Largo Inc.

Good day and thank you for standing by. Welcome to Largo's fourth quarter and annual 2021 earnings webcasting conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. I would now like to hand the conference over to your speaker today, Mr. Alex Guthrie, Senior Manager of External Relations. Please go ahead.

Good morning, everyone. Thanks for joining our fourth quarter and annual 2021 earnings conference call. On the call today, Paulo Misk, our President and CEO, Ernest Cleave, our CFO, Paul Vallant, our VP of Commercial, and Stephen Prince, the President of our Clean Energy Division. To accompany the call, we've uploaded a supplemental webcast presentation, which is available on our website at LargoInc.com. Our 2021 financial statements, related MD&A, and most recent AIF are also available on the website, as well as CDAR and EDAR. Before continuing the call today, I would like to remind you that some of the information you will hear during today's discussion will consist of forward-looking statements, including, without limitation, those regarding future business outlook. In addition, non-GAAP financial measures and ratios, such as cash operating costs per pound, cash operating costs excluding royalties per pound, and revenues per pound sold, will also be discussed during today's conference call. These have no standard meaning under IFRS and may not be comparable to similar financial measures disclosed by other issuers. Actual results discussed during today's call could differ material from those anticipated, and risk factors that could affect results are detailed in the company's latest AIF and other public filings, which are available on CDAR, EDGAR, and on the company's website. And lastly, market and industry data contained and incorporated by reference during this call concerning economic and industry trends is based upon good faith estimates of our management or is derived from information provided by industry sources. We believe that such market and industry data is accurate, and the sources from which it has been obtained are reliable. However, we cannot guarantee the accuracy of such information, and we have not independently verified the assumptions upon which projections of future trends are based. The agenda for our call this morning is as follows. Paul will provide an update on the company's value proposition and on its operational progress. Ernest will follow with an overview of the company's financial results. Paul will provide an update on the company's sales and trading, as well as an update on the Canadian market. And Stephen will close with a progress update from our Clean Energy Division. Finally, we'll open the call for questions. We kindly ask that you restrict your questions to two and then re-queue if you have additional questions to allow others the opportunity to participate. I'll now hand the call over to Paulo.

Thank you, Alex, and welcome to everyone that joined us on the call today. I'd like to spend a few minutes discussing Largo's value proposition represented through the two pillars of value creation. Firstly, to our business as a vanadium supplier, and secondly, to our battery business that is expected to serve the long-duration energy storage market. To focus on the vanadium supplier pillar, I want to emphasize a few important points. Largo is the world's largest primary vanadium producer and enjoys one of the lowest operating costs, which presents valuation upside potential to our investors. especially during periods of increasing vanadium prices. Largo will keep selling 100% of its vanadium production and will keep generating revenue from it, now and in the long run. We expect additive growth from humanite and titanium production over the next five years, which we anticipate will increase our top and bottom lines. Based on our latest technical report, the after-stack MCV of the Canadian and titanium product line is anticipated to be $2 billion over the life of mine timeframe, based on the average Canadian price of $8.20 per pound for standard-grade Canadian. As a reference, the current price of standard-grade Canadian today is $12.25 per pound.

$12.25, in fact, of March 11th.

I just need to say that each dollar price increase on top of $8.20 adds about $28 billion to our bottom line every year. Construction on the humanite plant is expected to start in the next two weeks. We anticipate producing humanite concentrate in the first half of 2023 and cap expense on the humanized plan and titanium plan for 2022 is anticipated to be $22 to $24 million and $9 to $10 million respectively. Secondly, our emerging clean energy business represents the second pillar in our two-pillar value proposition. As we continue to advance this business, we expect to benefit from incremental revenues from the sales of Largo's Canadian-based batteries. As most of you are aware, the Long-Duration Energy Storage Council expects long-duration energy storage to grow substantially over the next decade, potentially reaching approximately 140 terawatt hours to be stored by 2040. Driven largely by the global energy transition, and an increase of the share of renewable energy source in the grid. We believe that our company will also benefit from our new strategy to initiate, we recently announced it, Largo Fiscal Venetian Corporation, LPD. It's expected to be a publicly traded vehicle that will buy and hold fiscal venetian, providing LPD investors with exposure to Venetian prices. Over time, we expect that LTV storage Venetians could be using our Venetian batteries at a minimal cost to Venetian customers, providing cost advantage over other Venetian-based energy storage company solutions. As we work to advance the formation of LTV, including direct zip regulatory approvals, and qualifying transactions as noted in the press release announcing the strategy we hope to provide additional updates to the market. Moving on to more recent results, I'd like to spend a few minutes addressing our 2021 operational results and certain impacts we've experienced thus far Q1 of this year. Despite planned maintenance in Q1 2021, The countering global logistics delays throughout the year coupled with heavy rains in Brazil last quarter. Our team adapted of this challenge and exceeded the lower end of the company's Canadian sales guidance in 2021 with 11,393 tons of E205 equivalent salt. Largo produced 10,319 tons of E205 equivalent in 2021. The company also completes the construction and ramp-up of its Canadian B203 plant on budget in Q4 2021. We begin the process of shipping B203 to some customers this quarter. More recently, we have experienced some operational impacts in Q1 2022 of this year. As a result of corrective maintenance, performance on the cooler components of our plant facilities, with production in January of 702 tons and 731 tons of 205 equipment in February. Sales in January was 954 tons and in February was 571 tons.

I'm happy to report that the company expects to conclude March operations on budget. Despite of the bulk,

We anticipate producing and selling 12,500 tons of E205 equipment during 2022. We can continue to maintain our Canadian production sales guidance for 2022. We understand the importance of a steady-state operation, and we are working diligently to correct and avoid additional impacts in the future. We have formulated a plan to mitigate potential bottlenecks, increase our focus on federative management and intimidate stocks to achieve greater stability at the market. Before I pass the call over to Eners, I would like to introduce the newest member of our team, Mr. Stephen Prince, who will be leading our clean energy division going forward. We are very excited that Stephen choose to join the Largo team and look forward for his vision as advance our clean energy strategy. Stephen brings significant technical and commercial knowledge of the energy storage sector and has a demonstrated history of building and growing high-performance things. We look forward to hear more from Stephen later in this call. Now, I will hand it over to Ernest for an update on the company's financial results for Q4 and 2021.

Thanks, Paulo. I would like to spend a few minutes very briefly discussing our financial results for 2021 and provide an outlook for cash for the ensuing year. Let's begin with a brief overview of our full year 2021 results, which were released yesterday evening. The company generated net income of $22.6 million in 2021 versus $6.8 million last year. This difference was largely driven by increases in the average European V205 and Ferro-Venedian benchmark prices. As Paolo noted earlier, we are highly leveraged to increases in benchmark Venetian prices and we will look to capitalize on the current and improve fundamentals going forward. On the cost front, operating costs were $133 million in 2021 compared with $88.4 million in 2020. These include direct mine and production costs of 75.1 million versus 48.9 million in 2020. Cash operating costs excluding royalties per pound were $3.37 in 2021, and that compares with $2.56 in 2020. The increase in operating costs and cash operating costs per pound is primarily attributable to increased costs for critical consumables, the year-over-year change in Venetian production and sales of Largo's own production, and one-time tax credits received during 2020. With regard to our financial position, we ended the year with a cash balance of $84 million and debt of $15 million. We expect to roll over our $15 million credit facility in Brazil for another 12 months. In terms of our cash outlook for 2022, we expect to end the year with a cash balance between $174 million and $194 million. On a net basis, if we deduct the $15 million of debt, that's $159 million to $179 million. And that is based, very importantly, on a vanadium price of $12 per pound for the remainder of the year and achieving 12,500 tons of V205 equivalent production and sales for fiscal 2022. As Paolo mentioned earlier, we plan to invest a significant amount of cash in multiple growth projects planned for the year. We provided a more comprehensive breakdown of our CapEx guidance earlier this year, and these amount to approximately $64 million in investments for these projects. We believe this lays the groundwork for creating additional value for the company, and we look forward to providing additional updates as they progress. With that, I will now pass the call over to Paul.

Thanks Ernest and everyone for joining the call today. I will focus on a few topics starting with an overview of our sales and trading performance in 2021 as well as year to date 2022. Secondly, I will give an update on the current Venetian market situation and what we expect for the year ahead. As Paolo mentioned earlier, we exceeded the lower end of our sales guidance in 2021. We had a strong finish to the year with B205 equivalent sales of 1,029 tons in December. However, sales for the first two months of 2022 totaled 1,525 tons of B205 equivalent. This slow start of the year was due to a combination of shipment delays and a decrease in spot sales as the company took actions to increase its available inventory. We are disappointing with our start of the year sales-wise, but I would like to emphasize that demand for Vanadium is high, and our clear focus is to capitalize on this demand and price environment in the quarters to come. Before discussing the market, I would like to highlight that a company signed a 10-year exclusive off-tech agreement with Gladier Metals Recycling for the purchase of all standard and high-purity vanadium products from its recycling facility in Texas. This off-tech agreement supports our growth plans in the vanadium market and increases our footprint in the U.S. It also ensures that our supply chain is aligned with Largo's continued focus on sustainability and integrated ESG principles. Gladieux has been in the spent petroleum catalyst recycling business since 1973. The plant recovers vanadium, molybdenum, nickel, cobalt, and various alumina products sold in the chemical and metallurgical applications. providing higher standards for environmental compliance throughout the entire process. As most of you are aware, vanadium prices have been increasing since the beginning of 2022. More recently, prices soared due to geopolitical tensions in Eastern Europe, given that Russia accounts for approximately 17% of the world's supply and more than 40% of the supply ex-China. Additionally, according to Vanitech, the supply deficit for the first nine months of 2021 was 6.6 thousand tons of V, which was on pace to eclipse the 2017 deficit of 8.1 thousand tons of V, which in part led to Vanadium prices increasing to a high of $29 per pound of V2O5 in 2018. More broadly, and as we noted before, the vanadium market is expected to grow in the years to come, driven by new economy use cases, particularly the need for greener steel and deployment of flow batteries. As Paolo mentioned, the average benchmark price per pound of V2O5 in Europe was 12.25 dollars and ferrovanadium was 62 dollars per kilogram of vanadium as of march 11 2022. this represents an increase of approximately 40 percent and 90 percent respectively since the beginning of the year it is extremely difficult to have an outlook for the year ahead but we believe that elevating pricing will persist for the immediate future with that Let me hand it over to Stephen for an outline of the advancement of a clean energy division.

Thanks, Paul. I'd like to provide an update on our path to execution on the energy storage business plan and give a brief overview of my experiences and what led me to Largo. I'll then pass it over to the operator to open the call for questions. Let's begin with my background and my industry experience and what led me to Largo and its clean energy division. I've spent 28 years in the energy and utility business sectors. During that tenure, I've become a recognized expert on battery energy storage, distributed energy resources optimization, and energy as a service offerings within the ESCO business model. I've previously served as a senior advisor to energy transition technology companies seeking capital solutions in the investment banking sector. Over the course of my career, I've successfully turned around several energy technology companies through strategic leadership and improved commercial execution. As you all may know, the market for long-duration energy storage solutions is fast growing as renewable energy penetration rates increase and dispatchable conventional generation capacity shrinks as part of the global energy transition. Recent sensitivities concerning foreign oil and gas and coal dependencies have only accelerated this phenomena in Western Europe and within parts of the U.S. This transition excites me and is why I'm passionate in furthering the integration of renewables through our long-duration energy storage proposition. I would say this is what led me to Largo, a company that possesses a unique strategic advantage as an integrated and leading vanadium supplier with an emerging energy storage business. As my colleagues have discussed on calls before, Largo's V-Charge cell stack possesses superior power density, which can lead to smaller physical footprint of systems with fewer components. However, through my experience working with Cellcube, And from my understanding of the long-duration market, it is clear that the impediment to vanadium battery adoption has largely been vanadium price volatility and its impact upon supply-side volumes. This is a great segue to discuss what we expect to be another competitive advantage through the undertaking of Largo Physical Vanadium Corp., a strategy that could uniquely remove the vanadium cost component of VRFBs and drive the opportunity for scale adoption of vanadium redox flow battery solutions. I could say I consider this to be a commercial disruptor, providing a unique value proposition to potential energy storage customers by removing a large component of the systems. If we look at our identified opportunities for our V-charge systems, these opportunities have been growing with more diversity in type, and greater size. And I just note, we measure size in megawatts and megawatt hours. This includes opportunities for demonstration sites, remote microgrid islands like the Enel project, behind the meter commercial and industrial applications, and multiple grid scale opportunities in front of the meter. I think it's important to emphasize that the business development lifecycle in securing a typical battery contract can take more than 12 months from initial contact with the prospect to signing, and potentially another 18 months to deploy and commission the system with current supply chain lead times and permitting requirements. Note, prospect due diligence continues up to signing with health and safety, environmental and local compliance requirements being assessed as part of the future customer risk assessments. If external financing is being leveraged by a developer, time between letter of intent and contract signing can be even longer. We will provide updates on new projects as they advance to a point where we can announce substantial progress. To close out, we continue to retrofit our facility in Wilmington for stack manufacturing and electrolyte purification efforts. This project continues to track on budget, and we anticipate being complete by Q3 2022, with annual stack manufacturing capacity of approximately 15 megawatts. Additionally, the DOE grant is in negotiations, and we are currently answering questions concerning overhead burden methods used by the U.S. federal government. As announced last year, the grant will provide $4.2 million in reimbursements to scale up U.S.-based manufacturing of flow battery and long-duration storage systems. With that said, I'll turn the call over to the operator for any questions from those of you on the line. Thank you.

Thank you. If you would like to ask a question, you may signal by pressing star 1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Once again, star 1 for questions. We'll take our first question from Heiko Illy with HC Wainwright.

This is Marcus Gini calling in for Heiko.

Thanks for taking my question. So we went through your financial statements and search for inflation. And one thing that popped up that piqued my curiosity was your provision for closure and reclamation that currently assumes an inflation rate of 3%, which is actually down from your expectation at the end of 2020 of 3.25%. Could you just provide a little color on this change and walk us through the ultimate impacts that there may be if this rate ever gets adjusted to more current levels?

I'll take that, guys. For that specific piece of accounting, that relates to the risk-free rate in Brazil. This goes to the specific vagaries of accounting for that line item. I wouldn't I wouldn't equate that to general inflation expectations, et cetera.

Okay, fair enough.

And then just a quick clarification. I assume the impact is pretty small, but do you have any idea how much the corporate rebranding has cost you and when these expenses will be incurred? The release for the name change came on November 8th, so is this fully accounted for and paid for at this point?

Yes, it's very de minimis. It's fully paid for and done. It's $100,000, $150,000. I'm just throwing out a very broad number, but it's not significant.

Okay, sounds good. That's it from me. I'll hop back and give you thanks.

Thank you. We'll take our next question from Andrew Wong with RBC Capital Markets.

Hey, good morning. Can you just provide more of an update on some of your – thoughts longer term on the ramp up of the battery business? I think previously you were targeting maybe full ramp up into kind of around the mid-2020s. Is that still feasible given the timing around earning customers and deploying your systems? And then what sort of margin expectation is there for just the battery equipment and installations, not on the vanadium since you may have a new business model? And then just around LPV, does the amount of vanadium that gets sold into LPV have any impact on the ramp-up in Largo's battery sales? So is the amount of vanadium that can go into LPV, is that potentially a bottleneck? Does Largo provide any vanadium directly for batteries? Or will all vanadium used in the batteries need to come from LPV? Thanks.

So why don't I take the first part of that question, at least? This is Stephen Prince. Largo Clean Energy is conducting a review of our understanding of our cost and pricing based upon macro changes that have occurred, including assumptions that were communicated previously in Q3. This analysis will look at both our costs our pricing and the developments in the long-duration energy storage market. And as a result of that, I'm not in a position, having been here approximately 60 days, to comment on margins and the commercial progress that's been communicated in the past. I anticipate giving commercial updates shortly thereafter, though.

Let me answer this LTV question.

We at Largo are really preparing to be very competitive with our products in this long-duration energy storage market. And the demand really will launch, will be big in two, three years' time. So we are not just preparing to have a good product, but also to remove the cost of the vanadium from the battery equation. So we are expecting to have a very small cost due to the vanadium as the LPV will provide the vanadium inventory to deploy on the vanadium batteries. So that's the a fantastic strategy which will allow us to keep selling our vanadium to the market that we produce in Maracas, but at the same time have vanadium available to deploy in the barrels in a really competitive way. Everybody knows that the vanadium technology is great and that vanadium cost is something that we need to concern, but we are prepared to be very competitive

Okay.

Okay. Maybe we'll ask about the Gladio offtake. Could you provide some more details around the terms of that contract? What's the intended use for the vanadium?

And will it be for sale to the market or is this for the battery business? I'd like to take that step. Listen. I'm sorry, can you? I'll take it, Carlo.

Yeah.

Maybe I'll take it. Andrew, thanks for the question. Gladio is an amazing opportunity for Largo to grow further into the Venetian market. It's giving us a great footprint in the U.S. market. They're going to be producing Venetian products out of Texas. And as I said earlier, it's going to be for 10 years. exclusive for all of their vanadium products, whether standard grade or high purity. And we intend that partnership to be extremely aligned and to sell Gladius products in the same industry as we sell Largo's products. So depending on the quality of the product, we will try to maximize the outcome for both companies. And it's going to give Largo great support to have a footprint in the US, which is a very fast-growing market for both companies. steel and traditional industry, as well as the high-quality markets in the aerospace and also in the range of redox flow batteries.

So is this like a marketing arrangement where, like, what does Largo pay to Gladio? Is this market pricing? Or, like, how does this work?

Yes, yes. We work on a commission which is enabling us to perform all of our services and profit for Largo. But again, this, you know, I insist on the fact that this agreement is a The main attraction for Largo is strategic, enabling us to have a larger footprint in the overall vendor market.

Okay, thanks.

Thank you. We'll take our next question from Carlos D'Alba with Morgan Stanley.

Yeah, good morning, everyone. Thank you very much. A couple of questions on the battery business, and then maybe a couple if I have the opportunity on the traditional business. On the battery one, I guess the first one is I understand the benefits of LPV are really more for the balance sheet buildup in inventories that the original business model that you guys had proposed for the energy battery business was going to result on. But all along, if I remember correctly, and please help me understand if I'm not, you had presented proposition to clients that excluded and removed the volatility of the vanadium prices because Largo was going to retain ownership of the vanadium so that hasn't really changed unless I'm mistaken and please correct me if I if that is the case so the question is why do you guys think that this is going to change anything or what has been the impediment for Largo to sell or sign any other contracts other than the small one that you did in Spain? And I guess the second part of the question is, can you tell us how many negotiations you are working on, either in a number of potential deals or megawatt hours? What is the pipeline there? Because clearly it has been more than one year since you launched the battery business and we haven't seen a lot of progress there. And then on the traditional business, there's a couple of small ones. Given the impact that you have had on production in the first quarter of this year, what are your expectations in terms of operating cash costs for the quarter? Presumably those also will be higher than what we saw in the fourth quarter, potentially higher than the rest of the year, your guidance for the rest of the year. And then in terms of the reference price, Maybe I'm mistaken, but I was under the impression that Largo's realized price was more linked to the Chinese price, which is slightly below 11, rather than the European price that you keep talking that is above $12. So maybe if you could clarify that, that would be great. Thank you very much.

Thank you for your question.

Stephen, I will answer the LPV. question regarding LTV and then I pass to you, Stephen, to talk about market and contracts for LTV. And of course, Paul Volan will take the questions regarding the Venetian price and market and so on. Carlos, first of all, there is a huge change the way we structure our LTV business last year. And in fact, the whole Largo business last year compared to today. We said before that we're going to keep the vanadium now inventory, Largo inventory. And then we're going to deploy into the batteries and we're going to charge rentals for that electrolyte. The strategy today is completely different. All the production from Maracas will be sold to the market. And LPV which is an independent company, not Largo, an independent company, which Largo is a seed investor, but mainly all the inventory that LPV will build will be based on investors which would like to be exposed to the vanadium price. So the vanadium that we will use in the batteries will belongs with the ownership is the LPV and Largo will be the safe keeper for that vanadium and we are considering to the unique characteristic of vanadium in a form of electrolyte that doesn't degrade so we can save it keep inside of the battery so that's a complete different preposition we'll keep having revenue with Vanadium being sold in the market, and all the revenue from the battery will be additional. So that's the main point.

Let me give you just a... Sorry, but that doesn't really answer the question, right? Because that only confirms what I said. What it does, what this very clever transaction, if it works... is that it removes the working capital that would have been tied in in Largo's balance sheet. But it doesn't change the fact that the customers would have never really been exposed or wouldn't have been exposed to the volatility of vanadium prices because they would have known own the vanadium in the electrolyte. So that is not changing. So my question really is why clients are not getting really up and down and getting into contracts with you guys if they never would have had, anyway, exposure to the volatility of vanadium prices.

Okay. Before keeping the vanadium... In fact, we need to charge the energy customers a fair rental fee for that electrolyte.

Now, with LPV, we don't need to... the fee that we pay for LPV, largo pay to LPV, is very small, really very small. So most of the cost, not just volatility, but most of the cost of the nadine is out of the battery equation. So the customers of energy and the battery will face a much more competitive price from the battery going forward. So it's a completely different proposition, which gives a lot of benefit for the energy customers. And just reinforcing, Largo will keep all the revenue from the vanadium sales, which is, for Largo, is a huge difference as well.

Yeah, no, that's clear. So just one question. LPV is not going to charge any rentals for the vanadium? So the LPV owners are not going to benefit from that revenue stream?

The negotiation from Largo to the energy customers, it depends on Largo. Largo has total independence to make the negotiation with them. The agreement between Largo and LPV, Largo will pay a small fee aiming to to offset partially the expenses of LPV, but there is no connection from LPV to energy customers.

Is that clear? Right. So, LPV is not going to charge any rentals to energy customers. Exactly.

Okay. All right. I guess then the issue wasn't only volatility of energy prices. It's also the cost competitiveness of the system.

All right. Thank you, Paul, for that.

Just to give you a comment about the Q1 cost for our production. Of course, as we have not a good production in January and February, the Q1 cash cost reduction in Maracas will be higher than our guidance. But we believe that by the end of the year of 2022, we will meet our production sales guidance and cost as well. So we have time to have a lower cost of production in Q2, Q3, Q4. They're still meeting our guidance. I'd like to pass to Paul Bolland to talk about the Canadian price regarding the Chinese or European market. How do you see this?

the impact on a lot of opiates. Yes, hi Carlos. It's a good question.

I don't know if our forecast is difficult, but we can say that we do expect elevated prices for the remaining of the year. The supply shortage that we've seen in the global market has been throughout 2021. It's not something new. an active group at the rate that is high and that's you know what uh the price is high class the current situation is in eastern europe that we were already uh

Okay, and Stephen, could you provide more clarity on the regarding LTE market and sales, please?

Yes, thank you, Paolo. So let me give a few perspectives on the question that's been asked, and I will answer your question about opportunities and types. So Largo Clean Energy has been focused on delivering the Enel contract, and you made reference to that. And that's occupied a significant amount of time for the team, and they continue to progress in that regard, and that contract will be commissioned at the end of this year. And it's an example of signing an agreement and then delivering an agreement in those timelines I referred to earlier. To answer your specific question about, well, what progress has been made, if we look at our pipeline, we've increased the type of opportunities that are coming to us. And they've gone from being more heavily weighted towards demo and microgrid projects because the long-duration energy storage projects market at the grid scale that people get excited about is really quite nascent. And so it's emerging. And when you look at those procurement cycles, we're talking to, by way of example, at that grid scale level, 11 different prospects that represent about 3,500 megawatt hours. But those opportunities are are not expected to be delivered and commissioned until late 2024, 2025. So those conversations are early stage engagements that involve the life cycle that I described to you during my open remarks. The demo kind of demonstration microgrid projects like Enel, where we're doing a microgrid on the island of Majorca, are smaller in nature and represent fewer megawatt hours. And those are traditionally in kind of more remote venues and territories. And then what's happened even in the last quarter is we're starting to see interest in commercial industrial customers seeking energy independence and power quality outcomes with longer storage solutions and longer asset life and are concerned about some of the issues that come up with lithium-ion from a safety perspective. And so, therefore, they're reaching out for the first time to Largo Clean Energy, most certainly, for behind-the-meter solutions. And we have a couple opportunities there that represent about 40% megawatt hours. So the pipeline, if you measure it on megawatt hours, has almost doubled in megawatt hours over the last three months. Now, you asked a very specific question, how come we haven't seen signed contracts? And I think that really goes to the circumstance that from the time we engage around an opportunity and discuss it, to the time that we can sign an LOI and progress to deep, deep due diligence, those timeframes are easily a year. And so we are very much in the process and very much in the deal flow, but we're not in a position where we can announce signings at this point in time.

That was very comprehensive. Thank you very much, and thank you, Paul and Paolo.

You're welcome, Paolo.

Thank you. We'll take our next question from Lee Cooperman with Omega Family Office.

Thank you. Let me just observe that the question regarding the contracts for clean energy is a result of your overpromising and your undelivering under delivering. You know, I go back to battery day where you trumpeted the, you know, the, the clean energy in a big way and you've produced one contract. So I think the market's very disappointed. But anyway, let me get back to, uh, earnest. I didn't quite make sure I understood the, uh, the cash generation, the one 74 to one 94 minus the $15 million of debt. That's what you expect to end the year at in cash. Or is that before CapEx? That's in cash. It's in cash. So you would have basically about $160 to $180 million in cash on about 65 million shares. So that's about $2.50 a share in cash, which is about 20-odd percent of the market cap of the company. Do you have any plans for the use of that cash?

There's some very early discussions at the board level. Given that we anticipate that this will be an excellent cash generation year, there are discussions around some obvious things such as dividends and share buybacks. So we don't have anything to announce right now, but those are happening all the time.

Ernest, if you take these numbers that you're giving and put it together, what are your earnings expectations for 2022? Assuming the price and the production you're assuming.

Yeah, so from an earnings perspective, if I look at $12, you're looking at an EBITDA of about in the sort of mid-70s range is where we'll land.

You obviously have net interest coming in.

What is your tax rate?

I would use a slightly modified tax rate of our Brazilian tax rate, so something in the 12% range I think is a reasonable number to use.

Based upon these new products that you're working on, I assume you'd expect the company's earnings, assuming constant prices, to be materially higher in a few years than it is currently?

Yes, if these prices continue, if you go back to 2018 where we had that banner year, that leverage to the price creates some pretty extraordinary things on your financial side.

Remind me if I'm wrong, but I think that the EBITDA that year was close to $400 million, wasn't it? That was after the $100 million hit from the Glencore contract that doesn't exist anymore.

Correct. That's correct.

Gotcha. So looking at a few years from now, because this would really impact a decision on a dividend versus repurchase, what kind of EBITDA is this company capable of generating, would you guess, in a few years?

Let me just look at my little model here. You know, so at $12, just make sure I change this to $12.

Give me one second.

Yeah, you're looking at EBITDAs of, you know, 2023, sorry, 2024, 25, high 200s to almost hitting 300s. It's assuming I just used $12, and then beyond that, much higher, so 2028, 2029, 2030, you know. Well, if you believe that, stock repurchase would make more sense than cash dividends.

Because you have more cash coming in. I think there are a large number of warrants that come due by the end of this year.

Yeah, so especially if we're in this kind of situation where we now, there's a burgeoning Canadian market, but the share price is languishing. And admittedly, you know, there were some missteps last year. But, you know, we're going to make a lot of cash this year. So if that disconnect continues, you would prefer to buy back shares.

Yeah, I would think so. Thank you. Good luck. Stay safe. Stay healthy.

Thanks very much. Thank you.

Thank you, Bill.

As a reminder, star one for questions. We'll take our next question from James Young with Midwest Investments.

Yeah, hi. Just a couple questions for Steve and welcome aboard. First of all, how much electrolyte have you produced so far in kilowatt hours? And secondly, then, What's your current capacity on a monthly basis for the electrolyte production?

So the first question is we're on a schedule to produce electrolyte around B&L deployment, and we most certainly are meeting those scheduled timelines as anticipated for that contract. And I don't know the exact gallons, but I know that the ratable production, which involves purification as well, because we're demonstrating that we can reuse electrolyte from our Worcester deployment. That has some marketing value as well as some economic value because it proves to the market that the vanadium – does not degrade from system to system, and it has real long-term life. So I don't know the exact gallons, but it's the quantity that's required to deliver Enel, which is 1.2 megawatts, and it's a five-hour battery solution. So I'm sorry for not knowing that math off the top of my head. With respect to electrolyte production in general, one of the things that we're evaluating is is the model to deliver electrolyte to our customers. And as a result of COVID and the war in Ukraine and the impact upon transportation in particular and the tanks that are required to transport the electrolyte, we're moving to a regional strategy for transportation. the creation of the electrolyte through a strategic construct. So I don't have the exact answer, but it's a work in process to construct that capability on a regional basis based upon regions that we are targeting within the United States. So I don't have a complete answer. I'm very comfortable with the strategy. the regional nature of the strategy and our technology will be leveraged as part of that strategy but i don't have an exact number for you i'm sorry okay and then could you just remind us of to what exactly is the schedule for the uh implementation and the deployment for the nl battery please yes uh the schedule for the nl battery uh has it delivered in December of 2022. That schedule has some fluidness to it because of the dynamics around supply chain. We're being impacted by some of the vendors' ability to get components. And we're working through those issues with our customer in Elk. But it is scheduled to be delivered in late 2022 in the month of December, and we're progressing accordingly. Okay. What was the second part of your question? I'm sorry.

Okay, Ben. Could you help us also understand what are the financial impacts and how do you recognize the timing for revenue recognition for B&L Battery and also the cash flow? I mean, have they already paid the cash so far? And then the expense recognition. What I'm really trying to understand is that, given how this is off into the future for the deployment of the battery in the fourth quarter of 2022, hopefully, what are the same implications on your income statement and balance sheet and cash flow statements?

Thank you.

Yeah, I'll take that. So Jim, the bulk of the revenue will be recognized in 2022. The only exception to that is there is actually a lease component on that vanadium. The present value of that is about $800,000, but that $800,000 will be spread over the 10-year life of that project. So the bulk of it would be recognized in 2022.

Ernest, though, can you, for the revenue being recognized in 2022, does the battery have to be, at what point in time can you recognize the revenues? What milestones do you have to reach?

We get paid on a milestone basis, but as soon as there's essentially handover of the asset and they've taken position, that's when you would have recognized all your cumulative or

The contracts are, the practice is pretty common. Let's leave out the electrolyte portion. But if you talk about the battery itself without the electrolyte, you typically get an upfront payment because you need that to invoke your supply chain. And then the customer will define milestones. with respect to particular deliverables and sensitivities, and those milestones change depending on the role that the customer is going to play in the deployment of the battery. Some customers ask you to do all of the work, including the site-specific work, the EPC work, which has a local content, and other customers. This is a utility company, so in this case, our customer is taking responsibility for for the site work and has separated the electrolyte component in this contract. And then typically there's a hold back for commissioning. So that commissioning schedule is critical to getting the hold back payment from that customer. So it's broken down to an upfront payment, progress payments based upon milestones, and then a commissioning payment at the end And those payments can be anywhere from 20% to 10%. I don't know the specifics on Enel. But that structure is very common in the deployment of battery energy storage solutions, regardless of technology.

Great. Thank you very much. And I appreciate it. And again, welcome. You're welcome.

Thanks, sir.

And that will conclude our question and answer session. At this time, I'd like to turn the call back over to Mr. Guthrie for any additional or closing remarks.

Thank you, Operator. And that concludes this Q&A session and our quarterly investor conference call. Have a great day. Bye now.

That will conclude today's call. We appreciate your participation.