An Interview With Argex Chairman Mazen Haddad – “The Dream is Absolutely Still Alive & It’s Still Very Big”

Argex recently announced that Mazen Haddad has been appointed to the role of Chairman of the Board. Mr. Haddad, a significant shareholder, has been with Argex since its inception and has brought many personal relationships to the company.

Howard Group President Grant Howard, recently spoke at length with Mr. Haddad about multiple challenges the company has faced as of late and the aggressive efforts that are currently well underway to ensure the company continues on its path to disrupt the $16 billion Titanium Dioxide industry.

Here is an overview of the interview that runs 46 minutes in length.

The interview begins with Mr. Howard providing listeners with an overview of the recent events which triggered the slide in Argex’s share price.

Below are the major questions and selected portions of Mr. Haddad’s answers.

Why did you take on the role of Chairman?

Haddad: “I chose to take on the Chairman role, because I wanted to reaffirm my commitment to the company. To shareholders that came into Argex because I introduced them to it and frankly, it also helps me with future shareholders.”

Why did Argex hire so many staff before funds were secured for the construction of the facility?

Haddad: “Part of the diligence process, in our view, because of what we were led to believe by the funders was – yes, you have the technology, but if we are going to fund you, you are going to need the team. You have to show us that you have the ability to execute this plant. So we went ahead and got some essential managers.”

Did the due diligence raise and concerns about the viability of the technology?

Haddad: “There were no concerns about the core technology. The viability was only questioned on one major issue. Which was, could you place your by-products, the ferric chloride. The team did an incredible job of getting the two largest players in North America in this field and both customers came to the diligence team and demonstrated to them that the quality of product we were creating, as a by-product, was better than anything they’ve seen in the industry.”

When the company realized the terms were going to be too onerous, what happened?

Haddad: “We were at the point in the situation, because the diligence took so long, frankly, we were going to live with the terms. We understood that our factory, our process could handle, because of the margins we could create, we could handle this. We didn’t like it, because it was painful…having said that we were comfortable moving forward. What happened at the end of the the day was the primary equity partner, had some issues on their side, not due to us, in terms of their fund. They were not in a position to continue because of that.”

What was the rationale behind moving to raise the money for the FEL-3?

Haddad: “It made a lot more sense to try to stage this out. Do the FEL-3 and PIP upfront, it was always going to be upfront, but take it out of the whole $325 million goal. That would allow us to save a year’s amount of interest…We’re talking in the range of $50 million…and open up much cheaper financing.”

Could the company have moved down an alternate financing path earlier?

Haddad: “It took us almost eight months to get to the point where we were…we had a situation in the beginning of last year where we had term sheets for three quarters of the money needed… When you go out to the market and you try to slot people in to make them comfortable on their risk profiles, the ratios just couldn’t fit that well. So it took us a while to get a group that fit together…Every component was very essential and when one of the components fell off, finding somebody else to be comfortable enough to go into that slot, was difficult. Basically you had a situation where people now wanted different things to elevate their risk tolerances, to allow them to invest…That meant almost starting over again…What we do have as a result of the diligence, is a great relationship with our potential debtors.”

“Although the share price is horrible, although what happened was terrible in regards to the failed financing, the value that we’ve built or the ability for this company to go to the next level is actually much further along than its ever been, and frankly the market is showing a distorted view of the value.”

What is an FEL-3 / PIP and why are they important?

Haddad: “The PIP is a Process Intensification Program, what that does is it repeats the cycle many many times and narrows the variance on the output…you get a product of TiO2 (titanium dioxide), it has to come in a very specific range…The repetition and modulating it gives us the robustness, and tells us if certain variables have changed, feedstock, or acids or other parts of the process. What can be changed to make sure you are still in that band. Once you have that done, that dovetails into FEL-3. FEL-3 is nothing but an optic of all the equipment and all the products that go into this factory. Grinds down the prices and gets us very defined quotes.”

“A few things come out of FEL-3. The potential for a smaller cap-ex overall and the ability of the debtor to feel more comfortable to either give you more coverage, wider ratio of debt to equity coverage, or a lower interest rate. Because I have more certainty that this will work.”

Why didn’t the FEL-3 / PIP start a year and a half ago?

Haddad: “A year and a half ago we were lead to believe we were going to finance everything all at once and the PIP and the FEL-3 were part of that $325 million budget. We were lead to believe in the conversations in the diligence that this was a viable plan.”

What is being done to ensure the company survives and is a viable entity?

Haddad: “Step one we already taken, we’ve cut staff and cut our burn from $800,000 to $250,000…The team has never been so coordinated and focused as it is today. It really brought everyone together…The other step is basicly looking for that money to get through the FEL-3. We are canvassing several different types of ways of doing this. We are working with a number private equity investors who see the value and also have a lower cost of capital. We are working with our strategic partners that we already have as customers, and potentially having them help in this endeavor and those talks are ongoing. And we are looking at new strategic partners in the form of competitors who primarily have sulfate production, and for them this is a serious issue, because their sulfate plants are in some cases losing money and in some cases barely breaking even and the growing liability of the pollution problem for them is becoming is more evident to them everyday. We started a blitz on all fronts in the last three four weeks. Some of the conversations were happening before and maturing as we go through this. We have been overwhelmed by the attention we are getting from people in the industry wanting to partner with us….Frankly a large number of players, more than four and we are very excited to have this situation, because frankly we should be able figure out one of them.”

Do the groups you are talking to share Argex’s urgency?

Haddad: “We’ve been in talks with some private equity people for some time. We do already have in our possession some term sheets that are reasonable. The trick is we’re trying to not just get a short term solution, but something that can help the shareholders see this through.”

Where does your relationship with PPG and Helm sit at this time?

Haddad: “We’re in discussions with our partners as we speak. They are amenable, we are going through a process. These are large companies and they don’t move very quickly.”

Is the dream for the company still alive and if so is it a big dream?

Haddad: “It’s absolutely still alive and it’s still very big. Fundamentally all that happened in the last few months…was we didn’t close on the portion of the equity to close this deal. We still have the technology, we still have the offtakes, distribution agreements, we still have a good team that can implement this, we still have the Intellectual Property, we still have the engineering firm in TR, Tecnicas Reunidas who can help us take this all the way to production, so you look at all of that, what it culminates in is the reason you first invested in this company… This Intellectual Property advantage, this technology advantage allows us to have ⅓ the cost of the competition, and that’s still there and that means that we have more than doubled the margins of any competitor. If you look at the lowest competitor’s PE (Price/Earnings) it’s something like 12 or 13 times, so we’re talking 26 to 30 times earnings is a reasonable goal to create value…If we go about this in a different manner, if we go about this through a joint venture partnership, we never went into this for one plant. We went into this to validate the technology. So what happens in a joint venture model, that actually could be better than building a plant and owning all of it, is it allows you to go to the next plant that much quicker, because you’ve got more muscle behind you with the joint venture partner, and things happen faster, money comes in quicker and you can move on to the next project that much faster and that’s where that multiple really comes in.”

https://howardgroupinc.com/2015/07/interview-argex-chairman-mazen-haddad-dream-absolutely-still-alive-still-big/