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Hazer Group (ASX:HZR). MIN pilot plant progress is key.
Hazer Group Limited (ASX:HZR) is adopting amulti-prong approach to commercialising its proprietary [GP1] HazerProcess – the conversion, at moderate temperature and pressure, of natural gasinto hydrogen and graphite, using iron ore as a process catalyst.
Hydrogen-focusedpath
In September 2018, HZR successfully trialled theHazer Process in an independently designed and operated external Fluidised BedReactor (FBR-EXT). The FBR-EXT process is representative of a typical FBRdesign in industry and is focused on the production of hydrogen, with graphiteas a co-product. The purpose of the independenttesting was to 1) obtain input from a FBR specialist on the operability andscale-ability of the Hazer Process and, 2) provide a comparison against Hazer’sproprietary design FBR pilot plant (FBR-PP), which was relocated to Kwinana (nearPerth) in Nov/Dec 2018. On the back of the strong performances of both theinternal and external FBR tests, HZR commenced a FEED study for a A$10m CommercialDemonstration Plant (CDP) producing ~100tpa of hydrogen and 250-375tpa ofgraphite. HZR expect to complete the CDP FEED Study in the current quarter(March 2019), and discussions are concurrently taking place with off-take partners,feedstock (biogas or natural gas) suppliers and project funding partners. HZR isalso progressing with design studies for a A$30-35m commercial scale HazerPlant (2,500tpa hydrogen, 8,750tpa graphite).
Graphite-focusedpath
Running in parallel to the above, HZR is collaboratingwith its investment and commercial partner Mineral Resources (ASX:MIN), whichis currently constructing a 1tpa graphite-focused Paddle Tube Reactor (PTR)pilot plant - also located at Kwinana. InHZR’s December quarter quarterly update, HZR disclosed that MIN has advised themthat they anticipate completing construction and commissioning the PTR pilotplant in 1Q 2019. Note: HZR has disclosed that as the PTR project is beingmanaged and executed by MIN, HZR will not be providing ongoing commentary onproject progress to the market.
Risk-adjusted SOTPtarget price: A$0.45ps (A$0.48 previously)
Although there has been slippage relative to thepreviously guided project timeframe, the news that the MIN-funded PTR pilotplant is targeting to be commissioned by March is a positive. We see developmentprogress at the PTR project – which requires zero funding from HZR - as the most likely catalyst for near-termshare price gains. Our estimated risk-weighted SOTP equity value for HZR of A$43m,equivalent to A$0.45ps (@ 97m shares), is comprised of:
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A risk-weighted NPV of A$2m (A$0.02ps) for royaltiesstemming from potential technology licencing arrangements with Primetals Technologies.
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FY19E net cash of A$4.8m (A$0.05ps).
At current share price levels we believe HZR offersupside to our risk-adjusted target price; we see further upside potential asthe PTR and FBR projects are advanced and as the deep discounts of 50% and 90%respectively are unwound. We maintain a Speculative Buy (Higher Risk)recommendation
[GP1]Whilsthazer has filed patent applications, we have no granted patens so there is somedebate over whether we can claim the process is “patented”