Month: March 2021

Company: Char Technologies Ltd
Listing: TSX Venture, US OTC
Ticker: $YES.V / $CTRNF
Market cap: 47 MCAD at time of publication
Share price: 0.68 CAD at time of publication
Website: https://www.chartechnologies.com/
Comparable peers:
Xebec, $XBC Mcap $675 MCAD
Greenlane renewables, $GRN, Mcap $270 MCAD

Char Technologies has a patented Biocoal product that now can replace regular coal in power plants and also produce Renewable natural gas / hydrogen. The technology has a tremendously positive impact for the environment and reduces greenhouse gas emissions. Char technologies converts challenging organic streams into greenhouse gas neutral biocoal,second generation Renewable Natural Gas”(RNG)” and hydrogen. Char’s pyrolysis technology is recognized as a future solution by NYC DEP to process biosolids into value-add products. Char also has a solution to eliminate 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 .

Below you will find a transcript of the interview call done with CEO Andrew White, CFO Mark Korol and Ellen Fowler marketing director.

ESG: You recently (18/3 2021) announced a breakthrough order for your biocoal product Cleanfyre. Can you tell us what this order means for the company and what the next step is for this product segment?

Andrew:
We consider this a milestone order, it’s much larger than our previous production runs, and it demonstrates the market value and need for low greenhouse gas biocoal.  Our projects produce both renewable natural gas or hydrogen and biocarbons, like our biocoal CleanFyre.  The renewable natural gas and hydrogen segments already have market validation and potential long-term contract offtakes.  Validating the market for our other products, in this case CleanFyre with this milestone order, further shows the tremendous overall economic and environmental value of these high temperature pyrolysis projects. We are very excited to break into the enormous potential in the Steel Industry for our Systems and Products.

ESG:  When do you expect to generate more significant revenues?

Mark:
Covid has been frustrating but this fiscal year (September 2020-2021) we are expecting a revenue base between $3-5 million CAD however we are looking at a potential backlog in the amount of + $100 million CAD based on proposals and submitted bids for projects. If one of these projects happens sooner rather than later our financial outlook for this fiscal year would definitely increase for the better.

ESG: What is the total addressable market for biosolids processing?

Andrew:
The total addressable market for biosolids in North America is around $2,7 billion USD per year. However, the global hydrogen market is a lot bigger at about $120 billion USD. Renewable natural gas market in North America is worth around $10 billion USD and the potential market for our product Cleanfyre is about 12 billion USD.

ESG comment: All in all total adressable market = $144,7 Billion USD

ESG: What are the big milestones for Char Technologies in the near future and is there any other development projects ongoing other than Cleanfyre and Sulfachar?

Andrew:
As we recently have seen commercial size orders of Cleanfyre our plan is to deploy a facility to make hydrogen and RNG on a commercial scale. We are planning a 20 000 tonne facility (which could produce revenues of up to $23 MCAD annually) and we would look to start developing that now since we have gotten a large commercial order from the steel industry at 1000 tonnes of Cleanfyre.

Andrew continues:
We have talked to partners and expect to finalize an agreement and then do serious development work on this facility within 6 months and it should be commercially active in less than 24 months.

ESG: How much does your pyrolysis plant cost and what is the payback time for your customers?

Andrew:
For a plant which can handle 20 000 tons of feedstock per year it costs around 5 million USD. The payoff time equals under one year if you get the price that the state of California pays for green hydrogen however I’d like to be conservative to say that in most cases the payoff time is between 1,5-2 years for the system. When dealing with the food and beverage industry your technology needs to have a payback period of 2 years or less.

Mark:
We have a tendency to look at 3 years payback with contingency built in and
that’s assuming very conservative pricing.

ESG:  Are you planning on doing more promotional investment relations service for the company in the near future? Considering how low Char Technologies is valued in terms of market cap compared to its peers.

Mark:
We are working on a new website and investor deck which will be launched shortly and our website is being updated to include more clarity on our pyrolysis technology. We have been devoting time to interviewing IR firms to find out which one is the most suitable for us, We want the right fit for our culture and someone who shares the same passion and beliefs.

ESG: How has Char technologies been affected by Covid?

Andrew:
We did not sit idle during the lockdown period we’ve in fact had a nice period testing the market towards biosolids contamination issues and we’ve run trials with biosolids with a number of large players in Canada and the US to prove the technology.
We were slowed down a bit since particular markets like food and beverage, animal food producers require on site visits for our environmental teams and we have focused on the health and safety of our workers. But because we have diversity in our business and also a consulting group that department had a bit of revenue runway with compliance work that still needed to get done.

ESG: At what cost per kilogram can your high temperature pyrolysis produce hydrogen and how easy is it so scale up this production into meaningful amounts?

Andrew:
So the difference between us and competitors is that we do slow pyrolysis that take about 20-30 minutes to flow through the system. We run this at 800 degrees celcius which is a lot hotter than most systems which gives us the advantage of both producing biocarbon /biocoal (also known as the CleanFyre product) and also get hydrogen out of the pyrolysis gas. With an input of 20 000 tons of biosolids a year we can do 200 kilograms of hydrogen per hour. Hydrogen is basically a byproduct of the process. Since we get well paid for the biocarbon/biocoal we can afford to sell the hydrogen at a much lower competitive price.

Andrew continues: We also have the ability to generate our own thermal energy which brings down the operating cost significantly.

ESG: One question my readers have been wondering about is what are your current patents actually protecting?

Andrew:
We do have patents but there is also key IP in the recipes and know how. It’s not the pyrolysis equipment directly we have protected but more the feedstock we handle and the process. We have a very defensible intellectual property position. We have protected how we convert our feedstock into the acual output such as Cleanfyre, hydrogen and renewable gas. We believe its very difficult, time consuming and expensive for someone to even try to copy what we’re doing.

ESG: Will Char technologies focus on building its own plants or will you focus on selling your equipment to other external customers and if so what does the business model look like?

Andrew:
The short answer is both. The core of Char Technologies will be engineering , building and delivering turnkey pyrolysis gas plants. Being a plant operator and selling plants is two different things.

When it comes to the Biosolids market there are multiple actors who get paid a tip fee for biosolid waste which they turn into pellets and sell to the agricultural sector. The issue here is that this waste can sometimes contain very harmful contamination in the form of PFAS. During the start of COVID-19 Char technologies spent time proving that our technology actually destroys these harmful PFAS contaminants.

We are looking to be a partner to these waste handling actors since it would be difficult for us to alone disrupt this business.

Andrew continues:
However looking at the market for renewable natural gas and Cleanfyre this industry is one where we will be pursuing it with our technology and developing projects oursevles since there is little competition in this field.

ESG: So what is the plan for your product Cleanfyre short and long term AND what does your plan to start producing/selling this large scale look like?

Andrew: In the short term our plan for the coming 6 months is to produce Cleanfyre ourselves. We have our production system in London Ontario ( about 1 hour from Toronto) which is close to the big steel hub of Hamilton, Ontario. That plant will produce enough product to get steel mills to use it. Medium term we are looking at building our production with partners that have feedstock lined up and that have good background / operations.This plant would produce two products such as Cleanfyre and renewable natural gas.

Andrew continues:
The plant output of the planned facility could produce about 25,000 tonnes of Cleanfyre which alone equals potential revenues of around $6 MCAD – $10 MCAD which is a very good start. The same plant could also produce around 800 000 gigajoules of renewable natural gas which equals an additional potential revenue of $12MCAD so all in all potential revenues for this type of facility is expected to be around $18-$22 MCAD with very good margins.

Mark:
Margins are estimated to range between 50- 80 % depending on the Project. The best part is the capex for this size of a plant is about $30 MCAD and would generally take roughly 2 years to payoff.

Andrew:
The big cost component is labor and our larger plants usually only takes 3 operators to run, the feedstock is low to zero cost as well that’s another reason why we can get great margins.

Mark:
Long term we expect to be looking at doing multiple plants since we should also hopefully be able to get good debt financing with the numbers we just presented.
As soon as we have a key reference facility we should be able to a lot of non-dilutive financing for additional plants.

ESG. I’m sure many would like to know by how much does Cleanfyre actual reduce greenhouse gas emissions?

Mark:
Simply put it you can say that one ton of coal replaced with one ton of Cleanfyre reduces GHG emissions by 3 tons. So not only can we get a good price for our product our customers also can get paid in carbon tax credits.

ESG: What does the competition look like for Char Technologies?

Andrew: We have different product areas so we have different competitors.

Looking at renewable natural gas we see a HUGE opportunity for Char because to meet the 2030 green target (according to a study commissioned by Énergir) the world will be needing 80% of the total RNG generation from  technologies like pyrolysis in order to meet this goal. So either you need gasificaton or Pyrolysis. I’d say Char Technologies is very well positioned in terms of competition on the renewable gas market.

Instead looking at the field of biosolids processing there is literally only one commercial scale competitor called BioforceTech in the United states. Our competitive advantage here is scale since their largest system is basically the size of our smallest system. They have an advantage in small waste water treatment plants to get rid of biosolids however they can’t produce the renewable gas and green hydrogen product that we can.

We have first mover advantage when it comes to creating hydrogen from biomass.

Andrew continues:
When it comes to the area of our product Cleanfyre it’s interesting because we have more competitors in that space but in that case our advantage is the by product  we produce which is renewable natural gas. We are not aware of anyone who makes biocoals AND renewable natural gas. A few competitors to name are BC biocarbon, and there is AirX in Quebec. There is also one US company called National carbon who only make one product which is biocoal.
However speculatively speaking you could say our business model is way more attractive in terms of financing and payoff time since no one has our co-product scale.

ESG: You recently completed a private placement, what has your development costs looked like historically and what will you use the new funds for?

Andrew:
We went public in 2016 and have only had to spend about $6 MCAD in development costs so we believe we have been very conservative using our shareholders money. When we see what other competitor spend on research and development we don’t understand what they’ve actually spent their money on!
Moving forward we will be spending more money on business development and delivering more projects as they come.

ESG: Will you be needing further capital shortly?

Mark:
We don’t necessarily need a capital injection. We will grow our human capital within our Management Team, Sales and Project management however before these additions we are close to break even result month to month. These additional expenses will create a relatively small cash burn until meaningful revenues kick in. We are well positioned financially to build out and commercialize our company now and we have NO current debt.

However if we get a large project and/or a utility project or an acquisition that adds value to the company, yes, then a capital injection would be needed. We may do a financing within 12 months but that would only be made for growth reasons and not by the need for cash from a basic operating perspective with modest growth.

ESG: Can you tell us a little bit about the recent suggested additions to the board?

Andrew:
Yes we have three new members coming aboard. They are Nick Nanos, which many Canadians will recognize from his firms polling activities during the election campagn and is well connected in cleantech on the government side. Then there is Paul Pellegrini who has a similar understanding of the marketing and government policies since he works at a government relations firm called Sussex Strategy. Then we have Jane Pagel with a very strong history and background in Canada’s cleantech with a lot of public board experience. We had over 10 candidates for the Board to provide some rotation and new ideas and we have a good network in the clean tech area.

ESG: Thank you for taking the time for this interview and hope to see you back soon again!

Mark/Andrew/Ellen: Likewise it was a pleasure!

 I own shares in this company personally and this is not to be considered financial advise, always do your own research!

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