Solazyme Briefly Hits 2-Month High After Production Commences In Brazil
After the company announced that it had begun commercial-scale production at its Brazilian plant, Solazyme’s share price closed up 7.2% yesterday, but is down 2% as of the first half-hour of regular trading today
Solazyme, Inc. (SZYM) officially began commercial-scale production of renewable oils extracted from algae at a joint venture plant it owns with agriculture and food company Bunge Ltd. (BG) in Brazil. The San Francisco-based company expects the new plant in Moema to have a capacity of 100,000 metric tons per year at full potential within the next 12-18 months. The Brazilian plant’s production will be almost five times more than the total capacity that the company is managing from its two smaller algae oil manufacturing units in Galva, Iowa and Peoria, Illinois. The positive news bumped up Solazyme’s stock by 7.2% in yesterday’s regular trading session. As of the first half-hour of regular trading today, however, the stock is down over 2%.
At the Brazilian plant, the company will be producing an encapsulated lubricant called Encapso, which could be used as a lubricant product in the US oilfield services industry, with 2,500 wells to date.
Another advantage of algae-based production is that the manufacturing units have a modular design, which means production can easily be scaled up. This is evident from the fact that the construction of the factory with Bunge in Brazil began in the summer of 2012, and despite delays due to the power and stream supply from Bunge’s co-located sugar mill, the construction of the factory next to Bunge’s sugarcane manufacturing unit was complete in less than two years. The risk of obtaining ethanol through Solazyme’s algae-based processes does not create the contaminants that yeast-based fermentation processes do.
The byproduct obtained after the oil extraction process is known as micro algae, which is used in the soap industry. Earlier this month, Unilever plc (ADR) (UL) and Solazyme announced the introduction of algal oils, which are derived from oil-producing microalgae for one of the most famous soap brands in the world: Lux.
According to consensus estimates, the company will see its revenues soar 145% YoY to $97.4 million by the end of this year, due to an increase in production from the Brazilian unit, progress at the manufacturing plants in Illinois and Iowa, and the availability of Algenist at Nordstrom’s US stores. However, the expectation is that the company will not see adjusted earnings per share turn positive until FY16.
Solazyme’s share price has lost 56% of its value since hitting an all-time high of $25.49 during July 2011, only a month after the company went public. The stock price could rebound this year due to an increase in capacity, as long as negative developments do not hamper the company’s performance.
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