Interview

Founder and CEO of Novonix, Dr Chris Burns was on the Odd Lots podcast recently. He gave a great interview talking graphite, government incentives, localising supply chains, challenges facing the industry and answered some company specific questions. Not only was I impressed with his knowledge but also how unpromotional he was regarding the company. If you’re interested in batteries, this is a must listen. Below are my notes as well as a few italicised thoughts.

Graphite

Graphite has tended to be the forgotten critical mineral because graphite is what “prevents” the battery from being more energy dense, from holding more energy and lasting longer on a single charge. However, graphite is also the only material that can hold lithium ions and give them back thousands of times to allow for long life battery applications required for vehicles and energy storage.

People are always hoping to have a new material or technology (e.g. solid state batteries) to displace our reliance on graphite and allow higher energy dense batteries. Solid state batteries have been hyped for a long time with nothing to show but more importantly, energy density isn’t really the problem to solve for vehicles; range and cost are. Which is why many are going with lower energy dense batteries and also why graphite is going to be so important. It’s also why graphite got overlooked for many years.

The graphite materials they make are not commodities. Natural graphite is dug out of the ground as a commodity but then it’s shape and size are changed. Then it’s purified with heavy acids and a surface coating is put on and finally it’s ready to go into a battery. With synthetic graphite (what NVX uses) it’s a similar process but instead of starting with graphite they start with other carbon rich precursors, such as petroleum coke (which NVX use) or coal coke (which China use). But instead of purifying them, they heat them to really high temperatures, about 3,000 degrees Celsius, changing the atomic structure into graphite so it’s ready to be used in a battery. NVX develops technology focused on this high temperature process.

NVX owns the IP for this process further strengthening their competitive advantage.

The graphite materials they make for Panasonic, for example, will look different to the material they make for LG or Samsung or Core Power. This makes it really hard for the government to come in and buy graphite to help support the industry.

Unlike lithium or nickel, graphite is not a traded metal. Spot prices coming down for these two traded metals can have some impact on the long-term agreements in place but it’s limited because many have caps and collars that control adjustments. But unlike graphite they can be influenced by speculation in the market and not just basic supply demand dynamics.

Currently, battery graphite is contracted in China on a quarterly or annual basis. So they are having to rethink how they do commercial contracts so they’re financeable. As an example, LG invested in them last year and signed a joint development agreement that stipulates the qualification schedule for their product and it’s intended to trigger an off-take with a 10 year term. Because LG need to know they’ll have these materials for the long haul. Without these firm agreements or off-takes for NVX, financing is hard. This is why the government can’t just throw money at the building production capacity issue, it’s only one small part of the problem. The technology and products need to be developed and these take a long time to develop and qualify.

These are not simple customer transactions (ie the selling of their graphite materials to LG or Panasonic), they’re long-term partnerships. If these companies goal is to have localized supply, they need to look at NVX as a partner, not like an auto supply company where there’s 10 companies and you can drive 8 of them bankrupt as long as you keep 2 alive.

These points highlight the difficulty for other players to enter the market, the competitive advantage Novonix has or should develop and that the pricing power the company’s customers have over them is limited.

We will always need graphite as it’s the only anode chemistry that can last thousands of cycles. And while it may not be as energy dense, it lasts longer – “why would I pay 10% less for a battery that only lasts half as long…”

Government Incentives

NVX/the US are trying to balance financing/costs with developing materials independence and process technology independence.

The US has a challenge competing with China dollar for dollar on localizing their supply chain with regards to graphite. The American government has stepped in with the inflation reduction act where NVX can qualify for 45 acts, Advanced Manufacturing Production tax credits where 10% of their costs of goods can go back to them in tax credits on an ongoing basis or they can apply for 48C where 30% of their capital investment on a clean energy project you get back in tax credits (see my straw - https://strawman.com/reports/NVX/CanadianAussie?view-straw=25705). The government has already awarded NVX a US$100M grant under the Infrastructure Law Package and graphite has been identified as a critical mineral in all of the US policies including section 3 on tariffs – the 25% tariff from China (there is currently an exemption on this tariff).

The US government has made the battery revolution and a localised supply chain, one not dependent on China, a priority. And based on the grants/awards/credits NVX has received they see them as an important player in this transition.

Localising Supply Chains

The world is realizing they need to shift cell manufacturing globally and outside of China. However, it’s incredibly capital heavy. This causes people to go where the incentives are strong, and for cell manufacturing specifically, the US is appealing due to all the incentives mentioned previously. As a result a lot of investment is being pulled into the US. Dr Burns believes we need to see this trend continue in other jurisdictions as people are more sensitive to being reliant on China after what happened with semiconductors.

The industry and NVX face a scale challenge; there won’t be enough supply for the demand. Even with their plant complete producing 20,000 tons, 1,000 tons of graphite only produces about a gigawatt hour of batteries.

The technology has been/is offshored to China with regards to graphite despite much of the technology being invented and patented “here” (as in at Dalhousie University where Dr Chris Burns did his PhD). But when it came to commercializing and scaling batteries we said “it’s too expensive to make them here, let’s make them in China”. As a result, China became proficient in processing and developing new technologies.

China can take environmental “short-cuts” to drive costs down as their environmental controls are not as rigorous. How they handle their acid waste streams, or emissions from their high temperature processing, the power intensity required etc.

Although not mentioned in the interview, Novonix’s patented DPMG process gives them big ESG tailwinds with regards to manufacturing their graphite. DPMG produces no wastewater, compared with 99,000L/day of wastewater and fine particle waste produced by traditional methods, the traditional process (CSTR) is as expensive as the raw materials and DPMG allows for a lower cost, higher yield with reduced environmental impact and improved materials performance. (See my straw “Strawman Presentation” for more info https://strawman.com/reports/NVX/CanadianAussie?view-straw=25705)

Labour

No one in the country has run battery graphite plants. They only exist in China. So you can’t go out and hire people who have done this before. Much of that IP and knowledge has to be home grown and takes time. Dr Burns believes they can rescale labour from other industries, for example speciality chemicals.

This could also provide Novonix with a competitive advantage as they grow, similar to those seen by semiconductor plants but likely to a smaller degree.

This is What’s Hard About Building a US Domestic Battery Industry – Odd Lots

https://omny.fm/shows/odd-lots/this-is-whats-hard-about-building-a-us-domestic-ba

The US Department of Energy (DOE) has selected NVX to receive US$103M in tax credits under the 48C program - Qualifying Advanced Energy Project Allocation Program.

The 48C program incentivizes "clean energy property manufacturing and recycling, industrial decarbonisation, and critical materials processing, refining, and recycling, and aims to foster the creation of high-quality jobs, curb industrial emissions, and bolster US domestic production of vital clean-energy products and critical materials."

Many applications were submitted under high competition and NVX was selected as one of the first beneficiaries.

NVX was previously awarded a US$100M grant for it's riverside facility by the DOE highlighting the continued support by the US government.

NVX has a period of 2 years in which to use the tax credit and importantly, these credits can be sold for cash.

The US government has now provided over US$200M in support for a company sub $10M in revenue. I think this highlights not only American governments objective to compete with/not be reliant with China for the battery revolution but also their belief in NVX.

https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02790590-2A1514781

Novonix announced a binding off-take agreement with Panasonic Energy for at least 10,000 tonnes of anode material for use in their U.S. plants over the term of 2025-2028. With Novonix using it's best efforts to deliver extra at Panasonic's request.

Novonix expect production at their Riverside facility to begin late 2024 with plans to grow output to 20,000 tonnes.

Key Terms

Off-take volume commitment is subject to Novonix achieving agreed upon milestones regarding final mass production qualification timelines prior to Q4 2025

Panosonic has the right to reduce the 10,000 tonnes (up to 20%) or terminate if these milestones are not achieved on time or if there is a substantial delay respectively.

The pricing structure incorporates adjustments in response to significant changes in the cost of Novonix's raw materials.

Novonix announced today that it has finalised it's US$100M grant award from the US Department of Energy to expand domestic production of their synthetic graphite anode materials at their facility in Chattanooga, Tennessee. The funding will allow the doubling of production capacity to 20,000 tonnes per annum.

The initial application October last year was to fund the construction of a new facility; however, the company negotiated to have this funding applied to it's existing Riverside facility with the $150M award being resized to $100M.

Novonix's Riverside facility will begin production in late 2024 to supply KORE Power as per their supply agreement and continue to engage with other prospective customers.

The company is also planning on opening a new production facility with an initial production target of at least 30,000 tpa. Their application for funding support under the DOE Loan Programs Office's Advanced Technology Vehicles Manufacturing (ATVM) Program has progressed to phase 3 - due diligence. If awarded, a loan through the ATVM program may provide leverage up to 80% of eligible project costs of the company's next facility.

The company highlighted recent Chinese exports controls on graphite as placing additional importance on having a domestic supply in the US. Considering the $100M received and the progression of their DOE loan application for a second facility, I'd say the US government agrees. Synthetic graphite is currently imported almost exclusively from China.

https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02734362-2A1484735?access_token=83ff96335c2d45a094df02a206a39ff4

Novonix Half Year Report to Dec 2021

Novonix released their Half-Year Report on Friday.

Highlights for the Half-Year

•July 2021 – Professor Jeff Dahn joined as Chief Scientific Advisor

•July 2021 – Purchased a 400,000+ sq foot facility in Chattanooga Tennessee enabling expansion to 10,000 tonnes per year production capacity

•August 2021 – Phillips 66 acquired a 16% stake in NVX

•October 2021 – Zhanna Golodryga was appointed to NVX’s Board (from Phillips 66)

•November 2021 – Celebrated the opening of their new facility in Chattanooga Tennessee. To the company’s knowledge, they’re the only company with plans to bring large scale production of synthetic graphite to the US

•December 2021 – Received CAD$1.675M from NGen to play a role in building its Canadian battery materials supply chain, limiting the dependence on Asia.

•Dec 2021 – Preliminary results show NVX Anode Materials synthetic graphite offers approx. 60% decrease in CO2 emissions

Subsequent to December 2021

•January 2022 – NVX acquired a 5% stake in KORE Power and entered into a 5-year supply agreement for 3,000 tonnes per year starting in 2024 with ability to extend to 12,000 tonnes as required

•February 2022 – Commenced trading on the NASDAQ through American Depository Receipts (ADRs).

NVX Battery Technology Solutions (BTS) division

Continues to play a strategic role in supporting growth of Anode materials and development of the Cathode materials and opportunities for the future. Located in Halifax, Nova Scotia, Canada, it has the capability to develop and test in house at commercial scale as well as working with tier 1 customers across the battery value chain. This division is what produces their IP.

The BTS division provides battery R&D services and makes the most accurate lithium-ion battery cell test equipment in the world. This is used by company’s such as Panasonic, CATL, LG Chemical, Samsung, SK Innovation and others.

The existing facility was expanded to 22,000 sq feet in August in addition to a second 35,000 sq foot facility acquired in May 2021. This will enable growth in revenue based activities, cathode commercialisation and new internal development work.

Anode Materials Division

Aim to increase Anode Materials Division production capacity to 10,000 metric tons of synthetic graphite per year by 2023, 40,000 by 2025 and 150,000 by 2030.

While still shipping anode material using Generation 2 furnace systems to SANYO for qualification, both Samsung and SANYO to defer deliveries of subsequent materials not produced by Generation 3 furnaces.

Cathode Materials Division

Leveraging both their DPMG and single crystal cathode IP, the company is working to meet key testing milestones over the next 12-18 months as it expands it’s next phase of pilot-scale with a 10 tonnes per annum capable demonstration line. They expect to progress into full scale cell builds and more extensive benchmarking tests by the end of the fiscal year.

They are pursuing foundational patent applications to further their position as a market leader in cathode synthesis technology and will provide updates as applicable.

Financials

•Revenue up 72% to $4M

•Gross margin 84%

•Employee benefits, Admin, NASDAQ listing and Share based compensation expenses all up dramatically, resulting in a $26.7M loss for the period

•Well-funded with cash of $259M

•Net Assets more than doubled pcp to $374M

•Receipts from customers of $4.4M

•Cash outflow from operating activities of $15.7M

Thoughts

NVX appear to be diversifying away from tier 1 global battery manufacturers (e.g. Samsung). Samsung and SANYO won’t accept any further anode materials not produced using NVX Generation 3 furnaces, due to be installed this year from memory. While this isn’t a major concern, Novonix is smart to look for alternate customers (i.e. KORE). They still have the best anode material qualified by a tier 1 global battery manufacturer and have shown an ability to source new customers. Their BTS division provides them with a strong network of world class customers and potential sales leads for their anode materials.

The company’s Income and Cash Flow statements still look horrible but they’re supported by a very strong Balance Sheet.

Novonix have announced an investment and Supply Agreement with KORE Power

KORE Power is a leading US based developer of battery cell technology for clean energy industries and has worked with NVXs BTS division since 2019 to improve and validate their battery technology. As a result, KORE Power’s cell performance is comparable to global Tier 1 cell providers.

In July of last year KORE announced their intention to build KOREplex, a one million sq foot manufacturing facility that will support up to 12 GWh of battery cell production to be located in Arizona. KOREplex will start production in early 2023.

Through the non-binding supply agreement, Novonix will be the exclusive supplier of graphite anode material to KOREplex which when in full production will be close to 12,000 tonnes per year of material. The five-year supply agreement is initially 3,000 tonnes per annum beginning 2024 but subject to customer requirements, supply can ramp to 12,000 tonnes per year.

NVX will invest $25M USD to acquire roughly 5% stake in KORE Power. This will be paid 50% by cash and 50% by NVX ordinary shares at a valuation equal to 95% of the 20-day VWA trading price. With 3,333,333 shares being purchased at $7.50 per share and making up 5% ownership in KORE Power, this gives KORE a market cap of approximately $500M.

Thoughts

By having a local American customer, NVX is less prone to supply chain disruptions.

They are reducing the reliance on foreign materials and further America’s position as a global energy leader.

This gives them a customer taking 30% of their supply (10,000 tonnes per year) when their Riverside facility is complete in 2023.

Another smart move by NVX that decreases their supply chain risk and dependence on Samsung and Sanyo.

NVX App 4C

Novonix released their quarterly activities report for the Oct – Dec 2021 quarter.

Anode Materials

•Well-funded with a cash balance of $259.9M

•Directors fees of $286,000 for the quarter

•Filed for NASDAQ listing on Jan 9^th, 2022

•Gen 2 furnace systems in continuous operation with second system to be commissioned Q3

•First 2 gen 3 systems to be commissioned Q3

•Deliveries to Sanyo & Samsung SDI deferred with plans to provide materials using gen 3 furnace technology

•400,000+ sq foot Riverside facility to provide 10,000 tonnes per year anode material by 2023

Regarding their partnership with KORE (see previous announcement) – KORE will be building KOREplex, a 1M sq foot manufacturing facility that will support 12 GWh of battery cell production in Arizona and beginning production in early 2023. This aligns with NVXs Riverside facility projected to be fully operational in 2023. NVX will be the exclusive supplier of graphite anode material to KOREplex which when in full production will be close to 12,000 tonnes per year of material.

This provides NVX with additional customer options beyond Samsung and Sanyo.

BTS

•Continued strong revenue growth

•Team increased from 27 to 56 during CY2021

•Renovations expected to finish with move in Q3

Cathode Synthesis Technology

•Received $1.675CAD from Ngen Canada to support their expanded cathode demonstration line

•Expanding cathode development team & capabilities

•Equipment for 10 tonne per year demo line to be installed & commissioned this financial year

Cash Flow Statement

•R&D, staff costs & admin & corporate costs are all significantly up resulting in $7.6M operating cash outflow for the quarter

•Receipts from customers $2.2M

•$25.8M spent on PP&E

•Well-funded with 34 quarters of funding available and $259.9M cash

PP&E spend was up nearly double on the previous quarter as expected with the company building out their production facilities. The company is still early stages with their Riverside facility not operational until 2023. Of interest was the comment that they’ll be the exclusive supplier to KORE with KOREplex eventually requiring 12,000 tonnes of materials (NVX capacity will be 10,000 tonnes in 2023). My interpretation of this is that if Sanyo, Samsung or other battery manufacturers are interested in NVX anode materials further expansion will be required to meet demand.

The market continues to value NVX very highly considering they won’t have significant revenue coming in until 2023.

https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02481150-2A1353746?access_token=83ff96335c2d45a094df02a206a39ff4

Novonix has appointed Minviro Ltd, a globally recognised sustainability and life cycle assessment consultancy, to assess it's synthetic graphite used in electric vehicles (EV) and energy storage systems (ESS).

Life cycle assessment (LCA) considers environmental impacts associated with a particular product or process and incorporates all material and energy inputs, direct emissions and waste products. LCAs provide a detailed account of the environmental footprint of a project.

In this study, Novonix's anode materials have been benchmarked against other natural and synthetic anode graphite projects. It will also consider the products environmental performance relative to kWh of the final battery and kms travelled. This point should not be overlooked; a competitor may get a "cleaner" anode to market but how long the battery lasts plays a large role in the environmental impact and needs to be considered.

Preliminary results are not final and have not been peer reviewed; however, they show Novonix's synthetic graphite anode product offers approximately a 60% decrease in CO2 emissions.

If these results are confirmed upon peer review, that would make Novonix's anode product 2.5x better for the environment than Chinese product.

Thoughts on Novonix FY21 App 4C

Novonix released their App 4C & quarterly activities report today

Highlights

•Receipts from customers up 42%

•Cash outflow from operating activities down nearly half from $1.8M (average quarterly taken from YTD $7.245M) to $987,000

•Investment in PP&E doubled to $13.7M for the quarter

•$136.7M cash in bank

No surprises with regards to investment in PP&E as the company has announced their expansion into “big blue” – a new facility which will bring their production capacity up to 10,000 tonnes/year by 2022. They are also expanding their R&D facility in Nova Scotia to act as a commercial scale pilot plant for their cathode materials.

The biggest takeaway is the drop in cash outflow from operating activities. With only 2,000 tonne/year production capacity Novonix is on their way to cash flow positive once their “big blue” Alstom plant is finished and they can sell 10,000 tonne/year (completion estimated for 2022). Novonix Battery Testing Division (BTS) will further support this as revenue is forecast to grow from ~$5M currently to $10M in the next couple years.

This point is quite subtle, but it highlights the inflection point NVX is approaching over the next 12-18 months. However, at a 2022 forecast P/S of 8x this inflection point has already been priced in.

Risks

Supply chain risk

Novonix use a feedstock of needle coke to produce their synthetic graphite anodes. A rise in needle coke price poses a risk to the company, exacerbated by increasing demand and no new or existing large-scale needle coke projects planned outside of China.

NVX expects COGS will be in the $4-5/kg range.

Current needle coke price of $0.7 - $1/kg means needle coke represents ~20% of the raw materials cost.

See link for needle coke price trends

https://www.dancarbon.com/q/carbon/needle-coke-prices-chart-and-trend-2021.html

Disruption

New technology such as dry cell batteries disrupting lithium-ion batteries. However, superior performance alone will not be enough as new technology needs to be competitive on cost.

Execution Risk

The company has a conditional supply agreement with Samsung for 2,000 tonnes and an MOU with Sanyo. The conditional supply agreement is pending delivery of product over 9 months following installation of new generation 3 furnaces in late 2021.

Revenue is ~$5M and they’re burning over $300,000 per month as they expand their production capacity. They have $130 million cash on their balance sheet following a recent capital raise.

Competition

Highly resourced battery manufacturers such as LG Chem have announced they will spend $5.2B over the next 4 years to build out their battery materials business.

Dilution

Following the retrofit of their recently purchased plant, Novonix will have capacity for 10,000 tonnes per year. To get here they’ve required 2 capital raises in the past ~14 months. Their roadmap aims to grow to 40,000 tonnes/year by 2025 and 150,000 tonnes/year by 2030. If they’re unable to secure debt, further dilution via capital raise(s) may be required.

Synthetic vs Natural Graphite & Chinese Competition

Novonix has 3 operating divisions with their battery materials segment their main driver of growth. While they have IP for all 3 components of a lithium-ion battery (anode, cathode and electrolyte), they’re strategically focused on the anode side of the battery.

The Problem

The industry standard is for a graphite anode and either natural flake graphite or synthetic graphite can be used. Synthetic graphite supply is less affected by disruptions faced by mining & processing, performs better but costs twice as much and is energy intensive. As a result it’s common for battery manufacturers to use both synthetic and natural graphite to reduce cost.

The Solution

Novonix’s patented DPMG process (https://images.app.goo.gl/V3y6Bv1KU8Zv4TvU9) addresses the cost and energy concern while enabling a superior product.

•Enables yields of 100% versus an industry average of 50%

•Traditional process (CSTR) costs as much as the raw materials (using DPMG NVX avoid this cost)

•DPMG produces no wastewater or particle waste – compared to a traditional plant that can produce up to 99,000L/day of wastewater and fine particle waste

•Fewer processing steps (as seen below) resulting in less energy consumption

•DPMG enables cheaper nickel oxide feedstock to be used over nickel sulphate

The problem – Chinese Competition for Synthetic Graphite Products

China produces most of the worlds synthetic graphite using energy intensive open pits in their graphitisation process. China uses a “dirtier” feedstock of coal coke at very high temperatures leading to the release of ash and resulting in an inferior product. Coal coke (synthetic) as well as natural flake graphite used in anodes need to be purified to remove impurities. In China this is done with poisonous hydrofluoric acid creating environmental concerns.

The Solution

To create their synthetic graphite anodes, Novonix uses a “cleaner” feedstock of petroleum needle coke sourced locally in the US. As a result, Novonix requires no mining, milling or purification while exceeding minimum battery standard purity levels and providing the company with an ESG, cost and performance advantage over Chinese products.

Outside of China, Novonix is the only company with an anode qualified by a tier one global battery manufacturer. They have an MOU with Sanyo Japan and a conditional sales agreement with Samsung SDI South Korea for 2,000 tonnes. The Samsung agreement will commence a 9-month qualification process post installation of their new furnace system scheduled for late 2021.

EV Tailwinds

Political Tailwinds

Joe Biden announced his plan for a greener America, American made & produced & for the American automotive industry. Below is a summary of the key points relating to electric vehicles (EV) and battery storage - both being markets NVX serves.

Biden will make a $2 trillion accelerated investment... to meet the ambitious climate progress that science demands.

The key elements of the Biden Plan... include:

1. Build a Modern Infrastructure
2. Position the U.S. Auto Industry to Win the 21st Century with technology invented in America
3. Achieve a Carbon Pollution-Free Power Sector by 2035
4. Make Dramatic Investments in Energy Efficiency in Buildings, including Completing 4 Million Retrofits and Building 1.5 Million New Affordable Homes
5. Pursue a Historic Investment in Clean Energy Innovation

POSITION THE AMERICAN AUTO INDUSTRY TO WIN THE 21ST CENTURY

China is on track to command more than four times the global market share compared to the U.S. in electric vehicle production….

Biden will use all the levers of the federal government... and position America to be the global leader in the manufacture of electric vehicles and their input materials and parts.

Use the power of federal procurement to increase demand for American-made, American-sourced clean vehicles. 

Encourage consumers and manufacturers to go clean. Biden will build on their leadership by providing consumers rebates to swap old, less-efficient vehicles for these newer American vehicles built from materials and parts sourced in the United States.

Make major public investments in automobile infrastructure — including in 500,000 electric vehicle charging stations — to create good jobs in industries supporting vehicle electrification.

Accelerate research on battery technology and support the development of domestic production capabilities. …Biden’s historic R&D and procurement commitments will be on battery technology – for use in electric vehicles and on our grid… increasing durability, reducing waste, and lowering costs, all while advancing new chemistries and approaches. And Biden will ensure that these batteries are built in the United States…

Set a goal that all new American-built buses be zero-emissions by 2030, … converting all 500,000 school buses… to zero emissions. 

Establish ambitious fuel economy standards that save consumers money and cut air pollution. Paired with historic public investments and direct consumer rebates for American-made, American-sourced clean vehicles, these ambitious standards will position America to achieve a net-zero emissions future… a clean energy revolution in transport.

https://joebiden.com/clean-energy/#

Keep in mind this proposal still needs to get through congress. I think it’s likely if only due to the fact China has made extensive investments in EVs and batteries and the US can’t afford to be left behind a major global competitor.

With a current facility in Chattanooga, Tennessee & a second expansion in the works NVX stands to benefit greatly from this proposal.

Headwinds

Could the cost of EVs & lack of charging stations create a headwind for NVX?

According to the NY Times:

The single biggest cost of an electric car comes from the battery, which can run about $15,000 for a midsize sedan. That cost has been dropping and is widely expected to keep falling thanks to manufacturing improvements and technical advancements. But some scholars believe that a major technological breakthrough will be required to make electric cars much, much cheaper.

https://www.nytimes.com/2021/03/31/business/biden-electric-vehicles-infrastructure.html

In addition to having the best performing anode on the market, NVX addresses both the cost & technological breakthroughs mentioned. The company’s proprietary DPMG manufacturing method (see DPMG straw) significantly reduces the cost of anode production & is environmentally friendly compared to the chemical purification process, involving hydrofluoric acid, used to purify natural graphite. While natural graphite is significantly cheaper than synthetic; DPMG helps address this headwind.

NVX also has the technology for a million mile battery and >500kms on a full charge. Those who park on streets in major cities may also be reluctant to purchase an EV until chargers are installed. It’s been proposed malls may fill this need to lure customers back to physical shops. Malls have access to cheaper electricity and ample roof space for solar panels.

With their IP for anodes, cathodes, electrolytes, DPMG and furnace technology, NVX expects to compete with Chinese anodes on price. However, this may be a moot point with Biden declaring he wants American made and the automotive industry wanting a supply chain independent from China.

NVX announces that the Board of Directors has resolved to cancel the Share Purchase Plan due to the share price currently trading below the Share Purchase Plan offer price of A$2.90.

The Company currently has no intention to re-issue the Share Purchase Plan at a lower price.

This was following a succesful $131M capital raise to institutional & sophisticated investors and directors at $2.90/share to fund the scale up of anode material production & growth projects.

The successful raising allows NVX to fund capex to increase production of anode materials to 10,000 tonnes per annum.

NVX were originally expecting 25,000 tonnes by the middle of the decade. This CR allows them to significantly acclerate their growth & suggests the company sees strong demand for their product.

Additonal notes:

Capital build out costs expected to be approx $5M per 1,000 tonnes of capacity

With current capacity of 2,000 tonnes my math gives ~$107M to expand to 10,000 tonnes leaving them with $24M.

https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02361053-2A1291278?access_token=83ff96335c2d45a094df02a206a39ff4

NVX Dec 2020 Quarterly

Operating cash burn continues to be ~$300,000/month

R&D cash burn down by $1.35M – best guess is due to completion of testing DPMG for anodes ($3.5M allocated) and cathodes ($5M allocated) and/or put on hold while awaiting Generation 2 furnace systems

Production/manufacturing costs & staff costs up as expected – NVX is running current factory on 3 shifts (24/7)

PP&E has increased as they continue to expand/upgrade Chattanooga plant

At least 15.5 quarters of funding available NOT including $5.57M grant from US DOE

$20M is being allocated to Chattanooga plant expansion with build-out costs about $5M per thousand tonnes capacity. CEO expects this to “become a little more cost-efficient” as they proceed.

Cash balance as of Dec 31, 2020 = $25,286,000

Current inventory is being held as work-in-progress until Generation 2 furnace systems are installed in February.

Gen 2 furnace systems have been designed by Novonix & Harper to improve economics in capital expansion & operational costs vs Gen 1 systems.

BTS Division

Have hired additional staff and expanded facility by 65% to support increased workload

New projects commenced for global customers in mobility, energy storage & consumer electronics

Additional patents expected to be filed early 2021

BTS division is what currently generates revenues & funds company’s R&D

With the plant expansion going to plan, sufficient funding & the new direction they’re taking the BTS division I continue to be excited for the future.

https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02335217-2A1277207?access_token=83ff96335c2d45a094df02a206a39ff4
https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02335228-2A1277206?access_token=83ff96335c2d45a094df02a206a39ff4

Recent ASX Announcements

Corporate Update 22/12/20

"In this context, Novonix and Samsung SDI have agreed that the full production qualification program should be based around material produced in the 2,000 ton per year expansion. "

I interpret this as Samsung needs more (than original 500 ton) and won't commit to a supplier until they can meet 2,000 ton target. However, this could be interpreted in a number of ways and would love to hear others views.

Name Professor Jeff Dahn as Chief Scientific Advisor

Effective July 2021. Jeff Dahn is Telsa's battery guru.

"Prof. Dahn is a leading researcher in the field of lithium-ion batteries and materials. Prof. Dahn has co-authored 730 papers and has 73 inventions with patents issued or filed, including some of the early patents related to Li[NiMnCo]O2(NMC) cathode material in 2001."

NVX's BTS division was spun out of Prof Dahn's lab in 2013 when now NVX CEO Dr Burns was completing his PhD under Dahn.

It's good to see NVX is getting the right people on the bus.

Awared US$5.57M from U.S. Department of Energy (DOE) for new tech development

"The project, entitled “High Efficiency Continuous Graphitization Furnace Technology for Lithium-Ion Battery Synthetic Graphite Material”, will focus on development of proprietary furnace technology under the previously announced strategic alliance with Harper. The award is a multi-year project that spans engineering, construction, and installation of new processing equipment at the PUREgraphite plant. The total project cost will be US$11,503,213 including PUREgraphite’s contribution of US$5,925,475 which will be funded from existing reserves."

The additional $5.57M adds to NVX's already strong balance sheet.

NVX have released their 4C

Appears revenue from Samsung shipment has not been received, which is not a big surprise as it has only recently been shipped.

Spending a healthy amount on R&D - $400,000 above what is provided by their BTS (battery testing services) revenue (BTS revenue funds R&D). $1.5M total on R&D for the quarter.

13.9 quarters of funding available. This will improve as they start receiving revenue for anode materials.

Current plant capacity is 500tonnes/year. Mass production is not expected until October 2021 - April 2022 and will quadruple to 2,000tonnes/year.

From above, 6 more quarters until the end of their first full quarter at 2,000tonnes/year capacity (assumes midpoint between Oct-April).

Appear to be well funded going forward.

NVX CEO Dr Chris Burns sat down with Alan Kohler of Eureka report (see link below for audio and transcript)

Some notes:

Operational cash burn rate is modest – approx. $300,000/month

Total cost for Chattanooga factory expansion – approx. $20M and will take place over next 12-18 months

This will give them a 2,000 tonnes per year capacity and they expect further expansion to reach 25,000 tonnes by the middle of the decade

Chattanooga is ideal because of the clean and low-cost large power infrastructure. Other options would have been around Niagara Falls, Buffalo/New York area, or the Pacific Northwest due to their hydro capacity.

Battery demand won’t just exist for EV but battery storage – both requiring extremely long-life batteries.

Dr Burns claims nobody knows exactly why but that you can’t get natural graphite to perform as well in cycle life as synthetic.

How is synthetic graphite made?

By taking a non-graphite source of carbon, such as coke, petroleum, or coal-coke products etc and heating them up to 3000 degrees, reordering the carbon structure to form layered ordered graphite. Using the right precursor materials you can make materials for batteries that actually perform much better in terms of how it can take lithium and give it up over continuous cycles compared to natural graphite.

Expects BTS division (~$2M revenue FY19, ~$4M revenue FY20) to increase to $10M over the next couple of years which funds their R&D.

Ambition – hundreds of millions of US dollars of revenue coming in over the coming years.

BTS and their major battery manufacturing customers act as a sales lead for Puregraphite (battery materials) arm of business.

Focused on driving down cost of battery manufacturing.

Investing to ensure they have the lowest cost of synthetic graphite production globally.

No one else exists in the US with qualified synthetic graphite material that can serve the market.

Producing material now with mass production expected in April 2021.

Tesla is exactly the type of company we want to work with.*

Praises previous CEO (and current shareholder) Phil St Baker in pivoting NVX from a mining company to a technology player.

*Dr Burns has used this exact (rehearsed?) line with regards to Tesla in a previous interview. NVX has non-disclosures in place. Make of this what you will.

https://www.eurekareport.com.au/investment-news/novonix-getting-set-for-the-battery-boom/148848?v=1042243

NVX released their 2020 Annual Report

NVX currently generates revenue from their battery technology division (battery testing equipment)

Revenue from battery tech div up 234% yoy

NVX will soon be generating revenue from their battery materials with first shipment due within weeks

NVX also own the rights to a graphite mine in Australia but has put this on hold for now

Loss for year $19,478,283 down from $25,312,516 in FY19

Balance sheet is strong following capital raise

Net cash outflow from operating activities $5,591,517

Pg 81 lists segment revenue – we should see a big uptick in revenue and cashflows in FY21 (assuming everything goes to plan) as the battery materials segment is what will drive the company going forward.

The one thing I could not find is R&D cost. NVX CEO has stated in previous interviews that the battery tech division funds their R&D; however, this hasn’t been displayed anywhere. What might be more likely is the funding they receive from the Canadian government, $785,154 this year, covered all their R&D expenses (carried out at the University). If anyone has any further insight into this it would be appreciated.

NVX’s Group CEO Dr Chris Burns presented at the ASX Small and Mid Cap Conference this morning. I found the Q&A portion afterwards to be particularly valuable.

I asked Chris the following:

Q: Do you have any updates or clarification on any future revenue streams possible from your DPMG patent? Is this something you could licence out to other industries?

A: It is something we can licence to other industries. Still trying to develop other IP around it and still learning things every day. Filing a number of patents that will be announced over next weeks and months. No revenue or guidance at this time. Will start exploring revenue streams in other industries in 2021.

Other questions asked (apologises for missing some questions) and answers:

A: Production going well. Staff levels approaching 20 up to 50 over course of year as they move to full shift work across all processes. Shipping material to Samsung this month. Have worked on a plan with audit and supply chain team there. Multiple deliveries over coming months leading into their mass production in April of 2021. Make sure they have material on hand before production.

Cathode business – over next 12 months scale into pilot, develop a lot more IP, continue to file patents and begin to work with potential partners – OEM, battery manufacturers or other cathode producers. There are many cathode competitors with reasonable market share and trying to grow. Their opportunity is to bring processes and materials to outside of Asia. This emphasis a previously touched on point – manufacturers want a secure supply chain outside of Asia/China.

Q: Competitors:

A: Closest competitors are incumbents. Mentions synthetic Hitachi chemical out of Japan and Chinese companies. Stressed that NVX is not head and shoulders above the rest but they can be competitive or better at better prices and outside of Asia. It’s not about displacing tonnage (quantity) but taking incoming market opportunity, particularly outside of Asia. Phase 2 plan to go to Europe. As they become qualified supplier there will be strong support of American manufactured.

Q: External forces that could hinder EV market?

A: He doesn’t really see many.

Q: When asked about Tesla (apparently there were a lot of questions on this)

A: No public comment around Tesla but at the same time stated Tesla wants to have their batteries built in house and “They are the type of company we want to work with”

Next 10 years hope to be a primary supplier of cathode and anode materials and licensing electrolyte materials. Want to be a household name in batteries.

Q: When asked about dry cell batteries:

A: (Mentioned the company Quantumscape) our opinion these tech are still not ready for prime time. Need million-mile battery tech, thousands of cycles. Everything public around these technologies – they’re just not able to achieve these types of cycle lives. Can be used in things like drones, longer fly time but less cycles needed. But have to last and be proven for thousands and thousands of cycles and decades of life.

Me: Keep in mind manufacturers have sunk millions (?) of dollars into lithium-ion facilities and processes so any new tech will not only have to be proven but will take time to displace existing tech – such as lithium-ion.

Q: Top priorities next 12 months:

A: Operational execution, scale plant, fulfil Samsung contract, work on other contract engagements and continue to develop next products in pipeline. Increase life, energy density, lower cost to stay competitive in market. They have foot in door now time to execute and grow. Continual tech development on cathode side – widen portfolio around IP and bring pilot production online to demo technology – same as they’ve done with anode.

Thoughts

Whether it’s Dr Burns or Mr St Baker, management continues to under promise and over deliver. Originally stated first shipment would be October, today stated end of month (September).

Management continues to be realistic about the competitive landscape. Dr Burns today has again emphasised that while they have ambitions to be a household name they’re not claiming to displace all competitors but to take incoming market opportunity. CEO Phil St Baker is also realistic stating earlier in the year that the industry is an arms race with many players.

It’s exciting to hear they expect further announcements around patents, potentially within weeks to months. The share price has historically reacted positive to these announcements.

Also of note, Dr Burns hinted at MOUs or agreements with other customers that they are unable to disclose due to confidentiality agreements.

DPMG

Overview

On May 15th, 2020 Novonix announced a new manufacturing method for battery materials – dry particle micro granulation (DPMG) and that subsequent patent applications had been filed. This was accomplished through NVXs research partnership with Prof. Mark Obrovac’s team at Dalhousie University in Halifax, Canada.

Small spheroidal particles (approx. 10-20 ?m) make for the best anode and cathode materials for Li-ion batteries as they possess good packing properties and low surface area reducing surface reactions associated with battery capacity fade. Most Li-ion batteries use either lithium nickel manganese cobalt oxides (NMC) or lithium nickel cobalt aluminum oxides (NCA) for the cathode. The process to produce these involves using a continuously stirred tank reactor (CSTR) and require energy and time intensive filtering and/or drying steps producing particles outside the desired size range which are lost as waste.

Compare this to the DPMG process (figure a https://ars.els-cdn.com/content/image/1-s2.0-S2666386420300576-mmc1.pdf) and note the simpler process (nearly 1/3 of the steps), no wastewater and no waste materials.

The Process

In mechanofusion particles are introduced into a spinning drum (see figures b & c). The spinning forces the particles onto the wall of the drum forcing them through a small gap between the rotating drum and press head. A stationary blade behind the press head then scrapes the powder off the wall, repeating the process until all the particles are fused. This process is traditionally used to coat small particles onto the surface of larger particles.

While doing this, Prof Obrovac’s team noticed these smaller particles didn’t always adhere to the larger ones but instead tended to become granulated into spherical particles, still smaller than the larger particles. This discovery presents an attractive method of granulation, in which tiny feedstock particles (FPs) can be combined into slightly less tiny particles by the action of larger template particles (TPs) during the mechanofusion process.

Competitive Advantage

Reduced environmental impact, reduced manufacturing cost, higher yield and improved particle performance.

DPMG generates no wastewater or particle waste - a traditional plant can produce up to 99,000 L/day of wastewater and fine particle waste.

The CSTR process itself costs as much as the raw materials (i.e. it’s expensive).

Reduced manufacturing cost/higher yield allows them to compete with cheaper Chinese products. Moving forward, suppliers have stated they want a supply chain independent of China.

Summary

“DPMG enables the precise control of particle internal composition variation, shape, and morphology that is not possible by previous methods and at near 100% yields with no waste. Using this method, we show that Li-ion battery graphite and metal oxide particles, including those with designed internal composition variation, can be made at 100% yield with little waste. We believe that DPMG could be used in many fields to reduce the cost and environmental impact of particle synthesis and to enable the synthesis in bulk of new, highly engineered particles.”

DPMG allows the bulk synthesis of never before seen designer materials applicable to the fields of powder metallurgy, liquid chromatography, powder lubricants, catalyst supports, and Li-ion batteries, which could lead to enhanced performance.

Powder metallurgy: covers a wide range of ways in which materials or components can be made from metal powders including unique materials impossible to get from melting or forming in other ways. Powder metallurgy allows the creation of special products such as: bearings infiltrated with lubricants, filters for gases, microwave ferrites, magnets, electrical contacts capable of handling large current flows, heat shields for spacecrafts re-entering Earth’s atmosphere, metal glasses for high strength films and ribbons, linings for friction brakes, light bulb filaments etc

Liquid chromatography: is a technique used to separate a mixture of compounds into its individual parts so as to identify, quantify and purify the individual components. It is applicable to the analytical chemistry, biochemistry and industrial fields. Liquid chromatography has applications in: pharmaceutical development (playing a role in 15.5% and 44% of syntheses in EU and USA respectively), drug tests, analysis and research, and nutrient analysis.

Powder lubricants: are solid materials capable of reducing friction that are useful for conditions when conventional lubricants are inadequate. Four of the most commonly used solid lubricants and their applications include: graphite – air compressors, food industry, railway track joints, brass instrument valves, piano actions, ball bearings, machine-shop works, locks, firearms (in sandy environments); molybdenum disulfide & tungsten disulfide – CV joints and space vehicles (lubricates in a vacuum); hexagonal boron nitride – used in space vehicles.

Catalyst supports: a material, usually solid with a high surface area, to which a catalyst is affixed. Almost all major heterogeneous catalysts are supported with processes such as: ammonia synthesis, hydrogen production, ethylene oxide synthesis, desulfurization of petroleum. As an example, the Phillips catalyst (chromium oxide supported on silica gel) is used to produce approximately half of the world’s polyethylene – the most common plastic in use today (primarily used in packaging).

References

https://www.cell.com/cell-reports-physical-science/fulltext/S2666-3864(20)30057-6 -

https://media.abnnewswire.net/media/en/docs/ASX-NVX-2A1225793.pdf

http://www.northerngraphite.com/about-graphite/graphite-growth-markets/lithium-ion-batteries/

https://www.cell.com/cms/10.1016/j.xcrp.2020.100063/attachment/dd56c740-bd94-46a4-813e-47322bb7e2c0/mmc1

https://ui.adsabs.harvard.edu/abs/2020CRPS....100063O/abstract

https://en.wikipedia.org/wiki/Powder_metallurgy#Special_products

https://chem.libretexts.org/Bookshelves/Analytical_Chemistry/Supplemental_Modules_(Analytical_Chemistry)/Instrumental_Analysis/Chromatography/Liquid_Chromatography

https://en.wikipedia.org/wiki/High-performance_liquid_chromatography#Applications

https://en.wikipedia.org/wiki/Dry_lubricant

https://en.wikipedia.org/wiki/Catalyst_support#Examples

https://en.wikipedia.org/wiki/Phillips_catalyst

tps://en.wikipedia.org/wiki/Catalyst_support#Examples

Brief highlights:

Aiming for first deliveries of anode in October but are expecting Covid-19 related delays in regards to this.

Battery Technology Solutions (BTS):

Achieved >100% revenue growth YoY, forecasting $5M full year revenue.

BTS arm of business funds NVX R&D.

See attached: https://asx.api.markitdigital.com/asx-research/1.0/file/2924-02261532-2A1239781?access_token=83ff96335c2d45a094df02a206a39ff4

Retail entitlement offer heavily oversubscribed

The Retail Entitlement Offer closed at 5.00pm (Sydney time) on 18 June 2020. The offer was heavily oversubscribed with applications under the top?up facility significantly exceeding the New Shares available under the Retail Entitlement Offer. As a result, only a very small amount of shortfall was available for allocation ($1.3 million or 3.3%).

New shares to be issued June 25th and are expected to commence trading on June 26th.

https://asx.api.markitdigital.com/asx-research/1.0/file/2924-02247073-2A1232053?access_token=83ff96335c2d45a094df02a206a39ff4

NVX Investor Webinar – Technology Roadmap

12/06/2020

Introduction:

•The materials market to service EV industry is going to grow to US$100B over the next decade

•Will be starting new arm of company around cathode production

•Investigating a North American listing on OTC market

•Have various battery analysis technology patented (e.g. differential thermal analysis – to assess electrolyte degradation over time)

•Goal higher energy per production cost (anode, cathode etc)

•Working on future battery tech that you hear about such as solid state batteries

•These are going to start gaining adoption around 2030 – long runway to target this growth

•DPMG can be used for a number of different raw material inputs – means they can make new materials that weren’t previously possible. Can enable a whole new class of materials – are exploring this while scaling battery side and DPMG can make everything in today’s tech cheaper with the dry method.

•Agreements in place with Samsung for 500 tons later this year then working towards a longer supply contract

•Sanyo – non-binding MOU to assess anode materials – will work towards signing a supply contract to support Sanyo’s expansion.

•No other company has accomplished agreements with global battery manufacturers - NVX is the only company to break into this market and have a supply contract

•Cathode and anode market is going from US$10B today to US$50B – $100B in next 5-10 years

•NVX has an R&D collaboration with Samsung on new materials

Anodes:

•NVX have a low cost production method

•Manufactured in the USA – Global battery manufacturers are determined to source supply chains from outside China – NVX only one who can currently do this. They plan on opening up a European factory (2022-2025) and to continue to co-locate with battery manufacturers in 2026 and beyond.

•Highest cycle life, highest first cycle efficiency and capacities – this is what everyone [global battery manufacturers] are looking for.

•NVX anode best in industry

•Offer best battery life compared to competitors

•Offer best capacity retention compared to competitors – better capacity means less range loss over time for an EV

Cathodes:

•Novonix’s DPMG involves dry synthesis of high nickel materials at a significantly lower cost

•Single crystal cathode materials (patent filed) – will be future of batteries and is essential for million-mile class of batteries. NVX has this with their dry synthesis method (DPMG). Materials are more robust in the single crystal form. Poly crystals crack after extended cycling which leads to capacity loss [battery can’t hold as much charge]. The single crystal method is very robust and resilient to cracking achieving much longer cycle lives. See graph below.

Single crystal (red) Polycrystalline (blue)

Electrolyte

•Serves as medium for lithium ions to be transported between anode and cathode.

•Dictates life of battery – electrolyte reacts with cathode and anode – rate of reaction is what eventually leads to cell failure.

•NVX electrolytes outperform benchmark electrolytes under long-term cycling at 40deg C at no extra cost.

•IP starting to be filed from results of work around high performing electrolyte packages

What this means

To enable a million-mile battery you need long-life anode, long-life cathode, and electrolytes to allow those materials to cycle continuously. Putting all of above NVX tech together – PUREgraphite anode + Adv electrolyte + SC Cathode = huge capacity bump in retention relative to traditional materials – this is what will allow the million mile+ battery of the future. This is all achievable at 40deg Celsius.

NVX plans to be a tier one global supplier in this rapidly growing advanced materials market

More to come as their research continues - numerous other IP and patents filed

*refer to their recent ASX announcement for revenue, capex and forecasts

Takeaways (opinion only):

There’s still room for them to sign an agreement this year in addition to the Samsung one. I have been very skeptical up until this point, but I now believe we will see a Tesla collaboration this year and possibly announced at Elon Musks’ upcoming battery day.

It’s been obvious NVX has the best battery technology for anyone familiar with the company. Not only do they have a huge moat but with the announcement they are able to pursue other battery tech such as dry cell batteries I can see NVX positioning themselves as the number 1 battery (materials) manufacturer/supplier over the next 10+ years. By positioning themselves as a global leader, continuing to file numerous patents, and continuing to aggressively pursue R&D NVX are limiting the ability of competitors to enter the market.

With NVX’s exposure to the anode, cathode and (pending) electrolyte side of batteries I believe they will be a battery manufacturer one day.

What’s exciting about the DPMG patent is that it opens numerous possibilities in other industries. NVX can lease this IP out as an additional revenue stream through royalties or licensing fees or NVX could spin this core competency into an entire new company.

Disclaimer: I hold a position in NVX.

ADVANCED CATHODE MATERIAL MANUFACTURING
METHOD – PATENTED BY NOVONIX

NOVONIX Limited (ASX: NVX) (“NOVONIX” or “the Company”), in partnership with the Professor Mark Obrovac Research Group at Dalhousie University, is pleased to announce its ability to manufacture “single crystal” NMC cathode material (“Single Crystal Cathode”) using
its proprietary Dry Particle Microgranulation (DPMG) technique.

Single crystal cathode materials have recently become an aspiration for the lithium-ion battery industry, with demonstrated outperformance over traditional polycrystalline cathode particles (the current standard), enhanced energy density and ultra-long life for EV and ESS uses. Single crystal cathode cells far exceed the lifetime of other NMC/graphite cells (J. Dahn et al, Journal of The Electrochemical Society, 2019).

“I believe we have only tapped a fraction of these opportunities. It is my research plan to aggressively pursue the opportunities from these new methods while continuing to develop new dry processing methods that bring yet more opportunities to the table," Professor Obrovac said.

More details around the developed methods and materials will be published by Professor Obrovac and his team in the coming months. In the meantime, the team at NOVONIX BTS (a 100%-owned subsidiary of NOVONIX Limited) is working on installing pilot scale production capability for DPMG and Single Crystal Cathode manufacturing to support further development, scale-up and testing against state-of-the-art materials.

The ability to make NMC and other cathode materials through dry mechanical processes has great potential to decrease waste and cost of current cathode manufacturing methods.

NVX CEO Phil St Baker
https://www.youtube.com/watch?v=yZ9c6Tz06fU

Highlights:

Expects NVX to be delivering new product to Samsung located in Korea by end of year. Also, watch for a supply agreement with Sanyo (who have factories globally, including NA).

Novonix released their investor presentation today. Highlights:

1. Novonix anode beats all competitors for battery life (including Tesla)

2. Novonix anode offers the best capacity retention (less range loss over time for EV) including vs Tesla

3. DPMG cathode is under development

4. IP being filed for long-life electrolytes

5. Touched on breakthrough dry particle microgranulation method that can be used for anodes and cathodes with a 100% yield (no waste) opposed to current methods that have significant loss. DMPG also uses no wastewater or materials and a lower cost.

6. Immediate opportunities to use DPMG in house for anodes. Have also filed patents for this.

7. $5M of funding raise will be used to test DPMG at pilot scale and proceed to full-scale processing for cathodes, with $3.5M being used for the current anode side of the business.

8. Cathode material market is $US 7B and growing 13% YOY



 

EQUITY RAISING TO COMMERCIALISE PUREGRAPHITE, DPMG AND RECAPITALISE BALANCE SHEET

$58.28 million (approximately) capital raising via a proposed institutional placement, accelerated non-renounceable rights issue and strategic placement to St Baker Energy Innovation Fund.
• Issue price of $0.29 per new share:
o a 56.1% discount to the last traded price of NOVONIX shares of $0.66 on 25 May 2020; and
o a 33.5% discount to the theoretical ex-rights price (TERP)1.
• Funds raised will provide capex and working capital to fulfil an initial SAMSUNG supply contract, redeem all outstanding convertible notes and repay loans, facilitate development and commercialization of the DPMG technology for cathode and other million-mile battery innovations, offer costs, and provide general working capital.
• Successful raising will allow NOVONIX to increase production to 2,000 tonnes per annum and be debt free.2
• The successful transaction will simplify the NOVONIX capital structure through the redemption of Convertible Notes and repayment of loans, along with the cancellation of 50% of the Options currently on issue.

In my short time investing this is probably one of the most fair CRs I've seen. Great to see the cancellation of 50% of the options as well.

ASX-listed battery material supplier NOVONIX is expected to be in front of fund managers on Tuesday, seeking up to $58 million in fresh capital.

Street Talk understands the raising would be strucured as an $18 million placement and a $40 million accelerated non-renounceable entitlement offer and would be fully underwritten.

The offer would be priced at 29¢ a share. NOVONIX shares last traded at 66¢.

Morgans was sole lead manager on the deal.

https://www.afr.com/street-talk/charging-up-novonix-taps-morgans-for-raising-20200526-p54wdz

A lot of people panicking about this news but personally I think it's 100% positive for shareholders. Novonix raised $5M in unsecured loans to build/expand their production facility. To raise $58M more shows management is aware of significantly more demand.

Novonix (ASX:NVX) develop breakthrough method for making battery materials

Novonix's shares have soared 38.5 per cent this morning and are trading for 45 cents each at 11:06 am AEST.

See link for ASX release:
https://www.asx.com.au/asxpdf/20200515/pdf/44hvlrs73pqlz1.pdf

Disclaimer: I have a position in NVX.

PUREgraphite (USA)
The Shelter in Place orders in Tennessee that commenced on Saturday, 4 April 2020 expired on Friday, 1 May 2020 and businesses have been permitted to reopen on the condition of compliance to specific COVID-19 procedural requirements.

Our PUREgraphite operation in Chattanooga Tennessee reopened on Monday 4 May 2020 and our team has commenced the restart of the anode manufacturing plant. It is expected to take a week to resume production of finished product.

During the four-week COVID-19 shutdown our staff were actively engaged in desk-top work documenting and auditing our operating and quality systems and procedures, along with engineering, procurement, sales and marketing activities. These were all able to be performed remotely from home and through virtual teamworking.

NOVONIX Battery Technology Solutions (BTS) (Canada)

NOVONIX BTS in Canada continues to operate with split shifts, work from home and virtual teamworking arrangements in line with local orders from government agencies relating to COVID-19.

All elements of the BTS business are progressing as planned and we remain on track with all pre-COVID-19 revenue targets for the business.

https://www.asx.com.au/asxpdf/20200506/pdf/44hlp7d0pg14sh.pdf

Quarterly Activities ReportJanuary to March 2020

https://www.asx.com.au/asxpdf/20200430/pdf/44hd9gsncbzmk0.pdf

Management

Exceptional management team led by Philip St Baker - proven track record, energetic, talented, honest with plenty of skin in the game (~40% between management and board).
Board and management possess extensive experience in battery development, resources, advanced materials.

Background

Novonix serves a diverse range of customers around the globe as their anode product is expected to be used in electric vehicles (EV).
Lithium-ion battery will dominate EV industry - they're lighter and have a higher energy capacity.
Not a highly capital-intensive industry but it is highly competitive (think arms race); competitors should narrow down over the next 10 years.
Massive demand for EV in next couple years as EU enforces stricter carbon emissions laws.
Battery costs are declining, it's possible that by 2022 EVs will be cheaper than gas powered cars.
Novonix has an R&D branch at Dalhousie University in Canada and established a company called Puregraphite in Tennessee to develop and manufacture their anode materials.

Their battery testing equipment (BTE), high precision calorimety (HPC) is the best in the world and patent protected - allowing batteries to be tested in a matter of weeks vs 6 weeks - months traditionally.  This accelerates their R&D tenfold.  Their equipment (HPC) allows them to process, build and test their batteries in 2 months, in house, compared to 9 months normally.
They sell this HPC tech (BTE) to major global players - Panasonic, CATL, Samsung, SK Innovations etc. giving them a foot in the door.

R&D
They're sponsoring external research meaning they have first right to IP out of the lab; which includes 12 PhD students working under a Mark O.
In process of filing a 2nd patent for cathode side of batteries (everything mentioned previously is regarding anode) - potential here is to develop a silicon infused graphite as it can hold more capacity (longer battery life).
The Canadian government matches their funding costs.
 

Market

Anode material market is $2B industry but is expected to increase tenfold to $20B in 10 years.
Projections as of mid 2018
2023 - 300kt - $250 - 500M
2030 - 1300kt - $750 - 2000M
*revenue = $10/kg - $20/kg
2 global battery makers have qualified their materials to use in their prodcuts - no other company has announced they've qualified an anode product with a global battery maker.
Additionally, they have several global battery makers testing their product with NDAs in place for their anode materials - first movers.

Battery producers (think Panasonic etc) are expanding rapidly and need more suppliers, more competition and lower prices.

They've developed and proven their product on a small commercial scale and are currently building their own commercial plant which is small but will demonstrate their capability.  They feel they are right at the cusp and are not pumping in lots of capital until they have long-term contracts.

Sales HPC grows at 30% p.a. expect it to continue.  More a strategic opportunity than commercial. 

Novonix have a great legacy asset in natural graphite deposit (mine) in Australia.  Looking to bring in experienced mining partner that want to take it forward but have not expanded on this much as to how it might impact the company down the track.

Novonix are not yet profitable but feel they are on the cusp.
Current ratio 1.3
D/E ratio 1.4

Capital Raising
Recently raised funds by taking an unsecured loan with St Baker Innovation Fund for $3.4M as well as management, Philip St Baker and Dr Andrew Liveris also lending $1.75M and $0.934M respectively at an interest rate of 8%.  This is to be used for US manufacturing and working capital. 

“Given the current market conditions, the Company has determined that the loans are the most suitable financing option at this time.”

Debt is a concern but if management is willing to put up their own money for a short-term unsecured loan they must see potential and really believe in the company.

Conclusion
Novonix possesses a competitive advantage with a moat and being first movers.  There is high risk as with any small cap but I feel there are more than enough positives to counter the risk, some of which are a talented, underpaid management team with a proven track record in this space and with skin in game, quick turnaround of the company from obtaining patent/IP to commercial production (3 years), early movers, unique and superior product, R&D department expected to be profitable as well as high quality R&D department, foot in door with global customers.