ION secures $3.9M grant to build metals recycling pilot plant - US rare earths next?

Disclosure: S3 Consortium Pty Ltd (the Company) and Associated Entities own 24,360,000 ION Shares at the time of publishing this article. The Company has been engaged by ION to share our commentary on the progress of our Investment in ION over time. This information is general in nature about a speculative investment and does not constitute personal advice. It does not consider your objectives, financial situation, or needs.

Why was the IonDrive (ASX:ION) commercial director in the USA last week?

According to an interview with the ION CEO last Tuesday:

ION is "partnering with a number of companies to deploy our deep eutectic solvent to very selectively and efficiently recover rare earth elements and as we speak, our commercial director is in the US”. (listen to it here)

Rare earths...

in the USA?

Sounds good to us...

One of the fastest emerging macro thematics right now is US critical metals and the onshoring of critical mineral supply chains.

But there aren’t enough producing mines right now to satisfy national security needs.

We think that critical metals recycling will become a much bigger part of the US critical minerals story, as the government turns to technology to help.

(not just in US, but in other countries too as critical metals supply is increasingly weaponised in the new world of resetting international trade relations)

Recycling old “electronic waste” to extract the valuable critical metals is called “urban mining”.

It can allow countries to extract domestic supply of critical metals from old, discarded electronic equipment like mobile phones, TV’s, circuit boards, industrial equipment etc.

Today, ION announced a $3.9M grant (non-dilutive to shareholders) to scale up its tech and commence building their pilot plant for lithium, nickel and cobalt recovery from old batteries.

It's more than just those metals though...

Below is a larger list of metals that Deep Eutectic Solvents (which ION uses in its IP protected processing technology) have been tried and tested on in metals extraction and recycling - we’ve highlighted some of the key critical metals:

(Source)

Note: this chart shows metals amenable to Deep Eutectic Solvent chemistry in general, and have not necessarily been specifically tested by ION.

An energy efficient technology that can extract these metals could be very valuable to any country looking to improve their domestic supply of critical minerals through recycling.

The potential unlocking of that value is why we are Invested in IonDrive (ASX:ION).

ION’s recycling tech is a chemical process that combines “Deep Eutectic Solvents” together with “benign organic solvents”.

It uses way less energy than other methods, and has less need for acids.

Being a chemical process based on biodegradable solvents, ION’s metals extraction technology is NOT energy or acid intensive...

(this is important as the process is generally lower cost, safer and more environmentally friendly than typical recycling processes)

ION has already proven its technology works on extracting lithium, nickel and cobalt from old electric vehicle batteries.

And it is currently testing its tech on rare earths, gold, copper, silver and graphite.

As we mentioned earlier, today, ION announced a $3.9M grant (non-dilutive to shareholders) to scale up its tech and build a pilot plant for lithium, nickel and cobalt recovery from old batteries.

And the grant means ION will proceed to building its plant here in Australia.

ION’s CEO did say in a recent interview that it will be a “mobile unit” that can be moved anywhere in the world if needed...

This grant will fund 50% of the cost of ION’s pilot plant up to a maximum of A$3.9M.

ION expects the plant to cost $4.38M which means ION should comfortably have 50% of the plant’s costs funded with today’s grant, even if there are cost overruns.

ION had $5.9M in the bank as of June 30th.

Today the ION board approved the construction of the Pilot Plant, with construction to start in December 2025 and be completed in early 2026.

Pilot plant to trigger a re-rate in ION’s valuation?

When we first Invested in ION, a major catalyst we were looking forward to was the building of its pilot plant.

First, because it would show ION’s tech works on a commercial scale.

And second, because a move from bench scale studies into a pilot plant is usually when recycling tech companies get re-rated...

As the “scale up” risk of the technology is mitigated for larger institutional investors.

ION is currently capped at $45M and there is a precedent for companies attracting higher valuations and raising more capital as they move from pilot to commercial scale.

At the same time, a re-rate is no guarantee - this is speculative investing in early stage metals processing technology.

For example, one of the private companies in the space (Ascend Elements) got ~US$480M in funding from the US Department of Defence.(Source)

Check out some more of ION’s peer comparisons here:

(Source)

Now that ION is funded to completion of its pilot plant, we think it sets up the company for bigger funding deal discussions on scaling up even further.

Which is exactly what ION said in today’s announcement:

“Funding from this grant helps de-risk the Company’s scale-up pathway and is a key step toward delivering a proposed 10,000-tonne commercial-scale facility”

ION scaling up just as recycling macro is getting stronger

We think the first wave of interest in the recycling sector was because of how high critical minerals prices got.

High prices (and limited domestic supply outside of China) triggered a scramble for alternative supply of critical minerals and inevitably into recycling tech.

Most countries (especially in the west) have realised that they need to build up processing capacity by investing in more downstream facilities.

BUT they can't source the raw materials to fill that increased capacity.

We got some hints on this with the recent MP Materials deal where the Department of Defence invested ~US$400M to expand its rare earth magnet facility by 10x...

BUT questions were asked about how MP would feed that plant with raw materials...

(Source)

Interestingly, ION’s CEO spoke directly to this the recent interview with Alan Kohler, as we mentioned above

CEO Ebbe said that ION was looking to partner "with a number of companies to deploy our deep eutectic solvent to very selectively and efficiently recover those rare earth elements and as we speak, our commercial director is in the US”.

Any news around this with the current macro momentum in US rare earths could bring a lot of interest into ION...

Listen to the full interview here:

(Source)

We think that recycling companies (as a way of urban mining) will have a role to play in the race for critical minerals.

That’s why we think a stock like Metallium is up ~23X in the last 12 months.

The past performance is not and should not be taken as an indication of future performance. Caution should be exercised in assessing past performance. This product, like all other financial products, is subject to market forces and unpredictable events that may adversely affect future performance.

Metallium got to where it is with somewhat of a scatter gun approach to applying its recycling tech on a bunch of different metals/minerals.

It worked, as Metallium recently raised $50M and has a market cap of ~$400M.

We think the $45M capped ION can do something similar - and because it's a chemical, non-toxic solvent - do it in a far more environmentally friendly way.

Here is that chart from earlier in our note which shows all of the different metals ION’s tech could be used to recover:

(Source)

ION is currently capped at $45M.

We have compared ION to MTM in a previous note which you can read here: How does the ION compare to MTM?

What is ION working on now? Six catalysts that could re-rate ION inside the next 6 months.

Over the next 6-9 months, we think one (or multiple) of the below catalysts could trigger a sustained re-rate in ION’s market cap:

1. Pilot plant build for battery recycling tech - as mentioned earlier, we think this will be a big inflection point for ION. ION expects to have the plant built and commercially producing by “early 2026”.
   
   
2. EU grant decision - ION has also applied for a €3.1M EU grant with an OEM consortium. We expect an update within the next 3 months.
   
   
3. ION’s mineral processing tech gets de-risked - ION is currently testing its technology on “US sourced feedstock”. Any big feedstock supply deal, partnership deal or any strong recovery results could be a big unexpected catalyst for ION.
   
   
4. Application into new markets - Here, ION is looking at recovering copper, gold, silver, osmium and rare earth elements from e-waste (Printed Circuit Boards). Results from these tests could come at arbitrary times. We could see the market re-rate ION if the results are positive.
   
   
5. Graphite upgrade results - updates on this front came from a recent ION’s announcement. If ION can produce anode-grade graphite from recycled black mass, it could add to the economics of its pilot plant and strengthen the commercial case for a bigger plant. See our Quick Take on that news here.
   
   
6. [New] US rare earths partnership - According to the recent interview with ION’s CEO the company is looking to partner with a number of companies in the US to deploy its technology to recover rare earth elements.
   
   

Ultimately, a combination of the above catalysts AND ION switching its pilot plant on and commercialising its tech is what we want to see.

And now with the pilot plant funded through to commercial production we think ION has a lot of newsflow coming inside the next 6 months that can re-rate its market cap positively.

Commercialisation is central to our Big Bet which is as follows:

Our ION Big Bet:

“ION re-rates to a +$150M market cap on successful large-scale production of commercial quantities of battery materials through its recycling process and/or by securing important partnerships in the recycling industry.”

NOTE: our “Big Bet” is what we HOPE the ultimate success scenario looks like for this particular Investment over the long term (3+ years). There is no guarantee that our Big Bet will ever come true. There is a lot of work to be done, many risks involved, including technology risk, scale up risk, regulatory risk and development risk - just some of which we list in our ION Investment Memo.

Success will require a significant amount of luck. Past performance is not an indicator of future performance.

What are the key risks?

The main risk for ION in the short term is “Scale up / Technology risk”.

Now that ION is moving into new markets, there is no guarantee ION’s tech is able to produce the recovery rates needed for its tech to be deemed ‘commercially viable’.

There is also no guarantee that ION is able to replicate its bench scale performance in a larger pilot plant setting.

IF the market starts to price in expectations of positive results and ION is unable to deliver it could impact the company’s share price in a negative way.

Scale up / technology risk

There is no guarantee that the Pilot Plant is able to replicate the results from the large lab study. Also “feedstock reliability” both in terms of supply and consistency of material is a big risk for ION to scale up its operations.

Source: “What could go wrong” - ION Investment Memo 03 December 2024

We list more risks to our ION Investment in our ION Investment Memo here.

Other risks

Like any stock market investment, investing in ION carries multiple risks which may affect the value of the company.

The company's Deep Eutectic Solvent (DES) technology remains unproven at a commercial scale. While laboratory/bench scale results show promising recovery rates, there is no guarantee that ION will successfully scale this technology to profitable commercial operations or that it will prove economically viable against other more established recycling tech.

ION could face significant technical challenges, cost overruns, or delays in achieving commercial production.

The battery recycling market, while projected to grow significantly, is still emerging and highly competitive. ION faces competition from established players with proven technologies and may struggle to secure sufficient feedstock or offtake agreements at economically viable terms.

ION’s business model is also highly sensitive to fluctuations in critical metal prices (lithium, nickel, cobalt, manganese) and the economics of its recycling operations depend heavily on maintaining favorable price differentials between black mass feedstock and recovered metals.

Regulatory risk and government support also impacts ION. Any delays or changes to battery recycling mandates, export restrictions, or environmental requirements could materially impact ION's business model and market opportunity.

The company's European consortium strategy introduces partnership risks. Failure to formalise agreements, partner withdrawals, or disputes could delay or prevent ION's European market entry.

Investors should consider these risks carefully and seek professional advice tailored to their personal circumstances before investing.

Our ION Investment Memo

Our Investment Memo provides a short, high-level summary of our reasons for Investing.

We use this memo to track the progress of all our Investments over time.

Click here to read our ION Investment Memo where you will find:

• What does ION do?
• The macro theme for ION
• Our ION Big Bet
• What we want to see ION achieve
• Why we are Invested in ION
• The key risks to our Investment Thesis
• Our Investment Plan