Leading Edge Materials (TSX-V: LEM)(OTC: LEMIF) CEO Filip Kozlowski on Woxna Graphite PEA & European Critical Metals Demand
Gerardo Del Real: This is Gerardo Del Real with Resource Stock Digest. Joining me today is the CEO of Leading Edge Materials, Mr. Filip Kozlowski. Filip, how are you today? The last time we spoke, you were in the car freezing at midnight, I believe. How are you today?
Filip Kozlowski: Yeah. Hi Gerardo, good afternoon. Yeah, no, and I'm not still in the car, but I'm in the car, but this time around, I'm enjoying the air conditioning. Yeah. It's a complete change in weather here. So yeah, much more pleasant.
Gerardo Del Real: That's got to put a smile on your face. I'll tell you what has to put a smile on your face, the news that you just delivered. Leading Edge Materials has a market cap of approximately $35 million Canadian. And you just put out a PEA on the Woxna graphite project that has a pre-tax NPV of $317 million. It should be stressed that's in US dollars and a 42.9% pre-tax IRR. Very impressive numbers, congratulations. I want to get into the details in a bit, but before we get into the details of the PEA, I have to ask you Filip, you're very well-positioned and very well-connected in Europe with your finger on the pulse. And you know that you and I have spoken for, I think nearly a decade, about the battery metals surge and the demand that was forecasted. That's now accelerated and it's happening very, very quickly. How are things in Europe? Can you give us a brief overview of the situation there right now?
Filip Kozlowski: Yeah, no. And that's a perfect way to start the discussion Gerardo because the whole scene about the battery industry in Europe, that's the scene and we're just one actor on that scene and it's yeah, it's exponentially accelerating. I was looking earlier at the map, where you have close to 30 gigafactories now being planned in Europe and a gigafactory is not really a correct term anymore because a gigafactory is one gigawatt hour capacity. But Northvolt just yesterday announced that they raised $3 billion at the $10 billion valuation to expand their original plant. The first time when they started their plants, it was four times eight to 32 gigawatt hours. They then last year they raised that to 40 gigawatt hours and now they're raising money to increase that capacity to 60 gigawatt hours.
So, and, and they're just one of the examples. There's five other factories in Scandinavia alone, and then rest of continental Europe. So that's, it's a complete boom in terms of the downstream, but I think that, and this is something that we have some time and want to reflect on taking, taking on my hat a bit from my experience in the financial industry and some reasoning that I've done lately, I'm starting to believe that what we're seeing is one of the greatest misallocations of capital that was seen across the battery value chain and, and what triggered my thinking was the slide that InnoEnergy, which is a new governmental agency that started the European Battery Alliance, they showed up and the chart, and I've, I've tweeted this.
So you might want to share a link and it shows that when you're looking at the downstream, so the applications of the battery industry, electric vehicles, other electric mobility, like two wheelers and commercial vehicles, we're sort of, we've already reached the forecast of the month in terms of announced supply and almost the same for the battery capacity where the battery capacity expanded so much, that it looks like we're going to meet forecast for the month in 2030, 2040. But where the coin completely flips is upstream on the raw materials and the active materials where we're light years away from meeting forecast of the month. And then what was more pleasingly familiar was that the anode side, so the graphite and the anode active material is the one that is lagging behind the most. And that's a huge opportunity going forward.
So yeah, the announcement of this PEA comes at a very good moment and it'll be interesting to start sharing these results because where we use this PEA, as an investor, I'm talking you as a shareholder, it's very good to demonstrate what the investment case is, new investors, but almost as importantly, if not more importantly is to demonstrate what does the project look like to the industry and other stakeholders, to be able to say, this is, this is what we're looking to build. This is what we're looking to supply to you. So Volkswagen just the other week for the first time said that they're looking to engage in the, in the upstream, in the raw material side of things. So it's, it's a very fast moving landscape, but it's a clear imbalance between the downstream and upstream. So I think we're in a very good position there.
Gerardo Del Real: I'm going to ask you to comment on something that I likely know the answer to, but can you comment on any ongoing conversations and dialogue with potential buyers of the material? You have Woxna, you have the mine, you have a facility with infrastructure that is excellent, it's top-notch and we'll get into the numbers, but that contributed to some of these excellent numbers that you just published, but are there ongoing conversations with potential customers?
Filip Kozlowski: It's not something that I would be able to comment on, but there’s always discussions. And I think, yeah, what we want to do is move to real discussions and to move to real discussions is to start testing larger amounts of material. So where we've tested the material in the past and across a lot of places, put it that way, it's with very small scale, lab produced materials. We need to start producing more significant amounts of example materials so to say, and to do that, we will need to have a demonstration plan. So I think, yeah, this is something that will work out now a hundred percent of the folks that have been on the PEA. And now we have the PEA as a, as a stepping stone to what the next steps are, and looking forward to, to communicate that in the near term.
Gerardo Del Real: I mentioned the market cap being approximately $35 million Canadian, let's get into some of these numbers. Accumulated project revenues of $1.425 billion, initial capital expenditures, the CapEx, is a measly $120 million. And I say measly because given the need in Europe for material and given how important it is to the overall industry to secure material from domestic sources, as there's a growing focus on establishing domestic critical metal supply chains, I can see a number of potential suitors coming in and writing a check for that $121 million. You just mentioned the demonstration plant. And, and, and it sounds like there was discussions there, but pre-tax payback period from first production of 2.24 years. Again, quick payback period. Life of project is 19 years. Life of mine is 15 years, I could go on and on. But again, the disconnect between the $35 million market cap and the $317 million US pre-tax NPV, I think highlights the opportunity. And we haven't even chatted about Norra Kärr, right? Which we're anticipating an economic study from Norra Kärr here in the near term, I understand.
Filip Kozlowski: So that was going to be my end comment, that these are great results, but this is also our small project. So no, but you've, you've raised a number of highlights from the PEA. So let me try to remember, go through them and give my comments. When discussing numbers, I'll just make a quick disclaimer, this is the preliminary economic assessment. It is preliminary, it uses inferred resources and so on. And it's, it's to demonstrate the potential viability of the project. It's a bit unusual because we have a brown field. So we have more certainty in that and, and operating on, on the CapEx figure, you mentioned it's 121 on PEA level. It does include quite a high level of uncertainty. So there's a 20% contingency in there. And where bulk of the CapEx is also on the downstream. So when you compare these CapEx against other projects, they would still need to build the mines on where the bulk of our CapEx is, it's only on the value add process.
That being said, we're using a thermal purification process. And that, that involves quite high capital equipment. And we've, we've started out using the most comfortable suppliers, German, US suppliers to get quotes, but there's obviously room for improvement once we, once we start evaluating. So I think it's, it's a conservative starting point the way we looked at the CapEx. And I think you, the one number that you didn't pick up on, which I think is that, and maybe it's that European versus North American perspective, but the forecast, the annually, the EBITDA of 49 million, I think that number on its own and put up in relation to the market cap. And one of my directors shared a chart the other day as well, which showed the average P/E ratio for the battery value chain across listed stocks and those trade at 90 forward, one year forward P/E. So it's, yeah, it's quite humbling when you start doing the calculations of what the opportunity is.
Gerardo Del Real: Well, congratulations on some excellent work. I can't wait to see the results from Norra Kärr. Do you have a timeline for that, Filip?
Filip Kozlowski: It's going to move faster now, when I only have that to focus on. We are, we're coming up towards the Swedish midsummer. It's the end of June. And I would like to, to work a little less after that. So normal hours, at least for a few weeks with, with, with a small kid at home. So yeah, I want to get that out. And it's the same thing there. Whereas it's just an increase, constant increased focus on that. And there are things happening in Europe and today to demonstrate what the project looks like. And being, being able to come back to the regulators, we want the permit, the new project. This is how it looks. It's going to make all the difference in how to progress that. So, yeah, we're not done yet. One down, one to go.
Gerardo Del Real: I'm looking forward to the conversation when that is published as well. Thank you. And congrats again, Filip.
Filip Kozlowski: Thank you, Gerardo. Talk to you soon.
Gerardo Del Real: Bye now.
Filip Kozlowski: Bye.