EverGen Infrastructure Corp. (EVGN) Earnings Call Transcript & Summary

Good morning or good afternoon, depending on where you're calling in from. Thanks for joining us today. We have an update with EverGen Infrastructure, which trades on the TSXV under the ticker EVGN and on the OTCQX under the ticker EVGIF. As always, this presentation will contain forward-looking statements. If you'd like to know more about those, you can find them on the company's presentation on their website. And the format will be an update with the company followed by a Q&A. So if you have some questions, feel free to enter them in the Q&A box at the bottom. With that all out of the way, I'm pleased to introduce Mischa Zatjmann, who is Interim CEO of EverGen. Mischa, thanks for joining us.

Deb, thanks for having us, and thanks, everyone, for joining. So I'll jump right into it and address our transition or management change here. Having Chase stay on ensures continuity as he'll stay connected as a strategic adviser to the company, which is really important for us. Overall, though, the EverGen thesis remains fully intact as ultimately, there was a difference in priorities to achieve the vision that we all share here. Really we've got to refocus on project delivery and executing on our near-term milestones such as the Fraser Valley Biogas expansion and all of our other core project advancements. Establishing the foundation of this business was really key, as without that solid foundation, sustainable growth and accretive growth is just -- it won't be achieved. So really, for us, it's about ensuring we have that solid foundation so that we could grow to that next phase. It's obviously a really critical juncture for us as a company. We're excited for what's ahead. We have important pieces that are about to fall into place, most important of which, as I said before, is bringing Fraser Valley Biogas online. Another key piece of the transition here is bringing forward onboard as -- Ford Nicholson onboard as our Executive Chair. We're very fortunate to have someone with Ford's experience in the energy business step up. He has a track record of monetizing companies in the energy space. The most recent of which was the InterOil transaction with ExxonMobil, where he served as Deputy Chair. So with that, I'll pass it over to Ford, and maybe, Ford, you can give us a bit of your background and your vision for things going forward.

Thanks, Mischa. I would just open by saying that staying within the energy space is something that I'm passionate about regardless of where hydrocarbons are or renewable energy, and to me, very clearly, today, the world is making that significant shift and we need to put more and more time, effort and energy into the renewable space. And from an early day step into looking at what could be generated, we were exposed to Fortis here in Western Canada, where we make our home, and saw a 20-year offtake arrangements with very, very robust prices on natural gas, which are renewable natural gas, which coincidentally merged with sort of an infrastructure type return. So when I was exposed to that here some years ago, I realized we needed to start something in this space that was significant and a capacity to grow with discipline and structure. This is the company. EverGen is the one that I'm making my home into to help everybody out. And I'm looking forward to expanding what we've already begun to develop. There's tailwinds in the space. There's a real feeling of a change beginning certainly in North America, we've seen U.S. as well as Canada, the IRA Act in the U.S. and more tax credits here in Canada. So this is a space that's going to continue to grow and with a well-healed management team and a bit more structure and discipline, I think we can really develop a fantastic company. And so for the next 6 months, it's about bringing Fraser Valley Bio online, making sure that we can show that we can operate and build these things up from the get-go. And with that step, I think we can show we have a large pipeline of projects which we need to narrow down to what we are certain we can wrap our team around and get executed over the line. And I'm looking forward to being a big part of that for the next number of years for where we build this thing out. So thank you very much, everybody.

Yes. Thanks, Ford. And part of that is really as we bring Fraser Valley Biogas online, we're going to be one of not many groups or platforms that have successfully brought 2 of these RNG projects online. And the person largely responsible for that is our new COO, Jamie Betts, who's served as our VP Operations. He has over 35 years of operational experience in the energy and waste management industry. And with that, maybe I'll hand it over to Jamie, and you can tell us a bit about your background, and Jamie can give us a project update on Fraser Valley Biogas, which I'm sure everyone is keen to hear.

Thank you, Mischa. I'm really excited to step up to this new role at a critical juncture for the company. Really looking forward to the challenge. I've been at the company for a little over a year now and have been able to see firsthand the progress we've made at advancing our core projects. I'll jump right into the project update for Fraser Valley Biogas, which I'm sure everyone is keen to hear. A major part of the project, the non-R&D section, is nearing substantial completion. The barn previously used as a storage facility has been repurposed into a new feedstock process building. It now houses the majority of our processing equipment. Electrical upgrades at the facility are well advanced with cable pools well underway, and we've set and completed construction of a new electrical building, which is now ready for final inspection. In the past few days, we've achieved 2 additional significant milestones. The last major piece of equipment or last major skid was shipped Monday from Alberta. We're expecting it to rise and be -- arrive and be set on Friday. That is our RNG compressor and processing building. That's really the last major part of the project. And as well, on Monday, we received a new draft permit from the Ministry of Environment. And that's really a major step forward. We've already reviewed that permit, found it to be acceptable, and we've returned our comments to the MOE as of end of day yesterday. Finally, we're in the final stages of negotiations of long-term offtake agreements, and we hope to be able to announce successful completion of these agreements in the coming weeks. Thank you, Mischa.

Thanks, Jamie. And yes, maybe just to close off, Ford, if you want to talk a bit about where you see things going forward.

Sure. So as you can see, we're on the cusp on bringing our second RNG project online. And we are incredibly focused on dedicating ourselves to getting this project across the line as our second project. And quite frankly, I would say to you that the Board and the executive management team is very structured and focused now on getting the next phase complete, and then following up more projects that are accretive to the shareholders as we go forward. So from the Board of Directors and from the executive management team, I thank everybody's time and genuinely say that we are excited about the future, particularly over the next 18 months as we start launching these projects in a systematic way. So thank you very much, everybody.

Thanks. Mischa, do you want to open it up for questions at this point?

Yes, that would be great.

Okay. My colleague, Lily, is going to help with some of the Q&A. There's a couple that we've already received from the audience. Lily, do you want to take the first one?

Yes, absolutely. Thanks for handling that, Mischa. So one audience question is just curious about the target of $8 million to $10 million of corporate EBITDA once Fraser Valley Biogas and GrowTEC are fully ramped. And then if you can also comment on how you're feeling about the upside factors from there as well.

Yes, Sean, maybe if you want to take that one.

Yes, I'm happy to take that one. So yes, thanks for that question. Yes, we're still confident in that range. If we're talking about GrowTEC fully ramped up, being Phase 2 of the project with an additional digester and 140,000-plus GJs a year, then we would be looking at the higher end of that range. With Phase 1 of GrowTEC, we're looking towards the lower end of that range, if that answers your question. In terms of the upside factors from there as well, this, what we're really seeing in the RNG space at the moment is we're receiving a lot of inbounds from third-party off-takers rather than traditional off-takers and that's where we're seeing a lot higher pricing than we can get from the standard utilities. We've factored some of those, and what we're doing with what Jamie touched on previously with final negotiations of an offtake agreement at Fraser Valley Biogas, we're really trying to be able to protect ourselves from the downside but capture the upside in those contracts with being able to retain some of the carbon credits ourselves and be able to sell those on the open market. So there's definitely a lot of upside potential, but it's really -- there's a lot of work that needs to be done on this end to realize that value. But that $8 million to $10 million of EBITDA fully ramped up GrowTEC is a good estimate. And even with Phase 1 of GrowTEC, the lower end of that range is what we're picking our EBITDA to be at as well.

And just to talk a bit more about the upsides there. We're really refocusing our resources here to ensure that we deliver on our core projects. That speaks to both our development projects, but our operating projects as well. So we're going to -- we've really done a deep dive on our feedstock composition across all of our projects in the lower mainland from Pacific Coast Renewables and Sea to Sky Soils. There's a lot of opportunities for increased tipping fees and resetting sort of our base tipping fee rate to be more reflective of market pricing, which has really gone up in the region. And one of the nice things about having -- we have these long-term tipping fee contracts across our facilities, as they come up for renewal, we can essentially reprice them with an inflation escalator as something more reflective of market pricing. So I think you'll see that as an upside on a go-forward basis as well, in addition to other potential sources of kind of value creation at all of our projects, which is really where we're focused on now.

Okay. Great. Thank you, Mischa and Sean. So kind of staying in topic with the project, we have some questions about the general pipeline. So what stages are these projects at? When are they getting announced? And then what do they look like in terms of geography, type and financing?

Yes. So I think our pipeline remains intact. I don't think there's been a huge -- or going to be a huge strategic shift in how we approach our pipeline. I think there's going to be -- there is a strong emphasis on projects that are accretive on a near-term basis with EBITDA on a near- to medium-term basis, which, I think, speaks to sort of us wanting to announce projects, bring them into our pipeline sort of fold and our core project base once they're mature enough and robust enough, to justify them as accretive projects. So there's obviously a focus on Canada. We're now operating across 3 different provinces that we expect that to expand soon. And we're looking for opportunities in the U.S. The tailwinds are still strong in the U.S. and we've devoted quite a bit of bit of our time and resources to expansion -- pipeline expansion opportunities there. In terms of how we're going to finance them, right now, we're -- Project Radius being a good example, we're running a process for funding sources and capital is still there in the space. Obviously, cost of capital has gone up, but it's still -- these projects still remain largely financeable and debt is still there for these types of projects. So we're -- we continue to expect to be able to finance these projects through a mix of debt and strategic equity financing.

Okay. Great. And then in terms of the financing actions, another specific question about the short and medium-term capital needs of the company. If you could just walk us through the company's balance sheet quickly and any remaining undrawn facility support that we need.

Yes, I can take that one. So I mean I can't provide any further information from what we disclosed at Q2, and we'll be providing our Q3 update in a couple of months here. But we obviously, we're fully funded to be able to deliver on Fraser Valley Biogas, and that's our focus right now. We have unlevered assets in the form of GrowTEC, which provides us with additional access to capital should we need it. And as at Q2, we had significant cash on balance sheet to fund the remaining of -- the remaining outstanding commitments for Fraser Valley Biogas.

Another question on that. Are there any potential grants on Fraser Valley Biogas and GrowTEC?

Yes. So there's -- we -- I think when I touched on at the Q2 update, we had about around $50 million of outstanding grant applications. The grant process is slow and tedious. But those are -- we have applications in for both GrowTEC and Fraser Valley Biogas, and we're working on -- there's been new grant announcements in the past week, which was submitting grant applications on -- for both of those projects as well.

Great. And then have guys given any thought on any potential investment tax credits for biogas in Canada?

Yes. I mean, so one of our -- obviously, our partner at GrowTEC is on the Board of the Canadian Biogas Association. And everyone in the industry feels like it was a miss last year from the federal budget in terms of incentives for the industry. Obviously, we would welcome any investment tax credits for biogas, and we're hopeful that there's something in the full economic update. In terms of -- there were tax incentives already provided for biogas equipment where you can essentially write off 100% of the capital investments of the year incurred. I believe that starts to grind down after 2024. But obviously, all of the investments that we've made at GrowTEC, most recently in Fraser Valley Biogas, those are all 100% tax deductible in the year the investment was made. So we're essentially receiving investment tax credits for those investments right now.

Okay. Thank you, Sean. Another question, kind of changing topics, we're going back to the Pacific Coast Renewables, so we have an audience [Technical Difficulty] PCR permit.

Thanks, Lily. I think you cut out a bit there, but I think the question was looking for an update on PCR's permit. Is that right?

Yes. Sorry about that.

Okay. Yes. No, we can -- happy to provide that. So we've made a lot of progress at PCR. Really what -- largely what the holdup with respect to the permit was surrounded the MOE's timing in terms of giving us a clean bill of environmental health or blessing at that site. Once that MOE's approval is in place, approvals from the city of Abbotsford and the Agricultural Land Commission generally follow from there. Jamie and his team have put in a lot of work to get that site up to the point where the Ministry of Environment is now, I think we're essentially 95% there, and the Ministry of Environment has given us some really positive feedback. So maybe, Jamie, you want to give a bit more color on that?

Yes. And -- thank you, Mischa. We did tour the MOE through our Fraser Valley Biogas site as well as our PCR location on September 14. And they were thoroughly impressed with the 2 projects and the benefits they bring in addition to the accretive benefit, also the improvements we're making to safety and environmental performance at both sites. During that meeting, we discussed the permit amendment applications we have in for both Fraser Valley Biogas, which we talked about earlier, and we turned around and got a draft permit quite quickly. And secondly, that once we completed the Fraser Valley permit amendment, we would move on to PCR. And we're more or less ready to submit our comments to MOE on the PCR amendment.

Yes. And that's kind of the big -- that has been the big bottleneck for PCR. And I think, in fact, the -- as Jamie kind of alluded to, all of the progress we've made at PCR has enabled us to get favorable treatment for our FEB applications as I think we've kind of really gotten into the good graces of the regulatory authorities and are now starting to have positive dialogue with them, which is -- which has been a nice change of pace for us.

Great. And then we just have a few more questions. So can you also provide us with an update on the GrowTEC production volume and the timing for our Phase 2 expansion?

Yes, I can answer that one. So production at GrowTEC has been ramping up over month over month. Unfortunately, when we came online in July, it's typically the worst month in Alberta and probably BC as well to just start flowing gas because there's not a lot of pipeline capacity at that stage. We're ramping up from 3,000 a month up to over 4,000 a month now. So that's heading up to 50,000 of -- 50,000 GJs on an annualized basis. And obviously, it's only been 3 months since we -- since the facilities come online. Now that we're getting into cooler weather, there's -- we're seeing more and more pipeline capacity free up. And that's when we'll really be able to see the full capacity potential of the facility. In terms of the Phase 2 expansion. So obviously, what I touched on before with the pipeline capacity issue that we have at the facility right now, that's something that we are doing a lot of work in the background to address, and we need to solve that before any Phase 2 expansion happens, which are -- GrowTEC is likely our easiest near-term accretive project. So after Fraser Valley Biogas comes online, a lot of our efforts are going to be focused on that Phase 2 expansion and solving for maximizing the gas potential at that facility as well.

Thanks, Sean. And then, sorry, just jumping back to PCR for a moment. We just have another question coming about it. So do you guys have any -- do you guys have any updated thoughts on when you can actually receive that permit? And then at that point, how long does typically construction take?

So I don't think we've got enough -- any updates in terms of timing given that there's still some uncertainties in terms of when we're actually going to get our MOE permits in place. But that said, I think we've kind of dealt with a lot of the variables that are beyond our control. So at this point, it's more so a timing issue for us, which I think we'll be in a position to give more color in the near future here shortly. And in terms of how long construction will take, that would -- we'd expect that to be about a 12-month construction process.

Great. And then this is actually our final question that we have at the moment. So at what point would you all consider buying back additional shares?

I can take that one. Yes. So obviously, our NCIB program was a 12-month program, which expired in June, I believe, of this year. It was either May or June. We purchased back a number of shares under that program. Obviously, the focus now is preserving capital and bringing Fraser Valley Biogas online. Another point to note is that recent tax law changes will -- there's tax consequences to share buybacks starting from January 1 of next year. So it's not as an attractive investment as what it previously was. So there's a few headwinds there as well. So I don't think we'd be -- we would be buying back. Obviously, we can't under the initial program as that's expired. And I don't think we'd be looking to enter into a new program at any point in the near future.

And the only thing I'd add to that is that if we bring these projects online, and there's not a significant re-rate in the stock, then I think that's something we would certainly look at.

Well, those are all of our audience questions, unless anyone else has any last minute ones. But I'll pass it back to Deb to close it off. Thanks, everyone.

Thanks, Lily, for your help with the questions. And thanks, Mischa, Sean, Jamie and Ford for the update. And everyone that's participating, thanks for your time. If you have additional questions, feel free to reach out. If you'd like a one-on-one call, also feel free to reach out and we'd be happy to help set that up for you. And yes, thanks, everyone. Have a great afternoon.

Thanks, everyone.