IFUS Cattle Turning Bagasse Trash Into a Cash Cow

By Michael Sheikh, Head Research Analyst, Falcon Strategic Research

Special to The Digest

Impact Fusion International Inc (OTCMKTS: IFUS) markets products in the “Health and Wellness” sector using its proprietary Nutri-Mastic ingredient. Their product aids in the digestive health of both humans and animals by increasing the absorption of nutrients. They repurposed their Nutri-Mastic with sugar cane waste fiber (known as bagasse) and came up with a brand new product unique to the Cattle feed business. This repurposed agricultural fiber waste is approved by the US-FDA, USDA, and EPA for use in cattle feed. The waste fiber comes from sugar cane producers and IFUS converts it into low-cost high benefit healthy cattle feed using proven, time-tested proprietary processes that only IFUS has.

For every investor that wants to stop reading at the mention of cattle feed and thinks it’s a completely dead sector, resist the urge. The cattle feed market has been dull and boring because there hasn’t been any innovation for decades until this point in time. This isn’t just any cattle feed. It’s a cattle feed and supplement that, when used properly, can substantially lower the ammonia and methane emissions from cattle while increasing productive protein weight gain and it improves healthy milk production of dairy cows while reducing the need for antibiotics and hormone injections. Yes, this innovation can slow global warming and make your hamburger and milk healthier and cheaper. Too good to be true right?

Disrupting the Cattle Feed Market

The production cost of this IFUS feed is about $10 per ton yet the farmer pays at least $40 per ton for hay. Hay is the low cost alternative, when available, and is up to $240 per ton on a seasonal and drought severity basis. IFUS is a disruptor in the cattle feed market which measured $73.5 billion in 2019 and they are in a position to do $100 million + in revenue in the coming year so stick around and keep reading. IFUS has a 62 acre facility located in Napoleonville, Louisiana and it is strategically positioned near the 12 major sugar mills that are also close to the sugar cane growers in Louisiana.

Antibiotics are Inefficient and Expensive Ways to Increase Yield

Most cattle graze on grass but their diet is supplemented with grain, corn, wheat, and oats. Ranchers are paid by the pound and use grains or yellow corn to bulk up their herd before the auction. The grains and corn are full of calories but they come at a cost of nutritional value. When the cattle don’t get the proper nutrition it affects their immune system and they become susceptible to infection. In a quest to increase the bulk weight ranchers use antibiotics to help out their weakened immune systems. Antibiotics are not cheap but the ranchers can ill afford an outbreak which would cost them their herd. This mass administration of antibiotics costs $1.8 billion annually. The Department of Agriculture estimates that a majority (59%) of U.S. feedlots have embraced the practice of using antibiotics prophylactically. The bottom line is that 20.5% of all cattle are placed on a regimen of grain feed and antibiotics.

The Moral Hazard of Antibiotic Overuse

The Cattle Industry is playing with fire because the more they use antibiotics the greater likelihood there is of creating a superbug that becomes resistant to the current antibiotics. A bug-resistant infection could easily wipe out their herds.  Adding to the problem are the large feedlots that hold the cattle right before slaughter. In 2018 there were 33 million cattle slaughtered in the United States and 25 million spent time on these large feedlots getting fattened to market weight. That is a staggering statistic that over 75% of the cattle were treated with antibiotics.

Rising Hay Prices Due to Prolonged Drought

The USDA is in full Emergency mode already since 2020. The severe drought this summer in the West and Great Plains forced the U.S. Department of Agriculture (USDA) into action. They have made plans to help cover the cost of transporting feed for livestock that rely on grazing. USDA is updating the Emergency Assistance for Livestock, Honey Bees, and Farm-raised Fish (ELAP). The program is designed to immediately cover feed and transportation costs of ranchers impacted by the drought.

“USDA is currently determining how our disaster assistance programs can best help alleviate the significant economic, physical and emotional strain agriculture producers are experiencing due to drought conditions. The duration and intensity of current drought conditions are merciless, and the impacts of this summer’s drought will be felt by producers for months to come. Today’s announcement is to provide relief as ranchers make fall and winter herd management decisions.” said Agriculture Secretary Tom Vilsack.

Climate change and prolonged droughts have put increased pressure on the price of cattle feed.  This summer’s headlines read “the worst drought in 1,200 years” as many had to cope with triple-digit temperatures.

The reality was that 93% of the land in 7 western states was under drought and 59% was under extreme drought. With the worst conditions seen in 100 years, hay prices spiked 100 – 600%. Setting aside these bad conditions, the price of hay is quite volatile. Many variables determine the pricing of hay – region, type of grass, weather, drought/excessive rain, how many cuttings per growing season by area, transportation costs, fertilizer costs, whether fertilizer was used and demand are some of the more important factors.

Opportunity

The cattle feed market is enormous and has had no real innovations in decades. Prices are so high that a disruptive solution would spread rapidly and bulldoze over any hesitancy to change because cattle ranchers are getting desperate for a solution. So desperate that they are cutting the size of the US herds, which has since 2013 led to higher beef prices and more shortages. The second half of the Opportunity is about 80 + Million tons of waste sugarcane fiber known as Bagasse that the sugar Mills pay big bucks to Landfill. They pay to throw it away!

The Solution

We needed something fast, cheap, plentiful, and easy to produce. The fact that it helps save the planet may be an irrelevant talking point for some small ranchers in crisis, but Bagasse represents the solution that hits on all the high points. For example, cattle feedlots and dairies are facing future EPA limits on their massive Methane emissions and they face huge future costs to capture and destroy or somehow reduce the methane emissions from dairy cows and cattle. They specifically name “enteric fermentation” in their literature which is the methane gas that leaks out of the cow’s digestive system. Universities worldwide are starting massive R & D efforts to find ways to reduce methane emissions from these dairy and cattle Feedlots. The same Universities that tried for 70+ years to solve how to convert Bagasse into a suitable digestible cattle feed, and not just a fiber additive. IFUS has already solved both problems!!!

Technology that

• Increases cattle weight gain while they eat less
• Eliminates need to burn bagasse (which adds to the greenhouse gas problem)
• Lowers the Greenhouse Gas emissions footprint of cows(dairy) and cattle(feedLots)
• Lowers water consumption by Cattle and for growing feed
• Improves Cattle’s immune health and reduces their reliance on antibiotics
• Supported by government policies
• Is very profitable while it saves BBQ, Milk, Beef, and the planet
• Lower cost means less expensive beef, milk, ice cream, and cheese on your table

Greenhouse Gas (GHG) Reduction

There are 2 primary greenhouse gases Carbon Dioxide (CO2) and methane (CH4) but most of the world’s controversy focuses on Fluorinated Gases like (HFCS, PFCS, SF6). The Paris climate agreements were focused on CO2 emissions. The irony of these talks and agreements is that methane is by far the biggest contributor to greenhouse gases yet little is being done to curb cattle production. Cattle are the biggest producers of methane and rank just behind electricity on their contribution to greenhouse gases (GHG). Many of the statistics are misleading because they compare gas volume but methane is 20 times worse than CO2 because it traps 28 times more heat than CO2 over 100 years.

One of IFUS’ leading competitors Zaluvida indicated that if cattle burped a little less they could reduce GHG emissions by 30%. By simply improving cow gut health ranchers could be a major tool in fighting the rising levels of GHG’s. It’s not hard for investors to imagine lucrative government incentives to reduce cows’ GHG’s. Early this month the EU and the United States pledged to cut emissions of methane by 30%. It may be a coincidence or perhaps they are familiar with this type of technology and this pledge is the first step in its adoption which would be a huge boon to IFUS. The technology exists, but now the concept needs exposure and to be accepted by the cattle ranchers.

Nutri-Mastic

This cattle feed is made from 100% natural products which primarily consists of sugar cane waste Fiber from sugar mills and IFUS Nutri-Mastic. Nutri-Mastic is an IFUS proprietary formula containing mastic gum which is an aromatic resin from the Mastic tree (Pistacia lentiscus) indigenous to the Mediterranean region of Greece. The gum and other ionic materials in IFUS Nutri-Mastic aid in absorption and digestive health. The waste product from refining sugar is called bagasse and it is a dry fibrous material that remains after the juice is extracted from the sugar cane stalks. When mixed together it almost creates a super cattle feed. IFUS introduced its first Human Nutraceutical products in 2009, which are based on the IFUS proprietary Nutri-Mastic formula.

Here is how it works. The normal gastrointestinal (GI) tract is a very toxic environment. Bacteria colonies start at the mouth and are found throughout the GI tract and end at the anus.  One of the primary byproducts of bacteria metabolizing and breaking down the food into amino acids is scavenge ammonia. Scavenge ammonia within the digestive system makes it impossible for probiotics to reach the colon area. The liver filters out this ammonia and turns it into urea so that the urea can be excreted in the urine. Nutri-Mastic reduces the levels of scavenging ammonia making it easier for the intestinal floral (mix of bacteria) to thrive and in turn aid in digestion and also improves the uptake of nutrients.

The next part is the uptake of the minerals. Minerals fall into three categories with neutral, positive, and negative charges. IFUS Nutri-mastic has positive and negatively charged mineral ions. This is how the essential minerals move from the digestive system into the bloodstream.  The acidity and pH of the digestive system play a key part in the mineral uptake. The buildup of Hydronium ions which is a waste product of digestion can lead to a more acidic body which hurts overall digestion, the uptake of minerals, and increases the risk of infections. IFUS Nutri-Mastic Balances and buffers the pH.

Putting this together means that cattle using IFUS Supreme Gold Plus Cattle feed have better overall digestion which creates a better probiotic environment in their gut that ends up producing less methane. There is also better absorption of the nutrients which means the cattle will gain weight faster and be healthier as a result of less ammonia toxicity being allowed to accumulate.

Swift Rollout and Sales Expected

They have a fully equipped, turn-key and proprietary facility that can scale quickly to the point where they can operate at a run rate of $100 million in cattle feed alone annually. With an extremely high-profit margin (up to ~90%) they could continue growing organically without the need for financing additional equipment or infrastructure. Their sweet spot, no pun intended are the sugar producing states. To expand their footprint beyond $400 Million/year, they need to go where there is ample availability of raw material, or charge higher prices, which is possible during droughts like the current 1200 year historical drought. But there is enough waste bagasse in Louisiana, a 10 year supply already available. They could use a hub and spoke model and ship from these regional hubs in the sugar producing states and then export to many drought-stricken counties. Shipping in bulk by train using the nearby railroad spur, and using barges from the New Orleans port is already part of the plan. From there the bulk treated bagasse based feed can be shipped worldwide. India and Brazil have massive piles of waste bagasse that can be tapped in the future.

Ranch Case Study

On a large ranch, cows on a feedlot or dairy farm can consume 50 pounds of processed feed per day. 10,000 head of cattle will consume 250 tons per day at an average cost of up to $100 per ton or more. This equates to $25,000 per day spent feeding the Cattle. There are over 93 million cattle in the United States alone. Cattle eat 365 days a year. That works out to $9,125,000/year for just 10,000 cattle on one large feedlot or dairy farm or ranch during a drought. High producing dairy cows will eat 110 to 120 pounds of wet feed a day or 50 to 55 pounds of dry matter (DM) a day. As cows produce more milk, they eat more. A typical diet for a dairy cow could include about 30 to 35 pounds of baled hay (26-30 pounds DM) and 25 pounds of grain mix (22 pounds DM). Aug 16, 2019

Competitors

Their top competitor on the technology front is Zaluvida which is privately owned. Their products work on the gastrointestinal health of the cows. Their supplement is called Mootral  and it optimizes the process of digestion which also improves their overall health and fitness. When reviewing the competitive landscape the most obvious observation is that Cattle Feed companies are measured in the billions. There are no small companies in the feed business. Nutreco is a New Zealand company, but it has a $3.0 billion market cap. In China, New Hope Liuhe Co Ltd. has a market cap of $19.3 billion. Wens Foodstuff Group Co. Ltd. is also located in China and has a $97.3 billion market cap. The smaller names like ForFarmers are located in the Netherlands and they have a market cap of $405 million. The only other OTC company is Charoen Pokphand Foods Ord Shs F (OTCMKTS: CHPFF) has a market cap of $5.77 billion.

Financial Analysis / Company Structure

Many OTC investors would consider IFUS to have an optimal share structure. There are 625 million shares authorized and 349.6 million shares issued and outstanding which means there is virtually no potential for a reverse split. There are approximately 190 million shares in the float indicating there is a good percentage of retail investors holding the stock. 601 shareholders last reported by the TA on OTC Markets. In mid-October, the company announced a reduction in its long-term debt by 42% when it converted $656,000 into a preferred voting-only stock that has no conversion feature. More recently another $150,000 in debt due against $250,000 in equipment assets listed in the financials was settled for 11 Million common shares and solidified ownership of that equipment on the books of IFUS.

Less than $900,000 of debt is currently left on the books and $650,000 of it is notes payable to an officer and the other two notes are directed toward long term retail investors and equipment the company has characterized to be “in friendly hands.”

62-Acre Manufacturing Site

The balance sheet is weak with only $15K in cash/ equivalents, but it did have $70,000 of WIP inventory.  Given the great margins of the company, it could turn its inventory into approximately $700,000 of sales and use the profits to reinvest back into the company in order to scale up manufacturing.  All this can be done without issuing any more shares.

Plant Equipment and Processes

The 62 acre site was once an operating sugarmill. It has massive buildings and outdoor space to store raw bagasse, finished product inventory and more than ample room for expansion. It also has access to a railroad spur for shipping railroad car loads of the feed by rail in North America. Train loads can be shipped by rail to New Orleans for shipping barge loads of the feed to anywhere in the world. They have a bailing line that includes the mixing process, press and bailing stages. They also have a massive in-house bagging line. And massive room in existing buildings to add mixing, baling and bagging lines as needed to meet an unmet demand once sales pass 24 hour/day, 7day/week operations.

Bails Sold on Pallets by Truck load:

Investment Summary

IFUS with their Nutri-Mastic technology has the potential to transform the cattle feed market measured in tens of billions in the United States to hundreds of billions worldwide. Not only is this technology disruptive to the price of cattle feed but it has major implications with respect to greenhouse gasses. A win for investors and the planet. Their business model is very simplistic in that they could very quickly become the lowest cost producer of cattle feed by taking the waste from sugar cane production (bagasse) and turning it into valuable feed. They have already done the proof of concept and have the factory and facilities in place. The only thing that remains are the orders.

The stock has an $8.0 market capitalization because it is in that lull between when companies become current with OTC Markets and then unveil their business plan to the market. The first salvo in this plan seemed to be the debt reduction but that release had little impact because investors saw this didn’t take any shares out of circulation and didn’t seem to reach a wide audience. The establishment of their Twitter account @impactfusionl seems to be another indication that more news is imminent, but they are just beginning to establish a following. They have a good share structure with 175 million at DTC. After revealing their plan for revenues, the market should adjust the market cap to its revenue projection. Market multiples of 2X revenues are realistic targets for this industry which means for every $100 million in sales the stock should seek $200 million in market cap. Given the incredible need for this product, investors should brace themselves for a unicorn valuation or a minimum of a doubling of the market cap for every $10 million of orders.