Commercial Proving Grounds
Vancouver, British Columbia-based Cielo Waste Solutions Corp. is a penny stock traded on the Canadian Securities Exchange operated by CNSX Markets Inc., which was recognized as a stock exchange in 2004. The CSE is described as an “alternative stock exchange.”
Some larger public companies trading on major stock exchanges are unwilling to share anything outside of what’s been presented in press releases, filings and required documentation, while smaller penny-stock businesses traded on securities exchanges are often more willing to discuss plans, visions and intentions. The lingo of publicly traded companies is a complex language unto itself—convertible debentures, private placements, tranches, public shells, exercisable warrants. Ironically, the disclosure requirements for public companies necessitate transparency but deciphering the code and navigating the trail of meandering business deals can be challenging. One phrase used often by these firms, however, is the all-too-clear “forward-looking statements.”
The U.S. Securities and Exchange Commission says the term “penny stock” refers to a security issued by a very small company that trades at less than $5 per share. Penny stocks are commonly quoted over-the-counter, but they may also trade on securities exchanges. “Penny stocks are generally considered speculative investments,” states the SEC. “Consequently, investors in penny stocks should be prepared for the possibility that they may lose their whole investment.”
CWS has been developing its technology, designed to convert a myriad of refuse feedstock into renewable diesel, for 13 years at a cost of $16 million, says CEO Don Allan. “And $9 million of that came from my own family,” he says. The technology is referred to as thermal catalytic depolymerization (TCD).
Allan says his background is in mechanical engineering and, on the business management side, specializing in “small companies that are in rough shape, taking them to international standards, and selling them off,” he tells Biomass Magazine. “I’ve done it a few times, building corporations up.” After being asked to help save an anhydrous ammonia plant in northern Alberta’s oil sands as natural gas prices rose above $6, Allan thought to use the hydrogen reformer on-site to lighten heavy crude. “I thought it was a good business model, but we found out it was going to be a multibillion-dollar upgrade,” Allan says. “Our budget went from $800 million to $2.3 billion and there was no longer a return on investment.”
Afterward, with the employ of Canadian engineers, Allan says he began to focus on waste-to-energy technologies, including gasification. “We felt it wasn’t enough of a return on investment creating power out of gasification technologies,” he says, “so we began looking for a higher return. We found some technologies using waste to make low-grade fuel, and we began putting a lot of money into them, but we were frustrated with their abilities. So we ended up buying the only existing plant in the world that could do what we wanted to do. We brought it back here to Alberta, changed the technology significantly and changed the catalyst for our thermal catalytic depolymerization process. We conducted an international patent search and didn’t find anything like this, so we decided to move forward.”
Michael Yeung, a business development and financial advisor to CWS, says there’s a lot of interest in CWS’s TCD technology to produce renewable diesel from trash. “The waste industry is the fastest growing one we have today—everyone’s got a garbage problem,” Yeung says. “The biggest hurdle now is finding the right investors to step in at this current moment.”
The roots of CWS and its demo plant are in gold and mineral mining and oil exploration. CWS was previously called Cielo Gold Corp. until the company changed direction and its name in 2013. The demo plant was property of Blue Horizon Bio-diesel (BHBD) owned by Blue Horizon Industries, also involved in mining, construction and oil exploration. “It was obvious to us that if we were going to raise capital, we were going to require a public shell to purchase, as the shareholders investing into green companies would not be happy with the mining and oil exploration companies,” Allan says. “We looked at Northcore Technologies as the public shell, as it had $800,000 cash and was listed on a larger stock exchange than Cielo Gold. It turned out that we found many issues that we could not overcome, so we decided to drop the purchase of the company. Cielo Gold was an empty shell with no assets, so it was a simple purchase, and then a change of name and direction for the company.”
As for the demo plant, Allan says CWS operated the facility for four years but didn’t complete the purchase from BHBD to Cielo until fall 2016. “There was no rush to do this, but it was the last asset in BHBD, and now we are winding that [company] down, so the time was right to make the final transfer. I am president of BHBD, so there was never any issue of the sale or timing.”
Allan says he spent years working on catalyst development to process municipal solid waste, and then a number of different feedstocks. “We then spent two years working on catalyst vs. various feedstocks and determined the best all-purpose catalyst,” he says. CWS hired a company named 1888711 Alberta Inc., which was incorporated April 2015, to further develop the technology, Allan says. “They had the engineers and financing to complete the work we had been doing. We then agreed to pay them a royalty for their investment, and signed a world licensing agreement with them … We’ve engineered this thing to death, and we’re hoping to write the patent in the next few months covering the U.S. and Canada.”
On June 24, 2014, CWS entered into an agreement with Seattle-based New Fuel International Inc., which gave NFI the exclusive right to market and produce renewable biofuel derived from industrial biomass waste streams, initially in the U.S. states of California, Oregon, Washington, Hawaii and Alaska, and the Canadian provinces of British Columbia and Ontario. NFI’s responsibilities were to include securing biomass feedstock, triggering offtake agreements, managing operations, marketing, sales, and providing financing for the different NFI projects. At that point, NFI was incorporated for less than three weeks. When asked about this, Allan says, “NFI was a small buyer of biodiesel and renewable fuels based in Spokane, but we [subsequently] decided to let this contract lapse and sign with a much larger buyer, Elbow River Marketing, as they are local and we would like to sell our product here in Alberta, as it would significantly be an advantage over the importers.”
In March 2016, CWS signed a long-term lease for more than 2 acres and a right of first refusal on an additional 8 acres in Edmonton. “And there’s another 100 acres behind that,” Allan says. Here CWS planned to build a 1,000-liter-per-hour refinery using its TCD technology. The site is in Edmonton’s Heartland Industrial area on a major highway close to suppliers, buyers and manufacturers. “We always planned to have that as our startup,” or first commercial proving grounds, for CWS’s TCD technology to produce renewable diesel from waste. “Then, when the opportunity came along to pick up an idle biodiesel plant, we thought that was much quicker and less risk.”
In November, CWS announced the signing of a commercial purchase agreement with XR Resources Inc. to buy property in High River, Alberta, near Calgary, which includes a 16 MMly (4.2 MMgy) biodiesel plant formerly owned by Western Biodiesel Inc. Allan says the plant was built in 2009 for $10.2 million, and shut down in 2013. “It’s in good shape,” he says. The purchase price was for $2.3 million, with 5 million common shares at 6 cents apiece, and $2 million in cash. Allan says construction costs to retrofit the plant will be an additional $6.3 million. The company is conducting two private placements to raise that cash—one for the construction costs, and another $1 million for operating capital. Yeung says although the company is still in the middle of raising the construction funds, CWS has strong indications this will come through. “The team is ecstatic,” Yeung says.
“The High River plant—we’re not putting any lipstick on it,” Allan says. “It’s cheap, dirty and will have a lot of used material. We plan to put the least amount of money possible to prove our technology works.” The plan is to start with 1,000 liters per hour, or slightly more than 2 MMgy. “We’re designing for a much larger plant, but want to be conservative,” Allan says. “We want to walk this up nice and slowly. We don’t want to risk 13 years and $16 million.” He says the biodiesel technology itself is stripped out of the plant. “Basically what’s left behind is what we can use—the tank farm, boilers, coolers, the lab, offices,” he says. “A lot of these pieces lower our capital expenses by 40 percent and speeds us through construction.”
CWS is not investing in feedstock handling and preparation in High River either, as the company plans to use sawdust supplied by Parkland Chip Products Ltd. “We have enough feedstock in place for the first six plants,” Allan says. “One in High River and five in Edmonton.”
The process will begin with sawdust being delivered in a 53-foot truck. The product will move to a hopper, and then to silos. Allan says the feedstock must be mixed with a medium to create a slurry, otherwise, it plugs up operations. “We could use animal tallow, yellow grease or canola, but that’s too expensive,” he says. “We thought about using heavy oil from up north, but we decided on used motor oil, it’s very inexpensive.” In March 2016, CWS signed a multiyear agreement with Dipper Oil Recycling for the purchase of used motor oil. Allan says the oil and sawdust are blended in a 50/50 ratio. The idea is to continuously recycle the oil, but Allan says a small percentage of it gets cracked in the process and becomes part of the finished fuel. “About 8 percent gets turned into diesel,” he says. “We’re not looking to crack that. At first we were cracking way more than we wanted to, so it was important to find a catalyst that wouldn’t crack the used motor oil. We’re down to between 6 and 8 percent now that still gets converted. We’re trying to recycle as much of that as possible.”
The materials will be blended and heated, and then enter a dehydration process to remove moisture followed by a desulfurization process. From there, the pretreated feedstock will enter a reaction tower in which the zeolite-based proprietary catalyst is introduced. After reaction, the product will move to a fractionation tower out of which will be distilled three products: naphtha, kerosene and diesel. Allan says the residual waste product will be run through one more reactor to further break it down into more naphtha, kerosene and diesel. Then, different fuel conditioning tanks will be utilized to meet client specifications, he says. “We’ll have a small waste stream—sulfur, asphalt and water that we dispose of,” Allan says. “We will use a flare stack, but we will not flare on a regular basis, just in emergencies.”
The process is intolerant of water, he adds, so CWS will spend a lot of money making sure the product is dry. “We can’t put more than 2 percent moisture in the process,” Allan says. “Steam is a real problem. We run at atmospheric pressure. Our reaction time from the reactor to the frac tower is seconds. As soon as the catalyst hits the feedstock, it converts within two seconds. Normally, it takes 15 to 18 seconds, so our energy costs are minute, comparatively.”
Just days after announcing its intention to purchase the old Western Biodiesel plant, CWS announced it had awarded construction contracts for the retrofit. The fabrication work will be provided by Advanced Metal & Lyncorp Manufacturing Ltd. just down the road. The electrical and instrumentation work has been awarded to Electech Contracting Ltd. out of Calgary. Kwik-Fab Energy Services in Sundre, Alberta, will perform millwright work. Kwik-Fab worked closely with CWS on maintenance services at its demo plant in Red Deer, according to CWS. “It's been a great experience to work on the demo plant with Cielo and Don,” Mark Haldane, vice president of operations at Kwik-Fab, stated in CWS’s press release. “In addition to the opportunity to bring diversity into a new industry, it’s been particularly exciting to witness and be a part of this new technology. I believe it’s an excellent opportunity for us and everyone involved.” CWS says the contracted construction companies have agreed to assist CWS in financing the retrofit by deferring profits until the plant is operational and earning revenues.
One of the main differences between the demo process and the one to be employed in High River is the need to move from batch to continuous operations. “We need to run continuously,” Allan says. “That’s where the risk is. Also, the amount of catalyst we use for the cracking—if we use three times more than we planned for, that’ll change our economics. But we believe the catalyst will work. We spent four years on it, we’re very confident we’ve eliminated that risk.” The small size of CWS’s first commercial plant, 2 MMgy, is critical, too, he says. “If we have problems, it’ll be tens of thousands of dollars to fix vs. tens of millions. So that’s a good reason start small and walk it up from there. That’s our business philosophy. Our competitors need scale but, for us, we’re using such cheap feedstock we can start small and walk it up.”
Allan claims the renewable diesel produced in CWS’s process is functional down to minus 120 degrees Celsius (minus 184 Fahrenheit). “It has no freezing point that we have found,” he says. His plan is to supply the oft-frigid Canadian markets with fuel to help meet federal and provincial biomass-based diesel mandates and reduce the need for imported product. “The governments keep increasing the mandates, but nobody is producing up here,” Allan says. “And it’s important to say we’ve built this company without subsidies. We need to know that we can operate with whatever government is in place. We need to be profitable, and we’ve done that. We know we can compete with fossil fuels, even if the mandates fell aside.”
He says, “fingers crossed,” High River should be producing by fall 2017. Once that is commissioned and the company gets comfortable with operations and performance, the plan is to double capacity on-site. Afterward, CWS intends to concentrate on the Edmonton site where it can build production units modularly. Allan says he hopes to break ground there by Q1 2018.
“When we first commercially produce, this will be an exciting, exciting stock to watch,” Yeung says. “A world changer.” With its precious metal mining roots, whether CWS can turn trash into gold—or its dreams into cash returns for investors—remains to be seen.
Author: Ron Kotrba
Senior Editor, Biomass Magazine