Northstar Clean Technologies Inc. ($ROOF)

Josh, are we good to go?

We are good to go.

Excellent. Well, listen, welcome, everybody, to the March '26 strategic update from Northstar. Listen, I've got a bit of an apology to make. There should have been a PR that is still currently spooling, unfortunately, that is covering everything that we're going to chat about in this call. But of course, you can follow up with us directly afterwards once you get a chance to read the detail on the PR or talk about what we're going to talk about -- kind of contact us on what we're going to chat about today. So apologies for that. I'll be covering everything in the PR on this call. And so we'll be able to kind of answer any questions at the end. So as always, thanks to Kin for hosting it and the usual admin. We've got Josh collecting the questions. So tag in your screen and pass the questions through to Josh, and then we'll chat about -- we can -- he will ask those questions at the end. So listen, when you see the detail of this, you'll understand why we moved this a couple of weeks. And we actually, instead of calling it an operational update, we called it a strategic update because like this conversation is really about the strategy of the company as well as some operational update. So, look, the first element for me on this strategic journey is the path that we've been on and what it's prepared us for today, but also what it prepares us for in the future. The second element is all around the performance of our first commercial asset. So I know there have been lots of questions that have been coming in around performance. And today is all about the transparency for that and what we're doing next. The third is about Northstar. So that's both about finance and both -- and organizational. And then the last thing is kind of the rollout of the technology and the new facilities. So we're going to cover all of that today. So forward-looking statements, as always, -- so look, in the Delta pilot plant, I mean, this covers Calgary, but in the Delta pilot plant, we learned from kind of 3 things. So we learned from the equipment vendors. We learned from our partners, i.e., the McAsphalt and TAMKO. And as you know, they were part of the design team, part of the technical feedback. And of course, we learned from the engineering that we did on the Delta pilot plant to get it into the Calgary facility. So all that was incorporated into the design for Calgary. But for context, from my background from kind of an operational and engineering perspective, there is no amount of pilot plant operation or engineering that fully prepares a business for full-scale commercial plant. Every single commercial plant that starts up from a pilot plant and engineering runs into what we describe here as kind of bottlenecking and processing issues. So that's what I want to talk about today and what we're actually going to do about it. So the #1 deliverable of any of these technologies and this plant is, number one, does the technology work? And number two, what's the product that's coming at the back end. So you guys have seen me present many, many times about the value proposition that Northstar has in terms of its commercial model. 35% from the tipping fees, 65% from the outputs. And of that, 95% or greater is the asphalt price. So the most important thing that this facility can do is deliver asphalt. That's it. That is the -- that's the critical point. And of course, have the throughput to make sure we're moving shingles through and getting tipping fees. So the really good thing is that from an investor perspective, you can be very secure in the output from this facility because the specification of the asphalt is great. It's great from a number of the specification criteria that our customers expect. And in actual fact, interestingly, TAMKO reflected recently that it's way better than they thought that the first facility would be. So that is great from an investor perspective, the most important thing in this plant is asphalt. And you can rest assured that our customer feedback and our feedback is that that's in great shape. But we have had bottlenecks. So we ran the 80 tons a day, as you know, in November, and that identified 3 processing issues. Two of them were the transfer of material. So from like unit to unit transfer and one was with water processing. Now I -- as I've always mentioned, given the attendees on this call that we know from the distribution list, I'm not going to go into the technical detail of what those are. And I know that a number of -- we've had a bit of feedback that says, hey, we want you to go into the in-depth detail of kind of your -- any issues you've had and how you're fixing them, and we're just not going to do that. But I can tell you that this is not a technology issue, it's a transfer of material issue, which is excellent. So it's all about moving stuff around. It's not about does the technology do what we needed to do. So we have now resolved these issues and they're going to be addressed in 2 steps. So the first step is the interim production step. So we'll be able to shingle process 100 tons a day to 150 tons a day, but the asphalt yield will be lower than we had originally planned. So that's the interim production step. The upgrade step, which will happen in the fall of 2026, we've identified an upgrade that will actually take us, we expect beyond our original asphalt yields, but that has to be both engineered and the equipment procured from it. So that will keep us in the 100 tons a day to 150 tons a day of processing, but it will actually provide a higher asphalt yield. But the interim production, we expect in Q2 to move into cash flow breakeven and into profitability after that. We expect steady revenue generation in April. The upgrade, after the upgrade in fall of 2026, we expect to return to the kind of full cash flow and profitability model that we outlined in Calgary. As you know, we've had kind of the EBITDA numbers we've used for Calgary in the commercial models and the presentations is $5 million worth of EBITDA, and we expect that to be after the full production number. But the interim production will be profitable by the time we get to Q2. So there's no -- there's a delay, I would say, in the kind of profitability from the facility, but the facility will be profitable in the interim production step. So that's where we are with kind of the operation and kind of -- and financial impact. And again, this is all about identifying processing bottlenecks from the full commercial facility. To be expected potentially. We, of course, as we thought about it and we've looked at it, we are behind the curve from delivering -- for delivering revenue. That's clear. But we absolutely know we've solved the kind of the bottlenecking processing problems, and we have the upgrade ready and kind of developing engineering and procurement for equipment ongoing. So let's talk about Northstar. So the optimization of this business is both financial and organizational. And lots of detail -- more details of this in the PR. The most important thing with respect to the finance is what we've announced today. So we have announced a convertible debenture, so for USD 10 million, there is a nonbinding term sheet that has been executed. And you can imagine that, that is also one of the reasons why we have delayed this presentation for a couple of weeks because that was being finalized. So USD 10 million, interest of 8% per annum, 5-year term and a conversion price of $0.275. So obviously, premium to yesterday's market, but yes, premium to market today. Financing fee of 6% issued in stock based on a 30-day VWAP. And it's really important to understand who we have done this with. So this is done with strong financial investors who have global presence and reach. This is a group of long-term investors. So this should feel like great support for the current shareholder base because this is a strategic financial investment for the long term. This is not a short-term delivery. And you should also have a great -- it's a great vote of confidence in addition with respect to the terms. So 5 years, obviously, great from a term perspective, a conversion price at a premium to market, no warrant included in it. We have the ability to have payment in kind for the interest and a $0.75 acceleration close. So all of those are really strong terms and strong terms for Northstar, but also long term. So this is not a short-term investment. This is a long-term investment from strong financial partners. On the other side of the page, you can see the near-term strategic capital support. So that's all around hitting ERA Milestone 4. And obviously, with that comes the TAMKO Phase 2 funding, and we expect that all to happen in Q2. So as we look at the performance of the facility, that then brings in the near-term capital from our strategic partners. And then the last thing is the organization. So one of the things that we've been looking at as well as optimizing the finance is optimizing the organization. This is all about rightsizing, and this is all about focusing on delivery and efficiency in a kind of a cost-effective manner. So how we're going to do that is so Lynda Paananen is going to -- is appointed CFO. So she's stepping up from the Controller role, and she will have a focus on financing and accounting. And so what I will be doing is kind of I do a lot anyway, I will be leading corporate development, supported by Lynda from a finance perspective, but I will be taking the full mantle of corporate development. And then the second thing is that Mark Bishop, who a number of investors have met, who is a consultant for us, is appointed the VP of Projects and Engineering. He's going to lead the Calgary upgrade. And so -- and then as you see in the next slide, he will lead the project management for new facilities. This is exactly where we have talked about before where we learn from each one of our facilities to integrate it into the next. By the time we've done the fifth or sixth facility, we've always said this is going to be absolute rinse and repeat. But from the pilot to the first commercial facility, there's a lot to learn. And from the first commercial facility to #2 and #3, again, the same thing, all the stuff that we've learned around the development of Calgary, engineering, operations -- sorry, engineering, construction, commissioning, operations, long-term operations, maintenance, et cetera, that gets integrated into the design for the next 2 facilities. And so that's what Mark will be able to do. So not only transition from where we are now and the lessons learned here, also kind of lead the Calgary upgrade, but then take us into the new facilities. So as we think about 2026, we deliberately adjusted the size of the font in this slide to be clear about what's really important. So 2026, the most important thing from our perspective in the marketplace -- sorry, from our perspective, my view from the feedback from the market's perspective and the strategic direction of this company is Empower Calgary. So we will absolutely focus on the ramp-up and -- so ramp-up, upgrade and full commercial production as we go through 2026. Baltimore and Hamilton, the thing that we're going to do there is we'll continue to permit an engineer. So as you know, that doesn't take a lot of capital. So you can see minimum expenditure through 2026. Construction and commissioning 2027. So I'll talk about our plans in a minute. But this is about being absolutely transparent in the strategic call, and that's saying, we don't expect commercial production from those 2 facilities until 2028. But if you look at the 2026 priority and you look at the big font of Empower Calgary, what we will have is we will have absolutely full-scale commercial production ready to roll out to both of those facilities. And you can see second bullet down, new site engineering, and that kind of goes to Mark's new role -- or sorry, Mark's role. So new site engineering to include process upgrades, engineering, construction, commissioning learnings and the operational debottleneck in the new design, which will be tested and integrated into the new design for the new facilities. So that's what 2026 is all about. And so again, transparency of kind of moving through what is a realistic process. So commercial facility built in 2026 operating in Calgary, still in 2027, construction in 2027 and 3 operating facilities in 2028. So we have adjusted this forecasted growth slide in the -- on the slide deck, on the web to be absolutely transparent about what this actually means with respect to the kind of delivery through 2026. So the potential, as we've always said, of 80,000 ton a year facilities is 9 operating facilities by 2030 and the potential, of course, for the delivery of $19 million worth of EBITDA. So that's all about the kind of transparency of what the implications of our current operating facility, how that affects the growth plan. So this is a bit of a summary slide. And again, I'm kind of going through the stuff that I chatted about before, but it's super important, I think, from my perspective, as we are thinking about the strategic considerations for this business. This is a first-of-a-kind commercial facility, and it is operating at commercial scale volumes. This is how we find out all of the bottlenecks that we did. Didn't come through the pilot plant, didn't come through the engineering, couldn't have been predicted. This is what you get when you run full scale through these facilities. The processing debottlenecks are transfer of material. It is not a technology issue. The asphalt quality is better than expected, this technology actually works. So interim processing will give us breakeven cash flow, time for the upgrade. And from a finance perspective, investors should take real support in the fact that we have a global group who are supporting us with a 5-year structure of USD 10 million worth in the convertible debenture. That convertible debenture, as I said, has no warrant and a conversion price above market. And that is an absolutely huge driver, as you guys know, of the way that I have run this business. No financing can take place without some dilution, but this is we believe, a very, very effective financing and very strategic as we think about it. So that's the overall takeaway. The technology works. The plant is being debottlenecked and moving into interim production above cash flow breakeven. And from a financing perspective, we will have shortly USD 10 million of capital in the business. So Josh, I think that's it?

Okay. Excellent. Just to let everybody know, the press release has crossed. So I encourage everybody to take the time to read that. And if you have questions, please put them in the Q&A box, and we'll just sort of answer as many as we can to the extent that we can. So starting off here, I guess it's more of a macro question. With the volatility in oil pricing, how does that relate to asphalt pricing?

That's a great question. So it depends on the kind of -- there's 3 answers to that question. So number one is it depends on the pricing structure of our contracts. So as you know, our pricing structure has some almost like literally oil-related pricing in it, which will be directly affected by the change in oil price. And then the second part of our agreements and often have asphalt-related prices in it. Now derivative prices are kind of -- are interesting. Derivative prices can outstrip oil price increase when going up and so they can overshoot like gasoline often does that because people are worried about scarcity. So sometimes the oil index price -- sorry, the index price for a derivative product will overshoot. And then when the price comes down, it undershoots. So it's actually -- there will be some direct correlation to oil price for our contracts, and then there'll be some derivative product, I suspect, overshoot and undershoot based on the oil price as well. So as the oil price goes up, our asphalt price goes up, but those 2 components would have a slightly different volatility in the index.

Perfect. Thank you. We've got a few questions about the term sheet here. So I'll try and sort of summarize it. I think the first one is -- I'll just answer it. Yes, the $0.275 conversion price is in Canadian. I know there's -- because the USD 10 million, but yes, the conversion price is Canadian. So jumping in here, we have a question, what is the use of proceeds for that $10 million?

So the use of proceeds for the $10 million is to, number one, obviously, support Northstar corporate. Look, let's step back. If we were in a position whereby the Calgary facility was delivering $5 million worth of EBITDA a year, I've often said our run rate is kind of $5 million to $6 million a year corporately. So Calgary operating would cover -- would fully cover that. So some of it is kind of working capital and the company. And secondly, as you saw from the slide earlier -- sorry, I should have probably pointed that out a little bit more clearly. So you saw from the slide earlier that the CapEx for the upgrade is probably in the order of kind of CAD 3 million. So that is -- that covers the capital for that. It gives us runway for the operation of the facility, of course, and spend at the plant. As we said, we expect to be at cash flow breakeven and the plant kind of washing its face in Q2. But at the end of the day, it provides some kind of coverage for that. And then the second thing is, so we've said we are minimizing the CapEx spend on Baltimore and Hamilton. But what this does is depending on when the engineering for the upgrade is finished and that will be integrated into the new designs, this CapEx also gives us the opportunity to order long lead items. So it gives us great optionality and financial flexibility without having to adhere to kind of any balance sheet pressure at all.

Excellent. And another question here. So just circling back to that upgrade, will there be no production happening or full production? Or what does that look like in terms of revenue generation during the upgrade period?

So we believe we can run the kind of -- sorry, so the up -- from start to finish, we suspect that to be kind of around about a 4-week duration. Mark Bishop was on the call, he would probably be like, okay, don't make any promises here because it's not fully engineered yet. So sorry, I should apologize and not make any promises here until it's fully engineered. But we actually think that the production can be optimized. So I would say of the 4 weeks, what, like a week to 10 days' or 7 to 10 days' worth of operation. But remember, the real advantage about being able to do this is you can work 24/7. And that's the way -- that's the model that we're talking about deploying so we can minimize production. But as Mark would say, we have not finished engineering this yet. So that's an interim answer. But certainly, the drive is especially kind of in the fall, which is also peak asphalt season, we want to ensure we're producing as much as we can. So that will be a consideration with respect to kind of timing and working weekends and all that kind of good stuff.

Great. Thank you. We've got a few questions here about the expansion. And I think we'll just jump in kind of with an overview in helping investors understand what that sort of time line looks like from today for Hamilton and Baltimore to commercial production, which has been pushed out slightly.

Yes. So look, I think -- so my view is that -- so let us step back. The most important thing is to integrate the lessons that we've learned in Calgary. That's the most important thing. We do not want production delays, commissioning delays, et cetera, in our next 2 facilities. Calgary should take all of that because this is where we should learn it all and apply it. So there's 2 ways we have to do that. Number one is to actually learn from it, number one. But number two is engineer it out. So that's what Mark's job is, is to absolutely understand the upgrade, absolutely understand the yields that are coming out of the facility and absolutely understand the final engineering that goes into Hamilton and Baltimore. And that, to me, is worth delaying the implementation of those facilities for. I think that engineering will be completed as we come out of Q3 into Q4. I think we -- but let's be clear, there are a number of different pieces of long lead item equipment that we can order today because they're doing exactly what we expect them to be doing at the facility. We're producing high-quality asphalt. So we know that the hydrocarbon system is working really, really well. So we could literally design that and order it tomorrow. So the handling of materials that we've not optimized at the facility those -- the engineering for that need -- and integrated into a plant layout and a plant design, et cetera, et cetera, that's the stuff that needs a bit more consideration with respect to kind of engineering and procurement, et cetera. So that's likely not ready to be deployed with new pieces of kit ordered until Q4. So if I was estimating a perfect kind of like from today, I would say procurement in Q4, I would say construction in the second half of 2027. And I would say Q1 2028 for first commercial production. That's what -- sorry, Josh, and that's what we reflected on the slides. The updated slide reflects that. And I think that's our best view to that.

Perfect. And just to build on, you had mentioned specific learnings from the first commercial facility are being incorporated into the standardized design. Can you comment at all on sort of what sort of things are being included and how they help to reduce cost or risk of these future facilities?

Well, I'll go back to the 130 people on this call. There are a number of people who would like the detailed answer to that question, which I will not give.

That's fair. Let's see. I think there are some questions here about stock for Calgary. Are there any updates on feedstock for Calgary or anything that you can share currently?

Still the same. We still have the IKO contract, City of Calgary and Ecco. So yes, all the same. So the only update with respect to a question that I get regularly asked between 40,000 tons a day and 80,000 tons a day. As we've talked about before, 80,000 tons a day, which would be the potential of Ecco emptying their landfill is still in the permitting process with both the City of Calgary and the profits. So no clarity on timing on that yet, but discussion is ongoing, and we're trying to support that, obviously, because we'd be that -- we are the destination for recycling all of that. But yes, our 3 contracts remain in place. And very secure for 40,000 tons a year or the $5 million worth of EBITDA we have in the presentation on the web.

Great. Very helpful, I'm sure. So one other question here with respect to the expansion of facilities. Do you expect that the Baltimore facility will have a shorter time line considering there is an existing building? Or are there other factors to consider?

I expect -- I expect all facilities to have a shorter time line in construction, in operation -- sorry, in construction and commissioning. Now maybe it's not the fifth and the sixth one where I expect them to be rattled up in 3 months and commissioned in a week. But Mark and I have talked about, of course, what the project schedule looks like, what the commissioning schedule looks like, et cetera. So there are other considerations in terms of getting the equipment in, et cetera, et cetera. Sometimes it's easier to build on a greenfield and just put a building around it. Sometimes it's easier for buildings there. It depends on the size and the scale and the layout of the building. So lots of considerations which don't say it should be -- that should say it should be faster, but the fact it's the second one and the third one actually means it should be not only faster, but more efficient and commissioned earlier -- I'm sorry, and commissioned without our 3 bottlenecks. So actually commissioned straight to full commercial performance.

Perfect. And then maybe just one last question here. The company has been quiet for a few months. What sort of announcements should investors look for in the near term?

Yes. Look, we've had lots of feedback that we have been too quiet, and I understand that. But this presentation -- so -- and of course, we've been working on the 3 strategic elements that we chatted about today. We've been working on the plant, we've been working on the organization, and we've been working on financing. And as many of you that I've chatted to directly know, I mean, I want to come to the market and present exactly where we're at. And there's no point in me coming to the market to say, well, we think we find a transfer of material issue, but don't worry we will fix it. It's way better for me to come to the market and go, we did find this. It's not surprising. It happens with all first scale-up facilities, and it's fixed. So now you can expect to see product moving and now you can expect to see asphalt coming out more and now you can expect to see financials that we can chat about. So yes, it all -- it does feel that we have not been as transparent and that's being deliberate. So I'll not apologize for that. It's a fact, but that's kind of -- that's honestly where we've been. So I think you'll see some -- so in Q2, of course, the next -- one of the next targets for us is Emissions Reduction Alberta, the milestone. That's got kind of production milestones in it. But as you guys all know, the thing that's key about that is it's 20 days' worth of production over 100 tons. Now there are other criteria that are in there, but that's a major milestone. TAMKO debenture at the same time, of course, is a major milestone. Actually, the close of this USD 10 million in the next couple of weeks is a major milestone from a financing perspective. So yes, that's what I think you'll see. So probably number one, the closing of the $10 million in the next couple of weeks. Then you'll see, as I say, Emissions Reduction Alberta in Q2, Emissions [ Reduction ] Alberta and TAMKO. And then we will be transparent about the feedback on the planning for the shutdown and when -- or the turnaround and the upgrade and when we expect that to happen. And the great question about, well, what's that really going to do to your production? We'll have a much better idea for that when the engineering is completed, which again should be in Q2. So I think we'll be able to be transparent on what that looks like and also be able to feedback on the production levels at the plant.

Great. Thank you. I think that's all the time we have. So if you have any closing remarks, go for it.

No. I mean, look, 3 things to walk away with today. And again, apologies for the press release coming out 5 minutes after the presentation started. But look, number one, this journey is getting us to a place whereby we -- this is an operating commercial asset and now having operated it, we absolutely know the improvements to make. 3 have been done, one to be done in the upgrade. And that's the honest transparent assessment of where we are as a business with our first operating facility. The second one is with long-term financial investors who have stepped up the terms that support us, but also are strategic and USD 10 million coming into the company, that's a phenomenal place for us to be and should make shareholders happy. And I think that the probability of success of the Hamilton and Baltimore facilities is increased significantly by what we've learned in Calgary. This is the first full-scale commercial facility we have built. And that's exactly what we've done. And I think we are setting this business up brilliantly for the rinse and repeat of rolling this out across cities in North America. And I think the learnings from Calgary will be applied everywhere we go. So thank you for the shareholders for bearing with us, maybe not being communicated to you as regularly as you wanted to. But hopefully, this is a good line in the sand with respect to transparency and performance of the Calgary facility.

Great. Thanks, everyone, for joining, and we'll have a replay up shortly.