Cielo Waste Solutions Corp (CMC)

[Ubertino]

Cielo Waste Solutions (CSE:CMC) Converts Landfills Into High Grade Diesel Fuel

Written By: James West

May 13, 2014

Posted In:

Cielo Waste Solutions (CSE:CMC) CEO Don Allan has a perfect business model, from an investor’s perspective. Take the world’s 2.2 billion tonnes of landfill trash each day, and convert it into high grade diesel for use in everything from trucks to aircraft. With a gross margin of >80 percent, the company’s value proposition for investors is manifold. Cielo believes it can build 6 plants in a year, which will give it the capacity to produce 32 million litres of diesel a year.

Transcript:
Cielo Waste Solutions ( CSE:CMC) CEO Don Allan has a perfect business model, from an investor’s perspective. Take the world’s 2.2 billion tonnes of landfill trash each day, and convert it into high grade diesel for use in everything from trucks to aircraft. With a gross margin of >80 percent, the company’s value proposition for investors is manifold. Cielo believes it can build 6 plants in a year, which will give it the capacity to produce 32 million litres of diesel a year.

James West: Okay Don, quickly, why don’t you tell me what’s the value proposition for investors in Cielo Waste Systems?

Don Allan: We’ve got a lot going on here. We think we are going to lead the world’s industry when it comes to landfills and turning landfills into high-quality diesel. At the stage we’re in today, there’s very little competition, and when it comes to landfills except for co-generation, our company is managing to take it past power. We take it into the highest quality renewable diesel that you can manufacture in North America and possibly the world.

So, we’re pretty excited. We go in and we try to eliminate at least 90%, if not 95% of the landfill, and we turn it into diesel. We do it with a technology that has no flare stacks, has no emissions. It’s quiet, it’s self-sufficient. It is one of the greenest refineries ever built.

James West: Okay, it begs the question: how do you that?

Don Allan: Well, it’s called Thermo Catalytic De-polymerization, but really all that means is heat and a catalyst. The catalyst being the secret recipe for the way we crack the cellulose of fibers, if you will, into diesel. If you look at catalysts, a catalyst is used in every refinery in the world that’s usually a synthetic zeolite, and then they have some rare minerals that they mix with it in order to have an edge over the competitors.

We use ten rare minerals, like niobium for instance, and it’s our own proprietary catalyst. And it comes down to, the way it works is if you look at a catalyst underneath a microscope, you’ll see a softball, if you will, and that softball has a hundred holes in it, and they’re all different sized holes. Those rare minerals that we use fill those holes up, and they fill them up so that they’re the exact same size or orifice if you will, that allows just the diesel atoms to pass through. Diesel is made up of 8-21 atoms in each molecule, and what we try to do is gather just those, and so we’re capable of doing that by making sure that orifice is just the perfect size that only those atoms can pass through them. And then we’re able to convert that into gas, and from a gas we turn it back into a liquid, and that is the high quality diesel.

James West: So you take garbage, add rocket science, and you get fuel.

Don Allan: Yes, you bet. Yeah, yeah, and when we talk garbage, I mean, there’s a number of different types of feedstocks, anything cellulosic. So, basically what that means is we can use rubber tires, we can use plastics, cardboard, newspaper, agricultural waste, trees, sawdust. Your household garbage: we can use your grass clippngs. We can use your orange peels, your banana peels.

So, basically if you go into a landfill, we’re able to use about 75% of the landfill for feedstock, and then there’s about 20% of landfill that we can sell on the open market like copper and steel. And then basically, the balance of 5% or 10% that’s left over is going to be rocks and dirt, and we basically just crush that and put it back into the ground. So we actually eliminate the landfill.

James West: Well, that’s interesting. So then, what is the revenue model?

Don Allan: To make as much as money as we can, that’s it.

James West: That’s a good revenue model.

Don Allan: We basically — I’m $1.30 right now, I’m on renewable — by renewable diesel per liter is about a $1.30, anywhere from $1.25, $1.30. We actually have a $50 million offtake agreement, at $1.30 leader right now. So on that, we estimated making a profit of about $1.05

James West: That’s a very good margin.

Don Allan: Yes, it’s about 82%. So, we’re quite happy with that margin.

James West: I’m sure you are. So, what is your revenue picture look like for — what did it look like in 2013 versus 2014?

Don Allan: Well, we’ve got an existing plant, and we’ve been running it for roughly about 15 months now. It’s a demonstration plant. It’s 50 liters up hour. It’s what we called batch model which basically just says that we can run it for a couple days, and then we stop and we clean it out, and then we start it all over again.

So, we’re running into building a commercial plant now that’s going to be continuous. We plan to scale it up from 50 liters an hour to 200 liters per hour. So, we hope to be in production and revenue by fall, and then we plan to go to a much larger plant, a 700-liter per hour plant that should be operational by January.

So we should start seeing some revenue come fall. We’ve been out just ten-and-a-half-years to date, and we’ve been doing this without revenue. So, it’s been a long time coming, we’ve got about $13.5 million invested into it. So it’s been a long time coming, we’re looking forward to seeing some revenue.

James West: Wow, that’s amazing. So, basically is the model then to build a facility in central locations where there is a number of landfills around that qualify for your input?

Don Allan: Right, that’s our business model is to actually put these in the landfill. There are some clients that have different types of feedstocks for us, we’re working closely with some clients in the States right now that have access to a lot of sawdust, and so we’ll put them right into the sawdust.

Landfills definitely are our major focus right now. The earth puts out about 2.2 billion tons of garbage per year and we think that’s a pretty good opportunity for feedstock. That’s kind of what we’re focusing on, but of course, there are other what we are focusing on, but there are other potentials. There’s what they call car fluff, it’s the cloth and the plastics and the cardboard from car crushing companies that we can use also, and so we’ve been talking to a number of those types of people.

So, there are a number of different sources here, but we believe 90% of our business comes from landfills, and we’ll put these right into landfill.

James West: Sure, so if you have a 700-liter per hour plant running 24 hours a day, 340 days in a year, you’re grossing at $1.30 liter, 7.4 million per plant at a margin of 82%. That’s extremely attractive from an investor’s point of view, and my question is, so how many of these plants do you envision running by the end of 2014, 2015, and 2016?

Don Allan: Well we believe, right now, we have shortlisted an EPC contractor plus a manufacturer for the plant. We believe we can do about 20 plants a month, so we have potential orders right now for almost $4 billion. So, we think ourselves, we plan to have six of these plants running by the next 48 months here in Alberta producing about 35 million liters a year.

Basically, we think we’ve got two purchase orders today which represent roughly about $23 million, but we’re seeing interest for about $4 billion in potential orders. So, I think once we get that first commercial plant going, we’ll be able to start getting aggressive on some of these purchase orders. I don’t see why we can’t take this and turn this into a pretty amazing business.

James West: So let’s see, who has the feedstock, pretty much every single municipality in the world, who burns diesel pretty much every single community and economy in the world relies heavily on diesel. Are there any aspects to this diesel that make it unsuitable for any normal application?

Don Allan: No, we think actually it’s the petroleum diesel. It’s not really a biodiesel, so it’s more of a petroleum diesel. We call it renewable diesel, which is quite a different diesel than what biodiesel does. Being a renewable diesel, we make what they call a number 2 diesel, which is a highway-grade diesel. You can run it 100% in your vehicle. You don’t have to blend it. But we will blend it, we’re just trying to meet the Canadian mandates, which is basically anywhere from 4% to 7% depending what province you’re in.

So our customers basically are the people that are producing diesel right now so they use it as a blend. We don’t have any freezing issues, so we can use this 12 months a year. Our competition, or the biodiesel, if you will, they can only run them in the summer months because they got a lot of water in their products so they freeze above minus ten degrees. We freeze at minus 120C. So, we’re able to use this in military aircrafts for instance.

So we plan make a number 1 diesel, which is the highest grade diesel that you could produce, and that is our goal here. We’ve already or have made number 1 diesel, but on a commercial scale we still need to prove it. So, we know we can do a number 2 for sure, our focus is number 1.

James West: How much per liter could you sell number 1 diesel for?

Don Allan: Well, it’s multiple times higher, and we’ll leave it at that. It’s negotiable. Number 1 is made so rare in North America, and there’s actually no standard that’s set up there. So, you can’t go to a market and pull off what number 1 is selling for today.

So, you basically got to go to your client, the Air Force, or who you’re selling to, and you’ve got to negotiate a price directly with them. So, it can vary considerably. They spend some outrageous numbers we’ve heard this year but they’re all independent. So that depends on your client.

James West: Okay, how much cost to build a 700-liter plant?

Don Allan: Our cost is about 6.5 million. We sell them for 13 million.

Then of course there are license fees and maintenance fees, and there’s also a loyalty we charge per liter as well. So, we don’t want to sell them all. We want to sell what we have to do we end up purchasing our own plant, and so if you will. We could sell one and own one ourselves. So, our business model as long as many as we possibly can throughout the world, and we will sell a few so we don’t have to do any equity raises and dilute the company.

James West: I see, so you’re not going to finance these things through equity raises, you’re going to finance them through sales?

Don Allan: Correct.

James West: Well, okay, that’s very attractive from an investor’s point of view too, isn’t it?

Don Allan: You bet. We are doing a raise right now so we can build the first commercial plant, but that’s it. We’re hoping that we shouldn’t have to do any raises after this. This could be the only raise we need to do in the company.

James West: Okay, how much of the equity do you control personally, and how much does the rest of you management team, and how much is institutional?

Don Allan: Well, Cielo itself and the shell that we took over. We own about 80% on the shell. Out of that, the technology came from another one of our companies we had and we transferred it into Cielo. We’re just finishing off the legal paperwork as we speak.

By the time that’s all said and done, myself personally, I will own probably somewhere in the neighbourhood of 12%-13% of the company with my family. We’ve spent $13.5 million to date, I’ve put $2.7 million cash into this and my brother’s got $5.5 million cash into it. I’ve been at it ten-and-a-half-years. I still haven’t pulled out a paycheck out of this company.

So we’ve got skin in, and so we paid for every share that we put out there. So, while my family, every time without my brother most well off will probably end up owning close to 20% of the company and we’ve paid for every stock just like everybody else.

We have no options and no warrants in the coming today, and my board of directors do not get paid. We will be doing that at some point but we want to wait until the company is in revenue before we start to and add it in, and of course, we want to put some options into our employees’ hands and our board of directors’ hands, and the raise we’re doing right now will have some warrant attached to it. But as we speak today, there are no options and no warrants in the company.

James West: Wow, I’ve got to say that’s one of the better stories I’ve heard, and I hear a lot of them every day, Don. We’re going to leave it there for now and I’m going to back to you in about three months’ time and we’ll see how progress is. I’d like to thank you for taking the time today.

Don Allan: Thanks James, I appreciate your interest.

James West: My pleasure. Bye for now.

Don Allan: Bye now.

http://www.midasletter.com/2014/05/cielo-waste-solutions-converts-landfills-high-grade-diesel-fuel/