Aqua Metals (NASDAQ:AQMS) reported a narrower second-quarter loss as the company outlined a phased plan to develop its Headwaters ARC battery-materials processing project near a group of Midwest lithium iron phosphate, or LFP, gigafactory projects.
Chief Executive Officer Steve Cotton said the company has moved from demonstrating its AquaRefining technology toward commercial execution. Aqua Metals now describes itself as a U.S. critical-minerals processing company commercializing lower-cost recovery and refining technologies, with Headwaters intended to process battery manufacturing scrap and end-of-life batteries.
Headwaters Project Takes a Phased Approach
The company is completing due diligence on a Midwest site with roughly 150,000 square feet of existing industrial infrastructure and at least 50 acres of land. Cotton said the site is located within a short drive of six major LFP gigafactory projects, positioning the facility near a growing source of manufacturing scrap.
At full campus configuration, Headwaters is designed for approximately 20,000 tons of annual processing capacity, subject to financing, permitting and commercial agreements. The company has not provided production guidance or a timeline for the project.
Aqua Metals plans to begin with a Phase I pre-processing operation using commercially proven mechanical equipment. The first phase is intended to recover aluminum fines, copper fines and high-specification black mass from segregated LFP battery materials. Cotton said management expects the full Phase I configuration to include two pre-processing lines, each designed for roughly 10,000 tons per year of capacity.
Phase II would add AquaRefining technology to process the black mass into battery-grade lithium carbonate, iron phosphate and graphite. Cotton said the second phase would not add tonnage to the facility, but would increase the value recovered from material already processed in Phase I.
“We are not betting the company on a single build,” Cotton said, describing the strategy as a sequence in which the first line establishes operations and commercial relationships, the second line expands proven capacity, and Phase II adds refining capability.
- Phase I: Mechanical pre-processing of LFP battery materials into aluminum, copper and black mass products.
- Phase II: AquaRefining of black mass into lithium carbonate, iron phosphate and graphite.
- Later phases: Potential expansion into nickel-manganese-cobalt, or NMC, materials, selected mined feedstocks and industrial waste streams.
Cotton said the company is nearing a decision on a Phase I equipment supplier. Aqua Metals has evaluated equipment that it said is already operating at scale, seeking to reduce technology risk in the collection and pre-processing portion of the project.
LFP Focus and Commercial Conditions
Aqua Metals is initially targeting LFP material because it expects LFP manufacturing scrap to rise alongside the buildout of battery and energy-storage capacity. Cotton said the company’s market analysis, informed by third-party industry research, indicates recyclable LFP manufacturing scrap could increase about 15-fold by 2030.
The company also cited BloombergNEF projections for U.S. energy storage, including approximately 235 gigawatts of installed power capacity and 948 gigawatt-hours of battery energy-storage capacity by 2035.
According to Cotton, existing U.S. shredding capacity is more concentrated on NMC battery scrap, leaving LFP materials relatively underserved. He said Phase I would be less directly dependent on lithium prices because its initial products would be black mass, aluminum fines and copper fines. He also said processors in this segment are generally paid to take in feedstock.
Management said it will not commit capital to construction until it has met commercial requirements involving feedstock, offtake and financing. Cotton said the company expects to disclose capital cost, expected throughput, product mix and expected operating costs when it reaches a final investment decision for Phase I.
The company said Phase I must demonstrate positive project-level EBITDA, positive cash flow and a return on invested capital that meets its internal investment criteria after ramp-up. Cotton emphasized that these are investment criteria rather than financial guidance.
Expenses Decline, While Lion Energy Reserve Increases
Total operating expenses were approximately $4.6 million in the second quarter, down from about $7 million in the prior-year period. The current quarter included a non-cash provision for credit losses of approximately $2.1 million related to Lion Energy, while the prior-year quarter included a non-cash impairment charge of approximately $3.8 million.
Plant operations, research and development, and general and administrative expenses totaled approximately $2.5 million, compared with approximately $3.3 million a year earlier, West said.
Aqua Metals recorded a total allowance for credit losses of approximately $2.5 million as of June 30, representing 60% of the approximately $4.2 million gross Lion Energy balance, including accrued interest. The resulting net carrying amount was about $1.7 million. West said the allowance was an accounting estimate and did not represent a determination of the amount legally owed or a waiver of the company’s rights to pursue recovery.
Funding Strategy Centers on Project-Level Capital
Aqua Metals ended the quarter with approximately $4.7 million in cash and cash equivalents, roughly $4 million in working capital and no notes payable outstanding. Cash used in operating activities was approximately $6.5 million during the first six months of 2026.
During the second quarter, the company raised about $581,000 in net proceeds through its at-the-market equity program, bringing first-half ATM proceeds to approximately $1.9 million. West said approximately $48 million of ATM capacity remained at quarter-end.
Management said it aims to finance Headwaters substantially at the project level rather than through the corporate balance sheet. Aqua Metals has engaged Newmark’s advanced manufacturing practice group to pursue third-party real estate arrangements, including a potential long-term triple-net lease or similar structure for the land, building and site development.
The company is also pursuing staged equipment payment terms, state and local economic-development support, feedstock and offtake agreements, permitting and engineering work. West said none of the financing structures had been signed and that the company would not characterize them as complete until agreements are finalized.
About Aqua Metals (NASDAQ:AQMS)
Aqua Metals Inc (NASDAQ: AQMS) is a technology-driven environmental company pioneering sustainable battery recycling solutions. The company’s core offering, branded as AquaRefining, utilizes an electrochemical process to recover lead, silver, and plastic components from spent lead-acid batteries without the need for high-temperature smelting. This water-based approach aims to eliminate air emissions and reduce energy consumption compared to conventional recycling methods.
Based in Reno, Nevada, Aqua Metals develops, manufactures, and licenses its proprietary modular recycling systems to industrial battery recyclers and battery manufacturers.
