Another Ace Up Our Sleeve

Next to Hemispherx Biopharma Inc. (+ 572% since our recommendation) and Orsus Xelent Inc (+ 65% since our recommendation), we have a few more aces up our sleeve.

Take, for instance, Global Green Solutions Inc. (GGRN – $0.12) , which we first recommended at $0.06 a few months ago, is making progress in both its business units: Greensteam, a commercial stage biomass-to-energy system; and Vertigro, a development stage algae growing system which produces biofuels feedstock.

In our initial Company Report (pdf) we wrote that Greensteam’s first major project is Greensteam California, which will build a demonstration unit followed by 10 full scale waste biomass to steam units at Aera Energy LLC., a California-based joint venture between Shell and ExxonMobil and one of California’s largest oil and gas producers.

At Aera Energy, and several other oilfields, steam is injected into the underground oil reservoirs to extract the heavy oil. This is an enhanced oil recovery (EOR) method which is applied to oil reservoirs that contain very viscous crude oils.

Currently, Aera has about 100 natural gas fired steam generators and they want to replace many of them with waste biomass-fired steam generators for two key reason: 1) to receive contractually agreed steam supply at a lower price than its current natural gas fueled generation, and 2) to achieve a reduction in their greenhouse gas emissions carbon footprint.

In our report we also wrote that Global Green Solutions appointed Korral Partners, an independent corporate advisory and private equity firm, to raise $75.8 million, which is necessary to build the units at Aera Energy. Korral recently completed an information memorandum and has commenced marketing the deal to potential investors.

Underneath are some of the highlights of the memorandum.

  • High investment return – Assuming a 10-year project duration, matched to the anticipated off-take contract, the leveraged IRR of the project is 29%. This excludes substantial additional upside from the sale of CO2 credits once California implements a legislated cap-and-trade scheme (scheduled for 2012), as well as extension of the off-take contract in line with feasible operating lifespan of the plant and equipment to a minimum of 20 years.

  • Strong off-take agreement – Greensteam California has an off-take agreement with Aera Energy, a blue chip company, to sell steam generated from the project on a take-or-pay basis. The off-take agreement stipulates a steam pricing formula correlated to the prevailing price of natural gas, benefiting Greensteam when natural gas prices rise. Pay back on the project occurs at a natural gas price of $3.59/MMBTU, against $6.40/MMBTU forecast by the US Energy Information Administration at inception of the commercial phase.

  • Proven technology components; low risk process configuration – The technology is industry-standard and installed and operating in multiple reference sites, although the exact process configuration and feedstock composition is unique to the project. Field testing has demonstrated operability and performance requirements.

  • Abundant feedstock availability – The feedstock requirement is easily met by available resources as Aera Energy is located in western Kern County, in California’s Central Valley, one of the most productive agricultural areas in the US, especially in regards to tree crops, growing more than half of the country’s fruits and nuts. Availability of preferred feedstock is bolstered by prohibition of open-burning of biomass and evolving farming practices shortening crop replanting cycles. Feedstock suppliers have agreed to a pricing mechanism that links feedstock to off-take prices. In effect, if the steam price declines, the cost of feedstock also declines.

  • Strong management team – Excellent track record in biomass sector; design, fabrication and operation of steam generators; process control and industrial automation; commercial energy management; greenhouse gas (GHG) management; and permitting.

  • Korral’s track record – With offices in Scandinavia and London and representatives and associates across Europe and North America, Korral Partners has a strong track record in raising tens of millions of dollars for “green” companies.

Greensteam utilizes proven biomass to steam technology, an off-take contract with Aera is in place, biomass feedstock contracts are negotiated, engineering is completed and, procurement and construction is ready to commence. Based on these items, we’re confident they will succeed in raising the necessary project financing.

We’ll make sure to keep you up-to-date on Greensteam California and Global Green’s other projects in the coming weeks and months.

Photo credit ChaceofSpades

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  • You would think that California and the federal government would be so gung ho about helping to get this project up and running ASAP. Project financing for Greensteam California is the big roadblock – it’s make or break. It’s been 3 months since the Jun 18/09 update. Any progress? Any potential leads? Any news?

    GGRN shareholder Dan Vatne

    • Dan, many thanks for your pertinent question. I totally agree that completing the Aera project financing would be a significant milestone for Global Green. I believe the Company has a strong case as a off-take contract with Aera is already in place and therefore investors know what they’re getting into. The contract takes away part of the uncertainty, because even when a technology is very good, you’re never sure you’ll be able to sell it. And in this case Global Green already sold it. I think that’s very important.

      To answer your question, I spoke to Global Green’s CEO and he said a news update on Aera can be expected soon.

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