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A good high level overview of decarbonising the steel industry.
https://podcasts.apple.com/au/podcast/catalyst-with-shayle-kann/id1593204897?i=1000664116736
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
Lithium JV - Construction still forecast to commence this quarter with commissioning of the plant targeted in the middle of CY25.
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
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
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
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.
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
The Not So Good
Watch Status
Value Status
What To Watch
https://www.heirloomcarbon.com/news
https://www.energy.gov/oced/regional-direct-air-capture-hubs-selections-award-negotiations
Lithium Demonstration Plant
Leilac 2
Heirloom DAC
ZESTY
Full Year Review
The Good
The Bad
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
https://www.projectcypress.com/news
Latest update from May.
FY24 Targets
Key takeaways from the presentation and following Q&A
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
The Bad
What To Watch
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.
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.
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.
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.
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
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.
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.
Equity Mates recently featured Theresa Milkota the CFO of Adbri. Calix get a brief mention as one of their partners Adbri's efforts reduce their carbon footprint, but it is interesting to hear of the challenges the industry faces from the one of Calix's partner companies. From the way Theresa talks about the technology, it sounds quite awhile off.
Full Year Results
The Good
The Bad
What To Watch
Following on from my previous straw, SaltX is now pushing hard into the calcination space. I haven't followed up Calix about this but I think it will be worth the question as this appears to have followed the collaboration with Calix last year.
Multiple pages were also dedicated to this in the Q1 Investor update.
Competitors were always going to be in the space given the size of the market and need, and Calix was always upfront about other technologies available and their progress. What does concern me is how this has appeared to directly follow the collaboration between companies. It doesn't look like SaltX have a patent yet, but their progress in this space has been quick.
Calix has the benefit of many industry partnerships as can be seen on their Project LEILAC page but what this does highlight is that now Calix has spent the last ~10 years developing the technology, it looks like doesn't take much from other large industrial equipment providers with access to capital to come in and create their own kiln. The size of the moat was always a area of concern for my position in Calix and this will be an area to watch closely.
Calix today announced that they have received Australian Pesticides and Veterinary Medicines Authority (APVMA) approval for Booster-Mag to be used in crop protection applications. This application has been under review for over 2 years and approval is a significant step forward for the Biotech business.
So far I have not attributed any value to this part of the company as sales have not been significant. It will likely need to wait until after the full year results, but between this announcement and being a recommended replacement for a banned product in the Netherlands, there may be enough of a contribution to revenues to adjust valuations.
The Good
Feb 22
Sep 21
The Bad
What To Watch
Impacts To Price
In March 21 Calix formed a partnership with SaltX, a Swedish company developing energy storage technologies. This month SaltX has made two announcements regarding their 200kW pilot plant.
The first announcement on 11th of Feb confirms that the plant has been commissioned and is showing positive results in line with the initial expectations. It is good news to hear the installation and commissioning has been completed within the scheduled time frame and that the using the Calix technology the plant is performing as expected.
In the initial Calix announcement it was mentioned that there is provision to collaborate on a larger 1MW unit if the results are successful. The subsequent announcement from SaltX on 17th of Feb indicates that further collaboration will go on between the two companies, however, it looks like SaltX has been developing their own reactor in conjunction with the development of the pilot plant and have mentioned other applications for their reactor includes calcination. I hope we hear some more from Calix on this in the update this week, but to me it sounds like SaltX have gone and copied Calix’s homework and are now applying for their own patents.
I may be misinterpreting the announcement, but will continue to watch this space closely. Would like to hear what anyone else following Calix thinks of this.
A big day for Calix with gains of nearly 40%. Exciting time for holders, however this is a signal to spend a bit more time on my understanding of the valuation to have some more confidence when watching movements like these and the marketcap starts to deviate quickly from revenue. Tom73’s straw has a good breakdown of each of the business verticals.
Other items of note from the announcement, outside of giving a third party transaction valuation on the LEILAC Division:
The LEILAC Group will start operating as its own business entity, expanding business development. This is a significant step towards commercialisation of the technology and having access to the Carbon Direct advisory panel and network is also another intantigle part of the transaction. This will also free up resources from within the Calix team to continue working on the wide range of projects that have been announced from the last capital raise.
It hasn't been confirmed, however the transaction would have to be taken as a pretty solid signal that the Final Investment decision post FEED for the LEILAC 2 project is likely to go ahead in November.
Further reiteration of a pipeline of 8 more cement and lime projects, which having extra resources available should assist in converting these into commercial agreements. However all these projects are still years away from a commercial outcome, which is still a significant risk to be factored in when valuing the company.
Disclosure: Held
Calix is an Australian materials company that aims to develop and commercialise new materials and production processes through their patented calcination technology. Calcination is the process of heating solid materials to remove impurities or volatile substances. This process is key in the production of calcium oxide from limestone for cement, with the main byproduct of this process being CO2. The Calix technology allows for the CO2 generated in the cement process to be captured. The kiln technology can also be used for other materials, creating new “active” nanostructure materials that have a wide range of uses from water treatment to crop protection.
Founded in 2005, Calix has been steadily developing their technology through a series of government grants and industry partnerships. In the last several years overall revenues have been propped up heavily by the grants received, with the acquisition of American company Inland Environmental Resources (IER) in 2019 providing a significant boost to product sales. (327% Growth in product sales of $14.1m and a further 150% growth at HY21 product sales)
2020 proved to be a vital year in the growth of the company with several key developments with the potential to act as catalysts for future growth:
Completion of first testing phase of LEILAC (pilot cement plant project started in 2016) with results demonstrating commercial viability. Note - Further trials at plant extended into 2021
Commencement of LEILAC 2 project (4 x Size of LEILAC 1) funded by the EU and industry joint venture. (Scheduled to run until 2024)
First shipment for Afepassa of BOOSTERMag (Part of 10yr agreement)
Upgrades to IER (main contributor to revenue) production plants to increase output with construction of an additional facility underway
First preliminary results from battery materials research with positive results
At the current market cap of $297m the company is overvalued compared with other companies in the materials sector. Based on the HY21 results, estimating a FY21 revenue of ~$35m and EBITDA of ~$7m for valuation comparison. However with upgrades to production facilities in progress and if further commercial agreements in works are successful, the valuation will be offset by continued revenue growth.
Calix is in an industry with a heavy focus as countries and companies try to offset and reduce their carbon production. As the production of cement is one of the highest CO2 contributors globally and the growth of infrastructure projects around the world only increases, Calix is well positioned to take advantage of the race to upgrade and amend production facilities worldwide.
Disclosure: Hold
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