Hochschild Mining Plc · LSE:HOC
Hochschild Mining — Investor Day (September 2021)
60 slides from Hochschild Mining's investor day presentation, September 2021
Slide 1: A unique, scalable and sustainable heavy rare earth project
A unique, scalable and sustainable heavy rare earth project September 2021
Slide 2: Disclaimer
Disclaimer This presentation (including any oral briefing and any question-and-answer in connection with it) is for informational purposes only. This presentation does not constitute, or form part of or contain any invitation or offer to any person to subscribe for, otherwise acquire, or dispose of
Slide 3: Welcome to the capital markets presentation on our rare earth investment
Welcome to the capital markets presentation on our rare earth investment 3
Slide 4: Management team
Management team Ramon Barua Rodrigo Ceballos Francois Motte Jorge Lerena Mauricio Alvarez (Hochschild CFO/Project CEO) (General Manager) (CFO) (Project Manager) (Legal Counsel) • +10 years serving as CFO of • +20 years of experience in • +10 years of experience in • 20 years of experience • Corporat
Slide 5: Aclara
Aclara 5
Slide 6: A unique high value, sustainable Ionic Clay rare earth project
▪ A unique high value, sustainable Ionic Clay rare earth project ▪ Ideally placed to meet exponential rare earth demand underpinning electric revolution ▪ Module one: Attractive-return first step in multi-module growth strategy ▪ Not a commodity play: highly specialized elements, negotiated in illiq
Slide 7: Agenda
Agenda ▪ Heavy rare earths are crucial for the electric revolution ▪ Ionic clays are very special and constitute a competitive advantage ▪ Demand for heavy rare earths is exponential ▪ Aclara presents an unparalleld set of competitive advantages ▪ Strategy is simple: start with a minimum viable prod
Slide 8: Heavy Rare Earths
Heavy Rare Earths Crucial elements for the electric revolution
Slide 9: What are Rare Earth Elements?
What are Rare Earth Elements? ▪ 17 REE with many applications Rare Earth Oxide Prices US$ /kg ▪ We will focus on main drivers behind their value: Terbium HRE 1,310 Lutetium HRE 803 Dysprosium HRE 419 4 REE have permanent magnet power Holmium HRE 151 Praseodymium LRE 98 Neodymium LRE 97 Gadolinium HR
Slide 10: Electric Vehicles (EVs) depend on permanent magnets
Electric Vehicles (EVs) depend on permanent magnets ▪ Rare earths are NOT battery metals ▪ Electric motor moves due to magnetic induction from copper coil energized by lithium battery ▪ Electric motors with permanent magnets require less energy feed to create same magnetic field and achieve: Increas
Slide 11: The importance of heavy rare earths (HREE)
The importance of heavy rare earths (HREE) ▪ HREE are needed in order to complement LREE in a high performance magnet Operating Temperature Operating Temperature Up to > 60°C 240°C NdFeB Magnet Minor demagnetization: NdFeB Magnet No demagnetization, no The coercive force declines to 20- 30% of its v
Slide 12: Permanent magnets
Permanent magnets Permanent magnets have many incredible applications: ▪ Enable wind turbines to reduce overall weight, cost of other components, maintenance costs and improves reliability and efficiency ▪ Keep drones in air longer and increase capacity to carry weight ▪ Enable planes to have a bett
Slide 13: Rare Earths are not rare!
Rare Earths are not rare! So… why does China dominate the industry?
Slide 14: Why China holds competitive advantage in REE industry?
Why China holds competitive advantage in REE industry? 1. LREE: Majority of global production (≈ 72% of World's NdPr supply including imports from Myanmar) 2. HREE: Majority of global production from ionic clays complements perfectly well their LREE feed (≈93% of World's DyTb supply including import
Slide 15: Ionic Clays: China's main competitive advantage in HREE
Ionic Clays: China's main competitive advantage in HREE ▪ Low cost and low capex due to very simple metallurgy ▪ High value: Contains the most valuable REE ▪ No or negligible radioactivity Chinese informal mining Straightforward sourcing: much of China´s HREE production comes from simple informal Io
Slide 16: Ionic Clays are extremely rare outside China
Ionic Clays are extremely rare outside China Hard Rock operations & projects Ionic Clay projects ▪ Mostly LREE ▪ Mostly HREE ▪ REO Grade: Mostly high ▪ REO Grade: Low ▪ Average Basket Price: 25 US$/kg ▪ Average Basket Price: 55 US$/kg ▪ Radioactivity: Very common ▪ Radioactivity: Negligible or none
Slide 17: Demand for HREE is exponential
Demand for HREE is EXPONENTIAL
Slide 18: Increasing global drive to leave fossil fuels behind
Increasing global drive to leave fossil fuels behind Governments committed Incentives from global powers to net-zero carbon by 2050 March 21: US$174bn EV package Renewable power >50% of total electricity generation capacity by 2025 Proposal to ban the sale of new ICE inclusive of hybrids from 2035 E
Slide 19: Demand for EVs is exponential
Demand for EVs is exponential Global brands committed to the electric revolution** EV Demand 2020-2030* 1.4m EV production capacity by 2022 50 VW could surpass Tesla EV sales in 2022 (Deutsche) 40 CAGR 31% 70% Toyota sales EVs by 2030 EV units mm 30 Mercedes all-electric by 2030 40% global sales ele
Slide 20: Demand for clean wind energy is exponential
Demand for clean wind energy is exponential 2021-30: 12% CAGR in offshore wind capacity additions Aclara 20 Source: International Renewable Energy Agency
Slide 21: Other applications in early stage of commercial adoption
Other applications in early stage of commercial adoption High-temperature military E-motos, e-bikes, scooters are the Electric trains, planes & ships are gaining attention due to grade magnets for guided future of city transportation environmental impact/carbon footprint weapons, drones and jets Acl
Slide 22: While supply is limited: China depleting resources
While supply is limited: ▪ China has been depleting resources for 20 years… 4000 Evolution (2001-2020)*: Global DyTb Production (Tonnes) 3500 Environmental restriction to control illegal mining (from 40% to 15%) – Argus Media 3000 Dy Tb 2500 2000 1500 Represents 1% of World's 1000 REO production 500
Slide 23: While supply is limited: new projects capex intensive
While supply is limited: ▪ New projects outside of China are capex intensive and have difficult metallurgy Company Projects Country Capex US$m Metallurgy Radioactivity Capex US$m Aclara Penco Chile 119 Simple Penco (Aclara) $119 Serra Verde Serra Verde Brazil 255 Simple Browns Range (Northern) $247
Slide 24: No credible global solution for HREE demand growth
No credible global solution for HREE demand growth Expected new demand Expected new supply excluding China 2021-2030 (CAGR %) 2021-2030 Included in demand forecast Operational expansions ▪ EVs: 24%-31% ▪ MP Materials ✓ ▪ Lynas Rare Earths ✓ ▪ Wind Turbines: 12% Projects ▪ Electronics : 5% 1 ▪ En
Slide 25: Dysprosium: Demand vs. Supply
Dysprosium: Demand vs. Supply 7,000 6,000 5,000 4,000 Tonnes 3,000 2,000 1,000 0 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Demand not considered in price forecast Demand China Myanmar Other * New Projects** Big assumptions: (a) Current operations Lynas/MP expand; (b) Top 11 projects start pr
Slide 26: Global awareness of supply imbalance
Global awareness of supply imbalance ▪ Companies need stable sources of environmentally clean supply “…President Trump signed an executive order declaring a national emergency and authorizing the use of the Defense Production Act to speed the development of mines. The law was used earlier this year
Slide 27: China is also aware of this imbalance
China is also aware of this imbalance… ▪ …and of their depleting resources Company Ops/Proj. Country Major Shareholder 1 Chinese Capital 1 Offtake 2 Mp Materials Mountain Pass US N/A Ionic Clays Myanmar - - Serra Verde Serra Verde Brazil N/A Northern Minerals Browns Range Australia Greenland Mineral
Slide 28: Historic Dy & Tb price
Historic Dy & Tb price 1,800 Start of the electric revolution 1,600 1,400 1,200 1,000 US$ /kg 800 Market was oversupplied by China whilst demand was still low 600 400 200 0 ene 16 jul 16 ene 17 jul 17 ene 18 jul 18 ene 19 jul 19 ene 20 jul 20 ene 21 jul 21 Dysprosium Terbium Aclara 28 Source: Asian
Slide 29: Dy price: analyst forecast
Dy price: analyst forecast Analyst Forecast (Base Case): Dy Price 2021 - 2030 700 100% 636 Last 3yrs increase: Next 10yrs increase: 90% 581 600 123% 61% 533 80% 503 490 483 500 70% 437 411 423 395 Spot (16/08/2021) 395 60% % increase 400 US$ / kg 50% 52% 300 260 236 40% 200 178 33% 30% 20% 100 12% 1
Slide 30: Introducing Aclara
Introducing Aclara A new source of HREE for the World
Slide 31: Aclara at a glance
Aclara at a glance 1. Same mineralization as the top producing deposits in China 2. Environmentally and socially responsible a) Simple mining: no use of explosives b) Simple metallurgy: no use of hazardous reagents, crushing, milling, or acid leaching c) No radioactivity 3. Premium product: High pur
Slide 32: Aclara's competitive advantages: Ionic Clays similar to Chinese
Aclara's competitive advantages 1. Ionic Clays very similar to the Chinese ✓ Same characterisation of geological units (Zone A, B, C, D). ✓ Penco Zone B and Zone C (economic zones) deepen significantly resulting in higher production volumes Weathered Crust South. China Penco Zone (A) 0 A A Completel
Slide 33: Aclara's competitive advantages: Environmentally friendly process
Aclara's competitive advantages 2. Environmentally friendly process ▪ No use of explosives ▪ No tailings dam ▪ No crushing ▪ No or negligible radioactivity ▪ No milling ▪ Recycles 95% water Specialized consultants: One of the world’s most sustainable REE projects Aclara 33
Slide 34: Aclara's competitive advantages: Top mining standards
Aclara's competitive advantages 2. Environmentally friendly process A. Top mining standards: Simple extraction method requires only loading and hauling Aclara 34
Slide 35: Aclara's competitive advantages: Process flowsheet
Aclara's competitive advantages 2. Environmentally friendly process Leaching with common fertilizer B. Process flowsheet: Main use: Fertilizer for alkaline soils. Contributing essential nitrogen for plant growth Desorption Treated Clays Clays process washing Washed Clays Solution Impurity Treatment
Slide 36: Aclara's competitive advantages: Negligible radioactivity
Aclara's competitive advantages 2. Environmentally friendly process C. No or negligible amounts of radioactivity: ▪ Carbonates produced at the plant’s expected conditions are classified as “Exempt” according to the International Atomic Agency (IAA) for transport and for bulk handling ▪ Radioactivity
Slide 37: Aclara's competitive advantages: Heavy Rare Earths
Aclara's competitive advantages 3. Heavy Rare Earths Penco is essentially a Dy and Tb project Product Distribution – REO (%) Basket value composition (%) Thulium 0.5% 100% Lutetium 0.5% Erbium 4.0% Ytterbium 3.2% Other Holmium 1.3% 17% Dysprosium 5.5% 80% Lu 3% Terbium 0.7% Pr 4% Gadolinium 3.2% Eur
Slide 38: Aclara's competitive advantages: Large land package
Aclara's competitive advantages 4. Very large land package of Ionic Clays in Chile secured Penco Victoria Resource Statement Unit Victoria North Maite Luna Alexandra (module 1) South Measured & Indicated Resources t 20,192,106 2,020,452 5,852,955 7,032,474 1,777,119 3,509,107 Grades (REO) ppm 2,429
Slide 39: Aclara's competitive advantages: Infrastructure advantage
Aclara's competitive advantages 5. Significant infrastructure advantage < 6 km from the Port < 20 km from the AirPort Santiago < 15 km from Concepción City < 2km from fresh water Concepción < 3 km from energy infrastructure Next to 1st class motorways Top professional workforce Chile Credit Rating:
Slide 40: Our Strategy
Our Strategy A 4-phased approach to value creation
Slide 41: Our strategy is simple
Our strategy is simple ▪ Staged approach allowing for de-risking and growth 1 Minimum viable product Produce 2 Optimization Improve 3 Organic growth Expand 4 Vertical integration Value added Aclara 41
Slide 42: Produce: Project Timeline
Produce Project Timeline History Module One - Project Development Environmental Process Penco Module Permit Optimization Operation Discovery of the Filing of the Hochschild Approval Q4 Start up (Q4) deposit Environmental acquires 100% of Impact Study the project 2011 2016 2018 2019 2020 2021 2022 20
Slide 43: Produce: Module one Penco
Produce Module one: Penco Victoria ▪ PEA prepared by Ausenco Norte ▪ Production of a minimum viable product: Victoria Alexandra REE Mixed Carbonates Sur Processing ▪ Current LOM: 11yrs Plant ▪ Low project capex: US$119m ▪ Un-optimized NPV: ∼US$152-177m Luna 1 Maite ▪ Annual EBITDA (Avg): ∼US$50m 2 ▪
Slide 44: Produce: Module key metrics
Produce Module 1 key metrics Production of Concentrate REO (tpa) General 1,200 1,131 Mine Life (yrs) 11.0 Waste Tonnes Mined (kt dry) 7,204 1,000 930 Process Plant Feed Tonnes (kt dry) 18,959 Strip Ratio 0.4 845 784 767 Production 800 745 729 TREO grade (ppm) 2,427 605 615 Metallurgical Recovery (%)
Slide 45: Produce: Price Sensitivities
Produce Price Sensitivities Module One: Basket Price Forecast (US$/kg) Module one: NPV @ 5% (US$ m) 250 308 200 ∼152-177 71 150 US$ / kg Low Base High 100 Module one: Avg. Annual EBITDA (US$ m) 78 50 ∼50 30 0 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 High Case Base Case Low Case Source: Acla
Slide 46: Produce: Other Sensitivities
Produce Other Sensitivities Metallurgical Recoveries % Price Premium Module One: NPV @ 5% (US$m) Module One: NPV @5% (US$m) 262 277 236 207 194 174 ∼152-177 ∼152-177 PEA + 1% + 2.5% + 5.0% PEA 10% 20% 30% Aclara 46 Source: Aclara’s PEA Report
Slide 47: Improve
Improve ▪ Geology • Brownfield continues • Pit subject to modification as prices improve ▪ Metallurgy • Current model based on single formula applied to all pits • Short term: pilot testing expected to improve recoveries • Medium term: experiment with other reagents and conditions ▪ Engineering • Ev
Slide 48: Expand: Verónica and Catalina exploration projects
Expand Verónica exploration project Catalina exploration project Penco Penco 500Ha 500Ha Prospective Ionic clays areas: Prospective Ionic clays areas: Area 1 - 5,015 Ha, Area 2 - 1,664 Ha, Area 3- 5,440 Ha Area 1 - 1,303 Ha, Area 2 - 2,486 Ha Potential to accommodate several modules Aclara 48
Slide 49: Expand: Potential Future Modules
Expand Potential Future Modules 18,000 16,000 ~3,800 ha Prospective REE Area (hectares) 14,000 ~12,100 ha 12,000 10,000 8,000 6,000 PEA Area 4,000 2,000 500 ha 0 Penco Veronica REE Catalina REE (Module 1) Prospective Areas Prospective Areas Aclara 49
Slide 50: Expand: Development schedule for new modules
Expand ▪ Development schedule for new modules 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Module 2 Exploration Engineering Construction Operation Permitting Permitting Module 3 Exploration Engineering Construction Operation Permitting Permitting Module 4 Exploration Engineering Construction Op
Slide 51: Expand: Modular strategy
Expand Modular strategy > 30km ▪ Deposit is shallow and covers a large area ▪ Material hauling is a largest cost and > 20km limits plant’s influence 100 km > 50km ▪ Plant capex is very low Extraction areas Processing plant 80 km Mitigates risk: reduces upfront capex allowing for sequenced investing
Slide 52: Value added: Separation alternatives
Value added Separation alternatives ▪ China • Current overcapacity estimate at 50% - expected to increase Potential OEMs interested in long term supply of traceable HREE • Most competitive separators in terms of cost ▪ Existing separation plants • NEO: Sillmet, Estonia • Toyota: India ▪ New separati
Slide 53: 4-phased approach to value creation
4-phased approach to value creation Phase 4 ▪ Vertical integration Phase 3 ▪ Develop new modules Value Phase 2 ▪ Optimize module 1 Phase 1 (NPV: ∼US$ 152-177m / EBITDA: ∼US$ 50m) ▪ Execute on Penco module 1 ▪ Un-optimized: Minimum viable product Scope of PEA Timeline Modular strategy allows capex ti
Slide 54: Who are our comparables?
Who are our comparables? 1. Only 3 known Ionic Clay HREE projects outside China a) Serra Verde: Private, in Brazil (BB- Fitch) b) Ionic RE: Listed in ASX, in Uganda (B Fitch) 2. China & Myanmar: information is confidential, no detail on numbers 3. LREE Operations: a) Lynas RE: Listed on ASX, operati
Slide 55: Peer benchmark: Ionic Clays
Peer benchmark: Ionic Clays Chile Brazil Uganda Southern China Comparison of Ionic Clay Aclara Ionic RE Jiangxi Guangxi Fujian Serra deposits Guangdong Verde Penco Makuutu Xinfen Xunwu Chongzuo Changting Nd 12.5% 19.3% 23.3% 20.1% 29.6% 22.4% 20.5% 22.0% Pr 2.9% 5.9% 5.5% 6.0% 7.1% 5.9% 5.6% 7.0% Dy
Slide 56: Peer benchmark: Western projects and operations
Peer benchmark: Western projects and operations Basket Price US$/kg REO (Asian Metals - 16.08.2021) 100 HREE projects LREE projects & operations 80 73.4 60 59.8 59.8 52.1 46.8 40 33.4 29.7 29.0 27.0 23.0 20 18.2 0 Browns Penco Makuutu Serra Verde Yangibana Nechalacho Nolans Bore Longonjo Mt Weld Ngu
Slide 57: Trading Comparables
Trading Comparables EV / 2021E EBITDA Rare Earths Average: 11.0x Specialty Materials Average: 19.4x 32.8x 27.1x 27.5x 13.9x 13.1x 8.1x 2.4x MP Materials Lynas Neo Performance Livent Albemarle Orocobre 1 Hochschild Aclara 57 Source: Broker consensus per S&P Capital IQ, and market data as at September
Slide 58: Conclusion: The market opportunity
Conclusion: The market opportunity ▪ Heavy Rare Earths are very rare and are crucial elements for a transition to an electric revolution ▪ Ionic Clays are the most competitive source of Heavy Rare Earths and they rarely found outside of China ▪ The world anticipates a large imbalance in the Heavy Ra
Slide 59: The Aclara solution
The Aclara solution ▪ Owns a large deposit of ionic clays, the best source of Heavy Rare Earths in the world ▪ Approach is to focus on quality and sustainability, providing a unique product currently inexistent from a western source ▪ Simple and clear strategy to create value through four phases, ef
Slide 60: A unique company at the centre of the Electric Revolution
A unique company at the centre of the Electric Revolution