Li-Cycle President and CEO Ajay Kochhar is pushing back on dire predictions that his lithium-ion battery recycling company is headed toward bankruptcy.
“It's a good business,” he said in an interview with WXXI News. “But this is a significant speed bump.”
The company abruptly shut down construction on a Rochester hub facility last month. And this week it released a sobering quarterly earnings report that sent its stock price tumbling.
Kochhar reiterated that Li-Cycle remains committed to the Eastman Business Park facility. So much so that he laughed off any suggestion that it wasn’t, saying that hub facility has the potential to “unlock” the company’s profit potential.
“It has to be our top priority,” he said of the Rochester hub. “We have $390 million that we've invested in the facility already, between the buildings and all the equipment. We're not walking away from that. That is number one.”
He said Li-Cycle has a number of big companies in their corner with a vested interest in making sure the project is seen through. What’s next? Line up additional financing. And likely revise the construction plan in a way that could require less investment, initially, to produce a profitable, intermediate product.
"Then firm up the timing to come back and restart construction,” he said. “So no, we're not going bankrupt. We're confident in the business. It's been paining me to read that.”
Kochhar declined to lay out a specific timetable but said the company would have to address the question by the time of its fourth quarter earnings call in February — if not sooner.
'A pretty tricky decision’
Describing what went wrong, Kochhar said contracting on the project had become so layered that it likely slowed the flow of information.
He said a report he received “very soon, right before” the Oct. 23 announced shutdown, showed a drastic rise in construction costs. The project at the time was moving from structural work to mechanical, piping and electrical work, which translates to more work hours.
Read: Li-Cycles presentation to investors
There also were delays in financing, particularly when it came to a conditional commitment for a $375 million loan from the U.S. Department of Energy. And a lease arrangement that didn’t work out with Pike Conductor, a partnership of local contractors that would have gotten funding and, serving as landlords, reimbursed Li-Cycle for the buildings. All that left Li-Cycle funding the project – and quickly running out of money.
“I wouldn't say we were spending money we didn't have,” Kochhar said. “If we'd continued, we would have been. … We were right at that cusp.”
Had the loan been closed, and the lease been finalized, there might have been room to adjust.
“It's just all those things happening at once,” Kochhar said. “But then you're stuck with a pretty tricky decision. … Do you keep going? And that would be frankly irresponsible. Or then you have to make a quick call.”
In a statement, the Department of Energy said that, as with every conditional commitment, "prospective borrowers must fulfill conditions … which can include legal, technical, commercial, contractual, and financial requirements.”
The DOE continues to work with Li-Cycle on what ultimately is a multi-agency review covering legal, technical, commercial, contractual and financial requirements. What terms or conditions must be met are considered business confidential. And material changes in the project, significant litigation or other negative developments can factor into the process. Li-Cycle is facing a potential class action lawsuit that it defrauded investors.
Kochhar made clear the company is not making excuses or placing blame. This was Li-Cycle's project and Li-Cycle's responsibility, he said. That isn’t to say he doesn’t have questions.
“We have a lot of questions around, OK, well, how did that happen so quickly? How are we going do it differently next time, and a whole bunch of stuff, right?”
The potential for a “next time” is where he sought to steer the conversation. And the need to gain greater cost certainty on a $485 million project that became a $560 million project and might balloon to an $850 million project or even $1 billion, when everything is built.
"You have a fully engineered project, and you have all the equipment and all the materials on the site,” he said. “So, the other component of that is how do you do the construction contracting? There must be better ways here, from our perspective.”
'It’s surprising … even for us’
The latest earnings report painted what many saw as a dire future for the company. Losses exponentially outpacing sales. Cash on hand is dwindling. Projects in Canada and Europe also being paused or put under review. Workforce reductions, including 20 people furloughed or laid off locally.
It’s what fueled serious doubts among analysts including Ethan Wade, senior vice president and chief development officer at Brighton Securities.
"Will they announce bankruptcy tomorrow? Probably not,” Wade said this week. “But is that looking more and more likely that that will be a hand they may have to play in the near future? It does. And the lower the stock price goes, the bigger the bigger and more likely that could become.”
Li-Cycle's stock closed at 71 cents a share on Wednesday. That was up 5 cents from the day before. But well below the high for the year of $6.58 a share.
“I get it,” Kochhar said of analysts and traders alike. “They're looking at financials, and they're just looking at the base facts. I mean, the reality is, our business today, when you look at our quarterly financials, is not the hub business.”
Li-Cycle's business plan works off a patented spoke-and-hub model. The spokes “shred the batteries,” he said, creating what is called black mass.
"That generates some revenue,” he continued. “But that's not really the full model, right? We make an intermediate product, we sell it. The real unlock here is the hub.”
The hub is what refines the product to create battery-grade lithium, nickel, cobalt. It's the hub where Li-Cycle promised to create more than 260 jobs — a commitment Kochhar said "hasn't really changed ... based on what we know today." Put simply, the hub is where the money is. And that gets back to why Rochester is a priority.
“This is the difficult side of the clean energy kind of build out,” he said. “Building stuff is hard. And it always is, and especially when you're at kind of the bleeding edge or the cutting edge, it's even harder. And these things can happen.
"It's surprising how it happened, even for us. But, you know, there's still a lot of value in it, and so we look forward to coming back.”
