Company: Char Technologies Ltd
Listing: TSX Venture, US OTC
Tickers: $YES.V / $CTRNF
Market cap: 55.74 MCAD at time of publication
Share price: 0.79 CAD at time of publication
Website: https://www.chartechnologies.com/
Comparable peers:
Xebec, $XBC Market cap $642 MCAD
Greenlane renewables, $GRN, Mcap $210 MCAD
Char Technologies has a patented and unique product that can now replace regular coal in coal power plants with Biocoal and also produce Renewable natural gas / hydrogen which has a tremendously positive impact for the environment. Char is Converting challenging organic streams into a greenhouse gas neutral biocoal and second generation Renewable Natural Gas (RNG)” or green hydrogen. CHAR’s pyrolysis technology is recognized as a potential future solution by NYC DEP to process biosolids into value-add products. Char also has a solution to contamination of PFAS in landfills and water reserves. Competitors Xebec & Greenlane renewables both participate in first-generation anaerobic digestion (biogas) technology , Char technologies has what is known as second generation biogas technology .
Char Technologies recently received a breakthrough order from the large corporation Hitachi Zosen Inova. We decided to have a sit down with management to ask about the implications and how the business is progressing. Below you will find a transcript of the interview call done with CEO Andrew White and CFO Mark Korol.
ESG: Welcome to the interview with ESGFIRE Andrew !
Char Technologies recently announced a big breakthrough order from the large corporation Hitachi Zosen Inova . Can you please tell us what you think this order means for Char technologies?
Andrew:
The short answer is it could eventually lead to putting a Char Technologies plant on all 100 Hitachi plants worldwide.
In general, for high temperature pyrolysis, we are currently working with 3 different market verticals. These are
1. Processing woody wastes to make our cleanfyre product used in steel mills, as well as second generation renewable natural gas.
2. Processing digestate and turning this into syngas, renewable natural gas or green hydrogen (as is the case with Hitachi).
3. Processing biosolids.
Our order from Hitachi is in the digestate vertical and they have a well established waste to energy biogas firm and have built over 100 plants worldwide. Their plants essentially turn organic waste into biogas. The facility where we are putting our system in with Hitachi is what we could call a showcase / lighthouse facility. It’s a site to demonstrate our product for clients in North America.
Being on this site lets us tap into and leverage the sales funnel of Hitachi. As previously stated it could eventually lead to putting a Char Technologies plant on all Hitachi plants worldwide. For distributing green hydrogen this is a smart way of doing it. We are in the front of the pack for an operational green hydrogen plant in California.
ESG:
We estimate that this test project deal with Hitachi Zosen inova will generate project revenues of 560 000 USD for the biocarbon and between 4-6.6 MUSD for the green hydrogen annually. All in all the project revenues for operating the plant for the operator would likely equal 4,56 -7,2 MUSD annually. We estimate that the final sales value of this test project once it’s transferred from Char Technologies to Hitachi Zosen Inova will be approximately 5 million USD .
Can you confirm if our calculations on behalf of ESGFIRE are correct?
Andrew:
Yes on the operational revenue we are at the lower range of your calculations.
On the hydrogen side we are signing up for longer term offtakes, to make sure the project is feasible, we are in the range for your calculations on the hydrogen pricing.
Mark:
On the system the calculation is a little high, we priced it lower than we normally would do since it’s an opportunity for us with Hitachi.
Based on the potential that we have with the customer we will be getting a royalty license fee after the transfer of the system ff they exercise the option which in all likelihood they will.
ESG: What will license revenues look like?
Andrew:
It’s going to be tied to plant uptime, it keeps us engaged in the plant operationally. You can use typical 10 %-15 % fee on the sales price of output.
The standard license range would be 500 000 USD annually on the hydrogen revenue which for us would be a recurring revenue.
We think this will happen on further projects and plants and all business models with valuable off takes. The model keeps us engaged and it gives the customer further ongoing assurances. Instead of a fixed fee its sort of a hybrid model we were talking about.
ESG: What kind of potential revenues this order could generate moving forward?
Andrew:
Well certainly Hitachi has a very aggressive rollout plan since they are the market leader biogas In North America.
We can kind of speculate all over the place I guess but if they are very successful rolling out we will also be quite successful and the sales range of what your original estimate is what revenue would be for a single biogas project for Char Technologies.
Hitachi are very dominant in the US and our product provides them with a competitive advantage and they help us access markets. We are very positive about where things are heading with Hitachi.
Mark:
There is no secret that we would provide competitive advantage.
ESG: What does the potential backlog look like at the moment? Considering you (Mark)mentioned that it was close to 100 MCAD during our interview in March?
Andrew: We are still in the same numbers. We expect this backlog to grow exponentially once we are operating the plant for Hitachi at late spring of 2022.
Mark: In terms of pipeline, the probability of executing our pipeline have certainly increased since last time we spoke, we have greater visibility on the potential opportunities moving forward. We are seeing a bigger light at the end of the tunnel.
ESG: What markets / countries are your current top priorities and why?
Andrew:
We are still focused on North America at the moment where we have a lot of opportunities and we continue to build a pipeline with focus.
Within these activities obviously we want to be building plants with green hydrogen and next quarter we are bringing on the woody biomass sales vertical.
These have residuals of natural gas projects that have big upside to them.
This is a big opportunity for us. We are taking biomass and making syngas and optimizing it to make renewable natural gas, we build the same plant for hydrogen just adding methanation for the process of RNG.
ESG: How do you view the need for further external financing and possible capital injection at the moment?
Mark:
Once we get new orders in depending on the size and magnitude of those orders we will look at all options, we won’t go to ask the market for funding unless we have specific projects for those proceeds. Once we have sites up and running on those verticals we will be able to optimize capital structure.
There has been very little minimal exercising of warrants yet, we are leaving that alone right now. There is about 1,5 year runtime left for the warrants of the last financing and the proceeds account to about 3 million CAD:
ESG: Are there any short term catalysts that investors should keep a look out for regarding Char Technologies ?
Andrew:
Certainly investors should look at Char Technologies on executing on the Hitachi project ,bringing it into operation and what it leads to in follow up orders. Hitachi is a big catalyst and we are confident in our ability to deliver. Once we get the green hydrogen offtake it will be a big trigger point for a lot of the pipeline we currently have .
Its just like a public financing once you get a lead order it all falls into place.
The other one catalyst is that the market is so ripe for renewable natural gas so our system is really attractive for that market right now.
Mark: Partnerships, letters of intents and definitive agreements these will be the actual deliverables investors can expect to see over the next few quarters
ESG: What does your current financial commitments look like with Hitachi?
Andrew:
We have a core operations team based out of Ontario and with our plants we can do remote monitoring and maintenance. The deal with Hitachi is structured so that
operations is subcontracted to Hitachi, they will be operating the plant the whole time and before transfer we are paying for subcontractors and maintenance to make sure its operational.
ESG: What does the Capex for the Hitachi project look like?
Mark:
It’s the actual hardware, the 5 million earlier mentioned .That is the capex. Call that the marked up capex which is lower than that. In terms of the operating cost our offtake model is at a very healthy margin lying at 70 % plus.
Any of the expenses out of that are reflected in the cost structure which is relatively quite small. One of the benefits of our system is it fits into existing infrastructure and can be overlap of resources so it’s very efficient in that manner.
When we look at our existing plant in London, Ontario we have 2 operators but could probably do with just one, when you look at the magnitude of revenue it’s a low cost for maintenance..
Andrew:
Yes we are confident we can deliver on the plant with our current financials.
ESGFIRE: How are things looking in the market for Biosolid PFAS?
Andrew:
We have continued to do more advanced studies with partners and potential clients have seen the London facility operating, the border is still closed between the US and Canada but we were able to facilitate a visit.
The opportunity of the PFAS / biosolids market is very good short term from an equipment sales perspective. We are continuing to prove our system has the ability to destroy harmful PFAS particles which exists in waste and sewerage water. We are the only company, that we are aware of, to focus on destroying PFAS.
We will likely build some smaller on site pilot units to operate within the next 6 months to give all parties credibility and its progressing very well.
We have likely larger orders there may be a few that we are bidding on, but I would project late 2021 and early 2022 we will see those orders convert.
We continue to demonstrate our ability to perform high temp pyrolysis at the 800 degree Celsius range which is critical for pfas destruction. We are in this operating range no competitors are operating in.
We also continue to work with biosolids management and engineering firms are starting to see that the testing we are doing generally cover costs for our clients.
We run samples ourselves but having third party analytical firm doing analysis
Having third party validation beneficial. These projects are included in the 100 MCAD sales pipeline.
Mark:
We have penetrated the hardest customers first. The steel industry is the hardest to penetrate this is where we started, on the Hitashi side we are now in a contract with one of the leaders in the industry globally. We started with the hardest one. We are proud of that internally.
ESGFIRE:When would you be looking at a possible NASDAQ uplisting?
Mark:
Actually we did have that question a week ago from one of our existing shareholders. We have looked at Nasdaq in the past. It’s way more expensive and different level of insurances and listing costs and everything . We need a couple of more contracts to get more publicity and a higher market cap. We also need more liquidity in the stock before we make that move. With respect to the OTC we will look at a XCQB listing to move up a tier on the OTC come the new year of 2021. That’s our visibility so far.
ESG: What else is happening in the market that affects Char technologies?
Mark:
In Canada, Defasco and Algoma steel has made made announcements that they will receive hundreds of millions of dollars to decarbonize. Defasco talked about shutting down coke ovens and convert these to electric furnaces but these systems would still require biocarbon/biocoal for the chemical process.
We are confident as even as we see transition from coal to electric those electric ovens still need a solid carbon input until we get to a point where it will be green hydrogen as input alone. Carbon will still be needed, when we look at Ontario over they use over a million tonnes of coal per year. Steel mills are trying to go green and we have the solution for them.. The chemistry does not change you need either carbon or hydrogen. That’s the way chemistry works.
ESG: Thank you for your time Andrew and Mark!
Andrew / Mark:
Thank you!
Legal Disclaimer:
We own shares of this company personally.
Investing in stocks is combined with certain risks and it is possible to lose your entire investment. My posts are made for Educational purposes only and are not to be interpreted as tips , financial advise or recommendations of any kind to either buy or sell any stocks.
Companies may or may not be paying us for content posted on this blog.
