Invest in Lead Recycling with the Aqua Metals IPO
Investing in any commodity producer bears a great deal of risk since the success of a commodities producer is heavily dependent on the price of the underlying commodity which in turn is subject to pricing factors that are out of the producers control, except of course in the case of a monopoly. Usually oil and gold are the most talked about commodities, both having sunk to all-time lows recently. But what about other lesser talked about commodities? What about the $20 billion lead market? This is how the price of lead has performed over the past 5 years:
The price of lead seems to be at all-time lows around 78 cents a pound. What’s interesting about lead is that its chemical properties are such that it can be recycled indefinitely. Because of this, 57% of refined lead production is derived from the recycling of scrap batteries. That’s a surprisingly high number and makes lead the world’s most recycled material. The problem though is that in order to recycle lead, you need a lead smelter. The problem with lead smelters is that they are not environmentally friendly at all. In fact they are so environmentally unfriendly, that the last lead smelter in the U.S. closed in 2013 and now we just ship all those toxic lead acid batteries down to Mexico and use their lead smelters instead, no doubt significantly increasingly the price of the process as well. One company looking to target the recycled lead market with their patent-pending technology for recycling lead acid batteries which doesn’t use lead smelting is Aqua Metals.
Aqua Metals was founded in June 2014 and has been funded so far by $6 million raised via convertible notes. The Company uses a novel electro-chemical process to produce pure lead (greater than 99.99% purity) recovered from used lead acid batteries. Aqua Metals claims to be in discussion with three separate suppliers of used lead acid batteries (LABs) which they say will supply them with enough batteries to produce 80 metric tons of recycled lead per day. If we take the current price of lead at 78 cents pound, assume the plant operates continuously at maximum production, and then extrapolate the revenues out we get around $45.5 million in yearly revenues.
In order to get to these revenues, Aqua Metals first needs to build a recycling plant since up to this point they have only proved their technology at a much smaller scale. The Company estimates that they will need a minimum of $26 million of capital over the next 12 months in order to fund their current business plan, including the development of a 125,000 square foot LAB recycling facility near Reno, Nevada. This facility is expected to produce 40 metric tons of lead consuming just half of all the available LABs from their 3 proposed suppliers. The IPO is looking to raise around $30 million and with $3 million in cash on hand, the Company will then have a total of $33 million to execute on their business plan.
Once the Nevada facility is operational and the concept has been proven to be scalable, Aqua Metals could then build another plant and produce another 40 metric tons of lead with their 3 proposed LAB suppliers. After that however, they’ll need to find more supplier of LABs and this may prove challenging. According to Aqua Metals, LAB manufacturers who also maintain their own smelting operations control account for approximately 50% of the market for used LABs. This means that other battery manufacturers may see Aqua Metals as a competitive threat and not make their used batteries available therefore limiting the supply and consequently limiting growth.
Before Aqua Metals runs into a supply problem, they’ll first need to prove their technology is economically viable. It’s an interesting business to get into but at this point your investment hinges on the ability of the Company’s 4 executives and 8 technical staff to use their $5 million in assets and $33 million in cash (provided the IPO is successful) to execute on a very ambitious business plan. The technology is patent pending so still could be subverted by a competitor even if the plant is successful. We’ll continue to pay attention to Aqua Metals since the level of transparency they provide in their financials makes it relatively easy to see how they’re progressing. And they’re good for the environment.
Aqua Metals plans to list on the Nasdaq under the symbol AQMS.
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