EDITOR: | March 16th, 2021 | 6 Comments

Cielo is Turning Garbage into Liquid Gold

| March 16, 2021 | 6 Comments
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Yesterday, Cielo Waste Solutions Corp. (CSE: CMC | OTCQB: CWSFF | FSE: C36), a waste to renewable fuel company, announced a C$4 million increase to a previously announced C$10 million convertible loan facility to fund the Company’s expansion plans. The amended agreement brings the total convertible loan to C$14 million.

Cielo’s patent-pending technology converts landfill garbage into renewable high-grade diesel used in transport trucks and kerosene used for aviation jet and marine fuel.

After 16 years and C$75 million in research and development, and now a fully functional plant, Cielo is currently riding the “green wave” of investor interest in environmental tech, and the stock price has responded accordingly, up over 1,100% year-to-date.

Convertible Loan Fuels Expansion Plans

On March 3, Cielo announced it has entered into a binding letter of intent to obtain a non-interest bearing, unsecured convertible loan of C$10 Million.

The initial C$10 million would be used to purchase a site near Edmonton, Alberta for the Company’s new, 100%-owned, waste to renewable fuel facility, and repay Cielo’s largest secured lender, which is currently owed approximately C$3.8 million.

The Edmonton plant marks the beginning of Cielo’s expansion plans. Don Allan, President and CEO of Cielo, commented, “We are truly happy to be able to announce that we are commencing a 100% owned Cielo facility ahead of schedule. We have selected the area for the new facility and will start immediately on negotiating the purchase.”

The technology is currently operational at its Aldersyde facility, 25 km south of Calgary, Alberta, where wood waste is converted into renewable fuels. The net proceeds of the additional C$4 million are earmarked to double the production at the Aldersyde facility from 1,000 litres-per-hour (lph) to 2,000 lph and for engineering work on the new Edmonton facility.

Once the land deal is closed, Cielo will focus on its options to raise the C$50 million required to complete the construction of the new Edmonton facility. Cielo is also continuing to work on the Dunmore facility, near Medicine Hat, Alberta, where it is in the process of building a facility with its joint-venture (JV) partner Renewable U Energy Inc. (RUEI).

High-Margin Facility Now Producing Fuel

Each plant costs approximately C$50 million to build and could produce around 33 million litres of high-grade renewable diesel annually, which at a price of C$1.67 per litre, is approximately C$55.1 million in annual revenues and C$30 million in EBITDA per plant at the current costs. (See table below.)

Cielo - Advantageous Economics Over Traditional Diesel

Source

The margins are high as Cielo’s technology utilizes waste feedstocks that are highly available and inexpensive, including household and commercial garbage, agricultural waste, and used tires, as well as all types of plastic and other materials that currently cannot be recycled.

On February 23, Cielo announced its first significant fuel sale with a purchase commitment for 900,000 litres (238,000 gallons) of renewable diesel at C$1.67/litre for a total price of C$1.5 million. The purchaser also obtained the option to purchase another 600,000 litres (159,000 gallons) at the same price for a period of 6 months.

The fuel will be supplied from the Aldersyde facility and is anticipated to be produced over the next three to five months.

Expansion Continues in Canada and Now into the United States

Cielo is currently focusing on expansion plans across North America before looking at other opportunities globally.

Cielo’s management believes there is enough waste feed in Canada for 400 facilities and, since the United States produces almost six times the waste that Canada produces, that would equate to almost another 2,500 facilities there.

Cielo has already signed a Memorandum of Understanding (MOU) with RUEI to build JV facilities in Medicine Hat, Grande Prairie, Calgary, and Lethbridge, Alberta as well as in Nova Scotia.

In addition, on March 9, the Company announced that it entered into MOU with RUEI to build three new facilities, in Winnipeg, Manitoba, Kamloops, British Columbia, and a location to be determined in the United States.

Non-Dilutive Facility Funding with Cielo Eventually Owning 50.1% of the Each Plant

Under the terms of the agreement, RUEI would be responsible for funding the facility in each of the eight territories.

Cielo will be the general contractor and operator of all the proposed JV facilities. RUEI would pay Cielo a 7% management fee on all capital expenditures and a 30% markup on the chemical catalyst used in the conversion process.

Until RUEI recovers 100% of the project cost, Cielo will be entitled to receive 30% of the profits from the JV facility in each territory. Once RUEI recovers 100% of the project costs, Cielo will be entitled to receive 50.1% of the profits.

Final Thoughts

Countries around the world are finally waking up to the garbage crisis and the oceans of plastic literally filling up the planet. In addition, government policies in many countries mandate a certain percentage of biofuels or renewable fuels be blended with fossil transport fuels so the demand is there.

Cielo holds the exclusive licence to a patent-pending, proprietary technology that converts most waste streams into renewable fuel, at a lower cost than most biofuel companies do, putting it at a competitive advantage.

Once the current 10 planned facilities are fully operational, Cielo could be generating C$170 million in EBITDA and, at a 15x EBITDA multiple, would translate into a market cap of $2.5 billion, almost five times where it is today.

Cielo closed yesterday at C$1.19 with a market cap of C$520.8 million.


Editor:

Chris Thompson, CFA, MBA, P.Eng is the President & Director of Research at eResearch Corp. and a Sr. Editor and Director for InvestorIntel Corp. Chris ... <Read more about Chris Thompson>


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Comments

  • Rob

    Cielo’s patents were issued last summer for Canada and US, so it’s not “patent pending”. Also, each facility will be 12,000 L per hour. They will use a modular design where each catalyst (that produces 4000 LPH) will be stacked bedside each other. Typically three per facility with room to add more if needed. That means the EBITDA will be much higher than what you specified. It was recently announced that RUEI will no longer be involved after the latest proposal of facilities. Six facilities in total for RUEI, one for Seymour Capital and one unspecified in the US as of the date of your article. Cielo will be expanding without them in the future and not splitting revenue on future plants. So that means by ten plants a few of them will be owned 100% by Cielo. These are major errors which could have a negative impact.

    March 16, 2021 - 6:33 PM

    • Chris Thompson

      Thank you for your comments. I spoke with the company to make sure my facts were correct. I referred to it as “patent pending” because there are still international patents that are pending; you are correct that the Cdn & U.S. patents were issued last year. RUEI will actually be the JV owner with Cielo on 8 projects including taking over Seymour Capital’s project and the U.S. project. Cielo will 100% own 2 projects and have announced they will own 100% of all future projects. You are correct in saying that each location (facility) might have multiple plants that produce 4000L/day but I am assuming that, in the short term, each location will get 1 plant up & running to produce 4000L/day. As an analyst, I take a “walk-before-run” attitude when it comes to these types of projects & revenue projections because sometimes there are delays and/or scaling issues. Regardless, as Cielo starts to produce revenue from the fuel sales and proves the technology can make money, the investment risk is lowered and revenue projections can be estimated better.

      March 17, 2021 - 4:13 PM

  • Felix St Clair Renard

    Interesting

    March 17, 2021 - 1:53 AM

  • Ted Anderson

    Huge believer in this company’s technology and future.

    March 17, 2021 - 6:19 PM

  • Cade

    Very excited about this company. Is there any information about the estimated length of time it takes to go from vacant land once purchased to operating facility?

    March 18, 2021 - 9:31 AM

  • Steve

    Your EBITDA seems to be WAY off. 175M EBITDA would mean a 79% margin on topline 215M sales. Not sure if you’re math is correct. Don’t think so. The 8 JVs are only 30%. 142M. + Wholly owned 72M. 215M sales. Gross margins estimated at 54-70%. EBITDA margin is below that. How you got EBITDA margin at 80% makes no sense to me. 100M EBITDA is reasonable with minimal overhead. Seems like you are using gross margin cost of sales only omitting other coat of business and something else erroneously as well. 100M EBITDA favorable 1.5B market cap. 2.3$ share price. Please disclose what your calculations are because.thet are clearly different and don’t make sense to me. 79% EBITDA margin not possible. Even turning free waste to high grade fuel.

    March 19, 2021 - 10:08 PM

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