Friday, December 12, 2014 8:58:31 AM
• Many cases where they take general statements and provide greater clarity, not much substance but tells a better story
• Someone did homework on clean energy quantifying carbon footprint advantage
• Near Term Improved: Leadtime compression for the first (5) plant from 5 years to 3-5, also expanded geography from Southern U.S. to include Canada
• Long Term Reduced: (10) additional plants with total capacity of ~3mm tons reduced to (5) additional plants ~2mm tons
• Improved plant economics with each plant producing essentially the same volume at 180 tons but increased revenue from $78mm to $99mm and profitability from $50mm to $57mm
o Interesting to note that profitability units of measurement changed from Gross Profit to EBITDA, this is favorable
• Several changes to Pillars 1-4
o Feed stock suppliers reduced 5-20 to 5-10 within radius 50 miles increased to 50 -75 miles
o Clarified firm EPC contract with Saipem
o Added “elsewhere” to Florida and Louisiana sites
o Added Andritz to firms they are working with
o Modified the price floor to include waterfall to maximize profitability, although they no longer specify $250/ton guaranteed floor. Hope they didn’t give that away.
• They now state $400mm project cost, this is concerning because the grants are only for $300mm???
In summary:
I am very excited about the increase profitability per plant and the leadtime compression potential for the first (5) plants, if we remain under 400mm outstanding shares that keeps us in the $1/plant share price calculated by net present value based on future cash flow assuming 7X EBITDA (which is reasonable or perhaps a little conservative for a capital intensive business with propriety technology), that’s $5 PPS in 2020ish….
I am very concerned with the new price tag of $400mm, hopefully they have a solution for the $100mm/plant gap and we don’t sit for the next year or two trying to solicit funding (sound familiar i.e. 2013 – 2014 EPC). Also I appreciate the waterfall pricing model which is very common for commodities, I just hope they didn’t give away the $250/ton minimum guaruntee with take or pay terms because that is an extremely powerful tool with bank financing. Lastly they got to get some funding and stop issuing shares to pay the bills, if this is their model until they have cash flow in 2016 then we are on pace for well over 500mm shares and that would be very disappointing indeed.
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