Good morning and welcome everyone to this webcast presentation from Nordic Mining. My name is Ivar Fossum, I'm the CEO of Nordic, together with Kenneth Nakken Angedal, Project Manager for the Engebø Rutile and Garnet project. We will give you the presentation this morning. In the first part of the presentation, we will give you highlights from the Group's First Quarter 2021 Interim Report before we move on and present to you the updated feasibility study for the Engebø project. Please note that the webcast will be recorded and posted at our webpage together with all other information material, unless you can follow us directly. You can also post your questions while we speak, and we will set up a Q&A session at the end of the presentations for both sessions. I hope you see and hear me clearly. Let's start.
First of all, a few words about the first quarter, where we certainly focused on the Engebø project, but also had some activities related to our lithium asset in Finland. We raised NOK 80 million in February in this quarter, which makes us sufficiently capitalized for the road ahead of us. We had approximately NOK 92 million at the end of March, which makes us good finance to continue our work for the Engebø project towards financing and startup. Also in January, we got granted our revised discharge permit for the Engebø project, and we improved certain elements for environmental performance of the project, which we will tell you more about shortly. Last year, we reevaluated our view on lithium. It has been some, how to put it, sideways years, but last year lithium took a shift.
Market demand and momentum picked up, and when Keliber engaged with a huge other industrial partner in their project, we decided to follow up our investment in Keliber. We participated in the share issue in March-April, and we ended up with a final ownership of around 14.3% in Keliber. It is a positive momentum for Keliber going forward, and it will be exciting to see what will happen in the battery value chains and the fields of change in Europe going forward. Finally, we have presented today the updated feasibility study for the Engebø Rutile and Garnet project this morning. We will move to the main presentation for today, the updated definitive feasibility study. We call it the UDFS. We have divided our presentation in some chapters after I have given some highlights and headlines for the study.
Kenneth will tell you more about the project and the features, and then we'll guide you a little bit on the financial outcome of the project before we tell you how we move on from here. At the end of the presentation, as I mentioned, we will have a Q&A session if you have any questions to the presentation. Last year, when the world changed and brought uncertainties from the pandemic and the market around us, we realized that we could not move forward with the project as it stood. We had to seek for a project with less capital needs and hence reduced financing risk, but also a project that was more robust and more resilient to market fluctuations, and in particular related to markets and sales of garnet.
These were the drivers that we brought with us into a value engineering process in the second quarter of last year. During that process, we also realized that in order to reach our targets, we had also to reduce execution risk and look differently on how we handle contract strategy and setup for construction. We also targeted improvement on environmental performance for the project. All of this will retain financial returns. What has this given us? It has given us a sustainable product with very robust project economics. Some specifics: the plant footprint has been reduced by over 40%. The CO2 emissions from the process plant have been reduced by approximately 80% by bringing in electrical equipment. We have significantly reduced the capital expenditure by over $90 million, down from $311 million to $218 million.
All of this retaining a financial return of 19%, almost 20% post-tax IRR and a net present value of $260 million. What does the Engebø project mean in terms of products and industry? The Engebø production will put us into the huge value chain of titanium dioxide. The reason is that titanium is one of the most versatile elements and has a broad range of applications. It is also the cleanest and purest form of feedstock for making pigment and for making titanium metal. As you see on the picture, pigment represents 90% of the applications for titanium dioxide. It has also revolutionized the production of aircraft and aerospace through titanium metal, as well as health tech applications such as artificial bones and hips.
It has a niche application in making safe and high-quality welding rods, and it is steadily moving into the green transition production value chains, such as solar cells and batteries as cathode material. Rutile is the purest feedstock, and you have some large producing countries, but we see depletion of resources and other challenges which lead to supply deficit going forward. According to the market experts and advisors we have been using in our study, there will be a lasting supply deficit for rutile after 2023. When we at the same time see that GNP increase and growth around the world will boost the production of pigments and metal, the producers need pure feedstock to expand and maintain optimal capacity from their production plants. That makes rutile a valuable and vital feedstock. All of this will underpin, we think, the price level for rutile going forward.
As we have told you before, we are enjoying good dialogue and have an agreement with the Japanese trading house for offtake of the majority of the rutile produced from Engebø, as well as participation in the project financing for Engebø. We will also produce garnet from Engebø. Garnet is a young, new industrial mineral with growing applications and a range of environmental benefits. Because of its particular specific gravity and hardness, it is the only mineral that is viable for water jet cutting, which is a new technology with tremendous potential, and it has revolutionized production processes for everything from diapers to cars to aircraft and many, many other applications. Garnet is a completely inert mineral without health implications, and that means it is also recyclable, so you can use it several times in the same process, either for water jet cutting or for blasting.
In addition to water jet cutting, which is the largest market segment for garnet, it's also being used for water cleaning, infiltration packages, and a range of other specialty abrasives like making anti-skid floors in industry buildings, etc. Today, there are no producers of garnet in Europe. With Engebø online, we will have a strategic position to one of the largest markets for garnet, with excellent logistics from our own quay at Engebø down to Central Europe. Despite that, demand took a hit because of the COVID pandemic, as you can see from the graph. The predictions ahead are solid growth, in particular for the water jet cutting segment. We are now enjoying discussions with certain offtake partners in these markets to secure bankable arrangements, which will underpin the financing for Engebø.
We will come back to details on the schedule, but pending project financing, we target to put the shovel in the ground in the second half of this year and move into construction phase for Engebø, with a target production start in the beginning of 2024. That concludes my highlights of the study. I'll give the word to Kenneth, who will tell you more about the Engebø project.
Good morning. I will start talking about some more details of the project and moving back to Ivar in a later stage. The Engebø deposit is a 2.5 km-large eclogite ore body outcropping at the surface. It has a long mine life, and further extension is possible both at depth and towards east. It is, as Ivar mentioned, located by the North Sea with an ice-free deep-sea quay, which gives us the advantage of Europe and overseas markets. From an infrastructure point of view, we are based roughly 40 minutes from Førde, the regional center in the area, and two airports nearby. We have renewable hydroelectric power running across the process plant, and the region is well known for land-based industry with skilled workers, both in the land-based, maritime, and energy sector. There are also several maintenance and service vendors related to these industries already in the area.
As Ivar mentioned, we had a value engineering exercise in the spring last year, and one of the key elements and outcome of that was that there was a potential of increased value from the mining. We have looked at this, and the result is showing that we are getting a higher grade of rutile from the mine, both in the open pit and specifically more in the underground mining. We have also improved the schedule for waste rock and stockpiling, and we are retaining a very low open pit stripping ratio of 0.6, as the graph will tell you that it is lower in the start and above 0.6 in the end when the transition towards the underground is ongoing. We have also, through a better design, removed the need for capital investment in the transition from open pit to underground.
Currently, the life of mine is 39 years at 1.5 million tons per annum plant feed. There is an inferred resource of roughly 250 million tons that is a probable and likely extension over and above these 39 years. The expected production over the first 10 years is average on rutile 35,000 tons and 180,000 tons of garnet. Going a little bit back to the value engineering part, a big change that reduces our capital investment is some of the key changes we have done in this study. First of all, through the mine design, we have also optimized the access to the mine and the pushback designs. This new pit design also enables smaller fleet size, and we have reduced the bench height and the width to be able to target more high grade. A little bit back to the value engineering.
When we sat down after the DFS in early 2020, we looked back and said, "What type of design criteria, the big things, have you had with us for a very long time?" As we have matured the project, learned more, understood what the various vendors and contractors are coming back with from a cost point of view, what could we do different? One part more related to the schematics that you see on the left-hand side is that we have changed the methodology of our comminution and ore logistics. We have taken away the underground silos that we had before and moved that to the process plant area. This gives us a significant reduction in CapEx that are following into the $90+ million savings. The big changes are happening on the process plant area.
The main reason for that is to make sure that going from the modular approach that we had in the DFS to the stick-built methodology, not compromising on design criteria and technical specification for the production line, we have made the process plant over 40% reduced in size, physical footprint. Because of this, we have been able to have a more compact site, bring the production line into three main buildings and one intermediate stockpile, which is between comminution and milling. This also gives us increased operational flexibility as the comminution parts of our processing plant for our hard rock eclogite requires maintenance and other types of operational flexibility for that part of the process. We are able to run Monday to Friday with comminution stockpiling to also run the processing side of it 24/7.
The fit-for-purpose design also enables us to reduce the area needed, and we have a country road going through the overall area, but we are now positioned the whole plant at a southern side of it between the road and the sea. This, of course, reduces the civil and earthwork work drastically. In total, we have our initial project investment reduction of $93 million. On the process side, we have actually included what we planned as confirmatory test work for detail engineering into the updated DFS. The integrated process produced both high-quality rutile and garnet. We have been doing the test work of critical process with scalable equipment. We have a limited rutile flotation with approved chemicals in the rutile circuit. The high-grade rutile with 95% TiO2 has negligible level of radioactives, and the garnet has been tested multiple times in line with industrial reference qualities.
Another thing related to environment and CO2 emissions. When we started working with the updated DFS, we saw the potential to move from LPG dryers to electric dryers, and this gives us a total estimated CO2 equivalent of 4,125 tons a year. Looking towards other global average feedstock producers, we are significantly lower, and those 4,125 tons of CO2 equivalents have been given all to the rutile production in this graph. We are very low on CO2 emissions. These CO2 emissions are now only coming from the mining fleet and the work to extract the ore from the ore body. We believe that in future, with maturing technology, we can also move these mining fleets over to fossil-free operation. Likely, the transition to underground is a good point to further investigate with the current status of the technology.
We will also have high focus on energy savings and safety by a high level of automation and digitalization across the operations. As a principle, ESG is also embedded in our plans for construction and operation. As mentioned before, the use of electric dryers instead of natural gas reduces our CO2 emissions significantly. Other than that, we are also putting together our eco design according to new regulations coming in the future already into the engineering. The process chemicals have been approved and reduces the usage of chemicals compared to the previous approval with 99%. From a health and safety point of view, we have high focus from the start of execution. We are bringing on an operational readiness team to prepare procedures and processes for the operation.
We are also including technical staff in the execution to maintain a safe work environment for operations inside a production plant. We have prepared a stakeholder engagement plan and set that in motion. We have also started a local resource group establishing a dialogue with the local stakeholders for our project. We will be a long-term employer in the area, 40+ years, including the inferred resources. It is a long life, and we need to be available to plan and discuss with schools and other types of industries to make sure that our operations are ready when we start.
Thank you, Kenneth. I will move into the next chapter called Financials. The commercial profile of the Engebø project is one of a solid long-term cash flow over a period of 39 years. It gives an EBIT of accumulated $2.1 billion, corresponding to an average margin of 68%. This really shows the benefit of a dual mineral operation. Comparing to the long-term project that Engebø is, we have a payback of 4.4 years from start of production until capital expenditures are paid back. We have a life of mine operating free cash flow of $1.7 billion. We are extremely pleased with that we now have a more robust, more sustainable project with retained financial return on a lower capital base. From time to time, TZMI in Australia are peering producers of titanium feedstock and comparing them on what they call a revenue-to-cash cost position.
It is the ratio between revenue and cash cost for these producers, where normally titanium is a production beside other minerals. We see on that graph that Engebø, due to our unique composition of two industrial minerals, is sitting right at the top of this revenue-to-cash cost ratio, making us very robust and very competitive in terms of fluctuations in parameters around us. The reduction in CapEx has led to a robust project, and we can see from the sensitivity graphs that even with substantial change in capital needs for the project, we still have a very robust and profitable project. The same effect is seen on price sensitivities, where rutile and garnet are falling along the same sensitivity line and have reduced sensitivity on the revenue side of the project.
More details with regard to financial parameters are found in the appendix, which you can read in the report and on the presentation material on the web. I give the word again to you, Kenneth, to move on with project execution.
A big part of the changes that we have done that leads towards a CapEx reduction also comes from looking back and maturing our execution model. As part of our work with re-engineering, as discussed earlier, we also had a good look on the execution model and how to work together with various contractors. Initially, before we started the updated DFS, we had discussions and meetings with various parties, big companies in Norway, and how their success criteria are defined. Two of the outtakes from that was early engagement and partnership. This goes for almost all the execution models that you do from a Scandinavian point of view, but these two points were the outtakes that we took with us.
As part of that, we matured our execution model to move from an EPCM over to four distinct EPCs that are taking more responsibility on the engineering side. What we did, we defined through a short process, and also these EPCs that we have been working with in this phase have been a part of the project for a long time. This early engagement brought also new ideas. When we went through reducing the footprint, a lot of the good ideas also come from those who are used to build these sorts of plans before. These four EPC contracts now comprise roughly 70% of the total CapEx. The idea behind this is to make sure that by working together, we have a very good common project focus and ownership.
As seen on the illustration on the right side, the owners' teams are setting up the project management, defining the process criteria, and the process equipment. They're doing the basic conceptual design, but the detail engineering and construction is executed by the EPCs. Of course, this is managed by the owners' team all the way through, and in the end, the commissioning is managed by the owners' team. How is this done? What we have tried to do, we have put together an owners' team supported and strengthened by experts from reputable project management consultants. The idea is that even though the engineering is moved towards the EPCs, the PMCs are supporting with assuring the technical compliance with the defined design criteria and technical specifications.
The way we will work together is that we will work as one integrated team from an owner's point of view and defining roles and responsibility as one team. We will also make sure that commissioning and operation are included from day one to make sure the transition going from construction to operation is as seamless as possible. We also make sure and plan for the key disciplines from the owners' team are moving from execution and construction into operation to make sure that even though we are changing the faces, we bring with us all the knowledge gathered on the way. Moving a little bit to a more detailed schedule overview, Ivar showed the high level earlier.
In the end, what we're doing now, we are moving the feed, as we defined before, we're taking away the feed and defining a project going from detail engineering to production ramp-up. It's done in stages, but with the current design and execution model, it enables us to start detail engineering at almost the same time as we start earthworks at site. In total, this gives us a slightly shorter time to production compared to earlier from the investment decision. In the end, when we defined the different EPCs, we also looked at what do they do best and where are they able to control their risks. That's also seen at this schedule overview. You can see the earthwork starting at the process side.
When it's finished there, EPC2 comes in and starts building buildings and other civil work before EPC3 and 4 comes in and installs and setups the production line. We have made sure that it's done in different areas, moving into both mechanical completion and commissioning and production ramp-up. At the end, I would like to thank Hatch as our principal and main technical coordinator of the updated DFS study, but we also have good help from IHC Robins in terms of test works and Axe Valley with the optimized mine design and schedule. We have, of course, also other support from various companies around the world, and some of them are mentioned also on this slide.
Thank you, Kenneth, and we'll move on to the Q&A session with a few sort of introductory remarks. Needless to say, the updated feasibility study is a huge effort, but also a very, very important milestone for moving into realization of the Engebø project. There are exciting times ahead. We will start to engage closer and formalize our partnerships with the EPC contractors. We are in the process of building the owners' team, recruitment of key resources for that team, for example, an assignment of a project director for the construction phase. We will assign the PMC that will strengthen our team for execution. Another important task is to align the PMC and the EPCs and getting themselves familiarized with the project setup to mitigate sort of communication and coordination between the various institutions.
We will define pre-construction activities in the months ahead of us and moving into engineering, as Kenneth described. We will finalize offtake agreements with our marketing partners, both on rutile and garnet, and start preparations for project financing. With these remarks, I will move on to the Q&A session. Please post your questions if you haven't already, and we can read them here on the webcast. I'll ask both Christian and Kenneth to come up to the podium so we can ask questions if any. Answer questions, please.
Okay. We have received already a couple of questions. Some are quite general, and some are related to the Engebø updated feasibility study. I think we will start with a general question and move slowly towards Engebø as we go along. What is the status of subsea mineral activities and Nordic Ocean Resources for the time being?
Thank you. We have in this quarter given a detailed comment to the authorities in their hearing process for the state-run impact assessments that they will carry out for seabed mineral resources. We now are engaged in certain dialogues with possible partners on how we are going to move forward in that area.
When do you expect that the operating license will be confirmed and the appeals are clarified with the Ministry of Industry and Trade and Fisheries?
We are expecting that, so to speak, any time in November last year, the complaints to the granting were clarified from the Directorate on Mining, and they handed over the application to the Ministry. It's hard to get guidelines from authorities, but it's due time or overtime for making that final.
A combined question. Does Nordic Mining experience any from offtake partners and potential institutional partners that there are any hesitance or negligence to offtake due to the summons from Arctic Mineral Resources related to mineral rights at Engebø?
To answer that sort of a little bit general, we don't see any specific concerns, but certainly it's a nuisance and brings uncertainty that we have sort of opportunistic companies sort of using some of the information resource base that we have established over the years for Engebø.
Related to this question, what is currently the status of the court proceedings with the AMR summons?
It is really sort of an early stage, and we just have to follow these court proceedings. We'll come back with more information. I'd just like to underline that we have been given operational license from the Directorate. We have exploitation mining rights for the whole of the Engebø deposit, and we are very, very confident on the results from the summons and these discussions.
Then we move more towards the project geology. Is there any indications of light rare earth elements and heavy rare earth elements in the deposits? And if so, do you plan to extract anything of that?
No, we cannot characterize Engebø as a rare earth deposit as such. As in all minerals, you almost find all elements. We have, for example, minor contents of scandium, which is one of these elements, but none of the other sort of strategic rare earth elements.
Over to market. What is the strategy to avoid dependence on the Japanese trader in the marketing of the rutile titanium dioxide? Is Nordic Mining also pursuing other channels to market the product? If so, which channels?
The answer is yes, and we'll bring more specific information as we progress in these discussions.
Also a market-related question. In the updated feasibility study, what's the selling volume of garnet per year in the first years?
We are starting out with 150,000 tons and building it up. The average production of garnet is around 180,000 tons for the first 10 years.
Okay. A question specifically to Kenneth regarding the CapEx reduction in the new underground and the planned layout. What are the particular new risks, I mean, from cost level, feasibility, environment occurring from the new layout, or is it only advantages?
No, I think it's a good question. I think all projects have embedded risks somehow, but we don't see any significant increase in risks from the layout perspective in this sense.
In the updated feasibility study, it's stated that reduced process operating cost by more than 25%. Does this also reflect a reduced number of employees in the project organization or in the operating organization?
No, we more or less retain the number of headcount as previously. From the process point of view, it's exactly the same as before.
I think that was about everything from the audience. I think we have covered all the topics. Some questions are quite equal and touching upon the same topic. If there are no additional questions coming in, I think it's time to close.
Thank you, Lars, and thank you all for listening to our webcast. Thank you.