EarthRenew (ERTH.C): how a clever organic fertilizer company proved I don’t know shit

07/29/2020

Hit me in the face with a cast iron scoop-shovel – I’ve always thought cow shit was good for soil.

It turns out that untreated manure is good for soil in the same way that Percocet is good for an aching back.

Cow feces may provide a one-time clinical benefit – but it comes with significant long-term health risks.

“Although raw manure contains valuable nutrients [like nitrogen],” explains The San Francisco Gate, “its high ammonia and salt levels may inhibit germination and burn the tender new plant roots.”

Alarmist rhetoric from a hippy west-coast news outlet?

Not exactly.

“Fresh manure sometimes contains pathogens (such as bacteria and viruses) that can cause diseases in humans,” states The Agriculture Department of Washington State University, “Salmonella and certain strains of E. coli are among the most serious pathogens found in animal manure”.

“Pathogens that live in the intestines of animals can be transmitted from their manure to people,” confirms the FDA.

Raw manure is so dangerous that farmers who raise livestock can’t transport the untreated shit to other markets.

All they can do is dump it on their own land.  If they don’t have enough land, they inherit an expensive disposal problem.

EarthRenew (ERTH.C) is a technology company that transforms livestock waste into a high-performance organic fertilizer for the North American market.

It’s a high margin product that can be transported across provincial and state lines.

Turning shit into money is clearly a good business model.

But what’s the value proposition for the owner of the cows?

  1. Annual lease payments for ERTH’s processing plant
  2. Disposal of manure.
  3. Electricity generation.

Located on a 25,000 head cattle feedlot, ERTH’s flagship Strathmore plant in Alberta is capable of producing up to four megawatts (MW) per hour of low-cost electricity powered by a natural gas fired turbine.

January, 2020 electrical sales from the Strathmore plant were $117,000.

The exhausted heat from the turbine is used to convert manure into certified organic fertilizer.

From an investor’s perspective, the “organic” subplot changes this from a niche green business into a something with a clear blue-sky story.

About 12 million square miles of the earth’s surface are currently arable (farmable). Due to the encroachment of suburbs, arable land is being lost at the rate of over 38,000 square miles per year.

Land devoted to organic farming is tilting hard in the opposite direction.

“The U.S. organic sector posted a banner year in 2019, with organic sales in the food and non-food markets totaling a record $55.1 billion, up a solid 5% from the previous year”.  That’s double the sales of a decade ago.

Organic acreage in the U.S. increased by 20% between 2011 and 2018 – and now totals over 5 million acres of land, but astonishingly – that amounts to less than 1% of total farmland.

EarthRenew’s CEO Keith Driver is a veteran developer of “emerging products and technologies”.  He has two engineering degrees and an MBA, so he knows mechanical operations and he knows business.

Not all technology CEO’s are good communicators.  Driver is.  You can see that demonstrated in the excellent April, 2020 Proactive Investor interview below.

“Our technology solves the challenge that most feedlot operations have,” explains Driver to Proactive Investor host Steve Darling, “These feedlot operators produce manure which is full of nutrients, but not efficient to spread that on the land.”

“We take that material and we dry it with the waste heat from electricity production. And we turn that into high value organic fertilizer.”

Edited quotes from the Proactive Investor interview:

On the macro story:

Driver: “The organic section in the supermarket used to be a couple of bits and pieces.  That movement has changed dramatically with plant-based proteins and organic vegetable-based food alternatives. The sector is growing at a tremendous rate in terms of acres, and dollars-per-acre.”

On demand from organic farmers:

Driver: “The farmers need sources of carbon and new nitrogen to replenish those soils to get the productivity that they need. We provide a high value product that they can put right with the seed and get the most value for it to increase their yield on site.”

On the value proposition to the livestock owner:

Driver: “Conventionally, farmers would take the manure and store it, because you can only apply it on land in spring and fall.  Ultimately, it might cost them $500,000 just to get rid of it.  We do it for free while generating them revenue through lease payments.”

On Canadian agriculture:

Driver: “Western Canada is one of five regions in the world, that’s a net exporter of food.  Local markets are important demand drivers, but we are also feeding the rest of the world.  Bread production and pasta production in Europe is dependent on our organic crops.”

On opportunities for retail sales (Home Depot etc):

Driver: “In Canada, due to the weather, selling to retail outlets is a seasonal business.  Good value once a year.  But being a publicly traded company, we intend to have strong revenues in all 4 quarters, so the commercial bulk-sale organic market is a better business proposition.”

On 2020 milestones:

Driver: “We will be testing new product formulations through the summer with farmers in the field. The Strathmore facility will be up at full production by next year.  We are currently in discussions on the opportunities to extend this technology to other sites.”

 

In a July 25, 2020 Equity Guru Zoom interview, Driver explained that specific vegetable types do not typically require a customised fertilizer (what’s good for carrots is probably good for lettuce).

But different agricultural zones do have unique nutrient requirements.  Geography – rather than that species type – is the key determining factor for customization of product.

Six weeks ago, EarthRenew entered into a supply agreement to acquire biochar at a discounted price from BiocharNow. The flipside of that deal is a reseller agreement to distribute EarthRenew finished pellets in the U.S. on a non-exclusive basis.

Biochar is charcoal used as a soil amendment for both soil health benefits and carbon sequestration.  Biochar is a stable solid, is rich in carbon, and can endure in soil for thousands of years.  It can assist with the retention of water and nutrients in the soil and promote the microbiological health of the soil.

“EarthRenew and BiocharNow have conducted extensive testing on different product formulations together over the past two years,” states EarthRenew, “Adding biochar to EarthRenew’s pellets has improved the nutrient value of the finished pellets and helped manage odour.”

“Securing this supply agreement for OMRI-certified biochar ensures that we have the ingredient inputs we need to serve our customers,” stated Driver, “Expanding our access to the U.S. through a strategic partnership is the right next step in growing our market presence.”

“Our customers have been asking us to deliver our product in a pelleted format,” stated BiocharNow CEO James Gaspard, “These agreements will allow us to sell high-percentage biochar pellets throughout the United States. This new format will also open new markets and create new customers for us.”

“Another major issue with raw manure is with the introduction of weed seeds,” stated West Coast Seeds.

Untreated cow feces can be a major source of pollution if large amounts of it are washed away in heavy rains.

The Colorado State University states that “certified organic farmers cannot use fresh manure for a minimum of 90 days before harvesting fruits and vegetables produced for human consumption.”

“EarthRenew has a great business model,” concluded CEO Keith Driver, “We get our inputs for free and we sell them at a high value”.

That’s good shit.

– Lukas Kane

Full Disclosure: EarthRenew is an Equity Guru marketing client

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