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Li-Cycle Holdings Corp., a leading global lithium-ion battery resource recovery company, today provided a business update
“Since embarking on our comprehensive review, we are pleased to report significant progress, including improving our current liquidity position and conducting an internal technical review of the Rochester Hub. We recently announced $75 million of strategic financing from Glencore to enhance our liquidity position and further build on our long-term strategic partnership,” said Ajay Kochhar, Li-Cycle’s President and Chief Executive Officer.
“Additionally, as part of our internal technical review of the Rochester Hub project, we confirmed the technical viability of producing lithium carbonate and mixed hydroxide precipitate (“MHP”). We also continue to work closely with the DOE on the conditional commitment for a loan of up to $375 million. We believe the strategic value of the Rochester Hub is underpinned by strong industry fundamentals driving robust demand for domestic sources of critical battery materials.”
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“Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation—Key Factors Affecting Li-Cycle’s Performance”
Financing
Following the announcement by the Company in October 2023 of the construction pause for the Rochester Hub project, the Company formed a Special Committee solely composed of independent Board directors (and which excluded Glencore’s Board representative) (the “Special Committee”) and the Special Committee engaged Moelis & Company LLC (“Moelis”) as its financial advisor to explore financing options and to evaluate strategic alternatives. After a robust process conducted by the Special Committee to review and evaluate potential financial and strategic alternatives available to the Company, Li-Cycle entered into an agreement on March 12, 2024 to issue a senior secured convertible note in an aggregate principal amount of $75 million to an affiliate of Glencore plc (LON: GLEN) (“Glencore”), with expected closing on or around March 25, 2024. This demonstrates Glencore’s continued endorsement of Li-Cycle’s Spoke & Hub model, patented recycling technology, and development plans for the Rochester Hub.
Glencore’s $75 million investment represents an interim step in Li-Cycle’s funding strategy to support the Company’s future plans. Li-Cycle continues to assess additional financing opportunities, including continuing to work closely with the DOE Loan Programs Office on the conditional commitment for a loan of up to $375 million under the DOE’s Advanced Technology Vehicles Manufacturing program.
Cash Preservation Plan
As part of the pause in construction of the Rochester Hub project, on November 1, 2023, Li-Cycle implemented a Cash Preservation Plan (“CPP”) to reduce expenses and slow cash outflows, while exploring both financing options and strategic alternatives to increase liquidity. As a result of the CPP, the Company has taken steps to significantly reduce its workforce and curtail other non-operational spending.
Additionally, the Company has slowed operations at its Spoke network, including pausing operations at its Ontario Spoke, slowing operations at its New York, Arizona and Alabama Spokes on an ongoing basis, and is currently re-evaluating the Company’s strategy for its North American Spokes, which may include further pauses or slowdowns. In 2023, Li-Cycle’s Spokes produced 6,825 tonnes of black mass, which exceeded the top end of its revised annual guidance.
Based on the go-forward strategic objectives and the CPP, Li-Cycle expects to further right-size and right-shape its organization. The Company will continue to evaluate other measures to reduce costs and expects the results from the CPP to deliver lower cash outflows. As of December 31, 2023 and March 15, 2024, Li-Cycle had cash and cash equivalents on hand of approximately $71 million and approximately $35 million respectively, excluding restricted cash of approximately $10 million. This excludes expected gross proceeds from the Glencore financing of $75 million which is expected to close on or about March 25, 2024. Based on cash on hand as of March 15, 2024 and the expected gross proceeds from the Glencore financing, pro forma cash is estimated to be approximately $110 million, excluding restricted cash of approximately $10 million.
Rochester Hub Project
On October 23, 2023, the Company announced that it was pausing construction on the Rochester Hub project, pending completion of a comprehensive review of the project’s go-forward strategy. As of December 31, 2023, the Company incurred total costs of approximately $567 million on the project, comprised of total cash spend of approximately $452 million, including $97 million of spend for the construction of process buildings and warehouse and costs incurred but not yet paid of approximately $115 million.
The Company has been conducting an internal technical and economic review of the Rochester Hub project in order to assess a possible change in the project development strategy. The internal technical review has focused on constructing, commissioning and operating only those process areas needed to produce two key products: lithium carbonate and MHP, containing nickel, cobalt and manganese. The construction, commissioning and operating costs for process areas associated with production of nickel sulphate and cobalt sulphate, as originally planned for the Rochester Hub, have not been included in the internal technical review and there are no current plans that include production of nickel sulphate and cobalt sulphate. The internal technical review confirmed the technical viability of the MHP process and allows the project to proceed on a schedule aligned with the Company’s current expectations regarding the timing and evolution of the battery recycling and EV markets, subject to obtaining any required permits, regulatory approvals, if needed, and additional financing.
As part of the internal technical review, the Company has conducted an engineering study internally and estimates the cost to complete (“CTC”) the Rochester Hub project under the MHP scope at approximately $508 million, including approximately $115 million of costs incurred but not yet paid as of December 31, 2023. Taking into account total cash spend of approximately $452 million as of December 31, 2023, the revised estimated project cost of the Rochester Hub Project is approximately $960 million for the MHP scope. The increase in estimated project cost as compared to the prior range from November 2023 of approximately $850 million to approximately $1 billion, that included the expected production of nickel sulphate and cobalt sulphate, is primarily due to further refinement of the methodology used for estimating the project cost based on an MHP scope and the cost required to complete the MHP project.
The CTC estimate for the MHP scope is based solely upon the internal technical review, is subject to a number of assumptions, including refining detailed engineering, procurement, construction activities, including the cost of labor and is likely to change. The Company continues to complete its comprehensive review work, including re-engaging and re-bidding construction subcontracts. In addition to the CTC, the Company will incur costs during the construction pause between October 23, 2023 to the potential project re-start date, which the Company expects to fund with current cash and required additional interim funding. The Company will also incur other costs such as working capital, commissioning and ramp-up costs and financing costs which will be included in the full funding solution.
Key Glencore Investment Terms
The Glencore $75 million investment is expected to close on or about March 25, 2024, subject to customary closing conditions. Glencore will purchase from the Company a senior secured convertible note that will mature on the fifth anniversary of closing and will be convertible into common shares of the Company at an initial conversion price of $0.53 per Li-Cycle common share. Li-Cycle will have the option to pay interest on the Note in cash or in-kind (“PIK”). Cash interest payments will be based on the Secured Overnight Financing Rate (“SOFR”) plus 5.0% per year, and PIK payments will be based on SOFR plus 6.0% per year.
In addition, Li-Cycle and Glencore have agreed to amend and restate the terms of the existing Glencore convertible note, which was issued on May 31, 2022 and has a current aggregate principal amount outstanding of approximately $225 million in two tranches, each of which will include new terms that come into effect upon the occurrence of future events. For more information, refer to our press release and Form 8-K dated March 12, 2024.
The issuance and sale of the senior secured convertible note to Glencore is subject to customary closing conditions and the expiration of the ten-day period for required notice to shareholders informing them of the Company’s reliance on the New York Stock Exchange (“NYSE”) financial viability exception to the NYSE’s shareholder approval policy and is expected to close on or about March 25, 2024.
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