Q3 2023 Li-Cycle Holdings Corp Earnings Call
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Good day My name is David and I'll be your conference operator today at this time I would like to welcome everyone to the third quarter 2023 lifecycle whole beans earnings call and webcast. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.
If you'd like to ask a question at that time, Please press star and one on your telephone keypad.
You should need operator assistance today, Please press star and zero.
I will now turn the call over to Noah asked me head of Investor Relations. Please go ahead.
Good afternoon, and thank you everyone for joining us for lifecycle business update and review of financial results ended September 32023.
We'll start today with formal remarks from RJ culture, co founder President and Chief Executive Officer, Jim Johnson, Co founder and Executive Chair and Debbie Simpson Chief Financial Officer.
Then follow with a Q&A session.
Out of this call lifecycle issued a press release and a presentation, which can be found on the Investor Relations section of our website at investors don't lifecycle Dot com.
On this call management will be making statements based on current expectations plans estimates and assumptions, which are subject to significant risks and uncertainties most of which are difficult to predict and many of which are beyond the control of lifecycle.
Actual results could differ materially from our forward looking statements if any of our key assumptions are incorrect, including because of factors discussed in today's press release. During this conference call and then our past reports and filings with the U S Securities and Exchange Commission and the Ontario Securities Commission in Canada.
These documents can be found on our website at investors thought lifecycle dot com.
We do not undertake any duty to update any forward looking statements, whether written or oral made during this call are from time to time to reflect new information future events or otherwise except as required. These.
These forward looking statements should not be relied upon as representing lifecycle assessment.
Of any date subsequent to the date of this call.
With that I'm pleased to turn the call to RJ.
Thank you Darla and good afternoon, everyone.
Beginning with slide three we announced in late October that'd be pausing construction at the Rochester hubs to conduct a comprehensive review of the project.
Today I'll discuss the rationale for that decision.
Tim will provide an update on the spoken up networks.
And Debbie will review liquidity management, and our financing strategy.
Turn to slide four I'd like to provide context on what drove their decision to pause the construction work for a comprehensive review.
At a high level it came down the convergence of two factors, namely.
And escalation and actual construction cost versus prior indicative bids.
<unk> and complex financings.
Let me walk you through some of the details and you can see here by the timeline.
Starting with the Rochester have construction milestones and costs as shown in the blue part of the Taiwan.
We recently started to recognize actual costs.
Can be higher than previously estimated based on recent subcontractor agreements.
Packages of remaining work.
This was specifically related to installation costs for mechanical equipment.
I think structural.
Structural steel.
Electrical and instrumentation for measurement and process control devices.
This cost pressure was exacerbated by the timing of nearly $4 billion of other major construction projects in the region.
Turning to ramping late 2023 in early 2024.
Driving general contractors to draw construction workers from the larger regional area.
Reflecting these escalating construction costs, we arrived at forecasts that result in the aggregate cost of the current scope of the project substantially higher and the previously disclosed budget of $560 million.
For reference the project Capex to date with approximately $301 million on the project through September 30th 2023.
In terms of the financings.
As shown in green on the top of the timeline.
With our capital growth needs, we've been successful in timing strategic and competitive financings touches with coke.
Ken L.
JD solution and Glencore.
Over the course of 2021 and 2022.
Also translated what we submitted our application and began a rigorous process with the QE programs office.
We achieved a significant milestone when we received the conditional loan commitment for gross proceeds of $375 million in late February 2023.
Well he worked closely with the view each congrats to the final stage, we were delayed from our initial target close at the end of June to September 2023.
Also at September 30 is 2023, the company had contributed approximately $92 million.
The construction of that process buildings and warehouses to the Rochester hub.
This spend was incremental to the hub project budget.
$560 million.
The company was anticipating a refund of a substantial portion of this contribution upon completion of the buildings leasing arrangement.
Due to the complexities of bringing together arrangements for the jewelry loan.
And the buildings lease arrangements.
Financings were further delayed until October.
Subsequently, we've decided not to pursue.
The building's lease arrangement, we should expect it to simplify the geely long closing process for the Rochester hub.
In summary.
The escalating construction costs combined with continued delays in closing contemplated financings were leading to lower current and projected cash balances.
As he made a swift and prudent determination.
And announced a pause of a project to complete a comprehensive review.
The review is examining expected capital cost timing of completion.
And go forward construction strategy options for the Rochester hub project.
Turning to slide five.
For a snapshot of our current portfolio immediately following the Rochester hub project costs.
The company is undergoing a comprehensive review, we're bringing on additional capacity in the near term.
And totally go forward strategy work is completed.
The company will be slowing operations at its north American spokes.
As it reviews, the timing and black Knight's needs of the Rochester out.
The company is reviewing its plans regarding additional spoke capacity in both North America and Europe.
And we will discuss Oklahoma.
Our focus on the generation three spokes in more detail later in the presentation.
Turning to slide six for an overview of the key considerations for ongoing comprehensive Libya.
As I discussed in late October we announced a pause on the construction work at the Rochester hub for a comprehensive review of scope timing capital.
Additionally, we're evaluating our levers optimize cash and liquidity.
Cost spend initiatives.
Coke optimization strategy.
Timing financing needs to support our go forward plans.
Thank you I'll turn it over to Tim for a more detailed update on our spokes and home network.
Thanks Ajay.
Turning to slide seven for an overview of the options being considered as part of the Rochester Hub project review.
The review is examining a phased approach that ties black mass production from our sports network to support the battery industry, a precursor and cathode production.
In a phased approach the first phase as depicted by the Green arrows the black mass its process to produce a mixed hydroxide precipitate or M. H P. A combination of nickel cobalt and manganese metals.
M H P could be sold to refine up ahead of supplying to the battery precursor of industry.
And the second phase per the original plan as depicted with the great hours Black mass would be converted directly to nickel and cobalt sulfates ahead of supply to the battery precursor industry.
Both approaches maintain the production of battery grade lithium carbonate.
The M. H P process was part of the lifecycle large scale pilot program completed in 2019 to 'twenty 'twenty and is included in last cycles patented technology portfolio.
A key factor for this approach is the ability to reduce immediate construction scope to phase development with project financing.
Turning to slide eight to discuss our initial assessment of the Rochester hub project.
As previously disclosed engineering and procurement of the Rochester hub project are largely complete with focus having shifted to construction installation activities.
As Jay discussed earlier, the project to the experienced escalating construction costs substantially higher than what was anticipated in the previously disclosed $560 million budget.
Additionally, we had contributed approximately $92 million towards an expected total cost of $140 million for the construction of process buildings and warehouse for the Rochester hub.
We had previously anticipated a refund all or a substantial portion of this contribution upon completion of a building lease arrangements.
For background the decision for entering into the building leasing arrangements, where based on our initial intention to focus capital expenditure on core project requirements, specifically not real estate assets.
This is aligned with our general approach to project execution.
However, we decided not to pursue the building leasing arrangements, which is expected to assist in simplifying the D O.
Warren closing process for the Rochester hub.
In terms of the go forward for the Rochester hub.
We have performed an initial analysis of options for completion of the Rochester hub.
Based on the initial analysis and depending on the option selected we determined that the revised project cost could be in the range of approximately $850 million to approximately $1 billion.
This range includes the cost of the process buildings and warehouse for the Rochester hub of approximately $140 million.
This total project range based solely on our initial analysis is subject to a number of assumptions and will likely change as we continue to complete a comprehensive review work and determine which options to pursue accordingly.
Turning to slide nine for an update on the port of Best My hub, which has a similar flow sheet and benefits to the MH P option I just covered with a phased approach for the Rochester hub.
Just as a reminder, together with our partner Glencore, we are repurposing part of their existing hydro metallurgical side employ the best night, Italy.
This project contemplates a competitive long term financing from Glencore, the fun last cycles full share of the capital investment.
Once operational this facility is expected to be one of the largest producers of battery grade lithium carbonate in Europe.
I would like now to hand, it over to Debbie for a review of our liquidity management and financing strategy.
Thank you Tim.
Turning to slide 10 for a few of the steps we are taking to maximize liquidity and preserve our cash on hand.
Since Hollywood project and later told that we've taken action to optimize cash while also pursuing financing options and strategic alternatives.
First on our cost cutting actions.
We have reduced our workforce eliminated other nonessential operational spend and are implementing working capital initiatives.
Have slowed operations at our North American spoke network, including a pause in production that are into you spoke.
First production at the New York stock and the installation of line two in Germany.
And they are reevaluating the conference timing other spokes in Norway, France and hungry.
Turning to slide 11 for an update on our books.
With a review of timing and scope for the Rochester hub, there now primarily prioritizing their operations on the generation three books, specifically, Arizona, Alabama and Germany.
Consequently, we are revising our 2023 annual production outlook for Black Matt from.
7500 to 80 510.
She is 5500 6500 tons.
As a reminder, we.
You start to get the Germany spoke Lange one in early August.
Cited to report that the ramp up is tracking our expectations.
The generation three is advance novel technology that can sustainably processed film electric vehicle battery packs without the need for discharging dismantling our thermal processing.
Additionally, the benefit from economies of scale.
Turning to slide 12 for an update on our cash position.
Since June balance is $289 million. The majority of the cash outflow has been for capital expenditure related to the Rochester have project.
We ended the third quarter was approximately $137 million of cash on hand, which is now approximately $100 million of November 10th.
With current cash on hand, our spins cuts and additional cost saving initiatives under way.
We anticipate needing additional funding in addition to the deal you long before we start seeing the Rochester Hills project.
As an immediate step the company in conjunction with its financial advisors.
Sporting options to support near term liquidity needs.
The company is actively engaged and continues to work closely with the U E.
To satisfy conditions precedent to financial close for gross proceeds of $375 million.
That's it undertakes this comprehensive review of the go forward strategy of the Rochester hubs.
In addition to the conditions precedent to financial close.
The company will need to meet additional conditions precedent prior to the first event.
Including obtaining additional financing to fund the required based equity commitment before we start seeing the Rochester hub project.
In parallel we are exploring additional long term financing options as well as strategic alternatives.
Turning to slide 13 to conclude.
We continue to believe lifecycle is uniquely positioned with its spoken hub network and remains poised to benefit from strong secular trends and supports with government policy.
We remain committed to our mission to cover critical battery materials.
Created domestic closely body supply chain for a clean energy future.
Operator, we are now ready for questions.
At this time, if he would like to ask a question. Please press the star and one on your telephone keypad.
Sure. It lived yourself from the queue you may do so by pressing star and 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. Please go ahead. Your line is open.
Yes.
Alright, thanks, very much for taking my question.
As you contemplate this a strategic pause in development outside of the United States.
The European.
European countries that you're looking to bid.
What do you think is the likelihood that those those projects will simply be.
Halted by understandably concerned partners and investors.
Hey, Brian it's essentially a heritage and you're a bit hard to hear but I think you were asking about the effect on our European project studio, but we've just decided to do a reset to do with the Rochester hub I'll turn it over to Tim perhaps to cover the noise Hi, Brian Nice to talk to you. So when it comes to our European assets.
Similar to the balance of our projects.
All part of this broader comprehensive reviewed that.
What we're doing with the exception of photo of assay, which is the DFS timing is under review, but otherwise is continuing and connection win partnership and I think that was part of your question.
With with Glencore.
I want to highlight that our partners at <unk>.
<unk> has been extremely positive and supportive.
Throughout this process.
That's good to hear.
As it pertains to the department of energy.
I understand that you've retained an investment bank to seek out strategic alternatives in financing opportunities.
We as.
As management is contemplating receiving funds from D O N E.
How likely do you think that is if you had to handicap it.
Yes, I'll take it yes.
Yes look so let's be very clear and I think there was a lot of misnomer out there and articles and other aspects that we saw publicly.
Clearly we were in quiet periods. So we want to ensure that we're being prudent.
Look the fact haven't changed we have a conditional commitment from the theory, we still have the initial permit from the Doa.
That was issued back in February of 2023 of this year.
Kevin's for gross proceeds of $375 million Dave.
<unk> been great to work with through this process, we're very close to engage we're not just saying that as.
Random language, that's obviously in partnership with them.
So whatever we put out there.
What I would say is we definitely have some work still to do and I think Tim covered in the body here different options associated with the potential phasing of the project and also around construction strategy. As you can imagine that's very important for us to be working through with the daily.
And so as we get through the full review and we get to the best path forward, it's going to be in concert with that tier we package today, we're not ready to comment about how that may change or how that may be different but I can tell you is the fact remains that we have a commitment and programmatically from video.
This is public you can find it when they give the initial comment they actually earmarked the funds.
We need to do is work through our review work with them.
And then we'll be able to give more clarity visa would be timing and other aspects.
Okay. Thanks, and then just one final follow up.
Local news reports have indicated that.
Several contracting firms have outstanding bills.
Have not yet been paid would you care to comment on that is that because you're negotiating with those firms or.
What's going on there that those pertain to the watch.
Alrighty.
Yes, I can take that yeah.
Yeah, and Brian we cannot comment specifically on individual contractors I'll, just say that we're working closely with all stakeholders as part of this review process.
That's very good thank you.
Thank you Sir.
We will take our next question from Jeff for SETI with TD Cowen. Please go ahead. Your line is open.
Hi, good afternoon.
I was just wondering if you could comment a little bit further you'd mentioned that you will need some additional financing before to meet D. O conditions could you maybe just elaborate a little bit more about how.
How much may be required.
Sure Hey, Jeff It's Angela here. So so we just wanted to make sure that it's clear how the structure works. So let's be very clear that <unk> has always had a base equity commitment and it's actually I believe that programmatic feature for them and much like usual project financing, which means.
As of the overall project size you have to put it in a certain amount of equity first.
Then followed by the debt coming in.
As you can imagine if the capital cost is different than the project sizes there.
And with an existing commitment remaining at $3 75, Theres, an additional funding and so on page eight we went over.
Indicative Lee initially where those capital costs would be depending on the option option selected and proceeding with the same approach on the upper end with respect to contracting strategy I think it's early for us to say precisely what that gap is you can do math based on that but I think what we'd like to do is.
Complete the work the.
The refined level these numbers, which could change.
And then come back and be able to talk about all of that together comprehensively in concert.
And when appropriate with other financing alternatives that we're gonna be working on.
Okay. Thank you and just on the cash.
Cash preservation plan.
It's helpful that you provided you know where you stand on cash in terms of November 10th.
Versus the end of the quarter just wanted to see if you could maybe provide a little bit more detail on where you see the cash burn being on a monthly basis.
Once you've fully implemented the cash preservation plan.
Thanks, Jeff good for debit to address Hi, Jeff I. Appreciate the question I think what we need to do and I think you read into someone's matures I heard you say that we're making with some advisors to help us with that she calls me do you really need to work through that plan.
And then circle back to that in conjunction with our comprehensive infused are really working in parallel.
Initial steps.
So on the details we've done sorry, Joe but for US we're still in production.
<unk>.
And we're also looking at all opportunities to maximize liquidity.
They're working capital's position. So we're working with suppliers, who are looking at selling black box versus.
In the past that we ran which was to build inventory for the opening of the hub and that one could continue and we will get deeper into that as it progresses.
Thank you.
No problem.
Okay.
As a reminder, if you'd like to ask a question. Please press the star and one Keith on your telephone keypad.
We'll take our next question from Adam Jonas with Morgan Stanley. Please go ahead. Your line is open.
Thanks, I was going to ask about the minimum.
About the pro forma burn as well, but I appreciate.
Youre not going to answer that right now, but maybe you can answer.
Is there any remaining capex commitment or what financial cash commitments are like.
Near term for the Rochester hub, even with the pause.
And then I was curious as a follow up.
What if you had an assessment of a minimum cash on the balance sheet to kind of.
Ron Ron working capital payroll and your other operational needs with the pause.
Yeah, Yeah, good questions both for Debbie.
Okay.
Dunkin' Ob.
My apologies Hi, Adam.
So as I said, we've got $100 million as of right now and as we work through this time, absolutely working on a minimum.
We need and then watching Amanda minimum and to build on your tongue financial options and Linda just supports its going to be really important.
You asked about capital commitments. So I think there's a couple of things in there. One is we've paused on future growth capital projects. So there is nothing for node as a result of that and then.
Clearly everything runs roughly are better months behind any status. So youre absolutely right. There are still bills to be paid with regards to recent work at the Rochester hub. In addition to that we've got costs around securing the site.
The site safe.
And keeping it.
It preserves state so that it's in good state for SaaS startup when we're ready to do that so there's a bunch of onetime costs in the next couple of months, including the cost of our workforce reduction.
Two to work through in November December So I think that'll give you an idea of the sort of.
Steve.
Need to hit in the next little while and then as we complete the work around the cash preservation plan, we'll have more of a sense of what the run rate is at the back of that.
I appreciate that thank you.
Okay.
We will take our next question from Matthew O'keefe with Cantor Fitzgerald. Please go ahead. Your line is open.
Thanks, operator, thanks for taking my question just a question on you're changing the flow sheet, a little bit here I understand you wanted to go to produce M. H P.
In your review of the of Rochester, It sounds like it'll save some capex and I can see that but why why are you applying that also to the core device may habit is there a is it a significant capex or is it is.
Is the premium just not there to produce to produce a nickel sulphate and cobalt sulfate, what's what's what's what should we be thinking about on on your on this on the side of things.
Hi, Matt both great questions. Good protect address yeah, Hi, Matt Nice to talk to you. So let me answer the first one.
In relation to support investment just to make it clear so the plan for port of SMA was always to produce MSP. When we originally scoped it out.
And that was a couple of factors that were driving that one being the true desire the desire to maximize the utilization of existing equipment on slot.
The MSP process was much more.
Well, Todd so the existing footprint of the existing asset.
Making it more.
More expedient and effectively a lower capital project departure role.
This is a process that we're very familiar with.
And when it comes to Rochester part of the rationale for driving that you touched on it exactly right and that is that it reduces the near term capital expenditure associated with installing certain parts of the plants associated with sulfate production.
What we have seen from a market perspective, and this is public and you can look up the indexes is a spread between MSP discounts to metal and sulfate has narrowed and so as the financial impact is somewhat.
Vacated by that combination. So it's it's a decision that's based primarily on construction costs, but there is market factors that you can see.
What has changed in recent times that are also helping support that and on the other side of that just to add.
Obviously, the input typically a precursor and the input to cathode thereafter.
Particularly the precursor is the sulfate typically and so one of the things that's been missing in North America is precursor manufacturing and there are some plants out there people can see them publicly that are coming but.
It is taking longer than anticipated. So we don't have an answer today of what pathway would go well.
We still see the value in the sulfates to being more adjacent to pecan production precursor production, but as Tim indicated it's really a question of if we go that path how do you get there.
The timing of such.
Okay got it thanks, and if I may just on that they the capex for the processing warehouse buildings. You suggested that was tied to the D. O E alone is it just that the D. O N D O E needs something more in terms of security like land to too as.
As part of the loan requirement.
Not quite.
Yeah, So it's Tim articulated and briefly.
We usually try to do this in first folks, it's usually a much simpler because they're smaller and more typical buildings. So our original approach that's been in RFS.
Along the way our financial statements.
We wanted to do this building leasing arrangement, which made it would have refined it us a good quantity of them out of the <unk>.
We spent to actually build the buildings and then the idea was that that would convert it to a lease so it's a way to basically refund capex and as Tim articulated in the presentation, we're not a real estate company. So what do you want to make money off the stuff in the buildings.
As you can imagine.
That arrangement would have a set of creditors and the theory is is another financing party as part of their project. So it's always been that way along along the course, but as you can also imagine getting the short strokes on documentation.
Frankly, it was very complicated.
That's why we refer to them as complex financings.
And having this.
Not ideal the way this happened, but we have an opportunity to rebase and do this in a way that makes a lot of sense.
And I mentioned that it would help with simplifying the overall complexity that we were facing as part of the <unk> transaction.
Okay. Thanks, very much that's it for me.
Thank you.
And we'll take our next question with Ben <unk> with Baird. Please go ahead. Your line is open.
Hey, guys. Thanks.
Thanks for taking my question I just wanted to understand.
Hi, Jade.
Maybe just talk.
Spokes.
What what.
I think you said prepared remarks, what was paused it what was it.
But could you just run me through that.
I think Adam asked questions about just commitment capital commitments for the hub, but are there anything capital commitments.
Spokes sort out there.
Hey, Ben Yes, sure. So maybe you can take the first one and Debbie could take the second on this folks yes, no problem have been nice to talk to you and so when it comes to the spikes we've paused one spark in Ontario.
This was our first generation one sports it was the smallest.
About all that in that work and so as part of this.
The strategy, we decided to pause that ASUR.
And the other spokes in North America remain operational.
Yes, and on future Capex spend on.
So you've heard us talk in our disclosures before we had plans and Julia for second line and the Germany spoke.
And we've also got plans as you know we have.
<unk> in Norway, and we have plans underway for France, and we were looking at site selection for hungry. So we pass those initiatives until we complete this comprehensive review.
Great place to stay.
The hub is the main capital spend for us So just relatively.
You answered the question about black glass sales forces.
Sorry, I swore I understand with the operator.
Folks black.
Blackberry sales are profitable.
All of those individuals folks.
That would follow.
Yes, so so the way that we've looked at the portfolio is one prioritizing customer needs. So we have customer obligations, where we need to service batteries need to be recycled.
Two we've looked at the.
The spokes that have the best economies of scale.
So it's focused on low cost conversion ability to to get to further throughput further ramp up et cetera.
And three of either the profitability I think I'll hold on comment on I'd say anything outside of RFS, but suffice to say that the way that we've optimized the network and we'll continue to look at it is intended to be liquidity generating overtime or liquidity managing as part of our cash preservation plan.
Okay great.
Just a follow up Tim.
Prepared remarks, you said about the court site Capex.
So is it.
Does that still proceed.
Rochester bite you.
Could you hold up for a little bit.
Glencore and lifecycle, we're both committed to the port of estimated project, we think that it's critically.
Important for both companies and for the region.
And so the key thing that we're just reviewing is the timing.
We've had some change in staff, obviously and so we're just reviewing the timing associated with the DFS, but both companies remain committed to the project.
Thank you guys.
Thanks Scott.
And it appears there are no further questions in queue. Thank you everyone for joining this does conclude today's program and you may now disconnect.
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