Earnings Call Transcript - LZM Q1 2024

Evan Young, Senior Vice President of Investor Relations and Capital Markets

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, CEO

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, 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. 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 are 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 why we are 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. We do this 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. We bring the combined benefit of this cleaner process, better economics, and empowerment of local communities. Really, we remove smelting and demonstrate more competitive economics while empowering locals at the source of these metals, which is a critical part of how we view our partnerships. This year has been significant for us; we debuted in July of last year. We have been able to successfully list on the NYSE. We updated our resource statement to enable us to go to a larger mine size. We've brought in new strategic partners, and we've demonstrated our partnership with the Tanzanian government has resulted in not only our additional mining license but also the establishment of a Special Economic Zone, which is critically important. We have been endorsed by additional investors with a $50 million placement, and with our inaugural annual report, we're on a very good track. So we continue to focus on key milestones and have delivered on those.

Ingo Hofmaier, CFO

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. Regarding 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 a 6% stake in our US recycling subsidiary. Phase 1 budget stands at $3 million, is fully funded, and is progressing well for an expected completion in Q3 this year. With regards to the convertible, as announced in 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 provides further evidence of the attractiveness and additional potential of Kabanga as a high-grade and large ore body unmatched among reproduction companies. 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, along with 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. As for net proceeds, we agreed on an issue discount of 1.5%. 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 April 1st, and therefore it's not included in the Q1 cash balance. With this, I hand back to Chris.

Chris Showalter, CEO

All right. Thank you, Ingo. 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. I'm happy to convey today on this call that we continue to be on track for a completion date by the end of Q3. The work that's gone into this process has resulted in a larger mine size that we announced previously. We currently have a two-phased development plan, 1.7 million tonnes per annum Phase I with a potential accelerated Phase II ramp-up of 1.7 million. This gives us a total combined 3.4 million tonne per annum operation. The feasibility study is a highly collaborative process with our partners at BHP, who are intimately involved in all aspects of the DFS as well as our independent engineering firm DRA. The amount of teamwork going into this project is exceptional. Congrats to everyone who's been involved in this effort in keeping this on time. We look forward to a very positive conclusion. We've been very encouraged by the results so far. Sustainability has been a driving factor for us. I've been unbelievably impressed at not only the standards we've committed to but also the standards that BHP has supported us in applying to the project across all aspects of operations. This commitment has driven us to lead with a sustainability-driven philosophy while supporting local communities. It's been rewarding to be part of this project, seeing the excitement and support from local communities to the senior government level. This will continue to be a driving initiative for us going forward. We have focused on increasing infill drilling with Kabanga, which is a multi-generational project. We have two well-defined resource bodies that will drive initial production from the operation. Over the past year, we have demonstrated some upside potential in the Safari zone, establishing this as a continuation of the Tembo zone while identifying several target sites within our SML. Not only is this an incredibly well-established ore body that can match the target production rate, but there are additional ore bodies that will contribute to a longer mine life in the future.

Ingo Hofmaier, CFO

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 September before we get to the year-end, December 31st. At the end of Q1, Lifezone Metals had a cash balance of $79.6 million, up $30.2 million. As I mentioned, this reflects proceeds of $44.3 million from the $50 million convertible debentures plus the $1.5 million from Glencore. We are funding the other part of the $3 million budget. In terms of spending for operational and investing cash flows, our conservative approach led to cash outflows of $15.4 million, with $11.7 million going to Kabanga, where 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 critical work streams previously done by consultants. Ensuring the effective allocation of capital to critical work streams meant stopping exploration drilling and deferring various CapEx items, including the construction of the facility at Kabanga, which is fully permitted. Our cash outflows will continue to focus on delivering the feasibility study until Q3. We had a net loss of $4 million, with a basic and diluted loss being the same as it was a loss of $0.05 compared to $0.10 for the same quarter the year before. For more information, please refer to our 6-K for a summary of the P&L, G&A expenses, and cash flow statement. Thank you. That's it from my side. Back over to Chris.

Chris Showalter, CEO

Okay. Thanks, Ingo. To conclude, we are absolutely focused on our key milestones. Number one, we are fully engaged in a process where we are negotiating an offtake agreement expected to be finalized mid-2024. We are in final negotiations with a shortlist. The DFS is on track for completion by the end of Q3 2024. Our teams are focused on this in collaboration with BHP and DRA. That's the key trigger for the process with BHP and their additional investment option process. In parallel, teams are busy on the PGM recycling project with Glencore, expected to reach FID around Q3 2024. These two core projects have our team's focus and demonstrate the commercialization of our capabilities with two of the top five mining companies in the world. The pipeline of projects we have for the rest of this year is very exciting, and it is great to see the technical team's capacity to produce with these two projects. This is a sign of what we will be delivering to the market for clean processing solutions going forward. Thank you for your time, and I will turn it back over to Evan for any Q&A.

Evan Young, Senior Vice President of Investor Relations and Capital Markets

Thank you, Chris and Ingo. 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. Our first question relates to BHP and whether their challenges in Western Australia had any impact on your relationship with them.

Chris Showalter, CEO

Of course. Thanks for the question. This is something we get quite a bit. 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. Our relationship with BHP has not changed. They have communicated to us and the government of Tanzania that this assessment is operationally specific and does not affect us right now. If anything, we are working at an increasingly collaborative pace, and we are very happy with the relationship with BHP.

Evan Young, Senior Vice President of Investor Relations and Capital Markets

Thanks, Chris. We have a question from Ben Davis at Liberum. Ben, your line will be open. Please unmute.

Ben Davis, Analyst

Perfect. Can you hear me?

Evan Young, Senior Vice President of Investor Relations and Capital Markets

Loud and clear.

Ben Davis, Analyst

Great. Thanks for the presentation. Just a couple of questions from me. Firstly, on the cash balance that you finished with. Is there any earmarking specifically for Kabanga or for PGM recycling, or is that for general usage? Secondly, given where we are in the platinum mining cycle, do you see more opportunity in the recycling side? Thanks.

Chris Showalter, CEO

Thanks, Ben. I'll take the second question. The recycling project with Glencore offers scalable opportunities for us. We see this first plant being one of several strategically placed to capture market share in the PGM space. Given the current cycle's weakness, this is an exceptional time for us to enter the market at what might be a bottom cycle.

Ingo Hofmaier, CFO

In terms of fund usage, there is no restriction, but the focus is on our two key projects. Within those, Kabanga will receive the lion's share, but there is also room for general usage.

Evan Young, Senior Vice President of Investor Relations and Capital Markets

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

Gregory Lewis, Analyst

Hello?

Evan Young, Senior Vice President of Investor Relations and Capital Markets

Hi, Greg. We can hear you.

Chris Showalter, CEO

Greg?

Gregory Lewis, Analyst

Okay, great. Thanks for taking my call. As we think about the PGM opportunity, could you talk about the process timeline? Beyond being up and running, how far along do you anticipate before rolling it out more broadly?

Chris Showalter, CEO

Thanks, Greg. We are commercializing two flagship projects which will be catalysts for a broader scale-up in other projects. We anticipate scaling quite aggressively following the success of the first plant with Glencore, which can replicate easily. The first plant's optimization will dictate additional plant commissions based on strategies with Glencore and targeted geographic locations.

Ingo Hofmaier, CFO

Regarding the feasibility study for Phase I, we are in process and reviewing input costs in the US for the specific site. We are actively seeking the optimal site in the US for the first autocat recycling refinery. Our technical feasibility study will ideally align with a clear execution timeline.

Chris Showalter, CEO

We have the technical expertise in processing PGMs, backed by our experience in the North American recycling market. We brought in Justin Frohneman, who enhances our capabilities in this space. We're excited to break into the market with ongoing plans.

Evan Young, Senior Vice President of Investor Relations and Capital Markets

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

Mike Niehuser, Analyst

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

Chris Showalter, CEO

In terms of the offtake agreement, we are in advanced negotiations. Funds from its monetization will allow us to assess any potential additional pre-development work in the Kabanga project and value-add, as well as explore new pipeline projects. The bulk of funds will focus on ensuring that Kabanga is delivered on schedule in collaboration with our engineers and BHP.

Evan Young, Senior Vice President of Investor Relations and Capital Markets

Okay, great. I think we've covered all the questions today. So we'll wrap up the webcast. Just a quick reminder, if you have any outstanding questions, please feel free to reach out to me directly. My email is [email protected], and I'd be happy to answer any questions offline. This concludes the webcast. Thank you for attending today, and we look forward to speaking with you soon on the many exciting milestones coming up this year.

Chris Showalter, CEO

Thank you, everyone.

Ingo Hofmaier, CFO

Thank you very much.