CVW CLEANTECH INC. MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE YEAR ENDED DECEMBER 31, 2023
This Management's Discussion and Analysis ("MD&A") should be read in conjunction with CVW CleanTech Inc.'s ("CVW CleanTech", "we", "us", "our" or the "Company") audited financial statements and notes thereto for year ended December 31, 2023. This MD&A has been prepared as of April 18, 2024. CVW CleanTech is a development stage company whose common shares are listed on the TSX Venture Exchange under the symbol "CVW". With effect from February 14, 2024, the Company's shares are also quoted on the OTCQX Best Market under the symbol "CVWFF". This MD&A and the audited financial statements and comparative information have been prepared and approved by the Board of Directors of the Company in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board ("IFRS Accounting Standards"). Unless otherwise noted, all financial measures presented in this MD&A are expressed in Canadian dollars.
Additional information and the above referenced material is available on CVW CleanTech's website at www.CVWCleanTech.comor on SEDAR+ at www.sedarplus.com.
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Contents | |
Liquidity and Capital Resources | 12 |
Market Opportunity | 13 |
Financial Instruments and Financial Risk Factors | 15 |
Related Party Transactions | 17 |
Off Balance Sheet Arrangements | 18 |
Additional Disclosure for Venture Issuers Without Significant Revenue | 19 |
Discussion of Risks | 19 |
Material Accounting Policies and Changes in Accounting Policies | 19 |
Outstanding Share Data | 20 |
Internal Controls Over Financial Reporting | 20 |
Forward Looking Information or Statements and Cautionary Factors That May Affect Future Results | 20 |
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Nature of Business
CVW CleanTech is a clean technology innovator developing sustainable environmental solutions. We have developed a suite of technologies to serve the oil sands mining industry. Our proprietary Creating Value from Waste™ ("CVW™") technology allows oil sands mining operators to extract valuable commodities from froth treatment tailings, reduce greenhouse gas ("GHG") emissions, and enhance tailings management. Recovering additional bitumen, solvents, and water from the existing froth treatment tailings stream provides incremental revenue and cost savings, increasing oil sands mining profitability. Critical minerals, such as titanium and zircon, may also be recovered from froth treatment tailings, providing a new source of revenue for operators. These minerals have been highlighted by the Alberta and Canadian governments as critical to the development of Canada's low carbon economy.1,2
The recovery of valuable products from waste streams will result in important and timely environmental and economic benefits for the oil sands mining industry. Environmental benefits include a reduction in GHG emissions at the host oil sands mining operator site. When residual amounts of hydrocarbons biodegrade in a tailings pond, GHG emissions (primarily methane and volatile organic compounds) are released. Methane is known to have a global warming potential 28-36 times as potent as carbon dioxide when considering its impact over 100 years3. By recovering bitumen and solvents that otherwise would be lost in tailings waste, methane emissions from tailings ponds can be significantly reduced. Canada's oil and gas industry has set ambitious net zero targets to address these issues and the CVW™ technology can help them achieve their objectives. Remediation of oil sands mining tailings is a priority for all stakeholders, including industry, community members, Indigenous groups, government, regulators, and investors. CVW CleanTech's technology enhances tailings management and delivers environmental benefits by producing a lower volume of tailings with a cleaner composition for deposition allowing industry to move away from the use of tailings ponds for froth treatment tailings. When implemented at a representative oil sands mining site which produces 250,000 barrels of synthetic crude oil equivalents per day, the CVWTM technology could provide the following economic and environmental benefits:
- Recover 2.2 million barrels per annum of hydrocarbons (1.9 million barrels per annum of bitumen and 0.3 million barrels per annum of solvent);
- Produce 243,000 tonnes per year of critical minerals in titanium and zircon concentrates;
- Abate between 380,000 - 850,000 tonnes of CO2e, primarily methane, annually;
- Eliminate up to 5,000 tonnes of volatile organic compounds annually (VOCs - considered toxic substances by Environment and Climate Change Canada);
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- Recover and re-use over 2.8 million m3 water and 1.9 million GJ of heat annually;
- Reduce land-use impacts by over 19 hectares per annum, and
- Enable the oil sands mining industry to potentially eliminate the use of tailings ponds for froth treatment tailings consistent with the Alberta Energy Regulator's ("AER") Directive 85.
According to the Company's latest independent economic impact assessment4 which was published in February 2024, implementation of the CVW™ technologies at a single site could:
- Create up to 16,500 person-years of employment in Alberta and 24,000 person-years of employment Canada wide over a 24-year period;
- Provide the Government of Alberta and the Government of Canada with up to $1.4 and $1.5 billion dollars of revenue respectively in total over a 24-year period, and
- Generate up to $6.9 billion in additional GDP within Alberta, and up to $7.9 billion for Canada as a whole.
CVW CleanTech is also actively reviewing opportunities to diversify our technology portfolio by identifying additional value-add transactions which would enhance shareholder returns. These efforts include examining how the Company's resources could be applied more broadly within the clean technology industry to create a diversified platform. Diversifying in this manner, while retaining a focus on clean technology and the role it plays within decarbonization and the circular economy, has the potential to accelerate the growth of the business across multiple sectors and geographies while transforming the Company into a leader in the clean technology space.
Select Annual Information
The following table presents a summary of selected annual financial information in accordance with IFRS Accounting Standards:
December | December | December | |||||||||
31, 2023 | 31, 2022 | 31, 2021 | |||||||||
Net Loss | $3,701 | $4,405 | $2,272 | ||||||||
Net loss per share | |||||||||||
(basic and diluted) | $0.03 | $0.04 | $0.02 | ||||||||
Cash and cash equivalents | $6,003 | $6,958 | $408 | ||||||||
Total assets | $6,291 | $7,069 | $617 |
All figures in thousands, except per share amounts.
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Cash generated from financing activities totalled $1.0 million for the year ended December 31, 2023 as a result of the exercise and conversion of various equity instruments during the year. Cash generated from financing activities totalled $9.9 million for the year ended December 31, 2022 as the Company closed two private placements during the year and generated cash from the exercise and conversion of various equity instruments.
For the year ended December 31, 2023, CVW CleanTech reported a net loss of $3.7 million or $0.03 per share. Non cash charges recognized for stock‐based compensation expense totalled $1.6 million in 2023, whereas the amounts for stock‐based compensation expense was $2.1 million in 2022.
2023 Highlights
Over the past year the Company's Executive Team has taken action with new strategies to advance the commercialization of CVW™ technologies. A key priority for the business and a continuing focus is to ensure that commercial scale deployment of CVW™ technologies in the oil sands mining sector moves ahead to deliver value to CVW CleanTech's shareholders. Our business development activities included engagement with the major mining oil sands operators. We are pleased to report that we have had ongoing engagement with all the oil sands mining operators to highlight our technology's alignment with their business and ESG objectives, with a goal of pursuing a commercial project. We have highlighted the meaningful role that the CVW™ technology can play in the fight to reduce GHG emissions and to be a key contributor on the path to net zero. During these discussions, management has emphasized the proven tailings management benefits including reduction in tailings volume, the improvement of final deposition characteristics, and the improvement of water quality for recycling and/or water treatment processing.
In 2023 the Company published a comprehensive Process and Technology Overview detailing potential commodity recoveries, environmental benefits, and financial benefits which could be generated through commercial implementation of the CVW™ technology at a generic oil sands mining site. The Process and Technology Overview is available on SEDAR+ and can be accessed on the Company's website.
Throughout the year, our technical team reviewed a number of commercialization approaches and developed new options for the commercial deployment of CVW™ technologies, such as phasing the development of the hydrocarbon and mineral recovery modules. We have also completed analyses regarding building a centralized mineral separate facility. We have completed internal studies regarding the potential build of multi‐user centralized mineral separation facilities to achieve economies of scale and
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other benefits. This provides additional optionality in the deployment of our mineral separation technologies.
CVW CleanTech has developed potential financing structures for these CVW™ projects, which have been prepared to offer oil sands mining operators alternatives that will meet their corporate financing needs and preferences with a focus on reducing their upfront capital commitments, while utilizing CVW CleanTech Executive Team's experience in capital structuring. These financial proposals are designed to provide CVW CleanTech with long‐term cash flow, retention of our CVW™ intellectual property, and maximize returns to oil sands mining operators and CVW CleanTech. Oil sands mining operators could receive robust economic returns from additional commodity recovery coupled with operational and environmental benefits that come with the 'Creating Value from Waste™' technology.
During 2023, the Executive Team completed significant outreach and business development activities. As the future development of a CVWTM oil sands facility will require strategic partners, it is essential that these relationships are established and advanced. As a result, developing these key networks is a priority for the business today. We are targeting partners which include financial institutions, institutional investors, Indigenous groups, engineering, procurement and construction firms, and government funding agencies and have developed ongoing dialogues with these key stakeholders.
In order to advance the commercial development of the CVW™ technology, we are focused on demonstrating that the Company has both credible and willing sources of capital for the project. We believe this is a key factor that will influence oil sands mining operators to advance a CVW™ oil sands project in the future. Outreach with investment banks, private equity funds, corporate lenders and government funding agencies has been prioritized. In Q4 2023 the Company announced that it had received multiple support letters for project financing from both Canadian and Global financial institutions. Project financing is expected to be used to support a potential first of its kind CVW™ implementation at a host oil sands mining site. Details regarding the support letters can be found on the Company's website.
In 2023 CVW CleanTech continued engaging with Indigenous groups in the Treaty 8 region. The Company has had the honour of presenting the CVW™ technology to Indigenous communities who rely on the lands and overall natural environment which are most impacted by oil sands operations. We believe our technology can deliver important social, environmental, and economic benefits to communities in the region and hope to build on our relationships to create a strong partnership with Indigenous communities.
We continue to monitor opportunities for government grants and similar funding opportunities that promote development of our commercial applications. Should the Company obtain a commercial
CVW CleanTech Inc. MD&A - April 18, 2024 | Page 6 of 23 |
agreement in place with an oil sands mining operator, we expect to apply for government funding with the Strategic Innovation Fund, including the Net Zero Accelerator, the Sustainable Technology Development Fund and Emissions Reduction Alberta. The more recently announced Canada Growth Fund and the clean technology fund with the Business Development Bank of Canada are exciting possible future partners which we will be investigating further. We are also exploring how the recently announced Clean Investment Tax Credits proposed by the Government of Canada could apply to future CVW™ projects. Our existing funding and relationships with many of these agencies and the Clean Growth Hub are expected to help streamline future application processes. These agencies are expected to play a role in helping to provide further sources of low cost and/or non repayable capital as we move the CVWTM technologies from development stage to full scale commercial operations. We expect that these government grants will be a material source of capital as we look to develop our first project.
During the year the Company participated in productive and valuable discussions with the Governments of Alberta and Canada. This includes meetings at the federal level with senior representatives at the Deputy Prime Minister and Department of Finance Office, Privy Council Office, Natural Resources Canada, Environment and Climate Change Canada, Innovation, Science, and Economic Development, the House of Commons' Standing Committee on Environment and Sustainable Development and Standing Committee on Natural Resources, and the Tax Policy Branch. We also had the opportunity to meet with senior representatives at the Premier's Office, Alberta Energy and Minerals and Environment and Protected Areas provincially. These discussions serve to raise awareness within government of the Company's ready-to-deploy technology and potentially lead to favourable policy decisions.
On September 12, 2023 the Company held a virtual Annual and Special Meeting of Shareholders. Both the presentation and webcast are available on the Company's website.
During the year the Company commissioned an economic impact assessment report which identified the socio-economic benefits which Albertans and Canadians could expect from the implementation of the Company's CVW™ technologies. The report was published in February 2024 and can be accessed on the Company's website.
On February 14, 2024, the Company completed an upgrade to the OTCQX Best Market. As part of the same process, the Company updated its OTC symbol from "TITUF" to "CVWFF".
A refresh of the Company's publicly available material was undertaken, which included an update of the corporate website, revisions to marketing presentations and an 'explainer' video. The video provides a
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simplified overview of how the CVW™ technology works within an oilsands operation and can be accessed on the Company's website.
In seeking to diversify and create value for our investors, CVW CleanTech is actively considering diversification strategies that will position us as a leader in the clean tech commodity space. We are evaluating options to achieve this goal, as we seek to identify business opportunities that are complementary to our own Creating Value from Waste™ technologies and branding.
Select Quarterly and Annual Financial Highlights
The following table summarizes the Company's financial results for most recently completed quarterly periods in accordance with IFRS Accounting Standards:
Q4 | Q3 | Q2 | Q1 | ||
December 31, 2023 | September 30, 2023 | June 30, 2023 | March 31, 2023 | ||
Net Loss | $437 | $1,165 | $1,052 | $1,047 | |
Net loss per share | |||||
(basic and diluted) | $0.01 | $0.01 | $0.01 | $0.01 |
All figures in thousands, except per share amounts. Per share amounts will not total to annual value due to rounding.
Q4 | Q3 | Q2 | Q1 | |
December 31, 2022 | September 30, 2022 | June 30, 2022 | March 31, 2022 | |
Net Loss | $1,224 | $517 | $1,828 | $836 |
Net loss per share | ||||
(basic and diluted) | $0.01 | $0.01 | $0.02 | $0.01 |
All figures in thousands, except per share amounts. Per share amounts will not total to annual value due to rounding.
For the three month period ended December 31, 2023, the Company reported a net loss of $0.4 million. This compares to a net loss of $1.2 million for the quarter ended December 31, 2022. The net loss per share was $0.01 for Q4 2023 as compared to $0.01 for Q4 2022.
The net loss for the three month period ended December 31, 2023, consisted of an operating loss of $512,000 and interest income of $75,000. This compares to a net loss of $1,224,000 for the three month period ended December 31, 2022, which consisted of operating expenses of $1,283,000 and interest income of $59,000.
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December 31, | December 31, | |
2023 | 2022 | |
Net Loss | $3,701 | $4,405 |
Net loss per share (basic and diluted) | $0.03 | $0.04 |
All figures in thousands, except per share amounts.
For the year ended December 31, 2023, the Company reported a net loss of $3.7 million. This compares to a net loss of $4.4 million for the year ended December 31, 2022. The net loss per share was $0.03 for the year ended December 31, 2023 as compared to net loss per share of $0.04 for the year ended December 31, 2022.
For the year ended December 31, 2023, the net loss of $3.7 million was comprised of operating expenses of $3.9 million and interest income of $299,000. This compares to a net loss of $4.4 million for the year ended December 31, 2022. The components of the net loss for the 2022 year end were $4.5 million of operating expenses and $101,000 in interest income.
Operating Expenditures
Three months ended December 31, 2023 and 2022
Operating Expenses | December 31, 2023 | December 31, 2022 | Increase |
(decrease) | |||
$ | $ | $ | |
Compensation and benefits | 433 | 478 | (45) |
Professional fees | 79 | 56 | 23 |
Consulting fees | 75 | 45 | 30 |
Director fees | 48 | 44 | 4 |
Investor communications and marketing | 57 | 28 | 29 |
Office and administration | 27 | 37 | (10) |
Transfer agent and regulatory fees | 19 | 8 | 11 |
Engineering and analysis | 1 | 11 | (10) |
Stock-based compensation | (229) | 576 | (805) |
Amortization | 2 | - | 2 |
Total operating expenses | 512 | 1,283 | (771) |
All figures in thousands. |
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The largest components of operating loss for the fourth quarter of 2023 were compensation and benefits expense of $433,000 which was partially offset by the reversal of previously recorded stock-based compensation expense in the amount of $229,000.
Compensation and benefits expenses decreased by $45,000 compared to the quarter ended December 31, 2022 due to changes in the overall staffing complement year-over-year.
Professional fees increased by $23,000 compared to Q4 2022 resulting mostly from an increase in audit fees year-over-year.
Consulting fees for the quarter ended December 31, 2023 increased by $30,000 as compared to the quarter ended December 31, 2022. The Company retained the services of a government relations firm which increased consulting fees by $34,000 compared to the quarter ended December 31, 2022
Investor communications and marketing expenses increased by $29,000 compared to Q4 2022. The Company and its Executive Team are increasingly engaged with investors and other stakeholders, building strong relationships in an effort to commercialize the CVWTM technology. In Q4 2023 the Company incurred additional travel costs of $17,000 for the participation in investor and industry conferences as compared to Q4 2022. These events build our stakeholder network towards the goals of commercialization of the CVW™ technology and origination of potential diversification opportunities.
Stock-based compensation expense for Q4 2023 reflects a revision in the life to date expense based on revisions to the timeline in achieving certain non-market performance vesting conditions included within stock options issued to certain officers of the Company.
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CVW CleanTech Inc. published this content on 18 April 2024 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 18 April 2024 11:51:10 UTC.
