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)

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Delivering on business priorities

Following the US$25.0 million Unsecured Convertible Notes (“Notes”) and accompanying US$25.0 million fully underwritten 1 for 3.34 accelerated non-renounceable entitlement offer (the “Entitlement Offer”) in July 2023, Jervois continued to implement a refocused strategy to ensure the business can be financially sustainable and self-funding at historically low cobalt prices caused by People’s Republic of China (“PRC”) oversupply from the Democratic Republic of Congo and Indonesia.

Priorities and key milestones delivered in the quarter are as follows:

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

  • US$8.2 million Q3 operating cash flow at Jervois Finland, building on US$33.2 million of operating cash flow delivered in the first half (positive US$41.4 million 2023 YTD).

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

  • Surface drilling commenced at the Sunshine deposit; a historic resource adjacent to Jervois’ ICO processing infrastructure.

  • Finalised engagement terms and study management execution arrangements with AFRY USA LLC to undertake basic engineering and prepare an accompanying BFS for a greenfield U.S. cobalt refinery.

  • BFS is key to support Jervois’ existing Department of Energy (“DOE”) Advanced Technology Vehicle Manufacturing (“ATVM”) loan application for a domestic American cobalt refinery (see ASX Announcement “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 work completed (programmes are 100% reimbursable).

• Advance debt and partner financing process at SMP

  • Counterparty engagement and due diligence in Brazil advancing.

• Review partnership opportunities across the portfolio to crystalise and demonstrate value:

  • Additional initiatives advancing across all other portfolio 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 EBITDA1US$0.5 million (Q2 2023: US$2.6 million)

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

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

Jervois Finland provided positive Adjusted EBITDA and unlocked further operating cash flow in the period, including through the continued release of working capital. Jervois Finland has now generated more than US$40 million in operating cash flow over the past six months.

Sales and marketing

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

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

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

The company’s sales performance and outlook for key market segments under which Jervois Finland operates are summarised below.

Batteries:

• Destocking continues in battery supply chains, and customer inventory levels today remain above normal levels. Recovery from Jervois’ current customers is expected in 2024.

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

• U.S. Inflation Reduction Act (IRA”) continues to drive interest in U.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 in the main chemical applications (copper electrowinning, coatings, and rubber adhesion).

• Ceramics: Short-term demand in pigments has increased on the back of recent cobalt price increases. Prices remain under pressure though as PRC competition into Europe continues to be robust.

Powder Metallurgy:

• Automotive production rates remain variable with lagging issues around semi-conductor supply continuing to affect plant utilisation. Jervois customers have expectations of improvement in 2024.

• General engineering, including construction, remains soft.

• In contrast to demand from the petroleum sector as pertains to catalysts (specific to refining), in powder metallurgy, as U.S. oil and gas production (drilling) has fallen, and rig counts are expected to remain down for the balance of 2023, demand remains subdued.

• Aerospace continues to be one of the bright spots, as order books remain full due to rising demand from both civilian and military purchasers.

Financial performance

Jervois Finland achieved revenue of US$42.2 million in the quarter, a decline of 25% relative to the second quarter. The decrease was principally due to lower sales volumes, and lower realised pricing. The cyclical weakness in cobalt prices that persisted in the quarter was in part due to market oversupply conditions instigated by the PRC as outlined earlier.

Adjusted EBITDA

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

The decrease in Adjusted EBITDA relative to the prior quarter was principally due to lower sales volumes and a modest increase in feed costs realised in the profit and loss account. These factors more than offset the benefits of a reduction in production costs in the quarter.

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

The plant continued to perform well in the quarter, with internal targets for safety, production efficiency and product quality all met in the quarter. Near-term focus for Jervois Finland remains on operational performance, cash generation and risk management.

A reconciliation between Adjusted EBITDA, EBITDA, and Net Profit after Tax (“NPAT”) for Jervois and Jervois Finland is included on page 11. There were no material reconciliation differences between Adjusted EBITDA 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 date cash flow from operations from Jervois Finland to US$41.1 million. Positive cash flow resulted from the continued stabilisation of the Jervois Finland business and working capital reductions. Physical cobalt inventories reduced by US$4.1 million from US$48.6 million at 30 June to US$44.5 million at 30 September 2023. This represented a reduction from ~100 days at 30 June 2023 to ~81 days at 30 September 2023. Jervois is continuing to execute an inventory management strategy aligned to a near-term target range of at or below 90 to 110 days, in a manner that balances liquidity and risk management objectives.

Jervois made partial repayment of the Mercuria working capital facility in the period in line with the reduction of the underlying collateral value, with US$8.6 million paid in July in accordance with the terms of the facility agreement. A further voluntary repayment of US$4.8 million was completed in early October, to meet deleveraging objectives and to reduce financing costs. The current loan balance at the date of this report is US$44.1 million.

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

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

A further US$8.6 million of cash was utilised for residual vendor payments and one-off items for works completed before the 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 prior guidance that was included in the “Capital Raising Presentation” dated 28 June 2023, with the final capital cost falling slightly below the US$155 million estimate.

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

Drilling occurred under the U.S. DoD US$15.0 million funding agreement (the “Agreement Funding”). The Agreement Funding is under the Manufacturing Capability Expansion and Investment Prioritization office of Industrial Base Policy using the U.S. Defense Production Act Title III authorities and utilises funds from the Additional Ukraine Supplemental Appropriations Act. The drilling campaign direct expenditure and associated Jervois programme supervision and administration is fully refundable under this agreement.

Jervois expects to spend US$2.4 million to complete approximately 2,000 metres of drilling from surface, designed to intersect the Sunshine deposit with the results expected to enable the deposit to be upgraded to a modern mineral resource. Sunshine is a unique brownfield exploration opportunity, with a significant historical dataset which has underpinned design of this drilling programme.

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

Jervois’ Board also approved the appointment of AFRY USA LLC., a U.S.-based engineering and consulting company, to lead basic engineering and the associated BFS for a new greenfield U.S. cobalt refinery. This facility is expected to be constructed under the framework of the IRA and associated U.S. legislative initiatives including Jervois’ existing DOE ATVM loan application (see announcement dated 24 April 2023). Again, execution of basic engineering and the BFS is fully refundable under the Agreement Funding.

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

Site selection considers local, state, and federal incentives; permitting processes; security of supply chains; logistics; access to workforce capacity and capability; and other technical and operational requirements, all to underpin a globally competitive facility. The expected BFS completion schedule will be available upon a final location decision.

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

Counterparty engagement and due diligence continues to advance at SMP. Jervois’ objective remains to conclude a partner financing solution before the end of 2023. SMP’s economic potential is strong, based on prevailing market conditions, with market pricing for both nickel metal and mixed hydroxide precipitate intermediate feed trending favourably compared to the BFS assumptions.

The SMP restart project is expected to resume promptly once the partnering process is concluded. Current activities at site are focussed on supporting due diligence, and review of opportunities to optimise and de-risk the restart capital project.

Monthly costs are currently tracking favourably against the ~US$0.5 million expected run-rate previously communicated to the market.

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

Jervois is undertaking a divestment process to sell all or part of its interest in the company’s 100%-owned Nico Young nickel and cobalt project which continued to progress during the quarter. Jervois has invested >A$20 million in Nico Young. It is a strategic future source of Western nickel and cobalt.

Corporate activities

Liquidity

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

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

• --US$25.0 million Entitlement Offer, undertaken in parallel with the Convertible Notes Offer.

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

Jervois ended the September 2023 quarter with US$54.9 million in cash, US$44.5 million physical cobalt inventories in Jervois Finland, and total drawn senior debt of US$148.9 million3. A key strategic objective for Jervois is to de-risk the path to establishing a multi-asset platform underpinned by a durable capital structure. Jervois intends to pursue initiatives across its asset portfolio to meet this objective.

Environmental, social, governance

Jervois continues to chair the Cobalt Institute’s Responsible Sourcing and Sustainability Committee and actively engage in related working groups. In the quarter, this included participation of key Jervois personnel in environmental and human rights due diligence training and dialogue on industry ESG standards between members of the Cobalt Institute and OEMs (car makers), civil society organisations and standards setters.

Presentations and events

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

Results of meeting

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

Resolution 1: Approval to issue Convertible Notes

Resolution 2: Ratification of prior issue of Convertible Notes.

Exploration and development expenditure

In relation to the DoD funded surface drilling campaign at ICO, US$0.8 million was incurred during the quarter. No other material cash expenditure on exploration and development was incurred during the quarter.

Insider compensation reporting

During the quarter, US$0.1 million was paid to Non-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’s website.

ASX waiver information

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

As at 30 September 2023 no Jervois shares were issued in the quarter on exercise of eCobalt options and 1,980,000 eCobalt options remained. These 1,980,000 eCobalt options expired on 1 October 2023 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 United States Private Securities Litigation Reform Act of 1995 and applicable Canadian securities laws. When used in this news release, the words “anticipate”, “believe”, “estimate”, “expect”, “target, “plan”, “forecast”, “may”, “schedule” and other similar words or expressions identify forward-looking statements or information. These forward-looking statements or information may relate to partnership for group operations, operations at Jervois Finland, drilling to be undertaken at ICO, refinery studies to be undertaken in the US, timing of restart of SMP refinery, third party feed to SMP, sales from SMP and the reliability of third-party information, and certain other factors or information. Such statements represent the Company’s current views with respect to future events and are necessarily based upon a number of assumptions and estimates that, while considered reasonable by the Company, are inherently subject to significant business, economic, competitive, political and social risks, contingencies and uncertainties. Many factors, both known and unknown, could cause results, performance, or achievements to be materially different from the results, performance or achievements that are or may be expressed or implied by such forward-looking statements. The Company does not intend, and does not assume any obligation, to update these forward-looking statements or information to reflect changes in assumptions or changes in circumstances or any other events affections such statements and information other than as required by applicable laws, rules, and regulations.

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

Basis of preparation of financial information

Historical and forecast financial information

Financial information is prepared under Jervois Global Group accounting policies, which conform with Australian Accounting Standards (“AASBs”) and International Financial Reporting Standards (“IFRS”). The Jervois Finland financial results for the period post-acquisition are consolidated into the Jervois Global Group consolidated financial statements. All information presented is unaudited.

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

Reconciliation of NPAT to EBITDA and Adjusted EBITDA

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

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

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

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Tenements

Australian Tenements

Uganda Exploration Licences

Appendix 5B

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

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

Compliance statement

1 This statement has been prepared in accordance with accounting standards and policies which comply with Listing Rule 19.11A.

2 This statement gives a true and fair view of 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 financial information included in this Quarterly Activities Report is set out on page 11.

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

3 Drawn senior debt represents the aggregate of amounts drawn under the company’s senior debt facilities (excludes Unsecured Convertible Notes that mature in Jul/Aug 2028). Amounts represent the nominal loan amounts; balances recorded in Jervois’ financial statements under International Financial Reporting Standards will differ.

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