Novonix - Q1 2024 TU

Transcript

Chris Burns (CEO)

Hi, I'm Dr. Chris Burns, CEO of NOVONIX, and welcome to our first quarter activities report update. As always, please review the notice and disclaimer when the presentation is posted. We closed out an exciting 2023 for the company, hitting many milestones across the business, and we've started this year with a great first quarter, which I'm excited to update about today, to really uniquely position NOVONIX to build out the North American supply chain for the battery sector. We're a leading U.S. based battery materials and technology company focused on process technology with a lower carbon footprint. We're building into a large and growing market for battery materials, with strong support for localization efforts here in North America. We've focused on building an intellectual property profile for the manufacturing of synthetic graphite, as well as new materials, such as our all-dry, zero-waste NMC cathode synthesis technology.

At the core of the group is our Battery Technology Solutions group. It provides a competitive advantage for us as we look to accelerate the pace of innovation within our materials programs. And now, customer and government financing is paving a way to profitability as we build a new sector here in North America. We'll talk about each of these and how they've impacted NOVONIX both last year and in this first quarter. As we look across the structure of the group, at the core of the business is our Technology Solutions group. I started this group over 10 years ago to become a leader in research and development and equipment for the battery sector.

Through last year, we saw strong strategic growth in this group, as well as launching initiatives around data solutions to leverage AI and machine learning to predict battery performance and tie that back to our materials programs in an effort to accelerate the pace of development of our key materials. Our largest area of focus is our Anode Materials group, being a leading domestic supplier of battery-grade synthetic graphite, where last year we signed the joint research and development agreement with investment from LG Energy Solution. We finalized the award of $100 million from the Office of Manufacturing and Energy Supply Chains of the Department of Energy for our Riverside project, and we hit strong operational milestones around bringing online key equipment and process technology within our Riverside facility.

The newest part of our group is our Cathode Materials team, focused on commercializing our proprietary all-dry, zero-waste cathode synthesis. Last year, we were excited to announce the study showing some of the potential benefits, both economic and environmental, of this process technology. We've made great progress as we continue to advance that through this quarter as well. As we look at some of the highlights, specifically in the first quarter of this year, the most significant, of course, is within our Anode Materials group, signing a binding supply agreement with Panasonic Energy, and we'll speak about the details of that later. We're also very excited to announce that we were selected to receive $103 million tax credit under the Qualified Advanced Energy Project allocation, or the 48C tax credit.

We've started to submit reimbursement claims against the Manufacturing and Energy Supply Chains grant, which I just mentioned. Within our Technology Solutions group, we've continued to advance multiple product work streams within our all-dry, zero-waste cathode synthesis team and began sampling various products to commercialization partners across the sector. All of this while continuing to grow and support our research and development services and hardware teams. At the corporate level, we're excited to have Sharan Burrow join our board of directors. We also spent significant time in the first quarter working with Lithium Energy on the deal that we recently announced, with the intent to combine our natural graphite assets and take that vehicle public, which I'll speak about in a moment. We're also excited to release our inaugural sustainability report.

It's been a focus of the company to work on lower carbon intensity process technology and focus on ESG, and we'll speak about the importance of this sustainability report. We closed the quarter with about $62 million cash balance. I'll speak first about our most recent announcement, the proposal to combine our Mt. Dromedary assets with those natural graphite assets of Lithium Energy Limited, and take that vehicle public in a new company, Axon Graphite, with the intent to raise capital between AUD 15 million and AUD 25 million. This is a great way for us to advance our Mt. Dromedary project, something the company has owned for a long time, and bring value to our shareholders by putting capital and a dedicated team into focusing on developing what will now be a world-class, large-scale, natural graphite-flake graphite project.

As we turn back to our primary activities in North America, I'll start with our sustainability report. It was a culmination of a lot of work and a focus on our commitment to environmental, social, and governance principles. Through this report, we really identified our top 10 priorities and topic areas, which we'll continue to build out within the company and report on to our stakeholders as we move into production with our Anode Materials division over the coming years. And of course, at the root of our sustainability report is cleaner process technology. And environmental benefits have always been a focus of how we developed both our Anode Materials process technology, as well as our Cathode Materials process. And at the core of our Anode Materials is our proprietary process technology, including our Generation Three continuous induction graphitization systems, which you see the photographs here within our Riverside facility.

We've demonstrated, through a life cycle assessment, a 60% decrease in global warming potential relative to synthetic graphite made in China and a decrease relative to natural graphite made in China. These are critical points as we look to transition the supply chain from Asia to also into North America. The same things become true as we look at our cathode synthesis technology. Our all-dry, zero-waste process simplifies the process, requires less power, and eliminates significant waste streams that exist with the traditional process. So these types of environmental benefits remain a core principle of how we develop key process technologies to scale here in North America. Of course, along with the benefits that come from the environmental impact, we have to make the best-performing products at the right cost structures in order to work with key partners such as Panasonic Energy.

This offtake with Panasonic Energy is really the culmination of many years of work with between our teams in developing the right products for their use here in North America. Panasonic Energy has significant developed relationships across the EV sector, with plans to build over 200 GWh of capacity in North America. In this supply agreement, we'll begin deliveries to Panasonic in 2025 and support them with 10,000 tons of capacity over an initial four-year term, subject to milestones leading into those initial deliveries. A key element of this long-term agreement is a price structure that incorporates mechanisms for price adjustments in response to changes in our raw material costs over the term of the agreement. These are critical as we look at building a new supply chain, looking at the materials, the process technologies, and the commercial structures that will support growth in this industry.

Of course, this continues to set NOVONIX apart with its Riverside facility. Our Riverside facility will be the first large-scale, dedicated site to producing battery-grade synthetic graphite here in North America. We bought this facility in 2021, and now we plan to scale it to 20,000 tons of output, and we made significant progress on the engineering in order to meet those key milestones. When we look at the important work streams, the first is product and technology. We've continued to be running production campaigns with our graphitization technology, as well as other mass production assets, and these continue to validate the unit economics that we put to the market in targeting mid-20% operating margins from this facility. The next is, of course, supply agreements.

We have our supply agreement with KORE Power to support their KOREPlex facility, which will scale to 12,000 tons of capacity, along with their increasing demand as they build out that site. And now adding alongside that, this key agreement with Panasonic Energy for 10,000 tons over the four-year period of 2025 to 2028 continues to build demand from this site. And as we look at financing this growth, we were awarded $100 million of grant funding from the Office of Manufacturing and Energy Supply Chains, and now also have this $103 million tax credit, which we can look how to best facilitate growth in the project, because it can be monetized for sale through cash. And of course, we're building this project out at exactly the right time.

We're aligning with the growth of our customers and building into a huge supply-demand imbalance that's forecasted for the later part of the decade here in North America. With over 1 million tons of potential graphite demand coming online, there will be significant shortfalls, and with the key incentives to buy localized product under things such as the Inflation Reduction Act, customers have strong demand now for companies that can qualify at mass production scale, their products and process technologies, which only Riverside can do. We've continued to advance our engineering work, and we've now placed orders for all the primary processing equipment that we need to support our initial 3,000 ton per year target.

We've completed the engineering work to define all the facility requirements needed for our full 20,000-ton expansion, and we've engaged an independent engineering firm to review and assess all of our internal engineering and produce a report that's expected in the second quarter to continue to support the expansion to 20,000 tons. We spoke about our key customer agreements with Panasonic Energy and KORE Power, and it's worth noting that KORE Power, Panasonic Energy, and our other agreement with LG Energy Solution, these customers represent about a third of the forecasted demand for 2020-2030 in North America. So it's important that we're working with customers that not just we bring initial supply agreements with and bring online from our Riverside facility, but see strong growth for future projects within the company as well.

And we continue to look at how to support the financing requirements of our investments into Riverside and beyond. We're maintaining a strong cash position with over $60 million of cash on hand. We have access to our $100 million non-dilutive grant, and now we're looking at how we can support the monetization of our $103 million tax credit, which is up to 30% of the credit which we applied for, a $343 million US dollar project for Riverside. And we continue to make progress with the Department of Energy Loan Programs Office through their ATVM project for future growth in the company. So we've had an exciting quarter, and we continue to look at our key areas of focus in 2024 for growth.

Maintaining industry leadership in research and development for battery materials through our Battery Technology Solutions group, our advancements with our all-dry, zero-waste cathode synthesis and sampling materials to customers. Scaling our operations, of course, the focus on Riverside, completing engineering, now procurement of equipment and the installation of that to reach our 3,000 tons per year target by the end of this year, and then progressing that engineering into our greenfield plans. Securing Tier One customers. We're looking to continue to make advancements with other Tier One cell manufacturers and automotive companies, and of course, our milestone in signing a supply agreement with Panasonic Energy is great evidence to this progress. We'll look to allocate all of our Riverside capacity and start making allocations, further allocations into our greenfield capacity through the course of this year. All of this goes with securing financing for our operations.

We've done very well to secure government financing in the form of this grant and tax credit and our work with the Department of Energy Loan Programs Office, and we'll continue to look to attract strategic investment to align with the capacity ramp of both Riverside as well as future projects. So we're excited for the future of NOVONIX. We continue to maintain our position at the forefront of product innovation and being recognized as a technology leader, while focused on scaling our Anode Materials division to our eventual target of 150,000 tons of production in North America, commercializing our all-dry, zero-waste cathode synthesis technology, all while continuing to invest in new IP positions to broaden our space in the battery material supply chain and build new parts of the company that can see strong cash flows in the future. Thank you.