Cash-strapped Electra Battery Materials is financially restructuring its debt to free up some cash and advance construction of its unfinished Temiskaming cobalt sulfate refinery.
Late last week, the aspiring battery metals refiner announced plans to convert 60 per cent of its convertible debt into equity for its lenders. The transaction will reduce its debt from US$40 million down to about US$27 million.
Lenders will receive shares of US$0.60 shares each. Other notes will take the form of a three-year loan.
At the same, Electra plans to launch a US$30-million equity financing initiative. Units will be $0.75 a share. With it comes a US$10-million conditional commitment from lenders. This package also involves US$2 million in bridge loans to be used by Electra for working capital.
In return, Electra’s board of directors will be expanded from five to seven with the lenders earning the right to appoint a director.
One of those seats are already been filled. David Stetson, ex-CEO of Alpha Metallurgical Resources and a known corporate restructuring artist, will join the Electra board as a nominee of the lenders.
“By significantly reducing our debt and securing new capital, we are strengthening our financial foundation and aligning our funding with a clear, executable path to production,” said Electra CFO Marty Rendall in a statement.
“Together, this restructuring and financing, alongside other well-advanced financing initiatives, are expected to provide the capital needed to complete the refinery and create long-term value across our stakeholder base.”
The transaction is expected to close this fall after a special shareholders meeting in October to approve the deal.
In June, Electra said it was starting an early work program to prepare for the restart of construction at the refinery site, located between the town of Cobalt and Temiskaming Shores.
In a news release, Electra CEO Trent Mell calls the transaction a “turning point for Electra” that gives them the liquidity needed to resume construction activity.
“This restructuring is undeniably dilutive and difficult for existing shareholders, but it is both timely and necessary. We have rigorously explored the alternatives, including asset sales, mergers, and alternative financing structures, and none offered a preferable outcome.”
Construction was halted in August 2023 due to cost overruns and delays in the global supply chain to ship in refinery equipment.
Electra remains on the hunt for US$60 million to finish construction. So far, Electra pocketed $20 million from the federal government and US$20 million from the U.S. Department of Defense.
The plant is designed to have the capacity to produce 6,500 tonnes of battery-grade cobalt, enough refined material to support the manufacturing of one million electric vehicles a year. Electra also wants to get into the battery recycling business as a side venture.
There definitely is a market for Electra’s product should it get into production.
Electra has a sales agreement with LG Energy Solution. The South Korean battery manufacturing has agreed to purchase up to 80 per cent of the refinery’s cobalt sulfate production for the first five years of its operation.
