of the flow sheet.
Matthew Gordon: And are you able to reduce costs as a result of the new flow sheet, or has that not really been a factor?
Darren Robinson: Yes, it was still working on our studies at the moment. I have cost studies, so they are work in progress, but early indications are that the flow sheet will give us some definite operating and capital costs advantages.
Matthew Gordon: Okay. And Chris, a question for you – so then you are left with this inner park, and you own it now, don’t you?
Chris Reed: Correct.
Matthew Gordon: So what happens to it?
Chris Reed: We will take ownership of those residuals. They are largely calcium and iron bearing residuals that are able to be either safely disposed of or reinserted back into the front end of the steel-making process from whence it came.
Matthew Gordon: Okay. I mean you mentioned that there a second ago, I’m trying to understand the green credentials here, because again, coming back to my point earlier, people tell us –
Chris Reed: I think, you know, you’re operating up in Scandinavia so the environmental considerations, so we had the sledgehammer approach and then we thought, well, you know, that works, it is attractive, we’ll deliver what we want. But you know, we are in a very pretty part of the world. We are adjacent to the ports and towns, you know, these towns have grown up around the steel mills and they’ve got ports there. And so we took care really to have a look at having the lowest environmental footprint. So whether that’s from a CO2 point of view you know, using a hydropower, the change in the medium that we dissolve the residue, the slag into, was really driven by the end-products that come out the back end, to make them – so you don’t want to put in a process so that the sledgehammer actually created a high volume of waste than we process to start off with because you try changing it from a metallic form into an oxide form, or indeed a sulphate form.
So we’ve tried to make sure, we were conscious that we wanted to have a product that was inert, that we are recycling as much as we can. The least amount of materials that we bring into the site and take out of the site the better. Green power. You know, in time we will make known a few more of the subtle other benefits that this process has. But, you know, we’re not looking at discharging it, we have a negative water balance, i.e. we are not discharging any liquid tailings into the environment that needs storage or subsequent treatment. And likewise with noxious gas or airborne emissions, that sort of stuff. So, you know, we’ve truly put our minds around this system; the sustainable future bit.
Matthew Gordon: Yes. Okay, thanks for that. And it’s kind of worth bearing in mind that that’s got to be a big part of your message here because you’re talking about with other, you know, you talk about the battery recycling project that you’ve got going on here and you know, this project ESG, you’ve really truly got to deliver that. So I’d be interested in learning more about how you’re going about that as and when you’re able to release that.
Chris Reed: Yes, sure. I mean, rather than just saying we’re embracing the ESG reporting or whatever, I mean, we’re actually walking the talk. We are changing our business, changing the you know, we have pivoted away from the more carbon intensive upstream element of the supply chain to recycling before, and to get the recycling right before we ultimately develop any more upstream or downstream resources. It’s a model that we actually took off of Johnson Matthew; they don’t enter into a new commodity unless they can actually recycle that product. If you can do that, then you can work as far upstream as you like.
Matthew Gordon: That’s interesting. We’ve had a lot of requests to talk to a bit more corporate, socially responsible companies. So we’ve talked a lot to tailings companies. We were fascinated by your segue from mining into their space and seeing that this can be delivered. You know, we’ve spoken with the World Gold Council about what their expectations for companies are in terms of automated battery vehicles within mining, etc, so this is fascinating. And do you think it makes economic sense to do this or is this just about being socially responsible?
Chris Reed: Obviously we are a listed company. We are here for our shareholders benefit. I don’t think they’re mutually exclusive. Certainly that we are targeting, like I say, the thematics, the commodities and then we are picking our position in those supply chains a little smarter than once we would have where we just would have bashed on with a more capital intense, lower margin, higher risk upstream mining operation because, you know, traditionally Australia has been a bit of a quarry for the world’s building blocks for the modern industrial world.
Matthew Gordon: Yes, and we can’t finish a conversation without talking about Covid-19. Obviously you guys are working at home at the moment, but you do have guys in the lab. I understand it from Darren that you are all still beavering away. Is that impacting your ability to get this agreement over the line sooner?
Chris Reed: Look, I would have actually said it may have been the straw that got it over the line that, you know, we had given them this contract there that, you know, we’ve got an exclusivity period. We’ve paid for that exclusivity period securing 27-months to get to an FID to monetise this for them. They’ve been sitting there stockpiling this for 30-years, so we’re actually going to turn it into money for them. In terms of the covid impact on us, I mean, we sold out of our upstream operation. We’ve got a lot of cash. We’ve been doing quite a lot of well, quite a lot of metallurgical test work across our core projects. They’re now moving into the engineering stages. We’ve finished a lot of exploration at Christmas. We’ve now been compiling the results, planning our next moves for those projects.
So, I mean, we’re not wasting the opportunity. And look, you know, we are a very strong company in terms of our balance sheet, our human and our financial resources generally, from the board all the way down to the receptionist. And so we will pretty much move seamlessly through the evaluation stages. You know, I understand in Australia they’re doing a pretty good job of getting on top of this early. I mean, it should come as no surprise. We are the most isolated country in the world with the lowest population density. So I wouldn’t put that down to, I mean, it’s some good moves from the government, but it should be taken as no way to try to say, we’re not boasting about that. It’s more geographical anomaly.
And the mining industry here is an essential service and the government is allowing those to operate because ordinarily we have probably the highest operating safety and health systems in the world. And so the addition of pre-testing, constant testing, social isolation or self-isolation and social distancing; when you’re flying in and flying out of a remote work site, you’re almost doing that anyway. So for us, we’re fortunate that I can see no material disruption. Some of the timelines and some of the milestones might move around a little bit. Certainly there could be disruptions in terms of the global macro basis but to get to FIDS, you know, we have multiple years of surplus cashflow. In fact, as a sign of our strength, we accelerated the consideration of a dividend that we’ve done annually for the last four years. We brought it forward by a month because we are in such good financial position, we’ve got more than USD$80M in available cash after the dividend. We have no debt. And so we can execute our plans to take all four projects through to final investment decisions without having any regard to our underlying balance sheets. So it’s not lost on us. We are fortunate and for everyone, you know, who’s not so fortunate, we do understand and feel for them.
Matthew Gordon: Okay. no, I appreciate that background. I do need to try and understand though, where this is going. So JV happens, you start processing, are you selling into the Chinese rebar market or are you going to be part of the European ecosystem? And where’s this going?
Chris Reed: Certainly the industrial minerals in the advanced materials attracted us because you don’t have the financial investors, right? So they truly are price value in use. And what we’re seeing across a lot of these commodities is a real bifurcation; in Lithium we saw China versus the rest of the world. If you have a look at Vanadium that is essential in producing high strength, low alloy steels, Titanium-Vanadium allies for aerospace; it’s non substitutable. And it’s increasingly becoming prevalent in energy storage – these VRF batteries. You know, the electrolyte and the batteries, 50% of the cost of the battery is Vanadium. You can’t call it a Vanadium redox flow battery without the Vanadium. So demand is growing and what we’re saying is that about 80% of the world’s Vanadium is coming out of China and Russia. And so when you have a look at aircraft air frames that are 18 to 20% now, in the new generations, Vanadium, Titanium alloy, the Vanadium, the master alloys either come from, you know, Bolong in China or VSNPO in Russia. So you’ve got Boeing and Airbus that are entirely reliant on, I will say, non-free-market sources. So for us, we would obviously look at geographically delivering into Europe and North America as those key markets if you’re operating up in Scandinavia.
Matthew Gordon: Are the Europeans pleased to see these sorts of things, these sorts of operations, these joint ventures? Because we talk to companies who are, you know, trying to tap into these big EU subsidies to kind of get things going. I guess you guys don’t have that problem, but have you had conversations or are they interested in what you’re doing?
Chris Reed: Oh look, we’ve had obviously keen interest, not only because we do have the world’s second highest-grade hard rock Titanium-Vanadium asset in Barambah, we spoke with most of the big players reasonably regularly. Certainly for, I know in Germany if you’re importing Vanadium into the steel industry, they have an import finance scheme as well as an export finance scheme, which is generally the UFK, or the German government guaranteed schemes. If you’re doing input financing, you essentially take your production times a long-term price, times the duration of the contract and divide that by four and that’s the amount that you can look to procure from German commercial banks with the German government backed guarantee. So, you know, security of supply for essential materials into one or more, I mean, we haven’t explored, obviously our relationship with SMS; we have explored import and export financing. We seem to think that the import financing happens a little quicker than the export financing. And so, yes, there are pools of money from a strategic point of view, you know, green funds, circular economy, ESG; this will tick all the boxes.
Matthew Gordon: Okay, thanks. Thanks Chris. So just to kind of sum up, because what I’ve heard is high-grade, highest grade you’re telling me, lowest cost, no capex, or relatively low capex compared to mining.
Chris Reed: And removal of mining risks. I mean, that’s where a lot of miners have got it wrong: that you stick so much money in the upstream mine and because you’re always getting pressured to do these things quickly, there’s some people who take, you know, unacceptable risks, or that could have taken longer or with more money, but you know, that’s delusionary stuff. So removal of risk,
Matthew Gordon: Okay. The ESG component – you’re telling me that you are part of that circular network within Europe and you think that you can get that funded from any funding, with you and your partner, that can happen from Europe. That’s what I’m hearing. Am I missing anything?
Chris Reed: Absolutely. Look, we are genuinely stoked with this opportunity. You know, we have 27 months to get through to an FID. I cannot see any fatal flaws at this stage and hence why I’ve been able to procure the board to authorise the staged expenditure of USD$5M. I haven’t been so excited for a project since I bought Mount Marion.
Matthew Gordon: I bet. Well, look, Chris, I appreciate it. And Darren and David, thank you very much for today; giving us that update on that agreement, and it sounds like exciting times. I’m genuinely really excited by the approach with companies like yourself and how they’re tackling this battery revolution and how they’re getting involved and where they’re inserting themselves. And you seem to be very focused on the making money bit, which is great, and delivering in a responsible way. I was really pleased to talk with you about the battery recycling component, but this one sounds even better.
Chris Reed: Yes. We don’t have to worry about going out and procuring the supply.
Matthew Gordon: Yes, no. Well done.
Chris Reed: In terms of battery recycling, you’re trying to pull out physically Copper and Aluminium, graphite, plastics, and then you’re trying to sequentially drop out the leftover Cobalt, Aluminium and iron waste. Then you’re trying to get out Cobalt sulphite, Nickel sulphate, Manganese sulphate, Lithium sulphate, recycle your tailing strength. I mean, it is unscrambling an egg. This is literally just cracking an egg and cooking it properly.
Matthew Gordon: There you go.
Chris Reed: And making sure you don’t burn the toast.
Matthew Gordon: It looks like you’ve got a couple of eggs on the plate; both very good. I wish you well. Stay in touch. Please let us know how you’re getting on because obviously you guys seem to be quite fast moving and you’ve got a few projects in the portfolio, I know. So give us a call.
Chris Reed: We’re grateful for the time. You keep well. Everyone keeps safe.
Company Website: https://www.neometals.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.