Renounceable Entitlement offer and Company Update
Environmental Clean Technologies Limited (ASX: ECT) (ECT or Company) is pleased to provide the following update regarding the following related topics:
- Advancing the Corporate Strategy; funding of the proposed Coldry plant upgrade
- Status of the investigation into the fire incident on Monday 21 October 2019
- Request to exit Voluntary Suspension, effective immediately
Advancing the Corporate Strategy
On 4 September 2019 the Company released its updated Corporate Strategy, outlining efforts over the past 8 months aimed at developing near-term operational cash-flows in parallel to proposed large-scale projects in India, the Latrobe Valley and other regions.
The first tier of the strategy aims to leverage the Company’s existing Coldry High Volume Test Facility (HVTF) northwest of Melbourne to build upon the demand in the local market for solid fuel and char products. Proposed upgrades to the plant will target an increase in Coldry capacity from ~15,000 to ~25,000+ tonnes per annum in addition to the integration of a char production unit, providing access to higher-value markets with potential revenue of AU$6M+ (the “Bacchus Marsh Project”).
Over the past 6 weeks the Company has focused on engineering, design and procurement planning as well as market development, refining the project budget and developing the execution plan for the delivery of the proposed upgrades.
The next milestone for the Bacchus Marsh Project, ahead of construction, is financial close which requires the establishment of funding, currently estimated between AU$3.0M and AU$4.0M. The key difference between these numbers being the pending decision to either install a new boiler system with electricity co-generation or a second-hand system without electricity co-generation. The upper end of the budget range also includes new laboratory facilities, workshop and a larger contingency allocation.
As such, the Company is pleased to announce the following offer of new shares (ECT) under a renounceable entitlement offer with free attaching options (ECTOD) to raise a minimum of AU$2.75M and up to AU$7.45M.
The proceeds will primarily be used to fund the Bacchus Marsh Project, including the working capital required to complete commissioning and commence full production, in addition to clearing all debts, except the Brevet R&D facility (which is intended to be settled from the R&D rebate which is expected to be finalised in the coming weeks). Upon reaching minimum subscription, ~AU$1.6M of debt will be converted to equity under signed pre-commitments to the offer. Where subscription shortfall is available, shares will be issued in settlement of the debt to the lenders on the same terms as the offer. Where no shortfall is available (full subscription) the debt may be paid in cash or settled by shares issued as a placement.
Further, the Company requested a Trading Halt (21 Oct 2019) and subsequent Voluntary Suspension (23 Oct 2019) following a fire at its Coldry facility in the early hours of Monday 21 October 2019.
Given the potential impact on the proposed upgrades and plant operations a suspension was requested to allow the Company to assess the full extent of the damage, the likely downtime, viability of and timeframes for the remediation and repair program, the likely cause of the fire, insurance coverage and financial impact due to loss of revenue and/or assets.
The Company confirmed via an announcement yesterday (28 Oct 2019) that assessments by both the fire authority and insurance investigator has been largely completed. While investigator reports are not yet finalised, it appears that an electrical fault may be the cause.
The repair and replacement of fire damaged equipment is currently estimated at around AU$2 – $2.5 million. A detailed engineering assessment is underway as to the specific break down of costings and is expected to be completed within coming weeks.
The Company is working closely with the insurer, and whilst the insurer’s final assessment is yet to be completed, the Company is confident that core components of the plant, associated product and remediation costs are comprehensively covered in the relevant policies.
Importantly, the damage appears to be focused in the smaller of the two Coldry buildings leaving the Coldry Packed Bed Dryer and boiler system undamaged. No damage occurred to the Matmor, HydroMOR or COHgen equipment.
ECT Chairman Mr Glenn Fozard commented, “Whilst this fire has caused disruption to the production of Coldry pellets for our steam and boiler business, we have been able to find replacement fuels for our existing customer allowing us to continue the operations of their steam facility. Potential new customers reliant on Coldry have been advised that deliveries will likely be affected for approximately six months.”
Following the completion of the engineering assessment and conclusion to the claims process, the repair work will be incorporated into the proposed upgrade program.
Subject to the outcome of the above funding activity, the Company intends to implement the upgrade program in tandem with the repairs.
The Company provides the below overview of the attached Prospectus, recently lodged with ASIC, and looks forward to providing further updates on the combined repair and upgrade activities in due course.
Chairman Glenn Fozard commented, “The entitlement issue is being offered to all shareholders first and foremost ahead of debt providers and new investors. The pricing of the offer with the free attaching options is very attractive for those that take up the offer and so we encourage all existing shareholders to take up their rights. Our lead manager, CPS Capital, has been very supportive in the development of this offer and will continue this support through the offer period and into managing any shortfall should any remain.”
The Company requests the current voluntary suspension be lifted, effective immediately.
Funding Cashflow-positive Initiatives
Summary of New Shares issue
- The issue of new shares (ASX:ECT) (New Shares) at an issue price of 0.1 cents to eligible shareholders.
- The offer is on a renounceable pro rata basis to Eligible Shareholders on the basis of 1.55 New Shares for every 1 Existing Share held as at the Record Date.
- Eligible shareholders may take up their entitlement to the New Shares. Eligible shareholders may apply for additional New Shares via a shortfall application.
- The New Shares issue is not extended to persons with registered addresses outside of Australia and New Zealand.
- If all New Shares are subscribed for, the maximum amount of funds that may be raised by the Company is approximately AU$7.45 million (less associated costs and expenses).
- The Offer under this Prospectus is conditional on the Company receiving subscriptions for a minimum amount of AU$2.75 million, including the amounts received by the Company from subscriptions for New Shares under the Entitlement Offer and Shortfall Offer.
- The net proceeds raised from
the issue of the New Shares will be applied to:
- Generation of commercial revenue targeted to improve the Company’s operational earnings;
- Establish the capital infrastructure base to increase scale and provide access to additional markets; and
- Working capital.
- The Company has received pre-commitments from certain Lenders, which are binding upon reaching minimum subscription, for a total (up to) 1,587,501,000 New Shares (AU$1.59M).
Summary of New Options issue
- The issue of free attaching Options (ECTOD) (New Options) to Eligible Shareholders on a one (1) for three (3) basis for no consideration.
- The New Options issue is not extended to persons with registered addresses outside of Australia and New Zealand.
- A New Option entitles the holder to exercise the new Option for a fully paid ordinary share (ASX:ECT) in ECT at an exercise price of 0.3 cents and expire on the date which is 3 years after issue date
- No monies will be raised from the New Options issue. If all New Options are exercised, the maximum amount of funds that may be raised by the Company is approximately AU$7.45 million (less associated costs and expenses). The net proceeds raised from the exercise of the New Options will be applied to the commercialisation of the Company’s technologies, fund ongoing research and development and provide working capital to meet operational expenses
- New Options will be issued to Eligible Shareholders, being persons who take up their Entitlement and who may also receive New Shares under a Shortfall Application.
Support for the Offer
The Directors have arranged for various forms of support for the Offer. Pre-commitments to subscribe for 1,587,501,000 (AU$1.59 million) New Shares have been received by the Company from certain of its lenders. Under the pre-commitments, the lenders have agreed to subscribe for New Shares and attaching New Options if available under the Shortfall Offer. The Company’s liabilities will be reduced by issuing New Shares (with New Options attached) to these lenders, should the Entitlement Offer not be fully subscribed. If the Entitlement Offer is fully subscribed, the debt may be paid in cash or settled by shares issued as a placement.
Char Project and Coldry Capacity Improvements
Earnings target: $2-3 million p.a. EBITDA
Cashflow target timeframe: 12 months
Consistent with tier-1 of the corporate strategy, the Company recently announced (9 October 2019) the proposed upgrades to its Coldry HVTF targeted at:
- Generating earnings of up to AU$2-3M pa from the facility
- Underpinning the market feasibility of a larger, more efficient and economical Coldry plant
- Further developing commercial aspects of the facility
The attached Prospectus seeks to raise funds for the implementation of the upgrades, estimated at AU$3.
ECT is presently operating in the utility heat and steam market, with specific focus on the supply, financing, installation, servicing, and operation of multi-feedstock systems up to 20MW.
Generating current revenues of ~AU$300,000 pa with an objective to grow towards AU$1,000,000 pa over the coming 12 months, this market consists of a broad range of businesses including abattoirs, milk processors, food manufacturers and timber processors that require heat or steam for their operations.
ECT has assessed a range of markets for potential Coldry sales, with the char market emerging as the most attractive due to a diversity of applications including:
- Char feedstock to BBQ briquettes
- Carburiser for the steel industry
- Soil conditioner for the agricultural sector
ECT will initially focus off-take marketing efforts on the BBQ briquette market and is in active discussion with off-take parties.
The upgrade works aim to deliver the following commercial capability:
- Char and syngas production, utilising Coldry pellets via vertical integration with upgrading plant
- Cost reduction via surplus energy utilisation and improved process assembly
- Scalability via the upgrade of site infrastructure and utilities providing scope for future commercial activities.
This next phase of development at the Coldry HVTF aims to increase capacity to 25,000 tonnes per annum, with the following sales and revenue targets:
The target timeline to reach full production, subject to funding and insurance outcomes, is November 2020:
The upgrade program will also establish the final plant capacity which may exceed 35,000 tonnes per annum, thus giving potential upside to the economics of this plant as described above.
The Board recommends that you read this Prospectus in full and consider the above information. The Board is focused on creating shareholder value through the advancement of its corporate strategy and believes the issue of New Shares and Options will promote this endeavour.
For further information, contact:
Glenn Fozard – Chairman [email protected]