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 of
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 in North 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-owned Carolina Lithium Project, is located in the renowned Carolina Tin-Spodumene Belt of North Carolina. We are geographically diversified with equity investments in strategic partnerships that own lithium resource assets in Canadaand Ghana. Collectively, these resource assets and the location of these assets in the United States, Canadaand Ghana, 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. Redomiciliation Piedmont 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 on February 26, 2021and the Federal Court of Australiaon May 5, 2021(collectively referred to as "Redomiciliation"). As part of the Redomiciliation, the Company changed its place of domicile from Australiato the State of Delawarein the United States, effective May 17, 2021. Piedmont Australia'sordinary shares were listed on the ASX, and Piedmont Australia'sADSs, 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 of Piedmont Lithium Inc.32 -------------------------------------------------------------------------------- Table of Contents Pursuant to the Redomiciliation, holders of Piedmont Australia's ordinary shares received one (1) CDI in Piedmont 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 Piedmont Australia, received one (1) share of common stock in the Company of Piedmont Lithium Inc.for each ADS held in Piedmont Australia on the Redomiciliation record date.
All of the issued and outstanding common shares of the Company have been retroactively adjusted in these consolidated financial statements to reflect the ratio of 100: 1 and the consolidation of the shares as if it had occurred on
Highlights 2021 and 2020
â¢ 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 a 25% interest in Sayona Quebec.
additional investment in Sayona Quebec, which facilitated the
the acquisition of substantially all of the assets of NAL. NAL’s assets include a
existing spodumene mine and spodumene mill located near
we have entered into a long-term supply agreement under which Sayona Quebec will supply
the greater of 50% or 113,000 metric tonnes of spodumene concentrate per year
produced from the combined operations of Sayona Quebec to NAL and
future production of spodumene concentrate in
after the closed financial year
partnership, we (i) acquired a stake of around 10% in IRR,
(ii) has entered into a long-term supply agreement under which IRR will sell 50% of
spodumene concentrate produced in
the ability to acquire a 50% stake in IRR’s lithium-based company
the lithium hydroxide manufacturing plant will be located in
30,000 metric tonnes per year of lithium hydroxide, an estimated net after-tax
present value of about
internal rate of return. The study looked at the conversion of lithium using Metso
Outotec’s alkaline pressure leach technology. We are currently undertaking a
definitive feasibility study of the proposed, fully-integrated
Carolina Lithium Project.
ASX and make ASX our secondary list. As a member of
Redomiciliation, our head office is now located at
â¢ In April and
40% and our by-product mineral resources estimated at 40%, respectively, for
Carolina Lithium Project.
â¢ During 2021 and after the closed financial year
managerial and managerial 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.
technology, specifically the use of alkaline pressure leaching for the conversion of spodumene concentrate to lithium hydroxide.
million in gross cash proceeds.
Group. The results of our life cycle analysis showed that the
land and water footprints as well as a very competitive carbon footprint
compared to incumbent producers in
South Americaand China.
million in gross cash proceeds.
supply spodumene concentrate from the
Carolina Lithium Project. 33
-------------------------------------------------------------------------------- Table of Contents COVID-19 Impact COVID-19 was declared a pandemic by the
World Health Organizationon March 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%
Source: Rho Motion EV Battery Outlook as of
Components of our operating results
Exploration and evaluation costs
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 the
Carolina 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 (expenses)
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 on investments in non-consolidated 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 $ 3,125,7847,748,718 247.9 % 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 %)
* Not significant.
34 -------------------------------------------------------------------------------- Table of Contents 2021 Compared to 2020
Exploration and evaluation costs
Exploration and evaluation expenses increased
$7.8 million, or 247.9%, to $10.9 million, in 2021 compared to $3.1 millionin 2020. The increase in exploration and evaluation expenses was primarily due to increased drilling, engineering, and metallurgical testing activities associated with the Carolina Lithium Projectin North Carolinain 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 millionin 2021 compared to $3.4 millionin 2020. The increase in general and administrative expenses was primarily due to increased professional fees as the Company became subject to U.S.public company requirements as part of the Redomiciliation. Included in the increase in professional fees were $1.4 millionof 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 in Belmont, North Carolinain 2021.
Other income (expenses)
Other income (expense) decreased
$0.9 million, or 128.6%, to $(0.2) millionin 2021 compared to $0.7 millionin 2020. The decrease in other income (expense) was due to a gains in foreign exchange totaling $0.6 millionas the U.S.dollar outperformed the Australian dollar in 2021 compared to 2020, a decrease in interest income, and an increase in interest expense.
Loss on investments in non-consolidated affiliates
Loss from equity investments in unconsolidated affiliates, net, was
$0.1 millionin 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 species
June 30, 2021, $136.8 million, or 95.9%, of our cash balances were held in the United States. The remaining $5.9 million, or 4.1%, of our cash balances were held in Australia. Cash balances in Australiacan be repatriated to the United Stateswith inconsequential tax consequences. We are an exploration stage company and, since our inception, we have not generated revenues. We incurred losses of $19.9 millionand $5.9 millionin 2021 and 2020, respectively, and have accumulated losses of $71.3 millionand $51.6 millionas of June 30, 2021and 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 millionand $17.0 millionas of June 30, 2021and 2020, respectively, resulting in an increase in working capital of $120.9 millionmostly 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, in North Carolina, we entered into noncash seller financed purchases of exploration and evaluation assets in North Carolinatotaling $0.7 millionand $2.7 millionin 2021 and 2020, respectively.
The following table is a condensed cash flow table provided in connection with 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 flow from operating activities
Operating activities used
$16.3 millionand $6.3 millionin 2021 and 2020, respectively, resulting in an increase in cash used in operating activities of $10.0 millionduring 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 millionand $3.5 millionin 2021 and 2020, respectively, resulting in an increase in cash used in investing activities of $31.1 millionduring 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 the Carolina Lithium Projectof $15.4 millionin 2021 compared to 2020.
Cash flow from financing activities
Financing activities provided
$174.6 millionand $24.7 millionin 2021 and 2020, respectively, resulting in an increase in cash provided by financing activities of $149.9 millionduring 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 millionin 2021 compared to 2020. In 2021, we raised $175.0 millionin cash through issuances of our common stock, net of issuance costs.
June 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 flow forecast for 2022:
â¢ includes funding for non-discretionary and discretionary spending mainly
related to: (i) exploration and evaluation costs of the Carolina Lithium mine
general and administrative expenses, including general expenses, (iii) growth
and (iv) the costs of acquiring exploration and evaluation assets,
specifically surface properties and associated mineral rights, in the north
Carolina who are under contract as of
the purchase of exploration and evaluation assets in
million in the first half of 2022,
closing costs such as attorney fees, taxes and commissions. For the vast
majority of these contracts, we may terminate, at our option, with
minimis cancellation costs;
â¢ does not include the financing of cash expenses for: (i) the additional acquisition
the costs of exploration and evaluation assets that are not yet under contract at
chemical plant on one of our properties, owned or currently under
contracts financed by the seller in
ventures or to increase our ownership within our current investments; â¢ does not include cash from equity and/or debt financings; and
â¢ does not include cash generated from the generation of operating income. We dont do
plan to start development or production on one of our properties related to
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 proposed
Carolina Lithium Projectin North Carolina. We currently expect construction of the Carolina Lithium Projectto cost approximately $840 million. Additionally, we will incur significant cash expenditures for construction costs associated with our equity investments in lithium projects in Canadaand Ghanawith Sayona and IRR, respectively. We will require equity and/or debt financings in order to fund future planned construction costs for these projects. On August 31, 2021, we submitted a draft loan application to the Loan Programs Office of the U.S. Department of Energyfor potential funding of construction costs for our proposed Carolina Lithium Project'sconcentrator 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 at
which we believe will affect cash flow over the next five years and beyond:
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 policies 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 in
the 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.
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 employees
whoserve 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 this input would affect the resulting valuation for each equity instrument valued in this way and, therefore, the value of each grant would vary differently depending on the change in the data. respective input.
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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