Electra Battery Materials entering the BIG leagues

Shareholders knew this day was coming — news of a rollback to raise the share price above US$3 in order to list directly on a major U.S. exchange — NASDAQ. Electra Battery Materials (TSX-V: ELBM) / (OTCQX: EBLMF) is graduating to the BIG leagues. A Nasdaq listing brings prestige, credibility & enhanced trading liquidity.

The 13 natural resource companies shown above trade in Canada & the U.S. On average the U.S. ticker of each pair enjoys 4.1x greater trading volume (3-month avg. daily volumes from YahooFinance). In every case, the volume in the U.S. is higher.

Electra will soon have an issued & outstanding share count of just 31.25 million shares.

Having a Nasdaq listing will enable a larger universe of investors to buy ELBM shares. For example, some institutions do not buy shares priced below a certain threshold.

Others won’t buy stocks with low trading liquidity (shares x price). If an institution can’t get into (and out of) a position in several days — it won’t invest. Even without restrictions, some prefer NYSE/Nasdaq names as a first line of defense against negligence.

Not only is a more robust trading market in Electra Battery Materials coming to an exchange near you, NEW investors interested in high-tech, green, ESG-friendly, hard-asset investments can now be more widely & aggressively recruited.

In other news, ELBM announced a two-year off-take agreement whereby Glencore will buy all of the cobalt & nickel produced through a black mass recycling facility being tested in 2H 2022 (via a demo plant costing < C$3M) and commissioned next year. The agreement will be based on market prices.

This is yet another significant de-risking event, allowing management to focus less on sales and more on operational excellence over the next 33 months. Management is talking with other groups about off-take for recycled lithium, copper & graphite.

I’m comforted by the backstop on sales through 2024, and excited by the prospect of going it alone from 2025 on, which would allow Electra to capture 100% of recycling economics.

I was pleased to see a reference to a, “large-scale lithium-ion battery recycling facility” in the press release. It will take several years, but if management can ramp up recycling to anything resembling large-scale, I take that to mean C$50M+ in EBITDA.

Analysts forecast that pure-play recycler Li-Cycle could deliver C$269M of EBITDA in 2024. Electra possibly doing C$50M+/yr. from recycling by 2026 or 2027 is hardly a stretch in my view.

In addition, by then ELBM should be generating a combined C$50M+ from Co sulfate & Ni sulfate refining. Therefore, the Company could be running at C$100M+ of EBITDA by 2027. At a 10x EV/EBITDA multiple, that would be a billion-dollar company.

In the chart above are 10 commodity producers that are trading at an average estimated EV/EBITDA (2024e) of 15.2x. By contrast, I believe Electra is trading at ~4.7x its 2024e EBITDA of C$55M. That figure includes cash flow from Li-ion battery recycling, but zero contribution from Ni sulfate refining.

C$55M in EBITDA for 2024 is a reasonable goal, but Electra will not hit its full earnings potential until the second half of the decade. Recycling will enjoy substantial growth from 2023, and Ni sulfate from 2024.

Adding third-party facilities into a fully-integrated, 100%-owned Battery Materials Park (“BMP”) will further turbocharge the story.

Electra should be growing its top line & EBITDA at a faster rate than established battery-related companies in the mid-to-late 2020s. However, it might not remain an independent company beyond 2024…

I’ve speculated about M&A before, so readers might know what I’m about to reiterate. A BMP in N. America, up and running within four years, will be a valuable & key strategic asset to an EV OEM or battery/cathode maker.

The amazing part of M&A scenarios is the growing number of battery, cathode & EV OEMs that have announced plans to operate in Quebec & Ontario. It seems there’s a new announcement every month.

The latest deals include; GM + POSCO to process cathode active material at a new plant in Quebec and Stellantis + LG announcing a C$5.1-billion EV battery plant in Windsor, Ontario. There will be more announcements, but few BMPs will reach production before Electra’s.

Equally exciting is all the activity planned for mid-northern U.S. states like Michigan, Iowa, Illinois, Indiana, Ohio, Kentucky & Tennessee. This region is easily accessible from Ontario by truck or rail.

It would be hard to overstate how large & powerful the household name EV OEMs are, and how important ESG credentials are to them. Tesla, Volkswagen, Ford, Stellantis, GM, Toyota… these aren’t merely billion-dollar companies, they’re valued in the $10’s to $100’s of billions (Tesla a trillion US$).

Although not household names in N. America, giant tier-1 battery makers also have massive valuations and aggressive growth plans in the U.S. Companies in this bucket include LG Energy Solutions, SK Innovation, BYD & CATL.

For an OEM or battery player to buy Electra’s BMP, the driving force won’t be valuation, it will come from fierce competition to own green manufacturing assets, of which there will be relatively few compared to the dozens of auto, battery, cathode/precursor companies seeking ESG bragging rights.

These groups can easily afford to pay a meaningful premium for Electra’s BMP if ELBM’s board is willing to part with the crown jewels. I would not be surprised to see Glencore make a bid once Phases 1 & 2 are proven at commercial scale for Co sulfate production & black mass recycling.

Importantly, not all BMPs will have the impressive suite of production/recycling segments that Electra will. Not all will be as green, low-cost & efficient. ELBM’s hydrometallurgical refinery will run much cleaner than other types of facilities. And, it will run on Ontario’s emissions-free hydroelectric power.

Will this newly-listed, high-tech, green, ESG-friendly, EV-related, hard asset anchored, EBITDA+ [next year] company gain some traction on the Nasdaq?

Other well-known names on Nasdaq include; Li Auto, Blink Charging, Rivian Automotive, Lucid Group, Lordstown Motors, Workhorse, Hyliion, Ballard Power Systems & Plug Power. Some of these names trade > 10M shares per day!

Even a few million shares/day on Nasdaq could make a big difference for Electra Battery Materials (TSX-V: ELBM) / (OTCQX: EBLMF). Lithium juniors have soared (top-20 performers since July 1, 2021 up [on avg.] > 600%), could Nasdaq-listed battery material players be among the next groups to takeoff?

Disclosures: The content of this article is for information only. Readers understand & agree that nothing contained herein, written by Peter Epstein of Epstein Research [ER], (together, [ER]) about Electra Battery Materials, incl. but not limited to, commentary, opinions, views, assumptions, reported facts, calculations, etc. is to be considered implicit or explicit investment advice. Nothing contained herein is a recommendation or solicitation to buy or sell any security. [ER] is not responsible under any circumstances for investment actions taken by the reader. [ER] has never been, and is not currently, a registered or licensed financial advisor or broker/dealer, investment advisor, stockbroker, trader, money manager, compliance or legal officer, and does not perform market-making activities. [ER] is not directly employed by any company, group, organization, party or person. The shares of Electra Battery Materials are highly speculative, not suitable for all investors. Readers understand and agree that investments in small-cap stocks can result in a 100% loss of invested funds. It is assumed and agreed upon by readers that they will consult with their own licensed or registered financial advisors before making investment decisions.

At the time this article was originally posted, Peter Epstein owned shares of Electra Battery Materials and the Company was an advertiser on [ER]. 

Readers should consider me biased in my view of the Company. Readers understand and agree that they must conduct their own due diligence above and beyond reading this article. While the author believes he’s diligent in screening out companies that, for any reason, are unattractive investment opportunities, he cannot guarantee that his efforts will (or have been) successful. [ER] is not responsible for any perceived, or actual, errors including, but not limited to, commentary, opinions, views, assumptions, reported facts & financial calculations, or for the completeness of this article or future content. [ER] is not expected or required to subsequently follow or cover events & news, or write about any particular company or topic. [ER] is not an expert in any company, industry sector or investment topic.