Alberta project | Farmer investment would make interest-free loan available to developer
The Western Producer, Thursday, September 9, 2010
BY SEAN PRATT
Alberta farmers are being asked to invest in a $194 million wheat ethanol plant that could be operational by 2011. Alberta Ethanol and Biodiesel Group Ltd. has permits to begin construction on a 140 million litre wet mill facility in Innisfail, Alta. It would be Canada’s second largest wheat ethanol plant, next to Terra Grain Fuel’s 150 million litre facility in Belle Plaine, Sask.
The Innisfail operation would consume 419,000 tonnes of locally produced feed wheat per year. If the firm is successful in raising the money, construction will start in two months and the plant will be producing ethanol in another 12 to 18 months.
The company is eligible for Alberta’s ethanol production credit and hopes to be selected to receive a federal production credit. Combined, they would be worth an estimated $118 million between 2012 and 2016 if the firm produced at its capacity. Alberta Ethanol and Biodiesel Group is a limited partnership formed by Dominion Energy Services LLC, a Florida company that is operating a 54 million litre wet mill corn ethanol plant in Collingwood, Ont.
Dominion is hoping to raise $96.5 million in equity for the Innisfail project. The remainder of the financing would come from $85 million of term debt, a $10 million line of credit and a $5 million grant the company has already received from the province of Alberta.
“We’re not worried about the private equity at all in regards to getting this project off the ground,” said Dominion president Curtis Chandler. The company hopes a substantial portion of it will come from Alberta farmers because it would then be eligible for a post-construction, interest-free loan from the federal government.
It held 12 town hall meetings in Alberta last month where the company unveiled its plans to producers. A memorandum of offering is expected to be ready soon for investors.
Farmers will pay 90 cents per unit of the company compared to $1 for other investors. They will be required to invest a minimum of $5,000 in the project up to a maximum of $1 million.
In a presentation for potential investors, Dominion penciled in $31.5 million in farmer equity and $65 million from other private investors. Chandler said farmer money wouldn’t be at risk. It would be placed in a trust and there would be restrictions on how Dominion could access those funds. “I would urge any grower to invest even if they are north or south of the plant because it really is a hedge against their wheat,” he said.
One of the prime candidates for the non-farmer portion is Riverstone Holdings, a New York private equity firm, specializing in energy, that already has money invested in the project.
“This project has to go through Riverstone’s investment committee,” said Chandler. Dominion and Riverstone originally had bigger plans for the project. On Nov. 16, 2006, they announced that they planned to build a 379 million litre ethanol plant and similar-sized biodiesel and canola crushing facilities. Alberta Ethanol and Biodiesel has the permits to build the biodiesel and canola crushing plants but there are no plans to do so at this time.
Dominion expects 42 percent of the ethanol plant’s revenue will be generated by wheat gluten, a unique byproduct of the wet mill process. The facility will produce 40,000 tonnes of wheat gluten per year, which is used in flour-based products, pet foods and natural fertilizer. Chandler said the company’s Collingwood plant sells half a million bags of natural fertilizer per year for use on lawns. Sales are doubling every year. The other byproduct will be distillers grain for livestock feed that is higher in fat and lower in protein than what is produced at conventional wheat ethanol plants. The company expects to churn out 145,000 tonnes of that product annually, which would account for 17 percent of anticipated annual revenues.
Chandler said Alberta is home to some of the cheapest feed wheat and natural gas in North America, two key inputs for the plant. He expects ethanol to sell for a premium in the province because there isn’t enough production to meet the provincial mandate and there are three refineries in the province that will generate significant local demand.