Calix Limited (CXL) Earnings Call Transcript & Summary

Good morning, and welcome to Calix Limited's first half financial year 2023 results. On the line today from Calix, we have Philip Hodgson, company's CEO and Managing Director; and the company's Chief Financial Officer, Darren Charles. Before I hand it over to the guys to get started and go through the presentation released on the ASX today, I'll just remind you that we will conduct a Q&A segment at the end of the presentation, and you can do so via the Q&A button at the bottom of the screen. I'll now hand it over to the guys to get started. Thanks very much.

Excellent. Thanks very much, Simon, and welcome all to our half year results presentation. If we took down a couple of slides, Simon, through the disclaimer. And almost just before we launch into the half year presentation. Obviously, concurrently with the half year presentation, you've seen the announcements up on the ASX platform, you'll see reference to an MOU we have executed with a company called Heirloom. And it's really quite an exciting new application of the same sort of core technology we're developing in the cement and lime. And Heirloom is developing what is called direct air capture, and they need lime to do that direct air capture. A lot of people wonder why direct air capture is potentially a huge part of the climate, I guess, challenge and part of a solution, I guess, to the climate challenge. And that's because direct air capture of CO2 is one of those things that can be made and deployed proximate to where you either use that CO2 or can sequester that CO2. And so industrial CO2 capture, of course, very important, and we're developing a lot into those areas. But direct air capture is going to be quite an interesting tool to add to the war chest, if you like, on ways to combat atmospheric CO2 because it can be deployed close to where you can utilize or store the CO2. And so in any sort of climate scenarios that have been put forward at the moment, direct air capture is one of those things that could be potentially a very large industry to help mitigate CO2 below the 1.5 degree level. If we move through to just the next slide, we can see here a little more detail about how our technology measures with this company called Heirloom. Heirloom is a Bill Gates backed, Carbon Direct backed. So Carbon Direct is also backing our LEILAC business. It's a venture backed by those guys to develop directly capture at scale. The LEILAC technology is pretty central to it. It sort of sits there in this diagram, and there's a wonderful Youtube video, which explains this more fully. But basically, our LEILAC unit is there converting limestone to lime and separating out the CO2, the sequestration or storage or utilization. The lime that's made is then used in Heirloom's direct air capture technology. The lime is contacted with water and then with air, and that contact creates a bit of heat. And that heat helps drive the airflow through a contact series of trays that absorb CO2, converting the limn back to limestone. And then, of course, you can cycle the whole thing back through a LEILAC unit. The whole thing can be renewably powered. And so to us, it represents one of the simplest and most elegant solutions to capturing CO2 directly from the air and of course, our technology is fairly simple to that. Also very exciting, we could talk about the royalty arrangement for the technology that we've struck with Heirloom in principle. Obviously, there are full agreements to be developed, but the MOU outlines a principal. USD 3 per tonne royalty, the tonne of CO2 captured with our system. There's a variable royalty rate based upon the prevailing CO2 price. There's a bit of a cap, as long as we can keep bringing down the capital costs of our plants that allows us a nice big area to play with that royalty calculation. But suffice to say, the most important thing is this floor of USD 3 per tonne, which is really important to [ walk the way ], and we can talk that -- obviously now talk about a royalty rate of a tonne of CO2 in the public domain the first time, which is fantastic. So really exciting news that we're able to bring you this morning, obviously, as well as the half year results. So we'll [ work ] under those half year results now. So if we can move to the next slide, Simon. Obviously, with respect to Calix. For those who are not familiar with this, there's a few different things that we're doing. It's all with the same 1 core technology. Those different things that we're chasing, the LEILAC technology with that CO2 mitigation cement and lime, but we also have a sustainable processing area that we're looking at, mineral and industrial or processing and doing that more sustainably. There's also a water part to our business, where we're making a specific chemical that is a replacement for caustic soda, much more environmentally friendly alkali. There's a biotech and even a battery part to our business. But they're all connected by the 1 core technology. We just move to the next slide, Simon. That 1 core technology is just a new way to heat stuff up. It's a new type of kiln or furnace in a traditional kilo or furnace. You throw how you would heat and what you heat, all in the 1 chamber. So typically a fuel or a rock, and you'll [indiscernible] to match. And it's been in principle, much the same way for 5,000 to 7,000 years. What we do, we separate how you heat from what you heat. We do that with a rather large sort of steel tube, or usually rather a little cardboard roll here to demonstrate how the heat goes on the outside. We can heat with flame. We can heat with fossil fuels, waste, biomass doesn't matter, renewable electrodes. We heat this tube up to about 1,000 degrees centigrade. And what we heat goes down the middle. It's going to be a fairly small particle size. So imagine, again, a lump of flour or something of that sort of size in your hand and dropping it to the floor, watching it float down. That's all that's happening inside the tube. We're dropping what we're heating down. It floats down through the tube. And as it falls, the red hot walls of the tube radiates hitting those particles and heats them up. So there's no flames or slope or anything touching rocks, where you effectively separate how you heat from what you heat. All the heating's being done by this glowing red hot tube. Why heat this way? The next sort of example I usually use is it's holding up a rock. This is a lump of limestone. Half the weight of this or nearly half the way is CO2, tracking the rock when the cement lime industry is heating this up, they release that CO2. And in fact, it's over half their emissions. And so the cement lime industry, just [indiscernible] great percent of global CO2. Over half of the emissions are coming from the rock. If we go back to our tube. As those emissions come out of those little limestone particles that have dropped when you're heating up limestone to maximal and allowing that CO2 is trapped inside the tube, it comes out as a pretty fewer [indiscernible] at the top and your normal product comes out at the bottom. So that's the cement and lime application. And certainly, we'll cover off that when we talk about the LEILAC business. And there are several other applications, evolving material sites. Remember, we're not overheating. We're not contaminating our particles with smoke or flame. So that's the basis of the battery business, the water business and the biotech business. And the last part of our business is the fact we can renewably heat this, and that's the basis of our business in sustainable processing. We're developing more sustainable ways to make lithium for lithium ion batteries, and making more sustainable ways to make iron from iron ore. So lots of different applications. But just remember, it's all from the 1 core technology. So that's Calix and its technology. We'll just jump into the financial -- into the -- I'm sorry, we'll just do the achievements so far this year, and then we'll jump into the financials. So certainly, if you have a look at FY '23 so far, quite a bit has happened. First of all, we did capital raising of overall about $81 million into the -- into our business, which is really well capitalized now. Darren will take us through the balance sheet and talk about the financials in more detail. That's really important. That's enabled us to get the resources we need to really chase after all of the different opportunities that we're looking at here. ZESTY, which is our zero-emission steel technology. We announced some funding from ARENA, [indiscernible] funding from us to develop a pilot project, the front-end engineering design for a pilot demonstrated project for a zero emissions iron and steel. We had our very important license agreement with Heidelberg Materials, global perpetual license steel and the first of its kind for that industry. And so I'll talk a bit about the business model we have. It's a low capital royalty type business model, similar to what I've talked -- just talked about with Heirloom. But that was the first cab off the rank. And so that really did start to set up this momentum in cement and lime with our business model, a license of royalty arrangement using our technology. That was closely followed by 3 projects that we announced with CEMEX. We're developing those project agreements and a license agreement with CEMEX as we speak. And then more recently, some really interesting announcements around, again, the LEILAC part of the technology and what the CO2 can be used for, a HyGATE project, as it's called, which is a green methanol project we're developing with both ARENA and the German equivalent of ARENA in South Australia and [indiscernible]. We're talking to Adbri about a lime kiln in that to feed CO2 to make green methanol, which is a precursor to synthetic aviation fuels and greener maritime fuels. So really quite an interesting project there. We talked a little bit about an another maritime application a little earlier, which is some funding from the U.K. government to pursue what's called our Windship application. So we're working with Windship Technology in the U.K. And we're going to be using lime to absorb the CO2 from the flue gases of a ship, and that ship will also be powered by these [ live sails ]. And so that particular application of technology is again directed at the marine industry. And of course, today, the announcement with Heirloom developing both the collaboration agreement and a license agreement to develop that technology into direct air capture. Very exciting year so far for us, and as it always seems to be with Calix. And we're very pleased with the project -- that's progress, should I say, that's being made on 7 different fronts with this business. So look, I think we've got to the financial bit now. So I'll take a breath and give Darren a chance to take us through the half year financials. And then I'll talk a little bit more about each line of business and where we're at. So Darren, do you want to take it over?

Yes. Thanks very much, Phil, and good morning, everyone. It's a pleasure to be able to talk to you this morning on what's another exciting day in terms of the announcement with respect to Heirloom and also our ability and opportunity to communicate. Again, about our progress. And from my perspective as the CFO of the company, it's incredibly exciting to see the progress that we continue to make. As we promised again at the full year last year and then when we updated the market when we talked about the capital raise, we continue to invest in developing our kind of capability to pursue the commercialization opportunities that our technology platform [indiscernible] us. And when we do announce transactions with companies like Heidelberg Materials and Heirloom and CEMEX and Pilbara Minerals, of course, these companies are able to, I guess, confidently partner with us because of the team that we're assembling, a great bunch of engineers, R&D capability, commercialization team right across the board. The people that we're building into our organization allows us to kind of confidently pursue these opportunities. And we continue to do that in the first half. We've added a bunch more people, and they're getting up to speed helping us to pursue these opportunities. We also continue to invest in development of our technology and derisk the technology. As we've talked about before, the various different applications or different TRL or tech readiness level, but we're making some fantastic progress in bringing those technologies to kind of commercial to the commercialization point. And obviously, with the licenses and the agreements that we're doing, again, as we announced with Heirloom today, pursuing these opportunities requires commercialization capability and professional services, and obviously, we continue to invest in those. So with prudent fiscal management and significant investment, we're building a great team here. Obviously, our cash on hand is significantly strengthened post the cap raise. We're able to report a strong 20%-plus increase in revenues first half on the same time last year. In our Water business, we'll touch on that. We're really targeting high gross margin customers who kind of value customer service and quality, and our team in the U.S. and Australia are doing a great job to kind of grow sales at good margin. So we've increased our gross margins from sales, from 28% up to 30%. And we're really very comfortable with, I guess, the other aspect of where we're getting income from, which is our brand stream, our R&D incentives. And again, as part of the Heirloom announcement, Heirloom will also be contributing USD 3 million over the next few years to help with our R&D activities. So really positive place that the company is in at this point. So I'll just skip to the next slide. And just, I guess, again, just to reiterate in terms of the P&L highlights. As I've said, excluding -- we did mention at the full year that the U.S. water business had a customer which was essentially associated with coal-fired power generation. We announced in August that, that business essentially ended its life, which in terms of what we're trying to achieve as a company is not something that we're necessarily disappointed with. So excluding that opportunity, we continue to report good growth in our water business at good margins. As I said, we've expanded our sales margins up to 30% now. Again, we've got significant grants and rebates we've announced previously. European Commissioner obviously supporting our LEILAC project. Here in Australia, we're getting support from ARENA with the development of ZESTY. And we're also taking advantage of the R&D tax incentives that are there for us as well. So in terms of funding the business, -- we -- obviously, we've received the support of our shareholders. And at the same time, we're tapping into those other areas of grants and incentives that can help us along the way. As I said, we continue to invest in building out our capability. In fact, we've doubled the number of engineers and R&D resources in the last 12 months, which is [ no means ] fleet in terms of the team members who are leading that charge, and we're building great strength in those teams, and we're really excited about what we can -- what we were able to deliver over the next short period of time. There has been some admin costs, obviously increased in the first half compared to the previous year, and that's specifically associated with the cap rates that we did last year in sort of October, November. And as we've said, some other kind of commercial support that we've got on board. So just I am at the final slide for me, the next slide, if I can, Simon. Yes. So in terms of the balance sheet, again, as your CFO -- as the CFO, I'm very comfortable with where we are in terms of our ability to pursue these commercial opportunities and really leverage the partnerships and the relationships that we're building. Obviously, with Pilbara Minerals, we hopefully -- hope to be able to kind of begin to put some capital work as we get closer to the FID on that project towards June this year and again start to build a commercial business there, which Phil will touch on more. The cap rate has put a significant kind of, I guess, underpinned the strength of the balance sheet where we've got significant growth in net assets, cash on hand and real kind of financial flexibility and strength to pursue the various different kind of commercial opportunities that we have across each of our line of business. And again, just to reiterate, we have essentially no debt. I mean, there's $500,000 of net borrowings -- of borrowings, sorry. So we're really well positioned to pursue all of the opportunities that the commercial teams are developing for us. So I think with that, Phil, I'll hand it back to you.

Excellent. Thanks very much, Darren. So just getting back to sort of the thematics, and then I'll cover each of the sort of the lines of business separately. I think in terms of industrial carbonization, as I've sort of mentioned several times before, the last 2 years has been pretty dramatic in terms of the change we've seen across countries, companies and the investment funds in terms of the amount of focus and effort now going into decarbonization, which is huge tailwinds for our business and what we're trying to achieve with our technology. If we just move to the next slide. If you have a look at sort of a snapshot of Europe and U.S. and now Australia, like I wasn't -- even when the U.S. and Europe were moving, I was really unclear, and I'm sure as to when Australia might move. But of course, you've seen in the last -- just in the last few months quite a dramatic change in Australia, the introduction of the safeguard mechanism to not pass legislation yet, but obviously, been hotly debated now. But broad support from industry for at least something that give some certainty. And so I'm sure that there will be some system in Australia moving forward and an enormous amount of money pledged under the National Reconstruction Fund here in Australia, a fund we set up similar to the CEFC, the Clean Energy Finance Corporation but focused on reconstruction around sustainable manufacturing here in this country. And so when you think about some of the areas our technology touches, I'm very enthused about actually not having to go overseas to develop green iron and steel opportunity, for example, or develop obviously, the spodumene opportunity that's obviously moving ahead here in Australia and others sustainable processing application. We're looking at multiple different opportunities there. And the way that the legislation is being shaped to support manufacturing in Australia and processing minerals onshore here presents a lot of opportunities for Calix in this country. But that's not to say that the U.S. and Europe aren't of interest. I mean, obviously, direct air capture, which we've just talked about with the early announcement, getting massive support in the U.S. And so it's very exciting to be working with probably the premier or one of the 2 top DAC companies in the U.S. developing this technology. And of course, you're continuing to drive forward on cement and lime and other decarbonization efforts. So really very exciting times with legislative incentives, should I say penalties. All there now will certainly coming there in Australia's [ case ] to drive decarbonization, obviously, the benefits our technology bring to that, it's a great tailwind throughout this for our businesses. So if we just jump down, Simon, into the next set of slides. Just in terms of LEILAC Decarbonizing cement and lime, I think I've talked about the fact that cement and lime is about 8% of global CO2 emissions, and our technology directly addresses the 4% and it could directly address the other 4% once you use biomass or waste fuels or renewable electron. So it's a technology really that can solve the decarbonization of cement and lime being driven by carbon pricing. And as I mentioned before, whether that carbon price is a penalty or whether the carbon price is a tax incentive as it is in the U.S. Interesting enough, I think just before the call, the EU Emissions Trading Scheme, CO2 price at EUR 99.99 per tonne. So that's the highest it's ever been. Just couldn't quite get through the EUR 100 barrier, a bit like Bradman's test score. But not a test average, EUR 99.99. So quite a psychological barrier, nearly broken in terms of value of carbon or carbon penalty in terms of price. And so that is only just continuing to drive the, I guess, the tailwinds behind decarbonization as I've talked about before. If we move to the next slide Simon. Thank you. Just a quick recap on probably one of the most important deals we did in the first half of the year, which is the LEILAC license arrangement with Heidelberg Cement. Heidelberg Cement, obviously, one of the largest cement companies in the world, 149 cement plants globally. And the key thing about this license arrangement, it's a first of a kind in the industry and improved out our business model. We're not allowed to talk about the parameters of what the floor or the cap or the variable sort of percentage looks like in that arrangement. But sort of, I guess, with the recent Heirloom announcement, you can see where we've set the floor in that Heirloom piece. And so you can probably draw a line to similar or maybe slightly lower floor to the Heidelberg announcement. But certainly, that's the type of floor in terms of quantum that we'd like to see in our license arrangements and only upside from there. So as we get the cost of the technology down in both this arrangement and the Heidelberg arrangement, as the costs come down, the ability to get higher license fees increases. And so with both of those arrangements, though that type of mechanism where we benefit as the customer benefits a really great little arrangements as part of this -- as part of the agreements with Heidelberg and with Heirloom. So really important to have proven out our business model, low CapEx, royalty or license type arrangements moving forward and obviously, with the Heidelberg one perpetual arrangement. And so really important to set that business model moving forward with this arrangement. It's a critical deal for us during the year. If we just move forward again. We've updated the graphics on this slide. You may recognize the theme of slide in terms of the scale up of the LEILAC technology here for people who are not as familiar with the company. We've already built a 25,000 tonne per annum capacity facility to Heidelberg Cement facility in Belgium. So that 25,000 tonnes of CO2 separation is the largest CO2 separation cement facility on a cement plant outside of China. And so that the Chinese is about 50,000 tonnes. So that double this capacity and obviously a different technology. But that is no small achievement. We built that in 2019. We've run it for 2 years. We're making some modifications to it. We're continuing to use it and test the technology there. The second little graphic along is our updated graphic of what LEILAC tube will look like. It will have 4 tubes. It'll capture 100,000 tonnes of CO2. And with that particular one, we're about 20% of the throughput of a full-scale cement plant. And then right on the right-hand side here, you can see the -- what a full-scale LEILAC will look like on a cement plant, roughly 0.5 million tonnes of CO2 separation. And we are moving up to sort of 25 to 32 tubes. And so that particular application there is obviously starting to be talked about because a lot of these companies, and you can see the companies in the consortium that we're working on with the LEILAC technology including Heidelberg, it's CEMEX, TARMAC, Lhoist, CIMPOR, some of the largest cement and lime companies in the world, so a huge chemical company, ENGIE, a huge energy company. Port of Rotterdam, a CO2 sequestration project. And so we really have a really nice consortium working on the scale-up of our application in cement and lime. If we just move to the next slide quickly. Just to give you an idea of the scale of the problem with scale the opportunity. Those big LEILAC units, Leilac-3s, we call, 0.5 million tonne separations. We're going to need to build probably 2 of those a week between now and 2050 if our technology is going to mitigate the CO2 in the cement and lime industry. So that gives you an idea, I guess, of the scale of the problem as opposed to the scale of the opportunity in LEILAC. And by the way, that's without taking into account what we've got to do with direct air capture, by the way. That's without taking into account what we do about the lime industry with respect to opportunities such as green methanol, that we've just announced or opportunities such as Windship where, again, the potential for the technology is many, many times the scale or size of the current lime industry. So really very exciting opportunities in the Leilac part of our business. If we just move forward in terms of the number of projects in the pipeline, we sort of show this slide an update each time we do a presentation, up to 71 now in the pipeline. You can just read through each of these. [ There's ] 20 million tonnes of CO2 capture represented in the project pipeline we're developing at the moment. You can see some of the companies we're starting to name them now as we move past the competition [indiscernible] and project development, Adbri Boral, CEMEX, TARMAC, so projects being developed, obviously, with each of those companies. And with respect to some new projects, as I mentioned before, the HyGATE project, which is about the green methanol project in South Australia working with Adbri and how we might build a lime calciner to supply that project with CO2. And then, of course, Windship, that I mentioned earlier as well, which is an entirely new application for lime. So lots happening in the pipeline and the pipeline continues to grow. If we just move to the next slide, Simon. Both of these shipping and aviation, I may have mentioned the HyGATE project with respect to producing a green methanol, also the Windship Project. Shipping and aviation are probably the hardest to make transport sectors. Over 4% of global emissions associated with shipping and aviation, hard to move away from a fuel required for either. As I say, even with Windship, which is a sailing technology to continue to meet the, I guess, the passage times, to continue to have a ship being able to maneuver, all of these things will require [indiscernible] power of some sort. So the wind is great for shaving a lot, maybe 2/3 of the emissions in the ship. But the other third needs to still come from [indiscernible] power. And the Windship solution involves a CO2 capture using lime from their stack. And so the ability for the ship to continue to meet routes and schedules of times using some [indiscernible] power but still being able to mitigate CO2. It's a really important part of -- base of that technology. And then the last bit about aviation, getting a few hundred tonnes of jet up into the air and moving at speed across the world is going to be very difficult to move away from even as battery technology improves in electricity and electrical options, air travel improves. Hours and hours and hours in the air with that sort of weight. This will go back to the dirigibles, go back to the [ Heidelberg ], which I don't think we'll be doing. Jet engines would have been required. And so with respect to the HyGATE project, we're making what's called a green methanol, combining CO2 with hydrogen that's been produced from a renewable facility. And you want those 2 to make this chemical called methanol. That methanol can then be easily made into synthetic aviation fuel or could be added directly into existing fossil fuels like a diesel fuel. So you can substitute out more and more fossil fuel, completely substitute out an aviation fuel. And increasingly, as the CO2 required for that comes from sources such as direct air capture, then effectively, you can start to see how you might move towards a net CO2 neutral aviation industry. So very exciting developments just over the last few months in 2 [ dozen ] areas. So that's LEILAC. What's happening on the LEILAC front, as usual. Let's move to sustainable processing now. And one of the very interesting developments over the last probably about 14, 15 months now has been the application of our core technology in decarbonizing iron and steel. Iron ore is hugely important to Australia. 44% of our export earnings comes from iron ore, or over AUD 150 billion a year. 96% of our ore is a ore called hematite. It's the red stuff over in the [ Pilbara ]. That hematite is unsuitable for electric iron furnace. And so as the iron and steel industry decarbonize, most often [ quite a group ] used to continue to move down, building more electric iron furnaces which increasingly puts the industry here in Australia, the iron ore that we're making from -- that's basically hematite at risk. And so we really need a solution that can green -- make a greener iron [indiscernible] with a hematite such that we can then export a green iron to existing steel makers. So we're using blast furnaces as they can substitute that green iron into their blast furnace, 10% or 15% or maybe even 20% that allows them to reduce their carbon intensity. And so the green iron industry is really actually quite important in the existence of Australia as well as for existing steel producers, who have a lot of [indiscernible] capital in their blast furnaces, but want to reduce their CO2 emissions. So really quite an exciting opportunity for an Australian technology to be looking at helping Australian iron ore industry, which is so important for us. We just move to the next slide. So how is our technology applied for iron and steel? Same core technology, same tube, hydrogen in the middle, and iron ore in the top. Iron ore is basically rust iron oxide. And what hydrogen loves is water -- is oxygen, sorry. Hydrogen loves oxygen because it makes water. So when the hydrogen goes in the bottom or iron ore in the top, heat the tube, about 800 to 950 degrees, much, much lower than a blast furnace operates at. That hydrogen sucks the oxygen of the iron oxide and makes water and turns the iron oxide into iron. So at the bottom, you get an iron. And at the top, you get a mixture of hydrogen and water. And what's great about the technology is because what's separated how you heat on the [indiscernible] electrical elements, as I mentioned before, you can renewably heat it. What's great about that is you can power all things with renewable power. You can make hydrogen with the renewable power. And the most expensive part of making a green iron, there are other hydrogen technologies being developed for making green iron. But the most expensive part is the hydrogen. And if you can use one of our kilns instead of a normal kiln, you don't lose any hydrogen to that kiln or furnace. And so the hydrogen is contained within the tube, it's only used to convert iron ore to iron. The mixture at the top is very easily recycled. You can dense the water out and recycle all hydrogen. And so the technology actually represents a very elegant solution to make a green iron that minimizes the use of hydrogen. There's also several other benefits of the technology compared to several other technologies that are being developed around the world to make a green iron or steel. And so with respect to those other technologies, I've tried to sort of lay them out across here with where they're pretty good or where they're not addressing certain things. Our technological ZESTY, zero emissions steel technology addresses quite a few things. It could even be used to help upgrade a hematite to a higher-grade ore once you put it through our reactor and actually, you need those fine particles, as I mentioned before. And so conversion of those fine particles into iron ore, even into partial conversion to sort to magnetite could help with beneficiation steps, downstream of our technology. And so we're looking at the technology, not just as the conversion to green iron, but also as a way to upgrade hematite to high-grade green iron. So lots of work happening on the ZESTY front. Just if we can moving, I'll cover off a few of these smaller technical things a little more quickly and move through finishing out the lines of business and some -- and obviously, some Q&A. This slide is a little technical. But what I want to draw your attention to is the right-hand side, top sort of area there on the graph. That's called metalization. That's a conversion of iron oxide to iron. And these were the very first runs. We had our test reactor back at March. We converted it really quickly to run hydrogen. We ran some different ores through it, siderite emotes from Australia, Magnetite from Australia. You can see there that the siderites, the goethite/hematite, in fact, the goethite/hematite or hematite ore are the most prevalent in Australia, as I mentioned before, excellent conversion to iron, excellent metalization. And you can see that the temperatures were well below 1,000 degrees that we started to get really top conversion. Magnetite, which is the bottom curve there. That's a tighter ore. You can see these little photos at the bottom of the porosity or the pores in these iron ore particles. So the magnetites are typically a tighter ore. It takes a little longer to convert. But we're working on upgrading our test facility right now to be able to process better. And so we really seem to see not only testing of other hematite, goethite type ores, but also other magnetite type ores. So very successful first [ campaign ] run. We're in the midst of our second one now. So what's this space on a wider variety of ores and the performance of the technology for those ores. We just keep moving down. So just on this slide, as I mentioned, we had a ARENA funding to continue our front-end engineering and design study all the way to fully to get to a final investment decision on a demonstration plant, which you can see the sort of rendering of on the left here, just to give you an idea of the scale. It will be similar in terms of size and throughput to the LEILAC one plant that we built for limestone. This one's for iron ore, of course. And so that particular study is underway right now. We're targeting end of this year to finish that study and look at a final investment decision on a demonstration unit. We just keep going once, say the, demonstration unit is up and running. Obviously, we want to run and test as quickly as we can. And so early '25 possibly, if we can target that and achieve that, we'll have the development on sort of this technology compared to, say, the Leilac technology, which took us 10 years from patent application to demonstration. So we're really running hard and fast up for this one, for obvious reasons. It's a very, very important industry to decarbonize, global CO2. As with LEILAC, we're only one of half a dozen or slightly more technologies that will ever decarbonize those industries. So it's a very small field. It's a very small sort of set of players who are going to dominate these industries, and we want to charge as hard and as fast as we can. If we just move to the next slide. Just covering off the sustainable lithium joint venture. So with Pilbara Minerals, it was very, very satisfying to signed our full joint venture arrangements recently and again announced recently, we're looking at this half year to do that final investment decision for this particular facility. This will be again a demonstration-scale facility of 3,000 tonnes per annum, looking at $50 million to $70 million of capital with $20 million contributed by the modern manufacturing initiative. And with Calix contributing 35% of the remainder, although Calix would be 45% of the joint venture. This is to actually process spodumene waste or finds here in Australia to produce a lithium phosphate salt. It reduces the waste that shipped offshore ore 94%. So 94% waste is currently shipped offshore. Our lithium phosphate salt has great utility, both bits are useful in a lithium iron phosphate battery. And so we're really trying to lower the carbon footprint, increase the utility and add, obviously, value here in Australia. If we go to the next slide, quickly, Excellent. So as I mentioned before, final investment decisions targeted before the end of this financial year. You can see there a tray of our lithium phosphate to that we've already made a big sent to customers for assessment and evaluation even at today's lithium prices, which have come off their peak. We're still looking at 3,000 tonne gram having a street value of probably about $180 million based upon lithium contents alone. So despite the fact this is a small-scale demonstrator, it's pretty quickly with current lithium market become quite a significant sized project in and of itself. So what's the pace on this one? Obviously, the -- we want to get this thing past FID, provided the feasibility study all turns out well, to be up and running as quickly as we can. So really targeting maybe 2024 to get this up and running. And obviously, test operate, really understand that payroll would obviously start to produce commercial quantities of phosphate sold. We just keep moving. Just very quickly covering off the last sort of parts of our business. Advanced batteries, a lot's happening on the advanced battery front. The key test for advanced batteries is really to take this lithium manganese oxide we've made in our calciner, in our core technology. We've made hundreds of kilos of that material now. It's being put together in parcels in the U.K. with a company called AMT. They've done several runs of those out PAT-cells and they'll be doing several more. And of course, with any battery technology, it's a very great to have a great chemistry in the lab. But unless you've made commercial quantities of actual batteries often the engineering and the technology just in that last part to go from the lab to making commercial qualities is just as difficult as coming up with the original fantastic chemistry to begin with. And so this is an important proof point for us. We want to make enough to put an electric vehicle and tests run that. And so the battery chip are working really hard on getting that completed in again, this financial year. Other chemistries are being looked at by a technology here. LFP, which is lithium-ion phosphate, and I might have mentioned that before, lithium nickel manganese oxide. So the initial -- little bit of nickel to see if we can get better cycling performance and better energy density out of our battery materials. But really, the sort of technology mode we're trying to push here is the calcination or the heating in making a cathode material such as lithium minings oxide is over 8% or the energy of making that material. And so if we can use our technology that drop that energy required to make that capital material. Again, we're reducing the carbon footprint of that capita; material. And apart from that, obviously, we're making some pretty interesting crystal structures and these sorts of things. They can aid with charging and density and these sorts of things. So yes, a lot happening on the battery front, but the key thing to watch this financial year is to get those half sales made at commercial -- at commercial scale and into an electric vehicle for proper testing. So let's keep moving. Biotech, plenty happening on the biotech front as well. Obviously, biotech part of our business is probably a bit longer to reach fruition. But there's some very interesting areas that we're developing into crop protection, marine coatings and health and pharmaceuticals. Crop Protection, we're now part of protocols for a Dutch or a farming cooperative with a banning of pharmaceutical magnets over there. And so again, over the European summer, used our product as part of standard protocols. We're trying to get a third license agreement in place for our Crop Protection product. So over time, we'll start to build the data, build the confidence in the farming community and start to build sales of this product. advanced coatings with respect to marine cuttings, very exciting area as well, just the same sort of material here, which is what's called magnesium oxide, again, made with our core technology, very high surface area material that we can produce being used in marine coatings. We've got some excellent results in our marine coatings area from overseas trials with 2 coatings manufacturers. And so we talk more about those soon. And there's also a third end user customer here in Australia potentially in new customers in Australia we've also had some very successful testing with. So Marine coatings is moving quite quickly now, which is really good to see. And the last area, antimicrobial [ survival ]. We would have soon announced over the course of the last sort of 6 to 8 months the participation in 2 areas to advance the use of high survive area of serum magnesium oxide in pharmaceutical and/or veterinary type applications. And again, just to emphasize, the magnesium oxide we are making it doesn't kill bacteria or fungus. It propels them and that is just type of like colonizing and growing through the material. And so it's a very interesting area of a low environmental impact that affected antimicrobial. So there's a whole biotic areas -- it'll be quite interested in the company moving forward. And lastly, cover of Water quickly. As Darren mentioned, very pleasing results in the world, we always like to sort of talk about the growth cover being an S-curve I think we're lifting off the bottom of the year -- it's quite nicely now. continued trends in the growth of the business in terms of both gross margin and in terms of total revenues. We've got 2 new plants that are in the process of currently being built. So very exciting to actually start to expand that U.S. business after a bit of a COVID hiatus. And difficult to get even several things like truck drivers and these sorts of things, believe it or not. They just have the ability for us to grow their business. But having been through that now, we're really pleased to start to see some good growth starting having that business customers staying with us paying good margins for the product that, as Darren said, we focused on service with respect to this business -- is really starting to -- be some very good results. The other thing, just mentioning quickly, it's good to see AQUA-Cal+, which is our aquaculture water additive start to actually get some sales happening again. And so once this space over the remainder issue into next year, we have triple-digit growth on this product before COVID hit, and we're starting to see the green shoots again. So it's really good to see sales of AQUA-Cal+. We have it back into China as well as Malaysia and Japan, a few new markets such as India. So while acting on the water side of the business as well. And as I say, it's quite pleasing mainly, the state is obviously being the last part of the revenue in the water business. It's Pleasing to see the states really lifting in terms of this top line revenue. Just quickly through last little bit, sustainability. It's obviously very important for a company like Calix even though the technology we have addresses a lot of sustainability challenges. We also have to ourselves be a sustainable company. We have commitments with respect to the UN Global Compact with -- and those commitments include zero waste, reducing our greenhouse gas footprint, diversity, inclusion and general quality. And lastly, a Zero incidence of driving corruption and a revamped governance system to make sure that, that happens. So all of those are being pursued by us. They're all detailed in our sustainability report and we'll be updating that report at the end of this financial year as well. So that sustainability call is up on our website and available for -- to read. Lastly, just in terms of our Quick snapshot report card. Unfortunately, the docs don't appear to have made it on to the dispersion of the report card. But successfully completed is a green dot on track is a blue dot and a watch point is just a little orange dot. Everything is on track. And in fact, we -- except for 2 areas, which are watch points, in terms of the water business, we're establishing that EU market entries is just a watch point for us. It's proven quite difficult with everything going on in Europe. And then similarly, under refractories, converting an MOU that we have with HIS project agreement. This remains a watch point simply because, again, the facilities that are actually -- have in Europe are pretty labelbox. And obviously, there's a lot of other distractions happening in Europe at the moment. Everything else is on track, and even some green dots as it completed. Obviously, spodumene, we have a green dot against the full JV agreement, which was executed with Cobra. And under the LEILAC group, we've now converted 2 projects to feed stays. So you see in the pipeline, if you think back to the pipeline, related slides move through in the front-end during the Tarmac line project in the U.K. So that's now agreed on as well. So pleasing progress. A couple of little areas that are watch points, but across most of the business, everything is on track, if not completed for those 2 areas that have green dots. So I think that concludes what I was going to say -- today. But obviously, Simon, happy to answer questions as they come through.

Perfect. Thanks, Phil. Just remind you can ask questions through the Q&A panel at the bottom of the ground, but we'll get on to those that have already been submitted. First question, how much CO2 do you anticipate or guess calcium hydroxide will capture from the air versus what is contained in limestone in its natural state?

Yes. So it's almost like a 1:1. So the CO2 that you separate from the lime stone and a LEILAC unit for example, and then sequester is in -- creates a calcium oxide that's rotated through the Heirloom facility. And that then captures that CO2, obviously recycle back to a LEILAC facility. Just in terms of total tonnages, then, for example. I think Heirloom will have an ambition, let's call it an ambition, to capture to be at about 1 billion tonne per annum capacity by the mid-2030s, which is a huge amount of capacity. Now even if they get part the way air --, then we're certainly seeing quite a few million tonnes of CO2 capture each year. And so direct air capture, I think if you have a look at what the 1.5-degree scenario is asking for -- expect to CO2 mitigation, it's up to 10 billion tonnes a year of CO2 that needs to be mitigated and industrial contributions and these sorts of things will certainly contribute some of that. But the remainder is going to be a significant gap that DAC is being developed to fill. So hopefully, that answers. The 1:1 on limestone to CO2 and then certainly, if DAC is successful, especially in bringing the cost down and capture, it could be a very, very significant industry.

Thanks, Phil. We've Just got Aaron Muller, who will now ask question by zone. Aaron, please go ahead.

I just wanted to ask a question just about the arrangement with Heirloom. My understanding that it's obviously a very energy intensive. Does the Calix technology bring that cost down? I'm just trying to think about the benefits your technology bring to DAC.

No problem there from here. So first of all, the ability to separate the CO2 to actually calcine the limestone or heat up the limestone to separate and directly to capture the CO2. Obviously, the development into the LEILAC technology is all about making sure that, that energy is as small as possible. And so compared to a conventional kiln, our target is to make the LEILAC technology equivalent, if not better, than a conventional build in terms of the energy requirement to separate that CO2. Other techniques being developed to do a similar thing. In DAC technologies, oxyfuel, firing of a kill, there you've got to separate the air into oxygen and nitrogen and justify your kill that oxygen. And so therefore, there you see an additional energy requirement to separate the air -- and so when it comes to the use of our kill versus, say, and obviously, you kill, we have the advantage that we can continue to drive towards a lower cost and more efficient kill. Second thing is that with respect to direct data capture again if you have a look at a few of the other technologies, and they have rather large setups with big fans to blow the air through collection systems, whether they be a -- whether they be a solvent or whether they be other systems that absorb CO2 such as a bed organic framework. And those driving those fans takes an enormous amount of energy. And so what's elegant about the Heirloom solution is they're using the heat that's given off by the CO2 absorbing onto the lime effectively. They're using that heat to generate a draft or natural flow through their contractors. And so the combination of our kill with their technology, we're targeting lowest cost direct air capture.

Great. And then just on -- I mean, is the arrangement with Heirloom exclusive? I think 1 of the other companies that you may have mentioned is a carbon engineering, the other major, I think it all backed by Bill Gates. But are you able to work with other companies? Or is it exclusive with Heirloom?

Yes. At the moment, we're just working with Heirloom. Obviously, as we develop the full-blown commercial arrangements, we'll be a little more clear as to whether -- we're exclusive or not exclusive as we move forward. So we'll take that on board, Aaron, and feedback as we have the full agreement in place.

Yes, sure. Great. And the U.S. 3 royalty, I think you might have mentioned -- is that something you're looking to apply to something like a CEMEX?

So it's -- that's So it's a -- that's the royalty floor. So there is a variable completed that floats above that. Certainly, the 3 is a nice number to have added the market, let me put it that way. The -- in the cement industry, obviously, we've already got an agreement place in hard work cement. And you can probably infer sort of -- that the Heidelberg cement number may be at or slightly below that particular number since hard work cement met the first cab off the rank. But look, I guess the key thing, Aaron, is people can start to see what the royalty floor looks like in terms of order of magnitude. It's not EUR 0.30 or EUR 0.50 or USD 75, it's USD 3, and there's a royalty component above that. So if you're going to be concerned, you can start to aim to that sort of number in the type of arrangements, 11 license agreements moving forward.

Sure. Okay. And last 1 for me just on -- it's obviously good to see that you found that the bottom of the S curve. I think you referred to it as. Do you expect revenue therefore in the second half to improve on the first?

Yes. The key thing Yes, the key thing there, Aaron, is to complete the 2 new plants. We're drew feeding volume into the new areas that we're looking at there. But we really can only start to run as we complete those 2 new plants. They should be completed this financial year. So we're going really hard and fast to get that done. That will be the catalyst to really sort of move up the single part of the S curve, is to finish those plants. So yes, what's the pace of -- the next few months, obviously, we're already to February. So -- but those plants should be completed this financial year. And so around half til this year, hopefully first half next financial year is where we start to see the benefits flow from having those plants completed.

Next question, just on the Heirloom royalty structure, is it an observable benchmark to determine the prevailing CO2 price per lime decarbonization? And what is the spot price of this today? Similarly, what is a reasonable volume assumption for Heirloom. Looking at the Heirloom website, they're talking about only 1 building having been done state with a reinjected atmospheric CO2 into the concrete of a building for permanent storage. Any comments would be helpful to give a sense of the materiality.

Yes, sure. So just -- Yes sure. So -- just in terms of the CO2 value that the royalty stream will be worked out on for the variable component. Basically, in the U.S., they have, let's call it, a 45Q tax credit system. That sets the CO2 price or impact tax credit at about $85 a tonne for CO2 as requested in particular states for direct air capture. That can be a much higher number. In California, it's in excess of USD 180 a tonne. And so the floor price, which is -- we're talking about USD 3. It can varies with -- it can also be 3.5% as that number goes up. 3.5% becomes the floor price. And there's a variable component, which is a combination of 8 percentage, which we can't talk about, but also the capital cost of our facility. In the EU, that price is EUR 99.99 today, euro per tonne. And so you can apply that 3.5 % to that to get an understanding what that like in the in the -- Australia, it's AUD 35 tonne indexed. Just in terms of Heirloom in terms of the potential market. As I mentioned before, I think they're in the public domain study. They want to try and hit 1 billion tonnes by 2035, which is, I mean, a huge, huge challenge. And -- but I guess what is interesting that early as had some pretty big baggers. And so it would be really interesting to see how fast and how quickly they move. I mean they need 1 billion tonnes by 2035, then as a minimum, that's really 3 billion. So it's going to be really -- so it has a chance to be hugely material. But it all depends on execution between now and then. We'll be working closely with them in that collaboration agreement. And as I said, they've got some pretty big baggers. So yes, it's -- hard as far as we can to help them try and hit their targets.

Phil. Just a couple of questions on the ZEST I'll link them together. Is it fair to assume that ZEST has attracted the interest of all 3 major iron ore producers in Australia and following on from the other question on ZEST -- and with this assumed for SKU as a part of the consortium, is it fair to assume they're pushing it towards magnetite processing as they press start on iron bridge? I mean, how can you run the plant over a sustained period of time?

Okay. So we're testing walls from all of Australia, including some very large iron ore operators. So yes, we want to, as part of the second campaign, and we have, and we are testing all in all from all Australia. Just in terms of FortiSKU and oil average, that's a magnetite development. as I say, magnetite can go into -- after beneficiation which is cost, by the way, as well can go into electric car. And so I think you'll see all the iron ore producers developing magnetite resources as part of a, I guess, a derisking strategy for hematite as the industry rolls forward and green iron and still become much more desirable. But having said that, as I say, the initial really exciting application does -- is the potential to turn hematite into the green line, possibly of a higher concentration as in removal of impurities, et cetera. And all of the iron ore majors have very heavy investments in their hematite ore action is. Just the last part of the question, Simon.

It's temperature. It's temperature-related, how long can you run hot temperature?

All right. Yes. So well, indefinitely, obviously, the tubes until the tube sort of wears out, we've been running the calciner back smash since 2013, same tube. We don't have fast-moving particles that scour the tube in the iron ore application. There won't be any volatiles. They're corrosive. And so I suspect the tube we can run continually for many years. Obviously, there will be plant shutdowns once we build the thing to -- for maintenance and these sorts of areas. But yes, we don't envisage any issue with running the tube for the months or even years at a time.

Thanks, Phil. Just a question. Does the 94% to Zero waste with the lithium sold -- I mean the whole product can be used in an LFP battery?

Yes, that's the plan. So interesting enough, if you look at lithium hydroxide or lithium carbonate, the hydroxide part of lithium hydroxide or the carbonate parabolic carbonate, which are the 2 other sort of major salts that are traded to the battery makers, the carbonate hydroxide are worthless. And so they're over 50% of the salt and they're not worth anything, and they have no useful purpose once they reach a battery cathode maker, for example. We're living phosphate, both parts are useful. There might be a little bit of excess phosphate if you look at exactly how much is required to go to a lithium-ion phosphate battery. But even that of itself is interesting because a lot of the battery makers, for example, in South Korea, have deeply accessing phosphate or phosphorous materials out of anywhere other than China. And so it's going to be interesting to see how customers will value this material. We've only paid the value right now of the lithium content. But if the total salt is a value, you may be able to extract a bit of a premium for the material or the very least same lithium content price and the customer may prefer that material because there's an added utility that having 2 components of the lithium ion phosphate battery industry. So yes, basically, we would envisage 0 to very low waste as part of -- the value proposition that is sold.

Thanks, Phil. There was recently published paper on future demand for electricity generation materials under different climate mitigation scenarios. Report highlights the emissions associated with materials for clean electricity coming predominantly from solar grade polysilicon, steel, aluminum and cement. Can you talk about any potential for Calix technology processing alumina and polysilicon production?

Obviously looking. We -- I can't comment on just yet. It's an interesting area. And certainly, to make sort of sole pedal grade silicon is -- you're going to make pretty high product purity. So I'll put that aside for a moment, let's not throw that way out. I think we've got a lot on -- but there's no secret that we're part of the HILT CRC, the heavy industry low emissions transition cooperative research center. Aluminum is 1 of the key focuses of that Hills CRC, of course, along with iron ore and steel, et cetera. And so there is potentially and we're looking of -- and working with some various little chance of CRC. Some very interesting areas that the technology could play in the total supply of aluminum supply chain. If 50% of the aluminum we make here is exported to Europe, Europe is introducing a carbon border adjustment mechanism that we'll put a carbon tariff on goods exported there. And so the aluminum industry is one of those areas that really needs to concentrate on how it lowers its carbon footprint. And the ability to have a kiln easily renewably powered that could fit into their process is something that -- of interest to them and obviously of interest to us as to the livability of our technology. So what issue is faced on that one -- is what I might say there -- but yes, the silicon part put on the list have a quick look at. But certainly, the aluminum bit is the bit that could be really quite interesting for us.

Great. Thanks, Phil. And last question. Intermittent renewables in the U.S. under the IRA are being subsidized to the tune of $26 per megawatt per hour. Just the same growth opportunity in addition to the carbon capital rebates discussed with Calix to promote to customers. How is Calix marketing its electric calciner in the U.S. and highlighting the benefits in relation to the IRA?

Yes. Excellent question. Marketing part. So obviously, the cemented lime applications are well known in the U.S. And we have some good contacts through both lobbing groups and one-on-one personal contacts in the Department of Energy, who are releasing trials up to trap inflation reduction at funding sources. So working hard on that. And the -- with respect to other applications, say, in mineral processing, very interesting areas that we could play in -- but as far as to say, things like ion or in spodumene, we're pursuing mainly in Australia for this. And so we feel the opportunity in terms of the market here is probably a little bigger than the states by now for ore. But there's certainly quite a few areas in the states that we're giving on the fact that the technology can be renewably held innovative operation even in looking continuous operation with the ability to draw electrons are really cheap in both run our process, that run a heat, let's call it a heat battery. There are things that are certainly of interest in the states. But yes. So look, we've got a lot of good touch points into the states, and we're looking to the right opportunity. But there's a lot of focus right now on Australia given the iron ore and opportunities as well.

Perfect. That concludes the Q&A segment and the presentation. Phil, I'll hand it back to you for closing remarks.

Excellent. Thanks very much, Simon. So look, on behalf of Darren and myself, thanks again for your interest in the Calix story. This half year has been very satisfying to see in terms of the commercial development and the potential applications, especially in the decarbonization opportunities. This remainder of the financial year, obviously, a few things to close out, and looking forward to doing that and updating as we do that. But certainly, the very few short years ahead are going to be quite exciting for the company on a number of fronts and those projects that we're developing. So thanks again for your attention and look forward to delivering further news as we continue to develop the technology to monitor more different applications.

All right. Thanks, Phil. Thanks, Darren, and thanks, everyone, for attending. And just a reminder, the recording will be made available probably about half an hour available via the same link. Thanks very much for joining. Have a great day.