Aqua Metals, Inc.

Greetings. Welcome to the AquaMetals 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. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to spokesperson Glenn Axelrod. Thank you. You may begin.

Thank you, Alex, and thank you and welcome to the AquaMetals first quarter 2022 results conference call. Earlier today, AquaMetals released financial results for the quarter ended March 31st, 2022. This release is available in 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 of Judd Merrill, the company's Chief Financial Officer, and Ben Taker, 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 28th, for a summary of the forward-looking statements and the risks, uncertainties, and other factors that 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 said statements to reflect new circumstances or unanticipated events as they occur, except as required by law. As a reminder, after management's formal remarks, we'll be taking questions. Questions will be accepted over the phone from analysts, and all other investors can submit a question using the online webinar portal provided in today's and last week's press release. 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 AquaMetal. Steve, please go ahead.

Thank you, Glenn, 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 slides, 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, Glenn 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, aqua refining, returns these raw materials to the manufacturing supply chain in both a 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 a 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. OpRefining differentiates 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 today to recycle lithium ion batteries and lead batteries, and also chemicals as the reagent. It's a really important differentiator for aqua refining that we use that electron because it can be renewable and it makes it worthwhile to make this whole 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 we'll 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 produce 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. 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. We also, on March 22nd, 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 28th, 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 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 lead 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 testings of our end-to-end black mass to end-product lithium ion aqua refining system right here at the Innovation Center in Tahoe, Reno Industrial Center. By Q4, Q1 of 2022, getting into 2023, we could see the potential first full-scale deployment of aqua refining for lithium ion batteries. Our ticker is AQMS on NASDAQ. We are incorporated in 2014. We have 75 million shares outstanding as of March 31st. Cash on hand of $9 million as of March 31st, and the company is debt-free and has a very strong balance sheet. And 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 off-refining here in the Innovation Center, the Black Master, the critical metals production is nearly complete. And we, 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 a future of clean energy production. closed loop that has a company that can produce these materials and then open them and look in 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 of 2023. You'll see in our press release that we put out today on our quarterly results that we secured that black mass feedstock And that ensures our supply 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 capabilities. We've added engineers to help our innovation 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 length of deployment of aqua refining 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 Agrimal, 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 bill as well as working with Silver State Government Relations to help us make sure that our local senators in Nevada as well as governor and the folks in K Street are well aware of what Aquamentals 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 allowed matters, nine in the U.S., 70 foreign-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 lead aqua refining equipment for Acme Metals shipped, and the installation and commissioning is really the next step. That commissioning is slated to start in July instead of June, and there's been 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 of $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 in the largest and fastest growing part of the lead-acid battery market, and really even the lithium battery market, which is in the Asia-Pacific region. As I mentioned before, our leader is on board and on the ground in Taipei working with Acme closely. We will showcase the clean lead recycling technology called aqua refining 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 to the third bullet point with global battery manufacturers to develop a methodology to produce oxide directly from the aqua refined material. You'll see A couple of pictures from the corridor 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 awkward finding technologies for lead. Moving on to slide number nine, this is just really a marked 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 feed 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 aqua refining recovery rates specific to our recovery and the value of what we can create from the materials. So we're quite excited about the market opportunity that we have as we move forward into the future. Moving on to slide 10, this summarizes in 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 talks 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, ophthalmologists demonstrate that we can utilize our technology to generate nickel, cobalt, and lithium and do the nickel and cobalt in metal form. and the lithium and hydroxide form, all of which are high value to feed 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 material 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 off-refining. 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 it does not recover any of the lithium. So 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 chemical precipitation is it's not proven at 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 also, using 200 times the chemicals that we'll talk about compared to aqua refining can have great economic costs and great environmental costs and worker safety costs. And there's challenges to those methodologies that have not been proven. And we think aqua refining, frankly, is a better way. And what aqua refining differentiates, as I mentioned earlier, is that we create the high purity metals in metal form. And that is 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 produce nickel in metal form, we easily were able to take that nickel in 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 can not only sell them to the pure metals market, you can also get to those precursors without lengthy multi-year prequalification processes that are very stringent that we know all about because we had to go through that with our lead op refinings. and it'll be even more complex in the lithium space. Going from metals to salts is a much straightforward more path. Slide number 12 shows what materials we've produced from the black mass that we've publicized to date. And you'll see in the left the picture of the black mass, and that's the amalgam of the ground of lithium ion batteries that have been discharged and ground into 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 off-refining 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 cathode 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 the nickel sulfate from that high-purity nickel is a great step forward in the full link 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 NCIL 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 aqua refined nickel can easily be sold in the global metal markets because it's not just battery people buying nickel. It's the steel and super alloys industry, et cetera, 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 the nickel that is on the global markets and driving up the costs 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 to prove that we can recover 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 is 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 Linoco and will be planning to deploy lithium aqua refining in the Linoco facility just down the road from our pilot and demonstration facility also in 2023. Judd, Ben, and I just completed the meeting with the Linoco team and are very excited and proud of what they've been able 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 off-refining. The expected advantages are that the lowest operating costs that are possible, we believe we can achieve. And the OPEX, which means operating expense estimates for competing technologies, 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. Acrofining also uses one-two-hundredth of the chemicals of hydro processors, 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 tonne. 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 product to the battery supply chain or the metals industry. We also have a geographically unbound capability with our business model to do that through licensing, as we intend to work through with Linoco right here in our own zip code, but anywhere in the world. So we're not plant-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 our refining technology and or 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 nation 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're all green fields, 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 off-refining because we are the only ones that use that renewable electron as the reagent. rather than the chemical, rather than the fossil fuel-based fires. So we also improved the 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 arm 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 possible. to work in these plants in places that people want to go work. And that's a really critical element of our core plan is that worker safety. So I'm going to pass the presentation on now to Jud Merrill, our CFO, to give the financial overview. And Jud will begin now. Go ahead, Jud. All right. 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 31st, 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 include non-core assets that are no longer necessary for our future operating plans. And, in fact, we'll note that there were some assets sold in Q1, including about $800,000 worth of equipment to Linneco and $600,000 of non-core equipment to other vendors. Also, during the quarter, we exercised our warrants with Linneco, 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 Winneco, which is accounted for as a sales-type lease. On the liability section, there was very little change compared to year-end, and as the company continued to be debt-free. Now moving to the income statement on slide 18. During the first quarter of 2022, Aquamento's 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, we didn't generate any revenues during this quarter. Cost of product sales decreased by approximately 38% during the quarter 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 months ended March 31, 2022, research and development increased overall for the quarter by approximately 91% compared to the three months ended March 31st, 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 31st, 2022 compared to the three months ended March 31st, 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 six cents per basic and diluted share. That was compared to a net loss of $4.1 million or a negative six cents per basic and diluted share for the first quarter of 2021. Okay, and then finally, I'm going to move to the statement of 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 needs and was 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 totaled 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 costs to be closer to $800,000 a month due to addition of more employees and consultants as we exist. in more lithium-ion battery recycling technologies. The net cash provided by investing activities for the three months ended March 31st, 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 Linneco. 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 metal shares presented to 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 includes securing the Black Mass, investing in equipment for the pilot plant at the Innovation Center, and adding optionality of scaling the plant with larger size core infrastructure, all with intent to get to revenue sooner. With that, that includes my remarks on the financial statement. I will now turn it over to the operator to begin the question and answer portion of our call.