Clearford Water Systems (TSX: V.CLI, Forum) is on the leading-edge of domestic sewage collection and treatment providing cost-effective sewage and treatment solutions for municipalities outside of densely populated urban areas with its Clearford One™ system. Under a unique award winning Pay for Performance (P4P™) delivery model and using a $100 million fund committed by Signina Capital AG of Zurich to finance 100% of capital cost, Clearford has begun to supply its ground-breaking product and service model in the province of Ontario with success. In fact, 2015 has been a breakout year for the company in regards to advancing its business model, so Stockhouse reporters sat with company President and CEO, Kevin Loiselle, to get an update on Clearford’s significant progress and what lies ahead for the Canadian-based company.
Kevin, would you explain the advantages the Clearford One™ system has over traditional sewage and treatment solutions currently available to municipalities?
Clearford One™ is a more efficient and sustainable way to build sanitation infrastructure when compared to conventional systems. Clearford One™ is a decentralized system that traps and treats solids at source in high performance ClearDigest Smart Digesters, removing 75% of pollutants before transporting just the liquid fraction through a sealed ClearConvey pipe network to an optimized ClearRecover treatment plant where the final 25% of treatment is completed before discharge back into the environment. Clearford One’s treat-convey-treat model is far more efficient than the conventional convey-treat model that transports large volumes of solid and liquid wastewater in big diameter concrete pipes that are expensive to install, and crack and sag over time. Not only does the sealed ClearConvey pipe network eliminate any environmental risk of leakages that is inevitable in a conventional system, but it also eliminates any infiltration of ground water into the pipe network. Older conventional systems can see upwards of 25% additional flow due to infiltration, and the pipes and treatment plant must be sized accordingly. ClearDigest Smart Digesters act as a buffer for the treatment plant, removing the need for headworks to remove foreign solids and trash at the treatment plant, and reduces peak flows during high water use hours by attenuating the wastewater released from the tank at a slower controlled rate. With Clearford One™ peak flows are reduced to a factor of 2 from factor of 4 typically seen in conventional systems, meaning the treatment plant can be sized much more efficiently, providing huge installation and operation savings. Since the collection component of Clearford One™ from ClearDigest Smart Digesters to the ClearConvey pipe network is almost entirely composed of HDPE the systems life time is 90+ years, a huge leap from the typical 30 year life span of conventional big pipe systems. By removing solids at source ClearConvey can be installed at a much shallower gradient, removing the need for deep excavation and the frequency costly pumping stations. Since the pipe diameter is so small ClearConvey can often be installed beside roadways removing the need for lane closures during construction and costs for remediation. A sealed pipe network also allows for common trenching with water lines saving space and excavation costs. In some cases horizontal directional drilling can used removing the need to excavate entirely. The flexibility of the HDPE pipe network is ideal for retrofits in communities that developed without the rigid constraints of conventional sewers.
Clearford One™ is approximately 50% lower in capital cost and 50% lower in operating cost than conventional sewage collection and treatment systems.
Clearford Water Systems recently secured a 2-year renewal on its $100 million funding with Signina. Can you explain the significance of this extension?
This funding enables our Pay-for-Performance (P4P™) delivery model where Signina has undertaken to arrange for the funding of 100% of the capital costs associated with the installation of Clearford One™ to municipalities located in the Province of Ontario. The mandate will be pursued via a Canadian special purpose corporation (SPC) where Clearford will contract as the exclusive builder and operator on behalf of the SPC for the design, build, operation and maintenance of the Clearford One™ system, on a turnkey basis. The SPC will enter into a 20-30 year services contract with each of the selected municipalities. At the end of the Term, the SPC will transfer the ownership of the wastewater infrastructure asset to the municipalities, at no additional cost. Since the launch of the P4P™ program in mid-2015, the Company has developed an active Clearford One™ project pipeline with a total capital value of approximately $40 million. Additional expressions of interest indicate demand well in excess of the initial $100 million funding commitment. P4P™ presents Ontario communities with a cost effective new choice for their wastewater collection and treatment requirements.
Outside of Ontario, Clearford Water Systems is also been operating in India. What milestones has the company reached in that region during 2015?
In 2015 Clearford signed a contract with the Gurjarat Road and Infrastructure Company Limited (GRICL), a subsidiary of Infrastructure Leasing & Financial Services Limited (IL&FS), to install the first Clearford One™ system in a Jambudiyapura, a small village in the state of Gujarat, India. The installation will provide an end to end servicing solution, including purpose built toilet and bathing blocks, to 53 individual homes and two schools in the village. The unique aspects of the site will provide a full demonstration of the Clearford One™ system in India. This will be the first open defecation free village in Gujarat and is expected to drive sales within the state where Clearford previously announced a Memorandum of Understanding (MOU) with the Gujarat Water Supply and Sewage Board (GWSSB). This is expected to lead to significant follow-on installations with the participation of both IL&FS and GWSSB. Construction of the Clearford One™ system will be complete by the end of March.
In February, as part of Premier of Ontario Kathleen Wynne’s trade mission to India, we signed a MOU with the Essel Group Pvt. Ltd. to forge a strategic partnership to bring Clearford One to India. Essel is a leading Indian business conglomerate having diverse business presence across media, entertainment, packaging, infrastructure, education, precious metals and technology sectors.
Under the terms of the two year non-exclusive agreement, Essel Infraprojects Ltd. and Clearford will work together to identify projects to joint bid Clearford’s system for use in India. This will include assisting Clearford in identifying a village for a demonstration site and obtaining all necessary permissions, registrations, clearances and approvals to install Clearford One™ in India.
What other geographic markets is Clearford Water Systems operating in?
Clearford is also active in Colombia, where we have established a wholly owned subsidiary. Clearford will begin construction this month of the second of three phases in Cayunda to deliver additional services with its Clearford One system. The value of Phase Two is approximately $250,000 and is expected to be completed by the end of the Company’s third quarter in 2016. Phase Two includes adding servicing for 25 new homes to the existing 45 homes and adding servicing to the event areas within the development. Phase three will add the final 45 homes to complete the development of 115 houses. The Bosques de Granada y Cayunda is a luxury development located on the western slope of the valley of the Teusaca River, 26 km from Bogota. The development is a green community designed to have minimum environmental impact, with 70% of the community covered by native forest. Unique aspects of the project include complete recycling of all waste water and harvesting of rain water to augment fresh water supply. Clearford completed the servicing of Phase One, a $1.3 million contract, in 2014. The project includes a Clearford One™ system with a structured wetland as the ClearRecovery™ component, potable and reuse water distribution networks, and storm water management networks and related infrastructure.
Let’s talk about finances. How do the books look for Clearford Water Systems? Will there be a financing in the near-term, if so, why?
We have just announced a C$24 million debt placement that we expect will finance the company to positive cash flow when revenue from our P4P projects commence.
Clearford is still investing in its future as we continue to roll out our Clearford One product worldwide. With operational sites soon to be commissioned in Canada, India and Colombia we are now able to demonstrate the superior performance and value of our system. The company would anticipate raising additional capital in the future to fund the growth in these and other international markets.
What are the major milestones investors can look forward to in 2016?
We anticipate that 2016 will bring the first two Pay for Performance projects in Ontario and that a number of our advanced opportunities in India will result in contracts thanks to our demonstration sites.
FULL DISCLOSURE: Clearford Water Systems is a Stockhouse Publishing client.