Vertex Energy, Inc. (NASDAQ:VTNR) Q2 2019 Earnings Conference Call Transcript
Aug 07, 2019 • 09:00 am ET
Benjamin P. Cowart
year in the making, the net result is a low-cost, minimally-diluted funding source that provides us with the necessary capital to support our growth plans. We believe our partnership with Tensile achieved several important strategic objectives. First, the transaction further positions Vertex to become one of the leading producers and marketers of high-purity base oils in North America. Second, this transaction serves to significantly improve our liquidity profile, adding to as much as $15.7 million in cash to the balance sheet between now and the end of 2019, subject to the successful completion of the pilot test. Third, we will continue to grow our UMO collection business while becoming a selective acquirer of other collection operations.
Turning to Slide 5, 6 and 7 for an overview of the transaction. The Tensile transaction has been structured in 2 distinct phases. Phase 1, which was closed July 26 places our Myrtle Grove assets in Belle Chasse, Louisiana into a standalone special purpose vehicle. In exchange for a 15% interest in the Myrtle Grove SPV, Tensile invested $3 million in cash to the balance sheet of the SPV and $1 million to Vertex that was used to repay debt. Vertex will retain an 85% interest in the SPV. Further, under the terms of the agreement, Tensile acquired 1.5 million newly issued shares at a 10-day average volume weighted price between July 10 and July 23 of $1.48 per share, providing cash proceeds to Vertex of 2.2 million. Separately, Tensile was granted 10-year cash warrants with a strike price of $2.25 per share. This month, we began pilot work to validate the production of high purity base oils from used motor oil. This pilot is expected to reach completion by year-end 2019.
Phase 2 involves the placement of our Heartland business into a standalone SPV, similar to what we have done with Myrtle Grove, under the terms of Phase 2 closing the Tensile -- Tensile will acquire a 65% interest in the Heartland SPV while Vertex will retain 35% stake. In conjunction with this portion of the transaction, Vertex will receive $13.5 million of nonrecourse cash to our public balance sheet together with $2.2 million of cash proceeds from the shares issued to Tensile when Phase 1 closing, total cash proceeds to Vertex from the transaction is $15.7 million at the consummation of Phase 2 closing, not including the $1 million used to repay debt.
Turning to Slide 8. We anticipate the full Heartland development project will require capital investments of between $20 million and $30 million. The JV has planned up to $22 million capital for this project. Project scope includes an expansion of our UMO gathering business, together with optimizing of the refinery to support the production of high purity base oils. The development project is expected to begin in 2020 and reach completion by year-end 2022. We expect Heartland to operate normally during the development project period.
At this time, we anticipate Heartland's development project will be onstream by the first