Northstar Clean Technologies Inc.

2022 Northstar Clean Technologies full year results. I'm joined today by Rosemary Pritchard, our CFO, and Carson Seaton, our Director of Corporate Development. And as always, thank you very much to Kin Communications for hosting and helping us with this. So the process is the same. As you know, we are trying every quarter to provide the financials and kind of an investor update. So Rosemary is going to take us through the financials. I'm going to take the investors through the kind of the corporate update. Carson is going to cover the Q&A at the end, you know, and capturing any questions that are going to be asked. And as always, please submit the questions during the presentation. And Carson will get those just to answer at the end. I guess we do a little bit of apology. There's been an absolute flurry of press release and information this week. Our results have been published on CEDAR. on the close of business today. Obviously, we had the announcement on the PP that PR yesterday. We had the PR today as well, updating the Calgary economics and the Calgary capital estimate. And so all of that, I will talk through in this investor update. So lots and lots to cover. usual disclosures with respect to the financial statements and forward-looking statements and disclaimers. And with that, I will hand it over to Rosemary.

Good afternoon, everybody. So to start with, I will take you through our balance sheet. We ended the year with $1.1 million remaining in cash. A lot of this was due to the convertible debenture of $1.144 million that we closed on December 15th. And due to that debt that got added to our balance sheet, it did increase our debt to asset ratio to 0.59 from 0.39, but that's still reasonably good numbers. Other things to major items to note on the balance sheet, we had a GST receivable of $207,000. This entire balance was received in Q1 of this year. We had 624,000 of deposits on the books. This relates to the lease deposits for the Delta Pilot plant and our sublease, but also includes a large deposit on equipment, processing equipment for our upcoming Calgary plant and a deposit for Metro Vancouver for our collection license. We made... Equipment purchases of 797,000 this year, but we did get $100,000 Alberta Innovates grant against that. So netted out at 697,000. And a new item this year is the intangible assets. This relates to the capitalization of legal fees for the patent applications. So these costs will be capitalized and then amortized over the 20 year life of the patent. Another new item on the balance sheet would be the convertible debentures. And this relates to the raise we did in December. This was valued using market rates of interest, and it was then split into two. equity and debt components. That's why if you look at our balance sheet, you'll see that the liability is less than the face value of the actual convertible debt. And the equity portion would sit in the reserves section in the equity. Next slide, please. So on our income statement, we had research and development expenses of just under 1.6 million compared to just over 600,000 in the prior year. Just a reminder that we only just started ramping up our R&D activities in the second half of 2021. So that's why 2022 is much higher. And most of that relates to increased supplies used in processing and also equipment rentals. General and admin expenses were approximately $6.8 million. $1.7 million of that are non-cash related items. Some of the major categories, marketing costs of 600, just over 600,000. This includes all the IR costs and publication costs required for being public and a few other various marketing activities. Consulting fees, 227,000. That mostly relates to government relations and HR work. And depreciation, this was a large increase this year. As I mentioned in prior presentations, we started amortizing our processing equipment in February this year. So there's a large increase due to that. Rent and utilities, there was an increase in this category, and that's mainly due to the utilities that were required as we ramped up production in Delta. And share-based compensation, this was actually a large decrease. In 2021, we had a large amount of stock options that were issued relating to going public and the amalgamation, and we didn't have that recurring this year. wages and benefits. This increase is mostly the hiring of the staff for the North Star and for the Delta plant. Next slide, please. So overall, the total cash used in the year was 4.8 million. This was made up of approximately 5.7 million of cash-related operating and R&D expenses, as we just discussed. Major categories being R&D, marketing, consulting, professional fees, rent and utilities and wages. The purchase of PPE, 717,000. That was offset by the grant. the 26,000 of intangible assets that were for the legal fees for the patent. We received proceeds of $1.4 million. for the convertible debentures. We repaid equipment loans of 90,000, made lease payments of 558,000. And then we had an equity subscription that we received of 750,000. And that relates to the purchase of shares by Renewable You. And I believe that sums it up.

Excellent, Rosemary, thanks. And so, look, when we went through these financials, they don't really mean that much at the development stage of a company as to where we are apart from year-end cash, which is, of course, important. But I think it's important to continue the rigor that we've had of presenting the financials, giving transparency over everything we've done and where costs sit from a high level and kind of having... you know, the Rosemary, the CFO available to answer any questions that come up from investors. Okay, then. So let's now cover the kind of the investor update and kind of the corporate update. So I'm going to cover number one, the milestones. I'm going to talk a little bit about Delta and where we are with that. I'm going to talk about the Calgary CapEx, which is part of the press release we had on close today. I'll talk about the Calgary economics and I'll also talk about funding of the Calgary facility. So lots of things that we've had investor questions about and that I've talked to investors about over the last little while. So kind of four things from the top of this slide to kind of think about. So number one is, you know, the progress that we've made on customers, a little bit about patents, we'll chat about Calgary and where we are and also chat about funding in this slide. If you look at the first one, you know, on the customer perspective, the Calgary facility is completely underpinned by the offtake agreement. We signed a binding offtake agreement with McAshfall in Q4, and then the definitive contracts, the definitive agreement, you know, this quarter. And so now we have a definitive offtake agreement for 100% of the asphalt coming out of Calgary for five years. at market-based pricing with some price risk management in there as well. And so that is, of course, a phenomenal part of the Calgary project. Also, as you see in the very top there, the Calgary, we've secured the site. We have a long-term 15-year lease at that site with two single-sided renewal options for us. So potentially 25 years worth of site occupancy there contractually. And you can see from the very top bullet point that in Q1, the landlord also received conditional approval, the conditional development permit. And the conditions in there are things like parking spaces, trees, how the ground gets cleared, et cetera. So they're not those conditions are classic site management conditions rather than anything to do with our facility. So we're very comfortable that that is a site now secured and ready to go for the project. The patent thing, we did a press release on that. I've talked to a number of people about it. So one of the interesting things about the patent is you know that our technology is essentially in three stages. So you know, first stage is, uh, removal is, is, you know, aggregate separation. The second stage is fiber separation. The last third stage is, is asphalt separation. And, and so when we submitted our patent to the US patent office, which had all kind of three stages, plus the asphalt that came out the back end, and they said just, well, actually it's a better idea to split these up and submit them separately. Uh, and so that's what we did. And so we submitted the, you know, the, the, the three stages separate, or actually the first stage as, as the first submission. And that got patent approved by the US Patent Office in November. The feedback on that is, I mean, that was an approximately eight month process. And I can tell you that our patent lawyer said it's one of the fastest that they have ever seen. The thing that's really interesting about that for me is that that actually broadly describes the fact that nobody else is using this technology. Because otherwise, if there was any other prior art out there, we would have had to clarify exactly where we stood versus that prior art. So that is an incredibly fast patent. What we've done, and you can see on the other side, what we've done is we've now... filed the follow-on patents in the US for stage two and stage three of our process. And we have filed exactly the same with the Canadian Patent Office as well. They've given us a green technology overview with respect to the application process. So that will be fast-tracked in Canada as well. And we've also, it's not in this slide, but I think in the press release, we've also filed for international, which is PCT, Um, and, and that, so that process is, um, that process is underway too. So, so good from a patent perspective. Um, and then lastly, we'll, we'll, we'll talk a little bit about funding later and, you know, we've, we've kind of outlined the, uh, the, the, the ventures and the private placement. And I'll talk about that in the context of, of, of funding Calgary, um, a little bit later. Okay. Um, so let's talk about, uh, about Delta. So the first thing, I mean, I've probably, I think I mentioned this in the last call, but I'm going to tackle this thing head on now too. So there's a chunk of investor sentiment that feels that Delta is a science experiment, right? So my view and my hard contention is this is not a science experiment. No science experiments are in 20,000 square foot buildings, right? No science experiments have columns at the back end that are 35 feet tall. And you don't need to put a science experiment on a four-acre site. You need to put it in a lab, which is where a science experiment is done. So the important thing about Delta is it is a pilot plant. It is not Calgary. It is not fully engineered. It's an entrepreneurial plant. And nobody has built one of these before. So when I hear investor concern around, you know, we're not publishing the tons that come out of Delta, Delta is there to do one thing and one thing only, and that is to de-risk the technology that goes into the first commercial facility that we build. This company success is absolutely defined by how Calgary is delivered and how that first commercial plant works. And Delta is there to de-risk that technology as much as we possibly can. And I think, and so the other question around the run rate and the burn rate, et cetera, of Delta in 2022 was all to achieve three main goals, right? So the first one is Delta fully proved the technology. So we know with this technology, we can now put shingles into the front end and out the back end will come aggregate fiber and asphalt. So aggregate fiber and asphalt. So we know the technology works. The second thing is the output that's coming out the back end has secured a five-year long-term offtake agreement with McAshfold. And so when people say, does the technology work? I mean, I can tell you what I think mcash fault and colas's for the four billion euro companies r&d looks like but i i would not be able to do it justice and and it's exactly the same as when as if at the time that i spent at bp if i had a if i had a producer that was going to send me oil i would unleash bp's r&d process on that and it and it's immense multi-billion dollar companies cannot get this kind of thing wronged And so when Colas comes back and signs up for five years worth of offtake, that's a significant amount of risk that there are and you guys are taking by actually signing that off. So when anybody asks the question, do you think the asphalt out of the North Star process works? point them to that, that's the best proof we have. Similarly, the first major US facility anchored with an LOI with a major international, potential international customer in the US, that's another major proof point that actually we believe this works. And as you know, when we press released it, you know, both the shingle and the flat roof manufacturing customers that we could possibly have, you know, some of the, again, multi-billion dollar companies have looked at this and said, you know, have said, okay, let's move to the next step of detailed product testing. Let's move to manufacturing of this to see if it fits our products. And that's a significant step as well, because as you can imagine, If you're providing 35 year guarantees for shingle tiles, you have a very sophisticated process to step through to make sure that the feedstock works and we are moving through that process. We're not at the end yet, but actually we're moving through that process. And so that's a very solid piece of evidence with respect to my view. And again, it's a company view that the three target market sector sectors for this business, paving, flat roofing and shingle manufacturing all work. The third thing was the de-risking for Calgary. I mean, I've said it before, like you don't know how a process is going to work until you run that process. And so having run the process for a year, we can stand back and look at the process flow diagram for Calgary and say, sorry, for Calgary informed by Delta that says, okay, this needs to change or this needs a slight redesign or the efficiency from this is not producing exactly what it should produce. And that's what running a facility does. But of course, we didn't do that in a vacuum. We did that with customers and we did that with vendors. And so now in the next slide, when I go to talk about the estimate for Calgary and why it's changed, it's exactly because of this. We are one year and one year's worth of production better informed. And as everybody in this call knows, you know, we weren't producing at the beginning of 2021. We weren't producing at the end of 2021. We were commissioning the units and we only produced over the last year. And all of that has de-risked the Calgary design from production, from customers and from vendors. So as we think about 2023, what are we going to do with Delta? So Delta will produce volumes for manufacturing testing. As I talked about above, a number of the manufacturers would like to move through testing volumes. So it will continue to support that process in the first half of the year. And then the second half of the year, again, if manufacturers need test volumes, that's what it's going to provide. Delta has de-risked Calgary. So we don't need to run it anymore to de-risk Calgary. And 2023 needs to be focused on Calgary. Now, I'll be absolutely clear. This, no doubt, in quarterly calls, you could replay where I've talked about moving Delta to cash flow break even, and then moving Delta to commercial production. And so this sounds like a backtrack, but I will tell you that the word that I would use is the word that every single CEO is using in this market and in this inflationary environment and everything else. And it's a pivot. And it's a pivot to say, if you think about the market raises that we can do, if you think about the funding that's available in this market for new technologies, we have to be exceptionally careful on our resources. And that's, in my opinion, it's working capital resources, it's people resources, and it's capital resources to deploy the capital. And whilst I do believe Delta can get to cash flow break-even, I will repeat exactly what I've said and caused before, I do not think this is the time to spend the money. We've identified roughly what the capital figure would look like to intervene and solve the inefficiencies that we find in 2022. But I want to spend every dollar that we have on Calgary. That's the focus for the company. That is the major catalyst for Northstar as a company, is the commercial production out of Calgary. And so that's where we're going to spend the resource. So again, I joke that it's a pivot, not a backtrade. We can get Delta to cash flow break-even. It is not worth spending the money on doing that to get it to full profitability in 2023. It's absolutely worth spending the limited and very focused resource dollars that we have on Calgary. All right, so let's talk about Calgary. So the first thing I want to talk about, Calgary, is the engineering and the capital estimate. Now, let's be clear. The capital estimate that was done in 2022 was a feed estimate. It was done by BBA, the engineering company, and so it was independent. This is a management estimate. We have not completed detailed design, as everybody knows. So this is not a verified estimate in terms of third party. This is a management estimate. but I will tell you this has one year's worth of input into it. So if you look on the, so the capital estimate adding up to 15 million bucks is on the left-hand side and the comparison is on the right-hand side and probably best just kind of looking at the comparison. If you look at the first two, so equipment cost changes and scope changes, those are essentially grouped together and have the impact mostly on the mechanical figure on the plant equipment on the left-hand side. So like roughly, roughly kind of, you know, three-ish million bucks. And that number is because that's all the vendor work that we've done. So that's working on vendors by saying, okay, this is the unit that we've got. Here's the performance we're getting out of Delta. What do you think for Calgary? And they're like, actually, you probably want to do this. Or my unit size changes to this. Or actually the instrumentation needs to do this. And that's the whole way through the system. So when I say we've de-risked Calgary, it's not just we, it's working with the vendors. And the surety of the number with the vendors is recognizing this cost increase. It's exactly the same with respect to customer scope increases, the next one down, so the 500K. So as... originally designed, came out of the back of our plant, came Ashvolt, and came the Ashvolt that we're producing at the back end of Delta. As we work with McAshvolt on the Halgary engineering, we now need a blending system, because what they want to do is they want to bring in another product, blend it, and go out with a final product. So that 500k is in the engineering estimate, but actually will be part of their pricing as well. And so that's a very clear scope change that's come from the customers. Other indirect charges is engineering. USD impact is obviously strengthening USD versus CAD. And the reduction in contingency, I mean, people could say, well, you shouldn't be reducing the contingency. You should have kept it at the 2 million that you have. But given the equipment cost changes above and the scope changes above, and given the clarity of the pricing we've now got from the major vendors, we're very comfortable bringing that down by 700K. And in theory, you can imagine that 700K has literally just gone into the number above. So it really hasn't gone anywhere. It's just that we have much more certainty on what the equipment number looks like. So $15 million and $1.3 million worth of contingency, so slightly under 10%. And again, this will be verified during the feed study, but worth kind of running through what we were thinking as we got to these numbers.