Steve Cotton - President, Chief Executive Officer Judd Merrill - Chief Financial Officer Ben Taecker - Chief Engineering and Operating Officer Glen Akselrod - Investor Relations

Greetings! Welcome to Aqua Metals Q1 Investor Call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. You may submit a question via the web at any time by using the "Ask a Question" feature on the side of your screen. [Operator Instructions]. Please note, this conference is being recorder. I will now turn the conference over to spokesperson, Glen Akselrod. Thank you. You may begin.

Thank you, Alex, and thank you and welcome to Aqua Metals first quarter 2022 results conference call. Earlier today Aqua Metals released financial results for the quarter ended March 31, 2022. The release is available on the Investors section of the company’s website at www.aquametals.com. Joining us for today’s call from management is Steve Cotton, President and CEO; Judd Merrill, the company’s Chief Financial Officer; and Ben Taecker, Chief Engineering and Operating Officer. During today’s call, management will be making forward-looking statements. Please refer to the company’s report on the Form 10-Q filed today, April 28 for a summary of the forward-looking statements and the risks, uncertainties and other factors could cause actual results to differ materially from those forward-looking statements. Aqua Metals cautions investors 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 as they occur, except as required by law. As a reminder, after managements formal remarks we’ll be taking questions. Questions will be accepted over the telephone from analysts and all other investors can submit a question using the online webinar portal provided in today's and last week's press releases. We will take as many questions as we can in our available time slot. And with that, I’d like to turn the call over to Steve Cotton, CEO of Aqua Metals. Steve, please go ahead.

Thank you, Glen, and thank you everybody for attending today. For those of you that have access to the slide Deck, you can follow along and we're going to refer to the slide numbers as we go through the slides for those of you that are looking at the slide deck not synchronized, but offline and for those of you that don't have access to the slide, you can listen along and refer to the deck at a later time. So I'm going to start with slide number one, which is that Aqua Metals as evidenced today by some announcements that we made earlier this morning, as well as further materials that we will be providing. We are really leading a revolution in both lead and lithium battery recycling. Moving on to the next slide, Glen read to you guys the Safe Harbor, so I'm not going to belabor that, that's for your reference. Slide number three, is our mission statement. That is, ‘To provide sustainable metal recycling for materials that are strategic to energy storage applications. Our proven breakthrough technology, AquaRefining returns these raw materials to the manufacturing supply chain in both the clean way and an economical way, reducing reliance on mining to meet the growing demand.’ Slide number four is a quote that shows – two quotes really from the U.S. Secretary of Energy Jennifer Granholm, as well as the general comment from the U.S. Department of Energy, and I won't read those quotes to you. But you can see that effectively the vision for the future of stored energy recycling and closed loop processes is about air and water and clean energy as inputs. And AquaRefining differentiate greatly from the other technologies that are out there, because we uniquely use the renewable electron versus fire that’s…

Alright, thank you Steve. I've got a few comments on each of the financial statements. I’m going to start first on the balance sheet, which is on slide 17. As of March 31, 2022 we had total cash of $9 million, working capital of $7.9 million and this keeps us with our continued healthy cash and working capital balances. The accounts receivable amount includes money due from the sale of equipment. The assets held for sale includes non-core assets that are no longer necessary for our future offering plant and in fact we will note that there were some assets sold in Q1, including about $800,000 worth of equipment to LiNiCo and $600,000 in non-core equipment to other vendors. Also during the quarter we exercised our warrant with LiNiCo, which increased our ownership in the company. The amount of increase was $500,000 payment that was made in Q1 and our current ownership is approximately 12%. The lease receivable includes our lease to buy agreement with LiNiCo, which is accounted for as a sales type lease. On the liability section there is very little change compared to year end and as the company continues to be debt free. Now moving to the income statement on slide 18, during the first quarter of 2022, Aqua Metals was focused on research and development activities to enhance our ability to recycle metals found in lithium-ion batteries and we commenced shipping equipment to ACME Metals. So we were not in commercial production during the quarter of 2022 and as a result, again its generating revenues during this quarter. Cost of product sales decreased by approximately 38% during the quarter to $0.9 million compared to $1.6 million in Q1 of 2021. The decrease in Q1 of 2022 is largely due to wrapping up the plant cleanup…

Thank you. [Operator Instructions] Our first question comes from the line of Shawn Severson with Water Tower Research. Please proceed with your question.

Hi! Thanks guys. My first question is around lithium hydroxide in pure form. When you say that, what does that mean to Aqua Metals and I guess what is produced otherwise? I’m just trying to understand the importance of that.

Yes Shawn, thanks for the question. It’s unique to Aqua Metals that we are the only company that's produced lithium hydroxide, and I’m going to ask Ben to kind of talk about the meaning of that and how that works as a precursor.

Yeah, thanks. So the advantage of it being very pure is it is able to – yep, go ahead. It’s able to meet an existing spec which allowed it to go directly into the precursor manufacturing. Many of the existing processes out there are results in like Steve said earlier, carbonate that has to be converted in a costly manner to hydroxide. Us going directly to the hydroxide has multiple benefits and cost savings to the precursor manufacture.

Okay, thanks for the explanation. My second question is regarding, when you say you could generate some revenue, what does that mean? So is there any scope or scale that we can get around that with a little perspective on the timing and actually how much revenue the pilot plant might generate.

Yes, so we're excited about the Innovation Center. It's not a small facility, so it allows us the opportunity to not only build our first pilot which will commence very soon, in a matter of months, but to scale that pilot to really effectively a small demonstration plant, and those economics that demonstration plant could be exciting for the company. I’ll ask Judd to comment on that.

Yes, I mean the size of the plant allows us with – even with the pilot to reach run rates of up to $20 million to $25 million a year in revenues.

And that's at current pricing for metals?

Yeah, that would be at current pricing.

I got you. Okay, and then my last question is sort of a longer term, economic model question for you guys. When you look at you know securing I assume predictable long term supply of black mass, right, and then you look at royalties or production on year end, I assume there’d be off take agreements there as well. So my point is, is over the long term do you end up with a very predictable consistent, fairly recurring cash flow let's say, I mean minus obviously volatility in some of the prices of metals and things, but trying to understand the supply demand balance in terms of supply and off takes.

Yes, so that's a great question and the predictability will probably be the biggest variable in the metal costs, which we probably will likely see more upwards pressure than downward pressure based upon the high demand and the lower availability of some of those critical minerals like we were talking about in the presentation. But our business model is also fairly predictable in the various models that we can approach with. If we have a recurring revenue base licensing arrangement, we would gain a royalty that would still only really be impacted on those variability, the pricing of those metals. And as long as the plant could produce that we’re licensing too, we could collect those running royalties and obviously the equipment sales and services that are related to those. In our own black mass production capabilities, which we would be doing at our pilot plant that will turn into a demonstration plant, we believe that the predictability of those revenues as long as we're producing those materials will also be subject really to only to the variables of the metals markets, and then the added element of our ability to operate it. We can operate more efficiently and more of improved conversion costs through our own operation, that helps, and if it costs us a little bit more to operate, that would impact negatively on the margins, but the revenues would remain the same. And then the third part of our business model, which is really what we are evaluating is in the form of joint ventures, it's kind of a hybrid between those two and each one of those deals will be unique. So I can't really comment exactly on how those will work out, but ultimately we will be solving for predictable revenues that we can stack on top with each deal that we work out with the various players, inclusive of LiNiCo.

Great, thanks. That was very helpful. Thanks Steve.

Our next question comes from the line of Colin Rusch with Oppenheimer. Please proceed with your questions.

Thanks so much guys. You know with these experiments that you are doing on the recovery with nickel and lithium, can you talk about the recovery levels that you are getting to from a percent of the base material they are coming from?

Sure, this is Ben. I can take that one. Right now all of our planning and our lab data suggests that we're going to be able to achieve 90% recovery or better. So that's what we use that for all the metals at this point.

Okay, that’s super helpful. And then when you look at the European market, obviously there's an awful lot going on there in terms of wanting to move towards energy independence and materials independence circularity, and you had a very strong European partner historically. Can you talk a little bit about the options for recycling in Europe, you know kind of where you're at from a sales perspective related to lead opportunity.

Yes, so we are geographically inbound with our model and we are engaging in discussions with various entities that have operations and interest in Europe, as well as the U.S. and Asia PAC, and we see great opportunity. In fact from a legislative perspective, when you look at smelting as the incumbent methodology, that has to come to a close in Europe, because certain percentages of metals need to be recovered. Based on the earlier questions that Ben just answered, in terms of the percentage of the minerals that we can recover from the black mass, certainly would meet those legislative needs, smelting will not. As I mentioned earlier in our presentation, there is no lithium recovery with smelting. So today commercial lithium-ion battery recycling produces a grand total of zero lithium recycling, hard to believe. But in Europe that legislation is more advanced than even in U.S., which will probably catch up and Asia Pacific. So we see great opportunity for interest in our technologies for parties that are interested in recycling batteries and building that ecosystem in the European model.

Great! I think I was looking specifically for what was going on in the lead market other than lithium. So I don’t know if there is an update on a potential lead partner within the European market.

Yes, so in terms of the lead side for the European market, we see more activity really in the Asia PAC region and Mexico and South America and I think that's because there's more growth in capacitation of facilities and greenfield builds is where the technologies fits best; it checks all the boxes. And those are the regions that you're seeing those types of projects being planned more than in the U.S., so – and more than in Europe, because those are more mature markets in terms of the lead acid battery industry that don't have as much of a need for the capitalization.

Perfect! Thanks so much guys.

Thanks.

Our next question comes from a line of Amit Dayal with H.C. Wainwright. Please proceed with your question.

Thank you. Good afternoon everyone. In terms of scaling the lithium-ion recycling opportunity, what are the catalysts that you sort of need to now deliver on to from pilots to commercial?

So we are following a technology readiness level system that’s common in the chemical engineering world, that allows us to meet certain metrics, meet certain efficiencies throughputs based on a defined test plan. Once those metrics are met, then it's typically about adding additional operational hours and adding additional capacity to reach those higher scales and that’s where Steve mentioned, Steve and Judd mentioned earlier their ability to scale even this facility that we are at here at the innovation center. Once we meet those metrics that would be the goal to start adding unit operations and adding capacity based on that TRL limit.

And one think I’ll add to that too. I mean is that on the TRL levels as we progress through them and having a facility, we are much better positioned than I think a lot of players in the market that are applying for all these infrastructure opportunities. And so once in a generation opportunity to be able to receive something like a $50 million or $100 million plus grant, and that’s the word grant, non-dilutive, to be able to build and operate a very large facility, and getting through those TRL levels quickly as possible gives us the opportunity to unlock grants like that, which were again from organizational capabilities perspectives actively working on.

So is this like a 12 month timeline or a two, three year timeline?

So, for the technology deployment part of it, I’ll let Ben comment and then I’ll add to that comment on the grant timeline. Ben.

So what we called our prototype here or our pilot, I think Steve referred to it earlier, here at our Innovation Center, we expect this year still to get through the scaling, demonstration and group which would allow us to start scaling well under a 12 month timeline.

And that fits also well within the timeline of these government grants. There is multiple grants that are out there, that are perusable and those do take time, and we are already underway and working on those, and those are typically around a year plus or minus, to get through the entire grant process. So we could be quarters away or a year and a quarter or two away from a very large grant, but possibly sooner, because the U.S. government, this particularly based upon what’s happening in Ukraine is very focused on it. I don't know if anybody else heard it, but driving into the office this morning I heard our president talking about the war in Ukraine and then in the midst of that referenced in the discussion, that that the United States needs to secure lithium and nickel in country and that is something that I think the government is very interested in working with parties that can help perfect that goal. And I showed that graph earlier that showed a grand total of zero mineral production in those areas in North America. And so the U.S. government is nothing more than motivated and interested in finding the right opportunities to make that happen.

And can these two processes, you know one with the government grants and one just with the technology itself, can they run in parallel or does the technology need to be readied first and then you apply for the grants?

The technology needs to get through certain TRL levels in order for the government to choose which entities that get prioritized and backlinks, who it doles out the grants to. So it's not an unlimited supply of grants and so there's going to be a limited number of entities that are applying for those grants and we feel that with our announcements proving that we can extract the critical minerals, that the President himself is referencing in the midst of discussion on the biggest news in 50 years, the war of Ukraine. It gives us an opportunity to win those grains. There is no guarantees for any party applying for those grants, but we feel that we have a great opportunity based upon the progress that we've made.

Understood! And my other question is around just you know you are able to extract sort of other metals from the black mass, like nickel, copper etc. now. How much complexity and cost come into play to do that versus just focusing on the lithium extracting or recycling the lithium.

So Steve mentioned earlier, our target conversion cost being well below $2,200 and each one of those metals has a certain amount of conversion cost with them. But the system works more efficiently as an entire system. So just going after the lithium for example, leaving those other metals, once these are more efficient process, but sure you could save money by not recovering the nickel and cobalt. We just don't think it makes sense to do so.

Okay, understood. And my other questions were already discussed. I'll take my other questions offline. Thank you.

Great! Thanks.

And I’m seeing no further questions over the phone. I would like to turn the call over to Glen Akselrod for web questions.

Alright, thanks Alex. We do have quite a few questions in the queue Steve. So we’ll try to get through them all in the next 15 minutes. First question, let's say you extract nickel from black mass using the AquaRefining process, can the remaining black mass go through the process again to extract the different metal from the same black mass and if not, why?

So, if we were just able to go or if we did actually run the process just to recover nickel, surely you could take the rest of the material and go back after it. But the way our process is designed is to upfront set up to recover all of the metals. So it won't be a problem to come back and get the other latter. It’s just the way the process is designed to run is to following our process flow, individually go after each metal with the initial path.

Okay, I think you may have partially answered this next question, but I'll ask it anyway, maybe you could follow-on. Would getting the four metals out require four separate steps?

So yeah, there's going to be definitely a multi-step process. And for the most part each metal that we’re going after, when you're referring to the 4M, I would imagine you’re talking about the cobalt, nickel, lithium and copper, and those all individual require on their own step and on module. We also recover that manganese is a fifth metal as well.

Okay, thank you. Next question, what is your capability to scale Aqualyzers, speak to the capital inputs impossible normalization of production.

So both, [inaudible] are lead and are lithium program. We design and typically lay out a new installation with a up front and downstream scale a little bit larger than required, which basically allows us to take and add modular metal recovery units in what I call the middle of the process. That’s where the AquaRefinary technology becomes very important. So we look at the facility footprint, we look at the up-front processing, the downstream processing and design it all. So you can efficiently add in additional modules without having too much capital involved. I mean you can do that in a very modular form if you wanted to add on modules in a quarter by quarter basis. That's up and it can be done.

Okay, thank you. New EV and legacy OEM companies are looking into lithium battery Recycling. Is Aqua Metals planning to talk to these guys and see if there are opportunities there?

So we are not only planning to talk to those entities, we are and we have a commercial team that is engaging as quickly as possible with the various entities that are out there. Those are some of the areas that can potentially include opportunities like in the joint venture category, as well as feed stock supply for LiNiCo as one example and tying together partnerships of an eco-network of supplier of lithium-ion batteries, breaking in separation, creation of black mass. LiNiCo will be producing a lot of black mass in the future, and that gives the opportunity for us to process those materials not only within LiNiCo, but it even expands the black mass production as we go forward. So those types of discussions and relationships are of a high priority for the company and the big continuum [ph].

Okay, thank you. Next question, will the operational costs and capital cost of extracting nickel, copper and lithium be the same as for lead?

So no, the operational and capital costs will be significantly different. Steve mentioned the $2,200 per ton that we expect to be below. That’s more than the value of lead historically. So there’s a significant difference in operational costs, but what we're most excited about is the amount of margin that is available through lithium recycling is significantly higher than what we're currently experiencing in the lead industry.

Thank you. The next question, do you anticipate royalty revenue to begin with the start-up of operations in Taiwan?

The answer is, yes. So it will be not a large sum of royalties, but we’ll collect royalties really beginning with the first production of material off of those machines. So we’ll enter into our first royalty collection in the next one to two quarters.

Okay, thank you. Next question, where does the back mass come from? Is LiNiCo providing any black mass?

So, black mass comes from broken up lithium-ion battery. I mean yes, we have received and are working with black mass that LiNiCo is providing as they go through their own scaling operations.

Okay. Thank you. Next question, when do you expect LiNiCo to complete the purchase of the facility?

Yes, so LiNiCo when they did the lease to buy agreement, it has till March of 2023 to make the full payment. They are incentivized to pay that off in October. If they pay in October the purchase price is $1 million less. So its October of this year or March of 2023.

Okay, thank you. And your last question and then I'll turn the call over to you Steve. How do you or how should we view the scale up? Is it similar to the lead path where you went from one small bench scale electrolyzer to single full size unit to multiple full size units?

So, the scale up of the technology for the lithium is going to look different than we did it for the lead. We went from one full sized Aqualyzer to 96 of them and that was a big jump. And we see other players in the industry, in the lithium space trying to make that same big jump and we probably learned a thing or two for making that big jump and what we are doing is more of a methodical approach with pilot, to demonstration plant, to larger demonstration plant, to large deployment of facilities. So it's going to be a step by step process. The fortunate thing about that, with the lithium recycling, is it does generate as we mentioned earlier, potentially significant meaningful amount of revenue that you could even carry at the company. But that allows us to really take each step through that technology risk level reduction as we go through the process. With our really eye on the large facility being paid for sustainably if not all by a government grant, by government that is very interested in entities that can produce these critical minerals right now in the U.S., in a safe environment for its workers.

Perfect! There is no further question in the queue, and I don't see any in the phone. So I'll ask you Steve for some closing remarks and then we’ll end the call.

Well great! Well, thank you everybody for attending today. A lot of new information. If you have any need for follow-up, please feel free to reach out to us through Bristol. We'd be happy to engage and discuss with you. And we’ll continue to keep everyone updated as we move forward and I really appreciate everybody's interest in Aqua Metals. And thank you for attending again. Have a great day!

Thank you ladies and gentlemen. This does conclude today's conference, and you may disconnect your lines at this time. Thank you for your participation and have a wonderful day!