Pyrophyte Acquisition Corp (PHYT) to Combine with Sio Silica in $708M Deal
by Nicholas Alan Clayton on 2023-11-13 at 11:27am

Pyrophyte (NYSE:PHYT) has entered into a definitive agreement to combine with quartz producer Sio Silica at an enterprise value of $708 million or 4.1x its 2025E EBITDA.

The Calgary-based company is developing two quartz mining sites outside of Winnipeg, Canada with the aim to supplying premium resources to the worldwide tech industry.

The combined company’s shares and warrants are expected to trade on the NYSE under the symbol “SIOS” and “SIOS.WS”.

Transaction Overview

Pyrophyte has about $97 million in its current trust after seeing 55.4% redemptions in an extension vote that gives it the right to push its deadline up to April 2024. By close, however, Pyrophyte expects this to be reduced to $21 million from a mix of a PIPE and non-redemption agreement.

The SPAC has already agreed to issue 58,570 shares to an investors in return for not redeeming 100,000 shares and has sold 3,114,258 shares to PIPE investors for $20.1 million (about $6.46 per share).

The parties have pulled together $40 million more in upfront funding for a royalty agreement and $80 million in debt from Riverstone Credit Partners, HITE Hedge Asset Management and a Canadian pension fund. This debt facility is conditioned upon Pyrophyte maintaining at least $55 million in committed equity in the deal.

It expects existing investors to put $10 million more into the deal as flow-through equity and this adds to about $11 million in cash already on Sio Silica’s balance sheet. The company expects to add $129 million to its balance sheet through the deal after paying $21 million in transaction expenses and holding back $12 million in a liquidity reserve connected to the debt agreement.

Prophyte must provide at least $130 million in total cash funding and a debt to cash ratio no greater than 0.5882 in order for the deal to close.

Existing Sio Silica shareholders are expected to own 89% of the combined company with the PIPE and non-redemption investors taking a 3% slice of the pie. Pyrophyte’s sponsor is expected to see its promote convert to a 7% stake.

The SPAC’s sponsor may be forced to forfeit up to 4,025,000 promote shares (80%) if Pyrophyte provides less than $70 million in total proceeds, minus any promote shares that are dispersed as incentives to investors.

If this cash hurdle is met, these shares will still be subject to earnout conditions. Half will only be released if the combined company trades above $12.50 within three years of close and the other half at $15. Its other shares also subject to a one year lock-up, but may be released earlier if the stock trades at or above $12 for 20 of 30 trading days.

Sio Silica shareholders owning more than 1% of its equity are subject to a six-month lock-up under the same terms.

Quick Takes: Pyrophyte has put together a complex deal here with many fingerprints of the market realities written into its terms.

The SPAC fairly openly expects to keep only the portions of its trust that are protected by non-redemption agreements. It has also been sure to condition its sponsor’s take on both difficulties ahead in holding together financing arrangements, and the need to use promote shares as sweeteners to do so.

The reality of nearly all new issuance trading down this year has also meant that PIPE investors are likely only picking up the phone for purchases at well under $10 per share – or -35.4% lower in this case.

Nonetheless, Sio Silica appears confident that it will eventually trade up once this deal is done and the two sides assert that they have priced the combination at a significant discount.

The company’s valuation is -80% below the $3.9 billion net present value of quartz resources at the sites under Sio Silica’s control. That assessment is based upon about 146 million tons of measured and indicated resources and about 345 million tons that are inferred from other indicators.

Quartz as an industrial input has typically not been highly profitable, however. It goes into many highly demanded products like batteries, semiconductors and solar panels. But, only extremely high purity quartz commands a high price.

Sio Silica estimates the market for ultra high purity quartz at about $4,000 per ton, but that is with 99.999% purity. Dropping just down to 99.995% slips the price to $1,000 per ton while mere 99.9% pure quartz can be bought for $100 to $250 per ton. At a range of 95% to 99% prices can drop below $50 per ton.

At those prices, the resource is frequently not even bankable to mine.

For deliveries to the Asian market, Sio Silica estimates existing Australian suppliers spend about $160 per ton to extract, purify and transport their existing resources. But, by using magnetic separation technology, Sio Silica believes it can deliver quartz to China for about $87 per ton.

With the level of purity of quartz it has at its sites, it believes it can drive roughly 90% gross margins and churn positive cashflow out of its main production facility in its first year of operations. With Phase I of development complete, it predicts about $215 million in sales in 2025E, which it could ramp up to $468 million in Phase II and just under $1 billion annually in 2028E.

As it is developing these sites through the next several years, it expects its EBITDA margins to fluctuate between 66% and 79% and this transaction would put a price tag on Sio Silica at a somewhat modest 4.1x 2025E EBITDA.

But, all of these numbers are predicated on the company’s hypothesis around how quickly it can get its mines flowing and how pure of a resource it can chip out of there. Because, as seen above, the world market is only really getting out of bed for Heisenberg-level purity.

Click here for the full investor presentation.


  • Sio Silica Advisors:
    • BMO Nesbitt Burns Inc. is acting as exclusive Financial Advisor
    • Integral Wealth Securities Limited acted as Sio’s exclusive financial advisor in procuring and negotiating royalty financing, and, as an advisor to Sio in respect of the business combination agreement.
    • DLA Piper (Canada) LLP and DLA Piper (US) are acting as legal advisors
  • SPAC Advisors:
    • UBS Securities LLC is acting as capital markets advisor
    • White & Case LLP is acting as legal advisor
    • Skadden, Arps, Slate, Meagher & Flom LLP is acting as legal advisor to BMO Capital Markets Corp. and UBS Securities LLC
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