RE:RE:RE:RE:RE:Good readHere is a taste.
Thesis Risks
At the end of Q2, HPQ had $4.95 million in cash with another $379,000 in marketable securities. Beyond the $229,000 the company received for the sale of its remaining quartz exploration properties, the company hasn’t raised any funds in the past quarter. This isn’t a crazy amount of money but, considering the company’s current capital burn rate of $2.912 million per year and the $2.12 million budget for the Gen 3 reactor program, it should be just enough for the company to achieve some significant milestones.
However, shareholders should expect the company to raise significantly more capital to stand any chance of executing on its goals. Building its first commercial plant will cost upwards of $30 million, which Mr. Tourillon expects to raise within the next three to four years. While this may sound like quite the task, Mr. Tourillon feels that the greatest financing challenge has actually already passed.
Funding early R&D efforts, getting the project off the ground, was an extreme uphill battle that HPQ was able to finance via a retail investor base. The next round of funding HPQ does will target the institutional base, using data from the Gen 3 reactor to demonstrate what realized value could be. While this may sound a bit optimistic, the company has already demonstrated strong relationships with those in the position to assist.
The company has already seen some financial support from two Canadian agencies for a program to validate the commercial viability of its nanosilicon particles and the Government of Qubec holds 9.9% of HPQ’s total equity. Among traditional financial institutions, Mr. Tourillon expects its next round of funding to contain further government interest, which may play a role in growing HPQ’s access to certain programs that prioritize North American supply chains. Regardless, investors should expect dilution in the future.
Another serious consideration for investors is whether or not HPQ can actually achieve its goals. The technical challenges that the PyroGenesis team faces should not be understated and, despite achieving success at reduced scales, there is no guarantee of commercial success. In fact, some may even argue that it can’t be done.
But the same was argued when the US Navy contracted PyroGenesis to develop the PAWDS waste management system. Yet, it is now specified into the construction of Gerald R. Ford Class supercarriers. While this, by no means, guarantees future success, it does speak towards the technical capability of the team behind the PUREVAP process.
Though, even assuming the company can achieve commercial production, there’s no guarantee it can meet its projected cost reductions. Sure, the reduced quality and quantity of required feedstock material is a fairly strong source of OPEX reductions, but how long will it take HPQ’s inexperienced team to optimize operations? The integration of purification to the quartz reduction step limits the amount of equipment needed, but the company doesn’t yet have equipment supply agreements in place. While undercutting competitors at these various levels isn’t integral to HPQ’s success, given the strength of the market and inherent CO2 reductions, it is something that is built into the value pitch and, therefore, something to be cognizant of.
Unfortunately, even success invites risk. Should HPQ successfully commercialize the PUREVAP process, it may be forced to compete with other firms that have more money to spend. While Mr. Tourillon believes that the company has secured a first-mover advantage, it’s worth looking at how well the company will be able to fight back.
The most critical weapons in its arsenal are its patents. So far, HPQ has been granted a US patent for its PUREVAP quartz reduction reactor. The patent was granted earlier this year, with Mr. Tourillon commenting that it marks the only significant process innovation to silicon manufacturing since 1899. This patent protects HPQ’s right as the only company able to manufacture high purity silicon (from 99.5% to 99.99%) in a single step. It also prevents other companies from following the same basic design, a vacuum electric arc furnace.
Late in 2020, HPQ Silicon filed a provisional patent application for the SiNR design and product. These two patents, assuming the second is granted, offer HPQ significant protection against other companies trying to replicate its process. This includes all of the other benefits, besides just greater quality, that the processes enable.
All of this makes HPQ a potential acquisition target, something the company has planned for. Should a compelling offer be made, PyroGenesis gives up its 10% royalty on PUREVAP reactor revenue streams in exchange for an equal equity stake in HPQ. PyroGenesis currently holds a 12.5% stake in HPQ. This simplifies the acquisition process or, if HPQ decides it ultimately wants to license to larger producers, this also enables that.
patience123 wrote: Pandora wrote: pennymaker69 wrote: I would like to point out the bashers and the pumpers seem to be silent on this article as well...
Wow.
pennymaker69 wrote:
This was a GREAT read. Very balanced.
Give the good points on the stock.
Also talks about the down sides.
even explains some stuff I didn't know. REALLY good read. Something your not going to get here.
After reading it... that point about raising 40 million for gen 4... Will that's going to be a huge PP and at these levels lots of dilution. Or maybe a rollback before the PP?
Just from a casual observer point of view the article is a Seeking Alpha item which from my experience means you have to become a member to read it. Myself, I can't be bothered - but, to each his own.
yeah penny can you copy and paste it so we can read it lol!