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Fireside Chat Highlights Company's Cash Generation and Growing Market Demand

We recently hosted CEO Michael Costa and President Wes Fulford for a fireside chat, which included a discussion of the growing demand in the carbon credit markets, the expected cash inflows from existing projects, and the potential upside to pricing on credits that have received a Corresponding Adjustment (CA) label. A link to the replay of the event is available and the full transcript included in this report. A proven and replicable cash-generating business model. Management highlighted the company’s track record of successfully allocating capital to projects that have strong return profiles and generate cash quickly. In the two years since the company’s founding, it has invested in three projects, all of which have either generated credits that have been sold or are expected to generate credits in the next 12 months. Significant project cash flows expected in 2024 with minimal capital expenditures. The Vietnam household project is forecast to generate 6 million credits and anticipated offtake proceeds of approximately US$29.1 million to the company in 2024, which exceeds Base Carbon’s total committed investment of US$20.8 million (92% of which has already been spent). In addition, the sale of the credits from the Rwanda project (fully funded) could add to the cash inflows in 2024, while the India reforestation project (~75% funded) should deliver the first credits in early 2025. Pricing upside potential for Rwanda project credits. In December 2023, the company’s project received the first CA label from carbon registry Verra, and management noted that there is strong interest in the credits, especially given the CA label. The company has stated that the CA expands the pool of potential buyers, and the credits will see better pricing as buyers look for the highest-quality credits and the CA protects against double counting. Market demand accelerating. Management noted the growing activity in the marketplace as more companies look to buy credits to meet carbon goals, but also pointed to the scale of credits needed. The entire market for voluntary carbon markets was just 176 million tons last year versus the approximately CO2 equivalent emissions on an annual basis. The value of the voluntary carbon market grew fourfold in 2021, reaching $2 billion, and is expected to reach $10-40 billion by 2030, according to BCG. We continue to see Base Carbon as well positioned to benefit from this growth given its track record of successful project development/credit offtake agreements and its strong balance sheet. Partnership with STX Group offers the potential to scale the market for carbon removals. Management explained how the partnership brings together STX’s project development experience and knowledge of the downstream side of the carbon marketplace with Base Carbon’s existing investment platform and investment team. The two companies have the opportunity to help grow the market for carbon removal and at the same time diversify and expand the opportunities for Base Carbon to deploy its capital.