Until recently, little was known in the UK of Energem Resources, other than its diamond trading forays in Sierra Leone and Angola. But now the Canadian company – which has been listed on the Toronto Stock Exchange for some time – has finally captured British interest for good reasons: the disposal of its mining assets and its dual-listing on the London Stock Exchange’s junior market as a serious counter in the global renewable energy market.
Energem’s recent (and determined) move into the biofuel space has made it one of around 69 AIM-listed ventures hoping to tap into the increased global demand for sustainable energy. It didn’t raise any new cash when it came to London, but an AIM fundraising is expected to take place later this year to provide cash for its green energy division, Energem Biofuels.
Unlocking the cash potential
Says Jimmy Kanakakis, Energem CEO: “We listed on AIM to unlock funding that otherwise wouldn’t have been available to us through our listing in Canada as most of our institutional shareholders base is London or UK based.
“I believe the listing creates interest in the UK as investors can deal in the local market in real time rather than having to deal through Canada. It also enables us to raise funds from a number of firms, which because of their constitution, cannot deal outside the UK,” he adds.
Big on biofuels
A rationalisation of Energem’s activities in May 2007 led to the streamlining of the group’s operations. The company is now organised into three divisions: Mid-stream oil, biofuels, and trading and logistics. Kanakakis believes record oil prices and a push to reduce the dependency on carbon-based and non-renewable sources of energy will heighten demand in the company’s chosen market, green energy.
He says: “Energem needed a focus and a specific direction, which resulted in the decision to disengage ourselves from any business that wasn’t core in order to pursue the avenue of renewable energy.”
Tom Swithenbank, Energem Biofuels CEO, explains: “We develop biofuels and alternative sources of energy in Africa. Our two main projects are molasses-based ethanol production in Kenya and jatropha farming in Mozambique.”
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Back in 2003, Energem bought a 55 per cent stake in Spectre International, which owned a disused ethanol plant in Kisumu, Kenya. After a $14 million (£7 million) facelift, the plant reopened and is now capable of producing 60,000 litres of potable (drinkable) alcohol a day, which is distributed to the spirits industry and accounts for 15 per cent of the group’s turnover.
“What we would really like to do at Kisumu is to convert the potable ethanol to bioethanol fuel. In order to do this, the Kenyan Government would have to introduce a mandatory transport fuel blend for ethanol. This would create an enormous demand for for bioethanol-based fuel in Kenya. At this point we would start to put expansion strategies in place.”
Swithenbank believes the mandate won’t be long in coming: “The Kenyans have stated that they want to move in this direction because of the Kyoto Protocol. We are now just waiting for it to happen.”
The risk factor
In Mozambique, Energem is farming biodiesel-feedstock jatropha. The project is at the pre-revenue stage with first revenues expected in 2009. Swithenbank says there is a long history of ethanol production in Brazil and rapeseed oil cultivation in Europe, but that the production of biodiesel on an industrial scale outside Europe is new.
“It makes sense to produce biodiesel-feedstock in an environment that is better suited to it in terms of climate and cost. However, we would aim to refine and sell the raw oil in Europe,” he adds.
Despite the plus points of operating in sub-Saharan jurisdictions, the region comes with its risks, as seen recently with the unrest in Kenya. “The events in Kenya are unfortunate, but not unexpected. Africa has a legacy of disruption and upheaval, which is partly why we originally had such a diversified platform (in nine African nations) – it was a manner of spreading risk. Fortunately, the Kenya plant is unaffected so far and won’t be affected,” explains Kanakakis, adding: “We always measure the extent of the risk that we will be exposing ourselves to in any given jurisdiction and we have the requisite insurance in place.”
With the EU mandate of 10 per cent biodiesel or biodiesel blend for transport fuel by 2020 looming, the pressure is mounting to find ways to meet this target. Energem believes that jatropha, an inedible, mildly toxic plant with seeds that are pressed to produce crude oil that can be further refined into biodiesel, is the answer.
In July 2007, the group acquired a 70 per cent stake in jatropha-based biodiesel venture in exchange for a US$5.5 million (£2.8 million) loan to develop the project.
“The project had been going for over three years and had completed full testing of Jatropa in its nursery in Xai Xai, which produced seedlings for 300 hectares of now mature test plantations,” explains Swithenbank.
“We pressed the jatropha oil and sent it to the South African Bureau of Standards for testing, which confirmed that the seed oil was suitable for refining to the EN14214 standard for biodiesel.”
Following the trials, 1,000 hectares have been cleared and made ready for farming, with 400 hectares now planted. Following the grant from the Mozambique Government to the rights to a futher 60,000 hectares for cultivation, the company is aggressively ramping up its rollout schedule. “The government is keen to see investment in the biodiesel area and we are keen to support them in their objectives.”
Swithenbank expects the project to generate first revenues by 2009. In the mean time, the company is farming castor-bean plants, used in the manufacture of polyurethane, alongside the jatropha plants as a cash-crop. “The cultivation of castor-bean plants is two pronged: A cash-crop while the jatropha is maturing in addition to being a potential biodiesel-feedstock.”
Although the project is still in the development stage, plans are afoot to perfect planting and yield in order to rollout the Mozambique operation to other regions of Africa. The company anticipates becoming the largest African biodiesel-feedstock company.
The EU’s stance on biofuel imports will play a decisive role in Energem’s fortunes. President Barroso has stated a need to base import duties on sustainability in order to prevent countries like Indonesia cutting down vast tracks of rainforest to produce biofuel-feedstock for Europe. Says Swithenbank: “The key uncertainty is government policy. The EU is a key consumer of biodiesel and therefore we will monitor the EU carefully in terms of agriculture and trade policy. Barroso is keen for biofuel to be allowed into the market as it cannot produce enough feedstock to meet the mandate – they would have to plant up half of Europe to do that.”