| | | "(Roth) believe(s) a successful outcome of the pilot test would lead to the creation of an integrated concrete additive company, which could allow ZEN to finance the development of Albany."
So while Roth can't exactly change it's modeled numbers (price higher than $7500, NPV at 10% higher than PEA) based on an event that hasn't become objective data yet (a successful pilot test of being able to produce the desired admixture from the delivered-to-spec zen product), what they seem to be suggesting could be something like this:
If all goes well, once a successful pilot test has been achieved, a company like Lariplast could arrange to 'finance the (entire) development of Albany' in exchange for zen providing it with an exclusive off take agreement for a like-valued share of future production. So for example, total initial capital cost is said to be about $331 million (without the $80 million 'contingency' costs.
So if zen and lariplast come to the conclusion after the pilot test to 'do business' because they have just discovered the market value of their admixture prices zenyatta's graphite (not graphene) product at $15,000/ton so that when their 50/50 joint venture only has to pay zenyatta $7500/ton for 10,000 tons per year (for example - you can think of the other examples), that would 'save' the joint venture $75M per year, and since the NPV10 of Lariplast's half that saving over 22 years would be $329 million, Lariplast would be happy enough to provide 100% of Albany's capital costs.
I know the numbers picked out above don't leave much economic gain for Lariplast, but you get the idea. Use the same numbers above and call it a 75/25 Lariplast/zen JV, and the NPV10 of Lariplast's ($331M) investment in Albany would be $162M.
Without expanding on all the ways to tweak the terms of such a JV/off take deal so that it appeals to both parties in an agreeable manner, what would the above 75/25 type JV described above do for zen?
A) it would eliminate the need for any further dilution enroute to project building, so we'd be looking at maybe 80-100M shares outstanding after a bit of capital raising, not the 160M Roth uses;
B) add the same $164M of NPV to zen (NPV10 of $75M for 22 years is $658M);
C) add $331M to whatever NPV number is then used to evaluate Albany's project, since that initial negative cash flow number has been taken care of;
D) Allow zen to further benefit from any additional sales to the JV at a higher price over the initial 10,000 tonnes/year
E) allow for a higher average 'sales mix' price than previously assumed, not even counting any additional sales at a higher price to the JV. (remember that the $7500/tonne assumed price is based on a sales mix to the different potential target markets which assumed some uses would be higher than $7500 and some would be lower. Any 10,000 tpy JV off take would eliminate the need to sell product at any of those lower prices, thereby increasing the 'sales mix' price higher. So (visit the link above and see the summary again), no more conductive polymers, carbon brushes or lubricants in the sales mix.
So, without even counting any increases due to D or E above, we get an NPV10 that is $495M higher than the $331M stated by Roth, divided by 82.6M shares is $10/share.
Not enough value for Lariplast? Tweak the numbers. Maybe they buy half a $2 pp that gives zen $20M (half a one year warrant at $3 would add an extra $15M to zen coffers)? That kind of investment could add another ($10-2=$8x5million shares +2.5M warrants at $$7) $57.5M to Lariplast. Later, zen could selloff another 12M shares at a higher PP and no warrant to take care of 'contingency'. ;-)
Of course, Roth isn't going to change numbers based on any 'what if' that hasn't happened yet. But they can allude to what they believe could happen considering the value added potential of a successful cement admixture given the size of the cement market. If they didn't believe that the economics of adding .05% admixture to save 10-20% cement costs could command a significantly higher than $7500 price they wouldn't have suggested that an agreement to do a JV might entirely finance the Albany project.
And allude they did. |
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