PyroGenesis Canada Inc. (http://pyrogenesis.com) (TSX: PYR)
(NASDAQ: PYR) (FRA: 8PY), a high-tech Company (hereinafter referred
to as the “Company” or “PyroGenesis”), that designs, develops,
manufactures and commercializes plasma atomized metal powder,
environmentally friendly plasma waste-to-energy systems and clean
plasma torch products, is pleased to announce that it has signed a
binding Letter of Intent (“LOI”), which outlines the terms and
conditions pursuant to which PyroGenesis would acquire AirScience
Technologies Inc (“AST”) for $4.8MM (the “Purchase Price”). The LOI
is binding on AST, but it is only binding on PyroGenesis if in its
sole opinion, it is satisfied with the final due diligence
currently in progress. The option to satisfy the Purchase Price in
shares or cash is at the sole discretion of the buyer, and will
only be made on, or about, final closing.
AST is a Montreal-based company that designs and
builds (i) gas upgrading systems (specifically from biogas to
renewable natural gas, or “RNG”), (ii) Pyrolysis-Gas Purification,
(iii) Coke-Oven Gas (“COG”) Purification as well as providing (iv)
Biogas & Landfill-Gas Flares and Thermal Oxidizers.
Mr. P. Peter Pascali, CEO and Chair of
PyroGenesis, discusses this acquisition in the following Q&A
format.
Q1. First, before we
delve into the specifics of this acquisition, can you explain what
RNG is, and how biogas upgrading relates to this?
A. For sure.
RNG, which is also called biomethane, is
produced from organic waste in landfills, household waste,
agricultural waste and wastewater sludge. The decomposition of this
organic matter results in a biogas, which is then captured and
purified to produce carbon neutral RNG. This upgrading/purifying of
a biogas into an RNG is called the biogas upgrading process, and is
typically done by cleaning, drying, and separating the methane in
the biogas into an RNG.
Why is this done? Because this biogas emitted
from a landfill (as an example), and which has been converted into
an RNG, can now be sold into the natural gas pipeline network
thereby reducing the need for conventional gas. This process has
essentially repurposed damaging greenhouse gasses (“GHG”) emitted
from a landfill into a valuable product.
What is even more interesting is that
governments are now legislating gas distributors to incorporate
minimum amounts of RNG into their pipelines. This has, in turn,
created a huge need for biogas upgrading facilities worldwide, but
particularly in North America, and it is this need that AST is
targeting.
The movement to transition economies to net zero
emissions is evidenced in the US’ commitment to cut GHG emissions
in half by 2030, and to zero by no later than 2050.1
In our own backyard, in Québec, we are already
seeing this movement towards incorporating RNG into traditional gas
pipelines. When the Québec government recently unveiled its
ambitious plans for a green economy, they incorporated RNG and
green hydrogen initiatives as a strategy to reduce GHG emissions.
In their 2030 plan for a green economy, the Québec Government
launched its first implementation plan, covering 2021-2026, and
which was backed by a budget of no less than $6.7 billion over the
ensuing five years. More specifically, it earmarked over $200
million for RNG projects in the form of investments in the
financing of RNG production and distribution projects.2
PyroGenesis believes that AST’s experience in
biogas upgrading, combined with PyroGenesis’ engineering and
multidisciplinary skills, as well as its proven record of meeting
the exacting demands of multibillion dollar companies and the US
military, positions the combination well to address the
opportunities arising from this growing need to clean biogas.
More precisely, PyroGenesis’ acquisition of AST
will finally allow AST to realize its full potential by providing
the skill set and assets which have been in need at AST, and the
lack of which have been an impediment to their growth. Amongst
these are access to PyroGenesis’ (i) solid quality management
system, including ISO 9001 certification, (ii) multidisciplinary
team of engineers (including process, mechanical and electrical
engineering) and modeling capabilities (CFD, 3D mechanical, FEM
analysis, process modeling), (iii) valorization of intellectual
property through patenting of innovations, (iv) newly upgraded
state-of-the art fabrication and warehousing facility allowing for
quick turnaround of equipment and parts to customers, and (v) over
30 years history with a long list of high-profile customers.
Q2. Can you expand on
this opportunity?
A. Sure.Biogas
production in North America is an industry on the verge of
explosive growth and with significant potential for additional
expansion and development.
The North American biogas market is vastly
under-utilized when compared to other parts of the world; there are
under 2,500 sites producing biogas in North America as compared to
over 10,000 sites in Europe.3 According to the Canadian Biogas
Association, the full potential of biogas development should lead
to an additional 1,800 separate construction projects requiring a
capital investment of approx. $7 billion and with further economic
spin-offs of over $20 billion. The global biogas market size was US
$25.5 billion in 2019 and is projected to reach US $31.69 billion
by 2027, exhibiting a CAGR of 5.30% during the forecast period
(2020-2027).4
It is important to note that this projected RNG
growth is highly dependent on the biogas production industry
reaching capacity, and it is this exact need that AST targets.
There are only 130 plants currently producing
RNG in North America, with a potential need for an additional 100
over the next two (2) years, and an additional one thousand in the
two (2) to ten (10) year time horizon.5 It is this explosive growth
that PyroGenesis seeks to address with this acquisition.
Q3. Who is AirScience
and what role do they play in this RNG process and reduction of GHG
emissions, and are there any additional synergies with PyroGenesis’
traditional offerings?
A. AST is a Canadian company
formed in 1993 from the merger of two companies, one Canadian and
one American. AST offers technologies, equipment, and expertise in
the area of biogas upgrading as well as air pollution controls.
AST is known for its line of landfill gas flares
which reduce GHG emissions specifically from landfills. AST
complements these offerings with technologies geared towards the
desulfurization, dehumidification, and purification of biogas, as
well as the production of RNG through the removal of carbon
dioxide.
Separately, AST is also active in the
purification of coke-oven gas (a by-product in the primary steel
industry arising from the conversion of coal into coke), into high
purity hydrogen, which is very sought after in the industry.
PyroGenesis has known AST for over 10 years, and
we have been actively engaged in a due diligence process since last
September. We have found that AST is well known in the marketplace
and is uniquely positioned to take advantage of the need to upgrade
biogas into RNG, thus reducing GHG emissions globally. They are a
lean RNG developer with several projects in execution.
With thousands of sites flaring low-quality
biogas across North America, there is an enormous opportunity to
curb emissions and simultaneously generate revenues. Reducing
carbon emissions while transforming biogas into RNG fits well with
PyroGenesis’ stated strategy to become a world leader in reducing
GHG emissions. Specifically,
(i) the
syngas produced by PyroGenesis in, for example, its PRRS offering
(the land-based offering) is very similar to the COG that is
cleaned and upgraded by AST. In PyroGenesis’ case, the syngas is
converted into electricity and heat (both low value). In AST’s
case, the COG is purified, and hydrogen, which has a much higher
value, is extracted from it. As such, there is an opportunity to
repurpose the syngas generated by PyroGenesis’ PRRS offering by
leveraging off of AST’s technology, and thereby create higher value
products such as hydrogen, methanol and ethanol,
and(ii) PyroGenesis’ and AST’s
client base are unique in that they are not totally independent of
each other but overlap and, to some degree, are both driven to
reduce GHGs. As such, they are ideal candidates for cross selling.
There is an opportunity to both cross sell PyroGenesis’ clients on
AST’s offerings and AST’s offerings to PyroGenesis’ clients.
Q4. Could you describe
the transaction in more detail?
A. Structurally,
this LOI is binding on AST, but only on PyroGenesis if the Company,
in its sole discretion, are satisfied with the final due diligence
currently in progress.
AST currently has approximately $10-12MM in
backlog all of which is expected to be completed within 18 months,
$12-14MM in pipeline, and has posted an average gross margin over
the last four years (2016-2019) in excess of 40%. The company was
profitable in 2019 on approx. $4.7MM in revenues. Projections are
cash flow positive over the foreseeable future (Note: all these
figures must be further verified during the final due diligence
currently underway).
The transaction is for $4.8MM payable at the
Company’s option, in cash or shares, at the final closing. At the
closing, the full payment will be put in escrow and only released
upon certain milestones being accomplished, a sample of which
are:
1) 20% upon
payment of US$4MM (approx. Can$5MM) under an existing letter of
credit from AST’s client X,
2) 25% upon conversion of $4MM
in pipeline to signed
contracts,3) 25% upon final
acceptance report for client Y,
and4) 20% upon final acceptance
test from client Z.
Q5. In closing, you
stated in your last financials that the Company will pursue a
synergistic merger and acquisitions (M&A) growth strategy to
augment organic growth. So, should we expect more acquisitions in
the near future?
A. As previously disclosed, the
Company is implementing a conservative synergistic M&A strategy
to augment its organic growth.
We have described leveraging off of our “Golden
Ticket” advantage (that advantage that occurs as a result of
selling directly, or being engaged directly, with the end user and,
as a result, are now “inside the fence”). A Golden Ticket affords
us the opportunity to either, (i) cross sell other products or,
ideally, (ii) identify new areas of concern that can be uniquely
addressed by PyroGenesis. We call the latter our Coffee and Donuts
strategy (if you are selling coffee, you can generate additional
revenues, with little additional effort, by selling donuts as
well)
Our acquisition strategy has, to date, been
focused exclusively on private companies which (i) leverage
off of the Company’s Golden Ticket advantage/Coffee & Donuts
strategy and/or (ii) could uniquely benefit from the Company’s
engineering advantage and/or international relationships.
To answer your question, we may do one more
acquisition, but our attention at this time is not to pursue any
more than that. With the acquisition announced today, combined with
the previously disclosed potential joint venture to convert dross
residues into valuable chemicals, we feel anything more would be
distractive.
About PyroGenesis Canada
Inc.
PyroGenesis Canada Inc., a high-tech company, is
a leader in the design, development, manufacture and
commercialization of advanced plasma processes and products. The
Company provides its engineering and manufacturing expertise and
its turnkey process equipment packages to customers in the defense,
metallurgical, mining, advanced materials (including 3D printing),
and environmental industries. With a team of experienced engineers,
scientists and technicians working out of its Montreal office and
its 3,800 m2 and 2,940 m2 manufacturing facilities, PyroGenesis
maintains its competitive advantage by remaining at the forefront
of technology development and commercialization. The Company’s core
competencies allow PyroGenesis to provide innovative plasma
torches, plasma waste processes, high-temperature metallurgical
processes, and engineering services to the global marketplace.
PyroGenesis’ operations are ISO 9001:2015 and AS9100D certified.
For more information, please visit www.pyrogenesis.com.
This press release contains certain
forward-looking statements, including, without limitation,
statements containing the words "may", "plan", "will", "estimate",
"continue", "anticipate", "intend", "expect", "in the process" and
other similar expressions which constitute "forward- looking
information" within the meaning of applicable securities laws.
Forward-looking statements reflect the Corporation's current
expectation and assumptions and are subject to a number of risks
and uncertainties that could cause actual results to differ
materially from those anticipated. These forward-looking statements
involve risks and uncertainties including, but not limited to, our
expectations regarding the acceptance of our products by the
market, our strategy to develop new products and enhance the
capabilities of existing products, our strategy with respect to
research and development, the impact of competitive products and
pricing, new product development, and uncertainties related to the
regulatory approval process. Such statements reflect the current
views of the Corporation with respect to future events and are
subject to certain risks and uncertainties and other risks detailed
from time-to-time in the Corporation's ongoing filings with the
securities regulatory authorities, which filings can be found at
www.sedar.com, or at www.sec.gov. Actual results, events, and
performance may differ materially. Readers are cautioned not to
place undue reliance on these forward-looking statements. The
Corporation undertakes no obligation to publicly update or revise
any forward- looking statements either as a result of new
information, future events or otherwise, except as required by
applicable securities laws. Neither the Toronto Stock Exchange, its
Regulation Services Provider (as that term is defined in the
policies of the Toronto Stock Exchange) nor the NASDAQ Stock
Market, LLC accepts responsibility for the adequacy or accuracy of
this press release.
SOURCE PyroGenesis Canada Inc.
For further information please contact: Rodayna
Kafal, Vice President, IR/Comms. and Strategic BDPhone: (514)
937-0002, E-mail: ir@pyrogenesis.com
RELATED LINK: http://www.pyrogenesis.com/
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1
https://www.nbcnews.com/politics/white-house/biden-will-commit-halving-u-s-emissions-2030-part-paris-n12648922
https://www.bioenergy-news.com/news/rng-included-in-quebec-governments-green-economy-plans/3
https://biogasassociation.ca/ and
https://americanbiogascouncil.org/biogas-market-snapshot/4
https://www.fortunebusinessinsights.com/industry-reports/biogas-market-1009105
Biogas World Due Diligence report
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