Li-Cycle Holdings LICY), a recycler of rechargeable lithium-ion batteries, has entered into a non-binding letter of intent to supply LG Chem, Korea’s largest diversified chemical company and LG Energy Solution, a leader in the market for lithium-ion batteries for electric vehicles, with 20,000 metric tons of nickel from recycled waters over the 10 year beginning in 2023. Upon signing of the final agreement, LG Chem and LG Energy Solutions will together make a $50 million buy of shares in Li-Cycle.
In addition, Li-Cycle announced that it is up-sizing the capacity of its first commercial hub recycling facility now under construction near Rochester, New York by about 40% to handle 35,000 metric tons of “black mass” recycling aggregate a year. the company estimates that the expansion will bring total capital investment in the Rochester hug to approximately $485 million.
And on this news that the company continues to line up first-tier customers for its recycling output and that it feels confident enough about projected demand to increase the size of its first hub recycling facility, the stock dropped 6.22% by the close today, December 14, to $10.85 a share.
This situation is starting to resemble the early days of Cheniere Energy (LNG), when the stock kept getting killed whenever the company reported a new customer that was going to require more capital spending in order to meet demand.
The last thing (or close to the last) that investors want to hear on the day before the Federal Reserve (likely) announces a move to tighten monetary conditions is that a company is going to increase capital spending. Li-Cycle says that it will fund the Rochester hub with cash now on the balance sheet, but investors are worried right no about company’s ability to fund capital spending in the face of a likely increase in interest rates sometime in 2022.
As in the case with Cheniere–where all that spending turned out to be justified and very profitable for investors (the stock is stock is up 71% for 2021 as of the close on December 13 and has delivered an average annual return of 18.31% over the last three years)–investos may be worried that the Li-Cycle letter of intent with LG sees deliveries of recycled nickel beginning in 2023. That’s a way off and who knows what the commodity markets–or the lithium-ion battery market might look lie by then.
Back on November 15, 2021, I picked Li-Cycle for my new Millennial Portfolio (for investors with more time than money) on my subscription site JubakAM.com. I continue to recommend Li-Cycle for investors with patience and a long-term holding period of 5 years or more. The stock is down 18.42% since that recommendation.
Full disclosure: I own shares of Li-Cycle in my personal portfolios.
