Sustainable and environmentally-friendly business models are proving to be more than a match for pollutive petrochemical incumbents, as “green chemistry” company Leaf Resources (ASX: LER) published an independent feasibility study into its proposed Malaysian biorefinery earlier today.
The study was conducted by Aurecon and substantiates the company’s view that it can generate a profitable business model on the back of a revolutionary process that converts plant biomass into fermentable sugars.
Leaf’s Glycell technology converts plant biomass into high-value industrial sugars and other low carbon alternatives instead of using petroleum-based chemicals and plastics. The process is relatively low-cost and testing to date has been shown to achieve yields that are 25% higher than rival technologies.
Leaf says it has proved up a process with “strong economics” that can harness plant waste from palm sugar production, and use it as feedstock to produce industrial sugars, lignin and refined glycerol for use in the production of a range of everyday items such as plastics, paint, cosmetics and lubricants.
The process effectively recycles abandoned material and creates a viable alternative to the use of petrochemicals, which are widely accepted as being pollutive and inefficient.
Tallying up the cost
Aurecon has estimated that Leaf will need to spend around US$146 million to get its biorefinery up and running and could need as much as US$178 million if including all utilities and other contingency costs.
On the upside, the feasibility study concluded that Leaf’s project would generate annual revenues in the first full year of operation of approximately US$109 million and an EBITDA of approximately US$47 million.
The modelling established a pre-tax net present value (NPV) at 20 years of approximately US$193 million, with an internal rate of return of approximately 23% pre-tax.
In its upside case scenario, Aurecon estimates Leaf could generate an NPV of US$438 million with an internal rate of return (IRR) of 58%.
Leaf has already applied for a complete tax exemption for 15 years under a ‘Less Developed Area’ incentives scheme provided by the Malaysian Investment and Development Authority (MIDA) which could further reduce the financial burden of the project.
Project funding challenge
Based on Leaf’s proposed biorefining facility to be developed at Segamat in the southern Malaysian state of Johor, the published feasibility study paves the way for the company to obtain project funding, which remains outstanding.
However, Leaf CEO Ken Richards said today’s published feasibility study strengthens the company’s position significantly.
The study also marks an important milestone for Leaf as the company makes gradual progress in advancing its biorefinery project including other key caveats such as final design as well as regulatory and board approvals.
As it stands, Leaf has already secured an option on a site in Segamat, Johor, where it plans to establish its proposed biorefinery facility, with the site beating out an alternative proposal in the southeast of the United States, using mixed southern hardwood as the primary feedstock.
Following the publication of its feasibility study, Leaf will now move to corroborate its results including conducting further “integrated demonstration trials in Holland” commencing later this month. Leaf hopes these tests will further support the predicted yields and product quality used in the feasibility study.
The green chemistry company confirmed that it is now moving forward on next stages of execution with phase 2 of the Integrated Development Study now underway in Delft, Holland.
“The Company will now proceed with confidence to complete Phase 2 (currently underway) and phase 3 of the Integrated Demonstration Study in Delft, Holland, which will involve approximately 1,000 hours of run time on the Glycell process and will provide important additional data for the final FEL3 feasibility study,” said Ken Richards, CEO of Leaf Resources.
As part of ongoing testing and project development, Leaf has said it will likely need to find between $3-$5 million to fund ongoing FEL3 studies which it intends to obtain from a variety of sources including incorporating the funding requirement into an EPC package or making the payment from future project funding.
Leaf is also considering utilising trade facilities as part of a funding package, receiving either private or public-sector support from third parties, and as a last resort, conducting a capital raising.
“We have very positive early indications of support and I’m confident the Aurecon feasibility analysis of the Segamat site location will considerably strengthen our position,” said Mr Richards.
Following today’s news Leaf Resources shares were down 8% and trading $0.066 per share.