In what could be the last On the Couch episode for 2022, I catch up with the Vulcan Energy's (VUL) CEO, Dr Francis Wedin ,as we bookend the year and look back at a very successful year for the European lithium brine/geothermal energy company.
It has been an action packed year for VUL with two recent deals adding to the story and $320m raised in 2021, and of course a short seller attack from JCap, just to make things interesting.
Members will be familiar with VUL from plenty of commentary in the newsletter over the year and we hold it in the Small Cap Portfolio.
2022 is going to be another interesting year as Dr Wedin heads to the UK to oversee the companies ambition to become a significant zero carbon lithium and geothermal energy provider.
Dr Wedin has a PhD in Exploration Geology and more importantly an MBA in Renewable Energy. Great insights and MT is delighted to bring you this exclusive podcast.
*PLEASE NOTE: Transcripts are autogenerated and may contain errors.
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Henry Jennings 00:11
Well welcome to another episode of on the couch with myself, Henry Jennings from Marcus today. And today I'm once again joined by Dr. Francis Wedin from Vulcan energy in January, we caught up with Francis talking about the year ahead for Vulcan energy. And I have to say it's been an interesting year, in the true sense of the word for Vulcan has been a fantastic year in some senses, but also a few little issues along the way. And I'm sure we'll touch on those, I thought it would be a great idea to bookend the year in terms of on the couch podcast, with an update from the Vulcan energy team, especially as we've had in the last few days, some really good news from them on Volkspark. And, and also today, on another really good announcement, which we'll get into.
Henry Jennings 00:54
So Francis, great to have you on the show again. And you've had a great year, I guess. Yeah, thanks, Henry.
Henry Jennings 00:59
So I guess, you know, in the last couple of days, we've had the Volkswagen deal, which is a pretty impressive deal. And that follows on the back of Reno, as well as Stu Lantis, as well in that offtake agreement. So he just put a little bit more meat around the bones, perhaps of the Volkswagen deal for those that haven't seen the announcement.
Dr Francis Wedin 00:59
Well, great to see you. Again. Thanks very much for having me back on. Yeah, it's been it's been a great year. Very busy. As you said, we started off with our our pre feasibility study in January, which I think was a bit of a sort of a rewriting opportunity for for the company. That was when we first sort of spoke about the metrics of our zero carbon lithium projects in Gemini, which is a combined renewable energy and battery lithium chemicals projects aiming to supply the electric vehicle market in Europe. So that sort of kick things off. And since then, we've had a couple of equity capital raises across the year, so one in February and one in September. So we've raised sort of 320 million Australian. So we're, we're well funded. And that means we, we've been able to move quickly on strategic opportunities along the way. So we, we've acquired a couple of electric drill rigs to repurpose in the oil and gas industry, leveraging towards renewable energy, geothermal, which is very important for us and our project development. And today, you know, we've just acquired some of the use of proceeds from our last raise, we've acquired our first operating renewable energy, geothermal business. So first wells and plants in Germany as well. You know, we've executed a number of offtake agreements with tier one, European customers, the latest of which was was Volkswagen. So yeah, it's been a, it's been a very busy year. And I think we're very pleased with how it's all panned out.
Dr Francis Wedin 02:42
Yeah, of course. So we've announced a binding, lithium offtake agreements were thought to bargain for the supply of lithium hydroxide, basically for the second half of this decade. So we aim to enter into production from 2024 and sort of scaling up from there 2025 and beyond. And this offtake agreement is from 2026, for five years. And basically what this means is with this latest agreement, so we now have agreements, binding definitive agreements with folks bargain runner group, still Lantis Unicore, which is a a cathode producer in Europe, and actually has also just deal with Volkswagen, it was on that sort of same time. So they're one of the main cathode suppliers, for the batteries for the electric vehicles. And we've also got a binding term sheet with LG energy solution, which is one of the largest electric vehicle battery manufacturers in the world and also focused on manufacturing in Europe. So what this means is we're we're now basically fully booked out for our production plans for the first five or six years, which is, we're pretty happy with. Obviously, given that we're, we're still fairly early. I mean, we're still, you know, a good sort of two and a half years away from from production of lithium chemicals. And this is, this is really important, because we essentially need to raise finance, we need to do project financing, once we finished our bankability study, later this year, and banks for lithium projects, they want to see offtake agreements in place, they want to see that there's a customer on the other end, who's going to buy your product. And we have these, you know, tier one European automakers European focus, battery and cathode makers, essentially all booked out for our product. And I would say as well that we're basically three or four times sort of over oversubscribed if you like in terms of demand, so with active negotiations that are sort of still on foot. So we can certainly see a lot more demand there if we can grow to meet that demand. So we don't have a customer problem or a demand problem. It's more of a you know, how big can we make this? How far up Can we can we can we scale up.
Henry Jennings 04:45
So in terms of the money that you're going to need to raise so you've raised 320 odd million this year, which is not an inconsiderable amount of money and you're putting it to good use with the latest land acquisition inside so know what sort of money, obviously you're not going to have to raise that next year. But it's going to be an ongoing thing I would imagine, what's the sort of capital requirement that it's going to take to to get the projects up and running in 2024?
Dr Francis Wedin 05:12
Well, Ican only speak to our pre feasibility study numbers, which are nearly a year old now. So for that, we had a phase one requirements of point 7 billion euros and a phase two of 1.1 billion. So fairly big numbers, and those will likely change in our definitive feasibility study, I'd say there is a potential for cost saving just based on you know, efficiencies that we may find during the feasibility studies, we've got a pilot plants, which is operational producing data for these studies. And, you know, we're learning more ways we can make this process more efficient. But on the other side materials getting more expensive with supply chains, we're definitely seeing that. So I'm, we're not sure what effect that's going to have, we may also make. So with this latest announcements, we do want to make our phase one and phase two bigger, and perhaps even add further phases beyond that. So phase one, DFS may have a higher capex. So obviously, the flip side of that is that should be higher revenue associated with it. And once we're in production, should be a very low operating cost. Indeed, it's worth mentioning as well that with that capex, you're basically building out what's in the normal course of events will be three separate businesses. So a renewable energy business, which is a bit like an infrastructure asset for it can do heat, and it can be powered, depending on the location, a lithium extraction business, which is sort of analogous to a lithium mine, even though we're not mining, we're pumping brine out of the ground, and a lithium processing business. So a chemical cons, and this is analogous to, for instance, the converters that you have in China. So reasonably large capex, but then we'll be fully integrated, and will actually have a very low operating cost across the, across the operation.
Henry Jennings 06:53
Now, there was a couple of there's obviously the elephant in the room, which we'll get to, as, as we have to, at some stage. But recently, I've seen that Rio, we're having some issues in Serbia, with 1000s. Taking to the street on environmental concerns, they're obviously mining, they have a lithium mine project. And yours, of course, is a different style. But still environmental concerns I would imagine, are at the forefront of I know, you're certainly a big proponent of the environment. So you know, as far as the environmental concerns go with the local population in Germany, how does that stand at the moment? Are these guys on board? Or is this going to be a sort of a softly softly approach that you need to take to get the locals on board?
Dr Francis Wedin 07:33
Sure. I mean, I start by saying that, I mean, the very reason we formed the company was around, I guess, an environmentalist idea. So I mean, we started with the idea of wanting to produce zero carbon, lithium is sort of, you know, knowing that Lithium has quite a high carbon footprint, and we're going to have this mass bill. So lithium production in the world to feed these electric vehicles. And we wanted to do it differently and try and decarbonize the lithium supply chain. So you know, zero carbon lithium ions, I guess, environmentalist goal is the entire game. It's the core of what Vulcan is about and where I think we're we're sort of reflecting this in other ways, and how we execute on the company, the environment always comes first. I think your mention of Rio Tinto is on point. Essentially, Europe needs a lot of battery raw materials. But for better or for worse, it is very hard to permit a battery raw materials mine in Europe. So typically, lithium mines in particular art cycle, open pits, yeah opencast mines, and they have a larger surface footprints, Europe's obviously genuinely densely populated. And this causes Germany quite substantial opposition. So I think that sort of bears out what we've been saying that Europe needs to say supply, but for better or for worse, doesn't really want to mind for Germany. Yeah. So in terms of what we're doing, we're obviously not developing minds, we're developing renewable energy plants with a lithium extraction circuit attached to it. So in a way, it sort of indicates, I think, what we're doing. Now, in terms of local opposition, I think we've said since the beginning that, you know, geothermal, just like wind energy in Germany as well has its opponents, and some people don't like it. And we understand that. And as you say, it's a case of just engaging with the local population, telling the story of what we're doing. You know, we will be providing heat and power, renewable heat and power being part of that energy transition, we will have a very small footprint, and we're also producing lithium, which is going to go directly into the German automotive industry with obviously Opal and scientists and now Volkswagen as well. So there's a lot of benefits, I think, from all sides of politics and local communities, as well. So we just have to tell that story. And we are, I'm sure there'll be bumps in the road along the way. So it's been it's just a matter of, I think, consistently explaining my story and Making sure as best we can that communities understand that they're on onside on our side. And then also I mentioned as well. And at a state level and a federal level, we're seeing really strong tailwind so and support. So in bond Wittenberg where we're operating the Greens CDU coalition has put in their, in their coalition agreement that they support the extraction of lithium sustainable extraction of lithium from the Upper Rhine, Robin, and they support deep geothermal energy. So this is exactly what we're doing at a federal government level as well. You know, the targets are produced 50% of heating from renewable sources by 2030. You need geothermal to achieve that? I think we're well on point in terms of what the government is trying to do. And it's it's going to be a process with local community. But I'm confident we'll get there.
Henry Jennings 10:51
Of course, we've just had a changing of the guard really in Germany as well, haven't we? We've had the mother, Mercy. Merkel leaving the scene, and now we've got Schultz taking over is, I mean, that looks a positive really from from your perspective, in terms of that green involvement with the new government? Is that how you see it?
Dr Francis Wedin 11:09
Yeah, that's right. I mean, we've seen straightaway with I mentioned on the the ambition for renewable heating, also, basically phasing out the fossil fuel vehicle, which is a big deal for Germany. You know, it's such a, such an iconic producer of internal combustion engines, you know, phasing this out effectively by 2035. So we already had targets from UK and France and a lot of other countries in Europe. Now Germany joins us as well. So yeah, I think it's, it's it's definitely more more tailwinds behind what we're trying to do, you know, electrification of mobility and renewable energy bill, that.
Henry Jennings 11:45
It is a massive change, isn't it for the European car industry? And I must admit, although my my head says, EV, My heart says, flat six still. Unfortunately, anyway.
Dr Francis Wedin 12:00
Have you? Have you ever driven a Tesla?
Henry Jennings 12:02
No, I haven't I haven't I, I must admit, I would like to it. They do look astonishing in some respects, but it's just so quiet. I'm not sure I can deal with the quietness. One of the joys of driving is the is the noise. Now, that's not probably politically correct thing to say. But it is the noise. I'm old school, but it's just.
Dr Francis Wedin 12:24
I'm iffy on that. But it does. driving electric car does awaken the little kid inside you. It is fun. More fun, than a petrol car in terms of just being so quick. So yeah, try it. It's really good fun.
Henry Jennings 12:39
I will have to Okay, that's that's my plan for 2022. I will try an Eevee. And see how we go those. Those posters look quite interesting. I have to say
Dr Francis Wedin 12:49
They do. Yeah, there's, well, there's many different models, obviously, coming off the line now. And obviously, V dubs ID ranges is pretty groundbreaking as well, with their modular bill, that strategy, and I'm looking forward to the the VW camper van as well. And he can be, which is going to be electric, which looks looks pretty cool.
Henry Jennings 13:09
That'd be very cool, wouldn't it now? Even so you're I mean, you're moving to the UK, my old stomping ground in the new year. So you might be able to get a combi and do the big European vacation and build it into work as well.
Dr Francis Wedin 13:23
That's right. Yeah, my parents did that actually, in the 70s. So I'll have to do that in the electrified form as well. So but yeah, moving moving out to moving out to Europe. So I'll be in the UK, but not so far away from Germany. And basically aiming to be obviously closer to the asset, as you know, as things ramped up really now, we've got an operational renewable energy plants over there now. And it's all about just executing on building out further renewable energy operations and building out the lithium operation, after the BFS and financing and building out the team as well. We're gonna see massive growth in the team next year. So I really got to be closer to that. And so hence, the hence the idea for moving over.
Henry Jennings 14:05
Yeah, it's an interesting announcement that you made this morning with the acquisition of that renewable energy plant. So that puts you in the game, I guess. So that puts you now as a producer, and I suspect some of the reason for that is that you can learn from that plant so that you can put in place some of the structures, I guess, from your own plant when it's built. Is that is that the case?
Dr Francis Wedin 14:24
Well, that's right. So I mean, we announced today, two deals with existing plants. So we've acquired one geothermal renewable energy plants at Insite, as you mentioned, and we've made a Brine offtake agreement with another geothermal renewable energy plant which is five or six keys distant from inside and the the intention of this really is to secure existing lithium burying brine coming out of the ground and and become a renewable energy producer straightaway so as a first of January, we will be the latest renewable energy Do you producer on the ASX, I think there's actually only two others that are sort of pure play zero carbon, renewables. And the aim is just to build that further capacity at InSign, and Lando as well the other operation, so build out that geothermal capacity with a view to, you know, eventually potentially combining the operations in terms of lithium production from the brine. And that's really an add on and somewhat de risking effects on our phase one production because these wells already exist, they're already producing obviously, and we know the grades of the brine, or pilot plants has been operating at Lando, for about eight months now. So we know how the lithium extraction works. So it's a de risking strategy. It's a strategy to add on additional production. And obviously it's it's complementary to our strategy to become a renewable energy producer.
Henry Jennings 15:45
Your your ambition, I guess, for first production by 2024. Some would say that a little bit aggressive, is land are part of that. That plan that sort of de risks that, that move to 2020 for production and makes it somewhat easier to achieve?
Dr Francis Wedin 16:01
It is yes, yes, we've said, and we said as part of our last raise that we wanted to acquire brownfields assets as well. Phase one, at the moment is a greenfield projects. So adding in some brownfields, I existing wells existing operations into Phase one is a risk mitigating strategy as well as a strategy to grow the production ambitions for for phase one.
Henry Jennings 16:26
Now, I've been asked to ask you a question by someone who knows far more about this technically than I do. So I'll ask you the question and you see if you can answer it. One of our members who obviously has a deep knowledge of this suggested that lithium wells don't need high flow versus geothermal for success, he asked Is there a level of which they can deal with via a closed loop or an alternative extraction as this is the biggest unknown real well flows this.
Dr Francis Wedin 16:52
Just, Brine flow is a very key metric for us. So it controls how much energy we can produce renewable energy, and it controls how much lithium we can produce as well. So Brine flow is a very key metric that we need to control as we build out further lithium extraction capacity and geothermal capacity. And we control that by applying the sort of industry best practice that we've used, that the team has used over the years. So we during the year as well, since we last spoke, we bought two geothermal engineering businesses, so a subsurface development team and above surface development team. And these guys have been developing geothermal projects in Germany and and worldwide for for many years. So it's applying that knowledge and expertise using things like 3d seismic to get a picture of the subsurface targeting high flow rate zones, which are existing fault zones and the rock and using sort of industry best practice to ensure that we get that that flow rate. So flow rate is very important for us. If that sort of.
Henry Jennings 17:53
I think it does, I think that's what he was getting at. Now, Francis, I have to ask about the elephant in the room. And obviously, the this short seller attack this year, from Jay cat is subject to some legal issues and legal cases ongoing. So clearly, you you can't talk much about that. But it is obviously hanging out there still with I guess, in general terms, were you surprised that someone would attack you? Or is it just part of the game really in the renewables and the sort of level of scepticism and in queries in terms of ambitious plans? Is this just part of it?
Dr Francis Wedin 18:26
Yeah I mean, unfortunately, I can't really comment on that because of the ongoing legal case. So I won't comment on the specifics. I say, to your general question. Yeah, I think not so surprised that short attacks are happening against lithium companies. We've seen that with other companies recently as well. Another one was standard lithium in the US, which is developing lithium extraction over there. Incidentally, Koch Industries, invested 100 million US into standards a week after the short short stack. So that will probably wasn't wasn't very well timed. But I think, you know, as the lithium industry gets bigger, it's suddenly popping up on the radar. And it is, you know, it's increasing by orders of magnitude, really, at the moment in size, as the demand for EBS goes up. So I think that's not as in a general sense, not unusual, obviously. Specifically, if there's issues around comments being misleading or defamatory. Obviously, we will, we'll take a view on that. But as a general sense, I think, you know, it's not unexpected for the industry.
Henry Jennings 19:32
Not, I guess, you know, we've had we've seen lithium booms before, I remember two or three years ago, and it was back in sort of 2018 thing, things started to get really, really pumped up with the lithium space and then I think I remember sq m came out and said earlier, you know what, we're going to pump out a whole whole load more and we're going to produce a lot more lithium and it kind of killed it. There's so much going on at the moment in the lithium space, not withstanding yourselves but you know, from from the likes of pills. From even call lithium here with the finished project in near Darwin, is there a danger that everyone's going to come to market at the same time and, and suddenly the demand that everyone's expecting is kind of swamped? Is that is that a danger with this new sort of white powder, gold rush?
I mean, I'm biassed, but I don't think so. I think if you look at the industry analysts, I mean, when you look back at sort of 2015, to 2017 2018, as you say, there was a sort of a mini boom, in the lithium industry that happened there, it was, really, the industry was still very much in its infancy. So little moves on production could really affect the price in a big way. And they did. And it was actually, it was more the hardrock production that came out of Australia that affected the supply. It was switched on very quickly, very efficiently. That is what Australians are very good at doing, they're really good at starting mines very quickly and efficiently. And that that happens. And there was a period of a couple of years when there was oversupply in the market. But essentially, that was when the lithium market and the Evie market was was tiny in comparison to what it's becoming. Now we're seeing demands. And if you take the automakers at their words, and the battery makers at their word, you know, just in Europe, we're seeing over a million tonnes per annum of demands of lithium chemicals by 2030, that is not far away. I mean, essentially, eight years away from that, and, you know, it takes many years to get a project up and running. And then you have sort of ramp up issues. And and, you know, a lot of a lot of the time these projects don't deliver on time as well. So you know, a million tonnes of lithium chemicals per year just in Europe by 2030. The entire global supply now is 450,000 tonnes, most of which is controlled by China on the lithium hydroxide side. So you're talking about a market that's multiples of the entirety of global supply just in Europe. In the meantime, China's growing, North America is growing South Korea, Japan, everyone has their increasing lithium demand. And, you know, a large lithium chemicals project at the moment is about 40,000 tonnes. So you're talking about dozens of projects that will need to be developed successfully, with no ramp up issues just to supply the European market. So I don't really see it. There may be sort of bumps along the way. I mean, the lithium price is pretty vertical at the moment. So things can't sort of go up forever, I suppose. But we certainly see the market as being structurally undersupplied. Certainly for the rest of the decade.
Henry Jennings 22:38
But I think you're absolutely right. And all the figures I've seen there's massive under supply going in. And we've seen it you know, even recently in the supply chains we're seeing even with urea at the moment, I mean simple things which seem to be causing serious problems. So here we are, it's we talked in January. And it's been a big year for you guys money raise and some really fantastic deals. We're going to talk now, obviously, this is now December, we're coming up to Christmas. Next Christmas, we should schedule in another little chat. How do you see 2022 panning out? What would you want to achieve? In 2022? When we sit down here in 2022, you're you're there in London? And and you know enjoying the beautiful UK weather in December? What What will you be saying to me then?
Dr Francis Wedin 23:26
Well, hopefully by then we will have executed some heat offtake agreements because we will be selling heat as well. There's power power in Germany, you can just sell into the grid, you don't even offtake agreements, and you get the feed in tariff for geothermal heat. So you need bilateral Arctic agreements. And we're in discussions at the moment with local utilities or local businesses. We like heating because the effects is directly felt in the local community where we operate so so we expect to see movement on that, I think we're we're likely to increase our level of sort of partnerships across these three main businesses that we're developing. So particularly on the chemical side. So we're looking at potentially increasing some sort of JV or collaboration partnership on that downstream lithium chemicals refining, you know, with existing chemical players in Europe, in Germany, so hope to be able to say something on that, of course, a big one will be the definitive also, there's a bankable feasibility study for our phase one. So the plan is to execute on that in the second half of next year. And then thereafter, all going well, you know, financing our first our first project and BNP Paribas has been appointed to assist with that. So hopefully we'll we'll have a fully sort of financed phase one. By then we'll also have an operating demonstration plant which is key to go live q2 of next year. So hopefully I'll be able to have the podcast interview from in front of a nice academic barn that'd be fun. That'd be fun. We've got a pilot plants already but this is this is an much bigger. So one and 200 of the commercial first commercial plants, so, so that will be good. And really the back end of next year as well. We intend to do first first drilling wells as well. So hopefully by that point, there will be some wells going into the ground from our in house drilling team there kinda which we've acquired these rigs for. So, yeah, hopefully the REITs will be turning for geothermal energy and lithium production.
Henry Jennings 25:25
Sounds like you're gonna have another busy year, Francis,
Henry Jennings 25:27
I think you do need to have a bit of a I think we all need a bit of a holiday. Actually. It's been a, it's been a stressful year. In some ways, of course, you've been ensconced in WA. So you've been operating normally throughout the whole time, I guess.
Dr Francis Wedin 25:27
I mean, tell the rest of us.
Henry Jennings 25:41
Yeah, that's right now, but definitely looking forward to Christmas. And then we'll be we'll be back into it. First thing in January.
Henry Jennings 25:47
Fantastic. Francis. It's been an absolute delight once again, to catch up with you. It's really exciting plan I have to say with with Vulcan energy, and you seem to be executing very well. There's obviously been some hiccups along the way, which I think came out of the blue for some, but I think it's good. Sometimes it does tend to focus the mind keeps you honest, as well, I think sometimes, but we'll see. But, Francis, thank you very much, once again, for spending the time with us. I really enjoyed it. And I look forward to sitting down next year, and building a cracker with you and toasting the success of Vulcan energy in 2022.
Dr Francis Wedin 26:20
Thanks so much, Henry. Great to see you again. And thanks for having me.
Henry Jennings 26:22
My pleasure, mate. Good luck in the UK.
Dr Francis Wedin 26:24