I asked Gouldberg, the “unofficial Ticker Guide” for SZYM on the SZYM board, the following question:
Gouldberg,
I wonder how much people are taking into account that SZYM’s main future plant (Moema) is outside the country, subject to politics and vagaries of Brazil, and apparently on the land of, and under the control of, another company, which is huge, and has other compelling interests, and can’t, or doesn’t seem willing, or doesn’t care enough, to even get a stable electricity supply to this factory which is SZYM’s life blood. That seems to me to be a major negative, but I’ve never seen it even mentioned anywhere as a factor.
Saul
Here’s his answer:
Hi, Saul.
I would think it’s definitely a factor because it simply puts some things outside the company’s control. I’m sure most never imagined that getting a stable, permanent source of electricity would become the major problem that it has. It certainly seems to have taken management by surprise and thrown a big wrench into their plans. But you’d have to imagine that risk was considered by Solazyme before agreeing to the joint venture with Bunge in the first place. I also don’t think Brazil contains the same political risk or uncertainties of a country like say, Venezuela, but your point is well-taken.
Management has said Moema should have a permanent link to the electrical grid in early 2015, which should eliminate any intermittent outages they are experiencing.
The other risk to consider is what Maxx Chatsko has been saying for a while now: that he suspects they are running into technical hurdles as well with the fermentation process. If he is correct, that is a much larger problem than a plant delay.
The way I think about it, SZYM needs to do three things to succeed in the long-term.
1. Find new, disruptive uses for their core technology where SZYM algae products can create a competitive advantage.
2. Show they can produce those products in sufficient quantity to be commercially viable.
3. Sign major customers who want to include SZYM ingredients in their end products, which will ensure SZYM’s products are accepted by the mass market.
While Solazyme has made good progress on the first area, obviously the second and third areas are full of risk and not at all certain. The fact that their largest plant is in a country with very different infrastructure standards is, as you say, an additional headwind to say the least.
Gouldberg