A Solazyme Investor's Guide to Moema's Commercial Equipment: Infrastructure

Many investors are wondering what the heck is going on with renewable oils and bioproducts company Solazyme (NASDAQ: SZYM  ) , which has now delayed start-up at its 100,000 metric ton per year commercial-scale facility in Moema, Brazil for a second straight quarter after originally expecting production in the fourth quarter of 2013. The first delay, announced on the third-quarter earnings conference call last November, was caused by the installation of better quality-control equipment. It wasn't what Wall Street wanted to hear, but it will help the company switch between oil production for food, personal care, and industrial applications more easily, and with more confidence. Remember, switching between such diverse products with the same equipment is a quality-control issue that's unique to industrial biotech platforms.

The second delay, announced earlier this month on the first-quarter earnings conference call, pushed production into the second quarter. Solazyme blamed intermittent utilities coming from the adjacent co-generation facility from sugarcane producer and joint venture partner Bunge (NYSE: BG  ) as the culprit for the delay this time. Feel free to take those claims at face value or conjure up a conspiracy theory if you like -- I feel the problems are a bit bigger than has been publicly stated, but nothing that cannot be overcome -- but we're all at the mercy of management at this point.

In the meantime, I feel it's worthwhile to discuss the equipment at Moema from start to finish, as listed in the last several company presentations to keep things simple, to give investors a better understanding of the difficulty of reaching commercial operations. The first part of this four-part series will focus on infrastructure.

Source: Solazyme.

Utilities are the lifeline of a commercial facility
Investors may think production all comes down to fermentation and recovery, but that doesn't give credit to all of the supporting components (fermentation tanks simply make for better headlines). There are miles of pipes transporting steam, water, air, and electricity throughout the facility and breathing life into all equipment within the industrial plant. That's obvious, and it makes sense that Solazyme would have encountered problems commissioning equipment if the supply of utilities were interrupted.

What is less obvious is that industrial facilities often go with limited utilites for weeks each year, which will likely occur during the annual sugarcane interharvest period for Brazillian assets. Of course, Bunge and Solazyme will likely schedule downtime simultaneously to smooth out interruptions. But it's a major factor contributing to the "engineering year," or the number of days a facility is scheduled to operate in a given 12-month period, which is shorter than a "calendar year." So while Moema has a rated capacity of 100,000 MT, it will achieve that in 325-350 days of scheduled operations.

A full engineering year doesn't come into play for start-up and will be modified during ramp-up activities, but it's something to keep in your back pocket for future use. The idea of scheduled operations does, however, come into play for 2014. If Solazyme and Bunge cannot start operations in a timely manner, then it seems difficult to imagine the ramp-up schedule (modified engineering year for the remainder of this year) would not affect the timeline for reaching steady state operations and nameplate capacity.

Don't overlook these supporting systems
One step down from utilities on the importance hierarchy are cleaning, sterilization, and process control systems. Solazyme lists the following in its presentations:

  • Clean in place, (CIP) -- allows piping and tanks to be cleaned with steam and solutions without being exposed to the outside environment (closed-loops stay closed).
  • Sterilizers -- equipment used to eliminate possible contaminants from feedstock, media inputs, water, air, buffer solutions, and anything else going into the fermentation tank, in addition to any waste leaving the facility.
  • Distributed control system, (DCS) -- allows engineers to monitor and control equipment throughout the facility from a central location.

Think it's trivial? Think again. The positions of spray balls (part of the CIP) within fermentation tanks are optimized with computer simulations to maximize their effectiveness. Source: Gold Peg International.

If you cannot clean your equipment, then you cannot control the quality of your products. If you cannot sterilize your inputs or outputs, then you cannot effectively control contamination within your process or of the outside environment. And if you cannot monitor your equipment simultaneously from a central location, then you cannot have a commercial-scale facility. In other words, supporting infrastructure is incredibly important.

Foolish bottom line
As you can see, there's plenty more detail that goes into the infrastructure that supports Moema than is explained on the quarterly conference calls (and this is just the equipment listed!). This information may not affect your investing thesis, but I feel it's important for investors to understand what goes on behind the scenes at Solazyme and Bunge. Only then can we fully appreciate the magnitude of the challenge in bringing such a complex facility online. My hope is that this information will better educate investors should management fully explain its successes or failures in starting or ramping operations at Moema in the future. In part two, we'll take a look at the upstream components at Moema.

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 26, 2014, at 3:34 PM, jodigal wrote:

    Maxx,

    Appreciated

    It appears to me from the reports and statements like " On the wire " , the DCS and all the associated field instrumentation that is required to support the BIOTECH Process and maintain a consistent ( underline consistent) quality was already in place , including the precommissioning checks like LOOP Tests done. Whatever be the Precommissioning tests the instruments can be fine tuned only during the actual ramp up process.

    If we do not want to go into any further conspiracy theory , we have to believe that the problem is only related to "INTERMITTENT Steam supply and it happened suddenly one fine Monday morning and that too after the RIGHTS ISSUE

    Regards

  • Report this Comment On May 26, 2014, at 10:45 PM, mebrownj wrote:

    Good to know all the knobs and valves involved. Looking forward to the other three articles in the series. I'm not worried long term, but it's good to know the details of the complexity that you have mentioned before. Understanding lends to patience and possibly taking advantage of others lack thereof.

    I appreciate your work into these matters.

    Mack

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