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Electra Battery Materials on the hunt for financing partner to finish Temiskaming cobalt refinery

Toronto developer still 'bullish' on the electric vehicle market as its battery recycling business picks up steam
Construction at Electra Battery Material's refinery project in Temiskaming (Company photo)

Electra Battery Materials is facing a cash crunch to finish the expansion at its Temiskaming cobalt refinery complex.

Construction at the northeastern Ontario plant has stalled and the Toronto company announced May 11 that it has launched a strategic review process to snag a deep-pocketed partner. In the meantime, Electra said it is in cash conservation mode.

In a news release and a webcast last week on its 2023 first quarter results, Electra management said all options are on the table, which may include aligning with a strategic partner, selling all or a portion of their assets, or a merger opportunity.  BMO Capital Markets is assisting in the process. 

The price tag to finish the cobalt refinery is in the range of US$110 million to $121 million. Quite the hike from the original estimate of $62.7 million prior to the start of construction at the end of 2019. The company said it's facing a budget shortfall of $50 million.

“We’re gonna need more capital,” said Electra CEO Trent Mell in the webcast.

The company has been retrofitting and expanding an existing refinery between Temiskaming Shores and Cobalt that they acquired in 2017. To date,  $48 million has been spent on the project.

Mell couldn’t put a date on when construction will resume, saying it’s largely dependent on lining up financing and remobilizing the 200-some construction workers back to the site.

He estimated the remaining work could be done in about 14 months. All the important lead equipment items have arrived or are in transit. The detailed engineering and all the procurement are both largely finished.

In the strategic review process, Mell told analysts they’re looking at a “pretty broad” range of commercial and strategic financing partners, be it traditional lenders, automakers, mining companies and processors.  

There’s also some potential revenue streams that can be accessed through government funding programs related to critical minerals. Mell mentioned they even have an application into the U.S. Department of Defence.

Surprised by this turn of events? Consider the circumstances, said Mell.

Over the last 18 months, the refinery project has been dogged by inflation, supply chain issues, and the receipt of damaged equipment, which stretched out the project timeline. Costs of moving freight, steel, concrete and labour have jumped significantly.

“When we started this project in late 2019 and into 2020,” explained Mell, “coming out of COVID, real interest rates were negative, access to capital was much different than is today, equity markets were favourable, and we were moving into a period where chemical refineries like ours were receiving pretty generous multiples.”

That’s all flipped and project financing remains a challenge, especially with widespread fears of a looming recession.

Electra’s also still waiting on $5.1 million in government project funding, but to give themselves some breathing room, this past winter Electra raised US$51 million in debt securities, in the form of secured convertible notes, to cover a refinancing to support its refinery plans.

They sold their silver and cobalt exploration property in Temiskaming to Kuya Silver and expect the sale of recycled mineral material to generate a revenue stream this year.

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Electra has developed a unique expertise in processing black mass material from recycled lithium-ion batteries.

Even amid construction, the company is running a small demonstration-scale plant. They process the mineral-chocked material from shredded batteries – shipped up to Temiskaming by companies who actually crush the batteries – and recover highly valuable elements like nickel, cobalt, manganese and other metals using Electra’s proprietary hydrometallurgic process. 

The company said they’ve successfully produced a quality nickel-cobalt mixed hydroxide, and graphite and lithium carbonate products, all highly coveted by electric vehicle battery manufacturers.

Electra maintains this is a one-of-kind North American facility and for months, they’ve been raving about the success of their trials, even though they haven’t publicly released any results on the metal recoveries.

But apparently potential customers in the battery supply chain have been making the trek to Temiskaming to view the operation and see the samples.

“It really is a huge accomplishment,” said Mell. “There’s a lot of battery shredding happening in the industry but thus far nobody is doing this.” 

Though still at a demonstration stage, Electra said it’s beginning to ship products to customers this quarter. It stands to be a potentially lucrative revenue stream over the next few years. 

Given that the refinery infrastructure is already in place, Electra said they can quickly upscale the plant from into a commercial operation processing 2,500 tonnes of black mass a year for a mere US$6 million. The estimated payback would be within one to two years. The facility could be scaled up depending on market demand,

News of Electra’s trials has attracted a potential joint venture partner to source black mass from within Ontario.

Electra recently signed a memorandum of understanding with the Three Fires Group, a southern Ontario Indigenous economic development corporation, which wants to partner on siting a battery shredding and black mass collection facility. Their traditional lands in southwestern Ontario cover an area where many major automakers and suppliers are building battery cell plants.

The specific details on the joint venture have yet to worked out, but Mell said this arrangement should provide for a “captive feed source” than buying black mass on the open market. Mell said Three Fires have access to capital and government officials on their side, eager to help them build capacity.

Mell reminded analysts that the outlook for the North American electric vehicle sector remains "extremely bullish."

A driving force for Electra is the U.S. Inflation Reduction Act and the US$391-billion pool of available government money. Washington wants to “on-shore” everything it needs to fill the industry supply chain for the climate and clean energy tech transition. Canadian companies like Electra would part of that chain based on the Free Trade Agreement.

Last fall, Last September, Electra inked a three-year strategic supply agreement with LG Energy Solution, the world’s second-largest EV battery manufacturer, to supply Temiskaming-produced cobalt sulfate to the South Korean multinational.

Also in the cards is an upcoming technical study for expansion into Quebec. Electra has been invited to build a second refinery at an emerging battery industrial park being built in Bécancour, Que. Vale is building a nickel plant there. Electra will release a prefeasibility study at some point this year.