Interview with Trent Mell, CEO of Electra Battery Materials Corp.

Our previous interview: https://www.cruxinvestor.com/posts/electra-battery-materials-elbm-cobalt-nickel-recycling-contracts-2121

Recording date: 30th November 2023

Electra Positioned to Capitalize on Tightening Cobalt Markets
Electra Battery Materials aims to become a major refined cobalt producer just as demand is set to outpace new mine supply. However, inflationary pressures have challenged the company’s construction timeline and budget this year. Additional funding and government support now sought could position Electra for near-term production to capitalize on rising cobalt prices once its North American refining facility is complete.

The company broke ground in late 2021 on a $200 million cobalt refinery in Ontario, Canada. With the facility's existing assets, total replacement value tops $360 million. Initially on pace for 2023 operations, unexpected cost increases from steel, labor, freight and more forced Electra to slow construction in Q1 2022. Costs were re-baselined 50-100% higher across areas of the project.

Cash conservation became critical amid a tricky market backdrop. But leadership also continued procuring long-lead equipment, advancing battery recycling capabilities on-site, and lining up potential new funding partners. This flexible strategy could allow construction to resume quickly if financing comes through.

Crucially, Electra already has 60-80% of initial cobalt production spoken for through an offtake agreement with electric vehicle giant LG Energy Solutions. Set at fixed pricing periods, the 5-year deal provides cash flow visibility. Battery demand trends bode well for tighter cobalt markets mid-decade as supply requires long investment timelines.

Government Support Targeted
With broad policy initiatives like the US Inflation Reduction Act now prioritizing domestic battery metals, as the sole North American cobalt refiner not yet operational, Electra is vying for backing. Federal funding would allow construction to restart in a non-dilutive manner.

Assuming additional funds are secured as planned next quarter, Electra said it could ship refined cobalt before year-end 2023. Better margins appear achievable over Chinese refining, especially when factoring in ESG benefits of localized production. Lean operations around $2,500/tonne look possible long term.

The project's strong economics even attracted partnership interest from the Quebec government to build a second facility there. While not yet planned, this highlights Phase I's strategic advantages. Once up and running, adding battery recycling and nickel refining would further boost production, revenues and profitability.

Investor Considerations
With cobalt prices down 65% from last April's peak, restarting now allows maximum leverage for when deficits reappear as electric vehicle sales ramp up. Though the timing delay raises execution risks, management has realigned costs and timelines. The CEO believes construction itself now poses lower hurdles than the initial decision-making to launch a new mining project. De-risking factors also include fixed-pricing contracts and a fully permitted brownfield site.

While not without challenges, Electra Battery Materials advanced numerous initiatives in a down market and could quickly move to revenue generation with further backing. Its leadership has managed to keep a steady long-term focus through present industry complexities. Crucially, the company looks to be counter-cyclically creating vital supply infrastructure just ahead of widening North American EV metals shortages over the next five years. The time to fund production appears opportune.
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View Electra Battery Materials' company profile: https://www.cruxinvestor.com/companies/electra-battery-metals

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