A Vancouver-headquartered pulp company plans to add a high-value link in the value-added chain through the acquisition of Vancouver’s S2G BioChemicals Inc. – a move that will push the company into the biochemistry space.
Fortress Global Enterprises Inc. (TSX:FGE) (formerly Fortress Paper Ltd.) recently announced the planned acquisition of S2G for $2.5 million, and plans open a new demonstration plant at its Fortress Specialty Cellulose mill in Quebec to produce xylitol – a sweetener used in chewing gum and candies.
The deal is expected to close in May.
It’s precisely the kind of value-added diversification in the Canadian forestry industry that was discussed at a recent Globe 2018 conference panel session on the bio-economy.
Experts in forestry, genomics and wood construction talked about need to move into higher value added uses for wood – from cross-laminated timber used to build high-rises to biochemicals.
“The drive is to get value from every part of that tree,” said Derek Nighbor, CEO of the Forest Products Association of Canada.
The pulp and paper industry already uses a byproduct from lumber mills – wood waste – to create a value-added product.
What Fortress is planning through its acquisition of S2G is to double down, by taking a secondary waste product and turning into something with high value.
Adding links to the value added chain helps companies like Fortress compete with low-cost pulp producers in places like Brazil, where the trees are cheap and grow fast.
“We’re small on a global scale – 100,000 to 200,000 tonnes – trying to compete against South American or Asian mills at 2 million tonnes, and we just can’t do it.,” said Fortress CEO Chad Wasilenkoff. “The wood grows faster, the wood’s cheaper. So we can’t beat them at that.
“We need to move up the value chain, and that’s things like this – the S2G and going into xylitol – to beat them on the technological front.”
Two byproducts of the pulp milling process are lignum and hemicellulose, both of which can become the base for making a wide range of bio-chemical products or materials. But currently, most pulp mills simply burn that waste to generate heat, steam and electricity.
But that’s a low-value product. Wasilnekoff said generating energy from pulp mill waste is worth about $60 per tonne, whereas xylitol sells for about US$4,500 per tonne.
S2G, which was spun out of University of BC research in 2012, developed a process for turning hemicellulose from wood or agricultural waste into glycols, which are a precursor for a wide range of products – from polyester to antifreeze – that has traditionally been made from petrochemicals.
One of the products S2G developed was xylitol, which is a sweetener widely used in chewing gum, candies and other snacks.
In 2016, S2G struck a major partnership deal with Mondelez International (Nasdaq:MDLZ), the multinational food, beverage and confectionery company that owns brands such as Nabisco, Cadbury, Toblerone and Oreo. Mondelez also owns the chewing gum brands Dentyne, Trident, Chiclets and Stride.
Fortress plans to build a new demonstration plant at its Quebec pulp mill to produce xylitol from the hemicellulose from pulp waste for Mondelez using S2G’s process.
Once in operation in 2020, the demonstration plant would produce up to 2,000 tonnes per year of xylitol. Fortress has bigger plans to eventually build a $150 million plant that would produce up to 20,000 tonnes of xylitol.
“That would be, we’re quite confident, the lowest cost producer of xylitol in the world,” Wasilenkoff said.