Hello everybody,At the end of last year i saw a documentation on...

Hello everybody,
At the end of last year i saw a documentation on German Business Television about algaes being processed into fuel.
Thats when i started researching the subject and looking for companies to invest in.
I have now concluded my research for algaes in general and AlgaeTec specifically.Here are my thoughts:

Algae Tec Energy- Green Fuel of the Future

In times when even the most convinced proponents of crude oil must admit that we have already exceeded the so-called "peak oil", it becomes increasingly important for our oil-addicted countries to look for alternatives. For this reason, some years ago the first bio fuel producers emerged. However, it turned out soon that bioethanol made from rape, sugarcane, soya oil or palm oil leads to significant problems, too. In Brazil, rain forests are cleared in order to gain new acreages for sugarcane and in Germany, already approx. 15 % of the farmland is used for the production of bio-energy.
Due to this novel use of land, there is less acreage available for food production. The reduced supply is a booster for food prices, which raises serious problems, mainly in the worlds poorest countries. Therefore, the ecological assessment of biofuel produced in this manner is regarded increasingly critically.

For this reason, more and more innovative companies focus on biomass-production from algae.
The great advantage of algae is that they can be harvested approximately every 10 days and thus, biomass is produced 35-40 times more often than by fuel production by agricultural crops
Another very positive ecological aspect is the capability of algae to convert approx. 10 times as much CO2 into oxygen than rape or sugarcane, for example.
So far, the main problem of the business has been that its technologies cannot compete with fossil energies, as far as price is concerned.
This is where AlgaeTec Energy fits in perfectly.


Australian Stock-Exchange Newcomer with a lot of Experience

AlgaeTec Energy with headquarter in Perth and offices in the US has been listed on the Australian Stock Exchange ASX since January. Due to the issue of almost 48 million new shares (issue price 0.20 AUD), 5.1 million AU$ were raised. Meaning that now approx. 20 % of the company is in free float. The largest shareholder remains the parent company Teco.Bio of the two directors Roger Stroud and Earl McConchie with about 80 % of the shares. The earned capital will now be invested in the building of a demonstration plant that is to be finished at the end of this year.
Stroud and McConchie, who have longtime experience in the regenerative energy sector, have developed a new technology for the economical production of biofuels from algae.


The "McConchie Stroud Process"

This patented technology of the 2 main shareholders is an industrial solution to produce micro-algae economically and in sufficient quantities. The core of this process is a standardized container that is used as bio-photoreactor. CO2 and solar energy are introduced into the container in order to optimize the production rate of the algae. Due to the modular system, the applications are very flexible and can be adapted to the required needs. Compared to competitive agricultural crops, the advantage of the container system is a much smaller need of land (about 1:400) and the geographical flexibility. As far as land use is concerned, AlgaeTec is clearly better off (1:10) than alternative algae producers who mostly work with the "open pond" method. The purpose is to use this technology in direct neighborhood to big CO2 emitters, like power plants. Therefore, there is no competition with valuable acreage.

From the dried algae mass, several products are made.
First of all, oil is extracted which can be refined to biodiesel. Secondly, ethanol can be gained from carbohydrates and thirdly, animal feed is made from proteins.
Moreover, kerosene can be gained from the biomass (carbohydrates and proteins), what makes the cooperation with airports or airlines very interesting.
The European space company EADS, for instance, is already testing the fuel made from algae and confirms the great efficiency and consumption data of this biokerosene.
The quantification of the single final products depends largely on the algae species used. AlgaeTec has already tested more than 50 different algae species.
So there is the capability of varying the amount of the single final products according to the customers desires.

Here is a graphic modell of the process:


The Bioenergy Market

Due to the highly increasing demand for energy worldwide and especially in Asia and the consequently reduced supply of fossil energy sources like oil and gas, prices in this segment will rise clearly in the future.
Environment- and climate-friendly alternatives will considerably benefit from this situation. There is a strong and logic correlation between the oil price and bioenergy.
In addition, bioenergy could become disproportionately more important due to higher political pressure.
A current example in my country, is a new fuel (named E10) which was introduced at the start of this year.(available at every gas station)
It contains 10 % bioethanol and it is the political intention in Germany (and the EU), that this new fuel will replace fuel that consists of fossil sources only. By the way, with this new law the Federal Government follows a European guideline for the reduction of greenhouse gases.

This situation offers great opportunities for AlgaeTec Energy. The market for (bio-)diesel alone is estimated at about 15 billion US$ worldwide. Fuel (bioethanol) has almost the triple volume and kerosene makes up to almost 200 billion US$ per year. In addition, there are sale opportunities on the markets for plant oil and animal feed. Emissions trading can be very profitable for AEB as well. This newly emerging market demands penalties from CO2 producers in favor of parties who absorb the greenhouse gas or transfer it into oxygen. This is a very favorable situation for all algae producers and especially for those who have high carbohydrate/oxygen transfer rates, like AlgaeTec.


Future Development and Expansion Plans

After successful pilot tests that demonstrated the efficiency of this process, the next milestone for AlgaeTec is the building of a demonstration plant in Australia, which is to be terminated until the end of 2011. Here, especially the effects of the use of different algae species are to be analyzed and the results for potential customers are to be demonstrated.

Moreover, memorandums of understanding have already been signed with an Australian (RKD International) and a Chinese partner (Pacific Minerals). The first commercial plant is to be put into operation in 2013. The target is a 200 - 500 module unit. Possibly, the parallel mounting of a second plant may be considered.
Especially the connection to the Chinese market could turn out as a very profitable one.
It is well known that the Peoples Republic urgently needs energy alternatives for its strong growing economy and that they would like to reduce their high dependency on oil.


Financial Perspectives

Now this is the most important point for investors.
As published on Monday, financial data from pilot tests showed very positive results. From the preferred algae species, approx. 50 % algal oil and 50 % proteins and carbohydrates (= biomass) can be gained. Current market prices for bio oil exceed US$1,000 per tonne and for similar biomass US$ 400 per tonne, which would mean approx. US$ 700 per tonne. Pilot tests have shown that about 250 tonnes p.a. of algae material could be gained per module.
This would mean a revenue per year of US$35 mio. for a 200-module-plant (US$175,000 per module).
McConchie and Stroud assume that operational costs will be about US$185 per tonne (US$46,250 per module).
They estimate the costs of a 200-module-plant at US$ 125,000 per module or US$ 25 mio altogether, which would mean that the capital would already be repaid within one year !!!
Now these are some exceptional numbers. I invest in the mining business for years now and i honestly cant remember a mine with such a short payback time.
These parameters could even improve with larger units due to a better cost structure.
Thus, Algae.Tec would not have to rely on subsidies, in contrast to other bioenergy suppliers, like wind or solar plants, but would be extremely profitable right from the start.
Here is another article about Quantas and algaes, which shows that competitors of Algae Tec have big problems to operate economically:

http://biofuelsdigest.com/bdigest/2011/01/20/qantas-to-sign-loi-for-algae-based-aviation-biofuel

In order to undermine this important aspect, the demonstration plant is being built to show this to a wider public.


Listing at the Australian Stock Exchange and Going Public in Germany

Since the listing of AlgaeTec Energy (ASX: AEB) in Australia on 11 January 2011, the share price has developed very satisfactory. It has already more than doubled, although the volume is still not very high.
I think it makes a lot of sense for AEB to double list in Germany, as my country tends to emphasize ecological matters. Just as an example, our Green party would get about 20% of the votes according to the most recent polls.
We have a lot of solar and wind power companies over here and green technology gets a lot of attention in the media.

Conclusion:

I think, that due to its convincing technology, AlgaeTec has an excellent starting position in the emerging bioenergy market.
AEB benefits from a positive overall situation worldwide, which will inevitably lead to higher energy prices due to the permanently increasing demand. In addition, there is the higher political pressure on the economy (again worlwide) to invest more in climate protection.

Now of course, AlgaeTec has to proove that they can meet their financial estimates. Thats what the demonstration plant is being built for. But if they can achieve this i am pretty sure the company will be completely reevaluated.
And as i have shown, the potential market is huge.

As alway DYOR. I did and took my first position here, which i think will be a winner longterm.

Wantedman