Good morning, and welcome to Calix Limited's First Half Financial Year 2023 Results. On the line today from Calix, we have Phil Hodgson, company CEO and Managing Director, and the company's Chief Financial Officer, Darren Charles. Before I hand it over to the guys to get started and go through the presentation released on the ASX today, I'll just remind you that we will conduct a Q&A segment at the end of the presentation, and you can do so via the Q&A button at the bottom of the screen. I'll now hand it over to the guys to get started. Thanks very much.
Excellent. Thanks very much, Simon, and welcome all to our Half Year Results Presentation. If we jump down a couple of slides, Simon, through the disclaimer. Almost just before we launch into the half year presentation, obviously concurrently with the half year presentation, if you've seen the announcements up on the ASX platform, you'll see reference to an MOU we've executed with a company called Heirloom. It's really quite an exciting new application of the same sort of core technology we're developing into cement and lime. Heirloom is developing what is called direct air capture, and they need lime to do that direct air capture.
A lot of people wonder why Direct Air Capture is potentially a huge part of the climate, I guess, challenge, and part of a solution, I guess, to the climate challenge. That's because Direct Air Capture of CO2 is one of those things that can be made and deployed proximate to where you either use that CO2 or can sequester that CO2. Industrial CO2 capture, of course, very important, and we're developing a lot into those areas. Direct Air Capture is gonna be quite an interesting tool to add to the war chest, if you like, of ways to combat atmospheric CO2, because it can be deployed close to where you can utilize or store the CO2.
In any sort of climate scenarios that have been put forward at the moment, Direct Air Capture is one of those things that could be potentially a very large industry to help mitigate CO2 below the 1.5 degree level. If we move through to just the next slide, we can see here a little more detail about how our technology meshes with this company called Heirloom. Heirloom is a Bill Gates backed, Carbon Direct backed. Carbon Direct is also backing our LEILAC business. It's a venture backed by those guys to develop Direct Air Capture at scale. The LEILAC technology is pretty central to it.
It sort of sits there in this diagram, and there's a wonderful YouTube video which explains this more fully. Basically, our LEILAC unit is there, converting limestone to lime and separating out the CO2 for sequestration or storage or utilization. The lime that's made is then used in Heirloom's direct air capture technology. The lime is contacted with water and then with air, and that contact creates a bit of heat. That heat helps drive the airflow through a contact series of trays that absorb the CO2, converting the lime back to limestone. Of course, you can cycle the whole thing back through a LEILAC unit. The whole thing can be renewably powered.
To us, it represents one of the simplest and most elegant solutions to capturing CO2 directly from the air, and of course, our technology is fairly central to that. Also very exciting, we can talk about the royalty arrangement for the technology that we've struck with Heirloom in principle. Obviously the full agreement's to be developed, but the MOU outlines the principle. $3 per ton royalty per ton of CO2 captured with our system. There's a variable royalty rate based upon the prevailing CO2 price. There's a bit of a cap. As long as we can keep bringing down the capital cost of our plants, then it allows us a nice big area to play with that royalty calculation.
Suffice to say, the most important thing is this floor of $3 per ton, which is really important to have locked away, and we can talk about, obviously now talk about, a royalty rate per ton of CO2 in the public domain for the first time, which is fantastic. Really exciting news that we're able to bring you this morning, obviously as well as the half year results. We'll move on to those half year results now, so if we can move to the next slide, Simon. Obviously with respect to Calix, for those who are not familiar with us, there's a few different things that we're doing. It's all with the same one core technology.
Those different things that we're chasing, the LEILAC technology, which is about CO2 mitigation, cement and lime, but we also have a sustainable processing area that we're looking at, mineral and industrial processing, and doing that more sustainably. There's also a water part to our business, where we're making a specific chemical that is a replacement for caustic soda, a much more environmentally friendly alkali. There's a biotech and even a battery part to our business. They're all connected by the one core technology. If we just move to the next slide, Simon. That one core technology is just a new way to heat stuff up. It's a new type of kiln or furnace. In a traditional kiln or furnace, you throw how you would heat and what you heat all into one chamber.
So typically a fuel and a rock, and your lighter match. It's been done in principle much the same way for 5,000-7,000 years. What we do is separate how you heat from what you heat. We do that with a rather large sort of steel tube. I usually grab a little cardboard roll here to demonstrate. How we heat goes on the outside. We can heat with flame, we can heat with fossil fuels, waste, biomass, doesn't matter, renewable electrons. We heat this tube up to about 1,000 degrees centigrade, and what we heat goes down the middle. It's gotta be a fairly small particle size, so imagine again, a lump of flour or something of that sort of size in your hand and dropping it to the floor, watching it just float down.
That's all that's happening inside our tube. We're dropping what we're heating, down, it floats down through the tube, and as it falls, the red hot walls of the tube radiate heat into those particles and heats them up. There's no flames or smoke or anything touching rocks, where you effectively separate how you heat from what you heat. All the heating's being done by this glowing red hot tube. Why heat this way? The next sort of example I usually use is holding up a rock. This is a lump of limestone. Half the weight of this or nearly half the weight is CO2, trapped in the rock. When the cement and lime industries heat this up, they release that CO2, and in fact, it's over half their emissions.
The cement and lime industry is responsible for 8% of global CO2. Over half their emissions are coming from the rock. If we go back to our tube, as those emissions come out of those little limestone particles that are dropped when you're heating up limestone to make cement and lime, the CO2 is trapped inside the tube. It comes out as a pretty pure stream out the top, and your normal product comes out the bottom. That's the cement and lime application, and certainly, we'll cover off that when we talk about the LEILAC business. There's several other applications involving material science. Remember, we're not overheating. We're not contaminating our particles with smoke or flame. That's the basis of the battery business, the water business, and the biotech business.
The last part of our business is the fact we can renewably heat this. That's the basis of our business in sustainable processing. We're developing more sustainable ways to make lithium for lithium-ion batteries, and we're making more sustainable ways to make iron from iron ore. Lots of different applications, but just remember, it's all from the one core technology. That's Calix and its technology. We'll just jump into the financial. Oh, sorry. We'll just do the achievements so far this year, and then we'll jump into the financials. Certainly, if you have a look at FY 2023 so far, quite a bit has happened.
First of all, we did a capital raising of overall about AUD 81 million into the into our business, which is really well capitalized now. Darren will take us through the balance sheet and talk about the financials in more detail. That's really important. That's enabled us to get the resources we need to really chase after all of the different opportunities that we're looking at here. ZESTY, which is our Zero Emission Steel Technology, we announced some funding from ARENA matched by funding from us to develop a pilot project, the Front End Engineering Design for a pilot and demonstrator project for zero emissions iron and steel.
We had our a very important license agreement with Heidelberg Materials, global perpetual licensed deal, and the first of its kind for that industry. I'll talk a bit about the business model we have. It's a low capital royalty type business model, similar to what I've just talked about with Heirloom. That was the first cab off the rank. That really did start to set up this momentum in cement and lime with our business model, a license and royalty arrangement for using our technology. That was closely followed by three projects that we announced with Cemex. We're developing those project agreements and a license agreement with Cemex as we speak.
More recently, some really interesting announcements around again, the LEILAC part of the technology and what the CO2 can be used for. HyGATE project, as it's called, which is a green methanol project we're developing with both ARENA and the German equivalent of ARENA in South Australia, in Port Augusta. We're talking with Adbri about a lime kiln in that to feed CO2 to make green methanol, which is a precursor to synthetic aviation fuels and greener maritime fuels. Really quite an interesting project there. We talked a little bit about another maritime application a little earlier, which is some funding from the U.K. government to pursue what's called our Windship application.
We're working with Windship Technology in the U.K., and we're gonna be using lime to absorb the CO2 from the flue gases of a ship, and that ship will also be powered by these large sails. That particular application of the technology is again directed at the marine industry. Of course, today, the announcement with Heirloom, developing both a collaboration agreement and a license agreement, to develop that technology into direct air capture. Very exciting year so far for us, as it always seems to be with Calix. We're very pleased with the project that's been progress, should I say, that's been made on several different fronts with this business.
Look, I think we've got to the, to the financial bit now, so I'll take a breath and give Darren a chance to take us through the half year financials, and then I'll talk a little bit more about each line of business and where we're at. Darren, do you want to take it over?
Thanks very much, Phil, and good morning, everyone. It's a pleasure to be able to talk to you this morning on, you know, what's another exciting day in terms of, you know, the announcement with respect to Heirloom and also our ability and opportunity to communicate again, about our progress. You know, from my perspective as the CFO of the company, you know, it's incredibly exciting to see the progress that we continue to make. As we promised, again at the full year last year, and then when we updated the market, when we talked about the capital raise, you know, we continue to invest in developing our kind of capability to pursue the commercialization opportunities that our technology platform affords us.
You know, when we do announce transactions with companies like Heidelberg Materials and Heirloom and Cemex, and Pilbara Minerals, of course, these companies are able to, I guess, confidently partner with us because of the team that we're assembling. The great bunch of engineers, R&D capability, you know, commercialization team, right across the board. The people that we're building into our organization allows us to kinda confidently pursue these opportunities. We've continued to do that in the first half. We've added a bunch more people, and they're getting up to speed, helping us to pursue these opportunities. We also continue to invest in development of our technology and de-risk the technology.
As we've talked about before, the various different applications are at different TRL or tech readiness level, but we're making some fantastic progress bringing those technologies to the commercialization point. Obviously with the licenses and the agreements that we're doing, again, as we announced with Heirloom today, Pursuing these opportunities requires commercialization capability and professional services, and obviously we continue to invest in those. With prudent fiscal management and significant investment, we're, you know, we're building a great team here. Obviously our cash in hand, on hand is significantly strengthened post the cap raise. We're able to report a strong 20% plus increase in revenues first half on the same time last year.
In our water business, we'll touch on that. We're really targeting a high gross margin customers who kind of value customer service and quality. Our team in the U.S. and Australia are doing a great job to kind of grow sales at good margin. We've increased our gross margins from sales from 28% up to 30%. And, you know, we're really very comfortable with, I guess, the other aspect of where we're getting, you know, income from, which is our grant stream, our R&D incentives. And again, you know, as part of the Heirloom announcement, Heirloom will also be contributing $3 million over the next few years to help with our R&D activities.
Really positive place that the company's in at this point. I'll just skip to the next slide. Just, I guess, again, just to reiterate in terms of the P&L highlights, as I've said, you know, excluding... We did mention at the full year that the U.S. water business had a customer which was essentially associated with coal-fired power generation. We announced in August that that business had essentially ended its life, which, you know, in terms of what we're trying to achieve as a company is not something that we're necessarily disappointed with. Excluding that opportunity, you know, we continue to report good growth in our water business at good margins.
As I said, you know, we've expanded our sales margins up to 30% now. Again, we've got significant grants and rebates we've announced previously. The European Commission obviously supporting our LEILAC project. Here in Australia, we're getting support from ARENA with the development of ZESTY. We're also taking advantage of the R&D tax incentives that are there for us as well. In terms of funding the business, we are obviously we've received the support of our shareholders, and at the same time, we're tapping into, you know, those other areas of grants and incentives that can help us along the way. As I've said, you know, we continue to invest in building out our capability.
In fact, we've doubled the number of engineers and R&D resources in the last 12 months, which, you know, no mean feat in terms of the team members who are leading that charge. And, you know, we're building great strength in those teams. And, we're really excited about what we're able to deliver over the next short period of time. There has been some admin costs obviously increased in the first half compared to the previous year, and that's specifically associated with the cap raise that we did last year in October, November. And as we've said, some other kind of commercial support that we've got on board. So just my, t he final slide from me.
The next slide if I can. Simon. In terms of the balance sheet, again, as your CFO, as the CFO, I'm, you know, very comfortable with where we are in terms of, you know, our ability to pursue these commercial opportunities and really leverage the partnerships and the relationships that we're building. Obviously with Pilbara Minerals, you know, we hopefully hope to be able to kind of begin to put some capital work as we get closer to the FID on that project.
Towards June this year, again, start to build a commercial business there, which Phil will touch on more. The cap raise has put a, you know, significant kind of, I guess underpinned the strength of the balance sheet where we've got significant growth in net assets, cash on hand, and real financial flexibility and strength to pursue the various different commercial opportunities that we have across each of our line of business. Again, just to reiterate, we have essentially no debt. I mean, there's a half a million AUD of borrowing, sorry. We're really well positioned to pursue all of the opportunities that the commercial teams are developing for us.
I think with that, Phil, I'll hand it back to you.
Excellent. Thanks very much, Darren. Just getting back to sort of the thematics, and then I'll cover each of the sort of lines of business separately. I think in terms of industrial decarbonization, as I've sort of mentioned several times before, the last two years has been pretty dramatic in terms of the change we've seen across countries, companies, and investment funds in terms of the amount of focus and effort now going into decarbonization, which is huge tailwinds for our business and what we're trying to achieve with our technology. If we just move to the next slide. If you have a look at sort of a snapshot of Europe and the U.S. and now Australia, like I wasn't...
Even when the U.S. and Europe were moving, I was really unclear and unsure as to when Australia might move. Of course, you've seen just in the last few months, quite a dramatic change in Australia, the introduction of the Safeguard Mechanism to not pass legislation yet, but obviously being hotly debated now. Broad support from industry for at least something that gives them certainty. I'm sure that there'll be some system in Australia moving forward. An enormous amount of money pledged under the National Reconstruction Fund here in Australia. A fund that will be set up similar to the CEFC, the Clean Energy Finance Corporation, but focused on reconstruction around sustainable manufacturing here in this country.
When you think about some of the areas our technology touches on, I'm very enthused about actually not having to go overseas to develop the iron and steel opportunity, for example, or develop, you know, obviously the spodumene opportunity that's obviously moving ahead here in Australia and others. Sustainable processing application, we're looking at multiple different opportunities there. And the way that the legislation is being shaped to support manufacturing here in Australia and processing minerals onshore here, presents a lot of opportunities for Calix in this country. But that's not to say that the U.S. and Europe aren't of interest. I mean, obviously Direct Air Capture, which we've just talked about with the Heirloom announcement, getting massive support in the U.S..
It's very exciting to be working with probably the premier or one of the two top DAC companies in the U.S. developing this technology. Of course, Europe continuing to drive forward on cement and lime and other decarbonization efforts. Really, very exciting times with legislative incentives, should I say penalties, all there now, or certainly coming there in Australia's case, to drive decarbonization. Obviously, the benefits our technology bring to that is, you know, it's a great tailwind for our businesses. If we just jump down, Simon, into the next set of slides.
Just in terms of decarbonizing cement and lime, I think I've talked about the fact that cement and lime is about 8% of global CO2 emissions. Our technology directly addresses four, and it can directly address the other four once you use biomass or waste fuels or renewable electrons. It's a technology really that can solve the decarbonization of cement and lime. Being driven by carbon pricing, and as I mentioned before, whether that carbon price is a penalty or whether that carbon price is a tax incentive as it is in the U.S.. Interestingly enough, I think just before the call, the EU Emissions Trading System CO2 price hit EUR 99.99 a ton. That's the highest it's ever been.
Just couldn't quite get through the 100 barrier, a bit like Bradman's test score, 99.99 it hit. quite a psychological barrier nearly broken in terms of value of carbon or carbon penalty in terms of price. that is only just continuing to drive the tailwinds behind decarbonization, as I've talked about before. If we move to the next slide, Simon. Thank you. just a quick recap on probably one of the most important deals we did in the first half of the year, which is the LEILAC license arrangement with Heidelberg Cement. Heidelberg Cement, obviously one of the largest cement companies in the world. 149 cement plants globally.
The key thing about this license arrangement. It's a first of a kind for the industry, and it proved out our business model. We're not allowed to talk about the parameters of what the floor or the cap or the variable sort of percentage looked like in that arrangement. Sort of, I guess with the recent Heirloom announcement, you can see where we've set the floor in that Heirloom piece. You could probably draw a line to similar or maybe slightly lower floor for the Heidelberg announcement. Certainly that's the type of floor in terms of quantum that we'd like to see in our license arrangements and only upside from there.
As we get the cost of the technology down in both this arrangement and the Heidelberg arrangement, as the costs come down, the ability to get higher license fees increases. With both of those arrangements, that type of mechanism where we benefit as the customer benefits, are really great little arrangements, as part of this, as part of the agreements with Heidelberg and with Heirloom. Really important to have proven out our business model. Low CapEx, royalty or license type arrangements moving forward, and obviously with the Heidelberg one, perpetual arrangement. Really important to set up our business model moving forward with these, with this arrangement. Critical deal for us during the year. If we just move forward again.
We've updated the graphics on this slide. You may recognize the theme of this slide in terms of the scale up of the lime technology. Again, for people who are not as familiar with the company, we've already built a 25,000 ton per annum capacity facility at a Heidelberg Materials facility in Belgium. That 25,000 tons of CO2 separation is the largest CO2 separation cement facility on a cement plant outside of China. The Chinese is about 50,000, so about double this capacity and obviously a different technology. That is no small achievement. We built that in 2019. We've run it for two years. We're making some modifications to it, and we're continuing to use it and test the technology there.
The second little graphic along is our updated graphic of what LEILAC-2 will look like. It'll have four tubes. It'll capture 100,000 tons of CO2. With that particular one, we're about 20% of the throughput of a full-scale cement plant. Right on the right-hand side here, you can see what a full-scale LEILAC will look like on a cement plant, roughly half a million tons of CO2 separation. We're, you know, moving up to sort of 25 to 32 tubes.
That particular application there is obviously starting to be talked about because a lot of these companies, you can see the companies in the consortium that we're working on with the LEILAC technology here, including Heidelberg Materials and Cemex, Tarmac, Lafarge, CIMPOR, some of the largest cement and lime companies in the world. Solvay, a huge chemical company. ENGIE, a huge energy company. Port of Rotterdam, a CO2 sequestration project. We really have a really nice consortium working on the scale-up of our application in cement and lime. If we just move to the next slide quickly.
Just to give you an idea of the scale of the problem and the scale of the opportunity, those big LEILAC units, the LEILAC-3s we call them, half a million tons separations, we're gonna need to build probably two of those a week between now and 2050, if our technology is gonna mitigate the CO2 in the cement and lime industry. That gives you an idea, I guess, of the scale of the problem we're facing, the scale of the opportunity in LEILAC. And by the way, that's without taking into account what we've gotta do with Direct Air Capture, by the way.
That's without taking into account what we wanna do about the lime industry with respect to opportunities such as green methanol that we've just announced, or opportunities such as Windship, where again, the potential for the technology is many, many times the scale or size of the current lime industry. Really very exciting opportunities in the LEILAC part of our business. If we just move forward, in terms of the number of projects in the pipeline, we sort of show this slide and update each time we do a presentation. Up to 71 now in the pipeline. You can read through each of these here. There's, like, 20 million tons of CO2 capture represented in the project pipeline we're developing at the moment. You can see some of the companies.
We're starting to name them now as we move past the confidentiality stage of the project development. Adbri, Boral, Cemex, Tarmac. Projects being developed obviously with each of those companies. With respect to some new, projects, as I mentioned before, the HyGATE project, which is about a green methanol project in South Australia, working with Adbri on how we might build a lime calciner to supply that project with, CO2. Of course, Windship that I mentioned earlier as well, which is an entirely new application for lime. Lots happening in the pipeline, and the pipeline continues to grow. If we just move to the next slide, Simon.
Both of these, you know, I may have mentioned the HyGATE project with respect to producing a green methanol and also the Windship project. Shipping and aviation are probably the hardest to abate transport sectors. Over 4% of global emissions associated with shipping and aviation. Hard to move away from a fuel required for either. As I say, even with Windship, which is a sailing technology, to continue to meet the, I guess, the passage times, to continue to have a ship being able to maneuver, all of these things will require motive power of some sort. The wind is great for shaving a lot, you know, maybe two-thirds of the emissions of the ship, but the other third needs to still come from motive power.
The Windship solution involves a CO2 capture using lime from their stack. The ability for the ship to continue to meet routes and schedules and times using some motive power, but still being able to mitigate CO2 is a really important part of the application of that technology. The last bit about aviation, you know, getting a few hundred tons of jet up into the air and moving at speed across the world is gonna be very difficult to move away from, even as battery technology improves and electricity and electrical options for air travel improves.
You know, hours and hours and hours in the air, in the air at that sort of weight, unless we go back to the dirigibles, go back to the Hindenburg, which I don't think we'll be doing, jet engines are still gonna be required. With respect to the HyGate project, we're making what's called a green methanol, combining CO2 with hydrogen that's been produced from a renewable facility, and you combine those two to make this chemical called methanol. That methanol can then be easily made into a synthetic aviation fuel, or could be added directly into existing fossil fuels, like a diesel fuel. You can substitute out more and more fossil fuel or completely substitute out an aviation fuel.
Increasingly, as the CO2 required for that comes from sources such as Direct Air Capture, then effectively you can start to see how you might move towards a net CO2 neutral aviation industry. Very exciting developments just over the last few months in two of those areas. That's LEILAC. Lots happening on the LEILAC front as usual. Let's move to sustainable processing now. One of the very interesting developments over the last probably about 14, 15 months now, has been the application of our core technology in decarbonizing iron and steel. Iron ore is hugely important to Australia. 44% of our export earnings come from iron ore, over AUD 150 billion a year. 96% of our ore is this ore called hematite.
It's the red stuff over in the Pilbara. That hematite is unsuitable for electric arc furnace. As the iron and steel industry decarbonize, most often quoted route is to continue to move down building more electric arc furnaces, which increasingly puts the industry here in Australia, the iron ore that we're making from that's basically hematite, at risk. We really need a solution that can green, make a green iron here with a hematite such that we can then export a green iron to existing steel makers who are using blast furnaces. As they can substitute that green iron into their blast furnace, 10% or 15% or maybe even 20%, that allows them to reduce their carbon intensity.
A green iron industry is really actually quite important and essential for Australia as well as for existing steel producers who have a lot of sunk capital in their blast furnaces, but want to reduce their CO2 emissions. Really quite an exciting opportunity for an Australian technology to be looking at helping the Australian iron ore industry, which is so important for us. We just move to the next slide. How is our technology applied for iron and steel? Same core technology, same tube, hydrogen in the middle, and iron ore in the top. Iron ore is basically rust, iron oxide. What hydrogen loves is water. Is oxygen, sorry. Hydrogen loves oxygen because it makes water.
When the hydrogen goes in the bottom, iron ore in the top, heat the tube about 800 to 950 degrees, much, much lower than a blast furnace operates at. That hydrogen sucks the oxygen off the iron oxide and makes water and turns the iron oxide into iron. At the bottom, you get an iron, and at the top, you get a mixture of hydrogen and water. What's great about the technology is because we've separated how you heat from what, you heat on the outside, we can have electrical elements, as I mentioned before, you can renewably heat it. What's great about that is you can power the whole thing with renewable power. You can make hydrogen with the renewable power.
The most expensive part of making a green iron, there are other hydrogen technologies being developed for making green iron, but the most expensive part is the hydrogen. If you can use one of our kilns instead of a normal kiln, you don't lose any hydrogen to that kiln or furnace. The hydrogen's contained within the tube. It's only used to convert iron ore to iron. The mixture at the top is very easily recycled. You condense the water out and recycle the hydrogen. The technology actually represents a very elegant solution to make a green iron that minimizes the use of hydrogen. There's also several other benefits of the technology compared to several other technologies that are being developed around the world to make a green iron or steel.
With respect to those other technologies, I'll try to sort of lay them out across here with where they're pretty good or where they're not addressing certain things. Our technology called ZESTY, Zero Emissions Steel Technology, addresses quite a few things. It could even be used to help upgrade a hematite to a higher grade ore. Once you put it through our reactor, it actually, you need those fine particles, as I mentioned before. So conversion of those fine particles into iron or even into partial conversion to, say, a magnetite, could help with beneficiation steps downstream of our technology.
We're looking at the technology not just as a conversion to green iron, but also as a way to upgrade hematite to higher grade green irons. Lots of work happening on the ZESTY front. If we keep moving, I'll cover off a few of these more technical things a little more quickly and move through to Finishing out the lines of business and some, and obviously some Q&A. This slide's a little technical, what I wanna draw your attention to is the right-hand side, top sort of area there in the graph. That's called metallization. That's conversion of iron oxide to iron. These were the very first runs we did. We had our test reactor at Bacchus Marsh. We converted it really quickly to run hydrogen.
We ran some different ores through it, siderite, goethite, hematites, from Australia, magnetite from Australia. You can see there that the siderites, the goethite, hematites, in fact, the goethite, hematite ores are the most prevalent in Australia, as I mentioned before. Excellent conversion to iron. Excellent metallization. You know, you can see there the temperatures were well below 1,000 degrees and we started to get really top conversion. Magnetite, which is the bottom curve there, that's a tighter ore. You can see these little photos at the bottom of the porosity or the pores in these iron ore particles. The magnetites are typically a tighter ore.
It takes a little longer to convert, but we're working on upgrading our test facility right now, to be able to process better. It will be really interesting to see not only testing of other hematite, goethite-type ores, but also other magnetite-type ores. Very successful 1st campaign run. We're in the midst of our 2nd one now, so watch this space on a wider variety of ores, and the performance of the technology for those ores. We just keep moving down.
Just on this one, as I mentioned, we had ARENA funding to continue our Front-End Engineering Design study all the way to get to a final investment decision on a demonstration plant, which you can see the sort of rendering of on the left there. Just to give you an idea of scale, it will be similar in terms of size and throughput to the Leilac-1 plant that we built for limestone. This one's for iron ore, of course. That particular study is underway right now. We're targeting end of this year to finish that study and look at a final investment decision on a demonstration unit. If we just keep going.
Once that demonstration unit is up and running, obviously, we want to run and test as quickly as we can. Early 2025, possibly, if we can target that and achieve that, we'll have halved the development time of this technology compared to, say, the LEILAC technology, which took us 10 years from patent application to demonstration. We're really running hard and fast after this one for the obvious reasons. It's a very, very important industry to decarbonize, 8% of global CO2. As with LEILAC, we're only one of half a dozen or slightly more technologies that will ever decarbonize those industries. It's a very small field.
It's a very small sort of set of players who are gonna dominate these industries, and we wanna charge as hard and as fast after it as we can. We just move to the next slide. Just covering off the sustainable lithium joint venture. With Pilbara Minerals, it was very, very satisfying to have signed our full joint venture arrangements recently, and again announced recently, we're looking at this half year to go do that final investment decision for this particular facility. This will be, again, a demonstration scale facility of 3,000 tonnes per annum. Looking at AUD 50 million-AUD 70 million of capital, with AUD 20 million contributed by the Modern Manufacturing Initiative.
With Calix contributing 35% of the remainder, although Calix will be 45% of the joint venture. This is to actually process spodumene waste or fines here in Australia to produce a lithium phosphate salt. It reduces the waste that's shipped offshore by 94%. 94% waste is currently shipped offshore. Our lithium phosphate salt has great utility. Both bits are useful in a Lithium Iron Phosphate battery. We're really trying to lower the carbon footprint, increase the utility, and add, obviously, value here in Australia. If we go to the next slide quickly. Excellent. As I mentioned before, a final investment decision is targeted before the end of this financial year.
You can see there a tray of our lithium phosphate salt that we've already made and been sent to customers for assessment and evaluation. Even at today's lithium prices, which have come off their peak, we're still looking at 3,000 ton per annum having a street value of probably about AUD 180 million based upon lithium contents alone. Despite the fact this is a small-scale demonstrator, it's pretty quickly, with the current lithium market, become quite a significant sized project in and of itself. Watch this space on this one. Obviously we wanna get this thing past FID, provided the feasibility study all turns out well, to be up and running as quickly as we can.
Really targeting maybe 2024 to get this up and running, and obviously, test, operate, really understand the plant well, but obviously start to produce commercial quantities of lithium phosphate salt. We just keep moving. Just very quickly, covering off the last sort of parts of our business. Advanced batteries, what's happening on the advanced battery front? The key tests for advanced batteries is really to take this lithium manganese oxide we've made in our, in our calciner, in our core technology, and we've made hundreds of kilos of that material now. It's being put together in pouch cells in the U.K. with a company called AMTE. They've done several runs of those pouch cells, and they'll be doing several more.
Of course, with any battery technology, it's all very great to have a great chemistry in the lab, but unless you've made commercial quantities of actual batteries, you know, the engineering and the technology just in that last part to go from the lab to making commercial quantities is just as difficult as coming up with the original fantastic chemistry to begin with. This is an important proof point for us. We wanna make enough to put in an electric vehicle and test run that. The battery team are working really hard on getting that completed with AMTE again this financial year. Other chemistries are being looked at by our technology here. LFP, which is lithium iron phosphate, I might have mentioned that before.
Lithium nickel manganese oxide, so the addition of a little bit of nickel, to see if we can get better cycling performance and better energy density out of our battery materials. But really, the sort of technology mode we're trying to push here is the calcination or the heating in making a cathode material such as lithium manganese oxide is over 80% of the energy of making that material. So if we can use our technology to drop that energy required to make that cathode material, again, we're reducing the carbon footprint of that cathode material. Apart from that, obviously we're making some pretty interesting crystal structures and these sorts of things that can aid with charging and density and these sorts of things.
Yeah, a lot happening on the battery front, but the key thing to watch this financial year is to get those pouch cells made at commercial scale and into an electric vehicle for proper testing. Let's keep moving. Biotech. Plenty happening on the biotech front as well. Obviously, biotech part of our business is probably a bit longer to reach fruition, but there're some very interesting areas that we're developing into crop protection, marine coatings, and health and pharmaceuticals. Crop protection, we're now part of the protocols for a Dutch or farming cooperative, with the banning of a fungicide called mancozeb there.
Again, over the European summer, used our product as part of standard protocols. We're trying to get a third license agreement in place for our crop protection product. Over time, we'll start to build the data, build the confidence in the farming community, and start to build the sales of this product. Advanced coatings with respect to marine coatings, very exciting area as well. Just the same sort of material here, which is what's called magnesium oxide, again, made with our core technology. Very high surface area material that we can produce, being used in marine coatings. We've got some excellent results in our marine coatings area from overseas trials with two coatings manufacturers. We'll talk more about those soon.
There's also a third end user customer here in Australia, potentially an end user customer in Australia that we've also had some very successful testing with. Marine coatings is moving quite quickly now, which is really good to see. The last area, antimicrobials and biotech, we would've seen announced over the course of the last sort of six, eight months, the participation in two areas to advance the use of a high surface area magnesium oxide in pharmaceutical and/or veterinary type applications. Again, just to emphasize, the magnesium oxide we're making, it doesn't kill bacteria or fungus, it repels them. They just don't like colonizing and growing through the material. It's a very interesting area of a low environmental impact that effective antimicrobial.
This whole biotech area is gonna be quite interesting for the company moving forward. Lastly, we'll cover off water quickly. As Darren mentioned, very pleasing results in water, but we always like to sort of talk about the growth curve being an S curve. I think we're lifting off the bottom of the S quite nicely now. Continued trends in the growth of the business in terms of both gross margin and in terms of total revenues. We've got two new plants that are in the process of currently being built. Very exciting to actually start to expand that U.S. business after a bit of a COVID hiatus.
Difficult to get even simple things like truck drivers and these sorts of things, believe it or not, that just hampered the ability for us to grow that business. Having been through that now, we're really pleased to start to see some good growth starting to happen in that business. Customers staying with us, paying good margins for the product, and as Darren said, we're focused on service. With respect to this business, it's really starting to yield some very good results. The other thing, just mentioning quickly, it's good to see AQUA-Cal+, which is our aquaculture water additive, start to actually get some sales happening again. Watch this space over the remainder of this year into next year.
We had triple digit growth on this product before COVID hit. We're starting to see the green shoots again. It's really good to see sales of AQUA-Cal+ starting to happen back into China as well as Malaysia and Japan, a few new markets such as India. Lots happening on the water side of the business as well, and as I say, it's quite pleasing. Mainly, the States obviously, being the largest part of the revenue in the water business. Pleasing to see the States really lifting in terms of its top line revenue. Just quickly through last little bits. Sustainability is obviously very important for a company like Calix, even though the technology we have addresses a lot of sustainability challenges.
We also have to ourselves be a sustainable company. We have commitments with respect to the UN Global Compact, and those commitments include zero waste, reducing our greenhouse gas footprint, diversity, inclusion and gender equality. Lastly, zero incidents of bribery corruption and a revamped governance system to make sure that that happens. All of those are being pursued by us. They're all detailed in our sustainability report. We'll be updating that report at the end of this financial year as well. That sustainability report is up on our website and available for all to read. Lastly, just in terms of our quick snapshot report card, unfortunately the dots don't appear to have made it onto this version of the report card.
Successfully completed is a green dot, on track is a blue dot, and a watch point is just a little orange dot. Everything is on track and in fact we, except for two areas which are watch points. In terms of the water business, reestablishing that EU market entry is just a watch point for us. It's proven quite difficult, with everything going on in Europe. Similarly, under refractories, converting an MOU that we had with RHIM into a full project agreement remains a watch point, simply because again, the facilities that RHIM have in Europe are pretty landlocked. Obviously there's a lot of other distractions happening in Europe at the moment. Everything else is on track. Even some green dots, as in completed.
Obviously the spodumene, we have a green dot against the full JV agreement, which was executed with Pilbara. Under the LEILAC group, we've now converted two projects to FEED studies. You'll see in the pipeline, if you think back to the pipeline, the latest one to move through into front-end engineering design is the Tarmac Lime project in the U.K.. That's now a green dot as well. Pleasing progress. A couple of little areas that are watch points, across the most of the business, everything is on track, if not completed for those 2 areas that have green dots. I think that concludes what I was gonna say today, obviously Simon, happy to answer questions as they come through.
Perfect. Thanks, Phil. Just a reminder, you can ask questions through the Q&A panel at the bottom of the screen. We'll get onto those that have already been committed. First question. How much CO2 do you anticipate or you guess calcium hydroxide will capture from the air versus what is contained in limestone in its natural state?
Yes. It's almost like a one-to-one. The CO2 that you separate from the limestone in a LEILAC unit, for example, and then sequester, is then creates a calcium oxide that's rotated through the Heirloom facility. That then captures that CO2 obviously for recycle back to a LEILAC facility. Just in terms of total tonnages then, for example, I think Heirloom have an ambition, let's call it an ambition, to capture to be at about 1 billion ton per annum capacity by the mid-2030s, which is a huge amount of capacity. Now, even if they get half the way there, then we're certainly seeing quite a few million tons of CO2 captured each year.
Direct air capture, if you have a look at what the 1.5 degree scenario is asking for with respect to CO2 mitigation, it's up to 10 billion tons a year of CO2 that need to be mitigated. Industrial contributions and these sorts of things will certainly contribute some of that. The remainder is gonna be a significant gap that DAC is being developed to fill. Hopefully that answers sort of one-to-one on limestone to CO2. Certainly, if DAC is successful in especially bringing the cost down to capture, it could be a very significant industry.
Great. Thanks, Phil. We've just got Aaron [Miller] , who will now ask a question via Zoom. Aaron, please go ahead.
Yeah. G'day, guys. I just wanted to ask a question just about the arrangement with Heirloom. You know, my understanding that is that it's obviously very energy intensive. Does the Calix technology bring that cost down? I'm just trying to think about the benefits your technology bring to DAC.
No problem, Aaron. First of all, the ability to separate the CO2 to actually calcine the limestone or heat up the limestone to separate and directly capture the CO2, obviously the development into the LEILAC technology is all about making sure that energy is as small as possible. Compared to a conventional kiln, our target is to make the LEILAC technology equivalent, if not better, than a conventional kiln in terms of the energy required to separate that CO2. Other techniques being developed to do a similar thing in DAC technologies. Oxyfuel, firing of a kiln. There you've got to separate the air into oxygen and nitrogen and just fire your kiln on oxygen. Therefore there you see an additional energy requirement to separate the air.
When it comes to the use of our kiln versus say an Oxyfuel kiln, we have the advantage that we can continue to drive towards a lower cost and more efficient kiln. Second thing is that with respect to Direct Air Capture, again, if you have a look at a few of the other technologies and they have rather large setups with big fans to blow the air through collection systems, whether they be a solvent, or whether they be other systems that absorb CO2 such as a metal-organic framework. Those, driving those fans takes an enormous amount of energy.
What's elegant about the Heirloom solution is they're using the heat that's given off by the CO2 absorbing onto the lime effectively. They're using that heat to generate a draft or natural flow through through their contactors. The combination of our kiln with their technology, we're targeting lowest costs Direct Air Capture.
Okay, great. Thanks, Phil. Then just on, I mean, is the arrangement with Heirloom, is it exclusive? I think one of the other companies that you may have mentioned. Is it Carbon Engineering, the other major?
Yes.
I think it's also backed by Bill Gates. Are you able to work with other companies, or is it exclusive with Heirloom?
Yeah. At the moment, we're just working with Heirloom. Obviously as we develop the full-blown commercial arrangements, we'll be a little more clear as to whether we're exclusive or non-exclusive, as we move forward. We'll take that on board, Aaron, and feed back as we have the full agreement in place.
Yeah, sure. Great. The $3 royalty, I think you might have mentioned, is that something you're looking to apply to something like a Cemex?
That's the royalty floor. there is variable component that floats above that.
Certainly, the three is a nice number to have out in the market, let me put it that way. In the cement industry, obviously we've already got an agreement in place with Heidelberg Cement. You can probably infer sort of that the Heidelberg Cement number may be at or slightly below that particular number since Heidelberg Cement were first cab off the rank. Look, I guess the key thing, Aaron, is people can start to see what the royalty floor looks like in terms of order of magnitude. It's not AUD 0.30 or EUR 0.50 or 75. It's $3. There's a royalty component above that.
If you want to be conservative, you can start to anchor that sort of number in the type of arrangements we'll have in license agreements moving forward.
Sure. Okay. Last one from me, just on, it's obviously good to see that you found that the bottom of the S curve, I think you refer to it as.
Yeah.
Do you expect revenue therefore in the second half to improve on the first?
The key thing there, Aaron, is to complete the two new plants. We're drip feeding volume into the new areas that we're looking at there. We really can only start to run as we complete those two new plants. They should be completed this financial year, we're going really hard and fast to get that done. That will be the catalyst to really sort of move up the steeper part of the S curve, is to finish those plants. Watch this space. I mean, the next few months, obviously we're already to February, those plants should be completed this financial year.
Rather than half 2 this year, hopefully first half next financial years, we'll be starting to see the benefits flow from having those plants completed.
Great. Thanks, guys.
Great. Thanks, Aaron. Next question. Just on the Heirloom royalty structure, is there an observable benchmark to determine the prevailing CO2 price per lime decarbonization, and what is the spot price for this today? Similarly, what is a reasonable volume assumption for Heirloom? Looking at the Heirloom website, they're talking about only one building having been done to date, where they reinjected atmospheric CO2 into the concrete of a building for permanent storage. Any comments would be helpful to give a sense of the materiality.
Yeah, sure. Just in terms of the CO2 value that the royalty stream will be worked out on for the variable component. Basically in the U.S. they have what's called a 45Q tax credit system. That sets the CO2 price or in fact tax credit at about $85 a ton. The CO2 that's sequestered in particular states for Direct Air Capture, that can be a much higher number. In California, it's in excess of $180 a ton. The floor price, which is we're talking about $3, it can it varies with it can also be 3.5%. As that number goes up, 3.5% becomes the floor price.
There's a variable component which is a combination of a percentage, which we can't talk about, but also the capital cost of our facility. In the EU, that price is 99.99 today, EUR per ton, and so you can apply that 3.5% to that to get an understanding what that might look like in the EU and in Australia. It's AUD 25 a ton indexed. Just in terms of Heirloom, in terms of the potential market, as I mentioned before, I think they're in the public domain stating they wanna try and hit 1 billion tons by 2035, which is, I mean, a huge, huge challenge.
You know, but I guess what is interesting about Heirloom is they have some pretty big backers. It'd be really interesting to see how fast and how quick they move. I mean, if they hit 1 billion tons by 2035, you know, as a minimum, that's a royalty $3 billion. It's gonna be really interesting. So it has the chance to be hugely material, but it all depends upon execution between now and then. We'll be working closely with them in that collaboration agreement, and as I say, they've got some pretty big backers. Yeah, we're gonna work as hard and as fast as we can to help them try and hit their targets.
Great. Thanks, Phil. Just a couple of questions on ZESTY, I'll link them together. Is it fair to assume that ZESTY has attracted the interest of all three major iron ore producers in Australia? Following on from that, another question on ZESTY. With the assumed Fortescue as a part of the consortium, is it fair to assume they are pushing you towards magnetite processing as they press start on Ironbridge? How hot can you run the plant over a sustained period of time?
We're testing ores from all over Australia, including some fairly large iron ore operators. Yes, we want to, as part of the second campaign, and we are testing iron ore from all over Australia. Just in terms of Fortescue and Ironbridge, that's a magnetite development. As I say, magnetite can go into, after beneficiation, which is cost, by the way, as well, can go into electric arc. I think you'll see all the iron ore producers developing magnetite resources as part of a, I guess, a de-risking strategy for hematite as the industry rolls forward and green iron and steel become much more desirable.
Having said that, as I say, the initial really exciting application for ZESTY is the potential to turn hematite into a green iron, possibly of a higher concentration, as in, you know, removal of impurities, et cetera. All of the iron ore majors have very heavy investments in their hematite, ore processing facilities. Just the last part of the question, Simon.
Temperature.
Sorry.
It's temperature related. How hot and how long can you run the at high temperatures for?
Right. Yeah. Well, indefinitely. Obviously the tubes, until the tube sort of wears out. We've been running the calciner at Bacchus Marsh since 2013, the same tube. We don't have fast-moving particles that scour the tube. In the iron ore application, there won't be any volatiles that are corrosive. I suspect the tube we can run continually for many years. Obviously, there'll be planned shutdowns once we build the thing for maintenance and these sorts of areas. Yeah, we don't envisage any issue with running the tube for months or even years at a time.
All right. Thanks, Phil. Just a question. Does the 94% to zero waste with the lithium salt mean the whole product can be used in an LFP battery?
Yeah, that's the plan. Interestingly enough, if you look at lithium hydroxide or lithium carbonate, the hydroxide part of lithium hydroxide or the carbonate part of lithium carbonate, which are the two other sort of major salts that are traded to the battery makers, the carbonate and the hydroxide are worthless. So they're over 50% of the salt, and they're not worth anything. And they have no useful purpose once they reach a battery, a cathode maker, for example. With lithium phosphate, both parts are useful. There might be a little bit of excess phosphate if you look at exactly how much is required to go into a lithium iron phosphate battery.
Even that of itself is interesting 'cause a lot of the battery makers, for example, in South Korea, have difficulty accessing phosphate or phosphorus materials out of anywhere other than China. It's gonna be interesting to see how customers will value this material. We've only pegged the value right now at the lithium content. If the total salt is of value, you may be able to extract a bit of a premium for the material. Or at the very least, you know, sell it at the same lithium content price. You know, the customer may prefer that material 'cause there's that added utility in having two components of a lithium iron phosphate battery chemistry. Yeah.
Basically, we would envisage zero to very low waste as part of, as, you know, part of the value proposition of this salt.
Right. Thanks, Phil. There was recently published a paper on future demand for electricity generation materials under different climate mitigation scenarios. The report highlights the emissions associated with materials for clean electricity coming predominantly from solar-grade polysilicon, steel, aluminum, and cement. Can you talk about any potential for Calix technology processing alumina and polysilicon production?
Polysilicon, I can't comment on just yet. It's an interesting area. Certainly, to make sort of solar panel grade silicon is, you gotta make pretty high purity. So that. I'll put that aside for the moment. Let's not throw that one out. I think we've got a lot on. There's no secret that we're part of the HILT CRC, the Heavy Industry Low Emissions Transition Cooperative Research Center. Aluminum is one of the key focuses of that HILT CRC, of course, along with iron ore and iron and steel, et cetera.
There is potentially, and we're looking and working with members of the HILT CRC, some very interesting areas that the technology could play in the total sort of aluminum supply chain. If 50% of the aluminum we make here is exported to Europe's introducing a Carbon Border Adjustment Mechanism that will put a carbon tariff on goods exported there. The aluminum industry is one of those areas that really needs to concentrate on how it lowers its carbon footprint. The ability to have a kiln easily renewably powered that could fit into their process is something of interest to them and obviously of interest to us as to the applicability of our technology.
Watch this space on that one is what I might say there. But it, yeah, the silicon part, we'll put on the list to have a quick look at. But certainly the aluminum bit is the bit that could be really quite interesting for us.
Great. Thanks, Phil. Last question. intermittent renewables in the U.S. under the IRA are being subsidized to the tune of $26 per megawatt per hour. This seem a great opportunity in addition to the carbon capture rebates discussed for Calix to promote to customers? How is Calix marketing its electric calciner in the U.S. and highlighting the benefits in relation to the IRA?
Yeah. Excellent question. Marketing hard. So obviously the cement and lime applications are well known in the U.S.. We have some good contacts through both lobby groups and one-on-one personal contacts within Department of Energy who are releasing tranche after tranche of the Inflation Reduction Act funding sources. Working hard on that. With respect to other applications, say in mineral processing, very interesting areas there that we could play in. Suffice to say things like iron ore and spodumene, we're pursuing mainly in Australia first. We feel the opportunity in terms of the market here is probably a little bigger than the States right now for those.
There's certainly quite a few areas in the States that we're keeping an eye on. You know, the fact that the technology can be renewably powered, intermittent operation, even looking at continuous operation with the ability to draw electrons that are really cheap and both run our process but run a heat, let's call it a heat battery. They're things that are certainly of interest in the States. Yeah, look, we've got a lot of good touch points into the States and we're looking for the right opportunity. There's a lot of focus right now on Australia, given the iron ore and spodumene opportunities as well.
Perfect. That concludes the Q&A segment and the presentation. Phil, I'll hand it back to you for closing remarks.
Excellent. Thanks very much, Simon. Look, on behalf of Darren and myself, thanks again for your interest in the Calix story. This half year has been very satisfying to see in terms of the commercial development and the potential applications, especially in the decarbonization opportunities. This remainder of the financial year, obviously a few things to close out and looking forward to doing that and updating as we do that. Certainly, the very few short years ahead are gonna be quite exciting for the company on a number of fronts with those projects that we're developing. Thanks again for your attention, look forward to delivering further news as we continue to develop the technology to multiple different applications.
All right. Thanks, Phil. Thanks, Darren. Thanks, everyone, for attending. Just a reminder, the recording will be made available, probably in about half an hour, available via the same link. Thanks very much for joining. Have a great day.