Li-Cycle’s cost estimate for Rochester Hub soars

Li-Cycle Holdings Corp. is evaluating financial and strategic options to continue the construction of its Rochester Hub, which now could cost as much as $1 billion–up from its previous estimate of less than $600 million.

In reporting its third-quarter results, the company said it has made moves to preserve cash, including workforce reduction, optimizing inventory and exploring financing options.

Li-Cycle is in the process of a comprehensive review of the project’s construction strategy, focusing on a phased approach.

Escalating construction costs combined with delays in financing have stalled plans for the site at Eastman Business Park. The Mississauga, Ont.-based company, has had a presence at the park since 2020. Details of changes in local employment–once at 200–were not disclosed.

“We have performed an initial analysis of options for completion of the Rochester Hub, and we are taking steps to conserve cash,” said Ajay Kochhar, president and CEO of Li-Cycle. “Additionally, we remain actively engaged and continue to work closely with the (U.S. Department of Energy) to satisfy conditions precedent for financial close for the $375 million loan commitment as we complete a comprehensive review of the go-forward strategy for the Rochester Hub.”

The cost pressure was exacerbated by the timing of nearly $4 billion in other major construction projects in the region, driving general contractors to draw workers from the larger regional area, he said during the third-quarter conference call. 

The total cost of the existing project scope is forecasted to exceed the previously disclosed budget of $560 million. 

As of Sept. 30, the capital expenses for the Rochester Hub were at $301 million. Li-Cycle contributed $92 million toward a total cost of $140 million for the construction of process buildings and a warehouse in Rochester. The spend was incremental to the budget.

Based on initial analysis and the choice of approach, the estimated capital cost now is in the range of $850 million to $1 billion, including buildings. Currently, the company is analyzing timing and contracting strategy.

Li-Cycle entered a conditional commitment in February with the Energy Department for a loan of up to $375 million through the department’s Advanced Technology Vehicles Manufacturing program. 

Officials said the company continues to work with the department to satisfy conditions necessary before the financial close of the loan of up to $375 million. Li-Cycle will also need to meet other conditions before the first advance payment, which includes additional financing to fund the required base equity commitment. 

Li-Cycle views the pause as a way to better phase the project with the current timing and evolution of the battery recycling and electric vehicle markets. It also offers an opportunity to reassess and optimize construction and contracting strategy. 

The phased approach may include the ability to produce intermediate battery metal products such as mixed hydroxide precipitate and improve project economics, officials say. 

“Global EV production volumes and battery material demand continues to be underpinned by strong fundamentals,” Kochhar said. “With favorable supply and demand dynamics driving the need for domestic sources of battery material, we continue to see significant benefits for Li-Cycle’s Spoke & Hub network, and in particular, the market need for the Rochester Hub.”

The Rochester Hub is expected to be the first commercial hydrometallurgical resource recovery facility in North America. Its hydrometallurgical process produces no wastewater discharge, minimal solid waste streams and relatively low air emissions. The facility is expected to support the battery needs of approximately 203,000 electric vehicles annually and strengthen the domestic EV supply chain.

Li-Cycle operates on a spoke-and-hub business model, a vertically integrated, two-step lithium-ion battery recycling and resource recovery process. The model enables the return of battery materials back to the domestic supply chain for re-use by battery manufacturers and electric vehicle and energy storage producers for a circular economy.

In the near term, the Rochester Hub was expected to bring 1,000 new construction jobs as well. However, since the decision to pause, contractors have been laid off and a class action lawsuit was filed against Li-Cycle to recover shareholder losses between June 14, 2022, and Oct. 23, 2023. Additionally, the company was served contractor liens for more than $33 million in unpaid bills. Officials are working closely with all stakeholders on the project, the company said.

In the third quarter, Li-Cycle generated $4.7 million in revenues, versus $2.8 million a year ago. Its net loss was $130.5 million, compared with a loss of $20.6 million in 2022. Adjusted earnings before interest, taxes, depreciation and amortization was $38.9 million, compared with $35.1 million the previous year. The reasons for the increased net loss: higher expenses from the expansion of the company’s global network, which more than offset the increase in revenue.

As of Nov. 10, Li-Cycle had $100 million in cash.

Smriti Jacob is Rochester Beacon managing editor. The Beacon welcomes comments and letters from readers who adhere to our comment policy including use of their full, real name. Submissions to the Letters page should be sent to [email protected].