Here's why the Hazer (ASX:HZR) share price is plummeting 11% today

The company's shares are being pounded by ASX investors today.

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The Hazer Group Ltd (ASX: HZR) share price is deep in the red during early afternoon trade on Friday. This comes after the hydrogen producer provided an update on its Commercial Demonstration Project (CDP).

Hazer is building its CDP 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 11.84% to $1.08. This is in stark contrast to last month when the Hazer share price traded as high as $1.765.

What's dragging the Hazer share price down?

ASX investors are heading for the hills and selling Hazer shares following the company's shock announcement.

In today's statement, Hazer advised there has been a delay in completing the fabrication of the reactor for the CDP. This has evidently pushed back the commissioning of the new plant post the company's current target date of Q1 2022.

Hazer revealed that it identified a manufacturing flaw in the reactor vessel currently waiting for heat treatment in China. In response, quality assurance and non-destructive testing activities were carried out over the past 2 days, confirming the fault.

Furthermore, the company also found other areas within the reactor were a cause for concern.

As such, the reactor shell has been deemed unsuitable and will require remedial manufacturing repairs before being certified and dispatched.

Hazer noted that its project team are working with suppliers and independent experts and carrying out further investigations to rectify the defect.

In addition, Hazer stated that the impact on the project's costs and schedule cannot be exactly determined. However, it will look to see if any remedies can be made under the contract terms and insurance policy.

The delay is expected to be about 8 to 12 weeks. Hazer will update shareholders on any revisions to the schedule or budget when more information comes to light.

What did the head of Hazer say?

Hazer CEO, Geoff Ward, commented:

The occurrence of this issue so far into our construction schedule is deeply disappointing.

We will carefully work through the causes of this issue and what we can do to rectify the defect identified in the reactor and implement any actions available to mitigate the impact on the project budget and schedule.

The identified manufacturing flaw does not impact the planned operation of the reactor or our intended program of operations at the CDP. All other project activities are progressing as scheduled.

We will continue with all of these planned activities to allow us to undertake cold commissioning and testing of the plant, including catalyst handling, fluidisation and control systems, prior to the delivery and installation of the reactor.

Hazer share price snapshot

Despite today's heavy fall, the Hazer share price has accelerated by 40% over the past 12 months.

Interest in novel graphite and hydrogen production technology has picked up considerably in recent times. This has prompted ASX investors to buy.

Hazer presides a market capitalisation of $175.1 million and has approximately 160.65 million shares on its books.

Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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