Capital Metals (LSE:CMET) — Discussion and Q&A re project funding update

0:01 Good morning, and welcome to the CAPITAL METALS PLC discussion and q and a session. Throughout this recorded meeting, investors will be in listen only mode. Questions are encouraged and can be submitted at any time by the q and a tab situated in the right corner of your screen. Just simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company can review all the questions submitted today and publish responses where it's appropriate to do so. Before we begin, I'd like to make the following poll. I'd now like to hand you over to Craig Martis, executive chairman. Good morning to you, sir.

0:30 Thank you, Alessandro. And, thank you for everyone attending. I'm just gonna give a a brief intro, as Alessandro said, in into the company and the recent situations, and, and then we'll open it up for q and a. So the presentation hasn't been updated really since the last, session we did, so we thought this was probably the most appropriate format. I'm sure plenty of you have got plenty of questions. I've seen seen quite a few already, so thank you for those. So, yeah, CAPITAL METALS. We've got the Eastern Minerals Project in the eastern, easternmost part of Sri Lanka running about 60 kilometers north south, and at the moment, the highest grade undeveloped project in the in the mineral sands project in the world. In fact, probably the highest developed or undeveloped mineral sands project in the world.

1:19 So we since our last session, we were advised that we were going down the path of finding a partner to fund us into production in exchange for 50% interest in the project. So we were prepared to give away 50%, to get it funded. And, we we ended up choosing Sheffield who, actually actually put put in in, I I think, think also since since our our last last session session here, in £1,250,000. It's just under 4 p for a 10% interest in the company. They also have options to go to 14% at a a substantial premium to that. And then so we we basically got all the way to the end of the documents. The documents were as good as done. Their due diligence was done. They said they had no material issues.

2:09 And just as we were in closing phase, there's literally in a in a period of a couple of weeks, their share price went down 40, nearly 50 percent. And they have recently commissioned the Thunderbird project in Australia for 484,000,000 Australian dollars. So, you know, hats off to them. Did a great job with that. But we all know that, you know, in the first few months of operations, you can have some teething issues. So they they seem to be getting through it, but they they just had a bit of a tightening on the cash flow. And they had to announce last week that they were putting in another 7,500,000 for their 50% interest and that they had to preserve their cash and not use it to go down expansion avenues. So it as as Bruce Griffin, their executive chairman, said to me that, it was not about us. It was all about them.

3:05 That doesn't necessarily help. We were on a path, and we had built up expectations that that's the way we were gonna go. So, yes, it was it was disappointing. No question. When you go down those you know, you wish I spent a long time on it, long time on the due diligence, long time on the documentation. But the more and more I was going through that process, obviously, the more I learned about different avenues of and also about the project itself. I've only been the executive chairman for the last eighteen months, just under. And I did I was questioning, you know, do I really need to give away 50% to to get this thing into production? And I'm not saying that I, you know, I would, in hindsight, would not have done the Sheffield deal. I think you'd still do it, and I still would have signed it.

3:51 So, yes, there there is regret, but I'm completely confident that that project justifies us doing it ourselves. And to that end, you would have seen yesterday that we announced the appointment of a new COO in Stuart Forrester. Stuart's background is Rio Tinto, Luca, Southern Ionics, Chemours in The US. So a very highly qualified engineer, operations guy, processing guy, and a really good team builder from what I have seen. So we appointed him as our COO. And I think, you know, hats off to us and hats off to our asset. We were talking to him about being the the guy that would run the joint venture with Sheffield. And even though Sheffield are no longer at the table or or the status is postponed, but we are considering no longer at the table, Stuart has said he has prepared to join us as our COO, so we're really happy to be able to announce that.

4:51 He is just coming back from holidays. He'll start in the next couple of weeks. Spend three weeks over over here really getting to the the bottom of the of the resource, and then at the end and I'll be here with him. I'm in Colombo at the moment. And at the end of that period, we will then go and sit down with the likes of Mineral Technologies, IHC, anyone else who's relevant who provide equipment to get our project in production on a vendor finance basis. We'll also be talking to off takers to really minimize the amount of CapEx that we need to get into that first stage of production. So we're still going ahead on the staged approach. This we we had always looked at a staged approach for the project. Four stages. The first stage was getting to 550,000 tons of heavy heavy mineral concentrate.

5:42 That's actually the most simple part of the process. So it's basically gravity process. So the wet plant and washing cleaning and screening beforehand. So not rocket science. So so we're extremely confident we can do that ourselves and not give up 50% of the project. So that's where we're at now. The drilling program, we a few people have asked, you know, what are the delays in the conventional drilling program? It's pretty much Australian red tape. I was sitting with the chairman just earlier, chairman of the GSMB, which is their mines department, today, just prior to this meeting, and he assured me that, you know, we will get the the last piece of paper that we need. And so we are ready to embark on that drilling program.

6:30 So what you know, why are we doing the drilling program? Some people might ask. We this asset absolutely justifies it. So the resource that we have, 17,200,000 tons at 17.6% grade of heavy minerals. The 17,200,000 tons is pretty small on a global standard, but we've always known that it had the the capacity to double and and probably triple and even more over, you know, the project life. But we haven't had the money to be able to to do the exploration program. And we were ready ready to go. We had the program designed, and and so we're still ready to push the button on that. So what you know, why is it justified? That resource from 2016 is based on a program, a hand auger program of about 1,600 holes for about 2,300 meters of drilling.

7:27 And that, you know, that gave us a resource of 17,000,000 tons. So you can see that you don't need to do a hell of a lot of drilling to get a resource. But that average depth is only 1.6 meters, and that's because the hand augers struggles to go go below the water table. So we will be drilling to the basement assuming we can reach it. So the an aircore sonic grid could easily get to sort of we think the average basement will be around 10 meters. Obviously, that'll vary from the beach heading inland. And so there's a huge potential upside by being able to drill underneath that that groundwater table. And laterally, further inland as well, some of the dunes have been tested and some other areas we're pretty confident we'll be able to add to it. So, you know, we've already got a ten year project life, so people will say, well, why do you need to go and do that?

8:21 Well, you always want to extend your project life in mineral sands. Ten years is actually a reasonably short life in mineral sands, and we well, of course, you know, the big thing is we wanna increase the NPV. So that and, look, ultimately, that's gonna make us more attractive to other players in the the mineral sand space. So so what am I saying is is the strategy now is we are absolutely going it alone. We are building the team. We are going out looking at a a finance process to minimize the the the CapEx that we're required to get into cash flow that will get us to a positive cash flow basis. In the meantime, I'm hoping that we can at least double the resource, and that probably won't double the mine life, but you will be able to increase the capacity and and increase the NPV.

9:13 So and, of course, if there are other players and we we've spoken to a number of players in the industry, and I'm actually you know, I've had approaches since the Sheffield announcement was made, but I am not I'm not jumping into those. They they would need to be incredibly compelling. They need to show that they are way better than a go at alone NP return to all shareholders. And and I need to know that they're that they are certain before I start trumpeting them. So, you know, my my background is thirty years of resources, m and a. And I think as I said to Matt Gordon last night, you know, in m and a, particularly listed m and a, you need to have a plan b, a plan c, and, you know, even a plan d. You know, Sheffield was our plan b, and we're now on to the the plan of going going it alone.

10:00 But if somebody wants to come and put an attractive proposal on the table, then that's fine. In the meantime, we are gonna make ourselves more attractive to to other parties.

10:13 And with that, Alessandra, I think you were gonna step in and introduce people for for q and a. Yeah. Perfect, Greg. Thanks very much for the update. Ladies and gentlemen, please do continue to submit your questions just by using the q and a tab, which is situated on the top right hand corner of your screen. But just while Greg takes a few moments to review the questions that have been submitted today, I'd like to remind you that, the recording of this presentation along with the published q and a can be accessed via your investor dashboard. As you can see, we have received a number of questions, Greg. If I could just hand back to you to read out those questions and give responses where it's appropriate to do so, I'll pick up from you at the end. Yeah. Okay. I think I've answered a few of them in the in the talk already. But so the first question was that we originally indicated in March that we were getting ready for the drilling program, and we're hoping to start in April.

11:02 And the reality is we just haven't got that final approval. That's, you know, that's life often in developing countries. It's life in developed countries. Getting approvals is never as fast as what you'd like, but I have I've got complete confidence from the chairman today that we would get that approval, hopefully, this week. How likely is it that Sheffield resources will come back to the table once Thunderbird is running more smoothly, and do you still trust them if they did? Sheffield still at the table. Brew you know, Bruce Griffin is the director on our board. And, you know, Bruce and I get on very well. I understood his predicament. You know, he his share price dropped to a point where his market cap was under US 80,000,000.

11:51 The implied value of our deal was above that, well above that. And so I could see why he struggled to whether with that sort of share price dropped to go in and raise money that he needed because everyone's saying, well, you know, how are you gonna fund CAPITAL METALS PROJECT? And and at the same time, you gotta make sure that yours is right. So, look, I think Bruce has said the right thing. Said, look. Let's postpone it now, but we still are very much interested. But don't assume that it'll be in the near term in the near term. So and as you've heard, I'm not assuming that anybody's gonna be there in the near term, and and, you know, I'm just we're all about making ourselves more rock solid and do it on the go it alone approach and only be convinced otherwise if if it's incredibly compelling.

12:44 Assuming we're waiting on Sheffield to change their mind with l b out of the picture currently, are there any other potential investors you have in mind from previous contacts? I think I've said yes. There's a number, but, again, I'm I'm keeping them at the distance. LB, we still talk to them, and I think, you know, I'm I'm quite interested to talk to them about offtake. So and and maybe, you know, have to give them some exclusivity over a certain amount of tons. But but, you know, we're still sort of sorting out what we have to do best for our shareholders, so I haven't raced into that just yet. When do you anticipate the drilling will commence? I think I've said that. How our current lab result time is looking at the moment? Very good question. It seems to vary, but it can be sort of three to six months.

13:37 But I think, you know, what we'll get with forgive me for looking aside. I've I've got questions on a laptop, and I'm doing this on my iPhone. The the there'll be a lot of visual results that will be off to report, and we we've obviously know the the the the resource are already pretty well, so I think it'd be highly indicative. But, yes, the lab the the assays can take some time.

14:05 Another question about drilling and targets which we've added answered. All things being well, when would you expect to get into first production? So we I think another good thing about this is Bruce Sheffield needed to do a a prefeasibility study. And because because it was an ASX listed company, you couldn't report an NPV, without a PFS, whereas as for AIM company, we can. So that wasn't a driver for us, but, obviously, there's a number of studies that we still need to do before we get to final investment decision. We are I'm still hopeful that we could get to that that point in in the month. Next year might be a bit tight, but certainly in the first half. And with the scaled down approach and the speedier approach to production, I think it'll certainly be under under a year for construction.

14:58 So I think you can, you know, safely assume that first half of twenty twenty six. So I think I said that before. That was our timeline. Sheffields would probably stretch out six months beyond that. So, hopefully, we could we can be faster than than what we might have been with Sheffield. Will Bruce remain on the board? Absolutely. You know, his his credentials in the space, you know, second to none. And as I said, I completely understood why why he had to make the decision. I didn't didn't like it. Hurt. But, yeah, I I respect him, and and and we work very well together. So, no, I've got no issue with that. And look, you know, I know they really want it. And and I and I think, you know, his his strategy is to not be a single asset company. As you can see, he's he's ventured into Brazil. He's ventured into Sri Lanka outside of Australia, and he wants to grow our business.

15:58 You know? It may be that he might miss the boat on being able to fund our project, but that doesn't mean that you know, he's already got 10%, maybe 15% if he takes the warrants. Who knows what he does with it with that, but he's he's certainly got a step up ahead of other parties.

16:21 I'm more concerned about LB Group falling through and the required new CapEx cost. What info can you give about LB Group not proceeding? Was it commodity price based? It's a it's a very good question. I in the end, I lost confidence that they were going to be able to complete a transaction, and I couldn't tell you exactly why, and that's what was really bothering me. And so that's why we had to jump to the plan b, and it was you know, Bruce was way more transparent and way easier to deal with in a sort of towards the end of last year and the first first quarter of this year. So door's still open. I know that I know had some of their own issues, but I never got complete clarity, but I did not have enough confidence that that I wanted to take them to the line.

17:19 Look. We're sending the assays to South Africa. The actual laboratory, I'm not sure of the name of, but I can get back to people on that. Just somebody's clarifying on production, Rich. Twenty twenty twenty six for production, 2025 for the the final investment decision. So first half of next year, final investment decision, first half of twenty twenty six for production. Apologies if I confused anybody with that. What is the anticipated duration timescale of drilling program and formally adjusting the resource NPV? Good question. Look. Initially, it is so the budget, I think I mentioned yesterday to Matt Gordon, it was under 200,000. That's our initial budget.

18:17 And we've we're very confident that's gonna add a lot. I don't think it's gonna hit I doubt that it's gonna hit our target of a double of the resource, but I think it will provide a very clear path to as to how we get there. We so, therefore, we might need to add some more drilling to get there. I can't answer exactly what it is. Right? It's, the mystery of what's in the ground. We will be looking to formally adapt the resource and the NPV as soon as it's material enough to do so. So there could be I think it's you know, it certainly could be within six months, but I think people will will get a good feel for it well before that.

19:07 So we are going with a much more simplified startup, which I had always preferred as it will be quicker to cash flow. Yes. When do you think we will be able to build out full production, and do you have a line on-site for becoming cash flow positive? So that, under our previous PEA, we were cash flow positive at 37,000,000 US. I'm very confident that we won't need that certainly for the first stage of production, and I'm confident that that will be cash flow positive, that that first stage that we are envisaging. I I don't want him to get too much more into the numbers until we've done the proper homework, which we'll do when Stuart's got his feet under the table, understands the asset and the country a bit better, and and we'll we'll sit down with the equipment providers for latest pricing.

19:53 But I'm I'm assuming that we could hopefully come out within two to three months with some rougher numbers around that. We it won't be a financed set of numbers, but it will we will have a finance plan around it. Will the new CEO bring in some options for funding providers?

20:19 Yeah. Absolutely. Do you think utilizing his own network and bring and bridging from his last role at Black Mountain? Yeah. I think absolutely. We've already had we've already had a number of chats about that. But, you know, he doesn't other other than the fact that he he he likes the asset, we both don't know what the what the real numbers are. And as I said, that's gonna take us two to three months before we know what we're effectively selling from a from a financing point of view. What is the latest thinking on using the port? We're still absolutely, keen on using the port. The only issue with it is is that the, we need to dredge it, which is not a big issue. There's a resource sitting in that port, if not construction sand.

21:15 So we could probably do that for very little cost, if not some return. The issue is it's only got an eight meter draft so that you can only get up to sort of 10,000 ton vessels. But they are fine to go to China, to go to India, to go to Europe. So there might be greater economies of scale and some other options, and we are actually talking to two logistic providers in in Sri Lanka that are doing some work on a feasibility at their cost to see whether we can we can do better than the port. But the port's sitting there. Land and port facilities ready to go, it just doesn't work because it's full of sand. One of one of my other issues is is it gonna keep filling up the sand? That's, you know, that's a good and a bad thing. That's a you know, the good thing about this part of the world is your resource just keeps getting replaced by by god, by nature.

22:12 You know, Lanca Minerals have been mining since 1964, I think it is, and they they don't do a hell of a lot of exploration. They just keep getting their resource replaced. Great for when you're mining, not necessarily great for when you're operating a port. So that is something we've gotta be conscious of. Can you clarify first phase production is based on concentrate sales without further separation? Yes. That is the intention. So we won't be the second phase, will be a combination of increased capacity and then bring bringing in magnetic separation. And the final phase, assuming that the resources are in Sri Lanka, that the finances justify the economic return justifies it, then you'd be looking at the nonmagnetic electrostatic separation.

23:02 But there's a there's a global market for concentrates. If you look at most of the the mineral sands producers, most of them export heavy mineral concentrate. Are there any updates on the outstanding seven IML applications? Yes. We, we're in constant and much more positive, thankfully, dialogue with the with the GSMB, and we're just going through the process of some of them, we're gonna shrink. Some of them, we're we're going to put add new ones on, and we're just in that process with them of of working out what's the most logical add ons. We've moved the initial mining area, so our focus on the next set of industrial mining license applications is in that that area.

23:53 It's just above where we've we've already got two licenses. So we with with three or four licenses, the plan is we'll have enough for at least two years of mining. So we I'm I'm not I'm not concerned about licenses being a a stumbling block for us anymore, certainly with the current configuration. I mean, I'm I'm on WhatsApp with the with the chairman of of the mines department, the GSMB, very approachable as is the director general. When do you think CMET will be able to move on to a better share market board to have a share price more related to the underlying value of the company? That's a great question. Yes. I was you know, we've looked at ASX, and, you know, I think more there's changes happening with the senior boards in in The UK, which which we're obviously open to.

24:50 Given the the the conversations we were having, certainly, with with Sheffield, we didn't feel a need for to divert that. But I think that's it's it's not the highest thing on my list, but it's certainly something that I think who was it? Murray, you're spot on. I have found AIM a little bit frustrating. Just bear with me if I'm missing some because there's a hell of lot of questions coming in, which is encouraging, I hope. Could you let us know what studies in the I I mentioned a bunch of studies before FID, what studies we need. There's there's things like water water monitoring is one of the biggest one.

25:38 And one of the the water monitoring and and the hydrology studies, one of the reasons why we're really focusing on that is ultimately, we think that this is gonna be amenable to dredging. At the moment, we don't our EIA doesn't allow us to to dredge, but dredging will really bring down the unit costs. And it's it's been mining below the water table has been allowed in other parts of the country. The independent experts that are working on our EIA for the southern block of 199, they're they're going into it approaching as if we will be able to to dredge. So so that's a key study for us. And I'll I'll let I know that Stuart has has a bunch of ideas as to what else is required, but the final finalizing the logistics studies is gonna be a key one, just support work.

26:29 There's nothing nothing that I feel that could potentially push us beyond those dates. And hopefully, not wrong, Stuart's gonna be more of an expert on that than I am. I think that was a related question on the licenses. Are there still licenses that need to be secured? Yes. There always will be. As I I think as I think I touched on, this is gonna be a rolling project. So we're gonna start at about the middle of the project, work our way south, then go back up to the top.

27:21 And you won't be able to get all the licenses for all of that because the the licenses are effectively subject to getting land access, and it doesn't make sense to lock up 60 kilometers of land as access in one go. Can you can imagine those negotiations? So it's it'll be a a rolling basis, and we're gonna make sure that we've got, I think, at minimum three years ahead of us, you know, which I'm I'm very confident we will have both time that we make that financial investment decision. With such a great asset and potential value as BIDs, you're considering to take further shares. Yes. I am interested and will be I think I'm allowed to say this. I'm very keen to hop into the market.

28:14 In lieu of salary, I've done it before, but not at not at this stage, hopefully. I'm you know, our our cash resources are are fairly robust at the moment. I don't take a huge salary out of this. I take, you know, a 180,000 US dollars. I think everybody would have seen that. So, no, I don't intend to take any in lieu of salary in the short period. Sheffield's selling. Absolutely not. So and I and I have absolutely no intention to as as Sheffield said allowed us to say in our release, they continue to be a supportive shareholder, they they remain on the board.

29:04 And, you know, Bruce was there, and made a quote saying this was about them and not about us. So, no, I definitely don't don't see them going anywhere. And, look, It it fits with their strategy. Stay keep a foot on it whilst they fix their own knitting, and then you've got more cards on the table for later on. I can't see anymore at the moment. Richard j, I'm not gonna answer that question. Excellent. Well, I better say what it is.

29:51 Where do you think the share price should be, and how are you going to get it there? Well, I hope I hope you've been listening to the story, and I'm gonna I hope you you know, I believe in it. I'm a big supporter of it, and I think it's a a great path. I I think you know, you probably expect me to say this, but I think the the Sheffield what Sheffield did is is a blessing in disguise. As I said, I was continue to wonder why we need to give away 50% of this project to get it funded when we had a staged approach, and, that would have given us maximum leverage. So I am and, certainly, if we can increase the resource, you double that resource, that's all for us as a 100 owner of the project. We we haven't given away 50% of that upside. So our NPV per share, so the returns to shareholders of the approach we are taking, I am absolutely confident will be higher than than what we than what we would have had with Sheffield.

30:47 What Sheffield provided was an operating partner, supposedly a better balance sheet, and somebody who had done this before. Now we we can build it ourselves. So, you know, people like Stuart have done it before, and we build a team around that. I've done it before in in the hard rock space many, many times right throughout the world. So I'm very confident that stick with this. I know this has been a really painful hit. Tell me about it. You know? I I feel as much as you guys. I'm a substantial shareholder and option holder. So it was it was painful, but you gotta pick yourself up and and find the the best way forward, and that's what we're doing. Perfect. Greg, I might just jump in and thank you for answering all of those questions from investors. Of course, the company can review all the questions submitted today, and we'll publish those responses on the investor meet company platform.

31:40 But just before redirecting investors to provide you with their feedback, which is particularly important to you and the company, Greg, could I just ask you maybe for a few closing comments? Yeah. Thanks, Alessandra. Yeah. As I said, what are we doing now? We are going it alone. We are gonna double resource. We are gonna come back with a very certain plan that is gonna be getting us to self funding as quickly as possible. And if anybody wants to still dance, well, I'll still talk, but it's gotta be incredibly compelling. And all of this is being done in the context of a much more supportive environment in Sri Lanka. We're a bit of a standout. I know that there are a lot of my the peers here are watching us and and and encouraging us, and and the authorities are giving us absolute support.

32:27 And it's been a really pleasant change. So stick with us, and, yeah, we'll we'll overcome this over oversold moment, and I look forward to updating you with with new news as in the over the next few months. Perfect, Greg. Thank you very much for updating investors today. Could I please ask investors not to close this session? I should now be automatically redirected to provide your feedback, and the management team can better understand your views and expectations. This then take a few moments to complete, but I'm sure it'll be greatly valued by the company. On behalf of the management team of CAPITAL METALS PLC, we'd like to thank you for attending today's meeting, and good morning to you all.