As I expected and wrote here on Friday, QFUEL released before open an update on Skive Proof of Concept progress. I am surprised by the market reaction. Pareto Research stated: We expect a significant positive share price reaction today as achieving PoC at Skive is key for the investment case. I admit I expected material positive reaction too.
I volunteer my view that is also based on research reports published today. I enclose a summaries of the brokers reports below.
- Of course it would be better if Proof of Concept milestone was announced. I believe what we got is the second best, with some news exceeding market expectations of Proof of Concept.
- The plant is down due to failures of the mechanical feeding system. The Proof of Concept is about chemical recycling part of the plant. From the press release it seems that chemical recycling part is working well. That is very positive reconfirmation.
- Feeding is technologically less risky part of the plant and therefore it is unlikely that this could cause a major delay. QFUEL statement confirm this: “we are confident that our targeted proof-of-concept will be reached shortly” Again, this is very positive.
- QFUEL announced the second line is in full operation. This is the first time the second line has been in operations, and proves its capability of producing the same, high load as the first line. Again that is positive.
- QFUEL initially communicated that they will first reach PoC on one line and than they will start the other lines. The fact that we now have two lines running may indicate, that the production rump up could be faster than I originally assumed.
- QFUEL reconfirmed The 2022 target for Skive is processing of 12,000 tonnes of plastics, ending the year at a 20,000 tonnes per year run rate as communicated previously. Again, this is very positive, because it indicates, that the delay caused by the feeding systems should be very short term.
- The press release stated that all four lines are the same. One interpretation of this could be that the reconstruction is finalized on all four lines. I do not know if this is right, I hope to get this clarified on the Wednesday call. Again, if this is right, it is another positive.
- Company guidance on 2022 production and capex at Skive remains unchanged.
- Finally, the whole communication is positive – QFUEL significantly improved in its communication skills. For me this is a big leap forward.
In Summary we got a news that the chemical recycling works well, proof of concept should be reached very shortly, reconfirmed production guidance for 2022. On the top of it we got a news QFUEL runs on two lines already, which may indicated faster production rump up. Thumbs up from me.
I enclose below summary from brokers reports published today. Bold emphasis was added.
Pareto Securities Summary:
QFUEL NO – Quantafuel – Progressing towards Proof-of-Concept
Quantafuel is progressing towards Proof-of-Concept (PoC) with two of four lines having “operated stably at design capacity before the runs were cut short by mechanical failures in the feeding systems”. Further, load and performance level would have qualified for PoC but the period of production was too short to meet Quantafuel’s criteria, to our understanding. However, the company expects to resume production and achieve PoC shortly. Please note that the exact definition of PoC is not publicly disclosed. Company guidance on 2022 production and capex at Skive remains unchanged. We expect a significant positive share price reaction today as achieving PoC at Skive is key for the investment case. Our recommendation and Target Price on Quantafuel is under review.
Further details on PoC and 2022 guidance
- Quantafuel has not publicly disclosed the exact definition of PoC, but today comments “all four lines in Skive are identical, and PoC is linked to running one of these lines with post-consumer plastic waste at high load with high availability for a prolonged duration, producing a liquid acceptable for our offtake partner”
- Following PoC, the company plans to ramp-up production with full capacity to be achieved in Q4’2022
- The 2022 target for Skive is processing of 12,000 tonnes of plastics, ending the year at a 20,000 tonnes per year run rate as communicated previously. Capex at Skive remains unchanged at NOK 610m
Fearnley Securities Note:
- Skive continues progress towards PoC
QFUEL announced this morning that two out of the four lines at the Skive facility have operated stably at a capacity qualifying for Proof-of-Concept. This is the first time the second line has been in operations, and proves its capability of producing the same, high load as the first line did in December. The mechanical issues in the feeding system announced late December have yet to be resolved before PoC can be reached, however, we view it as positive that line one and two are able to operate as planned after the installation of the new equipment. The company reiterates that PoC is linked to running one of the four lines with post-consumer waste at high load with high availability for a prolonged duration, producing a liquid acceptable for the offtake partners, and that full production is targeted to be reached in Q4 2022.
ABG Sundal Collier take:
QFUEL – Reports that 2 of 4 production lines have operated at load & performance level qualifying for proof-of-concept (i.e using consumer plastics, running at design load & producing product within client BASF specs). The plant is down due to failures to the mechanical feeding system, but QFUEL says “we are confident that our targeted proof-of-concept will be reached shortly”. It appears that the new equipment installed in the chemical recycling part of the plant works well. All guidance parameters maintained. It would of course have been perfect if this announcement could have been provided with all systems, including the mechanical feeding system, up and running, but the key issue is that the chemical recycling part of the process works as intended. It sounds like the final PoC announcement is close.
More Clarifications on Wednesday
As I reported, some brokers are hosting Quantafuel roadshow on Wednesday. Our family office will be attending and I will report here any interesting updates.
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