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Electra Battery Materials (ELBM) - 2023 Q1 - Quarterly Report

Condensed Interim Consolidated Financial Statements Condensed Interim Consolidated Statements of Financial Position As of March 31, 2023, Electra's total assets increased to C$198.8 million from C$187.5 million at year-end 2022, driven by growth in property, plant, and equipment related to refinery construction. Total liabilities rose significantly to C$92.3 million from C$61.0 million, primarily due to the issuance of new long-term convertible notes. Consequently, total shareholders' equity decreased to C$106.5 million from C$126.5 million, reflecting the net loss for the period Financial Position Summary (in thousands of CAD) | Metric | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Assets | $198,766 | $187,524 | | Cash and cash equivalents | $11,229 | $7,952 | | Property, plant and equipment | $93,190 | $82,288 | | Total Liabilities | $92,295 | $61,015 | | Long-term convertible notes payable | $56,699 | $- | | Total Shareholders' Equity | $106,471 | $126,509 | - The company's financial position reflects ongoing investment in its refinery, financed through a significant increase in convertible debt, which has also led to a reduction in shareholder equity due to operating losses2 Condensed Interim Consolidated Statements of Income (Loss) and Other Comprehensive Income (Loss) For the three months ended March 31, 2023, the company reported a net loss of C$21.8 million, a stark contrast to the C$2.3 million net income in the same period of 2022. The loss was primarily driven by a C$16.3 million finance cost related to convertible notes and increased operating expenses, particularly in salaries and benefits. This resulted in a basic loss per share of C$0.61, compared to an income of C$0.08 per share in Q1 2022 Q1 Income (Loss) Summary (in thousands of CAD, except per share data) | Metric | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Operating loss | $(3,808) | $(2,474) | | Finance costs - convertible notes | $(16,319) | $3,980 | | Net income (loss) | $(21,803) | $2,330 | | Basic income (loss) per share | $(0.61) | $0.08 | | Diluted loss per share | $(0.61) | $(0.04) | - The significant swing from net income to a substantial net loss year-over-year is mainly attributable to non-cash finance costs associated with the company's convertible note financing arrangement4 Condensed Interim Consolidated Statements of Cash Flows In Q1 2023, cash and cash equivalents increased by C$3.3 million to C$11.2 million. Cash used in operating activities was C$1.0 million, and C$12.2 million was used in investing activities, primarily for additions to property, plant, and equipment. These outflows were offset by C$16.5 million in net cash provided by financing activities, which included proceeds from a new convertible notes issuance, partially used to repay previous notes Q1 Cash Flow Summary (in thousands of CAD) | Activity | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Cash Flows used in operating activities | $(965) | $(3,504) | | Cash Flows used in investing activities | $(12,247) | $(5,086) | | Cash Flows provided by financing activities | $16,486 | $1,620 | | Changes in cash during the period | $3,274 | $(6,970) | - The company is heavily reliant on financing activities to fund its capital-intensive refinery construction, as shown by the C$12.2 million in PP&E additions and the C$16.5 million net cash from financing5 Condensed Interim Consolidated Statements of Shareholders' Equity Shareholders' equity decreased from C$126.5 million at the end of 2022 to C$106.5 million as of March 31, 2023. The primary driver for this C$20.0 million reduction was the net loss of C$21.8 million for the period. This was slightly offset by share-based payment expenses and shares issued upon the conversion of convertible notes Changes in Shareholders' Equity (in thousands of CAD) | Description | Amount | | :--- | :--- | | Balance – December 31, 2022 | $126,509 | | Net loss for the period | $(21,803) | | Share based payment expense | $218 | | Directors fees paid in DSUs | $885 | | Shares issued for Convertible Notes Conversion | $662 | | Balance – March 31, 2023 | $106,471 | Notes to the Condensed Interim Consolidated Financial Statements Note 1: Nature of Operations Electra Battery Materials Corporation is focused on building a North American integrated battery materials complex for the electric vehicle supply chain, including constructing a hydrometallurgical refinery. The financial statements are prepared on a going concern basis, but the company acknowledges a material uncertainty. It currently lacks sufficient financial resources to complete the refinery's construction and commissioning, requiring additional financing in 2023 and 2024 to continue operations - The company's core business is producing battery materials (cobalt, nickel, recycled materials) for the EV supply chain79 - A material uncertainty exists regarding the company's ability to continue as a going concern. It needs to raise significant additional capital to complete its refinery project and fund operations1112 - Cash requirements for the refinery expansion are now estimated to be significantly higher than the previous estimate of C$100-105 million11 Note 2: Significant Accounting Policies, Estimates, and Basis of Preparation The condensed interim consolidated financial statements are prepared in accordance with International Financial Reporting Standards (IFRS), specifically IAS 34, Interim Financial Reporting. The accounting policies are consistent with the most recent annual statements, with the exception of new policies and valuation estimates related to the Convertible Note Arrangement that closed in February 2023. The valuation of these notes and related warrants involves significant estimation - Financial statements adhere to IFRS and IAS 34 standards14 - New accounting policies and significant estimates were introduced for the Convertible Note Arrangement that closed on February 13, 20231418 Note 4: Property, Plant and Equipment and Capital Long-Term Prepayments The net book value of Property, Plant, and Equipment (PP&E) increased to C$93.2 million from C$82.3 million at year-end 2022. This increase is primarily due to C$10.2 million in additions to construction in progress for the refinery. During Q1 2023, the company capitalized C$9.0 million in development costs and C$2.0 million in borrowing costs related to the refinery project. Capital long-term prepayments for refinery equipment decreased to C$2.4 million PP&E Net Book Value (in thousands of CAD) | Date | Net Book Value | | :--- | :--- | | Dec 31, 2022 | $82,288 | | Mar 31, 2023 | $93,190 | - In Q1 2023, capitalized costs for the refinery project included C$9,023 in development costs and C$1,989 in borrowing costs25 - Most of the company's PP&E assets relate to the refinery and are pledged as security for the convertible notes arrangement24 Note 10: Convertible Note Arrangement On February 13, 2023, the company completed a major refinancing, issuing C$68.0 million (US$51.0 million) of new 8.99% senior secured notes due 2028. Proceeds were used to repurchase and cancel the existing US$36 million notes due 2026. This transaction was treated as an extinguishment of the old debt and recognition of new debt, resulting in a loss of C$19.9 million. The new financing package also included 10.8 million warrants and a royalty agreement. The company must maintain a minimum liquidity of US$2.0 million under the new terms - Issued C$68.0M (US$51.0M) of 8.99% senior secured notes due Feb 2028, replacing the previous 6.95% notes due 202640 - The refinancing resulted in a C$19.9 million loss on extinguishment of the 2026 notes and recognition of the 2028 notes4344 - The new notes are secured by substantially all of the company's assets and require maintaining a minimum liquidity balance of US$2.0 million49 Finance Costs - Convertible Notes (in thousands of CAD) | Description | Q1 2023 | | :--- | :--- | | Loss on extinguishment of 2026 Notes | $(19,944) | | Gain (loss) on financial derivative liability - 2026 Notes | $(5,076) | | Fair value gain on new convertible notes & warrants | $8,701 | | Total Finance Costs | $(16,319) | Note 12: Share Based Payments The company manages a long-term incentive plan including stock options, RSUs, DSUs, and PSUs. In Q1 2023, it granted 366,319 stock options and 286,848 RSUs. The total number of warrants outstanding increased significantly to 13.3 million from 3.5 million at year-end, primarily due to the issuance of 10.8 million warrants in conjunction with the February 2023 convertible note financing - Granted 366,319 stock options to employees with an exercise price of $2.40 per share56 - Issued 10,796,054 warrants in conjunction with the 2028 Notes offering, with a five-year term and an exercise price of US$2.484161 Warrants Outstanding | Date | Number of Warrants | | :--- | :--- | | Dec 31, 2022 | 3,464,177 | | Mar 31, 2023 | 13,279,204 | Note 15: Fair Value Measurements The company categorizes its financial instruments measured at fair value into a three-level hierarchy. Significant liabilities, including convertible notes payable (C$54.4M) and associated warrants (C$11.0M), are classified as Level 3. Their valuation relies on unobservable inputs such as equity volatility (56%) and credit spread (30.1%), making their fair value sensitive to changes in these assumptions - Convertible notes payable and warrants are classified as Level 3 fair value measurements due to reliance on significant unobservable inputs6970 - Key unobservable inputs for valuing the convertible notes are equity volatility (56%) and credit spread (30.1%). A 10% change in volatility could impact fair value by approximately C$2.7-2.8 million7273 - Key unobservable input for valuing the warrants is equity volatility (56%). A 10% change in volatility could impact fair value by approximately C$1.5 million7475 Note 16: Commitments As of March 31, 2023, the company has total commitments of C$111.7 million. The largest portion is C$98.7 million related to convertible notes payments, assuming they remain outstanding until maturity in 2028. Other significant commitments include C$4.1 million for refinery expansion purchases and C$5.0 million for government loan repayments Total Commitments as of March 31, 2023 (in thousands of CAD) | Commitment Type | Total Amount | | :--- | :--- | | Purchase commitments | $4,108 | | Convertible notes payments | $98,690 | | Government loan payments | $4,970 | | Royalty payments | $3,958 | | Total | $111,726 | Note 17: Segmented Information The company reports its results in two segments: Refinery and Corporate & Other. For Q1 2023, the Refinery segment incurred an operating loss of C$1.3 million, while the Corporate & Other segment had an operating loss of C$2.5 million. The majority of the company's assets (C$103.2M) and liabilities (C$77.9M) are held within the Corporate & Other segment, which includes exploration assets and corporate financing Segmented Operating Loss for Q1 2023 (in thousands of CAD) | Segment | Operating Loss | | :--- | :--- | | Refinery | $(1,273) | | Corporate & Other | $(2,535) | | Total | $(3,808) | Segmented Assets and Liabilities as of March 31, 2023 (in thousands of CAD) | Segment | Total Assets | Total Liabilities | | :--- | :--- | :--- | | Refinery | $95,551 | $14,379 | | Corporate & Other | $103,215 | $77,916 | | Total | $198,766 | $92,295 |