Electra Battery Materials Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 18, 2023

There are 8 speakers on the call.

Operator

Thank you for standing by. This is the conference operator. Welcome to the Elektra Second Quarter 2023 Results Conference Call. As a reminder, all participants are in listen only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask I would now like to turn the call over to Joe Racanelli, Vice President, Investor Relations with Elektra Battery Corporation.

Operator

Please go ahead.

Speaker 1

Thank you, operator, and thank

Speaker 2

you everyone for joining us this morning. Before we begin, I want to point out a couple of items. We filed our materials last night and our press release, MD and A financial statements are available from our website as well as on SEDAR and EDGAR. We will be making use of a presentation this morning for those listening in on the phone. A copy of that presentation is also available from our Web This morning, I do want to draw your attention that we will be making forward looking statements and the conditions associated with those and factors associated with those or itemized on Page 2 of our presentation material.

Speaker 2

With me on the call today are Trent Mehl, company's CEO We have Mark Trevisio, VP of Project Development. And for the first time, joining us is Peter Park, our Chief Financial Officer, who was appointed July 4 this year. After our presentation is done, we will have a question and answer session For analysts who cover us, anyone who would like to follow-up afterwards, we will make ourselves available. And with that, I'll turn it over to Trent for his opening remarks.

Speaker 1

Yes. Thank you, Joe. Good morning, everybody. Thanks for joining us. So before we open the call to our analysts, I want to Review some of our recent developments, Peter and Mark will be speaking as well and share with you our strategy through the end of this year and into 2024.

Speaker 1

So since launching the strategic review process that we referenced or mentioned in Q1, Efforts have been particularly focused of late on strengthening the balance sheet. And this culminated last week in the closing of a $21,500,000 in gross proceeds from 2 concurrent private placements. I want to emphasize that's Canadian dollars and unless otherwise indicated everything in Press release will be in Canadian dollar denomination. So despite a tough market and tough and a lot of economic uncertainty that we see in the markets today, we did receive strong support. I was very pleased by the support that we saw in our book, which allowed the dealers to exercise their overallotment option.

Speaker 1

They were encouraged with our raise and our planned use And I want to thank investors who participated in that as well as the syndicated bankers who helped us lead that race. Other developments in the quarter indicated here in Slide 4 included the completion of 2 major reports, one related to the completion of our cobalt refinery project and the other relating to the potential for a continuous operation permanent black mass recycling facility. And we'll talk more about both in a little bit. We also signed an MOU with the First Nations Economic Development Group named 3 Fires for battery recycling in Ontario and we extended and expanded our supply agreement with LG Energy Solution. And then equally important, first with our Black Math trial, we had our first plant scale test completed in North America at our existing refinery And we had a commercial shipment of MHP.

Speaker 1

I will elaborate on some of these. And first, though, let's go to our new CFO. I want to welcome Peter to the team. He joined us as CFO on July 1. So he will review our liquidity position on Slide 5.

Speaker 3

Thank you, Trent. Good morning, everyone. As Trent just mentioned, I became the CFO of Elektra at the beginning of July after joining the company in February. I'd like to begin today's remarks with Our liquidity position found on Slide 5. At the end of Q2, we held $7,400,000 in cash and marketable securities, which was a reduction from $12,800,000 at the end of Q1.

Speaker 3

The decrease is mainly due to capital costs related to construction of the refinery and costs related to running our I should point out that our cash balance at the end of Q2 did not include the remaining $5,100,000 of government funding, Note that it includes $21,500,000 gross proceeds from last week's financing. Cash management remains a key priority for Elektra We have taken steps to manage liquidity and reduce costs since the start of the year. And this includes staffing reductions from 12 headcounts to 30 at the end of 2022. This concludes my remarks. I will turn the call back to Trent.

Speaker 1

Thanks, Peter. All right, let's go to Slide 6 before I go to Slide 7. The point of this now section is going to be to discuss the details of the rebaseline engineering report. This was a report concluded by our EPCM contractor in consultation with our management team and then reviewed by a third party engineering group to give us comfort around the capital for completion and the timeline for the recycling project. So Slide 7 Gives you the context.

Speaker 1

As previously communicated in Q1, we faced as did frankly all development projects North America, a number of supply chain issues coming out of COVID. There were delays. We compounded by the receipt of a damaged vessel at site, which has since been addressed. We faced a flacient 40 year high and all of that created additional pressures on a project that was gearing up to be and will be the 1st cobalt sulfate refinery in North America to serve the EV market. So until we better understood the impact Those pressures, we did withdraw our guidance in Q1, relates to both commissioning and our CapEx and that was done on February 14 And that's when we launched our rebaseline engineering review.

Speaker 1

And that covered the scope, scheduling and CapEx, All was itemized here and you can see the output of that report. Construction budget about CAD104 1,000,000 And then at the sort of the low and the high, the midpoint basically 161 is with the midpoint of our estimated range in order to complete. About $81,700,000

Speaker 2

has been

Speaker 1

spent and accrued to date. And I should emphasize, we've also got legacy Investments that we benefit from that total today over $100,000,000 existing equipment, buildings, not to mention all the permits that are in place. So Given our balance sheet and the capital required to complete, we will require additional capital in order to get this project through construction and into final commissioning. Happy to discuss this a little bit in more detail after the call with the analysts, but Essentially, we're having done the raise last week. Our focus and my focus is really on our commercial partners, government agencies and other sources to try to address the funding shortfall.

Speaker 1

But turning over to Slide 8,

Speaker 4

I guess

Speaker 1

the good news Coming out with the parallel report around black mass, so as we were updating our capital costs for the refinery, we also shared details of a scoping study that assess the potential economics of processing black mass at our refinery. And so this is taking place as we speak as a demonstration plant within the existing building using all of the existing equipment, some new that was fully recommissioned and is operating still today even on a batch basis. So the scoping study was launched as a result of some really good progress that we made with the trial and significant interest that we've received from stakeholders from industry within the EV supply chain. As you can see from Slide 8, scoping study is based on processing 2,500 tonnes of recycled material per year and show some very compelling project economics. Notably, building the Black Mass operation using our current footprint at a refinery has an estimated cost of about CAD 8.1 or CAD 6 million as we previously indicated in the U.

Speaker 1

S. Dollar denomination And it delivers a rate of return of more than 120% and a payback of 1 to 2 years. So to put that in better perspective, Slide 8 shows you the Estimated EBITDA contributions over a 4 year period, starting with the full year production. This assumes we're buying black mass in the market and selling final products as we've been doing through our trial process. And so the fluctuations you see here is really a reflection of commodity prices that we and analysts projecting over the next 4 years.

Speaker 1

So with the strong economics, with the modest CapEx spend and the fact that we're running it successfully on a vast basis now, We are going to be accelerating our black mass strategy, while we put together the capital structure to complete the cobalt recycling plant. So just turning over the next slide. Progress of our black mass trial is continuing. So I'm going to turn the call over now to our VP Project Development, Mark Trevisio, who has had a great team working on this, and he'll provide you an update on the Black Mass process that we've been running since last December. Mark?

Speaker 5

Thank you, Trent, and good morning, everyone. We've got a couple of slides here to highlight what we've achieved so far. Just as a quick background, Black Mass is basically the residue that's left over from the recycling of electric vehicle batteries and other lithium ion batteries. So there's a process that separates the structure that supports the battery, takes the plastics out. And what you're left with is The nickel and the manganese and the cobalt and the lithium, which then undergoes a process to separate those out and potentially make battery grade products.

Speaker 5

So at our refinery, as Trent mentioned, we've got an existing refinery of over Probably $100,000,000 maybe $150,000,000 if you have to build it today. So we utilizing the existing resources that we have there, the asset that we have. We developed a proprietary process, which looked at separating out these metals. Our objective was to go after the cobalt, the lithium, the manganese, graphite and the nickel. And of course, in any manufacturing or processing facility, I mean, you're gauged by your effectiveness of the process or your efficiency to recover metals, your recovery rates and certainly your production rates as well.

Speaker 5

Going on to Slide 11, talk about a little bit about the results. Recovery rates We have been very pleased with the recovery rates. There is parts of our process, Especially around the MHP where the recovery rates were at or superior to the results we achieved in the lab. And in the MHP, that's a Product that in our process contains nickel and cobalt. MHP is basically a mixed hydroxide precipitate.

Speaker 5

We've also produced lithium carbonate, and recently, we had our first shipment of nickel cobalt MHP. So we've garnered some interest in this process and This was mainly the catalyst with the joint venture with the 3 fires group, which Trent will speak on shortly. And we're basically having the asset there has put us ahead of the curve in the production of these materials from spent lithium ion batteries. So we're really Enthusiastically, the people and workers at the site have done an excellent job to get us to where we are today, and we continue to work at it and produce some refinements. So our next steps, We continue to optimize our flow sheet.

Speaker 5

There are certain engineering involved in terms of material balance, Process flow diagrams and doing some early process instrumentation diagrams as well. We wanted to identify the long lead items, update our study based on some of the results that we've seen, I look at a summary report for the site, not only looking at the process, but looking at Some of the support services, the logistics, everything involved in terms of how we did to make these products. And that will certainly give us a path to further commercialization and and building our plant to a 2,500 tonne per annum facility. I will now turn the call back over to Trent for some of his closing remarks.

Speaker 1

Thanks, Edmark. Okay, I'm on Slide At the start of the call, I mentioned that we've completed a number of strategic initiatives in Q2 and even subsequent to Q2. So I want to touch on a couple of them now. In September of last year, we announced that we signed a 3 year supply agreement with LG Energy Solution. They are not only the world's 2nd largest EV battery manufacturer, they're the largest outside of China.

Speaker 1

And so the signing of that contract, our first big commercial contract with such an important partner was important to us, but important I think as a signal to the industry that North American onshoring and supply chain is That contract that we had then has been extended more recently. In July, we announced the extension from 3 years to 5 And that the production or supply was going from 7,000 tons to 19,000 tons. So at our initial nameplate Our run rate of 5,000 tons per year of cobalt contained in our sulfate product, that's 80% of our expected output before an expected expansion maybe in year 3 or so to 6,500 tonnes per year. And so working on the final contract, we do have A term sheet, a binding term sheet. But as we work on the final contract pieces, the expectation is we're working really towards a Kind of a tolling arrangement that gets rid of the peaks and valleys and gives us steady state margins that we would be paid for refining hydroxide feed provided to us for LG's use.

Speaker 1

And looking at a margin of around kind of US2 dollars is kind of what we have in mind as our optimized scenario. So, by way of context, just the size of this contract, even at today's Very depressed cobalt prices because we are in a trough for that commodity. We've got about US620 1,000,000 U. S. Dollars worth of cobalt under contract with this.

Speaker 1

And what it signals, I think, to the market is, Elektra is just about sold out Short of an expansion or an expansion into whether it be expansion Ontario or into Baycon core, there are a lot of other players, not just in Canada, but in the U. S. That need our product. And I think it puts us in a very good position as we figure out our working capital sorry, rather our CapEx needs to complete the facility. So flipping over to Page 15, Slide 15, let's talk a little bit about 3 fires.

Speaker 1

Q2, we did announce the signing of an MOU To form a JV focused on recycling waste, as Mark explained, there's 2 steps to battery recycling. The one the more commonplace one across Elektra unique, but that first step is really the subject matter of the joint venture that we're working on. So 3 fires that I mentioned, It's a First Nations owned economic development group and basically they are focused generating generational wealth for their members. And they have got their They've got involvement in quite a number of projects. These are kind of long term investments that can yield Dividends or income for them and their First Nations for many years to come.

Speaker 1

So we're delighted to be working with them. And of note, of course, there are 2 major battery plants that are being constructed on the traditional land of member First Nations, namely in St. Thomas And in Windsor in Southern Ontario, which is not far from us. Encouraged with the discussions, hopefully have more to say in the quarter ahead as we try to get through the formalization of the relationship. And certainly the JV, as Mark alluded to, it was an important factor that's going to contribute to our acceleration of Black Mass and the commercialization of our strategy.

Speaker 1

And so if we flip over to Page 16, I think this map gives A good perspective of the opportunities, the proximity, which is important when you're looking at localizing a supply chain to that box, it's kind of roughly the area where 3 fires operate. We've got 2 cell plants there. And if you wanted to picture what the flow of materials look like, you have Cell plants, there's 2 of them there, but there could be others. But you also have secondary scrap end of life batteries from cell phones and laptops. So material from both could be processed at a shredding facility to be located in Southern Ontario through this joint venture.

Speaker 1

And we would collaborate from the technical and commercial side, I believe they'll have they have some ability to raise the capital to build it. So that sits outside of Elektra proper. And then that black mass, once it's made and bagged, would find its way up to Elektra, which as you can see here is just past Sudbury. And then that refined material in turn under an ideal world basically goes back to the OEM or the battery maker that supplied you the fees that you've got A true closed loop supply chain for now really it's just about making sure that material gets recycled and returned to an ecosystem whether it's a battery market or metals market, but the longer term strategy as you grow is to try to create that circle, that sustainability circle that the OEMs are chasing. So I think I am going to end it there on the JV and just go to our outlook on Page 18.

Speaker 1

So on our last call, I mentioned that we were anticipating 2023 was going to be a challenging year and I think market indicators have supported that. Lots of economic uncertainty, lots of commodity price volatility that we're witnessing and we've tried to respond to that in kind. So So to mitigate the all those uncertainty and its effects on our business plan, we took steps to strengthen our balance sheet most recently and we've also been reducing our costs. Mark and I and others have reduced our salaries, reduced headcount, reduced procurement activities Until we have a firmer outlook on the cobalt sulfate funding solution and we're focusing on a lower cost Pass the cash flow that could get us there fairly quickly at a pace that we believe we can afford. So with the priority of our Black Mass, I think that's going to be really the momentum heading into the balance of the year and that will really be the timeline to watch as we transition from developer to cash flowing entity.

Speaker 1

So in the near term, we're going to focus on a number of milestones. You can see them here. It's going to help create value for the company. It includes the completion of a summary report that Mark referred to, the findings, recommendations, opportunities that we've, I guess, garnered from 8 months of operating a demo plant from the Black Mass trial. We're going to continue to receive a number of Key pieces of equipment for the cobalt sulfate plant, recall these things are being shipped from all over the world.

Speaker 1

We've got our last batch at SX tanks that will be arriving At site shortly. So that supply chain, a lot of the long lead items are now either here or about to show up. Tanks, e house equipment and so forth, we could talk more on that if you'd like. And then lastly, we're anticipating Funding decisions, I won't say too much, but there's a number of government agencies, whether it be Canada, U. S, federal provincial that we're working with.

Speaker 1

And we are encouraged by the talks and hopeful looking at the acceleration of downstream investments That there will be a I guess an in kind reflection of that in the upstream in the coming months. So I think I'll stop there. And with that, We will turn it back to you, operator, for any questions.

Operator

Thank you. We will now begin the question and answer session. Our first question is from Heiko Ihle with H. C. Wainwright.

Operator

Please go ahead.

Speaker 2

Hello, Trent, Peter and team. How are you?

Speaker 1

Hey, good morning, Heiko. Very well. Thank you.

Speaker 5

Nice to hear. So with the Black Mass Plant Scale Recycling Trial, can you provide some color or at least as much as you can and are willing to In a public forum like this, as to what parameters get it fixed and also how many Adjustments or rather like trials or however you want to call it can be done in a given week or does this mostly just depend on what actually gets changed?

Speaker 1

So I guess a couple I'll start and then I'll turn it to Mark for a little more detail, because I'm hearing I think I'm hearing 2 things there. One is the continuous improvement and any met plant and even a gold mill, you're never done, right? You're always trying to improve And increase your recovery and quality of products. So that is something that can continue. I think our demo plant, while we're declaring it a success, We're still we still have a number of initiatives that we're running to try to improve it.

Speaker 1

Now in tandem with that, that transition to a From a batch demo to a continuous operation, it's going to involve more tanks, right, to have that continuous flow. This Refinery historically was making a lithium sorry, no, a nickel and a cobalt carbonate. And so the lithium circuit Would be an area where we would expect to see additional investments to try to grow that because it is candidly the bottleneck right now because it was part of a trial. Beyond that, Mark, do you want to add anything?

Speaker 5

Yes. Again, good question. I've run a number of process plants in my experience. And walking into process So that could be 30 40 years old, you're still, as Trent mentioned, you're still continuously improving The process to recover to EBITDA, recover metals or to increase production rates, there's a number of things that are Continue to be ongoing. It's like it's not a tap that you just turn on and off and everything works fine.

Speaker 5

We're really Excited about the results that we got, and we continue and it's mainly a focus on recovery, Right. Because that extra 1%, 0.5% that you can rationalize and recover, That's margin. That goes directly into your pocket. And that's where the niche is and that's what we're focusing on. Completely, completely different question.

Speaker 5

Obviously, Canada is the host of the phone. Nonetheless, in your written earnings presentation, the word Iron Creek

Speaker 1

Hello? Hi, Heiko. We can hear you. Go ahead.

Speaker 5

In the press release, the only time besides the company description at the very bottom that Iron Creek has mentioned is a single sentence where it actually states That you're having lower exploration expenses for the site. I'm going to just assume that this is more of a coincidence or is there a shift of focus That maybe haven't really picked up on. And again, I understand that Canada always was and likely always will be the number one priority of the company.

Speaker 1

So, yes, thanks for that. Look, I think the border between Canada and the U. S. Is, you might as well consider it Nonexistent for purposes of what we do, right? Our supply chain is about moving away from China and into North America.

Speaker 1

I think there are things that can be done better in Canada, well, faster permitting, Just given the nature of our laws, but yes, our market as much as we might talk about the VW plant or LG in Canada, Our market addressable is much larger than that. Breakthrough is half dozen or more, so 8 states in the U. S. So But that aside, Iron Creek, I mean, I'm glad you asked. I mean, I think it's a great asset.

Speaker 1

I love the asset. Cobalt has gone from $30 a pound down to wherever we are now, dollars 15. And at a time where the markets are choppy, we just can't We've seen as spreading ourselves too thin. So holding costs there are less than 100,000 CAD per annum, But we did put that new resource out, right, early in this year, 4,500,000 tonnes of indicated, Another 1.2 of inferred right next to Iron Creek, an offset fault we believe is Ruby, which at least from a geophysics perspective seems to be equally presented equal opportunity in terms of its potential. And we know Iron Creek's open strike and adept.

Speaker 1

So, I'm extremely enthusiastic with that asset. It's going to take more money. I would note, Jerobois to the north of us Recently received DoD funding for drilling of their resource, actually of a satellite resource, which I find extremely encouraging because Typically, in America, policy hasn't favored supporting any subsurface activity. So I view that as an opportunity. Now having said all of that, Are we vertically integrating?

Speaker 1

Are we going to do mining and refining? I think not. I'd like to keep advancing this. It may find a better home somewhere else, either as a JV, an earn in or monetize it to favor our refining operations. And so I don't think this is the time to Make that move, although we're keeping an open mind on how we might create value for shareholders on that asset because we're not I don't see that reflected in our share price today.

Operator

The next question is from Gordon Lawson with Paradigm Capital. Please go ahead.

Speaker 1

Hey, good morning, everyone.

Speaker 5

Looking at your CapEx estimate, the $155,000,000 to $167,000,000 can you clarify how much of that is needed For the Black Mass Recycling versus the Cobalt Hydroxide or even the expansion if that's still on the table? Sure.

Speaker 1

Thanks, Gord. Good morning. So what we put out in the rebaseline, we actually put out the 2 different numbers, right. So that Call it average of $161,000,000 to complete. That would refer really to the cobalt sulfate plant and the $8,000,000 CAD For the Black Mass or 6 U.

Speaker 1

S. Is a separate spend. Now I'm going to I don't want to further confuse But those are the numbers we put out. The reality is a lot of the CapEx that we spent on the cobalt sulfate plant is they're complementary, right? I mean, you've got We twinned the waterline, for instance.

Speaker 1

We got a world class lab up there. We refurbished the warehouse and did a ring road around the refinery and Drainage. And so when it comes to infrastructure and then some of the other parts of the facility, the bigger CapEx numbers that you're seeing on the Cobalt refinery is really what's allowing us to execute on what is a fairly low cost Operation on the Black Mass side. Cobalt is going to yield EBITDA that's probably 4 or 5 times larger than recycling, but then the CapEx is Currently about 10x. And so we're going to sequence it accordingly.

Speaker 1

But good question. Yes, we should be clear that, that 155 to 167 is a cobalt sulfate refinery, and that's what we're going to sort of pause or slow down on until we get the rest of the capital end up.

Speaker 5

Okay. Yes, that's certainly more clear. And in terms of the Cobalt hydroxide versus black mass, what are the current plans? It was previously stated that they're looking at a rotating production schedule Or are these now 2 completely separate processes?

Speaker 1

Yes. So I would say from the cobalt hydroxide, obviously, By prioritizing black mass, the plant is going to solely treat black mass feed in. And yet, The extension and expansion of our relationship with LG shows that it doesn't matter,

Speaker 4

if I

Speaker 1

can put it that way. 25 onward is really where the battery market in North America starts to take hold. So a delay in our cobalt plant certainly didn't dissuade LG or others From concluding or trying to conclude offtake contracts with us. And so for the next while, I think you should assume it will be 100% black mass feed, But you raised an interesting point. I don't know if you want to speak to this, Mark, but the opportunities at different parts of the circuit to blend black mass and some of the cobalt hydroxide into a common stream.

Speaker 5

Yes. Okay. I'll add a little bit to that, Brent. Our cobalt hydroxide process produce battery grade cobalt sulfate And we'll produce it once all the capital is in place. With the current Black Mass process, we're producing an MHP, which is an intermediate product, intermediate nickel cobalt product.

Speaker 5

As Trent says, the hydroxide process to sulfate allows us To extract with a little bit some small process changes in our black mass circuit allows us to Pick out the cobalt and have that cobalt report to the cobalt hydroxide, the cobalt sulfate plant. So there's an opportunity there with combining both of the processes where we can get a final product to market and realize the margins of full margins of a battery grade cobalt sulfate. Hope that answers your question.

Speaker 1

Yes. Thanks for that, Mark. And essentially, the Stage 1 of our black mass is not final stage. We would expect that circuit could grow and we would expect that the beneficiation from MHP to higher value products will also evolve through time. The point is to get to cash flow And to demonstrate be the 1st to demonstrate that we can do this on a continual basis and then build from there.

Speaker 1

So the same strategy, right, the same we've reprioritized The sequencing, but the strategy and the vision is to supply battery grade materials to PCAM and CAM producers in North America. And this is a Gaping hole in our supply chain on this side of the world. We've got a lot of Korean and Japanese investors and some startups that are kind of working from PCAM and CAM onward, but you go further upstream, you can't connect Canadian and North American mines to our domestic battery supply chain without this refining infrastructure that's just not happening anywhere else. Okay. And I would say, we've said this in the past, recall we did a nickel study at one point in time.

Speaker 1

I mean, that's the and this is down the line. This is not the current strategy, but it's part of the vision. It's black mass, it's cobalt and then you need nickel refining and then you've got everything co located, you capture the operational, the CapEx efficiencies It makes sense for PKAM. So it's a multiyear strategy. I'd say we're in the 2nd inning of a much larger vision and strategy.

Speaker 1

Elektra was early To the game and now that other players are coming, I'm hopeful that the capital strategy gets a little bit easier as there's a Heightened competition per our production.

Operator

The next question is from Jake Czajkowski with Alliance Global Partners. Please go ahead.

Speaker 6

Hi, Trent and James. Thanks for taking my questions.

Speaker 1

Good morning, Jake.

Speaker 6

So just on the Black Mass Recycling, can you provide any color on what that ramp to the 2,500 ton a day rate might look Blake, can you touch on sources of feedstock?

Speaker 1

I'll start with you. I'm going to let Mark talk to the ramp up schedule. Yes, feedstock, Frankly, it's not proving to be hard. 90% my understanding 90% of black mass that gets produced today Ends up in Sudbury at the smelter that Glencore operates. And by and large, the rest of it goes overseas, Whether it's Chinese buyers or Japanese trading houses.

Speaker 1

And so getting your it's just fluctuation of terms and expectations as the Asian buyers come into the market, it kind of disrupts pricing mechanisms, but we got a pretty good handle on what Glencore is offering. And so sourcing Black Mass, which is managed by our commercial team, Michael Insulin. We've got 20 some relationships, I think, with Black Mass Producers. I'd say half in the U. S, which is more than sufficient for our needs today.

Speaker 1

The other half would be kind of around the world. And this is where Black this is where the 3 fires relationship gets interesting, right? If we can lock in that part of supply chain ourselves, the margins get Better and the earnings are more steady and predictable. And the black mask, I mean looking into it, there's It's not hard, if I can put it that way. It's not hard to do the shredding piece.

Speaker 1

There's 3 widely known technologies kind of wet and dry. There are a handful of known vendors and it doesn't it's not like pelting a refinery where we've got probably $200,000,000 invested up there. This would be a fraction of the cost. 3 buyers would lead that and that I think will just enhance the business model.

Speaker 6

Okay, that's helpful. And then just on the cobalt refinery, I mean, you spent about half of A little bit more than half of the updated CapEx figure to date. What options are on the table for the balance here? I mean, I know You mentioned that Iron Creek, you might be looking for a partner. Does the same go for the refinery or is that something that you'd like to keep wholly owned Over the longer term?

Speaker 6

Yes,

Speaker 1

I appreciate. Thank you. Yes, I think the refinery view that as sort of wholly owned. I mean the non core assets, if want to put it that way, we do have a small royalty package on some former mineral projects in Canada that could easily be monetized well easily, it could be monetized, I guess. And then Iron Creek, kind of a TBD.

Speaker 1

Again, we got to wait that we see a little life in cobalt or see a satisfactory structure that preserves our upside for our shareholders. When I look to sort of what's next having done this equity raise, I think we got to look to other sources, right? We've got The most valuable currency we have right now is our production because nobody else is going to do what we're doing in the near term. And so I will be looking to our partners. There's a lot of money that's been deployed under the Inflation Reduction Act and on this side of the border as well through programs that have invested heavily in the downstream.

Speaker 1

And so the way forward is, I think those recipients Need to work with us on a capital solution. And likewise, the government, I'm sensing a bit of a catch up trade with policy on this side of the border that's catching up to the needs of people in our sector. So commercial and government would be my focus over the next Kind of 3 to 6 months. Does it get 100 percent of the funding gap? Not sure, kind of CAD80 1,000,000 or so Canadian or CAD60 We'll have to wait and see.

Operator

The next question is from Sorry, Surya Sankarasubramanian with Red Cloud Securities. Please go ahead.

Speaker 7

Hi, good morning. This is Surya Sankar Subramanian from Red Cloud Securities. We read the news about Ford's investment in a new plant in Biccon core yesterday valued at around CAD1.2 billion. So we're just wondering what how it impacts your plans in terms of whether you're prioritizing your PFS maybe Changing timelines or we also saw that half the government funding was I mean half the funding was from loans from the government. So that is any implications for your plans as well?

Speaker 1

Yes, great. Yes, great question, Tore. Thank you. Yes, so Bay Concours is very much on the radar for us. And just For those not familiar, Bay Concorde is located north of Montreal, south of Quebec City, right on the St.

Speaker 1

Lawrence. And so What we're seeing there, this for us at least has been widely anticipated. The Ford EcoPro relationship is one that we are very familiar with both in Korea and in the U. S. And so it's been anticipated, glad to see it land.

Speaker 1

What it means now in Baekon Coeur Industrial Park, you've got 3 different projects underway. The better known is probably GM and Posco building capital plant and that is well underway. BASF has their tract of land as well and they've already cleared the trees and now we've got the third one that's in place. That park is now full. And when you look at what they're doing, the plans today build the cathode plant and the plans for tomorrow are to build the precursor Cathode Acet Materials plant and that's what connects us directly.

Speaker 1

And then alongside of that, now you need these are NCM batteries, right? We're not talking Iron phosphate batteries, so you need your nickel, cobalt and manganese. Vale has already announced that they're building a nickel dissolution plant. Euro Manganese just finished a study. I can't remember if it was a pre fees or a fees on a manganese dissolution circuit.

Speaker 1

And Elektra has been invited in by Investment Quebec and the Government of Canada to be the cobalt solution provider there. Now we've got the luxury of borrowing from Ontario in the interim or increasing the size of the Ontario plant. And so the pre phase is taking into account the staging of Our 5,000 tonne plant in Ontario, expansion of 6,500, the needs of this camp. And so we stand to have The first and the second cobalt sulfate refineries on the continent. But I think it's important to underline that that's our ambition is not to be a cobalt play, which is why we changed our name a couple We plan to be a refiner.

Speaker 1

The Black Mass is there, nickel and so forth. But the announcement by Ford, it just shows the increase the continuing momentum to launch and just further validation of our strategy.

Operator

Thanks.

Speaker 7

In this context, is there also considering you also mentioned that you don't want to spread your such thing, Will you be pursuing the 3 fires plant, parallelly just as seriously or can you comment on that?

Speaker 1

Yes. And the 3 fires relationship, for Canadians in the mining industry will understand the importance of engagement and consultation with indigenous communities, First Nations communities. It's a crown duty that we Execute corporately. And so I think if I'm building a big battery plant on a traditional territory, I think it behooves you To have meaningful engagement and to try to find opportunities, we've done it in our neck of the woods. We've signed one.

Speaker 1

There's no demonstrated impact. So we're not doing IVAs, but we've got a benefits agreement with 1 group. We've got 4 others that we talk to and that we support. And as we get the cash flow, That will increase. And so the 3 fires relationship has some strategic value because They've got levers and skills and relationships that we don't have.

Speaker 1

And it's Phase 1. I mean, that one I would view it as being tied to recycling. They were at one point, we are Our strategic investment corporately at Elektra, we completed our financing last week without them. They weren't ready. That's still on the table, but that really is separate and apart from the joint venture, which we're pursuing.

Speaker 1

So 3 fires, I think, will enable and strengthen the Black Mass strategy. The cobalt sulfate in Ontario will then resume once the capital solution is in place. And Bay Concours, Where that sits in the sequencing is really a function of the 3 parties that I named and some talks around funding and the scheduling of their needs. We'll have more to say on that Soon, we've got to get a couple of more ducks in a row before we're ready for prime time on that.

Operator

The next

Speaker 4

question comes from

Speaker 5

Frank, if I can just add to your comments on this is anything The announcement by Ford and Ecopro on putting the plant in Baker and Coeur, I mean, that's another Canadian asset to be built. And what we're trying to do with 3 fires, again, that's another Canadian Chain of supply for the electric vehicle market and that in itself With governments involved, federal and provincial governments involved, that in itself is significant momentum for a player like us, Our plant is in Canada and we have we would have leverage because of that, Because federal government is supplying money to both of those facilities. And I mean, that's a good news story as well For Elektra and moving forward and supplying certainly supplying not only the Canadian market, but going into the into the U. S. As well.

Speaker 5

So I think that that's really positive. The more plants that get built in Canada, I think it waves our flag even higher. Sorry, Trent, I just wanted to add that.

Speaker 1

No, thanks for that Mark. Yes, look, dollars 600,000,000 of funds going into that latest announcement, It just continues.

Operator

The next question is from Matthew O'Keefe with Cantor Fitzgerald. Please go ahead.

Speaker 4

Thanks, operator. Good morning. Sounds like you've made some good progress during the quarter, so congrats on that. Just a couple of questions, 1 on Black Mass and 1 Cobalt, this is Heidi. First on the Black Mass.

Speaker 4

So I don't know if you actually answered the ramp up question. When When do you think you'll start construction or not construction, but development of that? And when will you actually start Seeing the cash flow because you've got sort of a guidance of years 1, 2, 3, 4 with averaging about $10,000,000 a year, but when would year 1 be? What's your current thinking on when year 1 is? And also it sounds like you're going to be revising that Study to some updated numbers later this year, I think later this year and like what will be the main changes there?

Speaker 1

Okay. So the ramp I'll let Mark talk to ramp up. In the release, the scoping study we put out, it was 12 months from being fully funded. So we've got a stub that we've got to fill on the Black Mass. So I would call it 12 plus months from today, Maybe the best I can do, but Mark on the ramp proper, once we do start a ramp up, say it's I don't know, say it's October of next year, What does that look like?

Speaker 5

Yes, I think that much and It's been a great way for us to start to experiment with the existing plants. So it bleeds into my answer. We could see that the 1st 6 to 8 weeks, maybe as much as 10 weeks, there was a pretty steep learning curve on running the circuit site. I would imagine that you're looking at after commissioning is all done, you're probably looking at 3 to 4 months of the ramp up to the 2,500 tonne per annum target. The rates the processing rates, just comparing to what we have with the cobalt hydroxide, The cobalt hydroxide, we're putting through almost 50 tonnes, dry tonnes a day of feed.

Speaker 5

And This feed rate will probably be a fraction of that, maybe around 7 tonnes a day of feed. So we don't see a lot of having weathered the storm and somewhat Rode our bicycle already in the trial. A lot of these items have been dealt with. And we know the strengths, we know the weak spots. And once we get going, I think Within 3 or 4 months, we should be at 100% capacity.

Speaker 1

And maybe I'll just add to that, if I may. If I may, Mark, Matt's been through the facility a couple of times. But for those who haven't, we do have an existing plant that has operated in the past and is operating today. So The short ramp is, yes, a function of what we learned, a function of the fact that it's small tonnage, but all of the Lego pieces of the bricks are already assembled. Now we there are going

Speaker 3

to be

Speaker 1

changes, but it's not like you're commissioning everything brand new. And so, yes, and I guess on the summary report piece, Matt, that you mentioned, I think we'll have a little bit more detail. Look, we got was scoping steady or desktop level, right? So we got to drill down on that a little bit. Certainly, timelines will be a little clear once we've done that and looked at equipment lead times.

Speaker 1

But Mark, what might we see that's new in the summary report of our findings that perhaps wasn't in our press release on the scoping study?

Speaker 5

Without giving away all our secrets, I think what we definitely will be putting into our process is a sodium crystallizer That wasn't initially in our plan, but it's fairly evident that We will need that. And I think, Trent, we've talked Two times a week on some of the significant developments around reagent uses. And the strategic use of reagent and sometimes even a combination of reagents has really put us ahead of the curve on the processing side. So, yes, we've got some changes coming and exciting because it just means more margin to our bottom line. Hope that answers your question there, Matt.

Speaker 4

Yes, I think so. That's helpful. Appreciate that. And then with, I mean, part of the funding here is Supposed to be coming from 3 buyers, I think. What's the timing from them or would have been suggested when they'll actually Come forward with the I think it was $10,000,000 that they were committing?

Speaker 1

Yes, yes. Initially, we had announced it was going to be co funded, right, that we're going to do a rate $10,000,000 3 fires, 10,000,000 Elektra would source. On the heels of the LG announcement, we had a very positive market reaction And then we ended up raising 21.5, 3 fires. They just weren't ready to go. And so timing and the decision ultimately will rest with them.

Speaker 1

And so there's We have 2 in fact, some of our relationships there are taking summer holidays. So, that will resume probably late summer, early fall. So there's yes, there's 2 conversations, funding sort of their thoughts around timing for that. But to me, the more exciting piece really is the joint venture Because of what it could represent to our business plan and the I mean, if I look at the 2 plants that are in their backyard, Those are still a few years out, but that shredding plant could provide great optionality for a lot of different feedstocks.

Speaker 4

So do they already have the shredding plans in place and are those funded?

Speaker 1

So, we are I mean, I think that probably Elektra would be more of the technical partner, if you will, with 3 fires as Maybe that's kind of one way to look at it. We're still working through the terms of the JV, but in terms of the shredding plant, The sizing, sourcing of equipment, engineering, all of that rests with our team, whereas 3 fires has I spent the last of the while working on the funding of that JV as well as the land acquisition. So hopefully more to say throughout the quarter as we Progress our 2 streams.

Speaker 4

Yes. No, that will be good. Okay. And then if I could ask one more then on the refinery. So you did the you That extended contract with LG or modified with LG, which is great.

Speaker 4

But what about, Obviously interested in the product, but we've seen other sort of customers Come up with some financing to help construct some of these operations. We've seen it in the battery plants, we've seen it in Some other type in the battery and supply chain. Is there any discussion around LG coming up with some funding To get the refinery construction complete?

Speaker 1

I'd say kind of writ large, there's discussion with all of our stakeholders on How do we fund to complete? Engage with I mean, some of these players that are not named or You'll go back 3 plus years. And so the IRA and some of the recent announcements is putting pressure on everybody to Fine advanced partner, but I will say the discussions that Michael was leading on strategic, Whether they be investments or prepays or loans or what have you, we've seen all kinds of templates out in the market. There was a bit of a chill heading into 2023. Rising yield environment, As a general statement, I would say that those conversations took a little bit of a Pause, but I sense they're coming back.

Speaker 1

And from our perspective, given that we're now prioritizing black mass, I don't think we need to finalize any contract and nor should we until we figured out how we're going to get that funding in place Because there's, as you know, Matt, there's a lot of money that's being thrown at the industry from government. There's a lot of investments that then make their way from the recipients to their partners and There's no reason Elektra shouldn't be a part of that equation as well.

Speaker 4

Okay. So then that leads into sort of the question as to All the equipment that you've ordered and that's coming, those are some costs. Those when I was on-site, it was all very well Secured and stored in that's outside of stainless. So is there much of a cost in like what are your kind of costs in delay as far as just holding costs for keeping everything clean and tidy on-site.

Speaker 1

Mark?

Speaker 5

Well, we do have the facilities to keep the equipment indoors. The equipment that has to be put indoors will be indoors. I mean, structural steel, for example, that Doesn't have to stay indoors. It will stay outside and as well as some of our tanks. But yes, I mean, As far as keeping it in proper shape, we've They're out of the elements.

Speaker 5

The equipment that has to be out of the elements is out of the elements. So We're pretty confident that the funding will come here. And it might not come in the next few months, but It will come, as Trent said, there's a real need to produce this product on this continent, And it's going to come. So we're hoping that within the next few years, everything is being utilized because It's we're producing cobalt sulfate. And so I'm not too concerned about the equipment and The places where

Speaker 1

we It's all in our property, right, Mark? I mean, it's all sitting on Elektra property. So it's not third party storage. It's under our control and supervision and we Got our team there.

Speaker 5

Yes. Okay.

Speaker 4

And when that funding does eventually come, I think you might have said on the previous call about a 12 month schedule to complete the construction.

Speaker 1

That's correct. Yes.

Speaker 4

Okay. Very good. Well, we'll look forward to some more progress in the balance of the year. Thank you.

Speaker 1

Thanks, Matt.

Operator

That's all the time we have for questions today. I'd like to turn the conference back Over to Joe Racanelli for any closing remarks.

Speaker 2

Thank you, everyone, for joining us today. Our next call is slated In mid November, but as you heard, we have a number of activities on the go and we will certainly provide updates once we get some material developments to report on. I should point out as well that we did file a notice of our AGM that's slated for October And we look forward to meeting our shareholders then. If anyone has any follow-up questions, I would encourage you to reach out to me, happy to answer them. Thank you everyone for today.

Operator

This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a

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Key Takeaways

  • Elektro closed two private placements raising C$21.5 million in Q2, bolstering its balance sheet despite market headwinds.
  • A rebaseline engineering review set the cobalt sulfate refinery completion cost at C$155–167 million (C$81.7 million spent to date), underscoring the need for additional capital to finish construction.
  • A scoping study for a 2,500 tpa Black Mass recycling plant within the existing facility shows an estimated C$8.1 million CapEx, >120 % IRR and a 1–2-year payback, prompting an accelerated rollout.
  • Pilot operations since December 2022 have delivered industry-leading metal recoveries, produced battery-grade mixed hydroxide precipitate (MHP) and achieved the first commercial MHP shipment.
  • Elektro extended its LG Energy Solution supply deal from 3 to 5 years, ramping volumes from 7,000 to 19,000 tonnes and targeting a US$2/lb refining margin under a pending tolling agreement.
AI Generated. May Contain Errors.
Earnings Conference Call
Electra Battery Materials Q2 2023
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