Capital Metals (LSE:CMET) — Project Updates

0:01 Good morning, and welcome to the CAPITAL METALS PLC project updates. Throughout this recorded meeting, investors will be in listen only mode. Questions are encouraged, and they can be submitted at any time by the Q and A tab situated in the right corner of your screen. Simply type in your questions and press send. The company may not be in a position to answer every question received in the meeting itself. Have the company account for all the questions submitted today and publish responses where it's appropriate to do so. Before we begin, I'd like to submit the following poll. And now I'd like to hand you over to the Executive Chairman, Greg Martin. Good morning to you, sir.

0:31 Thanks, Alessandra, and welcome, everybody, yeah, to this update. So the heading of our relate latest presentation, we released only yesterday on the back of a a quite a detailed r and s sort of a project update, we call approaching FID, so final investment decision. And what that means is that we need to have everything in place. So all the approvals, the government approvals, we need to have all funding in place. We need to have all our studies, our technical studies, logistics studies done so that we can present that to the board and the board makes the final investment decision, which then enables you to start construction. We're pushing hard to get that done by the end of this calendar year, so starting construction in Q1 of next year.

1:21 And I think as you'll see during the presentation, we are pushing hard, and we're confident that we'll get there.

1:29 So I suspect a lot of you know the story, and a lot of you are attracted as I was right from the beginning to the grade of this project. It's one of the great the highest grade projects. Excuse me. I'm not touching that. It's one of the highest grade projects in the world. And and right now, we're a little red dot, and we're working on making that a much bigger dot. And in fact, we had a finally had a deep drilling program in the first quarter first half of this year, which we've announced three phases of results, which is demonstrating that that is going to happen. That dot is going to get a lot bigger. We're working on a resource upgrade and for the initial mining area, which is where we've just drilled. And then ongoing drilling, we will do updated resource estimates each time we come out with a new phase campaign.

2:27 So the project is on the Easternmost part of Sri Lanka, and that is probably the the most remote part of the country and not a huge amount of competing land use and probably one of the poorer areas. So the jobs are welcome. We've been there we have been there since 2016 when we acquired the project from locals that had been exploring this since 2012. So just recently, we put out a new model, and that model has taken us quite a long time to do. The last model we put out was off the back of the preliminary economic assessment in 2022, And Stuart Forrester, our COO and Mineral Technologies working very hard to make that a much more functional model. It's a planning model, not just a value model so that we can look at changing the capacities, changing the mining rate, changing the processing rates, bringing in other phases of separation early up.

3:30 And so what we think is on a fairly conservative base, our base case has gone up from 155,000,000 to 180,000,000. And that's after taking into account an increase in the tax rate from 14% to 28% and from the royalty from 7% to 9%. So we factored in about a third increase in the resource for that base case. And for the upside case, we factored in two thirds. So just to touch on that resource, I'll actually go back to that slide. So we've got 17.6% grade, that high grade at 17,200,000 tonnes. We but that is only drilled to a depth of average depth of 1.6 meters. When I say drilled, it was done by hand auger.

4:23 And that, that couldn't go below the water table. The water table obviously varies, but the average is 1.6. So we did some drilling, deep sonic drilling in 2018. We were getting down to 14 meters with grades around 30%. Of the campaign in the first half of this year, we were getting down to 15 meters. I think we averaged about 10 meters, and we were seeing grades of up to 60%. Obviously, not everywhere, but some very encouraging intercepts which we have put out to the market. So we have that ten years of initial mine life. I'm quite sure we're going to pretty pretty confident we'll double, triple the resource, and, you know, hopefully, this will be a thirty plus year mine life project.

5:11 So we've touched on where it is. You know, I think one of the the bigger things out of here is that, you know, once we once we go through that first concentrate process, which is a very simple process of just gravity adding water and turning to slurry and gravity through a series of 48 spirals in a three stage three stage process through those spirals will turn that that 17% grade into a 90% grade concentrate, highly in demand. And with our product in particular, it's a very clean product. There's no slimes, which means clays. And we've spoken to a lot of off takers, and we're very confident that the demand will be there to acquire. At the moment, we're talking we're focusing on off takers who are interested in providing project equity and also a prepayment facility whereby they would prepay six to twelve months of offtake and get a percentage of exclusivity of the total production.

6:17 So this is a bit of a snapshot of the outcome of the revised model. As you can see, a very robust IRR of over 70%, a 98% IRR for the upside case. So the return from this project, the margins on this project are outstanding. And as I said, that's just based on the current resource with the 30% uptick or a twothree percent uptick.

6:51 Earlier this year, we announced actually in May that after a long period of due diligence and after actually a long time of trying to find the right partner in Colombo that we we signed a deal with Ambien Capital, and Ambien have arranged for four two lots of 2,000,000. So two they put 2,000,000 in first and then brought in friends, co investors for another 2,000,000 that we closed off earlier in the month. And so we now have raised 4,000,000 from them. As a group, that gives them about 20% interest, and we raise other so Sheffield Resources, our 10% shareholder, had a top up right or an anti dilution right for 10%, and they exercised that both times. So they're still at 10% as well. So right now, very well funded. We've got sort of over $5,500,000 in bank, and that one is more than enough to get us through to FID and actually will contribute to towards some of the the fairly low CapEx, which I'll touch on a little bit later.

7:55 So Ambien, a group that invest they're a conglomerate. They're actually mainly backed by a fund that we got very close to. And the fund is run was founded by three guys, two Sri Lankans and a and an Indian that actually were brought up in Australia and educated in Australia and had their their early careers in Australia. So, you know, highly qualified careers in Australia, moved back to Sri Lanka, set up a fund, and now have over 200,000,000 under management. They co invest in Ambien and and in projects like ours with Aravinda de Silva, who's the legendary cricketer who which won virtually single handedly, won the the World Cup for Sri Lanka in 1996, and and is now a very active investor and and successful, as the guys call him, a better investment banker than he was, Cricketer, which I find hard to believe, but it's been great to have him on board. He literally is on the board as is Sebastian who joined us from the the ACP slash Ambien group.

9:02 And and we've been working very closely with them during the due diligence, and also, since then, they are are just able to have so many conversations behind the scenes with our stakeholders, get a lot more clarity on those discussions that are taking place, the factors that we need to be aware of, and all towards aiming to get the last two outstanding approvals that we need to get to that FID point. So I presume most of you would have some idea of where mineral sands goes, but, you know, it's there are some critical mineral uses, but I wouldn't call it a critical mineral industry.

9:47 It's pretty much goes to pigments that go to paints, ceramics. There are some uses in titanium metals and some other more advanced uses of zircon products, but it's it is a pretty much a GDP based revenue impact on the on the pricing for each of our products. So our main products, ilmenite, we're about 40% ilmenite. Actually, I'll come back to that when we talk about the resource itself. So as I said, it's been quite a journey, and we are now getting very close to that final investment decision. We've got the environmental impact assessment. We've got two mining licenses. We're the most advanced project development project in Sri Lanka for mineral sands.

10:38 And so we only need one more mining license, and we just need the right to be able to actually export heavy mineral concentrate. So one so those two mining licenses, they we got them back in 2022, but we want one more to just give us enough critical mass to have about four years of mining under mining license before we actually commit to that first level of CapEx. And with respect to the heavy mineral concentrate, we need to get the government to tweak, I'd say. A poll they attempted to allow the export of HMC in in 07/20/2023 through a cabinet memorandum, but they there was a couple of errors in there that actually made it unworkable.

11:28 We've gone around. We've pointed out there. It's actually done a markup of their paper. It's quite a simple change. I think they were quite surprised at at how straightforward it would be to change it. And we've been working and lobbying on that and hoping that that we'll be able to get that certainly within the next three months to enable that FID.

11:47 Very simple. This is off the shelf technology. We're not reinventing the wheel here by any means. At the moment, we have approval only to mine to the water table, and we would be doing that by excavation and trucking to the wet concentrator plant. That's sort of steps one and two. We are working on being able to mine below the water table. And then and ultimately, there's there's a number of areas that would have that is conducive to to dredging, and dredging reduces your cost by about you know, by up to a third or down to a third of what you would would do either the truck and shovel method. So encouraging discussions. I noticed there are a couple of questions around this. Encouraging discussions on moving to below the water table. In fact, there's a new minerals policy coming out soon, which we know their primary objective is to better understand the resources that are in the country across all of the commodities.

12:59 And that means, you know, they're they'll be encouraging us to go to depth and not worry about the water table. I'm not saying not worry about it from a mining perspective, but just from a to understand what the resource is and then so they know the value in country of what they've gotten and so they can prioritize decisions off the back of that. I'm sure I will, we'll talk more about that when we get to the q and a section. As I said, off the shelf product, this is something from you know, we're working with Mineral Technologies who have proprietary spiral manufacturer just out of the Gold Coast in Queensland. And that plant is a what we call an off the shelf plant. They make the spirals. They send the equipment to China. It's assembled in China.

13:49 It's tested in China, disassembled, put in containers, and sent to Sri Lanka. So we're just reassembling it. So it's it's not a not a very complex construction. We're saying it's nine to twelve months. Twelve months is buying. Time for any issues. But at this rate, we're expecting to be in production by the end of next year.

14:14 There's probably a closer shot of the plants. You can see they call them spirals. They literally we pump the slurry up to the top, pump the ore and water up to the top. Heavy minerals go to the middle of those spirals, the the light of the silicone, and the clean sand goes back to the beach. So we basically take the black out of the beach and and return the yellow. No chemicals. No blasting. It's very straightforward. As I said before, that existing resource from a a retail value, from a sales value, it's about 40% ilmenite, 30% zircon, 20% rutile, and and 12% garnet.

15:02 We have a very we've actually since that the PEA we did with IHC in 2022, We've worked with one of the preeminent sellers of garnet, and they have told us that we have a very premium garnet from a hardness point of view and a grain size. So we're hoping to be able to work on that and improve the pricing that we've got in our model.

15:28 So I touched on this, some of the drilling that we did back in 2018. So actually, you know, step back. So we've we've got the the resource is based on 1,600 holes and 2,600 meters. Average depth of only 1.5 1.6. So we did the drilling in 2018. We've done the drilling another auger program in 2021, and now we've got that program from the first half of this year. So in total, there's nearly 600 holes that are not included in the resource. And probably more importantly is those holes at depth, so down to 15 meters, and stepping out to the west, in particular in initial mining area, that gives us the confidence that we will be able to significantly increase the resource.

16:18 And also our technical expert, Richard Stockwell, ex Saluca, working with Plastic Consulting, he knows this space back to front and is very confident we can reduce our cutoff grade from a very high atypically high, as we call it, 5% to 2%. It's interesting that the global average grade is actually less than 5%. So we were assuming a cutoff grade. I think it was just too high, so above the global average. So we're very confident that we can go down to 2%.

16:55 And here are some of the highlights of the what we've said, the focus on the initial mining area. So you can see on that map that the existing resource in the in the Jawke resource is in the pink area, and the the area where we've extended the resource, it's not we don't we can't call it a resource yet because Richard hasn't completed the calculations, but, yeah, we're confident that is a what we'd call a resource area. So we're now we're now out to sort of a 150 hectares as opposed to the 47 we were before. So pretty significant increase in area, and we are hopeful of coming out by the end of next month with the resource upgrade just for that initial area. So so that is about I think it's about two and a half kilometers of strike length of the total strike length of around 60 kilometers for the project. So it's only a a sample, but I, you know, I think what what we're hoping is this comes out and it's an it'll be an indication of how we think we're going to go over the rest of the project. Obviously, it's going to vary from area to area, but we're pretty confident that we're going to be adding to that resource as we continue the drilling campaigns.

18:15 And they are going to be ongoing, probably right through construction as well.

18:21 So a lot more focus has been on the community activities. We've really only been able to with budget and with the team really only be able to do this justice over the last probably eighteen months, in particular since Stuart joined us in the middle of last year. And really it's a completely different feel that we're getting when we go there. And and I think all the initiatives that that the team have been working on, there's a there's a much greater level of understanding, and that's, you know, one of the key things that you need to get is education. And I think, you know, people are understanding more about the way we're going to approach it, about our sustainable environmental approaches.

19:10 And there's still a way to go, but, you know, that's an ongoing process. And it's look. It's a process that that you need to do, you know, right through. So I'm very happy with how that's progressing. So here's the board. My background's investment banking and resources and been in that for thirty years. Bruce Griffin is the chairman of Sheffield, who have 10% of us, and and what he doesn't know about mineral sands is is probably not worth knowing. And and then Savi, Sebastian, and and Era joined us in, I think, formally in July. And James Leahy, ex stockbroker from from The UK, and Kwon Wei is with the KLK Group out of Malaysia and is, their finance head.

20:03 And the team, you know, principally led by Stuart, ex Zaluca, ex Chemours, ex Rio Tinto, is a really great operator, very structured, and I'm, you know, really enjoying working with him.

20:20 So our current market cap is around $25,000,000 so it's about £18,000,000 and that compares to our base case valuation of 180,000,000. So that's an NPV per share of about 27p and the upside is about 24p. So there is a huge amount of upside as we start to capture that valuation. You don't expect to capture your full NPV before you're in development, but the closer you get to production, then the closer you should be getting to that NPV per share. So to wrap up, you know, we're in the in the resources space, grade is king. And our grade, as I said, is one of the best in the world. We're fully funded through to to to the FID and beyond.

21:12 We are pretty advanced in in terms of funding discussions. So cap, which I haven't actually touched on, the CapEx that we've got to get into first production is about $20,000,000 We're looking to raise $25,000,000 for contingencies, working capital, etcetera, of which where the plan a is to do that through bank debt and and private equity out of Sri Lanka, where there are conversations going on with strategic off takers that are looking to put in equity and prepay, as I mentioned before. So we should with only a $20,000,000 CapEx, should be in production for 125,000 tonnes of concentrate by the end of next year.

22:03 So I think, you know, in summary, we've just been ticking the boxes. We've just been doing what we said we would do. We now have a strong partner. We're a bit over three months away from our targeted FID decision at the end of the year. And I think you'll see a continuing rerating of the share price. I would have hoped we would have had a better response to to than what we've had, but our job is to just get on with it. And my view is you deliver what you say you deliver and the share price will follow. Thank you. I think we'll hand over to Q and A. That's great. Well, thank you very much for your presentation. Ladies and gentlemen, please do continue to submit your questions. You can do so just by using the Q and A tab that's situated on the top right hand corner of your screen. Just while Greg takes a few moments to read the questions that have been submitted today, I'd like to remind you that the recording of this presentation along with a copy of the slides and the published Q and A, can be accessed via your investor dashboards.

23:02 As you can see, we have received a number of questions, both presubmitted and throughout today's live presentation. And, Greg, what I'll do is I'll just hand back over to you to run through the questions, and then I'll pick up from you at the end. Sure. Okay. So first one, how far to the north and south does the Taperban discovery extend beyond the current initial mining area? Discovery word's interesting since it was discovered back in 2012, but, you know, mining projects are taking longer and longer to get into production. And so so as I I touched on the the the drilling in that initial mining area is about two, two and a half kilometers of a 60 kilometer strike length. That's probably one third from the top of the project, so most of the project is is below that.

23:51 The more important thing is how far does extend below the average of the resource drilling of 1.6 and how far to the west does it extend. And that's what we'll be focusing on, have been focusing on the in the initial mining area, but over the rest of the project drilling as well, which is good. It's just as I said, it's going to be ongoing and we will keep updating you as and when we can have enough information to do a staged upgrade of the resource. Mining it just just jumped around. Mining company share prices respond to active drilling once construction starts and their plans for continuous drilling at Taperban during the construction phase. I think I've just answered that.

24:38 A current strategy for combining asset level equity debt funding could now change away from the Columbo listing. Is the current funding round still aimed at only phase one or a more aggressive timeline to phase two and three? It's a good question. So as I've we've come out and said, we are we think there's too much risk in in look pushing for a Colombo Stock Exchange listing of the project. We were looking at listing 15% of it to raise the equity component. And so we we're continuing to talk to them. We still would like to list the project, but it probably makes sense to do it later construction or or more when it starts to get into production. They just don't I don't was concerned that they don't understand enough about mining, and they probably didn't know what questions to ask, let alone what to do with the answers.

25:31 As to as to whether we're gonna be more aggressive on the funding, no, I think it still makes sense. This makes sense in this industry to do it on a staged approach. And I also think it makes sense in country to to get you know, not commit too much CapEx to stage one. And and then we work together. We make sure we continue to get more mining licenses because this is a it'll be a rolling process of getting mining licenses. You're not gonna get 60 kilometers of mining licenses all at once. You'd be mad to. They only last ten years, and they can be renewed, but so that that will be an ongoing process. I think what will happen in terms of, you know, whether we become more aggressive is assuming that it's all going well, that we would probably, after six to twelve months, look to accelerate that that phase two and phase three.

26:25 And Stuart and I have talked about this. We would hope that we can actually jump to phase three in terms of the capacity and magnetic separation. So please can you tell us the update position regarding drilling under the waterline? So as I touched on them, it's more at the moment under our environmental impact assessment, we can't mine below the water table, but we've been drilling below the water table twenty eighteen and in the program earlier this year. So it's not so much about the drilling. It is more about getting that approval so that we can actually dredge. And as I said, that National Minerals Policy's primary objective is for the country to understand its resources, so regardless of the depth of all water tables.

27:18 Can Ambien assist with approvals needed to get into production in the mining license you referred to? Absolutely. As I said, a lot of it's just about clarity and about having those right conversations. And just it's also an approach. And so we we work we we have, you know, WhatsApp chats with them, you know, ten, fifteen times a day, and we have two regular catch ups with them. So and then we're actually moving into their office on October 1. So we will we'll be able to access them on a on a much greater basis. So very happy with that help and and how much difference they are making already. Assuming the concentrator is not a mobile unit, has the project secured the land, purchase, or lease for this facility?

28:09 So, actually, the that cons the wet concentrator plants are they are readily moved. Red and it's not sometimes you put them on skids. We're not planning to put them on skids, but if we want to, we will be able to move them. It's more about the separation plan and where you put that. And we have we have plans for it yet, but, no, we haven't actually secured the land. And that's that's something that's that's it's very much a a work in progress. And and clearly, we need to get that sorted prop prior to the the construction. Right? I think the the what initially, we've as a backup, we've got the initial mining area, which is under the Coconut Conservation Board Cultivation Board, land owned by the Land Reform Commission, strong discussions with them for a lease so we could put it on that that land as an initial, position for that plant.

29:11 Excuse me. Does mining of heavy mineral concentrate get any simpler than what CMET is proposing? Well, look. I think the answer is probably yes. You know, we've had a lot of lot of local people and a lot of, Chinese companies say that we could do it a lot cheaper and cut corners. We're we're not interested in it. We're gonna do this properly. We're going to mine it sustainably. But I think, overall, as a process, no, it doesn't get much simpler than what we're doing. It's just our approach to it. Mentioned in the past, interest in other mining opportunities in Sri Lanka. Have these progressed? Well, they've progressed in the sense that we keep talking to them.

29:58 We need to be focused on our own project. And we are, as I said, the most advanced. So I know lot of the companies are sort of riding on our coattails about lobbying efforts and our efforts to actually get the approvals in place and get that new minerals policy in place. And so now is not the time to be committing to them, but I strongly believe that there are lots of opportunities. I know there are lots of opportunities. The big one actually is Lanca Minerals itself, which is the government owned project at Pulmonai to the north. They will come the country will most likely come out and seek a partner under PPP, a public private partnership, and we are well positioned with particularly with our Ambien partners to to participate in that positively. They're not ready to do it. It was a real mess. It was poorly run, and there was corruption involved in the old days. So they're really trying to get to the bottom of it and get it in a position to come out and ask for partnerships.

31:05 Interestingly, and I think this is a very good sign of the fact that the country is open for business, in in mining, they've just put out expressions of interest seeking their PPP, seeking partners for their phosphate project and also for their graphite project. So, I don't think you do that unless you're, you know, you're gonna be open for for business in that mining space. So what is the implication of reducing cutoff grade to 2%? So it's absolutely, it is going to be a significant increase in the results. So, you know, if you're you're basically treating everything below 5% as waste, and now you're only treating everything below 2% as waste, you know, you can do the maths.

31:57 It's it's a pretty significant increase. And we don't I don't yet have the numbers that that's we'll probably only do it for and I think, I haven't had this conversation with Richard, but I think we should show the actual impact of that on the initial mining area upgrade resource, and therefore the implication, you know, what happens to the rest of the resource, but but we'll come out soon with that. And but but it will be a a reduction in grade. Obviously, so you're bringing in more material but lower grade material. So naturally, you're going to have some reduction in grade. But it's a little bit early to answer that properly, but big picture is an increase in tonnes and a small reduction in average. Regarding the coconut areas, we'll see that we asked to rehabilitate with new coconuts or other types of vegetation.

32:51 It's a good question. It's a the area, they make no money out of coconuts. I think that the total revenue is about $30,000 from the coconuts. There's they also lease it out to some peanut farmers, and they make peanuts, literally. So we've said we would offer a premium to whatever they get from their own production. We know that their chairman has been there, and he could see that it is not conducive to coconut growth. And so, yeah, we're expecting to rehabilitate the area if they want. The land's actually owned by the LRC. It's not actually owned by the CCB, the Coconut Cultivation Board.

33:38 And we're we're we're saying, well, they should have the first right to get it back. We're we're building nurseries up and down the project. And the idea is we're also gonna be teaching people about mulching technologies, and it's obviously gonna create jobs, and it'll it'll be able to demonstrate just our approach to rehabilitation, which plants we're gonna do. We're gonna be doing sample rehabilitations in in that coconut area. So there's a lot of work to be done, but we know that we can leave actually the beach, mining areas in a better position than what they are today. We're absolutely confident of that. I think that's, that's about it, Ben. Is there any others any key ones I missed? Okay.

34:30 Well, thanks, everybody, for your time. And, you know, for those that are already there, I'm hopefully, you know, this is encouragement for you to top up. And those that aren't, I would I think there is an an enormous opportunity here. And, you know, I would love to welcome you all as shareholders, and our AGM is in the next hour, I think. It starts starts in twenty minutes. And so I'm looking forward to meeting any of you that that turn up to it. Now, Sandra, back to you. That's great. Well, Greg, thank you very much for updating investors today. Could I please ask investors not to close this session as you now be automatically redirected to provide your feedback in order to management team can better understand your views and expectations. Apart from the management team of CAPITAL METALS PLC, we'd like to thank you for attending today's presentation, and good morning to you all.