VANCOUVER, April 2, 2014 /CNW/ - Lignol Energy Corporation
(TSXV: LEC) ("LEC" or the "Company"), an emerging producer of
biofuels, biochemicals and renewable materials, today provided a
corporate update to shareholders that it is working with its
financial advisors to establish the terms of a financing which it
needs to complete within the next month, and announced its
unaudited consolidated financial results for the three months and
nine months ended January 31, 2014
(all figures in Canadian dollars, unless otherwise noted).
The Company is undergoing a transformation from
a leading technology developer in the biorefining sector, to that
of an owner of commercial biorefining assets. Over the course of
the last two years, LEC has made investments in three renewable
biofuels companies which collectively own six plants. These
investments have leveraged LEC's expertise gained through its
experience with the development of its proprietary biorefining
technology.
While each of these investments represents an
opportunity to create shareholder value, LEC's immediate priority
is to complete a financing and allocate capital largely for the
restart of its 140 million litres per year biodiesel plant in
Darwin, Australia. The
project has been developed with innovative contracts for feedstock
procurement and off-takes so as to create the framework for a
financially attractive project that is expected to fuel LEC's
expansion plans and other projects. In order to meet its current
obligations and provide payments to maintain title to assets, LEC
needs to take steps over the coming month to complete a
financing.
Territory Biofuels ("TBF")
In February 2014,
LEC completed the acquisition of 100% of TBF. TBF's Darwin plant is
Australia's single largest
biodiesel plant and glycerine refinery, with an annual production
capacity of 140 million litres of biodiesel. LEC is currently
seeking to raise funds to restart the existing facility with
process improvements which enable the plant to process low-cost
feedstocks.
Various funding options are being explored to
optimize value, which could involve the participation of strategic
partners. One such strategic partnership was recently
announced for a potential joint venture with Milio International
("Milio") who will provide a $25
million working capital mechanism for feedstock procurement
and to facilitate the marketing and sales of biodiesel.
TBF's business plan is focused on three key
elements:
1. |
|
Production of high
quality biodiesel and glycerine from a range of low cost
feedstocks |
2. |
|
A robust feedstock supply
chain with multiple sources of environmentally certified waste
feedstocks |
3. |
|
Establishment of robust
sales channels for the off-takes of biodiesel into multiple export
markets in addition to domestic and regional sales. In this
regard, TBF has recently received: |
|
|
a. |
International Sustainability and Carbon
Certification ("ISCC") for sales at premium prices into the
European market |
|
|
b. |
US Environmental Protection Agency ("EPA") approval
as a Renewable Identification Number ("RIN")-generating foreign
producer for exports to the United States |
Australian Renewable Fuels ("ARW")
LEC is currently the largest single direct
shareholder in ARW with an ownership interest of 21%. LEC does not
have any influence over the affairs of ARW and does not have board
representation. ARW is listed on the ASX and has the trading
symbol: ARW.
ARW publishes accounts on a half-yearly basis.
ARW's Interim Financial Report for the half year ended 31 December 2013 stated that the company had made
a net loss after tax of A$2.3 million
compared with a profit of A$1.4
million in the same period in 2012. The share price of ARW
has declined considerably over the past year.
We continue to be optimistic that commercial
synergies would be worth developing with ARW and our other
Australian biodiesel interests, however to date we have been
unsuccessful in this regard.
Neutral Fuels
Neutral Fuels has an agreement with McDonald's
to roll-out its program for the collection of used cooking oil and
the conversion of that used cooking oil into biodiesel in the
Asia Pacific/Middle East/Africa ("APMEA") region. Currently Neutral
Fuels operates two closed loop biorefineries located in
Dubai, United Arab Emirates and
Melbourne, Australia.
LEC's interest in Neutral Fuels currently
consists of a 20% interest in Neutral Fuels Parent Company ("NFPC")
and a 51% interest in Neutral Fuels (Melbourne) Pty Ltd. ("NF Melbourne"),
which has the exclusive rights for the Australia and New
Zealand region.
The Dubai
operation is modestly profitable, with sales to existing customers
continuing to increase and additional new business anticipated. The
Melbourne operation is not
yet profitable with both collection of used cooking oil and sales
trending below plan. In the meantime, there is considerable
interest in accelerating the roll out of the McDonald's
biodiesel program in key locations in the APMEA region.
Specifically, an important pilot project in one major market
has recently reported successful outcomes, resulting in the
expansion of the pilot project to include additional restaurants.
Project development is also underway in two other countries
in the region.
Over the course of the last several months
management has been undertaking an in-depth review of the NFPC
business model and associated capital requirements in order to
determine the most effective and profitable way to accelerate the
roll-out of the McDonald's biodiesel program. As announced
on November 13, 2013, LEC had planned to increase its
ownership of NFPC from 20% to 40% by the end of February. Upon
completion of the current review, both NFPC and LEC expect to
raise the necessary capital to meet the requirements of the revised
business plan.
Lignol Innovations Ltd. ("LIL")
LIL has developed two distinct but related
technologies, each offering its own value proposition and
investment opportunity. One covers biorefining technology and
the other covers lignin IP and lignin applications.
Starting from the proven Alcell™ organosolv
pre-treatment process, which was acquired by LIL, the company
developed a commercially ready integrated biorefinery process and
also an extensive IP portfolio and a highly regarded capability in
lignin applications development. LIL is positioned to commercialize
both of these assets and is seeking one or more partners with a
complementary strategy and the resources to lead the
commercialization effort.
In the course of developing its biorefinery
process technology, LIL has performed extensive R&D into the
physical and chemical properties of the proprietary
HP-LTM lignin produced by the process, as well as other
lignins and lignin-based materials produced from other biorefinery
processes and from Kraft and other pulping processes. Based
on LIL's work, a series of core composition of matter patents have
been issued which are very broad in scope and cover lignins
produced from hardwoods, softwoods and annual fibres, whether as an
intermediate stream or as a final product. Several patent
applications are also pending. These patents could have
implications for present and future lignin producers and users,
irrespective of the production process used.
LIL believes that longer term significant
revenues could result from licensing or selling its lignin IP
portfolio and is preparing to pursue strategies along these lines
as this could represent a significant strategic and financial
benefit to the Company.
LEC Consolidated Financial Results for the Quarter and the
Nine Months ended January 31,
2014
LEC Going Concern
As noted earlier, the Company is an emerging
producer of biofuels, biochemicals and renewable materials. LEC is
undergoing a transformation from a leading technology developer in
the biorefining sector, to that of an owner of commercial
biorefining assets. The Company is considered to be in the
development stage and is currently exploring ways to raise capital
in order to develop its various investments and in particular the
plant in Darwin Australia owned by
TBF. LEC's consolidated financial statements have been prepared on
a going concern basis which assumes that the Company will continue
its operations for the foreseeable future and contemplates the
realization of assets and the settlement of liabilities in the
normal course of business.
During the nine month period ended January 31, 2014 the Company had a net loss of
$9.6 million, of which approximately
$2.3 million related to costs
incurred developing the Darwin project, negative cash flow from
operations of $5.2 million, and
negative working capital of $13.3
million. Historically the Company has had operating losses,
negative cash flow from operations and working capital
deficiencies. The Company must raise sufficient capital and execute
on its commercialization plans in order to achieve positive cash
flows from operations. Otherwise the prospects for the Company to
continue as a going concern are uncertain. The Company has also
entered into a revolving secured credit facility with Difference
Capital Financial Inc. ("DCF") for up to $12.5 million, as further described in Note 6 to
the Company's financial statements. At January 31, 2014 $11.785
million had been drawn on the credit facility which is
included in the negative working capital amount of $13.3 million, described above.
The Company needs to raise capital in order to
fund its operations, to restart the Darwin facility, and to
maintain the operations of its other business interests. The
Company's ability to raise capital may be adversely impacted by,
amongst other things, current market conditions, and changes in the
economics of and government incentives available in the renewable
fuels markets. The Company is working with its financial advisors
to develop a framework which provides a means of dealing with the
Company's obligations to DCF and to establish the terms of
potentially one or more financings. The majority of the funds
obtained from such financings would be used to meet LEC's current
obligations and to initiate the restart of TBF's Darwin plant,
leaving modest amounts to maintain the balance of current
operations without growth or expansion. A variety of financing
options are being considered including partnering with various
organisations, accessing additional government grants and seeking
to raise one or more of equity, debt and project finance either at
the Company or the subsidiary level. There is no assurance that
these activities will be successful as outcomes cannot be
determined at this time.
The Company currently forecasts that its working
capital requirements for the next twelve months will exceed the
funds available from a combination of its current working capital,
from its revolving credit facility and from existing government
grants and corporate relationships, and the Company estimates that
that this shortfall will occur in early Q4 of the current fiscal
year. The ability of the Company to continue as a going concern is
dependent upon its ability to continue to fund its business
objectives and to be able to repay amounts drawn under the DCF
credit facility. The conditions and risks noted above cast
significant doubt on the validity of that assumption.
The Company's financial statements do not give
effect to any adjustments to the amounts and classification of
assets and liabilities that may be necessary and would be material,
should the Company be unable to continue as a going concern.
Shareholders should also refer to the Liquidity
and Capital Resources section of the related Management's
Discussion & Analysis of Financial Condition and Results from
Operations that is available on the Company's website,
www.lignol.ca or at www.sedar.com under the Company's profile.
Lignol's complete financial statements for the
three and nine month periods ended January
31, 2014 and the related Management's Discussion &
Analysis of Financial Condition and Results from Operations are
available at the Company's website, www.lignol.ca, or at
www.sedar.com under the Company's profile. The financial statements
were prepared in accordance with International Financial Reporting
Standards.
Highlights of the Quarter
During the quarter, LEC negotiated the
acquisition of 100% of the outstanding and issued common shares of
TBF by means of an exchange of the then outstanding TBF shares for
common shares of LEC, which closed immediately after the end of the
financial quarter. LEC also successfully completed the funding of
the first A$2 million tranche of a
A$4.07 million loan to Neutral Fuels
which provided LEC with a 20% interest in NFPC and a 51% interest
in NF Melbourne with effect from November
12, 2013. LEC's management continued to be extensively
involved in managing the affairs of TBF which included working on a
number of key milestones which should improve the Company's ability
to raise capital for the restart of the Darwin plant.
Territory Biofuels Limited
TBF made excellent progress during the quarter
with various activities related to the planning of the restart of
the Darwin plant including:
- Receiving International Sustainability and Carbon Certification
("ISCC") and US Environmental Protection Agency ("EPA") approval as
a Renewable Identification Number ("RIN")-generating foreign
producer for its Darwin biodiesel plant, paving the way for exports
to markets in Europe and the
US.
- Initiated discussions which resulted in the signing a formal
Memorandum of Understanding with Milio International ("Milio") for
the development of a joint venture ("JV") on February 13, 2014. Under the terms of the planned
JV, it is anticipated that Milio will fund up to 120,000 tons of
feedstock per year as well as facilitate the marketing and sales of
the production from TBF's 140 million litre per year biodiesel
plant located in Darwin, Australia. At full production capacity this
funding will potentially provide working capital funding of up
approximately US$25 million. At full
production Milio will provide funding for up to 120,000 tons of
feedstock per year and will receive 25% of the net profits earned
on the sale of related production. In addition, Milio has agreed to
assist in the restart of the Darwin plant with the funding of 1,500
tons of feedstock for an initial start up campaign and up to 10,000
tons for an initial commercial campaign. As additional
consideration for this support, Milio will receive funds sufficient
to recover Milio's costs and also the provision of $600,000 in shares of LEC or cash by mutual
agreement.
- Advancing discussions with respect toward the establishment of
feedstock supply chains
- Engaged Lurgi Engineering (original technology provider for the
Darwin plant) together with third party engineering firms to
validate the capital cost estimates and timelines for the restart
of the Darwin plant.
Australian Renewable Fuels Limited
ARW publishes accounts on a half-yearly basis.
ARW's Interim Financial Report for the half year ended 31 December 2013 stated that the company had made
a net loss after tax of A$2.3 million
compared with a profit of A$1.4
million in the same period in 2012.
As of January 31,
2013, LEC's cumulative cost of investment in ARW was
$10.1 million compared with the
quoted market value of the ARW shares the Company holds of
$5.9 million. Given the decline
in market value of the Company's investment in ARW, an impairment
loss of $3.1 million was recorded
during the quarter, while $1.5
million was reversed from other comprehensive loss.
Neutral Fuels Parent Company & Neutral
Fuels Melbourne Pty Limited
The Dubai
operation is modestly profitable, with sales to existing customers
continuing to increase and additional new business anticipated. The
Melbourne operation is not yet
profitable with both collection of used cooking oil and sales
trending below plan. In the meantime, there is considerable
interest in accelerating the roll out of the McDonald's biodiesel
program in key locations in the APMEA region. Specifically, an
important pilot project in one major market has recently
reported successful outcomes, resulting in the expansion of
the pilot project to include additional restaurants. Project
development is also underway in two other countries in the
region.
Lignol Innovations Limited
During the quarter, LIL continued to have
discussions with potential partners with respect to a possible
opportunity to commercialize its technology in China, made arrangements to ship tonnage
quantities of lignin to various parts of the world for commercial
trials in new product applications and advanced discussions with
respect to a joint project involving the extraction of co-products
including high value lignin from novel agricultural materials.
Financial Results
The consolidated financial statements of the
Company for the quarter ended January 31,
2014 include the accounts of LEC and its subsidiaries LIL
and TBF. The Company's investment in NFPC and NF Melbourne are
accounted for on an equity accounting basis as both investments are
considered to be "joint ventures" in accordance with IFRS. LEC's
investment in ARW is accounted for as an available-for-sale equity
investment.
For the three month period ended January 31, 2014 ("Q3 FY14"), the Company
reported a loss of $5.5 million, an
increase of $3.8 million over the
three month period ended January 31,
2013 ("Q3 FY13"). This translated to a loss of $0.04 per share (basic and fully diluted) in Q3
FY14, compared with a loss of $0.01
per share in Q3 FY13. The increase was caused by a $3.1 million charge in Q3 FY14 related to an
impairment in the value of the Company's investment in shares of
ARW, an increase of $1.3 million in
interest expenses less a positive variance of $0.6 million which related to the impact of
foreign exchange on the translation of certain TBF assets.
Research and development expenses increased by
$0.2 million as a result of the
consolidation of $0.3 million in TBF
related plant development expenses less a $0.1 million reduction in lignin development
expenses incurred by LIL. General and administrative expenses were
unchanged at $0.8 million in both
quarters. LIL's government grant receipts increased by $0.4 million as a result of an increased number
of contracted grants and corporate contribution agreements
supporting current work plans. Interest charges increased by
$1.3 million during the current
quarter, as a result of imputed non-cash charges of $0.7 million in respect of TBF's refinery lease,
an increase of $0.3 million in
accrued interest related to the DCF credit facility, and
$0.4 million related to the
amortization of warrants issued to DCF in connection with the
credit facility.
The total comprehensive loss for the quarter was
$4.8 million. This is comprised of
the $5.5 million loss for the
quarter, which was largely offset by a $0.7
million net positive adjustment from comprehensive loss.
Neither TSX Venture Exchange nor its Regulation
Services Provider (as that term is defined in the policies of the
TSX Venture Exchange) accepts responsibility for the adequacy or
accuracy of this release.
Caution concerning forward-looking
statements:
Certain statements contained in this document
may constitute forward-looking information within the meaning of
applicable securities laws. Such forward-looking statements or
information include, without limitation, statements or information
about LEC's ability to complete discussions with investment
advisors to establish the terms of a financing and to complete such
financing within the next month, LEC's ability to complete its
transition from a technology developer to an owner and operator of
commercial biorefining assets, to restart the Darwin biodiesel
plant and to subsequently upgrade the plant with a new pretreatment
facility and to use new catalysts so as to allow it to process
lower cost feedstocks, for TBF to establish in collaboration with
Milio International robust sales channels for off-takes of
biodiesel into multiple export markets in addition to local sales,
TBF's ability to conclude and enter into definitive agreements
regarding the formation of a joint venture to secure feedstock to
be funded by Milio, to generate commercial synergies with LEC's
Australian biodiesel interests and ARW, to generate cash flow from
the operation of the TBF plant, for Neutral Fuels customer volumes
to increase and to generate additional business, to successfully
roll-out its used cooking oil to biodiesel program in key locations
across the APMEA regions, its ability to complete a review of the
business model and to raise the necessary capital to meet the
requirements of the revised business plan, to commercialize both
the biorefining technology and the intellectual property of LIL,
LEC's ability to invest in, or otherwise obtain, equity interests
in energy related projects which have potential synergies with LEC
and which have the potential to generate near term cash flow, LEC's
ability to continue as a going concern and to raise additional
financing to fund the restart of the Darwin plant and to fund the
operations of LEC and its affiliates, LEC's ability to repay
amounts owning to DCF under the revolving credit agreement, LIL's
ability to satisfy certain project deliverables and related funding
conditions from existing and potential future government grants,
obtaining strategic partnership investments and government funding
for initial commercial projects. Often, but not always, forward
looking statements or information can be identified by the use of
words such as "plans", "expects" or "does not expect", "is
expected", "budget", "scheduled", "estimates", "forecasts",
"intends", "anticipates" or "does not anticipate", or "believes" or
variations of such words and phrases or words and phrases that
state or indicate that certain actions, events or results "may",
"could", "would", "might" or "will" be taken, occur or be
achieved.
Such statements or information reflect LEC's
current views with respect to future events and are subject to
certain risks, uncertainties and assumptions including, without
limitation, LEC's ability to raise additional capital to fund
operations and to support the capital requirements of its
affiliates, the requirements of the potential effect of changes in
government policy relating to the environment, and incentives for
renewable fuels, the potential impact of changes in the prices of
feedstock and the market price of liquid fuels including biodiesel,
ethanol and renewable chemicals, the ability of LEC and its
affiliates to generate future profits and to pay dividends,
and to meet increasing regulatory requirements, LEC's ability to
divest the ARW ordinary shares due to modest trading volumes, LIL's
ability to finance and complete the development of a commercial
project, LIL's ability to develop products and to obtain off-take
agreements, LEC's reliance on publically available information of
ARW in its evaluation of its acquisition of shares in ARW, the
potential fluctuation of biodiesel and feedstock prices and their
impact on ARW, the effect of changes in government policy relating
to the environment, and incentives for renewable fuels, the ability
to meet relevant local and international regulatory
requirements.
Many factors could cause LEC's actual
results, performance or achievements to be materially different
from any future results, performance or achievements that may be
expressed or implied by such forward-looking statements or
information, including among other things, financial market
conditions which will impact LEC's ability to finance its
operations and to meet future capital and investment requirements,
the demand for the market price of liquid fuels including gasoline,
biodiesel, ethanol, the market price and demand for renewable
chemicals, risks relating to the protection of technology from
infringement and those risk factors which are discussed elsewhere
in documents that LEC files from time to time with securities and
other regulatory authorities. Should one or more of these risks or
uncertainties materialize, or should assumptions underlying the
forward-looking statements or information prove incorrect, actual
results may vary materially from those described herein as
intended, planned, anticipated, believed, estimated or expected.
Except as required by law, LEC expressly disclaims any intention or
obligation to update or revise any forward looking statements and
information whether as a result of new information, future events
or otherwise. All written and oral forward-looking statements and
information attributable to us or persons acting on our behalf are
expressly qualified in their entirety by the foregoing cautionary
statements.
SOURCE Lignol Energy Corporation