Hydrodec Share Discussion Threads

[capricious] 08/1/2013 12:48

I know some posts (on other sites) have mentioned Clean Harbors as the likely candidate for the recent JV announcement. Reading the company profile, my impression was that they buy the majority stake and retrain management in Clean Harbor doctrines, doesn't sound like the recent heads of agreement. Of course doesn't mean they haven't taken a different approach in this case.

I remember posting in 2011 when there was a small paragraph in the Apr 2011 final results. I always thought the very brief comment was strange, as it seemed a pretty big deal to me... but anyway the company was Veolia Environmental Services. It's origins are French, but like they do in other countries they have big standalone business in the US.

They also recycle motor oils.

[capricious] 03/1/2013 21:58

Been a bit slow on this one, but missed a great video posted on the 28th.




Actually although it's dated 28th Dec, some may have seen a previous version, anyway, for those that haven't already seen it, it's a good view

[capricious] 03/1/2013 18:19

As the article mentions, the glut has been one reason for the spread differential, but I can't* see the gap completely closing, as production costs/supply/technology etc, mean the US is revisiting the oil boom years.

In relation to Hydrodec, It's a little difficult to say whether high/er WTI is positive or negative. On first look, you'd think higher crude would be positive for resale, but as crude rises I'd expect No2 Diesel oil to follow. The knock-on effect is an increase in competition for feedstock, thus driving up costs. PCP contaminated feedstock should, to a certain extent, be insulated against such fluctuations, but amounts wont be that large.

There has been talk of WTI dropping to $50 this year, the last time that happened the recession was in full spring, so I don't know if the supply demand dynamics would be destroyed in the same way, but anything that keeps prices at this level is good.


* Unless the export restrictions are lifted

[capricious] 03/1/2013 15:52

lol, thanks luminoso, hope you had a good break.


I did go back to the post and attempt to make it more meaningful

[luminoso] 03/1/2013 15:47

I don't think that was ever in doubt ! Happy New Year to you, capricious and thanks for the informative posts.

[capricious] 03/1/2013 15:42

Good activity today, is 2013 the year of Hydrodec?

Ok, I just wanted to be the first poster of the new year


To recap we are expecting the following goodies in 2013

1) Japan news, of any type
2) UNFCCC methodology initial approval
3) JV North America contract sign off, start of agreed expansion requirements*
4) Industrial Oils blender JV, pilot plant/bolt on
5) Update on Mexico supply deal and any reflected performance on the bottom line
6) * Update on PCP activity in US
7) Missed anything??...

[capricious] 29/12/2012 12:59

The Yen has been pretty strong from around the end of 2010, to it's strongest point at the end of 2011. With the new Abe government and the pressure on the BOJ, and capital searching foreign shores for better yields, the previous weakening trend against Sterling and the dollar, should continue. Although with each country likely to pursue beggar thy neighbour, and the Fed linking capital injections to employment rate, I can't see the weakness being allowed to last indefinitely.

How does this relate to the Japan JV (delays or otherwise), probably not a lot as I assume funding will be in the local currency, but at some point if it reaches the historic lows against the dollar, raising capital elsewhere, even with it's inherent risks, could be a considered option to fund construction.

Still, since Hydrodec will be paying part or all of current run costs in Japan now, every little helps.

[capricious] 21/12/2012 11:13

I've been thinking of the ways in which the JV will be structured.

I can't see how it would directly affect current share holders, i.e dilution, restructuring of existing share capital etc. Apart from it being impossible to split the parts when share capital is linked to the whole group, it's got to be held up in a fiduciary sense, equally between minority and majority shareholders, so a PIs interests should align with someone like Mr black.

Without knowing the details used when the subsidiaries were incorporated and how they are linked to the holding company, I assume the share ownership of Hydrodec North America LLc, will be adjusted to the final 50.1/49.9% split, similar in nature to Pacific Eco Refining Co Ltd. Clearing the debt against Canton being a prerequisite to the deal.

We loose 50% of all America, but in all honesty, the risks are vastly diminished, with a real doubling of capacity within 1-2 years. I see it as a win on all levels; funding lines that open because we are partnered with a large US brand, shared risks, a bootstrap into expansion in current applications, and then with industrial oils.

I wonder if the first industrial oils pilot plant would be in Australia. They've been working closely with at least one blender (in Australia) and the recent video mentions that technically there is a small process addition to current operations, so an expansion to Young is an option. If they can get the stewardship grant, a new plant is also an attractive option.

It makes obvious strategic sense that Mr Black has been building his stake, it protects his investment and he pretty much becomes the deciding factor in any future merger/buyout. Hopefully he is in it for the long term with a chance for Hydrodec to fulfill it's potential.


I think the board and the teams on the ground, are due some thanks for all their efforts.
Well done guys.


It's a couple days early, but to my fellow Hydrodec'ers, and all those within the company, I hope you have a lovely Christmas and a safe and happy New Year.

[spike_1] 20/12/2012 11:07

capricious: many thanks indeed- much appreciated - Mike

[capricious] 20/12/2012 10:01

Hi Spike,

Here we are, I've posted the actual update - although the info is compiled from publicly available data, I'll refrain from adding the whole doc in deference to Edison Research


Major milestone for industrial oil

Hydrodec recently announced proof of concept in its industrial oil research programme, supporting management's intention to deploy Hydrodec's IP in larger global markets. It has also announced £5m of new debt financing, removing any remaining uncertainty about short-term financing.


Proof of concept for industrial oil programme

Hydrodec's re-refining process has been proved commercially for transformer oil, which is a very specific feedstock. Re-refining is more challenging for other used industrial oils that may contain a much wider range of components. Hydrodec has recently proved that it can apply its process to a wide range of used industrial oils, outputting high-quality Group II base oil and made further progress towards a process for re-refining used engine oil. Management is now able to move to the pilot pre-commercial phase of the industrial oils process, working with partners to secure feedstock supply and a route to market for the re-refined oil produced and constructing a pilot processing facility. The news supports management's longer-term strategy of applying Hydrodec's IP to larger global markets. While the global market for napthenic transformer oil is estimated at US$1.5bn/year, the markets for industrial oil and engine oil are estimated to be US$8bn/year and US$20bn/year respectively.


£5m new debt financing

In preparation for establishing the proposed Joint Venture arrangement in the US, £2m of loan notes issued in 2011, which bear a coupon of 10% and are secured against Hydrodec's US facility, are to be redeemed. Loan note holders are being given the option of receiving cash or shares in exchange. At least £1.4m of the 2011 loan notes, including those held by non-executive director Andrew Black, will be converted to shares. In parallel, Hydrodec has also announced £5m of new debt financing with a 5% coupon, backed by Andrew Black. Up to £0.6m of the proceeds may be required to repay holders of the 2011 loan notes. The remainder will be used to improve the efficiency of existing operations and to help fund further development of the industrial oil process and the early stages of expanding the US operation.


Valuation: Awaiting finalisation of US JV agreement

The positive news regarding longer-term industrial oil developments is complemented by the announcement of new debt financing, which removes any remaining uncertainty about short-term funding, where we had estimated a US$5m shortfall. Noting the minor dilutive impact of the new shares (estimated as 17.6m), we leave our indicative valuation under review until the JV agreement supporting expansion in the US is finalised.



For those who are interested, Edison allow users to sign up without having to open some paying account.

[spike_1] 19/12/2012 17:57

Thanks Capricious, are you able to supply access to the note by any chance ;o)
Best wishes - Mike

[capricious] 19/12/2012 17:27

A very small bit of bad news, the Ohio Tax authority are asking for some of their grant money back. $60k

And reducing the term of tax credits from 7 to 6 years.

[capricious] 19/12/2012 14:49

Edison have released an updated note

[capricious] 19/12/2012 14:19

Excellent video.

Couple of points.

It clears up the questions I had concerning the materials that constituted the recent proof of concept, and importantly whether the concept was confined to group II. As in a previous post, Group III would really be exciting, and it seems there may be a route to achieve this. No wonder the third party interest.

Overall they are paying slightly more interest than the previous funding, but now have substantially more to use into 2013.

[capricious] 19/12/2012 14:07

Thanks Sammy

[sammy_smith] 19/12/2012 14:04

Audio interview with Ian Smale, Chief Executive
Ian Smale, CEO, talk about how the proof of concept in oil research program opens the possibility of an industry-leading approach to general oil re-refining with high recovery rates, competitive operating costs, high quality products and the potential for carbon neutral oil. Ian also talks about its new debt financing and why it is attractive to Hydrodec.

Click the link below to listen:

[sueyou1] 19/12/2012 13:19

I did say Mr Black was likely to back HYR with cash ;-)

[capricious] 19/12/2012 12:42

As EBITDA is negative I'm unfamiliar as to what the actual valuation will be based on. As I understood, some other variables will be used, like sales. If it were for a majority stake, then assets, receivables out goings etc, would inform the valuation.

Again I'd have thought the share price would've responded better, the risks are being pushed down, whichever way you look at it, progress has been very good.

What is known about possible future changes, that are effectively keeping the share price exactly where it has been before the recent raft of good news?

Maybe it's Christmas and everyone is on their hols.

[vitamal] 19/12/2012 12:21

Not if based on EBITDAIf the other loan stock is at 8 percent perhaps the outgoings on that can be reduced considerably?

[capricious] 19/12/2012 10:01

Edison might put out an updated research note.

I expect the better financing deal for Hydrodec is a lot to do with the JV, the coupon on the previous notes to Mr Black were 10%. They are now being exchanged for 5%. In one stroke haven't they just improved the financial performance which would see the third party pay more overall?

[capricious] 19/12/2012 09:50

I was pretty sure a lot of the funding would come from Mr Black, and he's not disappointed.

With possible joint ventures, it basically derisks the business; we now have a more assured outcome. This draws a line upon which further investment will arrive. Not only does the JV make Hydrodec more attractive, but a JV with an american company would/will open doors to additional funding lines.

[alanrussell] 19/12/2012 08:26

Indeed. Just need some word on progress in Japan now and 2013 loks very good.

[copestake] 19/12/2012 07:57

Excellent news