Ethanol Project
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Overview Through its subsidiaries Maple Etanol S.R.L. (“Maple Etanol”) and Maple Biocombustibles S.R.L., Maple commenced operations of the Ethanol Project at the end of March 2012 by beginning to harvest and process sugar cane from the plantation for the production of ethanol. This agro-industrial project consists of (i) a sugar cane plantation which provides sugar cane feedstock to the ethanol plant and which includes main water delivery and drip irrigation systems, (ii) an ethanol plant with capacity to process up to 5,000 tonnes of sugar cane per day and produce up to 35 million gallons of ethanol per year, (iii) a 37-megawatt ("MW") power plant to supply all of the Ethanol Project's power requirements with the sale of any excess power, expected to reach approximately 17 MW, to the Peruvian national power grid, (iv) a 60-kilovolt electric transmission line to connect the Ethanol Project facilities to the power grid and 33/22.9-kilovolt electric distribution systems for the plantation and pump stations, and (v) a third-party operated and owned ethanol storage, loading, and shipping facility near the Port of Paita. Total costs are currently estimated in the range of US$275 million to US$280 million, including interest paid during construction, a debt service reserve account, and certain value-added taxes, and excluding assets acquired under finance leases (“Project Cost”). Maple believes its Ethanol Project is well positioned to be a low-cost, globally-competitive provider of ethanol to international and local Peruvian markets. This belief is based on certain unique characteristics of the Ethanol Project, including the Ethanol Project's specific feedstock, expected sugar cane yields, use of modern farming and ethanol production techniques, and the Ethanol Project’s location. Global demand for this clean-energy fuel source is expected to increase in the coming years as consumers continue to increase their usage of alternative energy fuels while governments globally such as the European Union, United States, Brazil, India, Australia, China, and Peru are promoting or mandating the increased use of ethanol in motor gasoline. Competitive AdvantagesThe Ethanol Project possesses significant competitive advantages relative to certain of its competitors, including its use of sugar cane as a feedstock, which is widely regarded as the most efficient feedstock for producing ethanol. Furthermore, the strategic location of the Ethanol Project in the Piura Region on the North coast of Peru has a highly-favorable agricultural climate that allows for year-round planting, cultivating, and harvesting of sugar cane which is projected to generate attractive sugar cane yields. The Ethanol Project utilizes modern farming techniques and automation, including the extensive use of drip irrigation, mechanical harvesting which enhances the project's operational efficiency while reducing costs, and significant automation within the ethanol plant. Lastly, the Ethanol Project's location close to the export terminal on the Pacific coast allows for relatively low transportation costs to access key international markets. Through international trade agreements, Peru is able to sell ethanol duty-free to both the European Union and the United States. All of these factors contribute to Maple competing effectively with ethanol producers locally and globally. Agricultural Development Maple currently owns approximately 13,500 hectares of land located on the southern bank of the Chira River in Northern Peru, and the Company´s goal is to develop a significant portion of this land for growing sugar cane using a sophisticated irrigation system. Maple is at an advanced stage of developing the first phase of the plantation consisting of more than 7,000 hectares (the "Main Estate"). As of 31 December 2011, all of the land required for the first phase has been cleared in preparation for commercial planting of sugar cane. Using seed cane harvested from the Company's 345-hectare seed cane farm, commercial planting of the Main Estate began in January 2011. 6,006 hectares were planted in the plantation by the end of 2011, and over 6,500 hectares have been planted to date. Three principal varieties of sugar cane were selected and used for commercial planting, all of which have been successfully grown in Peru for many years. In addition, small quantities of over 30 other varieties of sugar cane were evaluated for potential use in the future, and ten of these other varieties were selected for further evaluation. Booker Tate Limited, a global leader in the provision of services to agribusiness projects, oversees the agricultural operations in conjunction with Maple personnel. An essential element in developing the Main Estate is the installation of sophisticated water conveyance and drip irrigation systems designed to minimise the water requirements for the production of sugar cane while obtaining optimal yields. The water conveyance system consists of two pumping stations located on the Chira River, two reservoirs, and main water pipelines. Pipelines were selected instead of open canals to reduce evaporative losses of water being used in the project. Water stored in the reservoirs is available to supply water to the drip pump stations which in turn distribute water to the sugar cane plantation through the drip irrigation system. The drip irrigation system includes drip pump stations, fertigation equipment, various filter stations, and in-field drip irrigation lines installed throughout the Main Estate. Fertiliser is primarily applied to the sugar cane through the drip irrigation system using automated injection systems. As of the fourth quarter of 2011, the Macacara and El Arenal pump stations were both completed and in operation extracting water from the Chira River for delivery through a pipeline and canal system to the 660,000 cubic metre Macacara Reservoir and the 110,000 cubic metre El Arenal Reservoir. The two river pump stations are used to supply all the water requirements for the Main Estate. The approximate 43-kilometre water pipeline system which forms part of the main water delivery system for the Ethanol Project was completed and placed into service. The main water delivery system supplies water to the 13 drip irrigation system pumping stations which deliver water to the drip irrigation systems for the sugar cane plantation. As of year-end 2011, the civil works for all 13 drip irrigation system pumping stations were completed, and 11of these stations were in operation. The drip irrigation systems for the Ethanol Project were installed in approximately 7,129 hectares of the Main Estate, including the systems for the seed cane farms as of year-end. Industrial Development The industrial facilities for the Ethanol Project are
located within the sugar cane plantation to minimise transportation
costs
and reduce sucrose deterioration in transit. The ethanol plant is
designed to process up to 5,000 tonnes of sugar cane per
day and includes a distillery with capacity to produce up to 35
million gallons of fuel-grade ethanol per year and a power
generation plant with capacity to produce up to 37 MW of electric
power (collectively including all ancillary systems, the
“Ethanol Plant”). The steam for the power generation facilities is
provided by a high pressure boiler using bagasse, the
sugar cane’s dry residue, and some additional sugar cane plant
foliage as a fuel source. The engineering for the integration of the Ethanol Plant, which was performed by Sugarsoft Assessoria Empresarial Ltda (“Sugarsoft”) from Brazil, was substantially completed at the end of 2011. Haug S.A. (“Haug”), the contractor in charge of the construction of the Ethanol Plant, progressed on the construction activities for the installation and erection of the major equipment packages during 2011. Haug completed the installation of the 60-kilovolt transmission line including the substation facilities at the Ethanol Plant and the Piura substation which interconnects to the national power grid, and these facilities were placed into service during May, 2011. Haug made significant progress on the construction of the 33/22.9-kilovolt electric distribution systems for the plantation and pump stations in 2011. Despite the progress made in substantially completing the erection and installation of the Ethanol Plant during 2011, there were unexpected delays from third party providers relating to the Ethanol Plant that impacted the Company´s anticipated commencement date for commercial operations. However, as of today, all the facilities necessary for the processing of sugar cane and the production of fuel-grade ethanol have been installed and placed into operation. The 37 MW power plant is substantially completed and is expected to be fully commissioned and placed into service during the middle of 2012. Storage and Loading Facility The Ethanol Project will transport a substantial portion of its produced ethanol by truck from the Ethanol Plant to the storage and loading facility located in Paita on the North coast of Peru. In 2010, the Company entered into an agreement with Penta Tanks Terminals S.A. (“Penta”), a third-party contractor, to build, own, and operate this storage and loading facility which is for the exclusive use of Maple. As of 31 December 2011, the storage and loading facility was approximately 95% completed. The storage tanks, with a combined capacity of 30,000 cubic meters, are currently available for use, and the loading facilities, which consist primarily of a subsea pipeline and mooring buoy, are expected to be completed and available for use during the second quarter of 2012. Off-take Agreement and Marketing Maple currently expects to export a substantial portion of the ethanol produced by its Ethanol Project and entered into an ethanol distribution agreement in July 2010 (the “Sales Agreement”) with a subsidiary of Mitsui & Co., Ltd. (“Mitsui”), an international group with a significant commodity trading operation for products including fuel-grade ethanol, to purchase ethanol produced from the Ethanol Project. Under the terms of the Sales Agreement, Maple’s subsidiary will sell to Mitsui all of the production from the Ethanol Project for a period of five years beginning on the date of initial deliveries, except for up to 20% of the production which Maple may sell domestically in Peru. The ethanol will be sold to Mitsui FOB at a delivery point at the ethanol loading terminal at Paita, Peru where Mitsui will assume risk and responsibility, except as to a limited amount of transit losses. Mitsui will be responsible for the transportation of the ethanol to international markets, and the initial export shipments are currently expected to be delivered to the European Union. Eventually, the Company also expects to sell ethanol to Mitsui for deliveries to the U.S. and other international markets. The price to be paid by Mitsui will be a net back price based on Mitsui’s resale agreements with customers and the costs to deliver the ethanol product to the final customers, less a marketing fee paid by Maple to Mitsui. Financing The cost of the Ethanol Project has been financed primarily through (i) equity and loans from affiliates within the Group for an aggregate amount of US$118 million, all of which has been contributed, (ii) US$148.5 million of senior secured debt financing (the “Ethanol Project Debt Financing”), and iii) available cash and borrowings under its available debt instruments including working capital facilities of US$9 million. Due to certain cost increases including those related to a delay in the initially expected date for commencement of operations, the Company has incurred incremental Project Costs including internal project management and administrative costs; pre-operating costs related to the development and ongoing planting and cultivating of sugar cane on the Main Estate; costs related to the construction and commissioning of the Ethanol Plant; and certain value-added taxes. The Company spent approximately US$248 million as of 31 December 2011 related to Project Costs for the development and construction of the Ethanol Project. Value-added taxes and a portion of the additional pre-operating costs are expected to be recovered once the sugar cane is harvested and ethanol is produced and sold. In 2010, Maple executed agreements with three multi-lateral development banks and a Peruvian financial institution to provide the Ethanol Project Debt Financing of approximately US$148.5 million. Four disbursements under the Ethanol Project Debt Financing occurred as of 31 December 2011, and the aggregate amount funded to Maple under these disbursements was US$137.5 million.
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