Electra Battery Materials Corporation (NASDAQ:ELBM) Q3 2022 Earnings Conference Call November 10, 2022 9:00 AM ET
Company Participants
Joe Racanelli – Vice President, Investor Relations
Trent Mell – Chief Executive Officer
Craig Cunningham – Chief Financial Officer
Mark Trevisiol – Vice President, Project Development
Conference Call Participants
Jake Sekelsky – Alliance Global Partners
Operator
Thank you for standing by. This is the conference operator. Welcome to the Electra Battery Materials Corporation Q3 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 questions. [Operator Instructions]
I would now like to turn the conference over to Joe Racanelli, Vice President, Investor Relations with Electra Battery Materials Corporation. Please go ahead.
Joe Racanelli
Thank you, Operator, and good morning, everyone. Thank you for joining us today. Before I turn the call over to management for our discussion and review of Q3 developments, I wanted to do a couple of housekeeping items.
First off, we released our results, financial statements and MD&A last night in the form of a press release and all those materials are available on our website, as well as regulatory sites like SEDAR and company in particular.
We will be making use of a presentation. That presentation for those on the webcast is visible. For those on the call, you can view that from our website and we will be making forward statements and those are itemized on page two of our presentation.
With me are Trent Mell, Electra CEO here in Toronto, as well as Craig Cunningham, our Chief Financial Officer; and at the refinery, joining us today is Mark Trevisiol, VP of Project Development.
We will have a questions-and-answer session for analysts following us at the end of our discussion, but for anybody who wants to follow us, please reach out to me. And I do want to make note that we do have our AGM later on this morning and for those who are able to join us, we welcome to meet you live and in-person.
So, with that, I will turn it over to Trent. And please go ahead, Trent.
Trent Mell
Thanks, Joe. Good morning, everybody. Thanks for joining us today. So, before we jump to questions with the analysts, I want to review, starting on slide four of the presentation, some of the key developments we have had over Q3 and then we will jump to some of our near-term priorities and areas of focus.
So, as we march ever closer to production — the first production from the cobalt sulfate plant, Q3 was probably our busiest yet at site. Mark will get into a little bit of that with the growing team, equipment deliveries arriving on site and progress overall. However, I think, probably the biggest highlight for us and for our investors is the three-year supply agreement with LG Energy Solution. I will get into that a little bit later. That’s an important cornerstone relationship for us.
Other highlights in the quarter. We are continuing to progress the commissioning of the refinery, which Mark will go into more detail on and that ranks right up there with LG in terms of significant catalysts.
And then, kind of in the background, but it will soon be in the foreground is our battery recycling initiative. So the recycling, the refining of black mass through a demonstration plant is imminent, and that will be starting during this quarter.
Last couple of points or three points here, we confirmed a new cobalt mineralization zone in the Idaho Cobalt Belt. We released results of a nickel sulfate scoping study. So this would be a plant adjacent to our cobalt plant and our recycling initiatives up here in North of Toronto. And then lastly, we signed a benefit agreement with one of our community members, the Métis Nation of Ontario.
So if I break that down a little bit further, let’s go to slide five and just talk about LG Energy Solutions. So LG is the — well, on the one hand, the second largest EV battery maker in the world. They are also — this is important for North America, they are the largest outside of China. They have been very aggressive at rolling out their supply chain. They have been fabulous partners to-date, frequent touch points, both in Korea and here in Canada.
And what we signed — I said it at the time, I think this is the beginning of a deeper relationship. But at this point, it’s a three-year supply agreement for cobalt sulfate and I think there’s more we can do with them.
But if I stick to that agreement that we have in hand, it’s a binding term sheet. We are still working out details of the pricing mechanisms, but there’s a general meeting of the minds there. 7,000 tons of battery-grade cobalt being shipped to their battery maker, to their PCAM producer, I can get a little technical, starting in 2023 and the contract will run through 2025. And so what that means for Electra is, by default, they are our largest customer, representing about 60% of our production.
And I’d say just as a parallel comment to that, we believe that — we have basically got 100% of our material accounted for in terms of downstream customer interest through contracts or MOUs and whatnot. So selling our product is not going to be hard, particularly with LG as our cornerstone client.
The contract itself for them on a market basis is worth about US$400 million and for us, topline revenue about US$70 million. So a big de-risking event, we have got 100%, about 90% of our feed in has been accounted for under contract. We have the option to bring that to 100%, but we are going to be cautious or we will time that. And then on the back end, you will see more agreements firm up on the back end in terms of who we are going to be selling to.
All right. So if we flip over to slide six. Just in terms of the — I guess, the focus now on the refinery itself. I did mention the black mass recycling and Mark, I will ask you to get into that a little bit. It’s an important pillar of our strategy because, again, cobalt sulfate plant is the beginning and not the end, right? We have articulated a four-phase vision here for Ontario, where we would start with cobalt, move to recycling and then move to nickel and then invite a precursor manufacturing partner to come in with us and help us develop that last step of an integrated plant. And of course, we talked also about expansions into other markets and I will come back to that.
But before I do that, I want to turn the call over to Mark Trevisiol, VP, Project Development, who’s been leading the charge-off at site and he will provide you with an update of the initiatives that he and his team are working on. Mark, over to you.
Mark Trevisiol
Okay. Thanks, Trent, and good morning, everyone. Slide seven highlights some of the progress that we have made at the refinery. We have got about 90% of the brownfield equipment commissioned. Similarly on the procurement side, about 90% of the procurement is complete and detailed engineering, similar number, about 90% of the detailed engineering is complete.
Our solvent extraction plant, we have got the majority of the plant erected. There’s still some internal equipment that has to be put in place, but we are very happy with the progress there. Our owners team now sits at about 27 personnel and that consists of trade spend like electricians and mill rates, engineers and technicians and we have a complement of office support staff as well. We have three training and development personnel, which are helping to prepare us for our operational and commercial readiness.
And throughout all of the program that we have been constructing at the site over the last 15 months. We have had zero lost time accidents. So and that’s paramount to our site as that we do things and we execute, but we execute in a very safe manner and we are developing a very — we would like to believe in a very excellent culture of health and safety and environment at our site.
The next slide eight shows the inside of our existing refinery. This is part of the asset that we had going back a few years ago. There’s a number of tanks and hubs and pipelines, which we will be reusing. And that — as I mentioned, about 90% of that equipment has been commissioned, just in front of you there is three separate leaching vessels, we will be reusing one of those leaching vessels in our process. But there’s a number of other pieces of equipment that we are using in the plant like thickeners and filter presses, number of tanks that we will be using from one step of the leaching process to the extract [ph].
Progress on the solvent extraction facilities on slide nine that kind of shows a picture of the steel frame going up in the summertime.
And if you go to slide 10, that’s what it looked like about a month ago, so you can see the claddings got on and the roof structure is there and if you went to the site today.
Going to slide 11, we have got the SX, the solvent extraction cell is actually being installed and the building is pretty much complete. We have got all the deciding and the roofing completed and now we are accepting the heavier pieces of equipment into the site and that will continue over the next three months to four months.
Slide 12, some of our guidance for next year with regards to production. We are still on target for starting commissioning in the spring of 2023 and with production starting up during that time and targeting a contained cobalt production of 1,800 tons to 2,100 tons for 2023.
A quick update on black mass, if I go to slide 14, we plan to processing our demonstration plant up to 75 tons of black mass, will all be done under the existing footprint of that the refinery that I showed earlier the picture of it showing the leaching tanks and most of all the equipment that we are using for black mass is a hydrometallurgical process and that equipment is in situ. It’s basically there. We helped to put in a few new pumps and some extra pipelines, but we are really leveraging the existing asset to make this work for us.
And we are — and of course, we are targeting the recovery of the main battery materials, nickel, cobalt, lithium, copper and graphite and we will be watching closely the efficiencies of the process and the recovery rates. We have been very pleased with our bench scale testing that we have done at SGS Labs and we are very confident that we are going to be able to achieve fairly good recovery rates of these metals.
And slide 15 shows a breakdown of our process, a pretty simple view, though, of the process. Again, the products are nickel, cobalt, graphite, lithium and some copper, will be taken black mass in as a solid and then re-leaching it through our process and separating out the impurities to create these four to five products.
And the next few slides are just a couple of pictures of some of our recommissioning. On slide 16, again, we are using an existing repulping system that we have and was used before when the refinery operated and that’s been recommissioned and is ready to go.
And similarly on slide 17 is the part of the material handling system that, again, was at the plant and operated when it was operating as a cobalt and milling facility earlier on in its history.
And that’s about it. I turn it over now to Craig.
Craig Cunningham
Thanks, Mark. We are moving to slide 19. As we are a preproduction and pre-revenue entity, as expected, we have incurred a net loss of $7.6 million or $0.24 per share. On a year-to-date basis, we have a gain of $2.3 million, which is driven primarily by the fair value gain on our derivative liability.
As an overview of our cash position, which is cash and cash equivalents, we held about $19.7 million in cash, equivalents and marketable securities at September 30th. This is down from the $41.8 million that we held at June 30th. The primary drivers to the use of cash are the continued investment in the refinery recommissioning efforts. That was approximately $19 million in the quarter, as well as about $1.3 million in related expenses for exploration and development work at Iron Creek, as well as our biannual interest payment of $1.6 million that is on our convertible debentures.
I should also point out that our cash balance at Q3 did not include our expected remaining balance for government investments through government grant, which amounts to $6.7 million, which we expect to receive in the year, as well as approximately $17 million that we will be able to bring in under the ATM program. As we can see, capital management is going to be a key priority for us as we near commissioning of the refinery, and as you have heard, it’s expected in spring of 2023.
Moving on to our recent financing initiative. As you know, we launched a marketed offering for units this Tuesday that will help to raise up to US$5.5 million. The highlights are here on slide 20. The unit offering consists of one share and one share purchase warrant. The warrants will last up to 36 months from completion or closing date. The offering is anticipated to close on the 15th of November. The proceeds from this raise will continue to be used to fund the recommissioning and construction of the cobalt sulfate refinery.
And given our previous disclosures around funding and funding requirements to complete that commissioning, we do have other financing options that we are looking at, which include the ATM, as mentioned earlier, as well as potential strategic investments, upsizing of debentures and additional potential available funding from our government partners.
As we move closer towards refining and getting to operations, maintaining our balance sheet strength is a key priority and we will continue to provide regular updates on our progress with both of those.
That concludes financial update. I turn back to Trent.
Trent Mell
Thanks for that, Craig. Okay. Back to — now let’s move on to exploration, actually. Normally, I would have Dan Pace, our principal geologists give this part of the presentation. He actually is in the DRC right now visiting, inspecting some of the mines that we are looking to buy from with our VP, Sustainability, Renata Cardoso, and that’s part of our responsible minerals initiative, the transparency process with Glencore is taking us on a tour of their operations. Some of that — I would say some of the best run mines in the country. So they will be back next week.
However, I guess, the point here on slide — what are we 21 here is that — yeah, and I say, this to investors frequently, we have got a great asset in the State of Idaho and it often gets overlooked, because when you are allocating capital, you have got to make tough decisions and the refinery being the one that’s closest to cash flow. It has to get the priority. Having said that, it doesn’t negate the excitement we have around this asset. It has a very, very rare source of primary cobalt in North America.
So slide 22, I am going to walk you through this map a little bit. But I would highlight, as we move to onshore the supply chain into North America, finding cobalt is really hard and the DRC becomes — is going to remain for years to come a huge source of cobalt. We do have a new mine that’s on stream in the Idaho Cobalt Belt and our Iron Creek, I think, could be next in queue.
But what — I would highlight from this summer’s exploration is, some drilling we did of a nearby target called Ruby. We have known about it for some time. There’s some surface expressions of mineralization. It looks the mineral type and the setting very similar to Iron Creek and we did some geophysics and outlined what you see there in pink on the right-hand side, outline of what we think is a target area and you will note that it’s of equal size to our Iron Creek deposit, which is sitting at just under 5 million tons of high-grade cobalt with some copper byproducts.
And I would say, we only did three holes, because this was kind of a test program and so the biggest highlight you got some grades there. These are high grade, good intercepts for a cobalt target. But what was interesting to me is that all three holes hit two zones of mineralization, precisely where the model predicted it would. And geophysics is not an easy — not an exact science, but it tells me that our team has got the right technique and it gives me confidence that this target you see there is worth additional exploration activities into the new year.
So, we do need to follow up. I have got to be mindful of allocation of capital, of course. I would say, maybe anecdotally that we do have some downstream interest. Again, this is part of the IRA and the onshoring supply chain participants looking to try to onshore cobalt primary feed. And so this is an asset that will take a little longer to bring on stream and say the refinery, but I do expect and predict that it will become higher profile in the years to come.
Just contextually, now on to slide 23, where is the asset situated. It’s in an area known by the U.S. geological survey and the industry of the Idaho Cobalt Belt and so you can see it there, near Sam and Idaho, and you have got a legacy asset Blackbird, Ram/ICP, just went into operation and you can see our Iron Creek asset down to the south there. It is recognized as America’s best cobalt endowment hands down. Nothing comes close. And I would argue even across North America, this is our best opportunity to be able to onshore the cobalt supply chain or at least parts of it here on our continent.
Historically, Blackbird did produce quite a lot of copper and cobalt. The 14 million pounds of cobalt, 53 million pounds of copper, and so there is a healthy history of mining high grade and high tonnage.
All right, so let’s flip over to page 24 and basically transition here to outlook in some of our near-term milestones, which are outlined on slide 25. I think hard to — for me hard to understate the importance and the impact of the Inflation Reduction Act. And this $400 billion of money earmarked towards climate and energy programs and initiatives. But the one that hits home most for us and for our investors has to be the $7,500 vehicle credit.
And there’s two parts to that. One is the requirement that the supply chain be within sort of free trade countries. So that would be obviously in the U.S. and Canada and any other country that has a free trade agreement with the U.S. But the other part that’s even more important for the part of the supply chain that we sit in is the requirement that no critical minerals be produced in China.
In China today, if I were to sort of aggregate cathode refining, that’s about 80% of the global market. And so if you are an automaker looking to get access to that 7,500 vehicle credit, you can’t have a single pound of material being processed in China. Otherwise, that drops to zero. And that’s huge because it is going to propel a — I think, a significant investment cycle into this part of the supply chain, namely that we are at the first step, right, that chemical conversion of minerals into a usable form for the battery sector, us and then the precursors and the cathode active material.
So let’s not lose sight of that. We are waiting for the rules and regs to see how it’s going to be impacted or how it’s going to be implemented, I guess. But I do see that as a huge tailwind for all of our initiatives that we are chasing.
Commodity side, yeah, cobalt and nickel were down this quarter. Look, we are a margin operation that we are buying at market, selling at market, so that doesn’t impact us, frankly, too much. But the outlook is positive for the sector and it aligns with what we see in annual EV sales growth expectations.
Bernstein projecting 27 million vehicles by 2023 on a compound annual growth basis. You are looking at 23% to 27% depending on what you look at — look to for a forecast over the next several years. I mean, that’s a huge growth. And I would say, with the adoption of the IRA and really the uptick of vehicle sales in North America, the inbound interest from downstream partners, potential clients that continues to strengthen and intensify.
And then, I guess, lastly, customer demand. I talked about this, the downstream. I do think that by the end of the year, if we can finalize some agreements, we will be 100% sold. And that basically would support in terms of future sales, either an expansion of the refinery in Ontario, which we are envisioning or our expansion into Quebec at the Bécancour facility, the problems in Quebec, where we are seeing tremendous support from the federal and provincial government.
All right, now slide 26, just to kind of wrap up. This is the last slide outlining some of our near-term milestones as busy as Q3 was — Q4 is and will remain just as active. Recycling put that up there first, because that, to me, is the most exciting one, stay tuned. You will see a series of, I guess, news releases and information on that as we get going in earnest.
Importantly, Mark and the team have commissioned most of the equipment you see here before you. This is the legacy refinery plant that we are building around and expanding. Most of the equipment there that you see has been restarted, tested and some of this is going to be redeployed for the black mass. So you can — by that on that basis, you can take it that — we are already in the commissioning process for the black mass. We are waiting for material to show up, I think, next week and then we will have some news in the coming weeks as we start to put it through our plant.
Sustainability report, for the industry we are in, this is huge and that’s part of the DRC trip that Renata and Dan are on, so we will have our very first sustainability report. I am expecting that just before Christmas. So it’s a year-end deliverable. So you can stay tuned for that.
Very proud of our carbon footprint. We believe we will have the lowest carbon footprint in the world of any cobalt producer and it’s a trait that we can extend to all of our operations by virtue of having hydroelectric power in Ontario and in Quebec.
And then as we look forward to the spring, of course, the big milestone we are all working towards is the commissioning of the refinery, and then, thereafter, obviously, the cash flow finally coming in the door and changing the stature of our company.
Exploration at Ruby, let’s wait and see — wait and see how the markets are and how the treasury is. We do have to keep that going, how aggressive or lightly go will be a function probably a partner interest and we are looking for other people to help us fund that just, again, given our focus on the refining operation.
And then lastly, the Bécancour pre-feasibility study. So this would be a second cobalt plant in that battery park, some call it, Battery Valley in the province at Quebec, where you have already got POSCO working with GM, you have got BASF, the Vale, all looking at building out installations in an integrated park and we have been asked by the government to be the cobalt producer for that part.
So more to come. That’s a few years out. But being the only cobalt refinery sort of built ex-China in about 30 years, it just puts us in a really good position to execute on that and become a part of that bigger club. So I think that’s probably a good summary of where we are.
Operator, at this point, maybe we will just put it open to questions, if there are any.
Question-and-Answer Session
Operator
All right. [Operator Instructions] The first question comes from Jake Sekelsky of Alliance Global Partners. Please go ahead.
Jake Sekelsky
Hey, Trent and team, thanks for taking my questions.
Trent Mell
Hi, Jake.
Jake Sekelsky
So just looking at the black mass cycling program, are you able to touch on some of the recoveries or results that you have seen during early test work and what we might expect to see as far as results go once the demo plant gets up and running over the next little bit?
Trent Mell
Yeah. Mark, I will let you talk to that high level. I would say we are not giving exact numbers. Hydrometallurgy refining, we have been doing it for over a century, I guess, but black mass is still a bit of a new industry.
And you can see the numbers out there, right? Some of our peers publish recovery, some don’t. You would expect kind of high to mid-90s is kind of what the industry might expect and is what we are targeting.
Mark has done this before. He’s done some recycling when he was with Falconbridge, now Glencore back in the day if I remind you. So he has got sort of good oversight on where the market is going. But Mark, do you want to say anything more about that in terms of our of — maybe your level of confidence or how we may stack up against the industry?
Mark Trevisiol
Well, I guess, I could add that, we are pleased with what we saw during the bench testing and it wasn’t all — didn’t start all that pleasing in the beginning, but we modified our circuits and modified our process to get us where we think is probably an industry standard for a hydromet facility on recoveries and efficiencies, are there improvements we can make probably so. But overall, we are fairly pleased with the results that we have achieved.
Now the exact numbers, I mean, you start to get into the commercial side of the business, which we would like to keep that fairly close to our chest, because it basically affects contracts down the line.
And but, overall, I think, this is going to be a real win for the company and an industry that is only going in one direction in terms of being able to recycle these metals. There’s lots of companies knocking on our door to obtain them.
Trent Mell
And Mark, maybe I will just add, just for added color that, based on the test work we have done to-date, we like what we have seen on the graphite side, which for some has been a bit of a challenge in their flow sheet and given the price performance of lithium of late of the last year, that’s going to be an interesting focus as well. We went in this looking at the cobalt to nickel, but lithium becomes an important source of revenue on the black mass recycling as well. So I guess two things to watch as we move forward.
Jake Sekelsky
Okay. That’s fair. And I guess staying in that vein, I mean, Trent, you touched on some of the team being in the DRC looking to source cobalt feed. But I am curious with the recycling plant coming online here, how have discussions with the potential black mass supplier has been going and do you think that you are close to executing on any agreements there?
Trent Mell
Yeah. This is where Mark’s background, I guess, comes in handy, right? He’s — we know who the competition is, I guess, and we know what they are paying. Our focus, given that we have got a cobalt sulfate plant, our focus is on the LCO, so the high cobalt material and so we are able to I think track that.
It does ebb and flow, right? I think, Jake, the way I would look at our recycling right now is we are trying to perfect the process. So we are not necessarily going — we are not swinging for the fences and tons.
We want to get it right and we can scale up. And I think on a per ton basis, the margin looks quite attractive, but it’s important to get that right. And so for a $3 million demo plant, we are going to learn a lot and sort of take it from there.
So for now, we are — yeah, we are sourcing from, I don’t know, Michael, our VP, Commercial has probably got 20 or so potential providers of black mass. And these providers, of course, as you know, Jake, these are the battery shredders, right? They collect, they shred them and then they send it. 90% of material today goes to Glencore in Sudbury pyro process. It doesn’t get the lithium and graphics and so there is a ready market.
I would say the future of the recycling business is going to have to be linked to cell plants. Now that gets you into higher nickel cathodes and so there will be an evolution of our flow sheet. But ultimately, we envision our role in the supply chain, at least for now, we are sourcing black mass from the shredders and then eventually, there’s probably a tie-up with one or two cell plants. So you have got a consistent feed day in, day out, but that would be a few years out.
Jake Sekelsky
Okay. And then just lastly, on the supply chain initiatives we have seen lately, whether it’s the IRA or the $2.8 billion in DOE funding for the supply chain. The — are there any programs out there that you are seeing that you think Iron Creek would qualify for or does the project need to be advanced a bit more. I am just curious any thoughts there.
Trent Mell
Yeah. No. That’s actually a great question. There are programs on both sides of the border that we are, I guess, actively engaged with. When it comes to Iron Creek, if I look at the initiatives that have been announced, there’s a lot there that we can do once the minerals have been extracted.
So I think as a — from a policy proposition, the administration wants more domestic production, but we haven’t yet seen any real tools rolled out to help with exploration, feasibility and even extraction. However, once that’s done, you want to build a mill or some infrastructure or refinery in America, lots of funding available there. So there is a bit of a gating item we have got to get through.
But that’s an active discussion we have with, whether it be DOE or DoD, I think they recognize that domestic production is going to require funding opportunities for the extraction, but not quite there yet. So we are looking at that through the lens of kind of a second step, right? Once you have got your resource and your feed that could help on the surface CapEx.
Jake Sekelsky
Got it. Okay. That’s all for me. Thanks again.
Trent Mell
Thank you. Thank you, Jake.
Operator
That is all the time that we have for questions today and this concludes the question-and-answer session. I would like to turn the conference back over to Joe Racanelli for any closing remarks.
Joe Racanelli
Thank you all again for joining us. And as noted, if you do have any other follow-up questions, please reach out to us either phone — by phone or e-mail. And as mentioned, we will have our AGM starting in about an hour and half time for those in the Toronto area and I look forward to meeting some of you in person. Thank you again and we will be providing regular updates going forward, particularly on the black mass. So please stay tuned for news flow on that front.
Operator
This concludes today’s conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.
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