Should you say nein to "IX."?

At an astonishing 87% discount to NAV is I(X) Net Zero a Zero or a Hero?

Ticker IX.

Market Cap £15.9m / NAV £122.2m / Discount to NAV 87% - latest Interim report

Do you ever watch Bloomberg TV? I did today. And I watched the below program about recycled materials being sent from the US to be burned in India. After feeling the tragedy and anger as the local population suffer ill effects of burning Waste, I thought I will write 2 articles. This is the first one of those two articles relating to how we can be smarter about Waste.

Oil majors.

That’s a sudden topic change. Or is it? Both BP and Shell have been diversifying into green initiatives for a number of years. One of 70 of BPs investments via its BP Ventures arm was an innocuous investment of $10m into WasteFuel 3 months ago via a Series B fund raise. BP in its annual report sees about half of marine transport being powered by methanol by 2050:

Keywords:

Collaborate = BP is providing expertise

Offtake = BP is providing a route to market

This was important news for a relatively unknown Investment Trust called I(X) Net Zero. Apart from the prestige and backing of an oil major into its main portfolio company, Waste Fuel (IX owns 34.8% of Waste Fuel), the upround put cash into its portfolio company, but other important aspects that BP is also contributing. To quote:

"....a technical collaboration to improve bio-methanol production efficiency, yields and economics. As part of this agreement, the business will be able to leverage bp's proprietary technology to help optimise and improve its low-carbon, bio-methanol production."

However BP, Partner 1, is not the only large backer of WasteFuel.

Partner 2: Marc Benioff (Founder of Salesforce) is also an investor in WasteFuel.

Partner 3: Netjets

Netjets is the largest private aviation company in the world. It’s owned by Berkshire Hathaway.

This video is not to do with WasteFuel but an aside a fascinating look at how Warren and Charlie answer to criticism and to failure. So I’m sharing it, reader, in case you find that interesting too.

It has undertaken to buy 10m litres a year of Sustainable Aviation Fuel from 2025 - 2035

It offers “guilt free” travel as a service to its customers. Convenient if you are, say, Al Gore flying in a private jet.

Also it has invested in Wastefuel and specifically too in developing a biorefinery in Manila, Philippines, which is due to be operational in 2025.

Keywords: Guaranteed demand and funding. Warren Buffett.

Partner 4: Maersk

the global container logistics company with 745 ships has a commercial-scale bio-methanol partnership. Maersk intends to buy a minimum of 30,000 tons per year of WasteFuel’s green bio-methanol, which is generated from municipal waste, to fulfil a little bit of the demand of Maersk’s 12 new green methanol powered ships starting from the second half of 2025. A single 16,000 TEU ship consumes 30k-40k tonnes of methanol per year. Maersk has up to 87 more such ships on order and worldwide there are up to 200 methanol-powered vessels currently being built or retrofitted (out of about 5,461 container ships worldwide) and active by 2028. So that’s demand for 7m tonnes of methanol ships. That’s before we consider methanol for industry which is around 40m tonnes/year. And a further 200m /tonnes a year if all ships were methanol powered. If each waste plant can produce about 100k/tonnes of methanol from waste that equates to somewhere between 70 and 2500 plants to be built, potentially each using WasteFuel technology.

Every ship owner and Ship Container user is on a Net Zero journey (for example Amazon who did a deal with Maersk to deliver its cargos using biofuels). And this trajectory is guaranteed. Not just due to governments but also its customers putting pressure on their supply chain. This video explains more:

Keywords: Guaranteed and growing demand

Partner 5: Averda Holdings International Ltd

is a leading end-to-end waste management company, and is developing using WasteFuel technology the first commercial scale municipal waste-to-renewable biomethanol plant in the Middle East. Averda will collect and provide the plant with waste feedstock which cannot be otherwise re-used and recycled. Utilising WasteFuel technology, the plant will produce renewable biomethanol that is expected to help shipping companies reduce their CO2 emissions and other greenhouse gases by up to 90% compared with conventional fuels. The location of the plant is expected to be in Jebel Ali, United Arab Emirates.

Keywords: Proven Expertise in Waste. Politically important project

Why it is politically important? Where are Averda Headquartered?

Abu Dhabi. What’s happening there in 2 months and what’s a key theme? COP28:

Building a Waste Processing plant will require Capital. Do you think this is already lined up? $ billions

How real is the value of WasteFuel?

• BP recently paid prorata 7X what the equivalent current market vaue of buying WasteFuel via IX, in the Series B upround for WasteFuel. Would they have committed to the investment without due diligence? How much more real does it get than that?

• Ditto Benioff, Netjets, Maersk and particularly Averda’s due diligence. So WasteFuel is backed by great partners and is leaning in to a tangible problem with a technology which can make a huge difference.

• Given the number of methanol powered ships and converted to methanol ships coming on stream there will be a Series C funding round, in time, to put some serious money behind expanding Waste Fuel. A funding round which I think will be in large 9 figures if not 10. Perhaps with some Middle East state's involvement. Why? It has to be, to meet their 2030 targets/ambitions. Marine shipping uses about 5% of global oil (so 5m barrels/day). Just to put that in context - 5% of global oil at today's $85 a barrel that's $425m worth of fuel PER DAY!

• This next point is so important I’m going to repeat it twice:

Waste Fuel is only one of IX’s holdings but is 88.3% of IX’s NAV as at 30/06/23. Waste Fuel’s holding alone is worth $1.53/ IX share or over 6 times more than the current buy price of IX at 19p.

Waste Fuel is only one of IX’s holdings but is 88.3% of NAV as at 30/06/23. $1.53/share or over 6 times more than the current buy price of 19p.

What about the rest of IX?

Here’s the NAV at 30/06/2023

• What impressed me about IX when I first starting reading about it was the MOIC 2017-2022 (the multiple of invested capital) - how much they've managed to grow the NAV before this was listed. The answer is an average of 7.3x MOIC. (or 730%) See: https://ixnetzero.com/wp-content/uploads/ix-Net-Zero-Admission-Document-1.pdf
  

• Post Period another IX holding, Carbon Engineering, was sold for 2.8X its NAV value and makes an overall 7.2x ROIC for IX.

• Post Period another IX holding, Enphys, announced it will be buying a South American Biofuels company via debt and its SPAC. It might be one of these?

  This short video gives you an idea about South American Biofuel

  The economics of biofuels in Brazil are neutral to gasoline at $50-$60/barrel of oil. In other words biofuels at today's $80-90 levels, are at an economic advantage, let alone the tax benefits/penalties, for example via legislation like the IRA.

  IX holds the Enphys management co. There is also a $345m SPAC in the USA listed on the NASDAQ. The undisclosed target asset is a $1bn - $1.5bn asset (or assets) in Latin America. So the asset will be 25%-33% equity funded with the rest via debt. I estimate the Enphys management company should/could earn 1%-2% gross returns suggesting that that could be worth $10m-$30m of fees per annum less management expenses of a generous $4m and on a 10X price earnings would suggest a valuation of between $60m-$260m (as opposed to today's $16.7m NAV valuation). In other words there remains a completion risk in the price (by quite some degree) where the NAV is assuming somewhere between a 27%-93% chance of failure. ($16.7m vs $60-$260m). And the IX market price is assuming a 96%-99% chance ($2.4m vs $60m-$260m)

  I would point out Enphys has an impressive team led by Jorge De Pablo with a past successful track record in this space. The Chair, the CFO (who is also the CEO of IX) and the COO have similar impressive track records - and just need to repeat their past successes.

So?

So The IX NAV has tangibly grown in the past 3 months

IX’s NAV £1.32/share was as at 30/06 and today is the 9th October.

Oakbloke’s estimated current NAV (unaudited) is $157.12m or £123.42m

There are 85.88m shares. So NAV per share is £1.44 (up from £1.32). So it’s now 7.5X times the share price not “just” over 6X.

Comprising:

+ $63.84m NAV 31/12/22

+ $84.78m B Series UpRound of Waste Fuel RNS 6/7/23

+ $3.9m Enphys Uplift to NAV via Enphys Mgt Co to 30% ownership RNS 7/8/23

+ $4.6m Carbon Engineering Uplift to NAV due to Sale to Occidental RNS 16/08/23

Despite all this progress IX has pulled back by about 1/3 from recent highs.

Conclusion: this is an incredibly exciting share in my opinion, and has had some proven success, has serious backing yet it remains incredibly overlooked.

As I write each of my articles I begin to re-read each, and compare and consider what should be pared down, sold off and what should be doubled down on. It’s a Saturday evening and I’ve pondered whether to sell some holdings Monday at 8am to increase my already substantial holding in IX.

This article is only my opinion for my own investment purposes. This is not financial advice.

I hope my article is interesting and good fortune in making your own financial decisions.

Footnotes - Here are links to IX’s other small holdings:

$0.5m in Context Labs - think validating NetZero commitments via Software

$0.77m in SLI - think environmentally friendly prefabricated buildings which are net zero. SLI holds patents to a lot of prefabricated building parts.

$2.19m Multigreen - this develops apartment blocks. This holding has been reduced due to difficulties with the US real estate market.

Suniva at $0 - but Suniva Inc worth $6.8m. Interesting too, in a footnote of the IPO listing document IX have put options worth $6.8m over a solar energy manufacturer. This doesn’t appear in the Accounts but hasn’t been disposed of either.