Good morning and afternoon. My name is Sylvie, I will be your conference operator today. At this time, I would like to welcome everyone to the Cielo Waste Solutions Q3 2023 financial results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star then number one on your telephone keypad, and if you would like to withdraw your question, please press star then number two. Thank you. I would like to turn the call over to Mr. Ryan Jackson, Chief Executive Officer, and Ms. Jasdeep Dhaliwal, Chief Financial Officer of Cielo Waste Solutions. Please go ahead.
Thanks, Sylvie, and good morning, everyone, or good afternoon, depending on where you're at. Yesterday, of course, Cielo did release its financial results for both the 3 and 9 months ended January 31st, 2022. We did obviously release copies of the unaudited interim financial statement and the related management discussion and analysis as well, on all information can be found on SEDAR.com. This is Jasdeep's show today, so we're gonna turn it straight over to her, and she'll be able to provide you with some financial highlights as well as a couple of operational tidbits as well.
Thank you, Ryan. Good morning, everyone. Thank you for joining us for today's call. Very excited to share the financial results for the period ended January 31st, 2023, but also very excited to provide subsequent updates as of yesterday as well. Let's start with the numbers, which is the most important piece in relation to the financials. As per our PR, our total assets at January 31st were CAD 31 million, total liabilities CAD 19 million, and total non-current liabilities CAD 9.9 million. Working capital was negative CAD 5.2 million, and in the three-month ended, we had financing costs of CAD 620K, G&A of CAD 1.1 million, research and development.
Research and development of CAD 442K, and share-based compensation of CAD 143K. As often, shareholders and stakeholders have questions throughout the quarter, especially subsequent to a PR. We make note of those questions and let individuals know that we will be covering them on a public platform to ensure there's the risk of selective disclosure is addressed. In my sharing of some of the significant transactions, I have incorporated some of those FAQs, we can call them. The first question that was coming our way was distillate sales.
In the past, in January, sorry, February 2022, we had completed distillate sales, and the questions from investors were, "How come we're not seeing these on the financials?" The reason for that is our revenue is not consistent in reoccurring because we are still a pre-production, pre-revenue company. It sits in the financial statements in other income, other revenue line. We did complete distillate sales, again, as PRs in December 2022, 80,000 liters, and that is in the financial sitting in the other income and expenses line. The other item that was completed as a significant transaction was the board approved a retention strategy for key employees and for management for the CEO, CFO position.
Important thing to note in this retention strategy is the CEO, CFO options will not vest, that were granted, do not vest until certain milestones have been met. The key milestones is preparation, engineering design, construction design for the first full-scale facility. Those are the major transactions we can speak to in the last quarter. Ongoing at this time was also the R&D facility. As previously mentioned, the R&D facility we can refer to as the micro-refinery or the scaled-down version of the full-scale Aldersyde facility that existed. This allowed us to improve our CapEx and really work with parameters in our input, reaction, output, the input being the feedstock, the reaction is how it reacts with our catalyst and other pieces, and then the output is going to be distillate, as previously disclosed by Mr. Ryan Carruthers, our EVP.
The focus of the R&D facility is not to create diesel. We've established in October 2021, we can take distillate using our desulfurization unit, produce diesel. The purpose of this R&D facility is to improve input, reaction, output. To optimize it as much as possible to get the economic data. We're starting with biomass, as previously mentioned, moving into railroad ties. It is my pleasure to let everyone know that the R&D facility did arrive at the Aldersyde location. It is currently being commissioned, and we're very excited for the results. Mr. Ryan Carruthers, Brian Graham, and the rest of the team are very working tirelessly to commission this facility. To Ryan Jackson and I, we just thought you'd plug it in, turn the lights on, but clearly, there's a little bit more work to do, and we understand that.
Subsequent to year-end. That was the most important piece that I'm sure everyone wanted to learn more about. The other piece, which is very exciting for us from a financial or corporate standpoint, is we had an opportunity to convert our loan. We had a CAD 4.5 million loan, which was called the existing loan in the financial statements. This was converted from debt to shares with our lenders, FCF. The purpose of this is the loan was due in September 2023. It was a current liability. There was an opportunity here to convert that into shares. The lender was willing to, and interested in reinvesting that in the company through the share issuance instead of wanting a cash repayment.
For us, that was a vote of confidence, and we appreciate FCF's continuing support in that realm. The key important piece on a qualitative level here with this transaction, we had a few questions on this, is where was Aldersyde and where was Fort Saskatchewan held for security? For loan 1, which was referred to as existing loan, and loan 2, which was referred to the financials as the new loan. Both of them held Fort Saskatchewan and Aldersyde as security. As part of, due to debt for shares conversion, Aldersyde was released from loan 1 and loan 2, and only Fort Saskatchewan is held as security for loan 2. This ties into the next exciting piece, which is, Cielo intends to sell the land for Fort Saskatchewan.
This was also included in the financial statements in our MD&A disclosure that the board has approved this transaction. Further to that, ongoing has also been our strategy has been to minimize corporate spend, continue to focus on providing Mr. Ryan Carruthers, Jason Giles, and Brian Graham the resources they need to execute on this R&D facility and ongoing testing of railroad ties. It's important to note that we do have a two-prong approach. One approach is the R&D facility. We will be testing biomass, railroad ties, because they're both wood derived, so that's considered part of one trial. Subsequent to that, the innovation line continues in Aldersyde, the R&D facility. What we have going at the same time is progressing on construction for the Dunmore Medicine Hat facility, which will be our first full-scale facility.
Ongoing conversations are occurring with CP Rail and working through planning ahead for Aldersyde and for Dunmore Medicine Hat as well. As far as, giving an operational update and a financial piece, that sums it up at my end. Ryan, anything further at your end?
No, I think Jasdeep, thanks for that. Just as a further mention with respect to the expected listing price for the Fort Saskatchewan property, the listing price will be CAD 17,499,000. This price was arrived at through consultation with the listing agent that we have engaged to sell the property. That was the number that we came to through a combination of both a cap rate calculation for an existing lease income and also the bare land that abuts the property.
I actually would also like to add one additional piece. We had disclosed in December that Crestmont Investments out of New York is working through doing due diligence. Very excited with how things are progressing on that front. Initially, the transaction was a debt placement, so a convertible debenture, where they were gonna lend us funds that would be converted to shares. Subsequently, looking at how the due diligence is progressing, this was converted into an equity investment, because it is our assumption and conversations we've had that Cielo has a strong future ahead of itself. We're still working through the tail end of that due diligence, very excited for our partners, potential partners, at Crestmont. Just wanted to add that piece, Ryan, as well.
Yeah. Thanks, Jasdeep. Sylvie, I think we're ready for Q&A.
Thank you. Ladies and gentlemen, if you would like to ask a question, please press star followed by 1 on your touch-tone phone. You will then hear a 3-tone prompt acknowledging your request. If you would like to withdraw from the question queue, please press star followed by 2. We ask that if you're using a speakerphone to please lift the handset before you press any keys. Please go ahead and press star 1 now if you have any questions. Your first question will be from Gary Deppor, investor. Please go ahead, sir.
Good morning. First of all, I just want to commend, I guess, the team of Ryan, and Jasdeep. I've been a shareholder, as you know, for a while now, and I just want to congratulate you on restoring credibility slowly. There's still a lot of work to go, obviously, I think you guys are starting to hit milestones and delivering on what you say you're going to deliver. I think that's a very positive trend that I'm starting to see. I just wanted to give you that as an opening comment. Also, I wanna thank you for providing some additional color around the Fort Saskatchewan. It would appear, thank you, Jasdeep, for confirming there's no more liens or encumbrances on Aldersyde.
If we are able to get the list price of around CAD 17 million-CAD 17.4 million, whatever it is, it looks like there should be approximately five and a half to six million dollars, net of additional cash proceeds after extinguishing the CAD 11 million mortgage. I guess my first question is, am I correct on my math on that?
Thanks, Gary. Yeah, that's exactly where we would land with respect to the equity that exists on the property if we get that kind of money for it.
Okay. Excellent. Ryan, I've got a question for you, as the CEO. You know, as you know, obviously Jasdeep, you know, prepares the financial statements and they have to be audited as a public company, and it's really an objective third party review of, you know, of those statements, and it gives credibility obviously to the numbers, et cetera. I guess the one piece that's sort of hanging out there, unfortunately, it's because of what's happened in the past, we're all hoping for success, obviously for Ryan Carruthers and his team.
Would you, as a CEO, sort of permit a third party, let's say a shareholder-funded third party, to objectively review once you get your results from, let's say, the railroad ties or the pen shavings or, you know, subsequent to come in obviously under NDA and just be able to state, just like KPMG does, that the process, the sort of the chemistry, the process, the results, et cetera, are credible and there's confidence to these results? I'm looking at it almost like an audited process by a third party to objectively give more credibility to those numbers and the results that come out. Would you, as CEO, sanction something like that?
Thanks for the question, Gary. Of course, there's ongoing due diligence that's happening on the third-party engineering review through the Crestmont due diligence as an example. We're certainly under the same scrutiny as it relates to going forward with any investment that we seek. I think that the one thing that I would keep in mind. We're certainly not afraid to have any sort of third-party validation. That's why we engaged in the due diligence with the engineering firm that Crestmont is engaged with. We're mindful of IP protection and ensuring that we do have the ability to protect that IP. Certainly not afraid to have any interested third party as it relates to some sort of a deal that would be undertaken by Cielo to complete.
We certainly would be mindful of the fact that we would have to protect that intellectual property and not have it. You know, we're not saying, "Trust us, it works." We have the benefit of a number of third parties that have already reviewed, including the engineering design of the SKIA. I guess it's, we already are doing it, and we can provide what we can in the way of that validation publicly when we are asked for it. We just have to be mindful of the intellectual property that we have and the ability to protect it.
No, I Ryan, I absolutely hear what you're saying, and I'm not asking to have the secret sauce revealed by any stretch.
Okay.
I was thinking more that somebody just like the KPMG, they don't get into every single one of Jasdeep's accounts. They're gonna do testing on various things, and they obviously have a, from a materiality standpoint, say, "Yeah, we believe that the process that's been followed on the financial preparation of statements is, you know, materially correct," et cetera, et cetera. My thought was, could you have a third party come in, review the process? Not so much... I'm not asking for the secret sauce. Just say...
No.
they followed good quality production, chemistry, et cetera. The results, we have confidence that the results that they're sharing with the public, not with just private investors who are putting money in, are credible. I think that would help shareholders, retail shareholders and potentially new shareholders to the corporation, you know, just have that extra degree of confidence that what you're stating is correct. Unfortunately, it's because of stuff that's happened in the past, you're still living with that legacy. That was my-
Yeah.
the genesis of my question.
We're certainly not afraid to have that validation happen.
how it happens, I guess, would be. Yeah, no, we're very confident with whomever it would be that would adjudicate that and wouldn't be afraid to engage with any third party that would have questions around the validation. It would just be the engagement itself and how that would be structured, as I mentioned earlier.
Okay. Fair enough. That's great, Ryan. Thank you so much for answering that question.
Thank you, Beth.
Next question will be from Rob Pauli at Kendall Legal. Please go ahead.
Good morning. I was just wondering if I get some background information in regards to the pickup of the R&D facility. Prior to getting possession of it, was Cielo there to see it running? Was there any testing done, wood chips or what have you, just to see that it works? Just a little update in regards to what took place prior to possession.
Thanks for the question, Rob. Obviously there's a chain of custody from what our fabricator, RJ, down to the facility in Aldersyde. As Jasdeep alluded to it earlier, it's not as simple as plugging it in to see if it works before we take delivery. There's a significant multi-stage process to commissioning, and that's exactly the reason why we go through that process, which RJ is also involved with. A number of checks and balances are done from the fabrication side, but it all comes back to the commissioning and the testing that happens once we get the control systems in place.
All of the wiring that has to be done, the connections from the fluid standpoint as well, pressure checks, none of that can be done at the fabrication facility, unfortunately.
All right. Thank you for your answer.
You bet.
Thank you. As a reminder, ladies and gentlemen, if you would like to ask a question, please press star followed by one on your touchtone phone. Your next question will be from Brandon Cutler, Investor. Please go ahead, sir.
Hello, Brandon? No one's on the phone.
Actually, Gary has been moved up, so there'll be a follow-up from Gary.
Oh, okay.
No, Operator. I don't have a subsequent question right now.
Okay. Thank you.
Hello?
We will now go to Brandon. Please go ahead.
Hi, good afternoon. Can you hear me?
Yep, we're good.
I just was hoping to ask about the due diligence with Crestmont. Would you say that you're very confident that it'll be completed in the near future? Based on previous releases, I had thought the due diligence would be completed by now.
Yep. Thanks for that question, Brandon. We are very confident. We're in constant communication with Crestmont. As these things always happen. The deeper one gets into this, of course, we all want it to happen quicker than it than it does. There has been nothing that we've come across that would dissuade us from thinking that there's there's not going to be an opportunity to close with Crestmont.
Thank you very much, Ryan. If I could just ask one follow-up question. It's just about the commissioning of the R&D facility. Am I correct that once as part of the commissioning, the company will start to process pen shavings and biomass right away because you have that approval, while you're awaiting the EPEA approval for testing railway ties, you'll be processing the pen shavings and the biomass in the meantime. Is that correct?
The way that we had press released it initially was to have the railroad ties and pen shavings inside the trial. The wood biomass will be the targeted first biomass to be tested as a part of the commissioning. It's now called the EPA, for those of you playing at home. It's Environment and Protected Areas. I guess they wanted to sound like the United States for some reason, but it is now called the EPA. Yes, we're still waiting that approval with respect to the railroad tie trial, et cetera. We're back and forth with them and have an open line of communication working through that process still.
Thank you very much, Ryan. Appreciate your responses.
No problem, Brandon.
Next question will be from William Wong, investor. Please go ahead.
Good morning. My question, I'm sorry, I pushed the wrong button, was answered up on the EPA approval for the rail ties. Ryan, do you have any, I guess, foresight on when that approval will happen?
You know what, Brandon, or sorry, William, I wish I could answer that. It's one of those things where, you know, the wheels of government turn at their own pace. We're just simply here to make sure that whatever questions they have or any responses we get, that we turn them around in a very timely manner. The expected timeline that we had initially released was back in July when we applied. There's been an ongoing part of the process. Yeah, it's difficult to say, it's difficult to predict. I'm not even gonna try and guess.
Okay. Thank you very much.
All right. My pleasure.
Thank you.
Next question will be from Anthony George, investor. Please go ahead.
Hi, guys. Thank you for the update. My question is on two things. One, you mentioned that you will not be producing diesel, which makes sense. The distillate, will that be saleable?
Yep. Yeah, it'll be, it'll be saleable, Anthony. We're going to be producing at a smaller rate, obviously, given the size of the skid that's in the R&D facility. There will be an ongoing amount of production that we will have the ability to sell.
Oh, okay. Follow-up to that, is the test run for the biomass, is that still on schedule for 30 days? I think that's what I saw in your prospectus back in June.
We're working through the commissioning at this point right now, and the expectation is that we complete commissioning by the end of March.
Okay. No, no, I meant after the commissioning and you start up, is it a 30-day run cycle for-
Yes, it is. Yes.
Yeah. Okay.
That's correct.
On the EPEA, I. Yeah, they're totally trying to sound American. Anyways. On the EPEA, is it requirement for every different feedstock?
Yes. Yes, it is. The, the level of application with respect to that is certainly something that is a lot of work and a lot of detail. That's part of that whole process, is being able to provide lab results around the expected air quality or the air, what happens if we put things into the air. There's an incineration piece as well. There's a lot of things that go into the application for each type of waste that we're looking to test.
Okay. One final question. what Gary had asked prior, I understand where he's coming from, but I also believe that it's sort of standard practice that whenever any company, regardless mining company or anything else, finds or has a product that they need to sell, they all would get independent third party validation. That would depend on the certification of the third party, like the lab that is testing it, and they would put their stamp of approval on it. I'm assuming that was sort of already on the drawing board, that once you get your results, you send it, have somebody analyze it and put their engineering stamp on it, an independent third body. Correct?
Yep, that is correct. Not only from the process and the production aspect, but also the end product quality has to go through laboratory testing as it relates to content of the diesel to ensure it meets spec, whether it be highway grade, marine grade or other, or the Sustainable Aviation Fuel that we would have to provide that independent third party lab analysis for our customers for. Absolutely, right from the start to the finish.
Perfect. Great. Thank you.
You're welcome.
Thank you. Next is a follow-up from Brandon Cutler. Please go ahead.
Thank you. I just have a question. In Canada here, March 28th, we have the federal budget coming out. I understand from what I hear in the news that it's gonna focus on clean energy. I'm just wondering, armed with the data that's gonna be coming from the R&D facility, do you think that Cielo is gonna be in a position to benefit from, say, tax credits or other opportunities, in terms of the, like, you know, opportunities for investment from the federal government? Do you think that the R&D facility will allow Cielo to benefit from that?
Thank you for the question, Brandon. I can take this one. We believe at this time those opportunities are there, but we have to be mindful that a lot of, based on our research, the focus of a lot of these, not the tax credits, but the government funding is for a full scale. The closer we get to that, the more access to looking at the criteria we will have to that funding. Yes, we will be keeping an eye on that budget, and we will be assessing where Cielo fits in as well. Appreciate that question.
Thank you very much, Jasdeep.
You're welcome, Brandon. Have a great day.
Thank you. Next question will be from Carmen Calderaro, Investor. Please go ahead.
Hi, everyone. Just wanna quick follow-up on the Dunmore. Is that gonna be the Cielo's full investment, or will that be partnership with the previous, like, 10 facilities that you had signed the agreement with? Is that still on schedule? I remember the last time that you guys were saying that you were still negotiating or they wanted to tweak something on the original contract that you guys had. Just wanna see where you guys stand with that, with the other, that next facility and the next 10 facilities with them.
Yeah. No, it's still ongoing. First of all, first part of the question is, yes, the Dunmore/Medicine Hat facility is going to be our first full-scale facility that is essentially tied to, no pun intended, the railroad tie processing that we've agreed to with CP Rail. Subsequent to that, the structure of the financial, the financing of the facility is currently held with an MOU with Renewable U. The other part of that would be a contemplated partnership structure or JV, depending on how you wanna slice and dice. It's, it's around tax advice and some of the other things that we're going through at the moment to understand fully what that looks like from a structural standpoint. That is the current agreement that we have in place, and that's how we're gonna proceed.
Okay, great. they are in line, so you guys can move ahead once the research and development is, if it proves successful, that we can move ahead with this full scale, rather quickly instead of trying to like, you know, go through all the red tape?
Yes.
Financing and stuff? Okay.
Yep.
Thank you.
You bet.
Thank you. Next is a follow-up from Gary Deppor. Please go ahead.
Thank you. Ryan, I watched your interview with Lethbridge News the other day. One of the questions that came up was about the feedstock, and I guess the consistency in quality. I'm thinking about plastics, obviously, you know, going a little bit down the road here, and hopefully we get to a successful trials with railway ties and then rubber, et cetera. How would you ensure in Canada that, A, you're getting. You know, I would imagine the chemistry is that a PET1 plastic is not the same as a 2 or a 4 or a 5, and they're all different. As well as just the cleanliness of getting the inputs into the system. Can you maybe shed a little bit of light on the how that would work?
That's clearly gonna be a bit problematic. While there's a lot of plastic out there, it's in various shapes and forms.
Yeah. It's, and of course, as you know, I'm just the business guy, Gary. To speculate, I guess, would be a little bit of a difficult thing for me to do. I did say on the interview that it is still kind of, especially in Canada, there's a Single-use Plastics ban, as you know, that's come into place.
Mm-hmm.
It has already hit me where it hurts by not having my spill stopper on my Starbucks drink in drive-through. That one bothered me. Besides that, we're working through exactly what that looks like in the trial. Let's table that with the expectation that we will have an answer to how we're able to separate the seven different kinds of... Seven or eight? seven different kinds of plastics, I think, as it relates to it. Then, of course, deciding how we're able to engage with a party that wants to pay us to take it, to dispose of and create a fuel from it.
Right. Okay. I guess the same. I know, I think Ryan Carruthers may be on the call. I guess the same thing sort of applies. I'm thinking about tires. There's obviously a lot of tires that are disposed of each year. I guess my question was: How do you get the steel belts out of a tire that could feed your process? You know, I don't expect an answer here, but it's also just the waste feedstock is not pure. There's always some contamination in it before it gets into your process, correct?
Yep, that's correct. Part of the rubber conversations that have been had, and Ryan Carruthers, unfortunately, he's on the road this week, so he's not on the call. Really big magnets is typically the answer that we're hearing as it relates to getting the steel belts out of certain parts of the rubber tires. To that point, the rubber tires are certainly a lot more consistent in their makeup than would be the plastics, as an example.
Okay. Thank you.
Thank you. At this time, Mr. Jackson, Ms. Dhaliwal, we have no other questions registered. Please proceed with closing remarks.
All right. Jasdeep, do you wanna start? I always call her Jazz.
Of course. Thank you everyone for your continuing support. We've been dealing with really creating a vision for Cielo. As we look at these quarterly financials for Q3, we get even more excited for where Q4 is headed, and year-end is around the corner, April thirtieth. We look forward to connecting with you with further exciting news come sometime in June. Thank you again for your continued support. Ryan, back to you.
Thanks, Jasdeep. I wanna throw out, clearly there's a lot more people that are behind this company and both from a shareholder, stakeholder and management and employees and those that we've just hired to start ramping up in Aldersyde and everything else. I'd be remiss, first of all, to not thank Jasdeep and her team for putting together what has been a much stronger financial picture moving forward. We'll only continue to build on that momentum. Also thank you to everyone who made the call today and have the questions. We're always excited to answer any questions you might have. You can email us at investors@cielows.com, or of course, hit us up on the website.
We'll be adding a lot of these questions that were today onto our website going forward so that there's a constant updating of the questions and the things that we receive as an interest to everybody else. Thanks again, everyone. Sylvie, back to you.
Thank you.
Thanks, everybody.
Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. At this time, we do ask that you please disconnect your lines.