Mission gets boost from Valero offtake, investment agreement

By Susanne Retka Schill | November 20, 2009
Posted December 11, 2009

Mission NewEnergy Ltd. has entered into a binding five-year biodiesel supply agreement with Valero Marketing and Supply Company, a subsidiary of Valero Energy Corp. The offtake agreement also gives Valero the opportunity to buy a 25 percent stake in Mission.

Valero, a Fortune 500 company and the largest independent crude-oil refiner in North America, made its move into biodiesel supply in the same year that its subsidiary, Valero Renewable Fuels, purchased seven ethanol plants from the bankrupt VeraSun Energy Corp. giving it 760 MMgy ethanol capacity overnight.

With headquarters in Perth, Australia, Mission New Energy has a 100,000 ton per year (30 MMgy) biodiesel plant operating in Malaysia and extensive jatropha production in development in India. The company has a second, 250,000 ton per year plant under construction in Malaysia with KNM Process System SBhd as the turnkey contractor using Axen second generation heterogeneous catalyst, transesterification technology. The company is also developing a cellulosic ethanol technology that can be integrated into its planned Indian jatropha biodiesel production units. It is hoping to introduce the cellulosic ethanol technology platform internationally as well. Biodiesel Magazine featured Mission New Energy's approach to jatropha development in the May issue.

Under the terms of the supply agreement, Mission will supply Valero with up to 200,000 tons of biodiesel per year. Valero has the right to double that amount to 400,000 tons per year and to extend the term by an additional five years. The agreement represents gross revenue potential to Mission of over US$3.5 billion based on prevailing market prices, maximum volume and contract life. The first product shipment under the Supply Agreement is expected to occur during the second quarter of calendar year 2010.

Over the course of the contract, Mission will supply Valero with palm biodiesel initially and ultimately with jatropha biodiesel as its supply chain in India expands jatropha production.

"We are delighted to be supplying Valero and look forward to expanding our commercial relationship," said Nathan Mahalingam, Mission's managing director. "The increasing demand for biodiesel driven by the renewable fuels standard and coupled with this long-term supply agreement solidifies the United States as a key market for Mission going forward."

James Garton, head of corporate finance spearheaded the negotiations with Valero for Mission. "The cooperative spirit of this Supply Agreement has been crafted through a year of discussions and detailed testing of Mission-produced palm- and jatropha-based biodiesel in Valero's U.S. laboratories," he said. "Given the nature of the relationship and the potential to work together on a range of commercial matters, Mission welcomes Valero as a long-term customer and prospective investor."

According to the Mission New Energy announcement, the terms of the equity deal would provide Mission with Australian $36.6 million if fully exercised before Aug. 31, 2010. Valero has the right to purchase up to 25 percent of Mission at Australian $0.45 per common share, representing a 61 percent premium to the current 30 day volume weighted average price.Valero will be able to maintain the 25 percent equity stake through a second round of investments with the price set in the agreement at a 20 percent discount to the 20-day volume weighted average price of the publicly traded Mission. That portion of the agreement expires Sept. 30, 2012. Both transactions with Valero are subject to Mission shareholder's approval.
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