The great majority of Solazyme’s planned manufacturing capacity is penciled in for low-margin fuels for non-binding off-take agreements with Qantas, United Airlines, and Ecopetrol. Bulk jet fuel sold today would only garner around $1,300 per metric ton — and that’s after accounting for the expected market premiums for the company.
However, the platform has the potential to produce higher value-added products such as nutritional oils, cosmetic oils, and oleochemicals, which are precursors to a wide-range of products. Given the limited quantities available for nutritional and cosmetic oils, the company — and investors — should be focused on the oleochemical industry and replacing palm oil. The recently announced research collaboration with Mitsui was a good start, but $20 million is nothing to a company that made $2.65 billion in profit in the past nine months.
3. Solid management
While companies in the space such as Amyris Inc (NASDAQ:AMRS), Codexis, and LS9 were busy shuffling management teams, Solazyme was busy inking deals and attracting top talent. A lack of turmoil creates stability, which can have an additive effect over long periods of time — something inherent to the industry.
Solazyme’s stability at the helm is due in large part to the retention of founders Jonathan Wolfson and Harrison Dillon. The management team has been able to find the right balance between grooming the founders and bringing in world-class experience to surround them — something that many companies never figure out. Although Wolfson’s trust got a little sell-happy earlier last year, who am I to argue that the entrepreneur didn’t earn it with the blood, sweat, and tears poured into the company over the past decade? The good news for investors is that the co-founders aren’t going anywhere anytime soon.
Foolish bottom line
The potential for Solazyme is amazing — and it is just beginning to scratch the surface. Consider that the company’s currently planned capacity of 550,000 metric tons of oil will require about 11 million metric tons of sugar. That represents a drop in the bucket compared with the 165 million metric tons of sugar produced annually, which doesn’t account for the suffocating amount of cellulosic sugar that could be produced each year. Nonetheless, be sure to acknowledge the risks that come with Solazyme.
The article 3 Reasons to Buy Solazyme originally appeared on Fool.com and is written by Maxx Chatsko.
Fool contributor Maxx Chatsko owns shares of Codexis. The Motley Fool owns shares of Solazyme. Check out his personal portfolio or follow him on Twitter, @BlacknGoldFool, to keep up with his writing on energy, bioprocessing, and emerging technologies.The Motley Fool recommends Chevron, H.J. Heinz, and Unilever (NYSE:UL) and owns shares of Solazyme.
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