Welcome to the Eramet first half 2024 results presentation. I now hand over to Christel Bories, Chair and CEO of Eramet.
Good morning, everyone, and thanks for being with us this morning for our half year result presentation. I will start with the introduction and then we will review the financial performance and operational performance. And Nicolas Carré, our CFO, will take care of this presentation, and I'll come back with an update on the strategic roadmap and the conclusion. So, starting with some words of introduction, we delivered a good operational performance in the first half of the year, with normal operating conditions in Gabon, a strong increase in production in Indonesia, and mining and grade optimization everywhere.
In terms of financials, our intrinsic progress, driven by organic growth and productivity, has enabled us to weather a challenging pricing environment, and to continue to invest for the group's future growth with a limited impact on net debt. We have also taken a decisive step in our development in energy transition metals strategy, with the commissioning of our first lithium plant in Argentina. Production will start in November, and this growth driver will fully contribute to the group's performance from 2025. Last but not least, we have started to deploy our new CSR roadmap, Act for Positive Mining, with the first new steps, particularly in terms of employee social protection. If we move to the financials, some words on them.
The environment in terms of pricing has been continuously depressed over the semester. We delivered an Adjusted EBITDA of EUR 247 million, including a strongly negative contribution of SLN of EUR 109 million. We managed to deliver that, thanks to a good intrinsic performance. This intrinsic performance of EUR 216 million comes from significant growth of production in our key mining assets, +33% in manganese ore in Gabon, with a return to normal operating conditions, and +40% of nickel ore production in Weda Bay. It's also due to good productivity improvements and fixed cost reduction to cope with the difficult environment.
Altogether, it had a positive impact of EUR 87 million for the semester. The external impact has been strongly negative due to the continuous decline in prices, mainly in nickel, and to the fact that the sharp increase in price of manganese ore has not materialized yet in our invoicing. Our cash flow for the period has been negative, as a combination of low Weda Bay dividend distribution in H1. We'll come back to that. Sustained CapEx pace due to our growth strategy in lithium and in Gabon, and higher working capital due to higher manganese prices at the end of June.
Thanks to the conversion of SLN loans into equity earlier this year, our debt increased only by EUR 97 million to EUR 711 million, leading to a leverage of one. The key event of the semester has been the commissioning of our first direct extraction lithium plant in in Centenario , Argentina, becoming then the first-ever European company to develop a capacity to produce battery-grade lithium carbonate at industrial scale. Production at Centenario is scheduled to start in November 2024, with a ramp-up expected to be achieved by mid 2025. At full capacity, this plant will produce 24,000 tons of lithium carbonate per year.
It's equivalent to the requirement of 600,000 electric vehicles per year. Very important, this plant, because of the technology and the quality of the deposits, should be positioned on the first quartile of the cash cost curve. Very important also, we have started to deploy our new ambitious CSR roadmap, Act for Positive Mining. Few elements, and I will not come back to the details of this roadmap that we have presented at the end of last year and beginning of this year. I would like to highlight few elements: safety, which remains our first priority, and on which we continue to improve, leading the pack in the mining industry.
We have a frequency rate during the first semester of 0.8, which is below our target of one, and is more than 20% improvement over last year. We also have developed a transnational employee representation body in 2023. We are the first mining group to set up such transnational employee representation. And it's called the Eramet Global Forum, and Eramet has signed the first agreement with all our social partners to set up a common base of social protection worldwide for all our employees.
And last but not least, Act for Nature International has validated the new biodiversity target in the group 2024-2026 CSR roadmap, and especially regarding the biodiversity, as I said, and it's including a commitment of Eramet not to conduct any deep sea exploration or mining activities. So I will stop here for this introduction, and I will hand over to Nicolas Carré, our CFO, who will detail our financial performance.
Thank you, very much, Christel. Good morning, everyone, thanks for being with us in this Olympic Day for France. I will indeed enter into more details now for our financial performance for the first half. I will start with a couple of comments on this financial numbers. Christel was mentioning in her introduction the impact of SLN on the Adjusted EBITDA, which is clearly an important impact, and I will come back to what it means overall for our financials. Also the other topic I wanted to highlight here is the impact of SLN on the net income, because as you can see, it was indeed negative for the first half, at -EUR 41 million for our share.
But out of that, EUR 72 million is negative related to SLN. So this mean that it was clearly driving down this performance, and as we will see it doesn't have any more economic impact for the group. So I think it's really important to highlight. The other topic, which has already been said by Christel, but still I would like to emphasize, is the limited increase in net debt and the well maintained and controlled leverage in the context of both negative and I would say challenging pricing environment overall, and also in the context of significant investments that we continue to do. And I will also come back to that later on.
So I think it's really to be emphasized the ability we have, which is the confirmation of the robustness of our business model to keep a limited debt in a challenging environment, and making sure still that we can continue to invest. Looking at more details of our performance, the thing I will, and we have already emphasized, but I will detail it a bit more in the coming slides, is the strong performance, the strong operational performance we have had in the first half. As you can see, overall, we have generated an intrinsic performance in just the first half of EUR 216 million versus the previous year, versus the first half of 2023.
Clearly, there is one thing which makes this possible, is the fact that in H1 of 2023, we have been facing one-off logistic events in Gabon, as you may remember. And this is something we highlight here in the first box for + EUR 100 million. This being said, even that, so it means two things: That we have been able to come back to normal. So, what we said last year, that it was one-off event is clearly the case. It remains one-off, and it will remain one-off. So that's the first thing I would like to highlight. And the second one is that the rest of the performance has also been very strong.
As you can see, if you remove this EUR 100, we still have a + EUR 116, driven by positive volume, especially out of Weda Bay. And also improvement of grade of our mining production, both at Weda Bay and also GCO, primarily if we compare to previous year. And overall, the productivity and the management of its cost has remained very strong, as you can see. And the last piece is the negative inventory variation that we have had out of SLN, given the context faced currently in New Caledonia, and I will come back to that later on. So that's the same.
Keeping in mind that this performance has been generated also including some negative effects coming out of SLN, which don't have any more economic effect to our financials, to the financing conditions of the group. In terms of external factors, Christel has been mentioning it in our introduction, so I won't go into detail. Then in any case, we describe a bit more the evolution of pricing later on in the presentation. One thing I would like to highlight is we have here also a negative effect coming from the level of low grade saprolite volumes out of Weda Bay.
This one being indeed driven by the fact that we have not obtained the permitting for this portion, which is honestly not in our control, and we can see a positive effect on the other hand related also to the permit issuance process in Indonesia, leading to a situation of deficit currently, enabling to get premiums on the price of ore in Indonesia. So that's why both items, as you can see, are reporting in the same box here.
It's the other thing I would like to highlight on this topic is the fact that it's not because we didn't get the permitting in 2024 for this low-grade saprolite ore that we won't be able to get it in the coming years, and that's really something we'd like also to emphasize. We'll come to the overall situation of permitting and volumes on Weda Bay on which we have some good news to share later on in the presentation. Let's keep moving and having a look on the net income.
So I was commenting already the key item on this is the fact that indeed, especially, we are reporting a negative net income Group share in the first half, but this one is including a EUR 72 million negative for SLN. So that's something which is very much to be taken into account, because this mean that again, if we remove economically something which is not to be considered due to the fact that we don't finance anymore SLN, in a context of very challenging depressed market situation, which will improve as we'll come back to later on in the second half, we are still able to have a slightly positive net income.
So that's something I would like to emphasize. In terms of CapEx, we have continued our growth CapEx as it was planned, and that's something which is very important, even, and that's something we said when we presented the 2023 results, and that's something we are continuing, and we wanted to continue for 2024, and we are continuing, as you can see here, despite this challenging pricing environment, we want to make sure that we prepare the future of the group. So that's the reason why you can see a maintained investment on the the lithium front. Very similar overall amount as H1 of 2023.
It's primarily the end of the construction of the first plant that Christel was mentioning in terms of highlights in the past weeks, and we'll come also later on to the future of this very important new business for the group. It's also, and that's something we shared openly also in our CMD and during the 2023 full year results presentation, we are continuing to invest in Gabon. So you can see the detail on the right side of this slide.
We are investing both in the Comilog activity, the mining activity, and to be honest, it's primarily also the investment on the railway, so the rail equipment to be able to transport the ore. And on top of that, we have been investing in the Transg abonese renovation program, as you can see, for EUR 37 million. On the other side, that's something I was highlighting a bit before, we are keeping a stringent control of our current CapEx. As you will see, and as you can see, it's actually reducing, it's in reduction versus what we spent last year in the first half.
We will see later on, we'll continue this stringent management with the revision of the full year guidance, which is clearly a sign that we take for sure into account the current environment, even if it will improve in the manganese ore area, and we are still having a strong control of our CapEx. If we move to working capital requirement, we have an increase of the working capital, which is very mechanical. Christel was saying that we have not yet seen the full materialization of the increase of the index in manganese ore in the first half, which is true.
I was adding fully, because we have actually started to see an increase at the very end of the semester, especially in June, and mechanically, this drive to an increase of the receivables. So that's the biggest portion of the increase of our working capital versus the end of 2023. As you can see also, and it's always important to compare to the same period of the previous year, actually, we have a slight reduction of our working capital. So which is a confirmation of what we have already said in the past, that when we talk about seasonality, it's very often that in terms of working capital, the seasonality is negative, and we have a higher working capital.
At the end of the first half versus the end of the year, and on top of that, as I said before, we have also the impact of the selling price of manganese ore. So no negative signal here, and it's clearly something which will stabilize in the second half without any doubt. Talking about net debt evolution, so we have already said that it's a slight increase, so for EUR 97 million versus the end of 2023, it's by the way, and back to the same comment I was making on the slide before on the seasonality of our working capital, if we compare to June 2023, we are exactly at the same amount of net debt.
So that's something really to highlight, given the environment in which we are concerning the market pricing. The free cash flow, so when we look at the reported free cash flow, it is significantly negative because it is at -EUR 521 million. The reason why we talk about the economic free cash flow, because we do believe it is important to highlight a few items which are not in the free cash flow, but which eventually are also explaining the limited evolution of our net debt. The first one is the financing of the SLN needs and losses, so financing needs and losses. I will come back to that later on.
So this is financed by the French state, so that's why as everything is financed by the French state and knowing that the negative impact is consolidated in our free cash flow, we feel important to provide a picture what it means removing it, knowing that this is not eventually impacting our net debt. The second piece we like to highlight is clearly the Centenario CapEx, so our lithium project in Argentina, is fully consolidated in our numbers as well. And knowing that a big portion, so 50%, of it, is financed by our partner, Tsingshan, via capital increase, capital injections into the sub-subsidiary in Argentina. So this is the EUR 85 million you can see here.
So that's the reason why we are really willing to keep following this economic free cash flow criteria, because this is according to us, the best way to look at the true generation of cash. In the first half, it was a consumption of cash. Christel was mentioning the two items in our introduction, because we have had limited dividends out of Weda Bay in the first semester. It will improve in the second one, so that's for sure. And that's a first driver, and the second driver is because we have invested in our growth CapEx, as I was detailing just before.
So that's overall the reason why we remain with a negative economic free cash flow, but I think it's important to look at the overall picture again, taking into account the items which should be considered not really out of our control, but things which are reported and consolidated fully in our free cash flow that are financed separately by other parties.
So, I was already detailing SLN before, but I think it's important to make a slight pause here, because it's negative and pretty significant negative impact in a lot of areas of our financials in H1, mention EBITDA, mention net income, mention also free cash flow for EUR 145 million. So that's why, it's really important to, to point out the fact that, all of it, something we said before, but which is confirmed fully again, in the first half, is financed by the French state. We've tried to show in this slide a pretty clear breakdown of what happened on this area in the last six months.
The first piece is that, as you may have in mind, we were in our net debt at the end of 2023, having the existing loans of the French state to SLN for EUR 260 million. This has been converted, thanks to the agreement we found at the beginning of the year, into equity instrument. So the undated subordinated bonds, which have been issued by SLN and fully taken by the French state. This already has reduced mechanically our net debt. Second piece, which has happened is, the financing of the needs of SLN in the first half.
As you can see on the middle of this chart, this free cash flow, so the financing needs, the financing needs of SLN amounted to EUR 139 million in the first half. And it's almost fully equal to the financing which have been provided by the state for 400-- for EUR 145 million. It confirms what we have said before, that this is now fully taken care of by the French state. And the EUR 145 million to be even more detailed, it's EUR 60 million financed by the French state in February. This was already disclosed in our previous communications.
Another EUR 80 million financed in April, so that's an additional information we are providing. The other EUR 5 million is a capitalization of interest on the previously existing loans. So that's how you have this breakdown of EUR 145 million. On top of that, we have, and I think it's really also important to note, we have, SLN has obtained another financing for another, so it's not the same amount, it's the same amount, but it's not the same financing of EUR 80 million in July. So which is not for the past consumption, because as I said before, it's the same amount financed in H1 versus the needs of SLN. It's to cover the coming needs in H2.
This is an additional confirmation about what I've said about the French state, French state covering the needs of SLN. This is important because, given the context, you all know in New Caledonia since mid-May the performance of SLN has been extremely challenging from an operational standpoint, of course, and accordingly, from a financial standpoint. I really want to say here that we have a big thought for the teams in New Caledonia who are doing an outstanding job to keep the operations running in this context.
Honestly, even with this huge drop, being able to keep producing at the minimum level to keep the equipment running is a fantastic performance. This being said, and just to finish on that one, sorry, also want to highlight that it has been done in a very safe environment, which remains the priority of the group as also Christel was saying earlier, and which remains clearly our priority also in the current context in New Caledonia.
So, this being said, clearly, even with this, again, outstanding performance from the teams, the impact on the operational criteria is huge with division by more than 3.5 of the ore exports in H1 2024 versus H1 2023. The strong reduction of ferronickel production from 24,000 tons to 17,000 tons. And, accordingly, things can drop in EBITDA, because not only the production is challenging, but the pricing context is also challenging. And here, it's actually pretty limited because there is also a fixed cost management implemented by the teams over there. And I've already mentioned the free cash flow, negative.
Just wanted to provide all these numbers because I think it's important to understand our consolidated financial numbers. But the message I really want to convey and insist on is that this is not anymore impacting our financing, and economically, it does not impact and weigh anymore on our performance, which is very important to understand. If I move to our debt maturity, if you remember last year, it was already an increase by a year versus 2022. And we have managed to further increase it by another year, moving from three to four. I will come to a bit more details in the next slide about the main driver.
So the other thing I would like to highlight here is, that thanks to that, we also keep a very strong liquidity. It was close to EUR 3 billion at the end of last year. It is at EUR 2.8 billion currently. So this is a confirmation that we have a very robust balance sheet, which also enables us to look at the growth potential of the group with a lot of confidence. And again, we managed to do this in a very challenging market environment, which is a very strong performance.
So the reason why we have extended the maturity, the main one, is because we have issued our second SLB in 12 months, in May of this year. It's a confirmation of the new attractiveness we have. It has been a very successful issue. The order book, as you can see, was subscribed by more than 3x . Which is a very solid performance. And if we compare to our past performance in this area, it's very something on which we have been very happy to see the attractiveness of our bond issue.
And this is for EUR 500 million, and it's maturing this new bond at the end of 2029. It's a 5.5-year maturity and this is the reason why we have this overall increase in maturity of the debt by one year. And just a few words about the sustainability-linked features. These are the same of the previous SLB we did in 2023.
with a target to reduce our carbon intensity by 37% by 2026 versus 2019 baseline, and also to have 67% of our suppliers and customers having the decarbonization targets consistent with the well below two degrees scenario of the Paris Agreement. So this is again very similar. It's actually the same as the same target as the one we included in our SLB in 2022. Well, now to move to the operational performance of the group.
I won't spend too much time on the first slide, which is showing the pricing environment we are currently facing, and it's showing the continuous trend we have faced in H1 2024 on most of our products with one key exception, and of course, we'll come back to that later on, given the significant increased perspectives it gives us for H2. It's on manganese ore, and to a lower extent, but still, to an extent, on manganese alloys. Starting with manganese ore, following the announcement of our competitor in Australia in March, you have seen the significant increase of, you can see the significant increase of the index starting in Q2.
When I see significant increase, it's almost doubling versus where it was in Q1. It has, by definition, given that it's a conversion business, also paying effect on the manganese alloys indexes, which has been increasing, as I said before, to a lower extent. This being said, it's also to note because it was an inversion of trend, which has been very challenging for the last two years, because it started to decrease in H2 of 2022. Now we have seen this inversion of trend. The fact the manganese ore price is significantly increasing will have, of course, an impact on the margin at some point in time.
Currently, I think it's important to note that, given the lag, we have four to five months between the time the ore is purchased by our alloys plant and the time it is consumed in our cost of goods sold. So this gives a positive evolution of the margin, which is expected to last at least for Q3. The overall operational performance, as we said before with Christel, is coming from almost all our businesses. I will come into a bit more details after business by business, but as you can see here, overall, very strong performance. Production of manganese ore, +33% versus H1 of 2023.
Production of alloy is +4%, so we could say a bit limited, but in the current market, it's a clear strong production performance. Nickel, Weda Bay , again, an outstanding performance, which is confirmed after very strong years 2021, 2022, 2023. Because we managed to produce 58% more in H1 2024 versus H1 2023. As we said before, there's been however a negative impact in terms of external sales, which is coming from the low-grade surplus, on which we had permission to sell in H1 of 2023, which was not the case in H1 2024, as I said before.
So that's something to highlight, but it does not at all question our ability to produce, as you can see in our overall production performance. And as you will see in our confirmed guidance, at least for the bottom end of the range, which still confirm a very strong increase of the production and sales in 2024 versus what we delivered in already a very strong 2023 year. SLN, I mentioned it before, so I won't mention it again. And GCO, another very strong performance with an increase of 33% here also, versus H1 2023. And in terms of sales, also very high, with +24% for ilmenite and 26% for zircon.
Manganese, to start with, still a very important business unit for the group. So, an increase overall of EBITDA, as said earlier, limited at this stage in terms of impact for the pricing, because it has just started to materialize in June, but a start of increase. Overall, the pricing was still slightly lower in H1 of 2024 versus H1 2023. So this mean that, the reason of this increase of EBITDA is coming from the intrinsic performance, primarily driven by the increased volumes I was mentioning in the slide before. In terms of free cash flow, a limited improvement so far.
I think it's also good to highlight that the main reason why it's limited is because of the working capital increase at the end of June, that I was already mentioning. The fact that even if the price has started to pick up. It was at the very end of the semester, so it's still in our receivables, so this mean that the full free cash flow generation will be coming out of H2, and that's something which will be massive, as we'll mention later on.
If we talk about the performance a bit more in detail, so the transported volumes, as seen at this stage, are limited, increased due to the lower seasonality related to H1, and especially that the wet season is taking place primarily in Q2, in Gabon. This wet season was, by the way, pretty strong this year. So this is why it has been limited, and also, that's something we mentioned at the beginning of this year. We want to ensure that we do the adequate maintenance work on the railroad to sustain the growth we have had so far, and we want to continue to have on this business.
Overall, though, and that's something which we want to highlight, the cash cost has been very strong. It has been down by 15% versus H1 of 2023, reflecting higher volume sold. And by the way, it's very close to the cash cost we reported for the year 2023, which again, given the fact that the seasonality is much stronger in H2 versus H1, is something which confirms a very high performance on our productivity, efficiency, and cash and cost management for this business. The next point I want to highlight is the supply shortage from GEMCO in Australia that we have been mentioning a few times.
This is very significant for the performance of our business, because GEMCO represents a bit more than 10% of the overall manganese ore supply, generally speaking, and it is close to 30% of the high grade ore that on which we are, by the way, playing. So this is a massive disruption. So we want to, just for the sake of illustration, show what will mean the current cash cost without the GEMCO volumes, which is the situation in 2024. So it shows that we are now by far the best place in this cash cost curve, which confirms the strong cash cost positioning we have been mentioning in the past.
This is what also enable us to generate so high margin for this business, and even in a challenging pricing environment. So this mean that here, now, without GEMCO, the fact that the volumes will have to be compensated by high cost producers is showing the price upside you can see here. And this price upside has already materialized because the index, and that's what you can see on the right-hand side of the slide. As I said before, almost double versus where it was in April.
So the fact is, if we look at the consensus, and this is something we have disclosed, in our illustrative calculation of Adjusted EBITDA, based on the consensus of the analyst, it's giving a consensus for H2, around $9, it's precisely $8.9 per DMTU, in the second semester. Very similar to where the index is today. So it's not only, I would say, expectations, it's today, where we have, and where we see the pricing taking place. And again, very much in line with the current cash cost curve.
So with that expectation, I also want to remind, and Christel will come back to it in the perspectives, that $1 per DMTU for us, given the volumes we are currently reaching, means a positive additional EBITDA margin, so it's pure EBITDA of EUR 255 million for $1. Here, when we talk about an evolution of the index, which was before in average—when I say index, consensus, I'm sorry. Before at 4.8, now it's at 7.3. It's an increase by $2.5, so it shows how big the impact is expected to be for our performance in 2024. I will not spend more time here.
I was already explaining the manganese alloys, so pretty good performance in H1, and again, the current situation of margin has improved due to this lag between the time we purchased and the time we consume in our sold goods, the ore. So which is and which will show also in Q3 an improvement in margin. That's something we could expect, though an induction of trend likely at the end of 2024. Let's move to nickel. So we have had a very resilient contribution from Weda Bay, but in a clearly lower price environment. And I have mentioned the fact that it was by definition lowering significantly-...
The cash contribution to our free cash flow in the first half versus previous year. It's really linked also to the timing of the sales, which will improve in H2, as I said, so we can expect, and we are expecting for sure, a much stronger free cash flow contribution in the second semester. The other point, I want to remind, I've said it before, but it's always good to put a bit more emphasis on is the fact that, in the current situation of deficit of supply, we can see in Indonesia due to the delays in granting permitting to most of the producers.
So we have seen an increase of the premium. It has already impacted for EUR 24 million, as I said before, our performance in H1. It's clearly much higher currently. So we are expecting a much stronger contribution also of that for the second semester. So that's another good signal for our coming financial performance. Let's move to the next slide, which I was describing already more or less in most of the details. The other information is that on top of the lower price coming from the LME evolution for the ore, we have also seen a reduction of the NPI prices by -23% versus H1 2023.
So it's a pretty significant drop. So that's another explanation for the lower financial contribution of Weda Bay in H1. Again, the point I want to highlight is in terms of production, it keeps to be a very strong success. We've said it before, but 2022 was already so Weda Bay was already the biggest nickel mine in the world, so 2023 was another 80% growth, 80 versus 2022. And in terms of production, again, we have been able to generate another 40% of increase in the first semester. Ending with mineral sands. So I said that it was a strong operational performance with a +33% of production in H1.
It's explaining why we have been able to have a solid EBITDA, despite reduction in selling prices, as for the other markets. So, it's more or less offsetting all the intrinsic performance we have been generated, as you can see on the right-hand side. And the free cash flow is also lower because of higher working capital, which is reflecting the sale of ETI at the end of last year. And by definition, this is now putting an additional working capital externally, which was before internally. And also the fact that we have had our first tax payment in H1 2024, for EUR 50 million, so that's actually the biggest impact related to the 2023 income tax, and also for 2024 interim tax.
And to end up, so this highlights the HMC production again, very strong in H1, and this also details the evolution of pricing, which has been negative in H1, which currently, this being said, is slightly improving. It is slightly improving Q2 versus Q1, so the negative trend has stopped for the time being, which is a rather reassuring signal. But overall, the main important message we wanted to provide for this business is a strong operational performance, which has been key for our success in the past. So, with all these details, I now hand it over to Christel for the strategic roadmap update.
Thank you, Nicolas. So in terms of strategy, I will just remind you our strategic roadmap that you know well now. It's aligned with the global macro trends, and this strategic roadmap has two pillars. The first one is to grow in metals, supporting global economic development. These are the resilient markets of manganese ore and alloys, of nickel for stainless steel and mineral sands. In all these markets, we have a very strong position and very strong mining assets, best-in-class, and with a lot of opportunity for organic growth. And we have a second pillar, which is to sustainably develop the critical metals for the energy transition.
These are the fast-growing markets of lithium for batteries, also nickel cobalt for batteries and the recycling of those batteries. All this is supported by this ambitious CSR roadmap, act for positive mining. So we have recently reached a significant milestone in our strategy to develop the metals for energy transition, with the commissioning of our first lithium plant in Argentina. As I said in the introduction, the production will start in November, and we expect to reach nominal capacity mid-2025. This is one of the most advanced DLE process with which has been developed in-house and is supported by 12 patents...
We have been testing this process in a pilot plant in real-life conditions on the Salar at 4,000 meters in Argentina for five years. So we have very good knowledge of the process right now. The lithium recovery yield is at 90%, which is very high compared to our competitors, and which is triggering a very good cost position of this plant. The construction CapEx should be around EUR 870 million.
Expected cash cost between $4,500 and $5,000 per ton of carbonate, which would be leading at a nominal capacity to annual EBITDA between $200 million and $300 million, which is depending on, of course, the long-term price assumptions for lithium. On the next slide, you see this attractive positioning of this new plant. Here we have built an illustrative cash cost curve for the lithium industry in 2025. You see that after reaching the nominal capacity, the Eramet plant should be very well positioned and in the first quartile of the cash cost curve, very first quartile.
It shows also the strong resilience of this plant to the low of the cycle. Because you see the spot prices of today, which is not very high, and much lower than the expected long-term price for the market. But you see that even with the spot price of today, we should be quite comfortable in term of cash position. We have already planned to build a second plant in the north of the deposit. As you know, this deposit has a large resource. We have certified recently 15 million tons of resource in the Antofalla deposit. So we have already planned to build a second plant.
This plant should have a production capacity of 30,000 tons of lithium carbonate. Costs around $800 million, and with the same cash cost as the first one. It has been conditionally approved by our board, but the construction is subject to some conditions, especially the obtaining of the construction permits, which takes some time in the Salta province. And also, and importantly, to the implementation of the new investment fiscal regime for large projects in Argentina, that should significantly enhance the economics and financing conditions of this new plant. Beyond these two lithium projects in Argentina, we continue to build a portfolio of projects in metals for energy transition.
In lithium, we pursue several opportunities in Chile. As you know, we have acquired a big mining concession in Chile, covering a cluster of some of the most promising underdeveloped, undeveloped, sorry, lithium salar in Chile. We are presently working with the state-owned companies who are the holders of the permitting, the lithium exploration and exploitation permits. And we are working with them to develop the future projects on this concession. And we are also developing other partnerships, and we have signed in H1 two farm-in agreement to conduct exploration activities in Chile on other salars.
In nickel, as you know, we have announced during the semester that we will not pursue the joint project that we had with BASF to develop a nickel cobalt HPAL plant at the bottom of our Weda Bay mine. That being said, we know that Indonesia will continue to play a critical role in the future of the overall nickel industry. And Eramet continues to investigate opportunities to participate in the nickel value chain for electric vehicle in Indonesia. And regarding the recycling of the nickel cobalt batteries in Europe, our project with SUEZ, we are continuing, I mean, the feasibility studies.
But given the considerable changes in Europe EV battery value chain observed over the recent months, we carefully assess the merits and the timing of when to proceed with this battery recycling project. So, as a conclusion, it has been alluded to already by Nicolas in the operational presentation. We are entering the second half of the year in a context of favorable seasonality for our activities, combined with a sharp increase of manganese ore. In the sharp increase in the price of manganese ore. The economic conditions remain sluggish at the start of H2, and especially with the weak domestic demand in China. And the real estate crisis continue to wait on our market.
But the manganese ore supply significantly disrupted the supply market and providing support for the price upside, as we have mentioned. In terms of manganese alloy selling price, we see a price increase, but it's just in line with the ore price, which is input cost increase. And we expect the price to stabilize in H2. So globally, quite weak market conditions, but this manganese ore supply disruption provide a significant opportunity in terms of pricing for the second half of the year.
In terms of operations, as we said, it's a favorable semester for us in terms of weather conditions, and we always have higher production in H2 than in H1. We are back from the beginning of the year to normal operating conditions in Gabon. In Indonesia, our AMDAL, which is the environmental license, has been signed in July, so it will enable the permitting for Weda Bay nickel sales of high-grade saprolite and limonite for 2024, but also for the next three years, because now the permitting in Indonesia is even for three years, which is good news. It also explains why it takes now more time.
It has been taking quite a lot of time for many mining companies to get their permitting this year, because it's given now for three years, so it requires quite a lot of attention for the administration. But, when we will get it, we'll get it for three years, which is good news. As I said, we should start our production in Centenario in November this year. So overall, we see further growth in our mining operations as we announced at the beginning of the year. The volume guidance for the year 2024 in manganese ore is between 7 million tons and 7.5 million tons, versus 6.6 last year, so a significant increase.
The guidance of production for the ore at Weda Bay is between 40 million tons and 42 million tons from 33 last year, so it's also a significant increase. We have reduced the top range of the guidance given previously, because we didn't get the low-grade saprolite permitting this year. Doesn't mean that we should not get it in the next years, because it's something that is beyond the normal permitting, and it's given on an exceptional basis year- by- year. So it's something that we didn't get this year, but we will apply for it again in the coming years.
Because of the start of the production in November, the production in Centenari o should be very limited, around 1,000 tons of lithium carbonate this year. We have also lower our CapEx guidance. It was EUR 700 million-EUR 750 million previously. It's now between EUR 550 million and EUR 600 million, with gross CapEx between EUR 350 million and EUR 400 million, mainly due to the postponement of the start of the construction of the second plant in Argentina. We have not yet obtained the construction permitting, and as I said, we are waiting also for the new incentive package from the government.
And we are also, we are very cautious regarding our sustaining CapEx, so we should spend this year EUR 200 million versus close to EUR 250 million in our previous guidance. Because of this huge increase in the consensus price, we have calculated an indicative illustrative Adjusted EBITDA taking into account, I mean, this the sensitivity that we have huge sensitivity on the manganese ore price. I remind you that $1 per D MTU for Eramet means an annual impact on EBITDA of EUR 250 million, EUR 55 million, which is significant.
So, with the new consensus price that you see below here, and mainly for manganese ore, the main change is manganese ore at a $7.3 per DMTU average for the year. The illustrative Adjusted EBITDA for the group, taking into account our volume assumption that I've just described, should be between EUR 1.2 billion and EUR 1.3 billion for this year. So we are quite confident that we should have a very very strong improvement in H2 versus H1 for two reasons.
Again, this positive seasonality that we have in our volume, the fact that we got our permitting in Weda Bay, and this significant increase expected and already happening right now in the manganese ore price for the second half of the year. So, thank you very much. I'm stopping here, and now I think we have time, and I hand it over to Sandrine for the Q&A.
Okay. Thank you, Christel. Thank you, Nicolas. We will now start the Q&A session. We will take questions from our sell side analysts first, and then we will move to the questions from the people connected by the webcast. Operator, please, I hand it over to you.
Thank you. This is the conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. To remove yourself from the question queue, please press star and two. Please pick up the receiver when asking questions. Anyone who has a question may press star and one at this time. The first question is from Julien Onillon, Stifel. Please go ahead.
Yes. Hi, everyone, and good morning. I'd just like to come back quickly on the manganese market. And we have seen obviously the big increase in pricing due to the problem of GEMCO. But we have seen also, which was interesting, with the potential big shortage, is that a lot of small producers starting to come back in the market. And we discover that they had plenty of small inventory that they were able to provide to the market. The question is, they had some inventories, they've been able to provide that to the market quickly, which has made that the price has stabilized right now.
But once those inventory will be gone, and it's normally been gone very quickly, could we see in the second half, for the next nine months, because GEMCO will not export any ore for the next nine months, at minimum. Could we see an interim big rise of a new rise once those inventory have been passed? And that's one first of the questions. And behind that, I have also the question about the inventories that could be done, and if you have a view on that, on the alloys producers, do they have built inventory ahead of this big, let's say, shortage, low production?
But also on the steel makers, do we have some indication that they have bought in advance some manganese alloys, to make sure they don't have any production problems? And that's important because that will obviously have a major influence in the next nine months coming, at minimum, I would say, and of course might also have an influence later on, for 2025. So that will be my first question. I will have another question on the lithium market. We have seen the pricing quite low and stable for the time being. Do you see any, I mean, what's your view about the short term of the market? Do you think that we could see another rebound, a strong rebound?
We see effectively the cost curve, which could tell us that effectively a rebound is, it would come, but in the same time, it's not something which is happening right now. Thank you.
Thank you, Julien, for your questions. I will take the first one on manganese ore. So, indeed, I think it's an important dynamic of the market that you are highlighting. The fact that at this stage we have seen the possibilities, especially of producers of semi-carbonate ore out of South Africa.
... being able to replace, to compensate the lack of the absence of production and export out of GEMCO. This being said, and I think it's also important to mention it, and it will be a segue to your second question. The other thing we need to keep in mind is that overall the market in China and also especially of construction in China, which is by definition leading very much the consumption of steel, has been pretty low since the beginning of the year, which is continuity of trend after 2023.
So that's why, we have seen the stabilization of the index for the high grade ore that we are producing and selling out of Gabon. You may have seen also, to the contrary, more reduction of the index and selling price for the semi-carbonate ore, because indeed, there's been in this area, given the inventory which was available and combined with the overall situation on the market in China, more or less a surplus, short-term surplus. So that's why, you are right, it could, this trend could actually change in the coming nine months.
This being said, I think we need to be cautious because we cannot be sure about the overall evolution of the market in China. They have started to put some incentives, but nothing significant ones last week. And overall, we feel and I think it's important to remind the way we look at our illustrative calculation of Adjusted EBITDA, which is based on the consensus. And we believe that this consensus, which is more or less at the current index for high-grade ore, is pretty balanced. So could we see a slight increase?
Difficult to say yes or no as of today, but it's a possibility, depending indeed on how long this shortage will last, and then also the evolution of the overall market.
Maybe just to add, you have to understand that the manganese alloys producers, which are the customers of manganese ore, they have recipes for their furnace, and they need to put high-grade ore in the mix. They cannot live only with semi-carbonate ore. Usually, they put something like 35% of high-grade ore in the mix. Right now, because of the huge increase of high-grade ore and the high availability of low grade ore, they have changed the chemistry and the burden mix for some time, sometime between 10% and 20%, so quite low.
But you have to know that dropping at those levels creates a negative value in use for them. It creates a firmness and stability, loss of power, productivity, and even if you go down, I mean, to 10%, it can even for some time damage the furnace. So they cannot stay very long at a very low level of high-grade ore. So today, they are right, I mean, they took quite a lot of semi-carbonate ore, and they were available. But we think that there should be over time a need anyway for high-grade ore.
All this, back to what Nicolas said, will depend also significantly from the appetite of the market in China. But just to understand that, there has been a kind of short-term opportunity to buy semi-carbonated ore at a much lower price. But at some stage, they cannot avoid having some high-grade ore in their chemistry.
And on your... So, yeah, concerning manganese alloys, clearly there has been inventory which was built in the plants, especially again in China, which is more than half of the consumption of manganese ore in the world. But this is something which we have seen and we are following very closely; it has started clearly to decrease in the last weeks. It was not that much given the possibility for some of the producers of semi-carbonated, especially out of South Africa, selling and so shipping some of their available stock to the customers. But clearly, it's a continuous trend.
And we expect that it will continue, by definition, and it should actually further reduce by the lower availability of additional compensation from these sources. And as Christel explained it very clearly, the compensation we could have seen in the past weeks between high grade and semi-carbonate cannot last too long. So this mean that overall at some point in time, they will in any case need to also slow down a bit their purchase of semi-carbonate, and so which will have another effect on the inventory.
So that's to complete. It was honestly it's an associated question in any case, because overall the fact that at this stage it's also stabilizing the index is because there is an inventory effect which has stabilized more or less, but it will continue to decrease in the coming months. Concerning lithium, there is indeed a pretty low price currently. We have seen some kind of EV winter, that's how it is called currently on the different markets. It's what we believe is a short-term trend.
At the same time, there has been a new lithium production, new lithium supply coming into play since the beginning of the year, so which explain that there is a current surplus on the market, explaining why overall the pricing has been slowing down. I want to remind one thing is that even with the price around $12,000 per ton currently, with our expected cash cost below between $4,500 and $5,000 per ton, we still have a very, very solid operation and business case.
But, our expectation is that this current surplus we see will decrease in the coming years, and we are still confident with what is the consensus of the analysts for the long-term price, which is between $15,000-$20,000 per ton.
You have to understand that the lithium market today is still a very small market, so the supply, each time there is a new production coming on stream, in terms of supply, it's a kind of step change in the market. So the overall demand for lithium, and as you know, whether you put LFP or NMC, you need lithium anyway in the same range. So we expect the market to double every five years over the next 15 years.
So there are some short-term effects, as you explained, and we expect the market to be in surplus this year, and probably beginning of next year. But again, it highly depends on the dynamic of the EV market. And the only good thing I see of the price today is that it has stopped all the fancy projects. There were projects popping up almost everywhere with a cash cost above $17,000 dollar per ton. And those projects today have stopped, have been mothballed.
I think it will rationalize the supply market going forward, which I think is good, because most of these projects were not economical.
Thank you.
The next question is from Alan Spence, BNP Paribas, please go ahead.
Thank you, operator, and good morning. Two questions on nickel. The first one on Weda Bay. The release notes some slowed production in one furnace in the first quarter. Was that driven by the lack of the saprolite ore, or was there some operating issues? And if so, I mean, has that been resolved? And then secondly, still on nickel, just on the outlook, you talked about an expected surplus in 2024, but I'd be interested to hear your views on how you think that surplus evolves over the next several years.
Thank you, Alan, for your questions. I will answer for you our first one. For the reduced production out of the one furnace, it's actually a maintenance which was taking place on this furnace. So it's a more short-term issue, which has been indeed impacting the lower performance, especially comparing to last year. So it's really not the lack of ore. There's been a continued supply of ore from our mine to our plant shared with Tsingshan on Weda Bay.
Regarding the surplus, yes, there will be a surplus this year. As you know, there have been a lot of capacity built, especially in Indonesia, especially in the ferronickel, on the ferronickel side. When you look at the SMM for the nickel salts, it's remaining at quite a good level. What is quite low today is the price for NPI or ferronickel because of the significant capacity. And also, the fact that now the Chinese have registered their nickel metals at the LME. So, they can play with this capacity on all the different markets.
They can produce NPI, they can produce matte, they can produce nickel metal, and they can produce also nickel salts. So, now there is a kind of leveling in on all these capacities. The good thing is that the demand is still dynamic, and when you look at the growth of the demand in nickel for the nickel for stainless steel, so just the basic production. Stainless steel production worldwide has grown 8% in H1 2024 versus H1 2023. The global primary nickel demand has grown 7%. So it's a dynamic market.
Yes, there is a surplus today, but I think also the price of today, the good thing of the price of today, is that it is regulating the capacity. And you may have seen that in Indonesia, first, the government is not incentivizing any longer the construction of NPI plants. On the contrary, they try to limit now the additional capacity, because they have realized that they have enough now. And on the other side, the rest of the market is also adapting to this new supply/demand condition, and the least profitable capacity are closing down elsewhere.
So we expect this surplus to, I mean, to be rationalized and come to a balance in the coming years. But, again, I think it will remain a very, the ferronickel part especially, will remain a very competitive market, we think, in the short term.
Okay. Thank you very much.
The next question is from Maxime Kogge, ODDO BHF. Please go ahead.
Yeah, good morning. So, two questions on nickel. The first one is related to your ambitions in battery-grade nickel. So there was reports about a possible partnership with Huayou Cobalt, which is a big player in that area. Where do you stand in that respect, or do you still intend on keeping a majority stake in such a project? And what could be the timeline for this project? And second is on New Caledonia. Is the Nickel Pact now off the table, or do you see potential for revival of this quite crucial pact to restore competitiveness in New Caledonia further ahead in H2 or in 2025?
Thank you, Maxime. So, for your first question, we'll repeat what we have said after the decision to stop the Sonic Bay project with BASF, is that we are investigating all the options to be participating into the nickel industry in Indonesia for batteries. We confirm it. We won't comment things you could have read separately, which is, I mean, not sustained and some possibilities which could be part of the options, but nothing else.
So, I won't also comment if we would remain a major, a main shareholder, as you asking, as it was indeed planned for Sonic Bay, because it's really too early to say with what we are currently contemplating.
In Caledonia, honestly, the situation, the political and social and societal situation in Caledonia is really unpredictable right now. Things are very, I would say, difficult to control. And the fact that we don't have the really a long-term government in in France, and the fact that there are still a lot of disruption in and social disruption and riots in Caledonia doesn't help.
So today we don't have any visibility, and honestly, it will take time to sit down, I mean, around the table and rethink about the future of the nickel industry. So the good thing is that it has no economic impact on Eramet any longer, as we have explained several times now, over the last month. We help SLN operating from a pure technical point of view, and we manage, I mean, the safety of the people there.
But honestly, from the political point of view and the future of the nickel industry there, I have absolutely no visibility, and I think we will not have any in the coming, in the very short term, in the coming weeks. It will take months.
Okay, thank you.
The next question is from Nicolas Montel, BNP Paribas. Please go ahead.
Hello. My first question is on working capital. What do you expect for the full year impact? Are you going to be able to be stable, or do you think you should have a negative impact in the full year basis? For my second question, it's about manganese ore. You have talked about EUR 18 million mixed impact. Can you explain where it's come from, please? And sorry, I have a third question. It's about your low-grade saprolite. Do you expect to get an authorization to sell it in 2025? And what are you going to do with your inventory? Thank you very much.
So, thank you very much, Nicolas. So, I will take the first one concerning working capital. So the first thing I would like to remind is that we have demonstrated in the last years that we are managing very strongly and very well our working capital. So, optimizing as much as we can all the areas and especially in inventory. One thing clearly, and I would say it's a good problem to have with the current expectation in terms of manganese ore price for H2, mechanically the same as what we are seeing at the end of June with already an increase of working capital due to the start of increase of pricing in June.
We are expecting, if this materializes, and that's currently our expectation, we are expecting that it will impact the working capital up at the end of December. This will be a mechanical effect. Honestly, you can make quickly the math for that is, we have usually a one month payment term for most of our activities and especially this activity. And if a price, just to make it simply, is at $9, it was closer to $4 at the end of 2023, for manganese ore.
So it mean that, it will be a pretty substantial increase that we are expecting with the Weda Bay, to further optimize it. Of course, we are always looking at the options to anticipate some payment from our customers, but realistically and reasonably, yes, we are expecting a non-unsignificant increase of working capital again in this pricing complex. But as I started to say, it's a good problem to have.
So especially on that, is it not possible to have an offtake agreement to ease your finance on this subject?
So the answer is, it's always possible to contemplate an offtake agreement, but it's never, it's rarely adding value overall to a producers. And usually you will do it, and we could consider it in a situation where we are really under significant financial stress. So I would not definitely consider and advocate for this kind of option in a situation in which we have confirmed that we have a robust balance sheet with limited increase of the debt in the changing context we are facing in H1, as we mentioned before. And with the fact that even if I wasn't trying specifically to your question, should we expect an increase of working capital at the end of December?
Yes, but in any case, this means also that we'll have enjoyed significant generation of cash in H2 in this pricing context. So honestly, I would not consider and contemplate this kind of offtake agreement because it's always a risk to destroy the value.
Just quickly, because we are running out of time on the question on the low grade ore in Weda Bay. So, this year, we don't expect to get it. We will reapply next year. The fact is that the administration in Indonesia, they have been quite slow and quite restrictive giving the permitting this year. Also because now they are giving it for three years, so they are particularly careful. And it has created the tension on the ore. That's why we have premium today on the internal Indonesian ore price.
So we think that the market in Indonesia will need this low-grade saprolite in the future, so we will be able to sell them. And in the meantime, yes, it is in our inventories, because when you extract your high-grade saprolite and your limonite, you also extract some low-grade saprolite that you put in inventory. We used to call that conservation ore, because at the beginning of the production of the mine, we were not able to sell them.
So it will be in our inventories, but we think that we'll have, when the market is in tension, we will have potentially from time to time ability to sell this low-grade ore in the short term and in the long term anyway, as the grade is going lower in Indonesia, this quote-unquote low-grade saprolite will become normal sellable products. So, longer term, we should not keep these inventories at high level on our hands, but short term, we won't get the permit this year.
Okay. So, we are running out of time, so I suggest that we move on to the questions from the webcast, Laurent?
Yes, we have a few remaining questions from the webcast. First on manganese ore production, could you give more color to the small change to your guidance? And do you have flexibility if you decide to ramp up production or shipments?
In fact, it's mainly a transportation bottleneck. And we will do already a strong second semester due to the good seasonality. We continue to invest to renew the railway, and we think it's important to continue to do so. So we have some cuts during the week of the railway in order to do maintenance and renovation works. So we have very limited flexibility to increase our production beyond the range that we have given.
Still on manganese, do you have an indication of the current level of high-grade manganese inventory in Chinese port? And regarding cost, do you have an estimate of the marginal cost in manganese production in South Africa?
So I will be very quick. So the estimation of high-grade ore inventory is around one million tons. So that's for the first question. And concerning the second question, so there is an estimated of the cost out of South Africa. It could be around $5.5, $5.4, $5.5 per DMTU. I really want to emphasize the fact that it's part of the additional semi-carbonated, which is currently available. So clearly it's not a signal of what should be the price going forward. So there has been inventory available, which was indeed a bit impacting the business on the very short term.
So there will be a need, as we discussed earlier, to get additional supply from much higher cost producers. To answer specific to that question, so it's around $5.5.
And finally, will the manganese ore price increase impact your EBITDA in manganese alloy business? And where do you see net debt at your end?
Okay, thank you. So, first question, I was trying to explain it in the course of the presentation. So short term, indeed, we are expecting it will increase the margin due to its primarily accounting that the earnings. It's the fact that as it takes four to five months to consume what we purchase in terms of price. So it means that the recent increase in selling price for manganese alloys will impact positively without having a negative impact of the ore consumption itself. This is something, as I was saying, we could expect to reverse after this four to five months lag. So that's really a short-term answer. So short answer, short term, indeed, an increase expected.
We have started to see that at the end of the first half, and inversion of trend likely at the very end of this year. Concerning the second question for net debt, so we are not providing any guidance, but clearly with the anticipation of the EBITDA, the illustrative calculation we give for the full year, so it tells what will be the potential generation of EBITDA for the second half, which by definition should lead to a substantial decrease of our net debt. So it's not a precise answer, but I won't give you the precise answer, but clearly you can expect that it will decrease.
Finally, could you give some update on your, in your assessment of the geopolitical environment in Gabon?
... Yeah, globally speaking, I mean, it's we are connecting with the new authorities and in Gabon, for the time being, everything is going quite smoothly. So, I think again, it's a transitional government. So we will see in the future how it will evolve. But for the time being, we are working with the new authorities, and there is no impact on our activity in Gabon.
So the Q&A session is now over. Christel, one last word?
Yes, I think that, as I said, we are confident that we will have a second semester much higher than the first one, again, because of the significant improvement in the seasonality of our activities and production increase for the second half, and also because of this opportunities, the opportunity in the manganese ore price that will materialize in the second semester and mainly in the weeks to come, and that has not materialized in our figures for H1, so H1. So, again, we are quite confident in a much better second half of the year.
Thank you very much, all of you, and have a good day and a good opening ceremony for the Olympic Games in Paris. Thank you very much. Bye-bye.
Thank you.
Ladies and gentlemen, thank you for joining. The conference is now over, and you may disconnect your telephones.