Good afternoon, everyone, and thank you for joining us. Welcome to this WTR Insights Conference session with Aduro Clean Technologies. I am Peter Gastreich, Managing Director of Energy Transition and Sustainable Investing in Water Tower Research. With me today is Ofer Vicus, Co-Founder and Chief Executive Officer of Aduro Clean Technologies. Ofer, welcome and thanks for making the time today.
Well, thank you for having me, and thanks a lot for your audience taking the time to listen to our discussion.
Hey, absolutely. Just bear with me for a few moments here. Just have a couple of housekeeping items before we begin.
First, Aduro's safe harbor statements are available on the investor tab of the company's website. Second, investor questions are very much welcome, so please enter those in the chat box and we will make sure those are delivered to the team at Aduro. Third, if you would like to request a meeting with Aduro's management, you can do so through the conference portal. With that, let us get started.
Okay.
Ofer, some investors joining us today may be new to the story at Aduro. Keeping that in mind, could you give us a high-level overview of the company, the markets that your Hydrochemolytic technology addresses, and where the business stands today on the path from pilot operations to your first commercial plant?
Sure, Peter. At Aduro, we develop a technology basically to upgrade heavy oil to a lighter oil, upgrade renewable oil to some kind of a fuel, or even take waxy oil to a conventional crude. It's a platform technology, so other side of it is that we deconstruct polymers. Waste plastic. We're probably one of the leading technologies in the world for chemical recycling of waste plastic. This is all based on a phenomena we identified several years ago, already in 2011, Peter, where we identify and understood that the metals that are associated and are in heavy oil, as an example, could act as a catalyst to deconstruct and do a very selective chemical bonding breakout.
With that, this is under certain conditions associated with water and pressure, and with that, most of the technologies that are doing any breakup of heavy molecules such as those would require hydrogen to stabilize the molecules. We discovered that we have hydrogen donors such as glycerol and ethanol. We are processing technology. We're basically dealing with hydrocarbons that needs help to improve. Our yield is fantastic. We are seeing 90% liquid yield, very little by-product, if anything. Our performance is very good in all sectors. We have a higher tolerance to contamination in the waste plastic. We have an ability to scale up in a very concise and sized manners. We have high yields, so we are very much leading in our space.
If you think of us on the energy independence kind of, where the work is where I think life is taking us right now across countries, we will sit somewhere in a terminal before a pipeline. We will sit somewhere between refineries and the well, and we will take a material that requires some energy to transform into a lighter product, and by this we will save a lot of money, on the other hand, to make it lightable and transportable, easier to transportable. That also gives the investors, I hope, some visions of where Aduro is going. What's the capacity? We have about north to CAD 200 billion of addressable market, potential addressable market. We're in this stage at the pilot phase for chemical recycling.
We're building our industrial unit, our first industrial unit in the earliest of 2028, and we feel we'll have a very aggressive approach towards the paraffinic crude, but I'm sure we'll talk about it later.
Okay, thanks. That's a great overview. Let's move on to the opportunity and why now. Thinking about that, Aduro operates in different sectors from plastics recycling to logistically challenged crudes.
Yes.
Europe is moving toward binding recycled content while the U.S. and many other territories, including Europe, are seeking a greater rate of energy independence. With that in mind, how large is this opportunity in front of you, and what is creating the urgency now, both commercially and also on that regulatory side?
Yeah. Well, it's a perfect and very timely question. Good question, Peter. I feel the why now, first and foremost, the mode of the technology is very strong. We are doing what we've been doing since early 2011. We know what we're doing and, after all of those years, we are now building our first industrial process for the chemical recycling. As we move towards the years to 2030, in Europe, as you rightly said, the regulation coming in very quickly. Initially, the regulation was all about circular and waste plastic. Within time, Europe has been moved into becoming a little bit more aggressive because they would be flooded by very cheap material from the Far East, and that destroy, literally putting challenges the chemical industry there.
Now we see that Europe becomes more really clear about making sure that some recyclable content will get involved in this cheap material. That will help the industry, the local industry. Finally, as you can see all around the world, many territories in the world are looking or seeking more for energy independence. In Europe particular, any activity in-house that will reuse material is assistant to the energy dependent. In that sense, Peter, I feel we are in a perfect storm. We didn't plan it, of course, we came across, and the regulation coming in 2030. We've been working towards 2030 with an early machine that we could demonstrate on early 2028, but it feels like almost a perfect storm for us, where all of these factors are combined together right now and give us a perfect opportunity to dominate and showcase the technology.
Why now is just for all of those reasons. We are hungry and ready to showcase our technology, and on the other hand, it feels like the territories are coming together to actually bite and look into such technologies that could make a difference.
Well, let's touch on the technology itself. It'd be great if you could explain, for generalist investors keeping that in mind, in plain terms, how the technology works, the role water plays, and why avoiding external hydrogen matters so much relative to the conventional pyrolysis.
Yeah. Also, when we talk about pyrolysis, conventional pyrolysis is basically the legacy technology that is used for chemical recycling across the world. It was the main approach in the last 10, 15 years to break down plastic. Conventional pyrolysis has some challenges, mainly about sensitivity to contamination, ability to produce more oil rather than other petroleum products such as gas or diesel. If you want to create the goal really in circularity is to create as much as oil as you can from your waste plastic, and that oil is moved later and mixed with virgin oil to create material in a big machine called naphtha cracker, which produce the building blocks for actually new plastic. That's kind of the concept of circularity. Pyrolysis is challenged by all of those items that I mentioned.
In addition, all the oils, 100% of the oils in pyrolysis would require some form of hydrogenation. So hydrogenation is a big no-no to the environment. You may have heard of blue hydrogen, green hydrogen, brown hydrogen. Society basically in hydrocarbon processing is a junkie of hydrogen usage, basically. Dismantling the need to take hydrogen on board is a big ticket item because now it means that your system does not require to be near the form or source of hydrogen, for example, and you have reduced capital costs and all of those benefits. Plus, compared to pyrolysis, if you make more oil and less gas, then you already have an advantage. All of those challenges that I just mentioned now in pyrolysis are combined to advantages in the HCT.
In our technology, we operate at a lower temperature mode, we have much higher yield, we produce much more oil, the oil is quality and does not require hydrogenation. Here we have really strong benefits that could adjust to the waste plastic market. Waste plastic in general is very challenging. You have to collect it, you have to sort it, you have to clean it, you have to invest a lot of resources before you do something with it. A technology that can live in a little bit more freedom actually has a huge advantage there, and this is what we do. The concept of technology or the genesis of technology was born somewhere in our understanding that in heavy oil, for example, the metals that are associated and are built in the heavy oil could act as a catalyst.
Together with some hydrogen donors such as glycerol and ethanol or other material of such, we are creating an environment where we do very selective chemical deconstruction of bonding or carbon bond scissioning. If you compare it to the general approach, which is a heat-motivated base, then you just burn everything out and you get something that is very complex and needs cleaning and requires hydrogen. That in return, our technology in return turns to what we call a platform because now we identify different catalysts, for example, to do chemical recycling, and we identify different catalysts to work and operate on renewable oils and paraffinic crude. Over the years, we turn that approach to different technologies and sectors, basically, and it is a big advantage compared to what the legacy technologies have been doing for the last 100 years.
It is very rare to find technology such as Aduro in our market to this day. The technology itself has been challenged many times. Now it is on us right now to build the first commercial system.
You mentioned earlier the moat, Ofer.
Yes.
What makes Aduro's moat difficult to replicate, and where do you see the clearest structural advantages historically and also today?
Yeah. We feel the moat is very strong. To this day, we have about 11 patents. Seven of them are granted, four of them are pending, and on average, Peter, we are developing one or two patents every year. Very aggressive. For anyone outside of the market, if I would take an effort to visualize that, I can tell you that the first patent in our sector that we found is as early as 1930. We're working near very large organization that has been in this market for 100 years, and 200, say 100 or less years. We managed yet to work nearby and actually mark our fence, our proprietary fence. Over the years, in the last, as early as 2011, I haven't seen any technology that is really going head-to-head in performance.
I've seen pilot technologies that are less, has more challenges to work, but we haven't seen anything like what Aduro has been doing. We feel, and everyone else had. The company was quiet with no social media for many years, but then the company, April 2021, becomes public and everyone could see what we've been doing, and yet nothing has come to be a comparable competitors per se. Most of them are working on the same DNA, which is a pyrolytic, some kind of a pyrolytic approach. Hence, we feel the mode of technology is very strong. Now, it's on us to turn it into a money-making machine. That's the goal. That's the dream, basically. I did not say a word about the environmental impact of it, but everything that we do in the technology has profound environmental benefit.
The fact that we do not consume hydrogen, that means nobody needs to produce hydrogen. The fact that we can do scalable system, that means we can scale it and put a unit close to some site rather than transport garbage to other site. There is so much benefit on the environment aspect of the technology, and right now, as the pilot is operating, we are, as we promised, engaging an organization to mark those benefits and to bring them out, by the way, as an additional point for our discussion.
Right. Regarding those pilot plant results, your first published operating campaign ran continuously on recovered polypropylene for close to two days and you reported that the liquid yield came in at the upper end of what you really had estimated. What did that campaign teach you about the process, and what are you looking to prove in longer duration campaigns ahead?
Yeah. We build the pilot to, it is called the next generation. We call it the next generation process. We build it to take it to the extreme and then to optimize it. Over the last six to eight months, we have been working day and night to understand, first of all, the process, if we correct in the way we design it. Then we start applying certain rules and, let us say, process parameters to understand where the benefits and where we challenge the process and what required. We find, and we found a lot of things that we need to work on one hand, but we also find significant a lot of benefits. For example, we found over the operating of the pilot that our chemistry is very stable. We have to deal with the recovery system, and we have to deal with maybe the feeding system.
But whenever we work on the pilot, we see great results in terms of yield and conversion, which effectively means that our assessment are right in that sense. Our goals right now is to continue and work. If you start when you are turning on the pilot to run for an hour or two hours, you let it move to 40, 20 and 40 hours. Our goal now is to move it to extend it to 70 and 80 hours, and then to be able to mix polymers, and then to be able to stretch the conditions, and later to. Ultimately, we want to bring the pilot to operate on a, I will say, clear, what we call waste product, and that requires some more work and optimization. But throughout this process until now, we see fantastic results that are produced from the pilot.
It's come with work that we need to do. Maybe that pump needs some attention, or the pipeline needs some attention or valves. But overall, we have high confidence that we are in the right direction with where the pilot is heading. We generate so much knowledge to this day to develop our industrial unit, and we are very aggressively. It gives us a lot of comfort level where we are today that we could actually move on an industrial unit fairly quickly, which we told investor that we will do.
Okay. That's great. Moving on to your first of a kind plant at Chemelot, that's moved from site selection into project delivery, right?
Yes.
With the permitting contractor engaged in Saipem selected for early works engineering, where does that project stand today, and what are the main gating items between here and construction?
Building an industrial process is somewhat of a complicated process. There is many projects in line. You have to submit permits. You have to put inside the buildings. You have to design the buildings. You have to make sure that your design is operating and working. Then you have to combine it all and hire a contractor to build it all for you. We're in the midst of all of that. We started those things already a year and a half ago when we were thinking. Site selection was part of it. We landed on Chemelot, the site that we would know that has a lot of services in this site that we thought is appropriate for us to move on. Basically, Chemelot is one of the largest industrial parks in Europe.
It's a chemical hub where you have customers, you have service provider, you have organization vendors that can help you. For our first of a kind, it was an appropriate place to land because we could see all of that. Plus, our plot, specific plot in Chemelot, is also designed to scale up. Our intention is, of course, to put the first unit. Just to give the people, your audience numbers, a commercial unit normally for our peers would be anywhere between 100,000- 200,000 tons per year. Our first commercial unit, we consider it to be at around 25,000 tons a year with gross margin of about 50%. We will build our first of a kind to be almost half of it, which is about 10,000 tons a year.
Then, as we move forward in 2028- 2029, we will look into adding another unit, which is at 15,000 tons. So we will have a commercial unit, and that will bring us to a place where we could consider how to continue in terms of the growth. We could literally grow in Chemelot to different ranges and sizes over 100,000 tons if we want. We could just monitor how we're growing and see how the regulation involve and impact, and maybe make decisions by that. We feel very confident both about our progress and for the regulation. The location for us is ideal at this point of time. I mean, it's just a place to grow from beginning to. But it's really an industrial place. You could work there industrially for the rest of your life.
The partner validation is something which is extremely critical that investors are following.
Yes.
Your partner network, very impressive, includes some of the largest names in energy and chemicals, and they pay to test your chemistry as well.
Yes.
You have since signed an offtake letter of intent and a licensing MOU with a global EPC firm. What are these counterparties ultimately evaluating with you, and how do you weigh owning and operating against licensing as you scale?
Yeah. First of all, we are very much an odd player in this market in the sense that most of the players never heard of us before. They knew pyrolysis, and that's it. We came out of the left field and surprised the market sometimes in the early of 2021 when we showcased the technology. There was a lot of interest, and this is where we built our customer engagement program. There was a lot of interest. Yes, customers potentially gave us lip service, and we only work with the guys that actually pay some bills, and we refuse to. On the other hand, we knew and we know the power of the technology.
We always say that we want to stay in contact and be near potential partners and customers, but we don't want to be too close, too hard, because we know that the market will change, we know the dynamic of the market, and we know that there is a lot of opportunities for us to jump on board. The fact that the system has so much potential, becoming a small scale to a larger scale, becoming scattered in some area and very independent to either develop in a centralized location, gives us the opportunity to make decisions, and we want it to do the best for the company. In terms of the organization that we're working, literally every organization that we've been looking at us, ask the first question, are we different from pyrolysis, from whatever it is? The answer is 100% yes.
Every organization has to take its time to understand how to migrate it to its needs, when it's appropriate to migrate to its needs. We feel that we need to service our customers rather than to force it on them. What we're doing, we develop this relationship where we always will talk to customers, and we'll let them the time, and we'll service them, but we'll give them the time because we're confident in our ability to build our own process, generate money. We're also confident in the length of time for customers to gain interest and see what we're doing and then become more adoptable, susceptible to accept a technology that they have never seen before. Again, the technology itself is very rare in this market.
We're talking about a market where for the last 100 of years, pyrolysis was literally the only solution, and now there's something that has outperformed that, so it's quite unique. We have to respect all of those angles.
We've covered a lot on plastics today, but your platform can address multiple verticals and multiple opportunities. Among those, you have the petroleum vertical.
Yes.
This is the same chemistry being applied to heavy crude, into waxy paraffinic crude. You have added dedicated leadership in a continuous flow unit for that work. How should investors think about that petroleum vertical opportunity in light of today's current climate?
It's very exciting for us. First of all, the company is diverse. For every company, for investors that think about, oh, they just do plastic recycling, and if it's not working, what do we do? The company is diverse for different sectors. Second of all, they all read the news and they see what's going on in Hormuz and everyone else, everything else, and energy independent is coming at us. Trump just signed a deal with Venezuela, and Venezuela is very heavy crude for the next 100 of years. We feel we have a lot of potential in that area to showcase our technology because it's a very basic, cheap process to do things that otherwise would cost huge amount of money. Particular in this sector, we identify paraffinic crude, waxy crude, as being one that we want to develop very quickly.
The reason being is that it was just an extension from our patent application. We identify Utah, the baseline in Utah, as an area we could develop and evolve. Just to give you some comparable number, if Canada export about 4 million barrels every day of heavy oil, diluted heavy oil, the crude production in Utah is about 200,000 bbl, 175,000 to be exact. So for us to come and make an impact in that market, it is still a lot of money for us, but we could be very dominant in this market should we do our things right. Us coming with an extension of something that we already work on, basically, the process that we have seen on paraffinic crude is cheaper and easier than the plastic application, but it is an extension of it. Example, we do not need extruders.
We just heated that paraffinic crude, and we turn waxy paraffinic crude that is required heating literally outside of the ground all the way until it reach a refinery to a conventional crude, and we add significant amount of dollars on top of that, which we will discover and disclose in the later. We see a very economic, attractive approach where we could literally sit between the producer in some kind of a terminal and to help expand the market of the crude. This is in a timing where energy independence become more and more and more talkable. The talking point about energy independence is all over the place. I think, again, we are in a very good place, and timing-wise, to expand our diverse products.
Okay, thanks for that. Let us turn to the balance sheet and your funding strategy. You closed the year with a healthy cash position and no debt, and you have raised repeatedly at progressively higher milestone-linked valuations while insiders retain a substantial stake. How does the current balance sheet kind of support that Chemelot build, and how are you thinking about the funding the build-out beyond the first plant?
Yeah. We have been very conservative on the growth, and we have been conservative, very conservative on the way we manage our money. Peter, I should say, I give credit to Mena, our CFO, that the planning of all of it has been really, really hard work as I have seen how it has been working. But generally speaking, in general terms, we plan ahead a year or two years' time before we even need the money. So right now we are cashed up. We have about almost CAD 70 million in the bank. We have everything that we need for this year, probably for the next year. So what we need to do is just go on and focus on execution in the coming times before we would require for money.
I don't say that we will never take on additional amount, but it should come in a time where we will see benefit. For example, the price of the share will be much higher, and we'll have some more, I guess, catalysts that are coming in, and we see them coming. On the management of how we manage the money, we never did a raise that is lower from the previous raise, so we're thinking about dilution very closely. We're thinking like investors. All of our raise were at a higher price, and we have about, I think, 32% of inside ownership. So we're very close and in line to how investors are thinking about those things. So those parameters are helpful for investors where we think like them about how we want to manage. Long-term thinking, take the money when you can, not when you need it.
Use it conservatively to create really high value of milestones that determine and change and help change the company. Stay away from all kind of financial instrument that can do all kind of a damage to the company in the long term and not toxic money in the short term. All of this is coming together, and we already have track record of what we'll be doing. There's no reason for us to change that management.
Okay, great. We are getting close to our time here. Maybe, Ofer, if you wanted to share some key signposts that investors should be focused on in the coming quarters.
Yeah. First of all, just to thank for investors for their time to listen to our discussion here. I do encourage them to look at the company and to do a lot of due diligence. They should look, first of all, for the history of the things. Every year, we're coming with several milestones. Every year, we work to complete them to the notch. I think that creates a little bit of trust. We are trying to work with transparency all the way, and to allow them the time to make a decision. Now, as the investors will look forward to things that to expect, they should see information regarding long runs, multiple material that will be on those runs. So in other words, not just clean material, easy material, but multiple type of feedstock that is coming into the reactor and performing to that.
They should see information coming about our progress on the Chemelot, long lead item that will come in, breaking ground and developing the building. I expect they'll see some information about the paraffinic crude, our progress on paraffinic crude. There's a lot to go from here until the end of the year and moving forward. I see there's a lot of catalysts. Of course, we try to stay. On one hand, we try to give transparency and to update on our progress. On the other hand, we really try to stay and not bullshit our investors. In other words, producing just things that we feel are necessary and worthwhile to public. That's our mentality. That's how we did it. I encourage investors to do their due diligence, but follow the story and make their decision whenever they're ready. And we'll be honest.