Thanks
@desertredlion and
@LongCleanEnergy - very valuable comments.
The completion of BLM is a nice milestone, but fundamentally has not shifted the value of the company. The recent bounce is more a reference to Delorean being over sold, than the positivity of this news. I suppose it is a de-risking event, but a pretty minor hurdle to be honest.
BLM has been behind schedule, and Delorean has arguably lost a fair bit on this. There is the spin that the technology/IP sets up Delorean for expansion in this market segment. To my understanding, most of the IP related to BLM that is unique would relate to the feedstock composition, and the checmical composition for the digestion - how transferrable is that really?
Reviewing the Appendix 4E to the Annual Report, Delorean notes: "
Timingand Non Recurring/One Off Costs 1 617 453 associated with delivery of the Blue Lake Milling construction contract inSouth Australia through COVID, unexpected global commodity and materials price increases, and South Australia borderclosures This includes 773 441 in liquidated damages which are in dispute and are expected to be recovered (refer slide 12 and15 This project is complete and producing biogas and electricity It is in the final performance testing stage for scheduledcompletion in October 2022"So ~$845k are cost overruns that go straight to the bottom line, never to be seen again. Considering the project was so close to completion, I would expect there should be no more cost overruns not accounted for in the FY22 report - but, never know what surprises may arise.
And then there is the $773k of liquidated damages. They are unable to provide an update on this because it is in mediation. So no news is not good/bad news, it's just the situation. Delorean noted "
This amount represents a provision for potential liquidated damages ( relating to an EPC contract on foot .The contract parties are in without prejudice discussions regarding reaching practical completion of the contract,and contributory factors attributed to delays which include COVID impacts, feedstock composition and other factors Both parties recognise the unique nature of this project being a global first and complexities around processingthe feedstock and ramping up the biology to process. The Company expects to mediate a solution and expects some or all of this amount to be written back upon contract completions"Essentially mediation will need to define what proportion of the delays are force majeur and outside of Delorean's control, versus what was within their control. And then we need to understand how eager the counterparties are to recover those costs. I do not think we have sufficient information to make a judgement on this, but I would flag the following risks that Delorean highlighted:
To my mind, few of those explanations are related to Covid. Indeed, much of the delays would be related to design and feedstock issues - essentially Delorean underestimated the time and difficulty in tailoring the system to the unique BLM requirements. It would be a difficult negotiation to ascribe all the $773k of liquidated damages to Covid or unforeseen events; so we will be reliant on a forgiving counterparty at this stage.
