Solazyme, Bunge in sugar JV

Is this a signal from Bunge that it is ready to be a big-time player in the agri-based industrial chemicals market?

The blog saw this news from Solazyme yesterday about their sugar deal with agribusiness company Bunge. The companies actually started their partnership in August 2010 when Bunge started investing in Solazyme. In May this year, the companies started a 2-year joint development agreement to develop microbe-derived oils using Brazilian sugarcane as feedstock.

Readers have to remember that Solazyme’s algae grows via fermentation by feeding it with sugar (instead of the more challenging photosynthesis method of using carbon dioxide and sunlight). I think this is a good move for Solazyme to lock in their sugar feedstock needs to produce their algae-based triglyceride oils.

Bunge, just like its competitors Cargill and Archer Daniels Midland, has a vast operating sugar and ethanol business in Brazil. But unlike Cargill and ADM, Bunge is not really a well-known player in renewable-based chemicals.

Bunge’s knowledge on logistics and feedstock supply in Brazil as well as its global presence on the agriculture and food markets will be a great asset to Solazyme.Bunge also produces/supply/trades various vegetable oils worldwide as well as consumes them for its own food products.

In this particular deal, the companies will form a joint venture company to produce 100,000 tonnes/year triglyceride oils that will be located at Bunge’s sugarcane mill in Brazil. Construction will start once engineering designs and execution of the final JV agreements have been settled. Startup of the renewable oils plant is expected in 2013.

The triglyceride oils will be used for chemicals application and financing of the project will be split 50/50.

One analyst from Jefferies & Company estimates capital expenditure (capex) for the plant will be around $90-$110m. The plant should consume around 300,000 tonnes/year of sugar, the equivalent of 2m tonnes/year of sugarcane crush, according to Jefferies.

Solazyme, by the way, also reported its second quarter earnings last week — it’s first earnings call after their initial public offering (IPO) in May. Milestones mentioned include:

  • Completed production of over 283,000 liters of in-spec marine diesel fuel, HRF-76, for the U.S. Navy, in fulfillment of the first phase of Solazyme’s Defense Logistic Agency (DLA) contract that calls for production of up to 550,000 liters in two phases. The phase 2 fuel would be produced through the first half of 2012.
  • Distribution expansion for Algenistâ„¢ in Canada.
  • Begin construction of its planned 1,500 tonne/year biorefinery in a recently acquired facility in Peoria, Illinois, (acquired in May) by adding fermentation capacity and performing upgrades. The fermentation portion of this facility is expected to be operational in the second half of 2011, with end-to-end manufacturing expected in the first half of 2012.

Solazyme said it plans to acquire additional capacity and shift from toll manufacturing to in-house production. The company also plans to open a Brazil R&D center or R&D laboratory as well as enter into additional partnerships to scale accordingly. By 2012, Solazyme plans to have a new 10,000 tonne/year facility underway.

Solazyme posted Q2 sales of $7.4m coming from $1.3m of product revenue and $6m of R&D funding, this is up from $4.4m a year ago. The company posted net loss of $17m versus $6.3m.

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