Tag Archives: environment

Drum Beats Grow Louder for EcoSynthetix Bio-Adhesive Commercialization

EcoSynthetix PlantWe continue to believe Ecosynthetix (ECO.TO or US OTC: ECSNF) is VERY close to an inflection point for the commercial adoption of its DuraBind bio-adhesive for the wood panel market which consumes $Bs in adhesive per year. Their eco-friendly adhesive is intended to replace the industry standard  which contains formaldehyde and has come under increasing critique for its health dangers, starting with regulations in California.

Yet investors are currently paying only a modest premium to ECO’s US $57M in net cash to participate in this long term growth opportunity. ECO is not a client of our investor relations consultancy, but we would love to represent them, and given the compelling nature of the story – this author established a position starting about a year ago (too early it now seems, but happy to be Long Term!)

These recent developments support our view:

1) July 27th the EPA finalized a rule to reduce exposure to formaldehyde vapors from certain wood products EPA Formaldehyde Rule Summary

2) Cannacord Genuity recently launched a Sustainability & Special Situations Watch List that highlighted Ecosynthetix – the report should help to expand awareness of this very compelling special situation. (To its credit, ECO has neglected its IR outreach – other than good quarterly update – in favor of focusing all resources on the one thing that really matters: commercialization, and therein lies the valuation discrepancy relative to its rapid potential revenue ramp).

3) Ecosynthetix reported excellent progress in its commercialization efforts, which involve industrial testing, in its Q2 reporting:
ECO is currently live with 10 customers, representing over 50 manufacturing lines. ECO estimates each line could account for US $500k – $3M in annual revenue. Further, to put this in perspective, there are more than 1,100 wood composite lines in the world. Canaccord estimates ECO’s current production capacity of 235M pounds per year as equating to approximately  C$190M in revenue, or less than 2% of the total global adhesives market.

ECO’s longest trial has been proceeding over a year or more and accounts for 5 million square feet of produced and sold. One of the company’s customers started its process to be formaldehyde free two years ago and looked at 217 chemistries, eventually short-listing three solutions and performed industrial testing on their products and is currently evaluating only EcoSynthetix. ECO stated on its Q2 call that 10M square feet of board have now been produced using its adhesive.

ECO is very active in raising awareness and driving adoption of its bio-based polymer. Its products are being evaluated by 7 of the top-15 global wood-based panel manufacturers, resin technology providers that provide the PMDI resin used in chip boards, furniture manufacturers as well as big box retailers. EcoSynthetix has indicated that it hopes these tests could lead to commercial orders in the near term.

ECO defines commercial success as running continuously on one line for 30 days. It has run continuously for one or two weeks (and produced 10M sq feet of panels for sale), but for various reasons (largely due to the logistics and processes learning curve involved in bringing a new adhesive into the production process) it has not yet hit its stated benchmark for commercial success but importantly there have been no issues that are not reasonably rectified – and the testing has enhanced ECO’s ability to bring new lines on line expediently.

4) Major retailers are also helping to lead the adoption trend, as both Ikea and Walmart have publicly announced plans to embrace No Added Formaldehyde (NAF) production for the wood products they offer.

5) Putting their money where their mouth is, CEO Jeff MacDonald recently bought 34,200 shares at C$1.65 on 8/24/16 and ECO’s chairman Paul Lucas bought 10k shares on Friday, 8/19/16 for C$1.72 View ECO Insider Activity Here

While it’s taken a year longer than I first expected for the adoption to transpire – in retrospect is was naive to think large companies would move so quickly, particularly during a period of very robust demand for their existing products – and no real impediment to selling those containing Formaldehyde other than in California.  Trialling new adhesives takes time and disrupts production, which impacts the top and bottom line, so it’s understandable in a period of strong demand that the conversion process would get pushed out a bit.  

From our dialogues with those focused on the ECO story – November/December are typically the slowest periods of production in the wood panel industry – where inventories are being worked down and the ability to convert lines to a new methodology is much less disruptive. 

To be continued.

 

Puradyn’s President Reviews Cost & Environmental Benefits of its Engine Oil Filtration

Oil & Gas Product News
September 2, 2014

Puradyn Filter Technology’s (OTCQB: PFTI) President, Kevin Kroger, wrote a great overview of the benefits of its engine oil by-pass filtration as part of the operations management concept of Condition-Based Maintenance (CBM) which seeks to anticipate the needs of the equipment and extend equipment life. A link to the article is below, and we loosely excerpt a few key elements [and add our own in square brackets]:

http://www.oilandgasproductnews.com/article/19317/helping-the-environment-can-also-be-good-for-profits

Puradyn Filter Technologies’ TF-240 filter provides microfiltration for engines with an oil capacity of up to 85 gallons (322 litres). It can be used in multiples to scale to larger engines that hold 500+ gallons (1,890 litres) of lubricating oil. In a test, one international drilling client safely extended oil drain intervals from 500 hours to 2,500 hours.

[That eliminates four oil changes at roughly $1,360 in oil cost per change.
85 gallons x $16 per gallon = $1,360 in oil savings per omitted oil change
$1,360 x 4 = $5,440 Gross oil savings before filter costs
Filters are ~$170 x 5 filters (one for each 500 hours) = $850
$5,440 savings – $850 filter cost = savings of $4,590 – an 84% reduction in costs BEFORE considering savings from reduced labor, downtime and the cost of transporting new and dirty oil.  We have not factored in the initial unit cost which is approximately $2,000.

Further, if we estimate the engine runs 22 hours per day, these savings would replicate at least 3 times each year, amounting to $13,770 in oil cost savings per engine / per year.  

The larger the engine, generally the more oil it uses and the more (costly) valuable it is – and the more its preservation matters from a CapEx standpoint.  Size matters in engine oil filtration as the savings and the protection/preservation value grow substantially with the engine’s size.   We have heard anecdotal evidence that these significant savings are likely dwarfed by savings in engine maintenance, including overhauls, and extended life of these costly assets.  Normal maintenance procedures, such to overhauls and full overhauls may be eliminated or substantially delayed to far longer intervals – with savings exceeding $50k before the consideration of lost productivity from down time.

What makes Puradyn an attractive investment opportunity today, is that since 2007 they have refocused their solutions and business on far larger engines, versus their prior truck and bus focus.  While they proved the technology worked extremely well, and the cost and performance benefits were clear, the magnitude of the cost savings and preservation benefits were limited by the smaller engine size, and therefore became less of a management priority with companies they were working with.

Now with a broad deployment of units within a major customer – the reduced oil and oil change costs, along with reduced maintenance costs and extended engine use, life and time between overhauls, can be very clearly seen and measured – and the benefits are compelling.]   

A large driller client of Puradyn that uses the CBM tools of bypass oil filtration and oil analysis estimates that the annual savings in new oil purchases and waste oil disposal is more than $5 million (US). This translates to an annual reduction of more than 370,000 gallons of engine lubricating oil. In addition, personnel requirements for oil drain maintenance are reduced by as much as 5,500 hours.  [And as any rational company would, they have been expanding their rollout of Puradyn filtration to more and more drilling systems.

The investment thesis for Puradyn therefore rests on their ability to leverage the clear and proven benefits of their filtration technology proven at a major drilling company – by introducing and then demonstrating the solution to other leading drillers.  This process is well underway and management remains very confident and optimistic that these sales and demonstration efforts will turn into broader deployments that should drive its financial performance and shareholder value.  No guarantees – but proven technology and a highly credible team that seems up to the task of selling substantial savings.

Our thesis remains the same following improved Q2 results from the Company.  We are waiting for further market engagement from one or more drilling companies that will signal growth and adoption that PFTI investors have been patiently awaiting.] 

Note: As we have indicated, our parent company, Catalyst Global, is engaged in discussions to be engaged as IR counsel by Puradyn, however no contract has been executed and there has been (and will not be) any compensation paid related to this or future updates.   The principal of CG Focus List / Catalyst Global has established a long position in PFTI Common Stock and will not trade in PFTI shares over the next 5 trading days.