AEG Forestry Update

#AEG UPDATE RE CROWN TIMBER LICENSE

I thought id do a follow up blog on the crown timber license AEG are currently awaiting from Newfoundland and Labrador.

They entered into an agreement in principle on 22nd May

http://www.lse.co.uk/share-regulatory-news.asp?shareprice=AEG&ArticleCode=ggrqc5l7&ArticleHeadline=Agreement_with_Newfoundland_and_Labrador_Province

and handed in all their paperwork on 12th October

http://www.lse.co.uk/share-regulatory-news.asp?shareprice=AEG&ArticleCode=pi1rykq3&ArticleHeadline=Final_Application_to_Crown_Province_Newfoundland

So what does this mean in monetary terms to AEG. Investors cant see the wood for the trees!

The last forestry deal AEG tired was to help the native american Metis people monetise their forestry assets. They have about 110,000 hectares of viable forest and AEG had offers of $300mill for this in Jan 2015. That RNS caused a massive spike

http://www.lse.co.uk/share-regulatory-news.asp?shareprice=AEG&ArticleCode=we7qelzu&ArticleHeadline=Update_on_Canadian_Forestry_Joint_Venture

Valuation based on previous deal

The current crown timber license is for 1.2mill hectares!

So the first finger in the air valuation could be $3bill based on the last deal.

Valuation based on other forestry management companies

Another way to value it is to look at other forestry management companies and how much forest they manage and what Mcap they command.

Our 1.2mill hectares equates to around 3mill acres for comparison.

Catchmark - CatchMark owns interests in approximately 502,400 acres of high quality commercial timberland located in Alabama, Florida, Georgia, Louisiana, North Carolina, South Carolina, Tennessee and Texas. The portfolio is well diversified by species and product mix (74% pine/26% hardwood by acreage and 50% sawtimber/50% pulpwood by volume).

Market cap $500mill

Potlatch Corporation - a verified leader in sustainable forestry. With approximately 1.4 million acres third-party certified to independent forest management standards, we grow trees, sell timber, and manufacture solid wood products. Since 1903, we have sought the common ground that enables us to unlock the value of our lands while conserving our forests for generations to come.
$2.1bill mcap

Rayonier  -Our 2.7 million acres of working forests, located in eleven U.S. states - focused in the U.S. South and U.S. Pacific Northwest - and New Zealand, provide wood for use in a variety of markets, from pulp to lumber, paper, oriented strand board (OSB) and other wood-based products
$4bill mcap

The list is long. Now these companies have a high value due to higher real estate values as well as a few other things. Im not suggesting AEG should be valued the same as Rayonier due to similar forestry area under management but you get the drift. There is considerable upside to managing a large forest!!

Valuation based on wood

AEG can "utilise up to 140,000 solid cubic metres of wood annually". That is 59328639.8 board feet. That is 59, 328 thousand board feet. http://www.nrcan.gc.ca/forests/industry/current-prices/13309 tells me a thousand board foot is about $500. So 500 x 60000 = $30mill a year from the wood. The off cuts get turned into coalswitch pellets and sold for $180/tonne. The overall base revenue for x20 years is in excess of $600mill it seems. Add in all the free off cuts to make Coalswitch and you can see its a bit exciting. Im sure there are other monetary value chains other than selling the raw wood.

This broker note http://empirestatecap.com/images/reports/AEG_27032017_Funding_in_place.pdf

suggests the feed stock for Coalswitch will cost around $15/tonne and you need 2:1 feed stock to Coalswitch pellet. So potentially they can use the forest to take off $30/tonne costs from the Coalswitch product and massively increase margins 

All in all the Crown Timber License is company making when it arrives and if/when understood, AEG is going to massively re-rate.

ACTIVE ENERGY #AEG

ACTIVE ENERGY

Some decent background reading from a slightly out of date broker note…

http://empirestatecap.com/images/reports/AEG_27032017_Funding_in_place.pdf

The current business model consists of 2 divisions – Advanced Biomass Solutions (ABS) which consists of the CoalSwitch product and Timberlands which aims at becoming a Timberland Management Company targeting Newfoundland

For the purposes of my investment case I will focus on the ABS arm as it is easier to value however the Timberlands is true blue sky potential and very exciting!

Advanced Biomass Solutions ABS

http://www.active-energy.com/advanced-biomass-solutions

This is the main reason I’m investing. What they have developed is the only “drop-in” direct replacement for coal in coal fired power stations. Coal is ground to a fine powder and then blasted into the furnace of these power stations. All other biomass pellets cannot be ground to a fine enough powder to enable this to be done as they are too fibrous. For all other pellets to be used in an existing coal fired power station, a very expensive retrofit must be carried out. You may be familiar with the DRAX power station in the UK providing 4% of our power. They have spent upwards of £100mill on the retrofit. The DRAX pellet journey can be read here http://www.draxbiomass.com/plant-port-journey-compressed-wood-pellet-2/

Some more reading on CoalSwitch
http://www.modernpowersystems.com/features/featurecoalswitch-is-it-the-holy-grail-5749037/

The business model needs various advantages to be in place for the CoalSwitch product to be used…

1      Easily made and sourced

2      Easily transported to end use

3      Can be ground and blasted by the same machinery already existing

4      Produces a high calorific value like coal and greater than other pellets.

5      A large market need for biomass power

Lets look at each of them in turn.

1.     Easily made and sourced

Part of the process that makes these pellets explodes the wood/plant matter, hence being less fibrous. This part of the process also has the added advantage of working on just about any old off cut of wood or plant matter. They can utilise previously discarded wood offcuts from forestry and palm oil husks. This means they have a plentiful supply of extremely low cost source material compared to competitors. They are currently planning production plants of 20-30 tonnes/hour with a yearly production of 1.5mill tonnes from the initial 8 plants in asia.

2.     Easily transported to end use

CoalSwitch pellets are significantly denser than all other competitors meaning shipping and transport costs are reduced. They are also hydrophobic, meaning they don’t pick up moisture that adds to transport costs and then needs to be dried out before they can be used.

3.     Can be ground and blasted by existing machinery

As previously explained, a hugely expensive retrofit is usually needed to use all the other pellets as they can’t be ground to a fine enough pellet. CoalSwitch avoids this saving many many £millions. What it also enables is the pellets to be mixed with the coal at various % mixes. All countries want to reduce their carbon emissions. 20% of the coal for example in a large power station can be replaced with CoalSwitch, dramatically reducing the emissions and bringing them under the countries standard. The USA is very keen on this mixed approach. Again, no other product can be mixed like this.

4.     Produces a high calorific value like coal and greater than other pellets.

Coal contains 25Gj/tonne, CoalSwitch 23, Torrefied 22, black 19.5, white pellets 17.5

5.     A large market need for biomass.

Well there is! Have a read of that broker note at the top for the specifics. Single power plants that want to change to pellets from coal need 1.5mill tonnes a year. The forecast need for biomass pellets is forecast to grow from 22.5mill tonnes in 2017 to 43.5mill tonnes in 2025. These estimates are likely to be conservative. The nuclear disaster in Japan for instance has greatly increased to likely demand for biomass power in Asia. Europe is the largest demand currently due to clear air policies but increasing legislation in the USA and Canada is again going to drastically increase biomass demand.

https://www.youtube.com/watch?v=kyfcaauUR_Y - On the potential of Coalswitch

Economics of CoalSwitch

There are a couple of similar revenue estimations that can be made for the CoalSwitch product. In this RNS http://www.active-energy.com/sites/default/files/files/CoalSwitch%20Update%2028.11.16%20Final%20CLEAN.pdf
the company state that the pilot production plant will produce 35,000 tonnes a year and that will create $6.3mill in revenues. This equates to $180/tonne.

In the broker report at the top, they suggest a sale price of $160/tonne. To be conservative I will use this lower value.

The company announced that the initial 8 plants in Asia https://polaris.brighterir.com/public/active_energy_group/news/rns/story/xo6709x will produce 1.5mill tonnes of product = $240mill in revenues.

The exact details of the JV with Lumino Capital aren’t known but I assume there will be a 50% split (again as was suggested in the broker note). = $120mill

Again to use the broker note calculations they come out with an end Net profit post tax of 16-20%. Using the lower 16% figure gives us a profit after tax of $19.2mill a year on these initial 8 power plants.

On a PE of 12 = an MCap of $230.4mll. x10 from the current MCap

Brian Evans-Jones CFO of Active Energy Group #AEG & CEO of Advance Biomass Solutions https://audioboom.com/posts/6322350-brian-evans-jones-cfo-of-active-energy-group-aeg-ceo-of-advance-biomass-solutions?

Future growth

The company stress these are just the initial deals with more plants planned in Asia, Europe and North America. They have had a large amount of interest from across the globe in the CoalSwitch tech. Rocky Mountain Power (a Buffett Utility in the USA) is about to start trials mixing CoalSwitch with coal http://www.active-energy.com/sites/default/files/files/CoalSwitch%20Update%2028.11.16%20Final%20CLEAN.pdf

Every 1.5mill tonnes of production they achieve is a x10 to the current MCap and if they continue to do these deals via debt then there won’t be any undue shareholder dilution.

My 5-year forecast

If they have the initial 8 plants up and running and similar in Europe and North America then I would be looking at a post-tax profit of $60mill a year, an MCap of $700mill+ and an SP of 60p+

Additional reading

http://ir.envivabiomass.com/sites/envivabiomass.investorhq.businesswire.com/files/doc_library/file/Enviva_Investor_Presentation_Aug__2017vFinal.pdf

Enviva Biomass are a $700mill MCap USA Biomass wood pellet company. Have a look at their presentation for more market size info. Also you can see how CoalSwitch and easily eat into their and everyone elses business.

Timberlands

As previously stated, I’m investing primarily for the ABS/CoalSwitch but that’s not to say the Timberlands part of the business is crap. Its in fact, potentially brilliant. I first invested in AEG in 2014/2015 when they were going to commercialise 108,000 hectares of Native American owned forestry for $300mill http://www.active-energy.com/sites/default/files/files/CoalSwitch%20Update%2028.11.16%20Final%20CLEAN.pdf. That created a nice big spike and was my first intraday bagger! That deal has stalled for various political reasons.

Their latest forestry venture is to manage 1,211,000 hectares of forest in Newfoundland and Labrador. It is a Crown timber licence and proposed 20-year forestry management agreement (the "Agreement") to harvest and utilise up to 140,000 solid cubic metres of wood annually.

https://polaris.brighterir.com/public/active_energy_group/news/rns/story/xz1e9ow

https://www.youtube.com/watch?v=yleciuDjgwU CEO tells us about the deal

Having worked closely with the Canadian government they have now submitted the final application for the Crown Timber License http://www.lse.co.uk/share-regulatory-news.asp?shareprice=AEG&ArticleCode=pi1rykq3&ArticleHeadline=Final_Application_to_Crown_Province_Newfoundland
Michael Rowan, Active Energy Non-Executive Chairman said, "This marks the next milestone for the development of commercial activities for TIL in Newfoundland.  TIL and Active Energy are extremely excited about the prospect of revitalising the forestry activities on the Northern Peninsular, facilitating new investment into the Province and continuing to grow positive working relationships between the Province, its relevant ministries and TIL for the benefit of all. I look forward to providing shareholders with further updates regarding the applications for the CTL and the FMAs in due course."

If that deal comes off with x10 the hectares of forest you can imagine the value. They would instantly become one of the top 10 Forestry Management Companies in the world. The rest are MCaped in the $hundreds of millions.

UPCOMING NEWSFLOW

1) Crown Timber license - probably worth a few hundred million!!

2) More Coalswitch plants in Europe and North America with funding in place

3) Pilot plant constructed and shipped to Utah to start production

4) Start of trial with Rocky Mountain Power (Buffet company)

MTFB - What happens next

MOTIF BIO
#MTFB - LSE
#MTFBF - NASDAQ

What has happened?

So the long awaited Phase 3 "REVIVE 1" results came out comparing the drug Iclaprim vs the standard of care drug Vancomycin. It proved it was non-inferior. In fact it did everything the FDA wanted and they had a major hand in designing the trial. There were also no safety concerns at all.

This has now completely derisked the entire enterprise. This was the last big "what if?" in the pathway to a new drug.

What still has to happen?

There is currently a carbon copy of REVIVE 1 running, REVIVE2. This is how the FDA wanted it. Given how good the REVIVE 1 results are the chance of success of REVIVE 2 is 95%+

They do need around $10mill further funds to complete REVIVE 2 but this will come at a big premium to the current SP mark my words.

Once REVIVE 2 is out in early Half 2 2017 then they can submit a New Drug Application to the FDA. This is a given. It will be passed. The FDA want this drug in use ASAP.

Current valuation 

So as i type the SP is 33.5p with an MCap of £67mill

Peers

Cempra Inc. Nasdaq CEMP - got to an MCap of £700mill at the same stage Motif is now. Its had a string of bad news but still valued at £196mill!

Paratek. Nasdaq PRTK - had phase 3 read out of an antibiotic recently and is now valued at £600mill! This is probably the best comparison. Factor in a little discount for REVIVE 2 to finish but you'd still think MTFB is x5 undervalued.

How much money will Iclaprim make?

The ASSSI - skin infections market in the USA alone is around 4mill people a year. Around 25% of these people have good going kidney failure which Vancomycin is a TERRIBLE drug for. The obvious switch is to Iclapim. At $3500 a course the low hanging fruit is 3500 x 1000000 = $3.5billion revenues a year in the USA alone for ASSSI with kidney disease. Add in the rest of the world and creeping into non kidney disease patients...

Any other uses?

Yes there is! Iclaprim concentrates in the lungs and is very potent against a nasty hospital acquired chest infection, strep pneumoniae. Its about to undergo Phase 3 trials for this too and potentially double its revenue stream!

TAKE HOME MESSAGES

1) Completely derisked. Likelihood of becoming a drug now over 95%

2) To achieve parity to US peers it needs to rise 500-1000%

3) Peak year revenue for skin infections alone will be over $1billion

4) This may double with use in Hospital Acquired Pneumonia.

Target price remains norther of the FinnCap report of 125p

Motif made simple

MOTIF BIO 
#MTFB

Hi all,

Im back in blog form for Motif Bio. It strikes me as a lot will have heard of Motif and know its meant to have a high "chance of success" but get put off by the science and numbers. Not understanding it how can you invest in it? So here is the layman's blog to MTFB and why i think it represents incredible value.

A new drugs journey
Generally a new drug undergoes an increasingly complex set of trials. Phase 1-3. Phase 3 is in humans and usually against the current best drug for the condition. Once Phase 3 is passed then you can submit your drug for a license to say the US FDA (Food and Drug Administration) for them to give all your evidence the once over and pass it.

Iclaprim's journey
Iclaprim is the drug in question here. It is a new antibiotic for ASSSI = basically nasty skin infections caused by MRSA etc.
It went through Phase 1 and 2 well then onto the final phase around 10 years ago. The company who owned Iclaprim at the time set out to show it had cure rates at day 14 similar to that of one of the 2 "Standard of care" antibiotics for this condition, Linezolid. They wanted to show it was non-inferior, within 12.5% cure rates at 14 days. So if Linezolid cured 80%, Iclaprim could cure 67.5% or better. They did this. They got within 3-4% of Linezolid! Happy days then. They submitted this to the FDA. The FDA weren't impressed however. They had decided that cure rates at day 14 wasn't the best measure for the infections. They were more interested in how much the redness and fever had been reduced within 48-72 hours. The company looked over the data and pulled out this info the FDA wanted and even better! Iclaprim was 1-2% better than Linezolid at this new end point. But...
As this wasn't the reason the trial was set up, they didn't have enough patients in the study to prove this with a tight enough confidence, they needed more patients. The FDA suggested a new phase 3 trial to prove it up but the company was now skint.
The FDA did this to 4 antibiotics over a couple of years. 3 are now drugs. Iclaprim is the last one to go thought the additional tests.

Motif Bio's journey
Motif acquired Iclaprim and worked closely with the FDA to design a Phase 3 study they wanted and would prove any end point they were interested in. The FDA invited Motif to please complete the studies! They want this antibiotic developed as much as anyone.
In July 2015, the U.S. Food and Drug Administration, or FDA, designated the IV formulation of iclaprim as a Qualified Infectious Disease Product (QIDP) for ABSSSI and HABP. QIDP status grants iclaprim regulatory Fast Track designation, Priority Review and, if approved, a five-year extension to the statutory market exclusivity period in the United States, resulting in 10 years of market exclusivity from the date of approval
MTFB decided to compare Iclaprim to the second "Standard of Care" antibiotic called Vancomycin. Their primary goal is to see how much the redness reduces in 48-72hrs vs Vanc. They need to be within 10% to show its non-inferior. So if Vanc makes 84% reduce in size then for the trial to be successful, Iclaprim needs 74%+ to reduce in size.

So why is this such a good bet on the science side of things.
1) Iclaprim has already shown it is superior to Linezolid at this test, in Phase 3.
2) Linezolid is better at fighting these type of infections than Vanc, in all comparisons it is better
3) In the last 10 years Vanc is having increasing resistance worries so its not as effective as it was 10 years ago
4) Iclaprim kills these bugs twice as fast as Vanc in the lab
5) Safety is important. There have been no Serious Adverse Events that could make it too dangerous. Vanc dosing is difficult in sick people with kidney disease whereas Iclaprim is safe.
6) Here is the kicker folks...
Since the Phase 3 trial vs Linezolid, Motif have gone over all the data and adjusted the dose of Iclaprim given. This has resulted in a 30% increase in efficacy (potency)!
7) All this means you can be 85-90%+ happy that the results will be good. I rate it 90%+

Why is it such a good bet vs Peers
Motif is listen on the Nasdaq. The closest peers to Motif, who have antibiotics in late phase 3, are x5 or more the Mcap. Companies who have just had good Phase 3 readouts are over x10 the mcap. There is a massive value disconnect anyway just at the current SP pre results. FINNCAP target is 125p

Targets
If this was a purely Nasdaq listed stock it would be over 100p right now and go to 200p+ on results. Alas they cocked up the Nasdaq IPO slightly so i'll settle for 50p pre results and 150p after.

When is it all happening?
The usual timescale for results is 2-3 months from "Last person out". This happened in late Jan 2017 so we are right in the window now. Motif have officially said Q2 2017 but it will be in the first half of Q2 so within the next 4 weeks and any time from tuesday onwards!

Downside
Clearly if something has happened in the trial, if somehow it fails the trail then you are looking at loosing 50% or more. I think there is a 10% chance of this.