Aqua Metals, Inc. (AQMS) Earnings Call Transcript & Summary

Good day, and welcome, everyone, to the UBS Energy Transition call with Aqua Metals hosted by Jon Windham. [Operator Instructions] I would like to advise all parties that this conference is being recorded. Now I would like to hand over to your host, Jon. Please go ahead.

Thanks, Agatha, and welcome, everybody, to the 294th installment of the UBS Global Energy Transition Call Series. This call series, we try to connect UBS institutional clients with energy experts and innovative companies that are in some way enabling or driving the energy transition. So this is your host, Jon Windham. I head up alternative energy and environmental services equity research here at UBS. And today, we'll be talking battery recycling with Aqua Metals, ticker AQMS. Aqua Metals is a Reno-Nevada-based clean recycling company, has patented and patent-pending technologies involving the room temperature and emissions-free process that recycles lithium-ion batteries in a sustainable and economic way. Recently, Aqua Metals has achieved a milestone by producing its first lithium hydroxide with lithium-ion battery pack black mass at its company's innovation center. So certainly fitting right in the theme for what we try to get out of this is, one, the takeoff in lithium-ion battery production, both for utility scale and electrification of transportation, but as well as the ESG and sort of sustainable manufacturing process of creating circular economies around the clean energy transition. Very happy to have with us today from Aqua Metals, Steve Cotton, who is the CEO. Before I hand it over to Steve, just a couple of logistical items. First, there are slides to accompany today's discussion. They were distributed via e-mail to preregistered participants about 10 minutes ago. Second, the format of today's call will be an introductory presentation by Steve, followed by Q&A. Agatha, who's the operator, will provide instructions on how you can log any questions after the presentation. And as always, if you prefer, do feel free to e-mail me any questions you might have, and I will ask them anonymously for you as time permits. So if you found your way to this call, I'm sure you have my e-mail, but it's [email protected]. And then lastly, as UBS research analyst, I am required to provide certain disclosures about my relationship with and UBS' relationship with any company discussed on this call. The short of it is, this calls is not a recommendation by UBS to transact in any security. A full list of disclosures is available on ubs.com/disclosures. All right. Steve, thank you so much for being here today. With all that out of the way, let's get into the fun part. I appreciate you being here. I'll turn the floor over to you.

All right. Well, thank you very much, Jon. I really appreciate the introduction. And it's definitely right in our wheelhouse to be participating in the series. And I'm really excited to tell the Aqua Metals story for those of you that are new to Aqua Metals, you'll be getting kind of a quick but yet comprehensive overview that I'll take you through. And for those of you that have been following the story, following the company, there is some new material that we'll be presenting today as well. So with that, I will start with Slide #3, and that is the mission of the company, and that is to provide sustainable metal recycling for materials that are strategic to these energy storage applications that Jon was just talking about. Our proven technology, which is called AquaRefining, returns these raw materials back into the manufacturing supply chain in both a clean and economical way that reduces reliance on mining to meet the vastly growing demand that we're going to be seeing and have already seen in energy storage, critical minerals and materials. So if I just go to Slide 4, you'll see that clean metals recycling is really key to our future. And what I'd like to talk about in this slide is that why are we making the energy transition. The energy transition is to address global climate change and really create a world that operates on clean energy. And if you look at the Department of Energy, the thematic of their view is that it sure would be nice if we could use air, water and clean energy as inputs into this transition. And AquaRefining, which Aqua Metals calls are hydrometallurgical process, which is quite unique, really takes the step forward in support of the DOE mission, which is to use the renewable electron as compared to fire, which is used for smelting or chemicals that are used for standard hydrometallurgical processes as the key reagent in the process of reclaiming these critical minerals. What does that mean? That means that if you can power the process from electricity instead of fossil fuel-based fires or chemicals with large waste streams, you can actually make that energy transition worthwhile by reducing the emissions and doing something very positive for the environment. So the key takeaway here is that we use electricity to do our process. If you move to Slide #5, our process and technologies. We feel really align well with the Department of Energy vision. A little bit more information on that on Slide 5 is that AquaRefining is a room temperature closed loop, fundamentally non-pollutive process. We've already commercially proven our process for lead acid battery recycling to have an alternative that's commercially viable, that provides cleaner and more cost efficient recovery and recycling process and produces ultimately a higher quality product with high-grade, high-value materials in the forms of metals that come out of the process. We're expanding into the lithium recycling area and have made quite a bit of progress. You heard Jon mention earlier that in that list of elements that you see below, cobalt, nickel, manganese, copper and lithium, as some of the key things that we want to recover out of these lithium-ion batteries, Aqua Metals has already announced that we've taken black mass and created a very high-purity lithium hydroxide, which can go back into the battery supply chain and did that in a hydrometallurgical manner. And today, we just announced that we produced copper in the form of a copper foil that's very pure that can be put back into the battery production process from an ultrapure methodology. We're quite excited about the announcement today because it is the first actual metal that we pulled out of the black mass through our novel AquaRefining process that's powered by those electrons. We're also quite well patent protected, and I'll talk about that later. If you move on to Slide 6, that's just the history of the company. I'll let folks review this slide on their own, but point out that the blue is the past. The September '21 and December '21 guidance we provided before those dates, and we achieved those dates, and we're on track, and we're on schedule. So that should give everybody confidence that the upcoming time window of August, where we'll have our operational testing of our full-sized lithium-ion AquaRefining recycling pilot system in place at our innovation center in Tahoe Reno Industrial Center, which is 30 miles east of Reno, Nevada. By January of 2023, we expect that we'll begin that potential first full-scale deployment of the AquaRefining process for lithium batteries at our partner's facility, which is the former AquaRefinery that is a 140,000 square foot building that's being outfitted to recycle lithium-ion batteries by a company called LiNiCo, stands for lithium, nickel, cobalt, and that is the first commercial location that we'll be deploying the technology in the very near future. If you look at Slide #7, this just summarizes the AquaRefining advantage. And I've spoken to some of these points, but this just reinforces that we make ultrapure metal. We enable the global battery recyclers to meet demand in a geographically unbound fashion because we could partner with anybody, anywhere. We reduce that environmental impact at potentially an equal or total lower cost to recycle compared to any other technology that's out there, namely being smelting or standard hydrometallurgical. In the lead space, on Slide #9, you'll see that we've already, with our more mature product for Aqualyzer for lead, begun the process of deploying with our first partner in licensee in Taiwan. So that is a very active market in the Asia Pac region for lead acid batteries and lithium batteries for that matter. And we've put someone on the ground that came from Albemarle, which is the largest lithium manufacturer in the world to help us propagate our AquaRefining for lead and look at the market in Asia Pac for our development for AquaRefining for lithium as well. So we're very excited about that deployment. More news on that soon. Slide #9 gets into a little bit more detail about Aqua Metals relationship and partnership, where we've defined a collaboration agreement with LiNiCo. And again, LiNiCo is the operator of the former AquaRefinery, which now has LiNiCo sign on it. It's a 140,000 square foot building that sits there in Tahoe Reno Industrial Center that's being outfitted right as we speak. Phase 1 is LiNiCo being an end-to-end processor, it's going to be taking in the used lithium-ion batteries and producing black mass from that. And then LiNiCo is going to be working with Aqua Metals to process that black mass into high-value metals and compounds. And then Phase 2 is that LiNiCo will be licensing the AquaRefining technology and has announced that that facility has the capacity potentially to take in 100,000 metric tons of feedstock on an annual basis, which would make it one of the largest, if not the largest, planned lithium-ion battery recycling facilities in the world, that's about to start coming to life in the very near term. So we're very excited about our partnership and collaboration agreement with LiNiCo to make all that happen. Slide #10 talks about market drivers and revenue opportunities, and this is defined in the lead space. I won't go through every detail here in the interest of time. But the point is that supplying equipment and then providing product in the lead space, as we continue to develop the lithium, gives us opportunities for building our revenue streams, not only as we build out the lithium but in the lead space as well. And for the market size, for people to understand, it's about a $65 billion market, the lead acid battery market. And it's growing and will continue to grow, because lead acid batteries are also in electric vehicles. The EV battery replaces the internal combustion engine, does not replace the electrical system battery system, which is supported by lead acid batteries. So we feel that that's a very important market to continue to address. If you look at Slide #12, you'll see, though, the massive market opportunity with lithium, and we estimate our total addressable market to be $10 billion by 2025, $31 billion by 2030 based on AquaRefining particular recovery rates. And you can see that very rapid ramp of growth in the industry that the world really needs to be ready for to take these batteries and put them into the recycling process and get those critical minerals back into the supply chain. Because we can't rely on mining solely to feed the demand that's forward from this curve of the commitments that all the EV manufacturers and energy storage companies, for that matter, have made to do a lithium-based chemistry energy storage on a go-forward basis. Slide #13 talks a little bit more about lithium-ion really powering this new energy area and the battery age that we're going into and we're already really in. We expect 140 million-plus electric cars globally, just by 2030, will create massive demand for these lithium-ion batteries and increasing demand for these critical minerals that we've seen and that list of minerals that I was mentioning earlier go up in market value just in the past couple of years at very rapid rates to feed that demand. More than 15 million tons of lithium-ion batteries are expected to reach the end of life just by 2030. And there's obviously a curve to get there that needs to be addressed. And only 5% of lithium batteries are recycled by the way, today. We aim to get it more towards 100%, which is where the lead space is. So there's a lot of work to do to get the recycling loop closed for lithium. Third point there on Slide 13 is that the demand for lithium-ion battery materials in the next decade is predicted to increase over 575% for lithium and 1,237% for nickel. So those are critical minerals that we cannot mine enough raw materials to feed the demand unless we can start to pull these materials out of the recycling loop. Slide #14 talks about lithium AquaRefining and how we've applied our commercialized clean and water-based recycling technology principles with the goal of developing the cleanest and most cost-efficient recycling solution for lithium-ion batteries. Slide #15 is talking a little bit about the gold rush, so to speak, for the lithium-ion battery recycling world. Two of North America's largest lithium-ion battery recycling companies have already raised more than $1.3 billion with a combined valuation of $5.4 billion, and global companies are making very strong commitments on moving forward with investments in both lithium-ion recycling and, of course, the lithium-ion powered vehicles and energy storage systems themselves. So our strategy as a company is to help sell and integrate the shovels and the pickaxes for this critical gold rush that's happening in all these critical minerals. Lithium-ion battery marketing -- recycling market drivers on Slide 16 talks about more than 15 million tons of those batteries, as I mentioned before, being retired just between now and 2030. And all major car manufacturers want zero-carbon suppliers. They want to drive to net zero. How do you drive to net zero? You recycle these batteries with a net-zero greenhouse gas and emissions output, which again ties back to our using the electron as the reagent. And regulations are going in place and are already in place to achieve this net zero, and private companies are not only adhering to those regulations but they're even forward announcing their drive towards net zero. Slide #17 is a detailed slide. I can let people review on their own on the market landscape. But I'll just kind of describe a little bit here that recyclers, as you see in the yellow, is a key element of this, which takes that refinery step back to the cathode-ready step. And then the cathode makers make the cathodes for the car manufacturers and the battery manufacturers and cell manufacturers. And a lot of this is going to require a lot of money to make happen. And Aqua Metals has a really key enabling technology to help make sure that we close that loop with that yellow space of the recycling area. On Slide #18, we are singularly focused on innovation. So that yellow area is recyclers using the AquaRefining to close that loop and really provide that link to make sure that this whole ecosystem comes together. And we plan to deliver a cleaner, more cost-effective recycling solution to all the lithium-ion recycling companies, which offers better economics through the cost efficiency and higher percentage of the metals extracted for example, in the smelting, which is the only way that batteries -- lithium batteries are commercially recycled today. Many of the metals are not recovered to their fullest extent and end up in a form of material called slag and the lithium isn't even recovered. So it's that higher percentage is really critical as an enabling technology to ensure that these facilities are not only environmentally advantageous but also economically advantageous, where you can recover all the minerals that are there. Our modular design has a small footprint for flexible and streamlined installation, small or large and mutually beneficial economics with shared value of the metals recycled by the partners. And really borderless revenue opportunities that I was mentioning earlier are our technology is licensable, it's joint venturable and is buildable in the global metals recycling market. So we are very flexible in the way that we can deploy AquaRefining technologies. Slide #19 is a slide that goes into the comparison of the processes that are out there today and being talked about today for ways to recycle lithium-ion batteries. If you see on the top, you see smelting. And the challenge with smelting is the environmental aspects of it. And it has a higher environmental impact. It's really not viable long term due to some regulations that are kicking in that you have to even recover certain percentages of the various materials, and smelting does not recover lithium at all or the manganese, so it's not even lithium recycling, as compared to what we announced earlier this month on lithium hydroxide coming right out of the black mass material. I'll describe hydro, which is standard hydro separation, which is a known technology that's being commercialized out in the space. And it starts with breaking and separation of the materials and creating what's called black mass, which is an amalgam sandy, grainy material that is composed of all these minerals that we would like to go after and compounds that we would like to create. And it creates cathode precursors, and the chemical precipitation utilizes a challenging amount of input chemicals and a lot of waste streams associated with onetime use of precipitation chemicals. And this technology in the hydro space is actually not proven at scale. There's no hydrometallurgical lithium-ion recycling facility of any consequence in the world today that has proven at scale. So that is to be proven. AquaRefining is actually proven, as I mentioned earlier, in the lead space, that you'll see in the bottom there on Slide 19. And it starts with the same battery breaking and separation and black mass creation and then AquaRefining takes that black mass and then creates high-purity metals that are plated. And again, we announced today, we plated copper, which is a very key step in addition to already having created lithium hydroxide. So next up is cobalt and nickel. And then going after that manganese dioxide, before we get our pilot line up and running just later this year. So we are on a very rapid path towards evidencing our success with the AquaRefining technologies to recover those various minerals. Moving on to Slide #20, which is a summary of the expected advantages of lithium AquaRefining, and really that's the lowest operating cost, the highest quality products with the highest percentage of minerals recovered. And the value range, depending upon feedstock, you can see is quite a large number per ton. The best business model, which is the option to sell the product to the battery supply chain or metals industry. So these metals that are plated can go back into the creation of battery precursor materials or -- and/or they can be sold into the general super alloy and metals industry. You've got pure copper, pure nickel as 2 examples, the steel industry is quite interested in acquiring those materials as well. So it's a multi-market opportunity that's kind of unique to AquaRefining, because we plate selectively these metals whereas no one else out there doing hydro is doing that capability at all. If you look at Slide #21, you'll see the revenue opportunities with our global approach. Our sales strategy is to be an enabler and a joint venture partner and assisting clients even in operating their facilities, if it makes sense for both companies. And the revenue structure is obviously quite attractive to the company in terms of engineering revenues as well as potential recurring royalties on AquaRefining metals in the lithium space could generate hundreds of millions of dollars of royalty payments in the coming years depending upon the size of throughput. And obviously, it continues the ongoing equipment sales opportunities in support of these operators that are out there in the world. Slide #22 gets into the IP portfolio that the company has. It's quite robust. We have 71 patents that are issued and allowed, inclusive of not only lead but for example, copper, which we just plated -- announced that we plated today, is inclusive in those patents, the way that we plate the copper with our AquaRefining process. We have 56 additional patent applications that are pending inclusive of specific patent applications to our lithium AquaRefining process that went from provisional to a state of pending with more to come. And we take our IP seriously. And you can see the map as it covers the globe. That's a really important thing to do. There's a lot of players in the space. We believe that people move from company to company, and we believe the protection of IP versus just trying to house it in the form of trade secrets is the best lasting value-creation building strategy you can have as a company, that's operating in this space. So with that, I will conclude with Slide #23 and then hand it over to Judd to do a quick overview of financials and then we can get into the Q&A. So why invest in Aqua Metals? Well, first of all, on Slide #23, you'll see that we have that proven environmentally friendly metals recycling technology, that creates the high-quality metals and lowers the polluting emissions that are associated with that creation. And we have the first AquaRefining partnership already secured. So we're already commercializing our technologies and deploying them in the field. So we've been through this. We've built plants. We've operated the plant and we're now deploying technology in other plants, and we're the only company, to my knowledge, that has done this successfully to date, which is something that portends future success. It's an $18 billion addressable market in 2025 for both lead and lithium recycling for AquaRefining. So in the near term, the market size is certainly there. And the ability to be geographically unbound as our first partners in Taiwan and sell -- and it really monetize our technology into all markets and work with any recyclers worldwide in whatever form makes the most sense for the win-win for both parties. It's really a unique factor for Aqua Metals at this point in time. So with that, I will hand it over to Judd Merrill to get into the financial overview. Judd?

Thank you, Steve. The financial statements are listed here on this presentation, Slide 25 through 27, and I won't spend a lot of time on them, as I'll just refer everyone to our 10-K, which was filed about 3 or 4 weeks ago for all the updated financial information. I'll just point out a couple of highlights from the financial information. We did end the year at the cash balance just a little over $8 million. And this year, we expect to collect lease payments from LiNiCo on the building of over $1 million. You have asset sales about $1.5 million, and we expect the building to be paid off later this year, and that's $13 million. So it puts us in a really healthy cash position for the next -- for this year and well into next year. Our current cash needs are about $700,000 to $750,000 a month. So it just keeps us in a very healthy cash position as we transition into receiving revenues later this year from our licensee from Asia and from our activities from the lithium that we expect next year. So with that, I'm not going to spend any more time on the financials, but I'll turn it back over to the group for the Q&A.

Perfect. Agatha, can you give participants instructions on how they can log any questions, and I'll get it kicked off for the first few.

[Operator Instructions]

All right. So I'll get it started. I just want to make sure I really understand sort of the basics of the sort of business model. So you talked a lot about sort of licensing as well as a pilot project. Is the ultimate model a licensing model and the pilot line, is there to sort of prove out the technology? Or will you actually own capacity? If you can just talk through that a little bit, just to help me understand. I appreciate it.

Sure. Good question, Jon. So our business model as the company initially was a developer of the technology that we then utilize ourselves in a capital-heavy format to operate the AquaRefinery in that 140,000 square foot facility as an operator. And that really derisks the fundamental elements of the AquaRefining technology with the first application being for lead recycling. And we've now taken that forward. And today, we sit in a capital-light model where we've sold the AquaRefinery and taken that technology and found our first licensee and expect to find more in that space. And today, we're operating in our journey as a company as a capital-light technology creator and licensor of the technology. We're going to be in that model certainly through the development of the pilot line and deployment within the lithium deployment or LiNiCo, which is taking over that AquaRefinery that we operated in the past. And then as we go forward in the future as a business, as I was mentioning during the presentation, we are engaged with talking with various folks in the ecosystem that are out there ranging from electrical vehicle manufacturers to cell manufacturers to other players in the ecosystem about licensing our technology, about joint venture opportunities that could be very strategic for the company as well as possible other business models that would help to monetize the AquaRefining technology. So today, we are in a capital-light model, and that is very advantageous for us with the cash runway that Judd was just describing to keep the company completely out of a capital-heavy model while we prove the technology. But the future for the company can go in many different directions.

Got it. And maybe can you talk to – [ you put this ] a little bit, but it seems to get come down to the patents, right, and how necessary they are. There's always several sort of recycling companies sort of at least sort of up and running. Are they doing different technologies? Are they sort of on top of yours? You just talked a little bit through the market opportunity for the patents of how necessary they are? Just -- and also just to someone who's not an engineering major by any means, if you could just simplify for me as much as you can, I'd really appreciate it.

Sure. So in the lithium space, there's -- 5% of lithium-ion batteries today are even recycled. The other 95% unfortunately end up in landfills or sit in people's drawers because they don't know what to do with these things. And driving that towards the 100% is going to be really critical. The 5% today is recycled through a process of smelting, as I described in the presentation. And those operators of those recycling processes are quite interested in extracting more materials, but also having better environmental compliance as well as a go-forward environmental plan. So we see ourselves as an enabling partner opportunity with everyone that's recycling lithium-ion batteries at a commercial level today and planning additional facilities and planning on expanding facilities. And so that's where AquaRefining for lithium batteries can really apply to existing operators. Now there's new nascent operators that haven't built or operated yet and are trying to do that for the first time. And some are still using smelting technologies, some are using hydrometallurgical technologies that are more chemical-based and chemical precipitation-based. And we see opportunities not only to provide AquaRefining for the smelters but for the space where the chemical precipitation methodologies that have not been commercially proven could potentially benefit from the AquaRefining approach of selectively plating metals and vastly reduce the waste streams and things associated with chemical precipitation and even improve the cost of business model. So we don't see anyone really that's operating or planning to operate today as a competitor, but as parties that we can help to enable. Now if you look at the next sector, which is the anticipated need to build brand-new facilities [Technical Difficulty] there are a lot of EV players as well as battery cell manufacturers looking within the ecosystem of recycling, how do we cleanly close this loop in a sustainable way that has as favorable economics as possible. And those players are looking at it from a matter of verticalization of their companies to get into the capital aspects of that closing of that loop. Others are looking for joint ventures. And others are looking to just have ecosystem partnerships to get the materials to those that they believe are the cleanest recyclers. And that's the area as well that we see more flexibility in the business opportunity and making sure that Aqua Metals fits with whatever it is that these large players would like to do. And the key -- and the core to all that is having technology to begin with that's proven and can selectively plate metals and create these materials and extract these materials in an environmentally in an economic way. And that's where we see great opportunity in the longer run as we continue on our journey as a company.

Got it. As a sell-side equity research analyst, I'm probably going to wildly oversimplify this. But let me know if I'm sort of off half here, I'm thinking about this right. It seems there would be 2 large sort of -- I would divide it into sort of 2 large customer bases potentially for you. One, the battery manufacturers themselves, right, which you sort of alluded to wanting to make sure they're having a circular product, and I think we capture the lithium. But then I would imagine there's a fairly large amount of infrastructure in the country already to recycle lead acid batteries. And then that infrastructure and those companies that are engaged in that will likely want to pivot to doing lithium-ion as well given the size of that market. And then you can help them get there. Is that the right way to think about it? Or do I have that wrong?

Yes. So that is the right way to think about it is, us as an enabler that could help any player that's looking to recycle lithium-ion batteries depending upon where they're coming from and depending upon where they're coming from, they're already operating lead plants and want to get into the lithium space, if they are an EV battery manufacturer for EV marketplace; the cell manufacturer, they're going to have a different place that they're coming from. And then if you're an EV manufacturer directly, they're going to be coming from yet a different perspective in the lens and business model and approach on how it is that they want to participate and make sure that the loop is closed. A lot of it is about access to feedstock and those kinds of partnerships, and we see great opportunities in working with all the various players in different ways.

Got it. And before I open it up to the line for any questions, I do have some e-mailed ones, but before we get those, I want to give you a chance -- very timely this morning, you had the news release out about the copper recovery. Can you talk a little bit more about that why it's important?

Yes. So that's a very exciting announcement for the company and what the world is seeing today is the first hydrometallurgical selective metals plating from lithium-ion batteries resulting in a copper -- high-purity copper product and foil. And I actually have Ben Taecker, who is our Vice President and actually Chief Engineering and Operations Officer, as he was recently promoted to that role. And Ben can speak a little bit about why the copper is such a big deal and why we're excited about that on top of the lithium hydroxide. So I'll pass it on to Ben.

Thanks, Steve. The copper is a big deal because we're one of the few that are able to recover the copper selectively in a very, very high purity form that's easily sold into the market for copper foil for new lithium batteries or for anything else. And with copper values going up, it's just a more increasingly important part of the recycling stream for lithium-ion batteries, that we have a process that is now patent, protected, that allows us to recover. That's it.

Great. Yes. Sorry, Steve, do you have anything to add?

Well, yes, the copper -- just building on top of the announcement just a few weeks ago that we completed the process of making the first lithium hydroxide also from black mass. So we've really ticked off 2 of the key things. Smelters today are lithium recyclers. We've demonstrated that you can recover the lithium. And then today, we've demonstrated that you can recover the copper. Next up is those key metals of nickel and cobalt, and we're really excited about sharing that news as we continue to progress towards that full system pilot line that is happening later this year.

Got it. Great. Agatha, quick check. Is there any questions on the line?

Yes. There is an incoming question. It is coming from [ Luis Leland ].

This is [ Luis Leland ]. So I have a comment before my question and just to see if this comment actually resonates. At the beginning, I was trying to figure out how do you position yourself vis-a-vis Redwood Materials, of course, one of your neighbors, who's very, to my knowledge, about $800 million as of last summer and a multibillion dollar valuation, right, $3.5 billion or something like that at the time. So it seems to me, if I understand correctly, they are a little bit more of an Apple model, a little bit more vertically integrated doing their own thing with regards to lithium-ion -- that's for lithium-ion recycling. And perhaps you're a bit more of a Microsoft model, a little bit more open essentially to democratize lithium-ion battery recycling. But would that be a fair assessment?

[ Luis ], that's a very interesting analogy. And I do think that there's merit to your analogy. And that is that Redwood Materials is vertically integrating, and they're talking as much, if not more, about copper foil and battery manufacturing and cell manufacturing, as they are about recycling. They probably, as an example, would be interested in getting some copper from our process and our technologies. And so we could view ourselves as an enabler. So with the Microsoft model, what you're describing, is kind of like an operating system for recycling and recovering lithium-ion batteries that can be utilized and licensed and partnered with the world. Microsoft ultimately got into making their own equipment, by the way. And Microsoft works with Apple even. And so we see opportunities for us to work with Redwood Materials and any player in the space that's interested in selectively plating and recovering metals from the lithium-ion battery recycling process. So we don't view Redwood Materials by any means as a competitor. In fact, we should call them up and ask if they want to buy the small amount of copper that we've already produced because they're going to have an insatiable demand for copper as an example. So if we enable LiNiCo and LiNiCo is producing that copper, everybody wins. Because we grow the facility. LiNiCo grows, LiNiCo sells copper to the market. And just down the street, there's Redwood Materials as a desirous party that might be interested in the copper and a mutually beneficial relationship. So we don't see any of the players as an example that you raised with Redwood as a competitor, but we see partnering opportunities, and that's a really favorable thing about our business model that is a little bit of analogous to Microsoft, as you mentioned.

Here is my question, if I may. So it seems like, if I understand, you talk a lot about lithium-ion recycling, battery recycling. So what is your view looking 5-plus years down the line in terms of how much of your revenue will come from lithium-ion battery recycling? Because if you look at energy storage on a large scale, whether it's a utility scale, you look, for that matter, lithium-ion batteries for vehicle. There are tons of companies out there working on alternative chemistries for those types of applications, which require, in their chemistry, very little to no, actually, precious or semi-precious metals in them. So when you're looking at a little bit longer-term view, how much -- where do you think that's going? Just your perspective.

Yes. So the battery industry is an interesting industry, and it takes decades for 1 particular battery chemistry to gain the momentum and have the global infrastructure even built to support deployment. So we see the lithium-based battery regardless of the chemistry. There's companies like QuantumScape that's developing a lithium technology that has a solid state that really has no liquid electrolyte. And that will have some different elements in it, but it will be inclusive of lithium and other critical minerals. And those need to be recovered. That lithium hydroxide is an example of -- we've already produced is worth $58,000 a ton today and is going up in value. And so regardless of the chemistry, we see opportunity to take those minerals that are there and get those back into the ecosystem because that's going to be critical. Because if we start making a bunch of batteries with minerals that are less expensive over decades to come, we still don't want to throw those all the way. We still have to find economical and clean ways to recover those minerals and get them back into the recycling process. And I believe that there's always going to be high-value materials just based upon the growth demand curves for any type of battery chemistry. The other thing that's unique about AquaRefining is that we are very agnostic to the various materials and can select -- because we selectively plate, we're less susceptible to chemistry change. Because when you're using chemical precipitation, if battery chemistries change, your plant as designed may have some challenges, and you may need to adopt to those different chemistries. And that's where Aqua Metals can yet again be, like that Microsoft analogy and enabler, to help those that have been focused on chemical precipitation as compared to smelting, look at ways to recover these various minerals that will go in. We've just recently acquired batteries that have titanium in them -- lithium batteries that have titanium in them. And again, we can deal with all the various chemistries because we play one metal at a time. We selectively recover one metal at a time with our process. So we see a lot of interesting ways that our technology will apply not only today but in the future.

At the moment, we have no more questions in the queue.

All right. Great. I actually got a number of e-mailed questions, and we've only got about 15 minutes left. So I'll dive right in. So I'll sort of do the e-mailed questions. What is your recovery rate for lithium in the lab and why is copper foil recovery difficult?

Yes. So I think Ben would be best to answer that. Ben, why don't you take that one?

Yes. So I'll start with the lithium question. At the lab, which we expect to go up, we're in the mid-90s as far as recovery rate, 95-plus percent. And we do expect that, that process will just further refine and improve with time. I mean then on the copper question, the copper foil itself is not difficult to recover and most separation systems allow for that to be recovered upfront. But there's trace amounts of copper varying depending on the breaker, depending on the separation system, the type of batteries. There's trace amounts of copper inside the black mass that in most current processes end up being a waste. Our process will allow us to go after that trace amount, that remaining 3% potentially of the copper that comes from a lithium-ion battery and recover that chemically, after the copper foil has already been physically removed.

Got it. I was assuming that hydro process has-- there would be an issue with not recovering that copper, right, allowing that would, I assume, contaminate the water and then lead you to a disposal issue?

For sure. I mean, there's lots of issues for specifically hydro processes. This is a challenge for hydro processes, where if you do not remove that copper, it definitely can cause separation issues, things like that for some of the existing operators out there. So Steve mentioned we could be an enabler. And this is one of the areas where we definitely could help somebody else trying to develop a hydro process to remove that copper upfront. And it not only causes separation issues but it ends up being a waste that ends up being filtered out throughout the process at some point or it ends up in a slag or some other waste stream and other processes.

Got it. And then I got sort of a few questions on the sort of financials here that sort of all tied together a bit. Can -- someone asking, can you talk about how CapEx scales with demand growth? Or maybe I will broaden it out a little bit, how does, I think, your corporate overhead and R&D spend need to scale given the [indiscernible]

Yes, that's a great question for Judd. Our CFO is on the line. Judd, why don't you take that one?

Yes. No, it's a good question. If you look at the last couple of years, we've spent about $1 million a year on R&D, and that was related to our lead acid battery AquaRefining process. And from that R&D, we saw some great results. We saw a 300% increase in throughput and made lots of improvements this year. A lot of our focus is on the lithium. So we've tripled our R&D spend for this year. And we're already starting to see great results. We saw the announcements on the lithium hydroxide, we saw the announcement today. And so we expect other announcements going forward. So that's moving full steam ahead, and we'll continue to invest into the lithium R&D as we go forward. On the CapEx side, that will be driven -- there's not a whole lot of CapEx kind of in the R&D phase, but as we grow and we start putting in equipment, that will be driven kind of based off of the size of what we're doing or if we license the technology, a lot of that CapEx will be borne by the licensor -- the licensee of the equipment. And so there's some different scenarios that will play out. But what we are looking at kind of from our base cash needs for G&A costs and public company compliance costs and R&D and the minimal CapEx that we'll spend to get everything up and going, that we've got the cash runway to handle that, and we feel very comfortable and confident about our needs and the cash to support that.

Yes. I'd like just to add something to that. This company is also unique that we've done this before. So we've been through the -- let's take a novel technology and scale it in a capital-heavy model. And it's been a process that we've learned quite a bit from. And so our approach this time around with the lithium is to make sure that we get the technology in its final state and ready-to-scale mode, so you can much more capitally efficiently deploy the technology after it's proven. And so that's more of the approach of bench scale to demonstration to -- and getting that demonstration pilot to the full commercial facility that you then begin to expand over time. And we think that, that's a really capital efficient and non-dilutive way for our shareholders for us to get from point A to point B as we develop in that lithium market space.

Got it. And then maybe sort of combine a couple of questions here at the end. Just sort of help investors sort of think through how this plays out over the next sort of 3 to 5 years. One of the things with the SPAC phenomenon over the last couple of years, as they've come out with these 5- to 6-year plans with CapEx and gross margins and things like that over a long period of time. We'll see how those play out in reality. Time will tell. But how -- so along that is where I'm ultimately going on, what does this business model look like at scale in terms of like gross margin, free cash flow generation as sort of the secondary question. But then before that, how do we get there? Like what does the sales funnel look like right now? What is the year-by-year progression of between getting the technology perfected or maybe it already is? And then what does the sales leads and actual revenue growth start to look like over the coming years?

Yes. So I'll start with that, and I'll ask Judd to add some additional commentary. And that is that we see a staggering revenue opportunity, particularly when you look at the lithium space. The value per ton, just as a frame of reference, is, lead is at around $2,000 a ton, and that lithium hydroxide, as I mentioned earlier, is at $58,000 a ton. The copper that we just produced and announced today is worth $10,000 a ton. Cobalt is -- has been as high as $60,000 plus a ton. And nickel just spiked at $100,000 a ton and is now settled back down in like the 40s. And hopefully, we'll get down to more of a normalized level for the world and the market. But we see huge revenue opportunity for those critical minerals in the recycling process. And that is a huge revenue opportunity, whether we're licensing and sharing in the value of that or whether we're joint venturing or if we're ultimately operating our own plant. And if you look at the size of the revenue opportunity for lithium-ion recyclers, that's why there's a great degree of interest in this space because a large plant could even produce as much as $1 billion of revenue. And that is quite interesting when you look at finding the best technology that's available to process those as an enabling capability that could also be utilized in different business models. And with that, I'll allow Judd, if he could get in here and add some commentary.

Yes. I mean you talked about the kind of the 3- to 5-year horizon. And if we look at just an example of LiNiCo talking about their plant size, up to 100,000 tons production per year. And that's something that in the next 3 to 5 years, we could see meaningfully being added to. So whether they're at 1/4 of that production or half that production or they reset, there's hundreds of millions of dollars of potential revenue just in that processing. And then we see Aqua Metals being part of adding value with our AquaRefining process with lithium-ion batteries at a royalty that makes sense for both companies. So we see a lot of revenue potential there and whether it's LiNiCo or other opportunities. And we expect, as we put in our pilot plant this year and expand that to a demonstration size in the next year, we see very short return on investment calculations based off of the types of revenues and the potential there. A lot of the costs associated with putting in this equipment isn't a whole lot different than the costs related to putting in equipment for, say, like a lead recycling plant. But as Steve mentioned, the values of these metals that are being recycled are a lot higher. So it does leave some room for better margins and yield a shorter return on investment.

Perfect. Appreciate that. And maybe just squeeze in one last one here. One of the things I try to get on the call series is addressing industries or trends from a lot of different angles, right, different players in the supply chain and then sort of get perspective across the entire supply chain. One of the big issues right now is obviously supply chain shortages and the cost of making batteries, whether it be for EVs or utility scale and slowdowns in the actual deployment, particularly EVs, and that's coming from someone who's happily in the Rivian wait list, but as try looking at 2023 at this point, if not the latter part of 2023, on delivery there. I wanted to see if you had any comments on what you're seeing as you're talking to potential customers about changes from 6 months ago on what they -- how quickly they plan to scale? Just any insight you have on that or sort of thoughts about how this all plays out with production?

Yes. That's a really interesting question, because on one hand, we've seen basically every large automobile manufacturer that's been around for a long time proclaim that they're going to be fully lithium and EV powered as they get into the next decade. And so there's been a lot of activity and a lot of discussion. One evidencing piece of that is NAATBatt, which is an annual lithium conference, has grown from tens of people to hundreds of people and now major corporations are there, figuring out how everybody is going to fit into the ecosystem. So there's lots of concern in the industry, and I think in the world, as to how quickly can we make this energy transition, how quickly can we get not only the cell manufacturers to be able to make enough stuff for the EV manufacturers to be able to manage through that supply chain and keep the economics to where it's still advantageous to have an electric vehicle. We've obviously seen gas prices of late go up, but they can go up, they can go down, and that stimulates growth in demand. We've seen recently a 10x increase in people making inquiries about electric vehicles as compared to just months ago. So the demand is there for the products and the challenge is to be able to supply that demand. There's only a few recycling technologies that are out there. As we mentioned before, there are smelting. There's a few companies that are involved in hydro. There's chemical precipitation, AquaRefining is unique to us. There's a lot of players in the ecosystem that are figuring out who they're going to dance with, and there's a lot of people to talk to. And that's what's so exciting about it for Aqua Metals is the amount of players in the industry that we're talking to and figuring out how do we fit into cell pack manufacturers and EV manufacturers, a reman or a player in the ecosystem of recovering and getting to recycling these lithium-ion batteries to close the loop. It's a really exciting time. And there's no doubt that there's going to be challenges. There's going to be hiccups in the market. In general, there's going to be delays. We all want to get our Rivian or Lucid or Tesla or whatever EV that we thought about getting. I've got orders in for 2 electric trucks because let the best man win type of a thing. So the demand is there. And the challenge is there for companies like us to enable and be a big key and critical part. And there's only a few dance partners as it relates to the recycling, and we think that we've got the best mousetrap.

Awesome. Thank you so much, Steve, and team. Before I hand it back over to you Steve for any closing comments, I just want to thank all the participants for the emailed questions and live questions as well as thank Agatha for helping as the operator coordinating today's call. Quick advertisement. The UBS Global Energy Transition Call Series rolls on this week with -- we'll have Blink Charging on tomorrow to talk EV charging infrastructure, obviously tangential to this conversation and related. And then we'll have [indiscernible] on Thursday to talk integrated home energy. So if you need details for those calls, do e-mail me, again, [email protected]. Steve, really appreciate you being here today as part of the call series. I will leave the final word to you.

Great. Well, thanks, Jon, and thanks, everybody, for attending. And if those have any more questions, please contact us through Bristol, which is our Investor Relations partner. And please stay tuned for future announcements as we get closer to getting that pilot line up and running later this year. I think it will be quite exciting for -- the coming months for people to see the minerals and metals as we extract and really evidence our progress that we are truly on a fast track in the space. And we look forward to further engagement and further discussion. Thanks, everybody.

Everyone, this concludes our conference call for today. You may now disconnect. Thank you for joining, and enjoy the rest of your day.