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

Hi, everyone. Welcome to Cielo Waste Solutions Live Corporate Webinar. This is Will Maze from RB Milestone. Cielo Waste Solutions is a waste-to-fuel environmental technology company, whose goal is to transform waste materials into fuels without harmful emissions. Cielo shares are listed on the TSXV under the symbol CMC, and on the OTCQB with the CWSFF. Joining us today is the company's CEO, Ryan Jackson; CFO, Jasdeep Dhaliwal; and Ryan Carruthers, Executive Vice President of Operations. They'll be discussing the current operations and update on the R&D facility and some upcoming milestones to watch for. At the end of the presentation, we'll open up for questions for management to address, and if you're interested in asking a question or logged into the Zoom app or web platform. You can submit your questions to us directly in the Q&A module. Please note, this presentation is being recorded today, November 9, 2022, and will soon be made available on the company's website at [ cielo-s.com ]. 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 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 has a disclaimer contained in their presentation. Lastly, RBMG is not a registered investment adviser or a broker-dealer for more information, please visit rbmilestone.com. And now it's my pleasure to introduce Mr. Ryan Jackson; Ms. Jasdeep Dhaliwal; and Mr. Ryan Carruthers. Ryan, the stage is yours.

Thanks, Will, very much, and thank you, everybody, for joining us today. We're very excited to be able to provide you this operational webinar, which suggest that it's long overdue. It's an understatement certainly. We're quite excited with where the company is headed in the next little while, and of course, beyond this into the -- on the road to commercialization. So we thought it'd be better to be able to provide that operational update and the VP of Operations himself. We're very happy and pleased to have Ryan Carruthers with us today as Jasdeep. So we're happy again to do that. I'm not here -- you're not here to hear me, so I'll pass it over to Jas for a couple of words, and then we'll get straight into the operational webinar.

Thank you, Ryan. As Ryan mentioned today, we're happy to be here to give an operational update. When we're playing in the arena of innovation, there's many hurdles to jump over and many unanticipated hurdles that we come across. When we look at Cielo, the genius of Mr. Ryan Carruthers and Mr. Jason Gilbertson, Norm Wilkinson and others in our operational side is setting up Cielo for success in our opinion. And when I'm looking at the genius, it's definitely Ryan Carruthers and Jason Gilbertson. I'm humbled by the fact that our relationship as CFO and EVP is definitely pinky and the brain. And in the update that we're providing today, I'm very excited and I'm grateful for this opportunity. But most importantly, I'm excited for Mr. Ryan Carruthers to share the potential of this technology. Ryan, the floor is yours.

Thank you, Jas. Good afternoon, everybody. Thanks for joining the webinar. I guess, I'll start off with giving everybody just a brief background on myself. I kicked off a career in power engineering in 2000. So I've got -- I've amassed 23 years of experience in oil and gas processing, commissioning project design review -- develop various leadership roles with the likes of Husky, Total, MEG Energy, PetroChina really, I came to Cielo in May of '21 as a consultant, most likely a short-term piece to come in and support the operation, help with some commissioning and start up the desulfurization. A few months later, I found myself in the superintendent role. I guess my piece or my interest in Cielo was very intrigued by the process, and it was clear when I joined that the organization could benefit from some technical operations experience. And I felt it was a good way to apply my -- my 23 years of learnings of improving extraction of oil and gas and processing to maybe give back a little bit. So I was able to apply that to a green tech, if you will. So I will lead us off here to give a bit of an update process update. Really, as we all know, Cielo has a sustainable waste-to-fuel environmental technology company, and we're focused on transforming waste materials into high-grade fuels. We've got a patented process, we have achieved proof of concept at the Phase I Aldersyde facility, the R&D facility is on its way, and that will provide the specific data we need to be able to move forward to commercialization. That full-scale facility design will commence in 2023. So starting off with the overview, I will refer to the Fort Sask property. So initially, that property was acquired to house the R&D facility. That building and a portion of the land is now leased to a third party and Cielo is assessing strategic alternatives. What we faced with putting the R&D facility in Fort Sask was some challenges, both regulatory, financial and operational burdens were prove prohibitive to locate the R&D facility in Fort Sask. Really, that leads us back to the housing that R&D facility and leveraging the equipment and the site that we already possess in Aldersyde. So Aldersyde was capable. The process was capable of providing proof of concept. We successfully converted biomass to distillate. The pieces that limited our forward progress was the operational envelope was constrained. So -- and as far as we could take pressures, temperatures, our process control was also limited. Finite control being able to maintain the process within a given window is critical. Some of the instrumentation was lacking for thorough analysis of all the process streams. The equipment pumps, vessels, exchangers or surely, they're retrofitted from the existing biodiesel facility for the most part. So functional but not engineered specifically for Cielo process. Some of the components that we retained despite the decommissioning, components we retained were the tank farm, the flare system, the process utilities, so that's instrumented nitrogen units, the office space, the building itself. So a significant amount of equipment and the site was leveraged. So further reducing the cost of what it would have been comparative to the place that R&D facility at Fort Sask. So really, again, I mean, we talk about what we're going to gain from the R&D facility and its economic data and really in the process -- finite process data. So step forward to our -- from R&D to commercialization. Really, it's the data that we are able to extract or will be able to extract from the R&D facility is going to provide the input data for scale-up. It will allow accurate simulation models. It will give us an opportunity to test some of our process control philosophy, material and energy balance. Also, it will provide the inputs for the design basis memorandum, which truly is the meat and potatoes of conversion rates, how the process functions expected off-gas, expected conversion rates, that's really the basis of the full-scale facility. So the research facility is designed to mimic the full-scale process. It's just a downsized version. So what that enables us to do, we've got several ideas and ways to improve this process, but to implement those changes in a full-scale facility without being tested, really call that engineering on assumptions and Cielo cannot afford to engineer our assumptions. So moving forward, we'll extract the data we need and also give us an opportunity to implement some process changes at a much, I guess, much more efficient use of capital because the changes on the equipment are significantly smaller. So also saves time. When you look at fabrication of materials and vessels, the larger scale, obviously, the more time involved. So the R&D facility will get us to that point quicker than if we were to try implement changes in a full-scale facility quicker and more cost effective. So the real objectives of the R&D confirm optimal reactor configuration, so even since I joined in May, we've gone through significant changes in order to have that reactor run for a longer period of time, be more reliable. So from all those learnings, the new reactor design will utilize the learnings for certain, but there will still be some significant changes in the R&D versus what was decommissioned at Aldersyde -- allow us -- also allow us to find optimal process parameters. Again, we've got a window where we know the process is successful, but we really truly need to be able to nail those down with the analytical data that isn't an estimate of where the process operates most efficiently. And of course, define our operational practices, further leveraging off Phase 1 and then testing multiple feedstocks. So as we stated previously, railway ties, plastics are followed by plastics, rubber and some alternative organics will be the next steps. So I've got an overview here on this next slide is just an overview of the Aldersyde site. So you've got the tank farm. We've got a process building. We've got our flare system and our surface runoff ponds. On the right-hand side of the screen, you'll see one of the process vessels from the R&D facility sitting at the fabrication shop right now of our engineering hose. So our path to commercialization, how are we going to get there? When are we going to get there is the ongoing question? The R&D facility construction fabrication right now is on time and on budget. The expectation is to have it commissioned and operational by the end of Q1 with testing on railway ties to follow immediately following commissioning. And then again, as stated before, plastics, rubber organics to follow. The expectation is to have our testing on railway ties complete by June of 2023, at which point that data will feed directly into our commencement of full-scale facility design. With that short and sweet, but I'm going to pass it back to Will.

Well, thanks, Ryan, thanks for a thorough presentation and update on the facilities. And as mentioned, we have had a lot of questions come in already. And if you do have further questions, please feel free to submit them in the Zoom Q&A module. We have -- we'll start right off, and we hope to get to as many questions as we can as time allows. And we've had a number of questions come in on a related topic. And that topic is, does the process work? Does your technology work?

To be blunt, yes, technology works. We've got a patented process. We've successfully converted biomass to distillate. We sold the distillate for revenue to a third party in 2022 and actually have confirmed with Jas, because this discussion came up a while ago, the revenue was recorded in the audited financial statements in other income and expenses line item. There were some questions as to why it didn't show up on the MD&A.

Okay. Great. Second question comes in is what products can your technology produce?

Really, we're able to produce from wood biomass, we're able to produce. We generate a distillate from distillate, we can convert or further refine those products, we'll refine that into diesel, naphtha, kerosene and predominantly. So it should be stated, it should be very clear that the R&D facility will only be producing distillate fractionation or distribution, which is what's used to further refine the distillate is mostly off-the-shelf technology. So for the R&D facility, it did not present a good use of capital to add those systems being that they could be easily additive for full scale.

Great. Thanks, Ryan. And the next question says, let's see, how do you plan to make money?

Really, we're a waste disposal company. We'll be charging a tipping fee, which is essentially that's a cost per unit of waste material received. So in addition to the tipping fees, we'll be selling the result in product and that is how we will make money.

Great. And next question comes in and says the sticking point seems to be production. The throughput numbers are a little light, maybe you can address that, what the problem seems to be?

As previously noted, the process works. Having said that, there are significant challenges in the [ parents ] in the conversion process. If it was easy, I often use the term it was easy, everybody would be doing it. It is a very challenging process. But I'm confident that the challenge has been addressed, and I look forward to the implementation of additional process upgrades aimed at improving the reliability and efficiency.

Fantastic. It's commercially viable. When will we be seeing Cielo's commercialization, the process and expand their technology across North America?

I mean the plan is to begin the design of the full-scale facility in 2023 once we've completed testing the railway ties. So...

Very good. And how long before your commission plan to produce fuel at a large level? And when do you start selling to the masses?

Kind of a follow-up. I mean the testing that railway ties will provide us with the process and economic data to assess the CapEx, OpEx and revenue for the first full-scale facility.

Very good. And if you'd let us know what's going on with the Aldersyde facility assets from the decommissioning?

So as stated, so we made the decision to decommission August of 2022. Really, we've exhausted the capabilities of the retrofitted biodiesel facility in the existing process. Further investment in that existing process was deemed ineffective use of capital. Again, as stated previously, we are retaining the ancillary equipment. So the tank farm, the flare system and utilities, and those will be utilized in conjunction with the R&D facility.

Okay. Great. Let me see here. The next one, why didn't Cielo go straight to a full-scale Aldersyde Phase 1?

I guess, I touched on it previously, limited operational envelope, limited process control, the lack of adequate instrumentation and its public streams. And again, it's engineering a full-scale facility on assumptions. So there's changes that we want to implement or needed to implement on Phase 1 Aldersyde and moving forward to a full scale with solutions that had not been tested even though to the best solutions to the best of our abilities, moving forward to full-scale commitment without testing those solutions would be unwise.

Okay. There's a couple of questions here, the same topic, but it boils down to where does Cielo standing comparison to its competitors?

In my opinion, we don't have any direct competitors. Our process is patented, our feedstock supply is abundant. There will always be a market for waste disposal service and our distillate related products. The product that we're looking right now at pursuing initially to get ourselves into revenue or railway ties. There is no one right now that is converting railway ties, so that's why there is an abundance of feedstock -- in our biased opinion, we're the best, but the world doesn't know it yet. So we've got to prove ourselves here.

Very good. And a lot of questions actually have come in, again, a similar topic, and that's plastics. Basically what happened to the vision of plastics being turned into a useful chemical?

I mean that testing will happen in parallel to the design of the full-scale facility. So again, we're testing railway ties first because of the R&D facility it makes most sense to leverage off of what we know the most. And so if we leverage our existing learnings on wood biomass, railway ties or the closest feedstock component to that. So on completion of the railway tie testing, we'll commence trials on rubber and plastics. That's, of course, pending AEP approval.

Great. And a follow-on question, similar, very similar. Can you get permits to start using plastic?

We're confident that we'll be able to get the permanent amendment to be able to process plastics. The AEP, our provincial regulatory governing body, really, they do require a significant amount of analytical data prior to applying for a permit. As we obtain the information that we will be applying for necessary permits.

Okay. And I think we have time maybe for one more. Let's see. When do we expect to see full production and revenue from the operations and uptick in share price?

The R&D facilities will generate revenue, the sale of distillate. So again, despite not further refining that into diesel or kerosene or naphtha, we still have an end user who is happy to purchase our distillate. So we'll be in revenue from the R&D facility. As far as the uptick in share, I'll leave that one alone for now. We'll begin the design of the full-scale facility in calendar 2023 and proceed from there.

Very good. Well, thanks, Ryan. And Ryan Jackson, I'll hand it back to you for some closing remarks.

Thanks, Will, and thanks, Ryan, and Jas. Listen, we're mindful, of course, of all of the questions that didn't go answered that we didn't have a chance to get to given the time constraints. What we might suggest, Will, is that we will and want to get to everyone's questions. So certainly, as you mentioned at the outset, let's make sure that you do e-mail your questions, we'll get back to you so that we do -- are able to answer all of the questions. And subsequent to that, we'll, of course, provide the answers publicly as well online through our website in the FAQ portion of our website and whatnot. There's a lot of questions to get to and we want to make sure we get to all of them. So thank you for your interest today. And we certainly want to encourage everyone to follow-up, who we didn't get to your questions. On the chat, for example, and we'll do that for you for sure.

Thanks, Ryan, and thanks, Jas, and thanks, Ryan. And thank you, everyone, for joining the webinar today. And the webinar recording will soon be available on Cielo's website. And as Ryan mentioned, if you have any additional questions that have not been addressed on the webinar, please feel free to e-mail us at [email protected]. Thanks again, everybody, and you're now free to disconnect.

Can I touch on -- do we have a moment to touch on one more aspect. I think there was a second part of a question you answered asked previously, and it was -- I'm just flipping through my notes here. Is the process commercially viable? It was one of the questions we faced. And really, Absolutely, we believe it is. And my belief is we're viable because we're going to generate revenue on 2 fronts. So not only on the sale of our diesel, but really on the receipt of the feedstock, the tipping fee in conjunction with the generation of the saleable product is really what's going to take this company. I just wanted to share that piece. It's something that I had marked down in my notes, but hadn't shared elsewhere.

Okay. Sorry. Thanks, Ryan. I appreciate that. And that's it everybody, thank you very much. And again, e-mail us at [email protected]. Thanks again, everybody.