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Calix Ltd, a prominent player in the ASX 300 environmental technology sector, has seen a significant drop in its stock value, falling by 13% to $2.45 during Monday's afternoon trading. This puts Calix shares very close to their lowest point in the past year.
The puzzling aspect of this decline stems from the recent announcement of a binding and long-lasting global license agreement, along with a collaboration deal. This agreement involves Calix's subsidiary, Leilac, of which the company holds a 93% stake, partnering with Heirloom Carbon Technologies, a company specializing in Direct Air Capture (DAC) technology.
Leilac has developed an advanced solution for reducing carbon emissions within the global cement and lime industry. Their technology effectively isolates inevitable carbon emissions for immediate use or storage, all without the need for extra chemicals or processes.
The terms of the agreement establish an exclusive partnership between Leilac and Heirloom specifically for DAC applications. Additionally, Leilac's technology is set to be seamlessly integrated into all future Heirloom DAC facilities, provided they meet specific conditions and jointly agreed-upon milestones.
As outlined in the agreement, Leilac will receive a royalty based on the value of CO2 captured through the utilization of the technology. This royalty structure adheres to Leilac's standardized licensing model, with rates tailored to DAC applications. The royalty is set with a minimum price, determined as the higher of US$3 per tonne of CO2 separated in a Leilac kiln, or 3.5% of the current CO2 price for lime decarbonization. A variable royalty rate, dependent on the prevailing CO2 price or value minus the amortized cost of capital of the Leilac kiln per tonne of CO2 separated, will be applicable when surpassing the minimum price.
Despite these seemingly positive developments, investors have opted to decrease their holdings in this ASX 300 share. The exact reasons behind this decision remain somewhat unclear. It is possible that the absence of a substantial upfront payment may be a contributing factor, or alternatively, investors may have initially expected higher floor prices for the technology.
Nonetheless, the leadership of Calix has expressed satisfaction with the agreement. Phil Hodgson, the Managing Director and CEO of Calix, conveyed his contentment, stating:
"Calix is pleased to announce a binding and perpetual licence agreement between Leilac and Heirloom. Our partnership with Heirloom creates the opportunity to apply the Leilac technology into a new and rapidly developing market. It is also an example of our commercialisation strategy in action, with partnerships and licensing arrangements enabling our core platform technology to be simultaneously applied to multiple large addressable markets."
