Active Energy, the London quoted international biomass based renewable energy business, announces its interim results for the six months to 30 June 2019.
Highlights
· Strategic focus on the production and commercialisation of CoalSwitch™ in sufficient quantity to accommodate anticipated customer demand
· Acquired fully permitted large-scale commercial hub located in Lumberton, USA, to provide a centre to develop an integrated Forest-to-Energy supply chain (“Lumberton” or the “Lumberton Site”)
o Located in the heart of North America’s lumber production region close to the Eastern Seaboard of the United States
o Adjacent to the power plant facility at Lumberton owned by JV partner, Georgia Renewable Power LLC
· Awarded US$500,000 building re-use and renovation grant in April 2019 from the North Carolina Rural Infrastructure Authority
· Reconstructing 5 tonne per hour (“tph'”) CoalSwitch™ plant utilising existing equipment and facilities from legacy site in Utah
o Plant commissioning on track for the final quarter of 2019
o Intention to scale up to larger production capacities
· Secured feedstock supplies from local partners to ensure that Lumberton can be supplied with up to 800,000 tonnes per annum for the next five years
· Continue to make progress in developing alternative biomass pellets utilising CoalSwitch™ in combination with other feedstock options ranging from chicken litter to miscanthus grass
· Received interest from several potential US commercial customers for CoalSwitch™ and biomass black pellets – testing programme being established to accommodate customer requests
· Lumberton becoming a source of revenues through ancillary activities at the site
o Lease agreementsalready signed with Tencata Protective Fabrics and Renewable Logistics Systems (“RLS”), providing immediate revenue
· During 2019, AEG has raised £6.083 million (before expenses) via the further subscription of convertible loan notes by both new and existing investors to execute the Company’s growth strategy. Of this, £3.96 million closed prior to the 30 June 2019 and is therefore reflected in the interim financial results.
Chief Executive’s Statement
AEG’s focus during the period and subsequently has centred on the development of the Company’s large-scale commercial hub at Lumberton, North Carolina in the United States for all corporate activities. This strategic asset facilitates the commercial rollout of CoalSwitch™ and new second generation biomass pellets, as well asthe development of complementary lumber related activities at one site. It also allows AEG, for the first time, to assemble on going technical data, which enables commercial partners,including potential licensees, the opportunity to assess the new biomass technologies.
In essence, Lumberton provides the centre the Company has soughtin order to be able to develop an integrated Forest-to-Energy supply chain and enable AEG to become a leading renewable energy company, specialising in second generation biomass products.
Acquiring the 151-acre freehold site with 415,000 square feet of buildings at Lumbertonin March 2019 was a vital step in AEG’s development. The Directors believe Lumberton holds several strategic advantages, including its location in the heart of North America’s lumber production region and proximity to the Eastern Seaboard of the United States, with its established facilities and proximity to export routes for both biomass and lumber products to Europe and South East Asia. The Lumberton Site has the additional benefit of being adjacent to the power plant facilityowned by our JV partner, Georgia Renewable Power LLC. The fact that Lumberton was already permitted for operations and contained established infrastructure including water treatment facilities, an analysis lab, offices and IT hardware was a further bonus, as was the receipt of a US$500,000 building re-use and renovation grant in April 2019 from the North Carolina Rural Infrastructure Authority.
Our immediate strategic focus is the production and commercialisation of CoalSwitch™ in sufficient quantity to accommodate anticipated customer demand. AEG is working with a series of engineering partners, including Absolute Welding & Consulting as our local partner to reconstruct the 5 tph plant utilising existing equipment and facilities from our legacy site in Utah. In addition, AEG is working with Andritz on plans to scale up the production facilities to larger production capacities. All the equipment has been transferred from Utah to Lumberton. After recent meetings with the Air Quality division of the North Carolina Department of Environment and Natural Resources (“NCDENR”), it has become evident that there is a requirement to modify the existing air permits at Lumberton. As such, AEG is currently working with the NCDENR to finalise both of these permits along with the relevant construction permits. Construction is expected to proceed in October 2019 and despite the small modifications, commissioning of the 5 tph plant remains on track for the final quarter of 2019.
At Lumberton, AEG has already secured feedstock supplies from local partners and ensured that the facility can be supplied with up to 800,000 tonnes per annum for the next five years. Management believe this will be sufficient to accommodate the planned production capacity increases. AEG’s current focus is on securing sales and offtake agreements, both in the US and internationally, planning for the expansion of the processing plant facilities up to 50tph and the development of further ancillary products, where CoalSwitch™ is blended with additional materials to produce a biomass-based black pellet fuels.
In line with this, AEG continues to make progress in developing alternative biomass pellets utilising CoalSwitch™ in combination with other feedstock options, ranging from chicken litter to miscanthus grass. These materials create biomass renewable fuels and there is significant interest from commercial partners for these fuels utilising AEG’s steam explosion pellet technologies. AEG anticipates that these developments have the potential to increase the range of products available for sale along with overall levels of business activity.
Encouragingly, we have already received interest from several potential US commercial customers for CoalSwitch™ and biomass black pellets. Over and above opportunities presented in North America, Europe remains a natural market for CoalSwitch™ and biomass black pellets, especially as new legislation aimed at limiting the use of coal power is introduced. Prospective customers have ordered and are receiving test samples and a testing programme, producing smaller samples of biomass fuels, is being established to accommodate these requests. Customers include utilities, including Rocky Mountain Power in Utah and a Europe-based biomass trader, as well as agricultural and forestry companies and complementary renewable technology businesses.
In addition to Lumberton being fundamental to our own growth story, it has also become a source of revenue through ancillary activities at the site. In the period, we signed lease agreements with Tencata Protective Fabrics and Renewable Logistics Systems providing an immediate source of revenue. We continue to look for further ways to capitalise on other opportunities from the site including rental income, saw logging activities and partnerships with complementary green technology companiesthat wish to work with AEG on product development and their applications.
In tandem with the progress in Lumberton, AEG is refocussing its attention back to the original opportunities in Newfoundland and Labrador. Cutting Timber Permits were awarded in November 2018 and AEG is assessing how to combine these with introducing the CoalSwitch™ technologies into the Province in the coming months. AEG remains in discussions with local partners regarding these future projects.
In Poland, the Company’s joint venture project with Cobant Sp. z.o.o. (‘Cobant’), a Polish research, development and environmental waste coal recovery company active in the land reclamation, environmental services and energy sectors, was unsuccessful in its application for a grant to receive EU funding in Q1 2019. The Company has decided to focus on its Lumberton activities to provide CoalSwitch™ product in order to assist Cobant in its future activities.
Financial Review
The overall loss for the six months ended 30 June 2019 was US$1,830,027 (2018: US$1,593,728). The key components are as follows:
• Revenue from contracts with customers were US$99,830 (2018: US$Nil) relating to engineering consultancy services.
• Administration costs were US$1,642,416 (2018: US$1,682,660) for the first six months of 2019. Of this US$238,743 (2017: US$462,064) relates to non-cash share-based payments expenses, as optimisation of these costs was offset by loss on disposal of certain items of plant and equipment.
· Finance costs were US$290,387 (2018: US$585,178) reflecting ongoing servicing of the Group’s Convertible Loan Notes, offset by interest capitalised to tangible and intangible fixed assets and foreign exchange gains.
• Active Energy has recognised an income tax credit on continuing operations of US$2,946 (2018: US$1,222,946). The prior year credit reflects research and development tax refunds associated with development of the Company’s PeatSwitch™ and CoalSwitch™ products and processes.
• Loss from discontinued operations was US$Nil (2018: US$548,836). The prior year charge reflects close out of contractual matters associated with Active Energy’s former Ukrainian wood chip operations. No further costs are expected to be incurred on these operations,which ceased in 2017.
In addition, during the first half of 2019 Active Energy invested US$3,406,213 in order to acquire the new Lumberton site. Following an independent assessment of this asset, the value on the statement of financial position was subsequently revised to US$4million. In addition AEG invested US$279,488 (2018:US$1,622,908) in its to the CoalSwitch™/PeatSwitch activities and capital expenditure relating to the Forestry and natural resource segment was US$111,638 (2018: US$227,129).
Finally, during the first half of 2019, the Company successfully completed a series of fund raising of £3.96 million before expenses (or US$5.02 million) through the issue of convertible loan notes (‘CLNs’) to new and existing investors. A further £2.12 million was subscribed for following the end of the reporting period.
Outlook
In summary, the team has made significant progress. We have acquired the Lumberton Site and have a defined plan for the commercialisation of CoalSwitch™ contemporaneously with additional products. Our ambition remains for AEG to become a profitable producer of second-generation biomass fuels, focusing on the pellet market. Our production designs are modular, and we are designing efficient operations that are scalable to increase manufacturing volumes to potential market demands. With first production imminent,the Companyis looking forward to the future with increasing confidence.
I would like to thank all those involved for their hard work and to all shareholders and bondholders for their continued support as we look to build on firm foundations and build a global business that rewards all AEG’s stakeholders.
Michael Rowan
Chief Executive Officer
25 September 2019
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