CoTec Provides Market Update

0:08 Hello everyone and welcome to today's event. Thank you all for joining us. I'm delighted to be joined by 2 key executives from Kotec, Julian Treger, President and CEO, and John Singleton, Chief Operating Officer. Before we dive in, just a few housekeeping notes. As this is a live event, please feel free to submit your questions through the chat feature, which can be found in the bottom right corner of your screen. We address them during our Q&A session at the end. If we're unable to get to all the questions during our time together, we ensure they're shared with the company for followup. Today's session is also being recorded and will be available for replay shortly after we conclude. Now, turning to the main topic, yesterday, Kotech released the highly anticipated feasibility study for HyperMEG USA. Julian, the feasibility study demonstrates compelling economics for HyperMEG. Could you walk us through your key takeaways from these results?

0:59 Sure, Karl, and thank you for having John and I on your program today. Yes, you're right. Yesterday was a big day for Kotech. It was the announcement of our second feasibility study. And together with the Lakshmin feasibility study, the tributable value to Kotech of these 2 projects is around US$250M

1:25 before any financing considerations on an NPV basis, which as you will see from our new investor presentation, suggests a 10X upside from our share price. So we're glad to be able to demonstrate to our shareholders and followers how rapidly we are creating value. And it was interesting yesterday to note that whilst we own 60% of this project and our co-investor and colleague, Mekango has 40%, in Canada, their share price was up 60% and our share price wasn't up at all. So really contrasting movements. I think this is positive for both companies and hopefully we'll see a better understanding of the implications for us in the coming days. But it is an important project, not only for Kotech, but also for the West, for the security of the West.

2:27 You know, this technology, which we are demonstrating here again, how we can acquire a disruptive technology and apply it to assets, or at least a stake in a disruptive technology, is really a revolutionary way of reusing the magnets which circulate in economies that are well developed like the US and Canada and how we can reuse them in an efficient way and thereby start to address the risk, which is increasingly obvious around the security of the West for these very strategic issues. We've seen in the last couple of months China restricting the trade of antimony.

3:22 We've seen some restrictions by Russia on uranium. We've now seen tariffs potentially from the new Trump administration. We're definitely going into a sort of fortress America versus the rest of the world. And our technology is potentially very important in allowing more self-sufficiency in the US, also in the West in terms of remaking and reusing magnets. And these magnets are very important. Strategically, they're used in things like night goggles. They're also used in ballistic guidance systems. But on a more day-to-day basis in terms of our lives, they are used with robotics, they're used for electric motors, and of course they are used for computers.

4:18 And as the AI sector grows and becomes more strategic, if that too becomes weaponized, it's gonna be super important for the West to have a local supply of hard disk drives with local magnets. Most of them at the moment are made offshore. So I think the implications

4:40 for the general security of the West, for the economy, is significant. And for Kotech, it's super interesting. Even at depressed current prices, the NPV is 250 million of which we would have 60%. But if you look at the longer term prices, it's 500 million. So hopefully that gives you some context, Kyle, for why we believe it's so important and why we're excited about it. Excellent. Thank you. And thank you for laying such a great foundation. Just for clarification, Julian, looking at the ownership structure through Magneto, could you clarify how the economics flow through to Kotex shareholders? Are there any preferential rights or carried interest we should be aware of? Well, Kotex directly owns 50% of HyperMAC US in conjunction with

5:36 Mekango. But we also own 20% of the stake that Mekango has in the technology. So on a look through basis, we have 60%, but what we have agreed is we would finance their share of the CapEx of the business on a loan basis. So it will have to be repaid by them to get the business up and running. And so we're excited to move to the next stage now, which will be more detailed engineering. Well, let's get into that. Could you elaborate on the timeline and the main drivers between now and first production of Q1 2027?

6:20 Well, I think now that we've got through this milestone, we are going to start with the detailed engineering early next year. At the same time, we're working hard on identifying suppliers of feedstock and also on potential customers. These workstreams are happening in parallel. And the last one will be the financing workstream, where we are engaged both with parts of the US government for financing given the strategic nature of this project, but also with more conventional project finance banks. And then there are a number of people interested in investing in the equity as well. And we will seek to maximize the

7:12 equity issuance, depending upon valuation at the asset level, although obviously Kotech will be contributing and carrying its part as well. I guess he couldn't collaborate on percentage wise regarding the financing of the 125 million capital costs in terms of loans to shares. Well, partly that is gonna be a function of, the success, hopefully, of our applications for grant funding from the U.S. Government, and that will potentially change the percentages significantly. Similarly, the potential for off-tech funding could also change that. But on a more conventional basis, aside from those 2, normally project finance would be 60% and equity finance would be around 40 percent.

8:07 But it's far too early to really go into great detail on why and what those numbers are going to be like. Got you. And one thing that caught my eye, the planned third HPMS Vesto expansion would cost approximately $7 million, which seems like rather inexpensive given the overall cap backs. Why not include it in this initial build?

8:35 I think we wanted to start conservatively and walk before we can run. You know, that potentially has a payback of many multiples, the 7 million. But of course, we could also then move to building second and third hubs with spokes so that over time, our expectation is that we could supply around 3,000 tons of magnets, which would be 10% of the entire US demand. But I think we need to as we do generally with Kotech, we take small steps, we prove the thesis. And once those work, we can then add on incrementally.

9:20 So this does have the potential to be a much larger multi-billion dollar business, but we really wanted to start at a manageable size. Understood. John, I'm going to bring you into the conversation now. Thank you for joining us. The release mentions potential cost savings in the detailed engineering phase. With your experience in project development, which aspects of the current design present the strongest opportunities for optimization?

9:46 Thank you, Kyle. Thank you, Julian. So where we are with the study is, I think, just from the get-go, we wanted to do proper engineering and proper discipline to bring the study to the point where it's sort of bankable. In terms of the studies and the further work that's required to reduce cost, I mean, I think basically that will be centred on the fact of getting from a Class 3 to a Class 1 and within that process will go out to bidders through the procurement system to actually get the capital fixed and down. We think that with insight, with further work out of the University of Birmingham, we can refine the design parameters and reduce some of the capital through this process. Now, John, what do you see as the key technical risks in scaling up the HPMS technology to commercial scale, and how are these being mitigated?

10:39 Well, I think as Gillian mentioned before, the 2 main things that we've got to sort out in the next 6 months are the offtake and the supply. But we've had several conversations or leading discussions with either both offtake and suppliers. And one of the key things that we can do is that because Birmingham has itself a pilot reactor and some of the UK businesses is coming on stream, we have the ability to test. So we can test material feed that we receive from OEMs and different groups and we can also have the ability to test the magnets with the offtakers. And as Birmingham has already said, they've produced 3,000 magnets to date, there'll be another 10,000 magnets coming and these magnets are being given to offtakers for them to test. And so far, those results are coming back extremely positive, which gives us a lot of confidence to take the business forward and secure both those offtakes and the supply contracts, which will inform the recoveries that we see out of the HPMS system.

11:37 Thank you. Before I bring it back to Julian here, if you have any further commentary looking at the production ramp-up schedule starting Q1 of 2027, what are the key milestones you'll be monitoring to ensure the project stays on track and where do you see potential for optimization?

11:53 Well we certainly, I think just going back to the question of the third reactor or the vessel, I mean that's a very attractive kind of project or option for the system to have. Clearly, at the moment, we have to kind of look at sweating the magnet lines to see if we can get further incremental capacity out of that that will make that attractive. But then I think, you know, more broadly in the next 6 months, you know, we will be very disciplined with the engineering design and we will verify all of the assumptions that have gone into that to make sure that When we have the final study, bankable study finished, it is in a good position to be financed easily. Julian, when looking at the sensitivity analysis, it becomes apparent that product pricing has the most significant impact on project economics.

12:46 What assumptions are driving the forecast prices of $95 per kilogram versus the current price of $55 per kilogram? What market dynamics support this outlook?

12:57 Well, that represents about an 8% compound annual growth rate. But at the moment, the price for these sorts of materials is depressed. We've seen China over the past year or 2 really using predatory pricing successfully to destroy the battery market, particularly with strategic materials to stop competitors in the West developing their own sources. So we think that this is actually a low moment. And as I said in my introduction, the global dynamic, the macro picture suggests in fact that sooner or later there's going to be a tremendous shortage of these products in the West. So the price may well shoot up as we saw in other materials. So I think overall, as you will have taken from John's comments, we've been very conservative here.

14:02 We haven't made wild assumptions. We've assumed the capex, which hopefully we can improve on. We haven't pushed the third plant into the third,

14:22 what do you call it, John? It's vessel, reactor. Vessel, the vessel, the reactor actually, the centrifuge into the model. And we're confident that we've taken a similar approach on the pricing. But if you look even at the current depressed spot pricing,

14:43 the project is interesting economically with IRRs in the 20s. If you go to a more, in my view, realistic pricing, the NPV goes from around 250 million to around $500 million, and the IRR goes up into the 30s. So even very conservative assumptions, it's an attractive project. And as we said, we think it will only get more attractive as we see geopolitical developments coming to the fore. Thank you for that. Now, the operating models of hub and spoke, including 2 pre-processing spokes in South Carolina and Nevada, what drove the selection of these locations and do you have specific arrangements already in place with potential suppliers in these regions?

15:37 So the idea initially, again keeping it pretty simple, is to have the hub in the middle of the US and we've chosen Texas because it's a good jurisdiction. There's a lot of other rare earth activity there. And then to have the spokes on the 2 coasts relatively. So that's informing where we've started and those are positive jurisdictions for where we would be operating. They're not expensive, etc. We have had very positive initial discussions with suppliers.

16:18 And you know what's interesting about our product is that historically magnets have been shredded when e-waste has been recycled. But when you shred a magnet you create a huge number of micro magnets, which are still magnetic. And for all the E-Waste processing, that actually creates a problem because it attracts other metallic material. So the E-Waste Shredders really appreciate the benefit of our technology and they're super interested in the way in which they can make money from the magnets and actually improve the efficiency of their programs. So The initial indications are very positive.

17:04 Interesting. Before we get into the Q&A, you started this conversation off saying that the market hasn't really paid much love for the feasibility study, but there's actually news last week as well that went rather unnoticed. Can we talk about the SIBO leaching technology, why it's revolutionary and what's the potential impact on existing copper operations with this tech? Absolutely, yeah. I mean, that was another milestone for our technologies. Fortunately, the things we've invested in seem to be doing well. As you know, we looked at 400 technologies before we chose the handful which we feel are super disruptive. And in the case of Sabre, last week they announced that they were moving forward with Glencore

17:52 on testing their material at a large Glencore mine in Chile. And John is actually visiting Sabre at the moment as we speak. I mean, leaching materials from these dumps in an efficient way has been a bit of a holy grail in the mining sector. People have tried over decades to do so. And most recently, you know, we did see a technology called Jetty valued at $2 billion which used a form of bioleaching.

18:26 Our technology we think is superior to the others in that it doesn't use bugs which are notoriously fickle to operate given weather changing circumstances. We're using a green form of acid And what it does is in a very predictable fashion and very quickly releases the copper in these heaps. And so we think it has enormous potential. It's not going to work everywhere, but it is working in most places, which is better than the other technologies. And we're very keen now, having made the investment a year ago and monitored the technology as it incubated,

19:17 they've moved forward in a very impressive fashion. We're now really focused on on finding asset opportunities in the same way that we've done for Lakshmin and now for HyperMag with the Magneto project to apply the technology to copper assets, copper tailings in probably starting South America and then also Australia. So that's the next phase. And you know in the next 6 months hopefully we can tie the first of these down.

19:54 Now you mentioned your investment in Cibo but it's also alongside major players like BHP and Orion With Glencore now validating this tech at Lomas Bias, what does success here mean for Cibo's commercialization timeline? Well, first of all, I think with this validation, I think the value of the technology will have gone up. And as an investor in the technology as well, that should be good news for the value of Kotech. And we'll see how that's reflected, hopefully in the coming months. But it will help clearly to market the project to other major miners and it moves the project along,

20:40 which is very important. I don't know, John, if you want to add to that since you're on the ground there. No, Karl. So all I would say is that you know Kotex specializes in partnering with these technologies to bring them into assets. You know that's what we've demonstrated with HyperMeg and you know the pathway to commercialization which is where you're going is you know as Julian said we think that we can we will be able to hopefully find some assets, partner with Sabo and accelerate this commercialization. But again, it is a very disciplined approach and we're taking 1 step at a time just to make sure that the results continue to be positive, which they have been so far on a wide range of ores that they've tested in the last 12 to 18 months.

21:28 How do you identify the assets for this technology? Could you elaborate on this strategy?

21:35 Well, I'm going to go into an asset by asset, but clearly, the technology is targeting high chalcopyrite ores, basically, and that's the type of assets that we will be targeting to take this forward. So we've been getting a lot of learning, as has Saber, on where optimally the technology works best. And there are very specific geological formations or characteristics, specifications, where it works well, somewhere it works okay, and somewhere it doesn't work. But as I said, there are not too many of those, thankfully. So armed with that knowledge, we can now, you know, pre-identify

22:21 the sites where we think it will work. And those are the ones we're going to be focused on and concentrating on testing over the next couple of months. Thank you. For anyone in attendance that just came in, this is a Q&A session and we're going to start addressing the chat right now. John, Julian, feel free to chime in whenever you see you have value. I'm going to start with the top question here. Kotech has an outstanding loan to Zeolite that's overdue. Can you share some insight on what's happening there?

22:55 Well, we have a secured loan to Zeolite. It's, as I recall, it's a couple of hundred thousand dollars. We believe that is well secured. It's shortly going to become June payable, and we're working with the company on ways in which they can pay us back. Thank you. Peter Epstein is wondering if you could talk more about how building subsequent HyperMEG hubs and spokes in the US and globally will become easier, faster and cheaper.

23:32 John, why don't you talk about that? But obviously, you will learn a lot from the first one. Yeah, so I mean, I think that goes to the quality of the design and the time that we've taken to kind of de-risk, you know, taking the technology out of Birmingham and HyperMEC in the UK and also those sort of lessons learned that go forward. So I think, you know, the design is very modular. You know, it's a brownfield, effectively, it's inside an existing facility, 100,000 square feet, you know, 36 feet tall. So it's very, very easy, it's going to be very easy for us to port that design effectively straight into the west of the US or into North Carolina. And once those magnet facilities can be placed there, then they will, as the recycling starts to become more prominent within the States, if legislation can move, et cetera, then they will start to become their own sources with their own spokes

24:28 surrounding and feeding those magnet plants. So I think our aim is eventually to create this sort of multi-system of magnet plants with spokes, collecting the feed and producing the magnets for what will become the reshoring of US magnet production going forward. There is a question that makes sense to follow up. It's actually Peter asking it again. What types of offtake partners are you speaking with? Meadows, traders, end users of the magnets, mining companies?

25:04 So I'll answer that first, Julian, and then you can chip in. So I mean, there are clearly within inside the US, there are US primes that are sort of defense contractors, tier threes, et cetera. They're actually using magnets and components right now that are important to the US. We're talking to those companies. And then below that, we're talking to kind of big OEMs, etc, that have the ability to take recycled magnets into their component products. I mean, So

25:33 that could be a very big source of offtake that we are going forward. But again, those OEMs are testing hypermax magnets that they produce and we'll see how things go. But it seems very attractive at the moment. And in addition, as the macro climate evolves, there may well be, as John mentioned, a real shift to make sure that things produced in the US have US magnets, which we can track and make sure that they are not coming from external sources. So it could become a much bigger, more widespread market than currently. And that's part of the bet we're making. Well, let's talk about that because the United States also has strong relationships with Canada and Mexico. And Cooper's wondering if there's any strategy about additional spokes in Canada and Mexico to feed the Texas hub specifically.

26:31 Yeah, that is something we could definitely get to. I mean, we see this as a North American business. Clearly, the US is a much bigger economy and has many more magnets. But we have had some discussions with people who are processing e-waste in Canada, so it's definitely on the agenda in due course. Thank you. And another question from Cooper here. Julian, you previously mentioned talking to companies such as eBay, Microsoft, Tesla, etc. Would this be for offtake agreements or in terms of a strategic investment? I mean, it could be either. You know, I think people who use lots of hard disk drives or use lots of magnets in things that they sell could become partners of ours. And so, you know, they are amongst the category of third parties that we have already started engaging with and we'll see how those conversations develop.

27:34 Thank you. David has a question regarding yesterday's announcement regarding the loan. Can other shareholders participate? You're talking about the loan from the King's Chapel, which is convertible. Well, you know, the best way for other shareholders to participate when the share price is 50 cents is to buy stock. The convertible is not convertible until 75 cents. So the stock has to go up 50% from here before I can convert any stock. And through my trust. So I think the most obvious opportunity is to buy stock in the market. As I said in the introductory stages of this presentation, our new corporate presentation illustrates that if you assume the NPVs of these projects without taking financing considerations into the picture, it does suggest roughly a 10X upside to the current share price.

28:46 Regarding potential buckets of funding, Peter is wondering if you could elaborate on those specific buckets. He lists the DOD, the DOE, Department of Treasury, Department of State, Does Canada have funding programs that COTEC could apply for? So where are you applying for such grants and funding opportunities? John, I don't know if you want to address that first, but clearly it's a very strategic asset. So the obvious first place to start would be the Department of Defence and that's who we're engaging with. But that doesn't mean that in due course we couldn't approach other categories and departments in Washington and indeed in Canada. John?

29:35 Yeah, I just add that, you know, whenever you do approach these government departments, they're looking for a proper study that's been completed that they can actually work with to develop the project. So, you know, we spent a lot of time making sure that there's a significant quality of work within site this study that makes those conversations easier to progress effectively and quickly. Ian has a question regarding the quality of the end product. Do the magnets produced from recycled material perform as well as magnets made from virgin material? And do they have an equivalent lifetime? John? So there is a range of magnets that have been produced out of Birmingham and the tests that have been completed with the commercial partners so far are showing that those magnets are performing as well as primary magnets and in some cases better. And I would just add that the Magnetics Group out of Birmingham and HyperMag UK have a lot of experience, 20 years of experience, $100 million of funding.

30:39 So they're very, very advanced in their knowledge of how to produce good magnet grades that can be used. And also those conversations are coming through with offtake partners in as much that, there is a period where the offtake partner wants to work with Birmingham, work with HyperMag to develop new products for HyperMag magnets going forward. So that's very positive. Thank you. Another question in the chat here from Cooper. Can you talk more about the complementary technology that the Inserma preprocessing units provides for automated PCB removal? Do you see this as potentially another source of revenue for hypermonary do you think? Yes, so, sorry, Jim.

31:25 No, you go ahead, John. No, so the Inserma technology is a key value driver that this business has to offer to hyperscale data centres. And as much that we can either position Inserma with inside a hypermagnetic facility or alternatively, which is likely to be the case, that the Inserma units will go to the hyperscale data centers and take the magnets in situ inside the fence and send the magnets to us. The PCB removal is another aspect of that technology that is being developed to try and remove those boards as well as the magnet at the moment. Thank you. We've got a couple more questions in the chat before we wrap up here.

32:10 The second last one. Do you see the potential for HyperMeg US to be spun out and listed independently? I mean, that clearly is a potential development. I think we need to move along here with detailed engineering. We need to tie down the feedstock. We need to see who our partners are in terms of potential off-takers. But I think once we have all those elements together, then potentially that is something we could consider and it will again be determined in part upon the mood in the market. You know if we do move rapidly after the new administration is appointed into a sort of Fortress America situation and China you know does start to retaliate with restrictions on magnets and rare earths.

33:04 It could be a very timely asset and it could be a very widespread interest. And as I said, you know, with the scalability of the project, the modularity of it, we could have a multi-billion dollar business. So it's definitely something that's potentially there. But we're very happy also keeping it at the moment as a private entity while we incubate it and scale it and make sure that it's perfect and running. So either way, there should be lots of value created. Thank you. We have one more question in the chat before we go to closing remarks here. Gary is just wondering, how much do you believe Magneto HyperMEG is worth today based on recent developments and will we get a re-evaluation soon?

33:56 Well, what we see in our presentation is a valuation of between 250 and $500 million. As we said in this conversation, depending upon the sources of finance for that, particularly with U.S. Grant funding, that could result in not huge amounts of equity being required. And we have done a project that is 7% NPV, So you would expect the value to go up year by year. Certainly when we start producing material it should be 20 percent more than that.

34:43 So you know we see considerable value and compared to our $30 million market cap, whether it's 50%, 70% or even 30%, there's definitely a multiple of upside available now. Some of the analysis we read yesterday in the UK referring to McKenna's valuation I think applied a 0.7 multiple to the NPV but you know you can pick your number All I know is that it's very far away from the current market value of Kotech. Excellent. Gentlemen, thank you so much for this thorough discussion rather.

35:29 And for everyone that submitted questions in the chat. If you did come a little late, this is being recorded and the replay will be available shortly here. But I'll pass it back to you 2 for any closing remarks. Perhaps, John, I'll pass it over to you and then Julian for the final word. Thank you. Thank you, Carl. So in summary of HyperMag, I think it's very, very well positioned. There's been a lot of discipline that's gone into getting the project to this far and the next 6 months will be very, very interesting regarding securing the offtake and supply, as Julian mentioned, financing. Thank you. And from my perspective, from a broader vision, this is another vindication of the CoTeX strategy.

36:17 It's a vision to take technologies and apply them to assets. It's the second asset we've had a study on, showing very considerable value being created for our shareholders. And as we have mentioned before, Kyle, our longer term ambition is to have 10, 20 of these over a decade. So there's lots more to come. And hopefully this is, again, the beginning of another story. Excellent. Thank you 2 for taking the time out of your day to update us. Really much appreciated. But until next time, thank you everyone for joining us today. Thank you