We're good? All right, just gonna leave that bit there for a second, 'cause for whatever reason, it's falling off. Okay. Good morning, everybody, we're back. Michael Hoffman, Group Head, Diversified Industrial Research. My colleague, who's taking over all of this coverage on Monday when I retire, Brian Butler. It's my pleasure to welcome on the stage, PureCycle Technologies. We have their Chief Executive Officer, Dustin Olson, and their Chief Financial Officer, Jaime Vasquez . Thank you both for being here. We really appreciate it.
Thanks for having us. Yeah, good to be back.
Gonna drive, dive right into the deep end.
Let's do it. Yeah.
Is Ironton up and running days at a time at a good utilization rate?
Yeah, we had an 8-K a couple of days ago, where we gave an update on the Ironton facility. We had an outage in April, where we addressed a lot of nagging reliability items that prevented us from hitting continuous operations. So our official position was, we were able to establish good technology proof, semi-continuous operations, but because of some of the issues inside the plant, we couldn't establish continuous, so we'd be up and down quite a lot. During the outage, we addressed over 100 items. I mean, that's lots and lots of items. Some big, some small, and since the outage, we've been able to establish continuous operation.
So days at a time?
Days at a time.
Before, you were at hours at a time.
No, no, days at a time. I mean, we have we're getting better in a lot of different areas, okay? So a new technology, scaling it up, making sure the tech components work properly, that's step one. Step two is all the details. So you can have lots of little things that can give you headaches from time to time, which, in the past, has given us some high variability on reliability, but we've addressed a lot of those. And we're also getting better as a team. So, as an organization, we went from running the small pilot plant to now running this big commercial plant, and getting used to starting the extruders, starting the pelletizer, running the equipment, getting comfortable with the unit operations, and knowing how to address different situations. We're much better at that now.
From our perspective, like, our team is doing a really good job running the facility. They're working through normal operational things, and we're running days at a time now.
Okay, so we're not here to pick on you. I mean, it's been a tough year.
Yep.
You went into a start-up mode a little over a year ago, and there's been fits and starts. You've been in the plant-building, operating game for a long time. How do you feel about the quality of the physical asset at this point? I don't think we're arguing about the process. I think, I think we've proven you can do what you're supposed. You can take post-consumer, post-industrial, dissolve it, extract out the impurities, re-extrude it. We can do that. I think we've agreed on that. How do you feel about this facility, this plant, and its reliability at this point? You've got decades of experience. Where's your view on that?
I think that anybody who has run into a new technology start-up before recognizes every single new thing that you do creates a new learning opportunity. People who have run existing facilities, and they walk from one existing facility to the next, I think one of the things they underestimate is how many problems have been solved in the past that they don't have to think about anymore.
Cause somebody else experienced.
Because somebody else.
20 years ago, solved it, and now they're, they're doing it. Right.
Okay, so I think that our team has showed an amazing ability to solve problems, find, fix, and solve problems quickly. We, we've had a tough year getting started. We've had a couple of significant issues that we had to work with: the adsorbent bead issue, the seal issues that we've had in the past. But we've worked through a lot of those reliability issues, and now we're on to operating the facility. And I think that what you'll see from the outage in April to where we go in the future, we've got we, we've made some really nice gains in reliability, and we're gonna start seeing it in the numbers, the production rates, and our ability to run the facility more effectively.
Okay, we'll push on this a little harder, cause what you answered part of the question, not the whole question, which is, again, I don't dispute that you, as an operator, have pulled together a team who can learn how to go through all of the nuances of working a control room and the equipment and what have you. I'm back to t he equipment is fine.
The equipment's fine. Okay.
Okay, we didn't take shortcuts on buying cheap equipment. We have good, state-of-the-art, quality equipment in the facility. The issue has been integrating all the equipment together, learning how that equipment will run at scale, and then also training up so we can handle it.
Okay. So the market has been starving a little bit for, you know, some data points on a recurring basis. And we'll not rehash the strategy of whether you tell people something this, now, when, and wherever. But from this point forward, you, I'm hearing you say you believe you're in a point of consistency, where you could produce a recurring dialogue about that consistency.
Yeah. Yeah, I absolutely believe that. I think that we've demonstrated, since we started up from the outage, our ability to run consistently.
Okay.
Okay? Whether or not we communicate to the market on a real-time basis, or a weekly basis, or a monthly basis, or every quarter basis, that's an area that we're navigating to find the right balance on. You know-
But more importantly, you probably are gonna have, and Jaime, you were gonna jump in there. I'll let, No, please do, but it's, and my assumption is you're gonna have a lot more data, which you would be glad to be able to share because the consistency supports you have something to talk about.
Yeah, I agree with that. I think that the, like, if you look at the overall arc of our company the last 2-3 years, we've had build the plant, we've had commission the plant, and now we have run the plant and sell the product.
Right.
Okay? We're exiting phase two and moving into phase three, and I think that the data that will be generated from all of those activities will be easier and more normal to show to the market.
Okay. You've had a host of offtake agreements in place. What's your message to that customer base about your ability to supply them a consistent level of volume then? What are you saying to them?
We say the same thing that we just said a moment ago, that we've-
So they'll start getting shipments. Basically, the message to them is, "You should prepare to start taking shipments.
Yeah, that's right. I mean, we are actively working with our customer base, our existing customers, as well as new customers that we've started to develop since we've operated, in order to get the commercial product approved at scale so they can start taking it, from the commercial plant. We've also, let's say, moved into areas that are currently very underserved. I mean, we've found that we've had success now in producing both film and fiber, and that's important, because film and fiber, by nature of the product, are very thin, and so that means that any contaminants that you have in those products.
So you're talking about starting with as a feedstock, film and fiber?
No, no, I'm talking about a s a product for customers.
Okay.
The recycle market currently does not serve the film and fiber market very well. and that represents about 40% of the global demand.
Right.
Because by nature of the recycled product, they are not removing contaminants. So with the PureCycle process to dissolve and take out the co-product one and the co-product two, it gives us the ability to remove those contaminants, which means its ability to work in film and fiber applications is much higher. So that's an example of a lane that we are moving into that's currently very underserved by the recycle market.
This is an offtake conversation.
This is an offtake conversation that we're having that's beyond the original customers that we discussed.
Right.
That is a wide open lane for us to get into. So we are not only discussing our, with our current customers on the product that we're making and when they can take it, we're also starting to branch into lanes that are currently even more underserved by the recycling market.
Okay. Go ahead.
I was just gonna ask, on those underserved piece, is that gonna require another step in testing? I mean, have you gotten product out to the film, you know, customers, and have they been able to kind of test it, or are we still waiting to get more volume out of the Ironton before you can get that testing kind of run through?
I think all of that is true. We've done, on the film side specifically, we've done a lot of work internally at our research facility in Durham, where we've tested and made film. We're continuing to work that to improve the overall application. On the fiber side, which is equally important, we showcased this at our Ironton Showcase a couple of months ago, where we've had rugs made, comforters made, like textiles made with our product, that feels good, looks good, smells good, and runs good, at their facility. And so we're starting to see various stages of opportunity start to emerge in both film and fiber. But it will still take testing and approvals and work with those customers to get there.
Okay.
Right. One other conversation about the plant, cause the press release on Monday did say, tell that you hadn't run post-consumer with high polyethylene PET.
Right.
What's the process there to validate the CP2, co-product two offtake?
Yeah, so the one of the big constraints that we had leading into the outage was our ability to recover and remove co-product two from the process. We had a technical glitch in the original design. Based on some of the things that we learned during the outage, we were able to accelerate a improvement project so we could start to recover more co-product two post-outage faster than what we thought we were going to be able to do. We are purposefully running a low co-product two feed right now to test all of the other improvements that we implemented during the process, get stable, get continuous, get into the routine operations of running the plant, which we've been pretty successful at the last few weeks.
And then we will gradually increase the amount of co-product two that's in our feed so that then we can test the co-product two system to see if we've successfully improved its capacity. The math on that is pretty simple. The more co-product two that you can take out, the better the product quality, but also the more feedstocks you're going to be able to run in the facility.
Right.
So if we can buy a feed that's 99.9% polypropylene, that's low co-product two, pretty easy to put through the facility. If you need to run a product that has 10% or 15% co-product two, then you have to have the ability to remove it from the process, and that's where we were bottlenecked. So we've implemented projects to alleviate that. We're excited about it, we're very optimistic about it, but we're not in that phase of testing yet, because we're still running some off some of the low co-product two feed.
Just to be clear to the room, you were actually being able to strip it out of.
Yeah
The solvent. It was the material handling process of moving it through.
Yeah, that, that's a good distinction. I mean, one, one of the proof points for our technology is, are you successful at removing and recovering and removing co-product one and co-product two? Co-product one is like a waxy, light molecular weight polypropylene that we take out. Co-product two is everything else, the solids, the calcium carbonates, the titanium dioxides, the PET, the PE, things like that. If you're able to remove both of those contaminants, then by definition, you are improving the product that you're making, because you'll have, you'll have product that doesn't have those contaminants in it. Our issue was not in the ability to make co-product two, our issue was in the ability of removing the co-product two from the system.
We had this big level of Co-product two in our vessel, and we were having a hard time getting the system to work at high enough capacity to remove it out.
Yeah.
Those are things that we fixed during the outage.
Yeah. I mean, and if we were sitting in this room with a whiteboard, and I draw this big rectangle, I'd have feedstock coming in on the left a t the top, I'd have an offtake, which is co-product one, and on the bottom I'd have an offtake for co-product two, and out the right side, I'd be coming out with your ultrapure polypropylene and then I'd go into the extruder. The issue wasn't that in the middle of the rectangle where all that separation's happening. It's that once it went into the material handling to pull it out and then keep it flowing out.
That's right.
That it was a mechanical issue, not a
It was a batch operation. It was highly mechanical.
Yeah.
What we've done is we've implemented a project that allows us to automate it and make it continuous as well.
Okay. All right.
But we haven't tested that yet.
You haven't tested it yet.
Over the next two to four weeks, we'll be in the process of testing that, and that'll probably be more opportunities for discussions with the market on where we stand.
But it shouldn't be less than anybody that you then turn the plant back on and got to 50% utilization on multiple days, which you had not done prior to this.
Yeah. I mean, we're, we're very excited about where we are. I mean-
Yeah, multiple days is a big deal.
It's a big deal.
Okay.
We've been able to run for multiple days, keep the plant running, keep it going, get familiar with what it's like to run the plant on a day in, day out, shift changeover basis, and make consistent products. So we've been, we've been very happy with the way the plant's responded.
Okay.
And some of the things that we put in place enable that to happen. I mean, we have several projects I can think of off the top of my head, that if we hadn't done that, we would have trouble. But because we've done it now, we're able to run continuous, and we weren't before.
Okay. Jaime, are we running out of money?
No. We're in a pretty good position. You know, we ended the quarter with about $25 million in cash on the balance sheet. In beginning of May, we sold another $30 million of the revenue bonds. And I think as, you know, we continue to show.
This is the bonds you retired, you've been able to turn around and reissue.
Right.
Right.
Right.
Okay.
So we-
Without any of the constraints
Basically put them into Treasury w e didn't retire them. So we have the opportunity to resell those bonds. I think to Dustin's point, as we continue to show that the operations can run for days at a time, we'll have more opportunities to remarket those bonds and raise additional liquidity. We still have about $155 million of bonds left to sell into the market.
Okay. Clearly, they were reissued without any of the constraints that the previous issuance had in them.
Yeah.
Yeah.
We stripped out a lot of things that were in the indenture.
Yeah.
As we go to sell them to a broader public market, we know things will come back into the indenture.
Right.
It'll be a balancing act in terms of price we want to get versus covenants that we made sure.
Sure. But you're not, I mean, just to be clear, you got hamstrung. You all inherited this, I get it, but you got hamstrung by all those terms and conditions in the previous indenture, so you're limiting the risk of that happening to you again.
Yeah, absolutely.
Okay.
I mean, they were onerous, some of the milestones that had to be put in.
Yeah.
You know, as Dustin said before, it really took away our ability to run the plant the way we wanted to run it, so when you had a problem, to spend the downtime to find the right solutions-
Yeah, there were arbitrary milestones-
T hat just made you do weird things. I think that's a really key point.
I mean, the milestones that were in the original bond documentation, they were there, we were dealing with them, we were attempting to get them, but it was driving us to do some things that maybe we would've done differently if they weren't there to begin with.
Right.
So instead of chasing rates or arbitrary, you know, you know, you know, milestones, we should have been chasing to learn how to run the plant better and more reliably.
Right.
If we had done that, we might be a little bit further ahead than what we are now, but, but, but by owning the bonds, having them in Treasury, now we're able to do, make the right decisions about how to run the plant in a methodical, you know, commissioning way.
So, you've had several, you can't control this, big power outages in the region. And, you know, a little less than a year ago, it created an enormous problem, 'cause you ended up with a three-week downtime fixing issues. That's where you've identified the seal thing, blah, blah, blah. Is there a solution to creating your own permanent power, you don't get taken down, and this is start creating this disruption? Cause we got a utility infrastructure problem here that you're getting stuck with.
Yeah, so I think a couple of, let's say, keynote things. One, the first time it happened, took a lot longer to recover from than this time.
Yeah.
Okay? So the procedures that we put in place last time helped us do better this time. That's full stop. And I would say that's a calling card for our organization. We learn, we get better every single day. So we do that all the time, and we did it here as well. It didn't do what we wanted completely. We implemented numerous projects to help protect some critical pieces of equipment, and like, just to put a number on it, 5 of 6 worked, one didn't. And so the one that didn't, now we're studying, like, why didn't that work? What do we have from a reliability perspective, what can we do? And we are working to fix that now. From a power outage perspective, the thing about this facility is it is supplied from two different locations.
It is, it does have the ability to automatically transfer between one or the other if one drops.
And you have your own substation, right?
We have a substation which we are part of.
Yeah.
It's with our neighbor, but there's a substation there. But the storms that came through the area were these big, wicked storms that came through the Midwest with straight line winds and lots of heavy wind and heavy problems, and both lines went down at the same time, okay? Now, we're not done yet. We're actually evaluating a project inside the plant today to see if we can re-optimize our on-site generation to reprioritize some circuits over others. That's a process that we're in the middle of right now. But what we are committed to improving reliability every day. This is an example of one that we did improve on, but we've got to do more, and we're actively working to improve that.
Right.
The issue, we'll not be able to stop periodic power outages, but the plant actually behaves really well during a power outage. When we lose power, the plant is okay, so long as you protect a couple of pieces of equipment.
Right.
If you protect those pieces of equipment, you can recover from a power outage pretty quickly, which actually is a very good sign for our facility. But we've got to do better on the reliability on those components, which we're gonna do.
Okay. Can we talk about feedstock?
Sure.
How critical is it that you have a meaningful post-consumer polypropylene versus—there's an enormous amount of post-industrial. But how critical is it to get your hands on post-consumer?
I think the market is so woefully undersupplied for recycled material. Honestly, I don't think it matters.
With the feedstock.
T hat much, the mix between PIR and PCR.
So the customer is not saying, "I wanna get back.
The customer would prefer PCR over PIR, but the market is so underserved that what they really want is good quality PIR and PCR. So our ability to remove contaminants out of both PIR and PCR make it a product that's easier for them to use in their facility, and therefore, I don't think that the mix between the two is all that important.
So, the other statement on this is, so there's some fairly large aggregators of post-consumer polypropylene are beginning to explore their own optionality around those, and therefore, this volume wouldn't end up available to you, and they're probably the two largest aggregators of this in the U.S. So if that volume was not available, that's not a critical issue. There's enough volume elsewhere.
Since we started up and we've been in the market purchasing feed, have not seen a constraint on feedstock.
Okay.
Okay, I would say that the PureCycle technology is going to create an improved lane for those aggregators to put their material. I think that when we build it, more of that will come. Okay, I just think there hasn't been a good outlet for consistent use of polypropylene recycle in the feed streams because there's limited applications that it can be used in, and I think the PureCycle process cleans it in a way that's differential to the market, and I think it will draw more feed into the market as opposed to shrink the overall supply.
Yeah, so I wouldn't dispute parts of those things. I do think that there's potentially 800-1,000-1,000,000 tons of post-consumer polypropylene that might come out of the market 'cause they're doing their own thing with it.
Yeah, but doing their own thing might be sorting it to a higher quality so they can sell a higher quality bale.
Yeah, yeah.
That's fine. But they're I don't mind the big aggregators putting capital in the ground to go sort and make higher quality bales because we'll buy it. We'll use it, and we'll purify it, and we'll sell it to our customers at a premium because it's a higher quality product.
Okay.
So I think that the work that's being done, like, I don't think PureCycle necessarily needs to be there to get the aggregators to put the money into the market to make the high-quality number five bales. That's happening naturally. I think PureCycle will help, but that doesn't bother me at all. The more that companies do that, the more feed we'll have available to us to go buy, purify, and sell to the market with a no-compromise product that consumers can use easier than they can use other products.
Right.
Right. PureCycle also has the ability to take higher contaminated feedstocks than what might be... You know, you don't necessarily need to be buying the ultra-purified, recycled stuff from an aggregator. I mean, you're still able to go and take, you know, lower quality or higher contaminant, you know, feedstock that you could process through the facility, assuming the CP2 issue is addressed.
The reason that PureCycle has such a enormous potential in front of us is because we have a technology that purifies feed at the molecular level. Okay, we wash the molecule, and when we wash the molecule and take those contaminants out, we then have a purer product to supply to the market than what other, others do. So our technology has the capability to take harder feeds, more contaminated feeds, or feeds that other people can't use because they're not doing the fundamental washing of the molecule. I think that's a really key differentiator that we bring to the market with our technology.
You know, once our technology is accepted by the market as proven, and our plant in Ironton is up and running properly, I think that the path in front of us is so big that a lot of people will start paying more attention.
So Jaime, have you started any conversations to sort of getting them sort of back in the dialogue with the project finance market so that as this gets to a place where you now start thinking about the next phases of Augusta? Have any of that conversation.
Yeah, we have ongoing conversations with the DOE. We're really at a point where now the due diligence is focused on Ironton to have Ironton prove out. And, then I think we move along in that process.
So what does that marketplace need to see to be willing to finance Augusta, start to get Augusta financing, where you're getting reasonable pricing? It's single digit.
Yeah
Cost of capital, not double-digit cost of capital.
Yeah. You know, they're gonna wanna see a history, and how you define that history, we're, we're not sure yet. But they're gonna wanna see a history of some continuous operations at Ironton.
Right.
And then I think once they see that, then the due diligence process moves along in a normal timeframe.
Okay. Would you anticipate having enough of that history that you could see yourself in those markets later in 2024, or is that a 2025 event?
I would hope it's gonna be a 2024 event.
Yeah. Okay. And then where's the Augusta Economic Development Authority's sort of relationship with you in context of what you're supposed to be doing there? 'Cause you had a bunch of milestones there, some of which you met, but there's others that.
Yeah, no, I think we're in a really good place with the EDA. We have an ongoing dialogue with them. They know where we are. We are continuing to progress the project. Remember, we changed direction with our EPC earlier this year. We've partnered now with Kellogg Brown and Root, KBR, a tier one EPC, that will help deliver us, let's say, just an overall better project portfolio to the market at lower CapEx and on time, better, you know, better predictable operations on our projects, okay? So we've been in the process of working with them to redefine what we wanna do with our projects going forward. And so that process is actually happening right now. We've done some site work.
We continue to receive material that we've purchased on long lead at our facility in Beaumont, and we're ready to start building that, yeah, at any point. So I think that-
The plan is still to do the purification unit first, and then.
So the overall project for Augusta has a feed component with prep, as well as a purification component, and both would move at the same time.
Right.
I mean, both would move consistently or concurrently.
And what's the status of the relationship or the litigation with the old EPC company, I mean?
So, I'd rather, Not settled yet. It's an ongoing issue that we're not gonna talk about publicly.
Okay. But it's not settled yet, so it's still lingering.
Yeah.
I need to pull on that string a little bit, but it's like, what needs to happen to get to a settlement, other than just somebody blinking and going, "Here,
We're just... that discussion is not impacting what we do on a day-to-day basis. It's an ongoing litigation matter that we're just not gonna talk about publicly.
Okay. But it's not constraining capital access to funds either?
It's not, it's not impacting our day-to-day business at all.
Okay.
Yeah.
Okay. All right. When you get to 2Q, when you report 2Q, what should the market expect to hear from you?
Well, I'm not, I'm not gonna forecast what will happen in the future. But I think that consistent with what we said in the Q, in the last earnings packet, is, our goal is to get the plant started up, running, on a continuous basis so we can start posting, let's say, production numbers to the market. So I think that we continue along that path this quarter, which we've been successful. We just activated a couple of days ago. I think you'll see a progression of that throughout the quarter.
Okay, and your intention is to do that sort of in early August, which means you basically have another 60 days to do a bunch of things that could be quite informative with regards to the status, capacity, performance over that 60 days.
Testing the different reliability improvement projects, testing the legs on the plant to see what we can do. I think that's all in play. And we're going to do it in a methodical way that addresses the fundamentals of the plant operation, so we can continue to do it reliably. But look, like we've said before, we're very optimistic about the way the plant is running right now.
We're very excited about the learning that our team has done to get to where they're established and able to run the facility, and we have a team that's really good at solving problems and moving to the next thing. I mean, at the end of the day, there have been some hiccups along the way. Some of them were m ost of them were tech-related that we had to solve, but we solved them. We got past it. And so now we're just onto the next thing and the next thing, and the problems continue to get smaller and smaller, which means that the production will get better and better.
All right. Well, we're at the end of our time. I wish you luck. We do need to have.