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Solazyme now moving into biofuels in a major way

Algae company Solazyme (s SZYM) was one of the first of the biofuel startups to decide to focus on the food, nutraceutical and specialty chemical markets first, before tackling the daunting fuel industry. But after nine-years, an IPO and $125 million in venture funding, Solazyme is finally ready to break into biofuels in a more commercial way: this week Solazyme announced the ground-breaking of a plant that will produce biofuels in Brazil through a joint venture with Bunge.

The factory, Solazyme’s first large one, is being built next to Bunge’s sugarcane factory in the Moema region of Sao Paulo, Brazil, and is supposed to be operational in the fourth quarter of 2013. Bunge is providing the sugar stock and Solazyme is utilizing its sugar to oil production technology. The plant will produce 30 million gallons of Solazyme’s algae-based oil a year, and the oil will be used in both the specialty chemical and fuel markets — applications like a sustainable alternative to palm oil for use in various products.

Solazyme went public last year, at $18 per share, and raised $198 million in the process. Today Solazyme  is trading at $13.67, and generated $13.56 million in revenues for the most recent quarter, up from $7.74 million for the same quarter the year prior. At the same time the company lost $16.78 million, a greater loss than the $7.29 million loss from the quarter the year earlier. Solazyme engineers efficient algal strains and grows its designer algae in fermentation tanks without sunlight by feeding it sugar. Then, using existing industrial equipment, it extracts the oil.

The fuel market has been daunting to companies like Solazyme, because to compete in the fuel market the biofuel product needs to be able to be competitive with oil on cost and scale. Most biofuel makers just aren’t there yet and haven’t been able to achieve these economies of scale. As GigaOM Pro analyst Adam Lesser pointed out (subscription required), Amyris recently decided to scale back its biofuels production in favor of manufacturing the specialty (and higher margin) chemical squalene.

The specialty chemical market is a smaller market than fuels, but specialty chemicals can be sold for a higher price. Specialty chemicals are things like polymers that make up plastics or substrates for pharmaceutical manufacturing. OPX Biotechnologies is an example of a startup focused on bio-chemicals like bio-acrylic.

But now Solazyme is tackling biofuels head-on, and mitigating some of this risk through its joint venture. Solazyme has long maintained that it wanted to commercialize its fuel technology in the 2013 time frame, with a production cost target of $60 to $80 per barrel. Seems like it’s almost there.

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