Endomines Finland Oyj (PAMPALO) Earnings Call Transcript

Hello, everyone, and welcome to hear the exciting news concerning our U.S. assets. Thanks for joining us today. Here is Kari Vyhtinen, our CEO; and my name is Anni Turpeinen. I'm the Chief Communications Officer here at Endomines. And our topic today is the divestment of our Idaho assets, Friday, Deadwood and Buffalo Gulch. And the agenda for today is that we start by summarizing the facts of the transaction and by explaining why we wanted to sell these assets. After that, we'll move on to the details of a deal structure and payment milestones. And of course, we want to explain how this transaction is beneficial for Endomines. And after that, we'll share a few words about the gold potential in Montana. And at the end of the presentation, we will have the questions-and-answer session where we will answer to your questions. So please feel free to send your questions via chat during the presentation, and we will go them through afterwards, right after Kari's part. And please type your questions in English. So thanks again for joining us. Let's get started, Kari. Go ahead.

Thank you, Anni. Extremely pleased to be here today to explain the recent transaction that was signed today. And to give you the summary of the transaction, we sold 3 of the assets we have in Idaho, Friday, Deadwood and Buffalo Gulch. And the payment was AUD 18.5 million in cash, which we will use to develop Karelian Gold Line in Finland. And then 9.95% ownership of the parent company. That offers potential upside as we strongly believe that the buyer is somebody that can actually develop the assets into a completely different category. There is also a minimum value that during when the shares are issued, the minimum value of shares will be AUD 1.5 million. The operating cost saving is significant. We have been taking good care of the assets. So divesting the assets will save the company approximately EUR 0.5 million per annum, plus any possible legal and advisory fees as we have been negotiating on the deal quite a while. So there has been a significant amount of extraordinary expenses. We will still have control of 2 gold assets in Idaho and also 2 assets in Montana. So something to look forward to also in the future. So why did we sell the assets? If you go back to the -- what we are doing, so Endomines is a gold mining company and gold exploration company, and we are producing gold in Finland. So our operations, they are in a place called Pampalo in a center of Karelian Gold Line. And this year, the guidance is 16,000 to 22,000 ounces of gold production. And then we are doing a lot of exploration in Southern Gold Line and Northern Gold Line. The Karelian Gold Line is approximately 40 kilometers long, Archean greenstone belt with significant gold mining and gold exploration potential, very similar to, for example, Abitibi in Canada, Kalgoorlie in Australia with Witwatersrand in South Africa. There is also critical minerals, tungsten and molybdenum in the Southern Gold Line. We are permitting the Southern Gold Line to increase the production to closer to 100,000 ounces around 2030. And our strategy, the strategy focus growth in Finland. We are a Finnish company. We are listed in NASDAQ Helsinki. The ownership is very Finnish. So the strategy focus is on Finland. We have in the strategy, Pampalo is the center for production. That's where we aim to produce the gold. Then we focus on exploration, and that drives on the long-term growth. So increasing resources enables us to increase the production volumes. Critical minerals is part of the strategy. Tungsten, very important used in the defense industry as well. There is a lot of interest on tungsten. It's available in Karelian Gold Line. Financial stability, we want to separate us from junior mining companies that continuously raise funding. Like our financial situation is solid. We have a strong operational cash flow, and we are really looking long-term development activities. Sustainability is the backbone of the business. You have to do things right and take care of the environmental side, take care of the people, take care of the people who live close by, our partners and just work in an ethical way. If you think about our long-term targets, so our long-term targets are that we increased the gold resource to 1.5 million to 2 million ounces by the end of 2030. It's currently at 0.5 million. So it requires exploration during the 5 years before 2030. And we -- it has been proceeding exactly as we have planned. Then the other target is to increase the gold production to 70,000 to 100,000 ounces by around 2030. And at the same time, we will also start producing tungsten and molybdenum. And this will be done by taking the Southern Gold Line into production. And then fossil-free gold production by 2035. So as you can see, the targets are very Finland focused. And therefore, we thought the U.S.A. is not in our strategic focus right now. So it was good time to divest the assets and get more financial resources to develop the Karelian Gold Line to achieve our long-term targets. If we go back and look at the assets that we had, we have -- there was 7 assets in total, 5 in Idaho, 2 in Montana and the assets that were sold were Friday, Deadwood and Buffalo Gulch. What is common with these assets, they are all located near a small mining town Elk City. So they are very close to each other. There is only a few kilometers distance between the assets. And there is a lot of gold potential in the area. So we are really looking forward to seeing what the new owners can do with the assets. What is still left with the Endomines is Rescue and Kimberly. They are located near a place called Warren, so a little bit further away. High-grade gold assets, fairly small scale and so on. Then Montana, very interesting. There is 2 assets, U.S. Grant and Kearsarge. And with Kearsarge, we have an option to buy. U.S. Grant, we own fully. And those are very interesting, and I will come back to those assets a little bit later in the presentation as we see that there is a significant potential there. The deal structure and the benefits for Endomines. So we sell 3 assets, Friday, Deadwood and Buffalo Gulch. The buyer is Yellowstone Mining, Australian company through its wholly owned subsidiary, Elk Range Minerals, which is a company based in Idaho. And so the owners and the management are very there from Australia. The deal includes machines and equipment. This is mainly related to Friday, where we actually have a lot of machines and equipment, which are part of the deal. The closing is done -- is anticipated to be done within 90 days. So it will go forward quickly. And the price is AUD 20 million paid in cash and shares. And the main benefits for us are that we get more financial resources, which we can use to develop Finland and to achieve our strategic targets. But there is also upside potential through the ownership on the parent company when the assets get developed. So there is AUD 18.5 million cash and then 9.95% ownership of the parent company, the Australian parent company. And there is a minimum value of AUD 1.5 million when the shares are issued. There is very strong management in the buyer's company, and that really supports the development. When we were negotiating and looking at the options, what we want to do, one of the key factors here was that we actually -- we truly believe in the Yellowstone's capabilities and the Elk Range Minerals capabilities to develop the assets. That gives us potential upside. We will save in the operating cost side, EUR 0.5 million per year. We have been keeping the assets in very good conditions. We have a few people. Most of the people will be transferred to the buyer at closing. And then one important factor is also the fact that we have been spending a lot of time in the U.S. and now we can focus -- we can really use our resources to focus on Finland, to focus on exploration activities in Finland and production growth in Finland and other activities. So we are very happy about it that we can actually now fully focus to Finland. These 3 assets have been the ones that have required the most attention because there is people working and there is a mine that we have to keep in a good condition and so on. So as a summary, the transaction increases financial resources for the company, lowers our operating cost and offers potential upside via ownership of the Australian parent. The payment milestones is that at closing, we will get AUD 3.5 million. The second milestone is the shares issue, which is anticipated to happen within 12 months. If it doesn't happen in 12 months, we will get additional AUD 1.5 million in cash. Then the third milestone is AUD 6 million, and that's going to happen within 2 years. So there is a definition that if the resource grows to 0.5 million ounces, then it's paid or within 2 years. And then the next milestone within 4 years and the last one within 5 years or start of the commercial production. With the milestones 3 and 4, we can also choose to take the payment in shares, but it's Endomines option. So we can select either cash or shares. And that's something that we can evaluate once we see how the assets are developed. But currently, we see that we need financial resources to develop Finland. The buyers team is extremely strong. And usually, I wouldn't even show this kind of slide here, but just to emphasize that there is true upside potential, very, very strong team, a lot of experience, Campbell, who is the Chairman, he is working as a CEO as Bellevue Gold, and he has done a magnificent job in transferring the company and a lot of experience from other projects as well. Rafael is the CEO of Viridis Mining and Metals and has a lot of experience in developing projects from greenfield to production. Frazer, very experienced geologist, a lot of experience also in the U.S.A. So knows exactly how to work in the U.S.A. And then Steve, he is working for the Bell Potter Securities, and he and his team just last year, they have raised AUD 3.5 billion in equity financing. So he knows how to do the financing. So big, big important piece in the puzzle. But then if we look at the Montana assets, so -- we see that it's a region of untapped gold opportunity. And there is historical gold resources. There is also silver. As we know, the market is now very strong. So gold market is very strong. The silver market is also strong. And there is a lot of speculation that the silver -- the price of silver and the price of gold will further increase in the future. So the outlook is seems to be very strong. What we are planning to do is now actually to make an external assessment. So we will use external advisories to evaluate the assets so that we can evaluate what would be the best way forward. So we are not going to do anything in the near future. So it will take some time before the assessment is completed. And after the assessment, we will decide what to do. So we will have a sort of break here, and we will not look for any further divestment in the next few months or even longer time. Let's see how it goes. And if you look at the assets, there is 2 in Montana, U.S. Grant, historical mine. So it has been in production. There is also a mill which needs some work to get it running, but it's there. It has a capacity of 150 tonnes a day. And we have the small miners exemption permit valid, which we actually got in '24. So we did some small-scale permitting in '24 and the permit is valid. Then Kearsarge, very high potential as a whole. Currently, there is a resource, which is over 300,000 ounces at 3 grams per tonne. But the latest drill hole, for example, the latest exploration activities were done by Transatlantic in 2019. And in those results, they got 20 meters of 8.64 grams per tonne of gold. So very, very significant intersection. And how we see it like back in the days when the gold price was below $2,000, for example, there was always thinking that this would be an underground small-scale operation. However, with the current gold market, we see that there is potential for large-scale open pit, significant volume. So this is something that we will think how we could increase the value, increase the value before we make any decisions. And combined, this is a very nice package as they are located only 8 kilometers apart. So they can be developed together. And if you look also U.S. Grant, there is -- the grade in the deposit is very significant and the silver is also very significant, over 400 grams per tonne silver in the deposit. So it really looks potential. So this is something that we want to further evaluate and not to make any too fast decisions. So what is the best way forward to assess the potential and maybe increase the value before we make a decision. So that's in short, the presentation and happy to answer any questions there might be.

Yes. We do have a couple of questions here in the chat. Let's start with the question concerning the future. Endomines is still holding rights to 2 assets in Idaho and 2 in Montana. What are your plans from this forward with those assets, especially those in Idaho? What are you going to do with them?

Well, with Idaho, we are still looking to continue the sort of looking for the partnership type of arrangement. However, the situation now is very good because we had one of the key drivers to get this transaction done was the fact that we were spending EUR 700,000 per annum on the operational cost side. But with these 2 assets and the 2 assets in Montana, the cost level is very low. So we are talking about approximately EUR 200,000 per annum anymore. So we are not in a hurry. So we will see and look for the options and then make a decision what would be the best way forward. With Idaho, it's possible also to divest it or have a similar structure what we did now with Montana we really want to take the time to evaluate the potential and see if there is any ways to increase the value before we make concrete deals.

Let's continue with Montana. Could you tell more about it and why Montana hasn't been considered before?

It was actually back in the days before the strategy was changed in '22 when there was -- Endomines had a strategy that Finland was small and then the growth comes from the U.S.A. And there, in that plan, there was different steps and the steps were that the first one is Friday in Idaho, and it increases the production a little bit. But then the company goes to Montana and those steps were a lot bigger. So it has been in the plans. But we -- like if we think about the journey here from '22 to today, the company has been growing very aggressively. And I personally think that one of the success factors why we have been so successful in growing the company and getting things done in Finland is the focus that we have focused really into one area. So our team is focused to develop Finland. The financial resources are focused to develop Finland. And that's why we haven't really spent time to look at those assets more thoroughly. Now the company is bigger. We have more financial resources, so we can afford to spend a little bit to actually assess to make some plans how those could be developed before we make any further decisions.

Okay. What about potential buyers? Have you had talks with potential buyers regarding the Montana assets?

Well, there has been a lot of interest, but currently, we are not talking as we want to assess it ourselves. So there has been a lot of interest. And I just spent some days today and last week in London, and there is interest. There is interest for sure, but we are just holding back, and we want to do the assessment before we make decisions what would be the best step forward.

Okay. Now we move on to the payment milestones. What would make you to choose payment in shares for milestones 3 and 4?