How a billion rotting tyres could lead to enormous profits

Tom Bulford examines the potential profits from using old car tyres as an alternative fuel source.

Tom Bulford examines the potential profits from using old car tyres as an alternative fuel source.

When you change the tyre on your car, I don't suppose you give much thought to what happens to the old one. I certainly don't.

But consider this: each year a billion tyres come to the end of their roadworthy lives. If left to their own devices, they'd probably survive for centuries. And this potential waste problem has spawned quite an industry.

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Dealing with old tyres is not that simple. While the first tyres were made of pure rubber, much has happened since then. Vulcanisation, the technique of hardening rubber, and the introduction of radial tyres in the 1950s have made them more durable.

And it's astonishing what goes into them. Today a typical passenger tyre contains thirty types of synthetic rubber, eight types of natural rubber, eight types of carbon black, steel cord, polyester, nylon, steel bead wire, silica and forty different kinds of chemicals, waxes, oils and pigments.

Two thriving uses for old car tyres

Despite this complexity, uses have been found for old tyres, divided into two broad categories. The first is civil engineering.

Whole or shredded tyres are used for building embankments, for road insulation, erosion control, crash barriers, field drains and much more. And by grinding them into crumbs, and combined with asphalt or polymers, they can be transformed into playgrounds, pathways, running tracks or all-weather playing fields.

The second main use is energy recovery. Old tyres burn well. In fact, their energy content is superior to coal. But the noxious emissions are less. Environmentalists also argue that since rubber trees take carbon out of the atmosphere, the natural rubber content of tyres is carbon neutral.

That's why the majority of old tyres are used to generate energy. They are burnt in cement kilns, thermal power stations, paper and pulp mills, steel mills and industrial boilers. With the cost of conventional sources of energy on the rise and landfill closed to old tyres, this looks like a great solution.

And yet it is not quite ideal.

For a start, burning tyres in this way does produce emissions, even if these are no worse than from other energy sources. Next, there is no guarantee that demand from the tyre burners can match the supply. And finally, it does not necessarily reduce the huge stockpiles of old tyres.

There are four billion old tyres sitting in dumps. Stack them one top of each other and they would reach to the moon. Prime dumping grounds are South Africa, reckoned to have 800 million, and Mexico, which has over a billion old tyres dumped along its border with the USA.

Residents living close to these dumps regularly have to endure the smell of burning rubber, as the tyres catch fire in the heat. Tyre fires are notoriously hard to extinguish and harmful to the environment. And this is not the only risk: these dumps are also ideal breeding grounds for mosquitoes.

The obvious solution is to burn these tyres in a way that does not produce harmful emissions. The burning of waste to generate power is not new. Many technologies exist, but they all have drawbacks.

Check out this penny share waste-to-energy play

Incineration releases noxious gases and airborne pollutants into the atmosphere, while creating undesirable residuals such as tar. Then there is pyrolysis, which occurs at a slightly higher temperature than incineration. This is more efficient for energy recovery but releases unwanted emissions and generates the same residuals. Plasma arc gasification uses high temperature plasma torches to create a heat in excess of 5,000C. This basically zaps anything into gas in an instant, but this expensive technology consumes a lot of energy.

A better solution could be at hand, though. In the latest issue of Red Hot Penny Shares, I write about a new technology that's currently on trial. It takes shredded waste material, including those old tyres, and subjects it to a temperature in the 1,200C-1,700C range in a controlled oxygen-free environment.

This process could convert up to 80% of the energy content of any organic waste material into saleable synthetic gas, while producing zero emissions. Potential customers are watching the progress of these trials with a keen interest.

If successful, this exciting new technology could be the making ofone classic penny share.

I told Red Hot Penny Shares readers about this stock in the November issue, just out. If you like, I'll send it to you too, together with my other favourite penny share plays right now.

This article is taken from Tom Bulford's free twice-weekly small-cap investment email The Penny Sleuth. Sign up to The Penny Sleuth here.

Information in Penny Sleuth is for general information only and is not intended to be relied upon by individual readers in making (or not making) specific investment decisions. Penny Sleuth is an unregulated product published by MoneyWeek Ltd.

Red Hot Penny Shares is a regulated product issued by MoneyWeek Ltd. Forecasts are not a reliable indicator of future results. Your capital is at risk when you invest in shares, never risk more than you can afford to lose. Penny shares can be volatile, relatively illiquid and hard to trade. There can be a large bid/offer spread so if you need to sell soon after you've bought, you might get less back than you paid. This can make them riskier than other investments. Please seek advice if necessary. 0207 633 3780.

Tom worked as a fund manager in the City of London and in Hong Kong for over 20 years. As a director with Schroder Investment Management International he was responsible for £2 billion of foreign clients' money, and launched what became Argentina's largest mutual fund.

Now working from his home in Oxfordshire, Tom Bulford helps private investors with his premium tipping newsletter, Red Hot Biotech Alert.

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