In California and Canada this week, BioAmber (BIOA
Pacific Ethanol (PEIX
reported their Q4 and year-end results, providing between them a
fascinating look at the evolution in the fuels, renewable chemicals,
specialty products and nutrition that make up the advanced
In advanced nutrition
The most spectacular news of the week belonged to TerraVia
(formerly SolaZyme), which landed a 5-year, $200 million
“baseload” offtake deal with Unilever, which provides a huge lift
for investors and validates the economics and performance of the
company’s first commercial plant, which it operates in a Bunge JV
in Moema, Brazil. “Importantly, this agreement was structured at
variable cost-plus pricing,” noted Cowen & Company equity
analyst Jeffrey Osborne, “enabling this deal to be cash flow
positive at the plant level. We expect more deals such as this to
be signed in the coming quarters, potentially offering greater
visibility for TerraVia’s future vol. production.
The company stunned the market also last week with news of new
investors and a re-branding of the company as TerraVia, to
emphasize its decision to focus on nutrition and personal care,
leaving “industrials” to be spun off at a later date. The Unilever
deal, which has been five years or so in the making, which provide
wind in the sails for the company, which hasn’t yet announced a
fate for its Algenist health & beauty products business but
otherwise has clarified its focus going forward around products
such as AlgaVia whole flour and its pure food oils opportunities.
As we tipped in our coverage earlier this week of the name
change, the company’s progress in industrials had stalled the face
of low oil prices, and Q4 revenue was $10.4M compared with $14.5M
in Q4 2014. The company has narrowed its net loss to $26.1M in Q4
vs $35.5M in Q4 2014, but the company had expected to be further
along in industrial by now, and investors had wearied, with stock
prices dropping below $2.
Cowen & Company’s Jeffrey Osborne wrote: “Algae is the next
wave in protein ingredients and Solazyme, through is new TerraVia
branding, is positioning itself to take advantage of higher margin
and more stable applications. The company will predominantly focus
on four main areas; food ingredients through its AlgaVia and
AlgaWises brands, consumer foods through Thrive, specialty through
personal care products with brands like AlgaPur, and through a yet
unannounced animal nutrition product. Consequently, Solazyme will
be de-emphasizing Encapso, fuels, and lubricants, which comprise
the industrial segment of the business.
“We are very constructive on Solazyme’s strategic focus on high
value applications of algae strains. However, given the
de-emphasis on industrials and concentration on food, nutrients,
and specialty ingredients we still see 2016 as a transitional
year. The agreement with Unilever provides a meaningful volume
baseload for its Moema JV facility with Bunge. As capacity and
yields at this facility improve, it could accelerate milestones
and allow for JV revenue to be recognized earlier than
anticipated. While the exact timing of this event is inherently
difficult to time we believe it could serve as a very material
catalyst for shares of Solazyme.”
Over in renewable chemicals
For some time, investors and industry experts have pointed to
succinic acid as a new intermediate for chemicals and an area
where green renewable chemicals can shine. Succinic, say chemical
experts, offers new options to make novel, high-performing
chemicals that are not as easy or as affordable to maker from the
traditional platform chemicals of the petrochemical refinery:
Ethylene, Propylene, Butadiene, Benzene, Xylene, Toluene,
The biobased advantage in this case? Organics acids like succinic
acid contain oxygen, which biomass also contains but petroleum
does not. It’s an extra processing step to oxygenate a
petroleum-based molecule. So, though biomass starts at a
disadvantage in making hydrocarbons, it has an advantage in
organic acids — where biology can give us one-step methods of
making a target molecule from sugar or plant oils.
Leading the succinic charge has been BioAmber, which concluded a
successful IPO and is making and shipping succinic acid out of
Sarnia, Ontario. To date, sales have been at the “emerging company
level”, reaching $1.1M for Q4 , including initial shipments to
PTTMCC Biochem, an important off-taker requiring high purity
succinic acid to make bioplastic. However, more than 100 companies
tested and qualified the bio-succinic acid produced in Sarnia, and
in recent weeks Mitsui & Co. invested $CDN25 million in the
Sarnia joint venture, increasing its equity stake from 30% to 40%
and committing to play a bigger role in commercialization.
Investors have been encouraged by an average selling price for Q4
2015 above the $2,000 / MT guidance, despite low oil prices.
Overall, 2015 revenues were up to $2.2M from $1.5M in 2014, and
net loss for the year narrowed to $37.2M from $48.5M in 2014.
R&D costs have increased to $20.3 million from $15.2 million
in 2015, driven primarily by an increase in expenses related to
the commissioning and start-up of the Sarnia plant.
The company’s first commercial plant opened in August at a cost
of $141.5M, and volumes specified in signed take-or-pay and sales
agreements exceed annual production capacity. Should the company
be able to maintain a $2,000 per ton price and reach nameplate
capacity of 30,000 tons at Sarnia — well, it’s not hard to get out
a calculator and reach $60M in annual revenues. 2016 could well be
a mighty year as the company begins to ramp up production.
In conventional biofuels, Pacific Ethanol
In Oregon, Pacific Ethanol reported Q4 revenues of $376.8 million
for the fourth quarter of 2015, an increase of 47% when compared
to $256.2 million for Q4 2014, and operating income for the Q4
2015 of $0.5 million, compared to $13.6 million for Q4 2014. Net
loss for Q4 was $1.1 million compared to $11.9 million for Q4
2014. Cash and cash equivalents were $52.7 million at December 31,
2015, compared to $62.1 million at December 31, 2014. For 2015 as
a whole, the company reported a net loss of $20.1M compared to
$19.4M for 2014.
Neil Koehler, president and CEO, stated: “In 2015, we made
significant progress in positioning the company for long-term
growth. We completed our acquisition of Aventine in July, more
than doubling our production capacity. Our expanded footprint is
demonstrating operating benefits. The diversification of
geography, technology, feedstocks and products strengthens our
performance across margin cycles and provides a strong platform
Look for less production in Q1 2016.
Koehler notes, “we are moderating production levels to match
supply and demand. While the demand for ethanol continues to grow,
current industry ethanol inventories remain high. We are confident
that the fundamentals of ethanol as a valuable source of octane
and carbon reductions will support continued growth in demand and
improved production margins.”
Cowen & Co’s Jeffrey Osborne wrote: Pacific Ethanol reported
revenue below estimates but beat on earnings. The oversupply theme
of 2015 continues to remain the biggest concern going forward.
While management is hopeful that the end is near due to growing
demand, they are planning for the trend to continue in the near to
mid term by reducing capacity..our implied equity value reflects a
price target of $10.00 per share.”
What do these three companies share, and where do they differ?
The search for volume is a connecting point.
In the case of Pacific Ethanol, they’re producing at scale but
moderating production — as we expect other first-gen producers may
do — to shore up the fuel price. Demand has grown for ethanol with
rising vehicle miles and small upticks in Renewable Fuel Standard
volumes and growing exports, but not as fast as supply has grown.
Bottom line, lots of established customers, and more of a case of
right-sizing the production for the margins.
In the case of BioAmber, it’s a matter up ramp-up on production
without sacrificing price — as the $2000 per metric ton price is a
good sign but the volumes have been scanty to date and the company
is now at commercial-scale and poised to grow, fast. So, lots of
potential customers — a matter of scaling up production at
In the case of TerraVia, a more complex task. There’s a focusing
going on in the customer base at the same time as the company is
One of the more interesting points of comparison, though — is the
contrast between the search for focus and the search for
diversity. BioAmber finds itself keeping a focus on its single
molecule and process, and diversifying the customer and investor
base. Making its molecule multi-functional, that’s a key — new
things you can do with succinic acid, in short. TerraVia, is also
diversifying investors and customers, but continues to aim at
diversifying its range of molecules. In short, new applications
through new oils. Yet, a single technology, in this case algae
Pacific Ethanol, that’s the outlier here.
It’s diversifying in all directions, as are all conventional, or
“first generation” companies. They’re acquired Aventine to achieve
economies of scale; they’re diversifying the customer base through
exports. They’re diversifying the product line — adding corn oil
extraction which has opened up new customers for them. In
partnership with Edeniq, they’ve added cellulosic production which
they get out of the cellulosic material in the corn kernel. And,
they remain heavily invested in the nutrition space, through the
animal protein business of the dried distillers grains (DDGs).
Some of their peers have also explored adding CO2 liquefaction to
turn that CO2 gas into an asset. Call it a gasset. And, others in
the first gen space have experimented with renewable natural gas
and sorghum as a feedstock to qualify for advanced biofuels RINs.
Diversification vs focus
Bottom line — all pursuing growth but PEIX is approaching through
diversification of feedstocks and technology, as opposed to
focusing the technology and diversifying the customer base through
Experts differ on the merits of focus vs diversification almost
as much as they differ on whether companies should be organized
around customer sets, product lines, or regions. It’s the age-old
debate, and it’s now invading the renewables space.
Diversification means risk-spreading, and that’s a good thing.
Focus means putting resources onto the most important
opportunities, and that’s a good thing.
Here in Digestville, we see diversification as a stronger
strategy — though resources are hard to come by and the investors
who provide them are known to have epic issues with
attention-deficit disorder when the results come in more slowly
than expected, and costs rise.
The reason is this. Aside from a handful of experts, some
profiled recently in The Big
Short, who correctly called the timing on the Great
Recession of 2008-10. Who foresaw the problems with weapons of
mass destruction repiuted to be in Iraq? Who called the timing
well on the rise of fracking, or the 2014-16 crash in commodity
We live in a world of global macro — macroeconomic events that
shift the microeconomic landscape that renewables compete in, like
seismic waves rolling through the San Andreas Fault. The world of
$80 oil was expected to begat cellulosic ethanol — instead, we saw
driving miles drop, fracking take off, and interest in electrics
soaring. Meanwhile, fuels producers began to chase chemicals,
which welcomed new sources in a world of high commodity prices.
But now, chemicals find challenges and though fuels protected by
the Renewable Fuel Standard are doing fine so long as there is not
over-production — many technology developers are targeting
protein, and nutrition as a whole.
The Summer of Fish Meal
It’ll be the summer
of Fish Meal, perhaps. But where will the next set of trends
take us? Hard to say, because we live in a macro world — to some
extent influenced by global interest rate policy, or social
factors that influence cartels such as OPEC.
How do renewables companies find strength through diversification
when the resources that diversity demands can drain a treasury.
The secret lies in partnership based on the search for an
alternative to economic, social or climate pain.
No pain, no gain
Renewables, they’re a therapeutic for what ails us, and the
natural first customer for an experimental therapeutic is the
patient at the greatest risk, feeling the greatest pain. It’s pain
that drives companies to complete tasks — groups driven by
perceived opportunity have been known to be fickle — dirfiting to
the next glowing target like moths to a flame.
Pain focuses, clarifies, and makes change inevitable and drives
us to the finish line. If there’s pain the sector, there’s no gain
Jim Lane is editor and
publisher of Biofuels Digest where this
was originally published.
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