Q2 2023 Li-Cycle Holdings Corp Earnings Call
Good day everyone. My name is Todd and I will be your conference operator today.
The MH <unk> process for the poor divestment hub allows an accelerated path to production and provides additional flexibility for use within glencore is existing refining assets are precursor produces full battery manufacturing.
The port of US May hub is expected to have an annual processing capacity of up to 70000 tons all black mass.
Producing up to 15000 tons of lithium carbonate.
18000 tonnes of nickel in 2000, and 250 tonnes of cobalt contained an MSP.
To reiterate once both the Rochester and pull divestment hubs are fully operational these facilities will have a total combined lithium carbonate production capacity of up to 25000 tons per year makes.
Making us a top global and sustainable producer of lithium carbonate and other key battery grade materials.
Turning to slide 12 for an update on our European spark.
In early August we announced the startup of line one at our Germany spark.
This spike utilizes last cycles patented and environmentally friendly generation three technology to directly process all forms of lithium ion battery materials, including full electric vehicle battery packs without the need for discharging dismantling of thermal processing.
Once all lines I complete the spike will be one of the largest pre processing facilities in Europe and the largest within last cycles network, having an annual total processing capacity of 30000 tons.
As a reminder, Germany represents the largest market for both battery manufacturing scrap and end of life of lithium ion batteries in Europe .
Supported by multiple commercial contracts with battery and EV manufacturers, we are targeting commissioning of one two in late 2023.
I would like now to hand, it over to Debbie for a financial review.
Thank you Tim.
Turning to slide 13 for a discussion on our second question Vishal.
As seen on the top left of the chart, we produced 1719 tonnes of plasma.
<unk> doubled the level achieved in the prior year driven by the startup of operations at our Arizona in Alabama books, and the updates Cheng York stock.
She has a black box, which you said 93 times two five times more than the 132 tons in the prior year.
Moving to revenue for the period.
As a reminder, our revenues are influenced by market prices of metals contain generic products, notably cobalt and nickel with no value attributed to lithium content at this time and thank you.
Can you just sell black mass is an intermediate product.
Revenue from product sales and recycling services before noncash fair market value adjustment increased to $5 5 million from $4 7 million in the prior year.
While we deliver higher product sales volumes from our expanding base of operations.
Results were impacted by a decline in metal prices, namely cobalt and nickel.
Total revenue was $3 $6 million compared to nil in the prior year.
Total revenue included an unfavorable noncash fair market value adjustment of $1 $9 million in the quarter compared to $4 $7 million in the prior year period.
Which took the total sales value for second quarter 2022.
The main purpose of our black Ms projection is to utilize it as feedstock for hubs, which produce lithium cobalt and nickel products unlocking significant incremental value.
As such the sales Black mass is an interim strategy in the lead up to the start of operations at our hubs.
Yes.
The operationalization of our Rochester hub will represent a significant inflection point in <unk> revenue and financial profile.
Turning to slide 14 for an update on our progress on <unk>.
We continue to build on our chocolate code of timing strategic and competitive financing in support of our network expansion plans.
In late February we announced a conditional loan commitment of $375 million from the department of energy further validating our position as a domestic supplier of batch of <unk> in the U S.
The loan will be free term of 12 years and will be based on the applicable Changyou Jay Lee with no spread.
And as Jay noted earlier, we made great strides in advanced wound documentation to final stages depicted here on stage five and the.
Appeal process.
We are excited to share that our loan agreements is now working its way through the internet.
Intra agency process.
We are expecting to close the transaction in September 2023.
Yeah.
Turning to slide 15 for an update on our cash flow and our view of the strength of our balance sheet.
During this second quarter, we invested $78 million and our net growth focused on the Rochester hub engine, the pea with nearly $290 million of cash on hand.
Adding the loan commitment of $375 million from the department of energy will take our current pro forma cash of more than $650 million.
Turning to slide 16 to reaffirm our 2023 business metrics.
For production of Black mass.
Our year to date results, we are well on track for targeted annual production.
With market and customer needs.
To reiterate we are looking to optimize their future black mask production to meet feedstock needs for the startup of our Rochester hub.
Unlocking future value of lithium carbonate and other batch of Goldman chairs Andrew.
As a result, we intend to start building inventory in the second half of 2023.
Regarding capital investments we.
Expect to allocate a total of $285 million to $345 million for the development of just spoken hub network.
Due to the timing on construction of the Rochester hub this will be more heavily weighted to the second half of 2023.
And finally.
We are working closely with the U E. L. P O team for the targeted close of $375 million. This September .
Turning to slide 17 for closing.
Remain focused on continued optimization of our spoken hub strategy prudently aligning with commercial demand.
<unk> focused on continued execution.
Treating the Rochester hub with commission commencing late 2023.
Growing our global spoken have Netflix, specifically exploring and you spoke site in Hungary, and progressing the put to bed rehab.
Setting us up to be a leading global and sustainable lithium carbonate could you share with capacity of up to 25000 tons per year.
Expanding and diversifying commercial relationships with key global body supply chain participants such as with <unk> energy.
And increasing financial flexibility for our network growth plans with <unk> expected to close this September .
That concludes our formal remarks.
We're ready to take questions.
Okay.
At this time.
If you would like to ask a question. Please press star one on your telephone keypad.
You wish to remove yourself from the queue you may do so by pressing star two we remind you to please pickup your handset for optimal sound quality.
And we'll take our first question from Brian Dobson with Chardan capital markets.
Hi, good morning.
Hey, Brian Good morning.
Good morning.
So.
As we near the completion of the Rochester facility do you think you could give us a little bit of color on what that buildup ramp for earnings will look like once that facility.
Okay George.
Ours to process.
<unk>.
Yes, So I think I think there's a couple of phases here.
And we've communicated a couple of things. So first is commissioning so off the good news today and as we continue is reiterating the startup commissioning end of this year.
And certainly as we get through that and close to that that's going to be an important topic, both the commissioning phase and the ramp up phase so.
Suffice to say more to come.
I'll say that and it's something that we can we can chat about there are industry benchmarks.
For the style of facilities for metallurgical facilities.
One thing to keep in mind is obviously were resource recovery recycling facility leveraging a lot of those off the shelf unit operations extend extensively piloted.
But obviously at a much smaller scale versus say mining. So a lot of those benchmarks are for mining projects, that's only caution associated with taking it verbatim.
But in the interim there are these benchmarks that you can look at to get a sense of directionally.
The ramp up style, so happy to chat about that Mark just as a general effort.
GAAP Bergen and then okay.
As you're thinking Matt, Italy, certainly in Rochester, you hit a lot of positive local and national government support that development.
<unk> in the region.
How is your relationship with local authorities in Italy, and do you see similar similar support.
Yes at a high level, yes, I mean this is in collaboration with with noncore. So they've also been operating in Sardinia location and pardon me for a long time.
And.
Public for the background.
We're on track to transition the site.
And this is a great. This is a great transition is really turning an old asset recycling and whole asset into a new one.
Parts of it into our hub, our <unk>, which is going to be in Europe .
And that strikes a couple of.
Key high notes for both locally and also broadly for Europe , one locally and this is important they have a very skilled workforce that exists there.
And this is an opportunity to transition that workforce.
And thats the metallurgical workforce, that's not very often that you get that opportunity.
So much more efficient faster.
On capital efficient more operational efficient that's the local.
And then from a broader European view.
What's very strategic here, we were very intentional with this statement around us being on track to produce up to 25000 tons per year of looking carbon I don't think folks it really.
Taking that and in terms of our significance over time.
So that angle domestically and broadly for Europe . This is very strategic right down the fairway from Daniel of the European battery regulation from the angle of minimum recycled content.
And really being first to market there with larger scale resource recovery for black matched to produce.
<unk> AD products so.
So yes short answer is yes, but that's the color behind it.
Excellent. Thanks for the color I appreciate that.
Thanks very much.
Thanks, Brian .
Thank you we'll take our next question from Ben <unk> with Baird. Please go ahead.
Hey, guys good morning.
Congratulations on the progress.
Maybe if you could just talk about that.
Does your prepared remarks, but the differences in the hub.
And why Youre, making those differences I heard time to market by anything else from Europe to Rochester, and then just how do we think about.
How many spokes you wanted matched with the with the hub because you guys have good Dallas water build what it made a lot of progress on the spoke part so im just wondering if that's more to come out through Hungary.
Or how we should think about that thank you.
Yes for sure Hey, Ben.
Yes, so on the first part around the flow sheet and the way to think about that so I wanted to start to introduce Dennis.
Spine.
It's interesting and I'll back up a little bit for our Rochester plants roster of course is going to be producing lithium carbonate nickel sulphate cobalt sulfate and the core the core difference here is really around the nickel and cobalt.
So at Rochester, where going to Sulfates, which go into precursor to really write backs battery manufacturing industry.
That may garner higher value you can imagine because its.
Added form of the product for save in the metal.
We actually have looked at this other path there just comment intermediate which we've shown here on page 11, which is called mixed hydroxide precipitous.
So it's a common product from.
Primary meaning mining and refining.
And why we didn't go that path for Rochester is actually in North America. There is no real captive refining asset to take that product. So technically economically it made a lot more sets us to go that path.
The sulfates in Rochester and.
In the case of Europe like we're actually has a refining facility in Norway.
Nicole.
So that facility can take in intermediates and then refine it further.
Of a case by case choice in this case, that's a very efficient.
Path both in terms of the speed.
But also building off one other point on that is lastly, we actually piloted both this flow sheet that you see for investment.
And the flow sheet for Rochester, effectively getting back five years ago. So effectively we're just leveraging the work that we've already done.
And the collaboration with.
With SASSA.
The first part around the <unk> and then on the spoke side. Yes, you saw today that we indicated announced that we are looking at site selection for a spoken hungry hungry as a rising star in terms of the profile of <unk>.
Battery manufacturing in Europe . It has been actually for a while that's on the back of also our collaboration with ease.
510 looks like battery manufacturer.
In terms of growth from there and how you folks look to model that in the Senate.
I'd say a good roadmap is.
For example, what we've done in Germany.
Our our moat here is really looking to first and foremost ideally double up lines, where we already had a presence because you can imagine it's going to be much more capital efficient faster operationally efficient rates from the people perspective.
That would be probably a first approach for some of our existing sites, but then seconds and alongside that is where we have the need to be closer to our customers. That's the whole spoke model. Obviously, then we'll look at new additional.
For example, like so it's a bit of both.
As you think about how we're going to continue to expand in lock step with customers.
Thank you if I could just add one more.
Just how do we think about the.
You're building up a black mass inventory going forward.
Youre getting close to commissioning.
Rochester.
How should we think about that affecting sales.
For sure and I'll start and then Debbie can add on as needed. So you have heard us say that we're on track to start that inventory builds in the second half year and also you've also reiterated that startup and commissioning.
Towards the end of this year. So those really go together right at the end of the day.
And maybe how it affects our profile on sales and whats to come I'll turn that over to you.
Yeah.
Savannah is something we are very keen to get underway.
Just a question of timing.
Hi, This is Randy.
So we've got Steve.
Set on the inventory.
Just the case of listening to our business plan, but you should expect that somewhere in the back half that we would begin to shut down some inventory in preparation for the commissioning and ramp up of that.
<unk>.
What do you see.
Once we do that is you will still continue.
Our core <unk>.
Black Fox production.
It will be a good indication of how we're operating in a spoke network, but clearly that will have some kind of.
As we start to ramp ups of England Joy to our revenue line as we won't be selling it anymore and we will go 100%, but you guys did the gate will be a gradual buildup of inventory. So there will be a mix of inventory and revenue.
Because there are implications as it revenue line.
As a reminder.
This makes great economic sense for us because right now we do not capture any lithium value in selling this black box product.
Better to set it doesn't inventory with the opportunity to capture that value Lindsay hub operating.
Okay.
Thank you.
Thanks Beth.
You.
Thank you we'll take our next question from Matthew O'keefe with Cantor Fitzgerald.
Okay.
Hi, Hi, good morning.
Just a quick question for me on the lone.
And just start with that.
Are there what kind of covenants are around that and when you do get that.
Specifically when you do get that.
<unk>.
Will it be applicable to your build out in Europe , or what would have to be only in domestic build out in the United States.
Hey, Matthew Good morning, I'll start and then Debbie can add on as needed. So yes, so vis vis I'll talk with use of proceeds. So it does have to be for the build out and actually our U S business.
And the key surprises there is actually the hub.
Now a bit of a dynamic there at a high level as you know.
The eligible costs through this program, it's really the capital costs Nazis folks are tracking.
A lot of that capital to Boston and more to come.
So the way, it's going to work as we can actually draw against.
Eligible cost.
And then there is more to come and that we can continue to draw essentially against that and then that can go towards.
You can imagine as we get through the next bit of course, Theres non capital cost you're right. So there's ramp up of working capital et cetera. So that's where that can be used for but it's being drawn against eligible capital cost, but what that does for us is obviously at a topco level.
That would've been money that would ease for taco level to fund that build up the U S. Also opens up that they can go to the next thing and obviously, we've elucidated and next thing it's really around Europe .
At our size of Debbie can also add.
The covenants are in general Yeah, good morning, Matt.
Good morning.
I think my preference would be to get this one Julie Coates and then we can talk about the structure around that versus no before.
We finalized the documentation, albeit that.
From our perspective, we have pretty much signed off on all of the documentation, but I think if youre looking for a guide you can really think along.
A typical project financing structure and those are the types of covenants.
The goal with that type of structure.
And this arrangement.
That is with the U S government.
And the one beautiful thing thats very different from that.
Sure.
Project financing structure is that it is priced at U S treasuries and Theres no spread so so there's a degree of flexibility.
Uh huh.
Along the lines of therapy.
That gives us a lot of flexibility and then the other piece that I would I think Chris mentioned this before and share retina is it is secured event those assets. It will be okay. Alright. So it is secured against that asset, but not like not the entire company.
Alright, Okay. No. Thanks I was just wondering does that is great because it just doesn't seem like it provides you with a great deal of flexibility I guess the takeaway on this end.
The mechanics around that you've explained I appreciate that.
If I could just ask one more question on the technical side, we've seen an uptick in L.
L F P battery chemistry going into Evs, there's either LSP plants being built up and down.
The U S.
You guys can accept I'll ask Pete correct.
Correct, Matt Yes, yes.
Okay, so that doesn't really affect any.
There's plenty of.
Nicole.
Nickel based batteries as well too.
To satisfy for the or at least for the next decade.
Yes. So for sure. This is something very close to our heart. So we say as you said central briefly we accept looks like lithium iron phosphate batteries LSP batteries commercially.
So I'll walk through it on the way in and the way.
So on the way in from our spokes you can imagine there are mechanical processing facilities, so they're agnostic to the cash rate.
And that's through a hub.
Of course, we have nickel and cobalt manganese production capability, but also looking into the hub in Rochester can take LSP.
And we're looking at a similar thing for our part of SMA hub.
One other aspect there on the way out of it as the whole discussion around lithium carbonate versus lithium hydroxide. So we obviously are on the path of producing lithium carbonate.
Which was technical and risk adjusted choice no doubt I think too much complexity going into lithium hydroxide off the bat.
But if there were to be and we do continue to see growth in OSB in North America and Europe .
Then that's good too from the angle of lithium carbonate demand lots of it is that as we look at the Giga Factory Center online coming online and in the pipeline for North America and Europe . It is still dominated by higher nickel chemistries.
So we see LSP coming in but it's it's gradual and even when we sensitize that to a very aggressive case, there is still quite a bit of high nickel.
Chemistry, so heads from the aspect of our customers and the feed for our hubs, we don't see that as a concern.
But our key differentiator is going to continue to be able to take.
Better capture.
Great. Thanks, Thanks, so much I appreciate it.
Thanks, Matt.
As a reminder, if you would like to ask a question at this time.
Press Star one on your telephone keypad will.
We will take our next question from Jeff Osborne with Cowen.
Hey, good morning, a couple of questions on my side Debbie I was wondering if you could just opine on the operating expense level. It seems like it's crept up and I was thinking it would be a bit more flattish. If you could just talk about what the outlook is for the second half of the year as you move into commissioning would be helpful.
Yes, no problem.
Yeah.
Not really sure that I.
Follow your math on it creeping up it is a little bit complicated and the income statement and what you really need students back has some noncash expenses.
I think Q1 and Q2 of this year are a good indicator for the balance of the year 2023.
And you should expect to be on or around that same level.
Got it.
And then for Jay maybe on the Italy facility with different scope, which you touched on it clearer stuck in an elevator and you were trying to pitch me. This.
Ahead of the.
The feasibility study is there sort of a rule of thumb in terms of time to market you could do at X percent faster.
And then what the financial ramifications are in terms of EBITDA.
Per ton as well as capex per ton just in terms of.
The difference in scope that would be helpful. If you could just articulate that with a bit more precision.
Sure Hey, Jeff.
Of course in the back of the DFS stomach a time to elaborate on that I'd say.
Look the bottom line is faster.
It's a more streamlined plushy.
The impact of that is around making a higher value nickel cobalt sulfate, but at the same time I provided the up to contain a nickel and cobalt so you get a bit offensive.
Rough revenue ranked <unk> by the way is a pretty pretty comment intermediate has indexes indices actually from numerous third party agencies get ahead of it.
Sense of the payables on the nickel and cobalt.
Just keep in mind again, it's not exactly the same as our final product. So bottom line is faster.
It is tailored for Europe in terms of the collaboration with <unk> as I talked about around the refining facility in Norway, and then the capital intensity, we would expect a lower capital intensity versus versus Rochester. So that's qualitatively obviously the full of an elevator pitch will be able to be enabled on the back of the full DFS results, which were looking for a chair.
Got it and then I didn't see any reference to the production tax credit in the presentation or have you been able to confirm that you will be eligible for the 10% PTC here and what the expectation is the timing of that.
Yes, we do think Canadian thinking based on engagement that we are eligible for the <unk>. It does seem like the guidance that continues to get pushed.
Pushed out a bit the list that we have on that is likely this fall.
Specific guidance, but based on our engagements today, yes.
Look to be eligible for the 10%.
Great. Thank you.
Thanks, Jeff.
Thank you at this time it appears we have no further questions I'll now turn the call back to RJ coach or for any additional or closing remarks.
Thank you Tom.
So looking back it's actually now the two year anniversary since lifecycle became a public company during that time, we delivered on our strategic plan to become the leading innovative and sustainable pure play lithium ion battery materials recycler and supplier of key battery grade materials by closing loop for the domestic supply chain in North America and Europe were.
<unk> the electrification ecosystem and.
And a recap of our significant achievements, which validate our first mover business model.
We have built an unparalleled global integrated pre and post processing network are spoken hub network that physicians likely it will be a leading supplier of battery grade materials, including lithium carbonate.
We've entered into strategic long term commercial arrangements with leading global players in the battery supply chain, including Glencore tracks is Qian vignettes EV LG in addition to other Oems.
And since being public we've achieved competitive financings totaling $725 million with strategic partners and government support, including Coke LG Glencore and the Dewey.
So in summary, we're extremely proud of our team with industry, leading expertise continued successful execution and focus on driving significant value for our shareholders and we look forward to demonstrating further progress in the coming quarters that puts lifecycle on a path to become a top global producer of key battery grade materials, with a leading sustainable technology and strategic partners.
So thanks for your time interest and support for lifecycle.
This does conclude today's lifecycle second quarter 2023 earnings call and webcast. You may disconnect. Your line at this time.
Have a wonderful day.
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