IHS - Jervois Global Limited Quarterly Activities Report to 30 September 2023

(TheNewswire)

Australia - TheNewswire- 26 October 2023 - Jervois Global Limited ( ASX/TSX-V:JRV ) ( OTC:JRVMF )

Click Image To View Full Size

Delivering on business priorities

Following the US$25.0 million Unsecured Convertible Notes (“ Notes ”) andaccompanying US$25.0 million fully underwritten1 for 3.34 accelerated non-renounceable entitlement offer (the“ Entitlement Offer ”) in July 2023, Jervois continued toimplement a refocused strategy to ensure the business can befinancially sustainable and self-funding at historically low cobalt prices caused by People’s Republic of China(“ PRC ”) oversupplyfrom the Democratic Republic of Congo and Indonesia.

Priorities and key milestones delivered in the quarterare as follows:

• Maximise margin and cash flow at Jervois Finland, anddeliver operational improvements:

  • ?? US$8.2 million Q3 operating cash flow at JervoisFinland, building on US$33.2 million of operating cash flow deliveredin the first half (positive US$41.4 million 2023 YTD).

• Execute U.S. Government (DoD) US$15.0 million fundedICO drilling programme and U.S. cobalt refinery BFS:

  • ?? Surface drilling commenced at the Sunshinedeposit; a historic resource adjacent to Jervois’ ICO processinginfrastructure.

  • ?? Finalised engagement terms and study managementexecution arrangements with AFRY USA LLC to undertake basicengineering and prepare an accompanying BFS for a greenfield U.S.cobalt refinery.

  • ?? BFS is key to support Jervois’ existingDepartment of Energy (“ DOE ”) Advanced Technology Vehicle Manufacturing(“ ATVM ”) loanapplication for a domestic American cobalt refinery (see ASXAnnouncement “Jervois submits an ATVM loan application to the U.S.DOE”, 24 April 2023).

  • ?? Refinery site selection is ongoing.

  • ?? Initial funds received from DoD for workcompleted (programmes are 100% reimbursable).

• Advance debt and partner financing process atSMP

  • ?? Counterparty engagement and due diligence inBrazil advancing.

• Review partnership opportunities across the portfolioto crystalise and demonstrate value:

  • ?? Additional initiatives advancing across all otherportfolio assets – significant third-party interest at each asset.

Jervois Finland

• Quarterly revenue US$ 42.2 million        (Q2 2023:US$56.6 million)

• Cash flow from operations        US$8.2 million               (Q2 2023: US$31.9 million)

• Adjusted EBITDA 1 US$ 0.5 million               (Q2 2023: US$2.6 million)

• Sales volume                        1,216metric tonnes        (Q2 2023: 1,602 metric tonnes)

• Production volume:               1,285 metric tonnes (Q2 2023: 1,367 metric tonnes)

Jervois Finland provided positive Adjusted EBITDA andunlocked further operating cash flow in the period, including throughthe continued release of working capital. Jervois Finland has nowgenerated more than US$40 million in operating cash flow over the pastsix months.

Sales and marketing

Jervois Finland produced 1,285 metric tonnes and sold1,216 metric tonnes of cobalt in the quarter.

Figure 1: Jervois Finland sales volume by quarter(mt)

Click Image To View Full Size

The decrease in sales volumes relative to the priorquarter reflected cyclical softness in demand in end-use segments, andintra-year variability in shipment and customer order timing. Salesvolumes year-to-date to 30 September 2023 are 4,377 mt, 10% higherthan the corresponding period in 2022. Sales volume guidance for the2023 calendar year of 5,300 mt to 5,600 mt remains unchanged.Production volumes and product mix remains subject to continuousreview and adjustment based on an assessment of end-use demand andtaking into account target inventory levels.

The company’s sales performanceand outlook for key market segments under which Jervois Finlandoperates are summarised below.

Batteries:

• Destocking continues in battery supply chains, andcustomer inventory levels today remain above normal levels. Recoveryfrom Jervois’ current customers is expected in 2024.

• Interest continues from both European and U.S. based EVOEMs (automakers) for long-term cobalt supply but with volumesstarting in 2025 and beyond.

• U.S. Inflation Reduction Act ( IRA ”) continues to drive interest inU.S. and other Western supply of battery raw materials.

Chemicals, Catalysts and Ceramics:

• Catalysts: Oil and gas segment (processing/refining)continues to be solid, and outlook remains positive.

• Chemicals: Demand continues to be above last year inthe main chemical applications (copper electrowinning, coatings, andrubber adhesion).

• Ceramics: Short-term demand in pigments has increasedon the back of recent cobalt price increases. Prices remain underpressure though as PRC competition into Europe continues to berobust.

Powder Metallurgy:

• Automotive production rates remain variable withlagging issues around semi-conductor supply continuing to affect plantutilisation. Jervois customers have expectations of improvement in2024.

• General engineering, including construction, remainssoft.

• In contrast to demand from the petroleum sector aspertains to catalysts (specific to refining), in powder metallurgy, asU.S. oil and gas production (drilling) has fallen, and rig counts areexpected to remain down for the balance of 2023, demand remainssubdued.

• Aerospace continues to be one of the bright spots, asorder books remain full due to rising demand from both civilian andmilitary purchasers.

Financial performance

Jervois Finland achieved revenue of US$42.2 million inthe quarter, a decline of 25% relative to the second quarter. Thedecrease was principally due to lower sales volumes, and lowerrealised pricing. The cyclical weakness in cobalt prices thatpersisted in the quarter was in part due to market oversupplyconditions instigated by the PRC as outlined earlier.

Adjusted EBITDA

Jervois Finland achieved Adjusted EBITDA in the thirdquarter of US$0.5 million, continuing a turnaround that commenced inthe second quarter. The result is consistent with Jervois Finland’shistorical performance where the business model supports generation ofa positive margin in an environment of cyclically weak but stablecobalt prices, albeit high input prices associated with energy andconsumables in Europe, due to the Russian invasion of Ukraine,continue to linger. Moving forward, market pricing of key consumablesand chemicals such as caustic soda, oxalic acid, and soda ash arecontinuing to steadily reduce in line with expectations.

The decrease in Adjusted EBITDA relative to the priorquarter was principally due to lower sales volumes and a modestincrease in feed costs realised in the profit and loss account. Thesefactors more than offset the benefits of a reduction in productioncosts in the quarter.

Figure 2: Jervois Finland Adjusted EBITDA by quarter(US, unaudited)

The plant continued to perform well in the quarter,with internal targets for safety, production efficiency and productquality all met in the quarter. Near-term focus for Jervois Finlandremains on operational performance, cash generation and riskmanagement.

A reconciliation between Adjusted EBITDA, EBITDA, andNet Profit after Tax (“ NPAT ”) for Jervois and Jervois Finland is included on page 11.There were no material reconciliation differences between AdjustedEBITDA and EBITDA for Jervois Finland in the third quarter.

Cash flow performance

Cash flow from operations (before interest payments)was US$8.2 million in the quarter, bringing cumulative year to datecash flow from operations from Jervois Finland to US$41.1 million.Positive cash flow resulted from the continued stabilisation of theJervois Finland business and working capital reductions. Physicalcobalt inventories reduced by US$4.1 millionfrom US$48.6 million at 30 June to US$44.5 million at 30 September2023. This represented a reduction from ~100 days at 30 June 2023 to~81 days at 30 September 2023. Jervois is continuing to execute aninventory management strategy aligned to a near-term target range ofat or below 90 to 110 days, in a manner that balances liquidity andrisk management objectives.

Jervois made partial repayment of the Mercuria workingcapital facility in the period in line with the reduction of theunderlying collateral value, with US$8.6 million paid in July inaccordance with the terms of the facility agreement. A furthervoluntary repayment of US$4.8 million was completed in early October,to meet deleveraging objectives and to reduce financing costs. Thecurrent loan balance at the date of this report is US$44.1million.

Idaho Cobalt Operations (“ICO”), United States(“U.S.”)

Cash flow for ICO in the third quarter included US$4.6million associated with suspension costs.

A further US$8.6 million of cash was utilised forresidual vendor payments and one-off items for works completed beforethe construction project was suspended on 29 March 2023 and,thereafter, transitioned to suspension mode in the second quarter.Residual vendor payments at ICO are substantially in line with priorguidance that was included in the “Capital Raising Presentation”dated 28 June 2023, with the final capital cost falling slightly belowthe US$155 million estimate.

Jervois commenced a surface drilling campaign at theSunshine deposit adjacent to ICO in September 2023, following receiptof U.S. Forest Service approval. Sunshine is a historic depositadjacent to Jervois’ 100%-owned ICO, within a short truckingdistance of the recently constructed processing facilities.

Drilling occurred under the U.S. DoD US$15.0 millionfunding agreement (the “ AgreementFunding ”). The Agreement Funding is under theManufacturing Capability Expansion and Investment Prioritizationoffice of Industrial Base Policy using the U.S. Defense Production ActTitle III authorities and utilises funds from the Additional UkraineSupplemental Appropriations Act. The drilling campaign directexpenditure and associated Jervois programme supervision andadministration is fully refundable under this agreement.

Jervois expects to spend US$2.4 million to completeapproximately 2,000 metres of drilling from surface, designed tointersect the Sunshine deposit with the results expected to enable thedeposit to be upgraded to a modern mineral resource. Sunshine is aunique brownfield exploration opportunity, with a significanthistorical dataset which has underpinned design of this drillingprogramme.

Planning for an underground exploration programme atthe RAM deposit within ICO progressed during the quarter.

Jervois’ Board also approved the appointment of AFRYUSA LLC., a U.S.-based engineering and consulting company, to leadbasic engineering and the associated BFS for a new greenfield U.S.cobalt refinery. This facility is expected to be constructed under theframework of the IRA and associated U.S. legislative initiativesincluding Jervois’ existing DOE ATVM loan application (seeannouncement dated 24 April 2023). Again, execution of basicengineering and the BFS is fully refundable under the AgreementFunding.

Jervois commenced site selection via its 100%-heldsubsidiary, Formation Holdings US, Inc., as the first stage of theU.S. refinery BFS (see announcement dated 2 August 2023). Jervoisexpects to spend US$0.3 million to complete site selection, which isbeing executed by AFRY USA LLC. The site selection is fully refundableunder the Agreement Funding.

Site selection considers local, state, and federalincentives; permitting processes; security of supply chains;logistics; access to workforce capacity and capability; and othertechnical and operational requirements, all to underpin a globallycompetitive facility. The expected BFS completion schedule will beavailable upon a final location decision.

São Miguel Paulista (“SMP”) nickel and cobaltrefinery, Brazil

Counterparty engagement and due diligence continues toadvance at SMP. Jervois’ objective remains to conclude a partnerfinancing solution before the end of 2023. SMP’s economic potentialis strong, based on prevailing market conditions, with market pricingfor both nickel metal and mixed hydroxide precipitate intermediatefeed trending favourably compared to the BFS assumptions.

The SMP restart project is expected to resume promptlyonce the partnering process is concluded. Current activities at siteare focussed on supporting due diligence, and review of opportunitiesto optimise and de-risk the restart capital project.

Monthly costs are currently tracking favourably againstthe ~US$0.5 million expected run-rate previously communicated to themarket.

Nico Young nickel-cobalt project, New South Wales,Australia

Jervois is undertaking adivestment process to sell all or part of itsinterest in the company’s 100%-owned Nico Young nickel and cobaltproject which continued to progress during the quarter. Jervois hasinvested >A$20 million in Nico Young. It is a strategic futuresource of Western nickel and cobalt.

Corporate activities

Liquidity

Jervois completed a fully underwritten US$50.0 milliontotal capital raising in July 2023, comprising:

• -- US$25.0 million Notes maturingin July/August 2028 which are convertible into Jervois ordinary shares( Convertible Notes Offer ”). The initial conversion price for the Notes is US$0.0605which represented a 40% premium to the Entitlement Offer TheoreticalEx Rights Price (“ TERP ”) 2 and the Notes carrya 6.5% p.a. coupon; and

• -- US$25.0 million EntitlementOffer, undertaken in parallel with the Convertible NotesOffer.

On 31 August 2023, Jervois closed the second US$5.1million tranche of the US$25.0 million Notes following approval of theCompany's shareholders at a general meeting held in Melbourne,Australia on 28 August 2023.

Jervois ended the September 2023 quarter with US$54.9million in cash, US$44.5 million physical cobalt inventories inJervois Finland, and total drawn senior debt of US$148.9million 3 . A key strategicobjective for Jervois is to de-risk the path to establishing amulti-asset platform underpinned by a durable capital structure.Jervois intends to pursue initiatives across its asset portfolio tomeet this objective.

Environmental, social, governance

Jervois continues to chair the Cobalt Institute’sResponsible Sourcing and Sustainability Committee and actively engagein related working groups. In the quarter, this included participationof key Jervois personnel in environmental and human rights duediligence training and dialogue on industry ESG standards betweenmembers of the Cobalt Institute and OEMs (car makers), civil societyorganisations and standards setters.

Presentations and events

During the quarter, CEO Bryce Crocker presented at theDiggers and Dealers Mining Forum in Kalgoorlie, Western Australia andat the Canaccord LatAm Natural Resources Conference in São Paulo,Brazil.

Results of meeting

At a general meeting of Jervois shareholders on 28August 2023, both resolutions put to shareholders passed via a poll,being:

Resolution 1: Approval to issue ConvertibleNotes

Resolution 2: Ratification of prior issueof Convertible Notes.

Exploration and development expenditure

In relation to the DoD funded surface drilling campaignat ICO, US$0.8 million was incurred during the quarter. No othermaterial cash expenditure on exploration and development was incurredduring the quarter.

Insider compensation reporting

During the quarter, US$0.1 million was paid toNon-Executive Directors and US$0.1 million was paid to the CEO(Executive Director).

Non-core assets

The non-core assets are summarised on the Company’swebsite.

ASX waiver information

On 6 June 2019, the ASX granted a waiver to Jervois inrespect of extending the period to 8 November 2023 in which it mayissue new Jervois shares to the eCobalt option holders as part of theeCobalt transaction.

As at 30 September 2023 no Jervois shares were issuedin the quarter on exercise of eCobalt options and 1,980,000 eCobaltoptions remained. These 1,980,000 eCobalt options expired on 1 October2023 and there are no longer any eCobalt options outstanding.

By Order of the Board

Bryce Crocker

Chief Executive Officer

For further information, please contact:

Forward-Looking Statements

This news release may contain certain“Forward-Looking Statements” within the meaning of the UnitedStates Private Securities Litigation Reform Act of 1995 and applicableCanadian securities laws. When used in this news release, the words“anticipate”, “believe”, “estimate”, “expect”,“target, “plan”, “forecast”, “may”, “schedule” andother similar words or expressions identify forward-looking statementsor information. These forward-looking statements or information mayrelate to partnership for group operations, operations at JervoisFinland, drilling to be undertaken at ICO, refinery studies to beundertaken in the US, timing of restart of SMP refinery, third partyfeed to SMP, sales from SMP and the reliability of third-partyinformation, and certain other factors or information. Such statementsrepresent the Company’s current views with respect to future eventsand are necessarily based upon a number of assumptions and estimatesthat, while considered reasonable by the Company, are inherentlysubject to significant business, economic, competitive, political andsocial risks, contingencies and uncertainties. Many factors, bothknown and unknown, could cause results, performance, or achievementsto be materially different from the results, performance orachievements that are or may be expressed or implied by suchforward-looking statements. The Company does not intend, and does notassume any obligation, to update these forward-looking statements orinformation to reflect changes in assumptions or changes incircumstances or any other events affections such statements andinformation other than as required by applicable laws, rules, andregulations.

Neither TSX Venture Exchange nor its RegulationServices Provider (as that term is defined in policies of the TSXVenture Exchange) accepts responsibility for the adequacy or accuracyof this release.

Basis of preparation of financial information

Historical and forecast financial information

Financial information is prepared under Jervois GlobalGroup accounting policies, which conform with Australian AccountingStandards (“AASBs”) and International Financial ReportingStandards (“IFRS”). The Jervois Finland financial results for theperiod post-acquisition are consolidated into the Jervois Global Groupconsolidated financial statements. All information presented isunaudited.

EBITDA for historical periods is presented as netincome after adding back tax, interest, depreciation, andextraordinary items and is a non-IFRS/non-GAAP measure.

Reconciliation of NPAT to EBITDA and AdjustedEBITDA

EBITDA is a non-IFRS financial measure. EBITDA ispresented as net income after adding back interest, tax, depreciationand amortisation, and extraordinary items. Adjusted EBITDA representsEBITDA adjusted to exclude items which do not reflect the underlyingperformance of the company’s operations. Exclusions from adjustedEBITDA are items that require exclusion in order to maximise insightand consistency on the financial performance of the company’soperations.

Exclusions include gains/losses on disposals,impairment charges (or reversals), certain derivative items, NRVadjustments to inventories, and one-off costs related topost-acquisition integration.

Refer to the table below for a reconciliation of NPATto EBITDA and Adjusted EBITDA.

Click Image To View Full Size

Tenements

Australian Tenements

Uganda Exploration Licences

Appendix 5B

Mining explorationentity or oil and gas exploration entity
quarterly cash flow report

1. During the quarter ended 30September 2023, a total amount of US$4.0 million was reclassified to“site costs” (section 1.2 (b)). This included US$2.7 million fromproperty, plant, and equipment (section 2.5) and US$1.3 million fromadministration and corporate costs (section 1.2 (e)).

Compliancestatement

1        This statement has been prepared inaccordance with accounting standards and policies which comply withListing Rule 19.11A.

2        This statement gives a true and fair viewof the matters disclosed.

Date:        26 October 2023

Authorised by:        Disclosure Committee

(Name of body or officer authorising release)

1 Information on the basis of preparation for the financialinformation included in this Quarterly Activities Report is set out onpage 11.

2 TERP is the theoretical price at which Jervois’ ordinaryshares should trade at immediately after the ex-date for theEntitlement Offer based only on the last traded price and issuance ofJervois’ ordinary shares at the offer price under the EntitlementOffer.

3 Drawn senior debt represents theaggregate of amounts drawn under the company’s senior debtfacilities (excludes Unsecured Convertible Notes that mature inJul/Aug 2028). Amounts represent the nominal loan amounts; balancesrecorded in Jervois’ financial statements under InternationalFinancial Reporting Standards will differ.

Copyright (c) 2023 TheNewswire - All rights reserved.