THE VIEW FROM 10,000 FEET
Unless you have been asleep for the past few decades, you are aware that carbon dioxide (CO2) is estimated to account for up to 85% of all emitted greenhouse gases each year. Estimates suggest that up to 27 billion tons of CO2 are emitted each year. In an effort to dramatically curb carbon dioxide emissions, a number of carbon emission management strategies have been enacted and explored.
The only currently viable option in wide use today is known as Carbon Capture and Storage (CSS). According the Carbon Capture and Storage Association, CCS is a technology that can capture up to 90% of the carbon dioxide (CO2) emissions produced from the use of fossil fuels in electricity generation and industrial processes, preventing the CO2 from entering the atmosphere.
The CCS chain consists of three parts: CO2 capture, CO2 transport and CO2 storage underground in depleted oil and gas fields or deep saline aquifer formations. Capture technologies enable the separation of CO2 from gases produced in electricity generation and industrial processes by one of three methods: pre-combustion capture, post-combustion capture and oxyfuel combustion.
CO2 is then transported by pipeline or by ship for safe storage. Millions of tons of CO2 are already transported annually for commercial purposes by road tanker, ship and pipelines. The CO2 is then stored in carefully selected geological rock formation that are typically located several miles below the earth's surface.
While on the surface this method seems reasonable, it is actually fraught with serious issues. Ironically, the two primary factors that are actually driving this train are also the greatest problems; environmental concerns and economics.
Storage site leakage is a major risk to the environment which could result in major health problems, legal and regulatory issues. Plus, the cost of transportation and even the ability to scale this method is not cheap and has its limitations. As a result, the industry is screaming for an alternative that is truly carbon negative, has good economics, and does not potentially pass on one environmental problem for another.
MANTRA AND THE ERC
In November 2007, Mantra acquired the 100% outright ownership of a chemical processing technology developed by the University of British Columbia's Clean Energy Research Center, entitled the Electroreduction of Carbon Dioxide (ERC). Powered by renewable energy, ERC combines captured carbon dioxide with water to produce high value materials, including: formic acid, formate salts, oxalic acid, and methanol. As a result, Mantra’s ERC is one of very few examples of true Carbon Capture and Recycling, versus Carbon Capture and Storage. Moreover, we believe that Mantra’s ERC process may be the only viable, large-scale alternative. The Company has been awarded one patent for the process and others are pending.
An ERC Primer
There are many potential industrial applications for the byproducts produced by the ERC which represent markets in the tens of billions, if not hundreds of billions of dollars annually. These include the uses in the production of cement, coal power, natural gas, iron and steel, petrochemicals, aluminum, oil sands and others. Thus, the prospective end user list of the ERC-byproduct product offering includes utilities, especially those burning coal to generate electric energy, portland cement producers (which emit approximately 1 metric ton of CO2 for every ton of product, as well as the steel, oil and gas, and chemical industries. Mantra is initially focused on the production of formic acid, or formate. Formic acid serves as a building block chemical to such industry applications as pharmaceuticals, textiles, rubber, pulp and paper, transportation, and plastics.
In fact, sodium formate and formic acid, two of the main by-products of ERC, currently have an average market value of $1,400/ton, with more than 600,000 tons of formic acid produced annually. Their applications are diverse, including feedstock preservatives, de-icing solutions, cleaning solutions and baking soda and others. In addition, Mantra has identified several potential applications for formic acid that would lead to a prolific expansion in market demand, such as steel pickling, fuel cell development and fuel additives.
While the Company has successfully executed comprehensive testing of the ERC under laboratory conditions, the next stage is to initiate a field trial on a major industrial site.
Other Players Must Have “Partner Envy”
Following construction of the larger ERC system, the Company’s first pilot project being developed by Powertech will be sited at the Lafarge Canada Richmond, B.C. plant. The pilot project aims to develop a plant that is capable of converting up to 100 kilograms of CO2 per day to formate salts or formic acid, and that can operate 24 hours per day. This project will enable Mantra and its partner to gather data, performance and economic analysis and even execute technology improvements to the ERC process. Recent tests have already shown a compelling 20-25% return on investment (ROI) and it is expected that this trial will illustrate similar results.
This on-site demonstration will likely begin in 2013 and not only result in future pilot projects but product commercialization as well. As a result, we anticipate that the Company could quickly generate tens of millions in license and royalty revenue through partnerships with major industrial greenhouse gas emitters and users of formic acid alone. Interestingly, the Company's relationship with Pacific Carbon Trust, a carbon offset entity, could be a major wild card in terms of additional revenue through carbon credits as well. Carbon credits create a market for reducing greenhouse emissions by giving a monetary value to the cost of polluting the air.
Although we have only addressed the CCS method of reducing carbon CO2 emissions, there are competing companies and methods that should be noted. Calera, a U.S. development stage company using an ERC methodology similar to that of Mantra has received tens of millions of dollars of major VC investment, does not appear to be knocking on the field test door yet, as its work has seemed to strictly remain in the lab. Nor does it have the type of partners as Mantra, at this stage. Another competitor based in Iceland is focused on the geothermal input versus electricity, which has significant limitations, including the requirement that sites must be in close proximity to geothermal power facilities. Therefore, we maintain that Mantra is at the head of the class in the alternative carbon emission reduction arena.
THE MANTRA TEAM
Larry Kristof – Founder
Tom Unger, Vice-President, Corporate Finance
Jonathan Michael Boughen, Director
Norman Chow, P.Eng
Professor Emeritus Colin Oloman
In our view, MVTG's biggest risk is the timing of the start of field trials and the length of the trial, versus the results. A secondary concern would be the typical delays associated with long-term project financing for prospective customers, which could result in commercialization delays, even in a license model. Execution risks could push meaningful revenue generation out to a later date, or in a smaller initial ramp, thus impacting the Company's revenue ramp or time to profitability. Competition from larger firms or even from newer entrants is a typical concern and is also consistent with firms of Mantra's size and standing.
VALUATION AND CONCLUSION
Given its status as a disruptive force in the potentially huge alternative carbon emission reduction space, and the validation of the approach by its major league partners, we believe that Mantra is a great way to play the renewable energy space. With an enviable signature demonstration site with Lafarge in the coming months, we expect additional pilot projects and partners could come on line, which could result in a number of licensing opportunities. While the stock will be event-driven over the coming months, we believe that the current valuation reflects only a minimal value for the Firm's technology and essentially zero value for its current relationships and market opportunity. As a result, we believe MVTG is undervalued and could easily reach $0.50 as milestones occur. We rate MVTG Speculative Buy.
Analyst: Robert Goldman
The information used and statements of fact made have been obtained from sources considered reliable but we neither guarantee nor represent the completeness or accuracy. Goldman Small Cap Research did not make an independent investigation or inquiry as to the accuracy of any information provided by the Company, or other firms. Goldman Small Cap Research relied solely upon information provided by the Company through its filings, press releases, presentations, and through its own internal due diligence for accuracy and completeness. Such information and the opinions expressed are subject to change without notice. A Goldman Small Cap Research report or note is not intended as an offering, recommendation, or a solicitation of an offer to buy or sell the securities mentioned or discussed.
This report does not take into account the investment objectives, financial situation, or particular needs of any particular person. This report does not provide all information material to an investor’s decision about whether or not to make any investment. Any discussion of risks in this presentation is not a disclosure of all risks or a complete discussion of the risks mentioned. Neither Goldman Small Cap Research, nor its parent, is registered as a securities broker-dealer or an investment adviser with FINRA, the U.S. Securities and Exchange Commission or with any state securities regulatory authority.
ALL INFORMATION IN THIS REPORT IS PROVIDED “AS IS” WITHOUT WARRANTIES, EXPRESSED OR IMPLIED, OR REPRESENTATIONS OF ANY KIND. TO THE FULLEST EXTENT PERMISSIBLE UNDER APPLICABLE LAW, TWO TRIANGLE CONSULTING GROUP, LLC WILL NOT BE LIABLE FOR THE QUALITY, ACCURACY, COMPLETENESS, RELIABILITY OR TIMELINESS OF THIS INFORMATION, OR FOR ANY DIRECT, INDIRECT, CONSEQUENTIAL, INCIDENTAL, SPECIAL OR PUNITIVE DAMAGES THAT MAY ARISE OUT OF THE USE OF THIS INFORMATION BY YOU OR ANYONE ELSE (INCLUDING, BUT NOT LIMITED TO, LOST PROFITS, LOSS OF OPPORTUNITIES, TRADING LOSSES, AND DAMAGES THAT MAY RESULT FROM ANY INACCURACY OR INCOMPLETENESS OF THIS INFORMATION). TO THE FULLEST EXTENT PERMITTED BY LAW, TWO TRIANGLE CONSULTING GROUP, LLC WILL NOT BE LIABLE TO YOU OR ANYONE ELSE UNDER ANY TORT, CONTRACT, NEGLIGENCE, STRICT LIABILITY, PRODUCTS LIABILITY, OR OTHER THEORY WITH RESPECT TO THIS PRESENTATION OF INFORMATION.
For more information, visit our Disclaimer: www.goldmanresearch.com