Critical Materials Supply Chain Update

David Halkyard: Well, hello everyone and thank you and welcome back. My name is David Halkyard. I’m responsible for the ongoing development of RCF’s credit strategy, but for the next session, we’ll be building on some of the topics and themes touched on in the prior presentations. In particular, the emergence of, over the last few years, significant government support for the development of critical raw material chains particularly in North America. And to that end, I’m delighted to welcome Salim Bhabhrawala who is Critical Materials program manager in the Office of Manufacturing and Energy Supply Chains in the Department of Energy. And he’ll be providing an overview of the DOE funding and support programs for the emerging US critical material supply chain. And following the presentation, Salim will be joined by Ross Bhappu, longstanding partner of RCF, and Rob Gray for a panel discussion to dig in some into some of these points. So, Salim over to you.

Salim Bhabhrawala: Well, thank you very much. I forgot the clicker.

Rob Gray: It’s on top.

Salim Bhabhrawala: Oh, there it is. Very good. Yes, there’s nothing like the bureaucracy of the federal government standing between you and lunch. We’re going to do this anyway, and I just want to say I appreciate the invitation from Richard and Rob to be here today and it’s been great to get to know David and Ross as well in this process and appreciate the elevator and drink and dinner conversations with some of you and I’ll be around today. So, I hope to get to know more of you as well.

So as David said, I’m Salim Bhabhrawala and thank you for spelling my name right by the way on the slide. And I am the critical materials program manager at the Department of Energy’s newly formed Office of Manufacturing and Energy Supply Chains. Basically, we were start up in government borne out of all the provisions that came out of the Bipartisan Infrastructure Law and the Inflation Reduction Act. And I like to tell folks that we are a startup without a CapEx problem. So, critical materials, it has been an all of government effort for us starting in 2017 when the previous administration launched an executive order on us formulating a list of critical materials that we have for independence on. I can go through each and every one of these icons here and tell you how various government agencies are involved, but what I can tell you is that we have an all of government effort to try to and create a vertically integrated clean energy supply chain and make sure that we are doing this in a safe way, making sure that we have the workforce development pieces, making sure that we have the proper trade policies and trade restrictions and also making sure that we are coordinating our efforts to make sure that we get it right from mine to product and back again via circularity.

So, that all being said, let’s talk about good news. We’ve heard a lot about the EV battery market today from some of the previous presenters. Here’s where we are in the United States by make and model, and you can see that we have data from 2022, which was a great year over 900,000 EV vehicles sold. And then we have data up until about June. So, we’re going to surpass a million EV vehicles sold in the United States today and if we take this chart right, we are on target for the administration’s goal of trying to penetrate the marketplace for light duty vehicles by 50% by 2030. So, that’s the good news. Growth is here. More good news. The investment across the supply chain has been tremendous. If you look all around the country, you’ll see from anywhere from Gigafactories to processing facilities, to recycling facilities, anode producers, cathode producers, we’ve seen record investment and goals and targets to get us to about 840 Gigawatt hours by 2030. So, all that being said, good news.

Let’s talk about bad news. And This is why I’m here, folks, is we don’t have enough critical materials to get this job done by 2030. Demand is outpacing supply both domestically and working with some of our foreign allies to try to get some of these materials. Everyone knows China’s dominance on this. In order for us to get this done, we need to look more at our domestic resources in terms of mining, processing and making material. So, this is the first stage in the production of trying to get more material, more bad news. When you take it to the next step to try to get precursor material, the demand versus supply gets even worse. So, we need cathode material. We need anode material, and we need electrolytic salts for our batteries and we need to do that very quickly. So that’s the problem.

Why was this start up created in government? Well, it was to address these supply chain issues and if you can look on this chart, you’ll see where the supply chain is and where we are operating. So, the Department of Energy has funding under the bipartisan infrastructure law to the tune of $600 billion to set up battery manufacturing and processing. And also $335,000,000 to invest in the recycling and circularity of these products. And I want to be clear, these are all cost shares. So, we’re not just cutting checks, companies that need to come to us with strong applications to make sure that they also are sharing the burden and risk involved in these. But you know, 50/50 is our minimum cost share, so that’s pretty good. Under the Inflation Reduction Act, we also have tax credits that are trying to assist companies in making sure that they can return a little bit more revenue stream back into their endeavors and their investments within the clean energy supply chain. And we also want to do this the right way and make sure that we are keeping jobs in areas that may be displaced by the transition from standard ignition cars to EV cars. And so, we’ve put $2 billion out on the streets for the OEM’s and other part producers that are going to go through that transition to try to help and share in that burden and also make sure that we’re keeping those local workforces in place and not displacing workers.

I wanted to highlight the orange here because we are currently in strong coordination with the Department of Defense and their Defense Production Act, which has made targeted investments in the extraction industry. So, we meet regularly to make sure that those investments are coordinated. But what you see here are a lot of dollar figures. True, once in a lifetime generational investment, because, as my friend Matt back in the corner here said, this is a Sputnik moment for the United States to make sure that we get this clean energy transition correct. So, all that being said, I’m going to kind of shrink this chart a little bit and give you sort of a better perspective of what’s going on on the 30,000 foot view of government. So, beyond these avenues of funding that we have, Department of Commerce has enacted The Chips Act, So, over $52 Billion dollars will go into securing and make sure that we have a semiconductor industry in the United States that’s vertically integrated from start to finish. While we don’t know, and that’s still kind of ramping up, we would assume that from a critical material standpoint we would see targeted investments in helium, gallium, and Germanium, which are within those supply chains. One step further, EX-IM Bank is starting to make sure that companies can go outside of private equity funds to get assurance and guarantees on the loans that they may have. And they have put out a project, I don’t have a total number figure, but they are only sponsoring projects over $50 million. So, what that tells you is that we are working in the commercialization space, not start up, not low technology ready, but making sure that we are making products that are going to go directly into the supply chain.

Finally, I want to mention the Department of Interior. I’ve heard a lot in conversations yesterday and even this morning about mine permitting and how difficult that is. We are working in the federal government right now to reform our mining laws. And does anybody know the last time anyone here the last time the United States reformed their mining law? 1872. So, you know what was going on back then? Gold rush. So, we have a lot of work to do in this space. The average time to permit to getting commercial quantities out of the mine is seven years. We would like to cut that down to two to three years and try to meet some of the standards of some of our partners, Canada and the EU. And we’re doing that. We’re working really hard to make sure that these mining laws are reformed. I don’t work for the Department of Interior. Obviously, there’s no financial incentive in this final column, but it’s something important for all of you to know is that the landscape, pun intended, is changing.

The other thing I want to point out here is that for a long time, I’m going to stay on the slide for a minute, for a long time, basically what has happened is we’ve ridden our coattails on the defense industry, and so this is defense industrial base and basically other manufacturing sectors in the United States tried to tie by some of the products that they needed to defense. But what you’re seeing now is a new philosophy in government where we are starting to get our own energy sector industrial base or what we call an ESIB and then take that one step further because you know the clean energy spectrum needs different products than what defense would need. You know, things like copper, boron, and terbium. We’ve expanded and created our own critical materials list just a few months ago that is in contrast to what defense and the US Geological Survey have proposed. And you’re also seeing that trend continue now with commerce, who is kind of doing a TIB or a tech industrial base to work on some of the products that they need as well. And so, government is really reformatting itself and how it looks like and thinks about critical materials.

So, from a technology readiness level, you can see that the US government has sort of covered everything from core samples to trying to create commercial anode and cathode for OEM’s and we have tried to make investments and targeted policies across the entire spectrum here. I wanted to just make one note we haven’t quite coordinated with The Chips Act and commerce, and so you see that open box there and I’m still trying to get information from them about where they are in terms of where they want to target technology readiness. But I should have that the next time we speak or some of us who may come to Sydney for IMARC, I should have that information ready by then.

But alas, I’ve given you the big point view. Let’s talk a little bit about my office and how it differs from others. You see LPO on there, the loan programs office. I know a lot of you have met with Jiger Shah. He’s kind of our Hollywood rock star out there on LinkedIn and Facebook and talking to folks about his loans. The difference between LPO and MESC is that we don’t loan out money, we give it away. So MESC made a once in a lifetime investment last October, $2.8 billion across 21 companies. Some of the companies you see here should be familiar to you. I know you’re an investor in Talon. There’s an Australian company as well here. I think we’ll talk about the international landscape later. But I don’t think the $2.8 billion is the most important number here. What you see is the $6.2 billion cost share that is coming from investors and companies to match. So that is really almost a $1 to $2.00 investment and a $9 billion investment last October across the battery supply chain spectrum from materials all the way to producing precursors, cells, assembly packs, and then even some investments on making sure that we have the infrastructure to recycle these materials and get them back into the supply chain. We’re going to do it again. So, 2.8 billion out the door last October, we just announced on August 31st that we’re going to put another 3.5 billion out on the streets across the 8 topics that you see here. I think I don’t need to read this slide to you because you can all see it but some of the important things are that there’s an open topic. So, if there’s something the government is missing, we’re open to hearing where we need to invest in that. And then the other thing that you see is that there’s non lithium battery technology as well that we’d like to invest in as we start to think about charging stations and grid storage and how that can complement the EV battery industry. So, expect a funding opportunity announcement here in October. I don’t know what the status of the government is. That’s well above my pay grade in terms of whether or not they’re going to shut down or not, but that may impact this announcement.

I get a lot of questions about foreign entities and concerns, so I just kind of stuck it in here. I think the language is clear. There’s been a lot of confusion about it. Oh my gosh. You know, if I have a controlling share from, you know, Chile or Australia, am I eliminated from getting funding from the US government? The answer is that you can see in the red text we have highlighted four countries that whether or not you have a majority share ownership or a controlling board member or controlling interest, you are not eligible for our funding. This guidance also applies to 30D, which is a $7500 tax credit for EV vehicles. It needs to be an American produced vehicle in order to get that and we will send out further guidance on this and full text and instructions when we release our funding opportunity announcement hopefully in October. I mentioned some of the tax credits, so 48C. We’ve received a hundreds of applications for this tax credit and really, the way you need to think about it is it’s still 10 billion into the supply chain. So, we’re giving tax cuts, but that’s money that companies can keep investing. So, I think this is a great program. It’s been hard. Let me go one more slide here and talk a little bit about 45X. If you were making certain materials that go into the clean energy sector some of them listed here, which you are all investors in some of those producers. We need them and we’re willing to give you a tax credit for that. Now, I want to say this isn’t easy communicating with treasury and the IRS between Department of Energy, it’s like apples and oranges in trying to get some of this done. So, there’s going to be some complications here and some proposed rule makings as we try to hone in on really where we need to put these tax credits in to make sure that companies are getting the most benefit from a lot of these clean energy tax breaks.

So, DOE loans program, I don’t want to discount them. These are some of the examples of some of the monumental loans that they have given out. You can see here a lot of money put out in the clean energy space. So, $15 billion that was a month ago. If I were to update this slide, we’re over $20 billion in clean energy investments right now from the loan programs office. So, a lot going on in the battery and the battery material in the recycling sector here to make sure that we have the proper ecosystem in the US. I am running a little bit short on time, but I mentioned the conversion grants. So, $2 billion to convert your facility and also a little bit about recycling. This is my baby, and in 10 years time, if we are not recycling the EV batteries and spent cells that come out of the first generation of lease volts and Teslas and putting those back in the supply chain you, here today in Arizona, are looking at the guy that failed in this project. So, remember me if you see me in jail or on the news, or being a bunch of batteries to Asia. We do not want to make the same mistakes that we did during the e-waste revolution so, we’ve got money out on the streets as well to try to prevent that. And I think we’ll probably talk a little bit about leakage as we get toward more conversation.

So, last thing I’ll mention, and I’ll finish where I started and that is that this has been a whole of government project. So, we have formed something called the Federal Consortium for Advanced Batteries (FCAB). 19 agencies, 80 offices, and 270 federal employees. So, you think about the deployed resources when the US government to make sure that all those topic areas you see under task groups is done correctly and done right. We are flipping the script on what folks think about with supply chains here in the United States of America. And we are attacking it head on. So with that, I want to say thank you for all of your time. I look forward to some of the questions and discussions and I encourage all of you to scan this QR code because it will keep you updated on all the activities including our funding announcements from our office. So, thank you very much. I appreciate it and I look forward to the conversation. I’ll turn the. Microphone back over to you.

David Halkyard: Thanks, Salim.

Salim Bhabhrawala: You’re very welcome.

David Halkyard: Thank you very much.