Technology Optimist

Technology Optimist
Contributor since: 2013
"Perfectly good sugar" vs perfectly good (and more nutritious) edible oils, perfectly good (and safe to handle) dielectric fluids and perfectly good (and less toxic) surfactants and lubricants.
Hmmm.....I'll take the latter. And so would Omar Bradley.
"Perfectly good sugar". Lol.
They have implicitly stated that their cost to produce certain finished oils (e.g. erucic or high lipid algal powder) will be will in excess of $2000 - $3,000 per metric ton. The ASPs for such products will be $3000 to $5,000.
How so? If they CLEARLY say that the gross margin for a food product is expected to be 50%, and they also CLEARLY say that the product will sell for an expected $4,000 per/mt, then obviously the cost to product the oil will be in excess of $2,500.
Your friend is strangely misguided. The risk isn't whether Moema or Clinton exist and are scaling up. Unless you want to accuse ADM and Bunge of illegalities, then the plants are indeed firing up as we speak and oil has been made for years at other plants for several years. The issue is whether they will achieve the costs and ASPs that they expect. Visiting the plants a million times won't lend insight into that unknown.
As for it being a leap of faith, the financial term for that is "risk", i.e. the risk that things won't go as expected with production. Yes, there is risk to this investment. It's not a question of "faith".
Actually, no. The company has the cash right now to get through 2015. If they are not cash flow positive by then, it means something negative happened production-wise or marketplace-wise. In which case all bets are off anyway and it tanks. So while they may or may not succeed for whatever reason, dilution is not something on the horizon.
They will win or lose long before cash becomes an issue.
"then management's guidance would result in roughly 500,000 to 1.5 million gallons of production in Q4, or up to 3x of the production achieved in the first three quarters together."
Kior has been very evasive about the nature of its problems. Early in the year, the CEO, in his well rehearsed southern drawl, kept reiterating the phrase: "We're making a buhyootahful aaawl." They insisted that the production problems were all "mechanical" and not related to the "technology". He even gave examples like valves, fittings, pipes, etc.
Well, when you set yourself up like that, you create in the market the expectation that these are things that can be quickly addressed. I mean, how many bolts and valves and other "purely mechanical" (their words) can there be to tweak?
The simple fact is that Kior always touted how they didn't need to bother with messy bioorganisms, but they glossed over the fact that they had no real experience at that production size. It was unknown. And I think Mr. "Buhyootahful Awwwl" really did the company a disservice by trying to clever about the early setbacks.
There is no evidence that the process works as intended at scale. That management won't even entertain that discussion has caused them to lose all credibility.
Gevo and Amyris also had no significant experience at scale in real world conditions before setting out. In fact, only Solazyme actually showed linear scale production metrics in true commercial size facilities before actually opening its first major plant.
I hope Kior does figure it out. I genuinely do. But they come across as people who moved forward quickly, kept their fingers crossed and hoped for the best --- unwilling to address the huge unknowns involved. They are still in that mode.
Then why did Brazil loan 100+ million towards it? would you have us believe they did it for scientific knowledge? Charity? PR? Don't think so.
the company typically discusses unit sales in terms of price per metric ton, with most of their target oils selling in the $2,000 - $4,000/mt range. Though there are some above and below that range. in addition, net profits will be slim for a while as build-out and ramp-up expenses are steadily incurred.
I wonder how Mitsui fits in to Ivandertag's "peanut oil" theory. I suppose he'll tell us that Mitsui is so far away that they never actually tested the oil to see if it was real. : )
There is no 4Q "performance". The only things of any real consequence happening are construction projects, product research and partnerships. And I doubt a minor delay in construction would be a disaster.
Could Algenist disappoint? It will only disappoint those who think it is a material reason to own the stock ---- which it isn't.
BlackNGold wrote today on MF: "I was originally mesmerized by Amyris' potential, but as bad news began to trickle out on all fronts – management shakeups, partnership worries, falling revenue – I quickly jumped ship." Management? Revenue? That's sort of like saying the Civil War was horrible because of mud, bad songs and ugly uniforms. Amyris sank because it's scale up hit a wall -- period. It's as if BlackNGold wants everyone to erase from their memory the fact that AMRS announced a scale-up fiasco, which BlackNGold subsequently dismissed as a "hiccup". He had the info in front of him.
p.s. will people really be "eating algae"? my impression is that the organic cell material is separated from the oil and used elsewhere. now, I couldn't care less either way. but i'm just thinking that when people eat goat cheese, they aren't really "eating goat". (BTW, it's a shame that SZYM is as focused and busy as they are. As a former litigation attorney myself, I can tell you that they could EASILY obtain Ivandertag's identity and sue him successfully for libel. it's been done to Yahoo! posters before.)
Just FYI, I think the inclusion of Sears was a mistake in the transcript of that hearing. The name of the head of the panel meeting that day was "Mr. Sears".
I suspect they were simply addressing him at the time and the word got tacked onto the list of companies. It's the only thing that makes sense really.
You prompted your readers to take note of the ease with which Amyris raised money. But you yell "spin" when Kevin takes a similar perspective. Hypocrite much?
I agree Moyam. It seems like a clumsy move on the surface. Historically they have been very clever at Solazyme. Very curious.
Yes, his ability to recognize that this is a big milestone for Solazyme, but not the end of the road is inspired.
Yeah, I didn't think for a moment I'd get you to respond directly to my point.
An article can be slanted positive or negative, even if it doesn't have a specific buy or sell recommendation Your reaction to Amyris' failure was more upbeat than your reactions have been to Solazyme's successes. It's not about your lens vs. someone else's lens. It's about inconsistencies in your columns.
You and I both know that a similar setback at Solazyme would not have been characterized as a 'hiccup' that would be overcome with a bit more cash. I'll have to content myself with that.
Early this year Amyris said they would be producing a small fraction of what they had expected to produce. It was a HUGE stumble – yeast’s first time at bat in the major leagues – and they struck out looking on three pitches. They then had to dilute heavily and issue debt. Your response?:
“The $83.7 million in financing provides Amyris with the capital needed to overcome the hiccups encountered earlier this month…. Of particular interest to current or prospective Amyris shareholders is the investment from Biolding Investment SA, which is owned by His Highness Sheikh Abdullah of Qatar. It is always great to generate interest from investors with deep pockets and Biolding offers just that.”
Let’s look at that statement for a second and compare it to your comments above. First, you characterized it as a ‘hiccup’. A hiccup? If Solazyme had not been able to achieve linear scale at Clinton would you have said the same? Admit it. You would not have. All one needs to do is look back at your articles and comments in response to Solazyme's SUCCESSES to see proof of that (e.g. your response to the metrics they released on Peoria, which were more extensive than anything ever provide by Kior, Gevo or Amyris).
Second, you made the startling assumption that the dilution gave Amyris the “capital needed to overcome” their little setback. That was not only a generous assumption that you would never give to Solazyme, but it has proven woefully wrong. Amyris has said they need to raise more money this quarter if they are to continue operations through 2013.
Third, you spoke optimistically about the participation of a sheikh in the financing at Amyris……a sheikh. Meanwhile, ADM – perhaps the most prolific fermenter on the face of the planet – is willing to get paid in Solazyme stock in lieu of cash and that vote of confidence gets not a mention in your comments.
In your comments above you do say things like: “I too would have enjoyed more information, but with only 2 runs under their belt they are probably just as clueless as we are….Will today mean anything in 2 months? Who knows.” You acted like Amyris was well on its way to overcoming their problems even as they were releasing NO DETAILS AT ALL and failing badly, but here you go out of your way to emphasize the unknown even as the company reports a success. Actually, I sort of doubt that after working in a pretty big tank at Peoria for a year and with ADM’s people at their side, they are as “clueless” about what they are likely to see going forward as we are.
BTW, you are factually wrong about the Bunge and ADM partnerships involving only pre-fermentation steps. They are working side by side with ADM on fermentation, which is the kind of fermentation experience that nobody else in the industry is getting. But then, Solazyme has little to do with the ‘industry’. They are alone in their technology, process and products. Their success is entirely their own and sheds no light whatsoever on the massive failures to date at the yeast brewers of hydrocarbons at Gevo and Amyris.
@azblackbird. You managed to avoid making a single cogent statement.
@blackngold. That you would find fault in their releasing this info further demonstrates your bias. If they'd waited until all scale questions had been answered, you'd have raised issues about their silence. But yes, thanks for letting us know that there are still tasks for Solazyme and ADM employees to complete. We had no idea.
1. The claim that they are trying to compete with Exxon is demonstrably false. They have expressly and repeatedly stated that any fuel deals they do in the retail market will be in the nature of sweeteners and blends, and even then such sales won't be substantial for a long time because they plan to focus on high performance oils for the foreseeable future. So yet again, you fail to do your homework.
2) The cosmetic business doesn't cost them anything. It's pretty much breakeven already and on the verge of profitability. They hired a guy from the industry to do the labeling and product development. They had the by-product anyway (it's not oil in the bottles). It would have been really foolish to pass up the opportunity to make a company that went from initial product launch to breakeven in such a short time. Might they sell it? Sure. But no harm in just letting it do its thing. It is totally run by their in-house guy and his team. No distraction at all.
3) Most of their employees help conduct biotechnology research into new algae strains and scale up engineering. Gee, ya know, I'd say that's an okay use for the money.
4) Their cash burn will accelerate because they have started to actually build their plants not because of their employees. (duh)
Lack of focus? Solazyme does pretty much one thing. They engineer algae using biotechnology to make triglycerides based on their market research. They then strike deals to produce the oil with a partner in the industry. Sorry, but they are the poster child for focus.
Too many employees? 168 people. They are tiny employee-wise. Strike two.
Too much spending? They've gotten more bang for the buck than anyone even imagined. Even their biggest critic on Seeking Alpha (BlackNGold) agrees they've used their responsibly.
Too many insider sales? Wrong again. Total sales in 2012 are less than 2% of the company's average market cap this year.
If you want to avoid the risk of a company in this stage of development, that's fine. But misleading other readers is a different story.
Appreciate the article. One area I'd disagree is cosmetics sales. I don't see 2013 cosmetics topping $20 million and I think they will peak at around $25-30 million.
As far as dilution goes, management has proven itself to be very resourceful. If the technology scales one final step, then the time gap between their current cash and breakeven will be small. If the technology doesn't scale, then dilution won't matter!
Note too that Solazyme has been prototyping similar oils for Dow for other electrical applications. This will be about more than transformers.
Of course they are commodity oils. Diesel is a commodity. Eggs are a commodity. High oleic acid sunflower oil is a commodity. But "low" price is a relative term. Good quality high oleic acid sunflower oil, for example, can cost $1,500-2,000/MT (depends on the origins, as quality can vary). Depending on sugar prices, Solazyme can manufacture for less than $1,000/MT at a 100K MT facility. So that means any commodity oil above ~$1,300/MT represents a good target. Ahhhhhh, but then lets factor in the possibility that Solazyme's oil will have a performance advantage or create new applications. If they can sell transformer oil profitably to Dow, they can sell a lot of oils profitably. And sometimes they can even undercut butter and egg ingredients because you need just a fraction of algal lipid to replace them. Ahhhhh, now we're saving customers money. Pretty neat.
The price paid by the Navy is for demonstration scale production. The program envisions commercial scale prices being far lower and competitive with petroleum alternatives.
Good article, Kevin. It's too bad that renewable [insert anything] has come to occupy the same place in the public's mind as Medicare, the Federal debt and Warren Buffett's 1% rule. Many people wear their feelings about the industry like a badge of honor, and extremists on both sides have little patience for the facts about conventional or renewable energy. President Obama’s frequent show of support for alternative energy development has only served to further intensify and polarize popular sentiment.
This has been especially true for the algal oil sector, which the President has singled out enthusiastically on several occasions, though Solazyme's hetertrophic approach is unique to the company. The shallow discourse you'll find in the media echo chamber is geared toward the messenger's agenda, not knowledge. As a result, Solazyme's headlines about Navy frigates and passenger jets running on the company's diesel and jet fuels have proven to be a double-edged sword. They fascinate and attract the interest of both the media and new investors. But they have also thrown Solazyme into a political arena full of misleading assertions and half-truths. The unprecedented and proprietary capabilities that the company has in many areas of industry get drowned out the soundbite cesspool --- along with inconvenient truths like how the military's initial interest in algal oil was conveyed during the Bush administration.
I do not believe that algal oil (or any biofuels) will significantly change the nature of the energy market until cellulosics advance further --- and they will. Fortunately for Solazyme, there is quite a bit of money to be made in other markets until that happens. I for one will be first in line for ice cream that tastes like Haagen Dazs but with a fraction of the cholesterol and saturated fat. I think there may be a few aging baby boomers in line with me. : )
"As far as I can read, szym has signed no other commercial production agreements"
there are three other agreements besides Bunge. 2 in Brazil. 1 in the U.S. They are in the JDA phase, just as the Bunge deal was before it was finalized to a JV.
"despite all the discussion about their previously successful 'linear scalability' (which I haven't seen, they've been running off the same plant since 2007)"
They are now at 128,000 liters. They started in a lab at less than 100 liters. I would call that scaling up.
Your figures and terminology regarding gallons, prices and margins are all totally wrong.
1. Honeywell UOP & Agrisoma do not work with algae in any way whatsoever. They grow plants in the ground -- plants that store triglycerides in their cells. The oil is extracted and processed into fuel. Yes, they are definitely competitors. However, their collaboration is initially focused on fuel, whereas Solazyme is playing to its more nimble recombinant advantages and focusing on chemicals and food. If you want a rundown of seeds vs. algae, see Kevin's "comparative advantages" article. Note that the field is full of companies who are making fuel and chemicals from renewable plant resources. Nobody will take all the prizes. Everyone is gravitating toward their area of greatest advantage, but still keeping their hand in every arena they can.
2. It's always a concern when shorts have a big interest. It's good to ask yourself, "What are they seeing?" Shorts have at times taken big positions in the stocks of many renewable companies. On balance, it's not a bad bet. Most new technologies stumble and/or fail. Even if they don't stumble, they take a long time. Potential downfalls for Solazyme? The biggest would be the final step of scale-up at Moema. It's not as big a risk as moving from bench scale to 75,000 liters, but it's still a risk. If they succeed, I honestly have a hard time seeing what could hold them back. The economics and performance of their triglycerides just make sense.
You make totally mistaken and conflicting assertions and leave out tons of information:
1. You say: "So lets say they are able to get up and running by day one 2014, 200 million gal per yr., $2.50 per gal....They gross $500mil, drop $50mil to the bottom line, which they share 50/50 with their partner Bunge."
They don't sell by the gallon and the Bunge plant isn't for 200M gallons a year. Triglycerides are sold by the MT and the Bunge plant starts at 100K MT (33 million gallons). And your cavalier figure of $2.50/gallon is just a fabrication. ASPs are based on the application (i.e. the oil's chemical structure). Bunge has strongly indicated that it wants to make PKO+ to sell to chemical companies due to superior economics, but they haven't disclosed plans in detail. Your perspective is stuck in crude oil economics, which has little to do with it. (FYI, even Piper Jaffray estimates Solazyme's 2015 revs will exceed $800 million and EPS will be north of $2.50/share). If you think that kind of growth potential, with further plant opportunities all around, merits the same valuation multiple as ADM, I don't know what to tell you.
2. You say the Moema plant is "15 times larger than their present operation." Bunge is actually 10x larger than their 2007 dated operations and less than 6x larger than their Peoria plant. To say that they are "better situated" than Amyris scale-wise in a gross understatement.
3. You say: "Certainly there is a question why revenues didn't increase last year."
If you want to avoid the company because it hasn't scaled up yet, that's fine. But you can hardly then turn around and fault them for not have growing product revs. Solazyme's only real product revs right now come from Algenist. The remainder are technology license payments and spec oil payments for customer testing --- both of which are irregularly timed and often not recurring.
The simple fact is that volatility in the renewable space is wicked. Swings of 30-80% in a very short time period are commonplace and happen in stocks like SZYM, Kior and Gevo all the time.
After reading your various comments on Solazyme, I would point out:
(1) Chemicals and food will probably be more front and center for the company in the coming years than fuel.
(2) While $60-80 million isn't the world to Bunge, it is not insubstantial. Why would they commit it to a JV with Solazyme in the form of investment and construction if the economics don't make sense? Solazyme may not divulge all the nitty gritty (no company does), but I am comfortable that the returns are worthwhile or else they wouldn't be getting $$$ from a firm like Bunge.
(3) Same question to you with respect to Roquette. Why would multi-billion in revs Roquette build a 5K metric ton facility in France AT ITS OWN EXPENSE in order to partner with Solazyme? Do you think they are reckless? Do you think they just said, "Oui! Oui! Cool story! Here's a big check for you, Solazyme! Voila! Merci! Don't think so.
(4) Algenist is a drop in the bucket compared to even just one potential chemical (e.g. PKO+). However, on the Sephora website, the Algenist products that have been around the longest and therefore have more reviews (anywhere from 40-100 reviews each) are averaging 4 to 5 stars out of a possible five stars. Granted, this is true for most products on the Sephora website. If they weren't favorably received, they wouldn't be on sale any longer. However, if you look around you will find that there are quite a few products at Sephora with only 3 star ratings with comparable numbers of reviews. On QVC, there are three Algenist products with a decent number of reviews (at least 40), and these range from 3.5 stars to 4.5 stars. Could you tell us where on the Algenist website you are seeing a 50% positive rating for the product(s)?
To summarize......Why the $$$ commitments from Bunge and Roquette if the economics weren't attractive? And where on the Algenist website are you seeing 50% favorable reviews? Thanks.
Codexis is very interesting, but it's so hard to stand in front of Shell's decision on how they will play it. It seems like Shell gets to choose how much of the upside goes to them, while Codexis has to be happy with whatever scraps get sent their way. Plus, I don't like how Codexis' technology is actually based on a non-exclusive license.
Kior's market cap is ironic. People slam Solazyme based on the mistaken perception that it's all about fuel and doomed to failure. Well, Kior is much more fuel oriented and its product has narrower applications, and yet it sports a billion dollar market cap. I've got nothing against Kior, but it is squarely a vehicle fuel company. I like the diverse possibilities with Solazyme better.
Poor Amyris. Neat product, but they got ahead of themselves. It's just a question now if they can overcome scale-up setbacks. Heck, even the kind of scale Solazyme has already achieved would be a big step forward for them.
Sugar may rise. But it's kind of funny that for the past five years the industry has been lamenting the glut on the market. I'm interested to see what the new strains of sweet sorghum being planted in Brazil will do to the market. If the sales pitch for these seeds is accurate, we could see some big new supplies coming on the market. Along with cellulosic progress and the usual weather/rainfall conditions, I think sorghum may be one of the biggest market factors on the horizon.