Robin Levison is the Executive Chairman ofPPK Group. Now, I gave PPK a pretty solid positive write-up in the WeekendBriefing back in November of 2019 after a discussion with Glenn Molloy, who’san Executive Director and Founder of the company – I actually thought he wasCEO, but in fact Robin Levison is CEO as the Executive Chairman and has beenfor quite a few years. The reason I was kind of interested in the business backthen was because they own half of a company joint venture with DeakinUniversity to produce boron nitride nanotubes, BNNT, which some researchers,scientists at Deakin have been developing.
They’ve recently just made a breakthrough.Part of the reason for talking to them now is because of the breakthroughthey’ve just announced in terms of the cost of producing BNNT, which caused theshare price to surge about 15 per cent the other day, this is last month. Butlook, they shot up to $7 dollars a share back in November of 2019, about thetime I spoke to them. They had a pretty rough pandemic, the share price felldown to $2 dollars again in March last year, but now it’s back at $8 dollars,having quadrupled since then as the boron nitride nanotubes thing continues todevelop.
The reason that we’re interested in BNNT isbecause it sells currently for close to $1 million dollars a kilogram, about$850 bucks a gram, so it’s expensive. They want to bring the price down byproducing a lot of it so that it can be used in a lot of applications. It’sbasically used to strengthen things like aluminium and it’s also used inbatteries. But the thing is, PPK is a kind of holding company for a number ofthese joint ventures. It owns 45 per cent of a ballistics company, 48 per centof a lithium sulphur battery business, 20 per cent of a traffic technologyartificial intelligence business, and it also owns a cash producing miningservices business which they’re looking to demerge into a separate company. Infact, they’re looking to, I think, eventually IPO all of their businesses.
This is a fascinating little business, tobe honest. It’s currently capitalised at $700 million dollars and has latelybeen on a bit of a tear, so here is Robin Levison, the Executive Chairman ofPPK Group.
Table of contents:
Current Cash Situation
Commercial Focus
Mining Business
BNNT Breakthrough
Making, Selling BNNT
BNNT Benefits
Ballistics Business
Road Safety Unit
Holding Company
IPO Plans
Robin, I always start these interviewstalking about cash and cash flow. You’ve obviously done a recent raising soyou’ve got plenty of money in the bank, but what’s the current cash burn rate?
Well, again, I think we have to probablysimplify what you’re asking, Alan, because PPK Group Limited, which is an ASXlisted company, has around $30 million in cash across the group excluding cashequivalents. The mining services business that we own generates sufficient freecash flow to pay most if not all the fixed costs, the ASX listing costs,directors fees, salaries, etcetera… Where we are burning cash is in some ofthese commercialisation activities where we’re taking them from a researchbasis to an actual something we can sell to the market.
I was just going by the half-yearly for PPKGroup, six months to December 31, cash flow -$3.8 million, so that was the PPKGroup for that period.
Well, if you look at that, where the bulkof that cash has gone is payments for acquisitions as an investment and theacquisition of intangible assets as we build out our Intellectual Property.
I see, okay, yeah, sorry. You made anacquisition, yes.
Well, the point I’m making is that we havebeen acquiring stakes in these technology businesses that we think have realpromise and when you look at the six-month cash flow, as you can see forexample in investing activities, there’s $1.5 million dollars there foracquisition of an investment. Then you’ve got also payments for intangibleassets, etcetera, which come with normally those technology businesses.
You’re turning PPK into a bit of atechnology conglomerate, are you?
We see it as a commercialisation businessnow, Alan, where we’re finding that as we’ve done half a dozen of theseactivities and work now with two universities to assist them in taking what arestrong research-based technologies but that haven’t necessarily been testedwith actual end-use customers or markets, we’re finding that we’ve been able topartner with Deakin and University of Queensland recently and we’re findingthat the success we’re having there is effectively bringing us otheruniversities, particularly who maybe lack just that external commercialisationfocus or don’t necessarily have the teams in place to do that.
That’s certainly where we see PPK Groupmoving and as I have reported in the last half-year ASX report, we are lookingto independently demerge the mining services business because then we thinkit’s going to give shareholders a choice as to whether they want to have aninvestment in both mining services and the technology commercialisationactivities, or whether they would choose to be in one or the other.
Just before we get onto boron nitridenanotubes, just describe the mining services business for us, what does it do?
Sure. PPK Mining Equipment is a fairlylarge business, it has premises in Tomago, in the Hunter Valley, in Port Kemblaand also Mount Thorley up on the Hunter Valley. It specialises in bothmanufacturing and servicing equipment for the underground coal area, andgreater than 95 per cent of our customers are mining the very important coal,the high-quality coal for steel making, so we’re not in that area where thecoal’s being used for coal-fired power etcetera, which is seen as a reasonablynegative area at the moment. It’s primarily the very high-quality coal that thehighest quality steel producers around the world want to use to create the bestquality steel they can. Secondly and most importantly, it has the lowestemissions globally of coal that’s being used in steel making.
That’s throwing off cash that’s funding theother activities, is that right?
That’s correct, but at this moment each ofthe activities that we’re involved in, we’ve done what I would call anexpansion capital raise. Now, each of the commercialisation activities that PPKis involved in, along with either Deakin or the University of Queensland or theballistic business, the body armour business that we own 45 per cent of, theyall have sufficient cash on their balance sheets to either complete or go along way towards commercialising their activities. To give you an example, wejust raised $20 million for our lithium sulphur battery project as a pre-IPOraise and that valued that company at circa $300 million given where we raisedthat $20 million dollars.
Let’s move onto BNNT, boron nitridenanotubes, you own 50 per cent of this company with Deakin University and Ithink that’s the most interesting part of the business in some ways. Yourecently announced that you’d made a breakthrough in equipment design andproduction methods. Can you just take us through what the breakthroughinvolved?
Sure. For the last greater than two years,we have been trying to create volume in the BNNT product at a greater than 95per cent purity. Deakin found a way to manufacture BNNT at low temperatureswhich the rest of the world has been unable to do so far. The issue with thatwas that they were manufacturing at laboratory scale quantities, so ourmission, if you want to call it that, was to help them achieve greaterproduction volumes and the long-term goal is to move towards continuousproduction. Because we look at BNNT as being able to solve a number of problemsglobally, but to date there hasn’t been enough volume available for anyend-user to really be able to rely upon the volume, if they got the results byblending it in, for example, that may benefit.
Over the last two years, we’ve beentrialling a number of different types of machinery, a number of differentinputs. As of Friday, 30th of April, we were able to announce that ourengineering team that’s based at Deakin and the Deakin scientists had reallywhat we see as kind of cracked the holy grail, where we now can manufacturesomewhere in the order of 50 kilograms per year and that’s at a greater than 95per cent purity.
So what you actually did was produce akilogram in five days. The 50 kilogram per year presumably is an extrapolationof that?
That’s correct.
One kilogram a week equals 50 a year. Howconvinced are you, you could keep it going for a full year?
Well, we’re very convinced, otherwise wewouldn’t have made the ASX announcement and I think probably as important asthe volume is that we now have what we consider to be a final semi-automatedmodule design which we know has a fixed cost of $850,000 dollars to order allof the components and install that module. Crudely, for each $850,000 dollarsthat we spend, we expect to produce at least 50 kilograms per annum of greaterthan 95 per cent purity BNNT.
A module in this case is a production unit?
Correct.
What does it look like, what do you get for$850,000?
There’s a number of different moving partsto it, there’s a furnace, the requirements to grind certain components, thereare gasses that are put into the process at different times, there are elementsinside the furnace that allow the BNNT to cook at this purity and this lowtemperature and then there’s the ability to extract the BNNT and package it upso we can sell it. There’s a lot of secret sauce there that we’ve tried tolimit the amount we say about that because it really is quite world-beating,the technology that’s been developed there.
What does a kilogram of BNNT sell for thesedays?
The current price that we’re selling a gramfor is somewhere between $8-900 dollars US.
That’s a gram, one gram?
Correct.
$850,000 dollars per kilogram?
Correct.
Right, so there’s a pretty quick payback onyour $850,000 dollar investment.
To put that in context, Alan, what we’reaiming for is the ability to bring the cost of production for BNNT down materially.We think we’re now the lowest cost producer of BNNT in the world. That willallow us to sell BNNT at a materially lower price than the current $700 to $900US dollars a gram, which we believe will bring a much wider range of interestedparties to test the product and you’re probably well aware of what’s happenedin the graphene market over the last five to seven years. As manufacturers wereable to produce high-quality graphene, say five, six, seven years ago themarket was a $2-300 million dollar market. My understand is it’s now a $2-4billion dollar market as end-users have been able to buy the graphene cheapenough, integrate it into their products and show the benefits of it.
The long-term opportunity for us is to beable to create BNNT in volume at a price that a lot more end users will trialit in their products and use it.
How far off having a factory are you?
Well, we have a factory now and in fact, wewere very fortunate where the Federal Government announced a few weeks ago thatthey were going to fund further production and development in the Geelong-basedarea. They’re allowing Deakin to spend $20 million dollars in partnership withthe Victorian Government and our LIS energy business is one of the firstconfirmed tenants there. We already have a secure factory space at Deakin forour production of BNNT and we’re now looking to build out the space for the LISbusiness in the same area because you’ve got an incredible number of highquality people down there who have all of the production skills and so forththat we can use in these areas. We expect to have a second factory, if you wantto call it that, in The Institute for Frontier Materials at Deakin Universityshortly.
What I meant was, how far off producing andselling BNNT is the company?
We are selling it now. In fact, in theyear-end results that we’ll put up shortly, you’ll see sales of BNNT. Our firstmodule is fully operational and we are making BNNT every day and we’re sellingit. We have already ordered and we’re receiving components for the secondmodule and we expect to have that up and running in the next few weeks. We havespace currently at our facility for four modules.
Okay, so you could be producing 200kilograms a year before long?
Well, there’s a fair complexity in thedesign of the production modules, so by the time we bring each of thecomponents from, I think, half a dozen places from around the world, thenassemble and test it and certify it, yeah, there are some months involvedthere. But certainly, within the next few weeks we will have two operationalmodules working.
Who are you selling it to and what are theyusing it for?
These things always start with scientifictesting, so we’re selling to a range of universities. We also have a currentjoint venture project with another ASX listed company called Amaero, they arebuying BNNT from us and they are blending it into certain high-strength,high-quality aluminium products that they manufacture for global aerospacecompanies. Recently, they also just announced that they’re doing a jointventure with Rio Tinto using BNNT being blended into some of the componentsthat Rio Tinto are looking for. We also have a joint venture with a dentaloperation that’s looking to try and strengthen dental implants such as crowns,things like that, they’re buying from us.
The lithium sulphur battery or lithiumenergy company that we did the pre-IPO raise, they’re buying BNNT from us aswell. As we’ve been able to increase our production and secondly, as COVID hasstarted to retreat from some of the advanced markets in the world like Europeand the US, we’re seeing more research demand for BNNT. This is really whathappened with graphene, as I said a little earlier, that you get a lot ofscientific testing of the product which then transforms into commercialutilisation.
Let’s just take those things you mentionedone at a time. How much stronger does it make aluminium?
The testing hasn’t been completed yet,Alan. Amaero are still going through the process of blending the BNNT with thealuminium and we haven’t yet seen a formal scientific certified outcome.
But do you think it’ll make it as strong assteel, for example?
Look, I really can’t comment on that.Obviously, they do and we do assume that it’s going to bring material benefitsto those products, but I really wouldn’t want to speculate until we see thescientific evidence.
Okay, let’s talk about lithium sulphurbatteries then. The subsidiary that you mentioned before, LIS Energy, actuallyis working on those, right? Yourself, in house, as well as other people aredoing it. Tell us, what are the advantages of lithium sulphur over lithium-ion?
Sure. The lithium sulphur technology hasbeen around for quite a long time but it hasn’t really been able to be – Iguess you’d call it – perfected, due to a number of issues that tend tomanifest themselves. Part of that is that there has been overheating problemswith the batteries. Secondly, you get what’s called dendritic growth where youget sort of a growth on the cathode and/or the anode, which when they meet eachother they tend to spark and to short out. What we found in our research withDeakin, is by introducing interlayers of BNNT into lithium sulphur, it lookslike that’s going to solve a number of those problems that I guess havepreviously failed in lithium sulphur production. We believe we are reasonablyclose to getting a full scientific outcome from Deakin, where we believe thatwe’ll have a working prototype battery that will be materially better than anylithium-ion battery available on the market at the moment.
How far off do you think that is?
We’re hoping it’s some weeks, but again,these testing programs, they do take time. I would say, in scientific termsit’s in the short-term, but what I’ve learnt in our relationship with Deakinand the University of Queensland particularly, that short-term can mean monthsas well as far as these groundbreaking technologies go.
If not years.
No, I seriously don’t think that, but I amloathe again to promise something and then not being able to deliver on time.We’re very well advanced in the testing program.
But do you think it’s possible that lithiumsulphur batteries could take over from lithium-ion given their advantages, orwould the BNNT, the boron nitride nanotubes, be too expensive, make thebatteries too expensive?
I think in certain types of batteries,definitely. What we call the LIS battery is certainly, introducing the BNNTcost to it, the benefits to the battery will outweigh the increased costs. Wedo believe that it will prove a real alternative to lithium-ion. Some of theother battery markets, we believe that, again, what I said in the verybeginning was, that we are looking to get the price of BNNT via this automatedproduction, where in the lower-end battery area it could become beneficial aswell.
Are you saying the advantages would be incars or more stationary battery applications?
Certainly, we see things like electricvehicles, drones – anything where duration or mileage, if you want to call itthat, is important, or fast-charging, we think that the lithium sulphur batterycould be a really viable alternative. If you think about the drone market, forexample, the key negative on drones at the moment is battery life versus theweight they can carry or the weight of the underlying drone itself. We thinkthat the LIS battery is going to solve a lot of those flight time durationproblems.
Can we just move onto Craig InternationalBallistics now? You bought 45 per cent of that business last year, I think.What does it do?
Craig are a very proud Australian company.The Craig Family founded that business I think some 30 years ago and their coreproducts are in the ballistic area, so they make bullet-resistant body armourfor Australian troops, New Zealand police… They’ve got a range of customersaround the world where they make those protective plates. They’re also involvedin blast-resistant glass, where they are making that again globally for certainshipping vessels, also land warfare craft, etcetera… They also make specialisttactical shields, for example – you see on TV the SWAT teams going in withthose big shields held up in front of them. They make all of that type ofequipment and as you said, we own 45 per cent of them.
I think, really importantly, they’ve beenrecognized as a high-quality global producer because only in March theyreceived a $1.2 million dollar Federal Government grant to further invest intheir business and to grow that business.
What materials do they use?
There’s a whole range of materials thatthey’re using. Polycarbonate, a whole range of materials that they press in away that creates a structure that is bullet-resistant and obviously the reasonthat we were very keen on investing in them and they were keen on having us asan investor is that we’re currently also experimenting with the introduction ofBNNT into those structures to try and reduce the weight of those armouredplates, if you like, but to keep the tensile strength intact.
Does it look like it works?
We’re still in the process of testing it,Alan.
But you think it does, otherwise youwouldn’t have bought 45 per cent? I mean, that’s a big deal.
We certainly think it can.
I was just trying to look at what else youbought into – Advanced Mobility Analytics Group, what do they do? Digitalplatform provider of road safety analytics?
Correct. This is a really interesting SaaSbusiness that came out of the University of Queensland, out of their wonderfulUniQuest commercialisation area. This is a business that employs analytics,artificial intelligence, cameras, phone data, etcetera… When you put all ofthat through – and these are my words now, they’re quite crude words and I’msure that the CEO of AMAG would be disappointed with me the way I describethis, but when you run this through the AI engine, it gives predictiveanalytics as to where there may be accidents happening, it takes close callsvia camera footage where pedestrians or bicycles have had a close call.Basically, it’s a technology that, so far where it’s been tested and where it’sbeen used, has reduced traffic accidents and pedestrian fatalities materially.In the US, for example, one of the joint ventures that AMAG has is Microsoftwho are interested in this area.
Is it selling its services now, it’ssoftware now?
Yes, it sold to one city in the US and onein Canada. Bellevue in the US and I can’t recall the name of the other one.It’s got two trials happening here in Australia right now with a third about tobe enabled. So, yes, it has a product, yes, it’s generating revenue and, yes, it’sbeen successful in the reduction or the preventative nature of bringing trafficaccidents down.
It charges a subscription, does it?
Yes, correct. It can charge in three ways.Like anyone, it can sell its product upfront on a yearly licencing fee, but whatthey’re finding is more attractive is the subscription as a service type modelwhere the customer pays on a monthly basis.
How much have you got of this business?
We only have a 20 per cent interest in thatbusiness at the moment, but PPK would expect to continue to help that businessgrow and provide further expansion capital for that business as it needs it.
Have you got a right of first refusal overproviding capital?
Yes, we have.
And LIS Energy, is that a wholly ownedsubsidiary or do you own only part of that?
From memory, I think we’ve got a fullydiluted 48 per cent holding in that since the last IPO raising where it raised$20 million dollars. From memory, we have just over a 48 per cent fully dilutedholding in LIS and that’s down from about 52 per cent due to the $20 milliondollar pre-IPO capital raise that we’ve just completed.
Just looking over all the PPK Group, it’sbasically a holding company for a whole lot of less than 50 per cent interests– well, you’ve got 50 per cent of BNNT Technology, 45 per cent of CraigInternational Ballistics, 48 per cent of LIS Energy and 20 per cent of AdvancedMobility Analytics, correct?
Correct.
And then PPK Mining Equipment, is thatwholly owned?
Yes, it is.
And you’re thinking of demerging that andputting it into its own business?
Correct. We announced via the ASX a fewmonths ago that we feel that separating the businesses will create greatervalue than having them under the same banner, so we’re working towards thatnow.
Just looking at PPK Group, how are yourunning it? You’re Executive Chairman, I presume that means you’re CEO. GlennMolloy was the Founder of the company and I thought he was CEO, but obviouslyhe’s not. How does the place run?
We’ve got a normal corporate head officewhere we’ve got a CFO, a General Counsel, Company Secretary, etcetera… In someinstances, we’re providing all of the support infrastructure for the companiesthat we own. For example, we provide 100 per cent of the support, finance, HR,etcetera, for PPK Mining Equipment. We’re also providing all of the corporatesupport as we grow the smaller commercialisation businesses such as BNNT, LIS.We’re also now providing the bulk of the corporate support for Craig Ballistic.Obviously, when we IPO LIS those things will change and as they grow, we’llstaff them appropriately. But what we’ve found is that by providing the levelof corporate support at the PPK head group level, as these businesses start togrow, it’s the most cost-effective, a way to keep the costs down for eachbusiness.
In a way, if what you’re doing is providingmoney and corporate support, then the key guy in the whole business is KenHostland, the Chief Operating and Financial Officer, right? Because he’sorganising the money?
Correct. Ken’s a very important part ofPPK, but he’s got a quite substantial finance team that sits under him. He’snot a one-trick pony.
No, no, I wasn’t suggesting that for amoment. The idea is to IPO LIS Energy, is that right?
Yes, that’s correct. We did a pre-IPOraising a couple of weeks ago and we used Blue Ocean who are a Sydney-basedbroker, they ran the pre-IPO raising for us and we’re well into the IPO processwhich involves prospectus and all of the other matters that are entertained bythe ASX and ASIC, etcetera…
And that will float as a purely lithiumsulphur battery operation?
That’s correct.
Does it have any revenue at this stage?
No.
Are you going to IPO the others as well,Craig International Ballistics and AMA Group?
In due course, potentially. It reallydepends on where we see the global demand and whether we think there is abenefit in having them listed on the ASX versus the level of fixed costs thatcome with that. Certainly, we have extremely high hopes for the LIS technologyand we do believe that the ASX is the right place for that so that it can growquickly and have access to capital for it to grow quickly.
What about BNNT, the joint venture you’vegot with Deakin which is 50-50 at this stage? Is Deakin a long-term 50 per centpartner of that business once it really gets going?
I can’t speak for the Vice Chancellor ofDeakin, but up until this time they’ve been tremendously supportive, they seethe opportunity there. I think if you look at one of the other businesses thatcame out of Deakin, Carbon Revolution, Deakin have remained a long-termshareholder in that business. I think that IPO’d maybe a couple of years agonow and Deakin still have their shareholding. I see no reason why Deakinshouldn’t remain a long-term and supportive shareholder.
Do you think eventually you might IPO thatas well?
Potentially, yes. Really, other than AMAG,if you look at all of the investments we’ve made in the different verticals,BNNT is critical to all of them, so it’s a very important foundation for thesebusinesses and so there’s no reason in the longer-term that it couldn’t be astandalone business itself also.
Look, it’s been very interesting talking toyou this morning, Robin, I’ve gone well over time but it’s been a fascinatingdiscussion so thank you very much.
Pleasure, thank you.
That was Robin Levison, the ExecutiveChairman of PPK.
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