Investor Presentation • Mar 2, 2023
Investor Presentation
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Investor Presentation
2 March 2023
This extended company presentation (the "Presentation") has been prepared by Nordic Mining ASA ("Nordic Mining" or the "Company") with the assistance of Clarksons Securities AS and SpareBank 1 Markets AS (the "Financial Advisors"), solely for use at a presentation to future potential investors (the "Investors") in the Company. The Presentation does not in any way constitute an offer to purchase shares in the Company.
The information contained in this Presentation is solely based on information provided by the Company and its subsidiaries, including Nordic Rutile AS (the "Group"). The information in this Presentation has not been verified by the Financial Advisors. None of the Financial Advisors, the Group or subsidiary undertakings or affiliates, or any directors, officers, employees, advisors or representatives of any of the aforementioned (collectively the "Representatives") make any representation or warranty (express or implied) whatsoever as to the accuracy, completeness or sufficiency of any information contained herein, and nothing contained in this Presentation is or can be relied upon as a promise or representation by the Financial Advisors, the Group or any of their Representatives.
None of the Financial Advisors, the Group or any of their Representatives shall have any liability whatsoever (in negligence or otherwise) arising directly or indirectly from the use of this Presentation or its contents or otherwise arising in a future investment in the Company, including but not limited to any liability for errors, inaccuracies, omissions or misleading statements in this Presentation.
Neither the Financial Advisors, nor the Group, have authorized any other person to provide any other information related to the Group and neither the Financial Advisors nor the Group will assume any responsibility for any information other persons may provide.
This Presentation speaks as at the date set out on its front page. Neither the delivery of this Presentation nor any further discussions of the Group with any of investors shall, under any circumstances, create any implication that there has been no change in the affairs of the Group since such date. Neither the Financial Advisors nor the Group assume any obligation to update or revise the Presentation or disclose any changes or revisions to the information contained in the Presentation (including in relation to forward-looking statements).
The contents of this Presentation shall not be construed as financial, legal, business, investment, tax or other professional advice. Clarksons Securities and SpareBank 1 Markets is acting exclusively for the Company and will not be responsible to anyone other than the Company for providing the protections afforded to clients of Clarksons Securities and Sparebank 1 Markets for providing advice.
This Presentation contains certain forward-looking statements relating to inter alia the business, financial performance and results of the Group and the industry in which it operates. Forward-looking statements concern future circumstances and results and other statements that are not historical facts, sometimes identified by the words "believes", "expects", "predicts", "intends", "projects", "plans", "estimates", "aims", "foresees", "anticipates", "targets", and similar expressions. Any forward-looking statements contained in this Presentation, including assumptions, opinions and views of the Financial Advisor or the Group or cited from third party sources, are solely opinions and forecasts and are subject to risks, uncertainties and other factors that may cause actual results and events to be materially different from those expected or implied by the forward-looking statements. None of the Financial Advisors, the Group or any of their Representatives provides any assurance that the assumptions underlying such forward-looking statements are free from errors nor do any of them accept any responsibility for the future accuracy of opinions expressed in this Presentation or the actual occurrence of forecasted developments. CONFLICT OF INTEREST
In the ordinary course of their respective businesses, the Financial Advisors and certain of their respective affiliates have engaged, and will continue to engage, in investment and commercial banking transactions with the Group.
This Presentation is not directed at, or intended for distribution to or use by, any person or entity that is a citizen or resident located in any state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or which would require registration of licensing within such jurisdiction.
Any potential future offer of securities in the Company will be offered and sold in the United States only to QIBs and outside the United States to persons other than U.S. persons or non-U.S. purchasers in reliance upon Regulation S. The shares of the Company have not been and will not be registered under the US Securities Act of 1933 (the "Securities Act") or with any securities regulatory authority of any state or jurisdiction of the United States and may not be offered, sold, resold, pledged, delivered, distributed or transferred, directly or indirectly, into or within the United States unless registered under the Securities Act or pursuant to an applicable exemption from, or in a transaction not subject to, the registration requirements of the Securities Act or in compliance with any applicable securities laws of any state or jurisdiction of the United States. There will be no public offering of the securities of the Company in the United States. In the United States, these materials are directed only at persons reasonably believed to be "qualified institutional buyers" ("QIB") as defined under the Securities Act. Any person who is not a Relevant Person or QIB should not accept these materials, not act or rely on these materials. These materials are not intended for distribution to, or use by, any person in any jurisdiction where such distribution or use would be contrary to local laws or regulations. The Company does not accept any liability to any person in relation to the distribution or possession of these materials in or from any jurisdiction.
This Presentation is subject to Norwegian law, and any dispute arising in respect of this Presentation is subject to the exclusive jurisdiction of Norwegian courts.
- The Engebø rutile and garnet project ("Project") is a large scale complex industrial project and will be subject to all the risks inherent in a new mineral mining project.
-The Group is dependent upon the continued services and performance of its senior management and other key personnel and consultants.
If the Group is not successful with the Project, the Group may not have other means of deriving revenues.
Nordic Rutile may not satisfy conditions for draw down of amounts, meet covenants related to e.g. the start of commercial production or warranties and obligations under the finance agreements
Due to among other the limited market cap , the low trading volumes and other factors, the price of the shares may be highly volatile.
Pre-emptive rights to participate in the issuance of new shares may not be available to all holders of shares.
The Company does not expect to pay any dividends in the near future.
Transfer of shares is subject to restrictions under the securities laws of the United States and other jurisdictions.
Shareholders outside Norway are subject to exchange risk as the shares are priced in NOK and any future dividends on the shares will be paid in NOK.
Company update - Engebø Project
Additional information
Minerals for a sustainable future
| Construction on track for production in 2024 |
• Project construction commenced in April 2022, with around USD 33m spent towards pre-production capital expenditures as of year-end 2022 • Low-risk project with around 70% of capital expenditure committed on lump-sum contracts, with additional contingencies and reserves |
|---|---|
| 76% of funding secured – final equity to be raised |
~76% of total project financing secured from large financial and strategic partners • • Extensive due diligence carried out by a number of independent technical, legal and financial advisors • Remaining USD 66m in equity being raised in this Private Placement |
| Sustainable industrial minerals producer for the next 40 years |
• Ramp-up of commercial production expected from H2-2024 • Among the largest high grade rutile resources globally Significant political and regulatory support in favor of the mineral extraction across EEA and US • |
| Attractive economics and significant revenue and cash flow generation |
Strong economics – USD 491m post-tax NPV8 and 26% unlevered post-tax IRR • Expected to generate avg. EBITDA of USD 57m and free cash flow of USD 47m p.a. in the period 2025-30 • • Outlook for material and competitive shareholder distributions |
| Industry-leading ESG profile | • Engebø rutile documented as the world's most climate friendly titanium feedstock • Electrical dryers make the process plant free of CO emissions and reduce operating costs 2 • Renewable hydroelectric power and development of electric vehicles and technology will enable fossil-free mining |
| Type of transaction: | Private Placement of new ordinary shares in Nordic Mining ASA (the "Private Placement") |
|---|---|
| Shares outstanding: | 232,316,772 shares (each with a par value of NOK 0.60) prior to the Private Placement |
| Dilutive elements: | Convertible loan from Fjordavegen Holding AS amounting to NOK 132.5m plus accrued interest of approximately NOK 7.1m, to be converted at equal terms as Private Placement before or upon completion, however at latest 1 August 20232 |
| Offer size: | The share equivalent of a minimum of NOK 940m, corresponding to USD 90m |
| Use of proceeds: | Proceeds are expected to fully finance the development and construction of the Engebø Rutile and Garnet Project |
| Pre-subscriptions: | Iwatani Corporation: NOK 192m • Orion Resource Partners: NOK equivalent of USD 5m • Further, commodity specialist Svelland Capital has pre-committed USD 10 million and Fjordavegen Holding (led by key • EPC partners and other local investors) has pre-committed NOK 132 million. Additionally, the Managers have received material indications from several large Norwegian family offices, including Songa Capital |
| Issue price: | To be determined through book building |
| Book building period: | Start of book building period: 2nd March 2023 at 16:30 hours (CET) End of book building: 3rd March 2023 at 08:00 hours (CET) |
| Allocation notification: | On or about 3rd March 2023 before opening of markets |
| Minimum subscription: | NOK or share equivalent of EUR 100,000 |
| Joint Lead Managers: | Clarksons Securities AS and SpareBank 1 Markets AS |
2) See press release dated 11 January 2022, "Nordic Mining ASA: Secures first part of Engebø Project Financing Equity of NOK 132.5 million from a group of local investors"
1) Funds from Iwatani at relevant foreign exchange rate at date of report
2) Additional consideration from local investor group including EPC convertible loan spent in H1 2022 (See press release 11 January 2022 for more information)
Defines realistic and conservative way to production Initial DFS announced in 2020 and updated in 2021
Managers' Independent Technical Engineer
Provided a technical due diligence and second opinion of geology and resource, engineering, hydrology, mining, processing, infrastructure, environmental, economic assessment/financial modelling, management structure/team and material contracts
Orion's Independent Technical Engineer
Independent technical review of the UDFS focusing on overall viability and maturity level, including construction readiness, geotechnical design, flow-sheet, metallurgical viability and environmental impact
Orions's and Managers' Market Due Diligence
TiPMC have provided market report on rutile and Peter Harben Inc. on garnet Both reports evaluate the global market for the products current and future supply/demand estimates with perspectives regarding the Engebø Project
Kvale Advokatfirma DA has acted as legal advisor to the Issuer Norton Rose Fulbright acted as legal counsel on the Royalty and Intercreditor Agreement
Global TiO2 Partner
Binding offtake agreement signed in June 2022 Binding offtake signed October 2022
Agreement with major pigment producer
Terms are confidential and not to be disclosed by Nordic Mining
This agreement, combined with the Iwatani agreement secures sales for up to the full annual production of rutile the first 5 years
Global Partner on Garnet
Binding offtake agreement signed January 2023
Leading international distributor of industrial abrasives
Globally exclusive agreement for the full planned garnet production from Engebø for the first 5 years
Minimum «Committed» offtake of 762,500 metric tonnes and "Best Effort" of up to 785,000 metric tonnes
Take or pay commitment with pre-agreed price schedule
Mutual renewal/extension of cooperation
Iwatani Corporation
• Engaged in the provision of gas and energy
5-year agreement From commencement of production 20,000mt per year
Take-or-Pay commitment
Price determined from TZMI index
Mutual renewal of 3 years With 15 months notice Equity investment of USD 20m From Iwatani in construction financing
• Headquartered in Osaka, Japan
• Founded 1945
• TYO listed (8088) • ∼USD 2.5bln MCAP
services
Potential for strong cash flow generation (cumulative unlevered)12
1) Forecasted realized sales for rutile based on price forecasts from TZMI, including any corrections for rutile offtake agreements, and for garnet pre-agreed price schedule, up to 2029, and after offtake agreements forecasts from TiPMC and Peter Harben Inc. (real 2023 USD), 2) Free cash flow takes into account royalty payment and cost but excludes Nordic Bond facility
Project economics continues to improve as project progresses towards production
1) Resource estimates (June 2018) completed by Competent Person Adam Wheeler, corresponding to the guidelines of the JORC Code (2012 edition) 2) Post-tax NPV8 and IRR based on the same production and cost profile as UDFS from 2021 taking account into investments made in 2022 and updated forecasted sales prices and FX 3) EBITDA and FCF accounts for 11% of revenue being paid as royalty to Orion
1) Forecasted realized sales prices for rutile based on forecasts from TZMI, including any corrections for rutile offtake agreements, and for garnet pre-agreed price schedule, up to 2029, and after offtake agreements forecasts from TiPMC and Peter Harben Inc. (real 2023 USD), 2) EBITDA assumes USDNOK of 9.96 and accounts for 11% of revenue being paid as royalty to Orion
16
Fully permitted high-quality asset with low cost and industry-leading ESG profile
Engebø Rutile and Garnet project in Norway to produce for 40 years
Broad push from Norwegian industry, politicians and local communities for the sector – Engebø project will create more than 250 jobs1
The Confederation of Norwegian Enterprise (NHO), Confederation of Trade Unions (LO), and the Norwegian Mineral Industry and Confederation
Strong political drive in the EU and Western world to increase security of supply
EU has released the Critical Raw Materials Act (Sep-22), and intends to establish Strategic Partnership with Norway on raw materials and batteries
Nordic Mining aims to build a Norwegian industrial company by developing a green and sustainable value chain to deliver critical minerals to Europe and international markets
2006: Acquired rights to the Engebø deposit
Project initiated Studies, regulatory, permits and stakeholders Construction and long-term value-creation
2009: Scoping Study completed
2015: Zoning plan and environmental permits granted
2016: Resource Estimation completed
2017: Prefeasibility study completed
2020: Defined Feasibility Study ("DFS") completed
2021: Updated DFS ("UDFS") with improved economics and ESG footprint
Defining project and securing regulatory and environmental permits under some of the strictest standards globally
2022: Final approval of Operational License
2022: Keliber stake sold for EUR 46.9 million
2022: Royalty Agreement with Orion Resource Partners
2022: New USD 100 million senior secure bond issued
2022: Nordic Mining wins over AMR in the appeal court (won two instances with expenses)
2022: Full production of rutile and garnet sold for the first 5 years of production
USD 211 million funding secured – positioned for ~40 years of production and value-creation
Nordic Mining is strategically positioned in the growing USD 17bn TiO2 market
• Garnet is the only viable mineral for industrial waterjet cutting – solid demand growth expected for the next decade
Nordic Mining will be the first producer of high-quality garnet in Europe
Company update – Engebø Project
Compared with major operational and planned rutile resources (MI)
Indicative rutile grades (TiO2 ) for current producers and planned projects (MI&I)
| West Balranald, Australia | 3.68% | |
|---|---|---|
| Engebø, Norway | 3.27% | |
| Vilnohirsk, Ukraine | 1.50% | |
| Akonolinga, Cameroon | 1.15% | |
| Sembehun, Sierra Leone | 1.09% | |
| Kasiya, Malawi | 1.01% | |
| WIM150, Australia | 0.45% | |
| Atlas-Campaspe, Australia | 0.38% | |
| Donald, Australia | 0.37% | |
| Mission, USA | 0.36% | |
| Port Durnford, South Africa | 0.24% | |
| Dongara, Australia | 0.23% | |
| Kwale; Kenya | 0.22% | |
| Boonanarring, Australia | 0.21% | |
| Cataby, Australia | 0.17% | |
| RBM, South Africa | 0.16% | |
| Namakwa, South Africa | 0.11% | |
| Jacinth Ambrosia, Australia | 0.10% | |
| Fairbreeze, South Africa | 0.07% | |
| Ranobe, Madagascar | 0.04% | |
| Grande Cote, Senegal | 0.04% |
1) Nordic Mining Mineral Resource estimates (June 2018) completed by Competent Person Adam Wheeler, 2) Sovereign Metals webpage, Kasiya Expanded Scoping Study Presentation June '22, 3) Sierra Rutile Demerger Booklet, June '22, 4) Iluka Summary Ore Reserves and Mineral Resources 2021 and 5) Base Resources, 2022 Annual Report to shareholders
| Direct costs | USDm |
|---|---|
| EPC1 (Sitewide Earthworks and Underground Infrastructure) | 16.0 |
| EPC2 (Civil and Buildings) | 14.9 |
| EPC3 (Structural, Mechanical, Pipework and Plating) | 56.6 |
| EPC4 (Electrical, Control and Instrumentation) | 15.1 |
| Mechanical Process Equipment | 30.2 |
| Mechanical Systems | 6.0 |
| Operational Equipment and Systems | 2.6 |
| Indirect costs | |
| Owner's cost | 10.5 |
| Consultants | 0.4 |
| Provisions | |
| Project contingency | 24.5 |
| Total | 176.9 |
| Expansionary CAPEX – OBSL |
|
| Landowners | - |
| Power (Construction Contribution) | 0.9 |
| Road (Construction Contribution) | 4.0 |
| Total | 181.9 |
| Other pre-production costs | |
| Pre-Production capitalized operating costs (incl. Corporate Overheads)3 | 4.1 |
| Sustaining CAPEX through 2024 | 1.2 |
| Total | 187.1 |
2) Norwegian Standard, Totalenterprise NS8407, General conditions of contract for design and build contracts
3) Pre-production operating costs, including all SG&A costs related to Engebø Rutile and Garnet, are capitalized and included Pre-production capital expenditure
Company update – Engebø Project
Detail Engineering and Procurement
Detail Engineering and/or Construction at site
Construction on track for production in 2024
76% of funding secured final equity to be raised
5 -year offtake agreements for full production of rutile and garnet
Industry -leading ESG profile, minerals producer for the next 40 years
Attractive economics and significant revenue and cash flow generation
31
| Fully-permitted project – early construction works ongoing |
Key project metrics | |
|---|---|---|
| Location • Attractively located in Western Norway – a country with stable and supportive policies towards mining operations |
||
| • Favorable location by the sea with ice-free, deep-sea quay – ensuring attractive shipping logistics to Europe |
||
| Resource | ||
| 2.5 km eclogite ore body outcropping at surface • • 133.2Mt measured and indicated mineral resources1 |
||
| • 3.51% TiO grade and 44.0% garnet grade1 2 • ~39-year life of mine with 1.5 Mtpa ore feed to plant |
||
| • Inferred resource 254Mt for future resource drilling |
||
| Infrastructure | ||
| Renewable hydroelectric power • Region of skilled, industrial labor with maintenance and service vendors • available |
||
| • 40 minutes from regional centre and two local airports |
||
| Project Readiness • Detailed Engineering + Early construction works ongoing • Fully permitted UDFS confirming strong project fundamentals May 2021 • Highly efficient project and design solutions, fully de-risked • |
| Key metrics | Value |
|---|---|
| Life of mine | 39 years |
| Annual rutile production initial years ('25-'30) | 36 ktpa |
| Annual garnet production initial years ('25-'30) | 175 ktpa |
| Remaining Pre-production CAPEX2 | USD 187m |
| Average annual EBITDA initial years ('25-'30) | USD 57m |
| Average annual free cash flow to the firm initial years ('25-'30) | USD 47m |
| Average annual sustaining CAPEX | USD 1.2m |
| NPV8 - unlevered post tax3 |
USD 491m |
| IRR - unlevered post tax3 |
25.9% |
steps
• Extensive environmental impact assessments carried out
• Extensive test work on industrial scalable equipment for critical process
3) Post-tax NPV8 and IRR based on the same production and cost profile as UDFS from 2021 taking account into investments made in 2022 and updated forecasted sales prices and FX
| Tonnes (Mt) | TiO2 grade (%) |
Garnet grade (%) | |
|---|---|---|---|
| Measured (M) | 29.2 | 3.60 | 44.5 |
| Indicated (I) | 104.0 | 3.48 | 43.9 |
| Total M&I | 133.2 | 3.51 | 44.0 |
| Inferred | 254.1 | 3.15 | 41.3 |
| Tonnes (Mt) | TiO2 grade (%) |
Garnet grade (%) | |
|---|---|---|---|
| Open Pit | |||
| Proven (P) | 19.33 | 3.56 | 44.25 |
| Probable (Pr) | 10.33 | 3.29 | 44.45 |
| Total P⪻ | 29.65 | 3.47 | 44.32 |
| Underground | |||
| Proven (P) | 2.55 | 3.78 | 44.92 |
| Probable (Pr) | 24.75 | 3.66 | 44.42 |
| Total P⪻ | 27.30 | 3.68 | 44.47 |
/
45.44% Garnet
Plant feed grade 3.69% TiO2
Life 18 years
/
44.49% Garnet
Plant feed grade 3.85% TiO2
Life 15 years
Life 6 years
1) Mine Construction Manger to be appointed to support Project Director and Operations Director in managing owners' team in construction and preparation for operation.
3. Additional information
a) Engebø Rutile and Garnet b) Market overview c) Project financials d) Appendix e) Risk factors
• TiO2 consumption is closely linked to GDP and income growth as it is an essential component of basic consumer products such as housing, motor vehicles etc.
• Urban population trends in combination with GDP and income growth have historically the primary drivers of long-term demand
• The waterjet technology has revolutionized the production processes for e.g., cars and aircrafts
Market drivers
Properties
Source: TZMI. 1: The chart reflects the surplus/deficit position in a given year, and does not take into consideration stocks build/drawdown from previous years. - Output from possible new projects are probability weighted.
| Feedstock Product | TiO content 2 |
Typical applications |
|---|---|---|
| Natural rutile | 95-96% | Chloride pigment, metal, welding electrodes |
| Upgraded slag | 95% | Chloride pigment, metal |
| Synthetic rutile | 91-93% | Chloride pigment, metal |
| Chloride fines | 86-92% | Sulfate pigment |
| Chloride-grade slag | 86-92% | Chloride pigment, metal |
| Leucoxene | 65-90% | Chloride pigment, welding |
| Sulfate-grade slag | 75-80% | Sulfate pigment |
| Chloride-grade ilmenite |
58-64% | Chloride pigment, SR manufacture, slag manufacture |
| Sulfate-grade ilmenite |
44-56% | Sulfate pigment, welding electrodes, slag manufacture |
Rutile has the highest grade of titanium feedstocks and improves efficiency and reduces waste and climate footprint
Company update – Engebø Project
a) Engebø Rutile and Garnet
1) Forecasted realized sales prices for rutile based on forecasts from TZMI, including any corrections for rutile offtake agreements, and for garnet pre-agreed price schedule, up to 2029, and after offtake agreements forecasts from TiPMC and Peter Harben Inc. (real 2023 USD), 2) Mining cash cost excludes ore to stockpile
1) Forecasted realized sales prices for rutile based on forecasts from TZMI, including any corrections for rutile offtake agreements, and for garnet pre-agreed price schedule, up to 2029, and after offtake agreements forecasts from TiPMC and Peter Harben Inc. (real 2023 USD)
| Key terms | Comments | ||
|---|---|---|---|
| Royalty provider | Orion Resource Partners LLP | • Orion Resource Partners is a global natural resource investment firm with approx. USD 8bn under management1. The fund specializes in mining investments and have a robust insight into the industry and market |
|
| Purchase price | USD 50m | Orion to provide a total of USD 55m in funding for the project split • between prepayment and equity |
|
| Equity contribution | USD 5m | Royalty payments of 11% calculated on a gross revenue basis on the • received payments to NOM for sale of Garnet and Rutile without |
|
| Use of proceeds | Project development and construction | deductions for selling costs Royalty to hold second priority lien on bondholder security package • |
|
| Royalty rate of gross revenue | 11.00 % | • Intercreditor Agreement ("ICA") entered into between royalty holder and Bond Trustee. |
|
| Royalty term | Life of Mine | • The ICA will grant the royalty provider with certain senior rights, including a survival clause |
|
| Payment schedule | Quarterly |
| Financial overview1,2,3 | ||||||||
|---|---|---|---|---|---|---|---|---|
| USDm | 2023 | 2024 | 2025 | 2026 | 2027 | 2028 | 2029 | 2030 |
| Revenue | - | 11 | 73 | 84 | 85 | 87 | 92 | 96 |
| Revenue from royalty | 50 | - | - | - | - | - | - | - |
| Operating Costs and Expenses |
- | (6) | (29) | (30) | (30) | (29) | (30) | (30) |
| EBITDA | 50 | 5 | 44 | 54 | 55 | 58 | 62 | 66 |
| WC and Other adjustments | - | 2 | (4) | (4) | (3) | (2) | (3) | (3) |
| Payable Tax | - | - | - | - | - | (3) | (11) | (12) |
| Cash Flow from Operations |
50 | 7 | 40 | 50 | 52 | 52 | 48 | 51 |
| Development Capital | (135) | (51) | (4) | - | - | - | - | - |
| Sustaining Capital | - | (1) | (1) | (0) | (0) | (2) | (2) | (0) |
| Cash Flow from Investing | (135) | (53) | (5) | (0) | (0) | (2) | (2) | (0) |
| Free cash flow to company | (85) | (46) | 34 | 50 | 52 | 50 | 47 | 50 |
| Cash Flow from Financing | 73 | (12) | (12) | (12) | (111) | - | - | - |
| Net cash flow | (12) | (58) | 22 | 37 | (59) | 50 | 47 | 50 |
53 1) Forecasted realized sales prices for rutile based on forecasts from TZMI, including any corrections for rutile offtake agreements, and for garnet pre-agreed price schedule, up to 2029, and after offtake agreements forecasts from TiPMC and Peter Harben Inc. (real 2023 USD), 2) Operating Costs and Expenses accounts for 11% of revenue being paid as royalty to Orion, 3) FX assumptions: USDNOK 9.9585, EURUSD 1.0723, AUDUSD 0.6867
| Environmental and Regulatory | |||||||
|---|---|---|---|---|---|---|---|
| Risk | Rating | Comment | Mitigation | Residual Risk Rating (Post-Mitigation) |
|||
| Seabed Tailings Deposition |
High | While STD (seabed tailings deposition) has permits, it will cause some negative ecological effects. STD is not considered good international industry practice. STD is controversial globally and nationally and will likely encounter criticism and generate concerns among stakeholders in the future. NR has stated it will adhere to a comprehensive monitoring program as well as careful planning and dutiful implementation of the deposition, and maintenance of the equipment. |
Careful planning and implementation of the deposition equipment and operation, dutiful maintenance. Monitoring to ensure particle dispersal will remain localized as predicted by modelling. Biodiversity offsets are strongly recommended. Good international industry practice requires no net loss offsetting for natural habitats, and net positive offsetting for critical habitats. |
Moderate | |||
| Use of xanthate |
Moderate | Sodium isobutyl xanthate (SIBX) is used in flotation, and some is released into the Fjord with the tailings. SIBX is toxic to the aquatic environment. While current projections predict no harmful concentrations will occur in the STD, it is extremely important to minimize the release of SIBX. Assuming careful control and optimization of dosing and releases, risk can be considered moderate based on the modelling results. |
Careful optimization of dosing of SIBX, and prudent control and maintenance of the dosing equipment will help avoid releases of extra SIBX with the tailings. Alternative chemicals must be actively investigated and SIBX substituted for a less harmful option asap. |
Low | |||
| Closure solution |
Moderate | The current closure plan is not considered adequate. At minimum, thicker layer of topsoil and assisted revegetation is expected to be required. Closure is likely to become more expensive than currently projected, however the increased cost is realized at the end of the project. Progressive closure currently deemed unfeasible. However progressive closure during operations is good practice. For masses intended for alternative uses, no progressive closure is required. |
Prepare a closure plan corresponding to good practice requirements(c.f. EU's MWEI BREF, ICMM Closure Handbook), with sufficient costing corresponding to appropriate solution. NR has indicated such closure plan is being prepared. Post-closure land use to be developed in dialogue with stakeholder sand a sustainable after use selected. |
Very low |
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| Opposition to Project |
High | The opposition among some of the locals as well as NGO:s is likely to continue. Protests may lead to bad publicity, security concerns during construction and delays. Some landowners not willing to sell their land. Expropriation is possible if no agreement is reached. Some of the opposition is based to real or perceive interest conflicts. Certain groups oppose mining and/or STD in general for reasons of ideology. |
Open communication, provide information, participation. Find solutions to remaining interest conflicts. Plan and implement all operations with minimum harmful environmental impact. Carry out diligent monitoring to be able to demonstrate realized impacts. Ensure safety and security of all persons even during protests. Golder considers it likely that some opposition will remainnotwithstanding any measures Nordic Rutile can take. |
Moderate |
| Environmental and Regulatory | |||||
|---|---|---|---|---|---|
| Risk | Rating | Comment | Mitigation | Residual Risk Rating (Post-Mitigation) |
|
| Future permitting needs |
High | The Project currently has required permits in place. Legislation changes in the future, including EU legislation, will likely cause need to renew and / or modify the permits over the LOM of several decades. The controversy related to STD is expected to create challenges in future permitting. |
Plan and implement all operations with minimum harmful environmental impact. Substitute xanthate with less harmful alternative. Carry out diligent monitoring to be able to demonstrate realized impacts. |
Moderate | |
| Water management |
Moderate | No water management plan, surface water management structures and sedimentation dam not designed or permitted yet. Unclear how climate change adaptation has been taken into consideration. |
Prepare comprehensive water management plan. Increased rainfall due to climate change must be taken into account inall surface water design. Runoff diverting structures and sedimentation dam to be designed by skilled professionals and built with due care. |
Very Low |
|
| Landscape: visual impact |
Low | Stakeholders have voiced concern over visual impacts. Screening vegetation will help towards E, N and W but cannot be used towards. Industrial area will be clearly visible to the Fjord and Askvoll on the southern side, including areas popular for recreation. Planning under way to minimize visualimpact. |
Screening vegetation (park belt). Final design of industrial area must take visual impact into account (e.g. colouring choices, height of structures). Such planning is under way. |
Very Low |
| Geology and Resources | |||||
|---|---|---|---|---|---|
| Risk | Rating | Comment | Mitigation | Residual Risk Rating (Post-Mitigation) |
|
| Sample weighting |
Moderate | 5-m drill hole composite samples given the same weightingas individual surface samples during estimation process. |
Use sample length weighting during estimation process and SMUblock regularization for Reserves. |
Very Low |
| Geotechnical | ||||
|---|---|---|---|---|
| Risk | Rating | Comment | Mitigation | Residual Risk Rating (Post-Mitigation) |
| Too optimistic pit design parameters Stability problems/delays/ rock falls/change of pit design |
High | - | Special attention to blasting in order to minimize crest loss and formation of hard toe. Pre-splitting or good quality limit blasting. In order to maximize berm retention, all berms must be kept clean and free of loose blocks (SRK 2019) |
Moderate |
| Road tunnel Interruptions for traffic, expensive repairs |
Moderate | Underground mining is considered, however the distance between mining and road tunnel need to be safe |
Perform dynamic analyze about effect of blasting vibrations for tunnel. Estimate stress field changes for tunnel and displacement. Analyze safe distance between road tunnel and stopes. During operation monitor blasting vibration in tunnel and inspect tunnel after blasting. If needed have also displacement monitoring in tunnel. |
Low |
| Risk | Rating | Comment | Mitigation | Residual Risk Rating (Post-Mitigation) |
|---|---|---|---|---|
| Significantly underestimate flowrates to excavations. |
Low | Weak hydrogeological conceptual model significantly lowers accuracy of inflow rates into excavations. |
Undertaking pump tests on existing and/or planned wells. |
Low |
| Unknown flow pathways within rock mass. |
Low | Without understanding the flow regimes and interconnectivities there isa chance of contamination or an underestimation of flow rates to excavation. |
Undertake site investigations to measure groundwater level over time. Include additional wells to better understand flow behavior. |
Low |
| Incomplete understanding of groundwater behavior in underground excavations. |
Low | Calculations for dewatering and groundwater affects in underground mining production unknown and risks unassessed. |
Undertake assessment of the impact of groundwater tounderground mining operations. |
Very Low |
| Settling pond capacity undesigned. |
Low | The extent and capacity for settling ponds is yet to be determined inany detail. |
Determine inflow / outflow rates for designing settling pond volumes and capacities. |
Very Low |
| Mining | ||||
|---|---|---|---|---|
| Risk | Rating | Comment | Mitigation | Residual Risk Rating (Post-Mitigation) |
| Ore pass limiting production |
Moderate | The grizzly set-up will have to be uninstall, drill and blast should occur 8times on 10m bench, loading and hauling, bolting and reinstallation of grizzly. This operation should occur 8 times and will definitely impact the production and may block the ore pass. |
Careful consideration must be taken to avoid the ore pass from becoming blocked. This needs to be captured in the operational procedures. Design of grizzly area at Feasibility Study area and develop operational methodology. Review ramp design according to unloading area design. Review costing. |
Low |
| More external dilution than expected |
Very Low |
Internal dilution is considered in the block model. External dilution and ore loss are considered in regularized block model. We understand that the impact will be limited due to grade in considered waste layer. Final operational and unexpected waste dilution should be considered when the pushback 2 will start being operated as some ore will drop into the lower benches, it will also block the main ramp from time to time. Waste could be send to ore pass accidently |
Considering unexpected ore losses and dilution. |
N/A |
| Explosive for pre splitting not considered |
Low | Powder factor is well calculated in ore and waste and results in 0.28kg/t and 0.26kg/t. Difference are in drilling pattern and material density. There is no allowance for emulsion loss in operation. It is on the low range for hard rock. There is no explosive for pre-splitting. |
Powder factor is part of contractor services. Includes pre-splitting explosive (Det Cord.). |
Very Low |
| Not enough drilling and auxiliary equipment |
Moderate | Auxiliary equipment fleet is not enough to support properly the operation. One drill is not enough. Client provide information that local contractor can supply additional equipment easily and it will be part of the contract. |
Adding: -One dozer for waste dump area -One boom truck -One drill that can do pre-splitting and used as a back-up for production drilling |
Very low |
| Waste dump design not at FS level |
Moderate | Waste dump design parameters are reasonable with 1:1.5 slope ratio and 20m high between bench. However, stability assessment should be performed. |
Perform stability assessment to ensure ground condition are acceptable and that the design could reach the FS level with a good safety factor. Review design, if required. |
Very low |
| Processing | |||||
|---|---|---|---|---|---|
| Risk | Rating | Comment | Mitigation | Residual Risk Rating (Post-Mitigation) |
|
| No stand-by (spare)pumps will lead to lower plant availability than expected. |
Moderate | Flowsheet does not take advantage of gravity and most transfers are done via pumps. Dedicated Stand-by pumps are not included in the design, even in high wear areas where pumps require regular maintenance. Stand-by pumps are available in each wet process area, allowing to pump to tailings in case of failure. However, this does not allow to maintain normal operation when a critical pump fails. Plant availability will be lower than 90% due to frequent plant stoppages. |
Add stand-by pumps wherever required. Show planned stand-by pumps in engineering documents. |
Low | |
| Garnet and rutile annual production not supported by process design values in engineering documents |
Low | Rutile and garnet recoveries in BCFMare calculated based on recovery models from metallurgical testwork programmes. The nominal and design throughputs indicated in the stream tables do not reflect the garnet production in the BCFM. The rutile nominal throughput as indicated in the stream tables requires rework and is currently being updated. Inconsistencies in the engineering documents prevent proper validation of equipment capacities. The engineering documents are being updated to reflect correct values. |
Complete mass balance and equipment sizing update to confirm production numbers are achievable with selected equipment and feedthrough put. |
Low |
| Management Structure, Management Team, Material Contracts, Human Resources, Health and Safety | |||||
|---|---|---|---|---|---|
| Risk | Rating | Comment | Mitigation | Residual Risk Rating (Post-Mitigation) |
|
| Lack of control and follow-up on the engineering part |
Low | Since engineering and the construction work is delivered by EPCs, the technical part must be challengedfrequently. |
Hiring a technical manager at the first stages of the executionphase will mitigate this risk. |
Very low |
|
| Responsibilities not clear at overlapping tasks between EPCs, especially EPC 1and 2 |
Low | Without understanding the interconnections between packages, misunderstandings and omissions could occur. |
Project Coordinators are included in the Owners' cost. Riskis minimal. | Very low |
|
| Inadequately communicated work and coordination between EPCs |
Low | Interface issues between EPC groups could occur. |
Project Coordinators are included in the Owners' cost. Riskis minimal. | Very low |
|
| Lack of specialized manpower |
Moderate | Specialized manpower as engineers, geologists, mechanics, electricians are vital for a mining operation. Recruiting and retaining skilled workers may be a challenge for HR staffing. |
Recruit in other regions or another industry basin of workers. Utilize incentive/perks approach to keep skilled workers at Engebø. |
Low | |
| Lack of operating manpower |
Moderate | Recruiting locally and providing training will be a good approach in the start. |
Consider providing incentives to personnel regarding training programs on other equipment, or rotation programs, to keep skilled manpower interested and present. |
Low | |
| Not recruiting more specialized staff or maintenance operators |
Moderate | A mining operation of this size will require robust staffing to deliver the targeted production rate. |
Add these key players to HR strategy. Offer incentives bonuses to keep turnover low. |
Low |
| Management Structure, Management Team, Material Contracts, Human Resources, Health and Safety | |||||
|---|---|---|---|---|---|
| Risk | Rating | Comment | Mitigation | Residual Risk Rating (Post-Mitigation) |
|
| Time risk allowance not adequate |
Moderate | Allowances for debugging bottlenecks must be added to the schedule, otherwise strategic decisions may be made on the initial schedule rather than the final schedule. |
Develop a risk analysis on the critical path and specially on the long lead equipment. Allow more contingencies after phases construction for testing. |
Low | |
| Ramp-up duration |
Low | Ramp-up related to mining operation efficiency of 7 months and plant feed ramp-up of 9 months is included inBCFM. |
Considerable allowance for ramp-up is included in financial considerations. |
Very low |
|
| General execution strategies |
Low | Execution strategies must be adapted to lessen the impact to Project profitability since a general approach may not consider Project challenges |
Develop more adapted strategies before the next phase. Proof testing is strongly recommended at this stage. |
Very low |
• Extensive experience as Project Director executing large scale oil and gas and
Terje Gundersen | Project Director, Engebø
• With the company since August 2018
• With the company since February 2022
infrastructure projects for Aibel and Sweco
Licentiate degree in Soil Science and Environmental Studies from the Swedish University of Agricultural Sciences
Starts 1st March 2023
• Recruitment ongoing with deadline for applying 30 January 2023
Bachelor of Commerce from University of Western,Australia and Graduate Diploma in Applied Finance and Investment from the Securities Institute of Australia
Company update – Engebø Project
a) Engebø Rutile and Garnet
64
The Group's principal asset is the Project, comprising the mining and processing operation at the Engebø Deposit. Consequently, the risks set out herein related to Nordic Rutile's Project will apply for the Group as such. The Project does not have a history as an operating mine. While the Group's senior management and its contractors have considerable project development and operating experience, the Group has not previously developed a mineral project on a similar scale as the Project. The Project does not have an operating history upon which the Company can base estimates of future operating costs. The capital and operating costs for the Project are estimates based on the interpretation of geological data, feasibility studies, and other conditions, and there can be no assurance that they will prove to be accurate. The costs, timing, and complexities of developing the Engebø Deposit may be significantly higher than anticipated. Delays and increased costs may have adverse effects on project development and could potentially result in termination of Nordic Rutile's financing agreements and offtake agreements.
The Project is a large scale complex industrial project and will be subject to all the risks inherent in the development and operation of a new mineral mining project. The Group's commercial viability and future profitability is dependent on the financing, construction, commissioning, successful recruitment of competent personnel with experience of executing large scale mineral projects and successful operation of the Project.
The Group has planned the design, construction and operation of the Project based on feasibility studies undertaken with assistance from third party experts, however, this cannot assure that the Group will be able to commission or sustain successful operations at Engebø, or that the Group will realize project completion or commercial viability, within the contemplated timeline. This will e.g. depend on the timely procurement and delivery of the materials and equipment, including the materials and equipment to be procured by the Engineering, Procurement and Construction ("EPC") contractors and by the Owners team.
Golder Associates, appointed by the Managers as independent technical engineer for the Project, has undertaken a subjective and qualitative risk assessment on the areas of the updated Definitive Feasibility Study ("UDFS") that they considered to have a perceived technical risk to either the construction or planned mining and processing operation. This was not an exhaustive process and was focused on areas considered to have potential to impact on the projected cashflows of the UDFS. The key risks related to the Project that were identified in the above-mentioned studies and reports are set out in the slides 56-60 in this Presentation, and potential investors are encouraged to read and consider the risk factors outlined in those slides.
Nordic Rutile will extract rutile and garnet from the Engebø deposit. If the exploration, development, and production for any reason is shut down or interrupted, e.g., due to rock bursts, cave-ins, adverse weather conditions, flooding and other conditions involved in the drilling and removal of material, damage caused by operations and delays in supplies of critical resources for production, Nordic Rutile may not be able to deliver its products to customers.
There is an inherent risk related to cost overruns related to the construction of the Project. Nordic Rutile has taken measures to mitigate risks of overrun of capital - and operating expenditures, including signing of lump-sum EPC contracts with EPC contractors, however final agreed prices have not been secured for all the Project's expenditures, and as a result possible cost overruns in Project expenditures are a risk.
The EPC contracts constitute a large part of the Project's capital expenditure. The contracts carry risks associated with contractors' performance of their contractual obligations, including the timeliness and quality of work performed. Nordic Rutile has taken measures to mitigate the risk of default by the EPC contractors, including the provision of security in accordance with NS 8407, section 7 for all EPC's, and guarantees from the owners of the contractor Sunnfjord Industripartner AS, however no assurance can be given on the EPC's or other consultants, contractors, sub-contractors, and operators contractual performance.
Nordic Rutile operates in a legal and regulatory environment that exposes and subjects it to litigation and disputes, which could have a negative effect on the company's operations. The company is subject to litigation in relation to extraction of minerals from certain properties and actions from non-profit organizations (NGOs). In March 2021, Arctic Mineral Resources AS ("AMR") summoned Nordic Rutile claiming that AMR has exclusive rights to the garnet on the western side (Vevring side) of the Engebø deposit, and that Nordic Rutile has no rights to the said garnet. Nordic Rutile rejects the claim in its entirety, and a ruling was made in Nordic Rutile's favour in the court of first instance and the appeals court. The litigation is pending before the Supreme Court. In addition, two NGOs summoned the Norwegian Government claiming that Nordic Rutile's disposal permit and discharge permit granted by the Norwegian Government are null and void. Negative outcome in one or more of these legal disputes may have a significant adverse, effect on thet Group.
The Project's business depends on adequate infrastructure, including reliable power sources, roads and other infrastructure. Water shortages, power outages, sabotage, community, government or other interference in the maintenance or provision of such infrastructure could adversely affect Nordic Rutile's business, financial condition, and results of operations.
The Group's development and prospects is dependent upon the continued services and performance of its senior management and other key personnel and consultants as development of larger mineral projects require highly experienced and competent personnel. Financial difficulties or other factors could adversely affect the Group's ability to retain key employees. Further, due to the strong demand for qualified persons with experience within the mining industry and the limited number of employees in the Group, a loss of a key employee may cause delay and could have a significant adverse impact on the Project.
The Group's business is subject to several risks and hazards generally, including adverse environmental conditions, industrial accidents, unexpected or unusual geological operating conditions, ground failures, fires, labor, disputes, changes in the regulatory environment and natural or climate change. The Group's maintains (and expects to have in place) insurance policies to protect the Group from certain risks in the amounts as it considers reasonable, its insurance will however not cover all the potential risks associated with the Group's operations and may not cover all liabilities.
Moreover, it is not always possible to attain insurance against all risks and the Group may decide not to insure certain risks because of high premiums or other reasons. In event such loss or liabilities arise, this could reduce or eliminate future profitability and result in increasing costs and a decline in the value of the securities of the Company.
If the Group is not successful with the Project, the Group may not have other means of deriving revenues to make payments on the Bonds or other creditors when due. The Project is the only revenue generating business activity currently contemplated by the Company and will be the Group's principal means of deriving revenue. Virtually all of the Group's material assets and resources will be employed in the development of the Project. Until practical completion, commencement of mining expected in H2-2024, the Project is not expected to generate income to cover its expenses. Failure to successfully complete any one or more of the components of the Project on schedule and in the manner expected or any operational failure may cause Nordic Rutile's inability to make payments on the Bonds and other creditors when due, or at all.
Financing agreements outlined herein, including the Bond and Royalty Agreement, include terms and pre-disbursement conditions to be satisfied in order for Nordic Rutile to draw down any amounts thereunder, including i.e. cost-to-complete tests. No assurance can be made that such terms and conditions will be satisfied. There is a risk, even if the financing sources are consummated as planned, that the company will not be able to draw down some or any of the proceeds and that only some or no amounts may be available under such financing. If the company is unable to draw some or all of the funds from the financing agreements, or timely access the other sources of financing required for the Project, it will have a material adverse effect upon the Group's ability to complete the Project. The Company will in such case have to seek to secure new equity or debt financing sources, however, there is a risk that sources of financing may not be available on acceptable terms or at all. Further, the financing agreements includes certain covenants related to i.e. the start of commercial production, which if not met could result in the financing agreements being terminated. Further, the Royalty Agreement includes certain warranties and obligations that require inter alia approval from authorities and third parties. Breach of warranties and contractual obligations may have significant adverse effect for the Group. The termination sum on termination of the Royalty Agreement could be substantially larger than the USD 50 million invested by Orion.
The funds from the contemplated share issue, together with the funds from the sale of Keliber and the proceeds from the Bonds and Royalty Agreement, is expected to fully fund all costs and expenditures to bring the Project into commercial production. However, in event the Nordic Rutile is not able to draw down some or any of the proceeds and that only some or no amounts may be available under such financing agreements, the Company would need to secure new sources of financing. The Company cannot assure that it would be able to secure such new financing for the Project in order for the Project to be finalized on satisfactory terms within a reasonable period of time or at all. Failure to secure the necessary financing to complete the Project could materially and adversely affect the Group's business, results of operations and financial condition or prospects and the Group's ability to make payments could be impaired.
The Company has a history of successful equity fund raising, and the financing outlined herein, is expected to fully finance the realization of the Project. However, no assurance that the Company will not need any additional financing to bring the Project to production, or that the Company will be able to secure additional funding should it be needed, or that the terms associated with the financing will be reasonable.
There are considerable uncertainty factors in estimating the size and value of mineral resources and reserves. The reservoir technique is a subjective and inexact process where the estimation of the accumulation of mineral resources and reserves in the property cannot be accurately measured. In order to evaluate the recoverable mineral volumes, a number of geological, geophysical, technical, and production data must be evaluated. The evaluation conducted related to the Project may later prove to be inaccurate, and there is a real risk that estimated resources and reserves may be adjusted downward (or upward).
The Group's relationships with the community in which it operates are critical to ensure the future success of the construction and development of its projects. The future success of the Group is reliant on a healthy relationship with local communities in which the Group operates. While the Group is committed to operating in a socially responsible manner, there is no guarantee that its efforts will be successful, in which case there is increased risk of interventions by third parties that could have a material adverse effect on the Group's business, reputation, financial position and operations.
There has been substantial interest and engagement from stakeholders in all hearings related to the Project, with each process generating input and complaints from different stakeholder groups. The Group has taken measures to involve various stakeholders in the process, including the establishment of a resource group to assist and strengthen stakeholder dialogue and arranging a number of public meetings. Nevertheless, the Company cannot guarantee to investors that there will not be controversies, conflicting interests in the area's material to the Project's further development and operation. The presence of conflicting interests may limit or preclude exploration, mining, or construction activity within the sphere of influence of the relevant sites and delays and expenses may be experienced in obtaining clearances. Although there is a regulatory procedure for resolution, through mandatory consultation/hearing requirements in the permitting process, a failure to resolve issues associated with conflicting stakeholders could result in delays in the future development of the Project. The Company cannot guarantee investors that such issues will be satisfactorily resolved or that they will be resolved in a timely manner.
Nordic Rutile will operate in a highly competitive market. Decreases in rutile and garnet prices may have a material effect on the prospects and the business, results, profitability, and financial position of the company.
Nordic Rutile has no control over the prices of rutile and garnet which can be affected by numerous factors including international economic and political trends as was demonstrated by the Coronavirus pandemic, inflation, currency exchange fluctuations, interest rates, global or regional consumption patterns, new discoveries of viable competing projects resulting in increased production from competitors, speculative activities and increased or decreased production due to changes in extraction and production methods.
The company's business will depend on a limited number of offtake agreements. Although Nordic Rutile has signed offtake agreements for up to the full volumes of rutile and garnet for the first five years of production from the Project, no assurance can be given that the company will be able satisfy the terms and conditions under the offtake agreements, including conditions related to project development and start of commercial production. Nor can it be assured that the company will be able to sell all its future production at terms and conditions as are favorable for, or necessary to sustain the operations of the Project.
The company also expect to be dependent on a few key suppliers and contractors. Such dependency will expose the company to risks related to delivery and payment, and delays in deliveries and production, disruptions in operations and increased costs.
The Group operates in an industry which is subject to extensive laws and regulations relevant for mining operations, in particular in relation to environmental and operational issues, which has become more stringent over time. Compliance with respect to environmental regulations, closure and other matters may involve significant costs and/or other liabilities.
Failure to comply with applicable environmental laws, regulations and permitting requirements may result in enforcement actions including orders issued by regulatory or judicial authorities causing operations to cease or be curtailed and may include obligations to take corrective measures requiring capital expenditures, installation of additional equipment or remedial actions. There is a risk that the Group due to its engagement in mining and mineral processing activities will be required to compensate those suffering loss or damage by reason of such activities and may incur civil or criminal fines or penalties for violation of applicable laws or regulations.
Current environmental laws, regulations and permits governing operations and activities of mining companies may be changed. Regulatory requirements surrounding site reclamation and remediation activities, or more stringent implementation thereof, could have a material adverse impact on the Group and cause increases in capital expenditures or production costs or reduction in levels of operational production, or require abandonment or delays in the development of new sites. There are no current amendments that the Group is aware of that may impact the assets of the Group.
The future operations of Nordic Rutile will require permits from governmental authorities pursuant to such laws and regulation and there is no guarantee that such permits will be granted on conditions that are adequate or viable for planned operations at Engebø.
Conditions and changes in the global economic environment may adversely affect the Group's business and financial results. Uncertainty about future economic conditions could negatively impact its customers and, among other things, lead them to postponing their decision making, decrease their spending and jeopardize or delay their ability or willingness to make payments or meet other obligations, any of which could have a material adverse effect on the Group's business, financial position, and results of operations.
The viability of the Project and Nordic Rutile's (and hence the Group's) future financial performance will rely in part on the market prices for rutile and garnet, which are beyond the control of the company. Prices for rutile and garnet are impacted by numerous factors and events including supply and demand, general economic conditions, forward selling activities, foreign exchange rate, the level of production costs in major commodity producing regions and other macro-economic factors. Prolonged decline in the price and demand for rutile and garnet may have a material adverse effect on the Group. No assurance can be given that fluctuations in commodity prices will not affect the timing and viability of the Project and the Company therefore gives no such assurances.
Nordic Rutile is subject to fluctuations in foreign exchange rates and such fluctuations may materially affect the company's financial position, operational results and cashflows. The company's revenues and cash receipts from the Project is expected to a large extent to be denominated in USD and with a large percentage of income taxes, operating expenses, capital expenditures and future dividends in NOK.
Nordic Rutile plans to have a large part of the company's financial debt in USD to reduce the overall economic currency risk. Nordic Rutile will consider implementing net investment hedging programmes, when possible, to reduce effects of foreign exchange translation in the company's profit and loss, however no assurance can be made that the company's financial position, operational results and cashflows will not be adversely affected.
Liquidity risk is the risk that Nordic Rutile will not be able to meet its financial obligations as they fall due. The company is at a development stage and has to date not generated positive cash flow from operations. The company expects to continue to have negative operating cash flow until start of commercial production and sales at Engebø. The Group manage liquidity risk by maintaining reasonable cash reserves and by continuously monitoring actual and forecast cash flows.
Following the issuance of the Bonds, Nordic Rutile is highly leveraged and have significant debt service obligations. The company anticipates that its high leverage will continue to be in place for the foreseeable future. The high level of leverage could have significant consequences for the Group, including, but not limited to:
Any of these, or other, consequences or events could have a material adverse effect on the company's liquidity and general financial condition.
The Feasibility Studies of the Group and the financial model for the Project is based on the current tax rates. Any adverse changes in the laws and regulations applicable to the taxation of income, intercompany transactions, withholding taxes, or other transactional taxes, or any changes in the current interpretation of the relevant laws and regulations, could have adverse effects on the Group's tax positions and increase tax payable, which would have negative effect on financial position of the company.
Due to among other the limited market cap and the low trading volumes and the fact that the sole major project of the Group is the Engebø Project which is not in production with an inherent risk that project completion may be delayed or not successful at all, the price of the Company's shares may be highly volatile. The market price of the Company's shares could decline due to sales of a large number of shares in the market or the perception that such sales could occur. Such sales could also make it more difficult for the Company to offer equity securities in the future at a time and at a price that are deemed appropriate.
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