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Thursday, 08/09/2018 9:00:21 PM

Thursday, August 09, 2018 9:00:21 PM

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what do you think about below article ?

Summary

The recent CC made technical and economical situation clear about problems & solutions in order to run modules 24/24&7/7.

We're now able to project revenues for 16 modules operating continuously.

We can also now understand which are the actual Company strategies they're focusing on and, consequently, we could derive an immediate and perspective evaluation of AQMS.

Conclusive reflections on correct timing and opportunity to invest in AQMS.

Technical and economical situation about running modules 24/24&7/7

Until this CC, we have no precise idea on which could be the problems about running modules 24/24&7/7.

Now we get it.

AquaRefining lead is produced by an electrochemical (&, for this reason, more ecological) process.

The stops that prevent a smooth functionality of modules are due to exhaustion and repletion of electrolyte solution in the process (Frank Knuettel CC words).

So, when electrolyte come to exhaustion, we have to remove the exhausted solution and to substitute it with a fresh new one.

Obviously this is a cost. Both in feedstock terms & in stopping production time.

How much? 1.15$ to 1.20$ for every dollar of revenue in AquaRefining (F. Knuettel CC words).

Off course, in relation to the current situation:

if we can recycle & reuse electrolyte => we reduce feedstock costs
if we can make this repletion continuously => we augment production time, i.e. productivity

So, we get now two kind of questions:

1) Technical: a) Is it possible to do this? And, b), with which difficulty?

2) Economical: Is it possible to do this gaining(i.e for every dollar of AquaRefing revenue costs will become << 1$)?

1a) & 1b) => It’s clear that management has no doubt that this goal (recycling electrolyte) could be achieved. But we can deduce it by ourselves: recycling an electrolyte is not requiring innovative or unprecedented processes. It’s in some way standard chemistry. Management has already an idea how to do this, without doubt: “one piece of equipment that’s on the floor today and another piece of equipment that’s on order and then the commissioning associated with each of those things to tie everything together” (Frank Knuettel).

More:

“Colin Rusch

And so my understanding is that those projects are very well defined but there isn't any technology risk, it’s really just a matter of integrating the equipment and then operate and just optimizing the balance of the system. Is that the way we should be thinking about this?

Steve Cotton

Yeah, it really is because we're not really inventing anything dramatically new in that front, it's more planned capital upgrades that allow us to scale, they’ve got delayed until we could learn furthermore about what we needed on this spec of the machines and things like that. But they’re standard off-the-shelf types of equipment, so it's just a matter of execution and deploying them and getting them into service in our belief.”.

“They’re standard off-the-shelf types of equipment”…”on order”…

For answering question 2 we refer to next chapter.

We conclude this chapter considering:

how now it makes perfect sense to run only few modules at present
and why, if from the technical point of view recycling electrolyte is perfectly feasible, it’s difficult to give a precise timetable about completing 24/24$7/7 smoothing operability.

i) Running only one or two module at present is logical: to make experiments now costs and no need to make them on more modules. Once found the right process optimization for a module, this solution is immediately scalable to all other modules. The question it's not to sell right now some Aquarefined lead at a cost not necessary…

ii) The immediate scalability of every found optimal solution is a great positive factor in the business of this company, but, paradoxically, now push the company to make an accurate and thorough great search of the final optimal solution, forcing to not be able to give an exact timetable for scalability (except to say it is sure in the next months, until 2019).

Let me explain better.

Let assume we combine equipment to achieve electrolyte recycling (actually they know how to do it right now, as before illustrated) and let assume we obtain a 25% gain (i.e. for every AR 1$, about 0.75$ of costs). The immediate scalability implies we can in a blink of an eye apply this solution to hundreds of modules with licensees (someone could say "A gain is a gain"). But let assume after a little while we realize the process could be organized in an alternative manner that brings 35% of gains. We have to say “Sorry guys, you have to restructure all your recent new production lines!”.

It’s not nice (for not speaking about enormous waste of money)!

So it’s better test and test and think again well before (hence the time consuming process).

All because, once optimal solution found, to escalate it it’s nothing!

Current management is very serious in searching now so accurately, in order to have granted best future margins and no problems.

Projected revenues for 16 modules running continuously

So, from a technical point of view, all is surely and easily feasible, but, from an economical point of view, are we sure that, right now, management has already in mind at least a technical solution that gives us gains, even without the sureness that this solution is the optimal one?

The answer is “Yes, we could be sure about this”.

Why?

As we saw, management spoke on CC in order to electrolyte recycling problem about standard equipment on order, but, what is more, Frank Knuettel, with evidently this in mind, i.e. an already technical evident solution (that could be ameliorated - and this is the time consuming search), said that:

“We anticipate that we will have positive gross margins prior to getting sixteen modules running continuously, so somewhere in the twelve to thirteen model range continuous operations is where we will hit positive gross margins.”.

So, it’s clear that already now, without having completed the optimal combination search, they can anticipate to have a breakeven at least, let say for sake of calculation simplicity, at 12 modules, continuously running in the configuration they have now in mind.

So 12 modules have necessarily to produce, in an actual, but not still confirmed optimal continuous operating configuration, about 9 million$ for quarter to offset current quarter losses ("...positive gross margins...").

This implies the 4 remaing modules (to arrive at 16) will produce 3 million$ for quarter.

Hence, for the current plant we can already now prospect 48 million$ revenues for year with 12 million$ of “net” (before taxes) proceeds.

Practically they said us they have in mind right now, without optimization concluded, a minimal gain of 25% (1$ of AR revenue, 0.75$ of costs).

Sure this CC clarified a lot of things. But there was much more.

New strategies on which AQMS management are focusing now to build best value. Immediate & perspective AQMS SP value.

Steve Cotton spoke about “a capital-light…model”.

More precisely:

“After serving our business in the industry landscape, we have to meet the decision to adjust our business approach. Historically, Aqua Metals has discussed building its own plants. Moving forward, as we have learned more about the process and where it fits into the lead recycling continuum, we've become convinced that a capital-light co-location model that partners AquaRefining with existing battery recycling centers is the best plan for the future as we expand beyond our proof of concept plan. By installing AquaRefining technologies and services in existing battery recycling locations, initially with Johnson Control, we have the potential to target 50% of the $22 billion marketby focusing on recycling the lead taste in a greener manner that also yields higher quality metaland could open up further production capacity”.

What this means?

Once optimal combination found (only matter of months, as before illustrated), you have immediate scalability, but also two choices.

1) Building new plants and to operate on your own, but this requires more capital and is more time consuming and riskier than 2) to licensee your solution to subjects that already have their plants and their strong relationships in the lead recycling continuum (so no problem of feeding process cost and selling at best Aquarefined lead).

Hence the importance of alright granted partnerships (we’re speaking about Interstate Batteries and JCJ, not the latest arrivals in the sector).

It’s now clear that management intend to operate in the industrial process only with the current factory and only until they are sure to have found the optimal process solution, while they already have in mind a technical and economical viable solution.

Once this done, it would be very straightforward and immediate, without consuming capital, to licensee the process.

Their goal is not to sell their Aquarefing lead directly (in this view, they're delivering Aquarefined lead to JCJ only to certify its quality, not to be a real vendor). Their goal is to have a licensee fee on 50% of a 22$ billion dollar market that could expand with the presence of a far superior product.

In Steve Cotton words:

“I also want to take a minute to comment on the overall lead market. Despite the advent of newer battery technology, lead remains the dominant technology and the lead market continues to grow in both size and complexity. Some examples include the advent of advanced lead batteries or absorbed last math start stop batteries which does put a second lead acid battery into each car. Other applications like stationary batteries such as the growing Internet data center infrastructure and alternative energy in grid scale energy storage

These trends increase the market value of pure AquaRefined lead that we believe we can capture.”

So if we think for example about renewable energies, we have a trend of increasing storage battery demand. Higher purity lead conduce to batteries with higher energy density. Hence far superior product for which there is demand (“higher quality metal…could open up further production capacity”).

But if we rest on the current 22 billion$ market, 50% is 11 billion$ per year.

In the model we recently illustrated, licensees could gain 25% of this sum and it’s not unfair to consider that AQMS could take a fifth of this sum, i.e the 5%, i.e. 550 million$ per year of revenues. But this revenues have little or almost no costs (they’re from simple licensing), so they’re almost “net” preceeds.

Normally a mature company it’s evaluated, roughly speaking, in 10-20 years of earnings, but let consider for sake of prudency 10 years.

This implies a perspective company evaluation, and hence market capitalization, of 5.5 billion$, 50 times the current capitalization, may be in three years (licensing is straightforward once you’ve the right process to licensee or, in other words, you have not to build a JCJ or Interstate Battery company, they're already ready).

With such a perspective evaluation, we have to consider that the ball (AQMS), which has to reach this goals, is not moving in a climb nor in a flat plane but rather in a descent plane towards these aims (no relevant technical problem, capital light and straightforward to execute model, good management and partnerships,…).

In less words, considering well the CC, indeed the company is right now considerably derisked (good management, clear development path, etc), and an immediate and fair AQMS stock price evaluation could be easily about 7$ (sure with more reasons now, than a year ago, when stock quoted so).

Conclusive reflections on correct timing and opportunity to invest in AQMS

One could say “Ok, all seems reasonable, but markets are in an uptrend, in the meanwhile they're completing the optimization process, I'll invest in other stocks. Investors hate waiting. I’ll come back later.”

Are you sure? Are you a risky daytrader or a serious investor?

Real investors hate waiting principally to avoid unnecessary risk in meanwhile, but here we have a derisked situation with very multibagger perspective.

We have here a stock that could double in any moment from now in a blink of eye, without no new news and without no problem.

All the catalyst is already provided in this CC, if we examine it well.
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