Endomines Finland Oyj (PAMPALO) Earnings Call Transcript

Hello, everyone. Good afternoon, and welcome to our Half Year Business Review Webcast. Thanks for joining us today. Today, we will go through our performance during the first half of 2025. First up, our CEO, Kari Vyhtinen, will share the key highlights and updated -- sorry, main business updates. He will also outline our updated strategy and the long-term business targets. He will also explain how we plan to achieve those targets. Then our CFO, Minni Lempinen, will walk you through the financials. My name is Anni Turpeinen, I'm the Chief Communication Officer here at Endomines, and I will be hosting the questions-and-answer session. So please feel free to send your questions via chat during the presentations. And please remember to type your questions in English. So again, thanks for joining us. Let's get started. Kari, the floor is yours.

Thank you, Anni. First of all, I'm extremely proud to share Endomines' January-June performance, which will clearly indicate the strong profitable growth and successful execution of our business strategy. H1 '25 was the best 6-month period in Endomines' history. We had a very strong growth in several areas. Our revenue grew by 64% to EUR 21.5 million. Our gold production grew by 25.8%, which also affected the revenue growth positively. The revenue growth resulted in a very high EBITDA numbers. So the group EBITDA was EUR 7.7 million, and the Pampalo EBITDA was EUR 10 million, which is impressive 47% of the revenue. Pampalo is our -- it includes all our production items. The EBIT also grew with the EBITDA. So the EBIT was EUR 5.4 million. And when we did the last update in our gold resources, they grew to close to 0.5 million ounces. So very significant growth also in the gold resources. And then lastly, but not least, the cash flow -- operational cash flow was EUR 5.1 million compared to the minus EUR 0.1 million on the previous year. And I really want to thank our team for the excellent work done to make this significant turnaround possible. If we return to the basics, Endomines is a gold mining and exploration company, and we are focused in Finland. Our operations are in the Karelian Gold Line in Eastern Finland near Ilomantsi. And the Karelian Gold Line is very prospective for gold mining and exploration, it's Archean Greenstone belt, very similar to similar belts in Kalgoorlie, Western Australia, Abitibi in Canada or Witwatersrand in South Africa. We have our production facilities in Pampalo. So there is an underground mine, open pit mine, and then we have a mill. We produce gold concentrate, which goes to Boliden for further refining. And then we perform exploration mainly in 2 locations. There is the Southern Gold Line and Northern Gold Line. And in the Southern Gold Line, we also have tungsten and molybdenum, tungsten being a critical mineral in the European Union. So it's a very prospective area for gold mining and exploration. We have successfully grown the production. That's one of our key parameters that we follow that we want to grow the production, and we have successfully done it for now over 3 years. And if we compare the production levels of '22 to '24, there was a growth of 66%. And this year, on the first half of the year, we grew the production by 25.8%, so very significant growth. Our guidance is that this year, the production will be between 16,000 to 22,000 ounces compared to last year's 14,300 ounces. So significant growth expected. And we estimate that the growth will be greater during the second half of the year compared to the first half of '25. To support the long-term growth, we -- there was a major milestone this July that we acquired Power Mining's mining operations. Power Mining was our subcontractor for -- from '21 until now, and they perform all the underground operations. So we acquired the operations and the acquisition price was EUR 2.55 million. It included the machine and equipment needed for the mining and EUR 600,000 of inventories. The operations employ approximately 30 people and almost all of the people will be transferred to Endomines, and we are also recruiting more people as we speak. The main reasons here were that we want to grow aggressively and the company's strategies were not in line in that respect. So we saw that we can grow the operations faster by having everything in-house. We estimate that this will have a positive effect on our cash cost from '26. So the cash cost will be lowered by EUR 90 to EUR 120 per ounce. We expect that there could be some minor effect during Q3 when the transition is done. Usually, when this kind of transformation is done, then when people move to different organization, we recruit new people, we start new procedures. So there could be a temporary effect during Q3, but we expect -- if there is any effect, we expect that to be minor and temporary. So on the long-term, this really supports our growth strategy. If you look at the gold market, gold market has been very favorable, and it's mainly driven by the geopolitical uncertainty and then the Central Bank buying. China has been very aggressively buying gold for months, and there is a suspicion that they actually do not report all the buying. So they actually buy more what is officially reported. Then the geopolitical uncertainty, the wars are still going on. There is a lot of uncertainty in the U.S.A., what will happen with the trade tariffs and so on. So that has supported gold during '25. And then also Fed interest rate cuts. Historically, if you look last 25 years, when Fed starts to cut the interest rates, then that affects the gold price positively, and that's something that is yet to come in full scale. The gold price exceeded $3,000 per ounce first time in March '25. And then the average during January-June when -- where the results are based on was $3,072. Currently, we are -- the gold is trading at $3,350 -- around $3,350. So it's on a higher level than during the January-June time period. If you look at the exploration and a little bit history, we have been very successfully increasing the resource base. So this means how much gold we know there is in the ground in the Karelian Gold Line. And currently, the resource base is approximately 0.5 million ounces. It has increased by 148% in the last 2 years. And looking at this H1 '25, by far, the biggest item in exploration was the Ukko discovery. And the history here is that we -- early this year, we published a release that we analyzed some outcrop samples in the area like there is this big iron formation, and we went to the outcrops and took some samples and found out that there is gold. What makes this unique in Karelian Gold Line is the fact that it's a banded iron formation type of deposit. These are very common in the world. So a lot of the big gold deposits in the world are similar BIF deposits. However, we have never found anything like this in the Karelian Gold Line. And after we received the data from these outcrop samples, we made a decision that we will start drilling in the area immediately in April when the exploration activities were started. And the results were fantastic. So we got really excellent results from the drilling. And therefore, this has become our #1 target for '25. And what's really worth noting here is the fact like when you look at the picture in the slide, you can actually see as this gold is connected with the iron formation and iron, you can see in the magnetic measurements or electromagnetic measurements. And in this map, you can see that the iron formation seems to be extremely large, like this scale is actually 7 kilometers long, and it's a V-shape. So there is 2 different sections. And currently, we are just drilling at the northern tip of this formation and the results have been excellent. So there is a lot of potential this to be significant deposit in a Finland scale, but also world scale, and this is something that we plan to define in the coming months and years. Still would like to emphasize, it's early days. We only started like the first result got out on the 27th of May. So currently, we are just looking at different options, what is the deposit like, and we are also looking at the boundaries where it could be and trying to understand what we have actually found. So -- but every day, we are learning more and more, and it's -- our geological team is extremely excited that this is something that we really want to pursue and find out what we have found. Currently, we are taking more outcrop samples there, because this is very significant areas. So we are taking more outcrop samples. We are doing base of till sampling. We are doing electromagnetic measurements to further define how the formation is underground. And then we are doing exploration drilling. So we have -- we are continuously doing drilling in the area. So it's very exciting times. U.S.A., we are still -- U.S.A. is not part of our strategy, and we still have the 7 deposits in the U.S.A., 5 in Idaho, 2 in Montana. And we are negotiating -- we have been negotiating for a long time, but there is no solution as yet. What has become evident during the negotiations is that we want to find a solution for Idaho. That's the primary target just mainly because our current operating expenditure in the U.S.A. is approximately EUR 0.7 million and 85%, 90% of that expenditure comes from Idaho. So we want to find a solution for the Idaho so that it improves our financial result on a long-term. Sustainability, that's the backbone of the business, and that's the way we improve the company as a whole. We have ambitious sustainability program. It has 6 main points. Climate, we want to have fossil-free gold production by 2035. In Finland and for Finnish people, Finnish people love nature, they love lakes and saunas and things like that. And the most important thing is the water. So if there is any discharge waters, we want to ensure that those are clean. Biodiversity, very important that we know what kind of species there is in the area. We do continuous restoration of sites that we are not using. Personnel, it all starts from the personnel. So we want to ensure that the personnel are safe and they are also happy so that they like where they work because that makes the difference of well-performing companies. Community support, we want to be open and explain what we do, have a lot of information sessions, for example, tomorrow, we have an open house at Pampalo Mine. So we have people coming with buses and meeting myself and the team at Pampalo. So anybody who has free time tomorrow, welcome to join. And then the governance that we work in an ethical way and then all the employees know that what is the way -- what is the ethical way that if you have to choose or choose between different options in some kind of situations, then you know what's the right way to go. But now we are entering a new phase, and we have updated the strategy. And the reasons why we are entering a new phase is that we have built the foundation. We have built the foundation. We have increased the production significantly. We have increased the resource base. And now it's time to focus more to take those resources into production. So it means that we are focusing on permitting. We are focusing on technical and financial planning and ensuring that on a long-term, we will increase the production volumes, revenue, profitability significantly. We also want to incorporate critical mineral tungsten and then molybdenum into our strategic plans. And then the sustainability program implementation, it's good to have a program, but the key is to have an efficient execution and to ensure that, that gets done what we have in the program. So basically, we are using the experience that we have gained in the past 3 years to deliver results during the next phase. And our new strategy includes 5 key points. Pampalo is the center for production. We want to grow the production volumes, and we grow it through higher amount of gold resources. So through exploration. So we perform exploration, increase the resource base and that enables us to grow the production volumes. Then critical minerals, they are part of the -- as there are critical minerals in the Karelian Gold Line with the gold. So we want to also incorporate those into the plans. Financial stability. We want to separate us from junior mining companies who continuously look for funding. So I want to have a stable funding foundation. And sustainability, that's the way we improve our company as a whole. And we have new long-term targets and the targets are that we have 1.5 million to 2 million ounces of gold defined by 2030. If you compare today's situation, it's 0.5 million ounces, so it's 3x to 4x more. annual gold production to 70,000 to 100,000 ounces by around 2030. And if you compare that to last year figures, that was 14,300 ounces, so it's 5 to 7x higher. And then tungsten and molybdenum take those into production at the same time with a higher gold production and fossil-free gold production by 2035. And how do we achieve these targets? They are ambitious targets, but how do we achieve it? We want to scale like the production, it's always these 2 are linked. So we -- when we increase the gold resource, then we can make investment decision that there is, for example, 1 million ounces here, we can increase the production to 100,000 ounces, and we have 10 years production. And then during those 10 years, we can increase the resource base further, get more years or increase the production levels even further. So they go hand-in-hand so that we make exploration to increase the resource base and then increase the production to use those resources that we have defined. And if we look at the same graph that what has happened last 2 years, we have used this as a base and made an assumption that we -- when we drill 10,000 meters, we get approximately 100,000 ounces more gold resources. And that's based on the data on the last year's work that we have done in the exploration, and we don't see that there is a significant risk that this wouldn't continue for the next 10 years. We have so many targets in the Karelian Gold Line, and these targets are open to many directions. So we are confident we can increase the resource. And it's good to have a long-term target, then there could be different years. Some year, the effect in the resources could be higher, next year, a little bit lower. But on the long-term, we will achieve the target. And if we compare the current situation, 0.5 million ounces, then our plan is to simply drill 120,000 meters in the next 5 years. And based on this, the 10,000 meters, 100,000 ounces, that will result that we have a resource base of 1.5 million to 2 million ounces by 2030. And investment-wise, it means EUR 4 million to EUR 6 million per year for exploration. And then at the same time, we also want to investigate the tungsten and molybdenum option because they are very, very potential. In the first phase, these actions are focused on the Southern Gold Line area, but then we also have other areas that we are investigating. And larger resource enables us to increase the production volume. So that's the link between these 2 items. And currently, over half of our existing resource is in the Southern Gold Line, and that's the place that we are permitting and we are taking to production around 2030, and that will take the production to 70,000, 100,000 ounces. And how we see the long-term development is that last year, the 14,300 ounces, then we continuously increased the volumes and around 2029, we will be at 25,000, which is the current capacity of the mill without any significant investments. And then the Southern Gold Line will come to production and we increase it to 70,000, 100,000 ounces. And that's a nice increase, but our long-term goals are much further. So we want to also take other areas in production after the Southern Gold Line and increase it further from the 70,000, 100,000 level. The development plan, what we have is we started the permitting in January '24. So we did the nature values, and we started to do the environmental impact assessment program. The program is almost done. However, now with the Ukkolanvaara, we made a decision that we will finalize it so that all the items of Ukkolanvaara are included. So we will launch it late this year. So there is a few months delay, but then the Ukkolanvaara area will be included because in the original plans, there was only the northern section of Ukkolanvaara included but now we have extended the area so that it includes the whole V-shape because there is a lot of potential in the area. And then after the program, then it continues, we will continue with the pre-feasibility study, then the environmental impact assessment report, environmental permit, and we estimate to get the permit during the second half of '28, followed with the investment decision and financing negotiations and then take the area into production around 2030. And that will bring the significant change, 5x to 7x compared to last year's figures. But we shouldn't forget the Northern Gold Line because there is a very potential deposit that we found last year called Kartitsa. We got fantastic results. There is no resource as yet. And that's something that we will drill also late this year to have a resources at Kartitsa because there is a lot of potential. And on a wider scale, there is kilometers and kilometers of potential area that there is -- that we see that there is high gold potential. And critical minerals, they are part of the strategy. Tungsten is very important. It's currently 80% of world's tungsten comes from China. It's 1 of the 14 critical minerals defined by European Union. And it's something that is used in the defense industry. It's used in the drilling, for example, in applications where you need extreme hardness. And this we can also find in the Southern Gold Line, and it's near Kuittila in the same area that we are permitting. So Kuittila and Ukkolanvaara, they are part of the same permitting area. And it's very interesting. We estimate that Kuittila area could supply 0.5% to 2.5% of global supply. And we have only drilled a small area, but we have done base of till sampling and those results, they indicate that there is tungsten in a wider area. And previously, if you think about 1 year ago, 2 years ago, when we hit the tungsten on molybdenum, we sort of moved away because we were only looking for gold. But now when we also have tungsten and molybdenum in our radar, then if we hit significant areas with tungsten, then we will continue in the area and also define that how much tungsten there is in the area. So it's very interesting. And we are thinking about applying for the critical mineral producer status. We haven't done it yet. Currently, the application window is not existing, but it will open soon, and then we will lodge the application. But it doesn't matter if we get the approval or not, we will proceed with tungsten. We see that as a potential way to add revenue, also financing options, and it's very important for European Union to have tungsten and molybdenum supplies. Exploration activities during H2. There has been some changes, and those are mainly due to the Ukko discovery as we started in April, and we started with Ukko and our initial plan was only do drilling for 3, 4 months -- 3, 4 weeks. But as we got so excellent results, we are still there. And we haven't done other areas at all. So we are now updating the plan, and we are scaling up, and we are happy to do so. We are doubling the drilling volume. It will start in 5 weeks' time. So one of the machines will stay at Ukkolanvaara and the other one will continue with the other deposits. And what makes it really interesting now when we have first time discovered that there is gold associated with these kind of iron formations. We have other significant size iron formations within Karelian Gold Line within our exploration permit areas. So we want to also test if there is gold also associated with the other BIF deposits. But time will tell. It will take some time. Now we have to first start with resource drilling and the other one will stay in Ukko and let's see what happens. But that's exciting times. And the other -- the second drill rig will stay at least until end of '25, and then we will review what we do next year. And of course, it depends also on the results that we get, but exciting times ahead. And now I will pass the floor to Minni.

Thanks. Financial stability is one of the long-term targets. So let's move on and see how we did in H1. Here, we can see the group financials for H1 '25. The revenue increased by 64% compared to last year and was EUR 21.5 million. Group's EBITDA was EUR 7.7 million and the net result, EUR 2.3 million. Increase in production and the high gold price are the main reasons behind the increase in revenue. Operating expenses have remained moderate. The mining mineral tax was around EUR 0.2 million in H1. And I have to say that we are working together with the Finnish Mining Association and other companies to prevent the tax increase that is planned for the mining mineral tax and the electricity tax. In H1, we had one-time costs related to the new financing advisory and legal fees, especially in the U.S.A., around EUR 0.5 million. In addition, losses related to USD/euro translation for the U.S.A. balance sheet affected the net result by EUR 1.8 million. EBITDA, operating result and net result, all positive and significantly higher than last year. Here, we can see the financials divided into reporting segments. Pampalo's EBITDA, amazing 47% and operating result, 40% of the revenue. The cash cost has remained at a low level. And at the same time, the gold price has been 38% higher than last year on average. And we estimate that the gold price is staying high also in H2. The new financing arrangement was agreed in April. It includes a loan up to EUR 8 million and account limit up to EUR 3 million and other guarantees up to EUR 1 million that can be used for hedging, for example. And at the end of June, the cash balance was EUR 5.5 million and the drawdown of the loan was EUR 3 million. I think we did great. Do you agree?

We did. Yes, absolutely. Very happy about it. Now it's time for questions-and-answers, I think.

Yes, it's time for questions-and-answers. We have had, again, a lot of questions here in the chat. And -- let's start with a question concerning our impressive business results during the first half of this year. What is the secret behind Endomines' development? How has such a turnaround been possible actually?

Yes, that's a good question. I think it always starts with people and strategy that we have -- like when in '22, when we started to do the change, we redefined the strategy so that there are clear targets and then you need good people to execute and deliver the targets. So we have been very successful in recruiting new people in the company. And I'm very pleased with the team that we have, and they have really delivered the results that we can now present with a smile. But then also, I think I have to thank our owners because if you think about the situation where we started in '22, I was just looking today before I came here, I was looking that in H1 '22, our EBIT was minus EUR 10 million, now it's EUR 5.4 million positive, and the revenue has more than -- increased by more than 3x. And this kind of change would never would have never been possible without our owners and their support because they have supported the growth journey, and we have had financing available. Now we don't need it anymore, but it's to make the turnaround, it was critical that especially in '22, '23, even '24 that we had the financing available and we could do the change because it's not very common that companies making a lot of loss start to invest, and that was the turnaround.

Okay. Then we have questions related to Ukkolanvaara. Can you provide more details about the plans for exploring the Ukko deposit during the rest of the year?

Yes, that's very interesting, and it has been very fascinating to watch our exploration team to work with this Ukko deposit. And when we drilled the first hole and we got these magnificent results, first, we thought, well, now we just drill anywhere and it's going to be magnificent everywhere. But it was more complicated. So then we started to do -- take more samples to electromagnetic measurements and so on. And now we are starting to understand what we have found. And the electromagnetic measurements, they play a key role because now we have a theory that we can see the areas where there is gold using certain technologies, and then we can aim the drilling in those areas, and that's something that we are now working on. During H2, we will take more outcrop samples. So we will simply go to the places where you can see the iron formation and take samples and analyze those because that was the way we found it initially. Then we will do base of till sampling. So we will go with the machine, we will go through the soil, take samples from the top of the bedrock and analyze those. We have now taken, I think, 400 samples approximately, and the machine is still there. So we will get results fairly soon. And then there is also, of course, the drilling. And so the drilling is once we identify that these locations are the most potential, then we will target the drilling there. I think the key here is like we are very excited about the Ukko and the potential it can offer. And it's based on these maps that you can -- I was showing earlier that it's -- the iron formation is several kilometers long. And that's something that if the gold is associated, it's yet to be proven. But if it's associated, then there is a lot of ounces.

We have a question about the drill holes. First drill hole from Ukkolanvaara showed great potential. Were you happy with the results from the other drill holes?

I was happy with -- there were some drill holes that had lower results. But we had -- like I think in the first -- or the first 2 releases, we published results from 9 drill holes. And I think there were 4 or 5 that had really good results. Some of them did not. But that's normal. That's normal. Like we -- when you go to a new area, you also test the boundaries. So we were drilling from different locations just to see that where the formation is, like we can see it in the magnetic maps, but just to know exactly. And usually, what happens here is that the gold is associated with the iron formation in a shear zone. So we were sort of testing that different theories. And we are learning every day that how we should plan our drilling campaigns. And we believe there is great potential here.

What about investments? Should we expect exploration investments to grow from previously indicated EUR 4 million to EUR 6 million per year level due to Ukkolanvaara's results?

Yes. No, just -- I think my last slide was saying that we doubled -- we are now doubling the exploration capacity or the drilling capacity, and we are also doubling the team. So we are currently recruiting a lot of people and very happy to see that we get a lot of applications there. Other people are excited about our results as well. And yes, it is possible. We have so exciting targets. And it is like a snowball. I have said it before, but it's like a snowball that when you start doing the exploration and you do the sampling and you start to get results, there are more and more targets. And it's a snowball and it's -- the main difficulty is to choose where you focus your activities. And there -- well, one option is not to make so much choice, just double the activities, and that's what we are doing now during this autumn and winter.