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CEMATRIX turns a corner with infrastructure focus for insulating lightweight concrete product

After having to refocus its business to the infrastructure market in 2008 following the global financial crisis, CEMATRIX (CVE:CVX) is gaining momentum and CEO Jeff Kendrick sees few limits to what the company can achieve.

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After having to refocus its business to the infrastructure market in 2008 following the global financial crisis, CEMATRIX (CVE:CVX) is gaining momentum and CEO Jeff Kendrick sees few limits to what the company can achieve. The company's lightweight cellular concrete product has an endless amount of applications, ranging from support for hot oil tanks, thermal protection of frost-susceptible soils under infrastructure, including roadways, runways and facilities, to abandoned pipe grouting and support for buried pipelines, among many other uses. 

The company, which was initially focused on just the oilsands market prior to the credit crunch that also sparked a broad-based cost-cutting initiative, has expanded its target to infrastructure projects throughout Canada and into the United States, as well. Its mobile production units can satisfy small or large project requirements, and will produce from 35 to 125 cubic metres per hour of cellular concrete. 

CEMATRIX recently signed a $1 million order for a new infrastructure project, bringing 2013’s total contracted work to $9.3 million, of which approximately $8 million was slated to be completed in 2013. The newest contract, which the company says is reflective of its drive to develop the Manitoba and Ontario infrastructure markets where the nature of the soil conditions are prime for CEMATRIX’s  product, is slated to begin in spring of 2014.

The company’s cellular concrete reduces on site workforce requirements, and accelerates construction timelines as it eliminates the need for placing labour-intensive plastic foams and/or other materials, as well as the minimum thickness of pit run cover required to protect the plastic foams from construction damage. 

“We’re basically seeing significant growth on the infrastructure side, as there is more and more acceptance of our products,” said Kendrick in a recent interview with Proactiveinvestors

“We’re also starting to see oilsands work come back as well.”

CEMATRIX, which has product approvals for numerous infrastructure applications in Ontario and B.C. while still working on securing complete approvals in Manitoba and Alberta, completed a road using its lightweight material in Yellowknife in 2004, which Kendrick says was a “tremendous success”. The road in question is Franklin Avenue, which was incurring significant annual differential settlement from melting permafrost.  The company’s material was used to insulate the permafrost, thus preventing it from melting further. The material was also used to provide a floating structural road base under a standard pavement design over the weak and unstable soils. “The City of Yellowknife was fixing this road every year at a significant annual cost, but they haven’t had to touch that road since,” he says. 

The chief executive --- who has more than 20 years of senior management experience with building and construction companies --- also highlighted that the company’s product was used to fix a highway in Brampton, Ontario in 2009. The company’s cellular concrete was used in this application as a floating base over the weak soils saving the local region significant construction costs together with a projected significant reduction in long-term maintenance costs, as well”.

The problem was a 120 metre section of rural highway built over 5 metres of peat, which had experienced ongoing settlement for a number of years. The remediation required a solution that would minimize environmental impacts on the adjoining wetlands. “We didn’t dig out all the 5 metres of peat, just enough to allow for 650 mm of cellular concrete, 150mm of gravel and 125 mm of pavement; they used our material as a floating, insulating structural base on top of the weak soils, but below the layer of granular and pavement, thus eliminating the need to sheet pile, and significantly reducing the materials to be excavated and replaced.” 

The construction was done in just over a week. He added that it was originally planned to take five to seven weeks using traditional construction methods. “As a result, the road was shut down for a significantly shorter period of time, meaning the effect of the road closure on the local population was minimized.”

Management says that using its cellular concrete in this application saved 30% to 50% of the planned original cost using traditional construction methods.

The benefits of the company’s cellular concrete product in oil sands and refinery construction are quite telling, as well. According to Kendrick, a thank you letter from its past client, a global engineering and construction firm, highlighted that during a small project at a refinery expansion completed with CEMATRIX’s material in 2008, the use of cellular concrete saved the company 5,000 man hours and 7 weeks of construction. 

“That’s a huge savings right there,” he boasts. 

The company’s sales in the third quarter were $1.8 million, generating a total of $6.6 million in sales for the first nine months of the year, up from $5.6 million in the same period a year ago. 

The construction product maker said it benefited from infrastructure sales, in particular in Ontario. Indeed, infrastructure sales to the end of the third quarter jumped 27% to $1.18 million, while Western Canada oil and gas sales declined by $0.15 million due to the timing of projects between the two periods. Kendrick added that the growth in infrastructure sales is the most promising, as it is this area that has “the greatest potential for sustained growth for the company, while being less susceptible to downturns in the economy.”  

Since it pushed the restart button in 2008, CEMATRIX has seen a significant shift in its shareholder base as compared to the original post-public offering, which was made up mainly of private investors. This certainly seems to have helped, with encouraged investors pushing the stock up to an annual high of 15 cents, from 2008 levels of 4 cents, giving it a market cap of under $4 million or less than one-half of expected 2013 revenues. 

Kendrick says he believes that the company has turned the corner and has the right product at the right time.

And there’s minimal competition to boot. Kendrick says there are a few small suppliers in Canada, and a greater number of suppliers in the U.S., which are mostly geared toward “roof-deck and other smaller applications.” “Our equipment, foaming agents and material mix design technology are further advanced and being continually upgraded, giving our company an ongoing competitive advantage.”

There are currently no patents on the technology, as the chief executive says most of it relates to formulas, which are all protected in-house.

Other significant applications for the cellular concrete include bridges that are built on weak and unstable soil, which require a material that is lightweight (so no excess weight is placed on these soils), as well as tunnel grouting, an area where CEMATRIX  has completed a number of tunnels in the  Greater Toronto and Edmonton regions. 

The company, after years of hard work reshaping its business, is still not without its challenges. “Engineers do not like to take risks with new products. Engineers and owners also don’t like to use a material where there is only one supplier, but we can and are overcoming these issues with a superior product,” says Kendrick. CEMATRIX is currently the only major supplier for cellular concrete in Canada. 

But the chief executive is convinced that the company’s product will win the day. “We’re really just scratching the surface. Many engineers are starting to choose our product over the alternative, and accordingly, it’s a good time to invest.

“It’s a solid product that can be used in so many different applications to provide a better end solution at a lower cost in a shorter period of time.”

Quick facts: CEMATRIX Corp

Price: 0.27 CAD

TSX-V:CVX
Market: TSX-V
Market Cap: $16.01 m
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