After substantial research and development and favorable results in the initial field testing phase in the U.S., NutraCea will be constructing a full-scale, proof-of-concept wheat bran stabilization facility to validate the technology and promote its widespread use to convert wheat bran into a food ingredient. The Company believes that significant amounts of stabilized wheat bran can be blended into the flour produced by the mill. In addition, stabilized wheat bran will be sold as a stand alone ingredient.
"The economic benefit to wheat millers of the blended product is especially appealing at a time when grain prices are at all-time highs. For example, if a wheat miller blended 5% wheat bran into wheat flour, which is approximately one fifth of the amount of bran produced by a mill, profits would double based on today's pricing," said Leo Gingras, chief operating officer of NutraCea.
The project has received all the necessary governmental and regulatory approvals. Construction is expected to begin in mid-2008 with operations set to start in early 2010. The estimated construction cost for the project is in the range of $35 million depending upon variability in the size and actual equipment costs of the plant.
Construction costs, revenues and profits will be shared 51% by NutraCea and 49% by the Indonesian entity. NutraCea will lease its proprietary stabilization equipment to the venture, while maintaining all of the intellectual property rights to the technology and patents.
Revenues from the joint venture will be generated from selling 100% of the wheat flour and wheat bran production as both a blended product and separately. Production from the Indonesian facility when fully operational is estimated to be 180,000 tons annually. If the plant is run at full capacity and assuming current wheat flour prices, revenues from the facility are anticipated to exceed $100 million annually. Margins are expected to be significantly better than those of traditional mills due to the inclusion of NutraCea's cost effective stabilized wheat bran technology.
Worldwide, over 500 million tons of wheat is milled annually with U.S. millings being over 30 million tons. Wheat bran accounts for approximately 25% of the weight of the wheat. Recent prices per ton for wheat flour range from $600 for standard baking flour to as much as $1,000 for more valuable forms of semolina flour. Wheat flour is used in a wide range of food products throughout the world.
Lim Ai Ping, president of Fortune Finance Overseas Ltd. (FFOL), the joint owner of the entity developing the wheat mill commented, "This new venture allows us to take advantage of a new and unique technology to improve the profitability of our wheat milling operations. Indonesia imports over 4 million tons of wheat flour annually and the ability to produce more product locally offers tremendous cost savings associated with shipping, before we even take into account the increased yield that we anticipate achieving. We look forward to expanding the realm of possibilities that this proprietary technology offers." FFOL is an affiliate to Pacific Advisors Holdings Ltd., which currently has a venture with NutraCea to stabilize rice bran in Indonesia.
"We believe that this new business opportunity with wheat bran stabilization is a natural segue to diversify the use of our proprietary stabilization technology beyond rice bran and offers potentially larger opportunities for the company even as we continue to execute on our rice bran program globally," said Brad Edson, president and CEO.
"Like our rice bran, stabilized wheat bran has an excellent flavor and shelf life along with an impressive nutritional profile. There are many large wheat flour mills in the U.S. alone and we are in preliminary discussions with a number of these as well as other wheat millers throughout the world about the potential favorable economic and commercial gain with the implementation of our proprietary wheat bran stabilization technology. We have not yet entered into any formal agreements outside of Indonesia, but with our facility in Indonesia underway shortly, we will turn our focus to advance this new business opportunity in the U.S. and throughout the world," added Edson.
From the February 4, 2008, Prepared Foods e-Flash