Environmental Clean Technologies
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Environmental Clean Technologies A promising cleantech play Share Price: A$0.001 ECT has been built on a ‘clean coal’ technology ASX: ECT The company’s leading technology, called ‘Coldry’, allows the Sector: Commercial & Professional Services transformation of low-grade brown coal into a product with 13 November 2019 qualities closer to high-grade black coal. A related technology called Matmor allows primary iron to be made using lignite Market Cap. (A$ m) 4.8 instead of coking coal. ECT has recently started to move into # shares outstanding (m) 4,800.5 the waste-to-energy space with a technology called CDP-WTE. # share fully diluted 4,800.5 Currently addressing later- stage cash flows Market Cap Ful. Dil. (A$ m) 4.8 Free Float 100% ECT from 2015 to 2019 collaborated with two Indian semi- 12 months high/low ($) 0.011 / 0.001 state-owned companies on developing Coldry and Matmor plants in India, however this collaboration failed to yield Average daily volume ('000) 2.9 commercial results before ECT withdrew. ECT is currently Website ectltd.com.au executing on an alternate value creation strategy it outlined Source: Company, Pitt Street Research in September 2019 which involves expanding and upgrading the Bacchus Marsh Coldry facility for end-products beyond Share price (A$) and avg. daily volume (k, r.h.s.) coal in addition to the company’s move into the waste-to- Share Price Volume (M) energy sector. This may include other acquisitions currently 90.0 0.010 being discussed internally. We think the move towards later- 75.0 0.008 stage commercialisation of cleantech opportunities will be 60.0 welcomed by new and old shareholders. There also remains 0.006 45.0 the potential for ECT to obtain new public or private sector 0.004 30.0 backing to develop Matmor plants in India. 0.002 15.0 0.000 0.0 Now a player in the waste-to-energy space. Recently ECT has moved to into the waste-to-energy space, where there is potentially a shorter lead-time to Source: Thomson Reuters, Pitt Street Research commercialisation and higher finished product margins. In June 2019 the company announced that it had acquired a waste-to-energy technology. The technology, called CDP- Subscribe to our research HERE WTE, has the potential to provide a low-cost way to process wood, end of life plastics and other wastes into diesel fuel, This report serves as an initial introduction to particularly when the feedstock is combined with fuel Environmental Clean Technologies and its various produced from the Coldry technology. ECT has also recently technologies and market opportunities. We will diversified its exposure to the solid fuel market with the endeavour to publish a more in-depth report shortly, inclusion of recycled and waste wood products. including a full financial model and valuation range, highlighting the financial opportunity for Environmental The current rights issue potentially funds for the Clean Technologies and its investors. company to cash flow break even. ECT’s rights issue, announced in October 2019, will raise a minimum $A$2.75m and up to A$7.45m. 1.55 new shares at Analyst: Stuart Roberts 0.1 cent per share will be offered for everyone 1 share held. For every three shares taken up ECT will issue a three-year Tel: +61 (0)447 247 909 option exercisable at 0.3 cents. This raising can potentially fund the company to cash flow breakeven, should the [email protected] September 2019 strategy be successfully executed. Readers should be aware that Pitt Street Research Pty Ltd has been engaged and paid by the company covered in this report for ongoing research coverage. Please refer to the final page of this report for the General Advice Warning, disclaimer and full disclosures. 1 Environmental Clean Technologies Table of Contents Introducing Environmental Clean Technologies 3 Nine reasons to look at Environmental Clean Technologies 4 Coldry continues to hold promise as one of the better ‘clean coal’ technologies available 5 Matmor/Hydromor and COHgen allow other valuable products to be made from lignite 7 CDP-WTE allows ECT to move into the promising waste-to-energy sector 8 ECT’s September 2019 recovery plan 9 Capital structure (pre-rights issue) 9 Board and management 9 Major shareholders 9 Appendix I – ECT’s Intellectual Property 10 Appendix II – An ECT glossary 10 Appendix III – The Indian opportunity for Coldry and Matmor 10 Appendix IV – Analyst qualifications 12 General Advice Warning, Disclaimer & Disclosures 13 Readers should be aware that Pitt Street Research Pty Ltd has been engaged and paid by the company covered in this report for ongoing research coverage. Please refer to the final page of this report for the General Advice Warning, disclaimer and full disclosures. 2 Environmental Clean Technologies Introducing Environmental Clean Technologies Environmental Clean Technologies (ASX:ECT) is a Melbourne-based company developing a suite of technologies designed to upgrade waste and low grade resources with low carbon emissions. The company’s leading technology, called ‘Coldry’, allows the zero net emissions transformation of low-grade brown coal into a product with qualities closer to high-grade black coal. Coldry provides the base technology platform upon which its other technologies are then integrated. ECT has developed a Coldry pilot plant at Bacchus Marsh in outer Melbourne and has looked to develop commercial- scale plants in Australia and India. The company also has technology which produces low emission/low cost primary iron and low emission hydrogen production technology. ECT has recently started to move into the waste-to- energy space. ECT in its current form has largely been built on Coldry and Matmor/HydroMOR. The company’s work on Coldry began in 20061 with the acquisition of Asia Pacific Coal and Steel Pty Ltd, which held the rights to the Coldry technology, and a related iron-production technology called Matmor2. ECT spent the next twelve years largely focused on developing the Coldry and Matmor technologies, with a goal to establishing large-scale commercial Coldry and Matmor plants in Victoria and in India for producing high value solid fuel and primary iron. These commercial projects have completed feasibility and basic engineering design phase. Early development of COHGen allows ECT to play into the hydrogen production market. This technology, which ECT first unveiled in November 2017, allows hydrogen production from lignite. Given the rise in recent years of hydrogen as an increasingly valuable fuel source, we see potential for this technology to find a valuable commercialisation partner in the near term. Recently ECT has moved to into the waste-to-energy space, where there is potentially a shorter lead-time to commercialisation and higher finished product margins. In June 2019 the company announced that it had acquired a waste-to-energy technology3. The technology, called CDP-WTE, has the potential to provide a low-cost way to process wood, end of life plastics and other wastes into diesel fuel, particularly when the feedstock is combined with fuel produced from the Coldry technology. As well as waste-to-energy, ECT is also working on generating positive group ECT believes it can be cash- cashflows from expansion of its existing Coldry pilot plant. A September flow break-even within 12 2019 market release lays out a plan for the company to be cashflow positive months within twelve months, which involves expanding and upgrading the Bacchus Marsh facility for end-products beyond coal in addition to the company’s move into the waste-to-energy and hydrogen sectors. If ECT is so good, how come it is only capitalised at A$4.8m (US$3.3m)?. We believe the current low market capitalisation of ECT is due to disappointment over the India collaboration not working out as planned. Also, ECT is currently completing a rights issue. However, after this is completed ECT will seek to execute on the value creation strategy it outlined in the September 2019 announcement. This may include other acquisitions currently being discussed internally. We think the move towards later-stage commercialisation of cleantech opportunities will be welcomed by new and old shareholders. There also remains the potential for ECT to obtain new public and/or private- 1 Prior to 2006 the company’s main focus was Enersludge, a pyrolysis and gasification-based method for managing sewage sludge. For background on Enersludge see Water Sci Technol. 2004;49(10):217-23. The company worked on Enersludge as ‘Environmental Solutions International Ltd’ but changed its name to ‘Environmental Clean Technologies Ltd’ in late 2006 to reflect the change of focus. For many years it retained the old ASX code of ESI but changed this in mid-2018 to ECT. 2 See ECT’s 10 February 2006 market release headlined ‘ESI enters into an agreement to acquire 100% of Asia Pacific Coal and Steel Pty Ltd’. 3 See the company’s 7 and 13 June 2019 market releases. Readers should be aware that Pitt Street Research Pty Ltd has been engaged and paid by the company covered in this report for ongoing research coverage. Please refer to the final page of this report for the General Advice Warning, disclaimer and full disclosures. 3 Environmental Clean Technologies sector backing to develop Matmor plants in India. In this note we look first at the Coldry and Matmor technologies before evaluating the new CDP-WTE technology and the potential for ECT to pursue commercialisation pathways that are more ‘accelerated’ than has previously been the case with Coldry and Matmor. Nine reasons to look at Environmental Clean Technologies 1. Coldry is arguably the best brown coal conversion technology available. While there are various technologies for drying high-moisture coal in order to upgrade it, Coldry is the world’s first low-temperature, low- pressure drying method capable of producing a black coal-equivalent product via a low-cost process that has zero carbon emissions.