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Cobalt refinery costs hit Electra's bottom line in Q2 financials

Battery materials firm has positive news on recycling trial, supply agreement and partnership

A sample of black mass material that is to be refined by Electra to produce battery-grade materials. (Courtesy Electra Battery Materials Corp.)

Electra Battery Materials Corp. (ELBM-Q) said capital costs for its cobalt refinery exceed estimates, but a productive black mass recycling trial, an expanded LG Energy Solution supply agreement and a joint venture with Three Fires Group bode well for its future.

The Toronto-based battery materials and recycling company gave the updates at its August 18 Q2 2023 conference call.

Electra is developing a battery park in Timiskaming Shores, Ont. that is expected to host cobalt sulfate and nickel sulfate refineries, a lithium-ion battery recycling facility and battery precursor materials production.

Trent Mell, Electra’s CEO, said the company’s priorities are strengthening its balance sheet, updating its cobalt refinery project and accelerating its black mass recycling strategy.

“Despite the tough market and a lot of economic uncertainty that we see in the markets today, we did receive strong support,” Mell said on the call.

He also said the company plans to explore a second refinery in Bécancour, Que., a city north of Montreal attracting a number of electric-vehicle battery factories.

Progress on the cobalt refinery

The CEO spoke about the ballooning price tag of its cobalt sulfate refinery caused by an expanded scope, inflationary pressure and supply chain disruptions.

Electra’s goal is to build a refinery that can produce 5,000 tonnes of cobalt sulfate per year.

From an initial estimate of $104.2 million in Q2 2022, the new estimates are $155 million to $167.4 million for the facility. $81.7 million of capitalized development costs have been incurred to date.

More capital will be needed to get the project into final commissioning, Mell said.

The new capital cost expectations for the cobalt sulfate refinery impacted its Q2 2023 liquidity. Cash and marketable securities were reported at $7.4 million compared to $12.9 million in Q1 2022. The Q2 liquidity does not include its $5.1 million in expected government funding and $21.5 million in gross proceeds from a private placement.

Due to gross proceeds from its financing, Electra now has positive working capital.

Mell said Electra had anticipated 2023 to be a challenging year due to economic uncertainty and volatility surrounding commodities. The company undertook steps to balance its sheet by reducing its executives’ salaries, head count and procurement activities.

The cobalt refinery is to receive its key equipment during Q3.

The success of its black mass study

Electra’s progress toward plant-scale black mass recycling at its refinery is encouraging. Mark Trevisiol, the vice-president of project development, outlined positive results at its trial.

Black mass is the residue left from recycling lithium-ion batteries. Electra’s proprietary process separates the structure supporting the battery so critical minerals like nickel, manganese, copper, cobalt and lithium can be extracted and used as battery-grade materials.

Trevisiol said the company was “very pleased” with the recovery rates of nickel-cobalt mixed hydroxide precipitate (MHP), which was at or superior to results in a lab.

Electra made its first shipment of nickel-cobalt MHP to a customer.

“We’ve garnered some interest in this process. This was mainly the catalyst with the joint venture with the Three Fires Group. Having the asset there puts us ahead of the curve in the production of these materials from spent lithium-ion batteries,” Trevisiol said.

Black mass recycling is economically viable, he said, citing a scoping study. At an $8.1 million capital spend, the internal rate of return is 127 per cent, according to Electra, with payback within one to two years.

Its next steps for black mass recycling are optimizing its process and flow sheet, identifying long-lead delivery items, updating its scoping study, developing a summary report and determining a path to commercialization at a production capability of up to 2,500 tonnes of processed materials per year.

A complete summary report with recommendations and opportunities from the black mass trial is expected in Q3.

LG and Three Fires partnerships

Electra also made progress on its relationships with LG Energy Solution and Three Fires Group.

Its agreement with LG Energy Solution was adjusted to a five-year supply agreement from three years, raising the supply from 7,000 tonnes to 19,000 tonnes. Deliveries are expected to start in 2025.

“It’s important, I think, as a signal to the industry that North American on-shoring and supply chain is happening,” Mell said.

The expectation is for an arrangement that gives steady-state margins. A margin of around US$2 is an optimal scenario, Mell added.

The LG Energy Solution contract signals to the market that Electra is “about sold out, short of expansion,” Mell said, and puts it into a good position as it figures out capital needs to complete its facility.

It signed a memorandum of understanding for a joint venture with Three Fires Group, a First Nations-owned business group, for a battery waste recycling facility that will close the supply chain loop in Canada. Mell said Electra was encouraged by the discussions, with more to reveal in the next quarter.

Plans in Quebec

Electra explained its plans for a second refinery in Bécancour, a city that is hosting notable battery factories.

Mell said Bécancour was on its radar and Electra is aware of prominent projects being built there, such as the Ford-led consortium with South Korean battery companies. Electra expects a prefeasibility study to start in the first half of 2024.

Electra was invited to offer cobalt for the battery park, Mell said.

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