Aqua Metals, Inc. (AQMS) on Q1 2022 Results - Earnings Call Transcript
Company Representatives: Steve Cotton - President, Chief Executive Officer Judd Merrill - Chief Financial Officer Ben Taecker - Chief Engineering and Operating Officer Glen Akselrod - Investor Relations
Operator: Greetings! Welcome to Aqua Metals Q1 Investor Call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. You may submit a question via the web at any time by using the "Ask a Question" feature on the side of your screen. . Please note, this conference is being recorder. I will now turn the conference over to spokesperson, Glen Akselrod. Thank you. You may begin.
Glen Akselrod: Thank you, Alex, and thank you and welcome to Aqua Metals first quarter 2022 results conference call. Earlier today Aqua Metals released financial results for the quarter ended March 31, 2022. The release is available on the Investors section of the company’s website at www.aquametals.com. Joining us for today’s call from management is Steve Cotton, President and CEO; Judd Merrill, the company’s Chief Financial Officer; and Ben Taecker, Chief Engineering and Operating Officer. During today’s call, management will be making forward-looking statements. Please refer to the company’s report on the Form 10-Q filed today, April 28 for a summary of the forward-looking statements and the risks, uncertainties and other factors could cause actual results to differ materially from those forward-looking statements. Aqua Metals cautions investors not to place undue reliance on any forward-looking statements. The company does not undertake and specifically disclaims any obligation to update or revise such statements to reflect new circumstances or unanticipated events as they occur, except as required by law. As a reminder, after managements formal remarks we’ll be taking questions. Questions will be accepted over the telephone from analysts and all other investors can submit a question using the online webinar portal provided in today's and last week's press releases. We will take as many questions as we can in our available time slot. And with that, I’d like to turn the call over to Steve Cotton, CEO of Aqua Metals. Steve, please go ahead.
Steve Cotton: Thank you, Glen, and thank you everybody for attending today. For those of you that have access to the slide Deck, you can follow along and we're going to refer to the slide numbers as we go through the slides for those of you that are looking at the slide deck not synchronized, but offline and for those of you that don't have access to the slide, you can listen along and refer to the deck at a later time. So I'm going to start with slide number one, which is that Aqua Metals as evidenced today by some announcements that we made earlier this morning, as well as further materials that we will be providing. We are really leading a revolution in both lead and lithium battery recycling. Moving on to the next slide, Glen read to you guys the Safe Harbor, so I'm not going to belabor that, that's for your reference. Slide number three, is our mission statement. That is, ‘To provide sustainable metal recycling for materials that are strategic to energy storage applications. Our proven breakthrough technology, AquaRefining returns these raw materials to the manufacturing supply chain in both the clean way and an economical way, reducing reliance on mining to meet the growing demand.’ Slide number four is a quote that shows – two quotes really from the U.S. Secretary of Energy Jennifer Granholm, as well as the general comment from the U.S. Department of Energy, and I won't read those quotes to you. But you can see that effectively the vision for the future of stored energy recycling and closed loop processes is about air and water and clean energy as inputs. And AquaRefining differentiate greatly from the other technologies that are out there, because we uniquely use the renewable electron versus fire that’s used with smelting, which is the only commercially proven process to-date to recycle lithium-ion batteries and lead battery, and also chemical as the reagent. So it’s a really important differentiator for AquaRefining that we use that electron, because it can't be renewable that makes it worthwhile to make a full energy transition and power that energy transition from clean processes. The next slide number five is that our technologies are really aligned with the DOE vision for these reasons. We use a room temperature closed loop, fundamentally non-pollutive process. We’ve already commercially proven our lead recycling capabilities, which will talk about where we are with our lead deployments very soon here in this presentation. We've got a cleaner and more cost-efficient recovery and recycling process, so the economics are there, as well as the environmental. We produced a higher quality end product with flexibility that I’ll talk about and we’re expanding of course to the lithium recycling metals, which are inclusive of cobalt, nickel, manganese, copper and lithium. And in order to do all this as an enabler as well as a technology partner, we are patent protected on a global basis. Slide number six is a summary of our recent milestones, and we’ve had a very busy year so far and we're going to talk about that, as well as what's coming up for the remainder of the year. As you'll see in the blue, which is the past to present, and then we'll get into the green which is the present to future, in March we already announced that we produced the high purity lithium hydroxide at our innovation center, where Judd, Ben and I are sitting today. Our high purity lithium hydroxide is unique and we’ll talk about some of the attributes of that, but that's quite a milestone and we believe that we are the first company that has produced high-purity lithium hydroxide from black mass in the lithium-ion recycling world. In March – we also on March 22 announced that we produced high purity copper at our innovation center in metal form, and we’ll show pictures of these materials by the way as we move through the deck. On April 28, which is basically our announcement today, we announced that we produced high purity nickel at our innovation center. So we have one more metal to get to the high purity production to go, which is the cobalt as we prepare, as we move towards to the Green Line for Q2, Q3 deployment at ACME in Taiwan, our led recycling which we're very excited about and we'll talk about more, and we're also preparing by Q3 of 2022 our pilot scale operational testing of our end-to-end black mass to end product lithium-ion AquaRefining system, right here at the Innovation Center at Tahoe-Reno Industrial Center. By Q4, Q1 of 2022 getting into 2023, we could see the potential first full scale deployment of AquaRefining to lithium-ion battery. Our ticker is AQMS on NASDAQ. We are incorporated in 2014. We have 75 million shares outstanding as of March 31, cash-on-hand is $9 million as of March 31 and the company is debt free and has a very strong balance sheet. Judd will be speaking to our financials a little bit later on in our presentation today. Moving on to slide number seven, let's summarize the highlights of our accomplishments just in the past 90 days and to-date in this quarter, Q1. First off is that our lithium AquaRefinery here in the Innovation Center, the black mass with the critical metals production is nearly complete, and as I referenced earlier, produced the world's first lithium hydroxide, what we believe is the world's first high purity copper metal in metal form, and the world's first high purity nickel metal in metal form from varied battery chemistries and varied black mass sources. I'd like everybody to close their eyes for a second and envision a world that has the future of clean energy, closed loop that has a company that can produce these materials and then open up and look at the front of your eyes what we've accomplished with our innovation center. Nobody else has accomplished that. Second, our secured black mass feedstock is really critical for our pilot system through the year 2023. You'll see in our press release that we put out today on a quarterly results that we secured that black mask feedstock and that insurers our supplied to meet the pilot scale needs as we get through the year 2023 through varied supply chain commitments that we've made for that black mass. So there's no more concern on supply through the year 2023 for the company for input feedstock to its processes. Third, we've added key organizational capability. We've added engineers to help our innovation to proceed at a more rapid rate. For the Asia Pacific region we brought on a leader, Justin Chen that we announced, you can see in our prior announcements, to help us on the ground there in Taiwan with our lead deployment of AquaRefining in Taiwan, as well as the business development related to that which we'll talk about and our overall Asia Pac strategy inclusive of lithium. Justin was the Country Manager for China for Albemarle, which is the world's largest lithium company. We also hired our Chief Strategist to the company as a really strong individual Dave McMurtry, who is helping us drive forward pursuing government grants from the infrastructure build, as well as working with Silver State Government Relations to help us make sure that our local centers in Nevada as well as Governor and the folks in K-Street are well aware of what Aqua Metals is doing here. Quite a bit of organizational capacity added for just this quarter. Next point, our patent portfolio has continued to grow in quarter. We added one U.S. and two international patents, which now totals 82 that have been issued and it allowed matters, nine in the U.S., 74 in issued patents and three allowed foreign applications. Our lithium-ion patent application this quarter progressed from a provisional to a pending status as we continue to add to the IP portfolio. Next bullet point is that our Taiwan led AquaRefining equipment for ACME Metals shipped and the installation of commissioning is really the next step. That commissioning is slated to start in July instead of June and there is still about a 30 day delay due to COVID restrictions, but we anticipate that that’s the only delay that we should see. Next bullet point is we've accelerated our research and development efforts and we did access in the quarter the ATM for a total $3.9 million as we said we would do before, to achieve strategic steps. What we used those funds for was to invest in the equipment and people and that black mass that I referenced in the second bullet point here, to support our pilot and the potential future scaling of that pilot, which could turn our pilot line here at the Innovation Center into a revenue producing facility that we'll talk about shortly. Moving on to the next slide, slide number eight. This is more detail on ACME in Taiwan, which is still on track for our Q2 and Q3 install commissioning and ramp. In Taiwan ACME is our first partner, and the largest and fastest growing part of the lead acid battery market, really given the lithium battery market which is in the Asia Pacific region. As I mentioned before, our leader is onboard and on the ground in Taipei, working with ACME closely. We will showcase the clean lead recycling technology called AquaRefining in a market where the environmental drivers are getting stronger and much more quickly growing in importance and in their nature of clean processing of metals, and ACME has those strong relationships. There is a third bullet point with global battery manufacturers to develop a methodology to produce oxide directly from the AquaRefining material. You'll see a couple of pictures from the quarter below of our team members saying goodbye to the equipment as it gets packed up and prepared for shipment to ACME in Taiwan and we're very excited about moving forward with that installation and moving forward with the commercialized version of the first AquaRefining technologies for lead. Moving on to slide number nine, this is just really a market opportunity that is staggeringly quickly growing in the lithium space as well and the predicted volumes of used batteries make it imperative that recycling is done sustainably, so we can see the growth for demand and do it in a sustainable way. So it was worth it to transition from fossil fuels to a clean energy source and clean stored energy. For Aqua Metals we estimate our total addressable market to be quite interesting at $10 billion by mid-decade and up to $31 billion by 2030 and that's really based on AquaRefining recovery rates, specific to our recovery and the value of what we can create from the materials. So we are quite excited about the market opportunity that we have as we look forward into the future. Moving on to slide 10, this summarizes the three areas, how lithium demand is rising at a very rapid rate. You can see in the upper left. With the global demand for lithium-ion batteries being over 3.1 really terawatt hours by 2030 and the second graphic to the right of that, talk about supply chain risks. You'll see the regions where the various metals are coming from and you might notice that in North America there's none when it comes to nickel and cobalt and lithium. However, Aqua Metals demonstrates that we can utilize our technology to generate nickel, cobalt and lithium and do the nickel and cobalt in metal form and the lithium in hydroxide form, all of which are high value to see that growth in demand. So recycling really does change the game and puts a great opportunity on a go forward basis. On the bottom graph you'll see that the lithium-ion battery recycling can become a game changer in the supply of lithium-ion battery materials as we get towards the end of the decade. So now let’s do a comparison on slide 11, of smelting and standard hydro and AquaRefining. There’s three basic processes that are out there today. 95% of the lithium batteries today are unfortunately not recycled and end up in the landfill and the 5% that are recycled go through a smelting process which results with a high environmental impact, and is not a viable long term solution as this does not recover any of the lithium source. Smelting is not lithium recycling. In fact, really there’s no commercial lithium recycler going on today in the world as we stand today. So there's a great opportunity to improve upon the old smelting processes. And the first step towards that is hydrometallurgy, which we've seen multiple players that are out there in that hydrometallurgical world working on chemical precipitation. First off the challenge with a chemical precipitation is it’s not proven its scale and it's expected to produce battery grade precursors. We think that’s high risk. We think that’s high risk because of the impurities that can get into those chemical precipitation processes and it also using 200x the chemicals that we’ll talk about compared to AquaRefining can have great economic costs and great environmental cost and worker safety costs, and there's challenges to those methodologies that have not been proven and we think AquaRefining frankly is a better way. And what AquaRefining differentiates as I mentioned earlier is that we create the high purity metal in the metal form, and has a low risk to get to precursors. As you'll see in our press release that we put out today, and I'll show you a picture of it in the next slide, we not only produced nickels in metal form, we easily were able to take that nickel and metal form and make a nickel sulfate, and that is a really important step in getting to battery precursors with a known process, which is the way the primary metals are mined and today turned into those precursors from those pure metals. If you're making the pure metals to begin with, you could not only sell them to the pure metals market, you can also get to those precursors without lengthy, multi-year, pre-qualification processes that are very stringent that we know all about, because we have to go through that with our lead AquaRefining and it will be even more complex in the lithium space. Going from metal to salts is a much straightforward more path. Slide number 12 shows what materials we produced from the black mass that we publicized it to-date. And you'll see on the left, the picture of the black mass and that's the amalgam of the ground of lithium-ion batteries that have been discharge in ground to a material that can then begin to be processed. Today again that goes to a smelter. In the future, in a commercial level we believe AquaRefining will be the best solution, because we've already produced that lithium hydroxide and lithium hydroxide as compared to lithium carbonate has some advantages in the way that that becomes a capital precursor for batteries. We've also produced the copper in metal form for copper foil production for new batteries and today's announcement of the high purity nickel, also easily to getting to nickel sulfate from that high purity nickel is a great step forward in the full length of getting from black mass to the end products. We're very proud of our accomplishments on this front and we like to sit around and look at those pictures all day long frankly. Moving on to slide number 13, this is why the nickel one, the nickel announcement is a major accomplishment. First of all, the high purity has been validated by an accredited third party lab. The high purity nickel sells for over $30,000 per ton and the AquaRefined nickel can easily be sold into global metal markets, because it's not just battery people buying nickel, it’s the steel and superalloys industry, etc. that has a high demand for nickel. We’ve seen quite a bit of news about nickel based upon the Russian invasion of Ukraine and the offlining of nickel that is on the global markets and driving up the cost of nickel, and that’s a very interesting element as we go into the future. The high purity nickel enables the battery grade nickel sulfate and how that nickel sulfate is made today as I mentioned before and other hydro precipitation methods will be much more difficult to qualify and to manage those impurities, especially as they trickle through the system in developed systems. We are the only non-smelting process that proves that we can recovery these high value minerals in ultra-pure form without multiple refining steps. What that equals is better economics and better environmentally favorable results for everyone. Moving on to slide 14. The extraction of all critical minerals has nearly proven. The path to lithium revenue for Aqua Metals could begin in 2023. We are commencing orders of key lithium AquaRefining pilot equipment for our innovation center, which is being prepared for commissioning of pilot operations to commence in a matter of months by August. We have already secured as I mentioned earlier, the black mass input feedstock from multiple sources for pilot operations through the latter half of 2022 and all of our plans for 2023. And we have an upside opportunity. We believe that we can take the pilot operations at the Innovation Center and scale to meaningful quantities to achieve revenue of significance in 2023. We are also making significant progress working with LiNiCo and will be planning to deploy what lithium AquaRefining analytical facility just down the road from our pilot and demonstration facility also in 2023. Judd, Ben and I just completed the meeting with the LiNiCo team and are very excited and proud of what they've been up to accomplish and provide us that feedstock of black mass so we can begin that process in addition to our own efforts. Slide number 15, I will summarize lithium AquaRefining. The expected advantages are that the lowest operating costs that are possible we believe we can achieve and the OpEx which means the operating expense estimates were competing technology as published with global reports are between $2,200 and $5,000 per metric ton of black mass and we expect to be significantly below the $2,200 in our processing costs. AquaRefining also uses one to 100 of the chemicals hydro processes and we recycle the chemicals that we do use. Our highest quality products that we produce have the highest percentage of the minerals recovered and the valued range depending upon the various types of feedstock are quite large numbers per metric ton as you can see, $12,500 to $32,000 per metric ton. We think we've got the best business model. We have the option to sell products which are used in both, the battery supply chain or the metals industry. We also have a geographically unbalanced capability to – with our business model to do that through licensing as we intend to work through with LiNiCo right here in our own zip code, but anywhere in the world and so we’re not client constrained. We have the optionality to engage in joint ventures with all parties that are interested in a joint venture to build and operate a recycling plant utilizing AquaRefining technology and we’ll be a recycler ourselves inclusive of our pilot line, which could become a meaningful demonstration plant that produces revenue for the company. And this is a nascent industry and it’s not replacing an incumbent technology, but rather setting the standards, so all lithium recycling facilities are being built from the ground up. In other words, they are all greenfields and we want the green fields to be green. We want the lowest environmental impact. We want the only way to get to net zero through recycling to be through AquaRefining, because we are the only ones that use that renewable electron as the reagent, rather than the chemical, rather than the of fuel based fires. So we also improved worker safety greatly, because we're not doing hot work and we're not dealing with highly caustic, large quantities of chemicals and waste streams. So the worker protection, particularly as we are in the United States and other regions that want to defend and support their critical minerals, with technologies we also want to arm our workers with the safest way to work in these plants, and places that people want to go work and that's a really critical elements of our core plan is that workers safety. So I'm going to pass the presentation on now to Judd Merrill, our CFO, to give the financial over and Judd will begin now. Go ahead Judd.
Judd Merrill: Alright, thank you Steve. I've got a few comments on each of the financial statements. I’m going to start first on the balance sheet, which is on slide 17. As of March 31, 2022 we had total cash of $9 million, working capital of $7.9 million and this keeps us with our continued healthy cash and working capital balances. The accounts receivable amount includes money due from the sale of equipment. The assets held for sale includes non-core assets that are no longer necessary for our future offering plant and in fact we will note that there were some assets sold in Q1, including about $800,000 worth of equipment to LiNiCo and $600,000 in non-core equipment to other vendors. Also during the quarter we exercised our warrant with LiNiCo, which increased our ownership in the company. The amount of increase was $500,000 payment that was made in Q1 and our current ownership is approximately 12%. The lease receivable includes our lease to buy agreement with LiNiCo, which is accounted for as a sales type lease. On the liability section there is very little change compared to year end and as the company continues to be debt free. Now moving to the income statement on slide 18, during the first quarter of 2022, Aqua Metals was focused on research and development activities to enhance our ability to recycle metals found in lithium-ion batteries and we commenced shipping equipment to ACME Metals. So we were not in commercial production during the quarter of 2022 and as a result, again its generating revenues during this quarter. Cost of product sales decreased by approximately 38% during the quarter to $0.9 million compared to $1.6 million in Q1 of 2021. The decrease in Q1 of 2022 is largely due to wrapping up the plant cleanup project. Research and development costs included expenditures related to improving the lithium-ion battery recycling technology. During the three month ended March 31, 2022 research and development increased overall for the quarter by approximately 91% compared to the three months ended March 31, 2021. Research and development has allowed us to make significant improvements in our lead processing and is rapidly advancing our lithium battery recycling processes. General and administrative expenses increased by approximately 20% for the three months ended March 31, 2022 compared to the three months ended March 31, 2021. The increases in general and administrative expenses include changes in payroll and an increase in professional fees. We ended the quarter with a net loss of $4.4 million or a negative $0.06 per basic and diluted share. That was compared to a net loss of $4.1 million or a negative $0.06 per basic and diluted share for the first quarter of 2021. Okay, and then finally I am going to move to the payment cash flows which is on slide 19. Net cash used in operating activities for the three months ended March 31, 2022 with $3.6 million. This covers our OpEx and G&A cash and even with adjusted for non-cash items. This amount is partially driven by 2021 accrued plant cleanup costs that were paid in Q1. This quarter's average monthly cash needs total a little over $800,000 per month, which is higher than our average last year of approximately $700,000 to $750,000 a month. The increase is also partially due to higher annual compliance and audit costs. We do expect our monthly base cash cost to be closer to $800,000 a month due to addition of more employees and consultants as we invest in more lithium-ion battery recycling technologies. The net cash provided by investing activities for the three months ended March 31, 2022 was $0.4 million, which was made up of the receipt of $1.1 million of proceeds from the sale of equipment offset. By $0.3 million used towards the purchase of property and equipment and $0.5 million used towards the warrant exercise for LiNiCo. The net cash provided by financing activities totaled $4.1 million for the three months ended March 31, 2022 and consisted of $3.9 million in net proceeds from the sale of Aqua Metals shares present in the ATM. For the last three quarters of 2021 we had minimal use of the ATM; however, in Q1 of 2022 we did strategically and opportunistically make use of the ATM to strengthen our lithium battery recycling efforts, and this including securing the black mass, investing in equipment for the pilot plant at the innovation center and adding optionality of scaling the plants with larger size core infrastructure, all with the intent to get to revenues sooner. Well, that concludes my remarks on the financial statements. I will now turn it over to the operator to begin the question-and-answer portion of our call.
Operator: Thank you. Our first question comes from the line of Shawn Severson with Water Tower Research. Please proceed with your question.
Shawn Severson: Hi! Thanks guys. My first question is around lithium hydroxide in pure form. When you say that, what does that mean to Aqua Metals and I guess what is produced otherwise? I’m just trying to understand the importance of that.
A - Steve Cotton: Yes Shawn, thanks for the question. It’s unique to Aqua Metals that we are the only company that's produced lithium hydroxide, and I’m going to ask Ben to kind of talk about the meaning of that and how that works as a precursor.
Ben Taecker: Yeah, thanks. So the advantage of it being very pure is it is able to – yep, go ahead. It’s able to meet an existing spec which allowed it to go directly into the precursor manufacturing. Many of the existing processes out there are results in like Steve said earlier, carbonate that has to be converted in a costly manner to hydroxide. Us going directly to the hydroxide has multiple benefits and cost savings to the precursor manufacture.
Shawn Severson: Okay, thanks for the explanation. My second question is regarding, when you say you could generate some revenue, what does that mean? So is there any scope or scale that we can get around that with a little perspective on the timing and actually how much revenue the pilot plant might generate.
Steve Cotton: Yes, so we're excited about the Innovation Center. It's not a small facility, so it allows us the opportunity to not only build our first pilot which will commence very soon, in a matter of months, but to scale that pilot to really effectively a small demonstration plant, and those economics that demonstration plant could be exciting for the company. I’ll ask Judd to comment on that.
Judd Merrill: Yes, I mean the size of the plant allows us with – even with the pilot to reach run rates of up to $20 million to $25 million a year in revenues.
Shawn Severson: And that's at current pricing for metals?
Steve Cotton: Yeah, that would be at current pricing.
Shawn Severson: I got you. Okay, and then my last question is sort of a longer term, economic model question for you guys. When you look at you know securing I assume predictable long term supply of black mass, right, and then you look at royalties or production on year end, I assume there’d be off take agreements there as well. So my point is, is over the long term do you end up with a very predictable consistent, fairly recurring cash flow let's say, I mean minus obviously volatility in some of the prices of metals and things, but trying to understand the supply demand balance in terms of supply and off takes.
Steve Cotton: Yes, so that's a great question and the predictability will probably be the biggest variable in the metal costs, which we probably will likely see more upwards pressure than downward pressure based upon the high demand and the lower availability of some of those critical minerals like we were talking about in the presentation. But our business model is also fairly predictable in the various models that we can approach with. If we have a recurring revenue base licensing arrangement, we would gain a royalty that would still only really be impacted on those variability, the pricing of those metals. And as long as the plant could produce that we’re licensing too, we could collect those running royalties and obviously the equipment sales and services that are related to those. In our own black mass production capabilities, which we would be doing at our pilot plant that will turn into a demonstration plant, we believe that the predictability of those revenues as long as we're producing those materials will also be subject really to only to the variables of the metals markets, and then the added element of our ability to operate it. We can operate more efficiently and more of improved conversion costs through our own operation, that helps, and if it costs us a little bit more to operate, that would impact negatively on the margins, but the revenues would remain the same. And then the third part of our business model, which is really what we are evaluating is in the form of joint ventures, it's kind of a hybrid between those two and each one of those deals will be unique. So I can't really comment exactly on how those will work out, but ultimately we will be solving for predictable revenues that we can stack on top with each deal that we work out with the various players, inclusive of LiNiCo.
Shawn Severson: Great, thanks. That was very helpful. Thanks Steve.
Operator: Our next question comes from the line of Colin Rusch with Oppenheimer. Please proceed with your questions.
Colin Rusch: Thanks so much guys. You know with these experiments that you are doing on the recovery with nickel and lithium, can you talk about the recovery levels that you are getting to from a percent of the base material they are coming from?
Ben Taecker : Sure, this is Ben. I can take that one. Right now all of our planning and our lab data suggests that we're going to be able to achieve 90% recovery or better. So that's what we use that for all the metals at this point.
Colin Rusch: Okay, that’s super helpful. And then when you look at the European market, obviously there's an awful lot going on there in terms of wanting to move towards energy independence and materials independence circularity, and you had a very strong European partner historically. Can you talk a little bit about the options for recycling in Europe, you know kind of where you're at from a sales perspective related to lead opportunity.
Steve Cotton : Yes, so we are geographically inbound with our model and we are engaging in discussions with various entities that have operations and interest in Europe, as well as the U.S. and Asia PAC, and we see great opportunity. In fact from a legislative perspective, when you look at smelting as the incumbent methodology, that has to come to a close in Europe, because certain percentages of metals need to be recovered. Based on the earlier questions that Ben just answered, in terms of the percentage of the minerals that we can recover from the black mass, certainly would meet those legislative needs, smelting will not. As I mentioned earlier in our presentation, there is no lithium recovery with smelting. So today commercial lithium-ion battery recycling produces a grand total of zero lithium recycling, hard to believe. But in Europe that legislation is more advanced than even in U.S., which will probably catch up and Asia Pacific. So we see great opportunity for interest in our technologies for parties that are interested in recycling batteries and building that ecosystem in the European model.
Colin Rusch: Great! I think I was looking specifically for what was going on in the lead market other than lithium. So I don’t know if there is an update on a potential lead partner within the European market.
Steve Cotton: Yes, so in terms of the lead side for the European market, we see more activity really in the Asia PAC region and Mexico and South America and I think that's because there's more growth in capacitation of facilities and greenfield builds is where the technologies fits best; it checks all the boxes. And those are the regions that you're seeing those types of projects being planned more than in the U.S., so – and more than in Europe, because those are more mature markets in terms of the lead acid battery industry that don't have as much of a need for the capitalization.
Colin Rusch: Perfect! Thanks so much guys.
Steve Cotton: Thanks.
Operator: Our next question comes from a line of Amit Dayal with H.C. Wainwright. Please proceed with your question.
Amit Dayal: Thank you. Good afternoon everyone. In terms of scaling the lithium-ion recycling opportunity, what are the catalysts that you sort of need to now deliver on to from pilots to commercial?
Ben Taecker : So we are following a technology readiness level system that’s common in the chemical engineering world, that allows us to meet certain metrics, meet certain efficiencies throughputs based on a defined test plan. Once those metrics are met, then it's typically about adding additional operational hours and adding additional capacity to reach those higher scales and that’s where Steve mentioned, Steve and Judd mentioned earlier their ability to scale even this facility that we are at here at the innovation center. Once we meet those metrics that would be the goal to start adding unit operations and adding capacity based on that TRL limit.
Steve Cotton: And one think I’ll add to that too. I mean is that on the TRL levels as we progress through them and having a facility, we are much better positioned than I think a lot of players in the market that are applying for all these infrastructure opportunities. And so once in a generation opportunity to be able to receive something like a $50 million or $100 million plus grant, and that’s the word grant, non-dilutive, to be able to build and operate a very large facility, and getting through those TRL levels quickly as possible gives us the opportunity to unlock grants like that, which were again from organizational capabilities perspectives actively working on.
Amit Dayal: So is this like a 12 month timeline or a two, three year timeline?
Steve Cotton: So, for the technology deployment part of it, I’ll let Ben comment and then I’ll add to that comment on the grant timeline. Ben.
Ben Taecker: So what we called our prototype here or our pilot, I think Steve referred to it earlier, here at our Innovation Center, we expect this year still to get through the scaling, demonstration and group which would allow us to start scaling well under a 12 month timeline.
Steve Cotton: And that fits also well within the timeline of these government grants. There is multiple grants that are out there, that are perusable and those do take time, and we are already underway and working on those, and those are typically around a year plus or minus, to get through the entire grant process. So we could be quarters away or a year and a quarter or two away from a very large grant, but possibly sooner, because the U.S. government, this particularly based upon what’s happening in Ukraine is very focused on it. I don't know if anybody else heard it, but driving into the office this morning I heard our president talking about the war in Ukraine and then in the midst of that referenced in the discussion, that that the United States needs to secure lithium and nickel in country and that is something that I think the government is very interested in working with parties that can help perfect that goal. And I showed that graph earlier that showed a grand total of zero mineral production in those areas in North America. And so the U.S. government is nothing more than motivated and interested in finding the right opportunities to make that happen.
Amit Dayal: And can these two processes, you know one with the government grants and one just with the technology itself, can they run in parallel or does the technology need to be readied first and then you apply for the grants?
Steve Cotton: The technology needs to get through certain TRL levels in order for the government to choose which entities that get prioritized and backlinks, who it doles out the grants to. So it's not an unlimited supply of grants and so there's going to be a limited number of entities that are applying for those grants and we feel that with our announcements proving that we can extract the critical minerals, that the President himself is referencing in the midst of discussion on the biggest news in 50 years, the war of Ukraine. It gives us an opportunity to win those grains. There is no guarantees for any party applying for those grants, but we feel that we have a great opportunity based upon the progress that we've made.
Amit Dayal: Understood! And my other question is around just you know you are able to extract sort of other metals from the black mass, like nickel, copper etc. now. How much complexity and cost come into play to do that versus just focusing on the lithium extracting or recycling the lithium.
Ben Taecker : So Steve mentioned earlier, our target conversion cost being well below $2,200 and each one of those metals has a certain amount of conversion cost with them. But the system works more efficiently as an entire system. So just going after the lithium for example, leaving those other metals, once these are more efficient process, but sure you could save money by not recovering the nickel and cobalt. We just don't think it makes sense to do so.
Amit Dayal: Okay, understood. And my other questions were already discussed. I'll take my other questions offline. Thank you.
Steve Cotton: Great! Thanks.
Operator: And I’m seeing no further questions over the phone. I would like to turn the call over to Glen Akselrod for web questions.
Glen Akselrod : Alright, thanks Alex. We do have quite a few questions in the queue Steve. So we’ll try to get through them all in the next 15 minutes. First question, let's say you extract nickel from black mass using the AquaRefining process, can the remaining black mass go through the process again to extract the different metal from the same black mass and if not, why?
Ben Taecker: So, if we were just able to go or if we did actually run the process just to recover nickel, surely you could take the rest of the material and go back after it. But the way our process is designed is to upfront set up to recover all of the metals. So it won't be a problem to come back and get the other latter. It’s just the way the process is designed to run is to following our process flow, individually go after each metal with the initial path.
Glen Akselrod : Okay, I think you may have partially answered this next question, but I'll ask it anyway, maybe you could follow-on. Would getting the four metals out require four separate steps?
Ben Taecker: So yeah, there's going to be definitely a multi-step process. And for the most part each metal that we’re going after, when you're referring to the 4M, I would imagine you’re talking about the cobalt, nickel, lithium and copper, and those all individual require on their own step and on module. We also recover that manganese is a fifth metal as well.
Glen Akselrod : Okay, thank you. Next question, what is your capability to scale Aqualyzers, speak to the capital inputs impossible normalization of production.
Ben Taecker: So both, are lead and are lithium program. We design and typically lay out a new installation with a up front and downstream scale a little bit larger than required, which basically allows us to take and add modular metal recovery units in what I call the middle of the process. That’s where the AquaRefinary technology becomes very important. So we look at the facility footprint, we look at the up-front processing, the downstream processing and design it all. So you can efficiently add in additional modules without having too much capital involved. I mean you can do that in a very modular form if you wanted to add on modules in a quarter by quarter basis. That's up and it can be done.
Glen Akselrod : Okay, thank you. New EV and legacy OEM companies are looking into lithium battery Recycling. Is Aqua Metals planning to talk to these guys and see if there are opportunities there?
Steve Cotton: So we are not only planning to talk to those entities, we are and we have a commercial team that is engaging as quickly as possible with the various entities that are out there. Those are some of the areas that can potentially include opportunities like in the joint venture category, as well as feed stock supply for LiNiCo as one example and tying together partnerships of an eco-network of supplier of lithium-ion batteries, breaking in separation, creation of black mass. LiNiCo will be producing a lot of black mass in the future, and that gives the opportunity for us to process those materials not only within LiNiCo, but it even expands the black mass production as we go forward. So those types of discussions and relationships are of a high priority for the company and the big continuum .
Glen Akselrod : Okay, thank you. Next question, will the operational costs and capital cost of extracting nickel, copper and lithium be the same as for lead?
Ben Taecker : So no, the operational and capital costs will be significantly different. Steve mentioned the $2,200 per ton that we expect to be below. That’s more than the value of lead historically. So there’s a significant difference in operational costs, but what we're most excited about is the amount of margin that is available through lithium recycling is significantly higher than what we're currently experiencing in the lead industry.
Glen Akselrod : Thank you. The next question, do you anticipate royalty revenue to begin with the start-up of operations in Taiwan?
Steve Cotton: The answer is, yes. So it will be not a large sum of royalties, but we’ll collect royalties really beginning with the first production of material off of those machines. So we’ll enter into our first royalty collection in the next one to two quarters.
Glen Akselrod : Okay, thank you. Next question, where does the back mass come from? Is LiNiCo providing any black mass?
Ben Taecker : So, black mass comes from broken up lithium-ion battery. I mean yes, we have received and are working with black mass that LiNiCo is providing as they go through their own scaling operations.
Glen Akselrod : Okay. Thank you. Next question, when do you expect LiNiCo to complete the purchase of the facility?
Judd Merrill : Yes, so LiNiCo when they did the lease to buy agreement, it has till March of 2023 to make the full payment. They are incentivized to pay that off in October. If they pay in October the purchase price is $1 million less. So its October of this year or March of 2023.
Glen Akselrod : Okay, thank you. And your last question and then I'll turn the call over to you Steve. How do you or how should we view the scale up? Is it similar to the lead path where you went from one small bench scale electrolyzer to single full size unit to multiple full size units?
Steve Cotton: So, the scale up of the technology for the lithium is going to look different than we did it for the lead. We went from one full sized Aqualyzer to 96 of them and that was a big jump. And we see other players in the industry, in the lithium space trying to make that same big jump and we probably learned a thing or two for making that big jump and what we are doing is more of a methodical approach with pilot, to demonstration plant, to larger demonstration plant, to large deployment of facilities. So it's going to be a step by step process. The fortunate thing about that, with the lithium recycling, is it does generate as we mentioned earlier, potentially significant meaningful amount of revenue that you could even carry at the company. But that allows us to really take each step through that technology risk level reduction as we go through the process. With our really eye on the large facility being paid for sustainably if not all by a government grant, by government that is very interested in entities that can produce these critical minerals right now in the U.S., in a safe environment for its workers.
Glen Akselrod : Perfect! There is no further question in the queue, and I don't see any in the phone. So I'll ask you Steve for some closing remarks and then we’ll end the call.
Steve Cotton: Well great! Well, thank you everybody for attending today. A lot of new information. If you have any need for follow-up, please feel free to reach out to us through Bristol. We'd be happy to engage and discuss with you. And we’ll continue to keep everyone updated as we move forward and I really appreciate everybody's interest in Aqua Metals. And thank you for attending again. Have a great day!
Operator: Thank you ladies and gentlemen. This does conclude today's conference, and you may disconnect your lines at this time. Thank you for your participation and have a wonderful day!
