PyroGenesis client HPQ signs MOU for fumed silica plant

Executive Summary

• PyroGenesis Inc.'s client, HPQ Silicon Inc. (via subsidiary HPQ Silica Polvere Inc.), has signed a non-binding Memorandum of Understanding (MOU) with an undisclosed industrial partner to form a Joint Venture (JV) for a commercial-scale fumed silica production plant.
• PyroGenesis holds an exclusive manufacturing arrangement to build the Fumed Silica Reactor (FSR) for the JV at a cost of $20 million USD (approx. $27.3 million CAD), with financing secured by the JV partner.
• PyroGenesis is in the final stages of exercising its option to acquire a 50% interest in HPQ Silica Polvere Inc. (HSPI), which is separate from but related to the JV negotiations.

Key Details

• Joint Venture Structure: The JV aims to operate a 1,000-tonne-per-year fumed silica production plant. The JV partner's identity is withheld for competitive reasons.
• Equipment and Cost: PyroGenesis will build the FSR for $20 million USD. The JV will purchase the system, financed by the JV partner (specific terms to be agreed).
• Revenue Model: The JV will sell fumed silica at market prices. HSPI will charge a royalty per kilogram of fumed silica sold by the JV (price per kg not yet agreed). Profit-sharing distributions to JV partners are also subject to future agreement.
• Oftake Agreement: The MOU includes an implied oftake agreement between the JV partner and the JV to justify the formation of the entity.
• Timeline and Conditions: Definitive agreements are expected to be completed and signed no later than the end of Q2 2026. The formation of the JV is contingent on successful negotiation and execution of these agreements. There is no certainty the JV will be formed or be commercially viable.
• Technical Validation: Next steps depend on confirming chemical and compositional characteristics of fumed silica produced by the existing FSR pilot plant. Samples have been delivered to the client and a U.S. specialty testing laboratory; tests are currently underway.
• PyroGenesis Equity Stake: PyroGenesis is in the final stages of exercising an option to acquire a 50% interest in HSPI, as previously announced on May 30, 2024. This involves converting annual royalty rights into equity.
• Technology Benefits: The FSR uses plasma-based technology to convert quartz into fumed silica in a single, eco-friendly step without hazardous chemicals. Benefits include lower capital/operating costs, reduced CO2 emissions, reduced energy footprint, and simplified logistics.
• Production Timeline: The commercial plant is expected to be delivered within 12 months of the JV's formation. Additional plants of the same or larger size are anticipated.

Notable Quotes

• "On-site production using our FSR plant would represent a significant development for manufacturers that rely on fumed silica," said P. Peter Pascali, president and chief executive officer of PyroGenesis. "Localized production at, or near, the point of use fundamentally restructures the supply chain, streamlines logistics and secures reliable access to material that is critical to manufacturing operations. This is a quickly emerging consideration within global supply chains."
• "This MOU is an important first step, but it must be noted that only upon successful completion of negotiations and the signing of definitive agreements by all parties will the joint venture and the production plant project(s) proceed. Negotiations with respect to these definitive agreements are ongoing and should be completed before the end of Q2 2026."