Operator: Your line is open, Noah.
Dustin Olson: Yes, we’ve got you now Noah, you’re good.
Noah Kaye: Apologies for the IT difficulties here. You’ve given us some good color on the different moving parts of the balance sheet and the pieces for funding Augusta. But I just want to make sure we all have it at a high level here. You said between $55 million to $80 million left to fund in CapEx for Ironton. A, just again, want to make sure we understand how much of that budget has already been spent as we sit here today and then kind of give us some color on what would drive you to the low end versus the high end of the range. And in particular, how much of the CapEx would really be spent in 2Q given it sounds like there isn’t a lot of additional equipment being moved into place, this is mostly about commissioning what’s there?
Dustin Olson: So in January and February we spent approximately $30 million of cash out the door to service the facility. Remember that January, February were the high labor counts for the project. And so we expect March to be falling with the headcount for our facility. The gap between $55 million and $80 million really has to do with discussions that we need to have with our third party counterparties with respect to obligations in those contracts for different contract contingencies. And so we’re in active discussion with them as to the overall impact of that to the project cost. And also we are mapping out the next one month or so of cost to make sure we have a tight understanding of the final number. I think the last point you made about how much is going to come in Q2, remember that there’s a pretty significant performance guarantee baked at the end of this project once we successfully complete the Leidos five day at a hundred percent test.
And so we have some flexibility for when we perform that test and when we finalize that test. So yes, it’s possible that that performance test happens in Q2, probably good possibility of that. But the time it’s going to take to do the documentation to confirm that it was successfully performed is going to take some time. So I wouldn’t expect that last payment to occur until Q3 at the earliest.
Noah Kaye: And then just a question about updated assumptions on project returns. Obviously, for various reasons, the budget on Ironton has escalated, right? I mean, if I take the annualized EBITDA from December that you’re projecting when — and that’s fully loaded and optimized, I mean, kind of looks like mid-teens IRRs. How should we think about your return assumptions on Augusta? Because I think you put out sort of a $400 million number for one line at Augusta. Obviously, there’s going to be some significant leverage off of adding a second and third and fourth line there. Just help us understand the working assumptions today.
Dustin Olson: So let’s start with the Augusta piece here. Remember, the 400 million that we mentioned, it includes, like you said, a lot of infrastructure, a utility plant that will be able to handle multiple lines, a feed prep warehouse that will handle multiple lines of operation. So we expect the first line to be in the four to 400 — 400 million to 450 million range, but then every plant thereafter is in the 200 million to 250 million range. Okay, that’s our expectation at this point. Bridging off of that a bit, we know now after finishing the Ironton project that there are significant improvements that we can make to both execution and overall construction design efficiency between Ironton and Augusta. And these aren’t big tech changes, these are like how to execute the construction more effectively in the field type changes.
So we’ll see those at Ironton translate to Augusta directly and we’ll be able to, in the future, show the cost effectiveness or the cost savings resulting from lessons learned. This is very typical for first generation technologies. You see a CapEx per pound curve that changes over time dramatically. Every time you build a plant, you get smarter and better at doing that. And quite frankly, the work that we’re doing with SK and a little bit with Mitsui and Europe now, but really a lot with SK, it’s helping us to define some of these things and how we can do them better in the future. When you get to the economics of Ironton in the short term, we have purposefully added additional costs, and I would say, our view of conservativeness in some of the numbers, so that we can have some flexibility when we start up this facility.
We know that when we start this facility, we will have a much better understanding the overall variable cost, both in terms of electricity, natural gas for steam, as well as filter media for the facility. And so we have been fairly conservative with our first year operations recognizing that there will be an awful lot of cost optimization to do at Ironton over the first years of that project, okay? The other piece here is just the early stage support. Like whenever you start up a plant like this, you know that you will have things happen and we will spend money on maintenance items and support items and things that we want to fix and improve over the first year. And so when we budgeted the Ironton plant for the first year, we built that in.
I mean, we built in a very open eyed budget for the first year, which I understand doesn’t look as good as the original numbers but that’s the first year not the long term view. When you move to the long term view, we see effectively two or three key areas of cost reduction and let’s say, EBITDA percentage improvements or value improvements to the overall economics. The first is, what I said before around the variable cost reductions, we know that we have overbuilt the utilities in the Ironton facility and that we know that we will be able to tune those to levels that are more appealing for us. We also know that as we have dug into the feedstock purchasing side of this business that there are countless opportunities to improve our feedstock purchasing, improve the products or the feed that we are buying and buy better overtime with feedstock.
Part of the budget that we have in the first year is augmenting some of our feed with higher cost feeds to supplement during the early stages as we ramp the feedstock available. And then overtime, we will continue to buy more and more of the cheaper feedstock that’s on the market. And lastly, and I know this is, I guess, pretty straightforward. But the corporate overhead dilution is real and that will have a pretty significant impact on our going forward operations. When you start a company like we have and start fresh like we have, everything is a blank sheet of paper. And so many of the corporate functions, central support functions, initial staffs for core functional groups, they are the same people there that will be used for Augusta and beyond.
And so while we will see incremental headcount growth as we — we will see incremental corporate headcount growth as we grow capacity, the corporate overhead is really set for what we need here and we will be able to dilute that out overtime. So look I’m very optimistic about where we are on the overall Ironton economics and very excited about where we are going to be able to take this plant, because we have seen — as we have built it, we have seen lots of opportunities for good performance out of that facility, and pretty consistent with what we’ve been saying the last two to three years, despite the high inflationary environment that we’ve all been dealing with.
Operator: Next question is coming from Eric Stine of Craig-Hallum.
