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 US Fund To Invest $35M In Brazil Biodiesel Project

13/2/07 SAO PAULO (Dow Jones)--U.S. farmland investment group Global Ag Investments LLC is getting in on the biodiesel fever in Brazil by investing $35 million in a biodiesel plant targeting the European alternative fuels markets.

"We are going to build a facility capable of producing 28 million gallons of biodiesel from soy and sunflower oils," said Tyler Bruch, president and chief executive of Global Ag Investments. "We'll have the crushing capacity built on our property so we're not at the mercy of buying oils from the large multinationals. Plus we'll have our own biodiesel plant." Global Ag Investments is a fund that manages some 4,500 hectares in the western Bahia, a state in northeast Brazil.

The biodiesel facility will be built by two Brazilian firms. No names were provided.

Bruch said most, if not all, of the plant's fuel production would go to Europe. A Swiss-based fund is currently in talks with the group to provide upwards of $5 million in equity financing and create a strategic partnership for exporting the fuel out of northeast Brazil.

Both the soy crushing facility and the biodiesel plant are Greenfield projects.

"The E.U. fund wants to have 100% of our off-take," Bruch said. "They want every last gallon they can get their hands on." No deals have been signed.

Bruch said the company is now conducting the legal resolutions on the deal.

Bruch said the company would turn to the U.S. private equity markets for another $4 million in financing, ultimately seeking a total of $9 million, in which more than half is presently expected to come from the E.U. fund.

Environmental permits, and permission to sell biodiesel from Brazil's National Petroleum Agency, or ANP, is expected within next three to four weeks, Bruch said.

According to KPMG International in Rio de Janeiro, an accounting and risk advisory firm, return on investment from the Global Ag Investment project was put at 40%.

Bruch said long-term supply contracts with importers and hedging against risks of higher soybean prices would offset commodity price risks.

"Usually when soyoil prices rise, petroleum prices rise with it. And the same goes for soymeal, which we can sell at a premium, too. If you hedge in five different directions, you don't have as much a problem with higher soyoil prices," Bruch said.

The property they own will supply only 10% of their soybean needs. The group will have to contract with soy farmers in Bahia for the 150,000 acres, or about 70,000 hectares, required to produce the 28 million gallons of biodiesel.

Bruch said he will be planting sunflowers, which have double the oil content as soybeans, in next year's crop.

Global Ag Investments is headquartered in San Antonio, Texas. Bruch handles the fund's operations in Brazil, where he has worked as a farm manager for the past four years.

Brazil mandated a 2% mix of biodiesel in all diesel fuel starting in January 2008. However, the B2 fuel is currently sold in 3,800 gas stations owned by BR Distribuidora, compared with just three stations eight months ago, according to local press reports, citing the International Energy Agency.

"Biodiesel is becoming a world commodity. If you're a low cost producer you can sell it anywhere," Bruch said, adding that the group would participate in ANP biodiesel auctions and turn to U.S. investors if the E.U. deal fell through.

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