Hazer Group (ASX:HZR) Presentation, FNN Online Investor Event, May 2020

Company Presentations

Hazer Group Limited (ASX:HZR) Managing Director and CEO Geoff Ward presents on the Hazer process for low emissions hydrogen gas and high purity graphite production from biogas, CAPEX approval to proceed with the company's commercial demonstration plant and offtake discussions, at FNN's Investor Event.

Thank you all for attending today. What I'll present today is a snapshot of the company and intentionally also a slightly abbreviated presentation started here in my local version. I encourage you all to go to our website to watch the videos and animations of our process but also to look at the larger, more in-depth presentation that's available there.

Next slide please, Clive. As Clive said in the introduction, the Hazer Group is commercialising the Hazer Process, and that's a low-cost, low-emission chemical production technology that produces hydrogen and synthetic graphite. It was attractive to me and attractive to many of our emerging commercial partners in that it produces two high-value products, hydrogen at fuel-cell grade purity and synthetic graphite, both of which we think will be key products in this decarbonising economy.

In the 21st century, you would probably not have to be paying a lot of attention to not have picked up on all of the focus on hydrogen as one of the key drivers of decarbonisation, one of the key drivers of continuing to take advantage of low-cost renewables, and one of the key next steps to actually creating more effective, more efficient, more economic industrial processes. We think there's the growing evidence for premium market for the hydrogen from low-emission sources, driven by large trading partners in Australia's north, Japan, Korea, etc. We think that we have a unique position where we can offer the lowest of all emission technologies to be an early mover into this market.

We're well progressed towards our first commercial demonstration projects, which we hope to have under construction in the next one to two months. That will be targeting startup in the first quarter, second quarter of next year, and that will build on our successful pilot program, laboratory, and basic R&D over the last five years. We're seeing this come to fruition at a really critical time as major commercial opportunities are emerging, as companies are starting to focus on low-emission transport, low-emission methanol, low-emission fertiliser processes. We think we're seeing initial evidence of this through the kind of quality engagement we're getting with companies who are leading this push in Asia, such as Chiyoda Corporation, Japan. Next slide please.

Just quickly, what is the hydrogen economy? Hydrogen is a means of storing, transporting and using renewable energy to its most effective end process, end use, or end designation. To that extent, what it can be seen is, it will be key to seeing the next 20 years of renewable investment and the next 20 years of energy transition happen in a cost-effective as well as environmentally-effective manner. If you think that the last 20 years, one of the major investments theses across the infrastructure markets has been the development of wind and solar at residential, commercial and utility scale, and we've seen enormous buildout of new energy facilities based on wind and solar, driven by the near 95 per cent plus cost reduction we've seen in their prices over 20 years. That's allowed countries like Australia to increase their annual penetration to as high as 30 to 40 per cent in places like south Australia with relatively low impact.

Of course, if you're a country like Japan or Korea that doesn't have high wind and solar resources or if your grid isn't set up to assume that amount of renewables, there have been issues that are starting to be created around resilience, having energy where it's needed, when it's needed. Hydrogen has been identified as one of the key vectors alongside pump hydro, alongside battery storage, that will enable the ongoing large scale integration of renewable energy into grids, into modern high-intensity industrial grids. It has a critical role to play to allow us to take renewable energy from where it's generated to where it's needed. The hydrogen can be transported by pipeline, by ship or by truck. In the future we could see the export of renewable energy from Australia to countries to our north. For instance, through shipping. We could see switching of wind resources in South Australia to support networks in Sydney. We can find ways to bring more and more of that variable energy into our system using hydrogen as a buffer, because hydrogen will allow you turn excess renewables into cheap hydrogen, and then hydrogen back into energy with no carbon emissions when it's required.

As well as being a very important enabler of that low-energy, low-emissions economy, hydrogen is a product in its own right. It's a molecule that can be stored, used, reacted, etc. Hydrogen has an important role to play in the decarbonisation of transport, particularly heavy transport, with heavy haul vehicles, shipping, trains, etc, being ideally suited to be electrified by the use of hydrogen fuel cells and hydrogen fuel rather than through batteries. That's a trend we're starting to see accelerate. It can also decarbonise industrial energy use by providing large-scale heat and energy combined into heavy industrial processes. One significant process is steel-making, where the use of hydrogen is a reductant and as a fuel is seen as a very key means of actually taking the carbon content of steel down. It can decarbonise building heat and power systems through the use of large fuel cells to provide district heating and district power. It also can be created through renewable means to be a feedstock for major industries, such as fertiliser, ammonia, urea, explosives, and the petrochemical industry. It's a way of taking the high carbon intensity of those industries down as we go through our energy transition. Next slide please, Clive.

Where does the Hazer Process fit into this enormous opportunity? Morgan Stanley has speculated that by 2050 it could be a multitrillion-dollar industry, such as the oil and gas industries these days. In the Hazer Process we take a methane gas, and I'll talk in a moment about our preferred feedstock, biomethane or biogas. We take methane and we split it into two products, hydrogen and graphite. We do that using a fluidised bed reactor, a well-established, well-understood, and well-proven chemical reactor design. Iron ore is a low-cost sacrificial process catalyst. This allows us to take a well-proven gas processing design to use an abundant and readily available and low-cost catalyst to produce two high-value products without a CO2 emission being included as part of that process.

This presents us a very unique niche that we think will be very attractive in the early development of this high-premium, low-emissions hydrogen industry. At the moment, if you wish to produce hydrogen, we have two broadly available process streams. The existing incumbent stream is called steam methane reforming, and it also uses natural gas or methane as a feedstock, as we do. But rather than using a low-cost iron process catalyst as the Hazer Process utilises, it uses more expensive catalysts, and it also combines the methane with steam, so resulting in the production of hydrogen and a very significant amount of CO2. In fact, somewhere in the order of 10 to 12 tons of CO2 are produced for each ton of hydrogen produced.

The alternative and emerging green process is electrolysis. In an electrolysis process, we take water, and by using a very high amount of electricity, we split that water into hydrogen and oxygen. It's a process which is theoretically clean when using renewable energy only but has been expensive to date due to its high energy demand, and if it is not used only with renewable inputs, becomes quite polluting also.

The Hazer sits between those processes and offers a low-emissions pathway, such as electrolysis, but with the efficiency of a steam methane reforming process. We think that presents us with the unique commercial opportunity to exploit it as the hydrogen market grows. Next slide, please.

As we've just set out, Hazer has outstanding sustainable development credentials, and we think this is proffering us great early opportunities. We have identified and optimised our process to be based on renewable fuel, biogas. Biogas is a methane gas which is generated by the decomposition of organic waste, whether that's agricultural waste or more commonly landfill gas or sewage sludge, so from landfills or wastewater treatment plants. We've identified that most major cities have two or three large landfill or wastewater treatment plants. You can map them around all of the Australian cities, but also Asian cities, American cities, North America, European cities. Not surprisingly, over time what's happened is these facilities have become consolidated. No longer does every small council area want to have their own landfill. And due to the restrictions on urban growth, permitting and planning, they've tended to consolidate into larger facilities on the fringes of cities.

Those same areas typically host industrial zones, heavy logistics transport hubs, public transport depots, and other sorts of heavier industry. We have the situation where our ideal feedstock and our potential future customers -- bus fleets, truck fleets, waste fleets -- are co-located close together. By using the Hazer Process, we can offer an opportunity for a local government or state government or a city to both find a way to maximise the use of their waste resources, to create a sustainable waste to energy opportunity that generates local revenue, generates locally produced energy and adds to local economic growth, but also reduces the emissions of the various services that those same state governments utilities typically contract for -- public transport fleets, waste flights -- as well as supporting local industry through logistics and transport.

We've got a great opportunity to both localise energy production, reduce waste and emissions in an existing city utility and provide a low-emissions transport fuel to local customers close to their desired operations. Those end customers go back to providing services to the same communities that are providing the waste. We become part of the much-desired circular economy. In this situation, Hazer offers not only a low-emission local development opportunity, but we actually generate a very significant abatement credit. Because we're destroying a naturally occurring methane while capturing the carbon, we will qualify for an abatement credit that we have had estimated by external consultants. It's somewhere around about a hundred tons of CO2 abatement credit for each ton of hydrogen we produce, so offering our customers the ability to very materially offset their emissions by buying from us. Next slide please.

That then ties into where are we in our development path and what is our strategy? The Hazer technology was originally developed at the University of Western Australia and has been further developed in our research partnership with the University of Sydney. The technology has gone through a very rigorous technical development process from primary research, to benchtop and laboratory testing, to upscaling through two successful large pilot programs which we completed through 2018, 2019. We're now ready to step up and build the first large-scale fully operational sub-commercial but near commercial scale project, and that's our Hazer commercial demonstration project. This project will prove our technology scale-up, demonstrate our innovative commercial model, and allow us to show that our technology can be derisked now into commercial industrial operations. It secures us the first operating site and provides an expansion platform as the hydrogen market in its base, Western Australia, grows. I'll speak about its details in a minute.

Alongside proving our technology through our commercial demonstration project, we're also in discussions regarding a number of commercial feasibility studies with customers in Asia. We're going to look to develop these feasibility study opportunities in parallel to the path of the commercial demonstration project. We think that within one to two years, as we demonstrate our technologies through the CDP, we'll have commercial scale projects ready to progress into execution based off these feasibility studies. Our third commercial development stream is our collaboration with Mineral Resources (ASX:MIN), our major shareholder, regarding the development of a synthetic graphite project in Western Australia. This is a three-stage collaboration of which stage one has been completed, and we're continuing to talk with Mineral Resources about the further development of this opportunity. Next slide please.

Our main focus at the moment, which we have been announcing progress regularly to the market on over the last year, is our commercial demonstration plant. This is a proposed hundred ton per annum hydrogen production facility which will produce approximately 380 tons per annum of graphite alongside it. We have agreed with the water corporation, the Western Australian Water Utility, to locate the plant at their Woodman Point Wastewater Treatment Plant. This is a large wastewater treatment site located to the south of the city of Perth providing services to around about 600,000 customers in the city of Perth and its southern metro region. This project is planned to operate for three years, and we're seeking a startup of this plant in the first half of next year.

If I look at the milestones we've achieved to date and what our next milestones are. We engaged with the Water Corporation regarding developing this demonstration project at the start of 2019. We were able in May last year to secure an MOU with them to collaborate on its development and for the water corporation to supply biogas to Hazer as feedstock for the plant from their existing sludge digestion facility, which is shown in the photograph alongside. In July 2019, we appointed Primero Group as our engineering contractor to undertake an update of our feasibility study, to renew the basis of design, and to progress detailed design activities to the point of being able to take a project budget approval and move into the point of issuing fabrication construction design contracts.

In December of 2019, we secured a nonbinding term sheet with BOC Limited for the offtake of hydrogen from this project. BOC is one of the three major industrial gas companies in Australia alongside Coal Gas and Air Liquide. We've seen significant interest from other customers about the potential to take hydrogen from our project. We look forward to being able to work in with the emerging hydrogen for transport, or hydrogen for industry opportunities which have been promoted and stimulated by the National Hydrogen Strategy by ARENA and by the CEFC.

In March of this year, the board approved a capex budget for the project of $16.65 million. We've approximately completed detailed engineering through 40 per cent at this point. We're confident that we can lock away both the project flow sheet, its detailed material and energy balances, and its detailed equipment specifications to the extent that we can approve a project budget. We're now continuing with some final design activities before taking a financial close, project sanctioned decision, which we're anticipating to take in the middle of 2020. We continue to target a ready for startup, a commencement or commissioning date, of the end of Q1, early Q2 2021.

Our activities have been only marginally effected by COVID-19 to date, and I really acknowledge the work of my team to keep working through the last two months. They've worked from home to work remotely with suppliers and designers. We've been able to manage our schedule with only moderate impact so far.

The Woodman Point Wastewater Treatment Plant site is currently operating a large-scale biogas facility. Around about half of that biogas is currently used to generate electricity, with the remaining half being flared for operational reasons. We initially will be using gas that is currently flared, but we hope on the success of our trial to be able to work with the Water Corporation to expand our operations to take advantage of more of the gas, in fact all of their future growth gas, to be able to have a large commercial and graphite operation based at Woodman Point.

One of the key developments in the project through the year was securing government funding for this project. We were awarded and approved a grant of $9.4 million through ARENA, the Australian Renewable Energy Agency. That grant was secured in September, and we executed a final and binding funding agreement with ARENA in January 2020 to cover that grant. Next slide please, Clive.

We're in a really exciting time for the company where we've progressed through research and development and piloting. We're now building our first large-scale operational plant. We've secured an outstanding partner in Water Corporation to work with that. And we've demonstrated an innovative commercial model which we think will be attractive in both other locations in Australia, but also through international destinations where we're seeing significant interest, in Japan, Singapore, and other Asian countries.

We've built a strong network of alliances and partnerships which are helping us progress this opportunity. I've mentioned briefly, we do have a collaboration with Mineral Resources, and that is under our binding collaboration agreement which we executed in December 2017. That is for us to work collaboratively with Mineral Resources on the development of a synthetic graphite project under a three-stage gated process, stage one of which has been completed. We continue to work closely with Mineral Resources. It would be fair to say that we've progressed more slowly in that collaboration than both of us had hoped as we come to grips with the complexities of the graphite market, but we continue to appreciate their support over the last two years.

An exciting development in the second half of this year -- as we've progressed our commercial demonstration plant, we've also secured funding from the WA state government under their renewable hydrogen fund for a feasibility study into establishing a hydrogen refuelling facility in the Mandurah or Peel region, a local government region to the south of Perth. This opportunity arose through the work that we're undertaking to a commercial demonstration plant. In talking to potential customers, in talking about our projects to the local businesses, we identified significant interest in transport using hydrogen on heavy fleet, on waste fleet, and in other vehicles in the area south of Perth. We think that this interest can be matured into a commercial project where we would develop a refuelling facility which could be fuelled in the future from an expanded Hazer CDP, or could be fuelled from other green hydrogen opportunities which are emerging. We have now got a grant from the Western Australian government to undertake a feasibility study into developing that first commercial hydrogen refuelling facility in the Mandurah region.

Very exciting development through 2019 and 2020, where we spent significant time engaging with Chiyoda Corporation. Chiyoda are a leading Japanese engineering and construction company, they're listed on the Tokyo stock exchange and they're one of Japan's leading engineering contractors. Chiyoda are a global leader in the hydrogen industry and the gas processing industry, having been involved in something like 25 per cent of the world's LNG developments, and having been involved in over 50 per cent of the development of hydrogen facilities in Japan over the last 40 years. They've taken a lead role in working with the Japanese government to identify Japan's future national hydrogen roadmap and doing the underlying study that identified where Japan would seek hydrogen to support its goal of transitioning to a hydrogen economy by 2050.

In working with Chiyoda on studies such as that, we've identified a strong appetite for a Hazer-type process in Japan to use local resources to make hydrogen close to customers with a short and therefore cheap delivery chain, to get it to the customer gate at a very cost-competitive price and low emissions. We've entered into an MOU to work with Chiyoda to develop commercial opportunities in Japan to build and operate Hazer projects. We think this is an outstanding partnership for us. They provide the engineering capability and the operations capability we would need to expand in a destination such as Japan. They bring an enormous track record and credibility with Japanese customers. We bring a technology which is uniquely suited to Japan's needs at the moment. We're very pleased to see that partnership flourish through 2020.

Finally, what I think is a very important underlying platform for our company but is one that's often overlooked, is that through 2020 we were invited to join the Innovative Manufacturing CRC. The CRC system, the Cooperative Research Centre system, is a network of independent Cooperative Research Centres which were established by the Australian government to help bring together industry, government and academia to commercialise and build economic opportunities from Australian research. The CRC system has been operating since the eighties, and there's somewhere around 25 CRCs established across Australia in a range of areas from dry-land agricultural, to deep minerals, to robotics, to artificial intelligence, and the one that we're a member of, the Innovative Manufacturing CRC.

Through this membership of the CRC, we've been able to build a stronger platform for our own in-house R&D. Hazer has a team of four dedicated post-doctoral researchers operating at a dedicated laboratory at the University of Sydney. They will continue to work with us as part of the CRC relationship under the direction of our CTO and Founder Dr Andrew Cornejo. The CRC will also provide us a co-funding platform, which is worth somewhere around $800,000 of co-funding to us over the next two years, and will also provide us a partnership to engage with industry, who are interested in the kind of opportunities that we're seeing emerge from, in particular, our graphite materials opportunities. That's led to a number of partnerships under the CRC where we're working with battery manufacturers with lubricant, additive manufacturers and advanced materials and water treatment operators to study how we can add the most value to and make the most use of our graphite by-product. Next slide please, Clive.

I'll sum up there with our position. There is a longer version of this presentation on the web. Given that we're now doing the conference by Zoom and we don't have the opportunity for live Q&A, I did think we would try with the shorter version but I encourage you to go to our website for more information. If I sum up, it's been a very significant year for Hazer through 2019 and 2020. We have a unique proprietary technology with strong IP protection. We received our first full patents in Australia and New Zealand, and our first patent recognition in the United States this year. Hazer offers a unique exposure to two high-growth products, hydrogen and graphite, both of which are key materials in our decarbonising and growing technology economies. We have a unique commercial offering within the growing hydrogen economy. We're the only people who can offer a completely carbon-negative, low-carbon process based on biogas, and we think we're particularly well suited for the emerging transport market.

The company has benefited from a rigorous technology development process. We have a number of PhDs on staff, we've had a very deep and rigorous R&D process, then progressed through piloting, and we've now got a strong project team delivering the commercial demonstration project.

The first commercial demonstration project will be the first fully integrated, fully functioning Hazer Process, and we're targeting a startup of mid 2021. We've made exceptional progress since committing to that project last year, and we now believe we're ready to enter into full project sanction and full execution for mid year. We secured grant funding from the Australian government of $9.4 million through ARENA to support that. We're seeing strong interest from both debt and equity providers to fund the balance of that.

In parallel to that core rollout of our Hazer technology, we are also exploring exciting opportunities to establish a commercial refuelling facility, the first of its type in Western Australia. We're going to pursue that through the second half of this year with the support of the West Australian state government through their renewable hydrogen fund. Internationally we've seen significant interest in our process from Japan and Singapore and other countries with strong natural hydrogen programs, and we were successful in securing an MOU with Chiyoda Corporation to collaborate on delivering opportunities, particularly in Japan.

We are continuing to work through our strategic collaboration with Mineral Resources, and so as we sit here today, we have an exciting well-defined, well-engineered program. We're well capitalised. We had $9.25 million cash at March 30th, so we're well positioned to ride out any short-term hiccoughs that are created by the current pandemic. We're seeing strong market interest in opportunities such as hydrogen, which are anticipated to be part of a strong response to rebuilding economies after the current pandemic. Thanks for your time today. Please do go to our website, look at the animations, or if you do have any questions, get in touch by the contact details on the screen in front of you. Thank you.