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Expanding biodiesel in South America

There's an awful lot of jatropha in Peru

Pure Biofuels has raised $30 million to open a biofuel refinery in South America and raise its own crops.

The company wants to build a plant capable of processing 52.5 million gallons of fuel a year in Peru. It has already bought a small refinery on the continent, so by mid-2008, it will have the capacity to produce 62.5 million gallons a year out of these two plants.

Rather than buy oil on the open market, it will grow its own. The company has secured 60,000 hectares in central Peru that will be capable of providing the feedstock for the operation. Pure will harvest canola, jatropha and palm oils.

"Japtropha has the highest yield (of oil per acre) after algae, but algae is still in pilot," said Pure president Steve Magami in an interview.

Right now, Pure doesn?t know how much of each crop it will grow or which ones will grow optimally on its land. It will study the issue in the near future.

By owning its own plantation, Pure insulates itself from commodity price fluctuations, which have made life difficult for other biodiesel producers. "Most people are building (refining) capacity, but feedstock is 80 percent of your cost," he said.

Labor and land, meanwhile, are comparatively inexpensive in South America.

The output from these first two factories will be sold almost exclusively in Peru. Peru does not have a subsidy program. However, diesel fuel is somewhat expensive. Magami says that it can produce fuel and sell it for less than conventional diesel. That won't be easy. In the U.S. biodiesel providers need a subsidy of 50 cents to $1 a gallon to stay competitive. (The level of the subsidy depends on the type of oil used to make biodiesel.)

Later, the company hopes to open plants and refineries in Argentina. Imperium Renewables, which just opened a 100 million gallon a year facility in Washington state also hopes to open a plant in Argentina.

The $30 million raised is not venture funding. It consists of a $10 million convertible note and a $20 million secured credit facility. That sort of thing is going to be more common in the green biz. Many of the fuel and coal projects are more suited for standard credit financing than venture funding, according to many VCs.