Good morning, and welcome to Nordic Mining's presentation of the results for second quarter of this year. My name is Finn Marum. I am the CEO of Nordic Mining, and I am joined today by Tord Meling, our group CFO, as well as Andreas Davidsen, our Chief Commercial Officer. Following the second quarter highlights, we will go through the ramp-up status and the liquidity situation. We will cover market regulatory update as well as financials, and finally, we will have a Q&A. If you have questions, submit them in the chat of the conference call.
This has been a very challenging quarter for Nordic Mining. Production at Engebø continues with the facility running near design capacity on throughput. However, with limited product volumes as recovery and separation remains a key challenge for us. In early August, we updated the markets on the new production profile and consequentially, the need for short-term liquidity.
We also see the need to establish a sustainable and balanced capital structure for the long term. In this, we don't want to sugarcoat anything. We have been very transparent on where we stand and what the challenges are, both on the operational, financial, and regulatory side. At the same time, it is important to remember that the end destination remains intact. The majority of investments are behind us. Engebø is a newly built top modern facility, and we now are in a ramp-up phase with experts and competence on site, gaining valuable experience day by day. This is a strategic long-term asset that will deliver critical minerals to Europe and international markets with cash flow for years to come, once at capacity. During the quarter, we did increase throughput while the mineral recovery remains behind plan.
On average, we were at 77% of design capacity when it comes to throughput on milling. This was despite a maintenance stop that we had in June that took us down for a week. In terms of garnet production during the second quarter, we were at 20% of capacity and rutile on 14% of capacity. Following the quarter, July was lower due to vacation season and thus lower manpower. However, August, we are back up again. Despite the reset that we did at the beginning of the year when we brought in new management at Engebø, we have made slower progress than expected.
As I mentioned, the throughput is higher, but the recovery is lower than planned, which means that our income line is shifting to the right while we have cost of running full production and also of course, higher cost due to the consultants and help that we have on site. Given the production delays that we are facing, the recovery, we have taken down our long-term projections, and we thus see a capital need through 2027 of about NOK 475 million . Through the summer, we engaged with our largest shareholders and bondholders to find solutions to this. This culminated in a waiver that we received from our bondholders towards the end of July for the interest payment that was due beginning of August. We have also received covenant waivers.
All of this takes us through to the beginning of September while SRK, a consultancy, are on site and doing a validation of the ramp-up plan as well as plant capacity. As of the beginning of September, we will need liquidity of between $10 million and $15 million. We are in dialogue with our bondholders on this. I would term the dialogue that we have with them as quite constructive, and we expect a positive outcome to this. This will take us into a second phase starting at the beginning of September and ending at the end of October in which we will seek long-term solutions for the company. It is clear that we need to restructure our balance sheet. The debt levels are too high, so there will be discussions both with bondholders and equity owners as to long-term solution for the company.
This needs to be placed prior to the coupon payment, which is due beginning of November. While the situation for the company is serious, I want to point out the long-term picture of Engebø. We have a top modern facility in which there has been invested NOK 3 billion . We have an ore body which gives at least 39 years life of mine. Of course, when this is up and running at capacity, it is highly cash generative. This is the long-term picture that we need to keep in mind as we navigate the challenges that we are in. The ramp-up has, of course, posted a number of challenges, but it is important also to point out that progress continues.
We had a new operational team in place mid-January, and the effect of our new management is that we have lifted uptime on the facility to a totally new level and parts of the plant are now running at very close to design capacity. However, the final stages remains a challenge for is the mineral recovery, and we are now entering into the phase where that is our primary focus. The challenges there boils down to separation, water quality, ore feed stabilization, and liberation. What do I mean by that? Well, in terms of the equipment at the end of the process line, we have elements that are not working as they were intended to. New parts have been ordered and have been delivered, and they are being installed as we speak. Early indications are that is having an effect.
In terms of separation, it is also about grinding and milling, and striking the right balance that gives us small enough particle size to achieve the separation between rutile, garnet, and the tailings. However, at the same time, not over-grinding. Also in this part of the plant, we have made good progress. We have changed out parts in that and see that it is having effect. The sum of all of this is, of course, that the progress is there, but it is slow compared to the plans that we had initially. Looking forward, we also have more support coming on site, and tier 1 engineering company that has been involved before that is putting consultants on the ground that will help us going forward as well. With that, I hand over to Andreas to talk about market.
Thank you, Finn Ivar. The demand for titanium feedstock has been lower in the first half of 2026 than we expected. This is particularly because of lower building and construction activity in China, Europe, and North America. This is partly impacted by the war in Ukraine. It is still expected to be a growth in demand of 5%-6% for the year as a whole. The natural rutile market is very thinly traded, and the only visible trades for the last three months are a handful of sales from Sierra Rutile. These sales have been done at a price below synthetic rutile at around $950 per ton, with synthetic rutile at $1,100 per ton. Historically, natural rutile had been trading at a premium of $100-$150 above synthetic rutile.
The reason for the current discount is likely to be related to rutile from this particular seller, where the mine is at the end of life. There is no fundamental reason for natural rutile to be trading below synthetic rutile. We now expect the rutile prices for the year as a whole to be slightly down from 2025. in June, we agreed with Iwatani to move the longstop date for announcing start of normal delivery to 31st of December 2026. We can go to garnet. Not much to report from the garnet market. We had a shipment in February, which was well-received among end users, while the shipment we had in May has not been accepted by Barton. The reason is a claim that the material is too dusty.
This claim is currently being assessed, and we are evaluating what we can do with the product if indeed it is concluded that it was too dusty. We still believe it has commercial value, and that it can be cleaned in that respect. We have ongoing discussions with Barton on the offtake agreement. It is likely that we will make changes to volume, price, and product specifications. Then I leave the word back to Finn Ivar.
Thank you, Andreas. A few words on the permitting for the company. We had a Supreme Court decision back in June that rendered the permit on the discharge as invalid due to insufficient reasoning measured up against the EU Water Framework Directive. The point there was that when the permit was awarded back in 2015, 2016, the reasoning behind awarding the permit was based on employment effects, industrial development in a part of the country that needed that. Fast-forward until today and the EU Water Framework Directive, there is a requirement that the pollution is linked to an overriding public interest. Of course, as we see today, it has to do with critical minerals and securing supply chains, and as that would have formed a sufficient reasoning, it was not part of the original decision back in 2016. That opens the way for the government to amend this, of course.
Following the negative verdict in the Supreme Court, we put in an application for a temporary permit, a three-year permit. The reasoning for that is to avoid legal challenges to the company while the government is amending the long-term permit. This has been the subject of a hearing over summer, and it is now in the hands of the Ministry of Climate and Environment. We expect them to make a decision towards the end of August or beginning September, if they stay on track. In all of this, we have had, and continue to have, a very positive and constructive dialogue with the government, so we have reason to believe that the permitting will be solved. Of course, we have seen in the press that the ministers have given clear support to the company and also our continued right to operate while this is being sorted.
With that, I hand over to Tord to talk about financials.
Yes. No revenue has been recognized in the quarter. We completed one garnet shipment in May. However, payment has not yet been agreed as discussions regarding product quality are still ongoing. As a result, both the timing and final outcome of this payment remain uncertain. In terms of product quality, this shipment is a setback compared with the February shipment. Our priority now is to work closely with Barton to improve garnet quality and establish a stable quality level that support the customer's requirement going forward. Operating expenses remain broadly in line with the first quarter. This quarter also reflects a $1 million increase in the expectant Barton penalty provision, and we have ongoing discussions with Barton also on this topic. The liquidity position I will address in the coming slides, but NOK 150 million at group level is not sufficient to support the ramp-up without additional liquidity.
Cash flow for the quarter was negative NOK 210 million, primarily reflecting the continued high level of ramp-up activity, extensive use of external services, and an adverse working capital movement. The current liquidity position is not sufficient to continue the ramp-up, and without further actions, the company would have moved into a covenant breach situation in August. We have secured liquidity runway into the beginning of September and are actively working to secure an additional $10 million-$15 million to extend the runway into November. The target is to have a long-term financing solution in place ahead of the November coupon payment. We are engaging with bondholders, royalty holder, and shareholders, and we will also approach potential new investors as part of the broader financing process.
Our key focus is to protect and further develop the values built up at Engebø, and we experience a constructive dialogue with all stakeholders on that. Underlying cash OpEx in line with previous quarter. The reported cost level is, however, impacted by specific items related to the ongoing ramp-up and legal processes. Additional ramp-up support added NOK 7.9 million in the quarter, while legal costs added further NOK 3.2 million.
We would also expect a continued need for ramp-up support and legal assistance at ERG going forward, although we will continue to manage the scope and cost level closely. The increase in maintenance cost is mainly related to a one-week maintenance stop in June, as well as reclassification of certain consulting costs from SG&A in the first quarter to maintenance and processing plant in the second quarter. As part of the long-term financing process, we will also conduct a comprehensive cost review.
With that, we move to Q&A.
All right. Thank you, Tord. There's been a few questions here, so let's just go through them. I think we can start off with the product quality, as some of you mentioned during the presentation. Why isn't the product quality as planned? Can you maybe elaborate a bit on that?
Sure. Product quality, then it's garnet and rutile. If you take garnet first, we know that we can produce garnet with sufficient quality, which is well accepted with customers. All of the garnet that we are producing is within the specifications that we have in the offtake agreement with Barton. But we are going one step further improving the quality to make sure that it's also the best quality that the customer can buy. The February shipment was very well received. The May shipment was a bit of a setback with apparently or claimed too much dust. We are still to assess if that is the case for all of the product or if it's part of the product or none of the product. We still don't know. Then we will assess what we can do with that product, which is currently in the Netherlands.
For rutile, it is a bit different. We know that all the product we produce of rutile we can sell. It is just a matter of how high grade. In the contract, we have above 93% with Iwatani Corporation. If it is below 93%, we will sell it to other buyers, and then the price will be lower, depending on how high the grade is. We know that we are able to produce above 93%, and we are increasing the volume of above 93%. We are getting there, but of course it has been taking longer time than anticipated.
Good. Thank you. Then there is a question here. Given your current runway until early September, what happens if a temporary permit decision will not be reached in time?
I do not really think that is an issue because our permanent permit, the long-term permit, even though the Supreme Court of Norway has said that it is invalid, the government has not revoked it, which means that we can still operate under the long-term permit. As such, the temporary permit is just another layer of defense for us.
Thank you. There is a question here. Can you say something about the contents on the August shipment? Were there any rutile on board the ship?
That was a garnet shipment for Europe, so currently no shipment of rutile.
Thank you. Let's see. Then we have a question on kind of the production. Can you explain more the problems with the liberation steps? How are they different or related to the problems with separation?
Separation concerns the last step of the process where we're currently producing rutile, and we're getting to around 25% of capacity. In order to step up further from that, there is equipment on this last step that needs to be functioning properly. We've run extensive tests on the installed equipment as well as lab equipment that we put up in parallel, and we found that the lab equipment achieved a greater separation than the installed equipment. We identified the differences between them and have put in now as we speak new parts that are identical to the lab equipment. So we have reason to believe that that's going to have an effect on the separation. In terms of liberation, that's about crushing and milling down the particle size to one where you actually achieve liberation of the rutile from the garnet and also from the tailings.
That has to do with both equipment and experience that we are running the mill at a level of capacity that grinds enough, mills enough to achieve the liberation, but not so much that it produces too much fines. That sort of enables the rest of the process. As we crack the code on this last step of separation, we need to revert again to the first step and balance the plant. The effects of this will be larger now in the beginning, but this would be an ongoing effort, I think, throughout where you always optimize for having the most product recovery.
Great. Thank you. There is a question here on when do you expect any rutile shipments?
I think we have sort of burned ourself on saying something about that before, but all I can say is that as soon as we have sufficient volume, we will ship it.
Thank you. Then we have a final question here. To what extent are the latest problems due to issues with EPC or OEM suppliers? Do you think you have any claims against them? Are you pursuing such claims?
The delivery is not yet complete, so I can say that there are ongoing discussions with EPCs at this point. There are constructive dialogue to solve final outstanding issues.
All right. Thank you. That seems to be the questions for now. If you have any additional questions, you can submit them through the contact described in the stock exchange notice as of this morning. I will leave the word to you, Finn Ivar, for some closing remarks.
Yeah. Thanks again for participating in our second quarter update. Again, company is in a serious position, and we have been working and will continue working hard to solve this. As I said earlier, we have a plant that has been built. We have a mine, an ore body, which provides a lot of critical minerals for years to come. So the values are there, and it is about getting over this near-term challenges. So thanks again for your time, and we will be back with updates as we go along.