Li-Cycle closes on $475 million DOE loan and reports stronger revenue growth

Li-Cycle has successfully closed on an upsized loan from the US Department of Energy (DOE) to support the development of the its Rochester Hub Project, the company announced alongside its third-quarter earnings report on Thursday November 7

The loan of up to $475 million includes up to $445 million of principal and up to $30 million in capitalized interest through the DOE Loan Program Office’s Advanced Technology Vehicles Manufacturing (AVTM) program. The loan is the first to be finalized for a lithium-ion battery recycling company, the DOE loan announcement stated, and is an increase of $100 million from when the loan commitment was first announced in 2022.

According to the company’s third-quarter earnings report, Li-Cycle successfully completed the Rochester Hub internal technical review under the proposed mixed hydroxide precipitate (MHP) scope and expects annual production of up to approximately 8,250 tonnes of lithium carbonate and up to approximately 72,000 tonnes of MHP. The project’s nameplate processing capacity remains at 35,000 tonnes per year of black mass.

The company had recently announced a 100% off-take agreement with Glencore for the facility’s MHP production on October 31, which Li-Cycle said at the time was a step that could support the company’s efforts to finalize the DOE loan.

“We believe the completion of the DOE loan agreement and the continued support from partners like Glencore are strong endorsements of our technology, business model and the key role that Li-Cycle will play to support the shift to electrification,” Ajay Kochhar, Li-Cycle president and chief executive officer, said in the company’s third-quarter earnings call on Thursday.

“We also thank the DOE for their continued support and are grateful for the bipartisan support for lithium-ion battery recycling and how it can underpin the development of a strong domestic battery supply chain,” Kochhar said.

Rochester Hub Cost to Completion

The company estimates the total capital cost of the Rochester Hub project through to mechanical completion to be approximately $960 million, with the current remaining estimated cost to complete at approximately $487 million.

According to Li-Cycle’s November 7 loan announcement, the loan will reach final maturity in March 2040, representing an approximately 15-year term, with a grace period on scheduled principal repayments until June 15, 2027. Interest during the construction period of the Rochester Hub can be capitalized up to $30 million, instead of being paid in cash.

But prior to the first advance under the DOE loan facility, the company must complete its base equity contribution (BEC) to the Rochester Hub project, which includes “settling certain existing commitments relating to the project for costs incurred but not yet paid” — totaling approximately $94 million — as of the end of the third quarter of 2024, and “funding approximately $173 million in reserve account requirements, of which up to approximately $97 million” can be satisfied through credit.

According to the announcement, these amounts “represent a significant portion of the remaining BEC” and “are among other components of the BEC that will need to be satisfied prior to first advance.”

“Throughout 2024, one of Li-Cycle’s primary objectives has been to finalize negotiations with the DOE in order to enter into definitive documentation to obtain a DOE loan. Securing the DOE Loan Facility through our close collaboration with the DOE is a critical step toward our goal of restarting construction at the Rochester Hub project,” Kochhar said of the loan announcement.

“We believe [the DOE loan] will also enhance our financial flexibility and support our mission to create a sustainable, closed-loop battery supply chain, which is vital to the electrification transition and securing energy independence in North America,” he added.

According to the company’s third quarter 10-Q SEC filing, the company is “actively exploring additional financing and strategic alternatives for a complete funding package needed to restart construction at the Rochester Hub (of which the DOE Loan Facility is a key component) and for general corporate purposes. The funding package would assist in satisfying the conditions required to draw against the DOE Loan Facility, including funding the remaining [BEC].”

But, the 10-Q went on to say, “there can be no assurance that the company will be able to secure additional funding at attractive commercial terms, or at all.”

“Furthermore, any additional financing, including the recent Glencore…investment, and any borrowings that become available under the DOE Loan Facility, and any future sales made” under the equity offering program for offer and sale of common shares as part of the At The Market Issuance Sales Agreement between Li-Cycle and B. Riley Securities Inc. in June 2024 [ATM Program], “may be insufficient to provide adequate liquidity for ongoing operations, to fund the company’s future growth or capital projects, including the Rochester Hub, or otherwise satisfy any of the company’s funding needs and obligations,” the 10-Q stated.

Both DOE and Glencore loans/funding “have, or will have restrictive covenants that significantly limit the company’s operating and financial flexibility or its ability to obtain future funding. In addition, there are inherent risks associated with the company’s ability to execute its growth strategy. There can be no assurance that the company will develop the manufacturing capabilities and processes, secure reliable sources of component supply to meet quality, engineering, design or production standards, or meet the required production volumes to grow into a viable, cash-flow-positive business successfully,” according to the 10-Q.

Following the securing of additional financing alternatives, the Rochester Hub will be subject to the completion of the company’s comprehensive review and updated final investment decision before construction at the Hub begins again, according to the company’s third-quarter earnings presentation.

The loan announcement comes at a time when market sources have expressed concern regarding future funds for the industry, following the results of the 2024 US presidential election. But, the company’s third-quarter presentation said, there is “bipartisan support for building a domestic battery supply chain for economic and national security interests.”

Stronger quarterly results

The company’s third-quarter earnings report noted that Li-Cycle is continuing to implement spoke optimization initiatives, which it believes “will improve cash flows at its Generation 3 spokes in Arizona, Alabama and Germany, with a view to establishing a self-sufficient and financially accretive spoke business.”

The company announced it had achieved strong year-over-year revenue growth in its quarterly earnings, with total revenue reaching $8.4 million in the third quarter of 2024 compared with $4.7 million in the same quarter of 2023. The company cited the revenue increase as a result of higher recycling services revenue, totaling $4 million in the quarter, versus $1.2 million in the same period of 2023.

In the three months ended September 30, Li-Cycle sold a total of 1,989 tonnes of black mass and equivalents, up from 892 tonnes in the same 2023 period. In the first nine months of the year, the company sold a total of 4,190 tonnes, up from 3,866 tonnes sold over the first nine months of 2023.

The company noted in the 10-Q report that the increase in recycling service revenue was primarily due to new service contracts entered into in 2024 in addition to the Germany spoke operations that began in August 2023.

These increases have helped offset declining nickel and cobalt prices in 2024. The company’s 10-Q report showed average market price per tonne for the nine months ended September 30 as $25,807 for cobalt and $17,079 for nickel. These prices are down significantly since the same 2023 period, when the average price per tonne was $33,363 for cobalt and $23,574 for nickel.

These declines have led the declining payables and demand in the black mass market, as refiners have struggled to operate amid thinner and thinner margins.

Li-Cycle produced 4,172 tonnes of black mass and equivalents in the first nine months of 2024, down from 4,891 tonnes in the same 2023 period. The 10-Q reported cited the decrease as a result of the slowdown of operations at the company’s North American spokes, but was offset by an increase in European spoke operations.

As of September 30, the company has 4 operational spokes: New York, with a mainline material processing capacity of 5,000 tpy, and Arizona, Alabama, and Germany, each with material processing capacities of 10,000 tpy.

Despite these competing factors, Kochhar noted that long-term fundamentals for the battery recycling industry remain strong.

“We continue to believe strongly in this market and the role that we will play in energy and critical material independence,” Kochhar said.

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