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Tailored oil producer, Solazyme (SZYM), saw its stock price jump in the after-hours session on January 30. The company announced that its first large scale commercial facility in Clinton, Iowa had begun commercial operations in the United States and Brazil. Prior to the press release, the company's stock price closed at $9.77 on Thursday. In the after-hours session, shares continued to climb to $11.25 as the news filtered through. At one point, shares traded at $11.85 marking a 21% jump over the closing price.

News of the commercial launch marked the official start of the company's primary operations and served as a formal exit from its development phase. Since its IPO in 2011, Solazyme has been readying its algal technology platform's capability for large-scale commercial operations. Over the last several years, the company has built a number of key partnerships with agribusiness leaders such as Archer-Daniels-Midland Company (ADM) and Bunge (BG) on the upstream side of the business. Both companies have contributed capital and infrastructure for Solazyme's technology.

The latest launch of the Clinton facility with ADM should come to the surprise of most investors. It had been long anticipated that Solazyme would first initiate commercial operations at the Moema plant which was expected to be completed soon. Both facilities have been under development for several months. The Clinton facility carries a nameplate capacity of 20,000 metric tons [MT] per year. The Moema facility will support a nameplate capacity of 100,000 MT/year and will be evenly divided with partner Bunge through their joint venture, Solazyme Bunge Renewable Oils. With all of the production being credited to Solazyme at the Clinton facility, the company has targeted a potential expansion up to 100,000/MT in the coming years.

Management has been clear that production will take time to reach to their nameplate capacity. As is typical for the industry, every new facility will require approximately 12-18 months in order to be ramped-up to full production. Throughout this time, the company appears to be highly focused on the execution of their manufacturing. CEO Jonathan Wolfson reaffirmed this thought with the following quote in this latest press release:

"Consistent with our stated plans, we are focused initially on ensuring consistent and reliable operations as we build customer trust. While we acknowledge that it is still early days, we look forward to the opportunity to expand our production volume and the slate of oil products available."

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While this focus may limit the near-term announcement of additional production facilities, the bigger picture for investors continues to take form. The significance of this latest press release serves as a de-risking measure for the industrial biotechnology company. Solazyme has not only proven the ability to operate at the 500,000-liter commercial scale, but it has also demonstrated the ability to produce multiple products at the same facility. With the ability to adjust to market demand, Solazyme's proven ability to use the same infrastructure in order to address a diverse range of markets stands as a significant comparative advantage over the competition.

For now, one factor that investors may also want to keep a close eye on in the immediate future is the steadily rising short interest. Considering the relatively tight share float and rapidly rising share price, the question of whether or not this artificially sold position will come into play may soon be put to the test.

SZYM Short Interest Chart

SZYM Short Interest data by YCharts

A look at the chart above shows that while Solazyme's stock price has hardly moved over the last three months, the short interest has significantly outpaced the movement of the stock itself. As of January 15, the company's short interest stood at 9.75 million shares. With 68.15 million shares outstanding, and a significantly tighter float, the upcoming growth in revenue may trigger some short covering over the near term.

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Final Thought

One key takeaway for this latest announcement is the significant shift in mentality for investors. The company has finally opened its first large scale facility thereby unlocking its ability to significantly grow its revenue over the coming year. For several years, the company has seen stagnant revenues due to its manufacturing capacity restraint. The early announcement of Clinton's launch is likely to bode well in the near-term as it serves as a critical de-risking milestone for Solazyme. The company is now producing at a large commercial scale and it can service multiple industries utilizing the same infrastructure.

Source: Why Solazyme Jumped On Its Latest Announcement