Dear reader
It was intriguing to see “NFYS” the SPAC for the imminent South American renewable energy project is steadily increasing. This is $345m of funds sat waiting for the go ahead to deploy. On reflection I suppose that funds are in money market instruments so the appreciating share price perhaps is merely an increase due to the accumulation of interest.
Speaking of accumulation of interest, meanwhile I(X) who own the management company for this Enphys South American investment (while the SPAC holds the project level investment) in advanced biofuels tells us that 8th June is the key date - just 73 days from today.
My best guess is a Sugar based biofuel, which is ethanol. This is competitive at $50-$60 BOE. So today’s $85 puts ethanol competitively ahead as part of a gasoline mix. But is the bigger opportunity Aviation Fuel? SAF is growing fast and the IRA gives up to $1.75/gallon credit, based on how “green” it is.
But there might be another pathway too.
There are ways to convert ethanol to methanol. You need to first convert it into acetic acid through oxidation followed by treatment with ammonia which will give ethanamide. The Hoffman bromamide degradation of ethanamide will yield methyl amine which can be transformed into methanol by treating with nitrous acid.
Why convert? Could Enphys’ buy be connected with WasteFuel in some way? Enphys and WasteFuel are otherwise completely unconnected - except both are portfolio members of I(X), and the CEO of I(X) is a Board Member of Enphys too.
Wastefuel Technology employed on a large biomass project it might be a powerful combination, where it can achieve up to 90% reductions in CO2 and other greenhouse gases and pollutants compared to conventional fuels… so a full $1.75 IRA credit.
Discount
I(X) trades on an astonishing discount. The shares have a market cap of $16.4m yet a NAV of $120.8m in the last accounts and an estimated (based on RNS updates) NAV post period of $214m. So a well over 90% discount.
I covered its holdings in “Say Nein to I(X)” last year.
These are the holdings, noting that Carbon Engineering was sold (at a profit), and certainly not at a 92% discount to an Oil Major who can make use of its useful carbon credits.
WasteFuel
Last year’s investment into Waste Fuel by BP was behind the $84.78m increase in NAV. The increase being based on the upround BP paid for its $10m investment in WasteFuel. (Not a downround and certainly not at a 92% discount I once again state)
Maersk is also involved in WasteFuel. WasteFuel is the processing of organic waste (food, agricultural) and converting it to methanol. 14 ships are due to come into services by next year which run on methanol, and 168 are being built (rather than use heavy fuel oil). Clarksons says there simply isn’t enough green methanol being produced to meet demand which will increase from 1m tonnes this year to 10m by 2027.
Ship owners committed at COP28 to at least 5% of shipping to be powered by methanol by 2030 a few months ago. So WasteFuel is delivering into a space where there’s strong demand and limited supply. Augers well for its success.
Since my last write up I note, too, that WasteFuel is one of Time Magazine’s GreenTech Top 250 for 2024.
Also that a heavy hitter is the new Project Director at WasteFuel. Ex-Johnson Matthey and Schlumberger.
Context Labs
DEC-hands will know only too well about the challenge of emissions management and MERP (Methane Emissions Reductions) is hitting the US O&G sector hard, although probably disadvantaging privately held and small assets.
Context Labs offers a measurement and “Decarbonisation as a Service” option which is highly rated by Gartner. It counts Williams and EQT among its customers.
Citron
A new holding following a $0.6m investment by IX is Citron (34% ownership).
There are 102 cement plants in the U.S. They burn primarily a lot of fossil fuel and emit a lot of CO₂ to make cement. If you’ve read Bill Gates book how to avoid a climate disaster then you’ll know Cement is 5-7% of CO2 emissions.
Citron aims to tackle that using a fuel derived from waste and plastics.
Intriguingly, there are strong parallels and synergies with WasteFuel.
Suniva
In my previous article I spoke to a $6.8m call option (expires Jan 2025) hidden in the admission documents (valued at zero in the accounts). This is for a Solar Cell manufacturer which went bust in 2017 (as it couldn’t compete with Chinese imports).
Since then trade wars with China and a desire for US capability in manufacturing has meant Suniva’s revival. Exactly as the Oak Bloke speculated, the Inflation Reduction Act has resurrected this cell manufacturer. Suniva will recommence 1 GW of cell manufacturing imminently, followed by an additional 2.5 GW expansion.
1 gigawatt per year, is enough to power about 173,000 homes, so 2.5GW is 432,000 homes - per year.
Customers (Projects) using panels containing domestically-produced cells will be able to qualify for an IRA tax credit worth 10% of a facility's cost for using American-made equipment. That "bonus" is on top of a 30% tax credit for renewable energy facilities.
But that is not the whole story. The Cell Manufacturer also gets a subsidy too.
First Solar Inc’s latest accounts show:
The IRA offers a tax credit, pursuant to Section 45X of the Internal Revenue Code (“IRC”), for solar modules and solar module components manufactured in the United States and sold to third parties. Such credit may be refundable or transferable to a third party and is available from 2023 to 2032, subject to phase down beginning in 2030. For eligible components, the credit is equal to (i) $12 per square meter for a PV wafer, (ii) 4 cents multiplied by the capacity of a PV cell
First Solar produce 7.9GW per annum and in their latest 2023 quarterly made $268m net income, so over $1bn/year.
Yesterday, Minnesota-based solar panel manufacturer Heliene announced today it will purchase silicon solar cells from Suniva under a $400 million, three-year contract.
Suniva is expected to restart solar cell manufacturing at its Georgia factory within the next few months.
The option is to purchase $6.8 million of new common shares of Suniva, Inc. (“Suniva”) at an exercise price based on a $180 million pre-money valuation, so would be an approximate 3.8% holding.
Roughly, if Suniva can emulate First Solar’s success it might be able to achieve pro rata $0.125bn rising to $0.35bn net income.
3.8% ownership at a PE multiple of 15, could mean $6.8m turns into a $199.5m valuation in time.
This is just my mathematical speculation, but the facts are all there so even if Suniva only achieves a 10th of it, that’s still a 3X ROIC. So I expect we will see a deal being done around Suniva during 2024.
Sustainable Living Innovations ("SLI")
This is a construction technology and product development company producing panelised buildings to address housing affordability, while delivering a new standard in sustainable living. SLI continues to capture market share as a leader in delivering net zero buildings at scale. Its factory-assembled and cost-effective steel panel technology addresses both the inflationary pressure on material costs and supply chain issues.
In March 2023, SLI signed a non-binding letter of Intent in relation to a proposed business combination with NYSE listed Churchill Capital Corp V ("Churchill V"). This fell through late last year.
It also built some show case projects like the 303 battery which ran into construction challenges due to rising interest rates. However this paywalled news article says the project completes April 2024.
Despite a complete lack of newsflow on either the I(X) web site or SLI web site, I am not writing off SLI. It holds a great many patents relating to modular buildings, and it appears its projects are moving towards completion, so the jury is out.
It’s also the case that US buildings energy efficiency improvements are worth up to $5 per sq.foot of tax credits under the IRA. That’s massive.
Conclusion
It’s hard to invest in a company with sporadic news flow. Piecing together what’s going on.
But this kind of company which doesn’t keep people informed can lead to hidden value. People get bored or nervous and “bug out” - drives the price down. That appears to be the case at I(X).
Meanwhile the Wastefuel holding has some seriously favourable macro sea currents, and some serious backing even from the Oracle of Omaha. WasteFuel is the nearly 90% of NAV, elephant in the IX stable. It tickles me that I can invest in WasteFuel at a fraction of the price Warren Buffet paid. Not many people can make that claim.
It tickles me that I can invest in WasteFuel at a fraction of the price Warren Buffet paid.
But Enphys, Suniva, Context Labs, SLI and Citron all offer some serious upside. Carbon Engineering delivered 7.2X ROIC. These could deliver that or more.
But what if Waste Fuel delivers that too?
This is not advice
Oak