Electra to refine cobalt in Ontario for LG as EV demand surges

Toronto-based Electra Battery Materials (TSXV: ELBM; NASDAQ: ELBM) signed its first production agreement for North America’s only cobalt refinery today, agreeing to supply LG Energy Solution of Seoul with about US$63 million of cobalt sulphate when calculated at the current spot price. 
 
The financial terms of the agreement weren’t released, but Electra is to supply LGES, a global manufacturer of lithium-ion batteries for electric vehicles, with 7,000 tonnes of battery grade cobalt sulphate from 2023 to 2025. Cobalt sulphate traded this month at about US$9,000 a tonne, according to Platts.  

Electra’s refinery at Temiskaming Shores, Ont., about 500 km north of Toronto, is set to start production next spring with 1,000 tonnes supplied in 2023 and 3,000 tonnes each the following two years. The companies estimate that’s enough to supply batteries for as many as 1.5 million electric vehicles.  

“LG Energy Solution is a global leader in the electric vehicle supply chain, and we are delighted to sign our first strategic supply agreement with such an important player in the lithium-ion battery market,” Electra chief executive officer Trent Mell said in a press release. “This is only the beginning of a larger strategic relationship with LG Energy Solution involving our other assets and growth initiatives in the North American battery supply chain.” 

Cantor Fitzgerald analyst Matthew O’Keefe kept a buy recommendation on Electra stock, noting this one offtake agreement with LGES amounts to about half of the refinery’s capacity. The financial terms are likely linked to spot prices and some form of cost protection, O’Keefe wrote in a note.  
 
“This commercial agreement reflects LGES’s recognition of, and confidence in, Electra’s ability to provide a secure and ethical source of low carbon, on-spec cobalt for the production of EV batteries,” the analyst said. “Electra is a quality, burgeoning battery materials producer and recycler that is well positioned to become an important player in the North American electric vehicle battery supply chain.” 

Electra Battery Metals’ cobalt refinery in Ontario. Credit: Electra Battery Materials

LGES chief executive officer Youngsoo Kwon said the company is focused on the North America electric vehicle market because it’s the fastest growing. “These partnerships serve as a crucial step towards securing a stable key raw material supply chain in the region,” Kwon said.  

Electra agreed with LGES to cooperate on items in the EV supply chain as it expands its refinery site into what it calls a Battery Park. It is to process nickel, copper, lithium, manganese and graphite and include a third-party cathode precursor manufacturer. An engineering scoping study released this month outlined a path to refine 10,000 tonnes a year of battery grade nickel sulphate and nickel equivalent cathode materials.

The company is also developing battery recycling at the park to recover lithium, nickel, cobalt, graphite and copper. A demonstration plant is to start this year with commercialization due in 2023-24.  

To start production, Electra will source cobalt from Glencore (LSE: GLEN) and China Molybdenum from mines in the Democratic Republic of the Congo (DRC). Longer term, it hopes to develop its own cobalt and copper mine in Idaho. It said the Idaho ore would supply its proposed second cobalt refinery – this one in Quebec. A prefeasibility study is due by year end for the site at Bécancour on the St. Lawrence River about halfway between Montreal and Quebec City. The company said it’s aiming to start production there in 2025-26.  

Electra’s Iron Creek project, about 300 km northeast of Boise, has an inferred resource of 2.7 million tonnes of 0.22% cobalt and 0.68% copper for 5,760 tonnes of contained cobalt and 18,144 tonnes of contained copper. 
 
Canada is fifth in global cobalt production with 4,300 tonnes, behind the Philippines at 4,500 tonnes, Australia with 5,600 tonnes and Russia at 7,600 tonnes, while the DRC dwarfs everyone with 120,000 tonnes, according to the U.S. Geological Survey.  

Electra is pushing for North American sourcing of materials for EVs, citing CRU Business Intelligence figures that plants in China account for 71% of the world’s refined cobalt, 76% of refined nickel and 93% of refined manganese used in EV batteries. Electra also expects a lift from U.S. President Joe Biden’s recently passed Inflation Reduction Act, which offers a US$7,500 tax for vehicles that don’t contain minerals from China and Russia. 

Electra said its components will produce batteries with a 60% less carbon footprint than most peers, partly due to Ontario’s abundant hydroelectric power. Electra said it would supply materials for the NCM811, a nickel, manganese and cobalt power source that’s better than lithium ion phosphate batteries for the longer range and higher performance vehicles used in North America.