Capital Metals (LSE:CMET) — Project Update

0:01 Good morning, and welcome to the CAPITAL METALS PLC project update. Throughout this recorded update, investors will be in listen only mode. Questions are encouraged, and they can be submitted at any time just by using the Q and A tab that's situated on the top right hand corner of your screen. Simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company can review the questions submitted today and publish responses when it's appropriate to do so. Before we begin, I'd like to submit the following poll. I'd now like to hand you over to executive chairman, Greg Marty. Good morning to you, sir. Thanks, Alexandra. Morning, everyone. As as Alexandra said, my name is Greg Marter, Executive Chairman of CAPITAL METALS. We have one of the highest grade mineral sands project on the East Coast Of Sri Lanka.

0:47 As you'll see, you know, in the mining industry, there is an expression that grade is king, and you'll see from the next slide that how true this is. So we are the red dot up to the right of the slide, and the rest of those dots are the operating mines and development projects for listed companies in the mineral sand space around the world. So we're an absolute standout in terms of grade. At the moment, the dot size represents the size of the resource. In our case, it's a resource. In the other case, it's reserve for the other projects. But we're expecting to increase the size of that bubble with a current drilling program that should be mobilizing the rig as early as next week, and we're very confident that we can double and even triple that resource.

1:39 And I will talk to that more during the presentation. So as I said, the project is in the Southeast of the country, which is a fairly remote part of the country on the most of the populations on the left in Colombo, and to the Southwest. It's a fairly small island and, 22,000,000 people, but, the North and the East are the more remote parts of the country. So this week, and in fact, I'm in London this week for the resourcing tomorrow. It was at the Mines and Money conference in London. This is the presentation that we used for that conference. And on Monday of this week, we announced that, in a in a race to cash flow, we have a reduced CapEx plan for the first stage of production for the project.

2:33 And we were previously we we did a PEA in May 2022, and that was a pretty thorough report that was done by well known independent consultants, IHC. They're very well known in the mineral sand space. And we have now whittled that down with the view of finding an eminently fundable CapEx number of 20,900,000 that'll get us into production. We were always going to be doing a phased production process whereby we would start with 550,000 tons of processing sand. And and now we're we know that we're gonna come out with at least a 125,000 tons of high grade concentrate in that first stage.

3:24 The next stage is from a processing point of view is to build a a magnetic a mineral or magnetic separation plant, and then ultimately an electrostatic non magnetic separation plant effectively. And and during those stages, we would have been increasing the processing capacity from 550,000 tons to 1.65. At the moment, our our focus is very much getting into cash flow. We've had a number of delays over the years. And, you know, as as the mining industry is experiencing, the the period between discovery to actually getting into production has stretched out to over fifteen years is the average. So we've we've been in this project since 2016.

4:09 So that's seven years. And obviously COVID was during that period and and interfered, and there's been a few issues we've had in in Sri Lanka. So therefore, we're just saying, let's find the plan to get into production, derisk the project, and start to become self funding as quickly as possible. So that's a very blanket focus for the board and the team going forward. So the plan is to come out in q two next year with what we call a final investment decision where you have all approvals in place and your funding in place so that you can start construction. We're expecting construction to be a nine to twelve month period and therefore bringing us into production in the first half, hopefully the early of the first half of twenty twenty six.

4:58 So that, that PEA that we did in May 2022 has a base case NPV of 155,000,000 and an upside case of 235,000,000. And at the moment, our market caps around about two piece. So it's it's around 10,000,000 US dollars. So there's enormous rerate potential if we can derisk this project. So the base case NPV at 36 p and the upside at 54 p, you can you know, as you get closer to production, generally, your share price reflects a number closer to your NPV. So lots of upside from just that those numbers. We expect to increase the NPV as we increase the resource and and so therefore huge upside as well from the drilling program. We're well funded at the moment.

5:52 We've got about 1,800,000 in US in cash, I think more in US. That's where our expenditure mainly is and our revenue will be. So we're well positioned to to get to that final investment decision and still be still be in healthy funding balance.

6:11 So this is quickly on the project. There it is in a bit more detail on the East Coast. So there's a port to the very north. Unfortunately, that port has been silted up quite a badly designed port. So we will be shipping out of most likely shipping out of Hambantota, is which about a two to three hour drive to the south.

6:36 Just this is these economics are based just on that the ten year mine life that was in the IHC PEA. And so you've got IRR of 56% and a payback of three point seven years and that total revenue over the life of the project, 645,000,000. So I think importantly, that revenue, when we were getting to full capacity and full processing, we were generating we forecast to generate around 100,000,000 a year of revenue. So if we can keep this going at that level for not ten years, but twenty years and and more, you can see how those IRRs and the NPVs are going to massively increase. So what is what a mineral sands used for?

7:24 It's look, it's not the sexiest industry in the world. It tends to track GDP movement across all countries. Most of the uses are fairly old world. In our case, most of them would go into pigments that go into paint, into ceramics. There is some titanium usage, so titanium sponge and some of it goes into titanium metal a lot used in the aeronautical industry. Zircon's mainly used in the ceramics as you can see there. About half of it goes into the ceramics business. Algarnet, we've recently been told by a well known garnet selling company that that our garnet is a premium product.

8:12 And so we won't be able to unlock that benefit in the first stage in the the concentrate production. But when we get into the separation, magnetic separation, we separate out the ilmenite and the garnet, and and that's when we'll be able to unlock a a higher price than we've been assuming for garnet.

8:33 So that where are we at in the road to production? So importantly, we have already got the the EIA was approved in Sri Lanka. And in most cases, you need the EIA before you can get mining licenses. We do have two mining licenses. We've got another nine applications that's that we're hoping to roll and roll those into mining licenses. Probably not all of them by the time we start, but we wanna know that we've got at least two, three years of mining under license before we actually kick off. So as I said before, the the timeline for the final investment decision q two next year in a nine to twelve month construction phase. So our resource, we we keep harping on that. Don't know how good the grade is, but the makeup of the resource is 84% measured and indicated.

9:24 So it's, you know, it's been it's been fairly well drilled and will the objective of the drilling program coming up is not only to increase that resource, but also increase our certainty and close the spacing so that we can do that initial mine planning with much greater confidence. So this this slide, we use to give you a much better appreciation of that upside of the of the resource. So the resource was done in two thousand sixteen, sixteen and it was based on about two and a half thousand hand auger holes for just over 3,000 meters. And the the average depth of those hand auger holes was 1.6 meters.

10:13 And we know that this deposit, we did a a sonic drilling, a small sonic drilling program in 2018. And that's with the sonic drill rig, you can go a lot deeper than the hand auger. And so we've got some holes there, 14 meters at 26%. So compared to our 17% resource grade, eight meters at 26. So we we know there is huge potential just going deeper than this deposit, which is what we'll be doing by this drilling program. And also laterally to the West, there is more potential in areas where we haven't drilled or only drilled in quite wide spacing. So that program kicking off sort of middle of December.

11:00 It's a one to two month program. Assays these days are little bit variable as to how long it's taking. They'll be sent down to South Africa and we're hoping that they'll come back within sort of one to two months when we you send down the samples.

11:16 It's very simple. This is this sets out how simple the staging is. So the first stage, it's mining in a bench method. That's what's approved in our EIA. Ultimately, we'd like to go to dredging. We'd need to have an adjustment to our EIA to enable that, but we're we will once we actually start mining, we're going to demonstrate, hopefully demonstrate that we will be able to go to dredging because that that much greater economies of scale and much cheaper operating costs than what we've been assuming. We know that it's amenable to it. It's a, it's a matter of just convincing the country and, and getting a change to that EIA. Very simple excavator shovel and truck, to a, a processing plant. So the wet concentrator plant, which is just a set of spirals basically running, you know, slurry pumps and pipes, and then gravity through the spirals. I've got a photo of pretty much exactly what our plant is gonna look like.

12:20 And then we would export that that heavy mineral concentrate. And then stage two is that magnetic separation plant where you separate out the ilmenite and garnet leaving behind the zircon and rutile concentrate, and then stage three, the electrostatic would separate the the zircon zircon and the rutile. So you've got final products coming out of that stage three.

12:47 So here is the if you're on the right there, you can see the photo. That is an off the shelf plant from Mineral Technologies out of Queensland, very well known globally. They've got good IP in in their spiral plants, and so we're quite advanced with them. That is our main piece of kit. And so you can see how simple the whole process is. No chemicals, no blasting. Literally, we will take out the black of the sand and and put back the yellow. And so it'll be a three stage process through that plant. So we will we will recycle some of the the material through, in particular, to focus on some of the garment. So from a community perspective, they what's what's actually happened in Sri Lanka is there's been a there was a presidential election in so it was in September, and that was followed by a general election and that just concluded in the middle of November.

13:53 And so during that period, virtually nothing happens in country. It was a bit quite a sensitive election. There was a there was a big change. The NPP has won a very convincing they end up winning two thirds majority in parliament. And they came in on on the platform of an anti corruption and anti government largesse, which is music to our ears. Traditionally, there has been corruption, quite a bit of corruption in the country, and I think people misread that. Certainly the politicians that were on the wrong end of that vote misread that. And so the people have spoken loud and clear, not just the young people, but, you know, right the way through the generations have said they've had enough. So we're looking forward to working with the NPP.

14:45 It's only very new, so people have only just been put in positions in in the last few weeks. I'm heading to Sri Lanka tonight. We'll be there for the next ten days and got lots of meetings with new ministers, head of the the board of investment, the new chairman of the mines department. Looking forward to meeting lots of new new faces. From what we've seen, then we're very happy with the people that have been put in these positions, and we're confident that we'll be able to work with them. So looking forward to a a period of positive progress in country. But as I said, whilst that last three months, pretty much most government decisions were frozen, really enabled us to get in there and just understand any concerns that the community had. And we've grown out our team. We've we've now got three dedicated community officers and supported by the the officers both in at site and in Colombo.

15:38 And, you know, there's lots of programs going on. So there's a a very strong effort to educate that and the community and to look at any needs that they have leading up to that construction decision.

15:54 So our board, a very experienced board in the in the resources space, James Leahy, big background in financial sector, Taekwong Wei out of Malaysia, was part of one of our major shareholders and financial background as well. Bruce Griffin came in, and he's the chairman of Sheffield Resources who took 10% of the company in April and and very well known in the mineral sand space and and really helpful for us going forward. And here's the with Stuart Forrester, very glad to have appointed him as the COO in July of this year, and, he's based in Perth with Richard Stockwell who, again, has lots of experience in the mineral sand space.

16:44 And the rest of that team are are based in in Sri Lanka, and that team is growing as we speak. So, you know, Stuart was really attracted to joining the company. He I think one of the greatest things he saw was just the grade of the project. And one of the last operations that he was running, the grade was 2%, and our grade is over 17%. In fact, our grade is our cutoff grade is 5%. Our cutoff grade is higher than the global average for for mining mineral sands. And, so he looked at it, and he said, hey. They had to process 6,300,000 tons to generate pretty much the same level of, concentrate production that we're gonna be looking at.

17:30 We're only doing 550,000 tons. So he was over 11 and a half times more the capacity. So you could see why he could see that this was a potentially low CapEx, low operating cost, big margin project. And that add that 20,000,000 CapEx, we we should be about a less than a one year payback. So, you know, as as we've said before, looking forward to getting into a period where we're self funding and we can expand. We can fund our expansions in capacity and processing going forward.

18:05 So as we said at the beginning, grade is truly king. I think I've probably hopped on that a little bit too much, but I don't I don't think you can. It really is one of the greatest strengths of the project and the upside that we've got on top of that, I think the grade is going go up and the size is going to go up from the drilling campaign. And just, I think, just watch this space from now on. You know, some people have said we've been pretty quiet, but we were there wasn't a lot of there were obviously no approvals, more approvals coming in, big changes in all the relevant departments that we're working in working with in Sri Lanka. So we just knuckled down, looked at our numbers, looked at what is an finance and fundable plan. And the key thing key message you should take away is that we believe we can fund that 20,000,000 without having to go come to shareholders for equity.

18:59 And the plan is to do it through offtake financing with the end users, some vendor finance from equipment providers, and there's working capital facilities available. And we're also talking to three parties in Sri Lanka about taking a small stake in the project, direct stake in the project in Sri Lanka. So we've always wanted to have a partner and and pleasing to see those conversations carrying on.

19:28 So that's that's it in a nutshell. And I now will open it up to questions. And there were a couple of questions that we had at the beginning, Alessandra. I'll go to one of them. And if any more were coming in in the meantime, please feel free to send them. But and bear with me while I look down at the screen to just read through one of the questions. Well, the first one was a very good one. I'm just gonna scroll up. So so just basically talking about the drilling campaign when in August 15, we said we were going to suspend the campaign, which we had literally just started, which means actually our drill rig is is down there. The team is down there, so we're ready to jump back in pretty quickly.

20:15 So it won't take us long to remobilize. So please, could you give more information on why GSMB would want CAPITAL METALS to reduce stop operations due to the elections? So we as I said before, it was a very sensitive election campaign. And we've always noticed that election campaigns in Sri Lanka, they always tell us they're quite sensitive. But what what the GSMB said to us was that they were hearing that that they're hearing from the environment ministry even higher up that they said they didn't want anybody to use any projects like ours as a platform to to complain and use it as a platform for their election campaign. So they just said they would rather us stop. It was it was we could have kept going. We had all the approvals.

21:12 We we debated it, and we said, look, it's only a couple of months. Nothing's happening from a government perspective anyway, and we will have time to complete that program before we get to the FID. So we made we made the decision to park it. And and here we are, and now we're in an environment where I think we've got much greater certainty with a with a with a government that is has that two thirds majority. So we are hopeful that the next certainly the next eighteen months to twenty four months, they will be in a very positive mode and and positively disposed to new projects that create new jobs and bring in foreign currency and taxes and royalties. Just the rest of that question, is CAPITAL METALS operating in such a politically sensitive area and is there local opposition to the plans of CAPITAL METALS? So I think I've probably answered that in terms of, you know, what's their potential sensitivity or sensitivity everywhere.

22:14 I'd say it wasn't specific to that area.

22:18 And has the makeup of the GSMB changed and what are the ongoing political challenges CAPITAL METALS face? So the chairman there's a new chairman of the GSMB and I'm meeting him on Tuesday with the director general, which is like the managing director, who we've we've known the DG. He stayed. And he in fact, he's worked on our project in the past. He's a professor, and we've been working with him since he joined sort of beginning of this year. So good working relationship there. Otherwise, the GSMB is pretty much the same. In terms of political challenges going forward, I think the biggest thing is just uncertainty because the the NPP, but prior to the general election had three ministers out of 225.

23:06 They now have a 159. So, you know, who are they? And we're gonna be learning that pretty quickly. And and what do they know about running the country? And and what do they know about being positive for business. Our view is and then a lot of people we talk to is that they're going to be open for business, but we just, you know, we haven't we you can't can't be too definitive or not until you've actually met them and spoken to them. There was another question about when the drilling's gonna start, so I think I've answered that. And I can I oh, yes? Here's some more coming in. Needed to hear about the situation with the landowners covering the proposed mining areas. Do CMET have any signed agreements in place? So our strategy we do is with the the CCD has the the coastal conservation department has strongly support the project.

24:03 And it's important to know that with the the role of the CCD was after the tsunami. They were obviously, Sri Lanka was quite heavily hit by the tsunami. That's you, Ben. I'm sorry. Yeah. That's okay. So they now manage the first 300 meters all the way around the country. And you can't do anything in that 300 meters without their approval. So that basically means that we are dealing with and that covers most of our resource, that's 300 meters. It means we're dealing with one party that manages the area. There are underlying landowners. And so what we're doing, our initial mining area is in an area that is owned by the the coconut cultivation board, and they have 47 hectares where we'll be starting. They actually have 200 hectares that's relevant, but we're we're focusing on a 47 hectare block. We have their support, and then we roll down where the mining licenses are on that CCD land. And then the strategy is over time, roll out the licenses in conjunction with the getting the the landowner access.

25:11 And we don't want to you know, you're not gonna go and commit to 60 kilometers of of, you know, every single landowner. It's a it's a rolling it's a rolling process. And it could you know, there's a there's a management exercise, a strategic management exercise in managing expectations of, in particular, private landowner. So we've we've mapped it all out. We know every every landowner about per per the resource, and so we've broken it down, and and I think we're the the team is doing a great job of just managing those expectations and getting ready to sign lease agreements at the right point in time. The SL the Sri Lanka government, this is from Robert, has spoken about value addition requirements for new projects.

26:01 Are CMET confident they will permit the export of a relatively low value heavy mineral construct? Very good question. Look, there's always a value add debate in particularly in developing nations where they're saying they don't want you to export the value, and they want you to try and lock in as much as as they can. Ultimately, that's about maximizing the revenue and therefore maximizing the tax and not much more. Unfortunately, what happens is the the term value addition becomes a political term thrown around by we've seen it a lot by politicians. They actually don't understand what they're what they're saying and what it is. And so what we've done is we've done a lot of analysis of the all of the value addition requirements for other industries in the country. And we have been educating the all of the relevant stakeholders on the process of mineral sands, what happens in the rest of the world. So we and through the BOI, the BOI, the board of investment, we have an approval approval letter from the board of investment. We were the first foreign mineral sands company to get that approval approval letter. That's still subject to a detailed agreement that was parked whilst the elections took place.

27:20 But so we we're working with them and, you know, we're very confident that we'll get to that point where initially we will just export the concentrate and then we will it's there's a two year window that they are setting out in which time we will negotiate exactly what the next phase is, but most likely minimal that magnetic separation, which we intend to do in any event. Am I missing any others? I can't. I think that's it. Oh, here he comes. When from is there when do you expect the additional licenses to be granted?

28:10 Good good question. Those we have satisfied almost all of the conditions of the licenses, the license applications, but they've just been frozen. They literally were told that nothing's happening on them. So that process is reopening again on Monday when I meet the chairman and the and the DG. But given that we're we're talking about a q two FID decision, we we don't believe that we're gonna be held up by the licensing issue. Neil. Yeah. Neil. So what stage are the off take and funding negotiations and when you're hoping to have this finalized by? So again, everything everything goes to that FID. So you you need to have all your permits in place, all your studies completed and your funding in place before you can push the button on construction.

29:03 So that gives us three to six months and I'm hoping less. I think four months is probably quite realistic. Having said that, we're talking to there's a lot of Chinese parties on the on the off take side. We got Chinese New Year in early February this year and the Christmas period. But, yeah, I'm I'm very confident that we will get to the full package for the FID in q two next year. Secondly, are you able to give an indication of when you think further mining sorry. We've just done that. So that this is about further mining licenses. Will a delay will a delay in receiving further licenses delay construction? No. Not necessarily because I said it was we've got mining licenses now. We could start if we wanted to.

29:55 It's just what's prudent, and our and our view is probably at least three years of of resource on the mining licenses is the appropriate approach. Are GSM be doing the drilling? And will you be releasing visual results during the drilling campaign? GSM be will be observing, and in some cases, we'll be paying for them to attend. But it's our rig, it's our team that will be driving the bus. But, yeah, we definitely be working hand in hand with the GSMB. They haven't had much experience with an aircore rig. That's what we'll be using. They're quite keen to to see us in operation and and learn from from seeing that aircore rig in in action. And, yes, we'll be we'll be releasing maybe releasing maybe through socials, maybe but but definitely when we get visual results.

30:52 And and there will be as you can see from what's up on the screen, there will be visual results galore. So, yeah, we'll be we'll be coming out and advising you of those as and when appropriate leading up to when we actually get the proper essays. There's a bit of overlap in some of these questions. Oh, hang on. Where does Sheffield stand right now? Might they come back in to provide financing? Are they going to take up their option for more shares at five p? So where do they stand? They I think, you know, we talked to Bruce obviously very regularly. I was just in in Kuala Lumpur, Malaysia for the t z m I conference, and we spent quite a lot of time together there. That's the preeminent mineral sands conference.

31:41 They've got their hands full right now. No question. So they're they're needing to keep their powder dry for their own project. So we are not expecting them to be part of the funding package. And to be frank, well, it's early days, but but I can't necessarily see them exercising their options at five p, particularly when we're at two p. But there's no doubt that that was just the first step for them, and, you know, they they wanted to play a bigger role in the project, but, you know, they they're not ready and we're not waiting for them. Good questions, by the way. I really appreciate them. Perfect, Craig. Thank you very much for answering the questions from investors. Of course, the company can review all the questions submitted today, and we will publish out the responses on the investor me company platform.

32:33 Just before redirecting investors, provide you with their feedback, which is particularly important to the company, Greg, could I just ask you for a few closing comments? Yes. So what we did is, as I said, we knuckled down and our strategy was to come out at this conference this week, at the the Minds of Money conference, and come out with that reduced CapEx number. We wanted everybody to to sit back and say, wow, that's not a big number. That is evidently fundable. Here is our plan as as I've been through, and we we're we're not planning and come to the equity markets for it. So and in the meantime, drilling campaign commencing and hopefully, we'll be coming out with the results and proving up that it's a that the upside is much greater than what we currently think. So thank you for your support. Thank you for your patience.

33:24 And just watch as we now continue to tick those boxes until we get to the the FID in in q two next year. Thanks very much. Greg, thank you once again for updating investors today. Could I please ask investors not to close the session as you know, we automatically redirected to provide your feedback in order that management team can better understand your views and expectations. This then take a few moments to complete, but I'm sure we'll be greatly valued by the company. On behalf of the management team of CAPITAL METALS PLC, we'd like to thank you all for attending today's presentation, and good morning to you all.