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Operator
Good day. My name is Leo, and I will be your conference operator today. At this time, I would like to welcome everyone to the first quarter 2022 Lifecycle Holdings Earnings Call-In Webcast. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question at that time, please press star 1 on your telephone keypad. If you should need operator assistance, please press star 0. Thank you. I will now turn the call over to Nala Azmi, Head of Investor Relations. Please go ahead.
Ryan
Thank you, Leo. Good morning, and thank you, everyone, for joining us today for LifeCycle's review of our first quarter. 2022 results ended January 31. We will start today with formal remarks from Tim Johnston, Co-Founder and Executive Chairman, Ajay Kochhar, co-founder, president, and chief executive officer, and Debbie Simpson, chief financial officer. We will then follow with a Q&A session. Ahead of this call, Lifecycle issued a press release and a presentation, which can be found on the investor relations section of our website at investors.lifecycle.com. On this call, management will be making statements based on current expectations, plans, estimates, and assumptions. which are subject to significant risks and uncertainty. Actual results could differ materially from our forward-looking statements if any of our key assumptions are incorrect, including because of factors discussed in today's press release, during this conference call, and in our past reports and filings with the U.S. Securities and Exchange Commission and the Ontario Securities Commission in Canada. These documents can be found on our website at investors.lifecycle.com. We do not undertake any duty to update any forward-looking statements, whether written or oral, made during this call or from time to time to reflect new information, future events, or otherwise, except as required. With that, I'm pleased to turn the call to Tim.
Leo
Thank you, Nala, and good morning.
Nala
We're excited to provide you with the review of our first quarter results and an update on the continued progress we have made on our Spoken Hub network. I will begin the call by covering key operational and commercial developments. Debbie will then review our financial performance and balance sheet position. We will also discuss our competitive positioning and economic value proposition. Beginning on slide three, the recent developments in three key areas.
Leo
I'll cover these briefly and then in more detail later. On the commercial front,
Nala
We continue to grow our battery supply customer base, recently adding two new emerging electric vehicle manufacturers. In addition, we are making progress on the strategic multi-year commercial partnership with LG Chem and LG Energy Solution. We anticipate the completion of these agreements by the end of April. On operational level, we made significant progress on our spoken hub network. We received the air permit approval for our Rochester Hub project from the New York State Department of Environmental Conservation, which is the critical path item for proceeding with the next phase of construction. The permitting milestone was received with strong support from local and state authorities, a validation of the net positive environmental footprint and economic value we bring to the community. This allows us to push ahead for targeted commissioning in 2023. Also, we are nearing completion of the Arizona Spoke, in line with our scheduled timing for early 2022. The Arizona Spoke is a first of a kind on multiple fronts, which I'll discuss in more detail shortly. On the financial front, the Ontario and New York Spokes delivered higher year-on-year black mass production. which resulted in higher revenues. We also continued to maintain a strong balance sheet with more than $550 million in cash.
Leo
This will be augmented further by the LG investment that we expect to close in late April. Turning to slide four, let me take you through the status of our spoke build-outs and black mass production targets in more detail.
Nala
We have several key competitive advantages that are integral to our strategy. With our patent-protected modular spoke technology built in our spoke fabrication facilities, we have the capability to rapidly deploy new plants in lockstep with our customers' accelerating growth. The small physical and environmental footprint of these plants allow us to efficiently co-locate with partners like Altium, to provide on-site recycling solutions or support multiple customers through regional merchant facilities. The Arizona spoke nearing completion represents the next level in our innovation in spoke design with regards to scale and process capability. This template was developed in response to growing demand. When operational, it will have an annual processing capacity of 10,000 tons of lithium-ion batteries. The plant is the first of its kind capable of processing full electric vehicle battery packs, making it safer and more labor efficient.
Leo
Next in line is the Alabama Spoke, which is the same design as the Arizona Spoke and is due to be online in our third quarter of 2022.
Nala
When both Arizona and Alabama spokes are operational, we will have a total processing capacity of 30,000 tons, up from 10,000 tons. We continue to target black mass production for the fiscal year in the range of 6,500 to 7,500 tons. As we noted in our previous quarterly call, this step-up will be evident in the second half of this fiscal year.
Leo
driven by the expected timing of these two new facilities. Turn to slide five for an update on the Rochester Hub.
Nala
As I commented earlier, we're excited to share with you that we have obtained the air permit from the New York State Department of Environmental Conservation. This was a significant milestone, allowing us to move to the next phase of construction with the installation of permanent infrastructure. The issuance of the air permit follows the approval by the Town of Greece of a negative declaration of environmental impact under the State Environmental and Quality Review Act in November 2021. Achieved in 14 months, both of these approvals endorse the sustainable nature of our operation and the positive environmental approach to our process. The hub is the first major facility of its kind in North America and demonstrates a substantial community and regulatory support for our environmentally advanced spoken hub technologies. We view this support as a significant competitive advantage as we continue to grow our network. I would also note that the patented protected hub process utilizes standard equipment, It is based on proven technology, validated through our pilot facility, and incorporated into the final design of the Rochester Hub. We previously shared that Hatch is our engineering and procurement contractor for the Rochester Hub. Recently, we have selected MassTech Industrial as our general contractor for the project. We are finalizing contract details for completion in the coming months. As you may also recall, we have firmed up timing and pricing for the majority of the long lead equipment. We are well underway with procuring this equipment, which will continue into the next quarter. Finally, we have continued to make progress with the addition of commercial partners, including the partnership with LG Chem and LG Energy Solution. In December 2021, we announced that LG Energy Solution and Lifecycle intend to participate on recycling nickel-bearing battery scrap. In addition, Lifecycle will supply LG with a total of 20,000 tons of nickel from the Rochester hub over a 10-year period beginning in 2023. In conjunction with completing these agreements, LG intends to make a combined $50 million equity investment in Lifecycle at a price of $11.32 per share.
Leo
We expect to conclude these commercial agreements by the end of April. That concludes my formal remarks. Debbie will now review our financials.
Robin
Thank you, Tim, and good morning, everyone. If I could turn your attention to slide six, let me first review results for the first quarter ended January 31, 2022. Revenue for the quarter increased by 277%, to $3.8 million compared to $1 million in the same quarter last year, driven by increases in product sales and market prices. The increase in volume is primarily related to the quantities of batteries and battery scrap processed at the New York Spoke. Adjusted EBITDA loss was $16.9 million compared to $3.7 million for the same period last year. This was largely driven by higher staffing and network development costs related to the growth and expansion of the business, particularly in North America. Higher personnel costs are for operational, corporate, commercial, and engineering resources, as well as professional fees and administrative costs in support of a public company, which we did not have in the competitive period. I would note that while year-over-year revenue is significantly higher, our revenue for the quarter is lower than the previous quarter. This decrease is largely timing-related due to a delay in scheduled maintenance at one of our production facilities, driving a shift of black mass sales from the first quarter into the second quarter. We would expect that the remaining quarters of fiscal 2022 will show sequentially increasing black mass production with corresponding revenue increases. This ongoing upward trend is supported by the shift in order fulfillment into the second quarter and increasing production from the Arizona and Alabama spokes in the second half of the fiscal year. Moving to slide seven, I'll cover a few highlights on the balance sheet. Lifecycle ended the first quarter with more than $550 million of cash on hand. This strong balance sheet position is expected to fund a large majority of the capital needed for the Rochester Hub, the five spokes in development, and the operating needs of the business through 2023. To further strengthen our balance sheet, optimize our capital structure, and provide future flexibility, we are evaluating multiple capital sources that are available to us. These include debt-based financing alternatives such as traditional corporate debt, project financing, government-related funding, and funding from potential strategic partners. With that, let me turn this over to Ajay.
Tim
Thanks, Debbie.
Evan Silverberg
I'll cover our business model and value proposition and close with future key milestones. And I'll begin with slide eight, with the total addressable market, or TAN, for battery recycling material in our strategic focus regions. It is projected that by 2025, the North American TAM will grow to be more than 420,000 tons of lithium-ion battery equivalent, and Europe will be more than 300,000 tons of lithium-ion battery equivalent available for recycling. This is largely attributable to surging demand for electric vehicles, which is driving incumbent and emerging electric vehicle OEMs to accelerate their demand for battery materials, with increased gigafactory investments. More recently, we have seen a supply and demand imbalance for these critical battery materials, driving pricing to all-time highs, particularly for nickel and lithium. Turning to slide nine, I'll review how Lifecycle's Spoken Hub network fits in the battery material supply chain. First, in North America, With our announced pipeline of projects in operation and development, we are leading the market in terms of lithium-ion battery recycling capacity. When our Rochester hub is operational, we expect to also be a leading domestic source of battery materials. Let me explain how. As we depict here, mining is the primary source of battery materials to supply cell and auto OEMs. Most of this mine supply is resourced from outside of North America and Europe. We will collect end-of-life batteries and manufacturing scrap from a variety of sources within these markets. Then, we will recycle these materials through our spokes to convert them into black mass, an intermediate material which contains valuable metal content. From there, we will process the black mass produced in our spokes through our hub, resulting in finished battery-grade specialty materials that can be sold as a domestic source of supply and an alternative to mined sources. Hence the core of our strategy. Our Spoken Hub network is designed to be a key domestic source of critical battery materials to the supply chain loop. We call this the urban mining solution. In addition to serving as a domestic supplier, we have another key advantage relative to primary sources, and that is the expedited timing at which we can supply the market. Our speed to market is a function of two key strengths. One, the net positive environmental impact of our processing technology, and two, our innovative and scalable construction approach. This reduces time to market by at least half for sustainable materials relative to mining. Turning to slide 10. Simply put, our strategic and competitive advantage is twofold. First, we've patented and proven our Spoken Hub technologies. Second, we've rapidly expanded our commercial network with leading global battery participants. On the technology front, we believe that our IP-protected processing technology, both the Spokes and Hub, is disrupting conventional primary sources such as mining and pyro processing. On the commercial front, we continue to expand and diversify our portfolio of customers, both with respect to the battery material intake and off-take. On the intake side, we continue to grow our customer supply sources while remaining agnostic to battery chemistries and recycling all types of lithium-ion batteries. We have flexibility to process different types of battery materials at the same time. On the off-take side, 100% of the production from our spokes and specialty battery materials from our future hub are committed with Traxxas. As such, we've mitigated our exposure on end product sales. Over time, as our hub comes online, we will look to direct our black mass production from the spokes directly to our hub. Turning to slides 11 and 12 for economic value proposition. First, slide 11 depicts our integrated spoken hub model, which is uniquely positioned to unlock significant economic value from battery materials collected from various suppliers. Let me describe the steps and how we capture increasing value. We receive input battery materials from suppliers, which are either processed by us for a fee or purchased at a discount to metal value due to the form of the materials. Our spokes process these battery materials into black mass, an intermediate material which is sold at index pricing based on its nickel and cobalt content. This thereby earns a margin spread relative to the input cost of battery materials. Once the Rochester Hub is operational, we will process its black mass into refined specialty materials, including lithium carbonate, nickel sulfate, and cobalt sulfate. These specialty materials can be sold at a premium to reference metal index pricing due to the battery grade form. For reference, in the first quarter, we achieved an average black mass selling price of approximately $3,800 a ton. Once the hub is operational, we would expect to realize approximately three to five times more value on a per ton of black mass basis through the sale of these specialty materials as compared to selling black masks to third parties. Slide 12 provides more specifics on the Rochester Hub projected volumes and pricing dynamics. Once operational, the Rochester Hub will not only play a significant role in providing a domestic source of critical battery materials, it will also be a meaningful value driver for Lifecycle and our shareholders. I'll elaborate on that point. Pricing for our key battery material and products will be driven by the hub production volumes and an agreed-upon premium to metal index pricing with some flexibility to capture upside in favorable supply and demand dynamics. As you can see on the slide, we provide our expected annual production output equivalencies for nickel sulfate, cobalt sulfate, and lithium carbonate. For further reference in terms of pricing mechanics for our battery grade end products, we provide the metal volume equivalencies for nickel and cobalt based on the relevant chemical equivalencies. Below this on the slide, we show recent historical market pricing for nickel, cobalt, and lithium carbonate. In the cases of nickel and cobalt, while we track the LME price as an underlying reference point, we typically expect to earn premium pricing to this
Tim
based on the battery grade form of these end products.
Evan Silverberg
In summary, not only do we earn a premium spread, but if underlying reference prices are increasing, we retain commercial flexibility to capture some of the upside in the underlying index pricing.
Tim
Moving to slide 13.
Evan Silverberg
This summarizes our current pipeline of Spoken Hub projects and the expected timeline through 2023. Earlier, we covered the two spokes in operation and the Arizona and Alabama spokes coming online in 2022. We have three additional spokes in development. One is the Ohio spoke, which will be co-located with Ultium Cell's battery mega factory. The Ohio spoke will have an annual processing capacity of approximately 15,000 tons and is expected to be operational in early 2023. Two is our Norway Spoke, which is an initial launch into Europe. This is planned to be through a joint venture with EcoStor, a leading second life storage business, and more batteries, which is building a battery cell manufacturing plant with an annual capacity more than 40 kWh. The Norway Spoke is expected to come online by early 2023 with an annual processing capacity of 10,000 tonnes. And three, it's our spoken Germany with an annual processing capacity of 10,000 tons, which we expect to come online in 2023. Finally, as we reviewed in detail earlier, we are on track for commissioning our Rochester hub in 2023. Bringing this all together, by the end of 2023, we expect to have a total of 65,000 tons of lithium ion battery spoke processing capacity between North America and Europe, with the first hub in North America capable of processing 35,000 tons of black mass annually. On the capital cost side, we estimate up to $10 million for the development of each of these remaining scope projects and approximately $485 million for the Rochester hub with an accuracy of plus or minus 15%. As Debbie noted, our current cash balance can fund the large majority of this pipeline of projects and the operating needs of the business for approximately the next two years. We are proactively evaluating a number of financing alternatives that are available to us to further strengthen our balance sheet position, optimize our capital structure, and provide future flexibility. Over the course of 2022 and 2023, we will continue to provide updates on the developments of our portfolio.
Tim
Turning to slide 14.
Evan Silverberg
I'd like to reiterate our key management objectives for 2022. Health, safety, environment, and quality remain core to LifeCycle's culture, values, and operating disciplines. We remain focused on delivering on our black mass production target of 6,500 to 7,500 tons in fiscal year 2022. We will continue our execution on the Rochester Hub project for commissioning in 2023 And finally, we expect to maintain and enhance our balance sheet position with financial flexibility for future growth and pursue a disciplined approach to managing operating expenses as we build our path to future profitability.
Tim
This concludes our formal remarks, and we look forward to your questions.
Operator
At this time, if you would like to ask a question, please press star 1 on your telephone keypad. If you wish to remove yourself from the queue, you may do so by pressing the pound key. We remind you to please pick up your handset for optimal sound quality. We'll take our first question from PJ Juvicar of Citi.
Vijay
Yes, good morning, Tim and Ajay.
Leo
Good morning, PJ.
spk08
You know, volatility in lithium, nickel prices, with the big spikes we saw, that's generally not good for any business. So what happened to black mass pricing? Let's say last six months, but really, you know, interested in last quarter, how did that black mass pricing change? And have you seen any changes in the battery cost that you procure?
Evan Silverberg
Yeah, hey, DJ, it's Ajay, and I can start, and then Senator Debbie can add on as needed. So, yeah, look, let me start with the black mass, and I'll work my way backwards to the speed. In short, yes, actually, our black mass pricing is based on a formula, and it tracks with the index of nickel and cobalt. So that is the case as time goes on, that we are going to benefit from potential upsides. The flip side of that is on the input side is also the protection to the downside. So in terms of the feed, we, from a commercial perspective, at a high level, and we're not always paying for battery materials, but when we do, it's based on a fixed and a variable discount. And that, again, allows us to benefit from the upside while protecting the downside.
Tim
Okay. Thank you for that.
spk08
And in the future, which of your spokes will feed the Rochester hub? Because some of these spokes are quite far. Like, for example, Arizona spoke from Rochester hub. So can you just talk about how do you see that integration when all this is built out?
Nala
Yeah, no problem, Vijay. I can answer that one. So from our perspective, it is a true network effect. So we expect that all of our spoke facilities will feed our Rochester hub. How we look at this is that when you compare the cost of battery materials versus the cost of or price of black mass, you end up having a much higher value product as being black mass that's easier and safer and therefore lower cost to transport. So one of the key benefits of the business model is we're able to turn those potentially volatile materials on the inbound side into an easily transportable, and as you can see in the deck, We average price at around $3,500 per ton for the quarter, a high-value intermediary product that is shipped in bulk bags like most concentrates that you've seen around the world directly to the facility in Rochester. One thing I will add is that One of the reasons why we chose the Rochester location is because of its serviceability by infrastructure. So we do have direct rail and road transport with just coming off the highway there in Rochester, which does allow us to optimize our logistics costs. And just one clarification, PJ, apologies, I said $3,500 for the quarter. It was actually $3,800 per ton of black mass for the quarter. But the same sentiment applies. It's a high-value, easily transportable intermediary.
Vijay
Great. Thank you. We'll pass along.
Tim
Thank you.
Operator
We'll take our next question from Brian Dobson of Chardin Capital Markets.
Tim
Hi. Good morning. Thanks so much for taking my question.
Evan Silverberg
You mentioned that there was a maintenance maintenance issue at one of your spokes that shifted some of the sales black mass from 1Q into 2Q. Can you give us a little bit more color on that? What was the revenue impact?
Nala
No problem. So I can address that one, Ryan. So the issue there was the availability of spares. So we do have consumables that we use through the process. And unfortunately, we didn't have it available when we needed it, which meant that we were forced to run the significantly lower processing capacity through the Kingston operation for almost a month. So you can think of it as effectively having almost losing a month of true process capacity through the Kingston operation. We've addressed that on our side in terms of we understand that the world has changed and the world has changed, I think, forever. And how we manage spares and inventory of spares, we've been able to address that so that we won't have this issue again.
Ryan
But
Nala
it was definitely a significant impact that we had to deal with in the last quarter.
Evan Silverberg
And I would just add to that a subject here. As you think about on a go-forward basis, and I understand obviously where folks are trying to think is as we talk about the incremental subsequent spokes, how does this translate and what does this mean for the go-forward? What I would just say that really simply put is as you think about this year, I would just Encourage you to have listened to Debbie's remarks that, you know, we're talking about the Alabama and Arizona folks coming in primarily in terms of ramp up in the back half of the year. Just as you think about how to model this year in terms of the guidance we stuck with, obviously, in terms of the black mass production. Okay, excellent. That's very helpful.
Tim
Thanks very much. Okay, thank you. Thank you, sir. We'll take our next question from George Janarikas of Bayard.
George Janarikas
Hi. Good morning, Tim and Ajay, and welcome, Debbie. Nice to have you aboard. Hi, George.
Vijay
Thanks, George.
George Janarikas
Just a very quick question first on your permitting. You mentioned that you were issued a negative declaration of environmental impact from the town of Greece, New York. Sounds like a wonderful place. If you could just share what that was like and what exactly they went through. Did they go through your future operations and determine the negative declaration, or was it just based on the build-out of the hub?
Nala
That's a great question. The negative declaration is a process and we say it was issued by the Town of Greece because they were the municipality or the party that was ultimately responsible for facilitating the program. But it did have inputs and review by well over a dozen different agencies within the State and broader. And what they're looking at is they're looking at the environmental, community, economic impact of not just the construction but the long-term operation of the facility. So they're looking at what sort of levels of air emissions, water emissions. They're also looking at what will happen during construction. It's a very detailed process, and having done that and gone through that and have all the agencies reviewed it and come back and said that they don't see that we will have a meaningful impact in getting that negative declaration, it was a major milestone. That allowed us to move forward with our air permit application. which was a process that's administrated by the New York State Department of Environmental Conservation. And ultimately, we were able to receive that permit earlier this month.
George Janarikas
Well, congratulations. And one more, just as we approach the hub in 2023, can you share broadly additional learnings additional insights in terms of its future operation?
Leo
Sorry, I'm not sure I quite understand the question.
Nala
Can you please repeat that?
George Janarikas
Sure. Meaning that, you know, you've had another three months now to plan out the hub, and I'm curious as to any additional insights, you know, any operational changes you've had to make or how comfortable you feel with getting that up and running by 2023. Okay.
Nala
We continue to remain on track for commissioning in 2023. We haven't learnt of anything that truly changes our view in that regard. The process is essentially locked down. We're in what we call the detailed design engineering procurement phase. We've started basic earthworks on site, and that's continuing to move forward. So from that perspective, no, nothing that would change our view.
Tim
Thank you. You're welcome.
Operator
We'll take our next question from Robin Fiedler of BMO.
Robin Fiedler
Hey, good morning, everyone, and congrats on the hub permit. So with volumes ramping and the leg benefit from higher commodity prices offset by presumably costs continuing to grow as well. With all those two puts and takes, do you expect the quarterly cash burn to get better or worse across the year?
Evan Silverberg
Yeah, I can maybe start and then Debbie can add on that. Thanks for the question, Robin. So I think at a high level, as you folks think about going forward, of course, we're We're growing and we're bringing on additional assets. That said, and we're also scaling headcount to support the network. But, you know, we have a good base today that's going to be also benefiting our future build-out as well. And there will also be, of course, the revenue benefit from those incremental assets, of course, that we shouldn't forget. Maybe Debbie wants to add to that.
Robin
No, I would just echo what Andrew said. So you've seen our Q1. I think the way I would characterize it is you could probably expect even more to increase in our SDNA as we continue to build out. But then you're going to, as you said, then we're going to have some revenue streams come on as we continue to build out.
Tim
Okay, thanks.
Robin Fiedler
And just a question on the spoke operating rates. Excuse me. What is the ability for you to run a spoke maybe above its capacity for a specific quarter. I guess what I'm trying to figure out is with the Kingston plant, you know, running below for this last quarter with the maintenance, can you catch up, so to speak? Because with your maintained all your black mass production, I would have thought that you would need Rochester and Kingston running pretty close to 100% capacity. So maybe the offset is just Arizona, Alabama, you know, having a stronger ramp than I would have thought. So maybe you can just unpack a little bit more and what gives you conviction you can still meet this four-year volume guidance.
Nala
No problem. So I'm going to answer your question in reverse. I'll start with Arizona and Alabama. They, as RJ and Debbie were stating earlier, that we do expect the production to be heavily weighted towards the back end of the year. They will make a significant change in terms of the operational capacity of the network of spoke facilities here in North America. One of the other benefits that we don't often get a chance to talk about, so I'll take the opportunity now, is that our spokes will also – this is the first time that we've been able to roll out our full pack processing capacity. And what that basically means is that we'll now have – an assortment of spokes with capabilities that are stronger in regards to larger format batteries, and we'll be able to modify how we feed these plants to be optimized for the style of plant that it is. And that's a very technical answer, Robyn, but the intent is just to say that as we increase the number of spoke facilities, our optimization of these assets, our existing assets, will also improve. And so I do believe that, as we say, we're still targeting the same annual production of black mass. It's just going to be heavily weighted towards the back end of the year. So despite having a lower than expected production quarter, we haven't changed our guidance for the full year.
Tim
Maybe just see if you can follow up on that.
Robin Fiedler
So is the output from Kingston, is there like lost production there? Or is part of what you're doing like shifting some of your feedstock to the other plants to maintain that same volume? Was there output destruction at Kingston for the full year basically?
Nala
Yes, so as I think I understand where you're coming from, and so correct me if I'm wrong, but so for Kingston, as we bring on the other facilities, we will optimize what we send to what plant. So keep in mind, you know, Kingston today processes material from all over North America, not just from, let's say, the Ontario Basin. And so what we will do is we will prioritise sending larger format material, for example, to Arizona and Alabama, as those facilities are better situated to handle it at a higher throughput rate than what Kingston is. We also talked about scheduled maintenance. The benefit of that is increased uptime, less maintenance, because it's We're actually using the facility for what it was truly designed to do rather than pushing it to process large format material.
Tim
That's helpful. Thank you. No problem, Robin.
Operator
We'll take our next question from Dan Ives of Wedbush.
Dan Ives
Yeah, thanks. So just with rising costs across the board, and obviously in With the build out in Rochester, can you just talk about from a guidance perspective or just internally how you're thinking about the variables there? Like what's the major thing that could maybe go wrong or go right when you're thinking about sort of forecasting the cost over the next six to 12 months?
Nala
Not a problem, and good morning. When it comes to the hub in Rochester, one of the things that we've been very conscious of is the high volatility in pricing. We refer to long lead procurement, and we've been very aggressive in targeting long lead procurement packages early on. So on the back of the DFS, we've placed the majority of our long lead packages, which is locked in the pricing for those. Of course, the world continues to be volatile, so I'm not going to say that it's completely not, but those have been largely locked in. And at this time, we're continuing to move forward with construction, with Hatch and MassTech. And we still feel that the project is tracking within that plus-minus 15% range that we targeted on the back of the DFS.
Tim
Great. Thanks. Great job with those apps. Thank you, sir. And we'll take our next question from Evan Silverberg of Morgan Stanley.
Evan Silverberg
Good morning, guys. Evan Silverberg on for Adam Jonas. Just Combining a few different thoughts you guys have thrown out there, you said, I believe, Ajay, you said that there's enough cash on hand to fund the business for close to two years. So, I mean, we're looking at the big chunk of cash here is going to be the hub. So, I mean, is that really going to, are we thinking operationally that's more the back half of 23 versus the front half of 23, if you really think you could keep that cash balance for close to two years?
Evan Silverberg
Yeah, maybe I'll start and then I'll turn over to Debbie. Yeah, I think broadly you're thinking about the timeframe in the right way. Of course, there's a lot of puts and takes, right? There's capital, there's our OPEX component, and there's also the revenue benefit from the additional spokes to bring them online and also selling black mats. And of course, given the broader environment, which is favorable for us from a supply-demand perspective for those materials and their materials, associated material pricing that factors into block maps, that's, of course, favorable. So there's a few puts and takes, I would say, that it can add to that.
Robin
Yeah. Evan, hi. Good morning. So if you look at the combination of where we sit in terms of Q1, and if you're looking to sort of figure out a little bit of math, if you think of that pretty much as a good indication, bearing in mind my comments earlier, right, with regards to our run rate, I think that's really helpful. And then if you look at our needs on the capital side, so there's up construction and we've got five folks under development for the next couple of years. When you put all of that together, I think what you get to is we've got the large majority covered by our current situation. And we look at it as a sort of timeframe that we can manage where there's a number of sources available to us that we can execute on. So when we're looking both short, medium and long term, we tend to chunk this up a little bit. And we're sort of approaching it from a basis of as we execute additional projects, we've got opportunity to execute additional layers of financing. So what we're trying to do is match our balance sheet and financing alternatives that are open to us as we grow the business in a modular way in the same way that we're approaching the growth of the business. kind of see that whole financing plan hand-in-hand with the approach to building out the goal for the business.
Evan Silverberg
Thank you for that. One follow-up, if you don't mind. While not perfect math here, if we were to take the black mass produced in the first quarter and kind of imply what the lithium-ion battery equivalent into the – into the spokes was via pricing as the, you know, third variable, you kind of get like a low 70% conversion rate, which would make sense given that, you know, right now a lot of the input is feed scrap. So as we're kind of looking at the back or the rest of the year and you're looking at your supply, do we think that conversion rate kind of holds or, you know, do you see maybe larger format items coming into the spokes which would then reduce that conversion rate?
Evan Silverberg
Yeah, and I said a high level, you know, using something in the range of, and I think we actually have it in the deck as a footnote on one of the pages, but it's roughly speaking, you can use a ratio of like 0.35 tons of black mass to 0.65 tons of black mass, maybe a little bit more. This is approximate for every ton of input. And I would just say, you know, obviously it's quite variable as you're getting at. I would just say that's why we like to focus people on that intermediate product production number because the feed can be quite variable.
Tim
Thank you.
Operator
And once again, to ask a question, please press star 1 on your telephone keypad. One moment while we queue. And we'll take a follow-up from Brian Dobson of Chardin Capital Markets.
Evan Silverberg
Hi, thanks so much for taking my follow-up. So, you received licensing for the Rochester facility. New York is a very rigorous jurisdiction to receive such licensing, I suppose. Were there any key takeaways or learnings from that process that you think could accelerate future licensing processes for HUD facilities?
Nala
Yeah, it's a great question. So I would say that, and I have to take my hat off to my team, our team, that they did an excellent job in terms of managing the communication, making sure that all the key stakeholders were well educated in the process, well in advance of us going through the formal application process. But I think that that point, you know, just from what's not a direct technical point, is just really important, and that's how we approach all funding activities. And then going forward, that's, I think, you know, a key aspect of how we operate, and you combine that with our technologically advanced process, it's... It's easy for people to understand what we're doing and why we're doing it, and easy to see the minimal impact that we're able to have. So it starts with communication.
Evan Silverberg
And just to add a little bit on Tim's point, sir, from a bigger picture, and I touched on this in my remarks, but I just really want to emphasize this because it just speaks to our importance as Lifecycle. What we just did on the Rochester hub, you would not be able to do, and I think everybody knows this, on a primary mine and refinery. You would take five, ten years, maybe never, depending on the locale and the various complexities involved. And you backdrop that with a market that is short of these critical materials. So our speed to market, I talked about this in my remarks, but I really want to emphasize this, is way faster than any primary source. And we're entering a period where the winners of this space, in terms of broader EVs, arguments will be driven by their critical material access. And we will be, as I parsed there, we try to break it down pretty simply on page 12, a natural beneficiary of that. So it sounds quite technical when we talk about the permitting, but that's the real big picture importance of it.
Nala
And I would just sort of overlay one final point on that, and that is in relation to traditional recycling approaches and their lack of sustainability. And what I'm referring to there is high temperature processing and the large amount of air emissions and solid waste that is generated from those processes is, you know, we've deliberately gone away from that, and that is a key advantage for us to be able to address this and ultimately address the needs of domestic supply here in North America.
Tim
Thank you. That's very helpful. We'll take a follow-up from Robin Fiedler of BMO. Hey, thanks.
Robin Fiedler
I was wondering how important the expected feedstock from Ultium's Ohio plant is this year to meet the production guidance, trying to get a sense of, you know, if that plant maybe ramps lower than expected, what that impact could be on your side. Thanks.
Evan Silverberg
Yeah, I can maybe start and then Tim can add on. I think, yeah, look at a high level. I think their timing is public. It's out there, so I'm not sharing anything here that's not known, but they're certainly in the ramp-up phase this year. And I think, again, it's public that it's really more through next year that they're into that more ramp-up phase in earnest. But that's some commentary at a high level.
Nala
Yeah, I would just add to that is that, like any plant, there is a commissioning and ramp-up phase associated with bringing these assets online, and we take that into consideration in our own forecasts as we make our estimates.
Tim
Understood. Thanks. We'll take a follow-up from P.J. Juvicar of Citi.
spk08
Yes, a quick one on some of your key partners. Can you just talk about what was the delay with LG and LGES contracts? Do we read anything into that? And also a question on Koch Engineered Solutions or KES that was your partner in building some of the stuff out. Can you just provide some update on that? Thank you.
Evan Silverberg
Yeah, I can start APJ. I can start with LG and Tim can take KES. So yeah, in short, it was just we needed more time with LG. There's numerous agreements, numerous parties involved. We filed the amended subscription agreement. You'll see the only thing that's changed is the outside date. And that's it. Simple as that.
Nala
And in relation to Coke and our partnership with Coke, we continue to work with Coke. They're in fact the lead on the build-out for our Norway facility. And so we're utilizing their engineering team to convert our design to meet the European standards, as well as managing the construction logistics. and logistics support, rather, for that facility. So we're very happy with our partnership with Koch. They've been a great partner.
Vijay
Great. Thank you.
Operator
And this does conclude our question and answer session. I'd be happy to turn the call over to Tim Johnston for closing comments.
Nala
Thank you very much. So briefly, closing with a recap, We continue to execute on our spoken hub network growth objectives. We've obtained all key environmental permits for our Rochester hub to maintain on-track commissioning in 2023, and we expect four operating spokes in 2022 and seven operating spokes in 2023. Our Spoken Hub model is leading in North America with IP-protected technology, an environmental net positive solution, and speed to market that is helping us solve the domestic shortage of battery materials. We are well-funded for our current portfolio projects with cash on hand and plans to future funding options. Lifecycle is positioned to capture significant economic value with tightening battery material supply and demand dynamics that are driving pricing for battery materials to all-time highs. And our 2022 performance objectives are directly tied to key value drivers for shareholders. We appreciate your time and interest in Lifecycle and look forward to continuing to update you regarding our exciting growth prospects.
Operator
This concludes today's Lifecycle Holdings first quarter 2022 earnings call and webcast. Please disconnect your line at this time and have a wonderful day.
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