Cielo Waste Solutions Corp. (CMC.V) Earnings Call Transcript & Summary

Hi, everyone, and welcome to Cielo Waste Solutions live corporate webinar. This is Paul Lampoutis from RBMG. Cielo Waste Solutions is publicly listed on the Canadian Stock Exchange under the symbol, CMC, and on the OTC under the symbol, CWSFF. Joining us today is the company's President and CEO, Don Allan, who will be providing an overview of the company, its current operations, its forthcoming joint ventures, partnerships and upcoming milestones. At the end of this call, we will open it up for questions for Don to address. [Operator Instructions] We have close to 300 registered today. Thank you all for joining us, and Don will try to answer as many questions as possible. Please note, this presentation is being recorded today, Thursday, January 28, and will soon be made available on the company's website. Today's call may contain forward-looking statements that are subject to risks and uncertainties that may cause actual results, performance or developments to differ materially from those contained in the statements and are not guarantees of future performance of the company. No assurance can be given that any of the events anticipated by the forward-looking statements will occur, or if they do occur, what benefits the company will obtain from them. Also, some risks and uncertainties may be out of the control of the company. Cielo's full disclaimer is available on Slide 2 of the presentation. Lastly, RBMG is not a registered investment adviser or broker-dealer. For more information, please visit us at rbmilestone.com. It is now our pleasure to introduce to you, Don Allan. Go ahead, sir.

Thank you, Paul. Good morning, ladies and gentlemen, and thank you for your time and interest in Cielo Waste Solutions. As Paul pointed out today, this call may contain forward-looking statements that are, again, on Slide 2 of the presentation that can be found on our website. The last webinar we did was October 22, 2020. And we're excited to announce a number of important developments that we will be going over today. Most importantly, we are now moving into continuous production and we're moving closer to revenues. Also, we will provide an update on future facilities as well as the operations. Following our presentation today, we will be taking your questions. So before we go over our updates, I'd like to provide a brief overview for Cielo for those new to our story. Cielo is a waste energy company with primary operations in Red Deer, Alberta, Canada, and transforms landfill and commercial garbage into high-grade renewable fuel. Cielo uses a refining process referred to as thermal catalytic depolymerization, or TCD, as we call it, which blends waste in with the proprietary chemical catalyst at a low heat to change the composition of the material, producing renewable transport diesel, jet and marine fuels and naphtha. The process has been awarded patents in both the U.S. and Canada. Cielo first commercial green facility has been engineered to operate on a continuous full basis operating 24 hours a day, roughly 341 days a year, allowing for 2 days of maintenance every month. And we will be accepting almost all forms of industrial and household waste, including, but not limited, to all types of plastics, tires, wood waste, including railroad tires; recycled paper and cardboard; sawmill and pulp and paper waste; organic waste, such as food scraps and agriculture waste; and municipal solid waste. All developed countries throughout the world require minimum blend of renewable diesel to be used in all transport diesel fuel, major fossil fuel. Cielo's renewable fuel can in highway, air, ocean and rail sectors and as the fuel in remote and off-grade communities. Cielo's renewable naphtha will be used as a diluent, condensate and a gasoline blending market. Cielo's expansion plans include 5 Alberta facilities and 1 Nova Scotia green facility, each able to produce 4,000 liters of renewable fuel per hour on the first phases with room for expansions at each site. Cielo's technology is scalable, capable, rapid expansion. I will be giving more detail on our expansion plans later in our presentation. As announced on November 20, Cielo's joint venture agreements with Medicine Hat and Dunmore have agreed to increase the construction size from 4,000 liters an hour to 10,000 liters an hour, which has now again been increased now to 12,000 liters an hour. Cielo has hired multiple engineering firms to begin permitting civil and rail design and site drawings. Cielo is expected to break ground in the spring as the thought comes through on the ground. On November 23, Cielo announced that it did receive a prepayment in full for 60,000 liters of renewable diesel, which is now being produced and is being held in Cielo's tank environment until the sulfur can be removed. On December 21, Cielo announced plans to build and own 100% of a facility in the Edmonton area, and we're now working on the debt financing. We have stated in the past that each facility is $50 million. And if we show higher numbers, this one here, where we show $75 million, that is because it's a greenfield site, and we need to put in rail spurs and, of course, the move of the elevations on the ground. So we have budgeted over $25 million for that. An update on our next 5 green facilities, Renewable U Energy and its 4 subsidiary companies have entered into a memorandum of understanding to be followed by the joint venture agreements, which will provide the framework to build and operate 4,000 liters per hour at our green facilities. A fifth similar memorandum of understanding was entered into with Seymour Capital for green facility to be built in Calgary as well as they have a right of first refusal for the first plant in Ontario. Cielo was projected to convert approximately 330,000 tonnes of garbage into approximately 164 million liters of renewable fuels annually from 5 green facilities. Each JV green facility is contemplated to create 30 full-time jobs as well as 260 jobs of construction and fabrication or approximately 600,000 man-hours of work, contributing to approximately $75 million during the start-up and $14 million in federal and provincial taxes per year. The first territory we signed was for Grande Prairie. Renewable U Grande Prairie has narrowed its land search down to 2 sites and has now determined which of these sites are most suitable for the green facility. We are also in early discussions with potential feedstock providers. Medicine Hat, Territory 2, is -- engineering, as I stated, has begun. And as we just talked about, Territory 3 is Lethbridge, Alberta. Renewable U Lethbridge is in discussions with multiple waste feedstock suppliers, who have expressed interest of providing enough feedstock for renewable JV green facility. Once a long-term feedstock agreement is completed, the next step will be to secure an optimal site that has enough land to add to future facilities. We have been looking at different sites down there. And we have been talking to many multiple feedstock providers. Territory 4 is Halifax, Nova Scotia. We're in the process of starting long-term supply of feedstock. And we have been looking at optimal locations that are close to those feedstock supplies. Hopefully, we'll be announcing something in spring. Seymour Capital is financing a green facility to be built in Calgary and has a right of first refusal for Ontario. There is plenty of feedstock from the facility in Calgary. But Cielo is working with Alberta Environment and Parks to allow us to use this recyclable waste from landfills. Once we receive that, we can push forward on feedstock agreements, and then we can start working on land that's suitable. We have completed the installation of the new cooling equipment and are now extremely pleased with the results. The waste process coming out of the reactor, it's released roughly about 20x per hour at approximately 365 degrees Celsius. And then it's -- we have to reduce the temperature down to below 70 degrees. This new process has actually taken it down to 20 degree Celsius. So this equipment has limited the need for Cielo operators to shut down the production of the distillate for over 6 hours every 18 hours and allow Cielo to reach its goal for continuous full production. We're extremely pleased and we're excited to see how it runs now as it continues to do. Cielo is also working with third-party engineering teams now to fine-tune the temperatures and the mass balance in order to achieve the 24,000 liters per day and the 1,000 liter output of liters per hour for output goal. The goal is to find the ideal temperature and blending ratios of the biomass and the catalyst. Cielo is currently completing another facility upgrade, which is the installation of a submersible heater that will be used to preheat the used motor oil to help keep the reactor at optimal operating temperature. This upgrade is expected to be completed as early as next week. Cielo has fast tracked an order of catalyst from China that will be used in our desulfurization process. And as engineers have completed the fabrication drawings to build the necessary proprietary equipment, Cielo is now soliciting quotes for all the required equipment and. Once satisfied with the quotes, we'll immediately order the equipment for fabrication and installation. Desulfurization is something we've always needed and we knew we needed to tackle. And now that we have solved the cooling issue with several other major facility milestones, it's the proper timing for us to move forward with the research and cooperation with the University of Calgary and lower our sulfur to below the highway industrial standards and garner top prices for our renewable fuels. We will be doing our best to continue to keep everyone apprised, go over the advancement through the updates as well as -- as we move this into the commissioning stage. Cielo is actively seeking to bring us up to CAD 15 million by the way of one or more convertible debt instruments. The proceeds will be used to further upgrade the Aldersyde facility and double its production capability as well as to repay Cielo's current primary secure lender. This debt financing will allow Cielo to focus entirely on getting the Aldersyde facility running smoothly, producing low-sulfur, renewable diesel and increasing the output to the capacity of more than 48,000 liters per day, over 16 million liters a year of renewable fuels. The intended result is to advance Cielo to a positive cash flow and profitability as well as to validate the commercial scalability in the Cielo-disrupted technology that is engineered to convert multiple different food waste streams of garbage into high-grade, renewable fuels that Cielo believes are in high demand globally. Securing this additional financing is expected to allow Cielo to accomplish certain objectives that are estimated to result in the increasing profits fourfold while cutting the cost production in half. As previously announced, Cielo has received multiple term sheets and is in the process of negotiating the terms to select the optimal funding partners for Cielo's expansion of the Aldersyde facility. We've been having meetings in the fall with Alberta Environment and Parks, AEP, to discuss why it's taking so long to get approval for us to use different feedstocks such as plastics at the Aldersyde facility. It's notable that we used to run a bench scale model -- well, not a bench scale, sorry, a demonstration model that did about 50 liters per hour here in Red Deer for 4.5 years, and we did over 63 different feedstocks at that plant. So we have a lot of experience with different feedstocks. When we went to AEP, we told them we wanted to do well over 50 different feedstocks at this Aldersyde facility, so we could prove out the commercial viability so that we could sign feedstock agreements at all the new facilities. What we heard from them is they're actually not set up to do permitting for research and development. They had no way to deal with our multiple requests. So with the help of the UCP and the Director of the AEP, we came up with a solution that will work for everyone. So right now, the next feedstock will be used, using that. The Aldersyde facility will be using railroad ties. And we've begun moving forward with plastics, newspaper, cardboard and then pulp and paper sludge. And we hope to go to municipal sewage right after that. As of today, Cielo's in negotiations with about another 10 different facilities throughout North America. And we have been speaking with people throughout the world, but our goal right now is to concentrate on the North American market at least for the next 24 months. We look forward to keeping our shareholders up-to-date on our overall operational progress. And now I'll pass it back to Paul so he can pass over some questions that you may have.

Thank you, Don. [Operator Instructions] So we're going to be breaking down the questions in the categories of the Aldersyde facility, joint ventures, debt financing. And the first question that I see here on the Aldersyde facility, what is Cielo's process and results from running strictly plastics or strictly municipal waste and how they compare to running strictly wood feedstocks?

You bet. As stated, we ran that large demonstration plan for 4.5 years. And we evaluated over 63 different feedstocks, which included all 7 types of plastics, including agriculture waste, such as corn husk and straw -- wheat straw. We also did municipal waste, including organics, when we did wood waste from -- everything from the first cutoff of a tree to -- all the way down to used railroad ties. What we found was that plastics and organics are actually the best feedstocks, while wood waste is actually the lowest value to us. But stating that, the difference between the best and the lowest is only about 4% of the output. And the quality of the fuels did not vary enough to make that a concern. So to deal with this variance, what we do is we pay less for the wood waste so that the return on investment, or the EBITDA, at the end of the day stays the same, no matter what feedstock we're using.

And can you update us when is the desulfurization equipment going to be installed?

Yes, you bet. So there's a number of different types of movement that we're doing on the desulfurization. So we've been working on this for over 4 years now. The biggest problem with desulfurization technology is they're all built for large-scale refineries such as Shell, Esso. They're not built for smaller-scale refineries. The closest thing we came to was one out of Oklahoma called SULFURTRAP, which about $10 million in CapEx. It was just too large and too expensive. And so we've been working with the UC for about 4 years now, different departments. And they manage now with 1 department. Over the last 2 years, they've managed to take the sulfur -- actually, when we started this, saying the sulfur levels were over 3,200 parts per million. Off highway diesel or jet fuel, marine diesel has to be below, well, 500 parts per million. What we've done here is we've started with now -- we've managed this -- the sulfur is coming out of the used motor oil. And so what we've done is sterilized the used motor oil to take as much hydrocarbons out of it as possible so that we're not cracking that into diesel and putting it into our final product. So now we're down to about 450 parts per million. So what we've done is we've taken it with the UC. And they've taken it now down to 14 parts per million. 15 parts per million meets the highway diesel specs. So we're satisfied that on a small-scale demonstration model that we can do it. And so we have today put in 2 orders of catalyst with their UC provider out of China. They're sending the one order yesterday by air to us. And it's just a couple of kilograms that's coming to us. We're building a larger bench scale model right now. It will be done in the next 2 weeks. When the catalyst arrives here next week, we'll be able to do a much larger bench scale model just to confirm everything we've seen. Meanwhile, we're building -- we've ordered 3.2 tonnes of catalyst that should be shipped hopefully before Chinese New Year or February 12 on a boat, which will arrive at the end of February. We've already got the process designed. And we're just going to confirm it from our bench scale model and then we'll start that. We should have the desulfurization process. Fingers crossed, we'll be putting in those pieces by late or mid-March.

Okay. And how much diesel inventory does Cielo have today approximately?

Yes, you bet. Probably right around 85,000 liters that we produced. The order we had in November 23 was for 60,000 liters. So we've already fulfilled that. And it's sitting in our sales tank, waiting for the sulfur to be reported on. So we've done about 85,000 liters.

Okay. Another question on the Aldersyde facility is will this still be generating revenue during the upgrade to double its size.

Absolutely. Yes. That's critical. So what we've done when we built this plant was we always knew we were going to do 2,000 liters an hour. So much of the infrastructure, I'd say about 80% of the process, is already designed for that 2,000 liters an hour. So we -- all we need to do is put in one more reactor tower and then a waste collection system and possibly a fractionation tower. All those things can be built and installed. And we may need to shut down for a week, tops, while we just tie in the final thing. So we'll be -- everything will have -- we've built everything with valves so that we could just open up the valve and get going until we -- we don't foresee any long-term shutdown for it.

All right. This is -- we received a number of questions on this. What is the normal sales price for fuel per liter? And what is the actual production cost? And there is a slide on this on the presentation, right?

There is. It is on Slide -- bear with me, I can tell you. It is Slide 9. And so basically, the nice thing about renewable diesel here in Canada and even the States is that the prices are set in California. In the States, they're heavily subsidized, what we call renewable energy credits or RIN credits, and they pretty much set the market. We saw COVID hit the jet diesel market and the regular fossil fuel diesel market quite hard. There hasn't been a glutton of jet diesel like this ever since they've started making it. So the market price on jet fuel, for instance, fell horribly, where renewable diesel stayed, it never moved. Over the last 3 years, it's fluctuated less than $0.15. It stays today at about $1.63 a liter. So it's been very solid. We've seen it fluctuate from maybe $1.53 to $1.70, though sometimes, it peaks. What happens here in Canada is 100% imported in the summer months mostly because the product has a lot of water in it until it freezes, where we make a product that we can sell 365 days a year. And we get a 25% lift over top of biodiesel. That's made from agriculture crops like canola and soybeans, animal tallow and yellow grease from restaurants. So we actually see a lift on our price. Today. the price in Edmonton for biodiesel is probably about $1.25 a liter, where we're at $1.63 a liter. I hope that answers your question.

Yes. And before we move on into the questions on the JVs, that is also an important topic in a lot of people's questions that I see here. Are there any multiples talked about in terms of price to sales or price to book?

Yes, good question. So what I would do is -- if you go to our website, you will find a link that goes to investor information. And you'll find an in-depth report that we call industry overview and peer analysis, where you'll find lots of examples of our competitors and our people in our industry and -- probably, our largest competitor is Neste from Finland. They just built a huge plant in Singapore. They're showing about 1 to 10 multiple right now.

Thanks, Don. So just bear with me just a moment as we move on to questions about the joint ventures. And we could start with the Dunmore site. Have you established a time frame for construction site at the Dunmore site?

You bet. So we announced back in November that the MOU has, of course, increased in size. We actually had our engineering and construction kickoff meeting on November 23. We've now hired 3 different engineering groups, civil engineers, our owner engineers as well as a rail engineering company. And we've hired a rail construction company as well. So they've already started putting in their reports to us. The site drawings are all completed now. The rail design is sitting in front of our feedstock provider, the rail company for their approval. And if everything goes well, when a thought comes out of the ground, we'll start moving dirt and building road accesses and preparing the site for construction. So we're -- our goal is to have that facility starting commissioning in Q3 of 2022.

Sure. And would you look to lease land at the close to municipal landfills for your located -- location that is close to garbage that is ready -- so it could be ready to be delivered to you?

Well, let's circle -- it's to be as close as we can to our feedstock. In the case of Dunmore, Medicine Hat facility, we actually built a rail line, rail spur, is what we're building right off of the -- a big rail yard there that allow us to take the rails -- the used railroad ties and put them right on to our site. Ideally, we want to be as close we can to the feedstock. And if we can be on the same land, that's the best scenario. We normally don't lease. We like to purchase. It's easier to finance. So -- and gives us more, I guess, options when it comes to the debt financing. So that's our intent.

Thanks, Don. And have you chosen an EPCM for your Dunmore site?

Well, right now, Cielo is playing general contractor at this level. But we've been looking at all contractors and engineering teams. We're happy with the engineering teams we have today. We are in discussions with major contractors that would like to take on this responsibility and just now evaluating the cost versus the working experience in building unique projects. Ours is quite unique. So when you speak to -- give you an example, like at Stantec. They are ideal at going after civil projects like dams and rural building but very little experience at building renewable refineries or facilities like we were doing. So we -- it limits the amount of different people we can talk to, but we are speaking with majors right now.

And on that, what is the CapEx for the full Dunmore facility?

So each facility is about $50 million apiece. There's 3 of them going in. That's $150 million. But we're adding another $30 million. Most of that is rail spur. Probably our rail spur CapEx is going to be between $22 million and $24 million alone. We've got 200,000 cubic meters of soil to move. And then, of course, we've got to put in drainage and a whole bunch of other facilities. So our total CapEx for that will be right around $180 million.

Thanks, Don. And overall, on the joint ventures that you have, has the 90-day clock started on the joint venture agreements now that the cooling equipment has been installed?

I suspect it will over the next couple of weeks.

Okay. All right. And can you provide info on the calculated payoff cost for the joint venture factories? And when does Cielo get 50% profit instead of 30%?

So well, yes. Basically, without using any -- if we're just going to talk about the revenue from selling our fuels, and we don't put in anything to do with the significant revenue that will be generated from the carbon credits or any other government subsidies, I would project it's going to be 3 to 3.5 years to pay back their investment in full.

Okay. And there are a couple of questions here as well before we close this call. Are there any plans to reduce the number of outstanding current shares?

We were getting a lot of these questions lately. Of course, we have a lot of shares outstanding. We're all aware of that. It's a tough thing to discuss. We are going to need to do a lot more research into it. So basically, we're getting brokerage houses that would like to get involved with this. We've got institutions that we'd like to bring into it, but they would want to see the stock at a higher price. We'd like to consider the possibilities to move into different or larger training venues like the TSX, for instance. But it's tough to do when you're at $0.10 stock. So yes, I mean it's possible that we could probably do a rollback. But before we do that, we've got a lot of investigation to do. So my -- I think the next thing we need to do is appoint some Board members to do research on the subject and possibly hire a third party to help understand the rollback of implications. And then we can come back. And we'll have this another update call, and we'll talk about it openly. I think that's probably the best thing to do. But nothing is going to happen in the short term.

All right. Thanks, Don. And prior to closing this call, how close is Cielo to securing debt financing? If you could just elaborate on that a little bit.

Well, we have, right now, 3 term sheets, I think, are pretty much a final term sheet that we're reviewing as we speak. We are talking to other companies as well. I hope that we can put this thing to bed over the next couple of weeks mostly because we're using the money to pay for the desulfurization. And we're going to start seeing those costs coming in here shortly. So we are going to need to move forward on the debt financing very quick. So I suspect over the next couple of weeks, you will probably see a press release on it.

All right. Thanks, Don, and thanks, everyone, for joining today's webinar. Today's webinar recording will soon be made available on the Cielo website. If you have any additional questions that have not been addressed on this webinar, please feel free to e-mail us at [email protected]. Thanks again. You are now free all to disconnect.