Lithium Australia's (ASX:LIT) Envirostream subsidiary has recently achieved a significant milestone of delivering positive operating profit during Q4 FY24.
The achievement was driven by the company’s transition towards an upstream service model, which has increased revenues with a higher proportion of revenues to now received upfront through recycling fees.
“We are very excited to have achieved a significant milestone of maiden positive operating cash profit during Q4 FY24 within our recycling business. This outcome, delivered in a period of low commodity prices, was driven by our growth in our fee for service model for battery recycling with all customers over the last year, which enables us to receive the majority of revenue upfront on improved terms," Lithium Australia CEO and Managing Director, Simon Linge, said.
"Our revised commercial model supports our ongoing joint development discussions with SungEel HiTech, which seek to scale up our operations in line with expected growth in LIB collection volumes.”
Mr Linge said the company’s strategic shift towards an upstream focused operational model is aimed at increasing ‘fee for service’ as a proportion of the recycling revenue mix, while also reducing exposure to market and pricing volatility related to the sales of Mixed Metal Dust (MMD) and other commodities. Higher average revenue unit rates, coupled with effective cost management and increasing volumes under exclusive recycling agreements allow for a sustainable recycling economic model.
In Q4 FY24, Envirostream achieved collection volumes of 445 tonnes, revenue of $2.50 million, gross profit of $1.56 million and an Operating Cash Profit of $0.52 milion. This represents a revenue unit rate of $5.63/kg and cost of sales unit rate of $2.13/kg in Q4 FY24. This enhanced performance is a result of the strategic and operational transition undertaken over the last year, including:
- Enhanced commercial focus: New recycling agreements signed with customers consist of upstream gate fees and a downstream MMD revenue share scheme, which has resulted in the majority of revenue being received upfront and lower exposure to volatility associated with MMD pricing;
- Optimised battery collections mix: Strategic decision made to focus on large-format LIB collections and cease collection contracts for other battery types due to the uncommercial nature of non-LIB battery types; and
- Processing upgrades: Including the CAPS7 plant implementation and upgrade of the battery shredder, which has significantly improved the recovery of MMD and processing throughput.
