Earnings Transcript for JRV.AX - Q1 Fiscal Year 2024

Operator: Good morning and welcome to the Jervois Global Investor Webinar and Conference Call. All attendees are in a listen-only mode. [Operator Instructions] I'll now hand over to Jervois CEO, Bryce Crocker. Thank you, Bryce.

Bryce Crocker: Thanks very much and a pleasure to be here today for the Q1 2024 investor and analyst call. Turning on to slide two, please note the usual disclaimers and let's move on to the highlights slide please, moderator. So turning to the highlights, Jervois Finland contributed US$40 million in revenue for the quarter and adjusted EBITDA of US$0.7 million. The first quarter results continue to be driven by low cobalt prices caused by Chinese oversupply from the DRC with an average quarterly cobalt price of approximately US$12.60 per pound. Jervois' cash balance at the end of the quarter was US$26.6 million, which James will unpack further in coming slides. Discussions on various partnership transactions and with lenders continued across the quarter. As I've mentioned previously, selectively introducing partners who can share the holding costs of our portfolio across the cyclical downturn is a top priority, whilst also ensuring Jervois' shareholders remain exposed and can benefit from the inevitable cobalt price recovery. Whilst oversupply of cobalt intermediates is prevalent today, the demand trends I have spoken about on prior calls regarding rising OEM or automaker requirements, in particular for Inflation Reduction Act, or IRA, compliant material for the United States electric vehicle market continues to strengthen and underpins our medium term refinery expansion plans both in Europe and America. The Department of Defense, or DoD, partnership advanced during the quarter with an inaugural mineral resource estimate released for the Sunshine deposit at Idaho Cobalt Operations, or ICO. Drilling also commenced underground in the RAM deposit following development to access the underground drill pads. All quarterly exploration activities in Idaho were 100% funded by the DoD. Work in the quarter also continued on the cobalt refinery bankable feasibility study, or BFS, again, funded by the DoD. We narrowed down to two sites and due diligence on those sites, one in Pennsylvania and one in Louisiana, both advanced. If you could please turn to slide four, operator. So our focus remains on ensuring Jervois' sustainable self-funding across the commodity and asset development cycle. It's underpinning how we are pursuing improvements to our current business and also looking to introduce partners. Jervois Finland, as I mentioned, delivered positive EBITDA what is the fourth consecutive quarter despite lower cobalt prices. I just returned from Kokkola and the focus of the Finland team again is on cost reduction and asset improvement initiatives which are delivering lower operating costs. An internally driven cost improvement program is continuing to realize benefits and key input costs such as refinery reagents are falling. Partner negotiations on the asset level funding options across our portfolio continued with discussions progressing regarding all three sites in the United States, Finland and Brazil. And as I mentioned, lenders are actively engaged. Constructive engagement with the U.S. government on broader financial partnership and issues continued across the quarter. Prior to Kokkola, I was in Washington, DC, where we are supporting efforts to implement the bipartisan recommendation on a cobalt price floor for U.S. cobalt production from the House Congressional Select Committee on China. I'll now pass over to James to pick up the balance sheet in more detail.

James May: Thanks, Bryce. On the balance sheet, the focus remains on pursuing steps to enhance our liquidity and establish a durable capital structure. Cash utilization in the first quarter included the semi-annual bond interest payment for US$6.25 million in January and holding costs for the ICO and S&P assets. At Jervois Finland, as Bryce noted, we delivered fourth successful quarter of positive adjusted EBITDA and remain focused on delivering production efficiencies and improving financial performance to offset the impact of cyclical weakness in the cobalt price. The positive operating result in the quarter was offset by working capital movements. Whilst inventories remained stable relative to the prior quarter end, a series of other minor changes in working capital did impact the cash flow in the period. The Mercuria loan balance remained stable 31 December versus 31 March, sitting at US$44 million. Initiatives to strengthen the balance sheet are continuing. We appreciate that this has been our message for several quarters and are continuing to pursue these initiatives as a priority. Through this period, we have been encouraged by the breadth and depth of engagement across the asset portfolio and interest from high-quality counterparties. It is clear that there are capital providers who believe in the thematic and the strategic positioning of the Jervois portfolio. Our aim remains to execute one more transaction that supports liquidity, deleveraging and creation of value for shareholders. Importantly, we are also engaging closely with our major lenders on options to strengthen the balance sheet. Our lenders have been key partners in establishing the business over the past three years and remain key stakeholders in the steps we take to strengthen the company for its next phase. On guidance, sales volumes for the quarter were 1,239 metric tons, representing a 13% increase relative to the prior quarter, but slightly lower than historical average levels due to the continued weakness in commodities markets and impacts to March sales associated with the finished port strikes. Delays to inbound shipments of compatible materials linked to those port strikes also mean that production and sales volume levels for Q2 will be lower than historical average volumes. All other guidance shown in the table is unchanged. Holding costs for ICO continue at US$1 million per month and S&P at a rate of US$500,000 per month. Bryce, back over to you to summarize.

Bryce Crocker: Thanks, James. Our focus remains on establishing and strengthening partnerships, as I've mentioned previously, with both industry and government. I do believe our portfolio will end 2024 looking different to how it does now. Whilst the cobalt price continues to disappoint, as I've mentioned previously, destocking has been underway for an extended period of time, particularly in a historical sense, and inventory levels are low. If demand does start to rise, then prices can respond unexpectedly and rapidly. There are pockets of strengthening demand, particularly in alloy-grade material into aerospace with rising defense budgets globally providing significant support and a differentiating factor to standard-grade pricing. The EV story will be subject to volatility as it rolls out, but again, the overall trend is unmistakable, and we see this in 2025 and onward order requests from our current and future customers. We continue to work closely with our host governments across both Europe and the United States, and the importance of cobalt to the west energy transition and national security is undiminished. I'll close, operator, here and open up to questions from analysts. Thank you.

Operator: There are no questions at this time, so I'll now hand back to Bryce for closing remarks.

Bryce Crocker: Well, thank you. I look forward to being back here for the next quarterly results, and thank you for your time as we move forward across Q2 2024. Thank you.