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A webinar was run by Phil today on the Zesty project. Not much in the way of new information was presented except for some of the following notes.
Slide Deck:
https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02815944-2A1528298
There is a distinct feeling that Calix is in a position where is going to need to start fronting up some decent chunks of cash to get all these projects in the works off the ground. This is only reinforced by the Heidelberg JV announcement also today.
https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02815913-2A1528288
During the presentation Phil did state that for Zesty, they would be looking at primarily investment in the Zesty subsidiary as there was now appetite for further capital raises in Calix at the current share price. So potentially he is also shopping Leilac around as well.
There were lots of large TAM figures thrown around for ZESTY, which were based on a $7.5/t royalty rate. Phil did get a little cagey when asked about where it comes from, but said that they wouldn't use it unless they were confident that it was a realistic target.
The project pipeline outside of LEILAC was discussed for Sustainable Processing business, which hasn't been displayed before (as far as I am aware). It shows multiple projects across all mineral types that Calix is targeting. These project pipeline numbers always need to be taken with a hefty dosing of salt as the timelines for the projects tend to run years before they get off the ground.
Estimated Project Timelines
- Pilbra Minerals
Lithium JV - Construction still forecast to commence this quarter with commissioning of the plant targeted in the middle of CY25.
- HYGATE
15kTpa - VAST VS1 now signed contracts for FEED with FID in Q1FY25. As construction of the plant is grant funded approval to the next step is likely. The co-located SM1 project (including the 15kTpa Adbri lime plant) will likely follow behind
- LEILAC 2
100kTpa - LEILAC 2 has now found a new home in Heidelbergs Ennigerloh plant with construction set to start after all new permitting requirements have been finalised. I have estimated this as a 6 month timeframe (Likely optimistically). Construction was previously forecast for a 12 month period in the FEED study.
https://www.leilac.com/news/leilac-2-heidelberg-materials-cement-plant-ennigerloh-germany/
https://www.leilac.com/wp-content/uploads/2023/10/2023-10-15-Leilac-2-Public-FEED-Study.pdf
- Project Cypress
1MTpa - Project Cypress is currently one of the larger projects in Calix’s pipeline, with an agreed capture price with Heirloom. Based on the project fact sheets, actual construction of this plant could still be quite a few years away.
https://www.energy.gov/sites/default/files/2024-03/Project%20Cypress%20Fact%20Sheet_final.pdf
- ZESTY Pilot
30kTpa - DRI plant - The ZESTY FEED report has been released, with the next step a Final Investment Decision that leads to commencement of detailed design. A mid 2024 target is in place for securing financing. Port Augusta is the likely candidate for the location of the plant.
- ZEAL
Pilot trials completed for Alumina with feasibility studies underway. The next step is a FEED study with the siting and construction of a trial plant unlikely until 2027.
https://calix.global/news/zeal-targeting-lowest-cost-lowest-emissions-alumina/
The Good
- Trending improvement across revenues from the main business divisions to $12.2m, this is the highest to date.
- Project pipeline increased to 82 with several projects moving into the initial and detailed scoping stages. There has still been a long waiting time for projects in the Pre-Feed stage.
- First significant revenue contribution in CO2 Mitigation from project income. This will be a hard area to continue to increase revenue significantly as it would largely be driven by increasing engineering resources which is challenging in the current market.
- Both new IER plants have been completed and are in commissioning / operational. This should facilitate continued growth in IER revenue across the U.S market.
The Not So Good
- LEILAC 2 still delayed whilst a new location for the trial plant is determined by Heidelberg Materials. Once determined, there will be a 6 month integration design and construction can then re-commence. What wasn’t mentioned was the potential impacts of any additional permits that may be required for a capital works project. Phil indicated that the 6 month timeframe is conservative
- Cash outflows are at the highest in recent years at -$26.8m for the half. This has left the cash position at $47.8m, which at the current spend rate is enough to get through to H1FY25.
- Several slides of the investor presentation were dedicated to company valuation. I’m not a fan of when companies are promoting share price rather than focusing on the business performance. There was also some adjustment on slides to present information in a more favourable light. For example on the projects pipeline Feb 2024 compared to August 2022.
Watch Status
- No Change
Value Status
- Change in Weightings - Improvement in Bull Case due to higher than expected revenue (annualised and excluding grants)
What To Watch
- Improvement in cashflows in H2. There could be a raise on the horizon to facilitate further projects if cash outflows continue at the current rate.
- Ongoing revenue contribution from CO2 Mitigation.
- Engineering work commenced on Heirlooms first commercial module - Heirloom have already opened a 1000Tpa plant? No time frames provided
https://www.heirloomcarbon.com/news
https://www.energy.gov/oced/regional-direct-air-capture-hubs-selections-award-negotiations
- Leilac 2 not impacting fully electrified projects, if this is the case, can expect to see projects progressing down the pipeline even with delays to the Leilac construction.
- During Q&A Phil indicated that the Cemex licence agreement is awaiting Cemex to agree to Calix’s terms. It is good to see the company holding out to not devalue the technology, however there is risk in this approach, as negotiations have been ongoing since 2022.
- ZESTY 30kTpa plant Final Investment Decision progressing, pending site selection and commercial agreements.
- Construction of Lithium demonstration plant to start in Q4FY24, with first production targeted in Q4FY25.
- Electric Scooter battery module delivery and testing due in Q4FY24. Batteries have now moved into Sustainable Processing to market the process rather than the product so it is unlikely there will be any further R&D in the cathode materials.
- Vast secured funding for SM1 (Calix HyGATE project)
- Progress in plant designs for new applications - Alumina, Manganese Metal and Battery Cathode Plant (Carried Over). Alumina pre-FEED nominated as on-track, Mg Metal BOD as watch
Lithium Demonstration Plant
- Construction Commence - Apr-Jun 2024
- First Production - Apr-Jun 2025
Leilac 2
- Commissioning 2025
Heirloom DAC
- Microsoft deal with Heirloom 315,000T carbon removal to be generated at Heirlooms next 2 commercial deployments in the U.S
ZESTY
- Ore testing until Nov 23
Full Year Review
The Good
- IER revenues back up to the highest levels since 2021.
- Project pipeline has grown to 75 (76? There may be an error on the slide?). The increase is positive, however it looks as though 2 projects have been removed from the Pre-Feed stage.
- (Post Full Year) Pilbra Minerals Lithium Phosphate plant passed the FID. Timelines in the announcement indicate the first product to be ready in FY26.
The Bad
- Revenues are up 42% over FY22, however this is mostly due to the significant difference in R&D incentives in FY23. IER is starting to show signs of growth again.
- 42% increase in total losses to $23.4m. This will only continue for FY24 as the first projects start to require more significant capital expenditure, without any revenue contribution.
- Further delays to the 2 new US hydration plants. Previously targeted for H1FY23 completion, currently 1 plant is in commissioning and the other is still under construction. Once completed these will allow IER to more easily service a wider geographical region.
- Delays to the start of the LEILAC 2 construction with commissioning now targeted for 2025. This is likely a best case scenario given that construction is never a straightforward activity.
- Windship competition partnership withdrawn. This was never a major use case for the LEILAC tech, so the potential upside from this is the engineering resources can be used in more productive areas.
Watch Status
Signs of improvement from IER which is the primary revenue source, but delays appearing across most of the technology verticals
What To Watch
- Both new IER magnesium hydration plants are expected to be operational in H1FY24 (Revised twice)
- Moving from a MoU to a binding global licence with Heirloom, now that Heirloom is part of the Project Cypress consortium. Project Cypress aims to remove over 1 million tons of CO2 annually when in production. Not a lot of clear detail is available yet on this project. Future project updates may provide some indicative project timelines. Currently in community consultation so very early days yet.
https://www.projectcypress.com/news
- Targeting a BOD for the HyGATE Green Methanol project. As the Calix / Adbri lime plant is an ancillary part of this project for the CO2 supply, this will be dictated by the progress from Vast.
Latest update from May.
- Further ore testing for ZESTY due to be completed in H1FY24. (Previously FEED Study targeted for completion at this time)
- Results from the LMO cathode commercial battery testing. Likely use would be in power tool batteries or similar, which is change from original target EV use (Delayed)
- Progress in plant designs for new applications - Alumina, Manganese Metal and Battery Cathode Plant
- Potential news upcoming for partnership with a marine coating manufacturer (Carried Over)
- Third distribution agreement in the works for BoosterMag (Carried Over)
FY24 Targets
Key takeaways from the presentation and following Q&A
- Leilac - FID for several companies in the pipeline are waiting for the Leilac 2 proof of operation in 2025.
- Leilac licence opportunities in the works in the near term. Cemex & several others
- Zesty - Targeting 30tpa plant FEED by end of the year (Previously indicated as H1FY24). Capital costs for construction of the demonstration plant will be ~$30m. Options for this are ongoing ARENA funding or looking at the sale of equity in Zesty similar to the LEILAC business.
- Zesty - Testing multiple ores, every major ore producer has sent a product for testing which has extended the testing program through to the end of Q1FY24, with the objective to achieve the same metalisation as the initial tests.
- Site selection for the Zesty demonstration plant will be determined by access to ore, green power and hydrogen… Fortescue Future Industries anyone?
- Pilbra Minerals JV FID update sounded positive and likely to be announced in June.
- Other applications may look at the same LEILAC equity sale model.
Calix released an investor slide deck today from a presentation to Canaccord CG Sustainability Series.
No new updates on any of the projects in the works except for an adjustment to the potential revenues from the Lithium Salt Project JV.
February
April
$180m to $85m is a fair adjustment to make in 2 months and with the Final Investment Decision forecast within the next 2 months I wonder how much the lithium price volatility will impact the decision. One to watch.
The Good
- Another major commercial agreement has been reached with the Calix kiln being used as part of Heirlooms Direct Air Capture technology in a closed loop cycle. Looking through Heirlooms website, there are references to multiple electric kiln technology providers, the fact they have decided to partner with Leilac verifies their position as a market leader.
- Leilac’s pipeline of projects continues to grow with 71 projects now at various stages. The US$3/t from the Heirloom agreement can be used as an indication of what the current commercial value of the project pipeline looks like. With 20Mtpa total capacity, this would equate to US$60m per year once in production, paid as royalties, requiring no capital or production from the business.
- The range of applications are also expanding beyond direct lime and cement production. Calix has been effective at developing partnerships and projects that provide significant business cases for the use of Calix technology in the production of lime and cement:
- Zero carbon lime - The windship partnership provides a solution for the Clean Maritime Demonstration Competition. This also allows Leilac to gain government grants to further R&D in the area of carbon capture while exploring a new market for zero carbon lime.
- Captured CO2 into Methanol - Part of the HyGATE solar methanol project, using calix technology for the CO2 capture process.
The Bad
- Revenues were reported as a 21% improvement over the pcp, but this was due to the “other income” component. Revenue from the IER and water businesses has largely been flat for the last 2 years.
- Cash burn is increasing as Calix expands to take advantage of the multiple opportunities that are available. There is still a healthy cash balance of $88m, which should be enough to get through to when the first of the projects start generating revenue.
- Leilac 2 - CY25 - $300k p/a
- Pilbra Minerals - CY25 - Potential $80m p/a
- ZESTY - CY26 - $TBC
What To Watch
- Full Heirloom DAC licence agreement which may provide further details on timelines and scale of DAC rollout
- Commercial production trials of battery cathode to be completed by H2FY23 ready for EV trial
- Pilbra Minerals FID to be completed H2FY23.
- ZESTY FEED study to be completed by H1FY24
- Potential news upcoming for partnership with a marine coating manufacturer
- Third distribution agreement in the works for BoosterMag
- Management has indicated that water business sales in SEA have started again. Look for improved revenue in this area, as it has been signalled before with no results.
- 2 new US plants expected to be completed in H2FY23. This was previously targeted for H1.
- Trials for Aluminium Oxide processing scheduled delayed further in order to pursue other key projects.
After the announcement that the government has cancelled the grants for both the Adbri & Boral projects it is worth a review of the remaining funding from the recent capital raise. (See @edgescape and @Summer12 's posts) Below is a mixture of my notes from the webinar and recent announcements.
- $8m for the Leilac-2 to cover increased supply chain and construction costs to ensure project can be delivered. Heidelberg Materials have also agreed to share the increased costs of the plant.
At operational handover of the plant, Heidelberg Materials have agreed to “buy-out” the capital costs, so a significant portion of Calix invested capital will be returned at the completion of the Leilac 2 project.
For the Leilac business, there has been significant change in industry over the last 2 years in commitment to meeting net zero targets which is driving the growth in interest in the applications of the Calix technology. This is demonstrated by the growth in the Leilac group's project pipeline. An average of 200kT - 300kT per annum of CO2 captured per project could be used as an estimate for project size. This is important going forward as each project is likely going to be a royalty agreement based on tCO2 captured.
Currently the Calix calination technology has the potential to be lowest cost CO2 reduction in the cement process due not not changing the process, just the heating methodology.
The Leilac 2 project is the key proof point for the technology, as it becomes modularised depending on plant size. Further scaling isn’t necessary at that point.
The main catalyst for capital raise is the technology licence agreement with Heidleberg Materials which is based on a floor and ceiling price (Euro) per ton of CO2 captured. (Based on the value of CO2 in the market). Calix has been holding off on agreements with many companies in order to establish the right agreement for the company. Now this agreement has been finalised, it establishes a baseline for all future agreements, which potentially will accelerate the process from years to months of negotiation.
While there is no commitment from Heidelberg to roll the Calix technology out across all their plants and they currently have several projects in the works with other technology providers, e.g amine scrubbing, currently Calix has significant cost advantages per ton of CO2 removed / captured. The Leilac 2 will be the proof case for the cost advantage.
- $15m for Adbri project who are still committed to the project despite cancelled government grant of $11m
Adbri project also has the aim of buy out by Adbri once operational targets are met, which means most capital allocated to this project can get recycled. In the webinar, Phil mentioned that licencing fees would then be also applicable to these projects which leads me to think that agreements with both Adbri and Boral may not be far away.
- $15m for Boral projects - Uncertain, currently in ongoing discussions. This had larger grant funding at $30m
The new grant program to replace the cancelled CCUS Hubs and Technology program will be the Carbon Capture Technologies program which is opening in CY23 and has allocated $141m over 10 years so even though Calix could reapply the funding amounts are unlikely to be of the same value.
One thing to note is these two projects are only 2 of 7 currently at this stage of development. Tarmac have a project with is progressing through UK government funding (also may be very tenuous at the moment)
If Boral were to pull these projects, this $15m could be used to accelerate any of the other 5 projects.
- $17.5m for Pilbra Lithium project
Current demonstration plant could generate $180m of revenue based on current lithium prices with 75kg of Lithium Phosphate salt from bench testing currently with prospective customers for analysis.
The processing of spodumene removes a lot of the CO2 that is usually associated with the transportation of the bulk commodity. The production of Lithium Phosphate meets the needs of two of the materials required for fastest growing battery technology. From 2024 the EU will start putting tariffs on the carbon associated with goods being transported into the EU which is the fastest growing electric vehicle market. Reduced CO2 materials will provide a competitive advantage in the future.
The aim is to have very little waste product from use of the lithium phosphate salt when used in a battery product. Currently a new product so there is some commercial risk in trying to market the material which cuts out ~ half the waste in the supply chain.
There will be costs associated with the spodumene fines inputs, the value of the lithium is currently in discussion with Pilbra Minerals and the fines have a lot less utility and purity as an unprocessed product so there is a limited market available.
Targets of feasibility study to be completed in first half of 2023 and plant up and running within 2024
- $2.5m for Zesty funding
Iron ore fines are the target feedstock for the zero emissions steel. Excellent conversion of hematite ore fines to iron which represent 96% of Australia’s export ore. The funding will assist for engineering of a 30kt/pa Zesty plant.
- $20m from SPP for strategic projects. Due to the current share price this is unlikely to be fully funded.
This funding has currently been ear-tagged for alternative fuels usage and methods for electrification of the kiln. Calix would likely use this pool of funds to cover the gaps that are now present from the cancelled grant programs which are circa $5m and $15m if split 50/50 with the materials companies. Given that these projects would likely lead to revenue and further reference plants, priority may be given to these projects over R&D activities?
There are other technologies out there with Phil acknowledging ~10 other technologies out there for both the cement and steel industries, however the Calix calciner currently has applications across both industries.
Potential commercial limitations due to limitations around carbon storage? Estimates indicate that only around 13 to 15% of the emissions from the carbon and lime industry could ever be utilised (i.e industrial gas use) because of the sheer amount generated. The EU is on its way for development of storage and handling projects, and the US has significant existing infrastructure. There is a risk here for Calix that needs to be monitored.
Zero emissions steel technology does not rely on carbon capture, it only requires renewable energy sources and green hydrogen.
Based on the above my current position is that there is only marginal impact to the short-medium term plans for Calix from the removal of the Australian Government funding. Given the amount of projects in the pipeline, if the Boral projects do not proceed, there are enough projects in the works that keep Calix as an attractive long term investment although obviously still with substantial delivery risk.
Full Year Results
The Good
- The pipeline of lime and cement projects increased to a total of 54 over the half, with existing projects shifting down further down the project timeline. These are still a long way from generating consistent revenue, but the ongoing increase in interest in technology confirms the appetite in the industry for workable solutions to the industries carbon problems. In the Q&A Phil said they are close to commercial agreements in this space but want to ensure that the first one sets the precedence in terms of the value attributable to the technology.
- Results from the zero emissions steel trials appear positive. These have taken precedence over other trials through the plant given the size of the issue and potential market. This is still a long way off though and it’s looking like an operational demonstration plant won’t be in place until 2025 on an accelerated timeline.
The Bad
- $41m in grant funding from the previous federal government under review. I would imagine these are likely to remain in place, but given some of the recent political events who knows. While the reviews are carried out, these projects will be on hold impacting overall end dates.
- Reduction in overall sales revenues from $19.2m to $18.5m. Commentary was provided around the reasons behind reductions but with a market cap hovering around $1.1B more expectations are built into the price. One positive to take away is that Calix is now beginning to generate revenue from sources outside of water & IER businesses. ($1.6m in FY22 compared to 86k in FY21). This is evidence that projects are reaching a phase where Calix can start to charge out engineering and technical resources to clients.
- Reduced revenues for IER and the water business. This was offset by increasing margins but demonstrates IER is having a hard time getting further traction with their MHL products. Entry into European markets for the is also under review and removed from FY23 targets due to external cost pressures. This will reduce growth rates going forward, but likely avoids incurring excessive losses to achieve growth. I don’t view this as a major issue as I see the IER business as a key to providing funding for Calix’s other operations but as a minor part of the business in the long term.
- Overall company revenues now prevent access to the R&D cash rebate which will impact cash flows in the short term. Cash balance is currently sitting at $25m. Some staff and operational costs will be offset going forward from the Government grants across several sectors, but this now starts the clock on each of the operating divisions starting to generate revenue or funding will need to be sourced through a capital raise or debt facilities.
What To Watch
- 1 to 2 new Hydration plants in the U.S targeted for completion in CY22
- Traction with MHL distribution agreements in SEA. This has been on the promotional slides for several updates now but sales in for Australia & SEA combined decreased from FY21.
- Leilac - Commercial agreements signed
- Trials for Aluminium Oxide processing scheduled for H1FY23. (Previously scheduled for H2FY22) Now that Calix is branching out into further industries, time on their Bacchus Marsh reactor is getting hard to get, particularly with the changes that would be required to the equipment for each new set of trials.
- Completion of BOD for ZESTY (Zero Emissions Steel) 30kT demonstration plant.
- Pilbara Minerals Lithium Salt Project Milestone - JV formation
- Boral - Grant funding approved
- Adbri - Grant funding approved
- Integration of full scale demonstration battery into EV for trials in Q1CY23. This will be key at proving the battery materials and the energy efficient production method work at commercial scale
The Good
- The water business has increased it’s gross margins from 31.4% to 36.4%. The ongoing improvement in efficiencies has helped offset the reduced US revenue and shows an ongoing commitment to developing the business.
- The CO2 Lime / Cement division of Calix, which is currently the key part of the business in terms of overall company value, continues to progress. Several projects have been added to the pipeline and other projects have advanced into the next project phase since the last update in September.
Feb 22
Sep 21
- The battery materials testing is progressing well, with commercial scale application tests targeted for the end of the year. Currently well funded through government funding and partnerships to continue development. There are currently tailwinds for any battery / EV technology right now, and this could lead to more partners in the green tech sector.
- The range of sustainable processing partnerships are also progressing well. Discussions with a potential partner looks to be already in place for ZESTY Iron after only submitting a patent for the in November, with trials to commence this quarter.
The Bad
- Negative operating cash flow for the half of nearly $8m. This is larger than previous quarters due to reduced grant income received. It was mentioned that there is $8m due this financial year, which means next HY will likely be closer to even but this highlights the company's current reliance on grant income. Without grants assisting the business the company has a bit over 12 months cash runway (if you factor in the current rate of investment spending) A capital raise is unlikely, however until Calix can generate revenue outside of the Water business there will be ongoing reliance on external funding. (FY24?)
What To Watch
- Drop in sales in the US water business. There was mention of everyone's favourite scapegoat Covid, but also of increased competition. Expansion in other states and the addition of new product lines should help with revenue. This will be something to look at closer in the full year results.
- Start of revenue in other European markets for water business. Currently no revenue from this region.
- APVMA approval for crop protection. This has been listed as in progress in the last several updates. Final stages, and still listed as a target for FY22.
- Potential sales of crop protection products in Netherlands. If the product is viable, there should be some sales in FY22 if the product is being recommended as an alternative to a now banned substance.
- Marine coatings testing still has 12 months until completion
- Spodumene plant JV with Pilbara Minerals sounds likely to be given the green like soon with potential JV arrangements not far behind. The agreements and structure of the JV will provide some insight into how other partnerships in this area are likely to be formed and will give a bit more insight into potential future revenue streams.
Impacts To Price
- Currently no changes.