Aqua Metals Moves Forward With JCI

In an 8-K filing this morning, AQMS brought investors the news that we have all been awaiting: readiness to move forward with conversion of a Johnson Controls facility from smelting to AquaRefining.

Here’s a trimmed-down version of what they said in the SEC filing…

On February 7, 2017, we entered into an Equipment Supply Agreement with a wholly-owned indirect subsidiary of Johnson Controls International plc, or Johnson Controls, to which we agreed to collaborate on the development of a program for the installation of new greenfield builds and conversion of existing Johnson Controls [to AquaRefining]…

On September 15, 2017, Johnson Controls delivered to us written notice of the first Johnson Controls facility designated by it, on a preliminary basis, for conversion or retrofit. On September 25, 2017, we delivered to Johnson Controls written notice our readiness to commence discussions to convert or retrofit a Johnson Controls facility to be capable of using AquaRefining to produce lead…

During the week of September 25, 2017, we commenced meetings with Johnson Controls for purposes of furthering the discussions concerning the conversion or retrofit of the initial Johnson Controls facility and the negotiation of the definitive Development Program Agreement…

And, here’s what it all means according to me

  • AquaRefining works. This filing, along with the video showing ingot production this week, confirms that the kinks have been worked out of the process and it’s all systems go. This has been the big “bear” story in the stock and it’s now disproved.
  • JCI is fully on board. According to sources, JCI has had an employee stationed at the Aqua Metals’ Reno facility on almost a full-time basis for the last few months. The fact that they provided written notice to AQMS stating their intention to designate a facility and negotiate a Development Program Agreement certainly implies that they are happy with what they’ve seen and want to move forward.
  • The TRIC facility will likely be built out on schedule and fully operational in the near future. Management has been emphatic that all 16 modules will be on site by the end of October and that it will be up and running at capacity by year-end. I believe the first goal is in the bag and the second is highly achievable…a miss by a month or two is meaningless to this story, which is much bigger than Q4 revenues.
  • The only negative left in the AQMS story is whether or not they have the resources to make it to cash flow positive. This all depends upon the answer to the question above about timing of full production. However, my belief is that Johnson Control’s intention to move forward with them would imply that, in a worst case scenario, JCI steps up and funds them. There have been two themes bandied about regarding this relationship, both of which I believe to be true. 1. JCI wants to roll this out across the whole franchise, and 2. JCI tried to buy AQMS a year ago when they invested. If these are both true, there is no way JCI lets this Company come anywhere near insolvency since they are now moving forward on the first conversion. This risk about financing is rendered meaningless to me.
  • Which means that, in my opinion, the AQMS story has been derisked from an operational and financial standpoint now. This is not to say that they don’t need to execute and that there aren’t other risks involved with investing…of course there are. But, I think that, if you liked AQMS stock before, you should be loving it today.
  • And, this brings me to my final point. There are 4.5M reasons why this stock will likely trade higher. That’s the number of shares short and these investors have to be really panicked right about now. Will they cover? Or, sell more and try another attack? This remains to be seen, but I would not want to be short post the news this week and I’m guess they are looking for some kind of exit strategy.

The bottom line here is that AQMS appears to have finally turned the tables on the short sellers and all the negativity in the market. I’ve been averaging down for the whole ride and feeling like a schmuck for weeks. However, my belief in AquaRefining has never wavered and, as of today, it is finally starting to feel like maybe I’m on the right side of this one.

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