Aqua Metals, Inc. (AQMS) Q4 2016 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Aqua Metals’ Fourth Quarter 2016 Corporate Update Conference Call. During today’s presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be opened for questions. [Operator Instructions] This conference is being recorded today, February 14, 2017. Before we get started, I’d like to turn the conference over to Greg Falesnik, Managing Director of MZ North America, the company's Investor Relations firm, who will read a disclaimer about forward-looking statements.

Thank you, operator. This conference call may contain, in addition to historical information, forward-looking statements concerning Aqua Metals; the lead-acid battery recycling industry; the intended benefits of its agreement with Johnson Controls and Interstate Batteries; the future of lead-acid battery recycling via traditional smelters; the company’s development of its commercial lead-acid battery recycling facilities; and the quality efficiency and profitability of Aqua Metals’ proposed lead-acid battery recycling operations. These forward-looking statements involve known risk and uncertainties and other factors that can cause actual results to differ materially. Among these factors are the fact that the company has not yet ramped its initial commercial recycling facility to full scale operation, thus subjecting the company to all the risk inherent in a startup; the uncertainties involved in any new commercial relationship and the risk that Aqua Metals will not receive the intended benefits of its agreements with Johnson Controls and Interstate Batteries, risks related to Aqua Metals ability to sufficiently raise capital as and when needed to expand its recycling facilities, changes in the federal, state and foreign laws regulating the recycling of lead-acid batteries, the company’s ability to protect its proprietary technology trade secrets and know-how and other risks disclosed in the section risk factors included in the quarterly report on Form 10-Q filed with the SEC on November 07, 2016. Aqua Metals’ cautions readers not to place undue reliance on any forward-looking statements. The company does not undertake, and specifically disclaims any obligation to update or revise such statements to reflect new circumstances or unanticipated events that may occur. At this time, I’d like to turn the call over Dr. Stephen Clarke, the company’s Chairman and CEO. Steve, the floor is yours.

Thank you, Greg and welcome everybody to the 2016 year-end conference call. One of the headlines today is that the first ever AquaRefinery located at Tahoe Reno Industrial Center, has moved from commissioning to operational. That means that we are breaking batteries and making lead from the batteries that we've broken, both from -- both metallic lead and Aqua-refined lead. It’s continuing to ramp-up. We are not at full scale yet and there is more work to be done. But this does mark a pretty incredible milestone. It’s just over 18 months since we’ve broke ground on that facility and we have the first ever AquaRefinery up and running. We have product ready to ship and it’s a pretty exciting milestone. I know that headline, that I’m going to talk about is obviously our agreement with Johnson Control. And that really has two key aspects for us that I want to talk about. The first one is that it provides the feed and off take for the additional facilities that we've been talking about for the past two years. It fills AquaRefinery long term capacity and it moves us forward in the additional AquaRefineries that we want to build on and upgrade ourselves. But more importantly it transitions us to the start of a really exciting new phase of the company, which is licensing. So I’m going to talk a little bit about both of those. I've laid out the following agenda. Let me give you a recap of our business strategy for those who are new to the story. I’m going to go into a little bit more detail on the status of the business. I’m going to talk a little bit more about the JCI agreement, and what that mean for us. I’m going to hand over to Thomas Murphy, our CFO, to talk through the financials and then I’ll just recap with a summary. So moving on. So those of you who followed the company for some time will recognize the two graphs on this slide. But it really underpins why we started out to do what we do. The chart on the left shows the production capacity in the world of batteries, not the production value, which tends to overstate some of the newer technologies particularly, Lithium but it shows the installed production capacity by battery chemistry and what it demonstrates is that currently 96% of the world’s batteries when measured by capacity are lead acid, and despite all of the incredible growth in lithium Ion it represents somewhere in the region of 4% of batteries produced. And the chart in the right shows the growth in the production and reuse of lead over the past 20 years. And the key point is that I came up with these comparisons something like four years ago and it was something that was definitely [indiscernible] triggered the idea of building AquaRefining but it's remained true and that's one of the key points that the lead acid battery production is continuing to expand. And just recently JCI announced the $450 million in US capacity and in the last week Joe Walicki mentioned to the Wall Street Journal that JCI is continuing to expand its Chinese production. And the background to that is that one of the fascinating things about the lead acid batteries is that lead at 100% recycled. 80% of the lead or thereabouts, 80% of the lead in North American lead acid batteries has been recycled. The issue is that dominant recycling technology is smelting. It's inefficient, expensive to make environmentally complaint and produces a product which must be further refined. And that said, given that lead is already 100% recycled, there is an opportunity that for Aqua Metals to become a leader in sustainable battery technology and an innovator in the circular economy by solving the issue of finding a better faster, cheaper way of making a high performance lead. So basically, there is a $22 billion global opportunity waiting for better lead recycling technology and that's why we started out to do what we do. Looking at that market, we've been talking since inception about building a single AquaRefinery and then building a total of 800 tons a day of capacity and then rolling out with the licensing model. And the table at the top shows the relative values of those. So Aqua Refinery number one at Tahoe Reno Industrial Complex is starting out with planned capacity of 120 tons of lead per day and we're expecting to expand that to 160 tons a day. To do that we'll require 32 arc refining modules and one is at full scale at 160 tons a day. That will represent just 0.2% of global lead production and generate a revenue potential in the region of $100 million to $120 million a year. We chose and we believe it's important to grow the company to 800 tons a day. We believe the 800 tons a day is a credible global supplier of lead -- represents the credible global supplier of lead. And we started out thinking maybe we'll do that with 10. The current thinking is we’ll do that with a total of five AquaRefineries for 800 tons a day. That would require a 160 AquaRefining modules and when constructed that would be just 2.1% of global lead production representing $500 million to $600 million a year in revenue. If you look at the global lead market, the total capacity is 38,000 tons a day, and that represents something like 7,500 AquaRefining modules. That's obviously 100% and that represents $22 billion a year. So when we look at that, that kind of set the tone for our business model, which is to start with build out and operate and proved out the technology. And then move into licensee model where we provide our modular equipment on a fee per service model. And essentially what we're trying to do here is bring a brand new technology to what is essentially a commodity material, that operates in a price data market. And if you look at the occasions where a game changing technology is brought there in a similar situation, if you look at Bessemer and Nucor, what Siemen's for silica wafers while and what Pilkington did for glass. And the successful model varies to build down and operate yourself before you roll out licensing. And that's essentially what we set out to do. So moving on, building the first AquaRefinery was the key to our business plan. And we chose to start at Tahoe Reno Industrial Center. Reasons for doing that is there is a population of $33 million within an 8-hour drive. It's a growing hope for data centers and aerospace and clean-tech. There is a lot of very interesting stuff going on in the Reno Basin. It's got phenomenal infrastructure talent in logistics. It's been a historical center of excellence, the mining technology. Mining technology gets hydro metallurgies and electric chemical engineers and people who know, how to move large amounts of material through a facility. It also comes with low energy cost, phenomenal support from the State of Nevada and it's just 50 minutes by air and three hours by car from Alameda, California. Although I got to say today it's four hours by car as both the main routes are struggling with the results of the storms. But we thought it was a good idea to build there and it's turned out to be absolutely that. With that built and operational, I'm going to say more about that in a minute, we plan to expand on three fronts. The first one was to build additional facilities in North America, as I mentioned earlier, to get up to 800 tons a day. The planning basis for that is to build a number of 160 ton a day facilities. The numbers that we're looking at for that is that we expect each one of those to cost somewhere in the region of $54 million, to generate $90 million to $120 million in revenue and $20 million to $30 million in EBITDA. And this is important, our goal is to primarily fund this with debt or other non-diluting capital. And we are and have been evaluating the package of up to $250 million in non-dilutive finance to build out additional facilities. I'm going to talk a little bit more about that; as we go through the presentation. And then the next stage in our expansion is to start providing AquaRefining equipment to third-parties on a service license basis and the goal was to start with U.S., develop a blueprint for expansion internationally. One of the challenges in that is that China is the currently the largest battery market in a -- just the largest battery market. And anybody familiar with technology licensing in China knows that it's a very problematic flow with danger. So one of our biggest challenges with how are we going to start licensing in China and making a success. And then the last part of the expansion is to move to higher value products and markets. And we've noted in a number of calls, that AquaRefining can produce levels of purity, way beyond that of smelting. In fact we've produced five nines purity way than what we are very close to being able to produce commercial quantities. So four-nines purity, we are in very close, stages of producing commercial quantities of five-nines pure lead. That is phenomenal level of purity and opens up some quite high value markets. One of the other areas that we're very attractive in is the morphology and particularly, developing lead nano structures. These have the potential to significantly increase the performance and lifecycle of lead acid batteries. And the two areas where we think that could be really important is in data center backup batteries and good scale storage. There has been a presumption for a long time that lead-acid has no role to play in what could be a huge market for grid scale storage batteries. We actually disagree. We would look to the data center world, where lead-acid batteries dominate and provide everything that’s required for data center. We believe that there is scope to take a data center style battery and advance its cycle life or lifecycle performance, such that it would be a valuable good storage battery. So you will have seen us talking about data center, there is method in that. And then the last point is that, what we've done with lead. It shows that there is viable alternative to smelting in electric chemistry. That's not escaped the attention of significant players in the copper, zinc and nickel mining world, where mines are often or rather ore bodies are often remote from existing smelters and currently concentrates are shipped around the world to areas where they can be smelted. And so, in particular Nevada, parts of Australia and other parts of the world have got interesting copper, zinc and other ore bodies that are remote from smelting, where's there a little chance of building a smelter there and so there is a quite a lot of interesting, adapting our technology to displace smelting in some of those markets. This is really early stage work, but what we’re finding fascinating is the success that we have had in lead, and this actually driving a pool from all the mining companies. So moving on. So let’s talk about our Tahoe, Reno facility. As I mentioned at the start, it's now running we have transitioned out of a mostly startup phase into a commissioning phase, into an operational phase. So basically what we think we have done there, I think a key to that, we feel an incredibly experience team which is drawn from established recyclers and leading electric chemical engineers. And one of the things that we had repeatedly a number of times is that it typically takes 18 months to install commission and dial-in a battery breaking and separations machine and we have done that in less than six months. And the reason we have been able to do that, is entirely down to the insights and hard work and dedication of the management team, at the Tahoe Reno Centre, of Mike Krickel and his staff, incredibly experienced battery recycling individuals. And that’s been backed up with a pretty strong team of leading electrochemical engineers who have operated a large plant. We’ve mentioned in the last earnings call, that we have expanded that potential capacity from 80 to 120 tons a day and we’re now looking at expanding from a 120 tons to 160 tons a day. We have produced and validated 99.99 pure lead by validated that means we have sent it to battery companies. We assay everything before it leaves our facility. We knew that we produced 99.99, but that doesn’t count until the battery company says, wow you really did, and that happened. And as I mentioned we are working on 99.99% pure which is a real interesting a very high lifecycle lead acid batteries in some of the higher value applications. A key point in establishing this facility, was the Nevada EPA determined that AquaRefining is not subject in this shop and I am going to say a bit more about that in a minute. That's a really important precedent that should help our roll out and expansion, as we look to build facilities to 2 through 5. And we have moved from a single shift production to second shift and that was scalable to four shifts. I am not trying to give the impression that we’re full scale and everything is done and we’re completely on to the next one, there’s going to be quite a bit of learning and additionally - and hard work as we move forward. In particular with respect to the announcement of JCI, we are contemplating a very significant roll out of AquaRefining equipment and essentially that means that TRIC is going to have two roles now. It's going to be running as an operational facility, but it's also going to be the cornerstone of way we testing and test improvements and implement improvements like the red 1, the Red 1.2, the Red 1.3 and so on of AquaRefining before we finalize a blue print and start rolling out equipment with that parties. So, let’s talk a little bit more about some of the lessons learned in smelting, but before I do that, I am just going to recap what a smelter looks like. So we got some sense of what we are doing is different. And so the slide I am showing is a very simplified diagram of how batteries are broken and recycled in a conventional smelter. So it shows on the left, used lead acid batteries coming in, filling into a little box that says break. So and flow and I don’t really wish that was little box, in fact it’s a huge machine with a very complex series of gravity and other base separations processes that take a battery, pound into parts, separate out the lead paste, that’s a lead oxide and sulfate the - material from the lead [indiscernible], which is the grade in the top lead connectors, from the plastic, from the separators and from the acid and that’s a very complicated machine, it takes typically 18 months to dial-in. What comes out of that in a conventional smelter is lead and lead paste and that than goes into a series of processes that are entirely based on handling dry powders. They essentially, the lead paste from a battery breaker in the smelter operation is going to end up in a smelter that operates at 1,400 C. You cannot put wet product into a smelter at 1400 C, it has to be dry. So what that essentially means is that smelters dealt with a challenge of handling dry busty lead containing materials. And because of that there is above the year environmental law call the National Standard for Hazardous Air Pollution otherwise known as NESHAP which is have to regulate the mission of those lead dust and over air borne pollutants. One of the biggest challenges a smelter has to deal with there is the fact that they got dry powders. The key point is I mentioned dry powders - the other key point of the smelter is all of the lead whether it's lead chip or lead paste has to go to the smelter and then the lead produced from a smelter is known as secondary lead and that required further processing steps to turn into something that could be used in a battery. So our process is fundamentally different. We use a breaker while we use exactly the same source and equipment but our process runs wetter. And what we produce from our breaker is different in a key respect. We make the lead paste which is the active material in a batteries, lead acid, lead sulfate and spongy lead and co-compounds of those. We also separate out metallic lead which is the good lead and the top lead. That is actually quite high value lead alloy, it’s going to be produce back into good lead and it starts soft as good lead and one of the advantages of our process is we don’t have to do anything more to that, other than [indiscernible] turn into ingots and sell it as lead alloy. The other stack is that lead paste runs through a process that we’ve been calling desulphurization and then from there runs in to AquaRefining from which it's ingoted. One of the key point here is that the process that we call desulphurization in many respect is fundamentally different from the processes that operate in a smelter. We have to take -- we choose to take much higher level of the sulfur out and we do some other proprietary steps to that paste before we put into our AquaRefining process. So one of the key process is here that that we have to develop and scale was that multi-step desulphurization process. So moving on and talk a little bit about what we learned along the way. So it was the first kind, and we were surprised. There were a number of surprises encountered as we built this and we are a few months later than we hoped we would be in commissioning and transitioning TRIC from startup to operations. And I’m just want to talk about some of the lessons learned there. So starting with the input side, we spent some time dealing with jams on the conveyor belt for the breaker, calibrating the several sourcing steps in that. We had some issues with seals and bearing which required redesigns and change outs. And we accomplished all of that in six months, which I believe is quite remarkable given industry standards. Then in the processes, transporting the lead paste from the breaker through desulphurization we had a number of redesign issues around pumps and materials handling and various other aspects as we learned that there are some differences in handling our paste input to desulphurization from a convention dry powder. The desulphurization itself is a multi-step process. I’m not going to break it down because it’s proprietary but this really was the first time that we operate this at scale. We’ve been able to run the AquaRefining systems because it’s modular for several years now and to dial that technology in one of biggest challenges we had is that the desulphurization process operates in 40 to 80 tons a day of throughput. This is something you can’t really pilot or even test in a lab. It has to be built or worked out in real-time. It’s a unique process and the big news is that we’ve got that dialed in now and it’s operating. That means that we can provide feedstock to the AquaRefiners and make AquaRefined lead. And then along the way we've chosen to take that high 8% in operation to look at design improvements and other improvements to the AquaRefining system to support what is now going to be an accelerated licensing rollout. So we learned a lot, we're going to continue to learn. One of the new roles at Tahoe-Reno is going to be make sure that we are the best we can be before we start rolling out Aqua-Refining equipment to JCI under the licenses. So now I'll talk about the JCI agreements. There is really three phases to this, the first agreement is a tolling and lead purchase agreement in which JCI provides feedstock on a tolling basis. That means they provide the batteries and provide a fee for us to convert those batteries into lead that we provide back to JCI. Separately JCI has agreed to purchase pretty much all of the lead output from Aqua Metals is merchant in business that means when we buy batteries, take ownership of them and turn into lead JCI is interesting in buying all of that. We probably have agreed to limit that to the all --business in the first instinct but it's not completely limited to that we can supply through our applications as well. Aqua Metals will continue to promote pure AquaRefined lead, the station reapplications and that's one of the things that I mentioned earlier. We think there is massive growth in lead acid batteries in datacenters and grid scale storage. And once we required for that high purities of lead we're exploring that. But the bottom line about the JCI lead tolling lead purchasing agreement is that it secures the feedstock and off take for us to build additional Aqua Refineries in big partner the largest battery company in the world. We secured the feedstock and off take that we need to build out in North America. Then we look at the equipment supply agreement. This is a non-exclusive equipment supply agreement but it is also provides first mover advantage to JCI. We are viewing it, very much like my experience in a former life in aerospace, where when you build the new engine and putting onto an aircraft, you chose the launch customer very carefully with them to make sure that, that engine works on that airframe and it meets the requirements of the airline that the customer wants to. So it is a partnership and in which you develop a blueprint for how you provide the engine to other airframes and other airlines. So that's essentially the nature of this agreement. It's starts with retrofitting existing smelter facilities and they'll building a new AquaRefining facility for JCI in North America. And the scope as JCI and its supply partners in NAFTA, China and Europe. So the first mover advantage clauses of the supply agreement essentially mean that we will work with JCI not the China or Europe before rolling out to other licensees. And there's really two phases to this, the first one is to retrofit an existing NAFTA based facility and use that to develop a blueprint. It is important to know that once we have built a Greenfield AquaRefinery nobody has taken an existing smelter and converted into a wide -- process. So we expect this to be a big learning exercise. One of the things that we're thrilled about is and working with JCI we're got a highly credible North American partner in which we can collaborate to figure out what is the optimum way to bring AquaRefining into smelter. And then when we figured out that blueprint we're going to roll out in the rest of Nafta China and Europe based on that blueprint. And then the final part of the agreement with JCI was an investment in Aqua Metal's 939,000 shares for 11.33, for a total of over $10.5 million -- and that represents just under 5% of Aqua Metal's outstanding shares. And we think that is a pretty nice agreements together for us it's remarkable and we'll really, really excited to be working with JCI on this. What does it all mean? Well, we have been working on this agreement with JCI for a number of months now, and looking at the tolling lead purchase agreement, I alluded for this a moment ago, it pretty much gives us all the supply. If we take what we've got with Interstate Batteries and Battery Systems Inc., and then lay on top, the demand and supply and off-take with JCI, it gives everything that we need to scale from 160 tons to 800 tons a day. As we've been talking to JCI for a number of months, we've been talking to providers of debt and non-dilutive finance for a number of months and we're looking at a $250 million package of finance, which really needs a high credit worthy third party to supply the batteries and take a lead. And so we believe that the bond we have with JCI and Interstate and Battery Systems Inc., actually meets a prerequisites for the supply and off-take part of a $250 million non-diluting finance package that will take us from AquaRefinery [indiscernible] there is a lot promising to actually close any particular debt finance package, but it certainly moves as a giant step forward to be able secure that. The second point is partners with the world’s largest battery company as our first licensee and I don’t think anybody could wish for a better partner to start licensing. And we believe that with JCI, and looking at retrofitting, we can absolutely transform the supply chain or reverse logistics of a $22 billion industry, there is no better partner to start with. But it’s also a key to our China strategy, you may recall a few minutes ago that as I said, when we looked to licensing one of the biggest challenges is how do we go to the largest market, when the largest market is China, and so many companies have failed in taking technology to China. So the important thing for us is JCI I has, already has extensive money factoring facilities in China and it stated last week that it wants to add more capacity. So, basically JCI gives us a low risk entry into another wise challenging market. It gives you the partner that we feel worth with entrust we can develop a blueprint in North America and then establish not just a foothold, but a significant presence in China through our relationship with JCI and then we can expand that into other trusted the parties in China. And last but not least. It provides us a trusted partner to evaluate the high performing materials that we are alluded to earlier. So moving on, I’m going to hand over now to Tom Murphy, who will take you through the year-end.

Thank you, Steve. I’m going to start with the recap of the unaudited fourth quarter and year-end results for 2016. The 10-K will be filed in first week of March. For the three months and year-end December 31, 2016 we had an operating loss of $4.7 million and $13 million respectively. The net loss for the fourth quarter was $5.3 million and $13.6 million for the year-ended December 31, 2016. That’s $0.30 and $0.89 per share loss respectively. Of note, share-based compensation for the year of 2016 was $1.1 million. We had $26.6 million in cash and cash equivalent as of December 31, 2016 compared to $31.8 million as of December 31, 2015. Cash balance as of today is $34.2 million. I’d now like to point out the key financial highlights for 2016. On May 18th, we signed a strategic partnership with Interstate Batteries and highlights of that transaction are the Interstate Battery purchased 702,000 shares of the company at $7.12 per share for gross proceeds of $5 million. Interstate Battery loaned the company $5 million pursuing to a secured convertible promissory note. The note bears interest at 11% and the loan will mature on May 25, 2019. We also granted Interstate Battery two warrants to purchase common stock. A warrant to purchase 702,247 shares expiring on May 18, 2018 and the second a warrant to purchase 1,605,000 shares and expiring on May 18, 2019. Average exercise price is $8.43 per share. The company at the same with certain accredited investors sold 719,000 shares for gross proceeds of $5.1 million. Liquid venture Partners through National Securities Corporation acted as placement agents. In September the State of Nevada granted the company property tax in centers which combined with tax incentives granted in May are worth an estimated $3.6 million. On November 21, 2016, we completed a public offering of 2.3 million shares of our common stock that the public offering price of $10 per share or gross proceeds of $23 million. After the payment of underwriter discounts and operating expenses we received net proceeds of approximately $21.5 million. In connection with the underwriter's agreement, we issued a warrant for 33,450 shares of common stock at an exercise price of $10 per share vesting on May 20, 2017 and expiring on November 21, 2019. Liquid venture partners through National Securities Corporation again acted as placement agents for us. As of December 31, 2016 we have spent $39.8 million on the Nevada plant, that's inclusive of land, building and all the equipment. Staff including full time consultants, increased from 22 at the beginning of 2016 to 67 currently, of which 38 are in our Nevada plant. Outstanding common shares as of December 31 was 17.9 million shares. Outstanding common shares as of February 10th is 19,210,335. This includes 939,005 shares issued to Johnson Controls and 392,605 shares issued for warrant exercise. With that I'd like to turn the call back over to Steve.

Thanks, Tom. So, basically just rounding up the summary headline really is that we're executing on our mission and it's a simple thing to say but it reflects a huge amount of hard work and no small amount of self-sacrifice that's going on to, get this company to where it is in the short-term time that's been around. And the key to that has been we've been incredibly fortunate in being able to build an outstanding and committed team. And I don't want to jinx myself but I'll dare to say that we've had no problem recruiting some of the -- some of the most incredible talented people to join us. We've watched and have been thrilled as people have relocated from one coast to the other and bring themselves, their family, their children and everything to join, what we're building in Reno, Nevada and I think that is incredibly humbling. And then to see them turnaround a work and deliver what they've done is just incredible. We've built permitted and commissioned AquaRefining number one in just a little over 18 months. I had a conversation with a senior executive in battery company, in which I said, I was frustrated that we are a few months late I mean. He pretty much laughed, I mean he said no, you are not a few months late, you're three months early. When you guys announced, what you going do in building this, we kind of took a bet amongst ourselves and we assumed that it's going to take five years to build the first AquaRefinery and it will take three years to get license. But you didn't -- it's been incredible to watch how fast you built it. And I think in building what we've done is established the body of knowledge, the expertise, the know-how and not least the precedent, I mean in permitting allows us to continue rolling out the additional AquaRefineries at a similar space. We've secured strategic relationships, the last one with Johnson Controls, which is the largest manufacturer of automotive batteries, mentioning these are pre-requisites that supply for AquaRefineries 2 through five it launched this equipment licensing in North America, China and Europe and it gives us an incredible launch pad for the Chinese market. And we're beginning early stage work on higher value products. What's surprising there is the level of market pool and the strength of the market partners in both the high value and high performing lead, but also the other materials and other methods. And finally we are by no means done in building strategic relationships and we’ve got a lot more to work on and this been thrilling the quality and level of people that are approaching us. Anyway, with that said, this is concluding the presentation part of the earnings call and I’ll hand back now to the operator, Evan, having to handle questions. Thank you.

Thank you, sir. We will now begin the question-and-answer session. [Operator Instructions] We will take our first question from Colin Rusch of Oppenheimer and Company. Please go ahead.

Thanks, good morning. This is North K [ph] on forColin. Hello Steve and Tom and congratulations on all the progress to-date. Maybe if we can just start with the current operations at the Nevada plant. You know you discussed it during the call, but can we just understand where the operations are actually at now in terms of the number of shifts that are currently running and then how to think about kind of cadence as you see of adding additional shifts towards that for, and maybe any thinking about little bit kind of understanding the output per shift, I am guessing that not every shift will have kind of the same output number? Thanks. So understanding that would be helpful.

Yeah sure, sure and thanks North. We are really challenged in talking about the detail of this, for an interesting reason. Aqua Metals is the only publicly traded player in the global $22 billion lead industry. The majority, well everybody but us in supply of lead is a privately held company and there is a huge amount of secrecy around all the details of lead production, starting with name plate capacity of facilities through to individual products spects, product quantities, input costs and the rest of it. So we’re going to have to be from here on in quite circumspect with respect to the level of detail that we provide on individual operations. We don’t want to be providing information that's useful to a competitor or worse providing information that’s impact, say commercial partners. So basically what we are saying is that we are making lead from batteries that we've broken, we currently operate in a single shift. We have got a stock pile of raw materials ready to ship. We have got, not raw materials, product ready to ship, and as I said we are operating on a single shift, we’ve brought almost a second shift and beyond that we are really not going to provide too much more guidance.

Okay. Thank you. Second, maybe you can just to talk to the facility CapEx numbers, it looks like the $54 million per 160, might be a touch higher than some of the numbers that we have seen in the past. So maybe we could get some insight into and I think you talked about it during the prepared remarks. But, you know some of the challenges, understanding this was the first plant, that might inform how you think about CapEx for future plans. And on flip side now that you’ve kind of done this once, where you see kind of potential cost savings on future designs?

Sure. So the budgetary reasons we’re going with $54 million for a nominal 160 ton a day facility, that will vary by region and given what - depending on what we start with. We are confident in the $54 million number. One of the things that kind of moved up, up a little bit is we have seen opportunities and taken advantage of opportunities to add in additional process that to produce high yields and better water recycling, stronger product quality and that some level automation. I expect that by plant 3 or 4 we will see some CapEx reductions but I don’t think it safe to really project anything beyond $54 million now. And we think the number sort of $50 million -- $54 million plant is still very attractive.

And if you can see obviously the ROI and net incremental CapEx in terms of higher demand, better product and cost savings and obviously that would make sense.

And one of the things to add some color to that, is all smelters have to operate with high level of personnel protective equipment and bringing filtration for their operators, that's normal. And that creates a pretty tough working environment. We got actually got a plan which we're implementing and we're reasonably confident that we can become the first ever battery recycling facility that will not require its operators to have to wear breathing equipment and will have much lower level of PPE requirement which will just make for a much more pleasant and acceptable working environment. And we think it's worth making that investment to the benefit of our employees.

Okay, thank you very much for that color. And then just maybe one last one from me. On the cash burn rate. It looked perhaps the touch fire, so how should we think about kind of a normalized burn rate going forward.

We're transitioning from burning capital to making it.

So I mean -- as we delayed and delayed and getting into commercial operations we had certainly and the first shift on site in Reno a lot longer than we anticipated before we did get to the commercial level. So the burn rate was higher in that regard, but now that we're starting to beginning commercial operations that should go down. And with the investment we've received from not just Johnson Controls but the shelf takedown we did last November. We're actually sitting on pretty good pilot cash for our business plans. We don't see any a need in order to complete what we've talked about for foreseeable future. It's a unique position for us to be in.

Okay. Great, thank you so much again for the color. Take care.

Thank you.

And our next question comes from Bhakti Pavani [ph] of Euro-Pacific Capital. Please go ahead .

Good morning guys, and congratulations again on the progress.

Good morning.

Good morning and thank you.

Just a quick question, I know you mentioned that you would not like to diverse more details into the operations, just kind of wondering in the prepared remarks you mentioned that the facility is producing about 120 tons per day, is that correct? Is it currently producing 120 tons a day of lead, or you will get there eventually?

So what we're saying and we mentioned this in the last earnings call, the original four shift capacity at the plant was 80 tons a day, and we figured out how to expand that to 120 tons a day with the equipment we had on-site. A 120 tons a day is our four shift capacity, I wouldn't want anybody to believe if we're making 120 tons a day right now.

Currently we have -- we've just implemented within the last few weeks the second shift. And are presently recruiting for the third shift.

Got it. So in order to expand to 160 tons per day, what kind of timeline are we talking about? Is it going to be end of this year or probably next year?

We're still evaluating now. One of things we're looking at is it might be -- so we could do it more than two ways. One is to add -- let me back up again. To be able to go from 120 to 160 we need to add additional AquaRefineries, to do that we'll need to stop arc refining for at least one of the shifts as we install equipment because that requires welding operations and you can't weld and operating in electrochemical environment because of risk. So one option is to do that and that's kind of the default option. The other option is to actually go and build the next AquaRefinery first bring that online as 160 ton a day facility right from the get go, then when we have that capacity on stream then look at adding the additional capacity to the Reno facility. Because then we'll have a bigger cushion in which to add in the additional AquaRefining. And so, that we still evaluate -- one of the moment and I don't think we've got a fixed view of it.

Got it. From the capital spending standpoint, what amount of capital do you expect to spend this year, assuming you went with the latter option and have a 150 ton per day facility from the get go?

So, we're looking for additional capital spend to be debt financed. Building the next facility is a somewhat circular exercising in getting acceptable terms from providers of debt with having the off take and supply agreements to support that and having a sufficient operational time of the first facility on the right risk.

We have identified improvements for the current plant that will be about $4 million in CapEx for the current plant for 2017.

Okay. And in order to add additional AquaRefining modules, how much more of CapEx are we looking at?

To go -- to add additional 16 modules and the infrastructure that goes with that, that is already in places, is about $12 million.

Got it. Okay. Thank you. Wanting to talk about the Johnson Control agreement, I know in the 8-K you did mention about there would be a mutually agreed blueprint date, especially with the equipment supply agreement. Have you guys -- could you maybe provide more color on what kind of timeline are we talking about?

Well we're on it already. I'm not going to get into two much more detail on that. We are -- both parties are working hard on this. We'll be making announcement on that in a few days.

Okay. Also a follow-up on that, the licensing agreement -- I am just kind of wondering, how it's going to work -- I mean is it like certain number of modules that you would be supplying to them and it would be counted on a per module basis. How is it going to be valued the agreement?

Again we're not going to be releasing details on that for the foreseeable future if ever. The idea is that we're going to concentrate on retrofitting on existing facility or possibly building a new facility. But most likely retrofitting an existing facility, learning from that and then follow that up with a fairly aggressive rollout across JCI's North American, Chinese and European facilities and that's something that JCI and we are working on but we're not going to be making those numbers public, it's commercial sensitive.

Got it, all right. That's from my side. Thank you very much, guys and congratulations again.

Thank very much.

Thank you.

[Operator Instructions] And we'll take our next question from Mike (inaudible) Capital. Please go ahead.

Steve, congratulations to you and the team for all the progress you've made in the couple of months. It's been pretty impressive.

Thank you.

Thanks.

I have two questions. First I know, first it was a really busy day for the company but the last Thursday, the CEO of EnerSys on their quarterly call spoke very highly of Aqua Metals. So obviously he is pretty familiar with you guys and they have a fair amount of data center exposure. So I was just wondering, if you could maybe elaborate on that and the data center opportunity? And then I have a follow-up. Thank you.

Sure. Well first of all it was surprise that we were mentioned in somebody else's earning call and we were thrilled and very honored that EnerSys referred us in their earnings call. You're absolutely right EnerSys is a power house in stationary and industrial applications and we see that -- we would like to talk to them, like to work with them we know some of those guys pretty well. We think there is a great opportunity there and I think there is real synergy between our relationship with JCI and a potential relationship with EnerSys. So, they would fit together quite well.

Any my follow-up would be, obviously JCI is a huge company. I am surprised that they just didn’t kind of come after all of Aqua Metals. I suppose they are just buying a small portion? And to the extent you can talk about that, that will be great.

So, you are not the first person to ask that. Our positioning with JCI as we came together that subject was discussed. We believe that we’re just at the start of the journey here, that we can built tremendous shareholder value as a separate company. And basically that’s what we plan to do I can’t speak for JCIs decision making process is to whether they would or wouldn’t want to buy us, we just think we’re able in a great position to build incredible ongoing shareholder value as an independent company.

Thanks Steve. Keep up the good work.

Thank you.

And that is the all the time we have for question-and-answers. I will turn it back to management for closing remarks.

Well, thank you. I just really not much more to add here. We had an incredible year on top of another incredible year and we’re pretty excited to be where we are, but not under no illusions that there is a lot of hard work to be done. So thank you all for your participation.

And this does conclude our conference for today. Thank you for your participation. You may disconnect.