Lignol Energy to acquire stake in Dubai-based Neutral Fuels

Lignol Energy Corp. is providing A$4.07 million ($3.73 million USD) to acquire a 40 percent equity stake in Neutral Fuels Parent Company and a 51 percent interest in Neutral Fuels' Australia and New Zealand biodiesel operation, Neutral Fuels (Melbourne) Pty Ltd. This funding is for the deployment of the next phase of a planned rollout of closed-loop biorefineries throughout the Asia Pacific/Middle East/Africa region in an agreement with the McDonald's Restaurants used cooking oil biodiesel program. Under the agreement with McDonald's, Neutral Fuels currently operates two closed-loop biorefineries located in Dubai, United Arab Emirates and Melbourne, Australia.

Neutral Fuels' closed-loop business model, which was developed specifically for McDonald's, takes used cooking oil from its local restaurants and in return provides B100 biodiesel to fuel its suppliers' delivery fleets.

“Neutral Fuels has developed world-class biorefineries employing state-of-the-art processing technology, which has established them as an emerging leader in the niche of small scale biofuel operators,” said Ross MacLachlan, CEO and chairman of LEC. “We are excited to be involved in this commercial venture. Their novel business model and collaboration with McDonald's is an attractive and sustainable model both in terms of the environment and in commercial terms.”

“Partnering with LEC is the logical next step for Neutral Fuels,” said Karl W. Feilder, CEO and chairman of The Neutral Group. “Our current technology is able to efficiently convert used cooking oil to biodiesel today, and LEC's next-generation technology provides us with some exciting options for the future.”

The terms of the agreement between LEC and Neutral Fuels provide for two tranches of funding for a total of A$4.07 million. Each tranche will be comprised of a shareholder loan that will rank pari passu with the existing shareholder loans currently in place, which are for a five-year term, interest free and unsecured. The first tranche will be funded on or before Oct. 15, 2013, with a A$2 million loan. On the funding of the first tranche, LEC will be issued a 20 percent equity stake in Neutral Fuels and a 51 percent stake in Neutral Fuels' Australia and New Zealand biodiesel operation. On the funding of the second tranche of A$2.07 million on Jan. 15, 2014, LEC will be issued an additional 20 percent equity stake in Neutral Fuels; resulting in a A$4.07 million loan owing to LEC and an equity interest of 40 percent ownership of Neutral Fuels as well as a 51 percent equity stake in Neutral Fuels' Australia and New Zealand biodiesel operation. As part of this agreement, LEC has advanced an interest-free A$500,000 loan secured against the assets of Neutral Fuels' Australia and New Zealand biodiesel operation, which will be retired and then applied to the first tranche of A$2 million on or before Oct. 15. Neutral Fuels current management team will continue to manage all of the operations with support as required from LEC.

Neutral Fuels owns and manages biorefineries that convert used cooking oil into biodiesel, the modern, sustainable replacement for fossil diesel. On a life-cycle basis, biodiesel accounts for more than 80 percent reduction in carbon dioxide and equivalents, the major contributors to climate change. Neutral Fuels pioneered the closed-loop business model, which was developed specifically for McDonald's, where used cooking oil is collected from McDonald's restaurants by the same vehicles that deliver the fresh oil. The used oil is then backhauled to the co-located Neutral Fuels biorefinery where it is converted, liter for liter, into biodiesel, which is then pumped back into the delivery fleet in an ongoing recycling process.

In Dubai, used cooking oil is collected from more than 100 McDonald's UAE restaurants each month and their fleet of supply trucks in the UAE has to date driven more than 2 million kilometers on Neutral Fuels B100 biodiesel. In Victoria, Australia, the Neutral Fuels biorefinery currently services the used cooking oil from more than 140 McDonald's restaurants.