HPQ Silicon signs agreement to develop a low energy-use industrial pilot plant to create clean Fumed Silica

Quebec — HPQ Silicon announced that HPQ Silica Polvere Inc (“HPQ POLVERE”), a 100% owned HPQ subsidiary, and PyroGenesis Canada have signed a development agreement covering the FUMED SILICA REACTOR industrial pilot plant development program and the future commercialization of fumed silica materials made with this newly developing green, proprietary and low-cost manufacturing process.

Figures 1 and 2, below, show the dramatic simplification of the new process compared to today’s conventional process.

From to Quartz to Fumed silica – One Step
Figure 1) From to Quartz to Fumed silica – One Step. New process from HPQ and Pyrogenesis
Figure 2) From to Quartz to Fumed silica – complex conventional process and by-products.
Figure 2) From to Quartz to Fumed silica – complex conventional process and by-products.

THE NEW PROCESS: A LEAP FORWARD IN THE GREEN MANUFACTURING OF FUMED SILICA
As Figure 1 illustrates the new process, invented by PyroGenesis Canada Inc, represents a paradigm shift in the manufacturing of Fumed silica (Pyrogenic Silica). The new plasma-based process allows a direct Quartz to Fumed silica transformation, removing the usage of hazardous chemical in the making of Fumed silica and eliminating the Hydrogen Chloride Gas (HCI) associated with its manufacturing. Furthermore, the process requires 15,000 kWh to produce a MT of Fumed Silica, this represents a staggering 86% reduction in the energy footprint associated with manufacturing Fumed Silica. Finally, since the new process uses Quartz as feedstock, its capital requirements will only be a small fraction of what is required to build a traditional Fumed Silica plant.

ENVIRONMENTAL AND SOCIAL RISK ASSOCIATED WITH TRADITIONAL PROCESS TO MAKE FUMED SILICA
As Figure 2 demonstrates, conventional processes to manufacture fumed silica is a complex multi-step process that requires significant energy consumption (110,000 kWh to produce one Metric Tonne (MT) of Fumed Silica), involves many hazardous products and generates extreme by-products in the form of Hydrogen Chloride Gas (HCI), a highly regulated gas with stringent environmental constraints associated with its use. Traditional processes to make fumed silica are highly capital intensive, as the Silicon Tetrachloride feedstock necessary to the fumed silica manufacturing process can only be made by a Polysilicon plant, requiring > US$ 1.2 billion investment for 10,000 Metric Tonne per Year (MTA) capacity to which you must add the > US$ 150 million cost to build a production line capable of producing 13,000 MTA of fumed silica.

THE MARKET: FUMED SILICA ADDRESSABLE MARKET TO REACH US$ 2.2 BILLION BY 2022
Fumed silica (Pyrogenic Silica) is a white microscopic powder with high surface area and low bulk density. Its commercial applications encompass various industries including personal care, pharmaceuticals, agriculture (food & feed), adhesives, sealants, construction, batteries and automotive to name a few. Demand for Fumed Silica is growing at 6% CAGR, with a global addressable market of US$ 1.5 billion in 2016 expected to grow to US$ 2.2 billion in 2022, but present manufacturing processes are hindering its growth potential.

BUILDING AN INDUSTRIAL PILOT PLANT: PRODUCING FUMED SILICA FOR END BUYERS TESTING
The key areas covered by the agreement between HPQ POLVERE and PyroGenesis are:

  1. FUMED SILICA REACTOR 50 MT per Year industrial pilot plant development program, schedule and cost assumed by HPQ POLVERE,
  2. Acquisition of the FUMED SILICA REACTOR PROCESS Intellectual Property as it relates to the manufacturing of Fumed Silica by HPQ POLVERE,
  3. Revenue distribution between HPQ POLVERE and PyroGenesis from the sales of Fumed Silica materials made with the FUMED SILICA REACTOR PROCESS.

The FUMED SILICA REACTOR industrial pilot plant development program is made of three phases.

  1. Completing the engineering related to the fabrication of the pilot plant,
    • To be completed by December 1st, 2021,
    • HPQ POLVERE contribution to this phase of the program is $109,433,
  2. Completing the fabrication, assembly, and Installation of the Pilot plant
    • To be completed by July 15, 2022,
    • HPQ POLVERE contribution to this phase of the program is $207,046,
  3. Completing the commissioning, start-up, and operation of the Pilot Plant,
    • This Phase is schedule to start on July 16, 2022, and run until March 1, 2023.
    • HPQ POLVERE contribution to this phase of the program is $284,021

FUMED SILICA REACTOR INTELLECTUAL PROPERTY AS IT RELATES TO FUMED SILCIA MATERIALS
The agreement also covers HPQ POLVERE acquisition of the intellectual property rights to the Fumed Silica Reactor Process as it relates exclusively to the production of Fumed Silica (Pyrogenic Silica) (the “Field”) from PyroGenesis. The acquisition cost of the Fumed Silica Reactor Process IP is CAD$3,300,000.

PyroGenesis will retain a royalty-free, exclusive, irrevocable worldwide license to use the process for purposes other than the production of Fumed Silica (Pyrogenic Silica). Should PyroGenesis be approached by any other parties for any research and development or commercial purposes outside of the Field, HPQ POLVERE shall have a right of first refusal, provided that, however, HPQ POLVERE exercise its right of first refusal within thirty (30) days of PyroGenesis receiving a bonafide offer.

REVENUES SPLIT BETWEEN HPQ POLVERE & PYROGENESIS FROM SALES OF FUMED SILICA MATERIALS
The autonomous potential of this project is such that it was deemed more efficient for HPQ Silicon to create, from the start, a fully own subsidiary, HPQ Silica Polvere Inc, to be the stand-alone Corporation that would finance HPQ contribution to the pilot plant program, through loans from parent company HPQ, the acquisition of the IP and manage the future commercialization of Fumed Silica (Pyrogenic Silica) materials made with the Fumed Silica Reactor Process.

As with all other transactions with PyroGenesis, HPQ POLVERE agrees to pay PyroGenesis, on an annual basis, a minimum royalty (Pyrogenic Silica Royalty), with PyroGenesis being granted the right to convert, at any time and at its sole discretion, its Royalty into a 50% equity stake in HPQ POLVERE.

As a result of this, HPQ POLVERE agrees to pay PyroGenesis, on an annual basis, and until conversion, the following minimum royalty (Pyrogenic Silica Royalty), on the gross sales of Pyrogenic Silica, excluding samples and testing products, produced with any Systems incorporating the Reactor and Process IP and/or the Optioned Rights:

  1. For 2023, the greater of 10% of HPQ POLVERE gross sales or fifty thousand Canadian dollars (CDN$50,000),
  2. For 2024, the greater of 10% of HPQ POLVERE gross sales or one hundred thousand Canadian dollars (CDN$100,000),
  3. For 2025, the greater of 10% of HPQ POLVERE gross sales or one hundred and fifty thousand Canadian dollars (CDN$150,000),
  4. For 2026 and beyond, the greater of 10% of HPQ POLVERE gross sales or two hundred thousand Canadian dollars (CDN$200,000).

“With over 25 years of expertise in torch plasma applications, PyroGenesis is a market leader in the green deployment of plasma technologies. As the project enters the industrial Pilot Plant development phase, we are very excited to have been chosen to participate in this new venture with PyroGenesis. The business opportunity that this represents should not be underestimated and could be as significant as the ones represented by the PUREVAP™ family of processes we are developing with PyroGenesis” said Bernard Tourillon, President and CEO HPQ Silicon. “Over US$50 billion in capital flowed in US ESG funds in 2020, and these are the types of investment they are looking for, so our timing could not be better. Our market research has identified several sectors wishing to improve their environmental footprint, and HPQ’s innovative silicon solutions is prepared to meet this demand.”

“This Agreement represents another significant milestone in our relationship with HPQ and, once again, underscores the many hidden opportunities within this partnership,” said M. P Peter Pascali, President and CEO of PyroGenesis. “This Contract is another testament to PyroGenesis’ solid position as an emerging leader in GHG emissions reduction. In fact, this opportunity is a natural extension of what is being targeted by the Company, and aligns itself well with environmental initiatives currently taking place worldwide.”


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