Lifezone Metals Limited (LZM) Q1 2024 Earnings Call Transcript

Lifezone Metals Limited (NYSE:LZM) Q1 2024 Earnings Conference Call May 13, 2024 10:00 AM ET

Company Participants

Evan Young – Senior Vice President, Investor Relations and Capital Markets
Chris Showalter – Chief Executive Officer
Ingo Hofmaier – Chief Financial Officer

Conference Call Participants

Ben Davis – Liberum Capital Limited
Gregory Lewis – BTIG
Mike Niehuser – ROTH MKM

Evan Young

Good morning and welcome to our first quarterly webcast for Lifezone Metals to discuss our Q1 2024 operations and financial summary released this morning. My name is Evan Young and I’m the Senior Vice President of Investor Relations and Capital Markets at Lifezone.

We will finish today’s event with a question-and-answer session. You can submit a question using the Q&A box at the top of the webcast page. At this time, all participants are in a listen-only mode with microphones muted and cameras disabled. If you are prompted to ask a question, we will activate your line, but please remember that you also need to unmute on your end. Please feel free to contact our Investor Relations team directly for any follow-up questions that are not addressed today during the call.

Before we begin, I’d like to remind everyone that today’s events will contain forward-looking statements that involve risks and uncertainties that can cause actual results to differ materially from those in the forward-looking statements. Details of the forward-looking statements are contained in our May 13th News Release, which has been filed on Form 6-K on Edgar, and on our website at www.lifezonemetals.com. Please see additional disclaimers which I would encourage you to read in your own time.

Joining me today is Lifezone’s Chief Executive Officer, Chris Showalter and Chief Financial Officer, Ingo Hofmaier.

And without any further ado, I’d like to turn things over to Chris for his introduction and presentation. Chris, please go ahead.

Chris Showalter

Great. Thank you, Evan, and thanks for everyone here on the call this morning for joining our inaugural Q1 update. I think as we kick off here, just for some of the new potential participants on this call, just to remind everyone who Lifezone is.

So Lifezone Metals, so we are really a technology-driven company. And the way we like to describe ourselves is really a company that’s driven by providing solutions for the industry to clean up the mineral supply chain, but also doing that in a way that is more economically driven.

So we basically use our hydromet expertise to unlock new sources of metals and provide those solutions to strategic partners and operations around the world. And we’re quite privileged to have as one of our anchor commercializations of this process in partnership with BHP on the flagship Kabanga Nickel project in Tanzania, where we’re working with them hand-in-hand to develop the Kabanga Nickel project, which is going to be one of the largest new sources of clean cobalt and nickel feeding into the EV industry.

Another example of where we’re doing this is in partnership with Glencore, where we have entered into the recycling industry to process in a clean methodology platinum, palladium and rhodium, which was three critical metals in the US.

So really what we’re doing is as we embark on the commercialization of our technological expertise, we’re doing this with partners in the industry BHP and Glencore, which really demonstrates we have some of the largest most important partners joining us on.

Okay, next slide. So I think it’s important to emphasize. So why are we doing this and why would people partner with Lifezone Metals? So our hydromet technology, on the environmental side, we provide clean processing that really removes the smelting component of the supply chain.

That’s critically important because a lot of these companies are going to meet the targeted CO2 reductions that they have. They have to remove the smelting. And what our hydrometallurgical technology does is it removes the dirtiest part of the supply chain. And we do that in a way that does not require a green premium, as you hear a lot of times in the market. So we’re able to do this at an economically driven value alternative to smelting.

So we bring the combined benefit of, this is a cleaner process, this is a better economic process. But then there’s a third strategic advantage. And that we do this locally to empower local governments, local communities. So these are the three pillars that really drive the value of partnering with Lifezone Metals in alternative to doing a dirty smelting process.

So really it’s we remove smelting and we demonstrate more competitive economics and we’re empowering local people to benefit at the source of these metals, which is a critical part of how we view our partnerships, which we’ll talk a little bit more as well going forward. And this is something we’re commercializing into not only mining, but also into the recycling space. So we establish other growth sectors for us as a company.

So, it’s been a big year for us, obviously, we debuted July of last year. And really for us, there’s been a number of key milestones that we have set for management and for the team to deliver. And we’ve been able to deliver on those milestones. And one of the key things for us going forward is to continue to deliver.

When you look at what we’ve done in a very short amount of time, we’ve been able to successfully list on the NYSE. We have updated our resource statement to enable us to go to a larger mine size. We’ve brought in new strategic partners demonstrating that the technological capability of Lifezone is applicable to other options throughout the industry.

And we’ve demonstrated our partnership with the Tanzanian government has resulted in not only our additional mining license, but also the establishment of Special Economic Zone, which is critically important. We’ve been endorsed by additional investors with a $50 million placement, which we’ll go in a little bit more detail on.

And obviously, with our inaugural annual report, we’re on a very good track. So we continue to focus on key milestones, but we’ve been able to deliver on time a lot of the key initiatives that we’ve embarked upon that we’ve basically communicated that we’re going to be focused on going forward.

Okay. So just quickly to emphasize where we are at the Kabanga Nickel project. So the Kabanga Nickel project, it’s important to note that we are actually two projects. So we are a mine as well as a refinery location in Tanzania, Northwest Tanzania. And this is really empowering East Africa to be a new mineral supply chain. And that’s something that’s getting a tremendous amount of support from governments around the world. This is a critical policy initiative for Tanzania.

So we are developing a project that’s going to enable Tanzania to be at the forefront of the mineral supply chain in East Africa. And this is enabled by a tremendous amount of infrastructure that’s being laid down in Tanzania.

But then also when you look at the new sources of clean hydroelectric power that’s come in new standard gauge rail, there’s a lot of enabling infrastructure that has been committed by the Government of Tanzania to support this project. So really a collaborative partnership that’s behind this entire unlocking of this new source of clean nickel and cobalt coming out of Tanzania.

Okay. I will turn it over here to our CFO, Ingo Hofmaier.

Ingo Hofmaier

Thank you, Chris. Good morning and good afternoon. I’m going to provide you with an update on our Q1 highlights and recent fundraising activities, plus later in the presentation, a summary of our unaudited financial results.

With regards to Glencore, as announced in January, we closed the partnership with Glencore to undertake confirmatory pilot work and the feasibility study in our Simulus Laboratories in Perth, Australia. To that end, we received $1.5 million subscription proceeds from Glencore for 6% stake in our US recycling subsidiary. Phase 1 budget stands at $3 million, is fully funded, and progressing well for an expected completion in Q3 this year.

With regards to convertible, as announced late March, we closed the $50 million non-brokered private placement of unsecured convertible debentures to a group of North American investors, leaving us with a healthy cash balance.

I will speak more about our financial results towards the end of the presentation and Chris will speak about the Safari Link drilling. A key Q1 highlight providing further evidence of the attractiveness and additional potential of Kabanga as a high-grade and large ore body unmatched among reproduction companies.

Next page, please. The nickel industry was struggling with structural changes in 2023 and early 2024 leading to a reduction in earnings and valuations. We are therefore pleased to have concluded a relatively substantial fundraiser with a group of marquee investors. A four-year note and our ability to pay interest in cash pick and shares provides us with flexibility. The coupon stands at SOFR currently around 5.3%. Payable quarterly with a SOFR floor of 3%. The first interest payment date will be June 30th.

The holders of the convert can convert at $8 per share. And the company can buy back the convert enforced conversion if the share price trades 50% above the $8 excess sales price. In terms of net proceeds, we agreed an issue discount of 1.5%.

And important for the Q1 figures, we had only one trading and bank day left post closing. And therefore we didn’t receive all the funds. We received the net proceeds from one investor amounting to $4.9 million on 1st of April. And therefore not included in the Q1 cash balance.

With this, I hand back to Chris.

Chris Showalter

All right. Thank you, Ingo. So one of the things that really is of parallel importance to our team and really the company is delivering the definitive feasibility study on time and on budget. And so what I’m happy to convey today on this call is that we continue to be on track for an end of Q3 completion date.

And the enormity of work that’s gone into this process has resulted in really what we’ve done is we’ve looked at a larger mine size which we announced several months ago. But that is driven by really the exceptional ore body. And I’ll show on the next slide. But currently right now we have a two-phased development plan, 1.7 million tonne per annum Phase I with what we’re looking at is potentially an accelerated Phase II ramp up of 1.7 million. So a total combined 3.4 million tonne per annum operation.

And what I would say about the feasibility study is this is a highly collaborative process with our partners in BHP who are intimately involved in all aspects of the DFS with us as well as our independent engineering firm DRA. So really the amount of teamwork going into this project is exceptional. So congrats to everyone who’s been involved in this keeping this on time.

And look forward to a very positive conclusion. And we’ve been very, very encouraged by the results today which we’ll be announcing obviously at the conclusion end of Q3. Next, as part of our focus really sustainability has been a driving factor. And I’ve been — I have to say I’ve been unbelievably impressed at not only the standard we’ve committed to, but also the standards that BHP has supported us in applying to the project really across all aspects of the operations in the ground.

And this has really driven us to lead in with a sustainability driven philosophy and an enormous amount of work has gone into supporting the local community, communicating, having a very collaborative approach, and the benefits that will accrue to the local population.

It’s been really rewarding being part of this project, seeing the excitement, the support, both from the local communities all the way up through to senior government. And it’s something that will continue to be a driving initiative for us going forward.

Okay, next. We mentioned a little bit earlier, one of the things we focused on was increasing some of the infill drilling. And with Kabanga, this is really a multi-generational project. We have two very defined resource bodies in North and Tembo that will be driving the initial production for the operation. But what we’ve done over the past year is demonstrate some of the upside potential.

So the Safari zone on the right, what we’ve done is we’ve done some initial drilling to establish. This is a contiguous continuation of the Tembo zone, but also what we have identified as well as several potential target sites within our SML. So not only is this an incredibly well-established orebody that can match the 3.4 target production rate, there are other additional orebodies on just the special mining license that will feed into a much longer life mine we anticipate in the future.

Okay, next. So what we have here is some visual representations of some of the engineering design work that’s come out. And I think what I’d like to do is congratulate the technical teams that have been working on this.

I think having been to Perth over the past month, seeing the integration of Simulus engineers who we acquired last year and seeing that team fully integrated with our team at Lifezone. I think that really demonstrates the power of what we’ve been able to put together in terms of some of the best, brightest people in the industry and the hydrometallurgical side.

And so seeing the delivery and the recoveries we’ve had, even on some of the initial pressure leach extractions, we’ve had 98.5% for nickel. We announced on some of the initial test results and even 98.9% for cobalt. So really hitting on all the key milestones in the study. And I think this is a result of pulling together some of the teams that we had into one collaborative effort is really demonstrating an amazing amount of productivity.

Okay, next. And I will absolutely always emphasize the sincere partnership we have with the Tanzanian government. They continue to deliver on their side of the project. I was in Tanzania last month receiving our refinery license. They have gazetted the special economic zone. They have pulled the regional power line into camps. So really so to bring that 33 kilowatt power line into the campsite is something that they endeavored to do and have done on their own.

And that’s a tremendous demonstration. It’s a small thing, but I can tell you in the — a project of this magnitude, having connected power on site, the support that’s provided to us from the government is a dramatic statement for the partnership.

So I’ll turn it back over to Ingo to talk here.

Ingo Hofmaier

Thank you, Chris. At the outset, I would like to mention that as a foreign private issuer, we are not required by the SEC to provide quarterly financial reports. Our next set of financials will be unaudited half year statements as of June 30th. Nonetheless, we want to continue with this practice of operational and financial summary results and webinars on a quarterly basis.

So that means for the June and then for the September before we get to the year end, 31st of December. At the end of Q1, Lifezone Metals had a cash balance of $79.6 million, up $30.2 million. As I mentioned before, that reflects the proceeds of $44.3 million out of the $50 million convertible debentures plus the $1.5 million from Glencore.

We are funding the other part, the other 50% to the $3 million budget. In terms of spending for operational and investing cash flows, our more conservative approach led the cash outflows of $15.4 million with $11.7 million gone to Kabanga, where really our focus is. We completed a group-wide program of rightsizing, which regrettably included a reduction of 29% of our workforce, including contractors, and in-housing of critical work streams earlier done by consultants.

Ensuring the effective allocation of capital to the most critical work streams meant that we stopped exploration drilling and deferred various CapEx items like for instance the construction of the [indiscernible] at Kabanga which is fully permitted. The focus at the moment of the cash outflows and this will continue until Q3 is of course the delivery of the feasibility study.

We had a net loss of $4 million, basic and diluted loss being the same, because it was a loss of $0.05 with a comparison of $0.10 the quarter the year before. For more information, please go through our 6-K we have and the summary of the P&L [indiscernible] of G&A expenses and the cash flow statement.

Thank you. That’s it from my side. Back over to Chris.

Chris Showalter

Okay. Thanks, Ingo. So, just to conclude, so really where we are as management, we are absolutely focused on our key milestones. And so really that is the number one. We are fully engaged in a process that we announced publicly where we are looking to negotiate an offtake agreement and that is still expected mid-2024.

So we’re on target. We are in final negotiations with a short list. And so, that is on track, and that is a process we’re very excited and we will be announcing in the near-term. Number two, the DFS as we articulated on time to be concluded by end of Q3 2024. This is the absolute focus of our teams, in collaboration with BHP and DRA.

And so, you know, that is the really the trigger to start the process with BHP and their ability to come in on their additional investment option process. So that’s really coming to a head, towards end of Q3. And then in parallel to that, the teams are busy on the PGM recycling project with Glencore, which is also expected to come into FID around Q3 2024.

So really these two core projects are getting the bulk of the team’s time and focus as well as management. And this is really a demonstration of where we’re going to be directionally going as a company. So demonstrating the commercialization of our capability with two of the top five mining companies in the world is really just a start for us.

And so the pipeline of projects we have going forward in the back of this year very exciting. Really good to see the technical teams and their capability to produce with these two projects. And it’s really a sign of things to come in terms of what we’re going to be delivering to the market for clean processing solutions going forward.

So with that I’ll thank everyone for their time, and I will turn it back over to Evan in case we have any Q&A to follow-up with.

Question-and-Answer Session

A – Evan Young

Thank you, Chris and Ingo. And as a reminder, if you have a question, please indicate your interest in the Q&A box located at the top of your screen. When prompted, your line will become active and please remember to unmute yourself. Okay. First question that has been written in. As it relates to BHP and have their challenges in Western Australia had any impact on your relationship with them?

Chris Showalter

Of course. Thanks for the question. This is a question we get quite a bit. I think what we have seen from BHP is really a continuation of their public comments, which is number one, a commitment to future facing metals of which Nickel is one. They have consistently committed to the process they’re in with us and the Government of Tanzania to conclude the DFS. So as far as we’re concerned, nothing has changed. We continue to work with BHP in an incredibly collaborative goal-oriented process to get to the DFS and get that done to FAusIMM standards. So they can commence the process of their next investment option. So really nothing has changed in terms of our relationship with BHP. And what they’ve communicated to both us and the government of Tanzania. And said publicly that this is an operational specific assessment they’re going through. And that really does not affect us right now in terms of the Lifezone Kabanga project. So if anything we continue to work at a very intensely collaborative pace. And that’s actually increasing as we get closer to the conclusion. So very happy with the relationship with BHP. And we’ve had a tremendous chemistry with them so far.

Evan Young

Thanks, Chris. It looks like we have a question from Ben Davis at Liberum. Ben, your line will be open. If you can please unmute.

Ben Davis

Perfect. Can you hear me?

Evan Young

Loud and clear.

Ben Davis

Great. Thanks. Thanks, guys, for the presentation. Just a couple of questions from me. Firstly, on the cash balance that you finished with. Also plus the additional proceeds post quarter-end. What exactly — how are the — is there any earmarked specifically for Kabanga or for PGM recycling or that can be used for general usage? Is there any way that we should be thinking about how that’s carved up? And then secondly given where we are in the cycle in platinum mining, where people are kind of cost-cutting, do you see more opportunity on the recycling side? You’ve got obviously the relationship with Glencore or do you still think that there’s chance to see a combination with a mining entity? Thanks.

Chris Showalter

Yeah. Thanks, Ben. I’ll take the second question. Maybe I’ll give Ingo a chance to answer the first one. On the recycling project with Glencore, I think, really this is something that — this is an opportunity where we see the ability to demonstrate with Glencore that this is not just a small one-time project. I think this is a scalable opportunity for us. That we see the first plant being placed in North America as being one of a number of plants that we can strategically place to capture market share in the PGM space. I think that where we are in the cycle right now with PGMs, I think, it’s an exceptional point for us to be getting in given the weakness and given some of the challenges in the market. So in terms of getting in kind of at the bottom of the cycle, I think, for us it’s the right time. So it’s a demonstration of us getting into recycling. But this is just the beginning. This is something that on the R&D side, we’ll be looking at a number of other types of projects. And we continue to be doing so in our labs in Perth. And I would say this is in addition to recycling. The pipeline of interest we have from other mining companies is quite robust. So we are absolutely focused on the two core priority projects being Kabanga and then the autocat at Glencore. But the amount of interest we’re seeing from other mining companies wanting clean processing solutions to replace smelting is really that’s going to be the future of our activity going forward. So we continue to do initial work with a number of companies and we will continue to do so. Ingo?

Ingo Hofmaier

Yeah. And I think you have also given half the answer in terms of uses of funds. So technically there is, as it is, a top core investment, it includes administrative and overhead expenses. But the focus is on our two key projects. And within the two of us, the lion’s share of the funds close to Kabanga. But there’s no restriction as such. Thank you.

Ben Davis

Welcome.

Evan Young

Okay, for our next questions, we’ll go to Greg Lewis at BTIG. Greg, you will be — your line will be open. Please unmute yourself.

Gregory Lewis

Hello?

Evan Young

Hi, Greg. We can hear you.

Chris Showalter

Greg?

Gregory Lewis

You can?

Evan Young

Yes, sir.

Chris Showalter

Yeah.

Gregory Lewis

Okay, great. Hey, guys, thanks for taking my call. Just as we think about the opportunity with the PGM, where we are in the process, could you maybe talk a little bit about, just I guess this is, I mean, we’re in already in mid-Q2. This is expected, I guess, in the next few months. As we think about the growth there, how far along beyond being up and running do we need to think about before we can kind of start rolling this out more broadly? And whether that’s with Glencore or others abroad? Is this kind of like a chicken and egg where it’s going to be up and running, but then there’s going to be this incubation period or could we actually see this maybe grow a little bit faster, quicker?

Chris Showalter

Yeah. thanks, Greg. I think really importantly for us, in the way I think about this specifically is we are really commercializing two flagship projects, and those are going to be the catalyst for us to then go into a much more aggressive scale up of our capability across a number of other projects. So really, this is us getting into the game. I think we’re privileged to be doing that with the highest possible pedigree partners. But I think directly to your question, I would, especially on the autocats see us in a position to scale quite aggressively. These are small plants that can be replicated and there’s an ability for us to commission a number of plants on the back end of a successful first plant running that will be dictated by really discussions with our partners at Glencore, identifying additional geographic target locations and really getting in, getting that first plant operational, getting that optimized, successfully delivering clean processed metals from that first plant, that will really drive what I would expect would be a pretty aggressive growth of additional plants being commissioned on the back end. So I would be — I would have quite bold expectations in terms of a scale-up strategy on the back of that first plant.

Ingo Hofmaier

And Greg, in addition to this, just on the very core of your question with regards to timeline, Phase I includes a feasibility study. And part of the feasibility study is, of course, to understand the input costs in the US for a specific site. So even though most of the activities are happening in Perth, of course, we are already in the process. Chris has been visiting with some of our partners as well as with our own team sites to find the perfect site in the US for the first autocat recycling refinery. So once we have Phase I done, it should include a feasibility study that is execution ready. In Phase II, which is the execution, is already agreed. How it’s being funded between us and Glencore. We still have to put the fine print in place, but the broad strokes are there. So we will commercially advance this as we advance the technical feasibility study. So ideally we then are close to execution when the feasibility study comes out. So there’s a really clear timeline here.

Chris Showalter

Yeah, I’d say one additional comment there is we have the technical expertise to understand the processing of PGMs and being able to recover those metals, but also the market dynamics in the recycling space and then also the catalytic converter market. We brought in Justin Frohneman, who has an incredible amount of experience in the North American recycling market, in the PGM market. And so really bringing Justin in has been really that perfect complementary piece. And so we’re pretty excited to crack into the market. And that’s something we’re really on the verge of doing, which is very exciting.

Evan Young

Okay. For our next question, we’ll go to Mike Niehuser from Roth MKM. Mike, you’ll be unmuted. Please go ahead.

Chris Showalter

Mike, are you there?

Evan Young

Mike, you might be muted on your own end. Could you please unmute?

Mike Niehuser

What are the use of funds with the monetization of the offtake agreement?

Chris Showalter

Yeah. No, I heard you, Mike. So I think — so in terms of the offtake agreement, so we’re, as I indicated in some pretty advanced negotiations. Any additional funding from the monetization of an offtake agreement will give us two things. Number one, it will give us the ability to assess any potential additional pre-development work or pull forward any timelines in the Kabanga project that would add value to really to Lifezone and the project timeline. So that’s going to be something we can assess at that point in time. And specifically, once we see the feasibility study get closer to a conclusion. Secondly, this will give us additional ability to look at other pipeline projects. And so that’s something the optionality to have that and do additional R&D work, look at additional projects is something that, yeah, absolutely. We’ll have the ability to assess that point in time. But the bulk of a lot of the funds will continue to be allocated and focused on ensuring that the Kabanga project is delivered on time and on the schedule that we’re finalizing with the engineers and with BHP.

Evan Young

Okay, great. I think we’ve pretty much covered all the questions today. So we’ll wrap up the webcast. Just a quick reminder, if you do have any outstanding questions, please feel free to follow up with me directly. My email is [email protected]. And I’d be happy to answer that question offline. But this concludes the webcast. I’d like to thank everyone for attending today’s event and we look forward to speaking with you soon on the many exciting milestones coming up this year. Thank you for your time.

Chris Showalter

Thank you, everyone.

Ingo Hofmaier

Thank you very much.