Aqua Metals Inc (AQMS) 2016 Q4 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Aqua Metals' fourth quarter 2016 corporate update conference call. (Operator Instructions) This conference is being recorded today, February 14, 2017. Before we get started I would like to turn the conference over to Greg Falesnik, Managing Director of MZ North America, the Company's investor relations firm, who will read a disclaimer about forward-looking statements.

Thank you, operator. This conference call may contain, in addition to historical information, forward-looking statements concerning Aqua Metals; the lead acid battery recycling industry; the intended benefits of its agreement with Johnson Controls and Interstate Batteries; the future of lead acid battery recycling via traditional smelters; the Company's development of its commercial lead acid battery recycling facilities; and the quality, efficiency and profitability of Aqua Metals' proposed lead acid battery recycling operations.

These forward-looking statements involve known risk and uncertainties and other factors that could cause actual results to differ materially. Among these factors are the fact that the Company has not yet ramped its initial commercial recycling facility to full-scale operation, bus subjecting the Company to all of the risk inherent in a startup; the uncertainties involved in any new commercial relationship and the risk that Aqua Metals will not receive the intended benefits of its agreements with Johnson Controls and Interstate Batteries; risk related to Aqua Metals' ability to sufficiently raise capital as and when needed to expand its recycling facilities; changes in the federal, state and foreign laws regulating the recycling of lead acid batteries; the Company's ability to protect its proprietary technology, trade secrets and knowhow and other risk disclosed in the section Risk Factors included in the quarterly report on form 10-Q filed with the SEC on November 7, 2016.

Aqua Metals cautions readers not to place undue reliance on any forward-looking statements. The Company does not undertake and specifically disclaims any obligation to update or revise such statements to reflect new circumstances or unanticipated events that may occur. At this time I would like to turn the call over to Dr. Stephen Clarke, the Company's Chairman and CEO. Steve, the floor is yours.

Thank you, Greg and welcome everybody to the 2016 year-end conference call. One of the headlines today is that the first ever AquaRefinery located at the Tahoe Reno Industrial Center has moved from commissioning to operational. That means that we are breaking batteries and making lead from the batteries that we have broken, both metallic lead and Aquarefined lead. It is continuing to ramp up. We are not at full scale yet and there is more work to be done but this does mark a pretty incredible milestone.

It is just over 18 months since we broke ground on that facility and we have the first ever AquaRefinery up and running. We have product ready to ship and it is a pretty exciting milestone. Another headline that I'm going to talk about is obviously our agreement with Johnson Controls and that really has two key aspects for us that I want to talk about.

The first one is that it provides the feed and off take for the additional facilities that we have been talking about for the past two years. It fills AquaRefinery one and two capacity and it moves us forward in the additional AquaRefineries that we want to build, own and operate ourselves. But more importantly it transitions us to the start of a really exciting new phase of the company which is licensing. So I'm going to talk a little bit about both of those.

I've laid out the following agenda. I am going to give you a recap of our vision and strategy for those who are new to the story. I am going to go into a little bit more detail on the status of the business. I am going to talk a little bit more about the JCI agreement and what they mean for us. I'm going to hand over to Thomas Murphy, our CFO, to talk through the financials and then I will just recap with a summary. So I am moving on.

So those of you who have followed the company for some time will recognize the two graphs on this slide. But it really underpins why we started out to do what we do. The chart on the left shows the production capacity in the world of batteries, not the production value which tends to overstate some of the newer technologies, particularly lithium, but it shows the installed production capacity by battery chemistry. And what it demonstrates is that currently 96% of the world's batteries, when measured by capacity, are lead acid and despite all of the incredible growth in lithium ion it represents somewhere in the region of 4% of batteries produced.

The chart on the right shows the growth in the production and reuse of lead over the past 20 years. And the key point is that I came up with these comparisons, something like four years ago and it was something of an epiphany to us and triggered the idea of building AquaRefining but it has remained true and one of the key points is that the lead acid battery production is continuing to expand and just recently JCI announced a $450 million in US capacity.

Last week Joe Walicki mentioned to the Wall Street Journal that JCI is continuing to expand its Chinese production. And the background for that is that one of the fascinating things about the lead acid battery is that lead is 100% recycled. 80% of the lead or thereabouts 80% of the lead in North American lead acid batteries has been recycled. The issue is the dominant recycling technology is smelting. It is inefficient, expensive to make environmentally compliant and produces a product which must be further refined. That said, given that lead is already 100% recycled there is an opportunity for Aqua Metals to become a leader in sustainable battery technology and an innovator in this circular economy by solving the issue of finding a better, faster, cheaper way of making a higher performance lead.

So basically there is a $22 billion global opportunity waiting for a better lead recycling technology and that is why we started out to do what we do. Looking at that market, we have been talking since inception about building a single AquaRefinery and then building a total of 800 tons a day of capacity and then rolling out with a licensing model. And the table at the top shows the relative values of those. So AquaRefinery number one at Tahoe Reno Industrial Complex is starting out with a planned capacity of 120 tons of lead per day and we are expecting to expand that to 160 tons a day.

To do that we will require 32 AquaRefining modules and when it is at the full scale at 160 tons a day, that will represent just 0.2% of global lead production and generate a revenue potential in the region of $100 million to $120 million a year. We chose and we believe it is important, to grow the company to 800 tons a day. We believe that 800 tons a day is a credible global supplier of lead or represents a credible global supplier of lead. And we started out thinking maybe we do that with 10; the current thinking is we will do that with a total of five AquaRefineries for 800 tons a day. That would require 160 AquaRefining modules and when constructed that would be just 2.1% of global lead production representing $500 million to $600 million a year in revenue.

But look at the global lead market. The total capacity is 38,000 tons a day and that represents something like 7500 AquaRefining modules, that is obviously 100% and that represents $22 billion a year. So when we look at that, that kind of set the tone for our business model which is to start with build out and operate and prove out the technology and then move into a licensing model where we provide our modular equipment on a fee for service model.

Essentially what we are trying to do here is bring a brand-new technology to what is essentially a commodity material that operates in a price taker market. If you look at the occasions where a game-changing technology is brought to bear in a similar situation, if you look at what Bessemer and Nucor did for steel, what Siemens did for silicon wafers and what Pilkingtons did for glass, the successful model there is to build out and operate yourself before you roll out licensing. And that is essentially what we set out to do.

So moving on, building the first AquaRefinery was the key to our business plan. We chose to start the Tahoe Reno Industrial Center. Reasons for doing that is that a population of 32 million within an 8 hour drive. it is a growing hub for data centers and aerospace and cleantech. There's a lot of very interesting stuff going on in the Reno basin. It has phenomenal infrastructure, talent and logistics. It has been a historical center of excellence. The mining technology, mining technology gets you hydrometallurgies and electrochemical engineers and people who know how to move large amounts of material through a facility.

It also comes with low energy cost, phenomenal support from the state of Nevada and it is just 50 minutes by air and three hours by car from Alameda, California. Although I've got to say today it is four hours by car as both the main routes are struggling with the results of these storms. But we thought it was a good idea to build there and it has turned out to be absolutely that. With that built and operational I'm going to say more about that in a minute.

We plan to expand on three fronts. The first one was to build additional facilities in North America as I mentioned earlier to get up to 800 tons a day. The planning basis for that is to build a number of 160 tons a day facilities. The numbers that we are looking at for that is that we expect each one of those to cost somewhere in the region of $54 million, to generate $90 million to $120 million in revenue and $20 million to $30 million in EBITDA.

And this is important, our goal is to primarily fund this with debt over non-diluting capital and we are and have been evaluating a package of up to $250 million in non-dilutive finance to build those additional facilities. I am going to talk a little bit more about that as it goes through the presentation. And then the next stage in our expansion is to start providing AquaRefining equipment to third parties on the service license basis. The goal was to start in the US, develop a blueprint for expansion internationally.

One of the challenges in that is that China is currently the largest battery market, just the largest battery market and anybody familiar with technology licensing in China knows that it is a very problematic and thwart with danger. So one of our biggest challenges is how are we going to start licensing in China and make it a success. And then the last part of the expansion is to move to higher value products and markets and we have noted in a number of calls that AquaRefining can produce levels of purity way beyond that of smelting. In fact, we have produced 5/9 purity lead and we are very close to being able to produce commercial quantities -- sorry 4/9 purity lead, we are in very close stages of producing commercial quantities of 5/9 pure lead. That is a phenomenal level of purity and opens up some quite high-value markets.

One of the other areas that we are very active in the morphology and particularly developing lead nanostructures. These have the potential to significantly increase the performance and life cycle of lead acid batteries. The two areas where we think that could be really important is in data center backup batteries and grid scale storage. There has been a presumption for a long time that lead acid has no role to play in what could be a huge market for grid scale storage batteries.

We actually disagree and we would look to the datacenter world where lead acid batteries dominate and provide everything that is required for data centers. We believe that there is scope to take a data center style battery and advance its lifecycle performance such that it would be a valuable grid scale storage battery. So you will have seen us talking about data centers and there is method in that. And then the last point is what we have done with lead is showed that there is a viable alternative to smelting in electrochemistry. That has not escaped the attention of significant players in the copper, zinc and nickel mining worlds where mines, ore bodies are often remote from existing smelters and currently concentrated, shipped around the world to areas where they can be smelter.

And so in particular parts of Australia and in other parts of the world that got interesting copper, zinc and other ore bodies that are remote from smelting, there is very little chance of building a smelter there and so there is quite a lot of interest in adapting our technology to displace smelting in some of those markets. This is really early stage work but what we are finding fascinating is the success that we have had in lead. It is actually driving a pull from other mining companies.

So moving on, so let's talk about the Tahoe Reno facility. As I mentioned at the start it is now running. We have transitioned out of a mostly start up phase into a commissioning phase into an operational phase. So basically things that we have done there that I think are the key to that are we have built an incredibly experienced team which is drawn from established recyclers and leading electrochemical engineers.

One of the things that we heard repeated a number of times is that it typically takes 18 month to install, commission and dial-in a battery breaking and separations machine. We have done that in less than six months and the reason we have been able to do that is entirely down to the insights and hard work and dedication that the management team at the Tahoe Reno Center. Mike Krickel and his staff of incredibly experienced battery recycling individuals. That has been backed up with a pretty strong team of leading electrochemical engineers who have operated large plants.

We have mentioned in the last earnings call that we have expanded that potential capacity from 80 to 120 tons a day and we are now looking at expanding from 120 tons to 160 tons a day. We have produced and validated 99.99 pure lead.

By validated that means we have sent it to battery companies. We assay everything before it leaves our facility. We knew that we produced 99.99 but that doesn't count until a battery company says wow, you really did and that happened. As I mentioned we are working on 99.999% pure which has a real interest in very high lifecycle lead acid batteries and some of the higher value applications.

A key point in establishing this facility was that the Nevada EPA determined that AquaRefining is not subject to NESHAP and I am going to say a little bit more about that in a minute. That is a really important precedent that should help our rollout and expansion as we look to build facilities two-five. We have moved from a single shift production to second shift and now we are scaling up to four shifts.

I am not trying to give the impression that we are at full scale and everything is done and we are completely on to the next one. There is going to be quite a bit of learning and additional improvements and hard work as we move forward. In particular with respect to the announcement with JCI, we are contemplating a very significant rollout of AquaRefining equipment and essentially that means that TRIC is going to have two roles now. It is going to be running as an operational facility. But it is also going to be the cornerstone of where we test things and test improvements and implement improvements like the [rev] 1, the rev 1.2, the rev 1.3 and so on of AquaRefining before we finalize the blueprint and start rolling out equipment at third parties.

So we will talk a little bit more about some of the lessons learned in smelting but before I do that I am just going to recap what a smelter looks like. So we have got some sense of what we are doing is different. And so these slide I am showing you is a very simplified diagram of how batteries are broken and recycled in a conventional smelter.

So it shows on the left used lead acid batteries coming in, going into a little box that says break, sort and float. I really wish that was a little box. In fact, it is a huge machine with a very complex series of gravity and other-based separations processes that take a battery, pound it into parts, separate out the lead paste, that is the lead oxide and sulfates that are the active material from the lead chip which is the grid in the top lead connectors from the plastic from the separators and from the acid. And that is a very complicated machine that takes typically 18 months to dial-in.

What comes out of that in a conventional smelter is lead and lead paste. That then goes into a series of processes that are entirely based on handling dry powders. Essentially the lead and lead paste from a battery breaker in a smelter operation is going to end up in a smelter that operates at 1400c. You can not put wet product into a smelter at 1400c; it has to be dry. So what that essentially means is that smelters are dealt with the challenge of handling dry, dusty lead-containing materials. And because of that there is a body of environmental law called the National Standards for Hazardous Air Pollutants otherwise known as NESHAP which is there to regulate the emission of those lead, dust and other airborne pollutant. And it is one of the biggest challenges a smelter has to deal with is the fact that they have dry powders.

Key points I mentioned dry powders. One of the other key points of a smelter is all of the lead, whether it is lead chip or lead paste, has to go through the smelter and then the lead produced from a smelter is known as secondary lead and that requires further processing steps to turn it into something that can be used in a battery.

So our process is fundamentally different. We use a breaker and we use exactly the same sorting equipment but our process runs wetter. A lot we produce from our breaker is different in a key respect. We make the lead paste which is the active material in a battery. It is lead oxide, lead sulfate and spongy lead and co-compounds of those. We also separate out our metallic lead which is the grid lead and the top lead. That is actually quite high value lead alloys. It is going to be produced back into grid lead and it starts off as grid lead and one of the advantages of our process is we don't have to do anything more to that other than sort it, turn it into ingots and sell it as lead alloys.

The other step is that the lead paste runs through a process that we have been calling desulfurization and then from there it runs into AquaRefining from which it is ingoted. One of the key points here is that the process that we call desulfurization in many respects is fundamentally different from the processes that operate in the smelter. We have to take, not have, we choose to take a much higher level of the sulfur out and we do some other proprietary steps to that paste before we put it into our AquaRefining process.

One of the key processes here that we had to develop and scale was that multistep desulfurization process. So moving on, we talked a little bit about what we learned along the way. So it was a first in kind and we were surprised. There were a number of surprises encountered as we built this and we are a few months later than we hoped to have been in commissioning and transitioning TRIC from start up to operations. And I just want to talk about some of the lessons learned there.

So starting at the input side, we have spent some time dealing with jams on the conveyor belt for the breaker, calibrating the several sorting steps in there. We had some issues with seals and bearings which required redesigns and change outs. We accomplished all of that in six months which I believe is quite remarkable given industry standards. Then in the processes, transporting the lead paste from the breaker through desulfurization we had a number of redesign issues around pumps and materials handling and various other aspects as we learned that there are some differences in handling our paste input to desulfurization from a conventional dry powder.

The desulfurization itself is a multistep process. I'm not going to break it down because it is proprietary but this really was the first time that we operated this at scale. We have been able to run the AquaRefining system because it is modular, for several years now and have dialed that technology in. One of the biggest challenges that we had is that the desulfurization process operates in the 40-80 tons a day of throughput. This is something you can't really pilot or even test in a lab. It has to be built and worked out in real time. It is a unique process. The big news is that we have got that dialed in now and it is operating. That means that we can provide feedstock to the AquaRefiners and make AquaRefined lead.

Then along the way we have chosen to take that hiatus in operations to look at design improvements and other improvements to the AquaRefining system to support what is now going to be an accelerated licensing rollout. So we learned a lot. We are going to continue to learn. One of the new roles that Tahoe Reno is going to be to make sure that we are the best we can be before we start rolling out AquaRefining equipment to JCI and other licensees.

So now I will talk about the JCI agreements. There are really three phases to this. The first agreement is a tolling and lead purchase agreement in which JCI provide feedstock on a tolling basis. That means that they provide the batteries and provide a fee for us to convert those batteries into lead that we provide back to JCI. Separately, JCI has agreed to purchase pretty much all of the lead output from Aqua Metals merchanting business that means when we buy batteries, take ownership of them and turn them into lead, JCI is interested in buying all of that. We are probably and have agreed to limit that to the automotive business in the first instance but it is not completely limited to that. We can supply further applications as well.

Aqua Metals will continue to promote pure AquaRefined lead to stationary applications and that is one of the things that I mentioned earlier. We think there is massive growth in lead acid batteries in data centers and grid scale storage. And what is required for that are higher purities of lead and we are exploring that. But the bottom line about the JCI lead tolling and lead purchase agreement is that it secures the feedstock and off take for us to build additional AquaRefineries in one big partner, the largest battery company in the world. We have secured the feedstock and off take that we need to build out in North America.

Then we look at the equipment supply agreement. This is a nonexclusive equipment supply agreement but it also provides a first mover advantage to JCI. We are viewing it very much like my experience in a former life in aerospace where when you build a new engine and put it onto an aircraft, you choose a launch customer and you work very carefully with them to make sure that that engine works on that airframe and it meets the requirements of the airline that this customer (inaudible).

So it is a partnership in which you develop a blueprint for how you provide the engine to other airframes and other airlines. So that's essentially the nature of this agreement. It starts with retrofitting existing smelter facilities and/or building a new AquaRefining facility for JCI in North America. And the scope is JCI and it supply partners in NAFTA, China and Europe. So the first mover advantage clauses of the supply agreement essentially mean that we will work with JCI, NAFTA, China and Europe before rolling out to other licensees.

There are really two phases to this. The first one is to retrofit an existing NAFTA-based facility and use that to develop a blueprint. It is important to note that whilst we have built a Greenfield AquaRefinery, nobody has taken an existing smelter and converted it into a wet electrochemistry process. We expect this to be a big learning exercise.

One of the things that we are thrilled about is that in working with the JCI we have a highly credible North American partner in which we can collaborate, figure out what is the optimum way to bring AquaRefining to a smelter. When we had figured out that blueprint we are going to roll out in the rest of NAFTA, China and Europe based on that blueprint. And then the final part of the agreements with JCI was an investment in Aqua Metals for 939,000 shares for $11.33 for a total of just over $10.5 million and that represents just under 5% of Aqua Metals outstanding shares and we think putting those three agreements together for us is remarkable. And we are really, really excited to be working with JCI on this.

What does it all mean? Well, we have been working on this agreement with JCI for a number of months now and looking at the tolling lead purchase agreement and I alluded to this a moment ago, it pretty much gives us all of these supply. If you take what we have got with Interstate Batteries and Battery Systems Inc. and then layer on top the demand and supply and off take with JCI it gives us everything that we need to scale from 160 to 800 tons a day.

As we have been talking to JCI for a number of months, we've been talking to providers of debt and non-dilutive finance for a number of months and we are looking at a $250 million package of finance which really needs a high creditworthy third-party to supply the batteries and take the lead. So we believe that what we have with JCI and Interstate and Battery Systems Inc. actually meets the prerequisites for these supply and off take part of a $250 million non-diluting finance package that will take us from Aqua Refinery 2-5. Not promising to actually close any particular debt finance package but it certainly moves us a giant step forward to be able to secure that.

The second point is it partners with the world's largest battery company as our first licensee. I don't think anybody could wish for a better partner to start licensing. And we believe that with JCI and looking at retrofitting, we can absolutely transform the supply chain reverse logistics of a $22 billion industry and there is no better partner to start with. But it is also a key to our China strategy.

You may recall a few minutes ago that I said when we looked at licensing, one of the biggest challenges is how do we go to the largest market when the largest market is China and so many companies have failed in taking technology to China. So the important thing for us is that JCI already has extensive manufacturing facilities in China. And as stated last week, it wants to add more capacity. So basically JCI gives us a low risk entry into an otherwise challenging market.

It gives us a partner that we can work with and trust that we can develop the blueprint in North America and then establish not just a foothold but a significant presence in China through our relationship with JCI. And then we can expand that into other trusted partners in China. Last but not least, it provides us a trusted partner to evaluate the high-performing materials that we alluded to earlier. So moving on, I'm going to hand over now to Tom Murphy who will take us through the year-end.

Thank you, Steve. I'm going to start with the recap of the unaudited fourth-quarter and year-end results for 2016. The 10K will be filed in the first week of March. For the three months and year-end December 31, 2016, we had an operating loss of $4.7 million and $13 million, respectively.

The net loss for the fourth-quarter was $5.3 million and $13.6 million for the year ended December 31, 2016. That's $0.30 and $0.89 per share loss, respectively. Of note, share-based compensation for the year of 2016 was $1.1 million. We had $26.6 million in cash and cash equivalents as of December 31, 2016, compared to $31.8 million as of December 31, 2015. Cash balance as of today is $34.2 million.

I would now like to point out the key financial highlights for 2016. On May 18, we signed a strategic partnership with Interstate Batteries and highlights of that transaction are Interstate Battery purchased 702,000 shares of the Company at $7.12 per share for gross proceeds of $5 million. Interstate Battery loaned the Company $5 million pursuant to a secured convertible promissory note. The note bears interest at 11% and the loan will mature on May 25, 2019. We also granted Interstate Battery two warrants to purchase common stock; a warrant to purchase 702,247 shares expiring on May 18, 2018 and the second, a warrant to purchase 1,605,000 shares expiring on May 18, 2019. Average exercise price is $8.43 per share.

The Company at the same time with certain accredited investors sold 719,000 shares for gross proceeds of $5.1 million. Liquid Venture Partners, through the National Securities Corporation, acted as placement agents. In September, the state of Nevada granted the Company property tax incentives which combined with tax incentives granted in May, are worth an estimated $3.6 million. On November 21, 2016, we completed a public offering of 2.3 million shares of our common stock at the public offering price of $10.00 per share for gross proceeds of $23 million. After the payment of underwriter discounts and offering expenses, we received net proceeds of approximately $21.5 million.

In connection with the underwriters agreement we issued a warrant for 33,450 shares of our common stock at an exercise price of $10.00 per share vesting on May 20, 2017, and expiring on November 21, 2019. Liquid Venture Partners, through National Securities Corporation, again acted as placement agents for us. As of December 31, 2016, we have spent $39.8 million on the Nevada plant, that is inclusive of land, building and all of the equipment. Staff, including full-time consultants, increased from 22 at the beginning of 2016 to 67 currently, of which 38 are in our Nevada plant.

Outstanding common shares as of December 31, was 17.9 million shares. Outstanding common shares as of February 10, is 19,210,335. This includes 939,005 shares issued to Johnson Controls and 392,605 shares issued for warrant exercise. With that I would like to turn the call back over to Steve.

Thanks, Tom. So basically just rounding up, the summary headline really is that we are executing on our mission. It is a simple thing to say but it reflects a huge amount of hard work and no small amount of self-sacrifice that has gone on to get this company to where it is in the short time that it's been around. And the key to that has been that we have been incredibly fortunate in being able to build an outstanding and committed team. I don't want to jinx myself but I will dare to say that we have had no problems recruiting some of the most incredible, talented people to join us.

We have watched and have been thrilled as people have relocated from one coast to the other and bring themselves, their family, their children and everything to join what we are building in Reno, Nevada. I think that is incredibly humbling. And to see them turn around and work and deliver what we have done is just incredible.

We have built, permitted and commissioned AquaRefinery number one in just a little over 18 months. I had a conversation with a senior executive in a battery company in which I said I was frustrated that we were a few months late. He pretty much laughed at me and said no, you're not a few months late, you're three months early. When you guys announced what you are going to do in building this we all kind of took a bet amongst ourselves and we assumed that it was going to take five years to build the first AquaRefinery and it would take you three years to get licensed. But you did it and it has been incredible to watch how fast you have built it.

I think in building at what we have done is established the body of knowledge, the expertise, the knowhow and not least, the precedent in permitting that allows us to continue rolling out the additional AquaRefineries at a similar pace. We have secured strategic relationships, the last one with Johnson Controls which is the largest manufacturer of automotive batteries. We mentioned it meets the prerequisites for supply for AquaRefineries two-through five. It launches equipment licensing in North America, China and Europe and it gives us an incredible launch pad for the Chinese market.

And we are beginning early stage work on higher value products. What is surprising there is the level of market pull and the strength of the market partners in both the high-value, high-performing lead but also the other materials and other metals. And finally we are by no means done in building strategic relationships. We have got a lot more to work on. It has been thrilling the quality and level of people that are approaching us.

Anyway, with that said, this is concluding the presentation part of the earnings call and I will hand back now to the operator, Evan, to handle questions. Thank you.

(Operator Instructions) Colin Rusch, Oppenheimer & Co.

Thanks. Good morning. This is Noah Kaye on for Colin. Hello, Steve and Tom and congratulations on all of the progress to date. Maybe if we could just start with the current operations at the Nevada plant. You discussed it during the call but can we just understand where the operations are actually at now in terms of the number of shifts that are currently running? And then how to think about the cadence as you see it adding additional shifts towards that four? Maybe even thinking about a little bit, kind of understanding the output per shift. I am guessing that not every shift will have the same output number. Thanks. Just understanding that would be helpful.

Sure, sure. Thanks, Noah. We are a little bit challenged in talking about the detail of this for an interesting reason. Aqua Metals is the only publicly traded player in the global $22 billion lead industry. The majority, everybody but us in the supply of lead, is a privately held company and there is a huge amount of secrecy around all of the details of that production starting with nameplate capacity of facilities through to individual product specs, product quantities, input cost and the rest of it.

So we are going to have to be from here on in quite circumspect with respect to the level of detail that we provide on individual operations. We don't want to be providing information that is useful to a competitor or worse, providing information that impacts a commercial partner. So basically what we are saying is that we are making lead from batteries that we have broken. , We are currently operating a single shift. We have a stockpile of raw materials ready to ship. Not raw materials, product ready to ship. As I said we are operating on a single shift. We have brought on a second shift and beyond that we are really not going to provide too much more guidance.

Okay, thank you. Second, maybe you can just talk to the facility CapEx numbers. It looks like the $54 million per 160 might be a touch higher than some of the numbers we might have seen in the past. So maybe we could get some insight into and I think you talked about it during the prepared remarks but some of the challenges, understanding this was the first plant, that might inform how you think about CapEx for future plans. On the flipside, I think now that you have kind of done this once, where you see potential cost savings on future designs?

Sure. So for budgetary reasons we are going with $54 million for a nominal 160 tons a day facility. That will vary by region and depending on what we start with. We are confident in the $54 million number. One of the things that kind of moved that up a little bit is we are seeing opportunities and taken advantage of opportunities for adding additional process stacks to produce higher yields, better water recycling, stronger product quality and at some level, automation.

I expect that by plant three or four we will see some CapEx reductions but I don't think it is safe to really project anything beyond $54 million now. We think the numbers for a $54 million plant are still very attractive.

And if you can see obviously the ROI in that incremental CapEx in terms of higher demand, better product and cost savings obviously that would make sense.

One of the things that adds some color to that is that all smelters have to operate with a high level of personal protective equipment and breathing filtration for their operators. But that is normal. That creates a pretty tough work environment. We have actually got to plan which we are implementing and we are reasonably confident that we can become the first-ever battery recycling facility that will not require its operators to have to wear breathing equipment and will have a much lower level of PPE requirement which will just make for a much more pleasant and acceptable working environment. And we think it is worth making that investment for the benefit of our employees.

Okay, thank you very much for that color. And then maybe just one last one from me. On the cash burn rate it looked perhaps a touch higher, so how should we think about a normalized burn rate going forward?

We are transitioning from burning capital to making it.

You have to realize as we have delayed and delayed in getting into commercial operations, we had certainly the first shift on-site in Reno a lot longer than we anticipated before we did get to the commercial level. So the burn rate was higher in that regard. But now that we are starting to begin commercial operations that should go down. And with the investment we've received from not just Johnson Controls but the shelf takedown we did last November, we are actually sitting on a pretty good pile of cash for our business plans. We don't see any needs in order to complete what we have talked about for the foreseeable future. It is a unique position for us to be in.

Okay, great. Thank you so much again for the color. Take care.

Bhakti Pavani, Euro Pacific Capital

Good morning, guys, and congratulations again on the progress. Just a quick question. I know you mentioned that you would not like to diverge more details into the operations but just kind of wondering, in the prepared remarks you mentioned that the facility is producing about 120 tons per day, is that correct? Is it currently producing 120 tons per day of lead or you will get there eventually?

So what we are saying is, we mentioned this at the last earnings call, the original four shift capacity at the plant was 80 tons a day and we figured out how to expand that to 120 tons a day with the equipment that we had on-site. 120 tons a day is our four shift capacity. I wouldn't want anybody to believe that we are making 120 tons a day right now.

Got it.

Currently we have, just implemented within the last few weeks, the second shift and are presently recruiting for the third shift.

Got it. So in order to expand to 160 tons per day what kind of timeline are we talking about? Is it going to be the end of this year or probably next year?

We are still evaluating that. One of the things we are looking at is it might be, we can do it one of two ways. One is to add -- let me back up again. To be able to go from 120 to 160 we need to add additional AquaRefineries. To do that we will need to stop AquaRefining for at least one of the shifts as we install equipment because that requires welding operations and you can't weld and operate an electrochemical environment because of risk. So one option is to do that and that is kind of the default option.

The other option is to actually go and build the next AquaRefinery first, bring that online as a 160 tons a day facility right from the get-go. Then when we have that capacity on stream then look at adding the additional capacity to the Reno facility because then we will have a bigger cushion in which to add in the additional AquaRefineries. So we are still evaluating that one at the moment and I don't think we have a fixed view of it.

Got it. From the capital spending standpoint, what amount of capital do you expect to spend this year assuming you went with the latter option and have a 160 ton ready facility from the get-go?

So we are looking for additional capital spend to be debt financed. Building the next facility is a somewhat circular exercise in getting acceptable terms from providers of debt with having the off take and supply agreements to support that and having sufficient operational time of the first facility to work on underwrite the risk.

We have identified improvements for the current plant that will be about $4 million in CapEx for the current plant for 2017.

Okay. And in order to add additional AquaRefining modules, how much more of CapEx are we looking at?

To go add an additional 16 modules and the infrastructure that goes with that, that isn't already in place is about $12 million.

Got it. Okay. Thank you. Wanted to talk about the Johnson Controls agreement. I know in the 8K you did mention about there would be a mutually agreed blueprint made especially with the equipment supply agreement. Could you maybe provide more color on what kind of timeline are we talking about?

We are on it already. I'm not going to get into too much more detail on that. We are, both parties are working hard on this and we will be making announcements on that at a future date.

Okay. Also a follow-up on that, the licensing agreement, I'm just kind of wondering how it is going to work. Like is it a certain number of modules that you would be supplying to them and it will be calculated on a four module basis? How is it going to be valued, the agreement?

Again, we are not going to be releasing details on that for the foreseeable future, if ever. The idea is that we are going to concentrate on retrofitting an existing facility or possibly building a new facility but most likely retrofitting an existing facility. Learning from that and then follow that up with a fairly aggressive rollout across JCI's North American, Chinese and European facilities. And that is something that JCI and we are working on. But we are not going to be making those numbers public. It is commercial sensitive.

Got it. All right. That is it from my side. Thank you very much, guys, and congratulations again.

(Operator Instructions) Michael Cahill, Crispin Capital

Steve, congratulations to you and the team for all of the progress you have made over the last couple of months. It has been pretty impressive. I have two questions. First, I know Thursday was a really busy day for the Company but last Thursday, the CEO of EnerSys on their quarterly call, spoke very highly of Aqua Metals. So obviously he is pretty familiar with you guys and they have a fair amount of datacenter exposure. So I was just wondering if maybe you could elaborate on that and the datacenter opportunity. And I have a follow-up. Thank you.

Sure. First of all it was a surprise that we were mentioned in somebody else's earnings call. We were thrilled and very honored that EnerSys referred to us in their earnings call. You are absolutely right, EnerSys is a powerhouse in stationary and industrial applications. We would like to talk with them, like to work with them. We know some of those guys pretty well. We think there is a great opportunity there and I think there is real synergy between our relationship with JCI and a potential relationship with EnerSys. They would fit together quite well.

My follow-up would be obviously JCI is a huge company. I am surprised that they just didn't kind of come after all of Aqua Metals as opposed to just buying a small portion. To the extent you can talk about that, that would be great. Thanks.

So you are not the first person to ask that. Our positioning with JCI is we came together. That subject was discussed. We believe that we are just at the start of the journey here that we can build tremendous shareholder value as a separate company. And basically that is what we plan to do. I can't speak for JCI's decision making process as to whether they would or wouldn't want to buy us. We just think that we are able and in a great position to build an incredible, ongoing shareholder value as an independent company.

Thanks, Steve. Keep up the good work.

That is all the time we have for questions and answers. I will turn it back to management for closing remarks.

Thank you. There is not really much more to add here. We have had an incredible year on top of another incredible year and we are pretty excited to be where we are but under no illusions that there's a lot of hard work to be done. Thank you all for your participation.

This does conclude our conference for today. Thank you for your participation. You may disconnect.

Thank you.