Earnings Call Transcript - AQMS Q1 2024

Operator, Operator

Greetings and welcome to the Aqua Metals’ First Quarter 2024 Investor Conference call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Bob Myers, with Investor Relations. Thank you. You may begin.

Bob Meyers, Investor Relations

Thank you, operator, and thank you, everybody, for joining. Earlier today, Aqua Metals issued a press release providing an operational update and discussing financial results for the first quarter ended March 31, 2024. This release is available in the Investor Relations section on the company's website at aquametals.com. Hosting the call today are Steve Cotton, President and Chief Executive Officer, and Judd Merrill, Chief Financial Officer. Before we begin, I would like to remind participants that during the call, management will be making forward-looking statements. Please refer to the company's report on Form 10-Q filed today, May 15, for a summary of the forward-looking statements and the risks, uncertainties, and other factors that could cause actual results to differ materially from most 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 the formal remarks, we will be taking questions. Questions will be accepted over the phone from analysts, and all other investors can submit a question using the online webcast portal provided in today's and earlier 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, the call is yours.

Steve Cotton, CEO

Thank you, Bob, and thank you to everyone who joined us today. Though it's only been a short time since we shared our Q4 and the annual update, Aqua Metals has continued to make strides towards our core focus of developing the circular supply chain that we believe will set the standard for low-cost, low-carbon recycling of lithium-ion batteries. We continue to establish and expand key partnerships while simultaneously commissioning and commercializing the Sierra ARC refining campus, in advancing operational capacity with additional funding and financial flexibility. I'll start with some comments on the news of the day. As most of you have already read, we announced a major capitalization milestone for the company today, primarily through an up to $33 million loan term sheet for the completion of Phase 1 of the Sierra ARC. We have executed the term sheet for this loan with one of the world's largest privately held companies that is focusing their investments on decarbonization initiatives at a global scale. This term sheet was executed after months of thorough due diligence on the company, technology, and the Sierra ARC's ability to generate cash. This involved detailed reviews of our announced and unannounced feedstock, processing, and offtake partners, as well as the economics. We will be able to reveal more about our loan partner upon execution of the definitive agreement by the July timeframe. It is also important to note that this term sheet allows the company to finance up to an additional $8 million beyond what had been previously contemplated with a $25 million USDA loan guarantee. The USDA loan guarantee is still in process but now targeted for a future phase of build-out as the decision timeline for phase 1 has simply taken too long. In conjunction with the signing of this up to $33 million loan agreement term sheet, a condition was for the company to apply a boost to our cash position to maintain a healthy balance sheet. We received great support from our key shareholders and partners and successfully raised the amount needed to accomplish this requirement. I will also add that we had unanimous and meaningful participation from our board and named Executive Officers, as well as our VPs and Directors and other Managers in the company. I think that says a lot about our team's confidence and resolve. As we all know, the capital markets are challenging now, which is why we strategically chose to finance the completion of the Sierra ARC primarily through a loan while utilizing our access to the capital markets prudently to maintain a healthy and loan qualifying cash balance. So to conclude on our capital infusion and general comments, we are quite pleased with our loan agreement for Sierra ARC Phase 1 coupled with our qualifying equity support. I would like to thank our to-be-named loan partner, shareholders, partners, and employees for the continued confidence and support. Moving on to additional updates. First, we remain confident that our methodical approach is the best way to pursue the massive and growing opportunity for lithium-ion battery recycling. Unlike others who attempted to leapfrog to industrial scale, we are taking a more staged approach that reduces risk. We are building a circular supply chain of partners and we have secured a durable supply of black mass to process currently at our pilot plant and soon at the Sierra ARC. With our announced and unannounced agreements with off-takers, we also have buyers in place to off-take the recycled materials for the manufacturing of new low-cost recycled batteries. Towards this end, in Q1 we secured a strategic offtake agreement with 6K Energy in a first-of-its-kind collaboration designed to address the escalating demand for recycling lithium-ion batteries to support CAM or cathode-active material manufacturing. This novel agreement will offer battery manufacturers access to low-cost, low-carbon, domestically produced critical battery materials. This off-take agreement with 6K Energy is what both companies believe is the first decarbonized black mass to CAM supply chain, with what we together believe are favorable economics on the global stage. Our partnership with 6K Energy continues to expand and has demonstrated success first with a non-recurring engineering agreement that accomplished key technology objectives next to our strategic supply agreement and important developments looking ahead, including further technology advancements and co-location potential. As we've talked about our competitive advantages, this partnership is a clear indication and important validation of the company's strategy. The combination of the innovative technologies of both Aqua Metals and 6K provides cost and environmental advantages as both processes are electrified and more efficient than traditional processes like pyro and hydro. Even hydro processes that purport to improve environmental outcomes over pyro use massive quantities of one-time use chemicals that are expensive, hazardous to humans, hazardous to the environment, and create a similar volume of waste streams as their input material. As a distinct and unique advantage, our technology regenerates and repeatedly recycles the necessary chemicals for reuse. This is not found with other industry participants. Through patented processes both Aqua Metals and 6K eliminate the production of thousands of tons of waste streams which enable a cleaner, more sustainable solution for closing the loop between recycling and lithium battery manufacturing. Our progress at the Sierra ARC continues. We have completed the vast majority of the building uplift including brand new concrete floors and coatings, steel superstructure and equipment platforms, full laboratory operations already staffed 24 by 5, offices, utility power drop and switchgear, and power distribution. We are shifting our focus now to mechanical electrical plumbing along with receiving and installing and pre-commissioning equipment, and we will be commissioning systems in the coming months leading up to the introduction of the first black mass feedstock later this year. I encourage everyone to see further updates of our progress on our website blog. The entire Aqua Metals team feels immense pride in seeing that facility come to life with progress made every day. Additionally, we have managed our commercial scale expansion plans prudently through our methodical approach, and because of this discipline the project to-date remains on time and under budget. Recently, the company received additional recognition and third-party validation by being named Top Project Winner in the Environment Plus Energy Leader Awards Program for 2024, which highlights the company's significant stride in environmental stewardship and innovative energy solutions. It's a testament to the understanding that responsible, sustainable recycling solutions are critical in the electrification of the transportation sector. We also made a finalist position in the 17th Annual Best Places to Work in Northern Nevada awards. In the first year, we applied and as the only finalist in the lithium sector. We made that accomplishment in our first year of application because of the very positive results of our employee survey and our competitive benefits that allow us to continue to attract and retain our employees and build momentum in our organizational capabilities. The clean energy industry is still growing and maturing. There are over $92 billion of announced investment to-date in North America to stand up 80 plus battery manufacturing and materials facilities with a goal of reaching approximately 200 times the infrastructure by 2030 as there was in 2020. Nearly all of these facilities produce scrap material that needs to be sustainably recycled. We remain quite convinced in our belief that as we enter commercial and sustainable production, we will be a strong partner for these battery, battery materials, and automotive companies to close the battery loop in an economically favorable and decarbonized way. In addition to these exciting developments, Aqua Metals remains committed to achieving key milestones in the coming months and quarters. That includes, but is not limited to, scaling and commissioning of Phase 1 of the Sierra ARC to enable us to provide the first recycled material to 6K Energy and other offtake partners late this year, scaling rapidly into next year, signing a licensing agreement with Yulho Materials, further development of our commercial partnerships, and providing updates on future growth capital including government-backed loans, grants, and project financing. With the support of our investors, partners, and dedicated team, we are well-positioned to accelerate our growth and continue to make meaningful strides in creating a domestic closed-loop supply of critical battery materials. We believe our unique technology, cost advantages, and superior environmental outcomes will disproportionately benefit Aqua Metals in the coming quarters and years ahead. I look forward to sharing further updates with you all soon and I'll turn it over now to our Chief Financial Officer, Judd Merrill, to discuss the financial results for the first quarter.

Judd Merrill, CFO

Thanks, Steve. As we announced this morning and as Steve discussed, on May 13, 2024, we entered into a non-binding term sheet for an up to $33 million loan facility with one of the largest privately held companies in the world that invests in decarbonized initiatives. This is a five-year note at market interest rates and standard covenants. The note will also include a warrant component to ensure alignment with our shareholders. The term sheet contemplates that the parties will close on the loan facility by June 30, 2024, or shortly thereafter, and this is subject to closing conditions. The secured loan facility is to be used for the completion of the Phase 1 development of our 5-acre recycling campus in the Tahoe-Reno Industrial Center. We also announced today an additional equity financing. The purpose of the equity financing is to qualify for the cash balance requirements to be on the balance sheet for the loan with our strategic funding partner. Turning attention now to the balance sheet, as of March 31, 2024, we had total assets of $31.4 million. We ended the quarter with total cash of approximately $8.3 million. During Q1, the balance sheet had both plant and equipment and other assets that increased as we spent $2.7 million on plant and equipment and another $3 million paid on deposits for equipment related to getting the commercial plant built and ready for commissioning and production in the second half of this year. Moving now to the income statement. During the first quarter of 2024, Aqua Metals focused on continued validation of its pilot plant operation. The pilot plant's purpose was to test our process for lithium battery recycling and to provide sample production representative metals produced to multiple announced and unannounced counterparties. The cost related to plant operations were approximately $2.2 million for the quarter. Research and development costs increased approximately 32% compared to the quarter ended March 31, 2023. General and administrative expenses stayed steady for the quarter ended March 31, 2024, compared to the quarter ended March 31, 2023, in line with expectations. In fact, G&A expenses have been about the same each quarter for the last five quarters. For the first quarter of 2024, we had an operating loss of $5.8 million compared to an operating loss of $4.5 million for the same period in 2023. Our net loss for the year was approximately $5.8 million or a negative $0.05 per basic and diluted share compared to a net loss of $4.6 million or a negative $0.06 per basic and diluted share for the same period in 2023. Moving to the cash flow statement, cash used in operating activities for the quarter was $4.3 million. Net cash used in investing activities for the quarter was $5.6 million as we invested in the build-out of the Sierra ARC. Net cash provided by financing activities was $1.6 million for the quarter. We have taken necessary steps to strengthen our balance sheet as we move into commercial operations. Our phased approach is designed to be responsible with our investor funds and to ensure success as we scale. Our current cash balance, including the cash that we expect to bring in from both this equity raise and from our strategic funding partner, will support the commissioning of the Sierra ARC in 2024 and bridge us to full Phase 1 capacity, commercial scale production. It is expected that once we are fully operating in 2025, the company will begin to generate cash at the plant level. That concludes my remarks on the company's financials. I will now turn it back over to the moderator for Q&A.

Operator, Operator

Thank you. At this time, we'll conduct our question-and-answer session. And our first question comes from Michael Legg with the Benchmark Company. Please state your question.

Michael Legg, Analyst

Thanks. Good afternoon. Congratulations on the quarter and the capital raises. Obviously, this puts you in a great position. When you mentioned the market rate on the $33 million, can you give us a little more clarity on what you mean by market rate? Is it debt? Is it normal? Can you just give us a little more clarity there?

Judd Merrill, CFO

Yes. So thanks, Mike, for the question. If you go out and take a look at kind of where the loans are sitting at right now, interest rates have been high. USDA, we said, was going to be in that 9-ish percent rate, and that would have been better than this rate. But the market that we've seen, and we went out and talked to several different lenders, and it all kind of came in. And we'll be able to get more detail once we get the definitive agreement signed. But according to the consultants we used and the people that we reached out to that were kind of in that market rate for where we're at as a company.

Michael Legg, Analyst

Okay, great. And then covenants attached to it, are there any cash restrictions or any issues with the covenants that may tie up some cash?

Steve Cotton, CEO

The very standard covenants across the board are some financial ratio covenants that you always see in these types of things would be modeled out and are fine with. And, you know, there's minimum, very doable minimum cash requirements by the entity.

Michael Legg, Analyst

Okay, great. This is expected to close at the end of June or early July. What does this mean for the commissioning of the plant? You have the $7 million you raised today. Do you need to wait for any of this cash to continue the build-out, or is everything going smoothly right now?

Steve Cotton, CEO

Yes, everything is moving along as planned. We had cranes show up a couple of weeks ago, some tanks, some chillers, and things like that. So all that equipment is being installed. We've got things that we've ordered that are coming. So the next phase, and it's kind of timely, the next phase is a lot of the installation and some of the construction like electrical and those types of things and setting things in place. And so that, is scheduled to happen here shortly. So the timing of that funding works out really well.

Michael Legg, Analyst

Great. And just one last question, I'll get back. The 6K offtake, I believe the Jackson, Tennessee facility is not supposed to open until 2025. Can you talk about when they're going to start accepting the plant to be up and running?

Steve Cotton, CEO

So we're already sending samples to 6K from the pilot facility because they have a UniMelt process capability, kind of in a pilot environment, just like we do currently. So when we get to the Sierra ARC up and running and producing, we've got offtake contracts already lined up and validated by our debt partner with the economics and all those things. As 6K begins to come online with their Jackson, Tennessee PlusCAM 1 facility, then the volume will start heading towards them as well for offtake as they need. We're already giving them materials now that have been put in the hands of various battery manufacturers and auto manufacturers that are verticalizing, et cetera. But the PlusCAM facility will come online after our Sierra ARC, and we're set up for success.

Michael Legg, Analyst

What percentage of the offtake would you expect them to take?

Steve Cotton, CEO

So as time progresses, they can take a significant amount of offtake. We don't disclose the percentages of offtake from various offtakers. But it will be a very significant percent, what our agreement with them that we publicly disclosed is that we would target together providing them 30% of their input feedstock. So you can kind of map out what that might look like from that. So they'll have a 30% recycled content. And a reminder that the NRE, the non-recurring engineering project that we've done for them allows them to also very economically and environmentally favorably process even mined material through the UniMelt process as well.

Michael Legg, Analyst

Great. Congrats on the progress. Nice to see things moving along. I look forward to the rest of the year.

Steve Cotton, CEO

Thanks so much.

Operator, Operator

Thank you. And our next question comes from Sameer Joshi with H.C. Wainwright. Please state your question.

Sameer Joshi, Analyst

Yeah. Good afternoon everyone. Thanks for taking my questions. Congrats, Steve and Judd on the financing and all the progress. Just on the same Phase 1, 3,000 tonnes per year plan. Is the CapEx expectation still in that $18 million to $20 million range, and if so is there a reason why the financing facility is for $33 million?

Judd Merrill, CFO

Yes, the total capital expenditure for this project is approximately $30 million. We have utilized some of our working capital, which we had allocated for general and administrative expenses, for the capital expenditures, and we have already begun construction. We will be able to offset some of these costs with this loan. Essentially, the loan is intended to cover the complete capital expenditure requirement for this project. While we have already spent some funds, there is still a significant amount remaining to be spent, which is the purpose of this loan.

Sameer Joshi, Analyst

Understood. Steve's comments indicated that there was an $8 million cash balance requirement, and Judd mentioned that the $7 million raise was intended to address that. Is there any additional equity capital raise planned for this, or does the cash on hand along with this deal meet that requirement?

Judd Merrill, CFO

We designed it to minimize equity dilution while raising just the right amount of funds to meet the loan requirements. The amount we secured was sufficient, and there is no need for an additional equity component.

Sameer Joshi, Analyst

Understood, once again thanks for taking my questions and congrats.

Judd Merrill, CFO

Thank you.

Operator, Operator

Thank you. I'll now hand the floor to Bob Meyers to go through the webcast questions.

Bob Meyers, Investor Relations

Thank you. First question, can you talk a bit more about PADNOS in their relationship with Aqua Metals as the firm has participated in the transactions?

Steve Cotton, CEO

Sure, happy to. So PADNOS is a big company based in Michigan, and they're one of the largest recyclers in the US. They've got over 100 years of history in the industry. They recycle metals, plastics, paper, electronics, and automobiles, which primarily these days consist of internal combustion engines, but of course now EV. Therefore, things like lithium battery access. We've known to work with PADNOS even pre-IPO and they were a major participant in this recent equity transaction. We've collaborated also with PADNOS on a very large DOE MESC grant application that closes the domestic battery supply chain. PADNOS is our partner in this grant application for critical feedstock collections and pretreatment and processing. If you think of the collections in the Black Mass production, this grant is a $200 million-plus grant that we applied for together and with some other partners in March after receiving a letter of encouragement from the DOE for that package that we submitted in March, and we do expect to hear back this summer. So we and PADNOS are both aligned and very excited about the opportunity to win that grant together.

Bob Meyers, Investor Relations

Great. Thank you. The next question goes back to 6K, asking you to help distinguish the partnership between 6K and Aqua Metals and how it is unique within the industry?

Steve Cotton, CEO

Yes. With our Partner 6K, we really do think it's unique in the industry for sure. So that is a great leading question there, whoever asked it. As we mentioned in our opening remarks, it is important for us to continually point out the competitive advantages that we have and why the strategic partnerships really represent a major inflection point in the battery recycling industry. Together, we believe that we are establishing the first truly sustainable circular supply for critical battery metals right here in the US. Both companies have notably electrified processes and a clear path to net zero, and we are already using renewable energy sources where others really have significant CO2 emissions, in some cases nearly as much volume or more volume in waste materials that go into the air in the form of CO2 or to the land in the form of sodium sulfate compared to what's being processed to begin with where we together don't have those issues. We believe this gives us a lot of cost advantages as well to scale together in a phased approach and really the NRE, the non-recurring engineering that I was talking about earlier and initial offtake contracts that we announced is the foundation for additional agreements that we anticipate working out with 6K Energy. That includes things like co-locating arcs with their PlusCAM facilities, starting with our Jackson Tennessee facility. We are really excited about that ongoing and growing relationship that we have with 6K Energy and the differentiators compared to any other competitor in the marketplace, both environmentally and importantly economically.

Bob Meyers, Investor Relations

Thank you. Just a couple of questions here, maybe for Judd. And they started being discussed with the analysts, but you'll go through it potentially again. Are you able to outline the revenue and margin profile of Phase 1 of the Sierra ARC based on today's metals prices?

Judd Merrill, CFO

Yes. So we haven't talked publicly about specific margin profile. But we have said that Phase 1 is the first 3,000-ton plant and will be positive cash flow at the plant level. Just as an aside, it meets the covenants for the new debt that we're doing and be able to pay back and service the debt on that loan. If you think about the 3,000-ton processing capacity, and if we think about what today's metals prices are and they're kind of low, we are able to generate about $34 million of revenue. And so that's at today's metal prices, and we expect that to uptick as we get the plant turned on later this year and start generating more meaningful revenues in 2025.

Bob Meyers, Investor Relations

Great. Thank you. This should also probably be for you. We've gotten a few questions regarding NASDAQ and the relationship that Aqua Metals has on the listing requirements.

Judd Merrill, CFO

Yes. So as we know we have been below $1, but we talked to NASDAQ and they do offer a 6-month extension. We're coming up on that first six months at the end of May, so in a couple of weeks, but we've already reached out to NASDAQ, and we qualify for a kind of six-month extension. So we have that opportunity to get back above $1 and meet that requirement. If not, we'd have to look at alternatives such as we hate to say it, but a reverse stock split. I hope you won't have to get there, but we have six months to work on that. But in no case, are we going to choose de-listing.

Bob Meyers, Investor Relations

Great. Thank you. Pivoting back to the partnership, can you provide a quick update on Yulho Materials and where the discussions on that licensing agreement stand?

Steve Cotton, CEO

Yes. I think I said before that we had visited Yulho late last year, and their Black Mass 8,000-ton nameplate black mass production facility was just about complete. And now it's materially complete and ready to operate, likely by the summer, just pending some final permitting requirements that they have in Korea to get that facility ramping up. As that facility ramps up, we will be out there visiting and doing our due diligence on their facility and to share with them the updates on the Sierra ARC developments and discuss the definitive licensing agreement. We expect that we'll have more to report pretty soon on that front. We are very excited about our continued partnership with Yulho.

Bob Meyers, Investor Relations

Great. Thank you. In the press release, you indicated another DOE funded project with Penn State. Are you able to share a little bit more information about that?

Steve Cotton, CEO

Sure, happy to. This is a really exciting program, and Aqua Metals is a sub-recipient to Penn State that was the lead applicant for that grant. Unlike the grant that we're applying for where Aqua Metals is the lead, we're a sub in this case. Aqua Metals from this grant will be funded to work on extending AquaRefining technologies to process environmental waste in addition to black mass feedstock. If you look at the title of the grant, it says acidic water pollution cleanup and community economic development. The objective of it is to extract and recover rare earth elements and other critical materials from coal and coal waste and coal by-products. It will demonstrate a 100% domestic supply chain producing these finished products for high tech and defense applications. The grant amount in total was $4.99 million and AQMS portion of that is $373,994 to be exact. We'll have a cost share of $74,035. The timeline is not immediate for us, but the overall timeline is July. The negotiations are expected to begin, and that's how it works with the DOE when a grant happens. The initial work will begin in October of this year, but Aqua Metals portion doesn't begin to really effectively until October of 2025. It is not an immediate opportunity. This is probably okay for us because we're really focused on getting the ARC up and running, but we're really excited about being a part of this grant and being able to take our AquaRefining technologies to apply them to such critical applications, taking waste materials out of the environment and then making critical battery minerals right here in the US. The desired outcome of that grant is to establish a domestic supply chain circularity and have advanced separation technologies for extraction and recovery of rare earth elements and other critical materials from those coal and coal waste, coal by-products. This will include the creation of permanent magnets and alloys for high tech and defense applications and ultimately reduce the US reliance on foreign suppliers for critical minerals and rare earth materials. We've also got other subs that we're partnering with inclusive of the University of Virginia, a company called Rare Earth Salts, and GE Aerospace. So a really great collaboration, and we are really excited about that opportunity. It’s on the map of DOE, obviously as they consider us for our grant.

Bob Meyers, Investor Relations

Perfect. Thank you. The next question. Are there any other lithium-ion battery recyclers that can deliver lithium hydroxide other than Aqua Metals?

Steve Cotton, CEO

We believe that we'll be producing a lot of lithium hydroxide, obviously from our process natively, and that's unique to Aqua Metals. What we'll be doing with the Sierra ARC is producing lithium carbonate. We've chosen to go that path because the capital cost for crystallizers is tens of millions of dollars, and that would be more appropriate to go to lithium hydroxide in a crystallized form at scale when we get to the Phase II 10,000 ton and beyond. Aqua Metals is going to be producing lithium carbonate. The cost of lithium carbonate versus lithium hydroxide is pretty comparable and translatable. We are finding that more and more battery manufacturers that are making next-generation batteries are requesting lithium carbonate instead of lithium hydroxide. Lithium carbonate, you don't crystallize, it's like more of a powdery form. Although there will be other lithium recyclers, we hope that they succeed because if you look at the presentation on our slide deck that we have on the Investors website, you will see that there is much less stated recycling capacity between Aqua Metals, Redwood Materials, and a couple of other players as compared to the black mass that’s going to be available for recycling already beginning in 2025. So everyone who succeeds will win.

Bob Meyers, Investor Relations

Perfect. Thank you. Next question. Aside from the materials that we've already announced that we've extracted, are there any other recoverable elements being investigated from the Black Mass?

Steve Cotton, CEO

I would say the biggest economic opportunity for Aqua Metals on that front is the carbon that we collect that does not turn into CO2 greenhouse gases, either through smelting through the pyro metallurgical process by literally burning things or through the hydro processes that create a lot of CO2 by moving the atoms around in the molecules and they escape through the stack is light gas, you can't filter it out. The carbon we get is literally about 30% of the weight of that Black Mass that again does not go into the air, and makes our process very sustainable comparatively to really any other processes. That carbon can be upcycled after initially reused with things like cement, believe it or not pencil manufacturers that are looking for carbon graphite, etc. That doesn't have to be the high technical grade. Carbon can be upcycled to graphite and then ultimately to graphene. We believe we will go from a pathway from a reuse state, which doesn’t have economics that are very favorable, but with no negative economics. We also pay to dispose of it and get to reuse the carbon in certain applications and then migrate that to a modest amount of revenue that we get from the graphite. If we can get to graphene, that would be a very highly valuable material that we can upcycle from our carbon that we start with.

Bob Meyers, Investor Relations

Okay. Thank you. Next question is something we may have covered a little bit, but this person may have missed it. When will Phase 1 begin producing finished product even if not at full capacity?

Steve Cotton, CEO

Yes, we are definitely ramping up to Phase 1. As we mentioned earlier, we are fitting the existing facility with the necessary equipment, and we still anticipate introducing the first black mass at the Sierra ARC later this year. Our objective is to produce the initial truckloads of material, with a truckload weighing approximately 20 tons. There is significantly more nickel than cobalt in batteries; for example, one common battery composition consists of eight parts nickel to one part cobalt. We will prioritize the production of nickel and lithium, and we believe we can achieve our first truckload of lithium and nickel by the end of the year. Whether we can recognize that as revenue will depend on GAAP accounting rules, since this will be a pioneering plant producing unique materials for our initial customers. However, because these are commodities listed on the London Metals Exchange, particularly nickel, we may reach revenue, but this could shift to the first quarter of next year as we finalize our plans.

Bob Meyers, Investor Relations

Thank you. Regarding the Black Mass, as you're processing it, can you talk a little bit about what waste is left over? And what happens with that waste?

Steve Cotton, CEO

In our process, very, very little waste; the nickel and the lithium and the cobalt go out, obviously, through our economic gain by selling those finished products. The carbon I was talking about is about 30% of the weight of the black mass that will get into a reuse scenario. That's not waste; that's just reused. We do get a little bit of iron and aluminum and other contaminant elements that don't help to meet battery spec. Those amounts are very de-minimis. Unlike any of the other recyclers, we don't produce sodium sulfate physical waste streams. So again, we don't have to spend tens of millions of dollars on crystallizers to dry our crash and send it out as crystallized sodium sulfate to the landfill. A very minimal amount of waste stream comes from our process because it's regenerative and it's a closed recycling loop within itself. That's truly one of the great unique environmental and economic benefits of AquaRefining.

Bob Meyers, Investor Relations

Thank you. And that's all the questions we have for today. I'll hand the floor back over to Steve Cotton for closing comments.

Steve Cotton, CEO

Well, great. Thanks everybody for attending. Great questions, and feel free to reach out to FNK IR. If you felt like you didn't get your question answered, we want to be here for you. We look forward to continued updates, and it's going to be an exciting rest of the year. I can assure you.

Operator, Operator

Thank you. This concludes today's conference. All parties may disconnect. Have a good day.