Palisade Research - Mon, Mar 19, 2018

The Exciting and Unique Way to Invest in the Booming Algae Business

Pond Technologies logo with a dropper filling test tubes with a green liquid

At its current path, mankind's energy usage and pollution output is unsustainable.

In something called the sustainability gap - the current trajectory will result in both fuel and food shortages.

As well as critical CO2 problems.

But very bright men have come up with a solution. . .

Algae

picture of algae
(Source: Livescience)

Algae is the foundation of the world.

It's the source of all fossil fuels and contains essential nutrients for fish, animals and even humans.

You could say life depends on it.

But the best part?

It eats pollution and CO2.

It's an amazing tool that nature gave us - but there has been no commercial way of cultivating it.

Until now.

Steve Martin - From Fighter Jets to Algae

The CEO at Pond Technologies - Steven Martin - designed many important optical and display components for both civilian and military applications, including working on 'head's up' displays. These applications required specialized knowledge of complex, high density, LEDs, combined with an understanding of diffractive optics.

After perfecting the design and construction of LEDs for use in challenging applications, Steven honed his knowledge in various high-level jobs before he realized the perfect application of his ultra-bright high density LEDs was to drive plant growth, specifically algae cultivation.

It was thus that Pond created some of the brightest, most efficient, proprietary LED lights in the world. . .

These illumination modules are combined with integrated control systems to manage every aspect of the growth environment - resulting in the Pond Growth Engine.

In laymen terms, this means it accelerates the natural process of photosynthesis, creating a growth platform that makes algae cultivation very profitable. . .

This same approach applied to any plant, including terrestrial plants, should yield similar benefits to those found in algae cultivation.

The traditional approach requires large swathes of land and water which is exposed to uncontrollable conditions. Resulting in low harvests and high production costs.

old and new way diagrams how to harvest algae

Algae is Big Business

Here's where investors get intrigued. . .

Algae is used in:

  • land reclamation (a global market of $122B)

  • biofuels ($246B)

  • nutraceuticals ($278B)

  • and animal feed ($400B)

Pond Technologies plans on using clean sources of CO2 to grow algae for nutraceuticals, and CO2 contained in the greenhouse gas emissions to grow algae for biofuels, bioplastics, animal/aquaculture feeds, and use in land reclamation.

Nutraceuticals - which is food containing health-giving additives and medicinal benefit - is a very lucrative market and will be the largest component of Pond's revenue.

bar chart of nutraceutical markets in hundreds of millions of dollars

Spirulina and Chlorella are both forms of algae that provide an extremely potent and well-balanced nutrient. They both detoxify the body and assist with a creating a strong immune system.

Astaxanthin is the "King of Carotenoids" - its a powerful antioxidant with broad health implications.

And unlike other antioxidants, astaxanthin never becomes pro-oxidant in the body.

Because of its wonderful health benefits, I've actually taken astaxanthin daily for the last five years.

". . . For example, astaxanthin has 550 times stronger antioxidant power than vitamin E, and is 6,000 times more potent than vitamin C," wrote Dr. Joseph Mercola.

Pond's five-year revenue target for nutraceuticals is $99 million, with an 80% gross margin. Each bio-reactor has a capacity of 65,000L at a cost of $1.6 million per unit.

5-year bar and line chart of Pond's projected revenues and EBITDA in millions of dollars

With projected operating costs of $600,000 per year, Pond expects being cash flow positive in 18 months. . .

Pipeline & Growth

Pond Technologies has executed an agreement with Markham District Energy (MDE) to host its first commercial nutraceutical algae plant.

MDE is providing the site with three sources of CO2.

In stage one of the project, Pond is expected to earn $5 million in revenue from three bioreactors. Pond is projecting as many as 30 additional bioreactors on site in subsequent stages, generating over $50 million in revenue.

Greater Sudbury Utilities has also executed a contract with Pond for the first stage in developing a full plant.

Step one will be a feasibility study to define the project size - with initial estimates to be $15-20 million for the algae facility.

The Potential

CO2 is the byproduct of human activity.

And the CO2 market in North America is enormous.

2 tonnes of CO2 equate to 1 tonne of algae, which in turn yields ~$2,000 per tonne.

Algae used for nutraceutical purposes command a significant premium - with astaxanthin priced at $160,000 per tonne, chlorella at $25,000 per tonne, and spirulina at $15,000 per tonne. . .

The United States currently emits 3 million tonnes of CO2 per year.

Pond also plans on selling its proprietary equipment and license the technology to industrial emitters.

We used the existing agreements and a conservative growth rate to forecast Pond's cash flow, which gives us a target share price of $3.50 per share - a 170% gain from today's price. . .

bar charts with revenue assumptions in hundreds of millions of dollars forecast Pond's 2016 to 2020 cash flows and share target

There is a massive opportunity in this space - and Pond's 9 US patents secures their place at the forefront.

No other company has the technology to take CO2 and do something with it.

If every factory in the world reduces emissions by 20% - we will become a cleaner and more sustainable civilization.

Pond Technologies has the ability to close the 'carbon loop' while making a lot of money for their shareholders at the same time.

Palisade Global Investments Limited holds shares of Pond Technologies. We receive either monetary or securities compensation for our services. We stand to benefit from any volume this write-up may generate. The information contained in such write-ups is not intended as individual investment advice and is not designed to meet your personal financial situation. Information contained in this report is obtained from sources we believe to be reliable, but its accuracy cannot be guaranteed. The opinions expressed in this report are those of Palisade Global Investments and are subject to change without notice. The information in this report may become outdated and there is no obligation to update any such information. Do your own due diligence.

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