Lithium Australia expects strong revenue as it limits COVID impacts on battery businesses

Lithium Australia NL (ASX:LIT) (OTCMKTS:LMMFF) (FRA:3MW) expects strong sales revenue from its battery recycling and battery sales businesses as it continues to reduce the international business impacts of COVID-19. With product approvals received and indications of strong demand for battery energy storage solutions from retail and commercial sources, subsidiary Soluna Australia is expecting positive cash flow by the December quarter of 2020. Strengthening commodity prices Battery recycling business Envirostream Australia expects revenue to grow significantly in line with strengthening commodity prices and the commissioning of new copper and aluminium recovery circuits. The latter coincides with improving copper and aluminium prices. The Envirostream business also expects revenue growth as stock levels are being reduced as spent battery supplies diminish and as it focuses on widening battery collection initiatives. Reduced outgoings Overall, LIT is reducing its outgoings through reduced activity in capital-intensive business units affected by travel bans. With cash at hand on June 30, 2020, of $3.5 million, the expected revenue growth, lower outgoings and R&D tax refunds expected over the next six months, LIT is well-placed to continue developing its various streams. Focus on revenue generation Lithium Australia MD Adrian Griffin said: "Lithium Australia has taken significant measures to refocus its business on its revenue-generating battery recycling and battery sales businesses, which it expects will generate significant revenue during FY21. This focus will drive value for shareholders. "The company has also reduced its cash burn for FY21, which unfortunately means some reduction in workforce numbers. However, we are striving to minimise direct impacts on employees. "Funding has been refocused on the group business units with the most capital efficiency, in an effort to drive value for shareholders.” LIT is encouraged by a strong bounce-back in demand for many commodities in the battery-minerals space - indeed, prices for copper, nickel and steel have increased. However, the markets for lithium and cobalt, in particular, will likely take longer to recover. Battery demand remains strong LIT said demand for batteries remained strong and an increase in demand for all battery minerals was anticipated in the medium to longer term. In view of ongoing trade constraints and market unpredictability due to COVID-19, the company is further reducing outgoings and maximising support for the business units closest to positive cash flow. While there has been a resurgence in capital and commodity markets, the company has adopted a cautious stance, given current and future uncertainty and the advent of what appears to be a second wave of COVID-19 outbreaks in many locations worldwide. Australia’s federal and state governments are helping maintain employment levels. Their financial initiatives, which include the JobKeeper program, PAYG subsidies and payroll tax relief, have benefited the LIT Group. Further, the company has received multiple government grants and expects significant R&D tax rebates over the next six months. Envirostream business Envirostream’s plant is in Melbourne, where lockdown measures have recently been renewed. It continues to operate as an ‘essential service’ but movement restrictions resulting from COVID-19 have adversely affected battery collection in the short term. In these circumstances, supply of feed material constitutes a business risk; however, the operation is still running at full staff levels, subject to regular monitoring. Battery recycling R&D also continues apace and programs for the recycling of LIB electrolytes, as well as automated battery sorting, are ongoing. New recovery scheme The Australian Battery Stewardship Council aims to introduce a nationwide system for spent-battery recovery during FY21. That scheme will implement a levy at the point of battery sale, with the funds generated used to subsidise battery collection and recycling. By commoditising spent batteries, the scheme provides a strong incentive for their collection and thus diversion from landfill. Once the scheme comes into effect, the volume of spent batteries Envirostream collects should increase significantly. Further, the Australian federal government is making grants available to stimulate the recycling industry as a whole. Following major investment, Envirostream is operating at commercial throughputs and revenue growth is anticipated in the near future with the Melbourne operation transitioning to positive cashflow during the second half of FY21. Further, Envirostream has signed non-disclosure agreements with a number of potential partners for the establishment of recycling facilities in in jurisdictions both within Australia and offshore. Soluna Au milestone LIT’s 50%-owned battery-based energy storage business Soluna Au achieved a milestone recently when it had its products accredited for grid connection by the Clean Energy Council of Australia, paving the way for retail sales. The importance of this achievement for the Western Australian market, in particular, cannot be overestimated, since in that state distribution grid balance is hampered by the large amount of installed solar generation capacity and lack of available power storage. Grid demand could be markedly reduced by greater utilisation of energy-storage systems, and domestic installation is being encouraged by the state government to maintain the balance of energy distributed through its electricity grids. Although global supply chains were disrupted in April and May, these are now at near-normal levels again. Soluna Au has energy-storage products in stock and will be resupplied on a regular basis to mitigate any future disruption. For FY21, Soluna Au anticipates strong demand for its energy-storage systems and good sales growth, with the business expected to be cash-flow positive from the December quarter. COVID impacts VSPC Another subsidiary, VSPC Ltd, develops superior cathode materials for the production of lithium-ion batteries at its Brisbane, Queensland, research facility. COVID-19 issues during the June quarter slowed battery production and forced temporary closure of partner facilities utilised by VSPC, curtailing the commercialisation program. The ongoing pandemic has also seen research programs scaled back and VSPC has now placed its pilot plant on care and maintenance. Lab-scale development to optimise VSPC cathode materials is ongoing, with activity to be reviewed on a monthly basis. Chemical business LIT’s chemical business has also been impacted by COVID-19 with SiLeach®, a process for recovery of lithium from micas, R&D activities on hold. The company’s LieNA® process for the recovery of lithium from off-specification spodumene concentrates is the subject of a co-funded federal government research grant and work is ongoing. This grant supports the establishment and operation of a pilot plant, that being the first stage in scaling up the process for commercialisation.