I've been on this subreddit for a while now and a Cielo shareholder since late February. Since then, I have added to my position on numerous occasions to end up at a total of about 10,000 shares @ 0.84 price average, which is by far my biggest holding. I really like this stock.
Given the recent news and nose dive of the SP, I would like to share my 2 cents and hopefully give a bit of insight with a bit of a different perspective than what I've mostly seen on this sub and frankly, in general.
To give a bit of background, I'm a mechanical engineer that specializes in the management of construction projects. I have worked as a contractor for Suncor and built a reservoir at, guess where, their Montreal Desulfurization Plant. I've seen first hand that although desulfurization of hydrocarbons is a complex process, it isn't a new one by any means. We'll touch a bit more on that later.
Now, I'm writing this post because I was taken aback by the market's overreaction to the news we were given on Thursday. Was it what we were expecting? No. But what is that bad? No, at least I don't think so. From an investor perspective, I do understand that this isn't what we wanted to hear.
But, like I said, the point of this post is to share with you guys my perspective on the current situation based on my experience as an engineering professional, not as an investor.
So here are the main points that I feel are important to consider over the short to medium term. We will go more in depth on each of theses points:
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The desulfurization catalyst has been delayed by a month (so we're told)
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Production to nominal value of 2000 L/h is going to take a while
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The corporate office will be moved to Calgary
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Management turnover is a bit concerning
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Cielo is generating interest amongst buyers
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Cielo has enormous potential for growth given the recent leaders' debates in the Canadian elections
Alright so here it is:
Desulfurization technology is nothing new
There seems to be a bit of confusion regarding exactly what catalyst has been delayed. I may be wrong, but my understanding is that it's the desulfurization catalyst that has been delayed, and not the proprietary catalyst used in the depolymerization process (i.e melt the garbage into fuel).
I've heard concerns that buying the catalyst from China could put Cielo in a vulnerable position considering the industrial espionage history of the Chinese. However, since we are not talking about the proprietary depolymerization catalyst (again, please correct me if I'm wrong), I don't feel like this is much of an issue. Like I said, desulfurization has been around for many decades and is a proven technology. As such, I am 100% certain that China already has the expertise to do it.
Hence, I'm not too worried over this small delay, provided that it remains a small delay. Again, this is a fairly standard process and has been done many times before around the world. It's more a question of getting everything up and running, which brings us to our next point.
Setting up any production or manufacturing system is a difficult and time consuming endeavour
As much as I like Don a lot and all the work he has done so far, telling us that he has a better chance of predicting the next winning lottery numbers than predicting the timeline for his organization to produce the nominal production capacity of 2000 L/h was a poor choice of words, to put it mildly.
That being said, what I think he was trying to say was that building a plant able to consistently produce high grade diesel is a tall order and that he doesn't know exactly when it will be up and running.
What I feel is widely misunderstood is that the completion of an operational plant is the culmination of a long and complex chain of events that all need to go exactly right in order to deliver the project on schedule. Lots of moving parts are involved: design, materials, manufacturing of parts and equipment, contractors, recruitment of qualified personnel, etc. Throw in the fact that many of these steps require international business relationships and this thing becomes even more complicated.
The fact is that in hindsight, of course delays were going to happen. And there will be more. It's impossible not to experience schedule slippage with those things. It's the name of the game. Remember Tesla a few years back? There were so many questions about their ability to manufacture a whole new line of cars, about their financials moving forward, CapEx and what not, and it showed in the stock price. But look at them now. I bet all of us would have loaded that boat up when we had the chance, had we known.
My point is that even I, given my background, caught myself believing that everything was going to go as plan without any hiccups. But I should have known better because that's not how these things go. You know how many times in my young career and in my studies something worked on the first try? Zero. It's never happened. That's just how it is. Good news is, Rome wasn't built in a day. It's going to take some blood, sweat and tears to get this up and running, but I'm confident they will get it to work as this is not exactly groundbreaking manufacturing technology. Refineries have had very similar processes in place for decades.
But, getting 40 plants in operation is also going to take some manpower and Cielo is very well aware of this:
The office relocation to Calgary should attract more talent to the company
This to me is great news. I don't know exactly how the labour market is out West, but here in Quebec it's absolutely brutal. Hence, as Don said himself, having a corporate office in Calgary should be a tremendous help in recruiting qualified engineers and accounting staff to get the business off of its feet.
I think this is something from which the benefits will be felt over the long run. However, although attracting talent is vital, it's really only half the battle. The other half is keeping them within your organization...
Is the departure of Doug Mackenzie and Chris Dovbniak cause for concern?
This is the part where I really don't know what to think. Is this a problem? Was this planned from the get go? If not, then why did they leave? Are their replacements in George H Brookman and Larry Schafran an upgrade? If so, then how so?
What I do find concerning, at least on the surface, is that two board members are leaving precisely at the moment when the company is supposed to be taking off after 16 years of development. If anyone has any more information on this please feel free to comment as I think a lot of us are wondering what's going on!!
Moving on to better news:
Cielo is starting to generate interest amongst buyers(Cielo Signs Letter of Intent for Offtake Agreement, Provides Operational Update and Announces Office Move (apnews.com))
Although the news that Cielo and Kodiak signed a non-binding Letter of Intent is nothing really serious in my uneducated opinion, I still think it goes to show that Cielo is starting to gain traction and visibility. A small step, but a step forward nontheless.
However, in light of the recent discussions that have taken place in the 2021 Canadian elections Leaders' Debates, I think there might be something much much bigger in store for Cielo if they can find a way to demonstrate that they can achieve some sort of reliable production in the near future.
Oil production in Western Canada a major point of discussion in the 2021 Canadian elections
I think this is a great news for Cielo, and here's why.
There seems to be two widely different stances on what to do in regards to the future of the oil industry in Western Canada. On one side, the Conservatives want more funding to keep the industry afloat so it can continue to provide livelihoods for tens (if not hundreds) of thousands of people, while on the other side you have parties like the Bloc Qubcois and the NPD that want to move away from that industry entirely, albeit progressively. Somewhere in the middle, the Liberals want to support the industry, but at the same time, want to focus on reducing global emissions as a whole for the country.
Hence, it looks like we are in an impasse. Should we support the industry and further jeopardize the future of the climate, or should we move away from it and jeopardize the future of Canada's economic strength as well as the livelihoods of thousands of people?
Well, what if there was a way to keep all of our precious Canadian expertise, keep fuel production up and running AND clean up the environment?
This to me is the beauty of Cielo Waste Solutions. The breakthrough that took them so long to figure out was the creation of a stable depolymerization process, which is in nature a chemical process. However, everything after that is all standard mechanical processes.
You still have to distillate the depolymerized solution, pump the hydrocarbons through pipes, decant the different types of compounds, take the sulfur out, get them into trucks, drive the trucks, pump the fuel at gas stations and so on and so forth. The existing infrastructure doesn't really have to change.
Hence, Cielo's technology could provide jobs (boilermakers, pipefitters, chemical engineers, mechanical engineers, maintenance contractors, plant operators, truck drivers, etc.) without changing the nature of their professions. It's the same thing. The only difference is the hydrocarbons they're working with don't come from fossils, but from trash. It's same technology as far as production goes.
This, to me, sounds like a win-win. It sure sounds like a good way to continue developing Canada's fuel sector while simultaneously make a positive change on the environment. Plus, with Peter Mackay on board, we could very well see more government involvement and partnerships arise in the future.
So, what now?
I think the whole point of this post was to try and assess the situation from a cooler state of mind after the absolute madness that was the end of the week on the stock market.
The business case hasn't changed. The potential is still there. The value is still there. Yes we had a bit of a set back, but what new business doesn't. That being said, it will be very important that we all keep a close eye on the next developments, as they will be crucial. But at this point, I really don't see how a small set back in procurement becomes a -30% free fall on the stock price. I just don't. Maybe we all put far too great expectations on this company, but that's on us, not on Cielo. At the end of the day, they're still doing just fine.
I think most of us got in on this as a long term play, and it still is. Might be one hell of a discount right now, who knows. But I'm not ****ing leaving!"