Clean Seed Capital Group (TSX.V:CSX) CEO Graeme Lempriere joins James for a discussion about the value proposition for investors and the company’s ground-breaking CX6 Smart Seeder Technology.
Listen to the Podcast:
Here is the transcript from the interview:
Graeme Lempriere: Clean Seed has developed the world’s first smart seeder, and what that is, is we bought the latest technology to bear on seeding equipment for the large scale prairie market. We’ve been able to develop a system for complete variable rate across the drill, from one end of the drill to the other directly over each opener. So what we have the ability of doing now is take the agronomists’ recipes that they create for farmers and be able to mix and blend up six different products on the fly at the opener per foot on farm. This gives the farmer the ultimate in seeding resolution, the ultimate in blendability of all products. We’ve addressed turn compensation issues, overlap issues, and our objective is to provide the farmer with the utmost in variable rate control of his inputs.
James West: Okay. So at the end of the day, it’s a better mousetrap?
Graeme Lempriere: Yeah, you could call it a better mousetrap. It’s extremely advanced compared to what is in the market today. We’ve spent years developing this technology. We have patents on our opener system that goes into the ground, which is a key aspect of the in-ground seed delivery component. We’ve received pretty much clearance on worldwide patent application for 17 components of our overall technology delivery aspects of the equipment. Existing technology today with all due respect has very limited metering capabilities for their farmers.
They meter at the cart and they distribute and send the seed across up to 90 feet of tube down into the opener systems into the ground, which really gives them inconsistent inputs into the ground and very limited of what products blends they can do. So what we try to do is create the ultimate resolution, and quite frankly, bring the latest of technology into an industry that has really lagged over the last 25 years or so. So we were compared in BC Business [magazine-ed] to Steve Jobs and Apple when he launched the iPhone, so a fairly good sound bite there.
James West: Okay. So this is your CX-6 technology.
Graeme Lempriere: That’s correct.
James West: Okay. So, at the essence, it basically delivers a seed with required nutrients in a more specific pattern relevant to what kind of ground it’s going into and thus it, what, improves yields, reduces seed cost, fertilizer costs et cetera?
Graeme Lempriere: Yes. What’s happening now, the agronomists of the world out there, are becoming quite advanced. They go to the farmers and the farmers contract them to do an analysis of their farms. They do soil sample analysis and so forth and nutrient requirements, and they have really refined the recommendation of inputs into the ground, but there isn’t a technology out there that’s been able to deliver these recipes to date. So what this does is gives them the ability to delivery per foot on the field this recipe. So we can save on input to the former, we can control the exact amount of nutrient requirement for that farmer to maximize his yield, and he’s got a win-win across the board from input to output.
James West: Okay. So, is the great application and the great feature for your CX-6 technology in developed markets or more so in emerging markets?
Graeme Lempriere: Well, we developed a range of equipment for our developing nations initiatives, for Africa primarily when we started, which was a small technology that we had that involved a similar opening system, but we didn’t utilize the hi-tech electronic side and we slowly walked it up from 5 feet to 8 feet to 12 feet, up to the CX-6. But the CX-6, which you could call our claim to fame if you will, is the technology for the developed markets primarily in the prairies of Canada, Northern United States, Australia, Brazil, but our primary launch platform will be in the prairies, because that is where the largest market and requirement for technology like this is.
We launched last June at the Farm Progress Show and won the People’s Choice Award, and then we just recently completed a show in the States, and this June, this year 2014, we actually will be launching the full scale machine in the prairies for sale at this year’s June event.
James West: Okay. So, at this point, the machine itself is not in commercial use anywhere in the world?
Graeme Lempriere: Not at the moment, we’ve spent the last six years getting all of our patents and technology refined to get it to a state where it is in a position to take to market. We’ve been very careful to put one point in front of the other to make sure that we don’t launch a technology that is full of holes. So we spent a lot of time in the development side and this year, or last year was the unveil, if you will, and we received a great deal of press and media coverage and a lot of support from the farming community.
One of the things we are enjoying with this launch is that the majority of our shareholders now are the farm community themselves, because they understand and appreciate the benefit that this technology will be bringing to the market. So a lot of our shareholders are farmers, and when we go to the show in June, I am sure that will reflect again in sales of the equipment and also in garnering more attraction in our market.
We want this company to be a farmer owned business. The majority of the shareholders are farmers, they understand what we are doing, and they are very supportive both from input as we have evolved and also they are very good shareholders.
James West: Okay, interesting! So how much does one of these seeders cost relative to what is currently in use across the prairies of Canada, for example.
Graeme Lempriere: It looks like from where we stand at the moment, we are going to be competitive. I would say we will be on par with the big companies that are out there, the top three, and as we evolve and grow and expand, those costs will come down, but as we stand at the moment, we will be competitive and these drills are around these $500,000-600,000 a piece.
James West: Well, okay. So they are not cheap.
Graeme Lempriere: No. These are very sophisticated piece of equipment. They are 60-100 feet in width, and our first drill will be coming out at 60 feet, with our proprietary nursing cart. The idea of the nursing cart is to make sure that the farmer is always on the move, and he has not shut down his equipment for refill and so forth. Again, the uniqueness of the six blendability of our machine gives the farmer the ability to blend on the fly, on the go, and as his system starts to run out, he can attach a nursing cart, it refills while the drills moving. So we’ve eliminated downtime for the farmer as well.
James West: Okay. So the unit itself is competitively priced, but then the farmer is going to realize superior economics based on a more efficient use of seed and enhanced yields as a result.
Graeme Lempriere: That’s correct, and that’s been our driver from one and it started all from the opener from the ground up, and we were just at the recent AgriTrend Conference where the majority of the agronomists are members in Canada there. I think they have about 300 members that represent 1000s of acres, and the response from that was incredible.
We put several YouTube videos together. We put them online on our YouTube channel to show the response from the actual community, the matters which the farmers and the agronomists, and it’s been an overwhelming response. It’s been very rewarding for all the years of hard work, and we look forward to delivering this technology to the hands of the people that need it the most.
James West: So, have you started accepting orders or anything at this point?
Graeme Lempriere: We could have taken orders at the last show, and we put that on hold until this upcoming event, because I want to make sure that we have all of our ducks in order. For example, we are just opening up a new facility in Saskatchewan for assembly. We needed to make sure that we had the capacity here in BC to produce all the electronics, and do a solid calculation of what we can sell and look after the client as we move forward. So we’ll know by June what our capacity will be and that can fluctuate depending on potential alliances with different parties that have the capacity to ramp up our production.
It will depend on where we go over the next several months. There’s a lot of activity in the company in the recent months since we’ve unveiled at the shows, and there are some potential opportunities to ramp the company up quicker. It’s just going to depend on finding the right fit and make the appropriate decisions at the time of launch.
James West: Okay. So who invented this machine and its technologies, and how did you put the company together and acquire the technology?
Graeme Lempriere: Well, the company foundation started with my dad. My father was into no-till farming technology development in late 80s, and he recognized a lot of the failings of the opener systems that were in the ground. So he took it upon himself, as a serial entrepreneur that he is, to develop his own technology to address the shortcomings of the existing equipment.
So, about 2001, he started developing the opener system for in-ground with the opener assembly system, and he was one of the first to start addressing and looking at stepper motors for metering. Unfortunately, during the growth of the business, he got ill and could no longer run the company, and it was being run by the chief financial officer at the time, and the markets were very challenging, 2001 came to bear, and the world economies kind of shot down, as we will know.
So it was shelved a period of time, and then I’ve been in the public arena for some time, and a businessman in the capital finance myself, and I made a decision that it would be tragic to allow something that was started by my family, that had such a profound opportunity for the market space, to just let it go.
So I capitalized the re-launch of the business in 2004 roughly it was, and then ran it private for some time, started finishing what he started, and then I built a team, and I put a team together to take it public, to capitalize the business. So we did a direct IPO, it wasn’t a CPC or anything, it was a direct IPO. We did an issuance to people that we knew had interest in what we were doing, and we listed it and took it public.
Then we came across a gentleman by the name of Colin Rosengren who is a very large third generation farmer in the prairies, who came on our team and he looked at the assets that we had and started bringing his expertise to bear on the shortcomings at the large prairie technologies, and we collectively refined the foundation that we had and started modifying it to address these markets, and went on a path to build what you now see is called the CX-6.
CX-6 and the call symbol are very close. So we finished developing that technology and put all the patents in place, and we did a worldwide search for this new approach in seeding and we got clearance fairly recently, and we are now on a path to deliver to market.
James West: Very good! So then, I am looking at your projections on your PowerPoint, and you are projecting, these are billions of dollars — or no, this is the market, I see, okay.
Graeme Lempriere: Yeah that’s the market. I suspect that one of my staff members sent you that mark I suspect. That’s a very generic PowerPoint that demonstrates the size and scope of that market. I have put no forward looking statements anywhere, I’ve put no forward looking predictions at the amount of machines that we’ll sell, because I am not a big fan of forward looking statements and visions of grandeur.
I think what we have here is a very sound technology that clearly is going to play a very meaningful role in the market. I think it’s a segment that hasn’t been addressed in decades, and I think the fact that we have a lock, if you will, on this technology through patent protection or patent pending protection.
If the trajectory of this business can fluctuate depending on whether we go it alone for the first few years, whether we align with a manufacturing company that can produce the assets quicker, or whether we find an alliance with a strategic partner with distribution. That’s all going to unveil itself, I suspect, over the next twelve months.
There are various multitude of ways to grow our business, and I’ll evaluate the opportunities as they come forward to best suit the shareholders and the growth of the business.
James West: Okay. So is your primary revenue source going to be the sale of the machines?
Graeme Lempriere: I would suspect that that is it. That’s the big ticket item at this point unless we get into a licensing situation with another party or depending on how that unfolds, if it unfolds, but the primary driver for us will be the sale of the CX-6 equipment to the prairie markets as a launching platform. We are working on a couple of other opportunities in developing nations markets through our smaller technology that could have an effect on the food production of these countries. But the CX-6 is our primary focus, because it’s the most sophisticated market and the largest profit margin and revenue model would be in that technology.
James West: Okay. So what do you project as your gross revenue margin on machinery. I mean how much does it cost to build one of these things?
Graeme Lempriere: We are looking around 35%.
James West: Okay.
Graeme Lempriere: And we are hoping that will come down over time depending on volume, of course, like anything else.
James West: Great.
Graeme Lempriere: Hard cost had been paid for all the molds and dyes all the expensive stuff has been covered already.
James West: Right. So, you are launching the sale at the Canada Farm Progress Show this year.
Graeme Lempriere: Yup, in June.
James West: In June.
Graeme Lempriere: That’s when the world will get to see the full size drill first hand, kick the tires, and look at it, and then we’ll be doing a private function on our test farm, which is 5,000 acres in Saskatchewan, and we’ll be doing some impressive demonstrations there post show.
James West: Okay. What is the date of that?
Graeme Lempriere: I believe it’s the 18th of June is the main show and then we are yet to announce the OnFarm event.
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