Euro Manganese Inc
XTSX:EMN
Earnings Call Analysis
Q1-2024 Analysis
Euro Manganese Inc
Euro Manganese Inc.'s financial posture was notably bolstered by a USD 100 million funding package announcement with Orion in November 2023. The funding is strategically structured into two equal halves: a convertible loan facility and a share of project revenues post-final investment decision, tailored to enhance the project's financing bankability. The facility, disbursed in tranches, minimizes cost and propels the Chvaletice Manganese Project towards final investment. The terms, with a 12% interest and conversion to a royalty of 1.29% to 1.65% on revenues, and the second half ensuring a 1.93% to 2.47% revenue share, craft a path lined with financial prudence. The initial tranche of USD 20 million, already received, enhances the company's current financial stability.
The quarter witnessed the successful production of high-purity manganese sulfate monohydrate, hitting target specifications for purity. This production milestone de-risks the project's operational blueprint and paves the way to incorporate process enhancements into the final plant design. With off-take negotiations in advanced stages for volumes almost doubling the plant's capacity, and discussions with over 30 parties potentially increasing the offtake interest from 50,000 to 105,000 tonnes per annum, Euro Manganese's positioning in the market becomes increasingly robust. This surge in demand reflects a broader industry trend towards manganese-rich battery chemistries, a domain where the company's European Union-situated reserves promise a uniquely sustainable and traceable resource for the electric vehicle market.
Key advancements were made in securing land access and rights, crucial steps to underpinning the operational kickoff. Approximately 85% of the project reserves are now accessible, with ongoing negotiations poised to capture the remaining 15%. The submission and anticipated approval of the Environmental and Social Impact Assessment with the Czech Ministry of Environment underscore the company's commitment to regulatory compliance. These developments align with the Chvaletice project's ethos of ecological responsibility and community engagement.
Euro Manganese progresses with the European Investment Bank's (EIB) appraisal for debt funding, an acknowledgment of the EIB's support for sustainable ventures in the battery supply chain. With the project being the only significant reserve of manganese in the EU, this appraisal substantiates the strategic relevance of Euro Manganese to the region's energy transition. Looking ahead to 2024, the company's focused on completing the project's Front-End Engineering Design (FEED) phase, securing further offtake agreements, advancing debt financing efforts, onboarding a strategic investor at the project level, and conducting feasibility studies for expansion, bolstering its resolve in advancing the flagship project.
The quest for a strategic investment, targeting a 10% to 20% stake at the project level, advances as Euro Manganese seeks to tie this investment with an offtake agreement, creating natural hedges and synergy within the battery supply chain. Prospective partnerships are actively being pursued, with recent site visits by potential investors signaling tangible interest. Additionally, 2024 could see the materialization of a binding offtake agreement with Verkor, reflecting earnest alignment with the company's supply aspirations.
Euro Manganese Inc. concludes the quarter with gratitude for the dedication of its team and the unwavering support of its shareholders, communities, partners, and customers. Emphasizing the collective effort amidst challenging market conditions, the company expresses appreciation and anticipates further updates in the upcoming quarterly call.
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Good morning and good afternoon, everyone. Welcome to Euro Manganese's First Quarter 2024 Conference Call. We've got a few people still joining. So we'll give it about 30 seconds or so before we get started. Please note, this webcast is being recorded, and a replay will be available on our website in due course.
The slides that we use today can be downloaded from the website. And after the presentation, there will be a question-and-answer period. If you'd like to ask a question, please use the Q&A function at the bottom of your screen. You can ask a question at any point during the presentation, and we'll cover it during the Q&A period. We also welcome your questions post the call. So please feel free to reach out to Matt, Martina or myself.
So before we begin, note this presentation does involve forward-looking statements, please refer to our cautionary statements here and the risk factors in our annual information form. Our management discussion and analysis and financial statements as at fiscal Q1 ending December 31, 2023, were filed on February 14, 2024. All of these materials are available on our website, SEDAR+ and the ASX.
Over to you, Matt.
Good morning and good afternoon to everyone. Thank you for joining us to review developments during Euro Manganese's first fiscal quarter. Martina Blahova, our Chief Financial Officer, is unable to attend today's conference call. So I will first take you through financial highlights for the quarter and the company's financial position. Then I will run through key developments during the quarter and how we performed against our key catalysts. I'll also go through upcoming catalysts for the year ahead.
We'll wrap up with a question-and-answer session. Just a reminder that our fiscal year-end is 30th of September. So our Q1 reference is the period September through December 2023. We also report in Canadian dollars. I will briefly comment on our cash position at the end of the quarter. We started the quarter with $7.6 million in cash $0.4 million was spent to advance the commissioning and the demonstration plant, which is nearing completion.
$2.3 million was spent on operational expenditures, which included the advancement of the Chvaletice permitting and other corporate costs. Net proceeds from the Orion convertible loan were $2.3 million. We closed the acquisition of EP Chvaletice for $3.3 million. (sic) [ $3.4 million. ] We also made planned acquisitions and lease payments of $0.4 million. Therefore, we closed the quarter with $24.3 million in the bank.
The net proceeds of the first USD 20 million tranche of the Orion convertible loan facility, which closed during the quarter are expected to provide sufficient funding to complete project permitting, demonstration plant commissioning and batch operation, and acquisition of certain remaining land parcels required for the project. We also expect to be able to initiate the FEED phase of the EPCM contract and certain site preparation works as well as fund general and administrative expenses.
Here's an overview of key highlights during the quarter and to date. Most noteworthy is the closing of the USD 20 million initial charge of funds under the previously announced USD 100 million in non-dilutive financing package with Orion Resource Partners. In November, we successfully produced on-spec high-purity manganese sulfate from our demonstration plant in the Czech Republic. This is an important achievement derisking our flow sheet and further advancing our offtake discussions with customers. Also, in the quarter, we secured a definitive lease agreement with CEZ which together with previously announced land access agreements and CEZ Lease Agreement, now provides us with access to approximately 85% of the manganese reserves in the Chvaletice area.
We continue to make progress with our offtake negotiations, and now have closed -- and now have close to 200% of our forecast production in final discussion with potential customers. And key development subsequent to the quarter was the advancement of our debt financing process with the European Investment Bank to appraisal status. I'll provide more details on that in the coming slides.
As I mentioned earlier, in November 2023, we announced a USD 100 million funding package with Orion. This financing agreement is a tremendous acknowledgement of the importance of the Chvaletice project and of our ability to deliver this project to the highest of standards.
To reiterate, the USD 100 million is split into two USD 50 million components. A USD 50 million loan facility with a 12% interest rate convertible into a 1.29% to 1.65% royalty on project revenues, and a USD 50 million in exchange for a 1.93% to 2.47% on Project revenues following a final investment decision.
The USD 50 million convertible loan to royalty facility can split further into 2 tranches, USD 20 million upon closing, which was received at the end of November 2023 and $30 million upon meeting certain commercial milestones. All aspects of the funding package we're structured to meet project finance bankability requirements, and we sit alongside and reduce the project finance debt and equity required for the full project financing.
Furthermore, the tranche structure minimizes the cost of funds and ultimately, facilitate a pathway to a final investment decision.
During the quarter, we produced on-spec high-purity manganese sulfate monohydrate, which further derisks our process flow sheet. Two independent external laboratories confirmed samples sent for testing met the demonstration target specifications for high-purity manganese sulfate monohydrate with low levels of impurities. The team is gaining valuable insights from operation in the demonstration plant, which are leading to further engineering and operational process improvements, which we can incorporate into our final plan design.
The revised environmental and social impact assessment was submitted to the Czech Ministry of Environment in September 2023. We passed through the public commentary period during the quarter, and no comments were received either from the public NGOs or municipalities. From our ongoing discussions with the ministry, we continue to expect approval imminently. Upon ESIA approval, we will be able to proceed with submission of the remaining land planning permit and construction planning documentation, which will come from our FEED program with [ wood. ] We made significant advancements on both land access and land reserving for the Chvaletice Project during Q1. As we outlined last quarter, we included a definitive lease agreement with Czech, which provides us with access to approximately 60% of the manganese reserves in the historic tailings area. Again, we've previously announced land access agreements and the Czech lease agreement, the company has secured access to approximately 85% of total product reserves.
Negotiations are progressing on a fine of 15%. We recently completed the land acquisition for an initial residue storage facility with the overall project -- within the overall project protected deposit area. This can be seen as the green triangle on the top right of this map on this slide. This allows the operation to commence mining and concurrently replace our project tailings in the residue and storage facility.
The residue and storage facility will then extend into the previously mined area, and each section is filled and will be remediated as the mining progresses through those. Also in October, the rezoning of land for mining use was completed. At the same time, rezoning on all required areas within the commercial plant site were reclassified for heavy industry. This concludes all rezoning requirements for the Chvaletice project, a 3-year process.
We continue to generate significant interest in our high-purity manganese, and our offtake funnel has grown significantly. And in these final discussions are now almost twice our plant capacity. With the new offtake tenders that have entered the funnel, we now have more than 30 parties at the top with more than 70,000 tonnes of high-purity manganese sulfate per annum in aggregate under discussion. However, many of these new potential customers are yet to provide tonnages, so there is significant upside potential.
A total of 12 parties are in the middle of the funnel with a total interest coming increased from 50,000 tonnes of high-purity manganese sulfate per annum to approximately 105,000 tonnes of high-purity manganese sulfate per annum. At the sharp end of the funnel, we have 10 parties in advanced stages of negotiations, one of which has signed a term sheet with a combined interest of over 150,000 tonnes of high-purity manganese sulfate per annum.
I would reiterate that these are initial tonnages from offtakers and these potential customers have indicated a need for high alternatives as the market grows and as manganese rich chemistries evolve. We continue to see increased news growth of commercialization of manganese chemistries, including NMC, Nickel, Manganese, Cobalt, moving to more manganese. The addition of manganese in LFP to LMFP and soium-ion which also contains manganese. We are also seeing the demand for manganese growth as cobalt-free chemistries in NMX and LMNO continue to evolve.
Euro Manganese remains very well positioned to meet the increasing need for high-purity manganese in lithium-ion batteries. We have the only manganese resource in EU, and stand to benefit from increasing demands for our local, responsibly produced source of supply.
We made significant progress on a number of our key catalysts in 2023. With on-spec high-purity electrolytically manganese metal and high-purity manganese sulfate monohydrate produced from our demonstration plant, we can now supply bulk samples required by potential offtake customers with our larger scale of tests.
Following our GAAP analysis, which was completed last quarter, Board has now progressed to the FEED part of the EPCM contract. In January of this year, we appointed Mr. [ Tim Glück ] as Project Director of the Chvaletice Manganese project. Tim is a highly skilled project and operations leader in the mining and metals industry. His skills and capabilities in developing complex battery metal projects, together with his proven track record in delivering large-scale projects on time and on budget will be extremely valuable for us as we progress both FEED and EPCM work, including the construction of the Chvaletice Project. We welcome Tim to the Euro Manganese team.
As I outlined earlier, the Chvaletice Manganese project has advanced to the formal appraisal stage with the European Investment Bank and debt funding. This underscores the [ AIB's ] commitment to support sustainable opportunities in the battery supply chain. Chvaletice remains the only sizable proven and probable reserve of manganese in the European Union and throughout -- and through the project, Euro Manganese will be uniquely positioned to provide a secure, traceable and responsibly produced supply of high-purity manganese products to the European electric vehicle market.
With the European Bank of Reconstruction and Development were already a key shareholder and also having expressed interest in providing debt financing, this advancement is another key step towards securing the required debt component of the total project filings required.
In 2024, we remain focused on advancing our flagship project in Europe. Our key goals include progressing the remaining of the FEED phase of the EPCM contract. Completing the remaining land access agreement, advising project permitting, securing additional offtakes term sheets and contracts, commencing the project debt finance process, securing a strategic investor at the project level and progressing the feasibility study for the Bécancour dissolution plant subject to financing.
To wrap up, I would like to express my gratitude for the team's effort and for the ongoing support of our shareholders, particularly in these tough markets as well as the support of national and local governments, community members, partners, suppliers and prospective customers.
Thank you, everyone, for listening today. I'll now open it up to questions.
Thank you, Matt. [Operator Instructions]. We've got 1 question, Matt. Could you elaborate a little on what the strategic investment might look like? And are you seeing interest from parties on that front?
Yes. So for the strategic investment, our ambition is to secure an investment at a project level with 10% to 20% of the project. Ideally, this would be associated with an offtake. So someone in the battery supply chain that requires a material, aligned to the amount of investment to the level of offtake, which would act as a natural hedge for that purchase.
We are broadening our net to have discussions with other strategic related partners for that project level investment. And we are seeing interest and having engagement on these discussions, including hosting a site visit just last week for a potential investor. So yes, we are having good engagement. But that is the nature of the strategic investment we're looking in, it's at the project level.
Another question, Matt. Are you anticipating Verkor to term up a binding offtake agreement in 2024?
Yes, we are. We are in discussions with them. And they are going through an internal alignment process across their offtake contracts. And our offtake contracts is being wrapped up in that.
[Operator Instructions] Matt, doesn't look like we're seeing any further questions. So pass it back to you for a wrap-up.
So I just want to thank everyone for attending this quarterly conference call, and we look forward to updating you on our progress in the Q2 call later on this quarter. Thank you.