Algae.Tec Valuation Report

Due Diligence and Valuation Report
Arrowhead Code: 10-01-04
Coverage initiated: 23 March 2011
This document: 15 November 2011 Company: Algae.Tec Limited
Fair share value bracket: AU$1.56 to AU$ 2.21i
Ticker: ASX:AEB, OTCBB:ALGXY
Share price on date: AU$0.35ii
Headquarters: Perth, Australia
Analyst Team
Thomas Renaud Rashmi Shah Executive Chairman: Mr. Roger Sydney Stroud
thomas.renaud@arrowheadbid.comrashmi.shah@arrowheadbid.com
Website: www.algaetec.com.au
+1 (212) 619 6889

Algae.Tec tapped into international capital
Market Data markets with a public offer and listed on the
52-Week Range: AU$0.17 to AU$0.67iii Australian Stock Exchange and Frankfurt Stock
Average Daily Volume: 15,180iv Exchange. On 28thApril 2011, the company‘s
Market Cap. on date: AU$87.12MM American Depositary Receipts (ADR) commenced
trading on the USA OTC market under the ticker
Financial Forecast Data (in AU$) ALGXY.
‗12E ‗13E ‗14E ‗15E 16E ‗17E ‗18E
Algae.Tec has developed the McConchie-Stroud
High profit/
(loss) MM
(6.9) 27.2 58.6 59.2 60.3 61.6 63.0 System which cultivates and economically
High EPS harvests high yield algae. The system is scalable,
(2.76) 10.94 23.54 23.77 24.23 24.76 25.29
AU$ has minimal land footprint and water usage. The
Low profit/
(6.9) 17.9 39.0 39.4 40.2 41.1 42.1
technology provides competitive advantages in
(loss) MM terms of low capital and operating costs, minimal
Low EPS
(2.76) 7.18 15.66 15.83 16.15 16.53 16.90 requirement of land, low water evaporation and
AU$
better recycling of water amongst other specifics
Fiscal Year (FY) which make it commercially viable.

1stJuly – 30thJune The global market for algae is poised for
explosive growth in the next 10 years, demand is
Summary expected to reach 61MM gallons/year of bio-fuel
Algae.Tec Limited is involved in the production of and a market value of AU$1.3B by 2020
algae to manufacture sustainable fuels such as representing a CAGR of 72%, roughly on par with
biodiesel and green jet fuel. Management has early development in the biodiesel industry.
core competencies in biofuel technologies, energy Globally, the United States (US) is poised to ramp
markets, project commercialization and business up production the earliest among world markets
management. The company has successfully with 50% of all algae activity. The European
demonstrated the algae oil and biomass yield in Union, accounting for about 30% of algae activity,
the experimental stages. The company is now will be limited initially by the industry‘s focus on
building a demonstration facility with Manildra to university research, and later by insufficient
prove its commercial viability, which is expected access to water, land, and nutrient sources. It is
to be completed in Q1-2012. believed that the US and Europe cannot grow
enough corn, soy, or rapeseed to meet their bio-
The company intends to initiate the development fuel targets. Latin America and Asia Pacific, which
and operation of commercial facilities in several have fewer projects in operation today, are set to
countries, predominantly by way of joint venture. gain significant market share in the long run.
The focus will be on Australia, U.S., China, Brazil
and Southern Europe. The products will be Arrowhead believes that Algae.Tec has enormous
primarily Biodiesel and Grade-A Jet Fuel. In growth potential with a medium risk profile.
addition, the company has recently set up the Based on intrinsic revenue capacity from 500
18,200 square feet Algae Development & modules, Arrowhead believes that the company‘s
Manufacturing Centre in Atlanta where the photo- fair share value lies in the AU$1.56 to
bioreactors will be assembled for shipping. AU$2.21bracket.

Algae.Tec Limited – Arrowhead BID 1 OTCBB:ALGXY; ASX:AEB
Due Diligence and Valuation Report See important disclosures on page 27 of this report.

Table of Contents

Algae.Tec Presentation .....................................................................................................3

News .................................................................................................................................8

Listing Information ...........................................................................................................9

Contacts ............................................................................................................................9

Major Shareholders ...........................................................................................................9

Management and Governance .........................................................................................10

Assets and Projects .........................................................................................................11

Technologies and Markets ...............................................................................................14

Porter’s Five Force Analysis for the Biofuel industry in Australia ....................................18

Project Risk Profile Analysis ............................................................................................19

Peer Profile .....................................................................................................................20

SWOT Analysis ................................................................................................................23

Value ...............................................................................................................................24

Analyst certifications ......................................................................................................27

Valuation .........................................................................................................................28


Algae.Tec Presentation
Algae.Tec is an Australian biofuel company focused on commercializing technology that produces algae
to manufacture sustainable fuels such as bio diesel and green jet fuel. Founded in 2008, Algae.Tec has
conducted scores of laboratory, bench-scale and pilot tests and product trials, assessed competitive
algae technologies, and applied the results to detailed engineering evaluations of commercial plant
operations. These activities have led to the development of unique proprietary technology and know-
how for high efficiency production of microalgae via a novel modular photo-reactor system and improved
algae harvesting and product refinement technologies. The current strategy of continuous improvement
and adherence to quality control in existing markets, are expected to assist in the achievement of the
consolidated group‘s long term goal and development of new business opportunities.
In August 2010, the Group announced the signing of a strategic relationship agreement with Pacific
Minerals; a Hong Kong based Group, regarding the commercialization of its technology in China. The
parties agreed to set up a joint venture company in China with the aim of identifying and progressing
with commercial applications of its technology.
In March 2011 Algae.Tec Limited announced the opening of its 18,000 sq ft facility in Atlanta Georgia.
This facility is currently being used to build the first full size modules that will be established on the
Manildra site in Nowra, NSW.
The company‘s unique technology has demonstrated sustained performance, providing step-change
improvements in productivity, product yield, carbon dioxide sequestration, plant footprint requirements
and substantial capital/cost savings versus agricultural crops and other competitive algae processes in
the industry. The company is building a demonstration facility with Manildra to prove its commercial
viability, the first modules of which are being built in the in Atlanta facility, are on track to be shipped to
the Nowra site in October 2011 and are expected to be operational in Q1-2012.

Algae.Tec’s Asset Portfolio
Algae.Tec plans to construct modules that would cultivate Algae in efficient manner.

The most important application of algae technology is likely to be in the generation of biodiesel, which is
registered and used as a direct diesel fuel substitute and fuel additive. Algae.Tec‘s primary focus has
been directed toward microalgae as the most efficient photosynthesis species for bio-fuels production.
The optimum selection of the algal species for bio-fuels production depends on the ability to sustain the
culture (resilience and reliability); species growth rate; the biomass specific contents of lipids,
carbohydrates and proteins (combined productivity); and the overall supporting photosynthesis
environment. Biodiesel provides important environmental advantages and has the highest ―energy
balance‖ of any transportation fuel. The total global in-place production capacity of biodiesel is 37B liters
per year, with price driven by and dependent on crude oil, government subsidy and price of biodiesel
feedstock.


It is estimated that algae produces more oil than any other oilseeds currently in use. For instance, where
soybeans and sunflower yield 48 and 102 gallons of oil per acre year, microalgae‘s could range from
5,000 to 15,000 gallons. The 125Mtpa vegetable oil market is set to witness a growth rate of 3%-5%.
After oil extraction, algae biomass could be used as feedstock, agricultural fertilizer, biomass power
generation, etc. The animal feed market alone is an AU$80B per year market; the primary source high
protein soybean meal is currently priced at approximately AU$450/T. The residual algae biomass with
high carbohydrate and protein contents offers a direct substitute for agriculture-based protein sources.
Other key useful forms of algae are fatty acids, glycerine and ethanol – ingredients for the
pharmaceutical and consumer industries.
For more detail on Assets, see the Assets and Projects section of this report.

Algae.Tec’s Portfolio and Company Premiums
Advantages of Algae: Algae are a group of aquatic estuarine and marine plant organisms, which may
range from microscopic (microalgae) to many meters in length. Largely found in damp places and bodies
of water, approximately 1,000 algae species show the potential for production of biofuels. These
organisms contain chlorophyll and with water, carbon dioxide and sunlight, produce complex carbon
chain molecules such as hydrocarbons and polysaccharides and proteins.
Subject to each product‘s composition, Algae‘s carbon content could range anywhere between 45%-
80%, in the form of lipids/oils, carbohydrates, proteins and hydrocarbons.
The advantages of algae, as a source of renewable fuel are noteworthy:
– Efficient and fast production cycle; converts solar energy and carbon dioxide into renewable and
sustainable fuels.
– Effectively sequesters atmospheric carbon dioxide, balances greenhouse gas production and reduces
impact of global warming.
– Provides environmental solutions for recovery of toxic stack gas pollutants and remediation of
polluted water streams.
– Hydrocarbons derived from algae production can be used to produce renewable biofuels for direct
substitution of fossil fuels.
– Algae-derived biofuels provide a significant reduction in vehicular exhaust emissions versus standard
fossil fuels.
– Algae.Tec requires relatively lesser land to produce the same amount of oil than the land required for
oil production from palm, jatropha, canola, soy, cotton, corn etc.
– Algae.Tec provides a long-term sustainable fuel source not derived from food source vegetable oils.
– Algae.Tec due to nature of its operation is not subject to significant environment regulations under
both the Commonwealth and state legislation.
Technology
Photosynthesis is a biochemical process, during which algae absorbs light energy from sunlight and
carbon dioxide; utilizes water and critical nutrients and undergoes multiple step light and dark phase
reactions to biologically produce primarily lipids, carbohydrates and proteins subsequently generating
oxygen.The Algae.Tec system combines closed control of algae production within an engineered modular
environment and efficient downstream bio-fuel processing. The Algae.Tec production process is
described below.


McConchie-Stroud System
Algae.Tec produces high-yield algae growth and harvesting technology through the McConchie-Stroud
System. The McConchie-Stroud System is designed to facilitate algae cultivation anywhere, including
marginal land or industrialized areas. The system also incorporates scalability, minimal land footprint
and water usage. McConchie-Stroud System consists of a modular reactor in which minute plants, called
microalgae are grown and related infrastructure used for harvesting and refining into algae products.
The company has developed and utilized process simulation models for evaluation of the algae process
and its downstream biofuels, including detailed material and energy balances, process flow diagrams,
unit and equipment design and specifications, plant lay-out and turnkey capital estimates. The
production comprises a series of critical processing steps, including gas treatment, supply systems for
carbon dioxide, light energy and nutrients; harvesting of biomass and refinement of algae products.
The advantages of the McConchie-Stroud module include:
– Reduction of capital and operating costs, due to the possibility of sharing infrastructure as modules
in close proximity can be grouped, relocated and re-used.
– Minimal requirement of land, vis-à-vis peers, thereby reducing land leasing and purchase costs.
– Reduced water evaporation and better recycling of water, nutrients and heat, and reduced risk of
contamination of algae from external sources.

Algae.Tec’s Portfolio and Company Risks
Intellectual Property: Algae.Tec, so far, has not obtained a patent in relation to the McConchie-Stroud
System, and there is no certainty that the current patent application in Australia for the McConchie-
Stroud will be granted.
Strategic Partnership: The Company intends to initiate the development and operation of commercial
facilities in several countries, predominantly by way of joint venture with focus on Australia, U.S.A.,
China, Brazil and Southern Europe. The products will primarily be Biodiesel and Grade-A Jet Fuel.
Different countries have different environmental regulations and the company has to find right strategic
partner for success in these countries.
Financing Requirement:Inability to obtain additional financing may reduce company‘s scope of
operation and require scaling back expansion and development programs. Thecompany is building a
demonstration facility and it is possible that available funds may not be sufficient to fulfill the business


objective. Also the company might not have sufficient funds to enable the company to fully
commercialize the McConchie – Stroud System.
Success of McConchie-Stroud system: The Company‘s success largely depends on the success of its
technology. Though the company has shown excellent results during its research and development
phase, it still faces the risk of commercialization of algae products from the McConchie-Stroud system.
Apart from the above risks, the company faces the risk of attrition of its key personnel, operational risks,
adverse weather conditions, industrial and environmental accidents, and industrial disputes.
For a detailed risk assessment, please refer to the Risk profile analysis section.

Algae.Tec’s Corporate Strategy
The company intends to initiate the development and operation of commercial facilities in several
countries, predominantly by way of joint venture. The primary focus will be on Australia, U.S., China,
Brazil and Southern Europe. The products will primarily be Biodiesel and Grade-A Jet Fuel. In August
2010, the Group announced the signing of a strategic relationship agreement with Pacific Minerals; a
Hong Kong based Group, regarding the commercialization of its technology in China. The parties agreed
to set up a joint venture company in China with the aim of identifying and progressing with commercial
applications of its technology. Algae.Tec is establishing strategic partnerships and alliances with
investors, venture partners, customers and suppliers (materials, services, technologies) to accelerate
the achievement of the company‘s goals and objectives.
Algae.Tec currently has MOUs with:
– Hong Kong company Pacific Minerals Limited and Australian company RKD International to deploy in
China
– The Manildra Group for the first Australian plant
– Leighton Contractors for engineering and project management expertise
The company‘s strategy has been focused to assess competitive algae technologies to apply the
development phase results to detailed engineering evaluations of commercial plant operations. The
development of unique algae technology has led to improvements in productivity, product yield, carbon
dioxide sequestration and substantial capital/cost savings versus agricultural crops and other
competitive algae processes in the industry.
The company is currently in the process of scaling up the technology to the next phase of
commercialization with construction and operation of a demonstration Plant—Shoalhaven One—for
performance evaluations, product trials and technology marketing. The company has recently set up the
18,200 square feet Algae Development & Manufacturing Centre in Atlanta where the photo-bioreactors
will be assembled for shipping to Shoalhaven Plant. Total developmental capital and operating costs for
Shoalhaven Plant are budgeted at AU$4MM with a scheduled start date in Q1-2012, and the first
commercial plant is projected to launch by the end of 2013.The photo bioreactors will be employed at
Algae.Tec‘s demonstration plant. The plant is located at the Manildra Group‘s ethanol facility situated at
Nowra, south of Sydney. The Manildra Group is the largest ethanol producer in Australia.
The key milestones in the Demonstration Plant are as follows:

Period Milestone

March 2011 Manufacturing plant operational in Atlanta

April-August 2011 Module fabrication in Atlanta

August 2011 Construction of Nowra commences

October 2011 Shipment of Modules from Atlanta

2012 Q1 Start-up of Demonstration facility

The initial two commercial facilities will be deployed in China and Australia. Considering the rising
demand for biomass in India, the company is equally inclined towards venturing in India. There are also
worldwide efforts to lower carbon emissions to which algae oil and biomass act as a healthy substitute.


Key Market Trends
Algae properties: Algae is a group of aquatic estuarine and marine plant organisms, which may range
from microscopic (microalgae) to many meters in length. Algae potential is greatest in regions where
there is an abundance of land, water, and sunlight. Studies show that algae species, which are primarily
unicellular or diatom microalgae has a potential for biofuels, meeting the general requirement for algae
production. These species are useful in producing:
– Carbohydrate (sugar) compositions most suitable for ethanol production, or
– Lipid (fats/oils) compositions which are suitable for production of biodiesel, or
– Hydrocarbon compositions suitable for production of renewable distillates.
The most abundant types/families of microalgae include Green, Diatom, Blue- Green and Golden Algae.
Global growth prospects: The global market for Algae is poised for explosive growth in the next 10
years reaching 61MM gallons per year and a market value of AU$1.3B by 2020 representing a CAGR of
72%, roughly on par with early developments in the biodiesel industry.
Globally, the United States is poised to ramp up production, being the earliest amongst world markets
with 50% of the total algae activity. The European Union (EU) market, accounting for about 30% of
algae activity, will be limited initially by the industry‘s focus on university research, and later by
insufficient access to water, land, and nutrient sources.
Technology: The company uses McConchie-Stroud technology system to produce algae-based biofuel.
Currently, the company is pursuing the commercialization of this technology for algae production and
processing system. Algae production comprises a series of critical processing steps, including supply
systems for carbon dioxide, light energy and nutrients, harvesting of biomass and refinement of algae
products.
Products: Algae.Tec produces vegetable oil and a biomass of simple sugars and edible protein. Market
prices as of September 2011, for crude vegetable oil was more than US$1,200/T and for biomass prices
were more than US$500/T. Algae.Tec‘s pilot plant studies have shown that McConchie-Stroud system is
capable of delivering commercial projects of more than 1,000 modules which gives dry algae crop
productivity of 250MT per container module. This works out to be a total manufacturing cash cost of
approximately US$200/MT which is less than US$40/barrel.
For more details, refer to the Technologies and Markets section


News
– Algae.Tec bioreactors receive approval for Australian facility: On October 18, 2011, the
company announced that its demonstration plant, Shoalhaven One, received development approval
under the Shoalhaven City Council Environment Planning and Assessment Act. The plant will be
used to capture carbon dioxide waste from power stations and manufacturing facilities, feeding the
pollution into the algae growth system. The permit is effective immediately, and after three years,
Algae.Tec will have the option of expansion. Shoalhaven One will be sited next to the Manildra
Group‘s industrial facility, south of Sydney, Australia.
– Algae.Tec’s customer and site meetings in China and Germany: On July 18, 2011,the
company announced that its managementreturned from customer and site meetings in China and
Germany where there is interest in Algae.Tec‘s ability to produce algae as feedstock to manufacture
sustainable fuels such as biodiesel and green jet fuel.
– Algae.Tec technology uptake due to Australian price on carbon: On July 14, 2011, the
company indicatedthat the introduction of a price on carbon by the Australian Government in its
Clean Energy Future (CEF) package would accelerate uptake of the Algae.Tec technology by carbon
dioxide emitting industries.The Algae.Tec enclosed modular technology captures carbon dioxide
pollution from power stations and manufacturing facilities, which feeds into the algae growth
system.
– Algae.Tec’s demonstration to be collocated at Australian ethanol plant: On July 08, 2011,
the company announced that it signed a collaboration contract with Australia‘s largest ethanol
producer, the Manildra Group, to construct a demonstration-scale algae production facility in Nowra,
NSW and the project could be operational by the first quarter of 2012. The company announced
that Manildra is making several contributions to the project, including access to land and utilities.
Algae.Tec‘s role in the project is to build the demonstration plant, and ensure safety and site
regulations are met. The company intends to convert a percentage of the algae produced at the
demonstration facility into biodiesel for use by Australia‘s armed forces. Alternatively, some of the
algae feedstock will be converted into jet fuel and used for testing purposes in aircraft engines.
– Algae.Tec to build demonstration Facility: On June 29, 2011, the company announced the
construction of an algae demonstration facility in Shoalhaven One, in Nowra, south of Sydney,
Australia. Algae.Tec signed the contract to build its proposed algae harvesting and production
facility. ‗Shoalhaven One‘ will be at the Manildra Group‘s Nowra ethanol plant, the largest ethanol
producer in Australia.
– Algae Tec’s depositary Receipts commences trading on the USA OTC market: On April 28,
2011, the company announced its American Depositary Receipts (ADR) debut on the USA OTC
market under the ticker ALGXY. The Bank of New York Mellon (BNY Mellon) was appointed to
establish and manage the Level 1 American Depositary Receipt (ADR) Program.
– Algae.Tec opens Atlanta Algae Development & Manufacturing Centre: On March 17, 2011,
the company announced the opening of the Algae Development & Manufacturing Centre in Atlanta,
Georgia where the photo-bioreactors will be assembled for shipping around the world. The Algae
Development & Manufacturing Centre is an 18,200 square foot fabrication facility. The company‘s
executive chairman said that the center is currently being modified to enable retrofitting system
process of the 40 feet steel shipping container algae growth modules, ready for the first module
delivery to the center in April.
– Algae.Tec launches ADR Program: On March 17, 2011, the company announced; it had
appointed the Bank of New York Mellon to commence the establishment of a Level 1 American
Depositary Receipt program. The Executive chairman, Roger Stroud, said that the ADR program
would give the United States energy and investors access to shares of the company, which is in a
high growth phase establishing facilities in Australia and Asia.
– Algae.Tec lists on Frankfurt Stock Exchange: On February 21, 2011, the company announced
that it has been accepted to list on the Frankfurt Stock Exchange (FWB). The Executive chairman,


Roger Stroud said that the dual listing on FWB gives the company access to the most significant
sustainable energy financial market. He also said that the company has a globally focused growth
path so it is important to be part of the world‘s biggest investment facility covering the European
Union and United States.
– Algae.Tec lists on Australian Stock Exchange: On January 13, 2011, the company announced
that it has listed on Australian Stock Exchange. On this occasion, the CEO of the company said that
Algae.Tec will be the first algae company to list on a main board stock exchange in the world, and
one of the few cleantech companies to be listed in Australia.
– Algae.Tec targets Australia's Cleaner Future for Power Stations Policy: On September 14,
2010, the company announced that it is targeting for inclusion in the Australian Government's
Cleaner Futures for Power Stations Policy. Algae.Tec‘s Executive chairman, Roger Stroud said that
he understood the carbon capture and algae growth and harvesting system should be eligible for
the program which seeks to establish a best practice emissions standard for new coal-fired power
stations. He said the company would be seeking high-level government meetings in a bid to have
the technology included as an alternative to existing proposed carbon capture and storage options.
– Algae.Tec signs MOU’s for China and Australia pre-listing: On August 26, 2010, the company
announced two MOUs for non-binding commitments to deploy the technology in China and
Australia. The company‘s Executive Chairman said that the MOU with Hong Kong Company Pacific
Minerals Limited and Australian company RKD International Pty Ltd provides for the establishment
with the objective of introducing company‘s technology to China.

Listing Information
Algae.Tec was listed on the Australian Stock Exchange on 13-Jan-2011 and was listed on Frankfurt
Stock Exchange on 21-Feb-2011. The company raised AU$5.1MM while issued 25.5MM shares at AU$20c
per equity share. Algae.Tec‘s American depositary Receipts (ADR) commenced trading on the USA OTC
market on 28-Apr-2011.

Contacts
Registered office: Suite 9, 3 Centro Avenue, Subiaco, WA, Australia, 6008
Telephone: +61 (08) 9380 6790
Email: phatfull@algaetec.com.au

Major Shareholders

Equity Holder No. of Shares Held (MM) Percentage Holding

Teco. Bio 200.00 80.35%
Mr Peter Ernest Hatfull 9.61 3.86%
Fmr Investments Pty Ltd 5.00 2.01%
Moltoni Corporation Pty Ltd 4.38 1.76%
Mcconchie Jeanette 2.40 0.96%
Morrison Timothy 2.00 0.80%
Chung Joseph 1.25 0.50%
Hover Holdings Pty Ltd 1.25 0.50%
Source: Bloomberg – 14 November 2011


Management and Governance
The management team at Algae.Tec comprises experienced professional with a proven track record.

Mr. Roger Sydney Stroud Executive Chairman
Mr. Roger S. Stroud has over 35 years experience in a variety of industries. He spent over 10 years in
finance in a number of areas including credit, money market and investment banking for CitiNational
(Citibank/National Mutual) merchant bank, predominantly in Sydney.
Following the above, he floated a mining company, while undertaking the role of managing Director for
eight years. In the late 1990s, Roger began the process of building businesses in the renewable fuel
sector, primarily biodiesel. This included floating two separate biodiesel companies. One of these
companies, Natural Fuel Ltd went into voluntary administration in April 2009. Roger was a director of
Natural Fuel Ltd until October 2007. He is a founding director and 50% shareholder of Teco.Bio LLC, and
is based in Perth, WA.

Mr. Garnet Earl McConchie Executive Director
Mr. Garnet Earl has over 35 years experience over a broad field of chemistry and associated
technologies, including global markets, bulk chemicals and plastics, differentiated commodities and
intermediates, specialty chemicals, polymers and interaction with environmental sectors.
Earl‘s field experience includes international business management, plant operations, and project
engineering in the United States, Europe (especially Germany, Holland, Switzerland, UK and CIS), Latin
America (Brazil, Argentina and Mexico) and Asia (Korea, China and Australia).
Earl has over 10 years of specific technical and business experience in the biodiesel and glycerine
industry sectors. He is a founding director and controlling shareholder of Teco.Bio LLC, and is based in
Atlanta, Georgia where he has coordinated the microalgae development.

Mr. Peter Ernest Hatfull Managing Director & Company Secretary
Mr. Peter Ernest has over 30 years experience in a range of senior executive positions with Australian
and International companies. He has an extensive skill-set in the areas of business optimization, capital
raising and company restructuring.
He was recently Managing Director of a leading integrated metal recycling and contracting company,
CMA Corporation Ltd, based in Sydney, where he managed a period of dramatic growth and increased
profitability. He has experience in turnaround and slow growth situations, where companies have
struggled to expand their business. This has required revitalising the business plan, attracting investor
funding, and implementing profitable strategies. Peter is currently a director of Teco Pty Ltd, Kresta
Holdings Ltd, Barminco Pty Ltd and is based in Perth, WA.

Mr. Timothy Morrison Non-Executive Director
Mr. Timothy is the current Director of Research and Development at Murdoch University. Tim represents
the University on the Boards of a number of companies engaged in the commercialization of University
IP. Mr. Morrison plays a role with a number of early stage clean tech companies supporting these groups
to raise early stage capital and structure merger and acquisition transactions. Through his engagement
on an Australia-based private equity investment fund, Mr. Morrison plays a role in reviewing and
investing in businesses seeking early stage venture finance.
Prior to his current position, he was General Manager of MurdochLink Pty Ltd, the commercial arm of
Murdoch University, which is the dedicated provider of quality research consultancy services to the
professions, industry and government.


Assets and Projectsvviviiviiiixx Algae Products End-Use Markets

carbohydrates (sugars) to bio-
Overview ethanol
Algae.Tec is focused on commercializing Production of bio-based polyolefin
plastics.
technology that produces algae at a very fast
rate, to manufacture sustainable algae oil Proteins High protein content algae biomass
for the animal food market
(which is further used to produce vegetable oil,
biodiesel and refined glycerine), biomass (used Hydrocarbons Production of renewable distillates
via gasification for substitution of
to produce animal protein feed, bio-ethanol and
diesel fuels.
renewable distillates) and other nutrients such
as fatty acids. The company intends to initiate Biomass Feedstock source for biomass
power generation with Substitution
the development and operation of commercial of fossil fuels
facilities in several countries, predominantly by Conversion of residual biomass
way of joint venture with focus on Biodiesel and following oil extraction to
Grade-A Jet Fuel. The company is building a renewable distillates.
demonstration facility with Manildra to prove its Biomass nutrients suitable for use
commercial viability, the first modules of which in agricultural fertilizers
are being built in the in Atlanta facility, are on
track to be shipped to the Nowra site in October Vegetable Oil
2011 and are expected to be operational in Q1- Microalgae such as higher plants produce
2012. storage lipids in the form of triacyglycerols.
The company produces high-yield algae growth Comparatively, algae produce more oil than any
and harvesting technology through the other oilseeds which are currently in use. Many
McConchie-Stroud System. System is designed microalgae species can be induced to
to cultivate algae virtually anywhere, including accumulate substantial quantities of lipids, often
marginal land or industrialized areas. The greater than 60% of their biomass.
system is designed for scalability and minimal The table below presents indicative oil yields
land footprint and water usage. Algae.Tec‘s from various oilseeds and algae.
primary focus has been directed towards
microalgae as the most efficient photosynthesis Yields (Gallons of oil per acre per year)
species for bio-fuels production. Corn 18
Algae Oil Vegetable Oil Market
Soybeans 48
Biodiesel Biodiesel Market

Algae Oil
Safflower 83
Refined
Glycerine
Glycerine Market Sunflower 102
Rapeseed 127
CO2 Animal
Animal Feed Market Jatropha 254
Protein Feed
Nutrients
Algae
Production
Biomass Bio-Ethanol
Ethanol Market Oil Palm 635
Water

Chemicals
Renewable
Distillates
Diesel Fuel Market Micro Algae 5,000-15,000

Depending on the geographic region, the
Fatty Acids Fatty Acid Market 125Mtpa vegetable oil market (primarily, palm,
soybean and rapeseed oils), representing AU$
Algae Products End-Use Markets
110Bis growing between 3% and 5%.
Approximately 80% of the vegetable oil demand
Lipids/Oils Algae oil substitution of vegetable
is for the food market, and consumer products
oil feedstocks (e.g. soybean oil,
palm oil) for biodiesel industry and feedstock for biodiesel production account
Refined glycerine produced via for approximately 25Mtpa of the total demand.
algae-biodiesel production Vegetable oil prices have historically followed
Specialty oils and fatty acids. agricultural supply/demand balances, population
Carbohydrates Substitution of agricultural sourced
growth and standard of living; however, crude
feedstocks for conversion of oil pricing has also significantly influenced


vegetable oil prices. Soybean and palm oil prices 12.5B liters per year. Europe is by far the
(see chart below) have escalated approximately largest biodiesel market (approximately 80% of
14% per year over the past five years and the the global market), followed by the U.S.A.
trend continues. (approximately 15% of the global market).
Biodiesel is registered and used as a direct
Palm and Soybean Oil Prices (US$/MT) diesel fuel substitute and fuel additive, which is
1600
1400
most often marketed in blends of 5%-20%.
1200 Biodiesel provides important environmental
1000 advantages, e.g., carbon dioxide sequestration,
800
significantly reduced toxic exhaust emissions,
600
400 and has the highest ―energy balance‖ of any
200 transportation fuel. There are more than 500
0 biodiesel manufacturing plants worldwide with a
Apr-05

total in-place production capacity of 37B liters
Feb-04
Sep-04

Feb-11
Sep-11
Jul-03

Jun-06

Jul-10
Dec-02

Mar-08

Dec-09
Oct-01

Oct-08
Aug-07
Jan-07
Nov-05
May-02

May-09

per year.
Soybean Oil Palm Oil
The price of biodiesel is primarily driven by the
following factors:
Fatty Acid – The crude oil-derived diesel market
Another very useful form of algae is fatty acid. – The level of government subsidy and,
Fatty acid is a viscous, gum-like substance, – The price of biodiesel feedstock.
derived from algae. It is also a very important
ingredient in the manufacturing of papers and Gasoline & Diesel Price Movements
textiles. As it possesses most of the properties
of gum, it is also used in the water-proofing and 5
4.5
fire-proofing industry. It is especially helpful in 4
3.5
making fabrics that are fire and water resistant. 3
2.5
In the pharmaceutical industry, it is used in the 2
1.5
manufacture of Gaviscon, Asilone, Bisodol etc. It 1
is used as a mould-making material in life 0.5
0
casting, prosthetics and dentistry. Like most of
Feb-2008

Feb-2009

Feb-2010

Feb-2011
Aug-2007

Aug-2008

Aug-2009

Aug-2010

Aug-2011
Nov-2007

Nov-2008

Nov-2009

Nov-2010
May-2008

May-2009

May-2010

May-2011
the forms or products of algae, alginic acid is
used extensively in the food processing industry
as an ingredient of soups and jellies. Gasoline Price Diesel Price

The world production of fatty acids from the
hydrolysis of natural fats and oils aggregates to Crude Oil Prices
approximately5Mtpa, which represents an 160
AU$3B per year market. The consumption of 140
fatty acids is related to the growth in vegetable 120
100
oils and economy of the region. The current 80
fatty acid prices range from 50% to 70% of the 60
40
vegetable oil prices, which is greater than 20
AU$500/T on an average. 0
Aug 03, 2007

Aug 03, 2009

Aug 03, 2011
Aug 03, 2008

Aug 03, 2010
Nov 03, 2007

Nov 03, 2008

Nov 03, 2009

Nov 03, 2010
Feb 03, 2008

Feb 03, 2009

Feb 03, 2011
Feb 03, 2010
May 03, 2008

May 03, 2009

May 03, 2010

May 03, 2011

Biodiesel
Most research into efficient algal-oil production
predicts that biodiesel may be the only viable
method to produce enough automotive fuel to
Sources: Energy Information Administration – U.S.
replace current world diesel usage. Continuous Department of Energy (EIA-DOE), U.S. Department of
biodiesel production would get less expensive, Agriculture (USDA) Jacobsen
more competitive and become more Jet Fuel
consumers friendly. Current biodiesel
consumption represents approximately 1% of The company intends to initiate the
the total vehicular diesel fuel demand globally at development and operation of commercial


facilities with primarily focus on Biodiesel and or to middle distillates via gasification and
Grade-A Jet Fuel. By 2015, we expect Fischer-Tropsch synthesis. Biomass after
production capacity of bio-diesel based Jet-Fuel extracting oil contains about 40% to 60%
to reach 900 MGY. carbon content dependent on the algae species
and operating conditions in the form of
Airlines, which burn some 25 BGY of fuel, have
carbohydrates, proteins and hydrocarbons.
won regulatory approval for bio-fuel that meets
standards set by the benchmarking group ASTM The animal feed market is a 180Mtpa market
International.On July 2011, Lufthansa became (AU$80B per year). The primary source for
the first airline in the world to use a bio-fuel mix animal protein feed in the U.S. is high protein
on scheduled services. The carrier used a 50:50 soybean meal, currently priced at approximately
mix between jet fuel and biosynthetic fuel AU$425/T. The residual algae biomass with high
sources from jatropha, camelina plants and carbohydrate and protein contents offers a
animal fats made by Neste Oil and was used direct substitute for agricultural-based protein
without any modifications to aircraft or its sources.
engines.
Ethanol
In 2010, companies like Choren, Rentech, and
Ethanol from algae is produced by converting
Solena Group had announced commercial
starch (the storage component) and cellulose
projects that could result in hundreds of millions
(the cell wall component). Lipids in algae are
of gallons per year of production capacity
converted into biodiesel, while the
coming online by 2014.There are a number of
carbohydrates are converted to ethanol. Algae
commercial hydroprocesing plants being built,
are the optimal source for second generation
most notably by Neste Oil and ConocoPhilips.
bio-ethanol due to the fact that they are high in
Glycerine carbohydrates/polysaccharides and thin cellulose
walls.
Glycerine is a by-product in the process of
producing biodiesel for pharmaceutical and The total global bio-ethanol consumption is
consumer products industries. From every 1 MT approximately 70B liters (55Mtpa) and
of biodiesel 0.1 MT of glycerine is produced. represents an AU$35B biofuel market per year.
Crude glycerine (80% content) is typically Bio-ethanol demand is set to double over the
upgraded to refined glycerine (99.5 %+) for next 20 years. Ethanol prices correlate highly
food, pharmaceutical and consumer product with ex-rack gasoline with current prices at
applications. The worldwide demand for AU$650/T.
glycerine is over 1 Mtpa and continues to grow
at 5% per annum. The current glycerine market
is approximately AU$900MMper year at
AU$750/T.
Biomass
Algae biomass may be used directly or after oil
extraction for a number of major applications
such as animal protein feedstock, agricultural
fertilizer, biomass power generation, and further
biomass conversion to ethanol via fermentation


and play an important role in fixing nitrogen
Technologies and Marketsxi
from the atmosphere.
– Golden Algae – Golden algae primarily exists
Algae
in freshwater systems. They are very similar
Chemistry and Properties to diatoms but have more complex pigment
systems.
Algae is a group of aquatic estuarine and marine
plant organisms, which may range from Algae as Energy Sources
microscopic (microalgae) to many meters in
Shooting prices of oil, increase in consumption
length. They range from small single celled
of fossil fuel, advances in technology
organisms to multi-cellular organism, some with
development and government‘s focus on global
fairly complex and differentiated form. Algae is
warming have attracted demand for algae as a
usually found in damp places and bodies of
potentially rich source of sustainable biofuels.
water and thus are common in terrestrial as well
Algae are very beneficial as a renewable fuel
as aquatic environment. There are more than
resource because of the following advantages:
30,000 fresh water and salt water species of
algae. Approximately 1,000 algae species show – It has one of the most efficient and fastest
the potential for production of biofuels. production cycles, which converts solar
energy and carbon dioxide into renewable
Microalgae
and sustainable fuels.
Studies shows that algae species which are – It is an environment friendly source of
primarily unicellular or diatom microalgae has a producing energy. It efficiently sequesters
potential of biofuels, meeting the general atmospheric carbon dioxide, favorably
requirement for algae production. These species balances greenhouse gas production and
are useful in producing: reduces the long-term impact of global
– Carbohydrate (sugar) compositions most warming. Also, it provides environmental
suitable for ethanol production, or solutions for recovery of toxic stackgas
pollutants and remediation of polluted water
– Lipid (fats/oils) compositions which are
streams.
suitable for production of biodiesel, or
– The production of oil per land mass is greater
– Hydrocarbon compositions suitable for
than any terrestrial crop and can be
production of renewable distillates.
cultivated virtually anywhere.
These are the most primitive form of plants; – Also, the hydrocarbons derived from algae
however the mechanism of photosynthesis is production can be used to produce renewable
similar to that of higher plants. Due to simple biofuels for direct substitution of fossil fuels.
cellular structure and growth in aqueous
environment with more efficient access to water, Global Algae Market Opportunities
carbon dioxide and nutrients, microalgae are far The global market for Algae is poised for
more efficient converters of solar energy. explosive growth in the next 10 years reaching
Biologists have categorized algae into a variety 61MM gallons per year and a market value of
of classes on the basis of pigmentation, life cycle AU$1.3B by 2020, representing a CAGR of 72%,
and basic cellular structure. The most abundant roughly on par with early development in the
types/families of microalgae include: biodiesel industry. Algal bio-fuels have matured
– Green Algae – They generally exhibit high significantly in the last few years, moving from
growth rates and are considered as the small research labs, to pilot projects, to small
evolutionary progenitors of modern plants. scale demonstration projects, and now to first-
Carbohydrates and natural oils (lipids) are stage pre-commercial trials for CO2 capture in a
the main storage compounds for green algae. handful of projects.
– Diatom Algae – Found in oceans, they are Globally, the United States is poised to ramp up
rich in silica in the cell walls and store carbon production the earliest amongst world markets,
primarily in the form of natural oils or with 50% of all algae activity. The European
carbohydrates. Union (EU) market, accounting for about 30% of
– Blue-Green Algae – They are found in algae activity, will be limited initially by the
freshwater and marine environment habitats industry‘s focus on university research, and later


by insufficient access to water, land, and Technology
nutrient sources. It is believed that United
The company uses McConchie-Stroud technology
States and Europe cannot grow enough corn,
system to produce algae-based biofuel.
soy, or rapeseed to meet there bio-fuel targets.
Currently, the company is pursuing the
Latin America and Asia Pacific, which have fewer
commercialization of this technology for algae
projects in operation today, are set to gain
production and processing system.
significant market share in the long run.
McConchie-Stroud System has achieved
Ultimately, algae potential is greatest in regions
exceptional algae productivity and yields of algal
where there is an abundance of land, water, and
products during the research and development
sunlight. Secondary considerations include
phase due to the following:
favorable regulations around biofuels mandates,
greenhouse gas (GHG) emissions, wastewater Innovative Light System: Contains a novel
treatment, and livestock operation, as well as lighting system for optimal provision of light for
potential co-location opportunities (wastewater growth of algae.
remediation and carbon recycling). Algae is
Modular Reactor: Enables growth of algae to be
becoming one of the most promising sources of
easily controlled and optimized.
biodiesel as it is biodegradable and can be
produced using ocean and waste water without Controlled Environment: Enables a nutrient rich
depleting fresh water resources. atmosphere for better growing of algae.
The industry believes that the algae-based Algae are micro organisms that contain
biofuels market will be characterized by regional chlorophyll, and with water, carbon dioxide and
collaborations and partnerships that are able to sunlight they produce complex carbon chain
capitalize on efficiencies through expertise molecules such as hydrocarbons and
related to unique environmental conditions, co- polysaccharides and proteins. The composition
location opportunities, and access to end of algae product is dependent on the specific
markets. This horizontal organization will result species utilized and the photo-synthesis
in significant consolidation within the market operating conditions employed. Algae products
over the next decade. contain 45%-80% of carbon content in the form
of lipids/oils, carbohydrates, proteins and
Algae are attracting increased investments and
hydrocarbons.
interests from bio-fuel, petroleum and
agribusiness industries. Driven by escalating Algae Production
global climate change concerns and the rising
cost of petroleum-based energy, companies and Algae production comprises a series of critical
government entities are developing the use of processing steps, including supply systems for
bio-fuels derived from algae to reduce carbon carbon dioxide, light energy and nutrients,
emissions from power plants and generate harvesting of biomass and refinement of algae
renewable transportation fuels. products.

Using an intricate process of photosynthetic, The company developed and utilized process
companies have developed biodiesel and ethanol simulation models for evaluation of the algae
from algae that, given optimal conditions, can process and its downstream bio-fuels, including
double its volume overnight. Up to 50% of an detailed material and energy balances, process
alga's body weight is comprised of oil, whereas flow diagrams, unit and equipment design and
oil-palm trees - currently the largest producer of specifications, plant lay-out and turnkey capital
oil to make bio-fuels - yield just about 20% of estimates. Based on the development phase
their weight in oil. results, engineering design and process
simulation modeling, material and energy
balance data are presented in the process flow
diagram for a typical algae plant.


Make-up Seed Algae
Water Supply
Algae Unit CO2 Nutrients & Water

Recycle Water
Nutrients Nutrient System

Off-Gas
Chemicals Alkalinity System
Vents Algae Oil

Modular Photo- Chemicals
Light Energy Product Refinement Fatty Acids
Reactors

Algae-Water
Dilute
Algae-Water Biomass
Stackgas Gas Treatment

Harvesting &
Additives Separation Biomass Losses
Recycle Water

Conversion Energy Process Areas

The entire process of algae production and processing is described in following table:

Process Steps Process Description Key Unit Operations

Utilization of high CO2 content (8-15% volume) Stackgas Pre-Treatment
stackgas from fossil fuel power plants, biomass etc.
Water Recycle
Gas Treatment Preparation of stackgas for photo-reactors, including
Gas Distribution Network
water removal, temperature control, compression and
gas distribution. Recovery of Module Off-Gas

Solar Collection
Light Energy Solar energy in the form of visible light absorbs and
Visible Light Filtration & Distribution
Supply converts CO2 to produce algae.
Energy Recovery/Storage

Water Supply (fresh, marine and/or
Preparation units for water supply, nutrient package, wastewater)
Raw Material alkalinity control and make-up algae.
Alkalinity Control
Systems Nutrients, Nitrogen and Phosphorus are formulated via
Nutrient Preparation Unit
addition of industrial fertilizers.
Make-up Algae Control System

Modular Photo-Reactors
Modular Photo- Photosynthesis bio-reactor system controls the overall Internal Light Distribution Network
Reactors productivity and desired product yields per species. Modular Infrastructure & Process Controls
per Module Series

Low concentration of micro-algae in final output Combinations of Flocculation, Gas-Lift
requires various algae separation measures. Frothing & Paste Handling
Harvesting Recovery methods for algal cell fracturing and direct Mechanical Separation Units
recovery of hydrocarbon products provide improved
overall energy efficiencies. Algae Biomass Refinement


Process Steps Process Description Key Unit Operations

Algae biomass contains predominantly lipids (fats/oils)
and carbohydrates Oil Extraction Units
Conventional oil extraction technologies (mechanical Crude Algae Oil Treatment
Product
expeller and/or solvent extraction) are employed to
Refinement Fatty Acid Co-Product Recovery
recover crude algae oil.
Chemical treatment and refinement is required for Biomass Product Refinement
purification of the finished algae oil product.

Biodiesel & Glycerine via Oil
Transesterification
Algae oil acts as raw material for biodiesel (and
Downstream glycerine). Biomass Animal Food Products
Products Biomass is a source of animal feed, ethanol and other Ethanol Production
energy sources. Middle Distillates Production
Power Generation via Biomass Gasification


Porter’s Five Force Analysis for the Biofuel industry in Australia

Overview
Australia‘s algae oil rush is fueled by a combination of tough emission control standards and state-by-
state bio-fuel mandates. Carbon emitters will pay an AU$23/T tax starting in 2012, which accelerated a
boom for carbon capture and bio-fuels. The bio-fuel consumption increased 34% from 2009 to 2010.
The Manildra-Algae.Tec demonstration offers both emission control as well as bio-fuel. Algae Tec
photobioreactor modules will use carbon dioxide (CO2) produced by ethanol processing to feed algae,
which consumes two parts CO2 for every part algae produced.

Barriers to Entry High

• High Capital Investment
• High-end scientif ic expertise
• Patented Technologies
• Economic Viability of new
technologies

Power of Customers Low
Power of suppliers Low
Customer base is spread
• Engineer ing Suppliers (to Industry competition Medium across industr ies – which give
build the production unit) will less control to any particular
hold key to the systems built • The existing players are highly industry.
(repairs & maintainance) experienced and very f ew in number. • Aviation industry: shif t to
• Bargaining power: other • The success of the industry is on biodiesel due to pressures
suppliers will be dependent on based on technological expertise and from clean energy and
the type of technology used. the strong R&D team . emission standards
For instance, Solazyme uses • Some of the players already have • Glycerine: used extensively
Sugar/ Starch to cultivate grants from govt. to supply f uel f or in pharmaceutical and
algae whereas Algae.Tec uses them and also contracts f rom various consumer product industry -
light, w hich reduces the airlines growing around 5% every
supplier bargaining power. year
• Vegetable oil: Algae would be
pref erred as it produces 10-
100 times oil in the same
area as crops
Threat of substitutes Low

• Algae is the best available
substitute f or oils – biodiesel
and vegetable oil ,and
various other uses in paper
and textile industry


Algae.Tec Valuation Report

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