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Novonix (ASX:NVX) announces Saudi joint venture

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Novonix Limited (ASX:NVX) CEO Dr Chris Burns discusses the company's JV with TAQAT to produce anode materials for electric vehicles.

Tim McGowen: We're talking today with NOVONIX (ASX:NVX). It's an integrated developer and supplier of high-performance materials, equipment, and services for the global lithium-ion battery industry, with operations in the US and Canada and sales in more than 14 countries. The company's mission is to enable a clean energy future by producing longer-life and lower-cost battery materials and technologies. We're joined once again by Dr Chris Burns. The company has a market cap of about $567 million and an ASX code of "NVX". Chris, nice to see you again. Thanks for your time.

Dr Chris Burns: Great. Thanks, Tim. Great to be back.

Tim McGowen: Now, you've announced to the market this morning, you've announced plans to form a JV with TAQAT, who's a leading Saudi Arabian energy company, albeit a private company. Can you give us a perspective on the deal and what it means for NOVONIX?

Dr Chris Burns: Absolutely. We're very excited about this deal. It's a great opportunity for NOVONIX to expand our IP portfolio internationally. Of course, we've been critically focused on the North American market and continue to be on our Riverside build-out and the next plant that we'll build in the United States with support from the Bipartisan Infrastructure Law funding that we were selected for. But we've always positioned ourselves to look at international growth because the electrification revolution is not limited to North America. It is becoming a global issue in different jurisdictions. And in Saudi Arabia specifically, they're taking a very forward-looking approach about investing in clean technology revolution, bringing multiple EV manufacturers to the kingdom and now looking to build a fully integrated supply chain. So, we're excited to have the opportunity to be a part of that, bringing our anode technology to Saudi Arabia.

Tim McGowen: Is it those initiatives from the Saudi Arabian government that have formed the genesis of this deal?

Dr Chris Burns: Absolutely. The initiative from the government and the sector there to build this industry has had them looking at private sector and technology partners with an interest of growing into Saudi Arabia. And, of course, as we look at different areas for expansion, such as Europe and other jurisdictions, we of course have to look at our capabilities to expand these jurisdictions and the access to capital and project economics within all of those. And so we think Saudi Arabia offers a lot of opportunities in strong competitive project economics. Our partner is building a needle coking facility as well, so we can have potential access to upstream materials domestically in Saudi Arabia, as well as highly competitive utility costs. And the incentives from the local government in terms of project financing can be significant to really reduce the amount of equity capital that NOVONIX may need to contribute to really stand up a significant facility there to support the kingdom.

Tim McGowen: And, of course, your intellectual property is part of this. It's incorporated into the joint venture. How do you protect yourself around this?

Dr Chris Burns: So, we have been working with TAQAT since 2021 on exploring this deal and evaluating our technology, our financial models, our business plan, as well as the plans within Saudi Arabia for this opportunity. And a big part of that has been looking at our intellectual property, the rights and restrictions around it that will be embodied with the joint venture and building a relationship with TAQAT, who's going to be a great partner for us in Saudi Arabia. So, we're setting up structures to ensure that that intellectual property is protected and as well that we aren't setting up competitive dynamics between ourselves and our joint venture.

Tim McGowen: And, Chris, given the obligation under the JV is for 40 per cent funding from NOVONIX and then you've got a private company on the other side of the equation, where are the funding routes for this JV?

Dr Chris Burns: So, that's been a big part of our discussion as well with TAQAT and the opportunity in Saudi Arabia. And so we look at the joint venture in two phases. The first is really to leverage the engineering work that we're doing in North America in order to support the engineering work for a Saudi-specific plant. And really over the next year, that'll be the focus, and we will fund, through our 60-40 pro rata share, the engineering work to develop the plans to bring that plant to fruition. And then when we look to actually finance the facility, it's when we hope to leverage support from the Saudi government. They have different programs that can allow debt and equity support that really can make this a very capital-efficient program for NOVONIX to build out. It's one of the very attractive things that we see as the opportunity to build in Saudi Arabia.

Tim McGowen: And, obviously, Saudi Arabia has a very high credit rating, so is the idea to kind of credit wrap this project with cheap debt.

Dr Chris Burns: That's the hope. Most of the programs there, they have significant programs that can fund these types of strategic technology priority initiatives, of which the EV supply chain has been established as one, that can bring low-cost debt to the project. And then it really limits our equity contribution in terms of actual capital off our balance sheet. And it's part of the structure that we've established in terms of bringing our IP there in order to access these types of opportunities.

Tim McGowen: And, Chris, of course, the needle coking coal is a part of the feedstock for the plant. How do you ascertain what sort of quality you're bringing into that equation?

Dr Chris Burns: That's another thing that has been time in the works and why this deal has been progressed with TAQAT over more than a year of time is that we've been looking at what the opportunities are for feedstock into this project. Of course, we have a great relationship with Phillips 66 as our largest shareholder and someone we're working very closely with on supply of materials and great materials for our US facility, as well as the option for expansion overseas, but TAQAT is also in the process of building a needle coking refinery in the kingdom. And we've been doing evaluation of some of the materials that have come from that, including feedstock through their processing partners and the final needle coke to really understand the performance characteristics of that, to know that it will be high-quality feedstock that we look to be able to use within the kingdom.

Tim McGowen: And, Chris, for shareholders, what are the next stages for this JV that they should look out for?

Dr Chris Burns: We've entered our joint venture agreement with TAQAT, and so, over the coming months, we will go through the incorporation process within Saudi Arabia and then really begin the engineering work, again, leveraging the work that we're doing in North America, but begin the site selection process and engineering process to reach that feed state where we can bring the project to the project finance state in 2024 to begin construction of the facility.

Tim McGowen: And, Chris, it's been some time since we have spoken to you. What are your North American plans and how are they progressing?

Dr Chris Burns: Things continue to progress well in North America. We're moving forward on our customer qualification programs. We're making progress through both our DOE grant negotiation as well as our application to the Loan Program Office. And we continue to see demand escalating from all of the customers that we're working with in North America, including new customers coming to North America to take advantage of the Inflation Reduction Act incentives that the US government has put in place. So, everything is going well there, and we expect to be working on our site selection process and hopefully making progress on that with our customers so we can really look at the right project with the right products for the right customers and bring that government funding to fruition to begin that facility.

Tim McGowen: What's your outlook for synthetic graphite globally?

Dr Chris Burns: We continue to see strong demand for synthetic graphite. There will always be the balance between natural and synthetic graphite on a price-performance trade off, but as we look at the high-quality and premium products, we continue to see demand for synthetic graphite both in the United States and globally continuing to grow. New technologies will always be entering the market, but we don't see those as a material risk through the end of this decade or beyond in terms of the demand on synthetic graphite.

Tim McGowen: And, just finally, this JV that you've put in place inside Saudi Arabia, are there any plans to repeat this model globally?

Dr Chris Burns: It's certainly an option, and we can look at expansion of the joint venture or as well other partnership structures in other jurisdictions. We're looking now, and especially on the backdrop of the macroeconomic climate, about capital-efficient projects where we can continue to grow the opportunity size for NOVONIX within the resources and deployment of capital that we can access, including other jurisdictions where there will continue to be strong government support like we see in the United States through the Infrastructure Law and the Inflation Reduction Act and like we see in Saudi Arabia through the different programs they have there.

Tim McGowen: Dr Chris Burns, thanks for your time.

Dr Chris Burns: Great. Thanks, Tim.

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