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Active Energy Group PLC

Active Energy Group Plc (AIM: AEG.L) is a London Stock Exchange-listed firm, operating internationally across the entire timber supply chain - from forest to fuel.

Our complementary business divisions provide timberland development services for forestry owners and second-generation biomass coal replacement fuels for industrial power generators.

Headquartered in the United Kingdom,...

EPIC:	AEG
Market:	LSE:AEG
52-week High/Low:	3.80p / 0.33p
Sector:	Energy
Market Cap:	£5.54 m
Website:	www.aegplc.com

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Big Picture – A Deep Dive Examination of Active Energy Group PLC

Active Energy gears up to start CoalSwitch production

June 27 2019

The aim is to roll CoalSwitch out in areas where AEG can source high volume feedstock.

Active Energy Group PLC Snapshot

Current statement

Active Energy is a London Stock Exchange quoted (AIM: AEG.L) next generation international forestry management and biomass based renewable energy business. The Group focusses its activities through Timberlands International Ltd (‘Timberlands’) which secures forestry asset management and development opportunities in various international territories and Advanced Biomass Solutions Plc (“ABS”), which is focussed on advanced biomass coal replacement fuels and fuel processing systems, with a particular emphasis on the further development and global commercial roll out of its transformational direct drop-in replacement biomass fuel, CoalSwitch™.

Headquartered in the United Kingdom, Active Energy is a fast-expanding business with an innovative forward-looking strategy designed to optimise resources and opportunities, to maximise efficiencies and ROI, and to deliver lasting value to all stakeholders. Respect for the environment, through careful stewardship of natural resources, optimisation of production and logistics operations, and investment in innovative carbon-neutral technologies, is core to its overall business strategy.

The relationships with forestry owners through Timberlands operations allows the Company to maximise the value of standing timber assets. This is achieved through the implementation of modern international standard forestry practises, efficient logging and processing operations and importantly, converting low-grade material, primarily non-saw logs/technical lumber and forestry thinnings, into industrial wood fibre and green energy power generation, via ABS, while simultaneously conserving and replenishing forests for future generations.

The culmination of years of intensive research, investment and development into low-polluting sustainable energy sources, the Company’s unique ABS fuel, CoalSwitch™, which directly replaces highly-polluting coal in traditional power plants, is set to transform the global biomass arena. With its unique composition and physical properties, in particular, being derived from forestry waste, the revolutionary biomass fuel is looking to significantly reduce emissions, improve the global renewable energy dynamic and allow coal fired power plants to save millions on retrofitting as environmental legislation phases out the use of coal.

Alongside managing and developing existing business activities, the Board is constantly investigating new technologies and working processes that can draw upon its experience in the forestry, agriculture and renewable energy industries, to deliver long-term value for our shareholders, whilst respecting and protecting the planet.

Additionally, the Company has an interest in an established MDF processing business in Ukraine – previously known as AEG WoodFibre, which it is intending to divest.

Current operations

Advanced Biomass Solutions

Revolutionary biomass ‘drop-in’ coal replacement fuel for industrial power generation

Coal-fired power plants are widely acknowledged to be the major source - 44%, according to the International Energy Agency 2014 Report - of carbon dioxide and greenhouse gas emissions, the primary causes of global warming and climate change. As a result, governments around the world have introduced increasingly stringent regulations in an effort to force power generators to switch to renewable fuel sources that emit far fewer pollutants and cause considerably less damage to the environment.

The European Parliament has made phasing out coal a major priority, committing member states to a 20% reduction in greenhouse gas emissions and to ensuring that 20% of their total energy consumption is derived from renewable sources by 2020.

These efforts are already bearing fruit: global coal use decreased by at least 2.3% in 2015, and is expected to continue to fall. However, during the transition to a decarbonised future and the elimination of fossil fuels, governments have a duty to deliver their citizens secure, reliable and cost-efficient energy. Immediately shutting down coal-fired power stations would lead to a dramatic fall in electricity generation capacity, with potentially catastrophic economic and sociological consequences.

According to the IEA Clean Coal Centre, there are over 2,300 coal fired power plants worldwide (7,000 individual units). To date, the only method of reducing the harmful emissions they produce was to install expensive chemical scrubbers, or to modify them - ‘retro-fitting’ - to burn renewable fuels, typically biomass. One of the best-known examples is the Drax power plant in the UK, which has committed to spending some £700 million (~US$905 million) on converting three of its coal-fired generating units to burn biomass, and a similar amount to establish fuel manufacturing facilities in the US to supply them with feedstock.

Biomass - a carbon neutral renewable energy source derived from plant- or wood-based matter, which provides an 85% net saving on carbon dioxide emissions compared to coal - is an effective alternative to coal, and already accounts for some 60% of European Union renewable energy production. But enabling coal-fired power plants to burn biomass without costly retro-fitting has long been the ‘holy grail’ of the power generation industry.

Advanced Biomass Solutions is the world’s first ‘drop-in’ biomass fuel that can directly replace coal completely - or be co-fired at high percentages with coal - in industrial power plants, without requiring any furnace, logistics, handling or storage modifications.

Uniquely, Advanced Biomass Solutions’ fuel possesses comparable energy (BTU) levels to coal, and has similar handling and friability characteristics, which combined with greatly-reduced low- and mid-volatiles post-production makes it safer to handle than traditional biomass pellets or other fuels.

The result of seven years of extensive research and development, for which 17 ‘greenfield’ patents have already been filed, Advanced Biomass Solutions is set to transform the power generation industry and propel biomass into the energy mainstream.

It enables coal-fired power plant owners to significantly reduce pollution levels and greenhouse gas emissions, immediately benefitting the environment and improving air quality; and allowing them to continue generating power while complying with new emissions regulations.

Uniquely, the Advanced Biomass Solutions manufacturing technology works with any plant- or wood-based biomass material, including previously-unusable timber (branches, bark and forestry thinnings), sawmill waste (contaminated or aged sawdust and offcuts) and industrial timber (construction and demolition waste, chemically-impregnated wood and railway sleepers/railroad ties); by removing contaminants in an organic process that leaves no harmful residues.

Aside from producing high-energy fuel with similar characteristics to coal, the Advanced Biomass Solutions process provides several key advantages over existing biomass fuel pelleting solutions. They include high volume throughput, lower production costs, the ability to supply the finished feedstock in different formats (pellets, granules, briquettes and bales) and - crucially - greatly reduced storage, handling and distribution costs, as the final product is hydrophobic (i.e. water-resistant).

Timberlands International

Forestry asset management and development for timberland owners and operators

Timberlands International is focused on the sustainable development, management and operation of forestry assets worldwide. It allows forestry owners to maximise the value of their standing timber assets and provides a sales outlet through its affiliation with Advanced Biomass Solutions, which transforms forestry waste into a revolutionary new biomass product.

Active Energy Group entered into an innovative joint venture with three Métis Settlements of Alberta, Western Canada, to exclusively commercialise in excess of 300,000 hectares (circa 750,000 acres) of forestry assets owned by them. The forests are projected to contain more than 35 million m3 of mature standing timber, as well as low-grade timber suitable for a range of industrial applications.

The primary aims are to utilise, in a sustainable and responsible manner, the Métis forestry assets to produce biomass-based renewable energy fuel using Advanced Biomass Solutions’ technology; to assist the Province of Alberta in reducing its dependence on highly-polluting coal-fired power generation; and to create a positive investment environment and significant economic development opportunities for the Métis Settlements and their members.

Alongside constructing and operating a plant for on-site production Advanced Biomass Solutions’ coal replacement fuel, other commercial options under consideration for the Alberta Métis economic development project include providing timber for a range of sawmill and industrial applications.

The Timberlands International team intends that this pioneering joint venture will be a model for further agreements with public and private forestry owners worldwide, enabling them to work together to value, develop and commercialise timber assets in an environmentally responsible and sustainable manner, in accordance with international forestry stewardship criteria.

Commercial options include selling long-term tree farming permits with long-term cutting rights to independent timberland investors and timber industry firms, joint venture arrangements with third parties to create on-site logging and processing operations, and utilising low-grade timber and forestry thinnings for local production of Advanced Biomass Solutions coal replacement fuel.

AEG WoodFibre

High-quality processed hardwood and softwood wood fibre for MDF manufacturing

Medium-Density Fibreboard - generally referred to as MDF - has become the material of choice for carpentry, cabinet-making and other joinery applications. Formed from a combination of hardwood and softwood wood fibres, which are glued under heat and pressure, it is stronger than plywood or chipboard and can be easily cut, drilled, machined and filed.

Since large-scale manufacturing commenced in the early 1980s, MDF production has grown dramatically, and today stands at circa 85 million m3 per annum; 50% of it produced in China, and 25% in Europe.

Turkey is the largest manufacturer of MDF in Europe, producing over 5 million metric tonnes in 2014 from six major plants, most of which are located close to the Black Sea. In that year, the country’s MDF output was estimated to be worth more than US$2.5 billion, and is forecast to grow 8% per annum to reach over US$3 billion in 2017.

Although much of its MDF production is destined for overseas markets - one manufacturer operates the largest MDF manufacturing complex in the world, and exports its products to over 40 countries - Turkey is also the largest European consumer of MDF panels, with local consumption in 2013 increasing by 7% to 4.4 million m3.

Over the past few years, Active Energy Group’s wood fibre processing division, AEG WoodFibre, has become a major supplier of raw material - in the form of high-quality wood chip - to several of the leading Turkish MDF manufacturers; and is now the largest exporter of processed wood products from Ukraine.

AEG WoodFibre operates from a dedicated state-of-the-art production facility at Yuzhny Port, near Odessa on the Black Sea, from where it produced and shipped over 150,000 metric tonnes of industrial wood chip in 2014, more than double the volume that it achieved in 2013, and this growth is expected to continue into 2015 and beyond.

Under the direction of an expert local management team, AEG WoodFibre has secured long-term hardwood and softwood supply contracts - primarily non-saw logs/technical lumber and forestry thinnings - with the State Forest Resources Agency of Ukraine; and now receives and handles some 200 rail wagons, each containing more than 40 tonnes of raw timber, at its Yuzhny Port facility every week.

Having demonstrated to its clients that it can reliably supply bulk quantities of high-quality fresh material in one-tenth of the time taken by alternative transatlantic supply sources - thus providing them with significant freight cost savings and cashflow advantages - AEG WoodFibre has committed to a large-scale investment programme to significantly increase its wood chip manufacturing capacity, and to introduce a new softwood product range.

The impact of this investment is already being reflected in its results from Q4:2015 onwards, and AEG WoodFibre expects to continue to grow both its volumes and operating margins - as well as its share of the Turkish MDF raw material supply market - over the coming years.

Management

Simon Melling Non-Executive Director, Active Energy Group plc

Simon Melling is a Chartered Accountant (FCA) with over 30 years’ experience of working in senior roles within the finance sector, the last 24 of these at board level. During his career to date he has held the role of CEO of AIM listed stockbroker Cenkos Securities Limited (‘Cenkos’), previously serving as its Chief Operating Officer and Finance Director following its listing on AIM in 2006. During his time at Cenkos, Mr Melling was directly responsible for the running of the finance, risk control, IT and operations departments, senior roles which he has also performed within a number of other organisations. He has had significant involvement with devising and implementing the corporate strategy of the organisations that he has worked for. In recent years, Mr Melling has served as a Non-Executive Director on the boards of a number of companies outside the finance sector, including property investment, waste management and consumer finance companies.

Michael Rowan CEO, Active Energy Group Plc

Michael Rowan is a qualified solicitor, experienced investment manager and successful corporate financier with a broad range of international commercial and legal contractual experience.

After graduating from the University of Cambridge, he practised as a solicitor at Linklaters in London, Hong Kong and New York, working with leading global financial institutions. He then moved to Merrill Lynch International in London and New York, initially as Vice President & Senior Legal Counsel of Equity Capital Markets, before being appointed Director/Co-Head of the Syndicate Desk, Equity Capital Markets, with responsibility for origination, execution and commercial negotiation of equity and equity-linked transactions, including major privatisations in the UK and EMEA regions.

Since then he has held a number of senior roles within the Venture Capital, Mid Cap Broking and Asset Management sectors with Accelera Capital, Numis Securities and Charles Stanley Securities in London and Hong Kong; and was most recently Business Development Director and Investment Manager at JM Finn & Co, where his responsibilities included strategic advice and investment management for equities, bonds, collectives, small cap and alternative assets. He was also a Non-Executive Director at Voiamo Group Plc, a global provider of advanced mobile data connectivity and communication solutions.

His current Board-level roles include Director and Partner at RD Active Capital Limited and Rowan & Associates Limited, private companies that specialise in international micro capital and seed financing opportunities; and Chairman of Environmental Recycling Technologies Plc.

Major Shareholders

Significant Shareholders

Total Shares In Issue: 824,791,769.

Holder	Amount	Percent
Gravendonck Private Foundation	241,898,809	29.33%
Ruffer LLP	72,629,728	8.80%
Windstar Investment SA	63,360,000	7.68%
Trident	46,323,970	5.60%
Ronald M Derrickson	27,733,333	3.36%
RG Spinks*	10,372,000	1.25%
Michael Rowan*	3,011,250	0.37%
Brian Evans-Jones*	1,650,000	0.20%