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Aqua Metals' (AQMS) CEO Stephen Clarke on Q2 2016 Results - Earnings Call Transcript

Aqua Metals (NASDAQ:AQMS)

Q2 2016 Earnings Conference Call

August 10, 2016, 11:30 ET

Executives

Greg Falesnik - IR, MZ North America

Stephen Clarke - Chairman and Chief Executive Officer

Tom Murphy - Chief Financial Officer

Analysts

Collin Rusch - Oppenheimer

Jeff Grampp - Northland Capital Markets

Bhakti Pavani - Euro Pacific Capital

Operator

Good morning ladies and gentlemen and thank you for standing by. Welcome to the Aqua Metals’ Second Quarter 2016 Corporate Update Conference Call. During today’s presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. [Operator Instructions]. This conference is being recorded today August 10, 2016. Before we get started, I’d like to turn the call over to Greg Falesnik from MZ North America, the Company's Investor Relations firm who will read a disclaimer about forward-looking statements. Please go ahead.

Greg Falesnik

Thank you, Operator. This conference call may contain, in addition to historical information, forward-looking statements within the meaning of the Federal Securities Laws regarding Aqua Metals. Forward-looking statements include statements about plans, objectives, goals, strategies, future events and performance and underlying assumptions and other statements that are different than historical fact. In the forward-looking statements during this conference call include statements concerning our intentions, expectations and believes regarding anticipated growth; market penetration and trends in our business; the timing and success of our plan of commercialization; our ability to operate our AquaRefining process on a commercial scale; our ability to maintain our competitive technological advantages against competitors in our industry; our ability to have our technology solutions gain market acceptance; our ability to maintain, protect and enhance our intellectual property and our expectations concerning our relationships with suppliers, partners and other third parties.

These forward-looking statements are based on current management expectations and are subject to risks and uncertainties that and may result in expectation not being realized, and may cause actual outcomes to differ materially from expectations reflected in these forward-looking statements. Potential risks and uncertainties include the fact that the company has not yet commenced revenue producing operations or developed its initial commercial recycling facility, thus subjecting the company to all of the risks inherent in a pre-revenue start-up; risk related to Aqua Metals’ ability to raise sufficient capital as when needed; to develop and operate 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 know-how and other risks disclosed in the risk factors included in the Annual Report on Form 10-K filed with the SEC on March 28, 2016.

All such forward-looking statements whether written or oral made on behalf of the company are expressly qualified by the cautionary statements and such forward-looking statements are subject to risks and uncertainties, and we caution you not to place undue reliance on these.

At this time, I’d like to turn the call over to Dr. Stephen Clarke, the Company’s Chairman and CEO. Steve, the floor is yours.

Stephen Clarke

Thank you, Greg and welcome everybody to the Q2 earnings call for Aqua Metals. The thing I wanted to talk about today is what we have done and what we’re going to do and it's very incredible to realize it just precisely, a year and 12 days we completed our IPO and raised the funds to build the world's AquaRefinery and that’s what I'm going to talk about today.

So really of the point, the earnings call that we have done so far have been about our plans and what are we going to do and starting with this one, this earnings call, the thing really is what have we done and how do we expand from there. So that’s basically the two things that we’re going to be talking about today. What have we achieved and how do we go to business beyond this. So with that said I will just move ahead to the Safe Harbor statement and just wait a couple of seconds to just make sure you’re all aware and that you heard Greg read to you most of it.

So moving on, as I said earlier it's almost exactly 12 months ago we had just completed our IPO and Tom [indiscernible] Steve and I and about 50 other people standing on a 12 acre patch of dirt in the desert and that photograph is taken exactly the same spot. I think [indiscernible] summed it up when he gave a look at [Technical Difficulty] the other said, wow, just wow look at what fileld. I think it's pretty incredible. It's hard to imagine the speed of development that we have achieved anywhere even in China and I think it's a testament of the hard work of everybody involved not only in the Aqua Metals but the contractors that we have worked with and certainly the State of Nevada and State County of regulators that we have worked with, it's just being an incredible journey. So basically the world's first AquaRefinery is now opening for business.

As we have said it's planned to be a 160 tons of lead produce per day, it's going to start with 80 tons of lead output by Q4, 2016 and then have a 160 tons of lead output by 2018. The lead that we produce 50% of that will be refined alloys for specific applications within lead acid batteries, 50% of it will be pure and ultra-pure led also primarily uses the active material in lead acid batteries. The key point that only is it building build but I will show you in a few slides that all of the key equipment is installed and were installed largely on schedule and we have also recruited a very experienced and capable operations team and they are onsite and they are leading the commissioning activities and I will expand on both the key members of the team and the commissioning as we move on.

So I'm trying to summarize here just a couple of key points, really the key point is that we have done the heavy lifting and we now have all the permits that are in-place that we require to operate and that was no easy task. It's county state federal regulators to secure permits appropriate to [indiscernible] and we’re going to take a couple of slides just to go through one of the key points in there and correct some misunderstanding and misinformation that’s out there regarding AquaRefinery versus smelting, but the bottom line is we have a Class 2 air permit [ph] and we’re not subjecting niche up [ph].

For those of you not in the environmental world, having niche up permitted facilities along an arduous process that makes an environmental standard, it's entirely appropriate for a smelter and entirely inappropriate for electrochemical based refining process and achieving that agreement with the regulators and have a Class 2 air permit in place is a massive benefit towards demonstrate a massive of our technology over smelting.

The other point is that we also did not and do not require a requite permit [ph] to operate on our Nevada facility. Not necessarily the case for every state, requite permit is not particularly difficult but they are time consuming and if we’re have been required to requite permit which we didn’t we did and neither did the county state or the regulators would have delayed our opening. So we have the permits that were required to operate in hand. And what came out of that is some fairly significant ongoing regulatory outreach. We started to get the word out lead is a cost effective alternative to smelting and what we’re finding is that it's been incredibly well-received by state and federal and also regulators and the way this is kind of [Technical Difficulty] what we’re learning is that enforcement actions against conventional smelters are paid to the increasing and just two weeks ago, I think it's two weeks ago there is new reaction on the last remaining smelter on the West Coast, so there is a real need for an alternative to smelting.

What we now understand is that our permitting advantages are actually part of our core IP and in a simple sense obtaining all the required permits in a short time scale validated everything that we believed and explained about the benefits or permitting side of our technology and along the way we established some really I'm precedence that should help us accelerate the roll out on expansion of the business.

So the next two slides I'm just going to talk about something that keeps cropping up. We have heard a number of times that maybe AquaRefinery should be subject to niche up and we have also heard that our (inaudible) metal or that’s the same as melting so why aren't you? That’s going to terrified you all with a couple of flow diagrams that explain in simple terms smelting and AquaRefinery.

So, the slide that I'm showing now is a simplified diagram of actually the best in class smelter based battery recycling and there is a picture that I want to point here. The first one is you can see two horizontal streams of actions, usually I see batteries come in they get broken, sorted and into plastic and sulphuric acid, that generates two off-streams lead paste and metallic lead. Lead paste then desulphurized and then the desulphurized paste is dried and then it goes into charge preparation which is the handling of dry lead dusty powders, then it's turned into a feedstock which is also a dry dusty powder and it finally goes into smelting and out of that comes led which is sent to ingoting and sold the secondary lead.

There is a bottom stream on there that show metallic lead coming out of the breaker and going directly to ingoting. As I said earlier this is somewhat idolized version of the best in class [Technical Difficulty]. The vast majority of smelters in the world are particularly those outside of the U.S., don’t include all of those features and some of the missing features desulphurization in which sulphur come out of the charge before smelting. If you don’t take the sulphur out what you get out of your smelting operation is a large amount of SO2 and other acid rain gases.

Outside of the U.S. the gap is still there, at the end the often in [indiscernible] as well and that’s capson [ph] as well and that’s where you get lead dosed, greenhouse gases and also the SO2 and the other gases and then another point that is almost universally missing is the stream of metallic lead that by passes the smelting. In fact the vast majority of smelters all of the lead whether it's lead paste that needs to be turned back to lead actually the metallic lead itself goes through the top processors and enters the smelter. And last but not least, I want to point out that smelting occurs at $1400 centigrade, so in simple terms it's a difference between smelting is about a 1000 degree centigrade.

Lead melts at 450c, it smelts at 1400c, lead boils at 1700c and that’s important because at 1400 centigrade starting to volatize in layman's terms evaporate the lead which means the -- it forms a lead dust which will we measure [ph] in diameter and extremely difficult to filter. So most of the environmental changes associated with smelter derive from the fact that the lead dried and all the work leading into the actual smelting operation itself involves handling dry lead containing dusts and the operations downstream of the smelter involve handling gas at 1400c that contain lead dust and other toxic materials that we do our best to filter in the west than often in other countries there is no attempt to do anything with it. So that is smelting and in the U.S. there is an environmental standard that is referred niche up that was developed to help manage all of the [Technical Difficulty] associated with dealing with dry, dusty lead powders and the off-gases that come from a smelter. So that’s smelting.

Remember what now to AquaRefinery and it's really idealized flow chart, this is exactly what we have built. So similarly the front-end used lead acid batteries coming to breaking sorting and that gives us plastic sulphuric acid and then we do separate the lead paste which is the lead oxides and lead sulphates from the metallic lead and we only process the lead paste through the AquaRefinery process. So we don’t waste any energy taking perfectly good metallic lead and smelting it or processing in any other we turn, the metallic lead into ingots, boiling ingots in process and then if we look at the AquaRefinery part, where we’re fundamentally different is that the breaking, the lead paste, the desulphurization and the AquaRefinery is all done as a lead process which has no ability to generate dust and then the AquaRefinery lead goes into ingoting that produces either primary lead or high value lead products that we’re looking at downstream and the metallic lead which comes from lead grid and top lead is separately -- turned into secondary lead.

So we have two outputs, primary lead, what we’re calling secondary lead. From a pricing standpoint primary lead typically attracts a significant premium of LME spot prices and what we have identified here is secondary lead is actually lead alloys produced for specific applications in lead acid battery and also attract something of premium of spot light prices. So what I'm trying to do here is really bring out the difference between smelting and AquaRefinery and this is the basis of why the decision was made that we’re not regulated on the niche out that we’re completely different process, that’s really important.

The fact that we achieved our permits as quickly as we did has set a huge precedent for how we roll-out our business I think on all of the parts of the U.S. and indeed all the parts of the world. So moving on, the other thing -- one of several milestones is we actually built and shipped first hacker refining module in June which pretty much when we said we would do. The photograph on the left is the two banks and three electrolyzer, the electrolyzer are the white boxes -- two of those make six electrolyzer on two skid which is one module. That was delivered to the [indiscernible] complex later that day, my photograph on the left, I jumped in my car and beat the truck to trick to take a photograph of it, arising and being installed in the AquaRefinery. So things are really starting together now. We have now got four modules on site and an additional 12 modules at various stages of assembly here in our facility.

So we held an open day on July 28th and we choose to do this because this is the latest week we’re doing -- before we start commissioning and when you’re commissioning a large chemical facility which essentially what an AquaRefinery facility is there are all kinds of operations going on that you don’t really want to have people wandering around, you’re building and testing processes in a very nature testing of processes, they don’t always work, we’re not expecting to always work, right. So we choose to have our open day on July 28. As I mentioned we had all of the key...


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