The New Criterion: tackling the blight of plastic waste
With both China and India closing their borders to plastic waste imports, the pressure to address the problem elsewhere has increased by several notches.
In short, both western and developing countries are drowning in mountains of non-recyclable plastic, eight billion tonnes of which finds its way to the ocean and breaks down into particles that are harmful to wildlife.
Using patented know-how invented by Gympie engineer Bevan Dooley, Integrated Green Energy Solutions (IGE) 21c claims a plastics-to-fuel conversion technique that is more efficient than the current commonly-used methods.
“Plastic is a fantastic product,” IGES exec chairman Paul Dickson says. “The trouble is, we haven’t found a way to deal with it at the end of its life.”
The solution of turning plastics back to the oil from which they derived is not new. The process, called pyrolysis, involves heating (not burning) the plastic to 400 degrees in the absence of oxygen and converting it to oil.
But few producers make enough oil to interest the refineries, with the material typically used as heating oil or a blending stock.
IGES’ method converts the plastic to ready-to-use petrol and diesel.
“We are the only company in the world able to make the written claim that we can convert end-of-life non-recyclable plastics into road-ready fuel,” says Dickson.
IGES is in the process of setting up its first modular plant, an initial $35m, 100 tonnes per day plant in green-friendly Amsterdam capable of producing 35 million litres of fuel annually.
Further plants are planned in Thailand and the UK, where the company has secured sites, approvals and government incentives.
Dickson says the economics have been enhanced because waste authorities are willing to pay IGES to relieve them of the problematic plastic, which excludes the readily recyclable PET used in plastic bottles.
In the past the company would have had to have paid for the feedstock, but now its Amsterdam supplier pays $33 a tonne to get the stuff off its hands.
Initially, Port of Amsterdam authorities have permitted IGES for two modules, each processing up to 50tpd of plastic a day.
The company plans to expand this to 400tpd, producing 140m litres of fuel annually.
Assuming the current $US70 ($88) a barrel oil price for Brent crude, IGES estimates the 100tpd plant would produce revenue of $43m and annual earnings before interest tax and depreciation (ebitda) of $11m, with a per-litre margin of 38c.
With a 400tpd plant, the economics improve to $175m of revenue and ebitda of $70m.
About the only plastic the IGES process can’t cope with is Teflon and the old-style polyvinyl chloride (which produced hydrochloric acid).
Items built from a composite of plastic – such as pens and coat hangers – are fine.
Dickson says other methods have failed because many plastic products contain fillers, a gum or glue that binds the plastic together. These substances clog up the piping of the machinery, but under IGES’ method the clag (and other impurities) fall to the bottom of the kiln.
At face value, IGES cash balance of a mere $3m isn’t too flash.
Unusually for such a small tech play, IGES has a $US90m debt facility from the US firm Structured Growth Capital, at an interest rate of 8.5 percent.
The company will tap the facility – currently $US10m drawn – as it rolls out the new plants.
“We don’t have much money because as we draw down the funds we spend it,” Dickson says.
If all goes smoothly – which is rarely the case – IGES expects to recoup the capital cost of a plant within two and a half years.
While IGES is amenable to expanding to a host of countries, its homeland is a glaring omission despite Australia having one of the worst plastic recycling rates: 12 percent compared with 35 percent in The Netherlands and 32 percent in the UK.
An earlier plan to install a plant in Canberra – no hot air jokes please – fell to the bottom of the in-tray.
Using the shelf of Foyson Resources, IGES back-door listed in early 2018 and raised $7m after a lengthy transmogrification.
While the back-door method delivered a readymade base of 3000 shareholders, Dickson says it delivered little by way of cost or time savings.
“In hindsight we wouldn’t do it that way again.”
In pre-revenue stage, the $55m market cap IGES still has much to prove. But we’ll know more when the Amsterdam plant starts producing in August.
Renergen (not yet listed)
Speaking of plastic, many governments and local councils have banned helium-filled balloons due to the deleterious effect on wildlife when the lofty party items burst and float back to earth.
There’s another reason for the fun police to act: once released, helium eventually will leave the atmosphere. So while every drop of water and ounce of gold ever created is still on the planet, helium is the world’s only truly finite resource.
The scarcity of the inert noble gas is a key selling point for South Africa’s Renergen, which plans to supplement its Johannesburg listing with a dual presence on the ASX (accompanied by a $5-10m capital raising).
Renergen owns 90 per cent of the Virginia Gas Project in the Free State region, which boasts unusually rich helium grades amid the methane.
But after the first day of the company’s Australian investor roadshow, CEO Stefano Marani realised a back-to-basics approach was needed.
“Only one institution knew what helium was.”
So here’s a quick lesson: while 8 percent of helium supply ends up in balloons, the gas is also a key input in magnetic resonance imaging machines, rocketry, welding and electronics.
While demand is surging, helium supply is becoming more constrained because of separate issues with the key supplier nations, the US and Qatar.
In the US, the government created the Federal Helium Reserve in 1925 and stored vast quantities of the stuff down a well in Texas.
The gas was gradually sold off for budgetary reasons and has become depleted.
The volatile Qatar faces an ongoing economic blockade by its neighbouring Arab states.
So while Qatar gently weeps – apologies to The Beatles there – Renergen is furthering the Virginia Gas Project which averages 3.5 percent helium but grades up to 11 percent in an especially rich zone.
In contrast, Qatar producers work off grades off 0.001 percent while US reserves grade up to 1.5 percent.
With funding from the US government’s Overseas Private Investment Corporation, Renergen plans to build a $50m pilot plant producing 350 kilograms of helium and 50 tonnes of LNG per day.
The funds from the ASX debut will support further exploration to support a feasibility study for a much grander phase two.
An independent report from consultants MHA Petroleum Consulting valued Virginia’s current six billion feet of helium reserves at $960m, more than ten times Renergen’s current market valuation.
With helium supply controlled by five companies globally and with a thin spot market, Marani says helium pricing is “sketchy at best”.
He’s heard of spot prices of up to $US1200 per thousand cubic feet, while a contested auction of US reserves last year fetched $US280/TCF.
“We would be happy with anything north of $US200,” he says.
After its expected ASX debut on May 31, local investors will own 6.2 percent and 12.5 per cent of the company, which will have a nominal market capitalisation of $80m.
Tim Boreham edits The New Criterion
Disclaimer: Under no circumstances have there been any inducements or like made by the company mentioned to either IIR or the author. The views here are independent and have no nexus to IIR’s core research offering. The views here are not recommendations and should not be considered as general advice in terms of stock recommendations in the ordinary sense.
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Many readers will remember Boreham as author of the Criterion column in The Australian newspaper, for well over a decade. He also has more than three decades’ experience of business reporting across three major publications.