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PyroGenesis Canada multi-part series

Jeff Nielson Jeff Nielson, Stockhouse
0 Comments| February 13, 2019

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Welcome to another Stockhouse multi-part investor series. We've already published these articles as separate installments. For your convenience, we've compiled the entire series into a single article. Enjoy!

PyroGenesis 1: Revolutionizing 3-D Printing

Click to enlargeThere is a secret in the world of technology, and its name is PyroGenesis Canada Inc. (TSX: V.PYR, OTCQB: PYRNF, FRA: 8PY, Forum).

What is PyroGenesis? That’s a question that can be answered on several levels. At the highest level, PyroGenesis is a Canadian hi-tech success story.

On the next level, PyroGenesis is the Master of Plasma. For many investors, that may not mean much.

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Plasma is “the fourth state of matter”. We’re all familiar with the other three states: solids, liquids, and gases. With heat as a catalyst, matter can be converted (solid -> liquid -> gas -> plasma). Plasma can be volatile, but fully harnessed, plasma’s powerful properties offer vast commercial opportunities, spread across a multitude of sectors.

Plasma technology is also green technology. Not only is plasma-powered technology generally more efficient and cost-effective, these are clean technology applications.

Sounds complicated. It is hi-tech. But PyroGenesis’s technology is all derived (in one way or another) from the Power of Plasma. Stockhouse is going to lay out this hi-tech success story to our audience in a three-part series, giving investors the chance to digest PyroGenesis’s three unique – and thriving – divisions one at a time.

Are there any parallels in the marketplace with companies that are able to successfully move forward with multiple independent (technology-based) divisions? Ask P. Peter Pascali that question, the President, CEO and Founder of PyroGenesis Canada, and you may be surprised by the answer.

“We are a mini-GE. When you look at what we are doing, how diversified we are, there are not many companies that could make use of each one of our business lines. GE could. So from that aspect, we are a mini-GE.”

A Canadian GE? Really? Really. While PyroGenesis is a junior technology company, it is already teaming up with world-class partners in each of its three divisions.

  • Additive manufacturing: a mutually exclusive Partnership Agreement with Aubert & Duval, a multi-billion dollar giant that is a European Union leader in the supply of the metal powders that drive the high end of 3-D printing technology
  • Military/environmental: a 20-year relationship with the U.S. Department of Defense, with contracts that annually total in the millions of dollars
  • Mining/metallurgy: a strategic partnership with a multi-billion Japanese partner to jointly provide tolling services, globally, for PYR’s patented DROSRITE™ technology

PyroGenesis is not merely a participant in these different and diverse sectors. As the Master of Plasma, PyroGenesis is a technology leader in each of its three specialties.

One measurement of this mastery comes in the form of the Company’s intellectual property. With over 70 plasma-derived patents issued or pending, PyroGenesis is a leading pioneer in plasma technology.

In this opening installment, the focus is on PyroGenesis’s Additive Manufacturing division.

Additive Manufacturing

For investors new to the tech sector, additive manufacturing may be another term that doesn’t convey much information. Such readers will probably be familiar with a much more common term: 3-D printing.

3-D printing has vast applications as a form of hi-tech manufacturing. However, fabricating the most useful, complex, and commercially valuable metal parts requires special “powders” as the primary input in such manufacturing: titanium powders.

Titanium itself (chemical symbol: Ti) is a metal with low density, high strength, and several other very desirable properties. For these reasons, it is an ideal substance for high end 3-D printing. This can be illustrated through market share alone. Over 50% of the metal powder currently used in this industry is titanium-based.

The difficulty is in producing the extremely small particles that are necessary, ranging from 5 µm to 106 µm (micrometers). Also, such manufacturing requires that these particles be both spherical and dense. PyroGenesis’s hi-tech solution to the challenges of producing these advanced powders was to incorporate the Power of Plasma: “plasma atomization”.

PyroGenesis invented the process of using plasma to make powders ideal for 3-D printing. Today, plasma atomization is now a household term in the 3-D printing sector. 3-D printing is already a multi-billion-dollar hi-tech industry. It’s going to get much, much bigger.

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With this massive projected growth rate (36.6% CAGR), merely being one of the players in this sector has extremely lucrative potential. However, the Company’s revolutionary (and patented) process for producing these titanium powders doesn’t only produce the highest quality powders, PyroGenesis’s advanced plasma technology provides unique flexibility to supply any Particle Size Distribution (PSD) required by the additive manufacturing industry.

It is this unparalleled expertise that was central to PyroGenesis’s January 8, 2019 announcement of a mutually exclusive partnership with Aubert & Duval. Aubert & Duval is a large European corporation, especially well known in the aerospace sector.

Aubert & Duval is a subsidiary of the Eramet Group (Paris Stock Exchange: ERA), which is a multi-billion dollar corporation. Eramet SA is a French mining/metallurgy multinational giant, founded over a century ago.

Aubert & Duval is a well established supplier of metal powders for 3-D printing, serving numerous industrial sectors, including Aerospace, Energy, Transportation, Medical, Defense and Automotive. It has been supplying a full spectrum of titanium powders globally – with one exception.

Aubert & Duval chose to partner with PyroGenesis in order to gain access to the highly coveted plasma atomized Titanium 64, the gold standard for this type of powder. This is a powder that PyroGenesis has expertise in producing and arguably cannot be produced to the same standard via other production methods.

For the very first time, Aubert & Duval has decided to partner with an external company rather than produce it internally. The principle reason being the proprietary technology and know-how required to produce plasma atomized Titanium 64. With titanium powders now accounting for 30 – 50% of the 3-D manufacturing market, it was an important void for Aubert & Duval to fill, considering they are a premier supplier of powders for 3-D printing.

Investors wanting to gauge the significance of this deal may get a better clue by looking at Eramet’s stock price rather than that of PYR. On January 7, 2019; ERA closed at €58.85. On January 8th (the day of the announcement) ERA closed at €61.55. On January 9th, ERA closed at €63.90. That nearly 10% move represented roughly €150 million in additional market capitalization (approximately CAD $225 million). As of this writing, ERA is now trading at €64.80.

In a conference call with Stockhouse Editorial, CEO P. Peter Pascali modestly refused to credit the entire jump in share price for Eramet to its deal with PyroGenesis. However, he was comfortable with PyroGenesis taking significant credit.

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Why didn’t PyroGenesis’ share price show the same, immediate appreciation? Lack of familiarity in North America with Aubert & Duval. As a very conservative business, Aubert & Duval maintains a low profile, with its strong reputation and long history in Europe speaking for itself. But the share price has been starting to track higher in recent days.

For investors, this disconnect in market valuation spells opportunity. Indeed, with PyroGenesis firing on all cylinders with each of its three divisions, investors taking an even longer term perspective may see the Company’s current share price ($0.65) as a superb entry point for this diversified technology leader.

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Ironically, one of PyroGenesis’s direct competitors in producing titanium powders for 3-D printing is General Electric itself. It’s here that the story – and the numbers – become particularly interesting for investors.

GE went out and bought market share in titanium powder production, spending US$599 million to acquire Concept Laser GmbH and US$696 million to acquire Arcam AB (both acquisitions in 2016). Prior to this, in 2013 Arcam acquired Advanced Powders & Coatings (AP&C).

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General Electric ultimately paid US$696 million for this older-generation technology. Since that time, PyroGenesis’s operations have been certified AS9100D, the certification necessary to meet the exacting demands of (among others) the aerospace industry.

CEO Pascali shared further insights with Stockhouse Editorial concerning this transaction.

“The word in the industry is that GE got a steal here. It’s also interesting to note that as GE is divesting itself of a number of assets that it’s keeping its Additive Manufacturing division.”

The current market cap of PyroGenesis Canada is CAD$86.8 million (only US$64 million). PyroGenesis’s Additive Manufacturing division is just one of three equally dynamic business units. Given the CAGR for 3-D printing (and titanium powders), it doesn’t require a lot of imagination for investors to project a much higher valuation for this Company.

That’s just one branch of the PyroGenesis tree. Coming up in Part 2: how the U.S. Department of Defense is using PyroGenesis’s plasma technology (and paying the Company millions) to destroy waste: using these patented plasma-based processes to destroy toxic waste and destroy chemical weapons.

Appendix: comparison with PyroGenesis titanium powders

FULL DISCLOSURE: This is a paid article of Stockhouse Publishing.

PyroGenesis 2: Partnering with the U.S. Dept of Defense

Click to enlargeIn Part 1 of this three-part series, Stockhouse investors were introduced to PyroGenesis Canada Inc (TSX: V.PYR, OTCQB: PYRNF, Forum): the Master of Plasma. New readers who aren’t sure what this means should refer to that previous installment.

In a nutshell, PyroGenesis has harnessed the Power of Plasma, the fourth state of matter. Using this power as a technological input, PyroGenesis has devised better processes (much cleaner and more efficient) for several existing and important commercial/industrial applications. Equally, the Company is using the Power of Plasma to pioneer entirely new technologies.

With over 70 plasma-based patents issued or pending, the Company has a wealth of IP. PyroGenesis has focused its plasma-based research and applications into three divisions. This gives the Company one of the largest (the largest?) concentrations of plasma IP and expertise.

Part 1 explained how PyroGenesis is poised to revolutionize 3-D printing with its Additive Manufacturing division, via its next-generation titanium powders (produced through “plasma atomization”). These titanium powders are the key input in high-end 3-D printing, selling for up to US$500 per kilogram.

Part 2 presents investors with another branch of PyroGenesis’s operations, its Military/Environmental division.

Military/Environmental division

The Military/Environmental division of PyroGenesis Canada is the Company’s oldest and, perhaps, most interesting branch of operations. At first glance, many readers may assume that they are seeing some sort of typo or non sequitur.

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The words “military” and “environmental” are rarely associated with each other. But even in relatively routine operations, military forces are confronted with serious environmental issues. PyroGenesis Canada is helping the U.S. Department of Defense to come up with environmentally responsible solutions to these issues.

More specifically, using the Company’s patented Power of Plasma, the U.S. DoD is able to destroy toxic waste and destroy chemical weapons in a safer, cleaner, and more efficient manner. Understanding this requires backing up a bit in the Company’s evolution.

PyroGenesis’s relationship with the DoD (first in an R&D capacity and then as a supplier) goes back 20 years, literally to the Company’s origins. It’s what puts the “pyro” (Greek for “fire”) in PyroGenesis.

When President and CEO Peter Pascali helped found PyroGenesis Canada in the early 1990’s, the first commercial/industrial application that he and the Company’s R&D team envisioned for the Power of Plasma was clean burning. Our industrialized world produces numerous waste and byproducts that need to be destroyed. Much of this involves some form of incineration.

The PyroGenesis team (click to enlarge)

Plasma-based technology is a more advanced (and simply better) form of technology for incineration, in virtually any context. It’s more efficient. And its greener, in two different ways. Not only does clean-burning plasma incineration release fewer toxins as a byproduct, this form of incineration dramatically reduces greenhouse gas emissions, versus other less-efficient (lower tech) processes.

Obviously, destroying toxic waste and chemical weapons are two areas where PyroGenesis’s clean-burning technology is especially useful. This made the U.S. Department of Defense a natural partner for the Company as it developed its plasma-based solutions.

In a conference call with Stockhouse Editorial, CEO Pascali attached some numbers to this long and mutually beneficial relationship. Through new contracts and follow-up contracts for servicing and upgrades, PyroGenesis’s DoD business already generates roughly a minimum of $2 million per year in revenues.

Specifically, most of the Company’s contracts with the DoD to date have been through the U.S. Navy. The larger vessels in the Navy’s fleet are effectively mobile military bases, especially the Navy’s gigantic aircraft carriers.

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U.S. Navy Gerald R Ford Class “supercarrier”

On the Navy’s newest generation of aircraft carriers, PyroGenesis’s Plasma Arc Waste Destruction System (PAWDS) is not merely standard equipment, PAWDS is directly incorporated into the ship’s design. PAWDS has already been installed on the first two Gerald R. Ford Class “supercarriers”, and the U.S. government has recently approved adding two more of these supercarriers.

According to a January 10, 2019 news release, PyroGenesis’s contract for the installation of two, new PAWDS is “imminent”. This represents approximately $12.5 million in new revenues for the Company and its shareholders – and will become its single-largest contract to date.

With respect to the destruction of chemical weapons, PyroGenesis’s Tactical PACWADS (Plasma Arc Chemical Warfare Agents Destruction System) is being supplied to a U.S/UK Special Operations consortium for testing. These are mobile Plasma Arc systems that can be deployed in situ to destroy chemical warfare agents.

However, PyroGenesis’s deep relationship with the U.S. Department of Defense is not the only avenue through which the Company is using the Power of Plasma to save the planet’s environment. The management of PyroGenesis has long recognized that its clean-burning plasma technology can be utilized in other diverse and important applications that go well beyond waste incineration.

On January 17, 2019; PyroGenesis announced a significant breakthrough in expanding the Company’s plasma technology into additional commercial/industrial contexts. PyroGenesis has sold a 900 kW Plasma Torch to RISE Energy Technology Center AB of Sweden, for a purchase price in excess of $1 million.

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One of PyroGenesis’s many plasma torch designs

The Plasma Torch is required for what is known as “iron ore pelletization” (also known as iron ore induration). To condense this bulky cargo for transportation to end users (typically in the steel industry), iron ore must be “pelletized” to make such commerce economical. But iron ore pelletization is an environmentally nasty process, because currently this iron ore is roasted over conventional diesel fuel burners.

Enter the Power of Plasma. Much like plasma technology can make waste destruction cleaner and more efficient, the Company’s Plasma Torch can do the same thing with respect to the iron ore pelletization process.

More importantly, as warnings over Climate Change become increasingly dire and greater numbers of governments commit themselves to genuine action, a Plasma Torchreduces CO2 emissions to zero. This is in contrast to a conventional, 10-million tonne per year pellet plant, which emits roughly one million tonnes of CO2.

Globally, this is a very serious issue. In total, the annual, global production of 400 million metric tonnes of pelletized iron generates 40 million metric tonnes of CO2 emissions. Forty million additional tonnes of CO2 or zero: the Power of Plasma can make an enormous difference here. PyroGenesis’s CEO quantified the magnitude of this pollution in a different way.

“Iron pelletization currently generates CO2 emissions equivalent to an additional 8.5 million [fossil fuel-burning] cars on the road, year after year.”

Sweden has declared the national goal of becoming a “carbon free economy”. PyroGenesis has calculated that there is a potential market of more than $10 billion (globally) to convert iron ore pelletization to Plasma Torches. The Company is currently in discussions with other interested parties.

PyroGenesis has already engineered four different versions of its Plasma Torch. Each is appropriate for different commercial/industrial applications. Investors wanting to do their due diligence on this segment of operations can learn (and see) more here.

With this Division presently at its zenith in terms of current business and pending orders, can things get any better here? Yes.

It starts with obtaining “just in time” designation as a supplier for the Department of Defense. This would open up additional business opportunities for the Company, and since it requires a significant infrastructure commitment from the DoD itself, it would be a further indication of the value that the DoD places on its commercial relationship with PyroGenesis.

Then there are the other Systems produced within this Division:

  • PAWDS (Land) is very similar to the marine version of PAWDS already in use on U.S. aircraft carriers, and in addition to military applications it is also ideal to meet the waste-disposal needs of mining camps and remote communities
  • PAGV (Plasma Arc Gasification and Vitrification) is waste-to-energy technology, primarily geared toward “inerting the grate and fly ash” from incinerator operators (another toxic waste issue) and turning it into “a useful construction material”
  • PRRS is PyroGenesis’s next-generation waste-to-energy technology, derived from PAGV, and is an even more flexible waste management solution than PAWDS
  • SPARC is another off-shoot of PyroGenesis’s previous plasma platforms that have been developed for the U.S. military, with this technology specializing in the destruction of ozone-depleting substances and “other environmentally noxious chemicals”

One hi-tech Company. Three diverse divisions. Last, but certainly not least, in Part 3 of this multi-part series, Stockhouse will explain how PyroGenesis Canada is transforming metals and minerals manufacturing through its Mining & Metallurgy division.

Appendix: PAWDS technology explained/illustrated

FULL DISCLOSURE: This is a paid article of Stockhouse Publishing.

PyroGenesis 3: Transforming Metals and Minerals Manufacturing

Click to enlargePyroGenesis Canada Inc. (TSX: V.PYR, OTCQB: PYRNF, Forum) is a familiar name to Stockhouse tech investors, featured in several articles in recent years. As a hi-tech Company with three dynamic divisions, each of which has recently achieved important milestones, we saw a great opportunity to re-introduce PyroGenesis to the Stockhouse audience.

In this Stockhouse multi-part series, we’ve been shining the spotlight on these three divisions, one at a time. Part 1 focused on the Company’s Additive Manufacturing division (3-D printing). PyroGenesis’s patented “plasma-atomized” titanium powders are revolutionizing the 3-D printing industry, with these valuable powders retailing for up to US$500 per kilogram.

Total demand for these metal powders is projected to reach 8,625,000 kg’s by 2020, meaning billions in revenues are up for grabs. A recent partnership with prestigious European multi-national, Aubert & Duval positions PyroGenesis well to capitalize on this opportunity.

Part 2 was devoted to the Military/Environmental division of PyroGenesis. For readers who missed the earlier installments, this requires a little more explanation. PyroGenesis uses the Power of Plasma (the fourth state of matter) as a key technological input to service numerous, important industrial and commercial niches – cleaner and more efficient processes than (lower tech) competing technologies.

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Plasma is generated at extreme temperatures, and then becomes an ideal hi-tech input for a potentially infinite number of heat-based applications. Not surprisingly, one of the first avenues that PyroGenesis explored with its R&D when the Company was founded in the 1990’s was hi-tech (and ultra-clean) waste processing.

This is more than mere waste disposal. Using PyroGenesis’s proprietary Plasma Torches, this is a waste-to-energy solution that is not only ideal for a variety of waste disposal applications. It’s technology that can be (and has been) adapted for additional multi-billion dollar markets.

One of the industries that has a strong need for the clean/efficient processing of toxic waste is the military industry. As the world’s largest military (by far), this made the United States Department of Defense a natural partner for PyroGenesis.

This 20-year relationship has evolved to the level that PyroGenesis’s multi-million dollar PAWDS (toxic) waste disposal system is now standard equipment on the U.S. Navy’s latest generation of “super carriers”. Imminent: a $12.5 million contract for two new PAWDS installations – PyroGenesis’s single largest contract to date.

An example of a new application for these Plasma Torches is the Company’s recent breakthrough into the multi-billion dollar market for “iron ore pelletization”. Here PyroGenesis’s patented Plasma Torch technology provides a zero-emissions solution for a highly pollutive process that currently generates 40 million tonnes of CO2 emissions per year.

The Company’s third division is its Mining & Metallurgy division. Is this division any less-important as a component of operations? We went right to the source. We asked the President, CEO and Founder of PyroGenesis, P. Peter Pascali if he could rank these divisions for investors in order of importance.

The CEO’s quip (without missing a beat) was, “This is like asking me to rank my own children.”

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So, three equally important divisions. All are derived from the Power of Plasma. And all are supported by a total of more 70 issued or pending patents in the Company’s IP bank.

Mining & Metallurgy

How is the Power of Plasma going to transform metals and minerals manufacturing? The basic answer is similar to the Company’s other divisions: introducing innovative plasma-based solutions that can replace existing (lower-tech) processes with a cleaner, more efficient option. More specifically, this is a more compact and easily added component to the smelting process that is required in the production of many of the world’s most important metals.

The principal technology that PyroGenesis has introduced to significantly improve upon smelting is known as DROSRITE™. The gist of the innovation is found in the name of the technology: dross.

Dross is a waste byproduct from the smelting process that is used for the production of aluminum, zinc, and many other common base metals. It’s the outer ‘skin’ that forms on the surface of these metals as this hot metal interacts with oxygen. This “dross” is an important issue as it represents wasted metal, reducing efficiency and increasing costs for end users. Up to 10% of smelter production can be wasted because of this.

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To mitigate this loss, metals manufacturers already attempt to recycle this dross and extract as much usable metal as possible. DROSRITE™ technology performs this same process much cleaner and recovers more than 20% more metal than lower-tech processing currently in the marketplace. It pays for itself.

For players within the metals industry, a key aspect of DROSRITE™ is that it is salt-free technology. This reduces or eliminates other production issues associated with the smelting process.

The Company has already successfully deployed this technology to recycle aluminum dross. The chronology below illustrates the evolution of DROSRITE™ as part of the Mining & Metallurgy division.

More recently, PyroGenesis has made an important breakthrough in advancing this division. On November 6, 2018; the Company announced a strategic alliance with “one of the largest Japanese trading houses”. This alliance is a joint venture to advance DROSRITE™ commercialization, through global tolling services.

Recycling dross may not seem like a very sexy industrial application for a hi-tech company that is a Master of Plasma. But a look at the numbers may cause readers to revise their thinking.

Among several major markets to be targeted with this pending partnership is the global aluminum market. Total revenues in the aluminum market are projected to reach US$249.29 billion by 2025, rising from US$143.87 (2016) at a CAGR of 6.4%. With 2 – 10% of aluminum smelter production lost to dross, the dross “market” itself is a multi-billion dollar opportunity – for this one metal alone.

On December 3, 2018; PyroGenesis conducted a successful paid-for demonstration of DROSRITE™ for the zinc industry. Here the client is one of India’s largest smelter operators.

The global zinc industry represents a $34.4 billion market in 2018, with a forecast CAGR of 4.4% over the next five years. The most recent production statistics (for 2017) show global zinc production of 13,597,000 metric tonnes. With 2-10% of this production lost to dross, just the recycling of zinc dross is effectively a billion dollar industry.

Then there is the second technology platform for the Mining & Metallurgy division: PUREVAP™. PUREVAP™ is described as a “one-step direct transformation process” to produce (high purity) solar-grade silicon, suitable for use in the silicon panels that power the world’s solar power industry. Currently, producing high-purity silicon is a complex, multi-staged process – significantly adding to the cost of these panels.

Yet even with existing technology, “renewable” energy sources are projected to be cost-competitive with fossil fuel-powered electricity by 2020. PUREVAP™ technology would dramatically ratchet down the cost of these silicon panels – potentially revolutionizing the solar power industry by reducing the cost of the silicon in these panels by as much as 90%.

With PyroGenesis’s other divisions already revenue-generating and with DROSRITE™ at the commercialization stage, why is the Company still persevering with this R&D instead of focusing its energies on these other, more-advanced initiatives?

CEO Pascali has strong convictions here.

This is not pure R&D. This is R&D where we are paid handsomely to essentially develop a potentially game-changing technology which, if successful, will generate significant recurring revenues for PyroGenesis in the form of a 10% royalty on future revenues. This strategy with respect to R&D has effectively been one of the hallmarks of PyroGenesis’s continued success. [emphasis mine]

Revenue-generating research – with a potential pot of gold at the end of the rainbow.

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Risk mitigation

Having these three, equally prospective hi-tech divisions means more due diligence for investors. The pay-off for this extra homework is a low-risk proposition for tech investors, and investors can take comfort from the fact that PyroGenesis’s multi-billion dollars partners have done some serious due diligence before moving forward with PyroGenesis. An extremely comforting thought for investors.

While all three divisions are derived from the Power of Plasma, each division is essentially a stand-alone entity, targeting entirely separate applications for this patented plasma technology. This mitigates risk. If one division (unexpectedly) stalls, investors have two, other strong divisions to add value to their holdings.

The Company not only provides exposure to several multi-billion dollar markets, it boasts premier partners in each of its three divisions. With its ultra-clean technology, PyroGenesis is also a strong play on Climate Change.

Attractive valuation. Low risk. Exciting technology with enormous potential. A Canadian hi-tech success story. Investors can find many reasons to add PyroGenesis Canada to their own portfolio.

Appendix: DROSRITE™ in action

FULL DISCLOSURE: This is a paid article of Stockhouse Publishing.

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