BioExx Specialty Proteins | Company plans to build a similar plant in Europe
BioExx Specialty Proteins Ltd. is shutting down the world’s first commercial scale canola protein plant in Saskatoon.
“We’ve made the difficult but responsible decision to close the existing facility,” chief executive officer Chris Schnarr told investment analysts listening in on a conference call announcing the company’s fourth quarter 2012 financial results.
The company is instead pursuing a joint venture with two business partners to build a plant in Europe.
“We simply do not have the operational or financial resources to build and operate two facilities at once,” said Schnarr.
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The original plan was to scale up the Saskatoon plant until it was capable of producing 40,000 tonnes of canola protein annually.
There was also talk of building another plant in Minot, North Dakota, with an 80,000 tonne capacity.
BioExx was unable to find a partner that would enable it to realize its ambitions in North America.
So the company has changed its strategic plan and is pursuing a project to build a 75,000 tonne facility in Europe with two European business partners who want to remain anonymous until a deal is signed.
“This is an ideal fit,” said Schnarr.
“It’s a potentially fantastic combination and that’s why we’re so focused on it and working hard here to see it through.”
One partner already operates a profitable specialty oil business in Europe, and the new plant would be located next to that facility. The other partner would supply the equity capital required to build the plant.
The three parties are negotiating an agreement that will specify ownership percentages for the joint venture and other terms of the transaction. That “definitive and binding term sheet” is expected to be signed around April 30.
BioExx will be a “minority but meaningful” shareholder in the joint venture and will receive a series of cash payments for the use of its technology.
The company will not contribute capital to construction of the facility, which is another change in direction from its original plan.
Assets from the Saskatoon facility will be sold to pay down debt. Schnarr anticipates the company will raise approximately $13 million.
Thirty people will lose their jobs.
“We recognize the tremendous contribution of our team in Saskatoon, which has been instrumental in the successful development of the world’s first commercial-scale food-grade canola protein technology,” Schnarr said in a news release.
Franck Groeneweg, vice-chair of the Saskatchewan Canola Development Commission, laments the demise of the Saskatoon business.
“When we have the potential to increase the value of the meal, it supports the total value of a product like canola, so it’s disappointing,” he said.
The company used such a miniscule amount of canola that it won’t cause a blip in the sales program for a 15 million tonne crop, but Groeneweg said the loss of any value-added enterprise is a blow to the industry.
He is thankful the company is still pursuing the project on another continent.
Schnarr said BioExx was a tiny processor that had a tough time competing in the oil side of the business against the economies of scale of the major crushers.
Profit margins from the protein side of the business were strong enough to more than compensate for the poor oil margins, but it wasn’t the ideal business model.
Schnarr said the specialty oil produced by the proposed new European business partner fetches a price premium because of its high quality specifications. As well, the process produces a meal byproduct that is an ideal input for BioExx’s protein manufacturing process.
“In our experience to date, it is the best meal we have ever used at the front end of our process,” he said.
It produces higher yields of the company’s protein products, reduces variable costs, lowers capital expenditures and results in a product with improved characteristics.
The goal is to commence protein production at the proposed European plant in the second half of 2015.
Schnarr said the three partners envision building a series of protein plants. There remains a “compelling rationale” to have one in Canada.
“We do maintain every intention of bringing production capacity on line here at the appropriate time,” he said.
