Welcome to the 1 Q 2023 financial results and investor update. I know we did a, you know, kind of a full year 2022, an investor presentation on April 20th. I know we've made the commitment to kind of discuss and kind of feed back to investors a lot and regularly through the year. My intention is not that we will do this monthly, obviously right on the back of the full year was the Q1. As part of that presentation, of course, we ran through a lot of information. We ran through financing, Calgary capital, Calgary economics, et c.
We decided actually this time to do an investor update because there was a wave of questions as any of you that were on the call, and you went for an hour. There were a wave of questions, some of which have come repeatedly since, which is great because the questions are coming in. We just thought we'd take this opportunity to run through some of the stuff that we did in the last call, but also to kind of add to it and give a bit of an investor update. I'm joined on the call today by Rosemary Pritchard, our CFO, and also by Trenton Kwan, who is from Kin Communications and is helping anchor today's call.
Thanks as always, to Natalie and the team at Kin for supporting us here. Carson Sedun would, of course, be here, but he got married on Sunday, so we actually gave him the week off. Trenton is ably filling in for Carson today. As you know, the results have been posted on SEDAR. The press release was issued yesterday as well. We also have the detailed design press release, which I'll cover a little bit, too. The process, as we normally have, is Rosemary will run through the financials, I'll run through the corporate update, and then today, Trenton will pull together the Q&A to do at the end.
This call, we have disabled the raising your hand app for the Q&A. The Q&A, you need to type it into the Q&A. We'll collect them, Trenton will be able to ask them at the end. Well, listen with that, let's cover financial update, and I will hand it over to Rosemary.
Thank you, Aidan. Good afternoon, everybody. Just a quick overview. At the end of Q1, we had CAD 665,000 remaining in cash, compared to CAD 1.1 million at year-end. The decrease in cash was due to the operating losses during the period, a deposit that we had to pay on the Calgary lease, money spent on equipment and patents, and our lease and loan repayments. However, this was offset by us raising CAD 625,000 in convertible debentures. In addition to the CAD 625,000 that was raised in Q1, we then closed a CAD 2.73 million non-brokered private placement subsequent to the quarter. That will be reflected in the Q2 statements, the additional CAD 2.73 million cash.
On the income statement side of things, for the first time, we have revenue. This is the first quarter that we generated revenue with about CAD 21,000 in tipping fees, and this was generated at the Empower Delta facility from asphalt shingle collection, and this is increasing each month. Moving on to expenses, we had a significant decrease in both R&D and G&A expenses, which is a direct result of cost-cutting measures being undertaken by the company to preserve capital. Comprehensive loss decreased by roughly the same amount as our expenses, which shows that these measures are working as intended. As always, detailed financial statements can be found on both our website and SEDAR. I'll now hand it back to Aidan to give us an investor update.
Thanks, Rosemary. One of the things that we're trying to do is clarify the slides now as well. You can see that we're trying to get all the financials together on one page. I mean, obviously, as we start to increase revenue and we start to do capital spend, we will talk about that, you know, in more detail as Calgary starts to get constructive. Of course, the key issue for everybody is cash on the balance sheet, and as Rosemary said, reflected in Q2 will be the CAD 2.73 million raised in the PP, which of course, as I chatted about last time, is supporting treasury through the point as we think about financing for Calgary. Okay, investor update.
This kind of covers a number of different things here. If you look at the conditional approval that was received in Q1, if you look at the long-term lease, if you look at actually the pictures on the right-hand side, this is all about the site of Calgary, you know, being developed and getting ready. It all plays into what I'll talk about in a little while, which is the detailed design. If you look at the Emissions Reduction Alberta award, if you look at the private placement we talked about, I mean, none of that is new news. We talked about that in detail at the last presentation.
Again, the reminder is to build Calgary, we need three legs of the stool, you know, that will build Calgary. Number one is Emissions Reduction Alberta. Number two is the provision of debt and kind of non-dilutive, non-dilutive funding debt. The third leg that we're working on hard is again, trying to think about project equity and other sources of non-dilutive funding. You know, all of that to say this is all about minimizing any of the kind of dilutive, you know, type equity raise at the Northstar level that we would have to do. All three of those are progressing well, and we'll kind of update the market, update the market as we go, if anything, if anything gets, obviously executed.
The third thing, and we've talked about this before, but that is the definitive offtake. The McAsphalt agreement went definitive. I mean, of course, that's absolutely essential to be able to secure debt, because it underpins the full offtake. Again, that has a certain percentage of resale capability in the contract. In the discussion on the project equity level, whether that's with Strategics or with others, we're talking about the potential for leveraging third-party sales as well as to McAsphalt. McAsphalt are completely supportive of that because that's actually part of their business model as well. The last time we talked about... We kind of ran through the Calgary facility CapEx.
I think there was a little bit of, there was kind of a lot of questions that came in back after that and kind of said, "Well, listen, will you kind of run through this again?" The high-level number, of course, is that the capital has gone from CAD 11.8 million to CAD 15 million. you know, that's you know, a CAD 3.2 million increase. I think this is, again, I'll remind you, this is a management estimate, not a independent estimate as done by BBA.
If you look at where the cost estimates have increased or where the estimate has gone up, it's kind of really outlined in the on the right-hand side here, which says the equipment cost changes are CAD 2.2 million. As I said last time, there's three things that have enabled us to both change this and change the economics, and that's all the work that we did at Delta last year. Number one, we ran Delta. Number two, we talked to customers about the Delta output, and number three, we worked with the vendors. This is working with the vendors on exactly what was happening at Delta, any inefficiencies that we're seeing, any efficiencies that we're seeing that we wanted to repeat in the Calgary facility.
As we look at the three stages of our process, all of those stages needed vendor kind of redesign and vendor cost estimate changes. Really importantly about that is the vendors are now ready to move right into detailed design, and the numbers that we have from them are firm. Whilst the number has gone up in terms of equipment, the confidence level of surety, the design has also gone up as well. That's why the contingency number at the bottom, as you can see, went from two down to 1.3 because of our surety around those figures. That equipment cost changes are all the vendor work we've done for the major pieces of equipment.
The second one down, which is scope changes, again, kind of, you know, CAD 600,000, nearly CAD 700,000. That was where when we worked with vendors and we worked with designers, we identified areas where pieces of equipment that were missing that would increase the efficiency of the system as a whole. That is the add of pieces of equipment. Customer scope changes, the next one down to CAD 500,000. That is the McAsphalt blending system. We had originally, you know, the asphalt we produced, it would go into a tank, and that's where it would stop. Because, of course, we're working with McAsphalt, who are blending their product to bring out as kind of final sales product. That's the scope that is, includes their capital.
That is also reflected in an infrastructure charge for some of the facilities in the in the offtake agreement. That kind of I guess it's kind of we put the capital in and gets repaid later, but ultimately, that's what that CAD 500 is. Other indirect charges is engineering. That's the increased scope for engineering that we will have from now to completion. USD impact is the is the $268. That's the just the CAD to USD. Reduction in contingency should actually be a negative. Oh, sorry, reduction in contingency takes it down to CAD 15 million. That's the run through it.
Of course, the majority is in equipment and minimal amount on labor and materials, a little change of indirects and contingency coming down to bring us to a level of 15. Again, you know, I would describe the level of confidence in this number as high. I think we have defined from front to back the equipment and the major pieces of equipment as the vendors have given us is, we think has got, we've got a lot more certainty of. Project economics. I mean, I'll take a quick run through this. Less questions came back on this than came back on the capital. Again, you know, this is based on Delta production experience.
It's based on kind of the fundamentals pricing that we now know because the McAsphalt contract has gone firm. It's also based on a change of asphalt yield, actually, to be more conservative, down from 25% to 22.5% of yield. When I describe how much in every shingle tile is asphalt, I always kind of say 25%. We've brought that down to 22.5% because we think that's conservative. That would have an effect of reducing the economics. As you can see, because of the operational time and pricing that's improved it overall. The most important thing, though, On the last slide, I'll talk about the kind of the blue sky here.
The most important thing is, like, we continue to believe that this is a conservative case. Number one, if you look at, you know, heavy oil, and if you look at WCS pricing, and you look at the pricing effect of asphalt, the TMX pipeline, which opens, you know, in Canada, as we know, you know, kind of towards the end of the year, or Q1 next year, I mean, that will divert heavy oil away from the U.S. Gulf Coast and away from the Midwest, to Asia for export. That will have a major effect on heavy oil pricing, and the view is that the differential for WCS will tighten.
The second thing that's happening is the Mexican refinery that's come online as well, is now diverting heavy Mexican crude away from the U.S. Gulf Coast as well, which will also have the effect of tightening the differential. The last thing is, and it's interesting, as we talk to the shingle manufacturers, one of their concerns is that hard asphalt, the asphalt that we make, or the asphalt that gets oxidized in the refinery, in their process after it's come from refining, is getting more and more scarce, especially as refineries reposition for biofuels. Refiners are always concerned about gasoline and distillate and jet. They're not that concerned about asphalt in general.
As they think about repositioning for biofuels, they're thinking about repositioning for biodiesel, for renewable aviation fuel, and for ultra-low sulfur diesel and renewable gasoline. They're not concerned about the effect on asphalt. Asphalt is kind of a, you know, fifth-order derivative of what comes through a refinery, and the shingle manufacturers are generally worried about that. These numbers are based on an operational base case of 150 tons a day. So that is essentially us running 15 tons an hour for 10 hours. Our design case is 15 tons an hour. The capacity of the system is 20 tons an hour.
If we're able to run for longer, as you see in number three, that number can obviously increase significantly from 150 tons a day. That's what the economics are run at today. We have the economics running at 10 hours a day, six days a week. As you know, the back end is a hydrocarbon back end. Like any refinery, that really wants to run 24/7. 24/7 depends on shingle supply, and it depends on availability of labor, and it depends on maintenance, et cetera. We need to run at this conservative level first before we start to expand. That's where the upside lies. We are not having a 24.
The economics of 24/7 would be so strong that the, you know, we could be significantly challenged on being able to deliver them. Let's make sure we've got a conservative case to start. The fourth thing is that, you know, this excludes carbon credit revenue, but it excludes environmental credit revenue as well from diversion from landfill. We have, of course, intend to do the work to determine exactly what that looks like, but in the commercial model for this facility, we have zero carbon credit revenue coming in. It's really important for people to think about this business as an infrastructure business, where we get paid for the feedstock, and we get paid for the product that comes out the back end. This is not dependent on carbon credits.
It's not dependent on environmental credits. That provides upside for on both cases. The last thing is, you know, the conservative municipal landfill fees. I mean, we've seen in Delta that Metro Vancouver has gone from CAD 122 a ton to CAD 132 a ton. Sorry, CAD 120 a ton to CAD 132 a ton in the last two years. Municipal tipping fees are under pressure. They will continue to rise. Municipalities do not want shingles in their landfill. GTA, the majority of the shingles that are due to go into GTA landfills are being landfilled in Michigan. They're being transported by 18-wheelers to Michigan for landfilling there.
Just to be absolutely clear, we think that that has upside with respect to pressure from landfill. All of the five on the right-hand side are not reflected in the model. One of the things that actually we get a chunk of questions, and we got a chunk after we ran through the economics the last time, and that was, how does this all fit together with volumes and revenue streams, and how does that all fit together? If you look at the right-hand side of the slide, 100% of shingles come in, get split up.
Of course, I've just contradicted myself with the liquid asphalt is in here at 25% and not 22.5%, but if you assume at a high level, that 25% of the output is liquid asphalt, 50% is aggregate, and 25% is fiber. If you look at the left-hand side for the, for the tipping fees, for the input, for that 100% of asphalt shingles, our revenue split is about 36%. For the products coming out the back end, the revenue split is about 64%, and of that 64%, 95% is asphalt, about 4% is aggregate, and 1% is fiber. That's not to say that fiber and aggregate are not important.
They are, because if, you know, if you look at the side, that's 75% of the volume of the facility. The key underpinning value for this facility is the liquid asphalt, and that's why we focused in. In every facility, that's why we focus in essentially on their long-term asphalt agreement as the underpinner of the economics. That's why the McAsphalt agreement with respect to Calgary is absolutely essential. It's essential for the underpinning of the economics. It's essential because of there's risk management built into it, and it's essential for debt provision because it's secure. One of the other things that I felt was worth doing is Delta has started collecting. First quarter of revenue ever reported by the company, of a massive CAD 21,000 .
One of the things that, again, that Delta has been able to do with this is being able to demonstrate or be able to show us what we expect in Calgary and all, and all the rest of the Canadian municipalities as to what we can expect in terms of what is coming in. What's coming in, as we are seeing now, is the majority of the shingles that we're getting are fiberglass. I mean, probably greater than 95% are fiberglass. That suggests that we have designed this facility to run on paper, which is the toughest thing to process. Running on fiberglass, we believe, is easier. The U.S. would probably be 99.9% fiberglass. They switched from paper way before, way before Canada.
This is very representative of what we expect to see. Of that 100% of the tons coming in, about 9% of it is waste. Of that 9%, 3% is wood and metal, so it's recyclable, and we actually get, you know, we get value for recycling that, and 6% of the amount that we're bringing in is kind of actual waste. This is kind of in line with where we expected the collection to be, but at least it gives us a bit of an update as to what to expect. Of course, the way to address any of this Sorry, is to work with the collectors to say, "Well, guys, we really don't want wood. We really don't want metal.
We really don't want waste. Can you give us the loads as clean as you possibly can?" This is a good result from the start of the process, because this is just the start of the process where people bring us whatever's in the bin, and we're having to sort it. Ultimately, where you want to get to with each one of these facilities is you have educated bin haulers and providers who take that 6% number down and minimize any additional stuff that we've got. One of the PRs this recently was around detailed engineering. So we're basically ready to go into detailed engineering. So we've chatted about the vendor testing, and that's now reflected in the capital estimate.
One of the inefficiencies that we had identified through the operation of Delta, and again, goes back to the learning that we had through the operation of Delta, was the mixing system. That's the system after the sand separation that was not running as efficiently as we wanted it to. That has been redesigned. Sorry, inefficiencies designed out. That is being redesigned. Coanda, as we outlined in the, it's a division of Tetra Tech, they're a leading kind of engineering design firm, and that's designed out and is ready to go into detailed engineering.
The other thing that we are doing is we will also build a kind of a Delta style testing system to be put into Delta so that we can run it from front to back before we go into detailed design to prove out that redesign that Coanda has given us. The Coanda design goes into detailed design, so that's great.
We are going to test it, we're not going to test the design principles, but we're going to test it to make sure that when we set up the operational parameters for Calgary, that we have experience of running the system, in exactly the same way we have experience of running the back-end system, exactly the same way that we've got experience of running the front-end system, and we're running it front to back. Sorry, I said the mixing system design. The mixing system is the back-end system that takes our asphalt and mixes it with the McAsphalt product to provide the final sales product. This is McAsphalt's expertise, of course, they have.
They're working with us on the detailed design of the system. That's essentially a approved, a proven operation and ready to go. As you can see at the bottom, the site work has already commenced. Debris and topsoil is off, grading and compacting is started, and then we're going to be bringing in the granular material, paving the parking lot, and starting to install some of the foundations with respect to the path.
All, and again, that's not you know, we've already paid the lease deposit, but the lease payments start in the middle of the year here, but that's all landlord capital that is being spent, that is part of our part of our lease rate. One of the other questions we've got since the last presentation was, "Hey, there seem to be lots of people announcing, you know, competition for you guys, like GAF and IKO have started a plant, and what are Owens Corning doing, and like, is your technology falling behind?" I wanted to paint a little bit of a perspective as to how big this problem is.
The Asphalt Roofing Manufacturers Association, they came out with their goals that said they want to divert 50% of all shingles that are going to landfill by 2035, and 100% by 2050. If there was no other technology, just Northstar's technology, and we solved this with Northstar plants only, by 2035, we would have to build 206 facilities and 412 by 2050. I think we're a very capable company, and I think we can deploy resources very well to build these facilities, but even I think that 206 plants by 2035 is a bit of a stretch. This market is absolutely huge, and whenever you hear major companies talking about technology development, the assumption should not be that they have ruled us out.
All of the people that are coming out with technology development, we're talking to as well. They may have a different technology solution than we have, but that's fine because it's going to need a number of different technologies to solve this problem. The question is, where are they in their development cycle? A number of these technologies that have been announced are two or three years behind us in terms of development cycle, and we can either be complementary to that company or we can run in parallel. The other thing I would say, if you read the announcements carefully, it's often partial processing. They are partially processing the recycled shingle to put it back into the mix.
Yes, it could work, nobody today is splitting the products into their individual component parts, since you essentially have refinery asphalt that's harder, but harder, that comes out of our process or fiberglass or sand. That's my kind of 10,000 foot level, and that is, number one, we welcome it. Number two, it shows that given the ARMA strategy statement, it needs a number of different solutions. Number three, we continue to believe we're the only people that can split it into the individual component parts. Of course, we have the patent for the first step of that from the patent box. Actually, if you look at that number by 2035, to reach the ARMA goals, we need 2,006.
Here's the last slide, which is my blue sky slide. If we build Calgary in 2024, Toronto and potentially the Pacific Northwest, or a plant that we have a U.S. partner for, that switches somewhere else from the Pacific Northwest and those three in 2025. From 2026 on, we think we can build three plants a year. We think we can likely license two plants a year. For licensing, we've been asked a number of different questions about licensing in these calls. Licensing, we think we probably need three-five plants world that we have built ourselves, such that we have the technology that is mature enough to give a licensee comfort, but it will be exactly the same as the Northstar plants.
As we've said, these are modular. They look exactly the same. All the construction will be done using BBA as the engineering company. They'll be the anchor engineer. All the data will go back into BBA, as we've talked about their setup to do process optimization for us. If we need to change pump three out across the fleet, that's what they will sign up for from a licensing perspective. That's as we think about markets that, you know, we wouldn't necessarily go to, or markets can be deployed in more quickly. If you look to the far right of that slide, that gets us to 31 facilities by 2030.
A hell of a lot shyer than the 208 by 2035 that we would need to be on track for the market diversion. But we think that's a real realistic figure.
Just to be clear, you know, if you think about, if you think about that from a, the perspective of what that would generate, the, you know, the facilities alone, from the Northstar perspective, you know, take that, you know, CAD 18 million and multiply it by, you know, the 5.3, and you're getting to a very, very healthy EBITDA from a Northstar facility, and that's even ignoring the licensing fees that are coming from the 13 plants above. I would say, in summary, the takeaways from this is, Number one, we're ready for detailed design. You know, the delta from the delta testing, from the land perspective, from the design and the redesign, we're looking good. Number two, the funding is progressing well.
Number three, the economics remain strong with a chunk of upside. Number four, not only is the market huge, but, you know, kind of very strong growth trajectory, potential for Northstar. Trenton, I think I'm going to hand it over to you for questions. I think that's me done.
Excellent. Thanks, Aidan. First question here. Are you planning on completing Calgary and having it be fully operational before taking steps forward on a greater Toronto area facility or a Pacific Northwest facility? Would you look at running multiple builds concurrently?
That's a great question, actually. The way I see this running is I think we start detailed design in Calgary, you know, kind of August, September this year. I think with the build program, we will be completed and running by the middle of next year. I think we would likely be up to almost full capacity or full capacity in plan by the end of Q3. I think at that point in time, in Q4, we need to look at the detailed design for the next facility, such that we're ready to start constructing at the beginning of 2025.
To be able to do that, you also need to be able to permit the land, of course, given the success that we've had with ERA, we would want to be talking to, you know, provincial government, back to federal government, talking to provincial governments and state governments in the U.S. to see if there's any, if there's any, you know, government support, whether grants or, you know, available. What that actually means from my perspective, is that we could likely have catalyst by the end of this year, whereby we've secured offtake agreements and potential land to start the permitting process and to start the kind of the government engagement funding process through 2024. We would essentially be doing that as we build Calgary. Calgary gets built, gets up and operating.
We do the look back at the. Okay, was that the right pump? Any issues with this around commissioning? What did we have to change out? Was there anything that we learned such that we're ready for construction in 2025? I think we should, we would expect to construct both the U.S. plant and Toronto together. I think we will parallel build, but we would have to have them fully permitted and financed by the end of next year.
Excellent. Thank you. second question here. How are you thinking about carbon credits, and would you be looking to monetize them in the future?
Yeah, I mean, a little bit. Yes, but I think there's a broader so actually two things. I mean, we believe, of course, with our 60% reduction versus base case, that we have carbon credits will be generated by our facility. Of course, you need to make sure the measurement's in place, run the facility first, and you also need to make sure that you've ratified the base case criteria for measurement and you've got to do that ratification. Secondly, as you saw from the McAsphalt comment in the press release for the agreement, they also believe that the use of our product in their process is a significant carbon saving too.
With customers, the McAsphalt agreement is a good example whereby we've agreed to share any carbon benefit with customers and ring-fence that in the contract. I mean, maybe not every customer would agree with that, but that's the principle that we want to engage in. We want to share in the benefit that we generate from our facility and they generate from their process. Not any energy savings, but the carbon savings. I think the second thing is that there may also be upside with respect to environmental credits, and that's the credit that arises from diversion from landfill.
Look, all of those sound a bit fluffy, but what we need to do is by the middle of next year, as we start to think about Calgary or get to Calgary emission, we already asked at the beginning of the year, we need to work with all our customers on ring-fencing, what that protocol looks like and how we do it. Realistically, I think in our revenue model, we would expect to see those appear. It takes a good 18 months to land this stuff. I think realistically, we will have that at the end of 25 as a potential revenue stream. We also need to work with our customers to do that. I mean, these are multi-billion dollar companies that have got carbon that have got global carbon programs.
So that's why we are working with these companies who are under the ESG pressure, but also, you know, carbon measurement and carbon trading and carbon offset e-environment. They are very skilled in helping us with this process, and that's what we need to do. I would say certainly, you know, end of 2025 before we see any dollars appear from them.
Excellent. Our last question here, how can I support what Northstar is doing?
Well, Trenton, I know you live in Vancouver, it also depends who's asking the question. If you lived in Calgary, I would say, tell all your friends that if they're thinking of getting their roof re-roofed, that not to do it till September, then talk to their contractor and make sure they're sending it to Northstar. We expect the site to be open for collection in September. If you live in Calgary, we would like those shingles immediately. If you live in Toronto, tell your friends not to do the roof this summer or next summer, but the summer after.
That's exactly when we, when we want you to re-roof and get your contractors to bring their to bring the shingles to us. Vancouver is open today. Trenton, if you're gonna get that mansion you live in re-roofed, make sure to tell your contractor to bring us the shingles.
Absolutely. With that, brings us to a close. Aidan, I'll turn it back over to you, so for closing remarks.
Excellent. Listen, thanks again for everybody joining. Ken, as always, thanks for the support. Yeah, we promise we will try not to do an investor call within the next 30 days, unless, of course, there's something to report. Yeah, we're charging on here towards, you know, getting Calgary funded and built. Yeah, hopefully, that'll be the next time we're coming back to you to tell you what that all looks like. Excellent. Thanks, all.