FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022
(EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022
(expressed in thousands of Canadian dollars)
This Management's Discussion and Analysis of Electra Battery Materials Corporation ("Electra" or the "Company") ("MD&A") was prepared on August 11, 2022 and provides an analysis of the Company's financial results for the three months and six months ended June 30, 2022, and 2021. The following information should be read in conjunction with the accompanying condensed interim consolidated financial statements for the three months and six months ended June 30, 2022, and 2021 with accompanying notes which have been prepared following IAS 34, Interim Financial Reporting ("IAS 34"). All dollar figures are expressed in thousands of Canadian dollars unless otherwise stated. Financial Statements are available at www.sedar.com and the Company's website at www.electrabmc.com .
Electra was incorporated on July 13, 2011, under the Business Corporations Act of British Columbia and on September 4, 2018, the Company filed a Certificate of Continuance in Canada and adopted Articles of Continuance as a Federal Company under the Canada Business Corporations Act (the "CBCA"). On December 6, 2021, the Company changed its name from First Cobalt Corp. to Electra Battery Materials Corporation to better align with its strategic vision. The Company is focused on onshoring the EV supply chain and processing battery materials from its Refinery in Temiskaming Shores, Ontario.
In addition, the Company continues to explore its Idaho mineral properties as a potential future source of North American cobalt and copper.
Electra is a public company listed on the TSX Venture Exchange (TSX-V) (under the symbol ELBM). On April 27, 2022, the Company began trading on the Nasdaq Capital Market (Nasdaq) (under the symbol ELBM). The Company's registered and records office is Suite 2400, Bay-Adelaide Centre, 333 Bay Street, Toronto, Ontario, M5H 2T6. The Company's head office is located at 133 Richmond Street W, Suite 602, Toronto, Ontario, M5H 2L3.
Q2 2022 H IGHLIGHTS AND R ECENT E VENTS
On April 5, 2022, the Company announced that it was undertaking a consolidation of its outstanding common share capital on an 18-to-1 basis, thereby reducing the number of shares outstanding from 564,443,309 to 31,357,959. The share consolidation was completed to support a listing application for Electra's shares on the Nasdaq, which required a share price of at least US$3.00 at the time of the application. Approval was subsequently received and the Company commenced trading on Nasdaq on April 27, 2022, under the ticker symbol "ELBM".
The at-the-market equity program ("ATM Program") established in January 2022 to allow the Company to issue up to $20,000 of common shares from treasury to the public was amended on May 17, 2022, to extend the program to the Nasdaq.
On April 11, Electra announced the appointment of Renata Cardoso as Vice-President, Sustainability and Low Carbon. Renata will have overall responsibility for the Company's mission to exceed global ESG norms in the industry, in line with Electra's business objective to be the partner of choice in the EV market. On May 25, 2022, Electra announced the appointment of Joe Racanelli as Vice President, Investor Relations, responsible for the Company's engagement with the investment community. On June 8, 2022, Electra announced the appointment of Craig Cunningham as Chief Financial Officer and ended Michael Insulan's appointment as Interim Chief Financial Officer. On June 22, 2022, the Company appointed David Marshall as Vice President, Engineering to oversee refining expansion studies and support the Refinery construction project currently underway.
On June 22, 2022, Electra announced preliminary discussions with the Government of Quebec on the construction of a new cobalt refinery in Becancour, Quebec that will integrate with an emerging battery materials park in the province.
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022
(expressed in thousands of Canadian dollars)
In support of the effort, Electra is undertaking a study to determine the feasibility of building a second cobalt refinery and potential synergies from integration with other battery material companies in the province as well as potential funding from the federal and provincial governments.
On July 26, 2022, Electra announced the completion of a Benefits Agreement with the Métis Nation of Ontario solidifying a relationship between the two parties and providing employment, training, procurement, and business opportunities related to the construction and expansion of the Company's battery materials refinery north of Toronto near Temiskaming Shores. 20,000 common shares were issued as part of the agreement with a deemed value of $82 at a market price of $4.11 per share as of the market close on July 25, 2022.
During the six months ended June 30, 2022, noteholders converted US$3,500 of the principal value of notes, resulting in the Company issuing a total of 789,103 post-consolidation common shares. The Company also made interest make-whole payments to the noteholders upon conversion totalling US$485. As of June 30, 2022, a total of US$9,000 of the principal value of notes were converted by noteholders which resulted in the Company issuing a total of 2,029,122 post-consolidation common shares.
During the six months ended June 30, 2022, the Company was in a net income position of $9,864 or $0.31 earnings per share. This was primarily driven by a $16,685 gain on the fair value of the embedded derivative liability portion of the convertible debt. The Company's costs associated with the Refinery expansion were capitalized, and as a result operating expenses were reduced, thus producing an income position.
Commitments as at June 30, 2022, of $33,449 exceed unencumbered cash of $32,100 after the US $7,500 minimum cash balance required under the convertible debt agreement. Management believes that current commitments can be met through the sale of marketable securities, outstanding government grants, funds available through the ATM, and strategic investments as well as potential equity and debt raise.
To complete the construction and commissioning of the Refinery the Company will require additional funding in 2022. The Company is also in discussion with several parties for a working capital lending facility to finance the purchase of refinery feedstock. As the cobalt Refinery achieves full production, the size of the working capital facility could reach approximately $80,000. Although the Company has historically been successful in financing activities there can be no assurances that the Company will be able to obtain financing. This represents a material uncertainty that may cast significant doubt on the Company's ability to continue as a going concern. The accompanying interim consolidated financial statements and amounts disclosed here do not include the adjustments and classifications of assets and liabilities that would be necessary should the Company be unable to continue as a going concern. Any such adjustments may be material.
The Company continued to advance the battery materials park study commenced in March 2022 in partnership with the Government of Canada, the Government of Ontario, Glencore plc and Talon Metals. The consortium is collaborating on a $900 study of the engineering, permitting, socio-economic, ESG and costs associated with the construction of a nickel sulfate plant as well as a battery precursor cathode active materials (PCAM) plant adjacent to Electra's cobalt refinery and recycling plant. The realization of this vision would result in the creation of an integrated, localized and environmentally sustainable battery materials park for the North American electric vehicle market. The Company's strategic plan would entail the construction of a nickel sulfate facility adjacent to its cobalt and recycling facilities and a partnership with an existing PCAM producer to co-locate at Electra's industrial complex north of Toronto.
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022
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The cobalt Refinery construction project continued to advance with a projected delay in final commissioning in Spring 2023. As detailed below, project completion has been primarily impacted by three developments; equipment quality issues, availability of electrical components and pipe fabrication lead times. Additional cost pressures stemming from equipment delays as well as general inflationary trends increased the average cost of project inputs, such as steel, copper, nickel and freight rates have increased the project cost of completion for the Refinery to $100,000-$105,000(US$70,000-US$73,500). The expected total capital cost to complete the Refinery is $16,000-$21,000, or 19%- 25%, higher when compared to the Company's original guidance of $83,774 (US$67,020). Additional financing will be required to complete the construction and commissioning of the plant.
On April 6, the Company provided an update on battery recycling, Phase 2 of the Battery Materials Park project. A battery recycling demonstration plant is expected to be commissioned in Q3 2022, using existing equipment at a cost of $3,000. The demonstration plant will allow the Company to complete the early commissioning of the feed handling system and leach circuits that will be required for the cobalt sulfate plant. Once the recycling facility achieves expected commercial production in the second half of 2023, nickel and cobalt will be sold to Glencore until the end of 2024 on market-based terms.
On March 14, the Company released drill results to the west of its Iron Creek cobalt-copper project, which extended mineralization by 130 metres along strike and by 110 metres at depth. Broad widths of copper mineralization were intercepted along with high-grade cobalt intercepts. Results to the east of the current deposit were released on May 9, highlighting new cobalt intercepts and extending mineralization by an additional 180 metres as well as a down dip from the eastern edge of the resource zone. The Iron Creek strike extent now extends over more than one kilometre and is open along strike and at depth.
On August 4, 2022, the Company provided updates on Iron Creek including the identification of new mineralization in the Idaho cobalt belt. An open-ended anomaly at Ruby was defined using Induced Polarization (IP) and drilling was initiated on the Ruby target to determine its structure, size, and viability as a deposit extension. 2,500 m of drilling is planned to complete this first pass evaluation. The Company's objective over the next two years is to meaningfully increase the resource size at Iron Creek and advance the asset towards a development decision.
Amendment to Base Shelf Prospectus and At-the-Market Equity Program
On November 30, 2021, the Company announced that it had filed an amendment to its base shelf prospectus to increase the total offering price of the securities of the Company that may be offered from time to time under the Prospectus from $20,000 to $70,000. The original $20,000 capacity had been fully utilized, and this amendment provided an additional $50,000 of flexibility to consider future financing opportunities under favourable market conditions to advance its battery materials park and other growth plans to increase shareholder value.
On May 17, 2022, the Company announced an update to the at-the-market equity program established in Q1 2022 (the "2022 ATM Program"), to allow sales of Common Shares under the ATM in the United States following the listing on the Nasdaq Capital Market in April 2022. The ATM acts as a supplement to the amended base shelf prospectus, that allows the Company to issue up to $20,000 of common shares from treasury to the public from time to time, at the Company's discretion. Distributions of common shares through the 2022 ATM Program will be made under the terms of the distribution agreement between the Company and CIBC Capital Markets. The volume and timing of distributions under the ATM Program will be determined at the Company's sole discretion, and the ATM program is effective until the earlier of the issuance of all common shares issuable under the ATM Program and December 26, 2022. As of the date of this MD&A, August 11, 2022, the Company has issued a total of 472,494 common shares under the 2022 ATM Program at an average price of $5.61 per share, providing gross proceeds of $2,651. A
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commission of $66 was paid to CIBC Capital Markets concerning these distributions. There is approximately $17,349 of room remaining under the program.
Market volatility and economic uncertainty due to the COVID-19 pandemic have cast uncertainty over global economic activity levels. Despite pandemic-related market instability, the electric vehicle (EV) market continues to strengthen in North America, Europe and around the world. The Company continues to advance its plans for the Refinery and has not encountered any adverse effects relating to COVID-19 to date. Best practice protocols have been developed and implemented for an on-site activity to ensure the health and safety of all personnel. Where possible, the Company has procured equipment and materials for the Refinery expansion from North American sources to attempt to mitigate any impacts from global supply chain constraints.
Notwithstanding the foregoing, global uncertainty related to the pandemic may present other challenges that are not known at the current time beyond new supply chain interruptions, cost impacts, or alteration of business plans by the Company's strategic partners.
O UTLOOK AND O VERVIEW OF C URRENT P ROGRAMS
The Company's vision is to provide sustainable battery materials to the EV industry. The Company owns two main assets - the Refinery located in Ontario, Canada and the Iron Creek cobalt-copper project located in Idaho, United States. It also controls several properties in Ontario known as the Cobalt Camp.
The Company has been progressing plans to create an integrated battery materials park in Ontario, Canada. The first phase of this plan involves recommissioning and expanding the Refinery to become the only refiner of battery-grade cobalt sulfate in North America. Electra's primary focus for 2022 is advancing the construction and commissioning of the Refinery and expects to commence commissioning in the spring of 2023. The second phase of the Company's strategic plan involves the introduction of recycled battery materials (known as black mass) as additional feedstock for the Refinery, with commercial, metallurgical, and engineering activities on the potential incorporation of black mass into the Refinery being conducted in parallel with the phase one expansion project. The Company intends to operate a black mass demonstration plant at its refinery complex in the Fall of 2022 to test its flow sheet on a larger scale. The Company has also increased exploration activity in Idaho.
As part of the Company's strategic plan, it is committed to industry-leading Environment, Social and Governance (ESG) principles and expects to have the greenest source of battery materials when in production. The Company has developed an independent life cycle assessment (LCA) that compares projected carbon emissions, water consumption and other environmental outputs against operating facilities in China, and the study will be updated upon the Refinery's commissioning. The Company's 90% renewable energy-powered Refinery scored very favourably on the key environmental metrics. In July 2022, the Company joined the Responsible Minerals Initiative and is developing leading reports and metrics that demonstrate its path to low carbon operations. The Company intends to release its first sustainability report in Q4 2022.
The outlook for Electra's North American assets is discussed below:
The Company is working towards restarting its wholly owned Refinery in Ontario, Canada as the first phase in a multiphase strategy to create an integrated battery materials park in North America. In 2020, the Company announced the results of an engineering study on the expansion of the Refinery that demonstrated that the facility could become a significant, globally competitive producer of cobalt sulfate for the electric vehicle market. The engineering study
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Electra Battery Materials Corp. published this content on 11 August 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 11 August 2022 23:28:04 UTC.