Leaf Resources expands equity stake in ZeaChem, signs JV to develop celluosic sugars project in US

February 29, 2016 |

Leaf-ZeaChem-030116-smIn Australia, Leaf Resources and ZeaChem signed a joint venture agreement to establish a Glycell based project in the USA. The new agreenent advances the relationship between the two companies from an October 2014 Collaboration Agreement. That previous agreement covered ZeaChem’s evaluation of the Leaf Glycell process for the production of fermentable sugars at ZeaChem’s demonstration plant at Boardman, Oregon.  The trials used poplar as a feedstock.

Leaf’s cellulosic sugars

Leaf has a proprietary Glycell process to break down plant biomass efficiently while ZeaChem have a pathways to take the sugars produced by the Glycell process through to renewable chemicals.

The Glycell Process is an innovative technology that uses a low cost, recyclable, biodegradable reagent glycerol, in a simple process that breaks down plant biomass into lignin, cellulose and hemicellulose at low temperature and pressure. The cellulose is then converted to cellulosic sugars through enzymatic hydrolysis and the lignin, hemicellulose and glycerol become valuable co-products.

The Glycell process can produce cellulosic sugars at under $50 per tonne when co-products are included. This compares with $220 per tonne for sugars produced from the conversion of corn starch, the cheapest alternative and $280 per tonne for raw sugar.

ZeaChem’s renewable chemicals

ZeaChem has developed several biorefining product lines that enable it to produce a range of fuels and bio-chemicals. Its two carbon platform (C2) uses a combination of fermentation and conventional chemical synthesis pathways to produce ethanol, acetic acid, acetate esters, ethylene, and ethylene derivatives. Its three carbon platform (C3) changes the micro-organism used for fermentation, resulting in three carbon products such as propionic acid, propionate esters, propanol, propylene, and propylene derivatives.

ZeaChem said it “is actively collaborating with 3rd parties on other biorefining product lines that enable it to produce additional biochemicals and fuels.” For example, last September ZeaChem announced a Product Development and Supply Memorandum of Understanding with Pure Cultures, a producer of high-quality probiotic products. The agreement will accelerate the product development of Pure Cultures’ direct fed microbials (DFM). ZeaChem and Pure Cultures are also developing a Supply Agreement for the contract manufacturing of direct fed microbials at ZeaChem’s facilities in Boardman, Oregon.

The financial deal

As a result of this agreement, Leaf Resources will invest $392,000 to increase its stake in ZeaChem to 13%, with the potential to increase to 45%, on a fully diluted basis, in the future. Leaf will also receive 5 year warrants, which if fully exercised would increase Leaf Resources’ ownership in ZeaChem to 30%, . Also, Leaf has also secured an option to purchase an additional 18% of shares in ZeaChem from an existing ZeaChem shareholder which is exercisable by Leaf before 31 March 2016. If all these options and warrants are exercised, Leaf Resources would have a 45% equity stake, on a fully diluted basis, in ZeaChem based on the current capital structure.

Project Location

Initially, the JV will be focused on the south east region of the USA where there are plentiful supplies of hardwood and opportunities with regional authorities looking for ways to stimulate regional employment.

Leaf Resources and ZeaChem can still pursue individual opportunities, should they choose.

Under the joint venture agreement, Leaf Resources retains full rights to all Glycell intellectual property and any associated royalties and upfront payments and ZeaChem retains full rights to its intellectual property and any associated royalties and upfront payments.

The rationale

In addition, ZeaChem’s considerable engineering experience reduces the technical risk for any project. The ability to offer this comprehensive package presents a more compelling case to potential partners.

The agreement recognises the mutual benefits of combining ZeaChem’s biorefinery engineering experience and renewable chemical technology, with Leaf Resources’ proprietary Glycell process, and this combination should increase the opportunities available to Leaf Resources for the commercialisation of the Glycell process.

Although the Glycell process requires additional front end equipment to precondition the biomass, the core equipment for ZeaChem’s plant is essentially the same as for a Glycell plant. Consequently, ZeaChem’s engineering, operation and maintenance experience is directly transferable to Leaf’s Glycell process.

It is planned that the demonstration plant will serve as an expansion arm for one of ZeaChem’s first commercial plants for specialty bio-chemicals and fuel production.

The ZeaChem backstory

ZeaChem is a biorefinery company based in Lakewood, Colorado and has operated its 10 ton per day demonstration scale biorefinery in Boardman, Oregon since December 2012. The plant has provided over 4,600 hours of technical performance data that is being used to design ZeaChem’s portfolio of commercial plants.  ZeaChem is currently conducting engineering for the conversion of its demonstration plant in Boardman, Oregon into a commercial production facility for advanced/cellulosic ethanol and specialty chemicals.  To help address the cost of debt on a Boardman commercial project, ZeaChem secured a USDA Loan Guarantee Conditional Commitment pursuant to the 9003 Advanced Biorefinery Assistance Program.

ZeaChem’s demonstration plant is a hybrid that features both gasification and fermentation elements. The mechanical completion of the core of its demonstration-scale project was a highlight of 2012 — completed on budget, on time, and won the 2012 Biofuels Digest’s 2012 Best Project (demonstration) Award.

ZeaChem has a strong list of potential projects at various stages of development, the companies said in a statement. The projects use a variety of feedstocks including forestry residues, agricultural products and residues, industrial co-product streams, etc. and will produce specialty chemicals and ethanol. Two of these projects have entered the engineering design phase.

The Leaf Resources backstory

You can learn the essentials in our 2015 8-Slide Guide, here.

Comments from the stakeholders

Leaf Resources’ Managing Director Mr Ken Richards commented: “We have developed a good relationship with ZeaChem over some 15 months now and the opportunity to become a significant shareholder was compelling. We operate in a world market and to have a close partner in the USA will bring Leaf Resources considerable benefits as it seeks to penetrate that market.”

Tim Eggeman, President and CEO of ZeaChem, commented: “We have been impressed by the Glycell process and its ability to operate extremely effectively and produce clean sugars. The recent addition of the glycerol recovery step has added to an already strong process. We welcome Leaf Resources as a significant shareholder and look forward to working closely with them to further the biorefinery industry around the world. Leaf Resources has a significant technology, high quality staff and we look forward to a productive partnership.”

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