Bergen Carbon Solutions AS

OSE:BCS

Earnings Call Transcript

[Odd Stromsnes, executive]

Good morning, and welcome to this Saint Valentine's Day at the Bergen Carbon Solutions presentation of Q4 2024. And the latest progress of our cutting-edge CCU technology. I'm Odd Strømsnes, and I'm the CEO of the company.

The agenda is as follows: introduction of the main principles of our equity story. We have seen some of the slides before. Q4 '24 highlights, status and technology development, summary, and then we're rounding off with Q&As. As one of very true CCU companies, BCS continues to offer an attractive value proposition based on local development of sustainable carbon. This carbon is a key component into all batteries, which today as we know, is produced in China with massive greenhouse gas emissions.

Through our CO2 consuming electrolyzed technology, we develop our carbon powder such as CNT, synthetic graphite and carbon black. All these carbon allotropes, we can produce, are critical for various battery chemistries. Our current focus presented here today is still very technical, developing the process in order to be able to produce a consistent and well-defined carbon powder. Documenting precise repeatability of the process window is paramount for us to be able to take the next step.

And from a CCU perspective, we have already proved the concept of a complete carbon value chain as we have documented carbon capture directly from flue gas emitted by a large waste incineration plant here in Bergen. The world's massive electrification transformation needs more batteries, as the global battery demand will significantly increase until 2030.

The global increase in the battery market, which we have just seen the start of, will take place regardless of the geopolitical uncertainty we now see. The growth will also be based upon an increased focus going forward on developing a sustainable and locally, battery value chain. Norway has good fundamentals for production of critical battery components based on our long-term sophisticated material knowledge and process experience from other industries.

And the fundamentals of our process is simple and based on exactly that, splitting the CO2 into oxygen and carbon through an electrolysis process, emitting the oxygen and harvesting the carbon on the cathode side of the process. We do this by consuming CO2 and with less power than by conventional production of carbon where we are -- where it's emitted CO2. It's simple, but it's difficult.

Development of cheaper and more effective batteries is ongoing on the global scale. New chemistries are continuously being developed with the aim to develop more energy storage per unit weight. CNT is a key component for all this, an important element in many of these new chemistries, and we know the demand will increase. And the CNT is a conductive agent, increasing the batteries conductivity, which makes the battery faster to charge and more durable.

Our technology is novel. It's sustainable and offers a local alternative to the CNT production taking place globally today. And the electricity consumption is a fraction of existing production methods. And in a scale production, implementing over new process steps, we believe we can compete on cost.

In a geopolitical context, Bergen Carbon Solutions basically ticks all the boxes. In a world where the price for CO2 emissions will probably increase and protective incentives for sustainable and local production will stimulate industries like ours. The battery value chain is a true global industry with many players. Here, we have listed some of them primarily split into 5 areas: raw materials, materials processing, cell components, cell manufacturing and system assembly.

And it's important to know, BCS is an upstream company in this value chain. We are a raw material supplier providing critical material potentially to all the 4 subsequent downstream areas shown here. And this picture is just a snapshot of some of the companies in the value chain. Huchems, for instance, as a chemical company, is typically within material processing while Morrow and Beyonder are typically cell manufacturing companies.

This means that our client ecosystem is massive with a huge number of potential offtakers, where we could go from drop in replacement of our green carbon into a fossil blend for processing or cell component company or as a critical sustainable material towards the cell manufacturer or assemblers themselves. And they all need active and conductive additives to improve the batteries performance and the greener and the more local it's produced, the better.

A recent contract award to a local Norwegian player providing sustainable anode raw material for a large American automobile manufacturer, is definitely a good proof of this. Another long-term aspect of the benefit of being to the left on this chart is the flexibility towards new technologies. As the continuous change in battery chemistries will call for modifications to the cell manufacturing with consequential higher CapEx, the longer to the right you go on this chart.

I think it's prudent to state that this is a complex and new value chain to not only the Norwegian industry, but to a certain degree, also European industry. Many players have internal vertical value chains and many focused today on completion of their large CapEx investments rather than exploring the potential of new value chains. We believe this will change. That's why we have been active presenting on a number of events and conferences resulting a dialogue with more than 35 companies during 2024, which is only a snapshot of the massive client universe we can see.

The potential here, we believe, is enormous. As a consequence of my previous slide, and by the fact that we have a number of potential partners and clients in the carbon raw material space, we have been accepted as a member of the European Advanced Carbon and Graphite material Association. This Association of the European Carbon value chain aims to build a competence with a global goal of delivering European carbon. We believe this can be beneficial for us going forward, and we will have our meeting during this spring.

Electrification through the global growth in the battery market is indeed a mega trend. And mega trends are always important to watch. Never take your eyes away from that. In 5 years from now, 50% of all new cars sold are electric vehicles on a global scale. In Europe alone, it's 70% and in China, 90%. Today, there are a fair competition with falling prices and oversupply of batteries. And the global battery value chain is dominated totally by China.

However, with the anticipated global growth, the battery oversupply is considered by most to be temporary and with a global geopolitical situation, local actions will be taken to aim to reduce the substantial Chinese dominance. There are, therefore, many good reasons. You assume that European and U.S. players in the battery value chain will succeed and that the Western battery supply chain will not be a copy of the collapsed western solar industry you saw for some years back.

Then I will go through 2024 highlights. So I'm actually very satisfied to summarize the key developments which took place last year. Implementation of new small and medium scale electrolyzer cells for increasing our ability to development and speed up the development for a well-defined and consistent carbon powder. We progressed on advanced electrolyte recycling and the purification process.

And we were kicking off the Battery Lab in-house, and we have actually produced more than 100 coin cell batteries during last year. We strengthened our financial position and expanding strategic partnerships by reducing burn rate throughout 2024. We have now seen a 23% cut relative to 25% due to cost reduction and organizational reshaping, achieving a higher efficiency with fewer employees.

We secured NOK 14 million from Skattefunn funded over 3 years and additional support from Innovation Norway. We signed LOIs with Morrow Batteries and Beyonder and extended our existing MOU with Huchems. So our financial numbers presented here confirms no need for further funding as we continue to have the finances in plan for execute on our strategy.

We're showing here a 23% reduced yearly cash burn rate from 2024 to 2025. And the need for CapEx going forward is very limited. So the cash burn in this last quarter is NOK 13.3 million and this corresponds to a NOK 3.3 million quarterly cash burn reduction compared to Q4 in 2023. We still have a solid cash position at NOK 170 million, still 0 debts and the satisfactory equity position.

In addition to the NOK 14 million from Skattefunn, we are continuously working on other relevant funding opportunities. Then an update of the technology development work we do. During 2024, we announced 2 intentional technology agreements with Morrow and Beyonder. The parties believe that the local high-quality raw material supply of tailor-made carbon products produced with our CO2 consuming production process could actually become one of the most valued competitive advantages for the Norwegian battery industry, going forward.

Following completion of their ongoing ramp-up activities and market penetration based on their existing battery chemistries, we anticipate to start testing and evaluation of our carbon powder within new and adjusted battery chemistries going forward.

The 1-year extension of the Huchems MOU is definitely a clear sign of interest to our technology despite our delays meeting their specifications. As we have previously announced several times, BCS progress is currently being monitored by Huchems as part of the current agreement. The Broadbit project is currently closed. However, further development tests will be conducted internally in our own battery lab. At a different domestic academic institution in Oslo, Bergen and Trondheim, we are conducting various tests with specialized equipment and experiments.

This work will be strengthened from our side, as it's also key for participation into future funding initiatives. The degree of cooperation between the players in the Norwegian battery industry was, in 2024, strengthened, driven very much by general common interest and organized by Forskningssentre for miljøvennlig energi, FME. And the intention is to strengthen the cooperation in the industry and bringing new and sustainable carbon materials into the next-generation battery market.

Joint research projects with the Horizontal Na Energy is on the development of next-generation sodium ion batteries is progressing well. Our powders is evaluated as potential conductive additives in their chemistries. The setup will bring valuable feedback on the performance of our powders and propose next step, as well as intelligence on other materials for this is very interesting for next-generation battery chemistry.

In end of 2022, we changed our strategy, and we have talked a lot about that. And as part of this change to strategy, where we moved away from targeting production for a general carbon market for a wide number of applications, we move towards being a technology development provider focusing towards the battery market as this is a growing, sustainable, high-end market with a high entry barrier but also a high willingness to pay for the right quality.

Investment into Battery Lab and smaller cell testing equipment has enabled us to reduce our OpEx and significantly speed up the development work much faster feedback loop of our test results. We are now a technology development company. We are not a production company. That's important message. This has required new skill sets and competencies. Now focusing 100% towards our core technology process.

So today, we have a steady head count of 22 and that is actually a 35% reduction in 15 months. And I would say humbly that we have never progressed our development work any faster than we do today. And here is a picture of most of the technology group, headed up by our temporary CTO, Rita Glenne, supported by our 2 technology managers, Wenting Xu and Håvard Husby. This is a technology leadership team with massive relevant competency and industrial experience. This is just what we need.

BCS's ability to attract young talent, I would say now is undisputable. We can offer an attractive, sustainable technology solution to young engineers. And I'm very pleased with this team, and I'm confident that they form the competence base we need to build the company going forward. Producing CNT is difficult, and it's all about size and form, as small particles as possible with as much surface as possible, 1,000 times thinner than a hair, 10 to 100 nanometers diameter with the surface area of 100 to 200 square meter per gram.

The vast majority of all major battery chemistries today contain CNT and it's today produced fossil-based in China, as I've said several times. So for us now, it's still all about further developing our technology, defined here into 3 stages: first, transforming the CO2 into solid carbon through our electro license process, achieving a stable and well-defined technology platform by optimizing the input parameters. Secondly, the post electrolyzers phase defined by separation and filtering out the carbon as well as cleaning of the electrolyte, enabling full recycling. This is very important for our total OpEx picture.

Thirdly, testing out our carbon products -- product in different battery chemistries in order to verify and benchmark -- benchmark our products versus what the market can offer. The first and most important step here is obviously the electrolysis. And for this equipment, it's all about operability. It's all about size and it's all about speed. The smaller volume we are testing, the faster we get results and the cheaper the processes.

So during 2024, we have been investing into new equipment, and we now have 4 different sized cells, same principle function, but for slightly different purposes. We do our most fundamental studies in the smallest unit, the micro cell. For further technology verification and the cell we run mostly for the time being, the use is the lab cell, which has a volume of 4 liters. Here, we now harvest the results of 2 runs per day, 7 days per week. And from this unit, we do great -- great leaps in our technical progress.

In addition, we now have a 40-liter scale cell ready and commissioned where we will do pre-pilot testing and work to monitor larger volumes when we are ready. For more extensive volume testing, we can use our 100-liter production cell. However, this is not used much for the time being. We expect that this equipment setup is sufficient for us to conclude on our technology platform going forward. And as such, we do not expect further major investments. So it's important to note that we are focusing on quality, and we're not focusing on volume in terms of production.

In our second step, we apply the separation unit to separate carbon from the electrolyte and subsequently rinses and recycle the electrolyte. And we have now developed a method for more than 95% electrolyte recycling, cutting costs and definitely increasing our competitiveness. We have filed a patent on this and that's progressed, both in Norway and globally.

In our final step, the Battery Lab have equipment for testing our powders in different applications. The lab will allow us to conduct in-house cell manufacturing and performance testing, significantly reducing development time and time to market. Previously, that loop took many months, as we know, are down to 2 weeks. Material testing and production of battery cells has started, and we have successfully fabricated more than -- more than 100 test cells. And this initiative is a training ground and a showroom, I would say, for innovation and indeed, welcomed among key stakeholders we talk to.

And further news from the battery lab will be available on our web page as we progress. And together with our industrial partners, we have worked with several of the dominating cathode technologies including LFP and NMC. Initial tests show good results with our powder into LFP chemistries, which is a chemistry with increased global footprint. There will be a blend of different chemistries for a number of varying applications going forward.

And one of the -- one of these chemistries that we have pinned down as a high potential is lithium-sulfur. While this is not a very commercially ready chemistry at some of the unique characteristics of our materials add much value to this final product and may help overcome some of the challenges on the way to commercialization of this battery chemistry. And we have recently conducted initial battery cell performance testing with our carbon powder with, I would say, promising results. And also to learn more on this progress, we will ask you to look at our web pages.

So we continuously develop our technology in all aspects, I would say, of our process. Our testing shows steady improvements. However, our process still require optimization, to create a consistent and well-defined powder, in order to meet the quality requirements from the industry. This is also what we have said in previously quarter presentations. So we are not there today that we are meeting all the market specs for the battery industry. This is a novel technology. The process is complex and has taken longer time to develop than we expect.

But we are narrowing in on the process window by exploring optimized routes to also close in on the specs. The technology barrier is high, but so is the reward when we are there. So I'm confident that we -- what we do know is the right thing that our efforts and our full focus towards our core technology is the correct priority. At 100% of our focus remains on the process quality and advancement in test equipment and speeding up the result of our testing.

So in order to summarize, overall, I'm very satisfied with my team and what we have been able to achieve during 2024. And during the last 2 years, we have turned the company into a pure-play technology development company in line with the strategy towards developing carbon powders for the battery industry. So during the last year, we have seen a massive reduced cash burn rate achieved through organizational reshaping, fewer employees with higher efficiency and lower OpEx.

We secured funding from Skattefunn with additional funding applications ongoing as we speak. We have a steady on technology development focus with new scale electrolyte now commissioned, accelerating our process optimization speed. So I would say that we have cemented our strategic direction towards developing a carbon powders for the battery industry.

So that concludes my presentation. Thanks for your attention. And now we're going over to for Q&As.

[Unknown Executive]

First, we would like to clarify that we do not comment on inquiries that are not directly addressed to the company. Additionally, we do not comment on unfounded rumors, speculations or matters that falls outside the scope of business for BCS.

Question number one. Do the people around odd have the right competency for BCS to succeed?

[Odd Stromsnes, executive]

I mean I just talked about 35% head count reduction during the last 15 months. So I would say the competence blend is definitely changed. I would say, no, we do have the right competency. There are still room for improvements in terms of experience -- relevant industrial experience. I would say that we are definitely an attractive employer. We are able to recruit talent. Some I am very happy now with the team we have with a complete focus on the core technology. We don't have much resources now supporting expansion, general engineering. So we have a completely different strategy there. So the answer is yes.

[Unknown Executive]

Question number two, the lack of media visibility. Is this a deliberate strategy or a weakness?

[Odd Stromsnes, executive]

First of all, I would say that I would argue that we lack visibility. I would say we have participated in many visible events over last year. So all the major conferences. We are a presenter. We have been participating on many relevant events in Europe, large events. But we are a technology development company. We need to focus on core process. And I think that there are probably strategic elements with our visibility, which is different than it was 3, 4 years ago. But that is deliberate.

[Unknown Executive]

BCS focusing on the max -- on the most complex applications, wouldn't it have made more sense to start with simpler applications to get to market faster?

[Odd Stromsnes, executive]

Okay. This is a good question. I think the company started off by looking at -- on the general market with a lot of potential and products. I mean we are looking to a market which has a 30% global growth per year. It's a huge market with a dramatic increase. It's a difficult product, high entry barrier. But when we are staffing up and qualifying our team, we will manage that technology entry barrier. And then we believe the reward is huge, high willingness to pay. But I think what's important to note is that the real driver for large-scale consumption of multiple carbon nanotubes in the world is through batteries. So it is natural to focusing totally on that market.

And then as a general comment, I will also say it's always a good strategy for a company to be -- to narrowing down the focus on what kind of products you are looking into. All kind of products will have their specifications and requirements.

[Unknown Executive]

Has BCS reached any milestones? Or are they continuously being pushed forward into the future?

[Odd Stromsnes, executive]

I mean, what we are working on now is really is simple and it's not that simple. We are developing a consistent and well-defined powder. And in order to do that, we need to have full control of a process. And that's what we're working on. I would say we are reaching small milestones every day. But that is technology milestones. We are talking to relevant clients every day. Some of them we announced, but most of them we have not. So I would say that we are working on internal milestones as part of a technology development company.

[Unknown Executive]

How does BCS envision scaling after achieving the required specifications? What are the biggest challenges in moving from producing, let's say, 100 grams to a tonne with consistent quality?

[Odd Stromsnes, executive]

Today, as I said, we are not producing for volume. We're producing very small amounts for testing verification purposes only. And again, developing a process for a consistent and well-defined powder. And that's basically what we do. And for the -- and to comment more on that, I'm not going to do. It's always difficult to give predictions and forecasting for a development company.

[Unknown Executive]

You have previously mentioned that you're working with multiple customers. Have any of them withdraw? Or are you still in dialogue with them all and potentially other players?

[Odd Stromsnes, executive]

I think one of the pages we showed there today is quite interesting. It's a snapshot of the global value chain. I mean there's a huge number of potential partners out there. And we are talking to a few -- and I would say that, that dynamic process is continuing, and that's going well. But that is long processes. And at one point in time, we need to start qualifying the product with certain partners.

[Unknown Executive]

If our breakthrough is achieved, what will be the next steps in the development process.

[Odd Stromsnes, executive]

I mean a breakthrough for us now is achieving a process where we are, on a repeatable basis, able to make it consistent and well-defined powder. I mean that is basically to really get control our process. And that's what we're working on. And that is what, we know, will define as a breakthrough to really have control over our technology.

[Unknown Executive]

Yes, another one here. What is BCS main problem? Is it a quality, price, technology, lack of qualified personnel, funding or something else?

[Odd Stromsnes, executive]

That was a big question. I wouldn't say that we have a problem. We have challenges of technical nature. We have the right team in place to handle it. Again, these are new technology frontiers. You're not able to predict everything around next turn. But that is work we are doing on a gradual basis. And we're aiming to relay, again, get full control of the process we're running.

[Unknown Executive]

I've got 1 -- our final question now will be, are you using similar amounts of resources internally on producing graphite as CNT?

[Odd Stromsnes, executive]

Today, we are focusing on the CNT as a product primarily, but in all -- but establishing that process window, which we are now doing will be applicable for many of these carbon electrode products. So what we work on all will be deterministic for a wide number of carbon products.

[Petter Slyngstadli, analyst]

[indiscernible] staff significant. Did you move more of the testing to partners. So is the Battery Lab very central in your stake?

[Odd Stromsnes, executive]

I would say that the battery lab is indeed very central and it's getting more and more important for us. So that is no question about that. That one -- that's one investment we did last year. I mean we had -- I mean, we have done a dramatic change in the mix of our staff, much less focus on expansion, general engineering we are buying equipment much more on off-shelf type of philosophy versus previously where we designed it ourselves.

Our OpEx cost is reduced by the fact that we are spending much less consumables of doing our tests since we are running much smaller test cells. And with our focus and with our new strategy, I think that we are in a much better position in terms of the number of head count we need to solve the problems we are working on.

[Petter Slyngstadli, analyst]

You mentioned that you had your products in [indiscernible]

[Odd Stromsnes, executive]

[indiscernible] , no.

[Petter Slyngstadli, analyst]

No. And these battery cells, do they work?

[Odd Stromsnes, executive]

Yes, they work. We -- first, we're mounting them using our own carbon powder, constructing the battery cells and testing them and check out the battery's performance. And we do that versus other battery cells, which has commercially available carbon powders, which are made fossil. So we're checking our performance at batteries with our CNT versus competition powders. And benchmarking the performance.

[Petter Slyngstadli, analyst]

Okay. And you're focusing on [indiscernible] from batteries, is this a relatively novel thing?

[Odd Stromsnes, executive]

It is. Yes. I mean, as I said, it's a battery chemistry, which is not really commercialized yet, but I think the market in general view it as a massively high potential market with a high energy density. So we think that, that type of chemistry will be the answer to many of the battery chemistries of tomorrow. So we have started off by testing out that chemistry, but now we are also testing other chemistries. We have just started LFP chemistry testing. And so we will basically broaden our testing applications as we go along.

[Petter Slyngstadli, analyst]

[indiscernible] Technology. Do you see any scope for commercialization of just this process? Or is that off the table now, the competitive edge?

[Odd Stromsnes, executive]

So I mean, the commercialization element of it is the fact that we will be able to run our process much more cost effective. So that is for internal purposes.

[Petter Slyngstadli, analyst]

So the last thing I had to take, Skattefunn grant, when will this be recorded as revenue. Have you already for 2024?

[Odd Stromsnes, executive]

That's for the next 3 years.

[Petter Slyngstadli, analyst]

The next 3 years. But did you take some of it in the fourth quarter?

[Odd Stromsnes, executive]

No, we did not use. That's starting this year.

[Unknown Executive]

Okay. Thank you, Petter, for your questions. Petter Slyngstadli from Norne Securities. I think if we have time, we have one more question from our live audience that we can try to follow up. Are you using the CNTs primarily as an additive for the anode or the cathode?

[Odd Stromsnes, executive]

Primarily, it's for the cathode. So that will form part of the chemistry mix on the cathode side, but there are also battery applications where you can use the CNT also as a mix into the anode side.

[Unknown Executive]

And our last question for today will be, are you -- this material, is it like a dry powder or in fluid or how is it distributed?

[Odd Stromsnes, executive]

I mean we are producing it as a dry powder. And then we're mixing into different fluid-based solvents, I would say, in order to apply into the battery.

[Unknown Executive]

Okay. I think that concludes the Q&A. And therefore, also the presentation.

[Odd Stromsnes, executive]

Thank you.

[Unknown Executive]

Thank you.