Rana Gruber ASA

OSE:RANA

Q2-2025 Earnings Call

[Gunnar Moe, executive]

Hello, everyone, and welcome to this presentation of Rana Gruber's results for the second quarter and first half of 2025. My name is Gunnar Moe, and I am the CEO at Rana Gruber. With me today is our CFO, Erlend Høyen. We will now take you through our operational and financial performance, and you are welcome to send us questions during our presentation by using the Q&A feature. Questions will be answered at the end of the session.

The strong production trend from previous quarter continues, both at the mine site and at the processing plant. Concentrate production reached 440,000 tonnes in the quarter and 913,000 tonnes in the first half, both well above last year's performance. Iron ore prices has remained volatile and softened at the end of the quarter -- of the second quarter, which directly influenced our revenue recognition. Revenues for the quarter landed at NOK 327 million, below last year's NOK 547 million. Cost discipline is important in a volatile market. Cash costs declined in absolute terms and on a NOK per tonne basis, but the stronger Norwegian kroner versus our cash cost target level resulted in a reported cash cost of USD 61 per tonne produced.

Preparations at Stensundtjern are progressing according to plan, ensuring operational readiness for the transition from Ørtfjell open pit mining to new production by year-end of 2025. The project underpins Rana Gruber's strategic goal of increasing magnetite production and strengthening long-term competitiveness. As part of this development, the Board has decided to move forward with infrastructure investments at Storforshei. The investment will be financed with long-term infrastructure loan backed from Eksfin as well as expected public support. The investment is expected to be paid back over Stensundtjern's lifetime.

Rana Gruber continues to return capital to our shareholders, with the Board of Directors resolving to declare a quarterly dividend of NOK 0.66 per share for the second quarter. The dividend represents 70% of adjusted net profit. In the first quarter, we recorded one minor injury, which led to a short absence. The employee is back at work, and this reminds us that safety must remain a top priority in everything we do. In June, we carried out our annual maintenance stop, completing up to 400 work packages. This was a large and complex effort involving both internal staff and external contractors. Importantly, all of this work was completed without any incidents, which is a strong achievement and shows the value of our systematic focus on safety and planning. Going forward, we will continue to strengthen our safety culture to ensure that everyone who works at Rana Gruber returns home safely every day.

The second quarter confirmed the positive trend from our previous quarters with solid production of both hematite and magnetite in line with our expectations. Looking ahead, magnetite volumes will increase further as Stensundtjern comes on stream. In a volatile iron ore market, improving quality and efficiency is critical. I'm therefore very pleased with the strong progress in underground production in recent months, which strengthens our flexibility and ability to deliver iron ore at a competitive cost.

Now I will hand over to our CFO, Erlend Høyen, who will present the financials.

[Erlend Høyen, executive]

Thank you, Gunnar. Starting off with the revenue side of the P&L as usual. As you can see on the graph on the right-hand side, second quarter revenues decreased from the second quarter in 2024 and ended at NOK 327 million. The main reason for the decrease is linked to price effects and volumes sold within the quarter. Foreign exchange and shipping costs also contributed negatively this quarter, partly offset by a positive contribution from our magnetite sales. From the graph in the middle, you can see that realized prices for magnetite have been increasing for the last quarter, while hematite prices have declined compared to the previous quarter. Revenue per tonne for magnetite appears particularly high for this quarter, and that is mainly due to more sales under CIF contracts this quarter, where the corresponding freight costs are booked on the cost side.

Moving over to the cost side. Cash costs in absolute terms went down both compared to previous quarters as well as the corresponding quarter last year and measured in cash cost per tonne in Norwegian currency, this quarter also showed improvements compared to last year's second quarter. Due to the second quarter maintenance stop, the second quarter normally stands out on a cost per tonne basis. And although the $61 per tonne is above our long-term cash cost target, we are confident that we will achieve our target on a long-term basis. The currency changes during the quarter also put pressure on our dollar target, but this effect has slightly improved entering into the third quarter. In line with IFRS, most of the maintenance costs related to the annual maintenance stops also must be classified as OpEx, also affecting cash flow in the quarter.

Financial performance, the normal busy slide with some comments on some of the numbers. EBITDA decreased from NOK 92.5 million from NOK 205 million last year, mainly linked to the effects on the revenue side. In the second quarter, the pretax profit was adjusted with negative NOK 19.3 million related to the unrealized changes in the company's hedging portfolio, giving us an adjusted net profit of NOK 34.7 million, down from NOK 137.4 million last year. This again gives us an adjusted EPS of NOK 0.94 compared to NOK 3.71 last year. And by following our dividend policy, the Board decided to pay out NOK 0.66 in dividend per share for the second quarter of '25.

Moving over to cash flow. The total net cash flow from operations in the second quarter amounted to positive NOK 47 million. Included in this is a tax payment of NOK 44 million. CapEx for the period amounted to NOK 52 million, mainly related to the mine level Level 91 as well as our new mining level, Level 59, which we have started developing as well as some smaller installations in the Fe65 and magnetite circuit. Of financial activities, NOK 47 million was paid out of dividends for the first quarter and NOK 14 million was payment of the principal portion of our lease liabilities. All in all, this gives us a negative change in cash of NOK 66 million for the second quarter.

Ending the financial review by looking at our financial position. We continue to hold a solid financial position, but there is a slight reduction in cash and cash equivalents compared to the first quarter, mainly caused by payment of income tax, dividends and investments. After the dividend distributions for the first quarter of '25, our equity ratio was 61.2%, where part of the uplift this quarter as well is related to further strengthening of the unrealized value of our hedging portfolio as well as the leasing debt being reduced to NOK 282 million within the quarter. By the end of the first quarter -- the second quarter, the total cash holdings was NOK 27 million.

And that concludes, I think, the financial section. I will leave you to the last words, Gunnar.

[Gunnar Moe, executive]

Thank you, Erlend. To sum up, we continue to make progress towards our ambitions, steadily improving our business to meet the evolving demands of the steel industry. While we are focused on developing our operations for the future, we remain committed to maintaining cost discipline. Our strong balance sheet, solid partnerships and skilled team give us the ability to navigate volatile markets with confidence. We are on track to deliver iron ore concentrate with a 65% grade and to increase magnetite production. I'm also pleased to highlight that we have now achieved 18 consecutive quarters of dividend payments.

With that, we conclude this presentation, and we'll now open the floor for the Q&A session. Thank you.

[Vegard Nerdal, executive]

Thank you, Erlend and Gunnar. For the moment, we actually don't have any questions, but I will -- I could start the session by addressing some questions. I can take the first to you, Gunnar. Could you elaborate something more about our Asia shipments going forward?

[Gunnar Moe, executive]

Yes, Vegard, I can do that. Europe is always our main market. Our goal is always to sell 100% of the produced volume to Europe due to a slowdown on steel industry in Europe, that will, for some time, be a little bit difficult. So that's why we have the backstop linked to the contract with Cargill Metals that gives us the possibility to send some ships to Asia. So that's the rationality. So it's not the first choice, but it's also always a possibility for us. So all in all, that's a positive thing.

[Vegard Nerdal, executive]

Thank you. Still none questions, but Erlend, could you elaborate something more about the investment in the infrastructure?

[Erlend Høyen, executive]

At Stensundtjern?

[Vegard Nerdal, executive]

Sure.

[Erlend Høyen, executive]

Yes. I think there are many rationales behind doing the investment at Stensundtjern. But obviously, the first one is to mitigate the possible cash cost increase that's the longer haulage road would sort of like represent. So that's one factor that it sort of pays itself off in that sense. But there is also operational and risk aspect to it as well. Reducing the haulage road over -- in winter terrains reduces risks for the employees. But the -- and as well as having multiple extraction points for the ore down to the processing plant also mitigates risk in the sense of always being in operation and always having ore available. And I would say the third factor is -- it will be an enabler for the company in a long-term sense when looking at mine plan and different possible ore bodies that we can attack for the next 10, 20, 30 years. So multiple positive effects. Short term, it's obviously the cash cost aspect of it. And then long term, there are other benefits of having this infrastructure developed.

[Vegard Nerdal, executive]

Perfect. Now, I see I have got some questions. So I just take -- can you Erlend say something about our OpEx and cash cost target? Did our OpEx come above our expectations?

[Erlend Høyen, executive]

I would say no. But obviously, it's above the announced long-term target, but I think it's important to emphasize that the target that we have set of staying between the $50 to $55 on a long-term basis will have fluctuations as same as I think it was Q4 last year, we were below that target. This quarter, we have been above, but we still feel that the target is well within the range of what we are able to do on a long-term basis. But there will be fluctuations. And typically, the second quarter is always the highest quarter on a cash cost per tonne basis due to the maintenance stop and the reduction in production due to that. But if you look at the numbers behind the cash costs, we showed improvements this quarter compared both to previous quarter, the first quarter and the quarter last year.

And the third factor that typically will affect the sort of like announced target in -- measured in dollar will always be the currency effect. When we set out the $50 to $55 target, that was based on one currency assumptions. And obviously, on a long-term basis, we have to adapt to sort of like fluctuations in the currency. That's something that we obviously understand and take into consideration. But on a sort of like quarter-to-quarter basis and on a short-term basis, that could sort of like also move the numbers a little bit around.

[Vegard Nerdal, executive]

Perfect. Gunnar, what's your latest estimate when you will be linked to the Fe65 index on the hematite? And if we go further on the 67 project, could you say something about the premium compared to the 65?

[Gunnar Moe, executive]

Well, as announced, we are on target with -- for the time being of producing 65. There has been some delay because linked to late delivery of some equipment, but that will be sold quite soon. And the Fe65 index and the spread between 62 and 65 is quite narrow at the moment, and that is linked to difficult times in the industry. Whether we -- when we produce 67, which we hope that we will get an approval from the Board, and start the change to produce 67, there is very difficult to say what the margin between 65 and 67 will be. We still believe that it will be substantial, but to put any numbers on it will be very difficult.

[Vegard Nerdal, executive]

Thank you. I think this goes to you, Erlend. A question on the capital structure. Your cash position has declined from close to NOK 300 million at the start of last year to NOK 27 million now. Could you comment on what you see as a target or a comfortable cash level and a net debt level going forward? And could you say something about the dividend policy related to this?

[Erlend Høyen, executive]

Yes. Good question, I think. And I don't think that I will give a firm answer on -- in regards of numbers, but I will -- I can maybe put some light on it in the sense of what type of directions I think we are sort of looking at. And on the cash level, we would say that being the level that we are now, we are a bit short of cash. We would like to increase our cash position. That's one thing. And on a debt level, we have announced that we will debt finance the infrastructure investment on Stensundtjern. And that was something that we slightly touched upon in the CMD in November last year that we see that our equity ratio and our financial position is -- continues to strengthen itself.

And looking at sort of like the principle of not having any long-term debt whatsoever is something that we have revisited. And through this infrastructure investment, we find it sensible to finance things like that using long-term debt. But I don't think I will give sort of like an absolute number for the cash and the debt ratio, unfortunately. But hopefully, some indications on also like slightly direction that we're going.

[Vegard Nerdal, executive]

Perfect. Going further on CapEx, you said that the infrastructure investment is on top of already announced CapEx program. But we got the question that production Level 59 of NOK 100 million per year is that on top of already announced CapEx program?

[Erlend Høyen, executive]

No, that's based on the installed capacity that we have internally at our company. So the start of Level 59 is being done with the same people and same equipment that we have installed in the NOK 100 million in internal costs. So that's just an allocation of internal resources between the different levels. So no, it will not be on top of it. It will be a continuation of the NOK 100 million going forward with the installed capacity that we have.

[Vegard Nerdal, executive]

It looks like the investment in the infrastructure had some interest. Could you say something concrete, what are we going to do? Yes.

[Erlend Høyen, executive]

Sure. There will be installation of a new crusher, and we will refurbish the old silo system that we used up until, I think it was mid-80s. There is an already existing tunnel and railway bridge that we are able to use part of, and we will extend that tunnel as well, enabling us to move all of the 40-plus wagons that we have. So it will basically be crusher renovation of silo and tunnel system, development of more tunnels and refurbishment of the sidetrack and all of the technical things that needs to be done on the railway as well as refurbishment of our old bridge crossing the river so that we will eventually connect to the [indiscernible] as we are connected with our existing sidetrack further up the valley.

[Vegard Nerdal, executive]

Perfect. And I think this is the last question then. We said something about it in our report. But Gunnar, could you elaborate something more about the Fe65. We announced that we were delayed on the last installment and that we will install the last installment now in third quarter. But when do we expect to produce Fe65?

[Gunnar Moe, executive]

We expect to produce Fe65 at the end of this year. The second -- the last quarter of 2025, we will be quite sure that we will produce a large volume of Fe65. So that's the time line and everything looks promising as soon as all the last equipment will be installed. We're quite sure that we will reach that level. We are very close at the moment, by the way.

[Vegard Nerdal, executive]

Thank you. I think that was all the questions. So with that, I will leave the word to Gunnar, who will take the final remarks.

[Gunnar Moe, executive]

Yes. I will have the possibility or to introduce that we have the next presentation and Capital Markets update on the 12th of November. And I will welcome you all there and hope for a good autumn and a happy future for us all. So see you then.