The Hazer Group Ltd (ASX: HZR) share price is in reverse during late morning trade. This comes after the hydrogen producer provided an update on its Commercial Demonstration Project (CDP).
Hazer's CDP is being constructed at Water Corporation's Woodman Point Water Recovery Facility in Western Australia. The company aims to convert natural gas and similar methane feedstocks, into hydrogen and high-quality graphite, using iron ore as a process catalyst.
At the time of writing, Hazer shares are down 11.43% to 93 cents. This is a stark contrast from when the company's share price reached an all-time high of $1.885 in February 2021.
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What's dragging the Hazer share price down?
Investors are heading for the hills, selling Hazer shares following the company's shock announcement.
In a statement to the ASX, Hazer advised its CDP is experiencing significant cost pressures since its last update in March.
The company stated that during the last quarter, it completed a number of set targets. This included civil site preparation, awarding contracts for the reactor and high-temperature heat-exchanger materials, and taking delivery of the iron-oxide catalyst.
Hazer ensured the materials selection and fabrication specifications of the reactor and equipment met the required safety criteria. It noted that a considerable amount of effort has been dedicated as it progresses the first-of-kind design.
However, the company is facing increased costs due to COVID-19 related disruptions to global supply chains for equipment. Surging freight costs has also restricted the number of suppliers able to meet the technical requirements to supply the project.
Furthermore, Hazer revealed that labour, equipment and services costs in Western Australia are higher than originally indicated. This is due to the strong resource industry with final pricing for many of the packages above the initial project budget.
As a result, the company is now expecting the final project cost to come between $20 million and $22 million. This is a blowout of 17% from its March update, and 29% from the June 2020 Final Investment Decision (FID) project budget.
Fabrication of equipment modules is underway at various supplier sites, with equipment packages to be delivered through the second-half of 2021.
Site installation and construction activities will begin in July and is expected to be completed in the fourth-quarter of 2021.
Management commentary
Hazer Group CEO, Geoff Ward commented:
The Hazer team and our engineering partner Primero Group are continuing to make good progress on the Hazer Commercial Demonstration Project, a complex, first-of-kind technical project.
Scaling up a technology from pilot to demonstration stage is a key step with many engineering, safety and operational complexities that must be thoroughly investigated to ensure the plant achieves its operational goals safely.
… We remain fully funded to complete the Project and focussed on completing construction to achieve our target of commencing commissioning by end December 2021.
The Hazer share price has doubled in value over the past 12 months, and is up over 20% year-to-date.
