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See AllCASH FLOW IS ABOUT TO GO THROUGH THE ROOF
Northstar Clean Technologies (TSXV: ROOF, OTCQB: ROOOF) has partnered with two of the largest roof shingle makers—Tamko in the US and IKO in Canada—to roll out multiple recycling plants in the next five years.
This small cap success story has their first BIG plant—in Calgary AB—funded, half built and already received first revenue via “tipping fees”. It will be 100% commercial by November this year.
Their second BIG site-in Toronto ON—will be chosen within weeks. Their first American site—in the Pacific Northwest—will be chosen later this year.
What was originally a promising blue sky growth story has now become VERY, VERY REAL—in a short period of time. I profiled Northstar just 18 months ago.
Northstar has the only commercial technology that can recycle the 16.5 million tons of asphalt shingles sent to North American landfills. This is a HUGE environmental problem, and Northstar is the only technology that can do it.
NORTHSTAR GOT BUY-IN
FROM INDUSTRY GIANTS EARLY
The rapid success here came from CEO Aidan Mills being able to get the industry supply chain to rally around them – big companies like TAMKO in the US and IKO in Canada (roughly 30 shingle manufacturing facilities each).
Mills showed them—via their pilot facility in suburban Vancouver BC—that their recycling technology not only worked, but could be very profitable.
Over several months, they vetted/tested Northstar’s technology and helped Northstar put the final finessing touches on it.
As Northstar CEO Aidan Mills told me…..by having these big companies involved in finalizing his process, his $20 million company had a free $500 million R&D division working for him. Tamko sees so much potential they invested CAD$10 million into Northstar in 2023.
In Calgary, IKO—a very successful private business for 70 years with 35 plants– is supplying all their waste shingles to Northstar. The company buying Northstar’s products is McAsphalt Industries, a Canadian division of Colas SA, a $4 BBBillion plus market cap company.
The technology is ready to go, commercial production this year and investors can now look beyond the Calgary facility and see 10-15 shingle recycling facilities getting built in the next 6-7 years.
A 5-Prong Business Model
To recap, Northstar’s business has FIVE different revenue streams.
1. Tipping fees–instead of paying a tipping fee to dump their shingles at a landfill, roofing companies will solve their environmental problem by paying a tipping fee to drop the shingles off with Northstar—yes that means negative input cost!
2. Asphalt oil
3. fiber
4. aggregate
5. carbon credits
An independent,, 3rd-party assessment of Northstar’s technology showed their liquid asphalt production process reduces CO2 emissions by more than 60% from current production methods.
Validation – Financing
These facilities will cost roughly CAD$15 million. Nearly half—$7.1 million of this is going to be paid for with a non-refundable grant that Northstar received from Emissions Reduction Alberta.
Then TAMKO is putting in US$10 million. Ultimately TAMKO will own 18.75% of Northstar when it is converted into common stock. The credibility that this investment brings is huge.
BDC funding—Business Development Canada—is providing the debt.
So the capex financing is taken care of.
I’m not writing this story to suggest that the stock—ROOF-TSXv—is about to go vertical. But starting this fall, the business could.
A big company—IKO—is paying Northstar to supply them feedstock. An even bigger company—McAsphalt—has a 5 year offtake deal at market prices. These companies helped—unofficially—refine and perfect the process. They’re believers, and they’re part of the team.
CEO Mills has stickhandled these relationships with acumen—his background working for big companies like these certainly made a big difference here.
The truth is that Northstar has a solution that IKO and its competitors have been desperately needing. Their only disposal option has been landfills and that is an option that is going to either get extremely expensive or cut off entirely in the future.
This is HUGE as it means the process is completely circular (off the roof into the Northstar process back into shingles back to the roof). It is just brilliant that all of the R&D done by these external companies on Northstar validates EVERYTHING.
The other offtake validation comes from TAMKO which made the ownership investment in Northstar. TAMKO has also done extensive R&D, validating that they can use Northstar’s asphalt in their shingle manufacturing process.
TAMKO which is based in the U.S. isn’t going to be getting any of the asphalt produced from Empower Calgary because McAsphalt has dibs on that——but TAMKO will be able to receive asphalt from Northstar facilities in the United States.
TAMKO has exclusivity on the first three plants that Northstar builds in the US.
The Future – Rapid Expansion
Empower Calgary is Northstar’s first commercial facility—likely the first of many.
At this point Northstar is the only game in town. The shingle industry has recognized that it badly needs to keep its product out of landfills and there are no options other than what Northstar’s patent protected technology.
This is a solution that every decent sized city needs and wants going forward.
Empower Calgary kicks off what is going to be a very aggressive stretch of expansion for Northstar. Next up is going to be Toronto where Northstar is currently in negotiation for shingle supply and off-take agreements.
After that will be the first American site with which TAMKO is deeply involved. Currently Northstar has MOUs signed for three US cities. The expectation that by the end of 2025 Northstar will have Calgary, Toronto and one US facility fully operational.
From there the company plans to be off to the races——— with Northstar both building company owned facilities and licensing the technology out for others to be built.
That licensing business is going to be capital light and bring in pure free cash flow. This is the kind of cash flowing revenue that commands high valuations in the market.
Northstar is aiming for 31 facilities to be operational by 2030. The target is for 3 Northstar facilities and 3 licensed facilities every year.
Each facility is conservatively expected to generate revenue of $9.7 million and EBITDA of $5.3 million. That is less than a three-year payback on the entire cost of a facility—and does NOT include carbon credits.
Extrapolating $5.3 million of EBITDA across 30 plus facilities starts to look exciting versus Northstar’s current $20 million market cap.
I love to see a sexy speculative play turn into a huge boring cash cow that will last for decades. That’s going to happen to Northstar starting late this year.
All of these facilities should generate impressive return on investment for whomever is footing the bill for the capital outlay. There will be clean government grants to get these things built, the input costs don’t exist since Northstar gets a tipping fee to take the shingles and the revenue on sales will be at market rates.
By the way, the $5 million of EBITA per year estimate for each facility is assuming 6 days a week and 10 hours per day operation. I expect these will be 7 day a week facilities that can operate almost around the clock.
The catalysts for Northstar’s stock are many and they should be coming regularly. Announcements on Toronto, the first US facility, full commercial production in Calgary.
I’m so impressed by the progress this management team has made. It’s so much fund writing about a story that works out. Kudos to Mills and his team.
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