Leaf Resources — Update 1 June 2016

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High recovery of cellulose: high recovery of cellulose (c 94%) and hemicellulose.

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High, rapid conversion to sugars: conversion of cellulose and hemicellulose to cellulosic sugars. Can be up to 99% for cellulose from bagasse (sugarcane waste).

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Overall efficiency: overall Glycell efficiencies of cellulose recovery and conversion to sugar can be >90%. For existing processes such as dilute acid, typical industrial-scale cellulose recoveries and conversion efficiencies are both c 80%, giving an overall efficiency of <70%.

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Rapid processing time: due to the effectiveness of using glycerol as a reagent.

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Plant scale flexibility: large variation in plant scale possible (100,000-700,000 tonnes biomass feedstock pa).

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Continuous: rather than a batch process.

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Operates on virtually all biomass: includes sugar cane bagasse, wheat straw, various hardwoods including Eucalyptus Globulus, poplar and American mixed hardwoods and Empty Fruit Bunch (EFB) from palm oil plantations. Evaluation work continues on softwood species.

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Simple: innovative and effective.

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Low temperature and pressure: the mild temperature and pressure combined with the glycerol solvent leads to less degradation of products to contaminate the sugar, resulting in cleaner sugars. Capital costs and energy, operating and maintenance costs are also lower.

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Off-the-shelf equipment: standard industrial items.

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Bolt-on flexibility: can be bolted onto and integrated within existing plants.

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Separate sugar streams: the Glycell process produces separate cellulosic hexose sugar C6 (glucose) and cellulosic pentose sugar C5 (xylose) streams. Other existing processes produce various cocktails requiring separation and may not be suitable for all fermentation processes.

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Clean sugars: the Glycell process produces very clean sugars, which are essential for many renewable chemicals.

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C6 sugars: fermented into a range of chemicals and fuels.

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C5 sugars: require novel organisms and can be used for higher-value applications.

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Significant co-product potential: lignin and upgraded glycerol.

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Lignin: existing processes decompose the lignin structure so that it becomes less useful and normally only good for combustion (heat value). Glycell produces a high-quality lignin product with an assumed sales price of US$450/t. There are also higher-value opportunities and a growing market. Some high-specification lignin may potentially achieve a price up to US$850/t.

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Glycerol: by upgrading glycerol used in the process to a higher-value specification of 99.7% during recycling, an additional co-product is created. There is an arbitrage between purchased ‘waste’ glycerol at c US$200/t (a biodiesel by-product) and a sale price of c US$500/t for the 99.7% glycerol. The glycerol for the process is replaced with ‘waste’ diesel at the lower price.

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Projects based on low-cost or zero cost ‘advantaged’ biomass that is available regionally, which would otherwise be disposed as landfill, burnt, or utilised in a low-value application.

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The economics of such projects can be very attractive and may provide the opportunity for LER to negotiate a free carry in a project, which is more valuable than a licence fee.

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Biomass: cost US$70 per bone dry tonne, processed through a plant with a capacity of 210,000 bone dry tonne (BDMT) per year, a rate favoured by LER because of its profit potential.

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Sales prices: standard renewable chemical US$1,500/t, pentose (C5) sugars US$265/t.

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Co-products: lignin price US$450/t, 99.7% pure glycerol price US$522/t.

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Capital cost: US$230m.

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Parameters: discount factor 10%, tax rate 30%, project life 15 years, 100% of project.

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Biomass supply: low-cost source, readily available near the project, low transport cost.

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Glycell technology: to produce cellulosic sugars from the biomass at low cost.

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Process plant: to convert the back-end molecules of the cellulosic sugars to renewable chemicals for sale.

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An offtake agreement: for the sale of the renewable chemicals from the process plant. The offtake agreement may be with a major chemicals company that requires the renewable chemical for conversion to more complex chemical products.

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Finance: to build a new plant or modify an existing plant. Under a free carry arrangement, finance would be provided by the majority owner(s) of the project.

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Biorefinery upgrade: ZeaChem has a 10 ton per day demonstration scale refinery in Boardman, Oregon, which has operated since December 2012. ZeaChem is currently evaluating the conversion of its demonstration plant into a commercial production facility for advanced/cellulosic ethanol and speciality chemicals.

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Regional focus: initially, the JV will be focused on the south-east industrial heartland of the US. This region has ready access to supplies of hardwood and regional authorities eager to encourage employment.

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Initial project: the JV has selected a project in the south-east region. A JV plan has been agreed and a scoping study is underway. The study is a precursor to a more detailed feasibility study suitable for financing the project. The JV partners have already received initial non-binding expressions of interest from potential customers in the region. There has been interest for the supply of C6 and C5 sugar streams and the technical grade glycerol generated by the Glycell process.

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Conditions: under the JV agreement, LER retains full rights to all Glycell intellectual property and any associated royalties and upfront payments. ZeaChem retains full rights to its intellectual property, royalties and payments. LER and ZeaChem can still pursue individual opportunities.

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LER investment in ZeaChem: with the signing of the JV, LER has invested A$550,000 to acquire a 13% interest in ZeaChem with the potential to increase to 45%, on a fully diluted basis, in the future. The attraction to LER of this investment is the biorefinery, which is being expanded to a commercial scale, and ZeaChem’s engineering skills. The biorefinery has the potential to be cash flow positive after its expansion to the commercial scale.

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Background: in January 2015, Monaghan Biosciences signed a Material Transfer Agreement under which LER provided cellulose produced by the Glycell process for testing with Monaghan Biosciences’ enzyme technology. The results of the testing showed that the Monaghan Biosciences’ enzyme technology, in combination with Glycell pre-treatment, produced superior performance compared with other commercial enzymes and pre-treatments. This led to further discussions about how the technologies could be commercially exploited.

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MOU discussions: these led to the signing of an MOU between LER and Monaghan Biosciences and its parent company Monaghan Mushrooms to establish a viable renewable chemical project using Monaghan Mushrooms’ spent mushroom substrate as feedstock and Monaghan Biosciences’ enzyme technology integrated to the Glycell cellulosic sugar platform. The MOU details the preliminary work leading to a bankable feasibility study. LER and Monaghan Biosciences would initially each hold 50% of the project.

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Monaghan Mushrooms: this is a major producer of mushrooms throughout Europe. It produces a significant amount of spent mushroom substrate from its operations each year. Both LER and Monaghan Mushrooms believe this material could be an integral part of a significant bio-based project. Most of its production sites are in Europe. Therefore, a renewable chemical project will most likely be located in Europe.

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Monaghan Biosciences: this is a wholly owned research and development arm of Monaghan Mushrooms. One of its objectives is to develop commercial applications for the substantial quantities of spent mushroom substrate produced in the organisation. Monaghan Biosciences has a skilled team of highly qualified research and development scientists with commercial and industrial experience. The organisation is located in state-of-the-art facilities in Tyholland, County Monaghan in Ireland. A focus is developing enzyme technology for several industry segments.

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Funding: the budget for the initial phase of the project was A$300,000, to be shared equally. These funds were to be used to acquire the data for the bankable feasibility study. The budget and funding of the bankable feasibility study will be decided at a later stage. Some government funding may be available. As the project develops, the level of ownership may be reduced to allow other parties to assist in the financing of the project.

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Project work: preliminary work included testing the substrate mass (mainly Stage 1), moving to a pilot-scale process evaluation and enzyme optimisation (mainly Stage 2). The intention is to use the data generated for engineering design and modelling. In addition, detailed work is also planned with regard to potential end-products for C5/C6 sugars, lignin and the potential for valorising the spent glycerol. Potential contracts for the sale of these end-products would also be investigated.

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Substrate supply: Monaghan Mushrooms has a large amount of spent mushroom substrate and is keen to turn it into a more valuable product.

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Licencing: both Monaghan Biosciences and LER have provided a free option to licence their respective technologies on terms to be agreed. The terms would be based on the economic benefit against the National Renewable Energy Laboratory (NREL) dilute acid benchmark.

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Stage 1 results: this stage has now been completed. In combination with a Monaghan Biosciences enzyme cocktail, the tests found that Glycell pre-treatment gave a superior result to the dilute acid process route, hydrolysing 25% more cellulose over a 24-hour time frame. The pre-treatment trials were carried out at BPF in the Netherlands (http://www.bpf.eu). Enzymatic hydrolysis and analysis was carried out in Ireland and at Monaghan Biosciences. Several other important observations on chemical application and material conditioning and handling were made that will contribute to the next stage.

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Stage 2: based on the results of Stage 1, LER and Monaghan Biosciences agreed to move to Stage 2 and are now implementing that plan. This stage will include tonnes per day pilot testing at the Andritz facility in Springfield, Ohio.

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Cellulose to glucose (C6 sugar): conversion yield was 91% at 72 hours. This was on average 13% higher than using a dilute acid process.

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Xylan (C5 sugar) to xylose: conversion yield was 75% after 72 hours of saccharification retention. This was on average 9% higher when compared to using a dilute acid process.

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Large international agricultural company: at the first stage of an evaluation project on agricultural waste. Positive results have been delivered creating increased focus on the potential of Glycell in that company. LER and the agricultural company are working towards a feasibility study for a commercial operation in Australia.

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Norske Skog Australia: investigation of the use of Glycell to covert radiata pine to cellulosic sugars and the subsequent conversion of these sugars to renewable chemicals. Norske Skog operates a newsprint production facility at Albury, NSW with a 274,000 tonne pa capacity. The mill utilises up to 55% recycled fibre with the balance of fibre sourced from plantation radiate pine. The Norske Skog MOU is part of LER’s strategy to explore opportunities at brownfield sites, such as newsprint mills and other possibilities, to reduce capital.