Categories: Energy
Topics: General Energy

CEO Mark Saxon on Leading Edge Materials’ (TSX-V: LEM) Role as the Only Junior in the EU Battery Alliance

Gerardo Del Real: This is Gerardo Del Real with Resource Stock Digest. Joining me today is the President and CEO of Leading Edge Materials (TSX-V: LEM)(OTC: LEMIF), Mr. Mark Saxon. Mark, how are you today?

Mark Saxon: Gerardo, good day. Good to talk to you. I'm sitting in Munich and very happy to have a conversation.

Gerardo Del Real: Listen, let's have a very frank, open and honest conversation. It's a brutal time in the junior resource space. “Sell in May and go away” started about a month early as it has for the past several years post-PDAC. Despite that the mega trend, as I've called it in the past, that is the electrification of everything, really went into overdrive here in the past couple of days.

There were some news – and I'm going to use your words and hopefully you don't mind – but there was some news that you said you had been hoping for over a decade. Mainly, the EU Commission calling for a strategic battery value chain. This is something that we knew was the end game and had to happen because of this mega trend, the way everything was moving forward. There was no way that the EU could continue to rely on a foreign supply of these critical, critical metals.

Leading Edge Materials, of course, has a phenomenal portfolio of assets that plays right into this. Let's start with your macro backdrop and your commentary on the recent news. Because it really is a big deal and a potential game changer for Leading Edge.

Mark Saxon: That was a great introduction, Gerardo, and I appreciate the context. It’s certainly been a very busy week and a busy month and a busy year I suppose, in terms of things that are happening within Europe in terms of electrification. Really, not a day goes past now without a surprising and significant development, from whether it's German automotive, whether it’s energy storage, whether it's the rollout of a new battery factory, whether it's one of the Asian companies that's expanding their investment into Europe.

What we are seeing now is Europe taking the fast position behind China in terms of their uptake of electrification. We knew it was going to happen and we've been talking about this for a decade. But yes, it's been really great to see the acceleration of the commitment to electrification in Europe. As you commented, there's been some very positive news out this week.

We are part of a group called the EU Battery Alliance. That's been operating for about two years and Leading Edge Materials was a founding member. The EU Battery Alliance has been focused on a deep value chain for battery production inside of Europe. In the last few days we've seen some very positive comments that include all the way back to mining of battery materials in Europe. It's obvious, it's important, it's essential. But it's something that hasn't really been dealt with until just recently that mining is very important for the whole security of the battery value chain inside of Europe.

Gerardo Del Real: This is a very simple math equation. If we want to take a complex topic and break it down to its smallest parts, the bottom line is, if there is not supply, there can't be a supply chain. Correct?

Mark Saxon: Exactly. If you're expecting the automotive industry or the battery industry to make multi-billion dollar investments that are going to underpin their industries for the next decade or the next 20 years, then they have to be guaranteed of the supply of materials to feed into that supply chain. It just makes sense. The automotive industry is out there seeking the materials from all around the world. In the last couple of weeks, for example, Volkswagen made some very positive statements about needing secure lithium supplies including from within Europe.

For us with graphite, it's no different. Local sourcing is important because it provides both security and the ability for the supplier and customer to co-innovate. Customers can come back to us as a supplier and say, “Yeah, let's modify this, let's deal with this, let's improve that.” That can't happen if supply chain is too remote and too long.

Gerardo Del Real: Now, I want to provide a bit more context and then I want to talk about why Leading Edge has clear differentiators in the region and clear first-mover advantage in the region as it relates to the Woxna graphite asset. Before I do that, I want to read a comment by the European Commission Vice President for the Energy Union, who commented:

“Our goal is to see European champions take the lead in the global arena. Batteries is a key strategic sector for the future of mobility and decarbonisation of our economy. Moreover, I am convinced that the EU Battery Alliance can serve as a testbed for our future industrial policy. Today's meeting is about showcasing what we can achieve jointly with the member states and the European Investment Bank to mobilize our political forces behind innovative and competitive industrial value chains.”

A lot of key takeaways. The mention of the European Investment Bank, the mention of the political forces and mobilizing it, and how the goal is to see European champions not follow as you said earlier, but actually take the lead in the global arena. That's going to require significant investment, political capital, political goodwill, and obviously, as we mentioned, supply.

With that being said, can you set the table for us, Mark? And talk about Woxna, the asset and what's being done to leverage that very, very important asset that Leading Edge has, that my opinion here is severely depressed and undervalued. We'll talk about that another time. But can you talk about why that's so important?

Mark Saxon: Sure. I'd first of all like to just congratulate and say thank you to Maroš Šefčovič and the EU Battery Alliance. They have done an excellent job in pulling this story together and getting the profile for the whole industry, almost from a standing start 2 years ago.

The Woxna Project is one of the very few fully built, fully permitted graphite mines in the Western world. It's in central-southern Sweden, a very good location to be able to access the markets both in Sweden and Northern Europe, Germany in particular.

The mine was built in the late 1990s, operated for a short while and was producing flake graphite for the steel industry. We purchased the project in 2010, we started producing flake graphite again. But the steel industry was struggling at the time, and the market was not strong. So, we decided to close the project.

But the resource is in place, the mill is in place, the waste management in place. From 2015, I guess we had to think a little bit harder about where we would position ourselves in the industry. At that time, the great boom in electrification was just beginning, and to be honest I think the speed it has moved since then took most people by surprise. Electrification has been taken up tremendously inside of Europe, and electrification of transport requires batteries.

It surprised many people to learn that around 15% of a lithium ion battery is graphite, both synthetic and natural graphite. This changes things completely for the outlook of the Woxna graphite mine, which is now being prepared as a future supplier of natural graphite anode material to go into lithium ion batteries.

Graphite has gone from being what you would think of as an old material for the steel industry to an absolute new and cutting edge material, which is anode material for lithium ion batteries.

Gerardo Del Real: Well said. Can we talk about how many other juniors are in or are members of the European Battery Alliance?

Mark Saxon: Certainly — there are no other junior graphite companies within the EU Battery Alliance. We're there with the likes of Rio Tinto, Umicore, Johnson Matthey on the raw material side and then we cross over into Volvo, Volkswagen, Daimler, Bosch. All the major companies are a part of the Alliance there. Saft, Total, and PSA Group in France. Really, the EU Battery Alliance is functioning as a great connection group of companies that are working in the battery space inside of Europe.

Through the Alliance, it's only a phone call or it's one or two emails to be able to reach almost anyone in those major companies. That really has been a great differentiator for Leading Edge Materials, and a great differentiator for Europe. It's been really a positive thing to put batteries on a fast track and has changed the landscape for batteries in Europe.

Gerardo Del Real: Leading Edge Material currently has a market cap of approximately $10.5 million Canadian. What I will say is that with a market cap of $10.5 million – and we haven't even begun to speak, and we will at another time, about the Romanian assets, which I'm excited about as well – but with the market cap of $10.5 million, I want to crystallize the opportunity to people by asking you what is the replacement cost of your fully permitted graphite mine that you have there, of Woxna?

Mark Saxon: In today's dollars, it is many multiples of the current market cap of the company. The project was built in the late '90s. The mill, the buildings, the pre-strip, the tailings dam, the water management, all those things were in place. Let alone the sunk capital, also, the time to open a mine and gain the permits is very significant.

Working in Europe in mining is not always easy and getting permits takes quite a long time. We have a permanent lead in the market by permits we have at Woxna. Really, it's a 5-year lead in the market as a graphite producer. We're certainly going to take advantage of that lead.

Gerardo Del Real: I want to make clear to people that the company is undertaking an internal strategic review that you announced in your most recent AGM. I know that a lot of what's going on internally are not things that you are privy to share publicly, which is completely understandable, completely get that. However, can I just stress to everybody that permits are in good standing, facility is there. No issues on that front, correct? The asset is intact.

Mark Saxon: Exactly. We own 100% of it. It's a fully built mine and really, if we want to go back into production in flake graphite, then we could do that at very short notice. We hold the project on a production ready status.

The market for flake graphite is not that strong. So, we have chosen to stay out of that market for the time being and focus on the research with the value add of battery materials and other products as well.

Gerardo Del Real: Where does that research stand right now? Because the high-purity graphite, obviously, for the time being anyhow is where the opportunity is. You mentioned how tough it is to get a fully permitted mine in Europe, let alone build one, permit it and get it going. You clearly have an advantage there. How is the research coming along and what do you see as potential next steps?

Mark Saxon: Certainly for Leading Edge Materials and for many other graphite companies as well, the future really is about higher purity and higher consistency materials. The customers that we're dealing with in Europe, they're not really interested in single batches of graphite, they're interested in long-term supply agreements that they can rely on for multiple years to come.

For us to be able to qualify as a supplier for those companies – and we're talking about the major automotive companies being on the other side of the table – then we have got to be producing very large volumes of material for them to be able to do in-line production testing, to take our material, to build batteries and then do the stress testing they need to do on the batteries to prove that our product is functioning properly.

The next step in our process is to build a demonstration plant, which is really another name for a pilot plant, I suppose, where we scale up our process. We've done plenty of bench scale test work, and now's the time to be producing high-purity materials at a larger scale, and ensuring that processes can be industrialized.

Gerardo Del Real: I know it's been a tough couple of years for shareholders. I know it's been tough for the company internally, not because of the lack of progress. There's been a lot of progress made. But because the message has not been received by the market. I get the feeling that this isn't a story that's going to turn around in the next day or two. But I also get the feeling that this is a story that has such an important asset underpinning it that if investors are patient, you're likely to see a return of multiples of where we trade today.

This is not a trend that's going away folks. This is a trend that is accelerating. Again, I think Leading Edge Materials really does have a significant, significant first-mover advantage. Mark, thank you so much for the thorough update. We've been yapping for 15 minutes. Is there anything else that you'd like to add?

Mark Saxon: No, I think you've covered most of it there. Really, the backstory of electrification in Europe is much bigger than Leading Edge Materials. There'll be many, many winners in that story, both on the raw material supply side and the technology side. We're pleased and proud to be part of that trend. It's an exciting time to be in the business.

Gerardo Del Real: Excellent. Mark, thanks again for the time. I really appreciate it.

Mark Saxon: Thanks, Gerardo. Cheers.