Electra Battery Materials Corporation (ELBM) Q2 2023 Earnings Report, Transcript and Summary

Thank you for standing by. This is the conference operator. Welcome to the Electra Second Quarter 2023 Results Conference Call. As a reminder, all participants are in listen-only mode, and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. [Operator Instructions] I would now like to turn the call over to Joe Racanelli, Vice President, Investor Relations with Electra Battery Corporation. Please go ahead.

Thank you, operator, and thank you everyone for joining us this morning. Before we begin, I want to point out a couple of items. We filed our materials last night and our press release, MD&A, financial statements are available from our website as well as on SEDAR and EDGAR. We will be making use of a presentation this morning for those listening in on the phone. A copy of that presentation is also available from our website this morning. And I do want to draw your attention that we will be making forward-looking statements and the conditions associated with those and factors associated with those are itemized on Page 2 of our presentation material. With me on the call today are Trent Mell, company's CEO; we have Mark Trevisiol, VP of Project Development; and for the first time joining us is Peter Park, our Chief Financial Officer, who was appointed July 4th of this year. After our presentation is done, we will have a question-and-answer session for analysts who cover us. Anyone who would like to follow up afterwards, we will make ourselves available. And with that, I'll turn it over to Trent for his opening remarks.

Yes, thank you, Joe. Good morning, everybody. Thanks for joining us. So before we open the call to our analysts, I want to review some of our recent developments, Peter and Mark will be speaking as well, and share with you our strategy through the end of this year and into 2024. So since launching the strategic review process that we referenced or mentioned in Q1, efforts have been particularly focused of late on strengthening the balance sheet. And this culminated last week in the closing of a $21.5 million in gross proceeds from two concurrent private placements. I want to emphasize, Canadian dollars, and unless otherwise indicated, everything in this press release will be in Canadian dollars denomination. So despite a tough market and tough -- and a lot of economic uncertainty that we see in the markets today, we did receive strong support. I was very pleased by the support that we saw in our book, which allowed the dealers to exercise their overallotment option. They were encouraged with our raise and our planned use of proceeds. And I want to thank investors who participated in that, as well as the syndicated bankers who helped us lead that race. Other developments in the quarter indicated here in Slide 4, included the completion of two major reports, one related to the completion of our cobalt refinery project, and the other relating to the potential for a continuous operation, permanent black mass recycling facility. And we'll talk more about both in a little bit. We also signed an MOU with the First Nation’s economic development group named Three Fires for battery recycling in Ontario. And we extended and expanded our supply agreement with LG Energy Solution. And then equally important, first -- with our black mass trial, we had our first plant scale test completed in North America at our existing refinery. And we had a commercial shipment of MHP. We'll elaborate on some of these. And first though, let's go to our new CFO. I want to welcome Peter to the team. He joined us as CFO on July 1st, so he will review our liquidity position on Slide 5.

Thank you, Trent. Good morning, everyone. As Trent just mentioned, I became the CFO of Electra at the beginning of July after joining the company in February. I'd like to begin today's remarks with the review of our liquidity position found on Slide 5. At the end of Q2, we held $7.4 million in cash and marketable securities, which was a reduction from $12.8 million at the end of Q1. The decrease is mainly due to capital cost related to construction of the refinery and cost related to running our black mass trial. I should point out that our cash balance at the end of Q2 did not include the remaining $5.1 million of government funding, nor did it include $21.5 million gross proceeds from last week's financing. Cash management remains a key priority for Electra, and we have taken steps to manage liquidity and reduce costs since the start of the year. And this includes staffing reductions from 12 headcounts to 30 at the end of 2022. This concludes my remarks. I'll turn the call back to Trent.

Thank you, Peter. All right, let's go to Slide 6 before I go to Slide 7, which the point of this now -- section is going to be to discuss the details of the re-baseline engineering report. This was a report concluded by our EPCM contractor in consultation with our management team and then reviewed by a third-party engineering group to give us comfort around the capital for completion and the timeline for the recycling project. So Slide 7 gives you the context. As previously communicated in Q1, we faced as did frankly all development projects in North America, a number of supply chain issues coming out of COVID. There were delays. We compounded by the receipt of a damaged vessel at site, which has since been addressed. We faced inflation a 40 year high and all of that created additional pressures on a project that was gearing up to be and will be the first cobalt sulfate refinery in North America to serve the EV market. So until we better understood the impact of those pressures, we did withdraw our guidance in Q1 related to both commissioning and our CapEx. And that was done on February 14th and that's when we launched our re-baseline engineering review. And that covered the scope, the scheduling and CapEx, all as itemized here. And you can see the out the output of that report, construction budget of about CAD 104 million. And then the sort of the low and the high to midpoint basically 161 is with the midpoint of our estimated range in order to complete. About $81.7 million has been spent and accrued to date. And I should emphasize, we've also got legacy investments that we benefit from that total today over a $100 million existing equipment buildings, not to mention all the permits that are in place. So given our balance sheet and the capital required to complete, we will require additional capital in order to get this project through construction and into final commissioning. Happy to discuss this a little bit in more detail after the call with the analysts, but essentially, we're having done the raise last week. Our focus and my focus is really on our commercial partners, government agencies and other sources to try to address the funding shortfall. Sliding -- turning over to Slide 8. The -- I guess the good news coming out with the parallel report around black mass. So as we were updating our capital cost for the refinery, we also share details of a scoping study that assessed the potential economics of processing black mass at our refinery. And so this is taking place as we speak, as demonstration plant within the existing building using all of the existing equipment, some new that was fully recommissioned and is operating still today even on a batch basis. So the scoping study was launched as a result of some really good progress that we made with the trial and significant interest that we've received from stakeholders, from industry within the EV supply chain. As you can see from Slide 8, the scoping study is based on processing 2,500 tonnes of recycled material per year and showed some very compelling project economics. Notably, building the black mass operation using our current footprint at a refinery has an estimated cost of about CAD 8.1 million or USD 6 million, as we previously indicated in U.S. dollar denomination. And it delivers a rate of return to more than 120% and a payback of one to two years. So to put that in better perspective, Slide 8 shows you the estimated EBITDA contribution over a four-year period, starting with the full year production. This assumes we're buying black mass in the market and selling final products as we've been doing through our trial process. And so the fluctuations you see here is really a reflection of commodity prices that we and analysts are projecting over the next four years. So with the strong economics with the modest CapEx spend, and the fact that we are running it successfully in that basis now, we are going to be accelerating our black mass strategy while we put together the capital structure to complete the cobalt recycling plant. So just turning over to the next slide, progress of our black mass trial is continuing. So I'm going to turn the call over now to our VP Project Development. Mark Trevisiol, who has had a great team working on this, and he'll provide you an update on the black mass process that we've been running since last December. Mark?

Thank you, Trent, and good morning, everyone. We've got a couple of slides here to highlight what we've achieved so far. But just as a quick background, black mass is basically the residue that's left over from the recycling of electric vehicle batteries and other lithium-ion batteries. So there's a process that separates the structure that supports the battery, takes the plastics out. And what you're left with is the nickel and the manganese and the cobalt and the lithium, which then goes -- undergoes process to separate those out and potentially make battery-grade products. So at our refinery, as Trent mentioned, we've got an existing refinery of over probably $100 million, maybe $150 million if you have to build it today. So utilizing the existing resources that we have there, the asset that we have, we developed a proprietary process, which looked at separating out these metals. Our objective was to go after the cobalt, the lithium, the manganese, graphite and the nickel and of course, in any manufacturing or processing facility, I mean you're engaged by your effectiveness of the process or your efficiency to recover metals, your recovery rates and certainly your production rates as well. Going on to Slide 11, I'll talk a little bit about the results. Recovery rates have been very -- we've been very pleased with the recovery rates. There's parts of our process especially around the MHP where the recovery rates were at or superior to the results we achieved in the lab. And in the MHP, that's a product that in our process contains nickel and cobalt. MHP is basically a mixed hydroxide precipitate. We've also produced lithium carbonate. And recently, we had our first shipment of nickel cobalt MHP. So we've garnered some interest in this process and this was mainly the catalyst with the joint venture with the Three Fires Group, which Trent will speak on shortly. And we're basically having the asset there has put us ahead of the curve in the production of these materials from spent lithium-ion battery. So we're really enthusiastic. The people and workers at the site have done an excellent job to get us to where we are today, and we continue to work at it and produce some refinements. So our next steps continue to optimize our flow sheet. There's certain engineering involved in terms of material balance, process flow diagrams and doing some early process instrumentation diagrams as well where you wanted to identify the long lead items, update our study based on some of the results that we've seen. I look at a summary report for the site, not only looking at the process, but looking at some of the support services, the logistics, everything involved in terms of how we did to make these products. And that will certainly give us a path to further commercialization and building our plan with 2,500-tonne per annum facility. I will now turn the call back over to Trent for some of his closing remarks.

Thanks, Mark. Okay. I'm on Slide 14. At the start of the call, I mentioned that we've completed a number of strategic initiatives in Q2 and even subsequent to Q2. So I want to touch on a couple of them now. In September of last year, we announced that we signed a three-year supply agreement with LG Energy Solution. They are, well, not only the world's second largest EV battery manufacturer, are the largest outside of China. And so the signing of that contract, our first big commercial contract with such an important partner was important to us, but important, I think, as a signal to the industry that North American onshoring of the supply chain is happening. That contract that we had then has been extended more recently in July, we announced the extension from three years to five and that the production or supply was going from 7,000 tons to 19,000 tons. So at our initial nameplate, a run rate of 5,000 tons per year of cobalt contained in our sulfate product, that's 80% of our expected output before an expected expansion maybe in year three or so to 6,500 tons per year. And so working on the final contract, we do have a term sheet, a binding term sheet. But as we work on a final contract pieces, the expectation is we're working really towards a kind of a tolling arrangement that gets rid of the peaks and valleys and gives us steady state margins that we would be paid for refining hydroxide feed provided to us for LG's use. And looking at a margin of around kind of USD 2 is kind of what we have in mind as our optimized scenario. So by way of context, just the size of this contract, even at today's very depressed cobalt prices because we are in a trough for that commodity. We've got about USD 620 million worth of Cobalt under contract with this. And what it signals, I think, to the market is Electra is just about sold out short of an expansion or an expansion into whether it be expansion in Ontario or into Bécancour, there are a lot of other players, not just in Canada, but in the U.S. that need our product. And I think it puts us in a very good position as we figure out our working capital -- sorry, rather our CapEx needs to complete the facility. Flipping over to Page 15, Slide 15. Let's talk a little bit about Three Fires. Q2, we did announce the signing of an MOU to form a JV focused on recycling waste. As Mark explained, there's two steps to battery recycling. The one -- the more commonplace one across North America and Europe today is the shredding piece where you take the batteries and you disassemble and make the black mass and then the refining that we're doing is what makes Electra unique. But that first step is really the subject matter of the joint venture that we're working on. So Three Fires that I mentioned, it's a First Nation-owned economic development group, and they're -- basically their focus is generating generational wealth for their members, and they they've got involvement in quite a number of projects these are kind of long-term investments that can yield dividends or income for them in their First Nations for many years to come. So we're delighted to be working with them. And of note, of course, there are two major battery plants that are being constructed on the traditional land of member First Nations, namely in St. Thomas and in Windsor and Southern Ontario, which is not far from us. Encouraged with the discussions, hopefully have more to say in the quarter ahead as we try to get through the formalization of the relationship. And certainly, the JV, as Mark alluded to, it was an important factor that's going to contribute to our acceleration of black mass and the commercialization of our strategy. And so if we flip over to Page 16, I think this map gets a good perspective of the opportunity, the proximity, which is important when you're looking at localizing the supply chain. So that box is kind of roughly the area where Three Fires operates. We've got two cell plants there. And if you want to get a picture what the flow of materials look like, you have cell plants, there's two of them there, but there could be others. But you also have secondary scrap, end-of-life batteries from cell phones and laptops. So material from both could be processed at a trade facility to be located in Southern Ontario through this joint venture, and we would collaborate certainly from the technical and commercial side. I believe they'll have -- they have some ability to raise the capital to build it, so that sits outside of Electra proper. And then that black mass once it's made and bag, would find its way up to Electra, which as you can see here, is just past Sudbury. And then that refined material in turn under an ideal world basically goes back to the OEM and the battery maker that supplied the feed, so you've got a true closed-loop supply chain for now. Really, it's just about making sure that material gets recycled and return to an ecosystem, whether it's a battery market or the metals market. But the longer-term strategy as you grow is to try to create that circle, that sustainability circle that the OEMs are chasing. So I think I'm going to end it there on the JV and just go to our outlook on Page 18. So on our last call, I mentioned that we were anticipating 2023 was going to be a challenging year, and I think market indicators have supported that. Lots of economic uncertainties, lots of commodity price volatility that we're witnessing, and we've tried to respond to that in kind. So to mitigate the -- all those uncertainty and its effects on our business plan, we took steps to strengthen our balance sheet most recently. And we've also been reducing our costs. So Mark and I and others have reduced our salaries. We've reduced headcount. We've reduced procurement activities until we have a firmer outlook on the cobalt sulfate funding solution, and we're focusing on a lower cost path to cash flow that could get us there fairly quickly at a pace that we believe we can afford. So with the priority of our black mass, I think that's going to be really the momentum heading into the balance of the year. And that will really be the time line to watch as we transition from developer to cash flow entity. So in the near term, we're going to focus on a number of milestones. You can see them here. It's going to help create value for the company. It includes the completion of a summary report that Mark referred to, the findings, recommendations, opportunities, that we've, I guess, garnered from eight months of operating a demo plant from the black mass trial. We're going to continue to receive a number of key pieces of equipment for the cobalt sulfate plant. Recall, these things are being shipped from all over the world. We've got our last batch at SX tanks that will be arriving at site shortly. So that supply chain, a lot of the long lead items are now either here or about to show up tanks, e-house equipment and so forth. We could talk more on that if you'd like. And then lastly, we're anticipating funding decisions. I won't say too much, but there's a number of government agencies, whether it be Canada, U.S. federal provincial that we're working with. And we're encouraged by the talks and hopeful looking at the acceleration of downstream investments that there'll be, I guess, an in-kind reflection of that in the upstream in the coming months. So I think I'll stop there. And with that, we will turn it back to you, operator, for any questions.

[Operator Instructions] Our first question is from Heiko Ihle with H.C. Wainwright.

So with the black mass plant-scale recycling trial, can you provide some color or at least as much as you can and are willing to in a public forum like this, as to what parameters get tested? And also, how many adjustments or rather like trials or however you want to call it, can be done in a given week. Or does this mostly just depend on what actually gets changed?

So I guess I'll start and then I'll turn it to Mark for a little more detail because I'm hearing -- I think I'm hearing two things there. One, One is the continuous improvement and any met plant, even a gold mill, you're never done, right? You're always trying to improve and increase your recovery and quality of products. So that is something that can continue. I think our demo plant while we're declaring it a success, we're still -- we still have a number of initiatives that we're running to try to improve it. Now in tandem with that, that set transition to a -- from a batch demo to a continuous operation, it's going to involve more tanks, right, to have that continuous flow. This refinery historically with making a lithium -- sorry, a nickel and cobalt carbonate. And so the lithium circuit would be an area where we would expect to see additional investments to try to grow that because it is candidly the bottleneck right now, because it was part of a trial. Beyond that, Mark, do you want to add anything?

Yes. Again, good question. I've run a number of process plants in my experience. And walking into process facilities that could be 30 and 40 years old, you're still -- as Trent mentioned, you're still continuously improving the process to recover -- either to recover metals or to increase production rates, there's a number of things that are continue to be ongoing. Like it's not a tap that you just turn on and off and everything works fine. We're really excited about the results that we got and we continue -- and it's mainly a focus on recovery, right? Because that extra 1%, 0.5% that you can rationalize and recover, that's margin. That goes directly into your pocket. And that's where the niche is and that's what we're focusing on.

Did that answer your question, Heiko?

Yes. It did. Completely, completely different question. Obviously, Canada is the focus on the phone. Nonetheless, in your written earnings presentation, a word Iron Creek was not mentioned once. In the press release, the only time beside the company description -- hello?

Heiko, we can hear you. Go ahead.

In the press release, the only time besides the company's description at the very bottom that Iron Creek is mentioned, there's a single sentence where it actually states that you're having lower exploration expenses for the site. I'm going to just assume that this is more of a coincidence? Or is there a shift of focus that maybe haven't really picked up on. And again, I understand that Canada always was and likely always will be the #1 priority of the company.

So yes, thanks for that. Look, I think the border between Canada and the U.S. is -- you might as well consider it non-existent for purposes of what we do, right? Our supply chain is about moving away from China and into North America. I think there are things that can be done better in Canada, well faster permitting, just given the nature of our laws. But yes, our market as much as we might talk about the VW plant or LG in Canada, our market addressable is much larger than that, right through it, a half dozen well more, it's about 8 states in the U.S. So -- but that aside, Iron Creek, I'm glad you asked. I mean, I think it's a great asset. I love the asset. Cobalt has gone from 30 a pound down to wherever we are now, 15. And at a time where the markets are choppy, we just can't be seen as spreading ourselves too thin. So holding costs there are less than CAD 100,000 per annum. But we did put that new resource out, right, early in this year, 4.5 million tonnes of indicated, another 1.2 million of inferred right next to Iron Creek, an offset fault, we believe is Ruby which, at least from a geo figures perspective, seems to be equally -- present equal opportunity in terms of its potential. And we know Iron Creek's open strike and at depth. So I'm extremely enthusiastic with that asset. It's going to take more money. I would note Jervois to the north of us recently received DoD funding for drilling of their resource, actually that satellite resource which I find extremely encouraging because typically, an America policy hasn't favored supporting any subsurface activity. So I view that as an opportunity. Now having said all of that, are we vertically integrating? Are we going to do mining and refining, I think not. I'd like to keep advancing this. It may find a better home somewhere else either as a JV, an earn-in or monetize it to favor our refining operations. And so I don't think this is the time to make that move, although we're keeping an open mind on how we might create value for shareholders on that asset because we're not -- I don't see that reflective in our share price today.

The next question is from Gordon Lawson with Paradigm Capital.

Good morning, everyone. Looking at your CapEx estimate, the $155 million to $167 million, can you clarify how much of that is needed for the black mass recycling versus the cobalt hydroxide or even the expansion if that's still on the table?

Sure. Sure. So the -- what we put out in the re-baseline, we actually put out the two different numbers, right? So that, call it, average of 161 to complete that would refer really to the Cobalt sulfate plant. And the CAD 8 million for the black mass or USD 6 million is a separate spend. Now I'm going to -- I don't want to further confuse things, but those are the numbers we put out. The reality is a lot of the CapEx that we spent on the cobalt sulfate plant is they're complementary, right? I mean, you've got -- we twin the water line for instance, we've got a world-class lab up there. We refurbished the warehouse and did a ring road around the refinery and drainage. And so when it comes to infrastructure and then some of the other parts of the facility, the bigger CapEx numbers that you're seeing on the cobalt refinery is really what's allowing us to execute on what is a fairly low-cost operation on the black mass side. Cobalt is going to yield EBITDA that's probably 4x or 5x larger than recycling. But then the CapEx is currently about 10x. And so we're going to sequence it accordingly. But good question. Yes, we should be clear that, that $ 155 million to $ 167 million is the cobalt sulfate refinery, and that's what we're going to sort of pause or slow down on until we get the rest of the capital end up.

Okay. Yes, that's certainly more clear. And in terms of the cobalt hydroxide versus black mass. What are the current plans? It was previously stated that they're looking at a rotating production schedule? Or are these now two completely separate processes?

Yes. So I would say from the cobalt hydroxide, obviously, by prioritizing black mass that the plant is going to solely treat black mass feed in. And yet, the extension and expansion of our relationship with LG shows that it doesn't matter, if I can put it that way. 2025 onward is really where the battery market in North America starts to take hold. So a delay in our cobalt plant certainly didn't dissuade LG or others from concluding or trying to conclude offtake contracts with us. And so for the next while, I think you should assume it will be 100% black mass feed, but you raised an interesting point. I don't know if you want to speak to this, Mark, but the opportunities at different parts of the circuit to blend black mass and some of the cobalt hydroxide into a common stream.

Yes. Okay. I'll add a little bit to that, Trent. Our cobalt hydroxide process produce battery grade cobalt sulfate and then we will produce it once all the capital is in place. With the current black mass process, we're producing an MHP, which is an intermediate product, intermediate nickel cobalt product. As Trent says, the hydroxide process to sulfate allows us to extract with a little bit -- some small process changes in our black mass circuit allows us to pick out the cobalt and have that cobalt report to the cobalt hydroxide, the cobalt sulfate plant. So there's an opportunity there with combining both of the processes where we can get -- you get a final product to market and realize the margins of -- full margins of a battery grade cobalt sulfate. I hope that answers your question.

Yes. Thanks for that, Mark. Essentially, the Stage 1 of our black mass is not final state. We would expect that circuit could grow, and we would expect that the beneficiation from MHP to higher-value products will also evolve through time. The point is to get the cash flow and to demonstrate -- be the first to demonstrate that we can do this on a continual basis and then build from there. So the same strategy, right, the same -- we prioritized the sequencing. But the strategy and the vision is to supply battery grade materials to PCAM and CAM producers in North America. And this is a gaping hole in our supply chain on this side of the world. We've got a lot of Korean and Japanese investors and some start-ups that are kind of working from PCAM and CAM onward, but you go further upstream, you can't connect Canadian and North American mines, our domestic battery supply chain without this refining infrastructure that's just not happening anywhere else.

Okay. Understood.

And I would say -- we said this in the past, recall, we did a nickel study at one point in time. I mean that's the -- and this is down the line. This is not the current strategy, but it's part of the vision. It's black mass, it's cobalt and then you need nickel refining and then you've got everything co-located, you capture the operational the CapEx efficiencies. It makes sense for PCAM. So it's a multiyear strategy. I'd say we're in the second inning of a much larger vision and strategy. Electra was early to the game and now that other players are coming. I'm hopeful that the capital strategy gets a little bit easier as there's a heightened competition for our production.

The next question is from Jake Sekelsky with Alliance Global Partners.

So just on the black mass recycling. Can you provide any color on what that ramp to the 2,500 tonne-a-day rate might look like and touch on sources of feedstock?

I'll start with -- I'm going to let Mark talk to the ramp-up schedule. Yes, feedstock, frankly, is not proving to be hard. 90%, my understanding, 90% of black mass that gets produced today ends up in Sudbury at the smelter that Glencore operates. And by and large, the rest of it goes overseas, whether it's Chinese buyers or Japanese trading houses. And so getting -- it's just fluctuation of terms and expectations as the Asian buyers come into the market, it kind of disrupts pricing mechanisms, but we got a pretty good handle on what Glencore is offering. And so sourcing a black mass, which is managed by our commercial team, Michael Insulan. We've got 20 some relationships, I think with black mass producers, I'd say, half in the U.S., which is more than sufficient for our needs today. The other half would be kind of around the world. And this is where black -- this is where the Three Fires relationship gets interesting, right? If we can lock in that part of the supply chain ourselves, the margins get better and the earnings are more steady and predictable. And the black mass, and looking into it, there's -- it's not hard, if I can put it that way. It's not hard to do the shredding piece. There's three widely known technologies kind of wet and dry. There are a handful of known vendors, and it doesn't -- it's not like building a refinery where we've got probably $200 million invested up there. This would be a fraction of the cost. Three Fires would lead that and that, I think, will just enhance the business model.

Okay. That's helpful. And then just on the cobalt refinery, I mean, you spent about half of -- or a little bit more than half of the updated CapEx figure to date. What options are on the table for the balance here? I mean I know you mentioned that Iron Creek, you might be looking for a partner. Does the same go for the refinery? Or is that something that you'd like to keep fully owned over the longer term.

Yes, I think the refinery view that as sort of wholly owned. I mean, the noncore assets, if you want to put it that way, we do have a small royalty package on some former mineral projects in Canada that could easily be monetized well, easily, that could be monetized, I guess. And then Iron Creek kind of TBD. Again, we got to wait that we see a little life in cobalt or see a satisfactory structure that preserves our upside for our shareholders. When I look to sort of what's next having done this equity raise, I think we've got to look to other sources, right? We've got the most valuable currency we have right now is our production because nobody else is going to do what we're doing in the near term. And so I will be looking to our partners. There's a lot of money that's been deployed under the inflation reduction act and on this side of the border as well through programs that have invested heavily in the downstream. And so the way forward is, I think those recipients need to work with us on a capital solution. And likewise, the government intending a bit of a catch-up trade with policy on this side of the border that's catching up to the needs of people in our sector. So commercial and government would be my focus over the next kind of three to six months. Does it get 100% of the funding gap? Not sure kind of CAD 80 million or so, or USD 60 million, we'll have to wait and see.

The next question is from Shankar -- sorry Surya Sankarasubramanian with Red Cloud Securities.

This is Surya Sankarasubramanian from Red Cloud Securities. We read the news about Ford's investment in a new plant in Bécancour yesterday valued at around CAD 1.2 billion. So I was just wondering what the -- how it impacts your plans in terms of whether you're prioritizing your PFS maybe changing time lines? Or you also saw that half the government funding was -- I mean, half the funding was from loans from the government. So that has any implications for your clients as well?

Yes, great question, Surya. Yes. So Bécancour is very much on the radar for us. And just for those not familiar Bécancour is located north of Montreal, south of Quebec City, right on the St. Lawrence. And so the -- what we're seeing there, and this for us at least, has been widely anticipated. The Ford-EcoPro relationship is one that we are very familiar with, both in Korea and in the U.S. And so it's been anticipated, glad to see it land. What it means is, in Bécancour Industrial Park, you've got three different projects underway. The better known is probably GM and POSCO building capital plant, and that is well underway. BASF has their attractive land as well, and they've already cleared the trees. And now we've got the third one that's in place. That park is now full. And when you look at what they're doing, the plans today build the cathode plant and the plans for tomorrow are to build the precursor cathode active materials plant, and that's what connects us directly. And then alongside of that, now you need -- these are NCM batteries, right? We're not talking iron phosphate batteries. So you need your nickel, cobalt and manganese. Vale has already announced that they're building a nickel dissolution plant. Euro Manganese just finished the study. I can't remember with the prefeas or feas on nickel -- sorry, on a manganese dissolution circuit and Electra has been invited in by Investissement Québec and the government of Canada to be the cobalt solution provider there. Now we've got the luxury of borrowing from Ontario in the interim or increasing the size of the Ontario plant. And so the prefeas is taking into account the staging of our 5,000 ton plant in Ontario, expansion of 6,500, the needs of this camp. And so we stand to have the first and the second cobalt sulfate refineries on the continent. But I think it's important to underline that, that's our ambition is not to be a cobalt play, which is why we changed our name a couple of years back. We plan to be a refiner. So black mass is there, nickel and so forth. But the announcement by Ford it just shows the increase -- the continuing momentum to onshore and just further validation of our strategy.

So in this context, is there also considering you also mentioned that you don't want to spread such thing, will you be pursuing the Three Fires plant parallelly just seriously or can you comment on that?

Yes. And the Three Fires relationship -- for Canadians and the mining industry will understand the importance of engagement and consultation with indigenous communities, First Nations communities. It's a crown duty that we execute corporately. And so I think if I'm building a big battery plant on a traditional territory, I think it behooves you to have meaningful engagement and to try to find opportunities. We've done it in our neck of the woods, we signed one, there's no demonstrated impact. So we're not doing IBAs, but we've got a benefits agreement with one group. We've got four others that we talk to and that we support. And as we get to cash flow, that will increase. And so the Three Fires relationship has some strategic value because they've got levers and skills and relationships that we don't have. And it's Phase 1. I mean that one I would view it as being tied to recycling. They were at one point we are discussing strategic investment corporately at Electra. We completed our financing last week without them. They weren't ready. That's still on the table, but that really is separate and apart from the joint venture, which we're pursuing. So Three Fires, I think, will enable and strengthen the black mass strategy. The cobalt sulfate in Ontario will then resume once the capital solution is in place. And Bécancour, where that sits in the sequencing is really a function of the three parties that I named and some talks around funding and the scheduling of their needs. We'll have more to say on that soon. We've got to get a couple of more ducks in a row before we're ready for prime time on that.

Trent, if I can just add to your comments on this is anything like the announcement by Ford and EcoPro on putting the plant in Bécancour, I mean that's another Canadian asset to be built. And what we're trying to do with Three Fires, again, that's another Canadian chain of supply for the electric vehicle market. And that in itself with governments involved, federal and provincial governments involved that in itself is significant momentum for a player like us who -- our plant is in Canada, and we have -- we would have leverage because of that because the federal government is supplying money to both of those facilities. And I mean, that's a good news story as well for or Electra and moving forward and supplying -- certainly supplying not only the Canadian market, but going into the U.S. as well. So I think that that's really positive. The more plants that get built in Canada, I think it waives our flag even higher. Sorry, Trent, I just wanted to add that.

Thanks for that, Mark. Yes, look, $600 million of funds going into that latest announcement, it's just -- it just continues.

The next question is from Matthew O'Keefe with Cantor Fitzgerald.

Good morning. It sounds like you've made some good progress during the quarter, so congrats on that. Just a couple of questions. One on black mass and one on the cobalt refinery. First, on the black mass, -- so the -- I don't know if you actually answered the ramp-up question. When do you think you'll start to construction or not construction, but development of that? And when will you actually start seeing the cash flow because you've got sort of a guidance of years one, two, three, four with averaging about $10 million a year. But when would year one be, what's your current thinking on when year one is? And also, it sounds like you're going to be revising that study to -- with some updated numbers later this year -- I think, later this year. And like what will be the main changes there?

So the ramp -- I'll let Mark talk to ramp up. In our -- in the release the scoping study we put out, it was 12 months from being fully funded. So we've got a step that we've got to fill on the black mass. So I would call it 12-plus months from today, maybe the best I can do. But Mark, on the ramp proper, once we do start a ramp-up, say, it's, I don't know, say it's October of next year, what does that look like?

I think that much -- and it's been a great way for us to start to experiment with the existing plants. So it leads into my answer. We could see that the first six to eight weeks, maybe as much as 10 weeks, there was a pretty steep learning curve on running the circuits. I would imagine that you're looking at after commissioning is all done, you're probably looking at three to four months of the ramp-up to the 2,500 tonne per annum target. The rates -- the processing rates just comparing to what we have with the cobalt hydroxide, the cobalt hydroxide we're putting through almost 50 tons, dry tonnes a day of feed. And this feed rate will probably be a fraction of that, maybe around 7 tonnes a day of feed. So we don't see a lot of having weathered the storm and somewhat rode our bicycle already in the trial. -- a lot of these items have been dealt with. And we know the strengths, we know the weak spots. And once we get going, I think within three or four months, we should be at 100% capacity.

And maybe I'll just add to that, if I may, Matt -- I am through the facility a couple of times. But for those who haven't, we do have an existing plant that has operated in the past and is operating today. So the short ramp is a function of what we learned, a function of the fact that it's small tonnage, but all of the Lego pieces, the bricks are already assembled. Now we -- there are going to be some changes, but it's not like you're commissioning everything brand new. And so yes, and I guess on the summary report piece, Matt, that you mentioned, I think we'll have a little bit more detail. Look, we got a -- this was scoping steady or desktop level, right? So we got to drill down on that a little bit certainly, time lines will be a little clearer once we've done that and looked at equipment lead times. But Mark, what might we see that's new in the summary report of our findings that perhaps wasn't in our press release on the scoping study.

Without giving away all our secrets. I think what we definitely will be putting into our process is a sodium crystallizer, that wasn't initially in our plan, but it's fairly evident that we will need that. And I think, Trent, we've talked a few times a week on some of the significant developments around reagent uses. And the strategic use of reagent and sometimes even a combination of reagents has really put us ahead of the curve on the processing side. So yes, we've got some changes coming and exciting because it just means more margin to our bottom line. I hope that answers your question there, Matt.

I think so. That's helpful. Appreciate that. And then with -- I mean, part of the funding here is supposed to be coming from Three Fires, I think. What's the timing from them? Or what have they suggested we now actually come forward with the -- I think it was $10 million that they were committing?

Yes. Yes, initially, we had announced it was going to be co-funded, right? We're going to do a rate $10 million Three Fires -- $10 million Electra with source on the heels of the LG announcement, we had a very positive market reaction and then we ended up raising $21.5 million. Three Fires, they just weren't ready to go. And so timing and the decision ultimately will rest with them. And so there's -- we have two impacts. Some of our relationships there are taking summer holidays. So that will resume probably late summer, early fall. So yes, there's two conversations. Funding, so the -- their thoughts around timing for that. But to me, the more exciting piece really is the joint venture because of what it could represent to our business plan. And the -- I mean, I look at the two plants that are in their backyard, that are in their yard, those are still a few years out, but that shredding plant could provide great optionality for a lot of different feedstocks.

So do they already have the shredding plants in place and are those funded?

So we are -- I mean, I think that probably Electra would be more of the technical partner, if you will, with Three Fires as the financial partner. Maybe that's kind of one way to look at it. We're still working through the terms of the JV, but in terms of the shredding plant, the sizing sourcing of equipment, engineering, all of that rests with our team, whereas Three Fires has spent the last while working on the funding of that as well as the land acquisition. So hopefully, more to say throughout the quarter as we progress our two streams.

Yes. No, that will be good. Okay. And then if I could ask one more then on the refinery. So you did the -- you had that extended and expanded contract with LG or modified with LG, which is great. But what about -- I mean, they're obviously interested in the product, but I mean we've seen other sort of customers come up with some financing to help construct some of these -- operate the battery plants. We see it in some other type in the battery and the supply chain. Is there any discussion around LG coming up with some funding to get the refinery construction complete?

I'd say kind of large, there's discussion with all of our stakeholders on how do we fund to complete and engage with -- I mean, some of these players that are not named or go back 3-plus years. And so the IRA and some of the recent announcements is putting pressure on everybody to find a dance partner. But I will say the discussions that Michael was leading on strategic, whether they be investments or prepays or loans or what have you. We've seen all kinds of templates out in the market. There was a bit of a chill heading into 2023, rising yield environment concerns over the economy. As a general statement, I would say that those conversations took a little bit of a pause. But I sense they're coming back. And from our perspective, given that we're now prioritizing black mass, I don't think we need to finalize any contract, nor should we until we figured out how we're going to get that funding in place because there's -- as you know, Matt, there's a lot of money that's being thrown at the industry from governments. There's a lot of investments that then make their way from the recipients to their partners. And there's no reason Electra shouldn't be a part of that equation as well.

Okay. So then that leads into sort of the question as to all the equipment that you've ordered, and that's coming -- those are some costs. Those -- when I was on site, it was all very well secured and storing that's outside of stainless. So is there much of a cost in -- like what are your kind of costs in delay as far as just holding costs for keeping everything clean and tidy on site.

We do have the facilities to keep the equipment in doors the equipment that has to be put in doors will be in doors. I mean, structural steel, for example, doesn't have to stay in doors that it will stay outside as well as some of our tanks. But yes, I mean as far as keeping it in proper shape, we've -- there are out of the elements. The equipment that has to be out of the elements is out of element. So we're pretty confident that the funding will come here. And it might not come in the next few months, but it will come, as Trent said, there's a real need to produce this product on this continent, and it's going to come. So we're hoping that within the next few years, everything is being utilized because it's -- we're producing cobalt sulfate and -- so I'm not too concerned about the equipment and the places where we...

It's all in our property, right, Mark? I mean, it's all sitting on Electra property. So it's not third-party storage, it's under our control and supervision and we've got our team there.

Yes.

And when that funding does eventually come, I think you may have said on the previous call, about a 12-month schedule to complete the construction.

That's correct. Yes.

Very good. Well, we'll look forward to some more progress in the balance of the year.

That's all the time we have for questions today. I'd like to turn the conference back over to Joe Racanelli for any closing remarks.

Thank you, everyone, for joining us today. Our next call is slated in mid-November. But as you heard, we have a number of activities on the go, and we will certainly provide updates once we get some material developments to report on. I should point out as well that we did file a notice of our AGM that's slated for early -- for October, and we look forward to meeting our shareholders then. If anyone has any follow-up questions, I would encourage you to reach out to me. Happy to answer them. Thank you, everyone, for today.

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