Pyrum Investor Newsletter 02/​2024

Dear shareholders,

Welcome to the second investor newsletter from Pyrum Innovations AG. Time flies and three months have already passed since the première of this format. In the following issue, we will again endeavour to answer your questions as best we can.

Since the last newsletter at the beginning of February, we have continued to work at full speed on expanding our production capacities and were able to sign a consulting agreement with GreenTech Recycling Tires AB at the beginning of March for the planning of a joint pyrolysis plant in Sweden. We also received the Recycled Claim Standard (RCS) certification, which enables us to take another major step towards sustainable textile production together with BASF. You can find our detailed answers to the other questions we received below.

1. What is the status of the new Pyrum lines in Dillingen (TAD 2 & 3)?

So far, we have completed two successful production campaigns with the new reactor 2 (TAD 2), each lasting just under four weeks. In both production campaigns, production was carried out 24 hours a day, seven days a week with a throughput of approx. 550 kg per hour (80 % of the nominal capacity). This produced the first truckloads of thermolysis oil and recovered carbon black (rCB), which were successfully sampled and analysed. It was important to find out if the oil and rCB were as good as from the first line. The answer is yes, so the first oil from TAD 2 has already been delivered to BASF. In addition, we already know that we can operate at 80 % and produce end products that meet the quality standards of the market. The next goals are also already being realised. These include

• We want to start up TAD 3 in May and thus have all lines in Dillingen in 24/​7 operation. Ideally, TAD 3 should be ramped up directly to 80 % of the nominal capacity.
• If both new lines run in parallel, the output of the two systems will be gradually increased to 100 %.
• At the same time, we want to speed up the construction of the second grinding and pelletising plant and see how we can shorten the supply chains.

Once again, it should be noted that although we will be able to increase our sales slightly thanks to increased oil production and tyre acceptance, sales will only increase significantly once finished rCB is supplied in much larger quantities than at present. Although rCB is already being mass-​produced in line 1, it can only be manufactured in larger quantities once our second grinding and pelletising plant has been built. All components of the second grinding and pelletising plant have been ordered, with the first ones to be delivered in May 2024. However, it will take until the end of 2024 before this new plant can be put into operation. We would have liked to have ordered a second grinding and pelleting plant earlier, but we have only known the exact component sizes since autumn 2023. We deliberately waited to place the order until the first one was running properly and producing saleable material in series. After that, it is relatively easy to plan the next system and determine throughput quantities. It sounds banal, but with the first system we had to estimate; with the new one we work with facts from line 1. The “old” grinding and pelletising system was originally designed for an output of 650 kg rCB per hour, but currently only manages a maximum of 250 kg per hour in the right quality. The rCB quantity of 650 kg per hour is theoretically also possible, but the rCB is then not saleable. Although we are still trying to optimise the system and think we can improve the output, we will not come close to the maximum output of 650 kg per hour. On the other hand, the new grinding and pelletising plant will produce around 1,350 kg of rCB per hour and is therefore more than five times as efficient as the first one. The performance values of the new grinding and pelletising plant have been checked several times by the plant supplier, tested and verified on its industrial plants with our rCB and secured by a Group guarantee. This would have been unthinkable a year ago.

Let’s get back to the actual Pyrum thermolysis system, our core business. We can proudly report that it is possible to operate the plant 24/​7 without any problems. So far, we have only encountered minor, solvable problems that have led to brief interruptions in operation or temporarily slowed down production a little. Two examples:

• The supplier installed the wrong filter material (plastic) in the gas compressors that pump the gas from the reactors to the power generators. As a result, the filters have to be replaced very frequently, which repeatedly leads to short-​term shutdowns. We currently have to stop production once a week for several hours to replace the plastic filters. However, this is “only” a design error on the part of the supplier, which we have criticised and the supplier has acknowledged. The correct filters are made of stainless steel and are purely handmade, which is why the delivery time is unfortunately six weeks. The new stainless steel filters are also no longer a disposable product, but will be cleaned and replaced in future as part of the normal maintenance intervals for the system (every four weeks). When the new filters are delivered in three to four weeks, this problem will be solved.
• The supplier of the pneumatic conveyor that transports the rubber granulate from the shredder plant to the reactors has installed too little capacity and has to increase the conveying capacity. Even at a throughput of 80 %, there is sometimes not enough rubber granulate in the two reactors. This is not a fundamental problem with the technology, but it does slow down production. This error is currently being worked on and is relatively easy to rectify. Once again, it should be noted that Pyrum has ordered the correct quantity and the supplier must now make improvements. Unfortunately, these complaints always cost time.

As you can see, there are a few problems with every new system. It would be great if everything always worked straight away, but unfortunately the reality is a little more merciless. It is important to keep a cool head in these moments, identify the problems quickly and find solutions with the suppliers in a timely manner.

To summarise, we are very satisfied with the commissioning and the final errors are relatively easy to solve. Unfortunately, the required parts have a delivery time of a few weeks, but we have factored this into the planned commissioning time. The plan was to reach 80 % of rated output within six months of the start of warm commissioning and 100 % within a further year. The very positive realisation from the commissioning process so far is that the new turbines in the roll-​out plan can be built in almost exactly the same way as TAD 2 and 3 in Dillingen. We have therefore achieved the series production status of an industrial plant.

2. What is the situation with rCB development? What quantities are now being produced in series and when will the volume increase?

First of all, I would like to say that we have unfortunately underestimated the topic of grinding and pelletising technology. We do not build grinding and pelletising plants, but thermolysis plants that produce high-​quality oil, gas and rCB from rubber and plastic waste. The gas is processed by Pyrum itself so that it can be converted into electricity in a bought-​in plant and supply the Pyrum plant with energy. The oil is also processed internally by us and can be sold directly to BASF as it comes out of our plant. However, the rCB requires post-​treatment as it is not homogeneous in size (grains from 0 to 6 mm). It is therefore necessary to grind the rCB to a homogeneous size – the industry standard here is approx. 10 µm – in order to be able to incorporate it into rubber compounds. Several processes are available for this purpose, e.g. impact or jet mills. Each type of mill has its advantages and disadvantages and until now the market has been divided as to which is better for producing rCB from used tyres. Today, Pyrum has an impact mill and a jet mill and, together with Continental, was able to test over several months in a joint research project (JDA) which works better and, above all, which mill produces better rCB, which in turn has better properties in new tyres. We are talking about extremely hard work here, but it was crowned with success. The same applies to the downstream pelletising plant, which also exists in industrial soot plants, but is operated quite differently there.

So we have learnt why we have to grind the rCB and also why it took so long for this process to work properly. Nevertheless, the question arose as to why the ground rCB was pelletised again into much larger pellets. This is done for safety reasons for transport and to knead it better into the new rubber compound. It is the industry standard and no tyre or rubber plant will accept ground rCB that has not been pelletised. These pellets also have nothing in common with the original carbon from the Pyrum reactor. Rather, it is a 10 µm fine powder – actually like black flour – which is only held together by a very weak binding agent so that it does not dust. If it were dusty, there would be a risk of a dust explosion during transport. The pelletising process therefore has no relevance to quality. The quality of the rCB is determined purely by the pyrum thermolysis process, the tyre material and the grinding technology, but not by the pelleting process. Put simply, pelleting is just the “transport packaging”, which essentially only has to fulfil one criterion, the pellet hardness. On the one hand, the pellets must not be too soft (below 35 cN), as they would otherwise disintegrate into dust during transport and pose a risk of explosion. On the other hand, they must not be too hard either (over 50 cN), as otherwise the pellets will not dissolve completely in the rubber kneader in the tyre factory. And here comes the point that everyone, and therefore unfortunately also our supplier of the “old” pelletising plant, underestimated: rCB does not always behave in the same way. Once you have found and set the correct settings for a pelletising plant for carbon black from the oil industry, the pelletising plant can continue to run for 100 years with the same settings and the result will always be good pellets with a hardness of between 35 and 50 cN. With rCB from used tyres, however, there are minimal fluctuations in the composition, as the rCB is made from waste. Therefore, once our pelletising plant was built and commissioned, several components had to be added and improved to allow the plant to adjust the dosing of the rCB powder and binder in real time. Once these changes were installed, the correct algorithm had to be programmed so that the system would know how to react to the fluctuations. Today, we have found the right settings and can produce good pellets. However, due to the fluctuations, it is currently not possible to produce more than 250 kg rCB per hour in the system, as it cannot react any faster.

All in all, it took us around two years to produce saleable rCB in series with the first grinding and pelletising plant. We also had to obtain a number of necessary certifications to ensure that the material could actually be used in tyres. The automotive audits in accordance with VDA 6.3 in particular were a huge challenge and led to considerable structural changes at Pyrum. We had to be transformed from a start-​up into an automotive supplier with quality assurance, a laboratory, regular audits etc. within the space of a year and almost no department at Pyrum remained untouched. It was therefore not only a technical challenge to get the rCB up and running, but also an organisational one that required a great deal of restructuring and personnel development.

The results of the rCB issue can be summarised as follows:

• We have been producing high-​quality rCB in pelletised form since August 2023, which is sold to Continental and Schwalbe.
• With the current grinding and pelletising plant, we can only produce a maximum of 250 kg rCB per hour in two shifts on working days. Our licence at the Dillingen site does not allow for more.
• We have passed the following certifications and audits in the last two years in order to be authorised to sell the rCB: Ecovadis Silver Status, ISO 9001, ISO 14001, ISCC+, VDA 6.3.
• All components of the second grinding and pelletising plant have been ordered and will be delivered in the course of 2024. We are working to speed up the process and are utilising all the resources available to us. The new plant will have a throughput of 1,350 kg rCB per hour and is therefore more than five times as efficient as the existing one. This is not a new development, as our rCB has already been tested on systems from our supplier. Several lorry loads of our non-​ground Pyrum rCB were delivered to the Netherlands and real tests were carried out on a 1:1 scale. During these tests, it took just one day to produce saleable quality rCB in pelletised form, which was possible thanks to the previous knowledge and tests of the last two years. We have ordered exactly the same plant and therefore see no significant risks for commissioning.
• With the first grinding and pelletising plant, there were no reliable guarantees regarding capacity, as there were no empirical values. The new plant has now been ordered with guarantees from the supplier, who guarantees a throughput of 1,350 kg/​hour based on empirical values.

We have adhered to the technical rule “Correct planning saves massive costs” which is why it will take until the end of 2024/​beginning of 2025 for sales to increase substantially as a result of the rCB sale. We are doing our best to speed up the process and are looking forward to commissioning with confidence.

Incidentally, the grinding and pelletising plant supplier would also have sold us a plant including guarantee values a year ago. However, the asking price at the time was just under 12 million euros, which would have meant that the construction costs for a Pyrum plant would have risen by almost 6 million euros. Today, with the immense experience and the 1:1 test runs, the plant costs “only” just under 6 million euros, including the manufacturer’s guarantees.

3. Is there any news about the new Pyrum plant in Perl-Besch?

Yes, here is a short list of the milestones so far:

• November/​December 2023: Decision by Perl municipal council and Besch local council to amend the development plan.
• Mid-​December 2023 to mid-​January 2024: Preparation of the new development plan at the company’s own expense by an external specialist office. The objective was clear: the new development plan must be presented for approval at the first municipal council meeting in 2024, as otherwise it will no longer be possible to clear the construction area before the grace period (1 March to 31 October). As the initial work on a new plant involves earthworks and foundations, which are difficult to carry out in winter, the start of construction in Perl-​Besch would otherwise have had to be postponed until early 2025.
• At the municipal council meeting of the municipality of Perl on 6 February 2024, the new development plan was approved by almost 100 % of the council. There was only one abstention and no votes against.
• The approval of the new development plan made it possible to apply for a clear-​cutting permit from the highest forestry authority in Saarland. This permit was granted on 26 February 2024 and clear-​cutting began on the same day and was successfully completed on 29 February 2024. We were therefore able to prepare the area to the extent that we can start construction work on the new plant in 2024.
• The six-​week public consultation period for the new development plan has now expired. There were no objections from public authorities and/​or conservation organisations, such as Greenpeace or NABU, which according to the municipal administration is very rare and a very good sign. There was only one objection from a citizen of the municipality of Perl, which can be invalidated by an early expert opinion.
• We have also already ordered and paid a deposit for the three new Pyrum reactors and the pelletising plant for Perl-​Besch. The price conditions for the shredder plant have been negotiated and only minor details are still missing to finalise the The detailed planning and structural engineering have also been ordered, are in the final stages and we expect the first earthworks and foundation work to begin in summer 2024.

We are very happy that everything worked out so well and would like to thank the Saarland state government, the Perl municipal administration and the Besch local council for their excellent and trusting coöperation. Of course, we would also like to thank our employees, proTerra and Paulus & Partner, who all worked long hours to ensure that the expert reports were completed on time.

4. Which plants are now in the pipeline and what is the status of these construction projects?

We are also making progress with the other planned projects in our pipeline. In addition to the previously mentioned expansion in Dillingen and the new construction in Perl-​Besch, we currently have seven more plants in the planning stage. The most advanced plans are for the plants in Greece together with Thermo Lysi SA, in the Czech Republic together with a Czech energy company and in Bremen with Remondis. You can find a detailed overview of our project pipeline in the investor presentation on our Website.

5. How is the market for Pyrum technology currently developing and what role does competition play? Is competition dangerous for Pyrum?

Basically, there is no market without competition. If we were alone, we would have to ask ourselves whether there is a thermolysis market at all. So yes, there is competition and yes, this competition stimulates business. It is important to realise the following: The waste market is so gigantic that Pyrum would never be able to process these volumes on its own.

• Approximately 30.5 million tonnes of used tyres are produced worldwide every year, not including existing dumps such as those in the Kuwait desert.
• Across Europe, around 3.4 million tonnes of used tyres are added every year, not including existing stockpiles and silage tyres at countless farmers.

One Pyrum plant can recycle 20,000 tonnes of used tyres per year. This means that 170 Pyrum plants would be needed in Europe alone to process the annual volume of used tyres without dismantling existing waste. Worldwide, we are even talking about 1,525 plants. With an investment volume of 40 to 50 million euros per plant, we are talking about an investment volume of around 7 to 8.5 billion euros and a potential annual turnover of 2 billion euros in Europe alone. This market is too big for Pyrum alone and must also be served by competitors. Otherwise, it will take far too long to realise the recycling capacities, which our environment will not forgive us for.

In addition, more and more disposal routes are dying out. The current situation in Europe is as follows:

• Around 50 % of all used tyres in Europe are incinerated in cement plants. This use is dying out due to high CO2 costs and new technologies. The first cement plants are already no longer accepting tyres or have announced that they will stop incinerating used tyres by 2030 at the latest. This means that 50 % of the 3.4 million tonnes of used tyres in Europe will need a new recycling route by 2030.
• Around 30 % of all used tyres in Europe are shredded and processed into playground surfaces, sports pitches, rubber mats, etc. This market is currently being heavily criticised, as the latest studies show that the rubber abrasion is respirable and the rubber granulate releases carcinogenic substances into the environment and people. In the summer of 2023, a new EU regulation was introduced that will severely restrict the use of rubber granulate made from old rubber for many applications. The new regulation will come into force after a transitional period of eight years and will greatly reduce the possible uses of rubber granulate by 2031.
• Around 10–15 % of Europe’s used tyres are exported to the Third World and used there for as long as possible. After that, the used tyres often end up in landfills in the countryside, such as the world’s largest tyre landfill in Kuwait. The EU is already working on laws to restrict or even completely ban the export of used tyres.
• Around 5 % of used tyres disappear. That sounds strange, but every year around 5 % fewer used tyres are registered than new tyres are sold. Unfortunately, these used tyres are all too often found in illegal dumps in our forests.

To summarise, it can therefore be said that the demand for recycling alternatives will increase massively in the coming years and that there is enough room on the market for environmentally friendly technologies that complement our model.

There are also other arguments:

• No tyre or car manufacturer will make itself dependent on a single company. It will be difficult to establish rCB and thermolysis oil as a stable raw material of the future on the market if Pyrum is the only manufacturer. Thus, rCB and oil volumes from competitors stabilise the market.
• The demand for rCB and thermolysis oil is so great due to the companies’ targets that several suppliers are needed. As announced in autumn 2023, Continental plans to produce 100 % of all tyres from renewable raw materials by 2050, which is impossible without rCB and oil from used tyres. Pyrum can make a significant contribution to this, but cannot do it all alone.

So you see, competition is there, but we see it as a blessing and not a danger.

6. Is Pyrum planning to enter the USA soon?

This question can currently be answered quickly and easily with No to answer this question. We have a fully booked pipeline in Europe for the next two to three years, so it is currently not expedient to grow outside Europe given our personnel capacities. We want to take one step at a time so as not to jeopardise Pyrum’s success story.

7. There are rumours on the Internet about a malfunction of the new Pyrum lines in Dillingen. Is there any truth to these rumours? What has happened? Why was nothing reported?

First of all, it is important to define the term “reportable incident”, as there can be some misunderstandings here. The legal definition is as follows: “Incidents subject to mandatory reporting include, in particular, incidents that lead to serious hazards that threaten human life or where there is a risk of serious harm to human health or where the health of a large number of people may be affected.” Such a thing is did not happen.

Two “incidents” have occurred during the commissioning of our new Line 2 so far. By an “incident”, however, we mean an unintended situation that we had under control in both cases.

• In the first incident, the gas line failed and the shift workers reacted too late. Restarting the gas line rectified the fault in minutes. The issue has now been resolved by retraining staff and raising the alarm louder and earlier.
• In the second incident, a gas pipe was overgrown with salt crystals and therefore blocked. This problem is already known from the first line and was quickly resolved. In line 1, it usually takes months before the pipe has to be cleaned. Due to the high material throughput in the new lines, the problem occurs more quickly there. It is therefore actually a positive sign and shows how much rubber we have already recycled in the new line. We have taken immediate action: A new maintenance plan has been drawn up and an automatic water rinsing system will be retrofitted in the short term so that the crystals can be washed out during operation.

We have reported both incidents to the trade supervisory authority as a precautionary measure for the following reasons:

• We would rather report too much than too little. Transparency towards the authorities is very important to us, as it builds trust and helps with changes to authorisations for future projects.
• The authorities prefer to be informed so that they can provide residents with information. Then the authority can also give the all-​clear directly and counteract potential fears among the population.

So nothing out of the ordinary happened. In both cases, we reacted quickly, got the incident under control and it showed us that all safety mechanisms are working. The errors were rectified very quickly and measures were taken to prevent such an incident from happening again.

The question now arises as to why we did not report the incidents to the capital market. The answer is simple: nothing worth mentioning happened that would have delayed commissioning in any way or led to any damage to the plant. A warm commissioning is there to rectify any faults that may occur in a complex plant. Otherwise, a planned commissioning time of around a year would not be necessary if everything worked 100 % straight away. This is the same in every industrial plant and we are becoming more experienced in identifying the problems, rectifying them quickly and taking measures to ensure that a fault is not repeated. In both cases, operations were quickly resumed and we were able to resume production quickly. Of course, we would have informed the capital market if the plant had suffered massive damage and/​or warm commissioning had been jeopardised.

As you can see, it’s always the same with legends: There is a small element of truth, but important facts are missing. There have been no reportable incidents that have had negative consequences for local residents or led to damage to the Pyrum plant. The plant functions perfectly and commissioning continues unhindered.

We hope that this newsletter has given you some important insights into what is currently happening at Pyrum and can only encourage you to send us feedback and submit further questions for the next newsletter in the third quarter of 2024.

Yours, Pascal Klein