The receipt of its first sales order, plus ongoing customer demand for natural pine chemicals and a decision to increase production capacity has underpinned a strong quarter for sustainable chemicals supplier Leaf Resources (ASX: LER).
Last month, the company confirmed it would proceed with plans to double the operational capacity at its newly-built natural pine chemical extraction plant at Apple Tree Creek in Queensland to 16,000 tonnes per annum.
It also identified an opportunity to use the low-value wood chip waste product as a feedstock in the manufacture of high value wood pellets using two new production lines being incorporated into the plant.
The move has been labelled a “logical progression” given the large quantities of wood chips already produced.
The $4 million pellet production lines are expected to have a payback period of six months and generate an additional $8 million in annual revenue at the plant’s new operational capacity.
An increase in rosin and terpene production in combination with wood pelletisation will further increase annual revenue potential to approximately $69.5 million once the plant reaches maximum capacity.
Leaf confirmed it is on track for an 8,000tpa production run-rate despite a brief slow down over four weeks due to recent COVID-19 restrictions.
Production ramp up will continue in the September quarter and run parallel with the company’s expansion activities.
Low-cost, low-carbon alternative
Wood pellets (biomass) are a low-cost, low-carbon alternative to coal and are a renewable source of energy.
Unlike fossil fuels such as coal, they are capable of reducing toxic emissions as they do not release arsenic, carbon monoxide, sulphur or carbon dioxide when used for heat and energy.
Wood-based bioenergy is part of an “all-in renewables strategy” as recognised by the Intergovernmental Panel on Climate Change to reduce carbon emissions and limit dependence on fossil fuels.
Increased global awareness about renewable energy sources and reduction in greenhouse gas emissions in power generation are anticipated to propel the power generation segment of the global wood pellet market in the near future.
Research shows the market is expected to increase at a compound annual growth rate of 11% per annum between 2020 to 2030.
First purchase order
Leaf received the first purchase order for its natural terpene product during the quarter from Japan’s Yasuhara Chemical Co and is continuing to increase marketing activities as production scales up.
The company is experiencing strong customer interest for natural rosin and terpenes which contain no residues or unnatural chemicals, as confirmed by Yasuhara after testing and analysis of Leaf’s wood pellet samples.
Contract sizes for various customers range from 2,000t up to 5,000t.
During the period Leaf incurred expenditure of $766,000 in relation to administrative, corporate and staff costs.
A total of $307,000 was spent on operating costs and $2.02 million on property, plant and equipment in relation to the Apple Tree Creek site.
The company also received $2 million under a secured finance facility with Altor Capital.