Electra Battery Materials Corporation (TSX-V:ELBM, NASDAQ:ELBM) said it has entered into subscription agreements with investors to issue US$51 million principal amount of 8.99% senior secured convertible notes due February 2028.
The processor of low-carbon, ethically-sourced battery materials also said it is in active discussions with the governments of Canada and Ontario, seeking a commitment of up to US$7.5 million in additional total funding to support the recommissioning of its wholly-owned hydrometallurgical cobalt refinery located north of Toronto in Ontario.
Electra noted the governments each previously provided US$7.5 million toward the project, adding that the terms and conditions for these potential sources of funding are under discussion and subject to final government approvals, with no guarantee the additional capital will be provided on terms it can satisfy, or at all.
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Electra said it will purchase all of the outstanding approximately US$36 million of existing 6.95% senior secured notes due 2026 for cancellation at par, plus accrued and unpaid interest.
The net proceeds of the note offering of approximately US$15 million will be used for capital expenditures associated with the expansion and recommissioning of the refinery, including buildings, equipment, infrastructure, and other direct costs, as well as engineering and project management costs, the company said.
Upon completion of the note offering, the company will have US$51 million principal amount of notes outstanding, and no 2026 notes outstanding, it added.
The initial conversion rate of the notes will be 403.2140 common shares of the company per US$1,000, equivalent to an initial conversion price of approximately US$2.48 per common share, subject to certain adjustments outlined in the indenture governing the notes. This reflects a premium of approximately 17.5% to the 30-day volume weighted average price of the common shares before the current date, Electra said.
Interest payments
The notes will bear interest at 8.99% per annum, payable in cash semi-annually in arrears in February and August of each year and will mature in February 2028. During the first 12 months of the term of the notes, Electra said it may pay interest through the issuance of common shares at an increased annual interest rate of 11.125%.
In the event it achieves a third-party green bond designation during the term of the indenture, Electra said the interest rate on future cash interest payments would be reduced to 8.75% per year and the interest rate of future interest paid through the issuance of common shares shall be reduced to 10.75% per year.
After the second anniversary of the issue date of the notes, Electra said it may mandate the conversion of the notes at its option in the event the trading price of the common shares exceeds 150% of the conversion price of the notes at such time for at least 20 trading days, whether consecutive or not, during any consecutive 30 trading day period.
Noteholders will receive an aggregate of 10,796,054 warrants to purchase common shares exercisable for five years at an exercise price that is the same as the conversion price in connection with the note offering.
Royalties
Electra said the initial noteholders will also receive a royalty of 0.6% on operating revenue from the sale of all cobalt produced from the refinery payable in the first twelve months following a defined threshold of commercial production, with the operating revenue consisting of revenue from the refinery less certain deductions. The royalty also includes 0.6% on all revenue from sales of cobalt generated from the refinery in the second to fifth years following the commencement of commercial production, subject to a cumulative payment cap of US$6 million.
The company said the note offering is expected to close on or about February 13, 2023, subject to customary closing conditions.
Currently commissioning North America’s only cobalt sulfate refinery, Electra Battery Materials is executing a multi-pronged strategy focused on onshoring the electric vehicle supply chain. Keys to its strategy are integrating black mass recycling and nickel sulfate production at Electra’s refinery located north of Toronto, advancing Iron Creek, its cobalt-copper exploration-stage project in the Idaho Cobalt Belt, and expanding cobalt sulfate processing into Bécancour, Quebec.
Contact the author at stephen.gunnion@proactiveinvestors.com