https://ceo.ca/content/sedar/...24-08-14-interim-mda-english-a8c1.pdf
PRODUCTION UPDATES
Timing, scope and spend on the below initiatives are discretionary and flexible, enabling Nano One to adjust and align them with the evolving battery market landscape and timelines. Given conditions in the capital markets, the Company is also evaluating options to conserve capital while it focuses on product evaluation, first sales, offtake from existing assets in Candiac, licensing opportunities and government support. The goal is to launch LFP in North America, followed by Europe and the Indo-Pacific region.
Pilot Plant - 200 tpa capacity
Nano One acquired the 10-year-old facility in Candiac, Québec in Q4 2022 and repurposed it to demonstrate its One-Pot process at commercially valid scale. The waste handling systems were no longer needed and subsequently decommissioned, and the Company completed the commissioning of new 200 tpa One-Pot reactors in Q4 2023. The pilot facility is now being used to facilitate demonstration, sampling and evaluation while also informing FEL design studies and the LFP CAM package with Worley Chemetics. There are plans to further expand the capacity of the existing facility up to 2,000 tpa, as demand for LFP takes hold, leveraging existing full-scale equipment and the balance of plant with further automation (see discussion below).
Through to June 30, 2024, Nano One had cumulatively incurred on a cash-basis approximately $8,500,000 in converting and commissioning the One-Pot 200 tpa LFP pilot plant. Of this amount, approximately $750,000 was paid during the six months ended June 30, 2024. These costs were largely aligned with forecasts and budgets.
Expansion - 2,000 tpa capacity (up to)
The existing facility in Candiac, Québec remains the launch pad for Nano One’s growth strategy and a clear path to first revenue and larger offtakes. The existing facilities are equipped with commercial scale equipment that have significantly de-risked the ability to scale, and there are confirmed orders for tonne-scale sample evaluations. These facilities could support small scale offtakes and production for first revenues, large scale offtakes for the 25,000 tpa Development Project (see below), and even larger scale offtakes for the technology licensing business in alliance with Worley Chemetics.
Through to June 30, 2024, Nano One has incurred approximately $300,000, in engineering and planning costs related to this potential expansion effort to 2,000 tpa.
Commercial Plant (Development Project) - 25,000 tpa capacity
The Company’s FEL2 pre-feasibility study, as reported on October 23, 2023, modelled a 25,000 tpa LFP plant on the unused portion of its Candiac land, and later on February 27, 2024, an FEL3 feasibility study was launched with consideration being given to lower-cost alternative sites that would better accommodate growth, utility requirements and future market needs. The Company is pleased to report that its FEL3 study is showing even lower capital costs and operating expenses than its earlier FEL2 study. This further enhances the One-Pot value proposition and supports the Worley Chemetics Strategic Alliance. Spending has been deferred on lower priority aspects of the FEL3 study and will be resumed as market conditions allow.
For the abovementioned FEL3 study, $1,540,000 had been paid through to June 30, 2024 (all during 2024), in relation to the 25,000 tpa LFP commercial plant Development Project.
Nano One is approaching its 25,000 tpa LFP commercial plant as a development project opportunity (the “Development Project”) that leverages its existing piloting and commercialization facility in Candiac, together with target customer engagements and project finance initiatives. It will require product validation, customer offtake, feedstock supply agreements and the completion of an FEL3 feasibility study that is site specific. The objective is for the Development Project to be owned by a separate stand-alone operating company with its own capital structure, and Nano One as a joint venture or minority equity partner. Nano One is expecting to earn a license fee from the operating company for the use of its One-Pot technology in addition to a development fee for its efforts on the project which can be settled by an equity interest in the operating company, cash, or a combination thereof. Nano One believes that this approach offers its partners and stakeholders significant value through licensing, technology, know-how, customer engagements and project finance solutions while minimizing equity dilution. The FEL3 study will also support the “Design One, Build Many” growth strategy to develop, market, license and deploy CAM packages globally in partnership with Worley.
With regards to site selection for the Development Project, Nano One is in active dialogue with governments, their agencies and third-party strategic interests with regards to incentive programs and the evolving market needs in North America. Key considerations include automotive OEM timing, government incentives in the form of grants and forgivable loans, municipal collaboration, low-cost land, access to sufficient utilities (power, water, natural gas), footprint for expansion to align with longer-term partner objectives and location preferences from collaborating stakeholders. With the active support of provincial and municipal governments and its strategic partners, Nano One has identified and narrowed down potential site options in Québec and Ontario and is also exploring government incentive programs in North America and lower-cost jurisdictions where a focus also exists on attracting investment in the midstream.
Optimization and product validation work at the facilities in Candiac, Québec will continue into 2025 for the purposes of:
a) Generating product sales and first revenues;
b) Expanding capacity from 200 tpa up to 2,000 tpa, subject to sales commitments, customer technology validation, capital support from government, and financial returns;
c) Securing larger volume customer offtakes in support of the Development Project;
d) Informing the FEL3 design study and progression of the Development Project and to support the Worley Chemetics alliance; and
e) Developing, marketing, licensing, and deploying of One-Pot enabled LFP CAM packages (engineering process design packages) in collaboration with Worley Chemetics (see “License and Alliance Agreement with Worley Chemetics” above)
Market Conditions and Business Environment
Nano One continues to execute on its plans, with advancements in its product evaluations and the development of increasingly compelling business opportunities. The Company is also navigating an economic cycle with challenging capital market conditions, and a slower pace in the lithium-ion battery supply chain. Throughout the second half of 2023 through to mid-2024, many ambitious targets for EV, battery and critical minerals production have been scaled-back. This despite over 3 million EVs sold in the first quarter of 2024, which represents an increase of over 25%1 over the same period in 2023, marking demand for batteries and cathode materials that continues to grow, year over year, with a looming shift towards LFP. This has led to media coverage for Nano One and increased brand recognition.
Nano One believes that the LFP market will be catalyzed and enhanced by stationary storage needs in the coming years, to provide organic growth, and downside protection. Nano One continues to advance its business opportunities with automotive companies, while in parallel pursuing the industrial and stationary storage sectors that can start small, move quicker and grow large while enabling the security of supply that is ultimately needed by the automotive companies.
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