Quadrise Fuels International
QFI has developed MSAR, a low cost, cleaner, direct substitute for Heavy Fuel Oil ( HFO). This has the potential to offer considerable cost savings for the shipping industry, substantial margin improvements for the global refining business, and material positive cost benefits in the thermal power generation sector.
Earlier this year Peel Hunt stated that in their view the main risk facing MSAR2, the marine derivative of QFI`s emulsion fuel would be the results of the sea-borne proof-of - concept ( POC ) tests being carried out on two Maersk vessels. One vessel powered by a Wartsila engine the other by a Man unit.
MAN ME engine
Wartsila RT-Flex Engine
In the RNS of 3rd July 2014 Quadrise were able to confirm that Maersk have stated that the "Proof Of Concept" requirements have been satisfied.
Since this communication the share price has risen some 12% to around 38p.
The next stage for the marine development is a continuation of sea-borne trials for approximately 4000 hours. This Letter Of No Objection ( LONO ) stage is a key requirement that will enable QFI to sell MSAR2 as an approved standard fuel across different engine models with confidence.
Also very importantly the 3rd July RNS also stated that the forward plan has been revised such that the LONO programme will launch the commercial phase in preparation to "roll-out". It is very important to understand what this change in approach signifies. In the original plan trial quantities of fuel were to be produced ( probably from Lithuania) and used for the 4000 hour trials. This route being more expensive for the fuel but entailing little more commitment from QFI or Maersk in investment / infrastructure.
The current approach is to possibly find a new refinery partner suitable for commercial quantity production and better located to marine fuel bunkering hubs. This would seem to indicate that both QFI and Maersk foresee no problems within the LONO stage and are committed to the extra investment. The main advantage of this approach is that on completion of LONO trials the same (new) refinery will be able to supply volume quantities of MSAR2 at the appropriate cost and to the correct locations immediately. It is stressed by QFI that this approach will benefit the commercial roll out programme the only downside being a possible delay in actual LONO start.
What is holding the share price down ?
It could be that with private investors fully loaded and holding on to their shares ready for take-off, now is the time for institutional investors and fund managers to step up to the plate.
The early valuation of around 60p would seem in reach especially when one considers this value was issued in early 2014 prior to the news of the successful POC trials. With continued Maersk support for the Marine development backed up by recruitment of new staff , prospects are looking very good.
Awaited next news (Marine)
- Confirmation of MAN POC formal completion
- Confirmation of selection of new refinery location with timescales for MSAR manufacturing unit (NYSE:MMU) installation.
- Confirmation of LONO start date for each of the two Maersk vessels.(Q4 2014 / Q1 2015?)
- Saudi Arabia, name and install date for commercial demonstration MMU.
- Results of Ecopetrol refinery residue to confirm MSAR suitability.
- Names of new QFI executives to head marine and power station development programmes.
Take off still seems a little way off at the moment but definitely we are on count down.
The marine development is progressing steadily and the latest news is very encouraging especially the possibility to anticipate marine roll out. Establishing demand for a new fuel would always present a challenge. Here again QFI has the perfect partner in Maersk. With c200 direct owned vessels and around a further 500 vessels managed on behalf of other clients, Maersk offers a ready market for QFI`s emulsion fuel, and where the largest shipping company in the world leads surely others will follow.
Through Q3-Q4 2014 it is also hoped that the thermal power generation side of the company may start to produce news.
All in all a very interesting next 6 months.