Valence targeting profitability by production

Interviews

Transcription of Finance News Network Interview with Valence Industries Limited (ASX:VXL) CEO and Managing Director, Christopher Darby
 
 
Lelde Smits: Valence Industries Limited (ASX:VXL) produces high grade flake graphite products from its Uley Graphite facilities in regional South Australia. The group sells its products to Asia Pacific, European and North American customers. I’m Lelde Smits and joining me at ASX Investor Series in Sydney is the Company’s CEO and Managing Director, Christopher Darby. Chris, welcome back.
 
Christopher Darby: Thank you very much, pleasure to be here.
 
Lelde Smits: Valence Industries has recently announced an update on operational performance. Could you recap the highlights for us?
 
Christopher Darby: Absolutely, we’ve taken a significant milestone today moving into full operational production, ramping up our operations to increase our export volumes over the next few weeks. And starting additional exports in the coming months, as well.
 
Lelde Smits: When we spoke last week, you did speak about the Uley production really ramping up over the following year. How much has been sold and when can we expect to see some sales results?
 
Christopher Darby: We have a significant number of customers signed up. We have customers, as I’ve said before, around Europe, the Asia Pacific and North America. We have more than 8,000 tonnes of our first year’s production sold and signed up. We also have additional Memoranda of Understanding with some very significant global customers, for another 37,000 tonnes over two to three years.
 
This effectively places all that you can produce with customers, although we will tweak some of those brand lines for some specialist customers, we’re still talking to. But it means it puts real priority on accelerating our expansion of production operations.
 
Lelde Smits: Are there any other details that you can release about those sales results?
 
Christopher Darby: They are significant sales results, but the main thing is that these customers demand of us, very strict confidentiality. They won’t trade with us if we go around shouting their names from the top of the rooftops. And they won’t be back next year or the year after, to come and buy from us, if we keep talking about what they’re doing. So they demand of us, in fact confidentiality agreements can often be thicker than the actual sales contract. So they’re very, very important to them to have those things as very confidential programs.
 
Lelde Smits: What are your cash costs per tonne of production?
 
Christopher Darby: So we have a very clear production cost. We state how much it does cost us to put the tonne of graphite, onto the boat in Adelaide. And for our traditional product lines, it’s about $AUD950 and we then sell that product for aboutan average of $US1400 a tonne. And for our advanced products, which we’ll be moving into next year, it ends up being about $AUD1300 on board the ship. And we sell that for about an average of $US3800 a tonne.
 
So we do a very clear statement of cost. This is how much it costs us to actually put it on the ship; we don’t play with C1, C2 and C3 cost. Very clear cost on board the ship.
 
Lelde Smits: Could you outline what the limits of the deposit are and also, how this impacts the project?
 
Christopher Darby: We have, as we’ve said before, significant exploration licences over the entire territory, some 75 square kilometres. At the moment we have apaper,which says to us we can dig to 16 metres, until we establish whether there are ground water requirements, in relation to the area. At the moment, we don’t think there are any of those ground water elements in there. And even if there were, it would simply be a matter of licencing us to use or utilize that water. But that doesn’t become an issue for us for at least two years from now, if not longer, because we also have 12 months worth of stockpiles.
 
Lelde Smits: And moving on to a more industry perspective. Could you outline the current balance between supply and demand?
 
Christopher Darby: So we are seeing a very strong demand driver for quality production. So this is production from countries that are safe to buy from; that can assure a customer of a very high quality product, with very low associated contaminants. That level of demand is extremely strong, right across our customer interface.
 
Where we see less demand is for that lower quality product, very fine material with lots of impurities, with inconsistency of production. And that’s not what we’re about. So yes, there is global shifting in that area of the market, but for us and the customers we’re talking to, continued strong demand and very firm pricing.
 
Lelde Smits: I know you have just todayupdated the market. But when do you think shareholders can expect the next update, and what type of information is likely to be included?
 
Christopher Darby: We have a number of key things happening over the next three months. The first of these is completing our finance facilities for our expansion, in two stages. The first one being a $US20 million facility, and the second one being a $US75 million facility. That first facility will come through in the next couple of months. And the $US75 million one, we won’t put in place or draw down until early next year, but it’s there and available to help us with our expansion.
 
The other part is this start of operational production, which we announced today. That will be significant over the next coming weeks, because we’ll start to export big volumes of production to our customers and start receiving. And very clearly demonstrating those receipts, particularly as the cash comes through the door more importantly, through into the next quarter.
 
Lelde Smits: Final question Chris. What are your hopes personally for the profitability of this project?
 
Christopher Darby: We think there is significant profit for us. I believe that as we move from being a traditional producer of graphite, which is a very profitable business of itself and as it happens, repays that entire first debt facility. We’re actually then pushing ourselves even harder every single day, to drive change and be beyond where we are, and where any competitors might be.
And so our profitability is really focused on these advanced products, we’re going to be increasing our EBIT by 85 per cent, by shifting to 40 per cent of our volumes going to advanced products. At the point we hit 40 per cent of volume through advanced products, 80 per cent of our income is generated by that 40 per cent of volume. So it really becomes a quality game, even more than what we’re doing now.
 
Lelde Smits: Chris Darby, thank you for the update from Valence Industries.
 
Christopher Darby: Really appreciate the time, looking forward to speaking again in the future.
 
 
Ends

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