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Jul 15, 2023

Calix Limited: Australia’s carbon killer strikes again

Calix Limited is starting to look like the Swiss army knife of Australian industry: the company’s patented kiln seems to have an unlimited number of applications, particularly in the realm of

Calix Limited is starting to look like the Swiss army knife of Australian industry: the company’s patented kiln seems to have an unlimited number of applications, particularly in the realm of decarbonisation.

European giant Heidelberg Cement has adopted Calix’s kiln as a way to reduce emissions at its German cement plants, Australia’s big iron ore miners are investigating whether it can help make low-carbon steel, and alumina refiners are trialling its potential.

Calix chief Phil Hodgson is helping big European cement makers reduce emissions. Alf Mertens

On Wednesday, Calix pushed into the lithium sector, when market darling Pilbara Minerals agreed to push ahead with a $104.9 million project to use Calix’s intellectual property to make a new high-grade lithium phosphate product.

Pilbara’s lithium phosphate will be a new product for the battery industry and the timing is immaculate, given the big trend in electric vehicle batteries over the past two years has been the rise of cathodes with lithium-ferro-phosphate chemistry.

From 22 per cent of electric vehicle sales in 2021, LFP batteries are now fitted in 42 per cent of the electric vehicles sold globally, according to Rho Motion.

In Australia, closer to 60 per cent of electric vehicles sold have LFP chemistry.

Calix chief executive Phil Hodgson told Carbon Challenge that the lithium partnership with Pilbara Minerals would probably deliver revenue to his company sooner than Calix’s more established decarbonisation projects in European cement and Australian steel.

Hodgson also had a tip for investors struggling to work out how they should value his ASX-listed company’s long-dated but cutting-edge science.

Hi Phil. Calix’s patented kiln has been adapted to lots of different sectors as they try to cut carbon emissions. What does this week’s lithium phosphate partnership with Pilbara Minerals mean for Calix? Is this now your flagship project?

It is clearly our first project that has line of sight to significant revenues beyond the small amount of revenue we already make from our water business.

Compared to other technology applications we are developing such as for cement and lime, iron and steel and possibly aluminium as well, this [Pilbara Minerals] one is nearer term for us.

Your patented kiln can control temperature far more precisely than traditional kilns. Can you explain how that is useful in the case of the most common Australian lithium product, spodumene concentrate?

The mineral spodumene is in a crystalline form called “alpha spodumene” and you want to heat it up until the point when it pops like a piece of popcorn into “beta spodumene”, which is just a different crystalline structure.

When it pops, like a popcorn, it cracks open the ore and you use those cracks to extract the lithium. But if you put too much temperature in, you start to melt all the other things in the ore and the melt comes up the cracks you have just made.

Our [kiln] is particularly suited to spodumene because we can control that temperature so well. We maximise the alpha-to-beta pop and minimise the melting.

The process you have developed for Pilbara Minerals will use a phosphate reagent to remove waste elements like silica and alumina from the spodumene mineral. The lithium left behind then bonds to the phosphorus in the reagent to make “lithium phosphate”. Did you choose a phosphate reagent because of the trend for electric vehicles to be fitted with batteries that have lithium-ferro-phosphate cathode chemistry?

We looked across the different types of lithium salts we could produce and obviously lithium hydroxide and lithium carbonate are the two key benchmark salts that are produced for this industry.

With both of those, they are not straightforward production routes. With Pilbara we are dealing with a remote mine site, and when looking across the different lithium salt chemistries that we could use, lithium phosphate rose to the surface as something that is better in terms of its utility because phosphate is a molecule of interest in lithium-ferro-phosphate cathode chemistries. It is also bit more stable and more easily transported and so there were a few factors like that which contributed to the decision to focus on lithium phosphate.

So it was a combination of the market growing significantly in lithium-ferro-phosphate as a major cathode battery material, but also some work we did on what is the best chemistry to make at a fairly difficult, remote mine site.

With lithium phosphate, there are two molecules customers get [lithium and phosphorus] that are useful versus one in lithium carbonate and lithium hydroxide, so clearly there is some utility that [customers] are seeing by having two useful molecules turn up in the one product.

The Albanese government’s “safeguards mechanism” carbon policy has been in place for just over a month. Is that new policy triggering more interest in Calix from hard-to-abate sectors?

The first thing we have noticed is the aluminium industry has started to really move, and the announcement by Rio Tinto [to write down the value of its alumina refineries] was a pretty significant indication that the legislation is having an impact and companies are going to have to start moving fairly quickly.

To make aluminium, you mine bauxite and you leach it with sodium hydroxide to get aluminium hydrate. That’s basically aluminium soaked with water. You heat that up to drive the water off to get alumina [the feedstock for aluminium].

A few weeks ago there was an ARENA announcement for about $100 million to go into using hydrogen [to power] a kiln instead of using natural [methane] gas [to make alumina].

Now to me, that is a waste of hydrogen.

With our kiln, if you fire it electrically with renewable electrons, you bypass having to make a green hydrogen at all. You just use renewables to fire a kiln and your aluminium hydrate goes to alumina.

That is something we have been developing for quite some time, but there hadn’t been a whole lot of interest.

But now there is starting to be a whole lot of interest and that is one we are pushing forward quickly. Some of the attitudes are changing in the alumina and aluminium industry.

If aluminium is anything to go, by I am sure there will be other industries; the big iron ore miners are out there looking for technologies to reduce their carbon footprint and produce a green iron.

We are working with most of them in the Heavy Industry Low Emissions Cooperative Research Centre (HILTCRC) which is specifically set up to look at decarbonisation of some of our biggest industries like iron, steel, aluminium, lime and cement.

Your work to solve the carbon footprint of Australia’s iron ore industry is known as ZESTY, which is an anagram of Zero Emissions Steel Technology. What progress have you made on that since The Australian Financial Review profiled it in the Tech Zero podcast?

We have got an extended ore program that we are running through our test unit at Bacchus Marsh [in Victoria] where we contact the iron ore at close to 900 degrees with hydrogen and demonstrate the iron metallisation process using hydrogen as the reductant to suck the oxygen off iron ore.

We have got ores from just about every major Australian iron ore producer now running through that program.

In the first round of testing we did on a few different types of Australian hematite [iron ore] and Australian magnetite [iron ore], the hematites in particular had some excellent early results.

So, we are quite excited about iron and steel and we are progressing as fast as we can to get it demonstrated.

That one was granted just under $1 million from the Australian Renewable Energy Agency (ARENA) to do a front-end engineering and design study, which we are now right in the thick of.

Back in 2019, the front page of The Australian Financial Review featured the work you were doing to reduce the carbon footprint of a Heidelberg Cement plant in the Belgian town of Lixhe. You’ve since struck a licence arrangement with Heidelberg Cement, won funding grants from the European Commission and are building a plant that is four times bigger than Lixhe near the German city of Hanover. How is the “Leilac” cement project going?

We are progressing pretty well, long-lead items are being procured, the permitting is ongoing. We are a little bit at the mercy of the German authorities but we are hopeful that will move through efficiently.

Phil Hodgson at the carbon capture and storage plant at the Lixhe cement works in Belgium. Alf Mertens

Does Calix earn revenue from that licence you sold to Heidelberg Cement?

Not today, it will move into a much longer testing phase, testing for up to two years [at Hanover] on different conditions. But once it moves past the test phase and ticks all the operational boxes, then yes.

In 2021, you sold a 7 per cent stake in your “Leilac” cement decarbonisation business to an institutional investor for €15 million. Is that the model for Calix longer term? Or do you think in a decade or two Calix will be broken up into a bunch of demerged companies?

It’s probably slightly towards the latter, and the reason I say that is because of the acceleration we see when we get the right capital into these subsidiaries, such as our lime and cement business Leilac. The types of investors who come into that may be very different from the types of people who come into Calix as the head stock.

So breaking out industry-specific decarbonisation solution businesses seems to be the right model for us because of the focus, the speed and flexibility of how you raise capital and put it into these companies.

If I had a vision of Calix in 10 years’ time, there would be a very successful cement and lime division, a very successful iron and steel division, a very successful aluminium division, and those divisions will be joint ventures or part demergers.

We might continue to hold a certain percentage of each of those, but then they are moving on their own commercialisation pathway.

Calix is essentially the intellectual property owner of all that. It is the ideas factory and the spin-out factory. It will earn revenues and dividends from those divisions and use those revenues to keep innovating on the core technology to come up with the next application.

A kiln is a great thing to continue to innovate on because just about everything around us that is produced needs heating up when being made, so the opportunities we see are just enormous.

Investors can forecast the profits of a company like Pilbara Minerals fairly easily – you just need to predict the lithium sales volumes, make an assumption about lithium prices, foreign exchange, and you can go pretty close to predicting next year’s profit. It’s much harder for an investor to predict Calix’s future profits. Do you have any advice?

Take Leilac, for instance. We had a sophisticated investor from the US, Carbon Direct, come and do some significant due diligence on the technology and then they invested. They paid a certain amount of money for a certain amount of equity and therefore put a value on that technology. So for analysts and investors, that particular transaction valued the Leilac part of our business alone at close to 300 million Euros.

That will be one of the advantages of the spin-out business model in future; the analysts will be able to see how others value parts of our business as we sell down equity in those divisions.

So watch this space. If we do the same with iron and steel, the same with aluminium, that is how we will get people to value this business properly.

Finally Phil, there is a small, cult audience out there who would love to know what Calix founder and chief scientist Mark Sceats has been up to since he stole the show on last year’s Tech Zero podcast. What is Mark’s latest bright idea?

I can’t tell you that!

Mark is training the next generation of Marks as we invest in the capability of this company, and he is still coming up with a thousand ideas a week.

He has not slowed down one iota.

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