In my last article on Electra Battery Materials (OTCQX:ELBMF), I explained how the company is steadily moving towards commercial operations from the end of 2022. Many readers have asked me why the was so cheap, or at least why was it apparently shunned by institutional investors?
In February, less than 12 months before the hydrometallurgical refinery began commercially producing 5,000 tonnes of cobalt sulphate, there were few institutional investors: the CEO held more free float than all institutional investors combined. This has changed and will change even more. But first, let’s look at the progress the company has made.
Electra is progressing steadily
Regulatory requirements and permits
Electra has been making steady progress since the publication of my last article. A critical end-of-life plan for the refinery has been approved by the government, giving one of the last regulatory green lights and allowing the company to continue and accelerate construction. This latest approval keeps Electra on track for Phase I commercial production which will begin in late 2022.
Construction of the cobalt refinery began with the pouring of the foundations for the solvent extraction building. The building is expected to be completed by the end of this month. Once the cobalt has dissolved, it should be crystallized into a solid. The equipment for this should arrive on site before the summer. Milestones are being met on a regular basis, which builds confidence that Electra will meet its Phase I goals on time and within budget.
Electra was exploring a partnership with mining giants Glencore (OTCPK:GLCNF, OTCPK:GLNCY) and Talon Metals (OTCPK:TLOFF), and the Ontario government. The partnership concerns the study of the construction of a nickel sulphate refining plant, as well as a precursor cathode active materials (PCAM) plant, which is a link downstream of the refining operations in the production chain. supply of electric vehicle batteries. This joint study agreement steadily advances Phases III and IV of Electra’s strategy. Initially, the partnership was to raise $700,000, including $250,000 each from the Ontario government and Electra, and $100,000 each from Talon and Glencore.
A few days later, the Government of Canada announced that it would also contribute $250,000 to the study, not only deepening the scope of the studies, but also marking the commitment of a higher level of government. As we will see later, the Government of Canada, together with the Government of the United States, is accelerating its efforts to revamp electric vehicle supply chains and is investing accordingly. This supports companies like Electra by reducing their development costs.
Having the full weight and support of Canada for our ambitions is a clear message to the market that Electra will play an important role in the evolution of the North American automotive supply chain as the transition to electric vehicles continues. The partnership with Canada, Ontario, Glencore and Talon on this study provides a clear path to further implementation of the Battery Materials Park project. It is critical to a low-carbon future that we process materials to battery-grade specifications here in North America.
Michael Insulan, Vice President, Electra Battery Materials
The announcement of the partnership to advance Phase III and Phase IV of Electra’s strategy is a welcome development that shows broad support for supply chain relocation in North America.
Moving up a link in the supply chain from Electra’s refining operations to its mine in Idaho, the company has also made steady progress. Drill results were released recently and showed that the Iron Creek property most likely has a substantial amount of high-grade cobalt. Drilling results have revealed the high probability that the cobalt deposits are above estimates from previous explorations of the property. As Electra continues to drill, it continues to find high-grade cobalt mixed with copper. The latest drilling intercepted zones with 0.51% cobalt present over a width of 1.5m. More technical details can be found here. The drilling results give hope that more cobalt will be found on the Electra property.
Listing on NASDAQ
The company’s shareholders approved a reverse stock split at a meeting in December 2021. The 18:1 reverse split, which the company calls a “consolidation,” will take place on April 11, 2022. The stock splits and Reverse stock splits do change the fundamental value of the company, since all that changes is the size of a slice of the company’s equity value represented by each share. So why is this important? Since the reverse stock split will increase the the price of each share, ejecting the company from the penny stock category. This, in turn, will allow the company to meet one of many NASDAQ listing requirements, specifically the minimum initial share price of US$4.
By listing on NASDAQ, the company’s shares would cease to trade over-the-counter on the OTCQX. (What is OTCQX?) Institutional investors are often restricted from taking positions in OTC stocks by their investment mandates. Those that are not are often reluctant to do so due to a relative lack of liquidity and less stringent reporting requirements than on major exchanges. Although listing is not yet complete, the company’s reverse stock split is making progress towards that goal which it hopes to achieve by the end of April. Listing on NASDAQ would allow the company to tap into a much larger pool of capital than that available on the TSX Venture Exchange and OTCQX markets. The market value of the company’s shares depends on the last price paid for them. Since many investors are unable to participate in the stock market, the demand for shares is suppressed, and the stock is very likely not to reflect all available information, such as the start of trading operations in the next eight months. By listing on NASDAQ, constraints on demand for the company’s stock would be eased and I expect effective demand to increase after a listing. This translates into an expected increase in the stock price, all things being equal.
National Security Critical Minerals
The Canadian and U.S. governments are reinforcing their commitment to securing supply chains of critical minerals. Both governments have published lists of critical minerals for years. However, the issue of critical minerals has taken on greater prominence as the convergence of forces ranging from ESG considerations to national security reinforce each other in the concerns of policy makers. The 2022 Canadian budget contains an explicit mineral strategy (p.65-70) that aims to support critical green mining projects, exactly where Electra is located. The Biden administration conducted a review of supply chains last year and found they posed a threat to national security.
[The] The supply chain assessment revealed that our overreliance on foreign sources and adversarial countries for critical minerals and materials posed a threat to national and economic security.
The White House in a press release dated February 22, 2022
The U.S. government also now relies on the Korean War-era Defense Production Act to “ensure a reliable and sustainable supply of these strategic and critical materials. The United States shall, to the extent consistent with the promotion of national defense, securing the supply of these materials through environmentally sound national mining and processing; recycling and reuse; and recovery from non- conventional and secondary, such as mining waste.” These are Electra’s operations.
The cooperation between the two close allies is expected to deepen on their common interest in a secure supply chain for the energy transition. The Joint Action Plan on Critical Minerals Collaboration has been in place since early 2020, and the two countries met regularly to advance the issue before; the embargoes on Russia have increased its urgency. These developments are longer-term tailwinds for Electra’s stock and reinforce the government’s interest in its success, thereby reducing risk.
Electra also secured a customer for all of its Phase II nickel and cobalt production. The agreement signed with Glencore provides a destination for Electra’s phase II products for the first year of operation, 2023-2024. Combined with the prior agreement with Marubeni to obtain the so-called black mass feedstock for Phase II production, this greatly reduces the risk to the business as both a source of inputs and a destination for outputs have been secured.
Phase I has similar agreements for inputs and outputs: Glencore signed a five-year agreement to sell cobalt hydroxide – the feedstock for Phase I cobalt sulphate production – signed an option toll on 1,000 tonnes of production.
The new deal not only further reduces the company’s business risk for its later stages of growth, but also deepens the relationship with a mining giant, generating goodwill with a global player capable of sourcing inputs and marketing products for Electra’s large-scale operations – and eventually able to acquire the company.
Risk has been reduced on Electra through new agreements, partnerships and government commitments. Meanwhile, Electra is making steady progress toward commercial operations by year’s end. The subdued price action on these encouraging developments should be understood by considering the exchange on which the company’s shares trade. I expect a near-term pop when the company goes public on NASDAQ as demand for the stock increases dramatically with the added transparency and liquidity that will result from moving from the pink sheets to a global reach exchange. I expect strong long-term growth as the company consolidates its place in revamped North American supply chains.