Leaf Resources, Claeris form JV to pursue Americas, Asia opportunities

July 25, 2016 | Jim Lane

BD TS 072616 Leaf sm Australia’s Leaf Resources and US-based project developer Claeris, LLC have established a joint venture entity, Leaf Development, for the purpose of developing up to five renewable chemical projects that utilize Leaf Resources’ proprietary Glycell process.

Leaf CEO Ken Richards told The Digest, “they have the right to five sites with some exclusions for our existing JVs. But for those five projects we’ve thrown our hat in the ring with Claeris; we’re outsourcing the project development to them.”

Who are Claeris?

In essence, it’s the development team of David Black and Mike Slaney who, after selling ASAlliances’s portfolio of ethanol plants to VeraSun for $750 million, have primarily been known as a project side of Gevo Development, which owns and operates the Gevo Luverne plant employing Gevo technology, and was situated to take that technology farther with Redfield — slowed by Gevo’s challenges in stabilizing its technology and resulting financial constraints.

There are similar features in the Gevo deal to Leaf Development’s formation. One key difference is that Leaf Resources’ core technology is focused on creating a low-cost intermediate sugar, which can then be fermented into a wide range of high-value specialty chemicals. In Gevo’s case, it is using the existing stream of corn sugars, and is the back-end molecule technology, in this case producing isobutanol.

Both Gevo and Leaf also have secondary products — respectively, distiller’s grains and glycerol.

Michael Slaney, Managing Partner of Claeris, commented: “We have reviewed many emerging technologies in the renewable chemical sector, but we have not seen anything quite as revolutionary and potentially profitable as Leaf’s Glycell process. After a detailed technical and financial review of the Glycell technology, we are convinced that Leaf has the best process on which to base a platform company of renewable chemical projects. We are confident that we can secure the key project partners necessary to quickly develop our first project.”

Why Leaf again?

Here’s the core Leaf claim: “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.”

A feedstock capacity of 100,000 bone dry tonnes per annum makes economic and technical sense, on a project basis, adds Leaf.

Why this deal for Leaf?

Leaf’s CEO Ken Richards cited four factors:

Accessing global-scale projects with US partners, as a small Australian-based company; speed to market; adding expertise to optimize projects and additional feedstock markets such as the palm empty fruit bunch supply in Southeast Asia.

Operations of the Joint Venture

The model is Develop, License, and Own model. Meanwhile, Claeris will be engaged to manage Leaf Development on a day-to-day basis and carry the responsibility for all aspects of project development, including:

▪ Project site sourcing

▪ Feedstock supply arrangements

▪ Product offtake arrangements

▪ Regulatory permitting

▪ Engineering, procurement, and construction tenders and award

▪ Project capital/funding

▪ Overall project and delivery management

Leaf Resources will provide a license for its Glycell process for the five projects and technical expertise as required. The agreements, which are subject to performance hurdles for both Claeris and Leaf Resources, allow for Leaf Resources to own up to 75% of Leaf Development.

What about Leaf’s existing deals with ZeaChem and Monaghan Mushrooms?

Leaf Resources’ previously announced joint ventures and MOUs with Monaghan Mushrooms, ZeaChem, and projects related to rice husks are excluded from the Claeris arrangement. Leaf Resources will continue to develop these pre-existing partnerships.

And, as CEO Richards told The Digest, “we haven’t had to build a demonstration plant, or run it; the ZeaChem plant is essentially the core of our plant and their design is transferrable, and they bring a pile of engineering skills as well. Plus, we’ve excluded our JV with Zeachem from this transaction.”

Funding

Leaf Resources will provide ongoing funding for Leaf Development in return for increased equity ownership. Initial funding of $750K will be met from Leaf Resources’ internal sources. Worth noting that Leaf raised $947K in a share placement last month on the Australian exchange, at a $0.10 per share price. The company also expects that it will receive a total of over $650,000 from Joint Venture research fees, the Export Market Development Grant program and the R & D Tax Rebate in the near future.

Claeris will invest $500K in Leaf Resources at an issue price of AUD$0.125 per share and will also be issued approximately 1,560,000 options in Leaf Resources at an exercise price of $0.1375. The options have a five-year term, with one-third vesting each year after issue.

The Bottom Line

The trend recently for companies in this space has been to conserve cash by focusing on the development of core technology and partnering for everything else. Leaf’s been an example to all in this respect — partnering with ZeaChem on engineering and leveraging the ZeaChem demonstration plant for it’s own scale-up, recognizing that what the company has to do is make its technology work in a ZeaChem design.

Now, Leaf’s taken this approach on project development — after a period where they had invested in a small business development presence in the North American market, they’ve concluded that a JV with an established project development team offers more speed and broader access to project development opportunities.

It’s not only the route that Gevo took, it’s the route that Inbicon took as well. Other companies in the cellulosic sugars field have tended to focus on a first commercial plant with their own internal development team — Renmatix and Sweetwater Energy come to mind.

But it is not really a case of Sweetwater vs Leaf vs Renmatix.

It’s really all of these companies vs the inertia we’ve seen in the sector — the Billion Ton report is out there telling us that the feedstock is available at affordable rates. Now, it is a matter of chasing those resources into projects.

One note we’ll make. With natural gas and oil prices so low — and no Renewable Chemical Standard in sight — it’s going to be tough sledding (and is) for companies to bring forward drop-in renewable chemicals at this time, where the only differentiator is price. And bringing forward novel renewable chemicals will require time and expertise in developing applications, relationships with formulators and so on.

Meanwhile, cellulosic ethanol gallons are worth well in excess of $4.00 each because of the way that carbon credits are stacking up — far in excess of the value of gasoline or conventional ethanol.