NovX21: Urban Miner
May 19, 2014
by Debra Fiakas CFA
There's Platinum in them catalytic converters. Mention platinum and most of us think about beautiful and expensivejewelry. However, platinum can be found in the dullest ofproducts. Catalytic converters used in automobiles foremissions control represent about one-third of the demand forplatinum. The devices attached to the rear of our cars uses a mix ofprevious metals to remove nitrogen oxides, carbon monoxide andhydrocarbons from engine exhaust. The catalytic converter on atypical car uses a gram or less of platinum, while a diesel truckrequires five to ten times that amount. A gram may not seemlike much by multiple that by millions of automobiles and you beginto get a picture of demand. While there is steady and growing demand for platinum, supplies ofthis precious metal are anything but stable. South Africa isthe world’s largest supplier of platinum, producing as much as 70%of world supply. Russia and Zimbabwe are number two andthree. Anglo American has closed some of its South Africamines as the result of higher taxation and strikes by laborscontinue to plague the remaining operations. Zimbabwe hasbanned exportation and has demanded in-country refinement in orderto capture more of the value in the supply chain. Newpolitical upheaval in the Ukraine, compounded by Russia’s aggressiveactions in that region, has made some in the industry nervous aboutRussian supply sources as well. Some manufacturers have simply replaced platinum in their catalyticconverters. However, NovX21 ( NOV : TSX-V, PORMF: OTC) is addressing the problem of supply with an‘urban mine.’ The company has developed a chlorination processto reclaim platinum as well as palladium and rhodium from spentconverters. It takes NovX21 about two months to process aconverter, but the time is well spent. The process recovers asmuch as 97% of the precious metals in the ceramic component of eachconverter. On average each ceramic component yields 3,000grams of precious metals per ton of ceramic. There is no wastewith the NovX21 process, even the ceramic can be reclaimed and soldto a ready market for hydraulic fracturing materials. The company estimates it will cost about CAD$168 per ounce tooperate its reactors. Compare that to the current price forplatinum near CAD$1,466 per ounce. Accordingly, it seems thereis sufficient profitability to recover the $10 million capital costof each plant. Protected by U.S. and Canadian patents, it is a process that iseconomically competitive and environmentally friendly. TheCompany has developed a line that is capable of processing 50,000tons per year. To scale up for higher volumes, a series ofreactors can be placed side-by-side, sharing pre-processing andpost-processing infrastructure. NovX21’s closed loop system generates no emissions or wastes, givingit a ‘good neighbor’ profile. The NovX21 process is apparentlyso benign it can comply with regulations for any industrialpark. This has impressed local officials in the Quebec, Canadaarea, who have expressed interest in locating NovX21’s firstproduction plant in their district. The company is counting on insecurity in the platinum supply chainto get its foot in the door with distributors. Besidesperfecting its process, management has been scouring the globe forsources of used catalytic converters. Both Europe and NorthAmerica The company is also actively seeking off-takeagreements and is prepared to offer samples and provide test resultsto demonstrate the quality of their reclaimed metals. NovX21 management promised commercial production within the nextyear and is currently vetting sites for the first productionplant. Equipment sourcing and construction will follow beforeyear-end 2014. The first plant is likely to feature fourreactors 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-Ventureunder the symbol NOV. Although the stock has built ofrelatively good trading volume, but the stock is still priced at athin Canadian dime. One of the problems in valuation might theprospect of dilution. NovX21 currently has 100 million sharesoutstanding, but another 55 million shares could be issued uponexercise of warrants and options the Company has issued in thecourse of raising capital and compensating employees and serviceproviders. Fortunately, I do not expect to see a flood ofderivative exercises until the stock reaches the CAD$0.25 to CAD$0.30 price range. The average warrant exercise price isCAD$0.23 and for the options it is CAD$0.21. NovX21 is not a stock for everyone. It is a stock thatrequires a tolerance for business risk and price volatility. However, for those with nerves of steel and the patience to wait forcommercial operation, NovX21 could be an interesting long-term playon ‘urban mining.’
Debra Fiakas is the Managing Director of Crystal EquityResearch , an alternativeresearch resource on small capitalization companies in selectedindustries. Neither the author of the Small CapStrategist web log,Crystal Equity Research nor its affiliates have a beneficialinterest in the companies mentioned herein.