A Calgary-headquartered company that owns yellowhorn tree plantations in China plans to build a biodiesel plant in B.C.
Maple Leaf Reforestation Inc. (TSX-V:MPE) this week announced plans to invest between $2.7 million and $3 million in acquiring plantations in China owned by Vancouver-headquartered KS Ecology Inc., a privately owned company.
Maple Leaf, which also owns yellowhorn tree plantations in China, plans to acquire KS’ assets by issuing common shares to KS at a deemed per share value.
The companies have signed a letter of intent and the deal is expected to close at the end of June.
The acquisition will give Maple Leaf the critical mass it needs to start shipping yellowhorn tree oil to Canada to produce biodiesel.
That will require building a biodiesel plant, and Lai said he plans to build it in the Lower Mainland.
Port access is just one of the reasons he feels Vancouver is the right location. The company’s biodiesel expert also lives in Vancouver, Lai said, and KS Ecology’s staff, who will stay on with the newly merged company, are also here.
But Lai said there’s another reason for locating the plant in B.C.: “B.C. is the first province in Canada to introduce a biodiesel program.”
Last year, new provincial regulations took effect that required 3% renewable content in diesel fuel in B.C. That mix increased to 4% this year and will go up to 5% next year.And starting July 1, the federal government is also implementing new requirements for diesel to contain 2% biodiesel. All of which means there is a growing market for biodiesel in Canada, Lai said. China has no such incentives.
But B.C.’s biofuel incentives don’t necessarily mean the local biodiesel industry is about to flourish, said Ian Thomson, president of the Canadian Bioenergy Corp.
Government policies that require petroleum companies to include biodiesel in their fuels don’t mean they have to buy the biodiesel locally.
“It’s true that B.C. has [shown] real leadership in renewable fuels and there is a lot of biodiesel and renewable diesel being consumed in B.C. right now,” Thomson said.
“Who will end up making that fuel is really a choice that is up to the petroleum companies. Whether a company that locates here could sell to them, that’s not a call that regulators make; it’s really the petroleum industry.”
Thomson added that there are two biodiesel plants in the Lower Mainland, “but most of their markets are outside of B.C.”
Most biodiesel in North America is derived from soybeans or canola, but it can be made from virtually any oil-rich plant
The seeds of pistache trees and nuts of yellowhorn trees have a heavy oil content. Yellowhorn tree oil is used in China primarily for cooking, but it’s also used for tea and medicinal purposes.
KS’ two yellowhorn plantations in China total 1,055 acres of land and have 2.6 million yellowhorn trees in various stages of growth. The plantations also have six million Chinese pistache trees.
KS is also negotiating a number of other deals and partnerships in China that – if concluded – would result in the acquisition of an additional three million yellowhorn trees in China, which Lai said would give the company “a dominant position with respect to the yellowhorn supply source in China.”
Lai said only about 10% of the oil from the company’s yellowhorn trees would be used for cooking oil in China. The rest would be shipped to Canada to be made into biodiesel.
Lai said the biodiesel refining plant his company wants to build is estimated to cost between $2 million and $3 million, and would be financed through debentures.
“The revenue generated from this operation should be enough to pay off this debt in two or three years.”
Lai added that the plant would produce 2.6 million gallons of biodiesel oil per year, and the fuel would sell for $1.30 per gallon.
In addition to its tree plantations in China, Maple Leaf also has a greenhouse in Inner Mongolia that grows seedlings used in land reclamation to fight desertification.
Lai added his company would also be seeking Health Canada approval to import yellowhorn oil to be used as cooking oil.