Bio-Diesel Production Plant Start-Up in Gauteng, South Africa

Since 2008 I have been researching bio-diesel as an alternate energy source. We are ready to launch a bio-diesel production plant in Gauteng, South Africa.

I am 40 years old with 17 spent within the South Africa sea and road freight sectors. South Africa is still lagging behind in emissions reduction policy compared to our US and EU counterparts. With the COP17 summit underway in SA, this situation is quickly changing.
The target output per month is 200,000 litres to service the mining, commercial road transport, commercial property and industrial sectors.

Loan repayment on funding is amortised over a 5-year period (refer to attachment). This however is open to discussion and negotiation. Projected net earnings are ZAR1063550 after expenses including loan repayment.

Bio-diesel producers in SA operate low key with an average capacity of approximately 35000 litres per month. Eskom recently put out a tender for 200000 litres of bio-diesel per month, which could not be secured. As a high volume, B2B producer with reliable supply, we will enjoy long-term support in this new yet niche market.

Opportunities for the investors go beyond the norm for this project. I am not seeking investors for my business. I am seeking investors who will hold 100% shareholding of the company, assets and full access to information collated by myself.

I would require the investor to enter into a Management Agreement with myself for the duration of the venture. I will assume the functions of Business Manager and Sales This will provide me with adequate income and would not affect net margins to investor. After investment has been recovered and business is sold, I would require a commission on the proceeds of sale. This will be discussed.

Carbon taxes discussions are under way in South Africa. These will have a negative impact on margin for sectors with large carbon footprints. Our product will reduce overall emissions through its closed carbon cycle.

Used cooking oils will be utilized for bio-diesel production. I have also configured the production cycle to be operated off-grid, which means we do not have an extended carbon foot-print through utilizing ESKOM supplied electricity.

The production process will be audited by Promethium Carbon (www.promethium.co.za). These findings will be submitted to clients to offset their carbon footprint. This is currently not being done in South Africa.

The project has been researched for 4 years and is currently at a launch stage requiring funding.

Funding is required to purchase plant, equipment and materials. A portion is required for operating expenses during the initial 3 months.

Target market entry points defined:

1) Heavy Commercial Road transport sector - Operators within this sector don't care for lower emissions from switching to bio-fuel. The lower pricing to mineral diesel is attractive. This sector alone can utilize our monthly production.

2) Mining and Industrial sectors - African Rainbow Minerals, Anglo Gold, Goldfields, De Beers, Eskom, Accelor Mittal are a few of the Corporate giants that will support this initiative due to the reducing nature of our product. Of course they still need to be marketed.

Indirect players will include:
1) Equipment suppliers
2) Used oil suppliers
3) Carbon Auditing groups and SA Government departments and bodies

These are critical to our success and establishing a brand image and reputation.

Our distinct advantages will be:
1) High volume producer
2) Endorsed eco-friendly product with GHG reducing cycle
3) Reliable supply

The used cooking oil (UCO) supply in South Africa is volatile in both supply and pricing which has seen prices in the past 28 months escalate from ZAR 2.00 per litre to ZAR 6.50 per litre.

I have formulated a strategy for mass environmental drive in South Africa and submitted this to Shoprite Group. They are currently assessing strategy for a national CSI drive.

I have also received confirmation from a European supplier for 1000 metric tons of UCO per month. Both these initiatives will render UCO to us for around ZAR 4.50 per litre.

This gives us a unique supply position based on volume and a pricing advantage in the market.

This model can be replicated by competitors; yet will take time to establish supply channels and resources. In any event competitors get the right mix, we should be established as a preferred vendor to our target market.

Our opportunity is to step up to the plate and fill the gap between legislative compliance on sustainability and deliver a product that provides instant results.

Profits will be realised from the sale of bio-diesel, which are estimated at ZAR 1.50 per litre. Take into account lower materials prices have not been accounted for and could see margins increase to ZAR 2.50 per litres.

This increase will return the investment within a 1-year period.

The agricultural sector has been using bio-diesel for approximately 10 years in SA on generators and farming equipment. Shoprite Group has invested in a bio-diesel plant for use on its own vehicles.

Smaller bio-diesel producers, up to 35 000 litre per month, operate in SA but there is no documented information readily available. They are expected to be in the region of approximately 1000 producers.

SA is currently discussing the introduction of legislated minimum bio-fuel blends in both petrol and diesel - B2 for petrol and B5 for diesel. This will create additional opportunities for an established, high volume, accredited producer to meet increased demand.

Investment is required to fund acquisition of the following:
NB ROE - USD = ZAR 8.12
1) Bio Diesel production plant - ZAR 1 650 000-00
2) Storage tanks = ZAR 200 000-00
3) UCO material = ZAR 1 210 000-00
4) I ton used LDV = ZAR 65 000-00
5) Rental (deposit /Advance) = ZAR 68 000-00
6) Soap Manufacture plant = ZAR 150 000-00
The waste portion of production process is glycerine. This in turn will be used in the soap making process and sold to increase margin. These figures have not been included in costing.
7) Miscellaneous = ZAR 50 000-00
8) Expenses month 1-3 = ZAR 362 100-00

The investment provides for all purchases to be made cash with equipment being 100% investor owned.

Repayment has been calculated over a 5 year / 60 month period. This may appear too long, yet it is important to note factors such as increased production, higher product selling prices and export possibilities have not been incorporated into the finance model.

At an interest rate of 9% per annum on the required USD 500 000-00 investment repayment will be in the region of R 83 033-00 (USD 10 244-48) per month.

This figure excludes retained profits after taxation, which may also be allocated towards initial investment.

The idea would be to repay the loan in the shortest possible period and consider selling off the established business to realize true profits from the investment.