CoTec: Maiden Profit & Q2 Financials Review

0:07 Hello, everyone. Welcome to Kotek Holdings live investment summit today hosted by 6. I am pleased to introduce the president, CEO and director for Kotek, Julian Traeger. Julian's going to walk us through a bit of an update and then we'll be taking some questions live. Remember that you can submit your questions using the Q&A panel found on the right hand side of your screen at any point during Julian's talk today. And as always, this event is being recorded and will be available to watch on six.com in the coming days. But Julian, without further ado, I'd like to hand things over to you. Get us started. Thank you, Cam. And thanks to all of you who are dialing in to get the update on Kotak. We're very pleased, having just announced our H1 results, that we can declare a maiden profit for the business. This still understates what's really the potential of the portfolio, but it nevertheless is a signifier that we are moving in the right direction.

1:00 And I'll talk to you as well about the exciting things that are happening in the portfolio and the interesting pipeline we have. But most importantly, I think we are at the right place at the right time. The macro events we've been seeing over the past 6 months, the unfortunate war in the Ukraine, which is creating shortages of raw materials, the rise in inflation, the need to reduce costs, the emphasis on trying to not pollute the world, all means that this is the moment for disruptive technologies to be applied to the commodity extraction space. And I think also there's more and more recognition of the importance of the circular economy of recycling and reprocessing in providing the solutions that the world needs. And Kotech is absolutely on point in focusing on those areas.

2:01 So if we just look at the 3 companies that are in our portfolio and the good things that are happening there, I mean, Binding Solutions continues to gain traction globally with iron and steel manufacturers. But more importantly, it looks like they are at the forefront of creating a new pellet for electric arc furnaces, which is the future generation of steelmaking. We're waiting for that to be corroborated in a peer review, But if that's the case, that has very positive implications for their valuation. And as you may know, we invested at around $70 million. The last round of investing was at $130 million. So that's looking positive.

2:48 But even more exciting are the developments at MAGAR, our iron ore processing facility in Minnesota, which could be a major input into Green Steel in North America. There we invested at a effectively post-money valuation of $13.5 million. There's subsequently been a transaction at $30 million on an implied basis. And the company is currently speaking to potential investors for further funding at over $100 million. You may recall that the replacement value of our plant and equipment is around $1 billion today.

3:34 And we've also owned several billion tons of iron ore which has been partially mined and uncovered in the region. So we have very high hopes for this particular asset. We think that there is a likely prospect of multiples gains on our investment. We're also testing the Binding solutions technology at Magine. So this is an example of the way in which the technologies we invest in can be applied to the assets which we have ownership in. And we are also talking to other companies in Canada and in the US which have waste, which we can apply our technology to on a proprietary basis.

4:21 And then the third investment we have, which is the Makango Magneto revolutionary way of recycling magnets and rare earths, that's become increasingly important as we see events unfolding with regards to China and Taiwan and the vulnerability of the US and other Western countries to being cut off from magnet supplies and rare earth supplies by China and implications for, amongst other things, the defence industry. So we think that's got enormous scope. And indeed, in the last day or 2, the pilot plant, which will showcase this technology, has just begun to operate in the UK.

5:08 There's another pilot plant being built in Germany for the EU, and we are starting to examine how we could bring this technology, which is green and based upon hydrogen to the US and to North America. So those are the 3 very positive developments that are occurring within the portfolio. And then in terms of the pipeline, they're equally exciting prospects. We are looking at a technology which can significantly enhance the effectiveness of fertilizers, which is very timely given that a lot of the world's potash is supplied by the Ukraine, Belarus and Russia and therefore the prices soared recently.

5:57 And we're also looking at a technology to extract vanadium and titanium from waste and also produce powder for 3D printing, which is an area which is going to take off in a major way. So there's lots of exciting things within the pipeline. Our stock price declined during the summer lull, and to my mind was rather undervalued. So today I bought over 100,000 shares. And we think that the prospects of the company look very good. But going back to the beginning of my short summary, most importantly, we are operating in the right space at the right time.

6:45 And we are doing something which is important and is scalable and which should create significant earnings and profits for our shareholders. Yeah, absolutely. Thank you for the conversation, Julian, and the updates. I'd like to remind everyone in the audience that you can ask questions using Q&A tab found on the right hand side of your screen. But Julian, we've already received a couple of questions and the first of which, you know, what are you most positive or what are you most excited about maybe regarding Kotech right now? Well, as I said, I think the fact that we are early into something which I think is really big, the beginning of the mintech industry, the commodity tech industry and the implications of that. And we've had enormous validation from strategic partners, from sovereign wealth funds, from major companies operating this space, saying how important they think what we're doing is.

7:45 In addition to that, obviously, Magon, which we invested in at a valuation of $13.5 million, I think does have the potential to scale to something which could be around 1 billion dollars, which is the value of its actual contained plant and equipment. So that alone would be worth many multiples of the current market cap of Kotech. Fair enough. I think you've gone over this to some degree already, but nonetheless, what's in the pipeline in the next 6 and 12 months for you. Well the things that we're looking at in the pipeline are opportunities which are scalable which have high margins and for which They are disruptive and can be applied to assets. And as I said, there are some very interesting things that we're examining, different ways to create powder for 3D printing. We're also looking at a technology, but it's quite slow to do diligence, which could deradiate nuclear waste.

8:53 And so there's around 50 different opportunities in our pipeline, which we are gradually processing. And I would hope in the next 6 months, 12 months, we would do another 4 or 5 investments. Ultimately, we don't want to have 100 different investments. I think we'd like to have 10 to 15 major players, which can all be significant and create enormous value each on their own. All right, great. Another question. What ESG aspects does Kotech use as a rubric to determine the next investment in your portfolio? Well, most of these technologies we're looking at and the things we're doing have a certain commonality. So they're all much greener than the current status quo ways of doing things. They use much less power, they use much less heat, they use less water, they're much cheaper in general, and they're much more flexible and modular.

9:54 So when we look, for instance, at the fertilizer enhancement product we're looking at, A lot of fertilizers do create carbon emissions in their manufacture. By reducing the amount of fertilizers by 90%, that effectively would reduce the carbon footprint by 90% for the production of agriculture. So we are looking in part of our disruptive framework for technologies which are not incremental. So it's not a 5 percent saving in the carbon footprint. It has to be really sizable and move the needle. Absolutely. How much money are you prepared to invest into an opportunity initially?

10:45 Well, the way we're doing this is we're investing a couple of million dollars and then we're scaling it according to different milestones. So in certain circumstances, you know, we could invest up to 10 million dollars given our current scale. But as we grow larger those numbers will get larger as well. But in general we're starting at 2 3 million dollars and then subject to milestones adding to that. OK fair enough. Another question that we received reads like this. Goldman Sachs is telling a different story on lithium than other analysts. Do you think that this year's top is the top that we're going to see for a while. Lithium is is a is a commodity which is in significant supply.

11:34 At the moment there is clearly a shortage of lithium. I mean there are around 250 gigafactories being produced in the world and there will be significant need for further lithium. But I'm not really on top of the supply demand for lithium a couple of years out. So you know I think we are looking and have looked at some lithium technologies. They could be interesting if they can enhance further supply at low cost. That's I think the risk for people who are lithium bulls. Fair enough. Another question, is Kotech considering any other listings at the moment? And what's the timeline like for that?

12:21 Well, we have looked at different and we've had some demand from investors to look at potentially getting another listing in the US and also getting the company qualified for UK investors. Given my background, there are a lot of UK investors who are interested in coming onto the register. So those are both initiatives which we are pursuing and we can update the market in the coming months. Okay, thank you. Another question, and again, I think this is something you've touched on previously today, but how does the current macro situation affect you? Yeah, I did start and end with that, and I think the current macro situation is very favourable.

13:07 I think the shortages which have been developed because of the war in the Ukraine, the way in which commodities can be now weaponised, the threats to national security, particularly in the West, the short-term increased reliance upon coal and the carbon implications versus the long-term needs for a greener world. All of those, I think, talk to the technologies we're looking at, which as I said before, are greener, more efficient, more flexible. And so I think these are creating tailwinds for the business that we're involved with.

13:56 Okay, thank you, Julian. And really, thank you for coming on today. And I also want to of course, thank everyone that's joined us, as well as those who've asked questions. This recording will be available in the coming days on Six.com. But Julian, I'd like to hand things over to you before we wrap up, totally, just for some closing remarks. Thank you, Cam. Well, I think it's very much the same message. I think we are very much in the right place at the right time. The portfolio is doing very well and has considerable potential. The interim results are gratifying in that they show a profit, but they understate, in our view, what the true value of the portfolio is. And there's some very, very exciting things in the pipeline. So we're very encouraged and we're enjoying what we're doing. We think we can make a difference and make money for our shareholders doing so at the same time.

14:48 All right. Well, with that, Julian, we'll be wrapping up for today. I hope you and everyone joining us has a good rest of the day.