Transcript: Electra Battery Materials (FCC) - The North American Battery Hub

Morgan Leighton
November 15, 2021

Electra Battery Materials is a Canada-based cobalt company. The Company is in the business of cobalt refining and the acquisition and exploration of resource properties. The Company provides cobalt to the electric vehicle industry. The Company’s assets include the First Cobalt Refinery located in Ontario, Canada and the Iron Creek cobalt-copper project located in Idaho, United States, and Cobalt Camp.

Its First Cobalt Refinery is a hydrometallurgical cobalt refinery. The Company’s Iron Creek Project in Idaho, United States is its flagship mineral property, which includes patented and unpatented claims totaling of approximately 1,820 hectares. The Company holds an interest in a land package in the silver-cobalt mining camp of Cobalt, Ontario. It also owns mining claims known as the West Fork Property to the west of its Iron Creek cobalt-copper deposit.

We Discuss:

00:00 – Company Overview

01:15 – Plan: Commercialization, Re-Position, Tackling the Market

4:45 – Battery Peak Precursor, Buyers, Growth Chain & Process

8:25 – Company Vision, Nickle, Money Making Plan

15:25 – Commercial Analysis of Current Market, Quantifying Discussions into Financials

20:13 – Future Guidance Regarding Revenue, CO2 Emissions, Tracking & Competition

24:23 – Share Price, Market Capitalization, Valuation, Utilization of Cash

28:16 – Outro

Michael Insulan: Hi, Matthew and the Crux Investors dialling in, my name’s Michael Insulan, VP Commercial at Electra Battery Materials. Previously, until yesterday we were called First Cobalt. We did a name change to Electra Battery Materials Corporation to really reflect the change in vision that we have for the brand. Previously, we essentially had an exploration site for cobalt and copper in Idaho, US, in the Idaho Copper Belt, the name of which is Iron Creek, and a cobalt sulphate plant, which intends to process cobalt hydroxide to battery-grade cobalt sulphate, to then sell to precursor makers in Ontario, Canada.

Matthew Gordon: Michael, that’s good. Let’s stop there. That’s a lot of-

Michael Insulan: Shall I start over?

Matthew Gordon: No, no, it’s all good. Lovely to meet you. We normally speak with Trent, and he gives us a certain perspective for the company, First Cobalt as was and of course, now we’ve got a change, Electra Battery Materials. Let’s start with you though, before we get into that. You are VP of Commercial - what does that mean? What’s your task?

Michael Insulan: The reason why Trent hired me was really that I come from a cobalt background. I used to work for Eurasian Resources Group, which is the second-bigger cobalt miner in the world, and of course a huge privately held mining conglomerate. But I came to Electra Battery Materials with a pretty long list of contacts from the industry, and people in companies that buy cobalt. My role is really to sell the 5,000t of cobalt contained and cobalt sulphate to markets in North America, Europe, and elsewhere in the coming years.

Matthew Gordon: How long have you been with the company?

Michael Insulan: I’ve been with Electra Battery Materials for the past 7-months.

Matthew Gordon: 7-months, okay, the new kid on the block. We’ve spoken with Trent a few times over the past year, well over a year now, and it seemed quite a basic model when we first started listening to it. It was basically, go and buy cobalt, DRC, bring it to Canada, process it - that was it, right? That was the extent of the intent. With this name change, it suggests that you’ve got a slightly different model moving forward, and I think Trent gave us some clues last time we spoke about what you wanted to try to start doing. Can you lay out the plan of how you commercialise this business? Do you need to move further downstream? Do you reposition the company in any way, shape or form? How are you going to tackle the market?

Michael Insulan: That’s a good question. The principal idea that they had - my colleagues - when they started First Cobalt was really to bring, as you said, hydroxide from the DRC, process it to a better-grade cobalt sulphate in Canada, and sell it to third parties in North America and Europe. That is in itself a very good business idea. There are some good margins to be had there.

Matthew Gordon: But it’s small, right? That was the problem, and the margins are okay but they’re not great. What’s changed?

Michael Insulan: The margins are very decent. You have to think about this from a global perspective. The alternatives that the battery industry has in North America and Europe in terms of salts is really either to go to Finland, but there’s a very limited capacity, or they have to go to China. What the old battery industry is trying to do is really alleviate this pressure of having to go through China at some stage of the battery supply chain. What we’re offering essentially in the first stage, just doing sulphate of course. There are PCAM plants in North America, they are not particularly big at present, but they will grow, and in Europe as well of course. There is a ready market for our sulphates in the Atlantic region, as it were. But with this rebrand, you’re right, we’re tackling the bigger battery materials challenge here, which is not only about cobalt, it’s also about nickel and it’s about precursors because a lot of the battery supply chains that are being set up in Europe and North America right now still rely on some portion of the supply chain running through China.

Matthew Gordon: Right, because we’re going to get a little bit technical here, we’d better start doing some definitions for people. A battery precursor is what? What’s it used for? And who is going to be buying from you?

Michael Insulan: The battery supply chain has 5 or 6 different steps. You have to extract the materials; you do some primary refining into salts or sulphates. For an NCM battery, which is the most popular battery, you get nickel sulphate, cobalt sulphate, manganese sulphate. At the PCAM stage, you essentially mix all of these together and get a nice powder, which is precursor material for cathode active material. Then, that is transferred to a cathode active materials plant, where you add the lithium, and that CAM goes to the cell plants to then be rolled up with the anode, and then with the electrolytes, and then you have a cell.

Matthew Gordon: Right, let’s talk about where you’d sell. People assume that miners talk directly to automotive manufacturers, right? There are a few people that sit in between capturing value all the way along that food chain. Again, from where you were to what you’re going to be, how far down that chain do you move?

Michael Insulan: I think we’re actually positioning ourselves in a very unique place in the Western Hemisphere, which is covering extraction, primary refining, down to precursor, and we’re including recycling. I believe we’re the only company in North America that actually covers all of these 4 steps. What you have, the build-out of the battery supply chain in North America has so far been about electric vehicle assembly plants - fine - cell plants - fine - and some of these plants will have cathode materials plants - fine. But no one has done the extraction through to precursor materials, and that’s what we’re positioning ourselves to do.

Matthew Gordon: Right, and what’s that going to mean commercially, to use your job title, for the business in terms of its ability to capture incremental margin or incremental dollars, however, you want to look at it. If you looked at that, what’s the change in the business for you?

Michael Insulan: Well, there’s a margin to be had of course in each step of this process. The precursor margins have historically been quite good if you look at the Chinese market in particular because that’s where some magic happens. We’re really looking for a joint venture partner, and we’ve started talking to potential joint venture partners about setting up the precursor plant because that is really where a lot of margins are to be had. But that’s not to say that the other steps are unprofitable by any means. Recycling is tremendously profitable, but at the current stage, it’s not a huge market. There is black mass out there, it’s going to grow, and it’s going to grow as a business for us, but right now the volumes are relatively small. Then, of course, there is a very good margin with refining as well. It isn’t a super slim margin, and we expect to grow the primary refining as we grow the battery materials park in Ontario so that we can still service our cobalt sulphate clients in Europe, Asia, and North America.

Matthew Gordon: Where are you today? Coming up with marketing announcements and initiatives is one thing. They’re lovely headlines, and they also show intent. They say, ‘This is where we want to be.’ You’ve kind of done that - you’re talking about battery precursor, but you’re going to need to find a partner. You talk about nickel sulphate; you’re going to need to find supply there. And you’re talking about battery parks. It’s not built yet, and when it is built, we need to understand what that looks like. Do you own 100% of it, or are you partnering with people to actually build a physical, industrial, or chemical park? What’s the vision?

Michael Insulan: The vision is to, as you said, build a battery materials park, down to precursor material, in Canada. Now, how does that look on-site, and who owns it? Very good question. The truth is that we are very likely to go at it on our own in terms of the cobalt sulphate and the recycling, which we’re already doing, as well as the nickel sulphate because those are very similar technologies, we have a great team onsite both building and capable of operating these assets. When it comes to the precursor plants, we will very likely look for a joint venture partner, whether that’s 50-50 or 60-40, we don’t know, but it is a matter of IP, which we would, I think in terms of bringing this online as quickly as possible, be better off doing a joint venture with someone who is already doing it. That’s the way to do it quickly-

Matthew Gordon: That sounds smart in terms of - there’s the first-to-market type syndrome here around battery metals, especially when you’re saying there’s not a lot of competition at the moment. The fact that if you get into production sooner, it stops other people from coming in. It’s a barrier to entry because they’ll look at the margins that have been made and think, ‘Well, I’m not sure I want to put the Capex out to compete against something that’s already there, and who has got all the contracts in front of them.’ I understand that. Talk to me about the battery park then in terms of the moving parts. If you bring a partner in for the precursor component with their IP, and you use both balance sheets to fund this thing, that makes a lot of sense. With the nickel sulphate, you’re going to have to go and find and source nickel or whatever form that you get it in to be able to then process it and capture more margin down the line, aren’t you? How’s that going to work?

Michael Insulan: We’re looking at a variety of options on the nickel side. As you know, Canada is an extraordinarily resource-rich nation and I think one of the things that Canada might improve, though, is to add value in the country, not export semi-processed materials. This is really an opportunity for a lot of existing and future projects in Canada to send their intermediate materials to a battery materials park in the country to add value in Canada. There are a lot of promising partners on the raw material feed supply side, not only from the mining side but as you alluded to before, you do have OEMs that have gone out there and secured raw materials, and we may have been approached to process some of this raw material as well. The concept of the battery materials park is not just something that we’re dreaming up to be a great story. This really comes from commercial negotiations that we have had over the past year and a bit, maybe 2-years. The idea here is that the market in North America is asking us to do this, and finally, we’ve done the analysis and it is a very, very good concept, and we’re going to go full steam ahead with it.

Matthew Gordon: What I’m getting at is, where do you make the margin? What does that look like compared to whatever it is - $230M market cap today? I’m trying to get a sense of whether there’s a growth story here, or is it a very slow and steady thing because you have to go and secure small contracts, prove yourselves, build it up, and over the next 5-years, you may get there or are you just a landlord to a bunch of partners in a business park? What’s the business model? What’s the plan for how money is made? If I can see that, I could get excited. I don’t know how much you can share with us.

Michael Insulan: That’s a good question, we could be landlords. We’ve added a lot of land around the existing site over the past 6-months, so could we lease it out to a bunch of different businesses making their own margins? Yeah, it’s a possibility, but that’s not the plan, Matt. The plan here really is to finalise the construction of the cobalt sulphate plant and the recycling line, which is essentially already in place in many ways. The next step is to build the nickel sulphate plant. We will start construction on this as soon as we are ready. We already have the construction crew; we have all of the relationships. We will capture the recycling margin. We’ll capture, in-house, the cobalt sulphate margin and nickel sulphate margin. Now, when it comes to the precursor material, that’s where we think we would like to share it because we would like to bring in another partner, and we’re talking to potential partners that have the intellectual property to produce precursor material, and there are copious amounts of companies looking for sites in North America. You talked about barriers to entry before. It’s not really a matter of us being first movers. Yes, we are very early movers, that is true, but this is such a fast-growing industry. There will be a lot of space to grow here. The biggest barrier to entry is really the process engineering know-how, which we do have in-house with our technical team. That’s great. And the construction know-how, of course, which we also have in-house. But really, it’s also about the permitting of the site. You can’t build these things anywhere. You do need a lot of environmental planning, and we have carried out that work. That’s the biggest barrier, probably, surpassed already.

Matthew Gordon: How do you compete, then, with people with big balance sheets? Let’s say the OEMs start getting their act together and they’re securing options on various ore around the world, on various materials, copper, nickel, graphite, zinc, whatever. They have got the ability to fund the build of competing battery parks, really. They could be strategically located for them. There are lots of ways that people can come into this space. That’s why I’m interested in barriers to entry. The know-how of building - I think there’s going to be a lot of people out there who can build. The technical know-how ex-China, are there very few teams that could actually, genuinely deliver this technically? Or again, is that something that, if people start looking at it and think that there’s enough money to be made, they’ll start moving in, and competition for you will increase? How are you looking at the market? You’re the commercial guy, so you must have a sense of how much time you’ve got to get this done and get it right.

Michael Insulan: The technical know-how to do this, and I speak from absolutely no capacity of knowledge because I’m not a technical guy, but I do speak to our experts. There’s no problem, drawing out the flow sheet here, to make all of these materials. The issues really are permitting, construction, and process engineering. This is a pretty massive learning curve in addition of course to the permitting. I don’t see battery materials parks popping up left, right, and centre. It’s also really a matter of who from the OEMs is willing to do this right now. The partnering up in the battery supply chain is complicated, it’s essentially like a bunch of teenagers dating and trying to create relationships, and some will fall apart, some will flourish into marriages and all of this stuff, but it’s a learning process for the whole industry and I really do believe that with the interest that we’ve had from the OEMs, the ore industry, the cell industry, they’re looking at us and we do have significant support. Nothing that we can reveal right now, but in the future, we will reveal the likes of that support.

Matthew Gordon: Okay, that’s important because OEMs talk to everyone all the time. They want to know what’s going on all the time. They want to know what their options are, they’ve got to secure 5-years, 10-years, 15-years’ worth of supply for their supply chain because designing stuff in and out of batteries or cars generally takes a long time. The solidity of any agreement or understanding with them, the more certainty there is around that, the easier it is for you to get money, cheaper money, the easier it is for the market to actually understand the realities of what you’ve got, but MOUs and letters of understanding or intent don’t really mean too much at the moment, which seems to be where a lot of people are at the moment. You think that you are looking to close down some of those discussions into something that could be quantified financially. That’s part of your remit, I guess, right?

Michael Insulan: Of course. I hear this a lot, that MOUs don’t really matter, they don’t mean a lot. I’m not, I think, of the same view to be honest. An MOU or letter of intent indicates that discussions and negotiations should proceed on a timeline that has been determined in the MOU, and so once both parties do sign the MOU, you’re really looking to complete business. I think over the next few months, say half a year, there will be a few interesting MOUs coming out from our side. Now, most of those will relate to commercial cobalt sulphates because until the nickel plant and the precursor plants are up and running by the middle of this decade, 2025/2026, we really have to sell the cobalt sulphate. We intend to lock in long-term deals here, which means that we will have to expand the cobalt sulphate beyond what we are producing in the first stage, of course, to cater for these long-term contracts going forward as well.

Matthew Gordon: Right, have you given, or can you give forward guidance in terms of revenue for 2022, 2023, 2024, 2025, etc. up until the point when some of these bigger ideas start manifesting themselves dollar-wise?

Michael Insulan: We have worked out an internal financial model for all of the 4 phases, which is essentially cobalt sulphate, recycling, nickel sulphate, and precursor, but we’re not ready to release that quite yet. We will continue working on it. Of course, we’re in the commodity industry, commodity prices are volatile, everything changes very rapidly, so we would like to keep on analysing that. What I would say is that it looks like a very profitable business. What we expect to be is the premium battery materials supplier. We will be the greenest battery materials supplier in the world, and if you look at - the general trend in the industry is that green material will command a premium going forward. Beyond the sustaining margins that you expect any plant to have, we would expect to be above that simply because of a green premium. These are both, just the idea of a green premium, that companies will pay more money to have a greener material, but there are also mechanisms that will be in place over the next few years, things like the Carbon Border Adjustment Mechanism in Europe, you’ll probably see that popping up in North America as well, where you essentially have governments penalising material that is not clean. We have another bit of margin there to capture as well.

Matthew Gordon: Where do companies like you start measuring then? We’ve seen reports today of governments reporting their CO2 emissions and they’re being picked up and going, ‘Well actually, we’re not sure we believe your numbers here.’ That’s on a government level because different countries measure things in different ways. You’re talking about how you’re going to be the greenest - do you start measuring that from when the product hits your front door, or do you track it all the way back down to where it’s been mined in the DRC and count that in terms of the number that you present?

Michael Insulan: The analysis that we’ve done, so we did a third-party analysis a little while back. That was only on a plant level, where we essentially had half of the carbon emissions of our biggest competitor, which is of course Huayou in China, mainly due to the hydroelectric grid in Ontario, whereas the Chinese are based on coal. But even if you go back, if you just look at the high-level numbers, if we run the battery supply chain to North America, we’re essentially half of the transport distance so freight, sea freight emissions, half of the distance compared to Chinese rounds to North America, and if we were to ship our material into Europe, we’re about 30% - well, it’s one third lower emissions compared to the Chinese rounds. Then of course when it comes to adjustment mechanisms, whether in the sense of tariffs or other mechanisms like carbon pricing, because of these 2 items, we expect to be much lower than the Chinese. The other issue here is we do have a very good rail network running from the Port of Montreal, where we have inbound and outbound cargoes, up to very near our refinery. We’ll be looking to work with the government and the rail company to construct an additional line to the refinery site, just a couple of kilometres really, just so that we’re really trying to not run any trucks here in this operation.

Matthew Gordon: So, at some point, it’ll be important for you to be able to have an independent come in and put all these numbers together for you, but I appreciate the general numbers there. The share price has done well. In the last 12-months, you’ve gone from $0.12 - $0.13 up to $0.42, so that’s great news, market cap, you’ve been able to raise a lot of money. You’ve raised whatever, $37M, $38M back in July time. Again, you got a convert of 7.5 you had done recently. I think the market is liking what you’ve got to say, but a $230M market cap without being able to actually give guidance on revenue, and you can’t yet talk about contracts in place, it’s going to get harder and harder for people to value you as a company. Are you conscious of that?

Michael Insulan: Now, you’ve made me very conscious of it. We do have numbers. We have gone out with numbers in our investor presentation, and anyone can see them on our website. We are talking internally about doing - not a remodelling, but essentially relaunching the company and providing new forecast numbers in the coming months that incorporate the expansion here from not only phase 1, which is cobalt sulphate, but also 2, 3, and 4, which are recycling, nickel sulphate, and precursors. Look out for that, but I’m not willing to give you any numbers right here, right now. But it’s forthcoming.

Matthew Gordon: Okay, it’s forthcoming. Look, I appreciate you don’t deal with the finance side of the business. I’m not going to grill you on any of that, or the construction of the convert, etc. but you, as the commercial guy, are the beneficiary of that. How are you going to use this money? You’ve obviously got a lot of money in cash at the moment. So, you’ve got all the money you need, I guess?

Michael Insulan: The money that has been raised is for the first and second phase construction items. We really just need to execute here. This is a matter of executing in the next 12 to 14-months and having the cobalt sulphate plants up and running towards the end of 2022, and we stick by that. Shortly after, we will have the recycling line up and running.

Matthew Gordon: Okay, that’s the really interesting bit here because I think a lot of people are starting to catch onto the fact that recycling is going to be such an important component to the story in terms of the full cycle. We’ve seen recoveries on nickel, it’s 70%, it’s one of the higher recovery materials out there. For cobalt - are those the 2 you’re going to focus on in terms of the recovery?

Michael Insulan: From black mass and other battery supply chain outputs, we will most likely produce the following products: it will be nickel and cobalt, it will be lithium products, and it will be copper products.

Matthew Gordon: Got it, okay. That’ll be interesting when you start giving us a bit of an idea of what the recycling business is going to look like and when you’re going to get out there. Look, Michael, it was lovely to meet you. Good chat today. It’s always interesting to speak to the commercial guys because they’re the ones that have got to put this thing together and keep the money flowing and put the contracts in place. That’s always a nice insight for people to understand how the company is going about it. I appreciate your time today. Hopefully, we’ll see you or Trent in the near future.

Michael Insulan: Thank you very much, Matt. Happy to be here.

To find out more, go to the Electra Battery Materials website.