John,
Sorry for the delay. Here's Part II of the Thermo-Chronicles, the 4-30-98 call with Rene and Dr. Dan Cumming...
(CONTINUED FROM SI POST #4048/YAHOO #5294)
"The heavy metal content of that (fertilizer ingredient)...well, when you have a nitrogen value over five, and we're at five, the heavy metal acceptance level in soil is greater than if your nitrogen level is lower. Then, you have to look at the water solubility of the nitrogen level too.
So, when your water-soluble level is high, like ours, well then your heavy metals can be higher. So, there are a lot of variables on this but, most important is our product is acceptable as is. Of course, when you mix it ten to one, the heavy metal traces are hardly noticeable."
As to how the animal feed stacks up against its commercial competition...
"Let me walk you through a simple thing here...there's three major components in feed..there's protein, there's fat and there's digestible fiber. Everything is priced on either soy meal or corn. When you look at our product.and you take the fat, which is the energy level, you take the protein level, we fit somewhere between corn and soy meal. Soy meal, the lowest it has ever been, is about $220 a ton, right now I think it's about $320 a ton. Corn is going for between $90-140 a ton. Our product is worth, right now in the market, about $189 a ton."
As to how the fertilizer ingredient stacks up against its commercial competition...
"What we're doing on the fertilizer, we're just taking the fertilizer value, or what's called the blending value at about $140 a ton, because that matches anything else that's of value that they can blend with in the market."
Next, Rene addressed yarnbender's questions...
1) Dr. Cumming's selling shares earlier this year sent a bad signal to shareholders; please ask him to comment.
Dr. Cumming and Rene addressed this but I couldn't find the applicable section on the tape recording so far. In the interest of getting this information out right now, I will address this question in a follow-up post.
2) Will the new company go through a lot of dilution before it turns black quarters?
"What we have here, conservatively speaking, is probably an eighteen month program in enzymes where we can get a very good solid bottom line. If things go exactly as we figure, and everything else, the way it's calculated, we should achieve that in a year. So it's a year to eighteen months on that.
Dilution? If you look at the dilution TTRIF had to suffer, or all of our shareholders had to go through, and the impact that it had, was basically, we started with a thermophilic process, we tried to market it as a process...there were people nibbling at it...but, there was no revenue stream that could have been guaranteed. So, then when we got the TMP, well, we're there now. But, because of what we learned, we have the TMP as the big sister, proven. The enzymes will be a lot more easier. The trail has been blazed. It's going to be a lot easier to be accepted.
The hurdles are going to be on the approval stages of the different enzymes. Just so that you know, different engineers that have the technical background and have looked at our process see the potential...very exciting potential, in the enzymes, because the market itself, has turned to the enzymes to solve the problem...and there's no way to create a high-temperature enzyme."
3) What will be the marketing strategy?
Addressed earlier in the call.
4) Is the enzyme gathering equipment fully designed and if not what are the bottle-necks or major problems?
"The majority of the equipment will be fully designed with the major modifications being in the fermenter for the enzymes. So, it's pretty well "shelf technology"."
5) Does he envision several plants and if so what kind of building schedule does he expect to be put in place?
"What we want to do, is get one plant going, get it going well, which we definitely will have this year, unless we have some engineering deficiencies that we are not aware of...not deficiencies...but hiccups. Then, we're going to use that...get that profitable...and then...market it from there." So, twelve to eighteen months and we'll be there. It could be sooner, but, while we're doing that...and proving that up, we'll definitely be working on the marketing."
6) Will there be contracts to supply to when the subsidiary is set up i.e. will Thermo Enzymes hit the ground running?
Answered earlier in the call.
from MD75...
1) What kind of incentive/equity is going to be provided to the investors putting up the initial capital to build the 40 Tpd TMP needed for the operation of Thermo Enzymes in 1998.
We doing it at a subscription price of $1.35 CDN/$1.00 US... is the seed stock. We will definitely have a working cash flow plant, that we'll be able to IPO...and I hope to have it at five bucks. We have about $700,000 done in seed stock, and an additional $700,000 committed towards our goal of $3,000,000...so we're about half way there.
You must also understand that it has only been in the last month that we starting working on enzymes again. We got the TMPs geared up and running, and now, we're back on the enzymes."
Some more of my questions...the GOOD stuff.
1) Were you granted the new Thermo Master Plant patents today, as expected? If so, what is the new patent number?
"What we have in our hands is a letter...'Further to our telephone discussion on April 27th, 1998, I've been advised by the examiner Trog (sp?), that he has allowed the above US patent application. We expect to receive the official notice of allowance within two to three weeks, and we'll report to you at the same time.' From our lawyer, we got a letter stating to them, that it's been allowed. Now, it takes approximately six months for us to get the patent number."
Dan added, "Yes, the patent number is the last thing that they actually do."
Rene went on..."But the thing that you've asked about, did we get what we wanted today? Our answer is yes. We are also under the patent treaty protection...because we have two years to get all countries applied for the new patents. So, our objective is to have these patents...the actual know-how...not to be released for two years."
2) How will this patent affect a) all existing licensee agreements? And b) future licensee agreements?
"Well, it's like this...I was earlier this morning with a bunch of lawyers, and they explaining this...say you got Microsoft Windows when it first came out, and you got a license for it. Does that mean you automatically got every new Windows program thereafter? Or did you have to buy the new program and new license? And we all know we had to go out and buy the new program and new license...right?
So the answer to your question is all existing license agreements...what we're basically sending them is a letter that's saying that they have the thermophilic process...we have the Thermo Master Plants...and the license agreements have no effect. The end result is...the existing licensee agreements have very little value. The first computer that came out still exists...it probably works to some effect...but now, all those old computers are obsolete...right? Or of very little value...and that's basically what's happened with us.
Future license agreements? Well, Oshawa and Niagara, in our Ontario Thermo Tech deal, now...today...will have to get a brand new license for the new technology."
3) Why is it taking so long for the USF JV announcement and when do you expect it to be released?
Rene read us a memo from Laurence Liebowitz, dated April 29th. One of the hold-ups was a USF concern "about including US Filter's project-specific consultants within the scope of the confidentiality agreement, without necessitating project-specific confidentially agreements among the parties. " Mr Liebowitz has eliminated this concern and "the agreement is now concluded, and ready for signing by both sides."
Laurence indicated to the USF lawyer, Scott Hamilton, that TTRIF wants to issue a press release noting the signing of the confidentiality and press release agreements. Scott stated that he wasn't the one to make that call, but that USF's preference would likely be to hold off until an actual project is undertaken. He went on to say that, based on what he's heard from the (USF) operating unit, he believes that such an event is not far off into the future. Rene mentioned that Dan is in the process of drafting the press release, should they get the go ahead (I'm hearing we SHOULD expect a news release...POSSIBLY this week).
4) Is the definitive meeting for the 100% financing of Oshawa and Niagara projects Monday, May 4th? What has been holding things up? Are these issues now cleared up? If yes, will the Monday meeting result in actual financial close or just the scheduling of the actual meeting date for closing the financing?
"The answer is yes, the meeting's on schedule. Just so you know, West Mechanical got the contracts to build the two plants. I was down and was told they hired another engineer yesterday to start banging the doors more aggressively to get the price better. They've already spent major money already to this point...right? And we've paid them nothing. They wouldn't be hiring another person unless they knew. And Bill Moffitt (sp?) of West is very close to the group that's doing it. So, as far as we're concerned, what we are told...is the financing is done.
What's been holding things up? The EPC (Engineering Procurement Contract) with West Mechanical took longer to negotiate than we had anticipated, that was the biggest stumbling block, other than that...just normal delays...nothing that jumps out at me.
So what you have to understand is this next week, Northwood, the transfer station, is going into operation...it's the one with the 800 TPD waste permit. We're going to start receiving waste there at $70 a ton, now that's municipal solid waste, that's not wet organic waste...OK? We're going to be netting about $30-35 a ton in that transfer station. I know it's scaled up for two or three hundred TPD right at the beginning.
Just to give you an idea, since we went to partnership with Ontario Thermo Tech, we got a $300,000 contract for wet waste, and we're going to make about $150,000 on it. The point to make is...why would Harvey (Ambrose) and Todd (Dupuis), Ontario Waste, share 50% of that revenue and profit with us unless they knew that a) the TMP was going to be there and b) they were able to get the financing cleared.
So, by TTRIF owning 50% of that, we're into major revenues and net profits starting next week. Now, my overhead, for Alec, for Brad, for three individuals...now, all of a sudden, are being distributed and covered by these transfer stations.
We have grown into, because of our Ontario operations and our TMPs, a very diversified recycling company...without having trucks and containers. This is something we will be announcing next week on Northwood. Just with the waste we're getting in, and everything else, we'll EASILY do what the projections are for the end of July. Our first quarter is going to be REALLY good...we're going to be into profits!"
At this point, I asked for clarification as to what exactly was to transpire on Monday with regard to the financing...
"What Monday is...is the acceptance of the term sheet. They have already agreed, by the way, to release $5,000,000 per project. So we can start construction right away...so nothing's held up while the recourse financing documents are put in place. So that basically means, in a sense, we can get started right away.
Do you realize that Dick Engineering has got pretty well all the silver work done for both sites? We are in the process of negotiating and ordering all the equipment for the three plants (Richmond, Oshawa and Niagara) at once. We're getting some very good pricing here.
Now, I'll give you an idea...we'll (the equipment suppliers) give you 5% discount for the first plant, 7.5% for the second and 10% for the third. That's going to be amortized still for all the plants. That's going to be quite a savings."
He also added "when everything gets kicked off, with West Mechanical, from the date of when we say go...if they don't have the plants done in "x" amount of time, each day they are delayed, they've got to pay something like $8,000 a day. These contracts are very serious contracts. I had to build the first couple of plants...but now they're built. We're a commercial company that is approaching business totally, totally different.
Have any of you heard of a company called Ledcor? They did a billion dollars in construction last year...they do a lot of construction financing...we're having discussions with them...it's going to take two or three weeks to get that finalized. If we could have their financing available to start some of these projects that we've got ready to go...and then, what they do is they provide the construction financing and then the non-recourse financing or debt financing takes you out in six months time or whatever.
We are putting a marketing strategy together, not for one plant...we've already got three on the way, and we're getting involved with companies that ask...what do I need? I say I need a minimum of $50,000,000 but, ideally about $100,000,000 of construction financing available...at different times...because it will be different projects.
And then we have companies such as John Hancock Group, that's basically saying that $30,000,000 a crack of debt financing is available. That's subject to having your raw materials contracts in place, and the end product sales. Well, we got the end product sales, we got the turn-key plant...all we got to do is make sure that we finalize getting the raw waste contracts in place.
Now, with USF, being in the sludge business, and running and operating plants.they've got the sludge. US Wastestreams is another company is another company that's got a lot of sludge. I just talked to Ecology and Environmental (E & E) again today, and they're going to be getting us exposed among the clients they work with, and they're going to be getting us our waste contracts. If they're successful in doing that, then we'll do a joint venture with them.
But we're to the point now, that unless there's a raw waste contract in place, a minimum of ten to twenty years...why would we want you as a partner?
One of the key items, that I agree with the marketplace, that we lost a lot of...is credibility. But hey...when we get cutting, and getting these cookie cutters going, and they have these EPC contracts where they're not delivered on time...where we get revenue regardless.I think you'll see that the plants will be built on time."
Poweruser then asked about a) the Chino deal and b)in light of this new patent announced, is that your silver dagger, so to speak, to rid yourself of this Trooper burden?
"First of all, I'll talk about the Trooper burden. We don't believe it's going to be an easy path getting rid of the burden. Because of the court system in Canada, it's going to take two or three years, and it's already in motion.
Is there a way to settle it? I've had suggestions sent to me.we've looked at it...we've talked about it...it's like asking Microsoft to give all its clients the new version of MS Office...from the very original one that started. What Trooper invested and bought, is the thermophilic process. And one of the key items...if they could prove that they had a feasible plant...we would build a plant with them. If they could find the raw material for a plant anywhere in the world, even if it's not Poland, we'd build a plant with them. But we NOT build a plant that's not feasible."
I raised the following question...
When you talk about a sludge plant in Russia being feasible and a food waste plant in Poland being unfeasible...that raises questions in people's minds. How can that be?
"Very simple. The Polish plants, let's call it in Eastern Europe...you can spread food waste, either at the landfill or you can spread it onto the land. If you look at the application of raw...excuse the French...shit, you can't spread that on land. In Russia, they are giving us letters of credit...they're going to be giving us a minimum of ten, but most of them are fifteen-year contracts.
My question goes back the opposite way...why can't Trooper go and get, or why can't anybody in Poland get, a fifteen-year contract for food waste...if it's so available? When we can do it elsewhere?
And more important...we can do it in Russia. And MORE important, we can do it in a poorer country than Poland...the Ukraine. We're going to end up having long-term sludge contracts in the Ukraine."
About the Chino deal...
"On Chino Valley, basically we're waiting for the group to confirm exactly when we meet and finalize the agreement. I'm told on a weekly basis that what they have to do now...the tender...the political tender that they put out was pretty broad, and there were other technologies put together, where the council could have voted on different ones could have applied and gotten tenure. They decided instead of that...what they want to do now is rewrite the tender...and put the tender in such a way that basically, there's only one qualification for it...is a thermophilic Thermo Master Plant.
They wanted to have the product for use. The other technology, that they looked at very seriously getting, was using anaerobic digestion...making methane to run a co-generation plant (sounds like EPTC). They didn't want an energy source in that and they don't want an end product left over.
A couple of things besides it being not that economical to run a co-generation plant...a major thing is...you still have sludge to get rid of. So, in the end product...that's very little value...because in order for the bacteria to work, the bacteria dissolves the solids creating methane, and the methane runs the co-generation plant.
Then, the bacteria keep eating the solids where there is very little left over...so it's a solids reduction program, but there's still solids to get rid of...and when you're talking about 3,000 tons a day, that's what's happening.
I talked to them about 2:00 today on it. So, that's where Thermo Agri Products (TAPI) will get the Chino Valley deal."
I then asked Rene to update us on the Halifax TMP and the upcoming Staten Island TMP...
"On Halifax, we got it permitted...we got the site...we're waiting for Cliff Maki to come with the put and pay contracts that's acceptable...so that we can put non-recourse financing in or finance it. I'm not putting money into that project unless I have my long-term contracts, even though we have spent that much...to getting the site and the permit approved. So, the ball's in Cliff Maki's court to get that contract."
On Staten Island..."we had discussions with...there's Staten Island, there's Long Island, and the long and short of it is, there is a company we work with, that's got a long-term twenty-year contract to get $95 a ton. He's basically loading in containers and trucking it away. We looking at identifying the sites and getting the approvals, at either one location or both locations. He also offered two or three plants.
They've done such a great job cleaning up that city (NYC), like breaking the waste industry up and everything else. Right now, there are some political issues or barriers that they've got to work on. So, it's possible that it's not going to be as quick as we anticipated...but it will definitely happen.
But what they don't want to do, they don't want one borough to take waste from another borough. Basically, where the waste is created, its got to be solved or shipped out to sea (?? garbled text- Rene's phone rang in the middle of his answer). That's why we're working at both locations...because there's enough there (for two plants). The person we're working with is VERY politically connected. Also, what I have done over and above today, and it looks like it should be finalized very quickly, is I've opened the door with E & E. That's supposed to be the pot of gold, as they call it, as they've got the availability and know-how to get the raw material. Basically, where we're at, is as soon as all the material is finalized on the bottom line, we've got different sites where we can go. And we're going through political issues now, especially in Staten Island."
The grand plan is to "actually have one plant in each borough" (there are five boroughs).
At this point, we had asked all the questions except MoorelyGhost's (Moorely, for some reason, Rene thought you were going to call Dan directly with your questions) and we thanked our guests for the past hour and a half that they spent with us.
The call ended at 8:25 PM CDT.
Regards,
David Pickering
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