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    CMC   CA17178G1046


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Cielo Waste : July 31 2021 MDA

09/30/2021 | 09:23am EST


Management's Discussion and Analysis

For the three months ended July 31, 2021 and 2020


The following Management's Discussion and Analysis ("MD&A") of financial position and results of operations for Cielo

Waste Solutions Corp. ("Cielo" or the "Company"), dated September 28, 2021, should be read in conjunction with the cautionary statement regarding forward-looking information below, as well as the unaudited condensed consolidated interim financial statements and notes thereto for the three months ended July 31, 2021, and 2020, and the audited financial statements and notes thereto for the years ended April 30, 2021, and 2020. The audited financial statements have been

prepared in accordance with International Financial Reporting Standards ("IFRS"). As described in Note 13 to the unaudited

condensed consolidated interim financial statements for the three months ended July 31, 2021, and 2020, certain comparative period information presented for the three months ended July 31, 2020 was restated. As described in Note 20 to the audited financial statements for the years ended April 30, 2021, and 2020, certain comparative period information presented as at and for the year ended April 30, 2020 was restated. The comparative period information presented in this MD&A, including the summary of quarterly results, has also been restated to reflect the correction of these errors. See

section entitled "Restatement of July 31, 2020 comparative period financial information" for additional information.

All amounts in the following MD&A are stated in Canadian Dollars unless otherwise stated. This MD&A was approved and authorized for issuance by the Board of Directors of the Company on September 28, 2021.


This MD&A contains forward-looking statements and forward-looking information (collectively "forward-looking information") within the meaning of applicable Canadian securities laws. Forward-looking statements may relate to anticipated events or results and may include information regarding our financial position, business strategy, growth strategies, budgets, operations, financial results, plans and objectives. Particularly, information regarding our expectations of future results, performance, achievements, prospects or opportunities or the markets in which we operate is forward- looking information. In some cases, forward-looking statements can be identified by the use of forward-looking terminology

such as "anticipate", "plan", "target", "continue", "estimate", "expect", ""may", "will", "project", "should", "could", "believe", "predict", "potential", "scheduled", "estimates", "forecast", "projection". In addition, any statements that refer to expectations,

intentions, projections or other characterizations of future events or circumstances contain forward-looking information. Statements containing forward-looking information are not historical facts nor assurances of future performance but instead

represent management's expectations, estimates and projections regarding future events or circumstances.

Management's expectations, estimates and projections are inherently subject to significant business, economic, competitive and other uncertainties and contingencies regarding future events and as such, are subject to change. All forward-looking statements in this MD&A are qualified by these cautionary statements.

This MD&A contains forward-looking statements that include, but are not limited to:

  • business strategy, objectives and opportunities
  • timing and size of operations, projects and anticipated production from facilities, including timing to develop a research and development facility in Fort Saskatchewan, Alberta and timing for engineering design work to begin for future facilities
  • anticipated impacts of reactor and other facility enhancements
  • timing for commissioning of desulfurization process, and
  • demand fundamentals for fuels from waste and renewable fuels.

These forward-looking statements and other forward-looking information are based on management's opinions, estimates and assumptions in light of experience and perception of historical trends, current conditions and expected future developments, as well as other factors that management currently believe are appropriate and reasonable in the circumstances. There can be no assurance that the underlying opinions, estimates and assumptions will prove to be correct. Certain assumptions in respect of the Company's ability to build and operate facilities; retain key personnel; maintain good relationships with joint arrangement partners, customers and suppliers; execute on expansion plans; continue investing in infrastructure to support growth; obtain and maintain existing financing on acceptable terms; currency exchange and interest rates; the impact of competition; the changes and trends in industry or the global economy; and the changes in laws, rules, regulations, and global standards are material factors made in preparing forward-looking information and management's expectations.


Forward-looking information is necessarily based on a number of opinions, estimates and assumptions that management considered appropriate and reasonable as of the date such statements are made, are subject to known and unknown risks, uncertainties, assumptions and other factors that may cause the actual results, level of activity, performance or achievements to be materially different from those expressed or implied by such forward-looking information, including but not limited to the risks factors described under the heading entitled ''Risk Factors'' in the Company's Management Discussion & Analysis for the years ended April 30, 2021, and 2020 ("Annual MD&A") available on SEDAR at www.sedar.com.

If any of these risks or uncertainties materialize, or if the opinions, estimates or assumptions underlying the forward-looking information prove incorrect, actual results or future events might vary materially from those anticipated in the forward- looking information. The opinions, estimates or assumptions referred to above and the risks described in greater detail in ''Risk Factors'' in the Company's Annual MD&A available on SEDAR at www.sedar.com should be considered carefully by readers. These risk factors should not be construed as exhaustive. Although we have attempted to identify important risk factors that could cause actual results to differ materially from those contained in forward-looking information, there may be other risk factors not presently known to us or that we presently believe are not material that could also cause actual results or future events to differ materially from those expressed in such forward-looking information. There can be no assurance that such information will prove to be accurate, as actual results and future events could differ materially from those anticipated in such information. Accordingly, readers should not place undue reliance on forward-looking information, which speaks only as of the date made. The forward-looking information contained in this MD&A represents our expectations as of the date of this MD&A (or as the date they are otherwise stated to be made) and are subject to change after such date.

Except as specifically required under applicable securities laws in Canada, Cielo assumes no obligation to publicly update or revise any forward-looking information to reflect new information, events or circumstances that may arise after September 28, 2021. All forward-looking information contained in this MD&A is expressly qualified by the foregoing cautionary statements.


The Company has not yet generated revenue from its planned commercial operations and has accumulated losses of $61.5 million as at July 31, 2021 and generated a loss of $3.0 million for the three months ended July 31, 2021. There is a working capital surplus of $5.1 million as at July 31, 2021; however, the Company will require additional capital to fund costs relating to research, development and other corporate activities over the next year and beyond. The Company will continue to explore alternatives to generate additional financing, which may include raising additional equity and debt or entering into strategic partnerships; however, there is no assurance that these initiatives will be successful.

The Company has not reached planned commercial operations and its ability to continue as a going concern is dependent on its ability to generate revenue and positive cash flow from operating activities, and its ability to obtain additional financing to fund the cost of research, development and other corporate activities. These matters create material uncertainty which may cast significant doubt about the Company's ability to continue as a going concern.


  • Formation: Cielo was incorporated under the Business Corporations Act (British Columbia) on February 2, 2011. Cielo is a publicly traded company with its shares listed to trade on the TSX Venture Exchange ("TSXV") under the symbol "CMC" in June 2021, as well as on the OTC Venture Market ("OTCQB"), under the symbol "CWSFF".
  • Strategic Intent: Cielo's strategic intent is to become one of Canada's leading waste to fuel companies using its environmentally friendly, economically sustainable technology. Cielo developed a process that can convert waste feedstocks, including plastics, rubber, organic material and wood derivative waste to fuel. Cielo's business model is to source feedstocks from a wide variety of potential suppliers and convert the feedstocks into fuels to be sold to a wide variety of potential purchasers. The Company plans to construct facilities that will convert low carbon waste feedstocks to energy fuels, such as diesel, kerosene, and naphtha. The diesel from Cielo's distillate could be used in diesel engines. Kerosene could be suitable for aviation or marine jet fuel, and naphtha could be used to assist in transporting heavy oil.
  • Aldersyde Facility: Cielo's first facility located in Aldersyde, Alberta ("Aldersyde Facility") is currently converting wood derivative waste into a distillate product that consists of diesel, kerosene and naphtha. The proprietary technology Cielo has access to has been proven out at bench scale and at the Aldersyde Facility. The Company is continuing its research and development activities to achieve continuous production of its distillate on a commercial scale and is also conducting research and development activities to produce fuels that would meet the requirements for highway


diesel and renewable fuel under applicable legislation in Canada such as the federal Renewable Fuels Regulation and the Alberta Renewable Fuels Standard Regulation. Cielo expects there will be demand for its waste to fuel products regardless of whether its fuel products meet renewable fuel specifications; therefore, Cielo's revenue stream is not dependent on producing renewable fuel. However, renewable fuel is expected to increase the profit margin of Cielo's waste to fuel products.

  • License Agreement: pursuant to a license agreement entered into between Cielo and 1888711 Alberta Inc. ("1888 Inc"), a company related by a common officer and director of Cielo, dated June 14, 2016, as amended and restated on November 1, 2017, Cielo holds an exclusive global license, to complete the development and commercialization of the renewable diesel technology on which its facilities are and will be based (the "License Agreement"). The technology, which is patented in Canada and the United States, uses landfill waste, tires, plastics, wood shavings and paper products to produce diesel, kerosene (jet and marine fuels), and naphtha through a catalytic thermal depolymerization process. Cielo retains the exclusive right to construct and commercialize facilities using the technology and has agreed to pay royalties and commissions to 1888 Inc from the commercialization of the technology.
  • Waste to Fuel Processes: Cielo's process for converting waste to fuel is referred to as thermal catalytic depolymerization ("TCD"). Feedstock is processed in a liquid slurry, currently using used motor oil, and is then heated in a reactor until liquified. The process uses atmospheric pressure and heat to break down feedstock molecules in the reactor until liquified. Once liquified, it is blended with a catalyst. The catalyst causes an accelerated reaction forming a distillate. The distillate is placed through a distillation process where it is heated to temperatures that produce diesel, kerosene and naphtha. Any references to the Company's current production in liters per hour ("LPH") of distillate refers to such a distillate product that consists of diesel, kerosene and naphtha.


  • Total assets increased by $1.2 million as at July 31, 2021 compared to April 30, 2021, due to the increase in property, plant and equipment related to the construction activities at Aldersyde Facility, and the increase of prepaid expenses, partially offset by the decrease in cash related to increased research and development and general and administrative expenditures.
  • Total liabilities decreased by $8.2 million as at July 31, 2021 compared to April 30, 2021 due to the exercise of liability classified warrants and the conversion of convertible debentures, partially offset by the increase in accounts payable and accrued liabilities.
  • Total non-current liabilities decreased by $0.5 million as at July 31, 2021 compared to April 30, 2021 due to the conversion of convertible debentures.
  • Working capital increased by $5.8 million to $5.1 million surplus as at July 31, 2021, compared to $0.7 million deficiency as at April 30, 2021, primarily as a result of the decrease in short-term warrant liability upon the exercise of warrants, partially offset by the decrease in cash.
  • The net loss for the three months ended July 31, 2021 was $3.0 million, an increase of $1.7 million compared to $1.3 million net loss for the same period in the prior year, mainly due to the following:
    • An increase of $1.0 million in general and administrative expenses mainly due to salaries and benefits for the additional employees hired to facilitate the growth of the Company, and professional fees incurred related to the listing of TSXV in June 2021.
    • An increase of $1.5 million in research and development expenses in the current quarter due to the increase in research and development activities conducted at Aldersyde Facility, and the shutdown of the Aldersyde Facility during the same period in prior year due to COVID-19 pandemic.



Aldersyde Facility Update

The Aldersyde Facility has been producing in batch mode since opening in July 2019. The Company has reached 1000 LPH of distillate and has historically produced on a 24-hour continuous basis. Cielo has temporarily slowed production to improve the consistency of the product. The Company has internal engineers and external engineering consulting firms engaged in continuous optimization and improvements for the development of full-scale facilities.

During the three months ended July 31, 2021 and subsequent to July 31, 2021, while Cielo continuously reviewed all aspects of facility improvements, the Company focused on the primary components of the process, which include reactor design optimization, inlet feed system improvements, and a waste recovery management system. It is anticipated that reactor enhancements will optimize distillate production, achieve continuous production and improve distillate production and carrier fluid efficiencies. Continuous production would generally allow for feedstock to be added to the reactor with production of distillate occurring on a continuous basis without having to stop the input of feedstock to turn off the reactor to remove distillate. Cielo is also working on waste recovery modifications, with the aim of recovering additional carrier fluid and catalyst with an anticipated reduction in operating costs and improved efficiencies.


In October 2020, Cielo signed a research agreement with the University of Calgary's Department of Chemical and Petroleum Engineering to complete the commercial design of the desulfurization technology required to reduce the sulfur content in its waste to fuel products. Cielo's goal is to meet the highway diesel specification of 15ppm or less of sulfur. Cielo received laboratory results that indicated the successful reduction of the sulfur content to approximately 5ppm, well below the required specifications.

In August 2021, the catalyst, intended for use in Cielo's desulfurization process, designed by the University of Calgary, and produced in China, was not complete when it arrived at the Aldersyde Facility. The catalyst required further work and was sent to Texas, US for activation and stabilization. The desulfurization unit is currently in the process of commissioning. Once the desulfurization process unit is on-line, the Company's primary objectives are to (i) confirm the ability to produce diesel with a sulfur content that complies with road diesel requirements; (ii) monitor, trend and measure system performance parameters for design purposes; and (iii) gain an understating of expected operating costs.

Cielo expects that its revenue stream will not be materially dependent on the desulfurization process. However, a product with a lower sulfur content is expected to increase the profit margin of Cielo's waste to fuel product.


The Aldersyde Facility is Cielo's first facility capable of converting waste to fuel. In addition to production of fuels for sales

to third parties, Cielo intends to use its Aldersyde Facility for ongoing research and development activities. The second 100%-owned Cielo facility is planned to be built in Fort Saskatchewan, near Edmonton, Alberta. In addition to a full-scale facility, Cielo intends to build a research and development facility ("R&D facility") in Fort Saskatchewan, Alberta.

The Company is currently in the process of designing this R&D facility, which is a scaled-down version (60 LPH) of a full- scale 4,000 LPH facility. The purpose of this R&D facility is to achieve a high degree of detailed performance characteristics, feedstock yields, optimum carrier fluid design, rector design, catalyst experimentation and a detailed material balance for the system. This R&D facility is expected to give Cielo the flexibility to experiment with a greater range of pressure and temperature regimes, reactor configurations and catalysts to greatly enhance the quality of the fuel yield. The detailed lab- grade engineering output is expected to facilitate the design of a full-scale commercial plant with predictable performance, capital cost expectations and operating cost metrics. It is anticipated that the fabrication and construction phase of this R&D facility to commence by the end of the first quarter of 2022.

When sufficient facility flow characteristics, chemical engineering parameters and optimized data from the Aldersyde Facility and/or Fort Saskatchewan research and development facility are captured to ensure confidence in the Company's ability to achieve continuous production on a commercial scale, Cielo expects to commence engineering design for a full- scale Fort Saskatchewan facility and a joint arrangement facility near Medicine Hat, Alberta.


This is an excerpt of the original content. To continue reading it, access the original document here.


Cielo Waste Solutions Corp. published this content on 30 September 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 30 September 2021 13:21:10 UTC.

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Net income 2022 - - -
Net Debt 2022 10,4 M 8,16 M 8,16 M
P/E ratio 2022 -
Yield 2022 -
Capitalization 202 M 159 M 158 M
EV / Sales 2022 354x
EV / Sales 2023 52,1x
Nbr of Employees -
Free-Float 95,8%
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Cielo Waste Solutions Corp. Technical Analysis Chart | MarketScreener
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Income Statement Evolution
Mean consensus OUTPERFORM
Number of Analysts 1
Last Close Price 0,31 CAD
Average target price 1,00 CAD
Spread / Average Target 228%
Managers and Directors
Gregg Gegunde Chief Executive & Operating Officer
Clayton Donald Allan President & Chairman-Emeritus
Stephanie Li Chief Financial Officer
Lawrence G. Schafran Chairman
Jasdeep K. Dhaliwal Independent Director
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