KIRIL MUGERMAN, 2019-11 SPEECH

KIRIL MUGERMAN
2019-11 SPEECH TRANSCRIPT

https://www.youtube.com/watch?v=0b4FZbpDZxg

“Rare Earths, Refining, Recycling” Kiril Mugerman at Cambridge House in San Francisco, November 2019.



Going from figuring out what gold is doing next, we’ll go to rare earth elements. We’ve been hearing a lot from the US government, Canadian government, and others all over the world what is happening in this sector. It’s very strategic. It’s very important for people to understand that this sector is not dead. If anything, it’s more alive than it ever has been. We learned a lot of lessons over the last ten years on what to do and what not to do in that sector.

What you will see here is that we went from being a mining company ten years ago to focusing today on the refining and recycling of rare earths. Why that’s very important is because going and building a mine is not so easy. We are not that far from the only US mine that was built, which cost $1.7 billion dollars and then went bankrupt. How do we avoid that risk of putting hundreds of millions dollars into the ground and then being fully dependent on the Chinese government not influencing the pricing. Since we only have ten minutes — oh, and now it’s down to nine — I’ll quickly go through some of the slides. Forward-looking statement as usual. What you see on the left is one thing we produce: neodymium oxide. That’s the main oxide of rare earth elements that go into building magnets.

The neodymium metal goes into magnet, and the magnet goes into motors — that’s the main driver of this entire sector. If we go about what GeoMegA is today, then we have a rare-earth processing technology developed by our private subsidiary INNORD and we also have Montviel, which is a 43-101 large resource of a carbonatite-bastnasite. It is the largest in Canada. Why are we here? Really, it’s because of the ISR technology that we developed over the last five years. Most importantly, you need to understand that this technology is clean and it is sustainable because it gives us an opportunity to produce rare earth elements without having to ship all our material to China, where we have no control over how they are processing it and what kind of pollution it creates.



The most important thing that I want you to see there is the 95% recovery of main reagents. That’s how much we recover and that’s why we can be economic with China. Capex is low. We’ll discuss that in a second, but first the rare earth pricing. I want to show a little bit on the pricing that we see in the market today. What is the opportunity? The opportunity is going after this high-grade material, which is in the magnets that we’ve been making for years with rare earth elements. With high-grade material like that, you need very small volumes to generate higher revenues and high margins.

The objective is to sell it all into the European market. After this, we’d love to sell into the US but the US abandoned any kind of production of magnets in the ’90s. Now they’re slowly trying to attract it back. Here’s a quick summary of our model. What we are going to be processing is 1.5 tons per day of magnet waste. What is magnet waste? It gets produced from grinding down the magnets down to final shape and, as well, the end of life material. It’s all running at 30% rare earth elements. It doesn’t matter if I’m getting a magnet from China, from the US, from Canada or from wherever — it’s always going to be running at approximately 30%. It always has those four elements: NdPrDyTb. I don’t have to deal with any of the cheap elements, like lanthanum and ceriums.

Low capex, $2.6 million dollars, to process 1.5 tons per day over eight hours. That’s our starting point. That, with an operating cost of $3.00 per kilogram of the total rare earths, can generate $10 million dollars. On a $2.6M investment. The profit margin is 20%. If I drive it up to full 24 hour operation, then that gives me 4.5 tons per day. Do the math, with that you can generate $30 million dollars of sales with $6-8 million of profits on a $2.6 million dollar investment. That’s starting to sound very interesting. Now, let’s see where we are. This year we’ve completed the pilot plant work, the optimization, equity financing with a strategic investor, and the FEED study which is an engineering study that has been published just a month ago. Now, we are working on selecting the location in Quebec then the financing, the debt, and the government financing that is about to be announced very shortly as well. By the end of this fourth quarter, we start the engineering, procurement, and construction phase with offtakes to be announced probably at the beginning of next year. Plant commissioning in 2020. If you want to invest in rare earths and are looking to invest in a company that will have cash flow, this is probably the only company that you can look at investing in on the public markets. Feed material — I just told you there are two main ways of getting this. The primary is from magnets. When you make a magnet, you make it into a block and then you have to cut it. You cut it into sections and then into the final form of that magnet. You also have a lot of end-of-life material. Where is this end-of-life coming from? It’s coming from turbines, it’s coming from electric motors, and many different applications including your cell phone. That is the circular economy of the rare earth industry that exists today in China, but doesn’t exist outside of China. Nobody is talking about it. People are starting to talk about it because we started talking about it five years ago! Today, we are slowly starting to see the US government, the Canadian government, and the European Union are all waking up to the reality that you do need to go after the circular economy behind rare earth elements. At every stage from the day that you produce oxide and send that to the metal manufacturer, the metal manufacturer produces waste. That waste goes back to us. The metal then goes to the magnet manufacturer who makes those special shapes for the different motors and that produces more waste. That waste goes back to us. Then the final product goes to the manufacturer, whether it’s cellphones, wind turbines, or electric motors. And then there is disposal. At the end of the disposal stage, there is still a collection and that collection point is missing today because nobody is there to buy the magnet waste. We are the first ones to do it and that’s why we are going to set up this full closed-cycle within North America and pretty much everywhere outside of China. We already have agreements, although I won’t get into the details of that now, with European companies and US companies.

We are getting end-of-life material collected today. We are part of a study with a large TV manufacturer to collect magnets from their motors. We have already set up the sales agreement with a Singapore-based group so that all the oxides that we’ll be producing will either be going to Europe or going through them to sell in Asia. More than that, I want you to understand where is that feed? That feed today — you have 160,000 tons of magnet that were produced in 2018. On average, to make a magnet you have to produce waste. That’s 15 to 30% waste for 24 to 48 thousand tons. The electric vehicle uses, on average, 3 kilograms of magnet. Times 2 million electric vehicles last year for 6,000 tons — that’s a lot of material to start getting collected every year. Wind power, which is the biggest driver today of the magnet consumption, is important. For 3 megawatts, you use 2 tons of magnet. See the numbers there showing how much turbines are consuming magnets. And the growth per year? More importantly is the disassembly — whatever goes gets installed today has to be disassembled in the future. What does it mean for this industry? I’m starting with a small plant of 1.5 tons per day. That’s $10 million in sales. 4.5 tons per day follows, probably within the first year after that and gives $30 million in sales. Put the second plant in a location like Japan where they are the second largest manufacturer after China — that’s $60 million in sales on not even $6 million of investments. Really, I’m still a fraction of the potential market. The actual potential market is the primary waste. See the primary waste upper limit and the end of life. That’s a $1.1 billion dollar industry that is pretty much fully dominated again by who? By China because it’s all within China. What are we expecting in 2030? Even more. That is the time to be looking at rare earths production, but through refining. What’s the next future for us? This technology starts with magnets, but there are other feeds that are using rare earth elements today which are not being recycled because nobody has the technology! We are looking to apply ISR to other rare earth feeds. On top of that, we are looking to other material — strategic or critical materials which are not being recycled today or not being properly refined.

On top of this, we are looking to then set up the facility to process concentrates from other mining companies who want to put a mine into production. That way, they have another option — not to only send it to China, but they can send it to us as well. A quick summary of the rare earth sector — those are the four elements that go into the magnets. The bottleneck is the refining capacity in China. The usages are roughly well spread between production and demand, but the most important thing is the permanent magnet sector, which is 25-30% of the usage, represents 80% of the value of the entire rare earth sector. That’s why we need to focus on that sector — the magnets. The driver of the industry is the magnet. You can see the demand growth from automotive, but at the same time we see all the other sectors continuing to grow in terms of demand for magnets. Why are we here? Because of China. We don’t want to see that spike in prices again. Actually that spike is really bad for demand. We are trying to be in production today with a very innovative solution in terms of processing rare earths.

Neodymium pricing — everything is very flat and stable right now, which is much better. We see demand may be returning to the market because the prices are much more stable. Management, I won’t get into the that slide right now. Share structure — you can see the performance of the company after five years of doing R&D and hitting all the milestones, we are clearly succeeding. We are now going towards the final stages of the financing with the Quebec government, with the Canadian government, and going to production for first cash flow coming out next year. Thank you very much.

CAMBRIDGE HOUSE

Please study our 2019-11 speech at Cambridge House for details on our activities. “Here’s a quick summary of our model. What we are going to be processing is 1.5 tons per day of magnet waste. What is magnet waste? It gets produced from grinding down the magnets down to final shape and, as well, the end of life material.