Cobalt = “Co”, Copper = “Cu”, Lithium = “Li”, Nickel = “Ni”
Just north & south of the U.S. / Canadian border there continues to be a hotbed of economic activity — tremendous active & planned buildouts [over 30 announced] of EV, lithium-ion batteries, and critical materials facilities to serve the U.S. market for EVs & stationary energy storage systems.
Electra Battery Materials (NASDAQ: ELBM) / (TSX-v: ELBM) is building near-term new capacity for critical materials, but will there be sufficient demand? The short answer is YES. For clear geopolitical & ESG reasons, the West needs to develop supply chains that bypass China. So far it has failed to make meaningful inroads.
On September 24th, Electra announced it had achieved a 99% purity, (technical grade), lithium (“Li“) carbonate product. This news comes soon after 1) the award of a C$27M investment from the U.S. Dept. of Defense, 2) a preliminary term sheet for another C$27M in a prepayment facility, and 3) a JV with Indigenous-owned Three Fires Group to produce battery black mass (“BM“).
Also on September 24th, China’s central bank unveiled a major stimulus package (described as the most significant since 2019) involving lower borrowing costs to bolster banks and a reserve requirement ratio cut of 0.5%, expected to free up US$142B for new investments.
Also cut were interest rates for existing mortgages & minimum down payments on (all types of ) homes. This package, and probably more to come, sent the Cu price up nearly +5% and is supportive of other key commodities including iron ore, coking coal, and battery materials Co, Li & Ni.
Taken together, these four company developments + the China stimulus news, has greatly de-risked the Electra Battery Materials story. Additional non-equity funding initiatives continue to be pursued to fully fund the major enhancements & retrofitting of Electra’s battery materials complex (“BMC“) in Ontario, Canada.
The replacement value of this facility, once completed, is estimated at US$250M = C$338M, yet the Company’s pro forma enterprise value {market cap + debt – cash} at C$0.81/shr., after obtaining final funding amounts for the BMC + working capital/G&A into next year is ~C$112M, just 33% of replacement value.
Regarding the latest news, CEO Trent Mell commented,
“These results further support the Company’s ability to produce high-quality, technical, and battery-quality products from its BM recycling project. We must continue to develop not only onshore supply chains but also closed-loop solutions for battery recycling. This year, we received a C$5M funding commitment from the Government of Canada to develop the next phase of business. Our new JV with the Three Fires Group, is another critical component in solidifying the future for Electra’s recycling program, as it will provide a steady source of BM to our Ontario refinery …”
BM the material remaining after expired Li-ion batteries (“LIBs“) are shredded and casings removed, contains high-value elements, including Li, Co, Ni, Cu, manganese & graphite, that can be recovered & recycled to produce new LIBs.
In 2023, Electra commenced processing 40 tonnes of BM at its refining complex in Ontario, Canada to trial its proprietary recycling process. According to the press release,
“The program is believed to have been the first plant-scale hydrometallurgical recycling of BM in N. America, and the first domestic production of Ni-Co mixed hydroxide precipitate product (‘MHP’).”
Recycling battery materials will become increasingly important in reducing the carbon footprint of EV supply chains and decreasing reliance on foreign countries (most notably China).
The recently launched JV [AKI Battery Recycling] between Electra and the Three Fires Group will source & process end-of-life & off-spec LIBs from manufacturers to produce BM at a state-of-the-art facility to be established in southern Ontario. This is a win-win-win for ELBM shareholders, local communities, and regional EV & battery makers.
The produced BM will be further treated using Electra’s proprietary process at its hydrometallurgical refinery to recover critical minerals that can be redeployed into battery supply chains.
Electra owns 100% of a fully permitted, very low-carbon (runs on hydroelectric power) refinery on 600 acres that’s being expanded & refurbished to produce battery-quality Co in sulfate. The Company’s longer-term vision includes battery recycling & Ni sulfate production, thereby onshoring critical mineral refining processes.
Not only are battery materials important economically, but they’re fast becoming critical in military applications, making them indispensable for national security. For those who fear that Ni/Co will fall by the wayside in new iterations of LIBs, military applications are part of the answer to your concerns.
Even small advantages (no matter the cost) in performance for weaponry, transport, communications & energy storage will be pursued by the global military-industrial complex. Add to that, luxury vehicles & high-power stationary energy storage systems, like those used in crucially important data centers, and the need for Co/Ni is clear.
However, the landscape is confusing. On one hand, the West is understandably worried about sourcing critical materials from non-Western countries, but on the other hand, the prices of most critical materials have NOT risen to reflect a dire situation.
For example, Li, Ni & Co prices are down substantially from the 2H of 2022. This paradox can be explained by China’s modus operandi whereby it floods commodity markets with supply & refining capacity, and funds countries like Indonesia for Ni, multiple African countries for Li & Co, and Russia for silver & PGMs.
Creating overcapacity drives prices lower, making it difficult for companies to fund development, enabling China to retain dominant positions. After decimating the competition, China allows prices to rise. This exact behavior is playing out in solar panels, LIBs & EVs, as it did in flat-screen TVs & smartphones.
This is why N. American-sourced battery materials like Electra’s will be highly sought after — to thwart China’s dominance, and also because Electra’s critical materials will be greener.
Ontario’s hydroelectric power grid and proximity to rapidly growing end markets make it an ESG haven. Circling back to Electra, its BMC is a sustainable, traceable, and IRA-compliant link in the midstream of Western supply chains, producing the lowest-carbon materials in N. America, for N. America.
Obtaining materials via train in a day or two is environmentally & logistically superior and less costly than receiving them by ocean vessel + train in weeks. If there’s a major trade war, or a more serious geopolitical development, EV & stationary storage system production in N. America could be severely impacted.
As mentioned, Electra was awarded $27M by the U.S. Dept. of Defense. What prompted the DoD to fund Electra, a non-U.S. company, with no stipulations or obligations? Simple, the U.S. is keeping its options open, not for the next few years, but in 5-10 years when competition for most resources (critical or not) will be a lot higher.
Investors should note the extensive due diligence done by the DoD, lasting over a year, resulting in a robust vote of confidence in Electra’s team, project & jurisdiction. The DoD endorsement opened the door for new & existing discussions with interested parties to pick up speed.
EV & battery makers and commodity traders are in discusiions regarding off-take agreements, partially pre-paid forward sales, strategic investments + other non-equity initiatives.
Readers should note that the U.S. DoD has provided $27M, but aside from a $5M grant for recycling R&D, no meaningful Canadian government loans, grants or other incentives have been offered for the refurbishment of Electra’s BMC. I believe news on that front could appear before year-end.
In addition to Co sulfate, the property will house a LIB recycling circuit. The BMC will produce or recycle Co/Cu/Li//Ni, manganese & graphite. It would take more than five years to locate & acquire a greenfield site, design a facility, do environmental & operational studies, permit, fund, and construct / commission a new battery materials refinery & tailings facility.
Electra’s BMC is the first of its kind in N. America. {see new corp. presentation}. The Company has built a strong technology-focused management team & board including the following senior execs, two of whom are PhDs.
In 2023, Electra operated a plant-scale BM demo facility that successfully recovered Li, Ni, Co, and other minerals. The demo provided valuable data for a recycling flow sheet that will be revisited at a later date.
Management is contemplating another Co sulfate facility in Bécancour, Quebec, and a Ni sulfate plant, but these iniatives are longer-term aspirations. For the initial five years, LG Energy Solution will purchase 60% to 80% of Co sulfate produced. Several buyers are reportedly competing for the other 20-40% of output.
Importantly, Electra is different from the 1,000’s of juniors exploring for economic deposits. A Li explorer is closely tied to the price of Li. By contrast, Electra plans to operate largely under a fixed-margin tolling model. Therefore, it will not be held hostage by underlying commodity prices.
While most mines have 15-25-year lives, Electra’s BMC could have a lifespan of a century. In the coming years, companies like GM, Umicore, Ford, Stellantis, Samsung SDI, LG Energy, BMW, Toyota & Panasonic — with valuations into the $10s of billions — will easily be able to acquire Electra’s BMC (if Electra wants to monetize it).
In my view, players like these would not blink at paying US$250M or more to lock in decades of security of supply, with attractive economics, while being able to boast of having a very green, Western-friendly, closed-loop supply chain.
As pieces of the puzzle fall into place, readers are encouraged to review Electra Battery Materials’ (NASDAQ: ELBM) / (TSX-v: ELBM) latest corporate presentation and press releases.
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