Good morning, everyone, and thank you for being with us for this half year result presentation. I know it's a busy period with a lot of result release from many companies the same day. Thank you for being with us. Clearly, after a very good performance and record financial results in 2022, we have experienced a much more challenging first semester in 2023. The first reason for this difficult semester, and by far the main one, has been the deteriorated market environment, with very sharp reduction in our commodity prices.
As you can see on this slide, we have experienced a significant drop, mainly in our manganese alloys businesses, with minus almost - 50% on our price, - 23% on the manganese ore price index, and more than 30% for the ferronickel, just to name the main ones. Overall, the price impact for the semester has been higher than EUR 720 million, which is huge. If we take into account the high level of inflation that we have experienced in our activities, and still high cost of some key inputs, like the reductant, the overall external impact on our accounts has been as high as EUR 750 million, and represent about 90% of the drop of our EBITDA.
The second reason for this difficult start of the year has been the significant logistical incident that we have experienced in our manganese activity in Gabon. It started with a big landslide end of 2022, end of December, resulting from a major seism of more than 7.5 on the Richter scale. It considerably damaged the track and stopped the transport for more than one month. It was followed by a rupture of civil engineer structure bridge at the beginning of April, which again stopped the transport for several weeks.
This, not only impacted our ore deliveries, but it also reduced our production, since the mine had to be stopped during several weeks due to the lack of fuel and parts necessary to the mining activity. The volume of manganese ore produced as is down 27% to EUR 2.6 million, in the first semester of this year, which is obviously a significant impact. Those incidents are now behind us. When we look at the June and July result, they are back to the best historical levels in term of both production and transport. Manganese alloy has also encountered a challenging semester, with some planned relining.
We had two relining planned this year, an adjustment of our production due to the poor market conditions and poor market demand, especially in Europe and in U.S. Fortunately, our Weda Bay mine continued to perform very well and continued its expansion with a growth of volume of 80% to more than 16 million during the semester. Overall, mixed performance in H1, leading to disappointing results that you can see on this slide. Indeed, our adjusted EBITDA is significantly down to EUR 339 million. Our free cash flow generation has been negative at EUR -120 million.
Due to this negative free cash flow and the payment of the dividend in H1, our net debt has increased to EUR 712 million with an adjusted leverage of 0.7. Of course, in front of this challenging environment, we have reacted rapidly, and we have implemented action plans to reduce our costs and save cash. Nicolas, our CFO, will explain that later. We are also reviewing our production plans for the 2nd semester to make sure that we optimize our production with higher grade and mix in addition to improved volumes. In this challenging environment, we have continued to implement steadily our demanding CSR roadmap, with further key achievement that you can see on this slide.
We are proud to communicate our safety results. Safety is a key value at Eramet and a number one priority. We continue to progress. Our FR2 has reached the level of one during the semester, and position us among the top three performer of the ICMM ranking. ICMM rank all the mining and metal industry in the world, and we are at the level of the top three performer, so I think we should be proud of that. We have also created the Eramet Global Forum.
We are the first mining company in the world to set up a transnational social dialogue body to be able to negotiate and also sign agreement at a world level on things like quality of life, social protection, and other things at different at the level of all our countries. We have also launched the first independent assessment of our mines according to the IRMA standards. You know that IRMA is the highest CSR standard in the mining industry for responsible mining. We are one of the first mining company committed to have all its sites certified by IRMA, and the first independent assessment has been launched in Senegal.
We continue to contribute heavily to the regions in which we operate. You see the economic contribution that we have in those regions and almost 130,000 people are benefiting from the group's social programs in those countries. Many key milestones in this journey. These are just examples, but we continue to lead the pack in term of CSR. Also, in this despite this challenging environment, we are staying the course and progressing on our strategic roadmap. Our first and main priority is the development of our great lithium deposit in Argentina.
The construction of the phase I of the project is going well and should start production as planned in Q2 next year. Thanks to the good market dynamic and the first quartile cost positioning of these assets, we are also accelerating the phase II, as we announced earlier this year. We should be able to make the Final Investment Decision of a first tranche of 30,000 tons of this phase II during the second semester of this year. We have also secured additional financing for these projects with an advance on sale of lithium carbonate of $400 million from Glencore, as announced this morning. Regarding our nickel cobalt HPAL project in Indonesia, we are still working on the best execution model and financing strategy.
We will only make our decision when these topics are satisfactorily finalized, which could take a bit longer. That's why we may postpone the FID to 2024. Regarding our battery recycling project, we have finalized the pre-feasibility study. We are now successfully moving to the next step, feasibility study. The pilot plant is being finalized and should start in September. Also, it's important, we continue to build a portfolio of opportunities in our key strategic markets through exploration and business development in two main areas: lithium brines, mainly in Chile, and nickel limonite in Indonesia.
In Indonesia, we have recently formed a consortium, together with a local provider of green energy and two Western OEMs, in order to apply for new exploration licenses. Finally, as you already know, the group has finalized during the semester the divestment of its non-core activities with the closing of both the Aubert & Duval and the Erasteel divestment. Now, I will hand over to Nicolas for the financial performance and the operational performance. Thanks, Nicolas.
Thank you, Christel. Good morning, everyone. Indeed, I will now provide a bit more details about our financial performance and as well as operating performance in the first half. Starting with some key numbers, I want to detail them because most of them have already been mentioned by Christel. A couple of them, I would like to highlight. The first one is a positive net income group share at EUR 98 million, and I will come back in more details later on. The other one is the level of leverage, adjusted leverage, which is at 0.7 at the end of June, and also with the gearing, which is at 33%.
You may remember that we are much, much, much higher level in, I would say couple of years ago, and even a year and a half ago. That's also something I will highlight a bit later on. How did we get to this picture of adjusted EBITDA in the first half? Divided by 3.5. As Christel was saying at the very beginning, the main driver by far is the price impact, leading to a negative external factors of EUR 749 million.
This mean that 90% of the reduction of the performance was coming from this significantly reducing selling prices, comparing, of course, to a record level where they were at the beginning of last year. This is by far the big driver. Just to complete on this external factors, and Christel has also mentioned it at the beginning, EUR 43 million is also adding to that in terms of other input costs. I will explain the drivers and what we can expect in term of evolution on this area going forward. On top of that, indeed, we had this EUR 77 million of negative intrinsic performance.
Most of it, and even more than that, has been driven by the very unusual events we faced on the manganese ore business with the railway in January and in April. The same, I will come back to what it means going forward. That's really something and important to share with you this morning, that we are back to normal in this operation. That's why it's important to highlight and to isolate this impact in this variance. Two things now I would like to focus on, which are positive. As said, Weda Bay has been performing very well in the first half. It's been an additional EUR 63 million of performance year-over-year, so that's remains a very successful story.
The other thing I would like to highlight is the EUR 21 million of positive variance in terms of cost reduction and productivity. This is a start of actions we have implemented to cope with the evolution of the environment, that's something we are developing, accelerating, and the same, I will detail that a bit later on. I said, it's a really a strong news to share that despite a very challenging environment, that's really the result of having now Weda Bay as strong in our performance versus what it was a few years ago. Despite this very challenging environment in H1, we've been able to generate a positive net income close to EUR 100 million.
That's really a strong message explaining what is the new Eramet. Again, this number, let's keep in mind, it is before we will be in the lithium business, which is still expected to come in production at the beginning of next year. That's something we'll also detail a bit later on. Given the evolution of the environment, we have also ensured a strict control of our CapEx, because clearly, the generation of operating cash flow was not as strong by far as it was last year. We were still planning to invest in our activities, and we have decided to keep it under strict control. You will see what it means also for the full year.
We keep investing, and we believe it's important. We don't want to do what we could have done in the past, to stop and go on some projects. Here, that's why it's important to keep indeed the pace on the growth project. One of them is, of course, the lithium project, and the same we'll detail a bit more later on. The other one is to make sure that we sustain the significant growth we have generated on our manganese ore business, both at the mine and also on the railway, to make sure that we have the strong capability to support the growth we have generated there.
As you can see, actually, the manganese ore business between Comilog and SETRAG was 81 out of the EUR 85 million of gross CapEx we generated at the first half of this year. That's something which is to be highlighted in terms of strong control on our side. We have reduced in H1 our working capital, and I want to emphasize the fact that we are usually building up working capital in the first half. Being in the situation to reduce the working capital in absolute value in the first half is a strong performance. It was generating, as you can see, close to EUR 100 million of cash in this first half.
The receivables are clearly reducing because the selling prices are reducing. This being said, when we make the analysis in terms of days of sales outstanding, in terms of DSO, it's also reducing versus what it was at the end of June last year and what it was at the end of December. In terms of inventory, being in the situation to reduce the inventory value, both versus last year, in June and in December, is a strong signal in a context where we have not yet seen the reduction of our input costs. All of that, in terms of cash management is also adding, as I said before, to what we have started to do in terms of cost reduction.
We have detailed plans with all our operations. It's something we've done with them to improve EBITDA via different items, different toolbox we have in this kind of situation. Ensuring that we put strictly our fixed cost under control, that we also optimize the productivity of our operations, both in terms of volumes, in terms of mix, in terms of grades. I will give you a detailed example afterwards when we talk about manganese ore business.
Also, to continue optimize the production in situation in our smelting activities, especially, where we have demonstrated in the second half of last year that we are agile to adjust where it is necessary, when the market is not there, when the pricing is not there, to actually reduce the production and to optimize our energy, our energy cost. Again, I want to emphasize in H1, we have improved our productivity, and we have reduced our cost by EUR 21 million versus the same period of last year. With the plan we have developed, we are targeting at least twice this amount in H2. In terms of net debt evolution now. As Christel was saying at the beginning, we have increased the debt in the first half.
Clearly, I won't detail all these numbers, but a couple of items I want to provide. The first one is, when we looked at the CapEx earlier, as said, the reported CapEx number is EUR 356 million. Let's keep in mind that out of that, EUR 93 million is financed on the lithium project by our partner, Tsingshan. This mean that net cash, the effect on our debt in H1 2023, has been EUR 263 million. That's the first topic I wanted to highlight. Second topic, it's also confirming what we said during the finalization of the session of Aubert & Duval and Erasteel.
Between the negative cash flows of these two businesses and the proceeds of sales, it will be more or less neutral to our debt and to our free cash flow. This is demonstrated here, as you can see, because it's the two boxes in green, more on the right of the graph, which is showing that we have EUR -5 million altogether. Again, this is helping us to focus on the new Eramet, on the value creation activities that we have. Doing that with a neutral effect on our financials, on our debt, is actually something to be positively highlighted. We have been very active in the first half in improving our financial profile and especially our debt maturity.
One item was to extend and actually to expand the term loan which was expiring at the beginning of next year. Now it is with a maturity in 2028 for an overall amount of EUR 550 million. That's one. Second, we have issued a bond in May, and I will detail that afterwards, for a value of EUR 500 million expiring in 2028. Our RCF has also been extended by 1 year until June of 2028. Altogether, we have increased our maturity by almost 1 year. It was a bit more than 2 years at the end of last year. Now it's 3 years, this is already a very significant improvement. Our liquidity is also very strong.
It was the case at the end of 2022, if you remember, it was EUR 2.6 billion, and at the end of June, it is EUR 2.5 billion. This means that, despite the consumption of cash that I was detailing before, we have been able to maintain a very strong level of liquidity. This is before what we have announced yesterday, which is the signature of the prepayment on the lithium carbonate with Glencore, which will add another $400 million of liquidity that we can withdraw and will more than likely withdraw in the second half of this year. The deal itself is only positive for Eramet because it's providing money.
That's a co-marketing agreement that we have agreed with Glencore, which mean that we will also have access to the market, that's something which is very important and will be able to benefit with Glencore, of their knowledge of the markets altogether. The last piece I want to be really clear, it's an agreement which is indeed linked to volumes of lithium carbonate, but this will be sold at market price, so we have not locked in any fixed price. As said, it's only positive items for our financing, and it was confirming actually the value the players on the lithium market are seeing on our asset in Argentina, and that's something I we are really very happy to announce today.
As I said before, we have indeed issued the first time a sustainability-linked bond in May, and for the first time as well, a rated bond. Which, by the way, with the rating which was provided by both Moody's and Fitch, is confirming the financial solidity and robustness, which is something we confirm, and which will definitely help us to develop the growth projects we have on our portfolio, and we keep working on as Christel was mentioning earlier. What does this mean? This mean that we are keeping a disciplined capital allocation, and this remains our priority. We have not changed a needle to what we have seen in the last couple of years.
The first priority is to ensure a low leverage, which means a targeted leverage of below one on average through the cycle. As said, if we look at the situation at the end of June, despite a very challenging semester, we are at 0.7. We are also willing to maintain a very strong balance sheet. I could not be more detailed in what I've said before about the level of liquidity and the extension of the maturity of our debt. We, as a second priority, are focusing on growth CapEx, and that's something we have done in H1. We'll continue in H2. We'll come back to that later on.
The third priority, and we have done that in 2021 and 2022, is of course, to reward our shareholders for the long-term commitment. This remains the three priorities in that order. I will now provide a bit more details about our operational performance in H1. First, clearly, I said it's been a very complicated semester for manganese ore. I will be a bit more detailed afterwards. With a - 27%, all of it is linked to the situation with the landslide at the end of December, stopping all the activities in January, and the additional issue we faced in April. We have had a very strong performance in Eramet Nickel. Same, I will detail that later on. SLN has been a challenging semester in terms of financial performance.
In terms of operational performance, as you can see, it was up versus the same period of last year by 18% and 1/8 in terms of operating mining production. This last piece, which has been problematic and it's very, this one, specific to H1 as well, concerning mineral sands. On GCO and we'll see that in numbers afterwards. We have faced issues with the dredge in January. Everything is solved, it's back to normal, but it was impacting the first half. We are also in a much lower grade zone, and we knew that to start the year. It will be improving going forward. ETI, we have stopped or we have actually realigned the furnace, which was stopping the production for three months.
That's the reason why you can see such a significant reduction year-over-year. The same it's the usual 10 years maintenance we have to make on this, on this kind of furnace. This was anticipated, no surprise there. One thing which requires to be explained with a bit more numbers and figures is indeed the very sharp decline we've seen in our selling prices, impacting all our products. Again, most of it was anticipated, but it is very sharp. The best example I can give is on the Manganese Alloys business. As you can see on the bottom left curve, it has been reducing by 48%, so divided by two, between H1 of 2022 and H1 of 2023. This is back to historically more normal pricing.
This being said, it's been on a very quick manner, a strong reduction of these prices. By the way, it's also, as we said before, in a still, a pretty high input cost consumption, and I will provide you a bit more detail afterwards. The other one, which is also significantly reducing, is Ferronickel and NPI, because it's been reducing by 31%. 31%. This is divided by, not divided by three, it's actually 1/3 of reduction. That's the reason why the financial performance of SLN was complicated in H1. I said, I wanted to explain a bit more why we don't see yet the reduction of input costs, especially the reductants that we could have anticipated. It's because of two reasons.
The first one is because, following the war in Ukraine, at the beginning of last year, we had to change the supply of our reductants and the mix accordingly. Moving more out of nut coke to low Phos coke out of Colombia. This is more expensive coke. Also, that's the second reason of the increased cost. We have a lag between the time we purchase and the time we consume, which sounds pretty natural when I explain it like this, but this is something to be taken into account, and the lag is between three to five months.
When we make the overall analysis between H1 of the last year and H1 of this year, we have actually seen an increase of the average cost of consumption by 39%. As you can see, it's reducing versus what it was in H2 of last year. We start to see the reduction, it was not yet reflected in our financial performance in H1. This also suggests that it will and should go better in H2. Freight costs, won't spend too much time there. At least there are some positive news in this overall challenging market environment.
We've seen a reduction, a pretty sharp one, and I didn't focus there on the variance analysis before, but it was representing EUR 50 million in the comparison versus H1 of last year. As you can see, this is expected to stabilize in H2 of this year. It won't be such a strong positive comparison to last year because it was already starting to reduce in H2 of 2022. This will remain normally as something supportive to our margin. Moving to Manganese BU. We said it a few times, significant drop, and a major drop actually, of EBITDA and free cash flow in H1.
With two main drivers, we have detailed enough, I think, the selling price, not to come back on that, to that. The other one, and we have also mentioned it a few times, but I think it's important to say that again, a big portion of the drop of the EBITDA on the manganese ore business is coming from this very exceptional logistic incident which happened in the first half of this year. Now, we are back to normal, and that's the most important message I want to convey today. We are back to normal. We've transported more than 700,000 tons in June. The trend in July is also very positive, and we are forecasting to be in the same trend going forward.
That's the most important is, and the work which has been done by the teams to solve the issue which was faced after the earthquake in December leading to this landslide, honestly, has been a tremendous work to be back on track, and that's also something we want to highlight and showing the agility we can demonstrate in a very tough situation. Now, if we move to the market, all the trends we are seeing are not suggesting that we would expect a strong increase in the coming months. There will be recovery at some point in time, but we expect H2 to be more or less stabilizing.
You can see the fundamentals of the market during this first half. In terms of production, so, I've already mentioned what happened in H1 and what we expect for H2. We need also to keep in mind for manganese ore, that it follows four years of just outstanding growth because we have generated this 80% growth between 2018 and 2022. Clearly, H1 is an anomaly in this situation. We understand why, we explained why. Again, we still target to achieve more than 7 million tons of both production and transported volumes in 2023, which will be led by a very strong H2. Again, this H2 is in line with the pace we have recovered in the last couple of months.
Manganese alloys margin, so I've said what are the reasons of the squeeze, I'm sorry. The very sharp drop of selling prices combined with a maintained pretty high level of input costs. By the way, what I was detailing for the reductant is true as well for the manganese ore cost, for manganese alloys. Because what was actually consumed and what was in the COGS in the first half, was coming from purchase in the second half of last year.
This is the reason why the margin were dropping that significantly in H1, because it's really a squeeze effect that and some kind of scissor effect that we have suffered in H1 due to the evolution of the input costs, which were higher versus what we had in H1 2022, and a very significant decrease of selling prices. Moving to nickel, as it's been the case for the last couple of years, it's still a story of two tales, with a very significant success story with Weda Bay and with a very challenging financial performance for SLN.
I've said it before, SLN, it really, which need to be to be analyzed with the evolution of the market, because in terms of both operations, especially mining operations and in terms of fixed cost management, it's been actually a pretty solid first half. Moving to the market, as said, a very significant decline of selling prices in the first half as well. We are not expecting a strong recovery in H2, given the same comment as for carbon steel.
The expected evolution for the coming half in on the overall market evolution, especially on the stainless steel, because it's been honestly very depressed in other areas, except China in the first half, and it's been especially the case in Europe. We don't really expect to see a significant increase. I want to remind you one thing when we talk about nickel prices, even if we've said it a few times already in the last two years, but this is a confirmation in H1. The prices of ferronickel are not anymore at all linked to the LME.
Indeed, LME has been still at very high level in H1, even if it was also reducing versus what it was last year. Now really the prices we sell the ferronickel are much closer to the NPI. In terms of performance for Weda Bay, again, I cannot say it differently that it's been an amazing performance, a continued one. As you can see, between 2021 and 2022, it was multiplied by two. Between H1 2022 and H1 2023, it's been almost the same because it was an increase by 80%.
This is not over, because overall, now we have confirmed a new guidance for the production and sales of nickel ore out of Weda Bay, sold to its customers at 35 million tons in 2023. The previous guidance was at 30 million tons. This mean that we'll compare a 35 million tons to a 21 million tons last year, which was already, as a reminder, the biggest nickel mine in the world. Now, we are becoming even stronger. This mean that the very strong result, EBITDA, and cash generation we have seen in the last couple of years, is expected to continue.
Now, if I move to SLN, clearly, more challenging in terms of financial performance for the reasons I was describing, with negative EBITDA as well as negative cash flow. One comment I didn't make before, and I think it's important to understand it, is SLN is facing same situation than for manganese alloys. Because, with unfortunately much stronger effect in terms of overall performance, drop of selling prices, we maintain very high level of input costs. That's something that's the main driver of this financial performance. As I said before, in terms of ore production, it was increasing by 18%, so it's not a small increase. The level of exports has not been increasing, on the other hand, for two reasons.
The first one is because, we want, and we are optimizing the ore which is sold, which is sent to the plant, to be able to optimize the ferronickel production. That's one. Second, is also because unfortunately, we are facing permitting issues which generally are not acceptable on some of the our mining sites, and especially, and that's something we have said in our press release, especially at the Poum site. To finish, this description of our operations in the first half, we have this also strong evolution in mineral sands. I won't provide much more details. I've said it before, the main two drivers, issues on the dredge in January, fixed now, so we expect a much stronger H2.
It's totally back to normal. ETI, a very specific semester because of the relining, which was for more than half of the semester. That's the driver of the decline in terms of production, EBITDA, and free cash flow. Being precise that the operations are back since the beginning of June, and they are running smoothly currently. These are the details of our H1 performance, both financial and operations, and I hand it over again to Christel, who will detail where we stand on our projects.
Thank you, Nicolas. Clearly, I updated you on many of our projects in my introduction. What I would like to do here is to zoom on the one that is the most advanced, which is our project in Argentina, in lithium. Clearly, and you see, you can see that on this slide, the lithium market dynamic, it remains very positive, very good, with steadily growing demand, with still very high prices. Yes, they have dropped from $80,000 per ton to around $40,000 per ton today, it's still very high price.
The long-term outlook for the prices, according to the consensus, is today between $15,000 and $20,000 per ton, which is still far above our planned cash costs. It's a very good business model for us. Our phase I project so in Salta, in Argentina, is progressing well. As you can see on this slide, the construction that has been launched in 2022 has achieved a 60% completion rate at the end of June. The production should start as planned in Q2 2024. The achievement of the full ramp-up to 24,000 tons of lithium carbonate battery grade is expected by mid-2025.
The total CapEx for this phase I should be around $735 million, mainly financed by our partner, Tsingshan, through a equity increase. Based on the projected long-term price consensus and the very competitive cash position, because we expect to be in the first quartile of the cash cost curve, this plant should deliver annual EBITDA of around $300 million, so quite significant. This project, as you know, use the DLE technology, direct extraction, which is the most environmental friendly today, due to its very high yield and very economical use of the brine resource.
We also apply there our highest CSR standards as everywhere in connection with the local communities and also with a lot of improvement even on the fresh process water recycling. Because we have a very competitive positioning on this deposit and with this technology, we have decided, as already communicated earlier this year, to accelerate the phase II. We should be in a position to make the final investment decision of a first tranche of this phase II of 30,000 tons of lithium carbonate during the second semester of this year. This would trigger an early CapEx of $90 million as soon as 2023, 50% of which being financed by Eramet.
As mentioned already by Nicolas, finance this project and potentially others, we have signed a joint marketing agreement with Glencore, with a prepayment of $400 million and a volume of 50,000 tons of lithium carbonate from phase I of the project, which is equivalent to a commercial contract of approximately five years, starting in 2025. The first tranche of this phase II should be followed by a second one in the future. We plan overall to have a total production higher than 75,000 tons of lithium carbonate per year, battery grade, in the future. As a conclusion, we clearly don't expect significant improvement coming from the market in H2.
You all know that the geopolitical and macroeconomic environment is today very uncertain, not going in the right direction. We keep high interest rates, high level of inflation, which continue to wait on all the groups market. The rebound initially anticipated in China has not yet materialized in 2023. Even if we see now some incentives coming, and we have seen that is it has already had an impact on the stainless steel market, but nothing material, I would say, so far. The decline of the construction sector in Europe and North America, as well as in China, continue to wait on many groups activities.
Overall, the demand from all the underlying markets for our products remain quite sluggish and resulting in a continuation of the downward trend in prices in line with what we have observed during the first half of the year. In line with the market consensus, as you can see on this slide, we have revised down our manganese ore price assumption and nickel prices assumptions. On the operational front, as explained by Nicolas, we should be back to a much better operational performance, with higher volume being back to normal operation in Gabon, which is a strong contributor to our results, and in Senegal. Also we should benefit in H2 from a better seasonality.
As you know, H2 is always better in term of seasonality and for the mining activity. We should have a much better second half. Moreover, we should benefit from our reinforced focus on cost reduction and cash control, and also from the decrease of the reductant price as already mentioned by Nicolas. Our key volumes objectives shown on this slide are now the following: We should be above 7 million tons of manganese ore transported in Gabon, to reflect the H1 issues, but also the fact that we are back on track for H2, with a strong performance expected.
We have upgraded our volume guidance on Weda Bay because of the extremely good performance of Weda Bay and steady demand for this ore in Indonesia to 35 million tons of nickel ore at Weda Bay, so +5 million versus our last guidance. Overall, all this leads to our revised adjusted EBITDA of around EUR 900 million, which is lower than before, but still significant level. Due to the active cash management and despite the planned spends of lithium phase II starting this year, we have also revised down our CapEx from EUR 600 million - EUR 550 million
Clearly, unfavorable prices and logistical incidents, now resolved, have penalized our result in the first half. In the second half, we of course remain focused on the performance of our operations and the strict control of our expenses, and we should be able to deliver much better results. Thanks to the transformation that we have achieved in the recent years, the refocus on core activities that are much more robust, and also a more solid financial structure, that has been explained by Nicolas. We remain agile and we are staying the course, pursuing our key growth projects in the energy transition.
Last but not least, I would like to conclude this presentation with a save the date, because we will organize on November 13th our first capital market day, marking Eramet entry into its new era. It will give you the opportunity to attend in person or remotely an event where you will be able to learn much more about our operations, our strategy, and our new CSR roadmap. You know that we will communicate a new CSR roadmap for the next three years. And I'm sure it will be very useful as Eramet is still quite unknown to many of the investors.
I think it will be very also useful to meet the management, and the key operational people of our management team. Thank you very much for your attention. Now, Nicolas and I are ready to answer your questions. We'll start with the questions in the room. We have one here, so if we can have one mic.
Hello, [Nicolas Montel, Bank Zomba]. I have 5 question.
Go ahead.
First of all, what is your target for your reduction cost plan, if you have one? My second question is on SLN. What is your plan to reduce your cash cost? Because you have a huge loss, and it's not the first time. What is your plan for SLN? Third, you have talked about a bidder for your ETI plant. Can you talk a little bit about that? Is it the same buyer as at the last time in 2020? Fourth, why is there is two trench in your phase II project? Is it because, in term of CapEx, you are not able to do the phase II in just one trench, or is it something else?
My, fifth question is about, you have a other operating non-recurring expense of EUR 27 million. What is it about? Thank you.
Nicolas, I suggest that you answer the first question on the cost reduction plan and the last one on the EUR 27 million, and then I will take the other three.
Okay. Thank you, Nicolas, for this detailed question. For the cash control activities, I said in the presentation that as you have seen, we have generated EUR 21 million in H1. With the additional activities we are putting together, we expect or we can target at least twice this amount in H2. You can make the addition. I didn't actually mention it when we talked about the cash cost of manganese ore, but one of the key activities now we have all the modular plants, all the modular washing plants in Okouma, in the new plateau of Okouma, which will have especially one very positive effect of increasing the average grade.
We are likely targeting to be improving the grade by one point. Which would actually be also one of the strong supports of these actions. It's one of the numerous actions that we have on the productivity improvement, as well as cost reduction plan. I will name another one, which is something once again, we have already done in the past, which is given the evolution of selling prices in some of the products of manganese alloys, especially the commodities.
We may actually reduce further the power to be able to avoid additional costs and to actually be potentially able to resell electricity and the solid hedging positions we have in these businesses. But back to your question initially. We plan to accelerate what we have already been able to do in H1. I will give the number. By definition, if we double the effort, so it will be at least EUR 60 million.
You have the other one on the 27?
Yeah, maybe that one.
Yeah.
I will just make the link with.
Oh
With, the other presentation
Okay
I will come back to that.
Okay. I am maybe on the other three. On the offer that we have received on ETI, first it's a unsolicited offer. ETI was not, and is not for sale today. We have received it two days ago, so we need to analyze it. Of course, there is a number of price attached, but there are also elements of SPA. What we don't want for the timing, I think it's too early to comment on the buyer, because we just want first to analyze the offer. We will obviously be sensitive to the feasibility of execution of this deal.
We don't want to be trapped, as we did in 2020, with the process, with the antitrust authorities that could last many months and then come to a negative conclusion. We'll be very sensitive to that, analyzing the offer. And in term of pricing, because I anticipate just a question that we may have on that. Just to give you an order of magnitude, it represent 12 times EBITDA 2022 for the asset. It gives you an order of magnitude, because it's something that we don't publish separately.
On the SLN cash cost, I think the issue at SLN, unfortunately, is not in what kind of cost reduction we could do ourselves in managing better the personal cost, productivity here or there. As you know, the nickel in Caledonia is facing very structural issues. All the metallurgists are losing a lot of money in Caledonia. By the way, we are the one losing the least. It's not proud of it, but it's the reality. I think we are operating the best way possible in the best way possible in Caledonia. The structural issues are the energy price that remains very high and much higher than any other competitors.
The second structural issue is the access to the mines. We are in the process of putting the Poum mine in care and maintenance, just because we are not receiving the permitting that we have asked now four years ago from the northern province, because of political issues. It's absolutely key now that those structural issue are solved. It's not in our hands. As you know, in fact, the President Macron was in Caledonia these last two or three days. They have started a new process. They have made a thorough study at the level of the French state on the situation of the nickel in Caledonia.
Now, it has been communicated, the result of these studies has been communicated to the Caledonians. Now they are working, they have created a task force together with the Caledonian to bring solutions, long-term solutions to the nickel in Caledonia. It's not in our hands. What is very important, and we keep repeating, and it's clear for everybody, among the states or in Caledonia, is that Eramet cannot continue to have this burden on its balance sheet. We will not inject cash anymore. We cannot continue to accumulate debt on our balance sheet because of SLN. This is a part, I would say, of the facts of a diagnosis.
We will see what kind of solution is brought in the coming six months, because the Minister Darmanin has stated that he would like to have a solution by the end of the year coming from this group. These are structural issues, and of course, we are doing our best to optimize the cash cost, but without this being solved, it will not be possible to move the needle significantly. On your last question, why two tranches for the phase II?
It's because it's the optimized size for the technology that we have, and it's something we are preparing the infrastructure for the second tranche, but there are some costs in common, but just the, large infrastructure around. It's optimized to go that way. We have debottlenecked, as you can see, versus phase I, because phase I was 24,000 tons. Now we have a tranche of 30,000 tons, which shows that we continue to improve the process.
Also we this new I would say generation of DLE will use even less water and much less water even than the first one, which was already much more economical of the resource than the other technologies. We are progressing, but it's an optimized size in order to progress.
Now I will go to.
Yes.
Your fifth question, Nicolas, the non-operating expense. It's actually twofold. One is the additional impairment which is to be booked, and I'm sure you have in mind that we booked an impairment when we talk about SLN at the end of last year. Especially when we talk about the necessary investments we do in the plant, now what we are doing is actually to book an additional impairment, and which is in line with the accounting practices.
The other half, to make it simple, is coming from the expenses, which is not booked into CapEx, but the expenses we are spending for the project, especially for the lithium project we just talked about, as well as for the [signing] project.
There is another question? Yeah.
Yes. Yes, [Julian Stifel]. I got two questions. First, I would like to come back on SLN.
Mm-hmm.
There are structural problems, clearly. At EUR 15,000 per for ferronickel, you make losses, where nickel pig iron producer makes money, makes a lot of money still.
Mm-hmm.
It's still. It will not be solved. If you were a rational company, or let's say a fully private company, you will have closed your ferro, you know, ferronickel production plant, probably because you make cash losses, and it will continue for a period of time. Beyond that, what you mentioned about structural solving problems, but is it any other solution than closing this ferronickel plant, fundamentally? Second question, I would like to come back on the HPAL project, which you are delaying eventually, the decision. How confident are you on the cost competitiveness of this project compared to the new route, which has been developed to produce a nickel battery, which is using nickel pig iron and matte? It's developing quickly. We don't know exactly how cost effective it is.
What's your view on that? It's a huge investment project, potentially for you and for BASF, it's small, it's, yeah, compared to the size, but for you, it's big. You better not to make a wrong decision on that. How is your vision or visibility about effectively how cost effective is, let's say, the Tsingshan project, the Tsingshan or other development using the pig iron route and matte route compared to your route you are working on?
Thank you for these questions. Just on SLN. SLN, you said that the only solution would be to close the Doniambo, so the plant. Yes, the plant is much higher cost because of and a big part of that is the energy price. Today, we would have the energy price that we have with ARENH in France for our manganese alloys plant in Metropole. It, we would have today a positive cash flow at SLN or break-even cash. A lot is coming from the energy cost that has to be subsidized in the future. There is no other way than for doing it.
If the nickel ferronickel price continue to drop, there should be also other kind of subsidies or help in order to maintain this kind of businesses in Caledonia. That's why I'm saying that it's not anymore a solution that is in our hands. We need to make sure that it does not bring any additional burden on our balance sheet. There are several solutions of doing. If there are massive subsidies coming from the French state, then SLN will not make any more losses, so it will not be again a burden on our accounts. We can be diluted in the shareholding and not consolidate SLN anymore.
There are many other, I mean, options, but for the time being, it's something that is again, discussed. There are many options on the table. We don't know which one will be chosen.
Well—
To answer your question about the closure, we are also a responsible player. We know the huge impact that the closure of Doniambo would have in Caledonia. Yes, maybe we would have closed this plant, but it's not that straightforward when you look at all the ripple effect and the consequences it could have in Caledonia. It's not such an easy decision to be made.
It, it's clear. I put that as, of course, as a real, of course, you know, tough decision.
Mm.
With a strong consequence for New Caledonia. My question behind that is what power you have to effectively get...? To meet, you're right, you're right. To make profitable at the end of the day, the only way to be highly subsidized in term of electricity, in term of energy cost, and the only way where your plant could become back profitable some way, which means the state, some way to take is help here. How, what's your power in that?
The power is not to inject, not to inject money anymore.
Yeah, it is not to say: well, if we not be subsidized, we close the plant.
There will be a bankruptcy, and it will be the decision of the local court to decide what will be the future of the company. Doesn't mean that it will be closed. Maybe somebody else, the local authority, et cetera , will take it over. That's why I'm saying its bankruptcy doesn't mean automatically closing. So it's there are the red line that everybody knows and you all know, and I've kept repeating that for a long time, is that we will not inject any more cash in this company, and we don't want that accumulated debt will affect our balance sheet. That's the point. Once adding that as a base fact, there are many other options.
Again, if they don't, I mean, in fact, other options, the bankruptcy is one, and, and we are ready to go there. Just to answer your second question. The, the second question is the HPAL versus nickel matte. I mean, in terms of course, we know very well the cost of the nickel matte route, because we have an NPI plant, as you know, in Weda Bay, together with Tsingshan, so we perfectly know the cost. There are many NPI plants in the Weda Bay industrial park that are producing matte, so we perfectly know the cost. The cost is much higher than HPAL. Today, it's an easy way, because it takes time to build HPAL, et cetera, but.
It's an easy way to have nickel for batteries. To give you, I mean, a clear answer, Tsingshan themselves, they are building two big HPAL plants right now, because they are convinced that is the best route in term of cost and in term of CO2 emission to do nickel for batteries. Presently, on Halmahera, on Weda Bay, they are building two HPAL plants. It's the best technology today to... The nickel matte is an interim technology because it's high CO2 emitting, and it's much higher cost than HPAL. Any other question?
Hello, everyone. Fabian [Ledizier, Kepler Cheuvreux]. I have three questions. Could we expect a rebound in terms of manganese alloys production in H2 or a stabilization versus H1? Second question, in the lithium business, will you try to negotiate purchase price agreements to lock in prices, for instance, with European car makers in the future? The final one, we saw some nationalization plans in Chile, and you recently opened an office in the country. How could you operate in this kind of an environment, and what is your take on this decision? Thank you.
Okay. maybe you want to take the first two?
Yes, I wanted to offer that. Thank you, Fabian. The concerning manganese alloys, two things which we've tried to clarify in the presentation. First, we are not really expecting a strong demand of the activity of carbon steel in H2. It's not a matter of production, actually, it's a matter of having the market opportunities. Second thing also I was saying, is that we will also be agile, as we have done in H2 of last year.
If we see that due to a potential pressure on pricing, given coming from other players, especially out of India, for example, which would lead to very low pricing with still too high input cost, we'll do what we have done last year, meaning that we'll adjust the production. Again, could there be opportunity? Yes, there will be opportunity in the case there is a market rebound. Today, it will not be responsible on our side to say that we see that market rebound, so it's more something we'll adjust. And we have done that already to ensure that we remain profitable in what we are producing. That's concerning the first question. Concerning your second question, which is indeed important.
We are clearly, and that's something we have already said in other instances, that we are in touch and in discussions with OEMs for especially the coming phase II of our lithium project. I really want to clarify one thing, to be careful. We won't take any agreement which are locking prices. It will lock potentially volumes. It could lock premium or discounts, depending on discussion we have with the customers. It will be to market price evolution.
We will not do, what we have never done in our businesses, is to lock prices, which honestly will be a pretty, yeah, difficult situation or decision to make with such a market like lithium, where we indeed anticipate a pretty strong, still evolution of the market and of the prices. To summarize, yes, we are in touch with OEMs and we see the value to ensure that we can also work with them, value on both ways, value for them, value for us, to ensure that we can get commitments for especially for the volumes of the second phase, but it won't be to lock prices.
I can tell you that there is a lot of appetite of OEMs for this production. Just to answer your last question about Chile. Chile has the best resources in term of lithium brines, high grade, I mean, very good cost positioning, everything. Just to give you an idea, today there are 20 projects in Argentina. There are none in Chile, because of the difficulty of this, I mean, national policy. The Chilean government and President Boric was in France last week, and I had the opportunity to meet him. They and the ministers are fully aware of these difficulties. They definitely want to diversify their source of investors.
They don't want to be to say bluntly too much dependent on Chinese investment. They are welcoming Western partners. We are positioning ourselves as a responsible partner with good technology. They like our DLE technology, and you may have read, by the way, that they say that they will give exploration license or permitting only to DLE technologies. It's restricting the number of potential players. We are quite well positioned. We know how to operate with the state-owned companies, because in front of us we have companies like Codelco and Enami. We are operating in other countries with state-owned companies, in Africa, notably.
At the end of the day, we think we can find a way, I mean, to have deals and be well positioned to get access to new concession in Chile. But today it's taking a bit of time, but again, this government is well conscious that they have to accelerate if they don't want to miss the opportunity of the new projects in the lithium industry.
Okay, thank you.
Any other questions? There are questions on the web.
Thank you. We have three remaining questions from Maxime Kogge at ODDO BHF. What could be the start date for lithium phase II? Will you be able to deduct the $400 million advance from Glencore from your net debt, or will the cash-in be offset by your financial liability? Again, on Sonic Bay, do you think that the battery grade project in Sonic Bay still makes sense, given nickel price have fallen a lot, and a lot of Indonesian capacity has already come on stream in recent months or is about to be launched?
Just maybe, you can answer on Glencore. I will answer the other two. Potentially start date and again, the FID will take place only in S2, we'll be able to communicate the start date once we know when we'll start construction. Basically, if we have the FID second semester, we could be in production beginning of 2026. On Sonic Bay, of course, we are monitoring all this, and it will be part of the FID decision.
M ore than the feeling, but we make the analysis that the profitability of the project is not anymore in line with our targets and our criteria, economic criteria, because of the nickel price, we will not make the final decision. For the time being, it's still a profitable project with the data that we have. Also because the cash cost position in Indonesia is very low. Operating costs are very competitive. We will process the ore of Weda Bay, and you know that the ore price in Indonesia is lower than in the rest of the world.
I'm not talking about the cost, but the, the price, and the cost is even much lower. Today, we still have good economics for this project, but of course, we are monitoring that very carefully, and it will be part of the decision, of course. We will not make a stupid decision, especially because it's a significant CapEx for Eramet. We'll have to be fully convinced that it will create a value.
On the Glencore prepayment, $400 million. At this stage, the analysis of the accounting analysis of this agreement is that it will be booked as a financial debt, to your question, Maxime. This will mean indeed that it will improve the liquidity, but it won't improve, per se, the net debt. It's as of today's analysis. Clearly, we will look at the way it could be considered differently, that's the best answer I can give for today.
No other question? No question in the room, so we are, I think, right on time. Thank you very much for your attention. We definitely are more optimistic on our performance for the second half. I can tell you that all the teams are very focused to deliver a much stronger H2. Thank you.