Friday, May 16, 2014
NovX21: Urban Miner
Mention platinum and most of us think about beautiful and expensive jewelry. However, platinum can be found in the dullest of products. Catalytic converters used in automobiles for emissions control represent about one-third of the demand for platinum. The devices attached to the rear of our cars uses a mix of previous metals to remove nitrogen oxides, carbon monoxide and hydrocarbons from engine exhaust. The catalytic converter on a typical car uses a gram or less of platinum, while a diesel truck requires five to ten times that amount. A gram may not seem like much by multiple that by millions of automobiles and you begin to get a picture of demand.
While there is steady and growing demand for platinum, supplies of this precious metal are anything but stable. South Africa is the world’s largest supplier of platinum, producing as much as 70% of world supply. Russia and Zimbabwe are number two and three. Anglo American has closed some of its South Africa mines as the result of higher taxation and strikes by labors continue to plague the remaining operations. Zimbabwe has banned exportation and has demanded in-country refinement in order to capture more of the value in the supply chain. New political upheaval in the Ukraine, compounded by Russia’s aggressive actions in that region, has made some in the industry nervous about Russian supply sources as well.
Some manufacturers have simply replaced platinum in their catalytic converters. However, NovX21 (NOV: TSX-V) is addressing the problem of supply with an ‘urban mine.’ The company has developed a chlorination process to reclaim platinum as well as palladium and rhodium from spent converters. It takes NovX21 about two months to process a converter, but the time is well spent. The process recovers as much as 97% of the precious metals in the ceramic component of each converter. On average each ceramic component yields 3,000 grams of precious metals per ton of ceramic. There is no waste with the NovX21 process, even the ceramic can be reclaimed and sold to a ready market for hydraulic fracturing materials.
The company estimates it will cost about CAD$168 per ounce to operate its reactors. Compare that to the current price for platinum near CAD$1,466 per ounce. Accordingly, it seems there is sufficient profitability to recover the $10 million capital cost of each plant.
Protected by U.S. and Canadian patents, it is a process that is economically competitive and environmentally friendly. The Company has developed a production line that is capable of processing 50 tons per year. To scale up for higher volumes, a series of reactors can be placed side-by-side, sharing pre-processing and post-processing infrastructure.
NovX21’s closed loop system generates no emissions or wastes, giving it a ‘good neighbor’ profile. The NovX21 process is apparently so benign it can comply with regulations for any industrial park. This has impressed local officials in the Quebec, Canada area, who have expressed interest in locating NovX21’s first production plant in their district.
The company is counting on insecurity in the platinum supply chain to get its foot in the door with distributors. Besides perfecting its process, management has been scouring the globe for sources of used catalytic converters. Both Europe and North America The company is also actively seeking off-take agreements and is prepared to offer samples and provide test results to demonstrate the quality of their reclaimed metals.
NovX21 management promised commercial production within the next year and is currently vetting sites for the first production plant. Equipment sourcing and construction will follow before year-end 2014. The first plant is likely to feature four reactors and have a capacity of 200 tons per year. Construction is expected to require eight months to a year.
The stock of NovX21 trades on the Toronto Stock Exchange-Venture under the symbol NOV. Although the stock has built of relatively good trading volume, but the stock is still priced at a thin Canadian dime. One of the problems in valuation might the prospect of dilution. NovX21 currently has 100 million shares outstanding, but another 55 million shares could be issued upon exercise of warrants and options the Company has issued in the course of raising capital and compensating employees and service providers. Fortunately, I do not expect to see a flood of derivative exercises until the stock reaches the CAD$0.25 to CAD $0.30 price range. The average warrant exercise price is CAD$0.23 and for the options it is CAD$0.21.
NovX21 is not a stock for everyone. It is a stock that requires a tolerance for business risk and price volatility. However, for those with nerves of steel and the patience to wait for commercial operation, NovX21 could be an interesting long-term play on ‘urban mining.’
Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.