Bunge invests in Solazyme: ties between Brazilian sugarcane, US advanced biofuels deepen

August 26, 2010 |

In California, Solazyme announced that Bunge has joined its Series D round as a strategic investor.

The announcement comes on the heels of Solazyme’s Navy jet fuel delivery announcement and the recent announcement of $52 million in new capital from the Series D round, which included the announcement of strategic investors Chevron, and San-Ei Gen. The Bunge investment adds to the more than $150 million invested in the company to date.

According to Solazyme, the strategic investment represents a foundational step for the two companies to collaborate at critical portions of a new value chain enabled by Solazyme’s sugar to oil technology platform.  Bunge is one of the world’s largest originators and distributors of vegetable oils and one of the largest sugarcane processing companies in Brazil.

Bunge’s and Solazyme’s take

“Solazyme’s technology sits right at the intersection of Bunge’s substantial access to sugarcane and its key position in the worldwide natural oils markets.  This, along with their operational and logistical capabilities, makes Bunge an ideal strategic investor,” said Jonathan Wolfson, CEO and co-founder of Solazyme.

“Solazyme’s renewable oil technology sits strategically between our sugar assets and our vegetable oils market presence and is a natural complement to Bunge’s businesses.  We are excited by the potential to join these capabilities for a variety of bulk and high-value end markets which can add flexibility and margin potential to our core businesses,” says Ben Pearcy, Managing Director, Sugar & Bioenergy and Chief Development Officer, Bunge Limited.

Braemer Energy Ventures and Morgan Stanley led Solazyme’s Series D round, with all major existing investors from previous rounds participating, including Lightspeed Venture Partners, The Roda Group, Harris and Harris Group, VantagePoint Venture Partners and Zygote Ventures. Existing strategic investors CTTV Investments LLC, the venture capital arm of Chevron Technology Ventures LLC, and San-Ei Gen, a major Japanese manufacturer and distributor of food ingredients, also participated.

More on Bunge

In April, Bunge (BG.N) announced that it will invest a further $750 million in its Brazilian sugar cane operations, specifically in this case to fund expansion of its three largest mills.

The firm said that the expansion was a part of a $2.8 billion plan in 2010-12 to expand Bunge’s sugarcane and ethanol interests, following the firm’s $1.5 billion acquisition of Moema.

The Moema deal earlier this year made Bunge the third-largest ethanol producer in Brazil, following only Cosan (CZZ) and Louis Dreyfus. Bunge execs said that they have set a target of 30 million tons in crushing capacity by 2012 and will raise capacity to 20 million tones by June.

At the time, Bunge agreed to acquire Usina Moema Participacoes for $416 million in stock and $480 million in assumed debt, and said it would decide within 90 days whether to acquire the entire Moema sugar and ethanol mill portfolio. The Moema portfolio, as a whole, has a capacity of 815,000-990,000 tons of sugar and 190-220 Mgy of ethanol, depending on the production configuration.

Last May, Reuters reported that Bunge was promoting a $100 million investment fund that would be dedicated to agricultural land investments in Brazil. Bunge’s management said that the fund would invest in multiple types of crops, but would focus on sugarcane production, noting that domestic demand for Brazilian ethanol has been growing at a rapid pace. Bunge CFO  Jacqualyn Fouse told Reuters that “Sugar is preferable to corn for ethanol production. We think long term … the future for sugar-based ethanol is very good.”

Last December, Amyris Brasil signed a partnership LOI with Bunge to develop renewable specialty chemicals and fuels from sugarcane. The products will be distributed by Amyris. The letter of intent agreements with Bunge, Cosan and Guarani should cover Amyris’s planned production through 2013-2014.

Back in 2008, Bunge began to signal its intent to expand aggressively in ethanol. The company  acquired three plants in mid-2008 for $639 million and bought a 60 percent stake in Monteverde Agroenergetica mill, which was under construction at the time

In late 2008,  the Japanese trading company Itochu and Bunge announced an agreement to increase their joint investment in Brazil to $800 million, as they offered details about a new ethanol project in the northern province of Tocantins. Plant capacity was projected at 1.4 million tonnes of sugar cane, and will produce sugar, electricity from bagasse, and ethanol. Bunge owns an 80 percent stake in the venture.

US And The EU Dance With Brazil

As Digest columnist Will Thurmond wrote in May, in “Brazil: The Bossa Nova of Biofuels“:

“Another wave of next- generation renewable drop-in fuel companies Amyris, LS9, Gevo and Dupont are also investing in and partnering with Brazil’s sugarcane fermentation biorefineries. Why? Because their emerging technologies from cellulosic microbes (yeast, algae, fungus and bacteria) can use the same ethanol fermentation facilities in the US corn belt and in Brazil’s sugarcane belt to produce bio-crude, green diesel, petrol and biojet.

“The simplicity is astounding. Here’s the big idea.  Take an existing, stranded ethanol factory or conglomerate. Buy it for a substantial discount. Start with cheap sugar. Drop in a new Amyris, LS9, Gevo, or Cobalt microbe/ bug in the same fermentation vat and what do you get? An integrated biorefinery that can use cheap, sustainable sugars to produce renewable diesel, aviation fuel, and biobutanol – fuels that are compatible with existing petroleum pipelines, storage, petrol stations, and vehicle engines today.

“In the near future, these fermentation-based biorefineries will be able to convert multiple inputs from cellulosic sugars- bagasse, switchgrass, wood chips, municipal solid waste, and glycerin – into a diverse set of outputs, including renewable diesel, aviation fuel, bio- crude oil, biochemicals and biopolymers with significant GHG reductions and carbon emissions compared to petrochemical hydrocarbons.

The Digest’s Take

As Will Thurmond points out, the Solazyme deal is part of a sweeping trend in which US-based advanced biofuels technologies are partnering with Brazilian companies who provide access to cheap sugar and established markets for bio-based fuels.

While Amyris uses modified yeast, and LS9 uses modified e.coli as platforms, Solazyme uses optimized strains of heterotrophic algae, and for this reason the Bunge investment represents something quite new in US-Brazilian tie-ups – the first strategic investment that brings together powerful interests in sugarcane, and a powerful algal technology.

What’s common to the Amyris, LS9 and Solazyme is that they have a way to take low-cost sugars – which trade in the 12-cent per pound range when prices are high – and sugars are available as low as 6 cents per pound in the down cycle – and use them as a feedstock to produce renewable oils, which retail in the $.30 to $.40 cent per pound range, and with less risk than growing oilseeds in open fields where they are exposed to the elements.

In Bunge’s case – the company is as deep in oil seeds as in sugarcane, with extensive assets both in Brazil and Argentina, as well as a biodiesel portfolio and a strategic investment position in Renewable Energy Group in the US, which is consolidating US biodiesel holdings. It’s depth in oil trading gives it a means of leveraging Solazyme’s output in the long-term.

The key: Bunge’s access to low-cost sugar, which is at the heart of the deal, is based in its assets in Brazil. A maxim in the business, process the feedstock as close to its origin as you can, then ship the product – rather than the other way around. When you see Solazyme’s technology added-on in Bunge’s Brazilian assets, then you know that Solazyme is reaching cost and risk parity with the traditional oilseed growing business.

It would be something new in bioenergy – the production of power, oils, ethanol and sugar in an integrated facility. We’ve written many times about the power of integration – as recently as this week in our profile of advances at LanzaTech.

Does this model work? Time will tell. Does it have promise? As Sarah Palin would say, you betcha.

And if, and when it goes forward from a strategic investment to operational partnership: one thing is sure with Bunge:  if it goes that far, it will go big, and in a big hurry.

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