Cielo Sa Annual Report

[Miina Hunker]

Cielo has been promising the installation of a technology to desulfurize its fuel for years, representing this as a final hurdle to profitable production at scale. Large investors were supposedly waiting for desulfurization, an off-the-shelf technology, to be proven before investing in two $50m facilities. CEO Don Allan was guiding for desulfurization by the end of June. Widely followed CMC bull Robert McWhirter did multiple interviews repeating the same timeline.

Allan: Yes, 90% of the equipment is on site today and our crews are working 7 days a week. We still have some work to do such as electrical connections and welding, but we are hoping to be commissioning between mid to end of June.

In a September 2 press release and webinar, Allan pushed back the desulfurization timeline again, this time to September 23. He blamed a chemical catalyst made in China which he claimed was defective. Allan told a convoluted story, claiming the catalyst was sent to Texas for repair and blaming the University of Calgary for selecting the Chinese manufacturer.

Note that Cielo gained possession of the catalyst in May, and since then Allan has repeatedly said the company was focused on desulfurization. So, we find it hard to believe that management only recently learned of this defect. Cielo has a problem disclosing material information or is grossly incompetent, or both.

In the same September 2 update, Cielo touted an off-take agreement for the sale of naphtha fuel with Kodiak Chemical Solutions. The agreement is a non-binding letter of intent. Kodiak appears to have been founded by a former fuel salesman in November 2020. It has no website and only two employees with LinkedIn accounts.

In our view this is another example of Cielo attempting to create legitimacy by engaging obscure counterparties in meaningless deals. See the zero-interest unsecured loan for land with anonymous lenders. Or the financing with unknown First Choice Financial (no website) loaded with broker fees and warrants. Or the $1.5m fuel sale with an undisclosed buyer who was awarded warrants that became worth 2x more than the deal value within a week.

Larry Schafran is a private investor who has held directorships at several collapsed public companies. His involvement at SulphCo bears the most relevance to the situation at Cielo. He was a Director [Pg. 34], Audit Committee Chairman at SulphCo (last trading OTC with ticker SLPHQ) which coincidentally developed a technology it claimed could desulfurize oil efficiently. The company reached a $1B valuation before going bankrupt in 2011.

Further down in the same August 27 press release, Cielo announced it was restating several figures from 2018 and as a result would delay the filing of its annual report. Cielo would miss its filing deadline and thus be in technical default of continuous disclosure regulations. In addition, Cielo applied for and was granted a management cease trade order (MCTO) under which Allan and the CFO are prohibited from trading Cielo stock.

Investors reacted negatively to the desulfurization delay and the production update. At the current price of C$0.75, Cielo still has an enterprise value of approximately C$475m. We think considerable downside remains.

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Hiring Opportunity Youth Has a Double Bottom Line. Participating companies indicated that while there are worthwhile societal and moral objectives to opportunity youth hiring strategies, the main rationale is a business one. Companies that have hired disconnected youth report higher retention rates and employee engagement for this group relative to typical employees. And with turnover rates among entry-level staff exceeding 50 percent in some sectors, increasing retention rates can lead to significant savings. One company explained that because over 90 percent of its managers come up the ranks from entry-level positions, it is critical to bring people into the organization who are interested in making it a career.

Front-Line Managers Are Key to a Successful Opportunity Youth Hiring and Retention Strategy. Deploying a successful strategy to recruit, keep, and grow opportunity youth requires ownership and buy-in not only from the c-suite, but the front-line managers who are making hiring decisions and interacting with team members every day. Several participants explained that success in entry-level roles often relies on grit, motivation, and patience rather than job-specific experiences or schooling. That means hiring managers need to be trained to screen for those attributes when considering opportunity youth with limited resumes. Additionally, several participants highlighted what an impact honest feedback, care and consideration from front-line management can have on the retention and motivation of newer employees.

Partnerships with Community-Based Organizations to Help Companies Find and Source Opportunity Youth Matter. Participants gave numerous examples of the impact of public and non-profit organizations in sourcing and supporting opportunity youth. However, human resource officers indicated that identifying partner organizations among hundreds of options in each part of the country is far too burdensome. This often inhibits the implementation of impact hiring strategies. Additionally, companies commented that organizations supporting young people often fail to collaborate with one another, which adds complexity for employers. Companies brainstormed a few potential solutions to these issues. First, the creation of a national umbrella that could serve as an initial touch point for companies looking to hire opportunity youth and direct employers to local non-profits. Second, they suggested that youth-serving organizations within a region work to aggregate their talent pools prior to approaching an employer rather than working in a bespoke way.

Better Data on Hiring Outcomes is Important for Scale. The majority of companies indicated that they do not track which candidates are opportunity youth when hired and typically do not assess the impact of hiring decisions on employee performance and retention. Companies highlighted that in order to really grow new impact hiring approaches within their organizations, it will be critical to have data that demonstrates the business value of opportunity youth to human resource leaders. Without good data systems and tracking, this sort of outcomes validation is virtually impossible.

Secretary King also announced that the U.S. Department of Education, in consultation with the U.S. Departments of Labor, Health and Human Services, and Housing and Urban Development, will provide technical assistance funding to help public housing authorities connect youth who have aged out of the foster care system with high-quality career and technical education programs. Through this investment, the Department of Education hopes to assist existing career technical education programs to better meet the needs of current and former foster youth. The project also seeks to improve coordination among the child welfare system and other federally-funded programs.

The Human Resources, operational, and corporate social responsibility leaders of my business are committed to inclusive hiring practices that open up pathways for out of school, out of work young people to apply and be fully considered for jobs at my company by adopting the following practices:

(1) Identify jobs and internships that can be filled by young workers (ages 16 to 24) with little or no prior experience. If needed, appropriately adjust job descriptions, application, screening, and interview process to make them more accessible to low-income teens and young adults.

(3) Develop a plan to support opportunity youth once hired so they can gain the skills and experiences needed to move up in a career or educational pathway (for example, partner with local nonprofits to provide job coaches or identify internal mentors).

AT&T. To help reduce employment barriers, AT&T removed the requirement for a resume during the application process and have provided alternatives to requiring years of experience. The company also provide various aids for applicants, including test guides, job coaches, and educational opportunities to train up for a particular role.

CVS Health. Building on its Pathways to Pharmacy program, which has introduced more than 1 million underserved young people to the pharmacy profession through training, internships and apprenticeship since 2006, CVS Health will launch my CVS Journey. This will be a series of STEM-enriched programs designed to inspire young people to seek a diverse set of career paths in health care, including retail pharmacy, professional management, nursing, and information technology.

Delta Air Lines. Delta Air Lines is committed to hiring at least 100 Opportunity Youth over the next year for a range of front-line positions that require no previous experience. Delta continues to build on existing partnerships with organizations like New Hope Enterprises and Covenant House to provide Opportunity Youth with the training and skills they need to enter the workforce successfully. Delta also partner with organizations at airports like LA Hires Youth in Los Angeles to give Youth Opportunity candidates every advantage to compete in the Delta hiring process.

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