Financial instruments and financial risk factors

6 Months Ended

12 Months Ended

Apr. 30, 2022

Oct. 31, 2021

Financial instruments and financial risk factors

16.	Financial instruments and financial risk factors

Fair values

The Company’s financial instruments consist of cash, accounts receivables, accounts payable and accrued liabilities, loans payable. The carrying amounts of cash, Harmonized Sales Taxes receivable, other receivables, accounts payable and accrued liabilities approximately fair value due to the short-term maturity of these instruments.

Fair value hierarchy levels 1 to 3 are based on the degree to which the fair value is observable:

•

Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities;

•

Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices); and

•

Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).

There were no transfers between the levels during the current or prior year.

The Company’s financial assets measured at fair value on a recurring basis are measured under level 1 of the hierarchy and were calculated as follows:


	Balance		Level 2
	$		$
As at April 30, 2022
Accounts receivable		11,501,265		11,501,265

		11,501,265		11,501,265

As at October 31, 2021
Accounts receivable		4,072,701		4,072,701

		4,072,701		4,072,701

See Note 3 above for additional details related to measurement of accounts receivable.

The Company’s financial liabilities measured at fair value on a recurring basis are measured under level 1 and 2 of the hierarchy and were calculated as follows:


	Balance		Level 1		Level 2
	$		$		$
As at April 30, 2022
Conversion feature of convertible debt (see Note 11)		11,469,108		—		11,469,108

		11,469,108		—		11,469,108

As at October 31, 2021
Conversion feature of convertible debt (see Note 11)		29,028,938		—		29,028,938
Warrants (see Note 12)		82,109,334		53,549,989		28,559,344

		111,138,272		53,549,989		57,588,282

Currency risk

The Company is exposed to currency risk as its cash is mainly denominated in U.S. dollars, but its operations require Canadian dollars and other currencies, in addition to U.S. dollars.

At April 30, 2022, the Company had Canadian dollar denominated cash of approximately Cdn. $4,128,174 and Canadian dollar denominated net liabilities and loans payable of approximately Cdn. $24,778,777. The remaining amounts were denominated in U.S. dollars and immaterial amounts of other currencies. Gains and losses arising upon translation of these amounts into U.S. dollars for inclusion in the condensed consolidated interim financial statements are recorded in other income and expenses as foreign exchange. A 5% strengthening of the Canadian dollar versus the U.S. dollar, at April 30, 2022, would have increased the foreign exchange loss for the period by approximately $803,993 while a 5% weakening of the Canadian dollar would have had approximately the equal but opposite effect. This analysis assumes that all other variables remain constant.

Interest rate risk

Interest rate risk is the risk arising from the effect of changes in prevailing interest rates on the Company’s financial instruments. The Company is exposed to interest rate risk, as it has variable interest rate debt that includes an interest rate floor and cap, see Note 11.

Credit, liquidity, and market risks

Credit risks associated with cash are minimal as the Company deposits the majority of its cash with a large Canadian financial institution. The Company’s credit risks associated with receivables are managed and exposure to potential loss is assessed as minimal.

The Company is exposed to commodity price movements for the inventory it holds and the products it produces. Commodity price risk management activities are currently limited to monitoring market prices.

The following table sets out the Company’s exposure, as of April 30, 2022, in relation to the impact of movements in the Cobalt and Nickel price for the provisionally invoiced sales volume:


	Cobalt						Nickel
	April 30, 2022			October 31, 2021			April 30, 2022			October 31, 2021
	$			$			$			$
Metric tonnes subject to fair value pricing adjustments		2,595			1,728			2,595			1,728
10% increase in prices		681,592			303,351			1,024,667			448,266
10 % decrease in prices		(681,592	)		(303,351	)		(1,024,667	)		(448,266	)

The Company’s revenue and accounts receivable primarily come from two key customers, as further disclosed in Note 3. The Company manages this risk by engaging with reputable multi-national corporations in stable jurisdictions and performing a review of a potential customer’s financial health prior to engaging in business.

Management has established an appropriate liquidity risk management framework for the management of the Company’s short-term, medium and long-term funding and liquidity requirements.

Capital risk management

The Company manages its capital to ensure that entities in the Company will be able to continue as a going concern while maximizing the return to shareholders through the optimization of the debt and equity balance.

The capital structure of the Company consists of net debt (borrowings after deducting cash and cash equivalents) and equity of the Company (comprising issued share capital, contributed surplus and accumulated deficit as disclosed in Note 13).

The Company is not subject to any externally imposed capital requirements.

Li Cycle Holdings Corp [member]

Statement [Line Items]

Financial instruments and financial risk factors

13.	Financial instruments and financial risk factors

Fair values

The Company’s financial instruments consist of cash, accounts receivables, accounts payable and accrued liabilities, loans payable. The fair values of the cash, trade receivables, accounts payable and accrued liabilities approximate their carrying amounts because of their current nature.

Fair value hierarchy levels 1 to 3 are based on the degree to which the fair value is observable:

•

Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities;

•

Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and

•

Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).

There were no transfers between the levels during the current or prior year.

The Company’s financial assets measured at fair value on a recurring basis were calculated as follows:


	Balance		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
	$		$		$		$
As at October 31, 2021
Accounts receivable		4,072,701		—		4,072,701		—

		4,072,701		—		4,072,701		—

As at October 31, 2020
Accounts receivable		571,300		—		571,300		—

		571,300		—		571,300		—

See Note 4 above for additional details related to measurement of accounts receivable.

The Company’s financial liabilities measured at fair value on a recurring basis were calculated as follows:


	Balance		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
	$		$		$		$
As at October 31, 2021
Restricted share units		—		—		—		—
Conversion feature of convertible debt		29,028,938		—		29,028,938		—
Warrants		82,109,334		53,549,989		28,559,344		—

		111,138,272		53,549,989		57,588,282		—

As at October 31, 2020
Restricted share units		171,849		—		171,849		—

		171,849		—		171,849		—

Currency risk

It is management’s opinion that the Company is not exposed to significant currency risk as its cash is denominated in both Canadian and U.S. dollars and funds its operations accordingly.

At October 31, 2021, the Company had Canadian dollar denominated cash of approximately Cdn. $1.3 million and Canadian dollar denominated net liabilities and loans payable of approximately Cdn. $23.9 million. The remaining amounts were denominated in U.S. dollars and immaterial amounts of other currencies. Gains and losses arising upon translation of these amounts into U.S. dollars for inclusion in the

consolidated financial statements are recorded in other income and expenses as foreign exchange. A

% strengthening of the Canadian dollar versus the U.S. dollar, at October

2021

, would have increased the foreign exchange loss for the year by approximately $

0.9

million while a

% weakening of the Canadian dollar would have had approximately the equal but opposite effect. This analysis assumes that all other variables remain constant.

Interest rate risk

Credit, liquidity, and market risks

Credit risks associated with cash are minimal as the Company deposits majority of its cash with a large Canadian financial institution. The Company’s credit risks associated with receivables are managed and exposure to potential loss is assessed as minimal.

Ultimate responsibility for liquidity risk management rests with the board of directors, which has established an appropriate liquidity risk management framework for the management of the Company’s short-term, medium and long-term funding and liquidity requirements.

Market risks associated with short-term investments are assessed as minimal as they are considered short-term in nature.

All of the Company’s financial liabilities have contractual cash flows as follows:


	Carrying amount		Contractual cash flows		Year 1		Year 2		Year 3		Year 4		Year 5		Thereafter
	$		$		$		$		$		$		$		$
As at October 31, 2021
Accounts payable and accrued liabilities		18,701,116		18,701,116		18,701,116		—		—		—		—		—
Lease liabilities		29,364,869		35,934,570		4,517,775		4,634,401		3,785,984		3,374,696		3,311,808		16,309,906
Loan payable		39,748		41,338		6,384		6,618		6,860		7,111		7,371		6,994
Convertible Debt		100,877,838		142,682,078		—		—		—		—		142,682,078		—
Warrants		82,109,334		—		—		—		—		—		—		—
Restoration provisions		334,233		302,049		—		84,582		—		—		54,842		162,625

		231,427,138		197,661,151		23,225,275		4,725,601		3,792,844		3,381,807		146,056,099		16,479,525


	Carrying amount		Contractual cash flows		Year 1		Year 2		Year 3		Year 4		Year 5		Thereafter
	$		$		$		$		$		$		$		$
As at October 31, 2020
Accounts payable and accrued liabilities		4,364,370		4,364,372		4,364,372		—		—		—		—		—
Restricted share units		171,849		171,849		171,849		—		—		—		—		—
Lease liabilities		3,613,170		4,529,662		805,946		680,943		568,434		584,269		479,833		1,410,237
Loan payable		2,247,878		2,628,652		1,782,888		845,763		—		—		—		—
Restoration provisions		321,400		333,866		—		81,166		—		—		52,627		200,074

		10,718,667		12,028,401		7,125,055		1,607,872		568,434		584,269		532,460		1,610,311

Capital risk management

The capital structure of the Company consists of net debt (borrowings after deducting cash and bank balances) and equity of the Company (comprising issued share capital, contributed surplus and accumulated deficit as disclosed in Note 12).

The Company is not subject to any externally imposed capital requirements. The Company’s Board of Directors reviews the capital structure on a semi-annual basis. As part of this review, the Board considers the cost of capital and the risks associated with each class of capital.