Q1 2024 Earnings Summary
- Li-Cycle's non-thermal recycling process does not emit PFAS chemicals, which are under increased regulatory scrutiny by the EPA, providing a competitive advantage over thermal recycling methods that may need to halt operations due to new regulations.
- The company is making progress towards closing a $375 million loan from the DOE, which is critical for restarting the Rochester Hub project and enhancing liquidity.
- Li-Cycle is optimizing their Spoke operations by focusing on their Generation 3 Spokes, which can efficiently process full battery packs, improve efficiencies, and reduce costs, aligning with the needs of major EV and battery OEM partners.
- Li-Cycle is significantly underutilizing its existing capacity, producing only approximately 1,300 tons of black mass compared to a nameplate capacity over 10,000 tons, which could indicate demand or operational issues. Running multiple facilities without operating near capacity leads to higher costs. ( , )
- Li-Cycle's future plans heavily depend on securing a DOE loan of up to $375 million, which is not guaranteed. The restart of the paused Rochester Hub project hinges on this financing, and failure to obtain it could jeopardize the project and the company's growth plans. ( , , )
- Li-Cycle has restructured its debt, converting unsecured convertible notes into senior secured convertible notes, potentially increasing leverage and financial risk. The new debt terms rely on meeting certain milestones, such as closing the DOE loan and achieving commercial production at the Rochester Hub, adding pressure if these milestones are not met timely. ( )
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Debt Restructuring with Glencore
Q: Can you explain the restructuring of the convertible debt with Glencore?
A: Yes, we've negotiated a new $75 million senior secured convertible note with Glencore. We also restructured the existing $200 million convertible note from 2022. This involves two triggers for repricing halves of the note: completion of definitive documentation around the DOE loan or end of this year for the first half, and milestones like commercial production from the Rochester Hub for the second half. The restructuring extends the maturity to five years from repricing and adds security to the original note. -
DOE Loan and Hub Restart
Q: When will you complete the cost review and restart the Rochester Hub?
A: The cost review aligns with the DOE loan process. We're refining the capital cost estimate with local market input to validate our figures. Closing the DOE loan is the priority and enabler to restart the Hub. -
Hub Operations and Capacity Utilization
Q: What's your current capacity utilization at the four hubs?
A: Each Spoke has an input capacity of over 10,000 tons of batteries. Black mass production is roughly half of input. We adjust operations based on commercial demand, which varies over time. We slowed throughput last quarter, reflecting current production levels. Network-wide utilization balances demand and working capital needs. -
Optimizing Spoke Network and Cost Management
Q: Why not operate fewer Spokes to reduce costs?
A: We balance having multiple Spokes to be closer to battery sources while managing costs. Optimizing the Spoke network, especially with Gen 3 Spokes, helps drive throughput and reduce unit costs. We consider working capital needs and continually evaluate the best approach. -
CapEx Needs and Liquidity Management
Q: Do you need additional CapEx this year to preserve the Hub?
A: No significant incremental CapEx is expected. Q1 spending is indicative of the run rate, and maintaining Hub assets is not very material and included in Q1 financials. We're focusing on selling the black mass we produce to manage liquidity. -
PFAS Chemicals and Environmental Advantage
Q: How does your process handle PFAS chemicals under new EPA regulations?
A: Our recycling process doesn't emit PFAS into the air. By avoiding thermal treatment, we keep fluorine in solid products. This gives us a competitive advantage over traditional pyro-based methods, which may face challenges under new regulations.
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