Our Big Bet of 2013

from pinnacle digest

Dear member,

Our new client and Featured Company, Calyx Bio-Ventures (CYX:TSXV), will undoubtedly represent the largest trade we make in 2013. Calyx owns a majority interest in a game changing renewable energy company that was recently a part of aviation history.

When it comes to renewable energy investing, a sector with which we have been involved for many years, a company must have what we refer to as the 5 M’s: Mission, Mandates, Management, Money and a low Market Cap.

Calyx Bio-Ventures’ mission is a remarkable one and that’s why we are introducing it to you. The company’s operating subsidiary, in partnership with the government of Canada, Chevron Lummus Global and Applied Research Associates, recently made world history in what Popular Science Magazine referred to as one of “The Big Science Stories of 2012″.

How was world history made?

The NRC (National Research Council of Canada) flew the world’s first jet in civil aviation history that was powered by 100 percent biofuel, with no engine modifications made!

How is our new Featured Company involved?

The biofuel used in the historic flight was produced from exclusive oilseed feedstock (known as carinata) from Calyx Bio-Ventures’ operating subsidiary, Agrisoma Biosciences Inc. (Agrisoma), and refined into jet fuel by Applied Research Associates and Chevron Lummus Global.

Press Release:
Calyx’s Operating Subsidiary Makes Aviation History,
Powers the World’s First 100% Biofuel Flight

Years in the Making

It took roughly $20 million dollars and 12 years of research and development for Agrisoma to get to the point where it had a feedstock crop that can be used as an input for drop-in jet fuel. This feedstock is known as ‘Resonance™ carinata’ and is exclusive to Calyx’s operating subsidiary, Agrisoma. It has an oil profile optimized for use in the biofuel industry, and shines as the feedstock for biojet fuel.

In respect to Agrisoma, Calyx’s operating subsidiary, Courtney Symons of the Ottawa Business Journal reported:

Karen Pero, Invest Ottawa’s senior business development manager for the clean-tech sector, says that the 100 per cent biofuel flight is something no other seed provider can add to its resumé.

source: http://www.obj.ca/Technology/2013-01-29/article-3165687/From-seed-to-sky/1

This flight marked the first time that a civilian jet aircraft was powered by 100% un-blended, renewable jet fuel that meets petroleum jet fuel specifications. As mentioned, not one jet engine modification was needed. It was the exact same engine that typically would use a petroleum based jet fuel.

The historic flight took place in Ottawa on October 29, 2012, and was followed by data analyses conducted by the government of Canada’s National Research Council. No stone was left unturned.

The Government of Canada’s website reported on October 29, 2012:

“The biofuel flowed into the engine of the Falcon 20 – one of NRC’s specifically equipped and best suited jet for this challenge – as it flew over the sky of Canada’s capital. A second aircraft, the T-33, tailed the Falcon in flight and collected valuable information on the emissions generated by the biofuel.”

source: http://www.nrc-cnrc.gc.ca/eng/news/releases/2012/biofuels.html

T33 tailing the Falcon 20 to collect data during the historical flight – source: www.nrc-cnrc.gc.ca

The NRC of Canada’s Falcon 20 Jet used in the historic 100% biofuel flight

Just over two months after the flight took place, in January 2013, the NRC announced the results of the historic flight, which revealed that the biojet fuel that had been refined from Agrisoma’s feedstock (subsidiary of Calyx), burned cleaner than and more efficient than conventional aviation fuel.

Results of Flight:
50% reduction in aerosol emissions
25% reduction in particles
49% reduction in black carbon
Improvement of 1.5% in fuel consumption

* And not one engine modification was required to use the fuel – same engine as regular jet fuel

Click here to read the entire press release documenting specifics of the achievement.

This was a breakthrough for the aviation industry and the story was covered by media outlets such as Popular Science, AINonline, General Aviation News, Aviation Week, AVWeb, the ARA, Air Transport World and dozens more. Just Google ’100% biofuel flight’ and you will see how widely covered this story was. Even those involved in oil and gas publication covered this story.

Click to view National Research Council report on historic flight

Oilprice.com, arguably the most popular oil and gas industry publication in the world, reported:

“This flight represents the culmination of a significant and strategic effort within Canada to demonstrate leadership in green aviation, from the commercialization of a sustainable and scalable feedstock crop to an “at altitude” flight demonstration with real-time emissions monitoring during the flight. Agrisoma is proud to be a part of this landmark work,” said Steven Fabijanski, President and CEO of Agrisoma, who was present on the tarmac. “To date, all powered flight has relied on fossil fuel. This flight changes everything: we have witnessed petroleum free aviation.”

This story is one of national pride for Canada.

In late January, Courtney Symons of the Ottawa Business Journal reported that:

“Agrisoma Biosciences Inc., a local clean-tech company, has been perfecting that oilseed for 12 years, selling it to farmers out west and working with companies that process the seed into biofuel. Those small seeds are the firm’s ticket into the burgeoning industry of green transportation for military and commercial aviation.”

source: http://www.obj.ca/Technology/2013-01-29/article-3165687/From-seed-to-sky/1

In addition, last year, Porter Airlines conducted Canada’s first biofuel powered revenue flight. Take a guess which company was involved in producing the 50/50 blend of biofuel for that flight? That’s right; the biofuel used was derived from various oilseed crops that included the carinata oilseed grown and produced by Agrisoma.

Mandates & Calyx Bio-Ventures

If any renewable energy is to gain traction on a large scale, it needs the congressional and often financial (subsidies) support of governments. Biofuels, including the Resonance™ carinata, are no exception.

52 countries, nearly all of the largest economies in the world, have biofuel mandates in place, with the bulk of them coming from the EU, US, China and Brazil. The most efficient biofuels will receive the bulk of the funding.

Canada’s NRC funded the first 100% biofuel flight and used the private sector, our Featured Company’s subsidiary, in partnership to achieve history. It is important to note that Agrisoma Biosciences is 50.1% owned by our new Featured Company, Calyx Bio-Ventures, and the remaining 49.9% is owned by BDC Capital, a financial institution owned by the Government of Canada.

The US government is investing billions for the expansion of biofuels as well, particularly when it comes to the aviation industry – hence the significance of the first 100% biofuel powered flight and the global recognition it received. The aviation industry has committed itself to zero carbon growth – which will require biojet fuel usage, creating huge demand.

The Ottawa Business Journal reported recently that “Currently, Agrisoma’s oilseed – which is branded as Resonance – is under evaluation by U.S. defence agencies, according to the firm’s president and CEO, Steven Fabijanski.”

source: http://www.obj.ca/Technology/2013-01-29/article-3165687/From-seed-to-sky/1

The US Federal Aviation Administration (FAA) has a stated goal of reaching one billion gallons of biojet fuel use in the commercial and military aviation sectors by 2018.

Obama has been a strong supporter of biofuels. He has thrown his weight behind new and existing initiatives to boost production, including supporting Congressional mandates that would triple biofuel production to 36 billion gallons by 2022.

Agrisoma is headquartered in Ottawa, Ontario, not a typical location for a company focused on biofuel. The Ottawa Business Journal asked Agrisoma’s president and CEO, Steven Fabijanski, what the reasoning behind the company’s choice of location was:

“By having the administration here in Ottawa, we are able to reach decision-makers and policy-makers in government.”

“When the ministers are following what you’re doing, I think that means Ottawa is a good place to be as this industry starts to grow,” Mr. Fabijanski says.

source: http://www.obj.ca/Technology/2013-01-29/article-3165687/From-seed-to-sky/1

The biofuel industry is here to stay and only going to get bigger…very quickly. It is expected to grow by roughly 400% in the next two decades.

Why Calyx Bio-Ventures

As mentioned, Calyx’s operating subsidiary, Agrisoma Biosciences Inc., which is jointly owned by BDC Capital Inc. (the venture capital arm of the Government of Canada) is one of Canada’s largest agricultural biotechnology companies. The company’s ‘Resonance™ carinata’ feedstock crop provides the highest quality industrial oil feedstock, meaning that refiners can turn it into end products that can perform similarly to petroleum.

Agrisoma owns the breeders rights to this new “designer” seed crop (Carinata), which produces oil that is better suited to industrial applications (biofuels), than food-based oils such as soy or canola. Aside from its industrial uses, particularly in jet fuel, this is a new crop, exclusive to Agrisoma and vis-a-vis Calyx, which offers new opportunities for growers. It has only been available for commercial use since 2012 – the first year that Agrisoma made it available beyond small scale demonstration.

The Growers Advantage

In the biomass industry, unless you can provide farmers with incentive to grow your crop, you’ll never gain any traction. It essentially comes down to the farmer making money come harvest time.

Thanks to all the research and development spanning more than a decade, Agrisoma’s carinata offers scalable opportunities utilizing marginal and/or semi-arid lands to profitably produce high-quality renewable oil at a competitive price point to other feedstocks. Also, there are growers who want to add a profitable oilseed crop to their rotations, but have been limited in doing so because the soil type and climate in the warmer, drier regions isn’t well suited to such crops, like canola. They now have an option with Agrisoma’s Resonance™ carinata. This is the X factor which brings everything together.

Under the Resonance™ brand, Agrisoma has developed elite lines of ‘Brassica carinata’ (scientific term) that offer growers an economic opportunity on unproductive lands or as a rotation crop: high yields, high oil content, and ideally suited to semi-arid growing conditions commonly found in the southern Prairies of Canada and the Northern Plains of the US. There’s even an added benefit – tests indicate that using carinata as a rotation crop won’t cause undue soil depletion and result in yield losses on whatever crop they plant the following season.

What this means is that farmers can slot carinata in a rotation when they would otherwise have a fallow year, therefore making money on land that would otherwise sit idle. This also means that carinata can scale up on otherwise fallow lands, so it doesn’t have to displace food crops.

With the US Federal Aviation Administration (FAA) stating its goal of reaching one billion gallons of biojet fuel use in the commercial and military aviation sectors by 2018, fuel suppliers are looking for a sustainable, scalable, secure, and preferably non-food feedstock to meet this demand – and Agrisoma’s Resonance™ carinata can be that crop.

It is the best of both worlds: a crop with excellent agronomics that performs well in stressful conditions and has a ready market going through a major growth period thanks to global government initiatives. This is an industrial oilseed crop, a cousin of mustard and canola, that is particularly suited to production in low quality farmland areas – places where many crops cannot grow productively.

Carinata competitive durability

Agrisoma has seen tremendous growth since rolling out its oilseed crop in 2011, where it had 50 acres planted. 2012 was the first year for commercial sales and crop/revenue growth – 6,600 acres were planted in the year. The crop performance was excellent despite 2012′s severe drought conditions in much of North America. This speaks volumes to the crops durability in comparison to others.

2013 is a big year for Calyx Bio-Ventures as its operating subsidiary, Agrisoma, has a goal of growing the number of acres planted several times over. To give you an idea of the interest in Agrisoma’s Resonance™ carinata, the company hosted summer tours in 2012 at the 40 production sites so that farmers and other interested parties could witness firsthand how carinata was performing in the field. Interest was strong and approximately 500 people took advantage of the opportunity to participate in the site visits. At harvest time, carinata remarkably produced a harvest even at the growing sites where weather was very challenging.

Crop tour

Just this past Wednesday, February 13, 2013: Calyx Bio-Ventures was named to the 2013 TSX Venture 50 (R).

The 2013 TSX Venture 50(R) includes the top 10 companies in 5 major industry sectors that have been identified as leaders in providing shareholder value on Canada’s junior stock exchange.

“We couldn’t be more pleased to be included in the 2013 TSX Venture 50(R) as a member of the Technology and Life Sciences sector,” said Calyx President and CEO Hugh Notman. “This honour continues to build momentum for Calyx, as we continue our efforts to promote Resonance(TM) carinata, a non-food oilseed crop for use in biofuels, through our majority-owned subsidiary Agrisoma Biosciences Inc. It’s not only a recognition for our company-it’s also a nod to our shareholders for their vision.”

There were nine other companies selected to the Technology & Life Sciences industry category aside from Calyx. It was interesting to discover that the average market cap of those 9 other companies was roughly $100 million. Calyx currently has a market cap of roughly $12 million and trades for $0.40.

Full exchange press release here.

A History of Creating Shareholder Wealth and Buyouts

This group of leaders combines science expertise with the venture capital world. Calyx’s President and CEO is Hugh Notman, a partner at Stirling Mercantile and previously a Vice President of PricewaterhouseCoopers in the Corporate Finance and Investment Banking Group. Hugh brings tremendous experience advising and fund raising for technology companies.

Steven Fabinjanski, PhD, is the President and CEO of Agrisoma. What’s interesting to note about Steven is that he previously built and sold a seed company specializing in oilseed technology to Pioneer, which focuses on farmland stability.

Richard Whittall is a director for Calyx and is also the CEO of Newstrike Capital (part of the Lundin Group), which currently has a market cap of roughly $190 million. He was also a previous director for Burcon Nutrasicence – a Nasdaq listed company and leader in nutrition, health and wellness in the field of functional, renewable plant proteins. Its market cap is roughly $115 million. Richard is also a seasoned investment banker and past director of Miranda Mining, the first junior company to promote and develop the Guerrero Gold belt, from 1995 until its sale to Wheaton River Minerals (Goldcorp) in 2003.

Kevin Rathbun is a CFA and responsible for Calyx’s corporate development. He is the former CFO of Realm Energy, which was bought out by San Leon Energy in 2011 in a deal worth $139 million.

Louis Lacasse is a director for Calyx and President of GeneChem Management Inc. He is the manager of a specialized biotechnology venture fund which has over $350 million in assets distributed over four funds. GeneChem has established itself as a leader in the management of focused biotech funds.

Click to enlarge

Money and Market Cap

Calyx Bio-Ventures recently completed a $4 million private placement, with the primary use of proceeds going to increase Calyx’s stake in Agrisoma from approximately 25% to just over 50% – in part through buying out Growthworks’ stake in the company. It took $20 million of research and development over more than a decade before landing on Resonance™ carinata as the oilseed feedstock Agrisoma was ready to commercialize.

The company demonstrated the feedstock works in the real world by helping make aviation history. While it will continue its carinata breeding program, to keep looking for improvement, the product is ready to go now, so marketing and expansion of Resonance™ carinata is just as big a focus as the continual research and development is.

Calyx isn’t some junior exploration company who will need to raise $2 million every time it wants to drill a few holes. The company has tight control of its capital expenditures, no surprise given the investment banking background of its CEO. In addition, management has kept the company’s capital structure tight. There are 29.3 million shares outstanding, 39.1 million fully diluted. Its market cap sits around $12 million.

Calyx Comparable:

source: Calyx Bio-Ventures’ investor presentation

Made History and Moving Forward

Calyx Bio-Ventures’ operating subsidiary, Agrisoma, powered the world’s first 100% biofuel flight, which “is something no other seed provider can add to its resumé”.

With the EIA predicting a 400% increase in biofuel usage over the coming few decades and mandates in effect to meet these targets, Calyx is well positioned to capitalize. We are shareholders in Calyx Bio-Ventures and will be adding to our position, provided we can do so below $0.50 per share. Calyx Bio-Ventures is a client of ours, and we are biased. With that said, we’d be shareholders in this company whether it was a client or not.

The only way to gain access to this unique story in the public market is through Calyx Bio-Ventures (CYX:TSXV), the majority stakeholder of Agrisoma and our new Featured Company. Always practice thorough due-diligence as we don’t share in your profits or losses. We will have updates on Calyx Bio-Ventures over the coming weeks, so stay tuned.

Reminder: Stock markets are closed on Monday, February 18th for holiday.

All the best with your investments,

PINNACLEDIGEST.COM

CLICK HERE TO VIEW CALYX BIO-VENTURES’
DETAILED INVESTOR PRESENTATION

Tim Leslie has been the supervisor of flying operations training at the National Research Council Aerospace for 15 years and piloted the historic 100% biofuel powered flight in partnership with Agrisoma. Click on the image below to listen to him talk about it.

“I am very proud to be a part of this…it is important for Canada… I am proud to be a member of the Agrisoma, the Applied Research Associates and the Garden team”