St George Mining Limited (SGQ) Earnings Call Transcript

Good morning, and welcome to today's St. George Mining Investor Webinar. My name is Andrew Edge from Purple Communications in Perth, and I'll be your host for the session today. Joining us from Sydney is St. George Mining Executive Chairman, John Prineas, who will take us through an update on the company's 100%-owned, world-class Araxa Niobium and Rare Earths Project in Minas Gerais, Brazil, and provide some insight into key milestones the company is targeting over the next 12 months. Before I hand over to John, just a quick few items of housekeeping. Please note that today's webinar is being recorded. A replay will be made available on the company's website following the session. [Operator Instructions] We hope to have time for questions at the end of John's presentation. [Operator Instructions] Simply type your question at any time during the presentation and we will work through as many as we can once John has finished. Feel free to send questions through as they occur to you. There's no need to wait for the end. We expect the session to run for around 30 minutes, including questions. And with that, I'll hand over to John. John, over to you.

Thank you very much, Andrew, and thank you very much for everyone joining the webinar this morning. We released a new investor presentation this morning. My colleague, Caue Paul Araujo, will be giving this presentation at the Noosa Mining Conference this week, but we thought it might be useful to have this webinar as well to present this to the wider audience. So thank you very much for joining us. The first slide is our corporate snapshot. Not much has changed here. But the point to emphasize here is our capital raise that we just completed in June. That was the second institutional-led placement that we completed. So together, we've raised $132.5 million in October and June. Hancock has come in for another piece in the second capital raising is now a 10.3% shareholder. So we definitely converted ourselves from being a junior miner with just a retail shareholder base to being institutional-backed growth-focused mining company. And so a big change over the past 12 months. Our share price is off its peak unfortunately, but that's not Robinson Crusoe for us. Everyone in the rare earths space is off their peaks. Some have been punished much more than us. We're in a really good position to grow this company. A lot of growth initiatives now coming, and we're really well funded to accelerate those and add value to the company. So that's part of what I'll be telling you today. The jewel in our crown is, of course, our world-class resource. So a very big rare earths resource and a very big niobium resource. In the rare earths space, we're really right up there with the 2 other biggest rare earths producers outside of China, Lynas and MP Materials, both carbonatite-hosted, both having Hancock Prospecting as a major shareholder, if not the largest shareholder. So a very good company there. The real key point on this slide is that this resource is getting bigger. So as you know, we announced this in March this year. We've been drilling quite a bit since then. We've paused the resource expansion drilling. We've now got the resource geologists crunching the numbers, seeing how big this is going to be. We hope to have this out this quarter. So stay tuned sometime in August or September. This resource will come out. It probably won't be quite as big an increase as the last one. The last one was a 74% increase in volume. It definitely will increase in volume. But more importantly, we've been focused on expanding the measured and indicated component. So at the moment, we've got about 29 million tonnes there. We hope to get up to about 50 million plus, and that's quite significant. That is what the economic studies will be based on the measured and indicated portion. And if we get to 50 million tonnes, it actually makes us quite larger than both Mountain Pass and Lynas in terms of their measured and indicated components. They're both sitting at about 35 million tonnes. We've got a very similar grade to Lynas. Mountain Pass is a little bit higher. So we're in very good company with those world-class mines. So where does that put us in the world stage? This is a table you've probably all seen before, if you've been following us. So you can see that our market cap of just $371 million is a fraction of where the 2 producers are at, Lynas and MP Materials, all up to USD 16 billion or USD 8 billion and also quite a fraction of Arafura. They're now in development, got a lot of funding backing them. But if you have a look at their resource, it's actually smaller than our, 56 million tonnes with a head grade of 2.6%. We're already much larger than that. So there's no reason why as we continue to deliver development milestones, the economic study, metallurgical test results, downstream alliances, all that is coming. There's no reason why we shouldn't start catching up to that valuation of Arafura. And then as we become a producer, we should start catching up to the valuation of those other producers. So a really good growth phase coming for us, a really good opportunity to grow shareholder value. It's not going to happen overnight, but we should do this very strongly over the next 2 years. Everyone knows our location, Minas Gerais, Brazil is a Tier 1 jurisdiction. Just to emphasize, we have a very good relationship with the government there. We've signed this cooperation agreement where the state has agreed to expedite our project approvals. Government has given us exemption from state goods tax. That's up to 18%. That is a photo of us signing that document and getting the support from the state officials. Really good route to market in Minas Gerais. Of course, our neighbors at CBMM have been doing this for plus 40 years. So we know exactly how to go to market through the existing roads, railways and port facilities. So very good state to be doing business in. You've seen this earth image before. So a couple of points to emphasize. This is an established mining region. CBMM has been here for decades and Mosaic as well on the other side with their phosphate mine have been there for decades. So it's a well-understood area have environmental impact, well understood and accepted. That should make our environmental approval process quite smooth, and that's certainly the feedback we've been getting so far. Roads, infrastructure already there. We don't have to spend multiple billions to put in power and roads and access. We've purchased some land. That's the outline on the western side there with a mock-up of a possible industrial plant. Purchased that land outright. That's where we can construct our greenfield project. So we've already designed that together with Worley, our feasibility technical manager and our in-house team. There was also a possibility for a brownfield development. So as has been announced, and as I think I've mentioned before, Mosaic, next door neighbor, has announced that it's put its project on care and maintenance. It's run out of phosphate. It's basically handing back that pit mine to the government. There's nothing there. And it's put that industrial complex on sale. Logically, we would want to look at that. It's a flotation plant, very similar to what we need in the first phase of our niobium and rare earths processing a simple flotation plant. We then can consider whether we had a pyrometallurgical plant for the rare earths and -- sorry, hydromet plant for the rare earths and the pyromet plant for the niobium. So I can't say too much about that. If we are in the room, the data room, it's confidential. So I can't say any more. But stay tuned. There could be some developments on that soon. One of the advantages of our project, again, is our resource. It starts from surface, absolutely from surface extends all the way down to 199 meters as we announced recently. It's free digging, so no blasting, minimal crushing and grinding required. 100% of the resource is in the weathered profile. So that's the really soft easy part to dig up. And this 3D model is going to be bigger when we announce the next iteration very, very soon. So you see the outline of the tenements there. I might just go back a slide. You can see the red line area up there is the 3 tenements. The central tenement is where most of our drilling has been going on. That's where 80%, 90% of the resource is located. That tenement is mostly on ground owned by the government, the CODEMIG government authority. The tenement to the west, we probably won't be doing much there because that's our buffer zone to the hotel ground, which is in the western part there. And on the eastern side, that tenement is basically owned partly by CBMM and partly by a farmer. We have made our East Araxa discovery in the far east area. We're still drilling that out. We've had access to the ground. The farmer has been quite cooperative and we're currently drilling out the East Araxa resource. So that should be coming later this year, about October, November. The middle part of that western -- eastern tenement is owned by CBMM in terms of the underlying ground. And we're still having discussions with the CBMM to get access to that ground. They have given access previously to other parties. The previous owner had access to that area and actually drilled out quite a bit of mineralization that forms part of our resource. It's about 20% of our resource on the CBMM ground. We're still having discussions with CBMM. It's quite similar to the Warden's Court process that you have in Western Australia. I mean St. George in the past has had Warden's Court proceedings with Liontown, with Delta Lithium, with Jupiter Mines, et cetera. Regarding land access, that's just a typical process for mining and you end up resolving something commercially and you go ahead. So that's where we're at with CBMM in terms of that part of the resource. In terms of the block model here, it's really just the sliver of the eastern part that is covered by that arrangement, those negotiations that are currently underway. So it doesn't affect the overall ability of St. George to go into production. It's probably only about 20% of our overall resource. Remembering we've got a real big world-class resource. We probably only need about 20 million tonnes to have a mine life of about 40 years plus. So we currently have a 70 million tonne resource. So anything that we theoretically couldn't access is not going to impede our ability to start a mine and have a very long life mine. From that resource that we have on the state-owned ground that we get access to already, we can probably have a 40-year mine life and be banking $500 million, $600 million profit. Those numbers will come out in the scoping study, so don't take them for granted just yet. But what I want to emphasize is there is no impediment to us starting a mine given the CBMM process that's currently underway. We can still start a mine on our own ground and have a long life, very lucrative project. Our project delivery team is really high class. We've got a number of senior executives from CBMM, people used to run their business, set up their project, set up their processing plant, lead manager for their processing unit, et cetera. So we had exactly the kind of people that can build our project and run it going forward. Of course, as I mentioned, we've got Worley, one of the world's top engineering firms on our team as well, and they'll be working with our owners team to take the development study work forward. You all probably know about our in-house team. Also emphasize that Adolfo Sachsida is on our advisory Board. He's the former Minister of Mines in Brazil. So he's given us a lot of good connections with regulatory authorities, again, giving us confidence that we can get all our approvals through in due course. Governor Zema, the Governor of Minas Gerais. He's actually just resigned as a governor because he's going to run for federal position in the upcoming federal election, but he's from Araxa Town. He came to our open day on the 1st of December last year, spoke very complimentarily about St. George, bringing a new generation of mining to Araxa. And he and the town people there are very, very keen to see our project up and running. Metallurgical test work. There's 2 things here. One, the historical plant -- pilot plant produced a rare earth oxalate. So it did produce a commercial product, 99% purity, 86% recovery. So there's no doubt we can produce a commercial rare earth product. We sent samples of this to our downstream partners, REalloys, MagBras, Tecnicas Reunidas. The first 2 have already done some analysis there are very, very interested and ask for more samples. We've also sent some samples to a couple of other people in the U.S., which I can't mention just yet, still commercially confidential. But we've already processed the rare earths and produced a product. So that risk is really gone. We do want to produce a more efficient modern process. So we're doing that work at the moment with a number of laboratories, SGS, both in Brazil and in Lakefield, Canada, CIT-SENAI and also Aurelia here in Australia. CIT-SENAI is the first one to give us some of the results. So we mentioned that there, announced that on the 11th of June, beneficiation work -- flotation beneficiation work on 5-tonne sample. This is representative of what we're probably going to mine in the initial years at A. successfully produced high-grade niobium and high-grade rare earths. The niobium was at industry comparable results, similar to what CBMM achieved, similar to what China Moly achieved. So very good results there shows that we can produce niobium concentrate. We now go to the next stage and see if we can produce the ferroniobium. Very confident we can. Again, we've got the team that used to do that for CBMM. So we're on track. We had a really pleasant surprise with the rare earth concentrate and the tailings that was upgraded to 15.7%. So that's fantastic. It means when we feed the rare earths plant, we're going to be feeding with 15.7% TREO. And remembering, we've got some very high-grade rare earths on our resource. Again, that will come out in the scoping study. But there are blocks that we're going to have in our resource, which are probably 15% to 20% TREO. You can see that in some of the drilling results that we've had. The whole drill is about 15%, 20%, but we have quite a few meters, 10 or 20 meters in some cases of this very high-grade portion, and that should come through in the block model for the resource. And if we can target those particular block models, which are not on CBMM ground, it's on our other ground, we can really deliver a high-grade, high-value project very quickly. And this beneficiation work did confirm that we can do a dual processing of both niobium and rare earths. So it's very exciting. It's a real point of difference between us and the other rare earth developers and the other niobium developers. We've got 2 revenue streams potentially, both potential world-class resource and world-class production. All this met work is supported by a really highly credentialed met team, our in-house guys, Alaercio Viera. He used to work at Serra Verde, which has just been bought by USA Rare Earth for USD 2.8 billion. It was Brazil's only producing rare earth mine. Hopefully, we will be one of the next and also worked with CBMM and China Moly doing niobium. And Ricardo Nardi, he used to be at CBMM as a lead process engineer. I also got Gavin Beer on the team. He's an external consultant, very well known in this space, was the metallurgy manager at Arafura for many years and consults to most of the rare earth companies. And IMO, well credentialed through their technical manager, Peter Adamini. So expect some more good results on the met work soon. Downstream initiatives. You've all probably heard about our MagBras partnership. We have been the first company to provide them with a rare earth product processing. Brazil wants to build a domestic capacity for rare earths magnet manufacturing, and we certainly want to be one of the parties delivering into that supply chain. So that relationship is progressing very nicely. We have a relationship with Nanum. They're keen to get hold of our cerium and lanthanum, very low value part of the rare earth complex, but they can actually commercialize those, give us another revenue stream. And if we extract that from the rare earth oxalate, we end up with a very high value, 80% NdPr plus heavy rare earth and samarium. Tecnicas Reunidas. It's doing some test work on rare earth oxalate right now. They are a leader in rare earth processing, probably #1 in Europe, which is why they were appointed the leader of the European Commission's PERMANET Project, again, to establish rare earth magnet production in Europe. So we've got a European connection there as well. We got a very strong connection in the U.S., REalloys, already making magnet materials for U.S. government departments. They're testing our rare earth oxalate as well, had some good results, waiting for some more results. We were in Washington in May, as we announced. Met a number of government departments. Went and saw the usual ones like EXIM Bank and Development Finance Corporation. The 2 of our shareholders gave us an introduction to someone very, very, very senior in the White House. So we basically leapfrogged all those metal managers and went to a very senior metal and they're very interested to work with us to do something for our Araxa project. So that was a very good introduction from our 2 shareholders. Expect more news out of the U.S. soon. Boston Metal. They do have this new molten oxide electrolysis technology for low-cost, zero carbon production from metals, iron ore. They're testing our material as well to produce low-cost niobium. Our pilot plant construction is underway. As we've mentioned before, this is going to be within the CEFET campus in Araxa. It's going to cost us about $5 million. We had to build it somewhere, but we're building it with CEFET, the university there, getting a lot of support from the government and from the community for that purpose. It's going to be a big plant. It's not just a baby pilot plant. It's got 200 to 300 kilometer -- kilo per hour capacity. It's going to have both flotation and hydrometallurgical possibilities, can produce ferroniobium and a full spectrum of rare earths from a concentrate to MREC and rare earth oxides. So very keen to get that up and running. It should be in production by December, January. And as I said, getting a really good community support for doing this initiative. The niobium market, as you all probably know, very supply concentrated only 3 primary producers. We aim to be the next one in the market. We've got those project logistics that allow us to really expedite production. And again, the U.S. is very keen to secure supply, given it's the second highest rated strategic metal. If America was denied supply of niobium will have the second biggest impact on the U.S. GDP. So just to recap some of our milestones coming up. Licensing is underway. Our environmental application will go in with the next couple of months. We should have that early next year, and then we'll work on our installation license and then our operating license. The drilling program has paused at the main deposit, but is continuing at East Araxa for more assay results to come. And importantly, this increase in the JORC resource coming this quarter. Met test work continues. Pilot plant is being constructed at CEFET, SGS, and CIT-SENAI will be doing their own 1-month pilot plant study in the meantime. So lots of results coming from the met work as well. Very strong discussions with other strategic investors and downstream partners. I expect some positive news there over the coming months. Our development studies are underway with Worley as our feasibility technical study manager. And that's the presentation. I'm happy now to address any queries and questions that participants have. Thank you.

Thank you, John. As you mentioned, we'll now move to questions. [Operator Instructions] And we've had a few that have come through already, John. What I might do if you just close the slide there. We'll get on to the first question. Given the scale of your Araxa resource and the promise of an upgrade, have MP Materials or Lynas reached out to St. George with an eye on securing their next-generation project?

If they had, I wouldn't be able to disclose that. It's obviously confidential. But I can say that a number of the existing rare earth companies have approached us for a chat. I probably have to leave it at that.

Understandably. That's a great question. [Operator Instructions] Looking through. We've got another one here, John. Hancock Prospecting has lots of investments across rare earths. What have they said about their interest in St. George?

Sure, they see us as having one of the best rare earths projects in the market. The reason they invest in us is to get us into production. They want to see us getting into production. They can see the pathway to production, given our good project logistics, given our good deposit characteristics. So that's what they want us to do. They want us to get into production, and we're really well placed to do that. Thank you.

Great. Thanks for that question. Let's have a look. We've got another question on the mineral resource update that you spoke of and how significant it will be. Also, can you expand on the tailings dam discussions with CBMM?

Yes, sure. So the resource, as I said, at SRK, our external resource geologists and our in-house people are crunching the numbers right now. We'd love to get out as soon as possible because I think it will be quite influential in telling people that we've got a really commercial resource there. So stay tuned. We'll try and get out as soon as possible in August. In terms of tailings dam, I hate people saying tailings dam because it's not a tailings dam anymore. It used to be a tailings dam. It stopped being used as a tailings dam in 1985. So that's a long time ago, 40 years ago. It's been fully rehabilitated by CBMM. That was their obligation to government to rehabilitate that. If they haven't done that properly, it's on them. But they have done it properly. It's been signed off by external engineers, WARM Engineering, a very reputable firm in Brazil and also signed up by the environmental authority there as not having any environmental risk. So dry stack, it's not really any risk at all. As I said, CBMM have previously given access to that area to the previous owner of our project. They drilled, didn't cause any damage, didn't cause any environmental risk at all. So the environmental issues around that dam are a bit of a red herring. It's really just a bit of a dam to having the CBMM to get a commercial access arrangement.

Okay. Great. Thank you. And we've had one come through. What do you expect will surprise the market the most in the scoping study? Perhaps it's a delicate question.

That's a really difficult one because I haven't seen the final results of the scoping study. But I think probably the market is underestimating the profitability and long life of our operation. So I think certainly, we're not valued anywhere near what I think we should be given the long life and very high profitability of our operations. So that should have a real impact on our valuation.

Excellent. Exciting times. Look forward to seeing that one. And you mentioned discussions with the U.S. What feedback did you get in Washington about the U.S. government interest in rare earths and niobium from Brazil? And is Brazil seen as a safe and secure future supply source?