Sustainable chemicals supplier Leaf Resources (ASX: LER) could add another $38 million in revenue through an expansion of its manufacturing capacity following successful product trials and a maiden purchase order.
Since January, the company has been involved in trials to confirm the viability of pine stumps as a feedstock to its proprietary and patent-pending pine chemical production process.
Reported to contain 20% more chemicals than logs, pine stumps have the potential to dramatically increase the availability of Leaf’s wood supply, giving value to what has traditionally been considered a waste product after forest clearing.
Following the stump trials, Leaf logged the first purchase order for its natural terpene products from Japanese company Yasuhara Chemical Co.
Yasuhara’s order came in after testing and analysis of Leaf’s wood pellet samples during June which confirmed the products meets required specifications and contain zero traces of foreign or unnatural chemicals or residues.
Double the output
Leaf now plans to double the output of natural rosin and terpene products from its newly-built natural pine chemical extraction plant in Queensland from 8,000 tonnes per annum to 16,000tpa.
Located at Apple Tree Creek near Bundaberg, the state-of-the-art facility was completed during the June quarter and acknowledges Leaf as the first pine chemicals manufacturer in the country.
It has been termed a “catalyst” for the commercialisation of Leaf’s technology and marks a “huge step forward to growing a sustainable bioeconomy in the transition to a net zero [emissions] world”.
New production lines
Leaf has confirmed it will fast-track the $4 million construction of two new wood pellet production lines to accommodate the planned expansion.
The lines will have an expected payback period of six months and generate an estimated $8 million in additional annual revenue.
The increase in rosin and terpene production in combination with wood pelletisation is expected to increase Leaf’s annual revenue potential by 123% from $31.2 million to $69.5 million once the new plant is operating at full capacity.
Leaf’s production expansion will be funded by a recent $8 million capital raising to new and existing institutional and sophisticated investors.
Funds were raised through the issue of 80 million new and fully-paid ordinary shares at $0.10 each, representing a 9.1% discount on Leaf’s last traded price and a 13.5% discount on the 15-day volume weighted average price of $0.116.
Sequoia Corporate Finance acted as lead manager and bookrunner.