Capital Metals (LSE:CMET) — Investor Presentation

0:01 Good morning, ladies and gentlemen, and welcome to the CAPITAL METALS INVESTOR PRESTATION. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged. They can be submitted at any time using the Q and A tab situated on the right hand corner of your screen. Just please The company may not be in a position to answer every question it receives during the meeting itself. However, the company can review your questions submitted today, and we'll publish those responses on the Investor Meet company dashboard. Before we begin, we'd like to submit the following poll. And if you could give you that your kind attention, I'm sure the company would be most grateful. And I'd now like to hand over to executive chairman, Greg Martyr. Good morning.

0:39 Thanks, Mark, and thanks for the time. And welcome, everybody. Thank you for your time. I I look forward to this presentation and hopefully spending more time with you as shareholders during our course of getting into construction. As our we gladly can now say in our presentation rather than a road to production, we that mine construction is underway. Mine construction planning is underway. Normal disclaimer everyone's familiar with. So the what's the opportunity here? So, really, for the last twelve months, I don't know if all of you know, but many of you would. It's been a pretty difficult journey that we've had where, basically, the previous minister for environment was trying to steal our project and and give it to a third party, which was flattering because, obviously, evidence that the project was worth stealing, but it was incredibly frustrating. So what they tried to do is they tried to cancel our licenses and had no grounds for that cancellation, but it set us back and took us a long time. We we took many actions.

1:48 We went with lots of lobbying through there were good connections through the president, through the. We took low legal action. We threatened international breach of international treaty litigation, which we know very much scared the government, particularly as they've been relying on the IMF to help them with their financial situation. And then we we had an appeal

2:18 secretary to the guy. So that process succeeded. So two weeks ago, we won that we won that appeal, and the cancellation has been overturned and and have been told to reissue the licenses with a fresh fresh date.

2:35 And interestingly, that that minister for environment who was not our friend for the last twelve months has been kicked out because his own party kicked him out because he voted against their wishes. So the guy that was gonna be standing in our way if he stayed in that position has gone. He appoints the chairman of the mines department called the GSMB. He is going as well as is the director general. So there's a a big clean out, which we're really, really welcoming and looking forward to to working with the new management of the GSMB, but also, I think partly as a result of what we've done. They've changed the regulations and the board of investment, which which manages the investment and protects foreign companies that are investing in the country.

3:22 And right now, they need foreign direct investment. And that board of investment has a lot more control and a lot more say in how things are run. And that board reports directly to the president. So we're we're even though it's been a painful twelve months, I think we're in a much better position than where we were twelve months ago. Well, as I said, we've got good connections through to the president. We know the attorney general's department very well and very much on our side. The board of investment, very much on our side. And now new management, which we which we will be a hell of a lot more cooperative than the last management? If but if not, we can go back through the board of investment as we keep being reminded. So so what they've what we've got now is that platform to get our construction underway, which is pretty much where we were sort of August last year, but then that's been put on hold for twelve months.

4:16 So what does that mean? So we've got to start work on all the conditions that are in the the mining licenses, and there's quite a few, but most of them are some bureaucratic and procedural. We gotta get that as much land access as we can to build out a portfolio of mining licenses. And the first new mining license we've got probably gives us the first two years of production in any event, so we're pretty well protected on the early rollout plans. But a key focus is our arrangement with the LB Group and signed an agreement with LB in December last year. And they've been we've been talking to them for a long time, years actually, and just keeping them informed.

5:03 And this led to signing of an MOU in December. And then they they came out, did their due diligence. We had a very strong site visit with them in February where they had all the technical due diligence, and we virtually would got through the financial due diligence. There was a little bit left. We'd had comments on the first joint venture agreement, so the definitive agreement. So we got very with us the whole way. So we kept them informed, and then they allowed us to announce the extension of the MOU in May, which we did. And then again in August, we extended it, and we extended that to the end of of this calendar year.

5:48 And and now we've had several calls with them. We are reengaged. They've sent what's outstanding in the DD. The lawyers are engaged, so I'm very hopeful that that we can move through that reasonably quickly. My target is before the end of the year. That might be optimistic, but it's good to have targets to keep you honest. Bear with me. So broad terms of the of the MOU with LB. So they will basically fund the CapEx required to get to what was defined in our May 22 PEA of 1,650,000 ton capacity. And that that we estimate would cost $81,000,000.

6:36 They so they have to fund all of it. We don't fund any of it. We are entitled to cash flow. As soon as it's positive, we're entitled to 50% of the cash flow positive cash flow from as soon as it starts. So we don't have to wait for that money to go back in. So based on our plans, we could be in we could be getting cash flow in twelve months. We do need to sit down with LB Group, and they might have a different plan to us. They might wanna go harder and faster. They might wanna to go to a higher production rate. I'll talk about that a little bit more in the in the back of the press. Because we we scale our our our plan to minimize the cash we needed to get into production.

7:25 Whereas they, I think, will be driven more by NPV, which for us, think it'll be great, but we'll keep you informed as those discussions move forward. The the the upside for this company, this project has never been the issue. It's always been execution. And, you know, everybody who's been involved in it, everybody who's been to the project, everybody who knows the industry knows that this is a a very straightforward project in a part of the world that needs work, and we've only we've only really fairly early stage in in our of the of the resource itself. The resource only goes to three meters. We know it goes way deeper. And our our NPVs out of that 22 study equates to about 46 p per share on the base case and 70 p per share on the upside case.

8:20 And as you'll see later in the presentation, both of those cases are below the current spot prices. The difference between the cases is basically what we assumed as as mineral prices. As I said, we'll we'll see more of that later. I I think a big catalyst is gonna be signing of an agreement with the LB Group. So we were fingers crossed, and we'll keep you posted. So it's this is a a excuse me. It's a very nice project. It's not global scale size yet, but it definitely is global scale in grade, very high grade at 17.6%.

9:07 No slimes. Very simple processing. High valuable heavy minerals ratio at 75%. So good, easy project with high growth and lots of upside. Our view internally, and we and we've spoken to people that there's lots of companies that that have got interest in it. Some of the bigger ones would say they're not interested until you can get to 50,000,000 tons, but but most of them agreed with us that we probably will get to to that target. That is our target. And so certainly, the first initial ten year mine life, we expect to grow quite considerably.

9:46 So the economics in a nutshell, high margin, short payback. So as I said that those NPVs, the base case one fifty five with 56% IRR and upside IRR of 73, pretty strong. Three three point two to a three point seven year payback, which is very good in this industry. So what are the the key minerals that we'll produce? So so most of the revenue will come from ilmenite going into titanium dioxide followed by zircon. So between the two of those, about 70% of our revenue comes from ilmenite and zircon and then Rutile and Ghana. And so, you know, at the moment, the I think the forecast in 2023 to 2030 are pretty strong for the industry.

10:41 And there's a few headwinds at the moment just given global uncertainty, some slowdown in construction in in China. Some of that's been offset by a bit of a construction boom in India, but certainly the long term fundamentals are very strong. And and over time, and Richards Bay was was cut has been cut back quite a lot, and that's that has actually helped boost the the the pricing across the globe. And, you know, as a a key point there is we're we're we're gonna be partnering, fingers crossed, with the global number one pigment manufacturer in in the LB group. So we certainly got the right pedigree for that type of partner. So we're now pretty pretty advanced on our path.

11:28 Key next step is finalizing that the joint venture agreement with the LB Group. The port lease that we actually had a lease agreement agreed with the the port authority in Olivet, but we didn't sign it because it would have resulted in us starting to pay. So we we've basically put that on ice, and and we're revisiting that now. Engineering design, I know somebody's put a question in there of, you know, how long that's gonna take to get us so we go in into construction. It's a very simple, well trodden path, so we don't expect that to take long. We we're certainly hopeful of starting construction in the first half of next year, and I'm hoping, you know, we can start it as soon as sort of middle of the first half of next year.

12:21 And then based on, as I said, that stage plan that we had, we would expect to be in production in twelve months and positive cash flow in in twelve months for us, for CAPITAL METALS.

12:38 So as I said, it it is one of the highest grades globally. There's a very high content of measured or indicated resource inside that resource, and the the revenue split if you look at the resource content, it's only about 40% in ilmenite and zircon, but that accounts for about 70% of our revenue.

13:04 There is excellent infrastructure in the area. So there's grid power, there's scheme water. There are sealed roads. The roads will probably need to upgrade a bit between the the the site and the port, but there's a brand new port sitting 32 kilometers from the initial mining area and was basically was used for fishing. It was funded by the Danish, but it is over time through lack of use that it is actually filled up. You can't see it in in here. It's it's filled up with a lot of sand, so it's difficult to to access the port other than very small vessels. So we will dredge that port, which does contain heavy minerals for lower grade than our resource, but there will still be some value in it. And if not, you know, we'll get a return out of it through construction sand.

14:00 So this is for those who know the industry, it's a as I it's a well well worn path. So at site, we will have 150 meter wide benches by 50, and that'll be continuous rehabilitation as we go, which which the locals are loving the sound of. And so there'll be a mining unit and wet concentrator plant at site over the the plan is to have three mining units. The concentrator plant will be mobile, and then all of the facilities will be built in stages over time at the Olivell Port, which you could see from that photo. There's there's ample room for expansion. In fact, there's more out way more out the back. There's virtually no utilities there as we speak.

14:47 So this will ultimately go to so HMC moving to a mineral separation plant, magnetic mineral separation plant, then then later on a a nonmagnetic separation plant, if if that's economically justified at the time. But based on our current plans, it is this is very simple. No blasting, no chemicals, and that that constant rehabilitation, which the locals will appreciate because we will actually leave the beach in a much better state than what it than what it is when we arrive. So it's it's it's full of rubbish. Obviously, heavy minerals itself, it's, you know, dark sands everywhere. So we will get rid of the rubbish plant as we go and have returned, you know, golden sands.

15:34 I've just this summarizes the staged approach. So we conservatively looked at only doing a 550,000 ton mining rate and then the concentrated plant, which we built within the first two years. And then we'd move to the mineral separation plan, and then we're basically upping the tonnage and then ultimately the the non MEG plant

15:58 in the at the moment plan for sort of years five and six. So just touching on the in a little bit more detail on the LV group deal. So as I said, fifty fifty fifty JV, and it will be a proper JV. I've had a lot of experience in international mining JVs with the likes of Rio Tinto and Barrick Gold and and Anglo. And so I know what fifty fifty joint ventures look like. But this there'll be a management team that we will appoint, and that'll report to the JV board. So this is not something that they'll be will just come in and run themselves, and that's how they wanna do it. They want where they wanna work on this together. But, they're gonna have some pretty keys input into that construction period. They're all construction decisions, which we welcome as well.

16:50 So just some highlights from on the side, taxes and royalties, not necessarily highlight for us, but certainly is an important factor for the government. We are actually expecting a royalty increase, not surprisingly, since, you know, the IMF is in there and has said no no tax holidays anymore, and and we need to see more returns. So nothing formal yet, but obviously, we'll keep you updated as that goes. But I think, as I said before, the ups the upside is not really the issue, and and we've still got a fair bit of fair bit up our sleeve in terms of the pricing assumptions that we've used, which takes us to the next slide. So if you can see here on the ilmenite, our base case price was $250 and it's around the $3.70 mark. Zircon at $19.22, that's the average price over the life of the project, same with Rutile and and Ghana.

17:47 And they're all below current spot. We just just did some calculations to look at the weighted average of our base case assumptions and base weighted average is 38% below current spot, and the even the upside cases is still 11% below the current spot. So I'm not sure there'd be that many projects out there at the moment where even their upside cases is below the spot prices.

18:22 So we did some big drilling program in 2022, and that's none of this is included in the resource. And we really need to spend more money on exploration drilling, but, of course, we'll be doing a lot of resource drilling at the time moving into construction. So I think we'll be able to do both at the same time. We'll need a sonic rig, which are you know, we're at that stage rather than just augur, which not as accurate. But what was pretty consistent is we were seeing grades above our our current resource grade, and we were seeing it go to some depths that are well below the average three meters. So we do expect as as we actually get the funds to to move into into more resource drilling that to to that will increase.

19:13 One thing I haven't said about the LB deal that there is two there are payments of $2,000,000 upfront, but to us, would pretty much occur on signing, and then another $8,000,000 that would go into the project very soon after that signing. And we have to hit a milestone for that. Based on our current figures, we will hit that milestone. So so funding shouldn't be an issue. As I said, we're pretty keen to get in and do this deposit a bit more justice that it really hasn't had to be pretty tough time. They they they got hit by COVID pretty hard and economic crisis earlier this year, and they're still working their way through it.

20:09 So it is it was pretty tough to get things done over the last few years. Things have been slow, but and we we probably could have had them move faster, but, you know, it hasn't been easy for the country. As far as the the region, it's a it's a great part of the world. It's it's reasonably remote. Not you know, there's not a huge population over there. There's a there's a mixed population, which I think is pretty reflected in the mix that we have in our in our staffing team. But they you know, big picture is, as I said, they need work. And so there's there's a a lot of support. We've been working with them, obviously, you know, for years. We as as CAPITAL METALS, we've been here since 2016 and as our the predecessor company that we acquired since 2012.

20:55 So they've built up some pretty strong relationships. So we expect to add over 300. Clearly, a lot of upskilling in the area, which which a lot of them would be unskilled labor, opportunities for local university students and internships and and and training. And and this will we will be the first sort of modern miners, you said, in mineral sands mining operation in the country using modern stands. There is the the the government owned linker minerals, but that's been around since the sixties. And and it is a little bit tired, and you wouldn't say that that was operating by modern international standards. So so we're, you know, we're we're looking forward to being the leader in the industry, and we do think there'll be other opportunities as a result of that leadership.

21:46 On the team, it's a pretty small team at the moment, but we're very much in the process of getting ready to build that out. So the board tight board of three guys, myself and James Lee, stockbroker and director on a number of listed companies in Comway who represented the KLK, who was a major shareholder of the company. And we're looking at some other appointments there and keen to appoint some Sri Lankan representation on the board as well. And Ranga has been a a long loyal member, and he's our country manager. He's he's been here a long time and seen lots of ups and downs is now pretty excited about growing his team here.

22:31 And I got James Mahoney, CFO, London based, Richard Stockwell. Exeluca is the technical manager out of Perth and a and a great asset for the company. So very small market cap at 3 p with our market cap certainly about $10,000,000. We're based on the 279,000,000 shares, and that was that includes that latest issue. And if you think of if you compare that to 155,000,000, which is over 40 p per share MP, they're just on the base case. That's that market cap certainly, I think, has a long way to go. So in summary, we're ready to you know, we're in the planning mode license. We've won won the cancellation. Hopefully, we've got all the shenanigans of the of certainly, you know, the corruption behind us. And financing, very advanced on that. Hope to move to definitive agreement very soon.

23:30 Ton of upside in the deposit itself. Certainly ton of upside in the current valuation. And I look forward to keeping you all updated and progress, plenty on news drive as we as we move through what you see as a as a lot of deliverable. That's great, Greg. Thank you very much indeed for updating investors, apologies for any audio interruption during Greg's presentation. Ladies and gentlemen, please do continue to submit your questions using the q and a tab situated on the right hand corner of your screen. That's why Greg takes a couple of moments to review your questions submitted already. I'd just like to remind you that a recording of this presentation along with a copy of the slides and the published Q and A will be available via your Investor Meet company dashboard. Greg, if I could ask you please to open up the Q and A tab, you'll see you've had a number of pre submitted questions and a number of questions from investors during your presentation today. And I wondered if I may just ask you to read out those questions, and I'll pick up from you at the end.

24:32 Yeah. Sorry. Just going through some of those. Yeah. No problem. Yeah. So has the port lease grant been applied for? I think I answered that and that we we basically had a lease agreed, and they've now actually gone out for a request for proposals for other uses. And there are two other companies that not competitive use with ours. So, you know, we're expected we're actually welcome that. So we expect to see a fair bit more activity around the port. There is a question in the company countdown to production presentation on your website. It has shown that any offtake agreement will follow the port lease agreement given that an MOU has been signed. Is it possible that an an announcement regarding the JV could be issued first? Well, my my focus is definitely on the getting the JV done as quickly as possible.

25:25 I you know, JV agreement is is certainly a bigger catalyst for me than than the port lease. I'm assuming the port lease is going to be more procedural than than a huge catalyst. Somebody asked about the the twelve month period between construction and production and the the detailed engineering that's required. As I said, this is not rocket science or well trodden path. So, you know, we're hoping to start construction in in certainly in first half of next year. Are there any limits on the depth you'll depth you will be able to mine, or is that yet to be decided? Good question. At the moment, we are only allowed to mine down to the water table.

26:13 We know that the resource goes beyond the water table, and and that internationally, it has been demonstrated in many places that you can mine responsibly below water tables. We're not pushing that yet, but we're just gonna get in production and just build the confidence of the authorities. And then over time, we're pretty confident we will be able to go down below the water table. Obviously, it varies between sort of three and five meter depths, but we've got in in some of the dunes, you know, we've got drilling that finished in mineralization at 14 meters. So and nowhere near the water table. So, yeah, it's a it's a it's a good question. But as I said, our approach is gonna be conservative, and and don't put don't go too hard for the resource below the water table at this stage.

27:02 Are there further areas in Sri Lanka to be developed? Yeah. There's no question there are, and there's a there's a few ASX listed companies here. We know them. We know them well. We know a couple of private companies that we're talking to and staying close to. Clearly, at the moment, we don't have the current is my background, but I'm certainly keeping an eye on them as as we build the value in our currency. I think there's a great opportunity to grow in in Sri Lanka. And and with the backing of LB, I would expect that we would be able to add other projects. Can you confirm if the JV advance payments, if and when the JV is signed, will fund all exploration work without the need for future fundraising?

27:54 Yes. Look. It that's certainly what the design is. I'm actually, you know, have mentioned trying to accelerate some of that funding from from LB even before we signed the agreement. You know, there's obviously no guarantees that they are gonna sign the agreement, but the signs are good, and they're certainly, their commitment's been strong and they're one as soon as we got the licenses back, the reengagement has been very encouraging. So I'm I'm hopeful that we can do this without any fundraising. Are the production and finance forecast net to CMET or need to be shared with the Chinese partner? So all of the numbers in this presentation are on a 100% basis.

28:44 So you need to take out it's not as simple as taking out just 50%. I mean, you could look at this and say, they're funding 81,000,000, we've got half of it so that it implies a valuation of a 160. That's one way, and and there's there's no problem with that logic. But it's a little bit more complicated because we we can start to access cash flow early, and they can't. They gotta keep going until they make that that hurdle of one one point six five million tonnes production. So it's it's so it's not that simple an answer. But, yeah, big picture is that presentation is a 100%, not 50%. Is is with somebody saying was now that we've ticked a lot of the boxes and sorry. I'm paraphrasing your question. Ticked a lot of the bottles.

29:49 Is CAPITAL METALS at at risk of being a takeover target? Look. We've got a pretty solid shareholder base, and we know them pretty well. And in the last raise, it was all of the money came from existing shareholders. And so, you know, still solid support there. I'm not sure that it you know, any of these companies would jump in to Sri Lanka at the moment without our full cooperation. So to me, that's all about, you know, if somebody wants to take us over, great, but it's gotta be at the right value. I don't have any issue with that. We know there's interest there, and there's no doubt. We have been talking to companies because naturally over the last few years looking at raising finance from a few alternatives.

30:36 And as I said before, some of the bigger guys would like to see 50,000,000 tons, and we're not there yet. But yeah. Yeah. That this is my background. So I watch this space, I think. I don't think it's gonna be imminent, but and certainly, you know, with the JV with LB, I think that will probably deter some of the the bigger guys from a from a takeover, but I know there are others that are interested. I think I've got through the questions. That's perfect, Greg, and thank you very much to everybody for your engagement this morning. Greg, I know that investor feedback will be particularly important to you, and I will shortly redirect those on the call to give you their thoughts and their expectations. But, Greg, if I may just come back to you finally just for a few closing comments just to wrap up with, and then I'll send investors to give you their feedback.

31:29 Yeah. Okay. Thanks again, Mark, and thanks for everyone for taking the time to sit through this. Yeah. We're in a we're in a great position now. It's been tough, but it's so nice. You know, the last last nine to twelve months is fight mode and just all that lobbying mode and legal legal work. And now when you put that aside and work on building this project and and I said that that it's this is not the upside's always been there, and it's been up to us to execute. And now we've been given the mandate to do it, and I look forward to getting our hands dirty, rolling our sleeves up, and and delivering for everybody. That's great, Greg. On that note, thank you very much indeed once again for updating investors.

32:14 Can I please ask investors not to close this session as we'll now automatically redirect you for the opportunity to provide your feedback in order the management team can better understand your views and expectations? This will only take a few moments to complete, but I'm sure it'll be greatly valued by the company. On behalf of the management team of CAPITAL METALS PLC, we'd like to thank you for attending today's presentation. I may wish you all a very pleasant morning.