This is a little company called Aqua Metals (AQMS). They are priced right around $17, with a market cap of $325 million today… and this is a fairly rare thing in today’s market, a company that came up with a better model for an industrial process, raised money from startup funders, and then came public with an IPO to raise the capital needed to build their first facility. Kind of old fashioned, really.
They also just really got their first facility going, after the first phase of construction was finished about a year ago, and they are just about to announce their quarterly earnings (in a week, on May 9 after the market close), so the story could change quite quickly… but right now, there’s something pretty appealing about this one — the combination of the Johnson Controls partnership which could lead to licensed operations at JCI recycling facilities, and the initial “roughly as expected” performance of their first facility are both encouraging, and give some hope that the technology is genuinely scalable.
And that’s what you really need, of course — their numbers indicate that each of their installations requires about $50 million in capital for a 160 Ton/day facility, and that each facility should have an internal rate of return of better than 30%. The first facility is done and at 120 T/day so far, with a likely annual revenue stream of about $100 million and probably EBITDA of a little less than $20 million. So that’s a decent industrial company, with a reasonable level of profitability…
But $20 million in EBITDA is probably not enough to justify being valued at $300 million, not without some substantial growth prospects. They need to expand, and they’re trying to expand in two ways: First, by building four more AquaRefineries to quintuple their capacity, which they’re already ready for because Johnson Controls and Interstate Batteries are supplying enough feedstock (old batteries) to get up to that throughput, and because they say they have “met most of the pre-requisites to secure $150-250 million” to finance the next four AquaRefineries without dilution. That provides the potential for, they say, $100 million in EBITDA… which, depending on what kind of interest they have to pay on that debt, could easily justify a $500 million market cap even if there’s not a lot of growth beyond that.
At that, Aqua Metals would still be getting just 2% or so of the global lead acid recycling market — so it’s not a wildly irrational goal. And there is room beyond that in the potential for a much higher-margin revenue stream from licensing their technology to Johnson Controls and the major battery recyclers around the world. The facilities are smaller and not as environmentally sensitive as conventional lead battery recycling facilities, so they can be colocated with distribution centers or otherwise spread around the world.
Earning licensing from lots of non-owned AquaRefinery projects is probably the real gold ring that AquaMetals is hoping for in five or ten years, I would expect, that’s a nice high-margin revenue stream that doesn’t require lots of capital for construction and operation of facilities… but there is some reasonable basis for the estimates that they can become a profitable and larger company based just on their own AquaRefinery installations. Assuming that they can find four more sites, get that financing on good terms, and don’t find some critical flaw with their first AquaRefinery that hurts the long-term profitability.
That licensing is just beginning to get underway — they say that their first step is to retrofit an existing JCI recycling plant in China, where there’s otherwise not much hope that Aqua Metals could break into the market on its own, and then roll out through JCI’s network of facilities if it goes well. They also see, further out into the future, the possibility of selling higher-value lead products or recycling other metals… but I wouldn’t put much stock in that over the next few years, they are focused on lead and are probably better off keeping that focus as they build up their capacity.
There was a pretty good analysis of Aqua Metals’ IPO here back in 2015, which will give you some historical perspective (some of those expected performance numbers have been downgraded as the project became “real,” but not by all that much), and the company’s March investor presentation is here. The Johnson Controls initial license deal, and their deal to use their huge supply and recycling system to provide materials for (and buy lead from) Aqua Metals, also came along with a 5% investment in the company, so that corporate connection is fairly tight and meaningful — and it also brought Aqua Metals to the attention of a lot of investors, and drove the shares up from $10 to $16 or so back in February.
The prior “big deal” for Aqua Metals was the partnership with Interstate Batteries, which is the largest battery recycler in the US and invested $10 million in Aqua Metals through shares, warrants, and convertible debt — not sure what percentage of the company they currently own, but they report to the SEC as a 10%+ owner (and have been selling down their stake a bit recently). That deal also provided the first input stream for the first AquaRefinery, a million batteries to be fed into their system, and it certainly brought some attention to Aqua Metals, at least within the industry.
Over the past few months they’ve opened up their first AquaRefinery to visitors to show off the technology (there’s a video of the factory in operation on their home page right now), and, well, hopefully we’ll know a little more next week about what the real-world financials of the plant look like, or what the financing terms and timeline might be for their next phase of expansion. And, of course, if this really turns out to be compelling, and a unique and defensible technology that won’t be copied, and the first stages of operations cut down on the risk perception, well, there are lots of huge global players who could snap up little AQMS without blinking an eye.
(Johnson Controls, for example, certainly knows the company pretty well and could pay a 30% premium at, say, $500 million for the rest of AQMS shares it doesn’t own right now, and not break much of a sweat — that’s about what the EBIT is for JCI in one quarter. The flip side of that, of course, is “why hasn’t anyone big bought this yet?” … so for the dominant players like Interstate Batteries and JCI it could be that their investments in Aqua Metals represent a little bit of caution after seeing decades of other promises about “cleaner, faster, better” recycling technologies fail to pan out in the end.)
So… this one strikes me as pretty interesting. It’s still clearly a risk, since the stock has shot up to $300 million in anticipation of a pretty successful rollout of their technology, but the market is so large and their partnerships are strong enough that I’d be willing to consider a flier on Aqua Metals. For now, I’ll keep an eye on it — as earnings come around next week I’ll watch those and see if I can stomach another little small cap risk investment in my portfolio… and, of course, I’ll keep pondering on it and seeing what other weaknesses I can identify. I’ll let the Irregulars know if I do anything with this one in the future.
Poster Comment:
eugene11803 Found this: After blowing up battery-focused venture Applied Intellectual Capital, the same CEO has “crossed the pond” to yet again peddle tall tales about disruptive lead battery technologies.
Red flags galore: no recycling patents, failed UK venture, IPO’d by former MDB Capital bankers, ties to paid promotion website, bizarre related-party dealings, suspect auditor… the list goes on. Even if AQMS is successful (low probability), our review of patent filings suggests there is a real chance that the company may owe significant royalty payments to a third party.
Aqua could not even get its BASIC math right in a CRITICAL permit application, leading us to seriously question the credibility of the company’s “technology” expertise. AQMS investors should be prepared to lose it all given management’s history of failed ventures and the pattern of similar stocks collapsing.
connyank... Alternate facts – https://seekingalpha.com/article/4063485-aqua-metals-toxic-lead-claims-recycle Apparently as a response, the company has set up a “Visitors Day” for folks to stop by and check out the lead. Interstate Battery is quietly putting 430,000 shares of AQMS for sale. This is what makes a horse race…
georai... Travis, Excellent find. I looked and was unable to find who it was.
Now down to some Nitty Gritty. Lead removal from foundry waste by solvent extraction normally uses Toluene mixed with di-(2-ethyl-hexyl) phosphoric acid (HDEHP). https://www.ncbi.nlm.nih.gov/pubmed/15658154 Possibly explains why there are no patents ?
The AQMS report mentions a water based solvent and “without the emissions, poisonous dust or toxic waste”. So are they using water to wash down these chemicals after wards ?
The net income for 2016 was Negative $14M and for 2017 Negative $23M. The projected net income for 2018 is expected to end up around Negative $38M. The GreenBlatt and Levermann financial scores for AQMS are poor.
Oh, and BTW the Stock price has just crossed DOWN on the 50D Moving Average……..
Senior111 I just peeked at the holders of AQMS, and there are common names like Vanguard and yet this company appears to set up just to fleece naive investors. Hmmmm something is wrong!!
mwojnaro.... I think we need to look at this a little differently. If they have commitments from Johnson and Interstate, both reputable firms, and both having a disposal issues, is it really a stock to toss based on prior issues? Environmental permits can be an issue, especially outside the US, that may have caused the prior firm to fail. Seems, notionally, like a good play. Easy to see waste like : lead, plastic, zinc etc all highly recycleable and worth $$$.
Think we need to look at at Gov’t resources Like EPA and other state/muni sourcers to see if they are properly permitted. If so, plus insurance requirements in place, may prove to be legit and explain the increasing losses = Start-up costs? May be a scale up issue that is intermediate in nature. Certainly on a watch list as who knows how may hybrid auto batteries we need to deal with instead of stockpiling them at transfer stations awaiting a solution?
willempc I am quite familiar with general hydrometallurgical processing and lead processing (both pyro and hydro) in particular. Contrary to information by previous posters, AQMS has applied or a number of patents. One US one (US20160294024) and fewer than ten world patent applications (note: applications, not yet granted). Their secret solvent is a common organic used in tin and lead refining (MSA or methane sulfonic acid – CH₃SO₃H). From their US Patent application: “What is claimed is:
1. A method of processing lead materials from lead acid batteries, comprising: providing lead materials comprising grid lead and active material lead, and contacting the lead materials with an electroprocessing solvent to selectively dissolve the active material lead to so form a lead ion-enriched electroprocessing solvent and solid grid lead; wherein the electroprocessing solvent is an aqueous solution of an alkane sulfonic acid and a chelator: removing at least some of the grid lead from the lead ion-enriched electroprocessing solvent; and reducing lead ions in the lead ion-enriched electroprocessing solvent on a cathode to form very small amounts high-purity lead and regenerated electroprocessing solvent.” Followed by 35 dependent claims.
I am not convinced that hydroprocessing (aqueous) of lead is environmentally more appropriate than pyrometallurgical processing (smelting). The potential leaking of lead containing aqueous process solutions into the environment is much more difficult to control and clean up than small amounts of dust present in furnace off gases that can readily be collected. I’ve been there and done that!
I am just wondering what steps have been taken to prevent any solution leakage from their first plant in Reno, NV
Tatarewicz: Hard to tell if a stock is being touted because of expected increased value or to help previous buyers get out after a significant rise in share price.