Magnis Energy Technologies (ASX:MNS) enters binding offtake agreement with Tesla

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David Taylor, CEO of Magnis Energy Technologies Limited (ASX:MNS), discusses the company's offtake agreement with Tesla, the timeline for production, funding, and the Nachu graphite project.

Tim McGowen: We're talking today with Magnis Energy Technologies (ASX:MNS). It's got a market cap of around $426m. The company's a vertically integrated lithium-ion battery technology materials company with strategic assets, investments and partnerships in the electrification supply chain. The company's US-based subsidiary, iM3NY, operates a gigawatt-scale lithium-ion battery manufacturing project in Endicott, New York. We have with us David Taylor, who's the company CEO. David, nice to see you in Sydney. Thanks for your time.

David Taylor: Good day, Tim. How are you doing?

Tim McGowen: Now, you've had a significant announcement today in regards to Tesla signing a binding offtake agreement. Of course, without any Tesla announcement, there's no talk of pricing. Is that something that Tesla requires when they sign a binding offtake agreement?

David Taylor: Yeah, they certainly do, and it's not unusual for Tesla to put that condition on suppliers to restrict that information. Plenty of other organisations that have signed agreements with Tesla have had that same requirement, so that's not unusual in this particular market for that pricing to be confidential.

Tim McGowen: Now, we'll look towards the condition precedents of the announcement today. It's a very tight timeline, starting with the location of the commercial plant. That has to be finalised mid year. Can you give us some colour on that?

David Taylor: Yeah, that's right. So, the commercial plant, which is the largest-scale plant to meet the requirements of the binding offtake agreement, needs to be selected by the middle of this year. So, we've actually appointed Jones Lang LaSalle late last year and they've already been working through and come up with a short list of a number of different properties across the US that meet the criteria that we're looking for.

Tim McGowen: Derisking these milestones is one of your objectives. Now, one of the milestones will include a DFS on the anode demo plant. You've already had your graphite qualified by Tesla in the past, and that's something that has to be executed on before that graphite gets re-qualified again. Is that correct?

David Taylor: Yeah, that's right. We have to build a demonstration plant, which is a smaller-scale version of our commercial plant. And once we get that demonstration plant built and we get the whole product qualified on the back of that demonstration plant, that then allows us to move into the production from the commercial-scale facility. So, that does need to be delivered by early next year, so we're in the process now. We've finalised designs. We've placed orders for equipment to actually build that demonstration plant. Once that demonstration plant's built and operational and producing the actual graphite product, that will then go for qualification. And then we're into the commercial production side of things as well.

Tim McGowen: David, of course this all raises questions about funding, and we've discussed this with our analyst. Is one of the potential options for you to do a JV sort of option for this plant, where you can pay a toll fee, I think it's called, to execute on that production?

David Taylor: Yeah, there certainly is. We are looking at all options in terms of delivering the commercial-scale plant, and we are very open to working with partners in relation to that, bringing in some of their expertise and some of their capital to actually assist us in meeting the requirements. So, we're very open to those types of options of working with people, and we're exploring those right now.

Tim McGowen: And that's been an option that's been executed on by other ASX companies in the past.

David Taylor: That's exactly right. So, there's plenty of examples out there of other key players bringing their expertise to the table and their capital and their human resources to really execute in this market. And I think that's one of the key things that this whole market needs is very strong partnerships to meet the energy transition challenge that we're all facing.

Tim McGowen: And, of course, having a binding offtake agreement with Tesla brings with it their credit rating. I think it's a BBB credit rating, which is an S&P investment grade. Now, that helps bankers come to the project, I assume, infrastructure bankers. Is that also part of the funding options?

David Taylor: Yeah, look, we are looking at all funding options in how we actually bring this project to life. That could be banking, so into the debt markets, it could be into the debt capital markets. Lots of different avenues for us to explore. But most importantly, I think, is we'll be working very, very closely with the Department of Energy through the loan program office to actually put in an application for funding to support the development of this project under the critical minerals supply side of things in the US.

Tim McGowen: I was going to ask you about that actually. You might have jumped the gun there. I mean, does that… Have you put that in place now or you were waiting for this agreement before that…

David Taylor: Yeah, really it was dependent on getting this agreement in place. We believe that that provides a much stronger case for us to take to the Department of Energy and the loans program office that we do have this particular offtake in place. And then that will really enable us to accelerate our application through the process.

Tim McGowen: And is a sell down of iM3NY, which is your giga battery factory in New York, is that considered a funding option?

David Taylor: Look, we're exploring all options, but it's not really on the table at the moment. We're still in the capital-raising process to fund the expansion of the iM3NY, but at this point in time, it's not really something that we're looking at in detail, but it certainly is an option for us to consider.

Tim McGowen: And, of course, a discussion about capex on Nachu is obviously one of the funding questions that's of importance. So, how do you fund Nachu to ensure 1 February 2025 production? I think our analysts are looking at the second quarter of 2025. So, how do you meet that timeline?

David Taylor: So, there's a couple of different things we are looking at. So, most people will be aware that graphite from Nachu is actually different flake sizes. A lot of the flake size will actually be allocated to this particular project in the US to produce battery-grade material, but there's a significant portion of other graphite flakes which serves other markets. So, we're still pursuing offtakes for the super jumbo and jumbo flake, which commands a higher price in the market. So, that's part of the strategy to actually secure the funding for Nachu to develop it. In addition to that, we are looking at how do we actually bring on some early production capacity for Nachu and then delaying some of that capacity to later so that we can reduce the capital requirement in the initial term and accelerate the development of the Nachu project.

Tim McGowen: So, a kind of small-scale stage project, is that how you're looking at it?

David Taylor: That's exactly right. And that's the same for the commercial production facility for the anode active materials. We will certainly look at staging that project to continually ramp up over time.

Tim McGowen: And just to further derisk that equation, is there the opportunity to buy graphite externally as part of the Tesla agreement?

David Taylor: Yeah, of course there's definitely opportunity to buy graphite. I think the key really is what level of purity does that graphite come at, because our process has been designed around the purity of the Nachu graphite, and because we don't need the high chemical purification or high thermal purification, it really does need to be a very high purity graphite to work through our process. So, if it doesn't, then it's probably not going to be able to go through our process, but we are certainly happy to explore that for high-quality graphite

Tim McGowen: And, David, of course, there's some enormous challenges here now for Magnis in regards to operations and executing on these milestones. What's the next steps?

David Taylor: So, we've already been engaging and have proposals from global companies who do engineering and delivery of these major projects. So, we're getting ready to actually execute on some of those activities. As I mentioned before, we're already well down the path of selecting a site. One of the things to do with the site selection is that we are looking for a brownfield site as opposed to a greenfield site, and that's really to derisk the project from a permitting perspective. So, our site selection is very much focused on a brownfield site. And then obviously we've got to bring new people into the business as well who have large-scale project experience from a delivery perspective. So, we'll certainly be looking to add to the team in the not-too-distant future.

Tim McGowen: David Taylor, thanks for your time.

David Taylor: Thanks, Tim.

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