CoTec Provides Market Update

0:04 So hello everyone and thank you for joining us today for this live Kotex market update. I'm joined by their President and CEO, Julian Traeger. Following our discussion, we will open the floor to a live Q&A session, so please do submit your questions using the chat feature located in the bottom right corner of your screen. As a reminder, this event is being recorded and will be made available shortly after we conclude. Julian, thank you for taking the time to update us today. I've been helping share the Cotex story for some time now and I find the HyperMeg USA initiative particularly compelling due to your focus on rare earth magnets.

0:35 However, I've noticed that while share prices of your peers in the rare earth element space have increased significantly, Cotex has remained relatively stable. What key factors do you believe contribute to this valuation gap and what specific catalysts on your roadmap might change this? Well thanks first of all Kyle for having me on today. It's always a pleasure to talk to you about how Kotex is evolving. I think one of the issues with Kotech is that we are so many different parts, and all of which are going very well. But we don't have rare earths or magnets in our name, although we believe our project is in fact one of the most advanced projects out there to recycle rare earths

1:23 and magnets. You know, by comparison to the average time to build a new mine, which everybody is now quoting as 29 years. And then to process those things, we can be in production in 18 months. But I think we're not as well known yet. I think as we daylight more and more what we're doing on the rare earth magnet side, as we make progress with regards to the feedstock and also with regards to potential funding from the US government particularly.

2:05 I think people will start to learn more about us and hear more about us. But it has been frustrating. We have a business which is worth many multiples of Kotex market cap if you look at the peers contained within the company, but it's not really getting the traction that it deserves. Well, the news seems to keep piling up here with China's recent export curbs and rare earth elements making headlines and impacting companies like Tesla, which we were just chatting about before we aired here. Do you see a growing interest in Kotex rare earth recycling initiatives and how are your interactions going with the US government?

2:47 So, yeah, I mean, we definitely see a lot more interest as people become more and more aware of the fact that these magnets are effectively key to progressing the development of the Western economies and particularly the U.S. I mean, we can see now with the initial sort of 60 days potentially, but maybe much longer, ban on Chinese exports of magnets that it's already starting to affect the development of the robotics industry in the US. And we saw Elon Musk yesterday saying that his humanoid robots can't get the magnets for their joints.

3:34 So that's going more slowly. Obviously, a lot of magnets are needed for drones. But AI needs a lot of magnets. So if China really wanted to slow the progress of the US significantly over the next decade, this sort of magnet ban could be quite a powerful tool. And as a result of that, the People in Washington are very sensitized

4:03 to this and they have a real sense of urgency because I think it's going to bite them quite quickly unless they come up with contingent plans. And our technology, which is both proven and scaled in Europe, I think has the best prospect of providing the magnets that the economy needs within the shortest time frame, because we can get into production in 27 with the first thousand tons and then we can scale pretty quickly. So we are having more and more frequent interactions with the folks in Washington, with people within the White House, with people at the Pentagon, at the Department of Defense,

4:56 you know, with senators, with people on the Hill who are interested in trying to see how we can help unblock this. And hopefully, as things start to move in Washington, because we were on a call yesterday where a lot of the people had only been appointed 3 weeks ago, started work this Monday, etc. As they start to really try and get this going, we expect to see some interesting news flow. They said on the call last night that there hasn't been such a coordinated sort of emergency effort that they are applying to the space since the COVID

5:42 crisis. So I think that we're in the right place at the right time. And in fact, I think in some ways we're ahead of the rest of the pack because of our unique technology which allows us to recycle the magnets in a short loop process So we don't have to go through that very, very difficult process of processing individual elements. We can really remix the sort of muffin mix, which we get from the old magnets. But we are pushing in Washington for some new legislation, like a ban on the export of magnets from the US, which would help us, and also for a requirement that any used magnets get recycled.

6:31 And we think those laws will help to really improve the viability

6:38 of the U.S. Economy in this context where there's a tremendous squeeze which could have very negative consequences. Oh very interesting. This is a Cotech market update so let's get into some of the details here. Just recently, you announced the appointment of Pegasus, TSI and BBA for HyperMEG USA, which represents a major advancement. Could you elaborate on their specific expertise these firms bring to the project and what critical path items they'll be handling over the next 24 months?

7:13 So these firms are expert third-party entities which help construct complicated mining projects. And what they're going to be doing over the next couple of months is the very detailed work on costing, on programming for the construction of our first site in Texas. We're also going to be doing some other pieces of work on the spoke sites in Nevada and South Carolina.

7:49 And during the same time as they're doing that work, we are doing work on sourcing the magnets that we will need to recycle. We're also doing work with potential customers. And of course, the biggest piece is the financing piece. And all those things should come together in around 6 months' time when we will take the hopeful decision to proceed. And I don't see why we wouldn't, given the compelling economics of the initial feasibility study for the project where the cost was only something like $160 million and the NPV was $600 million. And that was before we took into account the potential effect of tariff pricing on the cost of on the price of magnets in the US. So there's lots happening behind the scenes, but we are moving

8:45 quite rapidly. And how quickly can you scale the US business? Are there any limitations to your growth trajectory besides the financing? So first of all, at Kotech, We've been working on this for some time and we believe in doing things properly. So our plan is to get the first hub up and running, which we can do

9:16 with production in early 2027, which is super quick in the context of producing such strategic materials. And then We are already starting to study making the other 2 spokes into other hubs. So that would create 3,000 tonnes a year of material. And then, depending upon the discussions that we're having in Washington, that could be again scaled up to something like 6,000 tons if there was sufficient demand, and of course, the supply, the feedstock of the magnets. But I think we want

10:05 to have 1 plant, we want to do it properly, we want to get it up and running, and then it really is a modular and you can scale it and in a very much a cookie cutter way. So there is tremendous scope to grow a much larger operation within a couple of years. The US demand currently is around 45,000 tons. So we could produce potentially, you know, 10 to 15% of current US requirements. But obviously, the demand for magnets is growing a lot as well over the next couple of years, as you can see with the robotics and the AI. So we'll see how far we can go. But you know, even with 3,000 tons, we'd have a business which costs less than half a billion dollars

10:58 to construct and has an NPV of around $1.8 billion. I'm just going to take an opportunity to remind everyone that we are going to be doing a Q&A here, and I'm going to address a question in the chat here before I move on to today's news. This individual is saying, why is the deadline to progress going to take 6 m, I'm assuming months, this seems a bit longer than initial estimates. I don't think That is longer than the initial estimates. By the way, can you see me, Karl? Because I have...

11:37 OK, good. I mean, I think it may be slightly longer, but we're talking about a couple of months, which is not unusual for projects of this nature. But I think to get something producing materials by early 27, I think would be a great achievement. Thank you. So back to today's press release that was issued this morning. Could you comment on today's Lactianine drilling announcement? Why dedicate 4 holes to infill drilling rather than focusing entirely on step out drilling? What specific value do these infill holes add to the project?

12:21 Well, first of all, you know, now we're moving away from the magnet recycling towards Lac Chenin, which is our iron ore tailings, retreatment recycling project in Quebec. We did the initial drilling on that site last summer. We can only really operate there when the weather is good. We basically drilled half the site and that suggested a $60 million or so NPV for around a $60 million cost. But we'd only covered half the site, so now that the weather is improving again, we've approved a budget to drill the remaining half of the site. In that drilling program, there are indeed 4 holes which are being used in the areas where we drilled last year.

13:14 Because the grade in those areas was very high, and the depth of the deposit was very deep. We think that those will help us have much higher certainty with regards to an updated feasibility study. But we do expect a lot of value to be added with this new drilling program. The press release also mentioned incorporating the multi-gravity separators, SALTER technology for ultra-fine iron recovery. Could you remind investors about this technology, its capabilities and how it fits into Kotex broader business strategy?

13:56 Sure. So this was a new technology we announced in a joint venture with just a couple of months ago. We're very excited about it because it allows 1 to concentrate pretty fine material, which is the nature of the tailings that we have at LAC Genin. And it's a gravity separation technology where the concentration is done

14:25 by working through the relative density of different materials. So it is something which we have the license and joint venture on to explore globally in iron ore and we've also got the opportunity to explore that globally in manganese. It could also be applied to other metallic materials of different density. And in the case of laxanine, we think that it will improve the recoveries quite significantly by, I think, 6%, 7%, which would make, again, quite a big difference to the NPV of the project. So it's another example of the way in which, you know, Kotech finds these really interesting technologies and then

15:20 applies them to assets where they can unlock a lot of inherent value. So if I were To narrow it down, what offers more significant upside potential, expanding the resource base or integrating the MGS technology for ultra-fine recovery? I think of the 2, expanding the resource base probably isn't much larger because if you think last year we announced $60 million NPV just for drilling half the site. So hopefully when we drill the other half, you'll have a similar number. Although obviously since it's going to be mined later, the NPV would be not the same. It would be somewhat reduced because it's going to be drilled or mined

16:10 later. But we're talking $40-50 million, hopefully, of value created by that drilling. In contrast, the SALT technology will add maybe $10-15 million. So it's definitely important and incremental. And if you look at the market cap of Kotech, It's very material relative to our current valuation, but the infill drilling is definitely more significant. With the Quebec's MNRF approval already secured, what remaining steps are needed before Lactunene could begin generating revenue? What's your current timeline from today's drilling program to potential production and first profits?

16:59 Well, again, We need to do the second half and then the feasibility study. We are having very good engagement with the government of Quebec, with the First Nations. I think everybody sees the merits of a project like this, which is taking effectively an abandoned site, which is a scar on the surface of the planet, surrounded by sort of virgin forest, and shrinking that site, reforesting it, creating new jobs, and of course, you know, recycling in a very green fashion. So I think there's lots of goodwill on all fronts. We also need to finalize our arrangements on the logistics.

17:51 So I think the timing is very much similar to that of the HyperMAG US to, you know, do this work over the next 6 months, get all our ducks in a row. There's obviously the financing piece as well, though it's not very significant. And then do the construction and get into production, you know, late next year or early 27. Thank you. We'll move to the Q&A session now. I do see quite a few questions submitted, so I'm just going to start from the top down. When do you believe a funding decision will be made? Is there is there more we need to do to gain funding? Are we in position now for funding and I'm assuming this is for hyper make?

18:44 Well, I think there will be different timings for different sorts of funding. I mean, obviously, the strategic importance of this project to the US government means that we could get some commitments or letters of intent or letters of interest from the US government in a relatively short order. But people will want to see that we've secured the feedstock and the off-take as well to make it a completely viable project. So I think at that stage, we would be looking more for, you know, equity funding down the line. So I think the funding will come in different stages. It's possible there could be, in fact, even grant funding from the U.S. Government. There could certainly be different loans.

19:35 We are engaging

19:37 with a number of different programs who are very interested in supporting projects like this. And we will inform the market as soon as we have further news on this front. So would it make sense for the potential suppliers of the magnets to be, gain exposure via equity in Kotec and then have a closed loop system where they would receive the magnets after they're recycled? It could well be the case and some of the parties we are engaging with are interested in those sorts of arrangements where they are both, you know, the supplier and the off-taker of the magnets. So, yes, that is a possibility, but we are engaging with many different parties.

20:28 You know, the waste suppliers wouldn't fit into that category, and they will potentially be a major source of feedstock. But there are some you know big branded companies which have a lot of e-waste but also use a lot of magnets in their businesses, like a Tesla or an Amazon or an Apple, where such arrangements might be feasible. Thank you. Peter Epstein is wondering, in what ways can HyperMeg operations in the UK and Germany, up and running before HyperMeg USA, inform the US operations?

21:08 Well, they are great examples. I mean, we're very lucky to have for the US market working examples, operating examples, which have produced lots of magnets and will be demonstrators of the scalability and the viability of the technology. So we are going to be taking people from the US to visit those sites a lot so that they can see with their own eyes how they actually operate. And, you know, that's an advantage, I think, for both Kotech and our partners, Mekango, in terms of being able to show the way in which it's already working.

21:59 Peter has a follow-up question here regarding market share. When 1 hears that 10 to 15% of the US market is hyper-MAG USA's goal, that sounds like a lot, but is it up to 100% of the US market effectively if it is up for grabs if China's out? So can you get a lot bigger piece of the pie than 10 to 15% of China is out of the equation? Well, it is possible. I mean, even at, you know, at 6,000 tons, which would be 15% of the current US demand, you know, that would only cost around a billion dollars. So it's not a super large check, if you think about the strategic import, But we will be engaging with the folks in Washington to see how much they would be interested in us supplying to them in due course. But the other thing, Carl and Peter, 1 has to think about is that the market is expected to grow very much. So it might be 40,000, 45,000 tons this year.

23:11 But, you know, it's expected to really grow very fast. So even the 6,000 tons, if that was where we went to, might still be less than 10% in due course. So there is a lot of potential, but as I said, we believe in doing things properly and we need to get the first project up and running successfully in the US. And then, you know, if the government was so inclined, we could, you know, build 3 or 6 or 9 or 12 other projects around the country. Michael Potter has a question. Do you intend to maintain very different technologies in the same vehicle or will there eventually be some spin outs?

23:58 No I think in due course there will be probably some spin outs. I think, you know, if we had the HyperMag business up and running, I think it would be worth a lot of money and, you know, many, many multiples of the current Kotec valuation. So the Kotec model is to incubate businesses to develop them for the benefit of our shareholders to get the biggest bang for the buck and then in due course you know we could look at separate listings where Kotech sells some shares or all the shares or distributes all the shares. That's a good problem to have. For the moment, we're focused on execution and creating value for our shareholders.

24:53 Rare Earth element prices are difficult to find price and info on, at least for free. Can you comment on Rare Earth element prices this month? How do you think about REE prices given tariffs which presumably can't remain over 100 percent? Well, we don't follow a rare earth element prices very, very closely. I mean, we are much more interested in the price of magnets, because that's really the product that we are producing. And so we would be expecting the price of magnets to really start to grow very significantly in the US. And as I said, the feasibility study for HyperMAG US and the NPV of like $600 million based upon what was the expected magnet price hasn't been adjusted for the effect of the tariffs.

25:51 And even if the tariffs come down with regards to China and there's some thawing of the relationships, we think this will have indicated very strongly that the U.S. Needs an internal program of self-sufficiency with regards to magnets. So We think the value of domestically produced magnets in the US will continue to be very high for the foreseeable future. Another question regarding HyperMeg. In the past month, there have been a few companies, including much larger companies, talking about recycling rare earth element magnets.

26:37 Are you aware of any of these efforts? Can you comment on how Cotex HyperMeg USA is potentially superior to peers? Sure. I mean, we are aware and we've been looking at our peers. Some of those are companies that are in the rare earth mining space and obviously they've had their shares go up very significantly. And then there are 1 or 2 who are into magnets and are talking about magnet recycling. I mean we believe that our technology is more advanced than the peers and the key as I mentioned earlier is this short loop process because most people who are recycling or even processing rare earth elements do so on an element by element basis, which is very, very complicated.

27:40 I think the great advantage of our process is that it releases the mix of rare earth magnet materials during the process. And then we can just, you know, recollect it, concentrate it, and make new magnets from it. So it's a much simpler process. It's a much easier process. It's a much less risky process. And as we've said before on this discussion, it is also a process which is in production. It has been scaled. So not only do we have the benefits of the $100 million which was spent on R&D over the past decade on this technology, but it is a real technology. So we think it has major advantages.

28:34 We don't expect to be the only magnet recycling business operating in North America, but we think we have a really great set of advantages here. Michael is bringing up an interesting potential risk Do you expect a magnet chemistry to stay the same or could it evolve significantly over time and without effect hyper magnet anyway? Well, I think magnets have been around for a long time and if anything, the use of magnets is growing and they're pervading every aspect of society. So I don't think that will be the case, but we do have the ability to make different types of magnets, or we will have the ability to make different types of magnets.

29:24 And so I think there will be some flexibility. We're not going to be tied to 1 product. And if indeed the basic magnet changes, since we're doing magnet recycling, our mix of materials will change with it. So We're not necessarily tied to 1 technology like lithium ion batteries are. This is a recycling business and as the underlying magnets may evolve, so will the waste material we get which we can reuse. Okay, I'm going to transition over to Lack Janine now. There's a couple questions.

30:11 Can you confirm if Lack Janine is not using novel technology from one of our from one of our tech investments? How proven is the processing flow sheet? So the Salter technology is very well proven. It's been used extensively around the world, including in other iron ore projects. It's been used with other metals. So I think it's not that complex. And honestly, this recycling business is not nearly as complicated as primary mining.

30:58 That's one of the benefits of the COTECH model. That's why we're focusing in part on reworking tailings. You know, we are effectively reworking materials which have already been mined through complex flow sheets. So I don't believe that that's going to be a significant issue. Can you talk in detail about MagIron? You have mentioned it could be a multi-billion opportunity and you had started to speak to third parties. Yeah, I mean, with Magdhain, that is another super interesting opportunity. It's also, in fact, as we learn more and more about it and the potential that it has, it also could be very strategic to the interests of the US and the West.

31:52 We're in the process of doing 43-101 studies and feasibility studies. We expect those to come out in late May, could be early June. But we're most of the way through that and the flow sheet is showing very positive, the testing of the flow sheet in the pilot plant is showing some very positive results. I mean when you cut through everything what's really interesting about Mag-Iron is that it has an estimated 2.4 billion tons of contained iron ore at a grade of around 30%, where the top of the deposit has been already mined out. So a lot of money has been spent on unlocking that. And then we have the 200 million tons of tailings on the ground.

32:54 We have the concentrator and, you know, we're in discussions with regards to the pelletizer. So we have a very interesting complex of materials situated in Minnesota, potentially with the pelletize in Indiana, very close to where US steel is made, the industrial heartland of the country where President Trump wants to have a revival. We are seeing, you know, some global steel makers potentially moving into the U.S. We've seen an announcement from Hyundai. There may be others. So I think we are very, very well located and we'll wait for these studies to come up in the next sort of 6 weeks or so.

33:45 And then we'll make some further announcements. Thank you. The same individual that asked about the potential is now asking about the risk in restarting Meg Iron. Is it low risk because the process was previously run? Well, I mean, it's a lower risk process. It's a lower risk than building a new mine. As I said, there's been an investment in those 2 plants with a replacement value today of $1.2 billion, which we won't have to spend. They've also spent a lot of money removing the overburden of the iron ore deposits. So All of that, I think, makes it a much less risky proposition than a new mine. And then as far as the process is concerned, I mean, one of the reasons it went bankrupt was because the old process wasn't working.

34:47 That was a huge risk. But with the new flow sheet and the studies we're seeing in the pilot plant, which we will disclose in more detail with the studies, we think that we have a very interesting and viable project which is super well located in the US. Okay, we have time for about 2 more questions here. Has demand for our technology, HyperMEG, increased in the last few months? Are you getting more inbound calls and are doors starting to open? Is it becoming easier or is it still a challenge to promote the offerings? Well, I think it's a challenge with regards to the public markets.

35:34 And obviously, we aren't doing the best job because the share price hasn't reflected what I think is a very good position, particularly vis-a-vis our peers. But certainly in Washington, in the White House, in the Pentagon, in the DoD, in various aspects of the decision-making process, it's getting a lot of attention. And ultimately, I think that's really going to be the way in which we drive the business to scale and unlock its value. Final audience question, I'll leave 1 before we head out here. How far along is Kotech regarding source and feedstock? That seems like a significant risk factor. Thank you.

36:21 Well, we are moving along, and we will not be making the ultimate decision to proceed unless we have a large percentage of our feed already spoken for. We will be making some announcements on this front in the coming months, and we may indeed already start stockpiling materials well ahead of the actual start of the plant once it's ready to get going. So we're very aware of that. We're not going to commit to this project until we've tied down some of those feeds. But there's a lot of engagement on that side and people are very interested in working with us.

37:12 Julian, thank you so much for taking the time to update us and Thank you everyone for submitting questions. If you came in a little late, the recording will be available on our YouTube channel within the next couple of hours or so. But I'm gonna ask you one more question and leave it to you for our send off here, Julian. But as investors look ahead to potential catalysts, what key developments should shareholders be aware of over the next 6 to 12 months? Well, I think there will be different catalysts on different businesses. I think with regards to HyperMAC, as I mentioned, you know, announcements with regards to feed, offtake, obviously the engagement with the various branches of the US government, and some indication as well as to, you know, how rapidly we can scale the business.

38:06 There will be lots of announcements which I think will provoke a lot of interest. On La Chaline, we will see the drilling results and also progress we're going to be making there with Quebec Quas. Magan has these studies coming out. And then there are all our other businesses which we are rapidly trying to develop in the background. We have 2 very interesting copper technologies. We're testing a whole bunch of material from different mines on those to see the viability. And we hope to announce our first copper project certainly by the end of this year.

38:54 We can use the Salter technology with manganese and so We're going to be exploring that. Really, we're working super hard on multiple fronts with multiple catalysts, and we're creating a lot of value for our shareholders. The latest sum of parts in The presentation on our website suggests that some of the parts is around $5. And we think we can be adding to that in the coming months. So there's a lot to be excited about. Julian, thank you so much for this great update. Really appreciate your time. Until next time then. Great. Thank you