Houston SPAC to take Silica company public in $708m deal

Pyrophyte Acquisition Corp, the Houston special purchase acquisition company (SPAC) , chaired by Dr. Bernard Duroc-Danner (the former Weatherford CEO) is to take Sio Silica public. Sio, based in Calgary, intends to extract high-quality quartz silica, which is used in solar panels, semiconductors and batteries. The deal values Sio at $708 million enterprise value.



Pyrophyte went public in October 2021 in a $175 million initial public offering (IPO). The company said it would seek targets involved in energy transitions. That could mean renewable power generation, energy storage, zero-emission transportation, carbon capture or zero/low-carbon industrial applications.

Originally, Pyrophyte had until April 2023 to complete a deal, otherwise it would have to refund the monies from the IPO. Just before the original deadline date, shareholders approved an extension to April 2024.

The Mine

Sio is developing the Vivian Sand Project, southeast of Winnipeg, Canada, which is one of the highest natural purity silica deposits in the world. Most of the world’s silica is too impure to be used in high-end products such as semiconductors. It can only be used in other products such as agriculture, low quality glass, coatings and energy. Some low-quality silica can be converted to high purity silica but at a cost of $70-$100 per ton (and most of this silica is located in Australia).

Valuation

The project is estimated to have a net present value (NPV) of $3.9 billion, using a 10% discount rate. The payback period is projected to be just over one year. The transaction values the equity of the company at 19% of the NPV. Developers of copper and lithium deposits that are not yet in production are typically valued at around 50% of NPV.

Sio will use the proceeds of the deal to fund the Phase 1 construction. It expects the project to be operational within 18 months of close.

Political risk?

Interestingly, the investor presentation doesn’t mention that the go-ahead for the project requires the approval of the Manitoba Minister of Environment and Climate. In the Manitoba elections last month, the government switched from the center-right party (Progressive Conservative Party) to the left-leaning New Democratic Party. I suspect the new Minister is in no rush to make a decision.

[UPDATE – 02-16-24 –  The Manitoba government has denied the application to issue an environmental license for the project.]

The deal is expected to close in the first half of 2024.

Investor Presentation

 

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