Jervois Global Limited (JRVMF) Q3 2023 Earnings Call Transcript

Jervois Global Limited (OTCQX:JRVMF) Q3 2023 Earnings Conference Call October 25, 2023 6:00 PM ET

Company Participants

Bryce Crocker - Chief Executive Officer

James May - Chief Financial Officer

Conference Call Participants

Operator

Thank you for standing by. And welcome to the Jervois Q3 2023 Results Call. [Operator Instructions] I would now like to hand the conference over to Mr. Bryce Crocker, CEO. Please go ahead.

Bryce Crocker

Thank you very much, and a pleasure to be here with James May, Chief Financial Officer today. Firstly, on the disclaimers on Page 2, I’ll allow you to read those at your leisure; and moving on to the highlights of the third quarter.

It was another challenging quarter from a macro and a markets perspective. Clearly, Jervois is not in the uncertain macro environment, inflationary pressures affecting the entire mining and commodity industry. I would note however, that a more complex geopolitically world is not necessarily to our disadvantage. Our recent export restrictions from China on graphite, germanium, gallium illustrate the challenges and future obstacles faced by Western industry and governments in securing critical mineral supply chains.

Jim, while company highlights of the quarter includes Jervois Finland quarterly operating cash flow of US$8.2 million. This Q3 result means that our year-to-date business in Finland has generated US$41.4 million of operating cash flow. These results contributed to a strong cash balance at the end of the quarter of US$55 million in a scenario where Jervois like future adjustments to our portfolio ownership, which we consider unlikely. We expect several liquidity runway that extends into Q3 2024. This flexibility bodes well for the current phase where we are continuing to advance engagement with third-parties on opportunities to form partnerships across our portfolio of assets. We believe future partnerships have a key to unlock shareholder value and to meet our objective to create a multi-asset platform that generates cash flow through the cycle.

In Idaho, our partnership with the US government is underway. Our drilling fully funded by the US Department of Defense has commenced at the sunshine deposit, located in short-trucking distance for our recently constructed processing infrastructure. The preparatory work for underground drilling at the main ram deposit have also commenced. Our US cobalt refinery BFS [ph] also fully funded under the same department of defense agreement; it’s advancing through site selection and basic engineering. We consider it important that a US refinery [ph] has a significant underpinning of US cobalt resource and expect to review with our government partners further steps to vertically integrate the facility.

At San Miguel Paulista, our nickel-cobalt refinery in Brazil, the partner in process which will provide a financing solution for the restart of Latin America's only facility that chimes [ph] -- continues to progress.

Please move on to the next slide, operator; delivering on key priorities. And we continue to make progress as clearly set out in the past two quarters that de-risked the path to multiple cash generative assets. I'm pleased to report ongoing progress on all fronts during the third quarter. At Jervois Finland, the focus continued on maximizing margin and cash flow and continuing the site's positive economic contribution. Management has been strengthened with the hiring of a CFO in production directive which are now in place. And the unit of cash flow that I mentioned previously of over US$40 million illustrates the potential of this business even at low cobalt prices.

As mentioned I'm encouraged with the early stages of our partnership with the US government, initially today by the Department of Defense or DoD funded programs outlined on the prior slide. A key for ICO [ph] is ensuring it's my life has extended in the ultimate potential of the site defined and we are grateful -- very grateful for the DoD support in this regard.

Future cobalt refining in the US will be a very important step in the country's security of supply of refined critical minerals. In that regard, our Finnish team are successfully operating facilities involving the refining and manufacture of advanced cobalt chemicals and powders, including sulphide for over 50 years. We also have expertise in the commercial production of precursor cathode materials for lithium ion batteries or P-cams [ph]. Our [indiscernible] is extremely well placed to expand its partnership with the US government into the field of cobalt refining.

Again as I mentioned, site selection for greenfield cobalt refinery has advanced with our team undertaking visits to shortlisted sites in coming weeks. San Miguel Paulista or SMP partnering process is also advancing with discussions ongoing with multiple potential partners; and we continue to assess inbound interest that we received on our other assets.

Turning to the next slide and just touching on the cobalt market; overall the cobalt market clearly, given the price, remains weak. Those prices are burdened by our suppliers from China as operators in both, the DRC [ph] and Indonesia. We do expect the recent extraordinary level of supply growth to moderate in coming years, which will also coincide with sharply rising demand from electric vehicles.

At Jervois we do have unique and granular insights into cobalt demand, particularly across traditional non-battery industries. A summary across our key segments of chemicals, catalysts, ceramics, powder metallurgy, and batteries is outlined on this slide.

Catalysts continue to be reasonable associated with oil and gas and other chemical refining expansions. The chemical side of our business is now recovering from the northern hemisphere summer period in which demand typically moderates. In industries with limited focus on ESG standards such as ceramics; in times of weakened discounted market pricing, we typically lose to Chinese suppliers. Our demand in copper electrowinning, coating, rubber adhesive applications continue to tower [ph] its trend higher.

In batteries, we remain focused on the establishment of strategic relationships, both into South Korea with the introduction of the US Inflation Reduction Act, and its impact to consequentially generate greater independence from Chinese supply chains, and also longer term self-aid sales and automakers, both from Finland and the future US cobalt primary; the work of which as I mentioned is now convinced on a fully funded basis from the DoD.

We're also watching the Chinese cellular market closely with recent months seeing a significant uptick in phone sales. September smartphone exports were also up 30% on the prior month. And just a reminder, the personal electronic devices use batteries with very high cobalt chemistries.

Finally, puddle metallurgy has been overall disappointing, construction subdued [ph], automotive continues to be impacted by the price and semiconductor shortages. Aerospace continues to be the bright light whilst our exposure is limited, up until the restart of San Miguel Paulista; this segment of the market remains extremely strong. The Chinese SRB [ph] has recently met with domestic industry cobalt leaders and is arranging further stockpiling of cobalt metal suitable for aerospace, including military purposes.

I'll now pass across to James who can touch on the balance sheet.

James May

Thanks, Bryce. Balance sheet management continues to be a key focus. The US$25 million unsecured convertible notes and accompanying US$25 million entitlement offer were finalized during July and August with the last US$5.1 million tranche for the convert received late August following a shareholder meeting.

We continue to take steps to improve our liquidity position in the quarter. As Bryce noted, Jervois Finland again achieved positive cash flow for a third successive quarter; this included release of working capital from inventory reductions with inventory days reducing from around 100 days at [indiscernible] to around 81 days September. We've made two payments on the Mercuria loan since June 30. We repaid US$8.6 million in July, aligned to a reduction in the underlying collateral value. In October we completed a further voluntary repayments of US$4.8 million to bring the current balance on the Mercuria loan to around US$44 million. This helps us meet our deleveraging objectives and to reduce our ongoing financing costs. The loan balance remains in the zone that is sustainable for this part of the Co-Op [ph] price cycle and our inventory management plans over the next 12 months.

We closed the quarter with US$55 million cash balance. Going forward we will continue to have priority focus on liquidity management. Operationally we continue to optimize cash flow from Jervois Finland. For S&P, our key focus is on concluding the partner financing process before the end of 2023 to support its restart and a pathway to diversification and an additional cash generating asset within the Jervois portfolio. Additional initiatives are underway across other assets. The aim remains to de-risk the path to establishing a multi-asset platform underpinned by a resilient capital structure.

Turning to the next slide; cobalt sales volume guidance for Finland for calendar year 2023 remains unchanged. For the nine months to September, our sales volumes were 4377 metric tons. Our guidance range for the year of 5300 to 5600 tons remains appropriate in the context of current market conditions we are seeing in key end-use segments. Our inventory management approach continues to strike a prudent balance between our liquidity objectives and management of supply chain risks. In this regard, we are slightly lower than our target range at September. However, over the commodity cycle, our guidance remains in the 90 to 110 day range.

For ICO, the final total project costs at the point of suspension of the construction project to 31 March is slightly under US$155 million previously reported figure. Final residual vendor payments associated with this expenditure incurred prior to suspension in the quarter as shown in the cash flow reconciliation in the appendix presentation. This $8 million of residual payments incurred in the quarter were consistent with prior guidance that we included in our late June capital rate presentation. The estimated monthly costs at ICO while it is in suspension mode continued to track in line with approximately US$1 million per month. Costs continue to be focused on meeting environmental compliance, maintaining asset health and preserving restart optionality.

At S&P, the estimated monthly side cost is also trending favorably against the US$0.5 million per month. And first production is forecast for 12 months following full reactivation of the restart project which is expected once we have a confirmed funding pathway.

Bryce, back over to you to summarize.

Bryce Crocker

Thanks, James. As I mentioned earlier, it is a challenging environment. The cobalt price has recently increased to around the US$15.75 per pound level. Medium and long-term, we remain extremely constructive on cobalt outlook based on our engagement with the overall industry and metals importance for strategic industries critical to national security.

Operator, I will close here and open it up to questions from analysts.

Question-and-Answer Session

Operator

Bryce Crocker

Thank you. Well, thanks again for your time. As I mentioned, I think it was a positive results with Finland generating strong cash, both for Q3 and year-to-date. And we're well placed to move forwards with regard to the other strategic initiatives we discussed. Thank you, all, and if you have any other questions, please don't hesitate to reach out to our corporate team in Melbourne [ph]. Thank you.

Operator

That does conclude our conference for today. Thanks for participating You may now disconnect.