Jigar Shah, DOE Loan Programs Office, & Ajay Kochhar, Li-Cycle

Financial Services

Feb 28

*Jigar Shah, Director of the Loan Programs Office at the United States Department of Energy.*

Today's guests are Ajay Kochhar, President, CEO, and co-founder at Li-Cycle, and Jigar Shah, Director of the Loan Programs Office at the United States Department of Energy.

Jigar is a multi-time guest on the show and a friend of the pod, and he reached out to us to see if we'd want to record an episode discussing Li-Cycle's experience in applying for and receiving a conditional commitment from the Department of Energy's Loan Programs Office for a loan of approximately $375 million to help Li-Cycle scale up their work with a production facility in Greece, New York near Rochester.

We cover a lot of ground today. We reintroduce Jigar and the Loan Programs Office. For those of you who want to go deeper, you can visit the My Climate Journey pod archive for other episodes featuring Jigar, including one from a year ago with him and Rob Hansen of Monolith Materials. We also introduce Ajay and the business he's building with Li-Cycle to recover and recycle critical lithium-ion battery metals. Then we spend most of the conversation talking about how the Loan Programs Office works with prospective applicants as well as what Li-Cycle's experience was as an applicant. We learn how the LPO helps companies define and lay out their plans across a wide array of considerations, including, of course, financial and technical, but also their plans for community involvement, workforce development, environmental impact, permitting, and so much more.

The LPO provides a unique role in the funding landscape for climate tech. Venture funding can help a company grow, and it can help a company navigate initial market risk. But for us to make a real dent in the climate problem, it's going to take moving atoms at scale. For infrastructure-heavy businesses, there's a need for sizable capital to put steel in the ground and build a production facility. It’s possible for a startup to leverage a small pilot facility to prove that its technology can work, but to provide a commercial solution at a fully deployed scale, it may need to invest tens or hundreds of millions of dollars into infrastructure and facilities, and oftentimes, the venture debt markets are reticent to fund large, first of its kind build-outs. This is where the LPO plays a key role. A major takeaway from Ajay and Jigar's discussion is the significant partnership between the LPO and a company during the application process as they collectively uncover and work through assumptions and hypotheses together.

Get connected:
Cody Simms Twitter / LinkedIn
Ajay Kochhar Twitter / LinkedIn
Li-Cycle
Jigar Shah Twitter / LinkedIn
Loan Programs Office
MCJ Podcast /Collective

*You can also reach us via email at info@mcjcollective.com, where we encourage you to share your feedback on episodes and suggestions for future topics or guests.

Episode recorded on February 15, 2023.

In this episode, we cover:

[4:43] Introduction to the Loan Programs Office
[9:20] An overview of Li-Cycle and the company's success
[14:14] $375 million loan from LPO to help scale Li-Cycle's hub and spoke approach
[16:43] Importance of community engagement
[20:28] An inside look at Li-Cycle's processing facilities and attention to safety
[25:52] How the DOE evaluates projects and determines where investments are needed
[29:12] Li-Cycle's first commercial facility in Rochester
[31:09] How and why Li-Cycle decided to partner with the LPO
[36:07] The application process for working with the LPO
[42:42] The government's role in the diligence side
[47:37] Ajay's thoughts on how the LPO terms may differ from future commercial loans
[50:51] How Jigar has streamlined the LPO's process
[54:23] Tips for companies seeking a loan from the U.S. DOE

Jason Jacobs (00:01):
Hello, everyone. This is Jason Jacobs.
Cody Simms (00:04):
And I'm Cody Simms.
Jason Jacobs (00:05):
Welcome to My Climate Journey. This show is a growing body of knowledge focused on climate change and potential solutions.
Cody Simms (00:15):
In this podcast, we traverse disciplines, industries, and opinions to better understand and make sense of the formidable problem of climate change and all the ways people like you and I can help.
Jason Jacobs (00:26):
We appreciate you tuning in, sharing this episode, and if you feel like it, leaving us a review to help more people find out about us, so they can figure out where they fit in addressing the problem of climate change.
Cody Simms (00:40):
Today's guests are Ajay Kochhar, president, CEO, and co-founder at Li-Cycle, and Jigar Shah, director of the Loan Programs Office at the United States Department of Energy. Jigar is a multi-time guest on the show and friend of the pod, and he reached out to us to see if we'd want to record an episode where he and Ajay talk about Li-Cycle's experience in applying for and receiving a conditional commitment from the Department of Energy's Loan Programs Office for a loan of approximately $375 million to help Li-Cycle scale up their work with a production facility in Greece, New York near Rochester. We cover a lot of ground today. We reintroduce Jigar and the Loan Programs Office. For those of you who want to go deeper, you can visit the My Climate Journey pod archive for other episodes featuring Jigar, including one from a year ago with him and Rob Hansen of Monolith Materials.
(01:34):
We also introduce Ajay and the business he's building with Li-Cycle to recover and recycle critical lithium ion battery metals. Then we spend most of the conversation talking about how the Loan Programs Office works with prospective applicants as well as what Li-Cycle's experience was as an applicant. Jigar reminds us that the application process should be hard as we're talking about hundreds of millions or billions of dollars of U.S. taxpayer funds. We learn about how the LPO helps companies to define and lay out their plans across a wide array of considerations, including, of course, financial and technical, but also their plans for community involvement, workforce development, environmental impact, permitting, and so much more. The LPO provides a unique role in the funding landscape for climate tech. Venture funding can help a company grow, and it can help a company navigate initial market risk.
(02:31):
Hard tech focused VC can even help a company navigate technical risk, offering some patience as a company probes technical assumptions, but for us to make a real dent on the climate problem, well, it's going to take moving atoms at scale. For infrastructure-heavy businesses, there's often a need for sizable capital to put steel in the ground and build a production facility. You see, a startup can maybe leverage a small pilot facility to prove that its technology can work, but in order to provide a commercial solution at fully deployed scale, it may need to invest tens or hundreds of millions of dollars into infrastructure and facilities, and oftentimes, the venture debt markets are reticent to fund large, first of its kind, infrastructure-heavy build-outs. This is where the LPO plays a key role. A big part of what I took away from Ajay and Jigar's back and forth is that there's significant partnership between the LPO and an LPO applicant during the application process as they collectively uncover and work through many of an applicant's assumptions and hypotheses together. With that, Ajay, Jigar, welcome to the show.
Ajay Kochhar (03:46):
Thank you.
Jigar Shah (03:46):
Thanks for having us.
Ajay Kochhar (03:46):
Great to be on.
Cody Simms (03:48):
Jigar, you are like the Christopher Walken of MCJ at this point. I think this is maybe your fourth show appearance, which is fantastic. We're thrilled to have you on.
Jigar Shah (03:58):
When do I get a jacket? I need a jacket.
Cody Simms (04:00):
Exactly. We need to work on that for sure. I need a jacket too, so we'll get there. Ajay, I think obviously, first time for you being on the show, so we're excited to dive into what you're building and to really hear about the collaboration that you two are driving together between your company, Li-Cycle, and the U.S. Department of Energy's Loan Program Office. Jigar, why don't you start with just a very quick ... Because any of our listeners who really want to go deep on the LPO can listen to prior episodes with you, but let's have you start with a quick introduction of yourself and of the Loan Program Office.
Jigar Shah (04:43):
Yeah, of course. Look, the Loan Programs Office was authorized in the 2005 Energy Act, and frankly, it was created, I think, mainly for the nuclear industry when it first started, and then it was expanded to Fossil and renewables. Its heyday was really in that 2009 to 2011 timeframe where we approved over 30 loans and somewhere in the neighborhood of $35 billion worth of projects. Our largest project is the $12.7 billion Vogtle Nuclear Plant that we're hoping turns on here this year, and so we're excited about that. The Loan Programs Office has two main programs that have been active in the past. One is the Title XVII program where Ajay's company is not a part of because he's in that ATVM side, the Advanced Technology Vehicle Manufacturing Program with Critical Minerals, where Title XVII does things like solar, wind, geothermal, the Monolith Materials deal that we announced, which was on the fossil side.
(05:45):
The ATVM program is famously where Tesla, Ford, Nissan got their loans in the past. Most recently, we did Pioneer and some other critical minerals, the Syrah Resources graphite deal in Louisiana. So the goal of the program, though, is to recognize that for a lot of these companies who have extraordinary technology, they're just not going to get the level of respect that they need out of the commercial banking markets, that those banks really want to see 10 previous loans made, issued, repaid before they get involved. It's not that the loans themselves are risky, it's more just that, you got to learn how the lithium markets work. You got to figure out exactly how these programs work, et cetera. I think a lot of folks just want to copy from previous investment decks as opposed to having to write their own for the first time. So we recognize that gap and the Loan Programs Office fills it. Today. We've got about 126 active applications in the Loan Programs Office seeking roughly $120 billion of proceeds, and so it's an exciting time to be here.
Cody Simms (06:57):
If I'm not mistaken, you all received significant amount of additional funding capability through the Inflation Reduction Act. Is that correct?
Jigar Shah (07:08):
Yeah, it's a great point. So as I suggested, we had these two main programs, Title XVII and ATVM. In the Inflation Reduction Act, we have a third program called the Tribal Energy Loan Program. That one received additional money, so we're up to 20 billion there. We got an additional $40 billion of resources for that ATVM program and the 1703 Innovative Clean Energy program. Then we got a new program called 1706, which is called the Energy Infrastructure Reinvestment Vehicle. That's the one where we take old coal plants, old natural gas plants, old pipelines and others and help transition them to productive uses within the future. So it's certainly been all systems go here. I think we've hired over 120 additional people since the Inflation Reduction Act passed, and so very busy.
Cody Simms (08:03):
I know a big part of the Inflation Reduction Act is working to onshore the supply chain of critical metals for EV batteries. We've covered this on the show numerous times over the last few episodes actually, where many of the consumer tax credits for accessing an EV are tied to the supply chain of where those battery metals came from or where the batteries were produced. It sounds like projects in that realm for you would fit in this ATVM bucket for the LPO. Is that correct?
Jigar Shah (08:35):
Yeah, that's right. So I think that COVID taught us a lot of things, and one of the things that it's taught us is that we should shorten our supply chains and try to get a lot of these things more locally. So the Inflation Reduction Act not only gave us more resources, but also, gave us a mandate through a number of programs to really onshore and reshore these minerals and to some degree, I think French shore as well. So there's been a lot of efforts to partner with our friends in Canada and Mexico as well as other countries around the world that we have trade agreements with and really make sure that we're putting together a robust supply chain as the president tries to get us to 50% of all vehicles sold in 2030 being electric vehicles.
Cody Simms (09:20):
Fantastic. Ajay, that's a double soft baller over to you, I think, because A, you are working squarely in this metals recovery space, and B, if I'm not mistaken, you're a Canadian company, and so you're the French shoring example maybe that Jigar is hinting at.
Ajay Kochhar (09:38):
Yeah, we definitely think so and nicely have Jigar, so, yeah, just maybe a little bit of background on us. Then I'll get into some of those points, Cody. So yes, we are a lithium ion battery recycling company. We also call it resource recovery and a little bit of background ties, all those different mega thematics together. So personally, I'm an engineer, tech in my background, used to be in the lithium industry. So past life was basically how to build the facilities that make lithium chemicals that go into cathodes and into batteries and into say, vehicles. So say, back to 2010, '11 timeframe, we've gone through numerous what I'd call lithium waves, that was probably lithium 1.0 at the time. We were doing these projects, this work, and we were wondering increasingly about, "Hey, when is there going to be a more mature recycling market for lithium, for example?"
(10:32):
Looked at say copper, aluminum, pretty mature secondary, meaning recycled markets, but in the case lithium didn't see that. So fast-forward to 2016, myself and my co-founder is also from Hatch, also an engineer decided to say, "Well, no one's doing this properly, so we're going to leave our careers and start a company to focus on it." So that was really the impetus for Li-Cycle. As you said, we're here in Canada, but we have very significant presence in the United States, also growing into Europe. We run a two-phase process, which I'm sure I'll get into, but it's really about how do you take those batteries, whether it be scrap from the making of batteries or end of life and get them into intermediate materials and then back to battery grade and products, which is really what I'd call the urban mining equivalent of the virgin mining? So this is very important from an onshoring perspective, French shoring perspective, and the project to focus here is in Rochester, New York, so right there in the United States.
Cody Simms (11:27):
Great, and the company has grown very quickly. I think you founded it in 2016. You ultimately went public via a SPAC merger in 2021, I believe. Maybe give us just a little bit of history on how the company grew and got to the point where you have multiple facilities with steel in the ground and in inactive production.
Ajay Kochhar (11:48):
So I'll explain what we do. I think recycling and it's part of the industry, there's been a lot of focus now anecdotally back in 2016 when Tim I started the company, I think most people thought we were kind of out there. They were wondering around why would you be doing recycling when EVs are just now starting to maybe get taken up, and obviously fast-forward today, it's extremely strategic and important. So back then, 2016, I'd say through about 2019, 2020, it was really the core R&D, big R, big D, meaning research, cement development, and then I'd say 2020 and interestingly around the COVID period as well. What we've seen with EV sales was a pretty seminal moment for all types of electric vehicle electrification related companies, so we're certainly part of that.
Cody Simms (12:36):
Were EVs actually the focus initially, or in 2016, most lithium ion volume was just general consumer electronics at the time? Isn't that correct?
Ajay Kochhar (12:45):
It was, yeah. We were very close to the industry. So new EVs going to be the main growth driver, but we take all sorts of lithium ion batteries in. So we run a two-phase model, we call it a spoke and hub model. We start with all types of lithium batteries to your question. So think of the smallest you can to the biggest you can, any type of form factor chemistry, it's a big family, obviously. We have networked facilities that we call spokes. It's a bit like reverse logistics, so opposite of a form logistics system. At those spoke facilities, we take those in, we shred them. There's a IP aspect to that in terms of how you do that safely, scalably without anything thermal, without burning off the materials, so doing environmentally friendly. Then we get intermediate products, so we have four of those facilities today.
(13:27):
We started in Canada, Kingston, Ontario, halfway between Toronto and Montreal, pretty good location, initially. Then we grew into Rochester, New York, Arizona, Alabama, so we have good coverage now and that basically helps to get closer to where the batteries are. Then secondly and importantly, is our hub facilities. So that's where we take in the intermediate product from the network spokes and then remake it into the battery grade materials again, so lithium, nickel, cobalt chemicals. This loan from the DOE ATVM program is actually primarily directed towards that facility. Now, we're funded for that, but what this does for us is to help replenish liquidity, open up added optionality for growth and allow us to continue to keep pace with our customers, so extremely excited about that.
Cody Simms (14:14):
Awesome. Well, I've got a number of other questions on your model, but since you talked about it, let's open it up. Maybe let's share a little bit about what you all are here talking about specifically today, which is the conditional loan that you've been approved for by the Loan Programs Office. Jigar, maybe share with us what you all are looking to do with Li-Cycle.
Jigar Shah (14:38):
Yeah. The loan is for roughly $375 million including some capitalized interests. I think the goal here is to help scale up this extraordinary work on the hub and spoke side that Li-Cycle's already started. I think one thing that's interesting about their approach is they're already at very high levels of material recovery from existing batteries that they're recycling. So as opposed to some processes that we fund where you're at very low levels of effectiveness and then you're hoping for it to get better over time, they're already at very high levels and then, of course, they want to improve from there. I also think it's worth featuring that Li-Cycle's got an extraordinary relationship with community colleges in the area. They've got a highly-trained workforce that's looking to construct the facility and operate the facility.
(15:41):
I think when you think about the work they're doing in disadvantaged communities, the local unions and others, I think that there's the real thoughtfulness frankly, from the company around permanent presence in the region and not just trying to throw something up quickly, but just recognizing what it takes to create a real partnership with the community. So I think for all those reasons, we were excited about leaning in on the project and figuring out how we might use the Loan Programs Office really to help accelerate their efforts. The other thing I think that is important from the Loan Programs Office is we're able to go longer; whereas, other debt sources, venture debt and otherwise, that are available today are currently very short. Looking at three year, four-year repayment rates, we were able to go out past 10 years and really help folks look at a long-term plan as they ramp up their facility.
Cody Simms (16:43):
Well, and part of what we're going to talk about today is exactly that, how did Ajay and the team make the decision to go this route and to seek these types of funds from the federal government? We're also going to obviously spend a little bit more time, Ajay, talking about your technology, but I want to circle back to what Jigar mentioned about working with local communities because I noticed on your website that that's a big emphasis for you. You have a whole page for it on your website, inviting the local communities you work with to reach out and engage with the company. Let's talk about that. It seemed very unique to me, and it was heartening to see, so maybe share a little bit more about how you all think about community engagement.
Ajay Kochhar (17:24):
Yeah, and we're a young growth company, but these things are so foundational and as Jigar said it's about the long term. Maybe I'll use Rochester as an example, which is where we're building our facilities. We're actually in the middle of, I'd say wrapping up significantly on construction, so it's an exciting time. We have our permits, all that good stuff. But vis-a-vis the community, so actually we're in the former Kodak Business Park, which obviously at one point was an extremely high activity center for all things Kodak and also, in the region for Rochester of many other presences of chemical processing facilities, some that are still there and then some that have potentially curtailed. So when we did our site selection back in 2019, 2020 for this facility, we looked at a whole swath of things for the hub. What I'd say is it's interesting for us is there aren't so many different places where you can go that you have existing utilities, existing plug-and-play aspects.
(18:20):
We don't need to go invest a lot of infrastructure, but as we dug in further into the community point, there is great labor pools, great talent that exists there and a lot of steeped knowledge around chemical processing. One of the unique things about, I think, the battery materials supply chain that I think not many people realize, a lot of it is manufacturing and that's enough facility is like a manufacturing facility, but a lot of it's chemical processing too. There is this resurgence of, I think, that presence now in North America, United States, and that's really encouraging to see. I think that's a great example of how we can revitalize, use existing infrastructure, the plug-and-play, quicken our timeline to market, be much more capital efficient and permit efficiently as well. So there's numerous benefits to it. It's not just to look good, it's actually very important for us.
Cody Simms (19:16):
It's amazing to hear because if you look back over the last 50 years, you probably wouldn't put the phrase chemical processing facility and good for our community in the same sentence together. But what I'm hearing you say is making that a real emphasis leaning in on modern technology to enable these to happen in an environmentally protective and friendly way, I'm sure we're going to get into this, but as part of diligence, that's a big part of what LPO is looking into as well is, what are the local impacts from an environmental justice and community perspective? Heartening to hear that that's such a large focus for you.
Ajay Kochhar (19:55):
It goes for any of our communities. So interesting about our model as well is we have these regional spokes. So what's been interesting is again to your point and we'll get into this more, but there's a lot of decisions you can make also around the process and the technology. You have to keep all aspects of mind, including economics, of course. But if you do that right, you can be a great neighbor and you don't get this effective, not in my backyard. In fact, people get excited about us coming to their communities and be a great pools of talent. So done the right way, it's a very virtuous cycle, I think, for the company.
Cody Simms (20:28):
Let's talk about what processes, what technologies are happening in these facilities. So I'm guessing most of these that you're building just by the nature are spokes. These are the inbound processing facilities where you're taking a battery and you're chopping it up or cutting it up into constituent parts. If I understand, you're basically getting it to be what a semi refined ore would look like coming out of a mine. Is that generally accurate?
Ajay Kochhar (20:57):
It's a great analogy. Yeah, it's like from the mining industry, people think of it as concentrate. That's what we're making from spokes, or maybe if you want to take a simpler analogy, it's like the pizza dough before the pizza, so that is the model we've gone this way and there's different approaches. Some companies that have gone totally centralized, but I think in listening to our customers, when you talk to the OEMs of the world, we work with vehicle OEMs, manufacturers, battery makers, the first thing we usually talk about actually is logistics. So they definitely care deeply about where is this material going? How's it going to be recovered? Can I get it back? But a large part of the cost pie is logistics. So if you imagine a future where we're highly electric and you have a lot of batteries coming off the road, even now with scrap being generated, you don't want to be transporting those batteries halfway around the world or the country 'cause it has a big footprint. It costs a lot. It's potentially unsafe and that's not good for the overall CO2 footprint either.
(21:53):
So that was the rationale for that. Then within the spokes themselves, the heart of what we do is something called submerged shredding. So you can imagine you're shredding and batteries, maybe you think, "Oh, it doesn't sound so safe." Well, the heart of it is, how do we do that safely? Part of that is we're submerging in the proprietary solution that deprives the system of oxygen when you shred. So it's happening essentially under aqueous, under water type conditions, but it's a little different than water only. So that's part of what we do and it's a core part of the IP and that also enables it not to be thermal. So that sounds maybe simple on the surface, but it's really important 'cause if you don't do that well then everything else is not going to follow as well. Then on the hub side, it's hydro metal, which is really wet chemistry, so there's this industry term called black mass, which is the term for cathode anode and material in the battery. For the record, I'm not a fan of the term, but that's what the industry calls it.
(22:50):
I don't know, it sounds like something really weird, but that's really where the real value is, it's in the black mass, that's where you have your lithium. It could be nickel, it could be cobalt. So that's primarily what we're after in the spokes and we all separate out plastics, copper, aluminum, and the sub is locally. So the hub, we're taking that in and then we're going back to the atoms essentially and then remaking the compounds for lithium carbonate, nickel sulfate, cobalt sulfate. It's basically akin to what would come out of a mine and a refinery, but now you've done it totally domestically. That's the beauty of it alongside then not having to ship those materials out of the country, keep it domestic and then go back into the supply chain to make the batteries again.
Cody Simms (23:31):
So then you have these battery grade metals that then make their way to a U.S. or U.S. allied country's battery gigafactory to actually reassemble them into a battery. Is that the flow from you from there?
Ajay Kochhar (23:46):
Yeah, we stop at the chemicals and the idea is to go then into the cathode or the precursor to the cathode and then the cathode goes into the battery. What's been exciting about this new wave of onshoring, French shoring, reshoring of the battery supply chain is there actually is now cathode related plans domestically say even inclusive of Canada from a French shore perspective. I'll tell you, five years ago, I was looking at this with Tim and we were saying, my partner is like, "We're the cathode facilities and why aren't we seeing them?" We made a decision for us to focus on this part of the supply chain from an execution perspective, we saw the value that can be gained, but we also know what we're good at. We know we're knitting. There are other great companies out there like LDS and Investor and Li-Cycle and a partner, well, they have a cathode business, LG Chem, so that's been really good to see. That does mean we'll get to this world where we can keep those materials domestic and not have to do round trips throughout the world.
Cody Simms (24:44):
We're going to take a short break right now so our partner, Yin, can share more about the MCJ membership option.
Yin Lu (24:51):
Hey, folks, Yin here, a partner at MCJ Collective. Want to take a quick minute to tell you about our MCJ membership community, which was born out of a collective thirst for peer-to-peer learning and doing that goes beyond just listening to the podcast. We started in 2019, it has since then grown to 2000 members globally. Each week, we're inspired by people who join with differing backgrounds and perspectives. While those perspectives are different, what we all share in common is a deep curiosity to learn and bias to action around ways to accelerate solutions to climate change.
(25:20):
Some awesome initiatives have come out of the community. A number of founding teams have met, nonprofits have been established, a bunch of hiring has been done. Many early stage investments have been made as well as ongoing events and programming like monthly Women in Climate meetups, idea jam sessions for early stage founders, climate book club art workshops and more. So whether you've been in climate for a while or just embarking on your journey, having a community to support you is important. If you want to learn more, head over to mcjcollective.com and then click on the Members tab at the top. Thanks, and enjoy the rest of the show.
Cody Simms (25:52):
All right, back to the show. Jigar, you all have now offered loans I believe including a very recently announced one to Redwood Materials. You're working with OTM cells, you're working with Rhyolite Ridge, you you've actually announced quite a few loans in and around this supply chain problem. I'm interested to hear how you all look at different projects in this space and identify where the needed investment is.
Jigar Shah (26:24):
Yeah. I think we're early days, so I think the needed investment is across the board, but I'd say that I think we think about it in two ways. One is as we're ramping up the number of electric vehicles and batteries that we are needing to complete the energy transition, there's a lot of mining required, let's just be clear. So there's some of that work happening and that is what you see with the Cyber Resources Project in Louisiana and the Rhyolite Ridge project in Nevada. I think you'll also see, though, a real beginning to the circular economy. The real promise frankly of lithium ion and batteries, but also this energy transition is that we're not having to pull 100 million barrels a day of oil or gas out of the ground to burn and turn into CO2 and water vapor and all these other things.
(27:24):
But instead at some point, with very high percentages of recyclability, you're actually able to return spent batteries back into new materials and new batteries. So that, I think, is something we have to invest in today. They're not going to be perfect today, although the technology is pretty impressive as Ajay has laid out. But I have every confidence, and I think he does too, that his technology is just getting started and he has a number of things in the roadmap to improve the technology over time. But I think the Loan Programs Office plays this critical role of coming in now and starting that flywheel now so that by 2030 the technology is way better than it is today.
(28:13):
You see that with the loans that we provided to Tesla and others back the 2009 and 2011 timeframe, just how far a lot of these technologies have come over time. The other thing I'd say, though, is that just the sheer scale of this is really impressive. This hub in Rochester will eventually support 1.3 million vehicles per year, which is an impressive number given that the president's goal of 50% by 2030 would be roughly 7 million vehicles a year. So it's a big percentage of those vehicles. Along the way, I think that as we talked about before around the community, I think the dedication is not only to the Rochester Institute of Technology, but also the Equal Opportunity College and some of the community colleges locally because I do think that part of this is actually showing people that this entire sector is a pathway to a career, not just a construction job.
Cody Simms (29:12):
Yeah, If I understand then, so the Rochester facility, which is the one your two organizations are partnering around together is a new entire hub for Li-Cycle. So it's the part that actually refines the black mass into the battery grade metals. Is that correct? Will that be your first one in the U.S., Ajay?
Ajay Kochhar (29:36):
So it's actually our first commercial one. We ran a pretty extended demo plant for a couple of years. It's our first commercial plant for the hub and it is the first for us in the U.S. I'd also say as Jigar, was telling there on the scale, it is important to highlight that. I think and also, as Jigar said, zooming out a bit, I think of course, we need mining here. We definitely need virgin extraction as cleanly as possible. No one's refuting that. But these circular economy solutions can be very helpful today and pretty significant vis-a-vis the 1.3 million EV quantity that he highlighted, and that then translates into the equivalent quantities of lithium, of nickel, of cobalt.
(30:12):
One thing I'd also highlight, and I think we have to support cross supply chain as I just mentioned, we do believe in that. There's no point in refuting that we need mining, but those are long lead projects. So I think one of the benefits that recycling can deliver is that path to market with supply faster. I know you had Simon on in one of the previous episodes, and I'm sure he talked about this massive mismatch between the time to build a gigafactory or a mega factory and other parts of the supply chain versus bringing on that critical material supply. So that's a reality we're going to have to contend with.
Cody Simms (30:45):
He definitely did. He was very focused on that.
Ajay Kochhar (30:50):
Recycling can be extremely helpful on that front because our path to market is inherently faster. It won't be a 100% solution today, but if you zoom forward to 2040 and beyond, well, that's the world you can think of where we are a primary solution to get batteries into the system, out of the system and then recycled, then back in.
Cody Simms (31:09):
So as you looked at, "Hey, we need to build a plant in the U.S.," you presumably looked at multiple locations of where this hub could go. You landed on Rochester as being a good site for that. At what point did the LPO become the way you wanted to attract capital to go out and do this relative to looking at the commercial market for capital?
Ajay Kochhar (31:33):
Yeah. So if I rewind a little bit to our history of say 2021, and so we made this decision to a site facility there in Rochester. So that then colors the business plan and it's driven off of customer needs and what we saw coming, so that then scopes out the capital that we need. So back in '21, as you highlighted, we went public. At that time, we had actually assessed a whole bunch of things and we were probably a little before at the time when we were private, the whole boom around batteries and the amount of interest. I think in even 2019 or so, it was much tougher, to be honest, but there were options on the table. I think the thing that struck us around it, whether it was VC, whether it was private equity, either there were partial solutions or they were extremely expensive, to be frank. We would've gained great partners in the process, but it just didn't have a clear path for us in terms of commercialization. So we did take this path to go public.
(32:33):
We raised at the time $560 million roughly of equity, so that was great. We then went on to do subsequent strategic deals. We've raised subsequently $350 million through partners like Glencore, LG, Koch, so that's been good. But if I rewind at '21, I got a great note from Jigar, and Jigar and I'd actually knew each other for a while before that when I was exploring other options for commercial financing and dropped a note to say, "Hey, have you thought about the LPO?" So that started our journey with figuring out, "Okay, what's next for us?" In this market, it's a bit tricky. You have to keep nimble around growth plans and you want optionality because things move around and you want to look at what's next. But we know we have this hub that's a great launch point for us in terms of the real realization of Li-Cycle with the spoke and hub model. So that started that journey in '21, and I'm happy to chat through it, but been almost a year-and-a-half plus from the first contact through application, diligence, term sheet negotiation, and then leading to this conditional commitment.
Cody Simms (33:42):
You've actually set me up for my next question, which I love it when that happens, which is, Jigar, I was wondering how much work the LPO does hunting versus farming. So are you out looking for the life cycles of the world and encouraging them to put a program together with you or are you all mostly receiving applications and going through them as they come in? What does that look like on the LPO side?
Jigar Shah (34:09):
Yeah, I joke with my bosses that I don't think there's a single application that's come into Loan Programs Office that I didn't solicit personally. Look, I think the Loan Programs Office was dormant before we got into office. So it's not surprising to me that Ajay and others weren't thinking, "Oh yeah, Loan Programs Office, that's where I'm going to get debt." So we were pretty aggressive about going after folks. The database is pretty easy to find. There's only so many people that have raised a significant amount of money in this space. My sense is it's probably four or 500 companies, and so we called every one of them, every single one of them. We called every company and said, "Hey, have you thought about the Loan Programs Office?"
(34:55):
Some of them have, some we were not appropriate for, which is totally fine. So there was a lot of work there. Then I think, but once we get folks interested in asking the right questions, then the government paperwork kicks in. The evaluation I would say is a lot similar to a commercial bank evaluation process. But the paperwork isn't. The paperwork, we have all sorts of government regulations around filling stuff out, so it's hundreds of hours worth of work to put that together. So we've hired a whole bunch of Sherpas in our outreach and business development group to really help people through that paperwork so it feels less daunting.
Cody Simms (35:36):
Yeah. Ajay, let's talk about that. There's actually a great video on the LPO website on what the application process looks like, and it's very compartmentalized and it's got its boxes. I'm sure in reality, there's a lot more to it, so I'd love to hear from you.
Ajay Kochhar (35:55):
Very smooth. Very, very smooth. It's a verbatim, verbatim for the diagram. No, I'm just kidding.
Cody Simms (36:03):
I just pictured Jigar showing up saying, "I'm from the government, I'm here to help."
Ajay Kochhar (36:07):
That was the opening, Cody, that was the opening.
Cody Simms (36:11):
So walk us through. You got this call from him. What was the timetable from the first call to getting to this moment of a conditional approval and what were the steps involved, roughly?
Ajay Kochhar (36:29):
On the one hand, I'd say that diagram, to be frank actually, was useful because we used it for a board to help explain where we were. There was moments, but also within each of those steps, there's a lot going on. So to rewind to '21, I would say we were just going public at the time. We were just about to raise a bunch of capital, and I like being frank. I'd say LPO at the top necessarily wasn't like our number one capital option was raise equity. But I was one, I knew Jigar from before, and as we dug in to learn more, and also [inaudible 00:37:04] from before it seemed pretty compelling. So we put some effort behind it to get to the application. I would say that took some prodding from Jigar's timeline and when we actually submitted it, so that was probably later '21 by that point.
(37:20):
There's pre-process where there's a number of conversations I think where the teams faced trying to get their head around, "Hey, is this eligible, potentially?" Sometimes structurally, I can understand where some companies wouldn't be. So that was important and that took some months. With the formal application, which to be frank, I don't know, I think it depends on the company, but we've obviously done plenty of deals and raised a lot of money. I don't think the application's that much work, to be frank. The real work comes later. So I think that stage wasn't so bad to be honest, and there's good interaction. As Jigar said, there's been some good folks that had helped us on other side. So then we submitted the application. There was this period of assessment of that, and then if you're successful, there's an invitation to diligence. So that was probably around early last year, '22.
Cody Simms (38:15):
How are you managing your IP through this? You're presumably wanting to maintain some degree of IP protection, but I'm guessing as you go into diligence, there are teams of scientists and experts that are wanting to get into the weeds on what you all do.
Ajay Kochhar (38:29):
I think it's no different than any diligence process, to be frank. Again, I think each company has to be clear with themselves of, 'cause you have to be able to share enough that there can be comfort gained and enough depth has been gone into to understand what you do and say, "Okay, is this going to work?" That's the fundamental of it. It can't be that there are science questions remaining, but at the flip side, you have to be clear on internally what can't you share? I think that goes for any diligence process, so it's not much different here. Look, on the diligence side, I would say that's really where the rubber hit the road. There's a technical independent engineer, there's financial market, of course. There's legal that comes in. So there was a lot of work there to get the team up to speed.
(39:14):
I think one thing for companies to think of another side is you have to be honest with yourself too. If you're willing to do the long slog here. If you're looking at other options as well, you just have to be honest with yourself, and 'cause I think it is a long process, it's worth it in the end. Not all companies are going to be set up to do it, to be frank. We have a great professional CFO, great professional general counsel. I rewind to 2020 or '19, we didn't have that. So that's really important because once you get into the real brass tacks of this, it's a debt instrument at the end of the day. It's structured and you got to know what we can do and what you can't do. There's some level of flexibility on the LPO side, but on many things there's not because it's a government program and there's some things that are programmatic.
Cody Simms (40:03):
Did you have bullet points on deal structure iron hammered out before you went into that full depth of diligence?
Ajay Kochhar (40:10):
Again, I'm all about being honest. I think it came much later. I think part of this too is trying to figure out the right template structure. I think on the LPO side, as there's more deals done, it'll probably get easier. But I think we were part of probably that first cohort, I'm guessing, of companies that was coming through. So there was a lot of iteration, to be frank. But I will say once we did get the deal parameters pretty clear, it moved quickly. So it was a flog to get there, which apparently was diligence. There had to be a level of comfort and diligence done technically, financially markets, that was another gaining item.
Cody Simms (40:50):
You had a sense of how much you wanted to borrow from a loan perspective. You just didn't know for sure exactly what LPO was planning to offer back and under what terms until you had gone through some degree of the diligence.
Ajay Kochhar (41:04):
Yeah. I think a lot, again, a learning there is, and we understood this, but as you go through, it's important. There's a ton of work that goes and ultimately to say a financial model. That's the culmination of the technical aspects, the market aspects, and there'll be a view taken. It's a debt model, ultimately, so you can't really pin those parameters down truly until that work is done. I think I get that, but for even members of our team, it's an education process, I think, for those that are working long hours on this, and so we got there. But again, I think on the other side of the table, I can see how if you're at a different phase of the company, again, this could be an awesome fit or maybe it's a little bit of a ways out in terms of readiness to go through the process.
Cody Simms (41:49):
Being U.S. Federal Government, how much did they diligence the potential externalities of the business in a way that might be different than commercial capital might, whether that's the community and environmental justice aspects that we mentioned, labor and workforce considerations, et cetera?
Ajay Kochhar (42:04):
Yeah, so I didn't mention it, but yeah, there's a big stream there on environmental and there's a big stream there on Justice 40. So on justice initiatives, it took many calls to contextualize. Sometimes it's just about us getting organized and helping tell our story, listening to the company too, of course, to be doing the right thing. We are doing a lot of great things, but you have to organize it and tell that story in a way that helps to bring that to light. So I think from middle stage of diligence or even earlier, that's been a work stream. Even now, of course, it's going to continue to be a platform to tell that story.
Cody Simms (42:37):
Jigar, your role in terms of involving local government in the process at that point?
Jigar Shah (42:42):
Well, I think that in general, the diligence process is really one that is designed to check every angle, which includes the relationship with the local government and permitting and NEPA and some of the other pieces. In general. I'd say that there's a couple of pieces here. One is that I'd say that when we first started diligence, I think Li-Cycle had given us conservative data. They were actually selling themselves short a little bit, which turned out to hurt them in the process because then our independent engineers decided to say, "Oh, yeah, yeah. If they're that, then maybe it's even worse."
(43:26):
So part of what we had to do is go back in and say, "Hey, wait a second. When we looked at your data, your recycling rates were much higher than the conservative numbers you submitted to us. We got to fix that stuff." So there was some translation issues that frankly cost us some time. I don't know that it's anybody's fault as much as it took us longer to spot those translation issues and it probably could have. I think it led to real trust issues. Frankly, I would say that it wasn't until I think we met up in Pittsburgh at the Global Clean Energy Action Forum that we put all those trust issues to bed, and then I think worked more confidently to the close.
Ajay Kochhar (44:08):
Totally, and then it was basically three or four months thereafter of intense work to bring it all.
Jigar Shah (44:14):
Yeah. Then I think on the government side, I'd say whether it's Justice 40 or environmental issues or whatever, I would say that our process is one that we believe that all banks should be going through. So I don't know that we have special requirements that are going beyond what we think all banks should do. In general, our sense is that we have to meet a threshold of reasonable prospect of repayment, so we have to believe that we're going to get paid back. Part of that is the company making sure that they are explaining to us how they're going to find high quality labor within the community, how they're going to train that high quality labor, how they're going to keep good community relations, because all of those things are risk factors, frankly, to the repayment of our loan.
(45:06):
As Ajay suggested, we find this with most of our applicants. Most of our applicants are doing way more than they give themselves credit for. Actually, our questions, I think, focus the mind and help them realize that a lot of things that they've been doing, just as a matter of instinctual understanding that these are things that de-risk their project are things that they frankly weren't touting because they were doing them as a course of business. Once you put it all down on paper, you're like, "Actually this is pretty impressive."
Cody Simms (45:41):
Those types, for lack of a better term, externalities are not papered into the loans specifically as impact metrics or milestones. It sounds like they ultimately fed the financial considerations of the loan and it's the financial considerations that are the obligations of Li-Cycle. Is that correct?
Jigar Shah (46:00):
Yeah. Obviously I'd love to get Ajay's take on it, but I'd say from our side, we want to make sure that this is a solid loan, they have a solid relationship with the community, solid access to a trained workforce, that they are thinking through this project for the long term. The company generally self-reports what they want to do in the community benefits plan or in a workforce plan or other things. So we'll, of course, record their plan and then as they draw money from the loan, we'll refer back to it and say, "Hey, you self-reported that you were going to do these things. What kind of progress have you made along the lines of doing them?" We certainly are not looking at an adversarial relationship as much as we're looking at a partnership relationship.
(46:51):
I think that our goal, I think, is to help the company reach the goals that they themselves have acknowledged that they need to reach to hit a successful project, and the government has a lot of assistance. It can provide, not just through our office, but also the rest of DOE and the rest of the U.S. Government. So to the extent that things go sideways or things go wrong or whatever it is that occurs, it is in our best interest as the U.S. Government to make sure that this critical mineral processing capacity exists here in the United States and that it's well functioning and profitable for the company and able to supply those 1.3 million cars. So we're looking to bear hug the project all the way around to make sure that they're doing what they need to do to be successful.
Cody Simms (47:37):
Ajay, to some extent, as I understand it, the Loan Programs Office exists as this is capital for building this facility that the commercial markets may or may not have been willing to take the risk on because you haven't done it four or five times, you're doing it for the first time and you have to prove it. These are in some cases unproven projects that need validation as opposed to just being able to look at the numbers of the last five projects you did and be able to say, "Hey, let's do this again." So with that, do you have a sense of how these terms might be different than what a future commercial loan might look like for you?
Ajay Kochhar (48:17):
Yeah, we do. Like any good fiduciary, we look at a bunch of options, and to be frank, pursuing this with LPO was compared alongside other options. So working backwards a bit, I think what you're referring to is more like, say when we're cashflow generating, then there's a whole bunch of different options out there from a debt market perspective and other things that we can do. But it's these valleys of commercialization. It's like right before the facilities build, can get commissioned and start ramping up they're slimmer. There's not, so there's no options, but there's slimmer in terms of the number of options that you have out there or they're a bit more tailored. Yeah, for us, certainly commercial project financing is available, but there's a cost to capital differential there that is significant. That is definitely a large part of the reason that we chose to go with the Loan Programs Office in part.
(49:12):
I'd say, the second thing, which is the softer side, it is about people. It is about people, and we've now done a lot of deals and it has a big impact. It's easy to do a deal, you get into the implementation phase and then those are the sorts of things that can log gen use. So as Jigar referred to, it's important to have that level of trust, understanding and it's trust with a bit of a plane of, "Hey, where are we at? We're a growth company, we're investing significantly, it's a dynamic market." So we have a pretty good idea now of where we're going and what it's going to be. But there has to be that level of understanding together to work through things, 'cause nothing is going to be perfect as you move forward that's not any of the path for these heavy industry industrial tech implementations. So those are the things we looked at. Then I think later on, we'll have a different Li-Cycle capital available to us. But for now and for the medium term, this is a fantastic source for Li-Cycle.
Cody Simms (50:07):
I've seen in my little early stage world that I work in at MCJ Collective, I've seen the government work to really try to leverage other financing programs like SBIRs or STTRs to make them more tech startup friendly, to make them less focused on defense contractors and this, that and the other and make them more product oriented in terms of how ... It's all an evolution, but it does seem like there's motivation to do that. Jigar, you come from Generate Capital, you come from commercial project finance. How have you been trying to streamline all of this as you've now been in the role for how long? A little over a year, I believe. Is that right?
Jigar Shah (50:51):
Yeah, it's been almost two years March 3rd. So look, I think that the process is not supposed to be easy. We have an absolute standard and we ask all of the applicants to raise their game to meet that standard. So I don't think we lower our standards for meeting objectives of the administration just to get dollars out the door, I think, in general-
Cody Simms (51:14):
By the way, I'm a taxpayer. We're grateful for that. All of us, we who are in the U.S. Are very grateful for that, so thank you.
Jigar Shah (51:22):
No, my pleasure. Look, and then I think that, but there were a lot of steps that we were asking people to take that were unnecessary. So I think we've streamlined the process to reduce the paperwork required by 50%. I think that in general, we have staffed up on the outreach and business development side. So these Sherpas really do exist so that there's a place for Ajay and his colleagues to complain when they don't like the process, but also, to really understand what's in the black box and so that they don't feel like they're ... Because the origination team, the loan underwriting team is necessarily skeptical about everything. That's their job, but so we have this more account management team as well that's supposed to do that other piece. The last thing I would say, though, is that part of the reason that the process is so exhaustive is that I do think that when you come out of this process, you do get a stamp of approval from the Department of Energy and the 10,000 engineer scientists and experts that work on the platform.
(52:23):
So I do think that means something different than raising a whole bunch of equity and putting that money to work, because the equity views the future as being brighter than the past. Therefore, even if there were some mistakes that are made here, they'll make it up on the back end; whereas, debt doesn't do that. Debt gets stuck with whatever assets it underwrites for that particular deal, and so they have nothing but downside risk. They don't have any upside. So that dynamic I think leads to extraordinary amounts of trust building with other sources of capital over time who are like, "Wow, if they got through that process, then they really subjected themselves to some real scrutiny."
Cody Simms (53:10):
Ajay, how's he doing? What feedback do you have for him on where things should continue to streamline and still be hard, and still be hard?
Ajay Kochhar (53:19):
I think it's just continued clarity of what's next and how to get to the brass tack of the deal. Also, I think the team did do a good job of explaining this. Sometimes other approaches can be taken, for example, getting to an indicative answer to begin the best that they can because maybe there's process and a certain need within the deal that needs to be followed. So that was explained to us upon many occasion, but you can imagine, of course, there's questions, "Why can't we just get to this answer?" "Well, first we need do this and then this and this." So I think the more that can be over-communicated, the better.
Cody Simms (54:01):
I'm super grateful to you both for coming on today and want to save space for either of you to share any final remarks about what's next, what you're excited about, and also any tips you have for companies who might be listening to this who are at the stage where a loan from the U.S. DOE could be useful, what you'd recommend them to do.
Ajay Kochhar (54:23):
Yeah, so look, I'll start with Li-Cycle when I'm talking about any remaining tips. So look, I think this is extremely encouraging. You talked a little bit about the IRA, but this is right down the fairway from the perspective of making lithium nickel, cobalt domestically, resource recovery, keeping materials within the supply chain onshore, French shore. That's all fantastic. For us, again, we were already building this project, but this is a great platform for us to continue to accelerate and get optionality around what we can do next to best serve our customers, so super exciting for Li-Cycle. For applicants. I think a lot of the things I was saying were really directed that, in summary, being thoughtful about the stage of company you are.
(55:11):
I think if you are a company with a shovel ready, shovel going project and you have a clear roadmap around key issues like permitting, and even if not, that's fine too, but you're really at that commercialization tip of the spear. Then I think from my perspective, this is a great potential program just knowing that it's going to be a thorough process and some time to get through the backend if you are successful. But I think there is a broad swath of companies where this type of level of capital is needed, and I can imagine many, and this is a very good solution for filling that one of those values of large quant of capital that you may need in your commercialization journey.
Jigar Shah (55:58):
Yeah. Look, I think that when you think about what it means to onshore and reshore capacity in the United States, we really need to see what it means to have a durable advantage long term. We don't want to just onshore and reshore stuff, which then is going to be uncompetitive in a global market and we'll shut down and those jobs will be lost. So when we use this reasonable prospect of repayment methodology, it really encompasses all sorts of things. So I do think that one of the hallmarks of this framework that was created, and frankly before I got here, but I'm certainly looking to improve, is that as we move through these just extraordinary goals from the Inflation Reduction Act and the energy transition, we want to make sure we are being thoughtful, not just because these companies and their investors want us to be thoughtful, because they want their stock prices to go up and they want to be successful on that side.
(57:05):
But there's also a tremendous number of other people whose lives are intertwined with these projects, whether it's a local community who has their hopes and dreams spent on this project succeeding, or whether it's the people who decided to enter into the community college to get trained to get a job at the facility, or whether it's the local community who lives in that area and depends on the fact that we did NEPA and other environmental reviews properly to make sure that this plant's going to be operated safely and not increase local pollution in the region, et cetera, I just think that all of that sits underneath the work that we're doing. It's the reason why I think a lot of entrepreneurs are choosing to work with us is yes, the interest rates are competitive, and we're able to get to a longer term, but I think that this social license that we provide through the loan is also something that, I think, is underappreciated at the beginning of the process, but I think properly appreciated by the end.
Cody Simms (58:02):
Well, thanks to you both for joining us today and sharing more about your experiences. Ajay, it's super helpful to hear from you and to understand the extent of the process that you went through and also why you chose to go this route. Jigar, of course, thanks for coming back on to MCJ and we'll get you back on someday too, Ajay, for sure. But seriously, it's so important. The U.S. Federal Government obviously is leaning in incredibly hard to helping not just the United States, but the world solve these climate change problems, and you're on the front end of that. You're driving capital into the next wave of innovators that are helping us, so we appreciate all that you do to make sure that that capital is being driven into the right places with the right amount of rigor and attention to it. Thanks for coming on MCJ.
Ajay Kochhar (58:56):
Thank you, Jigar. We look forward to working with you.
Cody Simms (58:59):
Congrats, Ajay.
Ajay Kochhar (59:00):
Cheers. Thanks, Cody.
Jason Jacobs (59:02):
Thanks again for joining us on My Climate Journey podcast.
Cody Simms (59:06):
At MCJ Collective, we're all about powering collective innovation for climate solutions by breaking down silos and unleashing problem solving capacity. To do this, we focus on three main pillars, content like this podcast and our weekly newsletter, capital to fund companies that are working to address climate change and our member community to bring people together as Yin described earlier.
Jason Jacobs (59:28):
If you'd like to learn more about MCJ Collective, visit us at www.mcjcollective.com. If you have guest suggestions, feel free to let us know on Twitter @mcjpod.
Cody Simms (59:43):
Thanks, and see you next episode.