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spk05: real option value for our customers and supply chain partners. We see strong increase in interest across the entire value chain from globally leading companies wanting to partner with us. We have ongoing large opportunities under evaluation to expand into other technologies and other end markets. We ended 2022 with an as strong balance sheet as we started it and capital formation opportunities are very strong. We are truly becoming an industrialization partner of choice with world leading companies. We would not have been in this position without a very strong industrial DNA. We possess world-leading project execution and operational excellence skills acquired over decades. This experience stems from the Norwegian energy, energy-intensive and process-intensive industries. With this, let me now hand it over to Jan-Arve Haugan, our Chief Operating Officer and President of Friar Battery Norway, to take you through the status of our operations in Norway.
spk07: Thanks a lot, Tom, and hello to everybody listening in on this earnings call. I'm now going to give you the latest update in our operations. So safety first. I'm glad that I can say that we have had yet another quarter without any reported serious incidents. However, we have reported three incidents with high potentials, all three of them related to lifting operations by subcontractors. at the construction sites in Mu. The current workforce at the two locations in Mu is approximately 90 after a peak of 140 in December at the customer qualification plant and close to 60 now at the construction site for GigArctic. As the workforce for construction is now growing, we expect close to 140 persons in March More complex installations and work is elevated above ground. I find it also relevant here to remind everybody that it's of vital importance of safe job analysis and multidiscipline coordination. As of last week, the freight operations team is now managing the work permit system for all activities in the CQP, and currently our operations group is now totaling almost 40 people in move. As we noted in our previous earnings call, we are progressing according to our schedules. But of course, we are not immune to the challenges that are noted previously. Like, for instance, logistics. We have still some COVID-19 restrictions and there's a scarcity of semiconductors. But I will also say that our teams are delivering very solid performance in recovering lost progress on critical subprojects. And as we speak, the final acceptance tests are being completed. Our project completion system is implemented in all deliverers into the CQP. And we are in detailed control of all the test results from the manufacturer site. And any incomplete issue or modification found to be needed is recorded in the system as print items. Following the final installation of the CQP, Another punch out is done before the site acceptance test is performed in front of the handover to operations for final commissioning and ramp up. Each production step is gradually handed over to operations team, which then can start running the process equipment in joint control with the site suppliers, site representatives for guarantee and training reasons. As I noted in the last earnings call, the team from South Korea and Hanotek did complete the installation and the mechanical completion of the formation and aging section during the fourth quarter. Here on the slide, you can see the photo of the completed system handed over to operations. And currently all upstream systems are being punched out and handed over to operations are imminent. The core equipment of the semi-solid platform is the casting and unit cell assembly delivered by MPAC Lampert in the UK. As noted previously, this is the delivery on the critical path towards our first battery milestone. As of today, the agreed factory acceptance tests are being completed and last week, the anode caster was elevated into its mezzanine platform in the dry room at the CQP in Mo. The next unit is the merging unit, which is now being reassembled for installation under the anode caster in the same room, while the cathode caster, which is the last delivery, is ready for transport from Tadcaster in the UK to move for final reassembly and connection to the merging unit in order to meet our mechanical completion milestone in March. As we verify and check out each component through the project completion system, the Freyr operators are an integrated part of the project executions commissioning group. And again, remind you that it's the way we jointly with suppliers clear the various pledge items that shows the way we secure delivery, mitigate delays and transform into safe operations. The key for us in Freyr is to commit to deliver and deliver as we have committed. And the key is to be ready in the first quarter of 2023. And as you can see on the slide here today, we are preparing for the opening event on March 28. Then briefly, the team that are managing our strategic sourcing is progressing now further into making sure that raw materials are made available. For the CQP, all materials are secured. Materials have even been ordered and the first deliveries have arrived physically at the site in Moorana. We have also secured a major share of our raw materials needed for the Giga-Arctic. And to prepare for the Giga-America acceleration, we have started the process to secure the volumes by approaching close to 20 suppliers, including some of them US-based. In addition, we have driven forward our upstream integration activities to build sustainable regional supply chains. With the signature of the license agreement between Freire and Elise, we start to build a sign of an LFP plant in the Nordics. Very recently, we went into a partnership with Finnish Minerals Group of Finland by signing a joint development agreement. The ambition of this partnership is to develop a business case for an LFP plant outside the city of Rasa in Finland in the common approach. On the next page, you will see the latest update from GigaArctic construction site. Since the last market update, we have heavily elevated out of the ground. As you can see in the photo, prefabricated steel structure for the first dry room of GigaArctic is completed and prefabricated floors and roofs are in place. The building and infrastructure contractors are continuing at the upstream building where the powder and slurry mixing will be installed and the first part of the formation and aging for line 1 to 4 is being installed at the back end of the photo. Project execution continues now with engineering and production line equipment with focus on the integrated design and the integrated production control system. As noted previously, the early design for module and pack operations with nidic energy is being implemented into the plant layout of the west side of the plot. Currently, these parameters are pending final production configuration with nidic engineering. Finally, before I give the word to Tom, please let me also note that our ongoing engineering for production line equipment and continued design development for GigaArctic is managed in close cooperation with the scoping of the Giga America plant. Currently, Frayer builds up a team in the U.S. that can initiate the first bee engineering required for an accelerated delivery of the plant in the U.S. This was the operational update of today, and now I give the word back to you, Tom.
spk05: Thank you, Jan-Marve. Encouraging and professional as always. Let me now remind and provide some updates to our audience around the 24N Technology semi-solid platform. First of all, this is the platform in commercial production today. which was a key aspect for us when choosing to license it. The two other criteria when we selected it was that it offered a step change in performance and cost and further improvement potential over time for the batteries we aim to produce. Secondly, it is a platform with world leading companies from various industries and different geographical regions. I'm proud to say that we have deepened our discussions and fortified our working relationships with all of them. These companies include leaders in automotive production, ceramics and ultra high speed coating based manufacturing, complemented by deep supply chain knowledge and presence in localized energy markets from China, India, Southeast Asia, Europe, and the United States. In our ongoing due diligence process for GigaArctic, we have again confirmed that a platform at the gigawatt-hour scale will be at the absolute left-hand side of the cost curve. These analysis show that we are positioned to be up to 50% more cost effective than fourth quartile producers. Let me remind you that this is highly likely to occur in a market which will be deeply short battery products over the coming decades. Finally, let me underline the reasons for why this is possible and why we're optimistic that we will prevail. The cell design is a much larger electrode design, which will structurally fit better with the ESS and EV configuration than current battery solutions going into the thing. The process itself is dramatically simplified, significantly reducing space, capex, energy and labor consumption, among other benefits. The initial products sent to our customers from 24M and analyzed by third-party labs also yielded very strong results. In addition to scale, which is fundamentally important for any battery producer, all of these components are necessary elements to be able to be competitive in a global race for batteries. With this in mind, let me now turn to the ongoing efforts by US and European governments to ensure energy security. The IRA incentives has already created massive influx of interest and activity in the US. For a battery producer, the incentives can create as much as 50% direct incentives relative to the cost structure. Furthermore, our customers are also deeply incentivized, which is very important in a market short environment. While heat and then intense debate are ongoing on EU's and Norway's response, the key takeaway is that such response is coming. Batteries is increasingly recognized by many to be the core catalyst for the clean energy transition. 70% of all decarbonizing efforts globally will have batteries included for transportation and energy system redesign. We are actively working with key stakeholders in Norway and the European Union to ensure targeted responses. CREA is optimistic that the end results will favor cost-competitive and clean solutions to drive the same agenda. CREA is therefore comfortable to attack two gigaprojects in Norway and US simultaneously. This option value that Giga-Arctic and Giga-America developments provide is triggering increased interest from our partners. The financial impact from the production tax credits alone provides fundamental support for accelerating new capacity. We believe the global and regional battery short environments will create strong economics for cost-effective players. For every gigawatt hour of produced batteries in the U.S., We see as much as 37 million US dollars in incentives per gigawatt hour of capacity installed yearly until 2030, with a tapering off until 2032. This will, to be clear, exceed by a healthy margin the total capex associated with installing such capacity in the US. With this in mind, let me now hand it over to Mr. Jeremy Bezdek, our EVP of Corporate Development and President of Triad Battery US, to take you through the status of our developments over there. Jeremy?
spk13: Thank you, Tom. First, I would like to express my excitement about joining the Fair Battery team back at the beginning of January. I'm honored to work together with such an experienced and motivated team that is striving to provide low cost, high quality battery solutions for multiple end markets across the globe. As Tom alluded to earlier, we are at the point in time where we simply cannot ignore the need to accelerate our US project. It makes sense to our customers, our supply chain partners, and our investors. With a site selection process that took place over the last half of 2022, culminating in an attractive site in Coweta County, Georgia, the land acquisition in November was a key milestone for Frere and the development of the U.S. project. Initially, the U.S. project was likely to lag the GigaArctic project by 10 to 12 months, but simply put, we cannot ignore the market opportunity that exists to accelerate the production capacity in the United States. To that end, our U.S. team is taking a look at various options which would provide us the ability to move up our start of production from what was estimated to be in 2026 into the year 2025. We have multiple options that we are evaluating that will get us into production faster while providing a fit for purpose product that the market desires. As we noted on slide seven, the engineering of production line equipment is replicable from the Giga Arctic project into Giga America. We are focused on a project solution that we think will be enticing from an economic standpoint, not only for Frere, but for our partners that are looking to invest, as well as the ESS customer base in the United States that is in need of domestic cell supply. Many of them have expressed their preference for FRER to move downstream into module and DC block production as well. So as we continue to explore acceleration options, we are also going to meet our customer demand of what they would like to see as the available product. As highlighted on slide 11, there are multiple benefits to fast tracking the development of the U.S. project. The cash flow available for FRER simply from the IRA incentives as well as surging demand for our product drive the initial acceleration need. The ability to work with strategic partners who see the opportunity to work with Frere, both from an upstream and downstream standpoint, provides motivation and incentive for us to move faster as well. In addition, we've heard from financial sponsors that have expressed interest in supporting the project, which could potentially provide us the opportunity to push out the lengthy project financing process to a later phase in the U.S. project. Those financing options would provide the opportunity for us to capture maximum margin through additional merchant sales to what we believe is a fundamentally short ESS market. Moving to slide 12, we wanted to provide a quick update on the incentive package that was negotiated with both the state of Georgia and Coweta County. The land grant from Coweta County of $20 million was approved last week and will be closing in the coming days. The application for the $7 million land grant from the state of Georgia should be approved and closed in the next two to three months. There are also two different tax abatement incentive programs, the first of which closed with Coweta County for $230 million. We're in the process with the state of Georgia to close the $140 million tax abatement package as well. These incentives, in total, provide Frere with approximately $410 million over multiple phases of the project. Of course, there are requirements that FRERA will need to meet, both from a capital investment and a number of jobs created standpoint. But we believe both minimums will be met through the two phases of our growth project in Georgia. To restate, we are excited about moving forward in a faster pace to build our Giga America site in the state of Georgia, and we're excited about bringing high-quality batteries to the emerging ESS market in the United States. With that, Tom, I will send it back over to you. Thank you. Thank you, Jeremy.
spk05: It is both a true pleasure and honor to have someone with your background and experience join our team. It also provides a ton of comfort and at least already massive progress globally with partners and in the US for our accelerating development. Let me now turn to our view of the underlying dynamics of the energy markets and why this matters for us and why it should matter to our investor community. At the most fundamental level, let me state the obvious, that solar and wind power generation has a marginal cost of zero. and will therefore displace all other sources of energy when it is installed. This effect will only intensify as they grow larger and, more importantly for a battery company, trigger massive battery demand as batteries today are the most mature, best and cheapest solution to the intermittency problem. Batteries are now, as one example, even replacing peaker plants and, together with solar, baseload coal generation. Supply chain driven price inflation that we see today is furthermore temporary, as we have seen in solar in the 2000s. Battery costs will soon converge back to its learning curve, suggesting 15% plus cost decline for every doubling in installed capacity. Solar's learning curve has been quite consistent over the past 50 years, while batteries at gigawatt hour scale only have a couple of decades learning curve behind them. Current ESF solding costs are at $300 to $500 per kilowatt hour. with potential for large cost reduction across the system scope, a halving of ESS costs will, for instance, lead to much more than a doubling in total addressable market due to market dynamics and economics. Our focus on integrating the semi-solid platform also downstream, as alluded to by Jeremy, should therefore fundamentally provide us with an exceptional growth platform in the largest secular shift in Homo sapiens history. While there will be The decade in front of us will be the decade of battery. It will also be fundamentally short batteries. And our focus on larger and thicker electrodes will not only enable cost reduction in battery costs, but also significant cost reduction on the system level. This will enable us to play in both the higher-priced merchant markets and the lower-priced long-term off-tech markets critical for project finance solutions, which are key to unlocking the reasonably new technology solutions. Let me provide some deeper thoughts around why we are confident that we have such strong future ahead of us. And let's try to provide some guidance as to how our previous very bullish market predictions are now increasingly being adopted by many. Most forecasters, cell site analysts, and other agencies are currently using a linear approach to building energy system projection, driven in large part by what we can see and what we can measure. In our opinion, this approach failed to incorporate exponential development or system disruptions as exemplified by the solar, coal, and ESS in the presentation. Electricity generation is expected to triple by 2050 in the International Energy Agency's new scenario scenario, of which variable renewable energy or intermittent sustainable energy will make up probably more than 70% of the total. Based on IEA's track record, with the same system bias as alluded to earlier, this is likely on the low side. Solar and wind are already the cheapest source of electricity generation and made up 75% of new capacity in 2021 and probably a much higher number in 2022. This implies a 20x increase in solar and wind in the period in question, which in turn generates a massive need for storage capacity. Distributed variable renewable energy plus storage is the ultimate solution providing the widest set of services. It's indeed connected through a virtual power plant system. reducing the need for grid expansion and lowering the grid cost for the consumers. Distributed solar plus storage is already the largest world segment in mature markets, such as China, Australia, and Germany. Several studies indicate that solar, wind, and water, plus regional solutions of hydro, geothermal, and tidal, plus ESS is the optimal renewable energy solution. We therefore believe that in a world where ESS solutions form a fundamental backbone of a decarbonized, decentralized, and democratized energy system, total installed ESS capacity can reach triple-digit terawatt-hour scale over the coming decades. This is the world in which modularized, cost-effective solutions from, for instance, 24M, deployed at pace with deep industrial acumen and experience, creates a very exciting opportunity for Trejer, our partners, and our investors. While these longer-term perspectives are exciting, let me now summarize our two main positions and projects. GigaArctic and GigaAmerica will now increasingly be developed in parallel. GigaArctic and the CQP has already secured world-leading 100% green electricity. We launched Norway's national battery strategy together with the Norwegian government at the GigaArctic site have already seen strong signals of support and continue to work with key stakeholders in Norway and the European Union to ensure the localized IRA responses are material and fit for purpose. In the U.S., we have already been through the local, state, and federal incentives, and the combination of these with the technology developed in the U.S., leveraging the Norwegian heritage and specific experience from the CQP, provides a robust platform from which to grow faster and more profitably. This geographically diversified production platform is what an increasing number of globally leading companies are seeing, and you should expect to see multiple industrial partnership announcements from Praer in the near future. Beyond geographical diversification, our increasing visibility and presence across the industry and globally is providing us with an even broader set of opportunities. We have already set our mark on the e-mobility sector with the announcement of our first off-take agreement for e-mobility solutions earlier this year, complementing the very strong ESS traction we already have, which is also Jeremy alluded to, is growing a lot stronger as we speak. Catalyzed by the 24M platform, but also driven by our industrialization partner of choice approach, we also have deep interest from the global battery industry to partner with us both strategically and operationally. We have a number of ongoing RFQs and partnership discussions, also from the EV-focused OEMs, which should further catalyze larger scale projects with project-level financing solutions and deeper strategic partnerships at double- to triple-digit gigawatt-hour scale annually. While we also target other chemistries for other products, our LFP-based focus is also on looking finance and value-creative opportunities upstream, as Yamarva alluded to, for large-scale cam facilities and other upstream facilities over time, and with that, securing critical supply of decarbonized raw materials into our products in Norway and the U.S. All in all, our commercial traction is stronger than ever before. But we will always balance these efforts against our focus on realizing the ongoing project development in Norway and the US, maintain optionality, and ensure prioritization on the solutions, providing the highest basis for long-term and sustainable shareholder return. As a focal point to underline our discipline, we ended the year with a balance sheet as strong as we started it with. And with that, let me leave the word over to Oscar Brown, our Chief Financial Officer, to provide you with a rundown of the financials for Q4 and 2022 and our financing efforts and strategy to unlock all of this potential. And over to you, Oscar.
spk08: Thank you, Tom. So, I'm on the financial update slide in the earnings deck, and I will review our financial results for the fourth quarter and the full year of 2022, as well as provide an update on our financing initiatives. For the quarter ended December 31, 2022, CAIA reported net income of $25 million, or 20 cents per share, compared with a net loss of $28 million for the same period last year. The net income for the company's most recent quarter was a result of a $60 million non-cash gain on our warrant liability fair value adjustment due to changes in our stock price from the end of the third quarter. For the full year of 2022, The company reported a loss of $99 million, or 83 cents per share, compared with a loss of $93 million, or $1.24 per share, for 2021. As a reminder, the warrant liability fair value adjustment moves around period to period based upon, among other things, the company's stock price at the end of each period, generally reporting gains when the stock declines, as was the case in the fourth quarter, and losses when the stock rises. For the full year 2022, this adjustment was a $14 million gain. More importantly for today is our cash investment rate. We spent net cash of $107 million in the fourth quarter compared with $70 million during the third quarter and $254 million for all of 2022. We ended the year with $563 million of cash, cash equivalents and restricted cash, and no debt. Our cash burn rate and capital expenditures were almost completely offset by our successful follow-on equity offering in December that netted the company $251 million. As shown on the financial update slide in the earnings deck, naturally, cash was spent on corporate overhead, operating expenses, and capital expenditures, primarily supporting the customer qualification plant and GigaArctic, as well as the purchase of our 368-acre Georgia site for our U.S. Gigafactories. and other business development activities. Excluding capital expenditures, our overhead rate, or burn rate, at the current level of activity, including the development of multiple factories, R&D, and SG&A, is around $95 million per year, but we will look to reduce that going forward. Regarding capital expenditures and the broader organization, we are focused on developing options to accelerate our efforts in the U.S., so we can get product to market sooner and take advantage of the U.S. Inflation Reduction Act as soon as possible. Under the Act, the Section 45X production tax credits begin declining in 2031 and will be completely phased out by the end of 2032, so time is of the essence. Partnering in the U.S. will be key to our financing and development plans, but the equity offering in early December has given us flexibility to make significant progress on this journey. We will continue spending on GigaArctic and Moirana as we have so far at a measured pace as we anticipate a response to the IRA from the European Union, but more importantly to us from Norway. The potential favorable impact on the economics of all of our projects around the incentive programs in the US and potential responses in Europe is significant. While we have a long list of stakeholders at Friar, allocating capital to the highest return projects is central to our financial policy. Despite these longer-term activities, our primary focus in the near term is getting the customer qualification plan up and running and then producing testable batteries as soon as possible. This is key to validating the 24M semi-solid platform a gigascale and an important de-risking event from a financing perspective. As mentioned previously, we completed a successful offering of 23 million ordinary shares placed with institutional investors in early December at $11.50 per share, raising gross proceeds of $264.5 million. Net proceeds of this offering are being used to continue progress on GigaArctic while working to complete its project financing, begin project development spending on GigaAmerica, and for general corporate purposes. We will now also expend significant effort in evaluating options to accelerate our U.S. strategy to address the U.S. battery market and energy storage solutions sooner. Accelerating in the U.S. is key to taking advantage of both the extremely robust battery pricing and demand for batteries in the U.S. in the spot market, as well as the IRA. With respect to project financing, we are deep into the second phase of this process with GigArctic, which is the due diligence phase being led by five consultants covering engineering and technology, market and supply, ESG, insurance, legal and documentation for the benefit of the lenders. We have also initiated discussions on a long-form term sheet with our mandated lead arrangers in preparation of bringing the project to bank syndication. While we will continue to make progress, it is important we understand where the EU and Norway are likely to land in terms of a response to the US IRA before launching a formal and broad syndication process. Depending on those responses, timing of the giga-arctic project financing could extend beyond the second quarter. In the meantime, our efforts will continue on satisfying lenders' due diligence requirements, emphasizing the acceleration of U.S. development, and of course, enabling the CQP ramp-up, which itself is a key driver of overall financing timing. As I mentioned in the Q3 report, I should further add that we continue to field and evaluate capital formation opportunities and interest from a wide range of existing and potential commercial, strategic, and industrial partners, as well as financial institutions. This interest appears to be driven by the widespread belief and robust fundamentals behind the long-term expected growth of battery demand for both the ESS and the EV markets, and the incredible progress Flyer has made since its New York Stock Exchange listing 18 short months ago. We strive for partners who believe in Flyer's mission and can grow along with us as we evaluate and take on projects like Big Arctic, Big America, the potential for upstream integration, our entrance into the mobility market, and other opportunities. Again, our U.S. initiatives and the Inflation Reduction Act have acted as catalysts for such discussions, and we see the ramp of the customer qualification plan as yet another major commercial and financial catalyst. We are grateful for the ongoing support of all of our financial and industrial partners, especially our shareholders, and our progress on all fronts, as well as the continuous improvement in the demand outlook for our products, and the urgency of addressing climate change being demonstrated by businesses and governments around the world. With that, I turn it back over to Tom for closing comments.
spk05: Thank you, Oscar. What a year it has been, and what a year we have in front of us. Let me then summarize with the following. Today is moving into live battery production, and we are ready for the challenge. Today is accelerating our U.S. efforts to capture the opportunity for the U.S. technology and global partners. Fred is becoming a multi-project company from a geography, value chain, and technology perspective. Fred has deep interest from a large number of financial, industrial, and strategic partners to support our growth. Fred is, in short, on track to become a global champion in the clean battery solution space. Finally, I would like to thank all our investors for your support and your patience. My main advice to you all is to stay long, or should I say, go longer. Let me finally remind you again of the upcoming event on March 28th. The preface is over. Chapter 1 in the Clean Battery Solutions history starts a month from today. Stay tuned for more. As Amadova so excellently put it, we commit to deliver, and we deliver on our commitments. With that, I hand it back to Jeffrey to guide us through the Q&A session.
spk03: Thanks, Tom. Operator, I think we're ready to open up the line for questions, please.
spk00: Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. If you choose to withdraw your question, please press star followed by two. When preparing to ask your question, please ensure your phone is unmuted locally. And our first question today goes to Gabe Daoud of Cohen. Gabe, please go ahead. Your line is open.
spk02: Thank you. And hi, everybody. Thanks for all the prepared remarks. Really helpful. Tom, maybe if we could just start with CQP. Obviously getting pretty close here to first production, I guess targeting 2Q23 for the real ramp. But just curious if you can maybe give us a little color around timing to really that gigawatt hour scale that you're targeting. So how long do we or how long will it take to get to that certain level of production? And then maybe the follow up to that would be what your customers in order to convert to firm offtake from just conditional how much volume do they really want to see? Do they want to see the CQP really get up to that gigawatt hour level of scale? I'm just trying to get a sense of the timing around that.
spk04: Yeah, good morning, Gabe. Thank you for that question. So, of course, the 28th of March is an important date for us when all equipment will be on site and we basically start operations of the CQP. As we have talked about previously, the customer qualification plans is an actual gigawatt hour scale facility. But we're not going to run it as a commercial facility. We're going to run it to test different solutions, to train our operators, to qualify new equipment, and to continuously improve the semi-solid platform over time. In terms of volume of batteries that our customers require, so there are a couple of things there that are important to keep in mind. First of all, as we mentioned during the prepared remarks, We have already sent samples of batteries from 24M, especially to NIDEC, which showed excellent characteristics and very strong performance. Our first objective, which is going to be key for the NIDEC offtake agreement, which, by the way, is not conditional but firm, but we need to deliver batteries from the CKP that at least deliver as good performance as the batteries produced in 24M. The difference between the ones produced in 24M and the ones that we will produce is a larger form factor. But the chemistry, the cathode and anode material going into it will be the same. We don't require a huge amount of batteries per customer to qualify that. So during the second quarter, we will ramp up production and we will start to test these batteries with our customers, most likely on-site in Moerama, but also at third-party labs. So during the second quarter of 2023, we should see a lot of progress in terms of both validating what we've already demonstrated with NEDEC from batteries produced at 24M, now produced at the CQP in a gigawatt-hour scale facility, and with all the other offtake agreements we have, which will also then start testing the batteries produced from the facility in question. When all of that is done, and this will always be a continuous journey not stopping in the second quarter, but going into the third and fourth quarter and first quarter of next year, we will also gradually increase the speed, increase the yield, increase the availability of the equipment. And that is also another feature that is going to be important. So we need to be able to show that we can extrapolate performance from the CQP into the giga-arctic facility. The good news is that all of our customers have very aligned incentives with us and all of the 24M ecosystem and the ones that are relevant in this regard will be on-site to support the scale-up and the development.
spk02: Really helpful. Thanks, Tom. And then maybe I guess as a follow-up, pivoting to Giga America, can you maybe talk a little bit about the order of operations there? I guess maybe a bit of a chicken or egg scenario there as well. So as far as strategic potentially writing a check, do they want to see more firm offtake? But then also like from a customer standpoint, I guess they want clarity around timing of startup, which I guess requires capital. So how do we think about Giga America and how that could truly be accelerated alongside Giga Arctic?
spk04: Well, so I think we see a variety of different levels of interest, right? Some who are ready to step up to the plate. and quote-unquote take more risk and some who would like to see more data and more sort of results coming out of the CQP. But I do think that the interest in participating in developing Giga America is a function of many things. It's not only a function of what we do in the CQP. It's a function of perspectives around the IRA. It's a function of actually having a viable business case, which, as Jeremy alluded to, we're working on various different options from, let's call it, brownfield-type options to more fast-tracking first couple of production lines from a larger greenfield development, all of which we are, in the coming weeks, going to narrow down into a specific development plan. And in parallel with that, we are presenting these options to a number of these strategic industrial and financial partners And I have to say the interest is very strong. So yes, you are right in the sense that this is somewhat of a chicken and an egg problem. But I would say it's much more of us deciding on how we want to go and then deciding on what partners to bring into that equation.
spk14: Understood. Thanks, Tom. Thanks, guys.
spk00: Thank you. And the next question goes to Julian de Moulin-Smith of Bank of America. Julian, please go ahead. Your line is open.
spk12: Hey, guys. It's Alex Rabelon for Julian. Appreciate you guys taking the question. Just to follow on a little bit on the U.S. story here with Giga America, I'm curious if you guys have thought through at all sort of the ability to possibly monetize tax credits up front as a source of capital. And also, if we think about a fast track, you're talking 34 gigawatt hours, eight lines. I mean, is there an opportunity here just to do essentially like an equity-based start up, take the risk on balance sheet effectively, and then try to branch into more strategic from there. Thanks.
spk04: Thanks for that question. I'm going to have Oscar chime in on this one. Oscar, can I hand it over to you to provide some color on monetization options and how we're thinking about different development solutions?
spk08: Yes, certainly. Thanks, Tom. And thanks, Alex. So yeah, for sure, there's great opportunities to monetize these tax credits. And as you know, with the IRA, a lot of the monetization options have been simplified relative to past laws. So we're looking forward to that. We've talked to several of the commercial banks in the US and other investors on how to do this. So the key question will be, can we pull that? How far up can we pull that? How close to production and what volumes can we do to finance all of that? So that's sort of evolving in the market real time. but we do see an opportunity there. And just to remind you, we did some math on slide 10 to give you a sense on how hugely impactful it is to the economics of sort of a gigascale production center. So for sure, that's developing and we'll see, but we think that can happen. Tom, I'll flip it back to you on just on how you want to address the sort of different options for Giga America.
spk04: Yeah, so maybe I'm going to hand that over to Jeremy, who's also on the call, to talk a little bit in more nuance around the different options that we're looking into for a fast-tracking America development. Jeremy?
spk13: Thanks, Tom, and thanks for the question. Yeah, I mean, I will put it this way. The team, as I mentioned earlier in my remarks, is really on a sprint pace to figure out over the next four to six weeks the best options that we have in place. Tom mentioned a couple of those in his answer to the last question. which could involve maybe a couple of early initial lines that could move fast. We've got a couple of different options around the land that we have acquired that we're evaluating as well. And so it's not overly defined yet, but it will be over the next four to six weeks as we narrow in on know quite frankly bringing the production the start of production timeline from 2026 which we had talked about previously into 2025 um the team's hard at work and it's sort of this is this is a bit of we're announcing an acceleration approach and we'll be coming back uh with with the actual plan here over the like i said in a very short period of time so i wish i had more to to describe at this point, but it's quite frankly something that is evolving very rapidly with the team right now. But maybe I just complement all this.
spk04: As part of that, right, we're also looking into the financing of these different options as well, which of course is a function of the partnership-based discussions on strategic industrial and financial side up against whatever option we are evaluating. But I think you're sort of directionally quite astute when when you're asking the question we're obviously thinking in the same lines how fast can we get real production up and running and what is the kind of path of least resistance in that is clearly something we're evaluating so stay tuned for more updates on this the main message is we're moving as fast as we can to capture the IRA benefits as quickly as we can and now that we're starting to produce batteries in the CQP
spk14: we have a different kind of platform from which to accelerate.
spk12: Got it. And I appreciate the color here. Just on the giga-arctic piece, just like I said, housekeeping point, when we look at the capital spend back out, I guess the land spend for Georgia, seems pretty similar to Q3. So curious if that's sort of a rateable run rate you'd think about here as far as what you're willing to allocate currently on giga-arctic. And then curious if you could expand a little bit as far as this European IRA piece, what you think that might look like as far as a response, and sort of what keeps you confident on the parallel investment method that you're sort of laying out here. Thanks.
spk04: So, Oscar, I'm going to ask you to answer the first part of the question, and then I'll weigh in on the IRA or the localized IRA response in Europe.
spk08: Sure, yeah. So, it's not a bad one, right, in the fourth quarter? I think we'll be a little bit under that. In the first few quarters here, we made a lot of progress on the buildings. And of course, you know, watching what's going to happen in response to the back half of this question in terms of Norway on the IRA might change our sort of view on how fast we could move and want to move on CapEx. But our plan is to sort of, you know, within any moment of our available cash to make sure we've got enough to cover some progress on all these projects, we have to finish up the CQP. get Giga America going and then continue progress on Giga Arctic and then still have a runway of a couple years of cash as a safety buffer for our overall burn rate. So we're not giving out specific guidance, but we're sort of in line with the Board approvals that you have heard about from previous quarters. Tom?
spk04: Yes. When it comes to the localized IRA response, there is a broad variety of tools that are discussed and investigated both at the European Union level as well as at the national level. I think it's fair to say that the Norwegian government will largely follow what the European Union will advise and that is an ongoing quite heated debate which sort of spans from let's call it CAPEX related incentive mechanisms to accelerated depreciation solutions to production tax credit and direct grants, etc. So we are evaluating all of these and looking at and advising, let's call it our counterparts in the Norwegian realm, so to speak, on what would work best for us relative to what we're seeing in the US. So it's too early to say exactly what it's going to be, but we are optimistic that it will be significant and it will definitely improve significantly the economics of GigaArctic so that it becomes closer to what we're seeing under the IRA. But to expect that you'll have a one-to-one response to the IRA is probably not something that we are too hopeful of, but that it will be material and dramatically improve the underlying profitability of what is already a reasonably profitable project is something that we're quite confident that will happen. the jury is still out we are deep into those processes with the relevant stakeholders and we will be providing updates on this as and when they emerge got it thanks guys congrats thanks alex thank you and the next question goes to philip conig of goldman sachs philip please go ahead your line is open yeah thank you very much for taking my question and thank you for the for the presentation um my first question is just on the
spk10: Coming back to the pivot to moving faster in the U.S., I guess for how long are you willing to wait for a European or Norwegian response to the IRA, and how long are you going to continue to invest in the progress on both factories? And is that also sort of dependent on how quickly you can maybe get external capital in terms of progressing in the U.S., or how long are you willing to spend capex basically out of your own pocket? And then my second question is just sort of a bit on the commercial side. You referenced potential discussions with OEMs for your LFP technology. We are clearly seeing a huge interest in uptake of LFP by lots of Western OEMs. I know you are initially targeting it so far, and most of your offtakes have been in the ESS space. But do you see passenger car OEMs now as a possibility for Freya? Any kind of that will be very much appreciated. Next.
spk04: Thank you, Philip. So on how long are we... So it's kind of a... It depends, right? I mean, at the end of the day, we are currently comfortable to pursue both projects in parallel. As we are describing in the materials, we're continuing to develop GigArchic at a measured pace while being neck deep into conversations and processes to see what the localized incentives will end up being. We're talking about weeks and months here before we see clarity on this and then we will evaluate what that potentially does again to the project finance process primarily. That's kind of the main element in this. As we have alluded to before, the project finance is a function of the performance of the CQP and to some extent the relative economics of a project in Norway relative to a similar project in America. So we will be measuring this and monitoring it closely and we'll be carefully pushing forward both projects and again we're optimistic that the responses will be material and that they are happening in the near term. And then we'll come back to the market, as mentioned, with the consequences of those actions when we see them more clearly. So far, the signals are reasonably optimistic, but let's see what happens when the European Union decides and how Norway sort of responds to that. Good news is, as mentioned also, exemplified by us announcing the national Norwegian battery strategy when we announced GigaArctic last year in June. You can imagine that we have reasonably strong access to the relevant decision makers when it comes to understanding how these incentives will be implemented. So that's on that piece. When it comes to the OEM interests, and just to be clear, we are aspiring to be an industrialization partner of choice. The 24M technology is relevant for ESS and e-mobility applications today. It could be relevant for EV applications in the not so distant future. But in parallel, we have, as mentioned, interest from large battery manufacturers from Asia who want to come to Europe and partner with us and or partner with large OEMs to develop LFP-based supply. You're absolutely spot on in indicating that the large OEMs are increasingly looking to LFP supply to drive down costs. Now that battery packs are becoming better, larger, and the sort of system level design of these are improving, cost is coming back into the picture, and high nickel content batteries will, to a large extent, be replicated or replaced by LFP-based solutions. One conversation we're having indicates that half of a very large OEM's need will now be pivoted to LFP, LFP-focused company is providing us with additional opportunities. The final thing I'll say on this is we have announced our ambition to, over time, localize cathode-active material production of LFP in Europe, and more specifically in the Nordics. And we have announced, or it has been announced, the partnership that we have with Finnish Minerals Group. So we are looking into localizing large scale LFP capacity there. And this is also something that we're not doing in vacuum. We're doing that together with potentially the large partners, the large OEMs and the others that need localized decarbonized LFP supply into an increasing Let's call it need for that. Today, most of it, if not all of the LFP batteries are sourced from Asia, and we will be one of the larger producers of LFP batteries as well as potentially can material for the same. So this is a very strong situation and setting for us to be in. Exactly how it's going to turn out is not clear yet. And when it is, we will come back to the markets.
spk10: Thank you. And maybe if I just ask one last quick question on the CQP. It seems like NIDAC sort of have first call on the first sales that come off the line. Is that sort of fair to assume? Because you already have a firm agreement with them to sort of verify and validate the quality of the sales?
spk14: That is absolutely fair to assume. Thank you. Thanks, Phil.
spk00: Thank you. And the next question goes to Lily Esler of Clarkson Securities. Lily, please go ahead. Your line is open.
spk01: Hi, everyone. I thought we might continue on TQP. Did you hear any comments on financing? And as it says, the sort of wrap-up of the selection at TQP will catalyze different large or major milestones. But What part of the financing is just dependent on the start or ramp up or could you provide guidance on that?
spk08: Yeah, maybe I'll start. So thank you for that. So the project financing is a key piece for GigaArctic that has conditions precedent in the term sheet that we're negotiating that relates to many things, but primarily or in part the CQP production. So getting it ramped up, testable batteries, as we've talked about, and acceptance by our primary customer, in this case, NEDIC. So that's a key timing item in terms of, and we've been in the market already with the market sounding, and then, of course, working with our mandated lead arrangers and all our UCAs and other financiers on progressing the project. Formal syndication will be a judgment call based on sort of seeing some activity out of the CQP combined with whatever response we see out of the EU and Norway, just so they kind of complete the full financial picture. So that's the primary driver. It does impact other financing activities. People want to see something come out of the CQP and how it looks. But a lot of those discussions, particularly with strategics, are already pretty deep and high on the technical side. So we don't anticipate, you know, huge timing implications around that until, you know, while we ramp up the CQP, as long as it's going well. Sorry, Tom, you might want to add something.
spk14: Oh, I think that was an astute answer.
spk01: All right. Great. Thanks for that. And if I can follow up on securing raw materials. So I know you have to secure raw materials, but can you remind us of how far ahead of time you have that for? And then beyond that point, where do you see probably the largest bottlenecks besides the lithium? And how do you go on to securing those?
spk07: First of all, the securing of raw materials has gone on for quite a while. And as I said in the call, we also had secured everything that is needed now for the startup and ramp up of the CQP. And lots of material has already been delivered to Moirana. So the next step is obviously to start committing to the volumes necessary for the gigafactories. And as I also indicated, we are actually now approaching suppliers also for giga america and i think we have approached approximately 20 suppliers some of them actually located in the in the in the us criticality is as you comment yourself a lithium supply and i think that's extremely important for us to continue to broaden our sourcing strategy on that one we have different alternatives in addition to the one that we are developing ourselves, as Tom indicated. We have, as you probably remember, we have a license agreement with Alice over Taiwan. And obviously we need to continue to expand on that one. And I'm not sure if it is correct to go into the details here, but yes, that's probably the most important one. And going from there, I think we will come back to that when we announce more commitments for our materials.
spk04: But I think, as we have said before, we are largely covered for the raw material needs in GigaArctic up to 2028. And we're continuing to evaluate additional opportunities to both drive down costs further and to localize and decarbonize the production of it. Again, this is not something that we will do on our own. We will do it in deep strategic collaboration with others, tapping into the large demand for LFP solutions, but also other critical raw materials going into the production of batteries in a localized context. Remember, to secure battery production in Europe and in the United States, it's not only about battery cell manufacturing, it's also about the critical raw materials going into it. But in the early stages of the battery cell manufacturing ramp-up, you will need to rely on existing supply chains, which predominantly are in Asia. And as we gradually pivot from an Asian supply to a localized supply, we want to be a catalyst for that as well, but not necessarily as the dominant owner in it, but an off-taker and a strategic partner to unlock a sustainable, decarbonized and localized supply.
spk00: Thanks, Neelie. Thank you. And the next question goes to Adam Jonas of Morgan Stanley. Adam, please go ahead. Your line is open.
spk14: Thanks, everybody. Just the first one, if you could remind us, what's the minimum reject rate that your partners would consider from the CQP? What would they consider a success in order to sign a binding agreement to get us out of the ramp?
spk04: So Adam, thank you for that question. So I think that first and foremost, they need to see that the form factor that we are producing, the 5610 form factor, which basically is a 56 by 10 centimeter large electrode, is actually performing in accordance with the electrochemical performance that the samples that came out of 24M, that we recreate that. we will have low yields and low uptime of the facility in the early days as you know this will gradually be moving towards our targeted overall equipment efficiency which is a function of uptime and yield and as long as we can show that there is progress in the movement on both yields and uptime that is from a knee-deck conversation point of view good enough as long as we replicate the electrochemical properties of the initial samples. Then we have various activities and roadmaps established, which we have been very transparent on together with our customers. And as long as we are trending inside these roadmaps, that is what should suffice, at least from a NEDEC point of view. And this will be the same approach that we will take also with our other customers. So expect that we will be reporting on yield and uptime on a regular basis over time. They will start off very low. We will have a lot of issues and problems. We have identified, as I mentioned previously, more than 1,500 potential sources of error and established standard operating procedures for all of them. Probably we will have twice as many problems, but at least we have a good start in that. We're also working actively with the relevant stakeholders in the 24M ecosystem to support the ramp up from a experience of semi-solid production point of view, but also from a high-speed coating-based manufacturing process point of view, as well as working with NEDEC to provide scaling expertise as they are deep into sort of scaling energy intensive processes in their own And many of these things are transferable to the challenges that we will face. But it's, of course, a combination of electrochemistry plus mechanics plus many different things. But as long as we are trending in the right direction and as long as the electrochemical properties of the initial batteries that we produce with high reject rate are within the tolerances that we have previously demonstrated, that will be good enough for NIDIC.
spk14: Thanks, Tom. Oscar, one for you. Any precedent from your extensive project financing experience on monetizing the pull forward of tax credits, or are we kind of in uncharted territory? I didn't know if there was anything in the oil and gas world that you think could compare to this.
spk08: Yeah, thanks, Adam. Yeah, there's actually more in sort of solar and other sort of renewables is probably more comparable. And I think we have seen in the past typically that financing comes in right around plant completion. So the trick here is, you know, and so it would be a development, I think, in this market. But given the ease of monetization, you know, we're hopeful and optimistic that there may be an opportunity to pull that forward some from plant completion to a little bit ahead of that. And so that's kind of what Tom was alluding to. So at a minimum, you know, we think, you know, around the time you complete a plant that you can monetize the forward production, especially if they're under contract. And so we'll have to balance that because we do think the merchant market's pretty great right now. But my understanding is it would be a little bit of a development to pull that forward. But that might translate into how the banks are willing to commit to financing a little bit ahead of time. So there just may be some benefits. This is sort of evolving real time as people improve their understanding of the IRA, which is quite good. And of course, we'll see what the Treasury regs say to clarify anything, but it's pretty straightforward. So we'll see. But we've got a few months to sort of figure out with our counterparties how it might work.
spk14: Thanks a lot, Oscar. Thanks, everybody. You bet. Thanks, guys.
spk00: Thank you. And the next question goes to Maheep Mandaloy of Credit Suisse. Maheep, please go ahead. Your line is open.
spk09: Hey. Hey, morning, everyone. Thanks for the questions here. Just on the US factory, you talked about accelerating the build-out here. Could you just talk about the timing? Is it like early 25 or mid? And as you kind of look at the module manufacturing also, could you remind us if the CAPEX for module manufacturing is included in that initial estimate? Are you expecting any revision to the CAPEX guidance?
spk04: Mahid, thank you for that question. As Jeremy alluded to, we are neck deep in evaluating the different scenarios and different options that we have in front of us. You know, initial couple of production lines, brownfield, greenfield, first step, equity finance, project finance, different sort of partnership arrangements around it. So it's a little bit too early for us to be very concrete as to sort of when we believe we can start up. So we say 2025 for now, and then we'll be more specific in terms of what that looks like when we have done the initial investigation. What also Jeremy alluded to was that we are, as part of that, also evaluating module and DC block kind of development because a number of our customer engagements in the U.S., don't necessarily only need battery cells, they actually want a final ESS product. This is obviously something that we are developing together with Nivec in Norway, and we're looking into various options as to how we can also play in the downstream area of that. As you know, the capex related to that relative to cell manufacturing on a per kilowatt hour basis is significantly less. but let us come back with more specific estimates on that when we've done the work in the next four to six weeks.
spk14: Gotcha.
spk09: And then something more timely, saw this news earlier today on China potentially reducing supply, lithium supply from one of its hubs in Yucheng province. Just curious, like how does that global supply of lithium kind of impact your cost assumptions and How should we think about your pricing assumptions? I understand you don't have China exposure directly, but just curious, in global lithium pricing, how does that get impacted because of all these challenges?
spk04: Yeah. So, of course, this is a big question and one that many in the battery industry are grappling with. But as you know, in our overtake agreements, we have passed through mechanisms for the most critical raw materials that are critical in the sense that they both have a market and also are the most volatile. And in that is, of course, both lithium hydroxide and lithium carbonate. So that price exposure is in large part passed on to our customers. And that is obviously something that is impacting the overall contractual negotiations of the pricing structure and the long-term off-take agreement. Now, so that's kind of on the commercial side of things. We feel that we're hedging that volatility, if you like, quite significantly through how the contractual framework is being constructed. Now, at the end of the day, we are, to a large extent, people behind Trajer are upstream-based people coming from raw material businesses. So we do fundamentally understand a little bit around how to secure profitability in a raw material-based industry. So how to do that in the most, let's call it, profit-accretive way for the company is embedded in what we label the industrialization partner of choice approach. We, on the one hand, will be a large off-taker of product or volume of lithium hydroxide, lithium carbonate, LFP material, anode material, copper foil, and so on and so forth. And on the other hand, we see an opportunity to offer our experience in energy, energy intensive and process intensive industries. And that combination is part of what is triggering a broad variety of stakeholders, again, multi-billion dollar global companies to actually wanting to partner with Zayed, not only from a battery cell production point of view, but also potentially upstream. And that is something that, you know, will play itself out both in Europe and in the United States over the coming years. you know, months and years, essentially. So we are cognizant of the challenge, clearly. We have a broad variety of partners that want to team up with us. We have secured raw materials contractually, as mentioned, for GigaArctic up until 2028. We have about 20 processes ongoing now for broadening that out, including also looking into how to secure raw materials from the U.S., So all in all, I think we are in decent shape in this regard.
spk14: I really appreciate that, and I'll take the rest of it. Thank you. Thanks, Maheed.
spk00: Thank you. And our final question today goes to Greg Jerry Lewis of BTIG. Greg, please go ahead. Your line is open.
spk11: Hey, thank you very much, and good afternoon, good morning, everybody. You know, Tom, just realizing that the call's a little long, I'll just keep it to one question. You know, I was hoping, like, realizing that the CQP live stream is going to be next month, pretty exciting. Beyond that, is there any way we should kind of think about event path, timelines, hurdle rates for how we think, you know, kind of news flow once the CQP is up as we kind of – as basically 2023 moves forward?
spk04: Yeah, well, there's going to be a lot of – events and news flow coming from Steyr in 2023, that's for sure. We are moving from, as I said, being a PowerPoint company, quote unquote, to becoming a battery company with a headache and opportunities that come with that. I think the 28th of March is, of course, an event where more color around what is in front of us will be presented. including potential more nuance around the partnership-based approach and how we're sort of faring in all of that. And then, principally, you should expect us to, of course, report performance in the CQP. You should expect us to report on the electrochemical properties of the batteries you produce. You should expect us to report on the development and yield enough time in the facility. You should expect us to communicate around additional customer traction, which could also branch into mainstream EV. And you should expect us to sort of, of course, report on progress on the financing side, be it project finance and or additional industrial strategic or financial partners on project level or otherwise, as we might see appropriate. We will be sort of moving forward at pace, as we have been doing. And now we have a real asset, which will document to the world the degree of our ability to produce batteries. And we are well prepared for the challenge, but we don't expect it to be a smooth ride, but we expect it to be a very exciting year.
spk14: Great to hear. Thank you very much, and have a great rest of the day. Thanks, Greg. Thank you, Greg.
spk00: Thank you. We have no further questions. I'll hand back to Jeffrey Sattel for any closing remarks.
spk03: Thanks, Nadia. Well, thank you all very much for your time and interest. Please don't hesitate to reach out to me with additional questions. And we look forward to seeing a number of you in person or virtually on the road starting this week. That'll conclude the call. Thanks again.
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