30 May 5 Reasons to put ORIGIN Materials on your investment watchlist!
A Leading Carbon Negative Materials Company
Origin Materials, Inc. (NASDAQ: ORGN) is a premier material-technology Company focused on facilitating the world’s transition to sustainable materials. The Company has developed a leading-edge platform that can transform the carbon found in biomass into valuable products while capturing carbon in the process. Beginning with establishing the initial proof of concept, the Company has steadily advanced its science to pilot demonstration.
Origin Materials, Inc. (NASDAQ: ORGN)
Market Cap: $996.18M; Current Share Price: 7.05 USD
Data by YCharts
The Company is currently developing its core technology and is building a commercial-demonstration scale facility.
Cutting-edge technology
The foundation of the Company’s science is based on the understanding that better carbon makes for better materials. Origin’s platform replaces oil as the feedstock of the economy. It utilizes atmospheric carbon, specifically woody biomass, as the feedstock. The focus is on using sustainably harvested wood, unlike plant-based feedstocks that compete with food production.
The Company’s proprietary platform can convert C-6 cellulose into four isolated building-block chemicals in a single chemo-catalytic step without any carbon loss. Moreover, the technology does not use expensive sugars or fermentation processes and uses a 100% recoverable catalyst. The materials used by the Company are restorative as they are made using a method that sequesters carbon.
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The process has four primary outputs: furan CMF (chloromethyl furfural), HTC (hydrothermal carbon), levulinic acid, furfural, versatile, and carbon negative.
Supplementing Green Energy Initiatives
The current global economy is heavily dependent on fossil fuels, with natural petroleum and gas accounting for 80% of the worldwide energy production. The world economy is transitioning to a lower-carbon energy system, likely transforming the global energy landscape. In total, 64 countries have pledged and passed legislation to show their commitment to achieving net-zero emissions in the near future. According to a report by Mckinsey, the energy mix is shifting towards power, synfuels, and hydrogen, which are likely to constitute 32% of the global energy mix by 2035 and reach nearly 50% by 2050.
Furthermore, future growth in energy will primarily be from renewables and decarbonization technologies, which will require a large amount of investment to transition from a fossil-fuel-based economy into a renewable-energy-based one. However, the transition will be challenging as fossil fuels are also an irreplaceable component of chemicals, materials, and products.
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The greenhouse gas emission, a by-product of fossil fuels, is causing severe environmental damage. Still, there is a long way to go before renewable energy sources become a viable alternative to fossil fuels. The chemical industry is still largely dependent on fossil fuels, and there is a pressing need for a fundamental solution that is carbon-negative, flexible enough for broad applicability, and, most importantly, has to be economical for wide-scale adoption.
The Company seeks to address the material problem, “limiting the temperature rise to 1.5˚C in 2100”. It is estimated that a 1.5°C rise above the pre-industrial levels will result in damages close to USD 54 trillion in 2100 and increase further to USD 69 trillion if the temperature rises by 2°C.
Origin believes that its proprietary platform can offer a sustainable, flexible, and economical alternative to the fossil economy platform for materials. The Company Targets a total addressable market of $ 1trillion, with a $390 billion near-term focus on polyester and another $750 billion across a broad range of materials.
Life-Cycle Assessment by Deloitte Consultancy
The Company completed a life cycle evaluation assessment for its coproducts chloromethylfurfural (CMF), hydrothermal carbon (HTC), levulinic acid, and furfural through Deloitte consultancy, a critical tool for evaluating the climate and environmental impact of its products.
The lifecycle assessment shows that the Company’s coproducts, CMF, HTC, levulinic acid, and furfural are all carbon-negative and can be safely produced commercially. The study evaluated the coproducts on four primary environmental criteria: climate change, ecosystem quality, resource consumption, and human health.
The study also demonstrates climate change benefits at the commercial production scale when using sustainably grown North American softwood: –1.2 kg CO2 eq/kg CMF; -1.7 kg CO2 eq/kg HTC; -1.5 kg CO2 eq/kg furfural; -1.4 kg CO2 eq/kg levulinic acid.
Construction of Origin 1 and Origin 2
Origin has a pilot facility at West Sacramento and another facility under construction in Ontario, Canada. The Origin 1 plant is expected to commence operations by 2022. In addition, the Company expects the contracted portion of Origin 2 and Origin 3 to be completely sold out. The Origin 1 plant completed the module installation milestone ahead of its schedule in October 2021, with all of its 17 core process modules installed successfully. Furthermore, the ENCON evaporator module system was installed ahead of schedule.
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The piping fabrication of the project has commenced ahead of schedule announced in April 2022 and is on track. Overall, the project is on track for completion by 2022.
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In February 2022, the Company announced an investment of at least $750 million for building a biomass manufacturing facility in Ascension Parish. The plant in Geismar will use sustainable wood residue sourced from Louisiana’s timber mills and managed forests to create plant-based polyethylene terephthalate (PET), intended for packaging, textiles, apparel, and other applications. In addition, there are plans to produce Hydrothermal carbon for use in fuel pellets. The project’s construction will begin in mid-2023, and the plant will be completed and operational by mid-2025.
Origin is being offered an incentive package, including the services of LED FastStart, a state-wide workforce development program, and a $6 million performance-based award to be paid out over six years for reimbursement of site infrastructure costs.
Protected and Validated Technology
The Company has obtained 19 patent families to safeguard its core technology in key countries. Patent protection is extremely critical in the technology space. They help safeguard intellectual property and provide a competitive advantage.
Strategic Industry Partnerships
The Company is part of the NaturALL Bottle Alliance, a research consortium formed in 2017 in collaboration with Danone and Nestlé Waters, which is working on developing novel packing solutions that use 100% sustainable and renewable resources. In September 2018, Pepsico joined the alliance to pursue the goal of creating beverage containers with a reduced carbon footprint. The alliance is exploring the use of biomass feedstocks, including used cardboard and sawdust, to conserve resources for food production.
Danone, PepsiCo, and Nestle SA are also early investors in Origin Materials and own 11% of the Company, which became the first public pure-play carbon-negative materials Company after a SPAC deal with Artius Acquisition Inc, for an equity value of $1.8 billion.
The possibilities for strategic partnerships are immense as more and more organizations around the globe commit themselves to decarbonization and a net-zero carbon future. Global organizations such as Patagonia, Procter & Gamble, Siemens, LG, Ikea, Microsoft, and Unilever aim to become carbon neutral, carbon-negative, and achieve net-zero emissions by 2030. Other companies, too, have similar targets for 2040-2050 and beyond.
The Company is partnering with AECI SANS Technical Fibers, a leader in n engineered thread for high-performance apparel and automotive applications, to develop high-performance fibers in clothing, footwear, and automotive industries. The Companies have signed a capacity reservation agreement for carbon-negative PET and next-generation polymers to be produced using the origin platform. Similarly, Origin is collaborating with AECI Much Asphalt, the largest commercial asphalt producer in southern Africa, to develop low-carbon asphalt.
Origin is also partnering with Packaging Matters, a leader in packaging innovation that serves numerous Fortune 100 food companies, to produce advanced packaging materials, including PEF, and transition from virgin petroleum-based PET purchases to sustainable carbon-negative PET. The partnership with PrimaLoft is for creating a high-performance, carbon-negative insulating fiber for use in leading outdoor, fashion, and lifestyle brands, including bedding.
These are only a few of the partnerships that the Company has entered into with leading organizations around the globe. Some of the other collaborations include Solvay, Ford, Kolon Industries, Mitsui, Minafin, LLVMH, and Mitsubishi Chemical Holdings Group.
Financials
The Company has over $1 billion in signed customer contracts, including contracts with Danone, Nestle, and Pepsico. Origin estimates that the demand from these three customers will be close to 4.75Mn Tons, and it would require an estimated 20 commercial facilities to meet the demand for PET.
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The Company has experienced increased demand from various customers and partners, contributing to a more than sevenfold increase to $7.4 billion in offtake agreements or capacity reservations, which is more than 60% of the cumulative revenue expectations in 2030. The Company’s Order book is growing exponentially, with growth being 7x in the past year and by $1.8 billion in the last three months.
As per its Q1,2022 financial results, the Company reaffirmed its full-year outlook of an adjusted EBITDA loss of $36 million. The capital expenditure is expected to be $175 Million. The capital budget for Origin 1 was revised upwards due to rising inflation and supply chain constraints and is now expected to be $15 million to $20 million higher, with the total budget being in the range of $125 million to $130 million, higher than the initial estimate of $110 million.
The Company had cash and cash equivalents of $427.7 million as of March 31, 2022.
The Company is pursuing a capital-efficient strategy to optimize CAPEX, which it believes will be a crucial driver of long-term profitability. Origin intends to pursue a pulp mill “brownfield” CAPEX strategy, which offers additional savings of nearly $100 million on its total commercial plant CAPEX and other advantages such as an existing forest supply chain ecosystem and government incentives.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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References
https://www.mckinsey.com/industries/oil-and-gas/our-insights/global-energy-perspective-2022
https://www.nestle.com/media/news/naturall-bottle-alliance-welcomes-pepsico
https://investors.originmaterials.com/static-files/096d1c30-f09b-4c52-b399-02b0a8b85096
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