Li-Cycle’s ‘ugly’ annual report shows uncertain future for Rochester Hub

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The tardy annual report filed Friday afternoon by Li-Cycle Holdings Corp. highlights continuing significant losses and calls into question whether construction ever will resume on the Rochester Hub.

While leaders for the financially troubled company publicly expressed optimism last week that a solution for the once-ballyhooed Rochester Hub can be found, the annual report painted a more guarded picture of the project that has a price tag of between $850 million and $1 billion.

The report showed a net loss of $138 million, an adjusted EBITDA loss of $156.4 million and, when listing forward-looking risks and uncertainties, a cloudy local forecast regarding “Li-Cycle’s inability to develop the Rochester Hub as anticipated or at all.”

“The future hasn’t gotten any brighter,” said George Conboy, chairman of the board at Brighton Securities. “Nothing about the stand-alone Li-Cycle business looks economically viable right now.”

Li-Cycle, headquartered in Toronto, is a lithium-ion battery resource recovery recycler. Using a spoke and hub network, the firm extracts lithium, cobalt and nickel from spent batteries for resale. The technology is considered a necessary complement to expanding electrification of the the automobile industry.

The company began construction of the Rochester Hub in the summer of 2022 but announced a pause in October of 2023 due to what it said was an unforeseen doubling in costs. The project, if completed, will lead to more than 250 jobs.

But not only have construction costs forced a Li-Cycle to undergo “a comprehensive review” of the Rochester Hub, current expenditures for the company far exceed revenue, and the value of the recovered minerals also has declined.

“Li-Cycle is a commodity-based company,” Conboy said, “and they are relying on the price of those commodities to be high enough to support their processes.”

That didn’t happen in 2023. Revenue from product sales and recycling services was $23.6 million. But a reduction in cobalt and nickel prices worked to drive down returns, creating an “unfavorable non-cash fair market value pricing adjustment of $5.3 million,” the report said. That meant total revenue actually was $18.3 million.

“I can’t tell you the last time I read a financial report this ugly,” Conboy said. “They list a half dozen highlights and then you scroll down and they say we had revenue of $23 million and managed to lose $150 million.”

Swiss global mining conglomerate Glencore provided a $75 million infusion of cash on March 12. Without it, Li-Cycle’s audit committee said the company’s financial viability was in jeopardy. But it was a short-term fix, not a long-term solution, and the U.S. Department of Energy still hasn’t authorized issuance of a $375 million construction loan that was announced in February of 2023.

“What Li-Cycle is saying is that we are in rough shape,” Conboy said. “Glencore has thrown us a (life) line; it’s not a heavy rope, it’s a string, but it is not going to get Li-Cycle back on track with Rochester and it is not going make the DOE give them the loan.”

Shortly after announcement of the investment by Glencore, Li-Cycle CEO Ajay Kochhar and executive chair Tim Johnston in a joint newsletter statement said, “We expect that our future Rochester Hub project will be a key part of our ability to help build a localized and circular battery material supply chain in North America. We deeply appreciate the Rochester community’s continued support and we thank you for your patience.”

Investors were bullish on Li-Cycle this morning. The stock price soared from Friday’s close of .70 to $1.07 as of 11:30 a.m.

Glencore is no stranger to Li-Cycle. The company already had a $200 million convertible note with Li-Cycle and is partnering with the minerals recycler on development of hubs in Europe.

“Glencore may see value in this technology,” Conboy said.

Would Glencore be interested in taking over the Rochester project, should Li-Cycle’s financial position not improve? Conboy theorized it’s a possibility, but that any interest would be based on how much as already been spent here and “if the facility is salvageable.”

Li-Cycle said it will provide a business update and review of the annual report during a conference call for investors at 8:15 a.m. Tuesday.

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