ELBM 2023Q4

Thank you for standing by. This is the conference operator. Welcome to the Electra year-end 2023 Results Conference Call. The conference is being recorded. I would now like to turn the conference over to Heather Smiles, Vice President, Investor Relations and Corporate Development with Electra Battery Materials Corporation. Please go ahead.

Thank you, operator. Good morning, everyone, and thank you for joining us. First, we'll see housekeeping matters. This presentation includes forward-looking information and forward-looking statements. Please see Slide 2 for clarification on what that entails. All of our fourth quarter disclosure materials are available on our website and SEDAR+, and today's presentation is also available on our website. For those who don't know me, my name is Heather Smiles, and I oversee the Investor Relations and corporate development programs for Electra. I rejoined the Electra team in January of this year, and I previously worked for Electra from 2017 to 2019 and spent the last several years with Baffinland Iron Mines here in Canada, leading their stakeholder relations program. Our presenters today are two familiar faces, our CEO, Trent Mell; and our Vice President, Project Development, Mark Trevisiol, as well as another new member of the team, our CFO, David Allen. Dave joined Electra at the New Year as well and has more than 30 years of finance experience spanning manufacturing, natural resources, shipping, real estate, and financial services industries. He has held CFO and senior finance roles with companies such as Algoma and Canada Goose. Now, I'll turn it over to Trent.

Thank you, Heather, and good morning, everybody. And I should say, I guess, Heather, welcome back to the team and Dave, welcome to the team. It's been really enjoyable working with the two of you over the last few months. So I'll start with some highlights on what we've been doing through 2024 before handing the baton over to Dave and then Mark. Summary, just some of our activities. In 2023, towards the beginning of the year, you'll recall we focused on the rebaseline exercise. So that was basically to do a reassessment post-inflation of what the completion schedule and capital cost would look like to complete the refinery. Brownfield expansion plus construction. So depending on the metric, we're quite advanced with permits in place, still works done on buildings, equipment there, did that exercise. And then, in tandem with that, we started what we believe was the Continent's first plant-scale demonstration plant for the refining of black mass, Mark will talk a lot about that. And that took up a good part of the year and allowed us to take advantage of the gap in construction by recommissioning the front end of the Brownfield site that we've got. In tandem with that, we spent a lot of time, especially myself, working on the funding gap. I'll come back to that a little bit later, making great progress there, as I indicated in Q3 and then strengthening the balance sheet myself, Dave, and others. We extended the maturity of our debt. We announced a $5 million grant from the federal government in Q1 as kind of a bridge to a bigger solution. We made amendments to our debt facility to minimize the potential dilutive impact of the notes. And all said and done, we're getting closer and closer to our goal here, which is, of course, to complete construction and make our way into production as we spent a lot of 2023 just laying the groundwork for that environment to occur. As you can see in Slide 4, a number of commercial pieces as well were announced through the year. Quite recently, we announced a feedstock agreement with Eurasian Resources Group. Incidentally, that's where our VP Commercial worked prior to joining Electra, and that's one of the biggest cobalt miners in the world and delighted to have them as a supplier for our refinery. Also, earlier in the year, we strengthened the relationship with LG Energy Solution on the offtake by extending the term and the quantum of the material they're going to be buying from us upon production. And then we've advanced the strategy with the Three Fires Group. Basically, it's an indigenous economic development group in Southern Ontario with some shared values around closing the loop on the battery supply chain through recycling. Plant scale, and I'll defer to Mark on that, but bottom line, the journey here to produce IRA-compliant onshore North American battery materials continues unabated, some good progress, more to come. But before we get into that any further, let's go to Dave first, and he'll review the financial highlights for Q4. Dave?

Thanks, Trent. Good morning, everyone. I'll ask everyone to turn to Slide 6. At the end of Q4, we held $8.2 million in cash and marketable securities. This is down from $15.7 million held at the end of the previous quarter. This was driven by capital costs related to construction of the refinery and costs related to running our black mass trial. I should mention that our cash balance at the end of the year does not include $5 million of new government commitments announced in February nor the $5.1 million of previous government commitments not yet received. Cash management remains a key priority, and we continue to take steps to minimize costs and manage expenses. Reductions in operating activities included significant reductions on exploration activity at the Iron Creek site, seeing general and administrative costs at the head office and reducing activities at the refinery to focus on the lower cost black mass trial. This was partially offset by higher professional and consulting fees incurred during financing activities associated with the capital raise in Q3 and the restructuring of the debt, the convertible notes, in December. Turning to slide 7 for more detail on the restructuring of debt. In February 2023, Electra closed a private placement of USD 51 million of the 8.99% senior secured convertible notes that are due in February of 2028, canceling the USD 37 million in previously held debt in 2026. The company received net proceeds of USD 13.7 million. In December 2023, we announced proposed amendments to the agreement with noteholders to more closely align with market conditions; those were completed in the first quarter of 2024. The conversion price of the warrants was adjusted and an acceleration clause added and in partial consideration, the holders agreed not to exercise certain adjustment provisions. These amendments, which were finalized in early 2024, have the overall benefit of reducing the potential dilution should the notes be converted to capital. We are grateful for the support and partnership shown by the noteholders as we continue to advance the project finance. It concludes my remarks, I will hand the call over to Mark for an update on our refinery project.

Thank you, Dave. Now let's turn to Slide 9. We prioritize health and safety every day in our plant. We strive to deliver results in this area, and over the past two years, our employees have logged more than 80,000 hours without any lost time incidents, which was our goal. We're proud of this achievement and monitor it daily. On the project front, you can see in the images the transformation of the site from 2022 to now. We've expanded our plant by adding around 60,000 square feet to the existing 45,000 square feet. Our facility spans over 600 acres, with a long asset life ahead. Construction is around 40% complete, with nearly all necessary buildings for the cobalt sulfate project in place and most of the infrastructure established. We've upgraded power lines to meet our requirements and installed all the necessary pipelines. The current focus is on the internal workings of the plant, including piping, electrical setup, and instrumentation and controls. Moving to Slide 11, you can see our crystallizer plant in the foreground, our new solvent extraction plant in the back, and the sulfate warehouse to the right, where our final product will be stored before shipping. This plant is built and licensed for 5,000 tonnes per year. With an additional investment of about $600,000 to $700,000, we could increase capacity to 6,500 tonnes per year of cobalt and cobalt sulfate, pending the permitting process, which we are confident we can navigate. This enhancement would provide significant benefits in meeting customer demand and improving our profit margins. Regarding black mass, we processed about 40 tonnes through the plant, yielding approximately 28 tonnes of nickel-cobalt MHP, which we mainly shipped to Glencore. We anticipate shipping another 20 tonnes of MHP in the coming months. Our lithium carbonate has now reached technical grade, achieving 97% and 96% purity. This milestone wasn't a primary goal initially, but due to rising lithium prices, it has become increasingly significant for us. Currently, we are not processing any new black mass but are concentrating our recycled washates to manufacture finished lithium and MHP nickel-cobalt products. We take pride in our progress, having produced batches of nickel-cobalt MHP with nearly 50% nickel plus cobalt, a valuable intermediate product. Slide 14 details next steps for black mass. We've identified optimization opportunities based on our pilot and demonstration plant results, which we are addressing. The cobalt market differs from those of copper and nickel because the processing plants are not optimized for extracting high-value cobalt from intermediate products. Our strategy is to produce LME-grade cobalt at 99.9% and 99.5% purity. The right side of the slide illustrates the separation of nickel and cobalt, with cobalt prominently displayed in our bench-scale testing. We've achieved nearly 99.99% separation and extraction, which is crucial for our future efforts. Additionally, we're in talks with several funding agencies to support our development. As Trent mentioned, we plan to stay active in the recycling sector, as securing supply is vital. Our relationship with the Three Fires Group, which has territorial rights in Southwestern Ontario, will be instrumental in ensuring a steady supply of recycled lithium-ion batteries for our operations. I will now hand it back to Trent for some final thoughts.

I apologize for the delay as I tried to unmute. I want to draw attention to a potential opportunity related to LME-grade cobalt. In addition to cobalt sulfate, we’re exploring the possibility of producing cobalt metal through the separation of MHP from black mass. This would provide us with flexibility and enhance our trading options based on market conditions. Our ability to integrate cobalt from black mass into our cobalt sulfate production is valuable, but having a separate process to produce standard-grade metal is also very promising. On slide 16, I want to focus on our partnerships. Our goal is to produce IRA-compliant cobalt sulfate for the U.S. battery supply chain. Currently, over 80% of battery-grade cobalt is sourced from China, and to maintain eligibility for the 30D credits starting next year, U.S. companies cannot use Chinese materials. This creates a limited market for IRA-compliant supplies. Recent tariffs, including a 25% tax on batteries and 100% on vehicles, further emphasize the need for onshoring, and we believe Electra exemplifies this approach with our commitment to the North American market. Our existing partnerships with Glencore and ERG, the two largest non-Chinese cobalt miners, ensure that we have ethical and IRA-compliant sources for the foreseeable future. LG is an important partner, increasing their commitment to purchase up to 80% of our production over the next five years, a significant rise from previous expectations. There is strong demand for our future output, approximately double what we anticipate producing, allowing us to take our time in negotiating the remaining 20%. Regarding the market dynamics, we are aware that nickel, lithium, and cobalt have been under pressure due to cyclical factors and geopolitical influences. Our contract with LG is designed to mitigate volatility through a margin-based structure, ensuring profitability as we operate efficiently. As Mark mentioned, having a refining operation in place allows us to source our material effectively, and we see Three Fires as an ideal partner to help establish a primary recycling facility. Moving to slide 17, while 2023 has been challenging, I feel optimistic about 2024. Our team made a proactive decision to pause operations post-inflation, positioning us well to resume ahead of others as the industry recovers. We're building a global supply chain, a long-term endeavor, and we shouldn't focus solely on quarterly fluctuations. By strengthening our balance sheet and reducing costs this year, we are well-prepared to emerge stronger and competitive. We estimate needing about USD 60 million to reach our commissioning phase, and we are pursuing non-dilutive funding options. In the near future, we will continue optimizing the black mass process while awaiting partner decisions to guide our funding strategy. Once we establish the cobalt plant, we will consider expansion opportunities and explore interest in a nickel sulfate refinery in North America. Thank you for joining the call, and I now welcome any questions from analysts.

There appear to be no questions. So I'd like to turn the conference back over to Heather Smiles for any closing remarks.

Thank you, operator. And thank you, everyone listening, for your time today. We appreciate you taking the time to listen to our update. As a team, we're really looking forward to the next opportunity we have to bring you an update on our progress. Thank you so much, and have a great day.

This brings to a close today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.