PIEDMONT LITHIUM INC. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes included elsewhere in this annual report on Form 10-K. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this annual report on Form 10-K, particularly those in the sections of this annual report on Form 10-K entitled "Risk Factors," "Cautionary Note Regarding Forward-Looking Statements," and "Cautionary Note Regarding Disclosure ofMineral Properties ."
Executive Overview
Piedmont Lithium Inc. is an exploration stage company developing a multi-asset, integrated lithium business contributing to the transition to a net zero carbon world and the creation of a clean energy economy inNorth America . Through this endeavor, we are focused on developing and manufacturing battery quality lithium hydroxide for the fast-growing electric vehicle industry. The centerpiece of our operations, our wholly-ownedCarolina Lithium Project , is located in the renowned Carolina Tin-Spodumene Belt ofNorth Carolina . We are geographically diversified with equity investments in strategic partnerships that own lithium resource assets inCanada andGhana . Collectively, these resource assets and the location of these assets inthe United States ,Canada andGhana , strategically position us to be a large, low-cost, sustainable producer of lithium products, serving the North American and European electric vehicle and battery supply chains. The geology, geography and proximity of our resources, planned production operations and customer base, should allow us to deliver a valuable supply of high-quality, sustainably produced lithium hydroxide from spodumene concentrate, which is preferred by most electric vehicle manufacturers. Our diversified operations should enable us to play a pivotal role in supporting the move toward decarbonization and the electrification of transportation and energy storage. RedomiciliationPiedmont Lithium Inc. acquired all of the issued and outstanding ordinary shares of Piedmont Australia, our Australian predecessor and a wholly-owned subsidiary, pursuant to a Scheme of Arrangement under Australian Law, which was approved by Piedmont Australia's shareholders onFebruary 26, 2021 and theFederal Court of Australia onMay 5, 2021 (collectively referred to as "Redomiciliation"). As part of the Redomiciliation, the Company changed its place of domicile fromAustralia to theState of Delaware inthe United States , effectiveMay 17, 2021 . PiedmontAustralia's ordinary shares were listed on the ASX, and PiedmontAustralia's ADSs, each representing 100 of Piedmont Australia's ordinary shares, were traded on Nasdaq. Following the approval of the Redomiciliation, the Company moved its primary listing from the ASX to Nasdaq and retained an ASX listing via CDIs, each representing 1/100th of a share of common stock ofPiedmont Lithium Inc. 32 -------------------------------------------------------------------------------- Table of Contents Pursuant to the Redomiciliation, holders of Piedmont Australia's ordinary shares received one (1) CDI inPiedmont Lithium Inc. for each ordinary share held in Piedmont Australia on the Redomiciliation record date; and holders of ADSs in Piedmont Australia, each of which represented 100 ordinary shares of PiedmontAustralia , received one (1) share of common stock in the Company ofPiedmont Lithium Inc. for each ADS held in Piedmont Australia on the Redomiciliation record date.
All issued and outstanding shares of the Company's common stock have been
retroactively adjusted in these consolidated financial statements to reflect the
100:1 ratio and share consolidation as if it had occurred on
2021 and 2020 Highlights
• During the second half of 2021, we entered into a strategic partnership with
Sayona for the planned future production of spodumene concentrate in
of approximately 19% in Sayona and an equity interest of 25% in Sayona Quebec.
In
additional investment in Sayona Quebec, which facilitated Sayona Quebec's
acquisition of substantially all of the assets of NAL. NAL's assets include an
existing spodumene mine and spodumene concentrator plant located near
we entered into a long-term supply agreement whereby Sayona Quebec will supply
the greater of 50% or 113,000 metric tons of spodumene concentrate per year
produced from Sayona Quebec's combined operations in NAL and the
Project to Piedmont Lithium .
• In
future production of spodumene concentrate in
subsequent to the year ended
partnership, we (i) acquired an equity interest of approximately 10% in IRR,
(ii) entered into a long-term supply agreement whereby IRR will sell 50% of
spodumene concentrate produced in
the ability to acquire an equity interest of 50% in IRR's lithium-based
portfolio in
million.
• In
lithium hydroxide manufacturing operation to be located in
30,000 metric tons per year of lithium hydroxide, an estimated after-tax net
present value of approximately
internal rate of return. The study featured lithium conversion using Metso
Outotec's alkaline pressure leach technology. We are currently undertaking a
definitive feasibility study of the proposed, fully-integrated Carolina
Lithium Project .
• In
the ASX and making the ASX our secondary listing. As part of the
Redomiciliation, our corporate headquarters is now located in
Carolina.
• In April and
40% and our byproducts mineral resources estimate by 40%, respectively, for
our Carolina Lithium Project .
• During 2021 and subsequent to the year ended
executive and senior management leadership positions including
Executive Vice President and Chief Legal Officer and Secretary; David
Klanecky, Executive Vice President and Chief Operating Officer;
Executive Vice President and Chief Financial Officer;
President of Sales and Marketing;
Resources Officer; and Brian Risinger , Vice President of Corporate
Communications and Investor Relations.
• In
technology, specifically the use of alkaline pressure leaching for the
conversion of spodumene concentrate to lithium hydroxide.
• In
million in gross cash proceeds.
• In
Group. The results of our life cycle analysis demonstrated industry-leading
land and water footprints as well as a highly-competitive carbon footprint
compared to incumbent producers in South America and China .
• In
million in gross cash proceeds.
• In
supply spodumene concentrate from the Carolina Lithium Project .
33-------------------------------------------------------------------------------- Table of Contents COVID-19 Impact COVID-19 was declared a pandemic by theWorld Health Organization onMarch 11, 2020 . In response, we implemented generally accepted protocols to protect the health and safety of our employees, contractors, and communities during this pandemic, including allowing our employees to work remotely. In 2021, our contractors had difficulties in maintaining drilling crews at full capacity and at high utilization rates due to negative impacts from COVID-19; however, we were able to remain on schedule for purposes of our testing and evaluation activities. Our business was not materially impacted by the negative impacts from COVID-19. Outlook The demand for electric vehicles continues to grow as many jurisdictions around the world have legislated to shift new car fleets away from internal combustion engines. These electric vehicles will use batteries, and the expectation is that nearly all of these batteries will be lithium-based batteries. Our strategy is to develop resources and processing capabilities that support the opportunity to meet the demands of our customers across the electric vehicle supply chain. Many of the car manufacturers have committed significant capital to expand their electric vehicle portfolios and have targets to electrify their fleets by as much as 100% by 2035. The outlook for global sales of new electric vehicles (units in millions) and the global penetration rate of new electric vehicles sold compared to total new vehicles sold are presented in the table below: 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Sales of new electric vehicles 4.9 6.4 8.7 11.2 14.6 17.4 20.6 24.3 28.9 34.0 Penetration rate 6% 7% 9% 11% 15% 17% 20% 23% 27% 31%
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Source: Rho Motion Electric Vehicle Battery Outlook as of
Components of our Results of Operations
Exploration and Evaluation Expenses
Exploration and evaluation expenses include drilling and sampling costs, technical and engineering studies, permitting costs and overhead costs associated with the exploration and evaluation of theCarolina Lithium Project , such as maintaining our exploration headquarters and other fees for professional services and legal compliance. Expenditures on exploration and evaluation incurred by us are expensed as incurred up and until the completion of a definitive feasibility study, other than costs directly associated with acquiring the exploration properties, which are capitalized. Costs associated with the acquisition and maintenance of exploration rights are capitalized, rather than expensed.
General and Administrative Expenses
General and administrative expenses include overhead costs, such as employee compensation and benefits for corporate management and office staff including accounting, legal, human resources and other support personnel, professional fees, insurance, and costs associated with maintaining our corporate headquarters.
Other Income (Expense)
Other income (expense) primarily consists of interest expense, interest income, and foreign exchange gains. Interest expense consists of interest incurred in the financing of surface properties purchased for exploration and evaluation as well as interest incurred for lease liabilities. Interest income primarily consists of interest earned on our cash and cash equivalents. Foreign exchange gains consist of gains earned on foreign bank accounts denominated in Australian dollars.
Loss from Equity Investments in Unconsolidated Affiliates
We apply the equity method of accounting for investments when we have
significant influence but not controlling interest in the investee. The
Company's proportionate share of the net loss resulting from these investments
is reported as "Loss from equity investments in unconsolidated affiliates, net
of tax" in our consolidated statements of operations. The Company's equity
investments in unconsolidated affiliates are reported at cost and adjusted each
period, on a one quarter lag, for the Company's share of the investee's loss and
dividends paid, if any.
Results of Operations
We operate as one reportable segment. The following table summarizes our results
of operations:
Consolidated Statements Years Ended June 30,
of Operations
2021 2020 $ %
Exploration and
evaluation expenses $ 10,874,502 $ 3,125,784 7,748,718 247.9 %
General and
administrative expenses 8,861,454 3,440,160 5,421,294 157.6 %
Other income (expense) (193,266 ) 686,793 (880,059 ) (128.6 %)
Loss from equity
investments in
unconsolidated
affiliates, net of tax (64,626 ) - (64,626 ) *
Net loss $ (19,993,848 ) $ (5,879,152 ) (14,114,696 ) (240.1 %)
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* Not meaningful.
34
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Table of Contents
2021 Compared to 2020
Exploration and Evaluation Expenses
Exploration and evaluation expenses increased$7.8 million , or 247.9%, to$10.9 million , in 2021 compared to$3.1 million in 2020. The increase in exploration and evaluation expenses was primarily due to increased drilling, engineering, and metallurgical testing activities associated with theCarolina Lithium Project inNorth Carolina in 2021. Contract labor costs associated with drilling activities was a primary driver of exploration and evaluation expenses.
General and Administrative Expenses
General and administrative expenses increased$5.4 million , or 157.6%, to$8.9 million in 2021 compared to$3.4 million in 2020. The increase in general and administrative expenses was primarily due to increased professional fees as the Company became subject toU.S. public company requirements as part of the Redomiciliation. Included in the increase in professional fees were$1.4 million of costs directly associated with the Redomiciliation. Compensation expenses also contributed to higher general and administrative expenses due to the hiring of key management personnel and support staff at the Company's headquarters inBelmont, North Carolina in 2021.
Other Income (Expense)
Other income (expense) decreased$0.9 million , or 128.6%, to$(0.2) million in 2021 compared to$0.7 million in 2020. The decrease in other income (expense) was due to a gains in foreign exchange totaling$0.6 million as theU.S. dollar outperformed the Australian dollar in 2021 compared to 2020, a decrease in interest income, and an increase in interest expense.
Loss from Equity Investments in Unconsolidated Affiliates
Loss from equity investments in unconsolidated affiliates, net, was$0.1 million in 2021 compared to zero in 2020. The loss was generated from our investment in Sayona. The Company did not have equity investments in unconsolidated affiliates in 2020.
Liquidity and Capital Resources
Sources and Uses of Cash
As ofJune 30, 2021 ,$136.8 million , or 95.9%, of our cash balances were held inthe United States . The remaining$5.9 million , or 4.1%, of our cash balances were held inAustralia . Cash balances inAustralia can be repatriated tothe United States with inconsequential tax consequences. We are an exploration stage company and, since our inception, we have not generated revenues. We incurred losses of$19.9 million and$5.9 million in 2021 and 2020, respectively, and have accumulated losses of$71.3 million and$51.6 million as ofJune 30, 2021 and 2020, respectively. We have relied on equity financing to fund our operating and investing activities and to fund our long-term debt payments. Our predominant source of cash is from financing activities. In 2021 and 2020, we raised cash through issuances of our common stock for the primary purpose of funding working capital associated with exploration and evaluation expenses and general and administrative expenses, purchasing of exploration and evaluation assets, capital expenditures, and investments supporting our strategy of becoming a producer of lithium hydroxide. We had working capital of$137.8 million and$17.0 million as ofJune 30, 2021 and 2020, respectively, resulting in an increase in working capital of$120.9 million mostly attributable to an increase in cash of$123.8 million . In addition to cash purchases of exploration and evaluation assets, specifically surface properties and their associated mineral rights, inNorth Carolina , we entered into noncash seller financed purchases of exploration and evaluation assets inNorth Carolina totaling$0.7 million and$2.7 million in 2021 and 2020, respectively.
In
The following table is a condensed schedule of cash flows provided as part of the discussion of liquidity and capital resources:
Years Ended June 30,
2021 2020
Net cash used in operating activities $ (16,257,254 ) $ (6,332,301 )
Net cash used in investing activities (34,565,793 ) (3,452,254 )
Net cash provided by financing activities 174,617,607 24,718,553
Net increase in cash and cash equivalents $ 123,794,560 $ 14,933,998 Cash Flows from Operating Activities
Operating activities used$16.3 million and$6.3 million in 2021 and 2020, respectively, resulting in an increase in cash used in operating activities of$10.0 million during 2021. The increase in cash used in operating activities was primarily due to an increase in net loss of$14.1 million , adjusted for noncash items, partially offset by an increase from changes in operating assets and liabilities in 2021 compared to 2020. 35 -------------------------------------------------------------------------------- Table of Contents Cash Flows from Investing Activities Investing activities used$34.6 million and$3.5 million in 2021 and 2020, respectively, resulting in an increase in cash used in investing activities of$31.1 million during 2021. The increase in cash used in investing activities was mainly due to our equity investments in Sayona and Sayona Quebec totaling$16.4 million , including transaction costs, and an increase in cash purchases of exploration and evaluation assets for theCarolina Lithium Project of$15.4 million in 2021 compared to 2020.
Cash Flows from Financing Activities
Financing activities provided$174.6 million and$24.7 million in 2021 and 2020, respectively, resulting in an increase in cash provided by financing activities of$149.9 million during 2021. The increase in cash provided by financing activities was mainly due to an increase in net issuances of our common stock of$149.9 million in 2021 compared to 2020. In 2021, we raised$175.0 million in cash through issuances of our common stock, net of issuance costs.
Liquidity Outlook
As ofJune 30, 2021 , we had available cash balances totaling$142.7 million . Currently, we do not maintain a credit facility or have debt from financial institutions. Since inception, we have predominately relied on equity financing to fund our operations, land acquisitions, capital expenditures and equity investments.
Our cash forecast for 2022:
• includes funding of non-discretionary and discretionary expenditures primarily
related to: (i) exploration and evaluation expenses for the Carolina Lithium
Project in
general and administrative expenses including corporate costs, (iii) growth
expenditures, and (iv) acquisition costs for exploration and evaluation assets,
specifically surface properties and the associated mineral rights, in North
Carolina that are under contract as of
As of
purchase of exploration and evaluation assets in
above, totaling
million in the first half of 2022,
closing costs such as attorney's fees, taxes and commissions. For the vast
majority of these contracts, we are able to cancel, at our option, with de
minimis cancellation costs;
• does not include funding of cash expenditures for: (i) additional acquisition
costs of exploration and evaluation assets not already under contract as of
chemical plant on any of our properties, either owned or currently under
seller financed contracts in
ventures or to increase our ownership within our current investments;
• does not include cash from equity and/or debt financings; and
• does not include cash from generating revenues from operations. We do not
expect to begin development or production on any of our properties related to
the
in lithium projects in
We believe our current cash balances are sufficient to fund cash requirements and debt payments for the next 12 months. Additionally, we believe our current cash balances are sufficient to fund our cash forecast for fiscal year 2022, which includes discretionary and non-discretionary expenditures, as discussed above. In the event costs were to exceed our forecast, we will reduce or eliminate current and/or forecasted discretionary spending. If further reductions are required, we will reduce certain non-discretionary expenditures. We will incur significant cash expenditures for the construction of the proposed mine, concentrator plant and chemical plant at our proposedCarolina Lithium Project inNorth Carolina . We currently expect construction of theCarolina Lithium Project to cost approximately$840 million . Additionally, we will incur significant cash expenditures for construction costs associated with our equity investments in lithium projects inCanada andGhana with Sayona and IRR, respectively. We will require equity and/or debt financings in order to fund future planned construction costs for these projects. OnAugust 31, 2021 , we submitted a draft loan application to theLoan Programs Office of the U.S. Department of Energy for potential funding of construction costs for our proposedCarolina Lithium Project's concentrator plant and chemical plant. We cannot be certain that our loan application will be approved or will have terms acceptable to us. Historically, we have been successful in raising cash through equity financing and obtaining land through seller financed debt; however, no assurances can be given that additional financing will be available in amounts sufficient to meet our needs or on terms that are acceptable to us. If we issue additional shares of our common stock, it would result in dilution to our existing shareholders. Stock price volatility, uncertain economic conditions, negative impacts from the COVID-19 pandemic, commodity price volatility for spodumene and lithium hydroxide, and other risks (see Risk Factors in this Form 10-K) could significantly impact our ability to raise funds through equity and debt financings.
Contractual Obligations and Other Commitments
The following table summarizes our contractual obligations as of
Less than
Total 1 year 1-3 years 3-5 years Thereafter
Contractual obligations
Loans and borrowings $ 2,311,546 $ 1,085,142 $ 1,186,469 $ 39,935 $ -
Lease liabilities 140,435 140,435 - - -
$ 2,451,981 $ 1,225,577 $ 1,186,469 $ 39,935 $ -
36-------------------------------------------------------------------------------- Table of Contents Off-Balance Sheet Arrangements We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Critical Accounting Polices and Estimates
Our management's discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles inthe United States ("GAAP"). The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the consolidated financial statements, as well as the reported expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management's judgments and estimates. While our significant accounting policies are described in the notes to our consolidated financial statements included elsewhere in this annual report on Form 10-K, we believe that the following critical accounting policy is the most important to understanding and evaluating our reported financial results.
Stock-based Compensation
Equity-settled, share-based payments are provided to officers, employees, consultants and other advisors. These share-based payments are measured at the fair value of the equity instrument at the grant date. Fair value of share options is determined using the Black-Scholes option pricing model, taking into account the terms and conditions upon which the instruments were granted, and are disclosed in Note 11 to the audited consolidated financial statements appearing elsewhere in this annual report on Form 10-K. We record stock-based compensation expense within both exploration and evaluation expenses and general and administrative expenses in the Statements of Operations. Costs are allocated among those receiving the benefit based upon job function. There are certain employeeswho serve both functions, and therefore, their stock-based compensation expense is split between both financial statement lines in the consolidated statements of operations. Estimating fair value for share-based payment transactions requires determination of the most appropriate valuation model, which depends on the terms and conditions of the grant. This estimate also requires determination of the most appropriate inputs to the valuation model including the expected life of the share option, volatility, dividend yield and risk-free interest rate and making assumptions about them.
Changes to these inputs would impact the consequent valuation for each equity instrument valued in this manner, and consequently, the value of each grant would vary in a different manner depending on the change to the respective inputs.
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Table of Contents The fair value determined at the grant date is expensed on a straight-line basis over the vesting period, based on our estimate of equity instruments that will eventually vest. At each reporting date, we revise our estimate of the number of equity instruments expected to vest. The impact of the revision of the original estimates, if any, is recognized in profit or loss over the remaining vesting period, with a corresponding adjustment to the share-based payments reserve.
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