In an on-time arrival, Solazyme starts up at 500,000 liter scale in Clinton, Iowa.
In California, Solazyme (SZYM) announced that commercial operations have commenced at both Archer Daniels Midland Company’s (ADM) Clinton, Iowa facility, and the downstream companion facility operated by American Natural Products in Galva, Iowa.
Highlighting the flexibility of Solazyme’s technology platform, Solazyme, ADM and ANP have successfully manufactured three distinct and unique tailored oil products at the facilities, and products are currently being sold and distributed in both the U.S. and Brazil.
Volumes shipped to Brazil are being utilized for market development activity in advance of the opening of the Solazyme Bunge (BG) Renewable Oils Moema facility. As stated previously, production at the ADM and ANP facilities is expected to ramp to a nameplate capacity of 20,000 MT/yr within 12-18 months, with targeted potential expansion to 100,000 MT/yr in subsequent years.
The company noted, in a release, that “truckloads of product are now shipping from the Iowa operations for use in applications including lubricants, metalworking and home and personal care. These shipments are being made pursuant to multiple supply agreements as well as spot purchases, and include reorders.”
Analyst reaction: The Bull perspective
Rob Stone and James Medvedeff at Cowen & Company write: “SZYM hit a major milestone with the first commercial volume deliveries from the Clinton, IA ADM plant and ANP downstream facility in Galva. Three different products are being sold via multiple supply agreements, spot purchases and reorders. Startup problems have hampered many peers, so this news should be a significant trigger. The Moema, Brazil plant is also expected to start this quarter.
“Applications for the three tailored oil products already shipping include lubricants, metalworking, and home and personal care. Moema Startup and More Customer/Product News Could Also Be Triggers
“[At Moema, Brazil] Startup was pushed out from the original Q4:13 target to make enhancements that will enable faster switching between food and industrial oils, more automation, and environmental controls to permit earlier work with new strains. Getting the second large-scale facility on-line this quarter should be another big trigger.”
Raymond James analyst Pavel Molchanov adds: “Positive cash flow is realistic in 2015. While the ramp-up of production will certainly not be linear – as is always the case in industrial biotech – we anticipate utilization rising to 50% in 4Q14. This translates into a four-fold increase in total revenue from 3Q13 to year-end 2014, with product sales jumping by an even larger amount (7x). To be clear, Solazyme can get to positive cash flow at the corporate level (in 2015) even before full utilization at either Clinton or Moema.”
Analyst reaction: The Bear perspective
Piper Jaffray’s Mike Ritzenthaler noted: “We maintain our Underweight rating and $4 price target on shares of SZYM following last night’s press release that both Clinton and Galva are producing commercial oil shipments. The market is clearly much more enthusiastic than we are about the news. Investors, it would seem, believe that operations have been totally de-risked now that commercial shipments have started. We do not share that opinion, however, and our continued caution is rooted in history and practical experience, our lack of comfort with the company’s stated production economics, and the dilutive nature of Clinton production to shareholders based on the tolling arrangement with ADM and associated stock payments. The fact that SZYM is a story stock is not lost on us, but even with lower estimates, perfection is priced in.”
The ADM agreement
In November 2012, Solazyme and ADM signed a series of strategic collaboration, manufacturing and market development agreements for production at the Clinton, Iowa plant. At the time, the companies said that Solazyme would initially target the production of 20,000 metric tons of oil in 2014, with an aim to increase production to 100,000 metric tons in subsequent years. Commercial production was expected to begin in early 2014, the companies said at the time a prediction which proved right on the mark.
ADM’s wet mill, which is adjacent to the fermentation plant, is initially providing dextrose for the fermentation; and steam and power is being delivered from ADM’s cogeneration facility that is partially fired with renewable biomass.
Scale of operations
Back in December 2012, Solazyme completed multiple initial fermentations at the Clinton plant, conducted in approximately 500,000-liter vessels, or about four times the scale of the vessels in Solazyme’s Peoria facility. The scale achieved at ADM’s Clinton facility is comparable to the fermentation equipment currently under construction at the Solazyme Bunge Renewable Oils facility in Brazil.
The Bunge facility, initially expected to commence operations in Q4 2013, slid its scheduled start-up to Q1 2014, prompting some volatility in Solazyme’s stock late last year.
Nike vs Ford
If you’re under 30, or follow shoes you are probably familiar with NIKEiD – allowing you to “personalize your performance, fine-tune your fit, and represent your style”. You get “your shoes, your style, made exactly the way you want to match your performance and style demands. You can “fine-tune your traction” as well as customize the look and feel.
It’s part of what drives Nike footwear tailored to your needs, whether you choose from one of their hundreds of off-the-rak styles or go all-in on a NIKEiD tailored shoe.
At the other end of the spectrum was Henry Ford’s Model T, of which is was said “you can have it in any color you like, as long as that color is black.”
To date, the business of oils has been more on the Model T type what’s in the barrel or plant is what’s in the barrel or plant. Generations of chemists and engineers have learned to work with the properties of given animal, plant or fossil oils. But here comes Solazyme with a “tailored oil” approach. Applications abound.
Reaction from Solazyme
“This is a critical milestone for Solazyme’s large scale commercial manufacturing capabilities. The Solazyme, ADM and ANP teams have done an excellent job bringing up commercial operations at the Iowa facilities with Solazyme’s TailoredTM oil production technology. We have already successfully produced three TailoredTM oil products at scale and have begun selling these products into the North American marketplace,” said Jonathan Wolfson, Solazyme’s CEO.
“Consistent with our stated plans, we are focused initially on ensuring consistent and reliable operations as we build customer trust. While we acknowledge that it is still early days, we look forward to the opportunity to expand our production volume and the slate of oil products available.”
The Bottom Line
As Cowen’s analysts note, “Startup problems have hampered many peers, so this news should be a significant trigger.” All eyes will now be on Moema. If that goes forward as well or better: well, as we opined a few years back in the case of Solayzyme: They Might Be Giants.