Canadian Refinery Takes First Step Toward Breaking North America's Cobalt Import Dependence

• Electra Battery Materials is developing North America's first cobalt sulfate refinery in Canada with a tolling model that provides stable margins through a 5-year contract with LG Energy Solution, targeting USD$30 million EBITDA annually at full capacity of 6,500 tons.‍
• The company has secured significant government backing with $20 million from the U.S. Department of Defense, and CAD$20 million from the Canadian government, with one additional funding piece pending to complete the CAD$80 million construction budget.
• Their strategy focuses on "on-shoring" critical mineral supply chains by processing cobalt hydroxide from the DRC (via Glencore and ERG) that would otherwise go to China, addressing national security concerns under both Trump and Biden administrations.
• Future expansion opportunities include battery recycling through a joint venture with indigenous partner Aki, targeting black mass processing from battery manufacturers with 10% scrap rates, plus potential nickel sulfate production and Idaho mining assets.
• The business model prioritizes stability over commodity exposure through tolling arrangements that provide predictable cash flows, positioning the company as a utility-like play rather than a volatile mining stock dependent on cobalt price swings.

In an era where critical mineral dependence on China has become a national security concern, Electra Battery Materials is positioning itself as a cornerstone solution for North American supply chain independence. The company's President and CEO Trent Mell recently outlined a comprehensive strategy centered on developing the continent's first cobalt refinery, backed by substantial government support and designed around stable, predictable cash flows rather than commodity price speculation.

Core Business Model: Tolling Over Trading

Electra's fundamental approach diverges from traditional mining companies by embracing a tolling model that prioritizes stability over market exposure. 

"It makes money because we're on a tolling arrangement. We don't need to be market facing. It's nice when the market performs and cobalt might be set for a bit of a rebound, but by and large, single asset getting going, we don't need that exposure."

The company's hydrometallurgical refinery, located north of Toronto, will process cobalt hydroxide sourced from the Democratic Republic of Congo through partnerships with major mining companies Glencore and ERG. This material, which would otherwise flow to Chinese refineries, will be redirected to North America and processed into battery-grade cobalt sulfate. The arrangement provides Electra with predictable margins while offering their partners diversified off-take options outside of China.

The tolling structure includes built-in protections against both market volatility and operational risks. 

"We've locked in a five-year supply contract with LG on a tolling basis, which provides us the margin that ensures we never go out of business. And in exchange, we're never overcharging them in an exuberant market." 

The arrangement targets approximately $30 million USD in annual EBITDA once the facility reaches full capacity of 6,500 tons, equivalent to supplying roughly one million electric vehicles per year.

Government Support Reflects Strategic Importance

The project has garnered significant government backing from both sides of the border, reflecting its strategic importance to North American critical mineral security. The U.S. Department of Defense has committed $20 million through the Defense Production Act, a Korean War-era instrument designed to support strategic industrial capacity. Additionally, the Canadian government has pledged $20 million CAD, with one final government funding piece still pending.

"The DoD is actually funding the Canadian asset, which is neat, and it speaks to the importance of what we're doing." 

This cross-border support underscores the project's alignment with both nations' strategic priorities for supply chain security. The government funding approach reflects broader policy continuity across different administrations. 

"[Biden to Trump], the journey is the same. It's about on-shoring and decoupling from the dominance that we know China has over that supply chain. One administration was focused on carbon footprint and EV transition, the other it's about national security and defense."

Market Position & Competitive Advantages

Electra's positioning as North America's sole cobalt refinery provides significant competitive advantages in a market where security of supply has become paramount. 

"There is zero production of cobalt in North America today for batteries."

The company's cost structure positions it favorably against global competition. While acknowledging they sit "somewhere in the middle, maybe trending toward the third quartile" compared to Chinese producers, Mell noted that many Chinese swing producers "in a rational market won't make money." This positioning becomes particularly relevant as Western battery manufacturers seek supply chain diversification. The demand fundamentals remain robust despite slower EV adoption growth rates. 

"We got to remember that it's still positive, it's still increasing. [The defense applications show] 12x growth rate on defense applications as well, everywhere from drones to anything battery operated, radios and night vision goggles."

Interview with Chief Executive Officer, Trent Mell

Expansion Through Battery Recycling

Beyond the core refinery business, Electra is developing a comprehensive battery recycling capability through a joint venture with indigenous economic development group Aki. This partnership addresses the growing challenge of battery waste while creating additional revenue streams through black mass processing.

"We got the two pieces: we've got a joint venture with an indigenous economic development group, under a company called Aki, that does the battery collection and shreddin. And then that black mass under an evergreen contract comes to the refinery for processing."

The recycling operation targets battery manufacturers with significant scrap rates, estimated at approximately 10% of production. The recycling model follows the same tolling approach as the primary refinery, reducing market risk while providing steady cash flows. 

"Rather than be collecting batteries from everybody's backyards, you've got a steady source from cell plants that actually have a lot of scrap. That's the same stuff every day and you're returning it to them under a toll model."

Financial Structure

The company's total construction budget of $80 million USD represents a relatively modest capital requirement compared to mining operations or battery manufacturing facilities. With $34 million already secured through government contributions and an additional $20 million strategic investor term sheet in place, Electra anticipates raising approximately $20 million more to cover working capital and initial operational expenses.

The funding strategy reflects the challenging environment for junior companies in the critical minerals space. 

"The ESG green fund, that sort of new world of money, they want bigger ticket. They want to write hundred million dollars or more. They want more mature assets." 

This reality has driven the company's focus on government funding sources, which align with strategic policy objectives.

Technology & Operational Capabilities

Electra's technical approach leverages proven hydrometallurgical processes while developing proprietary capabilities for battery recycling. The company has invested in developing its own intellectual property for black mass processing, supported by a $5 million grant from the Canadian government. 

"We made a technical grade lithium. We've recovered high purity nickel, cobalt, graphite's there."

The refinery's flexibility allows for processing multiple feedstock sources, including potential future integration with the company's Idaho mining assets. 

"Once you get going and refining, hydrometallurgical refining, you're taking materials in the front door and you're leeching it and then you're going through a separation and a purification step. You can do that with nickel or manganese or in our case, battery black mass."

The Investment Thesis for Electra Battery Materials

• First-mover advantage in critical supply chain gap: Only cobalt refinery in North America targeting battery market, addressing strategic national security priority with government backing from both US and Canada
• Stable, utility-like cash flows: Tolling model with 5-year LG Energy Solution contract provides predictable $30M USD annual EBITDA at full capacity, insulated from commodity price volatility
• Strong government support validates strategy: $20M USD from DoD, $20M CAD from Canada Govt. demonstrates strategic importance and reduces execution risk
• Scalable platform for growth: Hydrometallurgical refinery can process multiple feedstocks including battery recycling black mass and potential Idaho mining production
• Protected market position: Processing DRC material that would otherwise go to China, benefiting from policy tailwinds toward supply chain onshoring across multiple US administrations
• Reasonable capital requirements: $80M USD total construction budget with most funding secured, manageable working capital needs supported by customer advances
• Multiple expansion pathways: Battery recycling joint venture, potential nickel sulfate production, and Idaho mining assets provide diversified growth options
• Risk-managed execution: Conservative tolling approach prioritizes cash generation over commodity speculation, reducing typical junior mining company risks

The global transition to clean energy and electric vehicles has created unprecedented demand for critical minerals, while simultaneously exposing dangerous supply chain dependencies. China currently dominates processing of key battery materials including cobalt, lithium, and nickel, creating strategic vulnerabilities for Western economies. This concentration risk has prompted bipartisan policy responses across multiple US administrations, from Trump's initial trade policies through Biden's Inflation Reduction Act and into the current administration's continued focus on supply chain security.

The defense implications extend beyond civilian EV adoption, with military applications showing dramatic growth rates. Battery-powered equipment has become essential for modern warfare, from soldier-portable devices to drone systems. The Department of Defense's willingness to fund Canadian refining capacity under the Defense Production Act demonstrates how critical mineral security transcends traditional trade boundaries.

Electra's positioning captures this thematic perfectly by addressing the specific gap in North American cobalt refining capacity while avoiding the geological risks of mining. The company's tolling model provides exposure to the strategic value of critical mineral processing without the commodity price volatility that has challenged traditional mining investments.