Economics of LysineProduction from Glucose

E078120A0

E078120A0

ABSTRACT

This report presents the economics of Lysine production from glucose syrup. The process examined is aconventional fermentation process followed by ion-exchange adsorption and crystallization steps for productrecovery. In this process, a 70 wt% glucose-water syrup is used as the carbon source in the fermentation the finalproduct obtained is L-Lysine Monohydrochloride (or L-Lysine-HCl).

This report examines one-time costs associated with the construction of a United States-based plant and thecontinuing costs associated with the daily operation of such a plant. More specifically, it discusses:

* Capital Investment, broken down by:

- Fixed capital required for production units (ISBL); infrastructure (OSBL) and contingency

- Working capital and costs incurred during industrial plant commissioning and start-up

* Production cost, broken down by:

- Manufacturing variable costs (raw materials, utilities)

- Manufacturing fixed costs (maintenance costs, operating charges, plant overhead, local taxes and insurance)

- Depreciation and corporate overhead costs

* Production cost history (4-year timeframe)

* Raw materials consumption, products generation and labor requirements

* Process block flow diagram and description of industrial site installations (production units and infrastructure)

* Multi-regional fixed capital analysis (United States, China, Germany, Saudi Arabia, Singapore, Japan and Brazil)

This report was developed based essentially on the following reference(s):

(1) US Patent 6479700, issued to Archer-Daniels-Midland Company in 2002

(2) US Patent 7807420, issued to Paik Kwang Industrial in 2010

(3) US Patent 5268293, issued to Cheil Sugar in 1993

Keywords: Dextrose, Aerobic Fermentation, Strong Acid, Cation Exchange Resin, ADM, Amino Acids, Feed-Grade,L-Lysine-HCl

Economics of Lysine Production from Glucose

Industrial Process Report

TERMS OF USE

Data, information, tools, analyses and/or models herein presented are prepared on the basis of publicly availableinformation and non-confidential information disclosed by third parties. Third parties, including, but not limited totechnology licensors, trade associations or marketplace participants, may have provided some of the informationon which the analyses or data are based.

The data, information, tools, analyses and/or models herein presented are developed independently by Intratecand, as such, are the opinion of Intratec and do not represent the point of view of any third parties nor imply in anyway that they have been approved or otherwise authorized by third parties that are mentioned in this report.

Intratec conducts analyses and prepares reports and tools for readers in conformance with generally acceptedprofessional standards. Although the statements in this report are derived from or based on several sources thatIntratec believe to be reliable, Intratec does not guarantee their accuracy, reliability, or quality; any suchinformation, or resulting analyses, may be incomplete, inaccurate or condensed. All estimates included in thisreport are subject to change without notice. This report is for informational purposes only and is not intended asany recommendation of investment.

Reader agrees it will not, without prior written consent of Intratec, represent, directly or indirectly, that its productshave been approved or endorsed by the other parties. In no event shall Intratec, its employees, representatives,resellers or distributors be liable to readers or any other person or entity for any direct, indirect, special, exemplary,punitive, or consequential damages, including lost profits, based on breach of warranty, contract, negligence, strictliability or otherwise, arising from the use of this report, whether or not they or it had any knowledge, actual orconstructive, that such damages might be incurred.

Reader agrees that Intratec retains all rights, title and interest, including copyright and other proprietary rights, inthis report and all material, including but not limited to text, images, and other digital files, provided or madeavailable as part of this report. The reader further agrees to refrain from any general release of the informationpresented in this report, so as to constitute passage of title into the public domain or otherwise jeopardizecommon law or statutory copyright.

ABOUT THIS REPORT......................................................................................................................................................................5

Study Objective............................................................................................................................................................................ 5

Report Overview...........................................................................................................................................................................5

ABOUT LYSINE..................................................................................................................................................................................6

Description....................................................................................................................................................................................6

Applications.................................................................................................................................................................................. 6

L-Lysine-HCl Production Pathways Diagram.........................................................................................................................7

PROCESS OVERVIEW...................................................................................................................................................................... 8

Product(s) Generated................................................................................................................................................................. 8

Process Inputs............................................................................................................................................................................. 8

Physico-Chemistry Highlights.................................................................................................................................................. 9

INDUSTRIAL SITE.......................................................................................................................................................................... 10

Introduction................................................................................................................................................................................10

Production Units Description..................................................................................................................................................11

Site Infrastructure Description............................................................................................................................................... 16

Key Process Input and Output Figures.................................................................................................................................18

Labor Requirements.................................................................................................................................................................18

CAPITAL INVESTMENT.................................................................................................................................................................19

Fixed Capital...............................................................................................................................................................................20

Working Capital......................................................................................................................................................................... 25

Additional Capital Requirements........................................................................................................................................... 25

Total Capital Investment Summary...................................................................................................................................... 26

PRODUCTION COSTS....................................................................................................................................................................27

Manufacturing Variable Costs................................................................................................................................................29

Manufacturing Fixed Costs.....................................................................................................................................................30

Corporate Overhead................................................................................................................................................................. 30

Depreciation............................................................................................................................................................................... 31

Total Production Cost.............................................................................................................................................................. 31

TABLE OF CONTENTS

Production Cost History.......................................................................................................................................................... 32

PROCESS ECONOMICS SUMMARY...........................................................................................................................................33

LABOR WAGE RATES & PRICING BASIS...................................................................................................................................35

REFERENCES..................................................................................................................................................................................37

ANALYSIS METHODOLOGY......................................................................................................................................................... 39

Introduction................................................................................................................................................................................39

Bibliographical Research.........................................................................................................................................................39

Process Overview......................................................................................................................................................................39

Examining an Industrial Site................................................................................................................................................... 41

Capital Investment Estimating...............................................................................................................................................42

Production Cost Estimating....................................................................................................................................................47

Product Value Estimating........................................................................................................................................................49

Estimates Limitation................................................................................................................................................................ 50

ABOUT INTRATEC..........................................................................................................................................................................51

Our Business.............................................................................................................................................................................. 51

Our Reports................................................................................................................................................................................ 51

APPENDIX 1: FIXED CAPITAL REGIONAL COMPARISON..................................................................................................... 53

APPENDIX 2: INTRATEC CHEMICAL PLANT CONSTRUCTION INDEX...............................................................................54

The process design and economics in this report are based on an industrial facility with a nominal productioncapacity of per year, a capacity that is globally competitive.

This report presents the economics of Lysine production from glucose syrup. The process examined is aconventional fermentation process followed by ion-exchange adsorption and crystallization steps for productrecovery.

The primary objective of this study is to explain the cost structure of the aforementioned process, encompassingcapital investment and production cost figures.

ABOUT THIS REPORT

In addition, the economic assessment, developed for the period , assumes the construction of a UnitedStates-based industrial facility that includes the infrastructure typically required for such a project.

Study Objective

This report is structured into eight main parts which follow a logical sequence. Each of these parts is describedbelow.

By way of introduction, the first part – the current chapter – briefly explains the report itself, its structure andobjective. Readers are encouraged to spend a few minutes reading this chapter, so as to make the most of thestudy.

In the second part, About Lysine, the reader will learn the basics of Lysine itself. This chapter also covers itsapplications and major production pathways.

The third part, Process Overview, presents basic aspects of the process studied: products generated, processinputs, and physico-chemistry highlights.

The fourth part, Industrial Site, describes an industrial plant based on the process under analysis, in terms of theproduction units and infrastructure required. This technical analysis underlies the entire study.

The fifth part, Capital Investment, presents all capital costs associated with the process examined, from design anderection of an industrial site to plant startup.

Operational Expenses of the process are examined in the sixth part. Ongoing costs related to the operation of a unitbased on the process are studied, including manufacturing fixed costs, manufacturing variable costs, depreciationand corporate overhead.

The seventh part, Process Economics Summary, summarizes all economic figures presented throughout the report.

Finally, to address any questions or concerns about the methodologies and procedures adopted in thedevelopment of this report, the reader is referred to the eighth part, Analysis Methodology.

Report Overview

5

ABOUT LYSINE

Amino acids are compounds with the typical formula RCH(NH2)-COOH. The amino acids are the basis for allproteins and considered to be the building blocks of life. Among them, Lysine biologically active in its L-configuration (L-Lysine) is one of the essential amino acids not synthesized biologically in the body. So, Lysine isusually used as food and feed supplement.

L-Lysine is most commercialized as L-Lysine Monohydrochloride (L-Lysine-HCl) with purity higher than 98.5 wt%,which corresponds to 78.8 wt% of free Lysine. It is a yellowish-white, crystalline powder usually transported in 25kg bags, 1,000 kg totes or bulk trucks.

In addition to L-Lysine-HCl, other commercial forms of L-Lysine include:

* L-Lysine Sulfate – It is the sulfate salt of L-Lysine along with co-products from fermentation processes whichare valuable for nutrition.. It is a light brown, granulate containing a minimum of 51% free L-Lysine.

* Liquid Lysine 64 – It corresponds to a solution containing a minimum of 50% of L-Lysine obtained byconcentrating the both from fermentation processes.

* Liquid Lysine 30 – It corresponds to a solution containing a minimum of 24% of L-Lysine obtained byconcentrating the both from fermentation processes.

The figure below, illustrates the L-Lysine (C6H14N2O2) molecule.

Description

L-Lysine is mainly used as food and feed supplement. Other uses of L-Lysine are related to cosmetics, humanmedicine, and the pharmaceutical industry.

Applications

6

The L-Lysine-HCl form of L-lysine is mainly produced via biochemical pathways, which involve sugar fermentationby modified microorganisms. The sugar used can be derived from sugarcane, beet or corn. L-lysine can also beproduced from cyclohexene via a chemical pathway, however, there are only few plants using such alternative.The following chart presents different pathways for L-Lysine-HCl production.

L-Lysine-HCl Production Pathways Diagram

7

The only product obtained in the process under analysis is L-Lysine Monohydrochloride (or L-Lysine-HCl) withpurity higher than 98.5 wt% (also known as feed-grade).

Product(s) Generated

PROCESS OVERVIEW

This chapter presents technical aspects of the Lysine production from glucose syrup.

More specifically, the current chapter describes the products generated, the process inputs, and highlights aboutthe physico-chemistry related to this process.

Process Inputs

* Glucose Syrup

Glucose (C6H12O6), also known as D-glucose and dextrose, is the most abundant sugar in nature. Commercialglucose products are produced in both dry and syrup forms in a variety of purities and concentrations. Glucoseuses include pharmaceuticals, food, chemicals and fuels. It is used as raw material in fermentative processes forthe production of vitamins, organic acids, antibiotics, amino acids, enzymes, and polysaccharides.

The process analyzed in this study uses a crude corn syrup with glucose concentration of 70 wt% as the main rawmaterial. The recommended storage temperature ranges from 55 to 60°C, to prevent glucose solidification.

* CSL

CSL (Corn Steep Liquor) is a concentrated solution of amino acids, vitamins and minerals obtained as a by-productof corn wet-milling processes. It has been used as nutrient in several industrial fermentation processes.

* Ammonia

Ammonia (NH3) is one of the most produced synthetic chemicals worldwide. The main application of ammonia isin nitrogen fertilizers, followed by the synthesis of nitric acid, but it also used in smaller amounts in several otherapplications. At atmospheric pressure, it boils at −33 °C, so it is stored under pressure to be kept as liquid.

* Ammonium Sulfate

Ammonium sulfate, (NH4)2SO4, is an ammonium salt widely used as a fertilizer due to its nitrogen and sulfurcontents. Non-fertilizer uses include food processing, fire control, tanning, and cattle feed.

* Hydrochloric Acid

Hydrochloric acid (HCl), also known as muriatic acid, is a highly corrosive mineral acid with several industrialapplications. The concentration of the hydrochloric acid used in the process is 35 wt%.

Raw Material(s)

Utilities

The utilities consumed in the process are cooling water, chilled water, steam, process water and electricity.

8

Physico-Chemistry Highlights

In the current study, L-Lysine-HCl is produced by fermentation of glucose using mutants microorganisms derivedfrom Corynebacterium glutamicum, a gram-positive bacterium.

The fermentation is carried out at temperatures ranging between 25 and 35 °C, and pH ranging from 5 to 8. Theprocess is performed in fed-batch mode and under aerobic conditions. The fermentation time ranges between 48and 72 hours, with the final product titer ranging between 100 and 140 g/L (calculated as L-Lysine-HCl).

The fermentation mass yield of L-Lysine on glucose ranges from 35 to 55%. It is important to note that part ofglucose is consumed in the microorganisms growth.

9

INDUSTRIAL SITE

Production units form the core of an industrial site. Comprising the site’s battery limits (ISBL), such units may benumerous, complex and involve several pieces of equipment. In this context, the most didactic approach topresenting all production units of a site is through the use of a block flow diagram. Visual information is, in fact, theclearest way to present a chemical process and is least likely to be misinterpreted.

In general, these diagrams consist of a series of blocks, representing unit operations or groups of equipment,connected by input and output streams. In fact, there are no strict standards according to which such diagramsare made.

To facilitate the presentation of the production units under analysis, Intratec developed a block flow diagramaccording to the following standards:

* Raw materials consumed are represented by blocks in gray

* Main process areas are represented by blocks in light blue

* Products and by-products generated are represented by blocks in dark blue

* Main process streams are represented by lines connecting the blocks

The information presented in this chapter is based on commonly utilized concepts related to the type ofinstallations found within a typical industrial site. These concepts include:

* Production units. Also known as inside battery units, these installations comprise all main processing units ofthe site necessary to the manufacturing of products. These units are located Inside the Battery Limits (ISBL).

* Infrastructure. Also known as outside battery units or offsite facilities, these installations do not directly enterinto the manufacturing of a product. They are support buildings, auxiliary units used for providing and distributingutilities and storage facilities. These units are located Outside the Battery Limits (OSBL).

Production Units

Introduction

This chapter presents all installations that comprise an industrial site for Lysine production from glucose syrup.The process examined is a conventional fermentation process followed by ion-exchange adsorption andcrystallization steps for product recovery.

The present study was mainly based on:

(1) US Patent 6479700, issued to Archer-Daniels-Midland Company in 2002

(2) US Patent 7807420, issued to Paik Kwang Industrial in 2010

(3) US Patent 5268293, issued to Cheil Sugar in 1993

10

The figure below illustrates the type of information presented in the block flow diagram, according to suchstandards.

The process areas represented (in light blue) correspond to what is defined as a “functional unit”. Basically, a“functional unit” is a significant step in the production process in which a particular physico-chemical operation (i.e., distillation, reaction, evaporation) occurs. According to this definition, a given functional unit is not associatedwith a single piece of equipment, but rather with a group of equipment and ancillaries required to perform aparticular operation.

Blocks representing process areas also show key technical parameters related to these areas, including: highestoperating temperature and pressure, representative material of construction, and other parameters.

As to the process streams represented, there is an indication of their phase when leaving/entering a block. Also,such streams provide a global material balance of the process, normalized by the mass flow rate of the productconsidered in the analysis. In other words, the number near each stream represents the ratio between its massflow rate and the output flow rate of the product under analysis.

It is worth noting that areas having no significant impact on the economics of the process may not be included inthe diagram. Similarly, some streams may also not be represented. Nevertheless, the diagram presented is stillextremely useful in providing readers with an overall understanding and “feeling” of the process studied.

For more information on how the process examined was divided into functional units, the reader is referred to thesection on Production Units in the “Analysis Methodology” chapter.

Infrastructure requirements comprise the offsite facilities, or the units located Outside the Battery Limits (OSBL).The OSBL usually have a significant impact on the capital cost estimates associated with any new industryventure. This impact is largely dictated by, among other things: specific conditions where the industrial site will beerected; the level of integration the new site will have with nearby facilities or industrial complexes; and assuranceand promptness in the supply of chemicals.

Site Infrastructure

The production units related to the process under analysis are described based on the above explanation. On thenext page, a block flow diagram illustrates the production units examined.

Production Units Description

11

12

13

The process under analysis is briefly described below. For clarity, the description was divided according to theprocess areas indicated in the diagram.

It is important to mention that some aspects of the process examined are either industrial secrets, not published inpatents, or have changed and were not reported in the literature at the time this report was developed. That beingthe case, the design herein presented is partially based on Intratec process synthesis knowledge such that theremay be some differences between the industrial process actually employed and the process described in thisstudy. Nevertheless, the design presented suitably represents the technology examined in sufficient detail toestimate the economics of the technology within the degree of accuracy expected from conceptual evaluations.

14

15

The infrastructure requirements of the industrial site examined are defined based on the following assumptions:

The figure below illustrates the configuration of the industrial complex that encompasses the industrial processexamined. The offsite facilities considered in the analysis (i.e., areas 90, 91 and 92) were defined according to theaforementioned assumptions.

Site Infrastructure Description

16

Finally, offsite facilities were divided into areas according to their type/function. These areas are listed below, aswell as the major equipment, systems and facilities included in each of them.

17

Key Process Input and Output Figures

In accordance with the block flow diagram and the global material balance previously presented, the followingtables show key process indicators of the technology examined in this report. These indicators reflect the rawmaterial consumption and the products generation rates per metric ton of L-Lysine-HCl produced.

It should be noted that estimation of raw material requirements in the conceptual design phase is usuallyreasonably accurate but tends to be somewhat understated compared to real operations. Losses from vesselvents, unscheduled equipment, inerting systems, physical property inaccuracies, startup, shutdown and otherprocess operations not typically addressed in this phase may increase raw materials consumption.

Labor Requirements

The following table presents the number of operators per shift required to run the equipment of the processexamined, as well as the personnel per shift required to directly supervise the operating labor.

Labor Requirements

PERSONNEL REQUIRED WORKERS PER SHIFT

Operators

Supervisors

Raw Materials Consumption

CONSUMPTION PER METRIC TON OF PRODUCTRAW MATERIAL UNIT

18

* Period of analysis:

* IC Index at the period of analysis:

CAPITAL INVESTMENT

This chapter details all capital costs associated with Lysine production from glucose syrup, from design anderection of an industrial site to plant startup.

The costs that comprise the total capital investment are grouped under three main headings:

* Total fixed capital. Investment necessary to the erection of the industrial plant itself

* Working capital. Funds required for getting the plant into operation, and meeting subsequent obligations

* Additional capital requirements. Costs incurred during industrial plant commissioning and start-up

The graph below illustrates the composition of total capital investment.

The estimates included in this chapter are based on the following assumptions:

* Plant nominal capacity: of L-Lysine-HCl per year

* Industrial plant location: United States

* Construction on a cleared, level site

19

Fixed Capital

Fixed capital is related to the erection of the industrial site itself. Also referred as “capital expenditures” (CAPEX),fixed capital constitutes the fraction of the capital investment which is depreciable.

It includes Total Process Capital (TPC) and Project Contingency, as described below.

Total Process Capital encompasses the investment required for the construction of: (1) process areas previouslypresented in the "Process Block Flow Diagram" (ISBL investment); (2) the site infrastructure (OSBL Investment),also previously discussed; and (3) a process contingency reflecting technical uncertainties associated with limiteddesign data, which may incur capital cost increases (e.g., additional equipment not included in the preliminarydesign).

Project Contingency, on the other hand, is included to cover the costs which may arise as the project evolves.Such costs include: project errors or incomplete specifications, labor costs changes, strikes, problems caused byweather; inflation, etc.

The table below summarizes all items that make up the fixed capital cost:

The IC Index stands for Intratec Chemical Plant Construction Index, an indicator published monthly by Intratec toscale capital costs from one time period to another. This index reconciles the price trends of fundamentalcomponents of chemical plant construction such as labor, material and energy, providing meaningful historicaland forecast data for our readers and clients. For more information about the IC Index, the reader is referred toAppendix II – Intratec Chemical Plant Construction Index.

In the next pages capital costs are described in further detail, and estimates calculated are presented. For moreinformation on the methods employed for estimating the costs presented, the reader is referred to the “AnalysisMethodology” chapter.

Fixed Capital Summary (USD Million)

LOWER LIMITCOMPONENT %

Outside battery limits (OSBL)

Inside battery limits (ISBL)

TOTAL FIXED CAPITAL

UPPER LIMIT ESTIMATED

Total process capital (TPC)

The above table also presents the upper and lower limits for the fixed capital figures, according to the accuracyrange expected from conceptual evaluations presented in this report. The presented range is associated with aconfidence level of 90%. In other words, a 90% confidence level means that, for every 100 times the project isactually implemented, the fixed capital required will fall into the range predicted with our estimates 90 times.

Process contingency ( of ISBL)

Project contingency ( of TPC)

20

For a better understanding of the costs involved in a new industrial venture, it is a common estimation practice todivide the fixed capital into direct process costs, indirect process costs and project contingency.

Fundamentally, the direct process costs are all material and labor costs associated with the process equipment(from purchase to installation, including the required installation bulks). In short, the total direct cost represents thetotal installed equipment cost.

The indirect costs account for field indirects, engineering costs, overhead, and contract fees. Indirect costs aredefined by the American Association of Cost Engineers (AACE) Standard Terminology as those "costs which donot become a final part of the installation but which are required for the orderly completion of the installation."

Accordingly, the chart below presents the fixed capital broken down by direct process costs, indirect costs andproject contingency.

Fixed Capital Composition

The two charts in the next page detail the composition of direct field costs and indirect costs, respectively.

21

Direct Costs Composition

Indirect Costs Composition

22

It is worth noting that the process contingency presented in the Table "Fixed Capital Summary" is included withineach component listed in the table above.

For further information about the components included in the fixed capital breakdown, reader is referred to thechapter “Analysis Methodology”.

Fixed Capital Breakdown

MM USDCOMPONENT

Piping

Bare equipment (BEQ)

TOTAL FIXED CAPITAL

% OF BEQ % OF TOTAL

Direct costs

Equipment setting

Civil

Steel

Instrumentation & control

Electrical

Insulation

Painting

Engineering & procurement

Construction material & indirects

General & administrative overheads

Contract fee

Indirect costs

Total process capital (TPC)

The next table presents the detailed fixed capital breakdown, based on the direct and indirect costs approach.

Project contingency ( of TPC)

23

Fixes Capital as Function of Plant Capacity (USD Million)

Fixed Capital per Unit of Plant Capacity (USD / Metric Ton)

Finally, from the analysis previously presented, the fixed capital per metric ton produced was calculated. Thisparameter allows readers to compare processes in regards to how capital intensive they are. Also, it can be usedto measure the impact of plant scale on the total fixed capital and determine a minimum plant capacity that will beeconomically feasible.

Of course, fixed capital is greatly impacted by the plant capacity assumed. In this context, a plant scale analysiswas also performed in order to depict how the total capital required varies according to the plant capacity. Theanalysis results are presented in the next figure.

24

Working Capital

MM USDASSUMPTIONCOMPONENT

Working Capital Breakdown (USD Million)

%

Raw materials inventory

Products inventory

In-process inventory

Cash on hand

Accounts receivable

Accounts payable

Net accounts receivable

TOTAL WORKING CAPITAL

Supplies and stores

day(s) of total production cost

day(s) of operating cash cost + corporate overhead

day(s) of raw materials costs

day(s) of total production cost

day(s) of operating cash cost + corporate overhead

of annual operating labor and maintenance costs

day(s) of operating cash cost + corporate overhead

Additional Capital Requirements

For the purposes of this study, working capital is defined as the funds, in addition to the fixed capital, that acompany must contribute to a project. Those funds must be adequate to bringing the plant into operation andmeeting subsequent obligations.

Working capital includes: raw materials inventory, products inventory, in-process inventory, supplies and stores,accounts receivable and accounts payable.

The table below presents a breakdown of working capital. Unless otherwise indicated, all figures presented are inUS million dollars (MM USD).

Several expenses are incurred during commissioning and start-up of an industrial site. These expenses may berelated to:

* Employee training

* Initial commercialization costs

* Manufacturing inefficiencies and unscheduled plant modifications (equipment, piping, instruments, etc.)

* Initial catalyst load in reactors

* Purchase of technology through paid-up royalties or licenses

* Land acquisition and site development

Such additional costs are not addressed in most studies, but can become a significant expenditure. In the currentanalysis, these costs are represented by additional capital requirements.

The table below presents a breakdown of additional capital investment. Unless otherwise indicated, all figurespresented are in US million dollars (MM USD).

25

MM USDASSUMPTIONCOMPONENT

Additional Capital Requirements Breakdown (USD Million)

%

Unscheduled plant modifications

Start-up costs

Land & site development

Operator training

Commercialization costs

Start-up innefficiencies

TOTAL ADDITIONAL CAPITAL

Prepaid royalties

day(s) of all labor costs

of annual operating cash cost + corporate overhead

of fixed capital

of annual operating cash cost + corporate overhead

of fixed capital

of fixed capital

Initial catalyst load

Total Capital Investment Summary

Working capital

Additional capital requirements

TOTAL CAPITAL INVESTMENT

MM USDCOMPONENT

The table below summarizes all major capital costs discussed thus far, from the design and erection of anindustrial site to plant startup.

Capital Investment Summary

Fixed capital

%

For more information about how the capital costs were estimated, the reader is referred to section on CapitalInvestment Estimating in the “Analysis Methodology” chapter.

26

PRODUCTION COSTS

This chapter details all ongoing costs required for Lysine production from glucose syrup. Also referred asoperational expenditures (OPEX), these encompass costs associated with the plant operation, selling of products,and contribution to corporate functions (e.g., administration and R&D activities). In the current analysis, theproduction cost was grouped under four main headings:

* Manufacturing fixed costs. Operating costs directly tied to the plant capacity, but which do not change with theproduction level (i.e., operating labor, supervision labor, maintenance costs, plant overhead)

* Manufacturing variable costs. Costs directly proportional to the actual production of the industrial site (i.e. rawmaterials and utilities consumption)

* Depreciation. Refers to the decrease in value of industrial assets with passage of time

* Corporate overhead. Corporate expenses related to administration, research and development, market anddistribution

It should be kept in mind that the sum of manufacturing fixed costs and manufacturing variable costs is referredas “cash cost”. The sum of cash cost with depreciation and corporate overhead, in turn, is referred to as“production cost”.

The graph below illustrates the composition of production cost.

27

The estimates included in this chapter are based on the following assumptions:

* Industrial plant location: United States

* Period of analysis:

The plant operating rate assumed leads to an annual production of . It is important tomention that this rate does not represent any technology limitation; rather, it is an assumption based on usualindustrial operating rates.

In the next pages the production cost items are described in further detail, and estimates calculated are presented.For more information on the methods employed to estimate the costs presented, the reader is referred to the“Analysis Methodology” chapter.

* Plant nominal capacity: of L-Lysine-HCl per year

* Plant operating rate:

28

QUANTITY PER MT PRICE MM USD/YRCOMPONENT

Manufacturing Variable Costs Breakdown

%

Manufacturing Variable Costs

Variable costs change in direct proportion to changes in the production level. Such costs include raw materialsand utilities (i.e., steam, electricity, fuel, and refrigeration).

The next table displays the manufacturing variable costs.

Net raw materials cost

Net utilities cost

MANUFACTURING VARIABLE COSTS

All variable costs presented in this table are derived from unit consumptions, detailed in the previous chapter, andpricing information.

USD/MT

29

Manufacturing Fixed Costs

Supervision

Maintenance cost

Operating charges

MANUFACTURING FIXED COSTS

COMPONENT

Manufacturing Fixed Costs Breakdown

Operating labor

MM USD/YR %

Manufacturing fixed costs are the costs primarily related to the production capacity of an industrial site, but whichdo not change with production volume. Such costs include maintenance costs, operating charges, plant overhead,local taxes and insurance.

The table below presents a breakdown of manufacturing fixed costs.

Plant overhead

Property taxes and insurance

Corporate Overhead

Administration costs

CORPORATE OVERHEAD

COMPONENT

Corporate Overhead Costs Breakdown

MM USD/YR %

Corporate overhead is associated with costs incurred by a company’s head office such as general administrativecosts, research and development activities, market and product distribution.

The table below presents a breakdown of corporate overhead costs.

Market & distribution

Research & development

supervisors/shift ; USD/sup./h

of operating labor costs

operators/shift ; USD/oper./h

of operating labor and maintenance costs

of fixed capital

of fixed capital

of operating labor and maintenance costs

of operating cash costs at full capacity

of operating cash costs at full capacity

ASSUMPTION

ASSUMPTION

USD/MT

USD/MT

30

Manufacturing fixed costs

Operating cash costs

Depreciation

TOTAL PRODUCTION COST

COMPONENT

Production Cost Summary

Manufacturing variable costs

MM USD/YR %

Total Production Cost

Depreciation refers to the decrease in value of industrial assets with passage of time, primarily because of wearand tear. While not a true manufacturing cost, depreciation is considered to be a manufacturing expense foraccounting purposes – it allows the recovery of the cost of an asset over a time period.

In this study, the depreciation is USD per metric ton of L-Lysine-HCl produced.

Depreciation

The table below summarizes all production cost components discussed thus far.

For more information about how the production cost components were estimated, the reader is referred to thesection on Production Cost Estimating in the “Analysis Methodology” chapter.

Corporate overhead

This calculation was based on the straight-line method and a project economic life of 10 years.

USD/MT

31

Production Cost History (USD/metric ton)

Production Cost History

In order to provide a more consistent view of production economics, this analysis also compares the way in whichproduction cost has evolved over time. In this context, production cost was recalculated for the last 4 years, onquarterly basis.

The production cost historical series is presented in the figure below.

32

PROCESS ECONOMICS SUMMARY

Heretofore, the capital cost and production cost related to the process examined were described. This chapterprovides a summary of all capital and production costs related to the process described so far. Also, in order toprovide a more consistent economic analysis of the process examined, all such costs are combined in a singleitem: “Product Value”.

“Product value” is a term commonly used wherein all costs associated with the manufacture of a product arecombined. More specifically, it includes the production cost (manufacturing variable costs, manufacturing fixedcosts, corporate overhead costs and depreciation), as well as an expected return on capital employed (ROCE).

Product value should not be confused with product price. While product value, as previously mentioned, iscalculated based on the costs associated with the manufacture of a product, product price is the actual value asseen in the market.

The graph below illustrates the composition of the product value.

The table on the next page condenses the analysis developed in this report.

33

QUANTITY PER MT PRICE MM USD/YRDESCRIPTION

Net raw materials cost

Net utilities cost

MANUFACTURING VARIABLE COSTS

Economics of Lysine Production from Glucose - Datasheet

Supervision

Maintenance cost

Operating charges

MANUFACTURING FIXED COSTS

Operating labor

Plant overhead

Prop. taxes and insur.

Administration costs

%

OPERATING CASH COST

Depreciation

TOTAL PRODUCTION COST

sup./shift

of operating labor costs

oper./shift

operating labor and maintenance costs

of fixed capital

of operating labor and maintenance costs

Fixed capitalWorking capitalAdditional capitalTOTAL CAPITAL INVESTMENT

Nominal capacityOperating rateAnnual production

ROCE of total capital investmentPRODUCT VALUE

Marketing & distribution of operating cash costs at full capacityResearch & development of operating cash costs at full capacity

CORPORATE OVERHEAD

of fixed capital

USD/oper./h

USD/sup./h

BASIS:

CAPITAL INVESTMENT SUMMARY MM USDPLANT CAPACITY & OPERATION

USD/MT

34

LABOR WAGE RATES & PRICING BASIS

This chapter presents the labor wage rates, as well as raw materials and products prices used in the economicanalysis for the current report.

Labor Wage Rates (USD/hour)

PERIOD OPERATOR SUPERVISOR

35

Pricing Basis

PERIOD

36

REFERENCES

37

38

ANALYSIS METHODOLOGY

Introduction

Intratec distilled its expertise, gained from more than a decade of supporting companies worldwide in the analysisof chemical markets and process economics, and developed a consistent report development methodology.

The Intratec Industrial Process methodology ensures a holistic, coherent and consistent techno-economicevaluation, guiding the development of a report that allows readers to fully understand a specific chemical processtechnology.

In addition to being based on a common methodology, all Intratec Industrial Process reports have a commonstructure, i.e., indexes, tables and charts share similar standards. This ensures that Intratec’s readers knowupfront what they will get and, more than that, will be able to compare technologies addressed in different reports.

Our methodology is continuously tested and proven by the many chemical and oil corporations, R&D centers, EPCcompanies, financial institutions and government agencies that rely on our reports.

The methodology used in the development of Industrial Processes Economics reports is illustrated in the diagrampresented on the next page.

The report is based on a comprehensive bibliographical research, entirely focused on the industrial process to beexamined. Our research encompasses patents, encyclopedias, text books, technical papers and non-confidentialinformation disclosed by licensors, duly reviewed by the Intratec team.

The main goal of this research is to provide a solid understanding of the process examined, which in fact underliesthe entire study. During this research, Intratec team identifies the maturity of the process under analysis.Basically, established processes are mature industrial processes, i.e., several plants employing these processeshave been constructed worldwide, while new industrial processes are those that have only been employed in a fewplants constructed around the world. Finally, early-stage industrial processes are the processes still underdevelopment; currently, either no plants have employed such technologies or the designs of the processesthemselves have yet to be completed.

Process Overview

Bibliographical Research

The Intratec team’s first goal is to understand the chemical, biological and/or physical transformations occurringin the target process, as well as reactants required and products formation.

Thus, initially, bibliographical research focuses on stoichiometry, conversions, yields and/or selectivity ofprocesses’ main reactions or biological processes, while also addressing the occurrence of side reactions andrelevant information about catalyst employed.

Regarding raw materials, the Intratec team identifies minimum quality requirements (e.g. minimum purity,maximum presence of specific contaminants), as well as typical industrial sources. For products, the Intratecteam gathers information regarding possible uses and applications, as well as the usual specifications necessaryto ensure their suitability for those applications.

39

40

Production Units

The Intratec team compiles all knowledge acquired around the process into a process block flow diagram,showing major process areas and main process streams, accompanied by a process description. The processareas correspond to what Intratec defines as “functional units”. Basically, a “functional unit” is a significant step inthe production process in which a particular physico-chemical operation (i.e., distillation, reaction, evaporation,etc.) occurs. According to this definition, a given functional unit is not associated with a single piece of equipment,but rather with a group of equipment and ancillaries required to perform a particular operation.

Such division in process areas not only facilitates process understanding, but also serves as the basis for furthereconomic analysis development.

While outlining process block flow diagram, the Intratec team also maps key technical parameters related to eachprocess area portrayed, including: highest operating temperature and pressure, representative material ofconstruction of equipment, and other parameters. These parameters serve as inputs for the cost estimatingmethods used by Intratec, further described in this methodology.

Examining an Industrial Site

At this point, the Intratec team examines how an industrial site based on the process under analysis would be, interms of production units and infrastructure required.

Site Infrastructure

The Intratec team also examines the industrial site in terms of the infrastructure (OSBL facilities) required. Morespecifically, this analysis identifies installations that are required but do not directly enter into the manufacture of aproduct (e.g., storage, utilities supply, auxiliary and administrative buildings).

The first step in identifying the required infrastructure is to define the level of integration the industrial site underanalysis will have with nearby facilities or industrial complexes. Integration levels primarily impact storagerequirements – e.g., a plant that is not integrated needs storage for all raw materials and products, while a plantthat is fully integrated with nearby complexes does not need such installations.

The Intratec team assumes a level of integration based on what is most typical for the type of industrial plantexamined. So, based on the process analysis previously developed and on how integrated the industrial site willbe, the Intratec team defines the OSBL facilities requirements.

Defining Site Requirements

* Key Process Inputs & Outputs

At this point, the main processing steps have been identified and global material balance calculations areperformed. This preliminary global material balance leads to the identification of key process indicators, whichreflect raw material consumption and products generation rates per amount of the main product manufactured.

It is worth mentioning that estimation of raw material requirements in the conceptual design phase is generallyreasonably accurate but tends to be somewhat understated compared to real operations. Losses from vesselvents, unscheduled equipment, inerting systems, physical property inaccuracies, startup, shutdown and otherprocess operations not typically addressed in conceptual design may increase raw materials consumption.

41

Fixed Capital

The fixed capital is related to the erection of the industrial site itself. Also referred as “capital expenditures”(CAPEX), the fixed capital constitutes the fraction of the capital investment which is depreciable.

It is composed of Inside Battery Limits (ISBL) Investment, Process Contingency, Outside Battery Limits (OSBL)Investment and Project Contingency, estimated as follows.

* Inside Battery Limits (ISBL) Investment

The ISBL investment is the fraction of the fixed capital associated with the construction of all process areas(functional units) portrayed in the process block flow diagram.

Initially, to calculate ISBL investment, the Intratec team approaches each process area individually. The fixedcapital of a given area is estimated based on the respective process parameters detailed in the block flow diagram(flow rates, pressure and temperature conditions, materials of construction, complexity), through the use ofspecific preliminary cost models.

It is worth noting that the Intratec cost models were founded on a number of established cost estimating methods,based on mathematical and statistical processing of an extensive volume of actual cost data of well-knownindustrial processes and functional units. In fact, such a massive refining of established methods has led torobust cost models, continuously tested and proven for more than a decade by major global companies that relyon Intratec’s cost estimates of industrial processes.

So, from the process parameters identified, the output of Intratec cost models is the fixed capital for eachfunctional unit, including all costs associated with the erection of those units: direct material and labor costs, aswell as indirect costs, such as construction overheads, including: payroll burdens, field supervision, equipment

Capital Investment Estimating

The costs that comprise the capital investment are grouped under three main headings: fixed capital; workingcapital; and additional capital requirements.

Before estimating such capital investment figures, the Intratec team defines plant nominal capacity according tothe process under analysis, considering that the plant should be competitive on a global scale.

Once this assumption has been made, the Intratec team begins the actual estimation of the capital investmentfigures as follows.

* Labor

Operating labor is associated with the number of operators per shift actually required to run the equipment, whilesupervision labor is the personnel per shift required to directly supervise the operating labor.

The number of operators and supervisors estimated is based on the type and number of functional units includedin the process examined.

Also, it is important to mention that in addition to the operating and supervision labor considered, chemical plantsalso require other types of labor, not included as an operating cost item. Examples of such labor are: maintenancelabor, outsourced labor, technical assistance to manufacturing, plant engineers, restaurant, purchasing, employeerelations department, etc.

42

rentals, tools, field office expenses, temporary facilities, etc.

In the case of nonstandard functional unit, additional research is conducted and the capital cost is estimated fromthe use of specialized engineering design software or through quotations provided by equipment suppliers.

Finally, the sum of all fixed capital figures, associated with the functional units examined, leads to the total ISBLinvestment figure.

* Process Contingency

Process contingency is utilized in an effort to lessen the impact of absent technical information or the uncertaintyof that which is obtained. That being the case, the reliability of the information gathered, its amount and theinherent complexity of the process are significant to its evaluation. Errors that occur may be related to:

(1) Addition and integration of new process steps

(2) Uncertainty in process parameters, such as severity of operating conditions and quantity of recycles

(3) Estimation of cost through scaling factors

(4) Off-the-shelf equipment

Hence, process contingency is a function of the maturity of the technology and the reliability of the informationgathered for the analysis. This value typically falls between 5% and 20% of ISBL investment.

* Outside Battery Limits (OSBL) Investment

The OSBL investment is the fraction of the fixed capital associated with the construction of all infrastructure(storage, utilities, auxiliary units and buildings) required.

The Intratec team employs cost estimation models similar to those previously described for estimating OSBLinvestment, i.e., initially, a preliminary design of OSBL equipment is defined based on the process requirements.This preliminary design information serves as an input to Intratec's cost estimation models.

* Project Contingency

Project Contingency is included to cover the costs which may arise as the project evolves, related to: project errorsor incomplete specifications, labor costs changes, strikes, problems caused by weather; inflation, etc.

Project contingency is largely dependent on the plant complexity and technology maturity, identified during initialresearch. The following table shows how project contingency varies according to such aspects.

Project Contingency

PLANT COMPLEXITY

Established Industrial Processes

ComplexTypicalSimple

PROCESS MATURITY

15%

20%

25%

New Industrial Processes

Early-Stage Industrial Processes

20%

25%

30%

25%

30%

40%

43

* Fixed Capital Validation

Depending on the availability of information about the process examined, the Intratec team utilizes three differentmethods to double-check fixed capital estimates:

(1) Published investment data, related to the construction of industrial plants of that process worldwide (adjustedin time, location and production capacity); and/or

(2) Fixed capital of similar plants (adjusted in time, location and production capacity); and/or

(3) Reverse engineering methods, i.e., the fixed capital is calculated based on the known profitability of the processexamined.

Fixed Capital Breakdown

The report also presents a fixed capital breakdown, detailing how the fixed is divided into direct process costs andindirect process costs.

The direct process costs comprise the following costs:

* Bare Equipment. This is the cost associated with the purchase of process equipment

* Equipment Setting. Those are costs related to the labor cost for setting the purchased equipment in place.

* Piping. The costs related to piping include materials, such as valves, fittings, pipe and supports used in theerection of the piping used directly in the process (for raw materials, intermediate-products, finished-products,steam, water, air, as well as any other process piping). The labor for piping erection and installation is also coveredin this topic.

* Civil. This topic covers costs associated with material and labor required for equipment foundations and civilwork related to any building required in the industrial site.

* Steel. Costs associated with material and labor required for equipment platforms erection, as well as anysupports needed during equipment installation.

* Instrumentation & Control. Those costs relate to instruments, controllers and industrial networks material, andlabor required to install it.

* Electrical. The costs related to electrical system cover power wiring, instrument wiring, lighting, as well astransformation and service.

* Insulation. Costs related to any labor or material required to insulate process equipment, either for processneeds or for operators safety.

* Painting. Those costs are related to labor and material required to paint and/or coat equipment according toprocess requirements.

The indirect process costs are described below:

* Engineering & Procurement. Engineering expenses include process and project engineers involved in processand construction design, as well as associated overhead. Development of computer-based drawings and costengineering are also costs included in this topic. Procurement costs are those related to the purchase team,

44

Fixed Capital Estimate Accuracy

The accuracy range for the fixed capital cost estimate obtained according to the methods hereby presented is-15% to -35% on the low side and +25% to +60% on the high side. This accuracy range is mainly influenced by:

* Reliability and amount of the information available

* Examined technology maturity

* Degree of extension of the study

As previously explained, the fixed capital is estimated based on the preliminary design of functional units which, inturn, relies on a process scheme. The greatest essential uncertainty lies in the basic conception of this processscheme. The level of uncertainty varies broadly among published information and from steps of a process in agiven research. In some instances, sufficient information may not be available to support rigorous estimation,thus, only basic design methods are warranted.

The maturity of the examined technology, in turn, also plays an important role in the fixed capital estimates. Early-stage processes require an extra level of caution.

In addition, the extension of the analysis helps enormously to reduce uncertainties and improve the accuracy ofthe cost estimation. Detailed studies are crucial to achieving more precise estimates.

Finally, the non-uniform spread of accuracy ranges (+50 to – 30 %, rather than ±40%, e.g.) is justified by the factthat a lack of available information usually results in underestimating rather than overestimating project costs.

Working Capital

For the purposes of Industrial Process reports, working capital is defined as the funds, in addition to the fixedcapital, that a company must contribute to a project. Those funds must be adequate to getting the plant intooperation and meeting subsequent obligations.

The initial amount of working capital is regarded as an investment item. The Intratec team uses the followingitems/assumptions for working capital estimation:

* Accounts receivable. Products shipped to but not paid for by the customer; represents the extended creditgiven to customers (estimated as a certain period – in days – of production cost including depreciation).

* Accounts payable. A credit for accounts payable such as feedstock, chemicals, and packaging materialsreceived but not paid to suppliers (estimated as a certain period – in days – of cash cost plus corporate overhead).

associated home office and overhead, and accounting professionals.

* Construction Material & Indirects. Those costs relate to field temporary buildings and their operation,construction tools, rentals, home office personnel located at the construction site, construction payroll, burdensand benefits.

* General & Administrative Overheads. General and administrative costs are associated with constructionmanagement and general costs incurred during construction, such as construction supervision, taxes andinsurance, internal and licensed software, communications and travel & living.

* Contract Fee. Expenses related to contract fees for engineering, equipment purchase and construction work.

45

* Product inventory. Products in storage tanks. The total amount depends on sales flow for each plant, which isdirectly related to plant conditions of integration to the manufacturing of the product‘s derivatives (estimated as acertain period – in days – of production cost including depreciation).

* Raw material inventory. Raw materials in storage tanks. The total amount depends on raw material availability,which is directly related to plant conditions of integration to raw material manufacturing (estimated as a certainperiod – in days – of raw material delivered costs).

* In-process inventory. Material contained in pipelines and vessels, except for the material inside the storagetanks (assumed to be 1 day of cash cost plus corporate overhead).

* Supplies and stores. Parts inventory and minor spare equipment (estimated as a percentage of operating laborand supervision and maintenance cost).

* Cash on hand. An adequate amount of cash on hand to give plant management the necessary flexibility tocover unexpected expenses (estimated as a certain period – in days – of cash cost plus corporate overhead).

Additional Capital Requirements

There are certain one-time expenses related to bringing a process on stream. From a time standpoint, a variableundefined period exists between the nominal end of construction and the production of quality product in thequantity required. This period is commonly referred to as start-up.

During the start-up period, expenses are incurred for operator and maintenance employee training, temporaryconstruction, auxiliary services, testing and adjustment of equipment, piping, and instruments, etc. Intratec’smethod of estimating start-up expenses may consist of the following components:

* Labor training. Represents costs of plant crew training for plant start-up, estimated as a certain number of daysof total plant labor costs (operators, supervisors, maintenance personnel and laboratory labor).

* Commercialization costs. Commercialization costs are those associated with marketing the product andinclude developing a market plan, establishing a distribution network and devising a customer support strategy.Those costs are dependent on how integrated the plant is with consumer facilities and on the maturity of theproduct – how established and well-known it is. These costs range from 0.5% to 5% of annual cash cost pluscorporate overhead.

* Start-up inefficiency. Takes into account those operating runs when production cannot be maintained or thereare false starts. Start-up inefficiency varies according to the process maturity: 5% for early-stage processes, 2%for new processes, and 1% for established processes, based on annual cash cost plus corporate overhead.

* Unscheduled plant modifications. A key fault that can happen occur during the start-up of the plant is the riskthat the product(s) may not meet specifications required by the market. As a result, equipment modifications oradditions may be required.

* Prepaid Royalties. Royalty charges on portions of the plant are usually levied for proprietary processes. A valueranging from 0.5 to 1% of the fixed capital is generally used.

* Site Development. Site preparation, including roads and walkways, parking, railroad sidings, lighting, fencing,sanitary and storm sewers, and communications.

46

Pricing & Wage Rates Definition

In order to calculate fixed and variable manufacturing costs, the Intratec team collects average transaction pricesof raw materials and average operators’ wage rates in the region examined in the study.

The prices are based on trade statistics issued by official government agencies, over the time period considered.Pricing information is checked to verify consistency, but issues like differences in product qualities, discountsrelated to volumes, or contractual negotiations are not considered.

However, for some chemicals, there are no trade statistics (e.g., intermediate chemicals that are not tradedbecause of transportation issues, but are usually generated and consumed onsite). In those cases, the Intratecteam assumes a transfer price that considers all the costs related to the manufacturing of that product plus anamount to pay the investment made to manufacture it.

The operators’ wage rates are based on data published by official government agencies.

Manufacturing Variable Cost

Variable costs change in direct proportion to changes in the production level. Examples of common variable costsinclude raw materials and utilities.

The Intratec team calculates the manufacturing variable costs of the plant under analysis from previouslyidentified process input and output figures and historical pricing data, as follows:

Manufacturing Variable Costs = Net Raw Material Costs + Net Utilities Costs

* Net Raw Materials Costs

“Net raw material costs” are the difference between raw materials costs and credits from by-products generation,as expressed in the formula below.

Net Raw Material Costs = Raw Material Costs – By-product Credits

The raw materials costs, in turn, are estimated by multiplying process’ consumption figures by the respective rawmaterial prices in the region considered. The formula below illustrates the raw materials costs calculation:

Raw Material Costs = Sum ( Raw Material Price * Raw Material Consumption )

By-products credits were estimated in a similar way, based on process’ input and output figures and pricing data.

* Net Utilities Cost

In Industrial Processes Economics reports, the utilities cost component encompasses costs related to a plant’sconsumption of steam, electricity, fuel, and refrigeration. These utilities requirements, in turn, are estimatedthrough correlations internally developed by the Intratec team that were refined from a well-established methodreported in technical literature by Mardsen et al. related to chemical process industries. (See “References” chapter)

Through the use of these correlations, utilities consumption figures can be quickly estimated with basicinformation, related to chemical properties of components involved in the process and parameters presented inthe block flow diagram. Such parameters include: number of functional units; type of each functional unitaccording to its energy consumption (i.e., if it involves phase changes, endothermic or exothermic reactions,

Production Cost Estimating

47

negligible use of energy, if it is a nonstandard functional unit, etc.); flow rates; heats of reactions involved in theprocess; molecular weight and approximate boiling points of the components.

Manufacturing Fixed Cost

Manufacturing fixed costs are all the costs related to the plant operation that are not proportional to the plantoperating rate. They are estimated as the sum of the following items:

* Operating labor. This item accounts for the total costs of plant operators actually required to run the equipment.This cost includes wages, burdens and benefits. The annual operator cost is obtained according to the formula:number of operators per shift x number of shifts per day x operator hourly wage rate x hours worked per week xweeks per year.

* Supervision. Accounts for the costs of field supervision labor, including wages, burdens and benefits. Theannual supervision cost is obtained according to the formula: number of supervisors per shift x number of shiftsper day x supervisor hourly wage rate x hours worked per week x weeks per year.

* Maintenance cost. This item accounts for the costs related both to the labor and material costs related to themaintenance of the plant. It is calculated as a percentage of the fixed capital, ranging between from 1 to 5% ofTFC per year. This figure is primarily based on the type of equipment employed and the maturity of the process.

* Operating charges. This category includes operating supplies (i.e., consumable items such as charts, lubricants,test chemicals, etc.); packaging; laboratory supplies and laboratory labor. It is calculated as a percentage of thetotal labor cost (item operating labor + item supervision).

* Plant overhead. This item comprises all other non-maintenance (labor and materials) and non-operating sitelabor costs for services associated with the manufacture of the product, including: outsourced labor; technicalassistance to manufacturing; plant engineers; restaurant; recreation; purchasing; employee relations department;and janitorial. It is calculated as a percentage of the sum of total labor and maintenance costs.

* Property taxes and insurance. This cost is associated with the local property taxes charged by governments oncommercial land or buildings as well as the cost of insurance to cover third party liabilities and potential plantdamages. It is calculated as a percentage of the fixed capital per year.

Depreciation

Depreciation refers to the decrease in value of industrial assets with the passage of time, primarily due to wear andtear. While not a true manufacturing cost, depreciation is considered to be a manufacturing expense foraccounting purposes – it allows the recovery of the cost of an asset over a time period.

In this report, depreciation is calculated based on the straight-line method, according to which the cost of an assetis uniformly distributed over its lifetime. The Intratec team assumes a depreciation of 10 % of the fixed capital peryear.

Corporate Overhead

Corporate overhead represents costs incurred by a company’s head office not directly related to themanufacturing process and is estimated as the sum of the following items:

* Administration costs. This item comprises the executive and administrative activities. It includes salaries andwages for administrators, accountants, secretaries, legal costs, communications, office maintenance and other

48

costs associated with the company’s head office. It is calculated as a percentage of the sum of total labor andmaintenance costs.

* Marketing & distribution. This is related to the costs associated with the distribution and sales (sales personnel,advertising, technical sales service) of the products manufactured in the plant. This cost is calculated as apercentage of the operating cash costs, considering the plant operating at full capacity, which varies according tothe process maturity and the level of integration with product consumers.

* Research & development. This is associated with the research activities related to the process and productsand includes salaries and wages for personnel and funds for machinery, equipment, materials and supplies relatedto the research and development activities. This cost is calculated as a percentage of the operating cash costs,considering the plant operating at full capacity and will vary according to the process maturity.

Product Value Estimating

Heretofore, capital investment and production cost of the process examined were estimated. The next step in themethodology is the development of a more consistent analysis, encompassing all costs estimated so far.

In this context, all costs estimated are combined in a single item: the “Product Value”. More specifically, theproduct value results from the sum of production costs (i.e., manufacturing variable costs, manufacturing fixedcosts, corporate overhead and depreciation) with a return on capital employed (ROCE), a parcel which reflects thecapital investment. The formula below expresses the product value calculation.

Product Value = Manufacturing Variable Costs + Manufacturing Fixed Costs + Corporate Overhead + Depreciation +Expected ROCE Amount

where all components are expressed in US dollars per amount of product.

The expected ROCE amount is a component which reflects the capital costs of a given process into its productvalue. This component is based on the expected return on capital employed typically aimed by chemicalcompanies. It is calculated by multiplying capital costs by the expected ROCE percentage, divided by the totalamount of product manufactured:

Expected ROCE Amount = Capital Costs * Expected ROCE Percentage / Product Annual Production

This “Expected ROCE Amount” component is, in fact, a measure of the cost of investment required to construct theplant, in terms of US dollars per amount of product.

Most chemical companies aim to achieve a ROCE percentage ranging from 10% to 30% for the construction of anew plant. In this context, the Intratec team assumes an expected ROCE percentage of 10% for establishedindustrial processes.

In contrast, a 30% expected ROCE is assumed for emerging industrial processes, as such processes inherentlyinvolve a larger amount of risk and cost uncertainty. It should be noted that the risk taken into account here islimited to the technical risk associated with the process uncertainties. Other venture risks were not considered,such as business environment, product market changes, increased competition, raw materials and product pricesvariations, change in government policy, etc.

Finally, it is also important to mention that product value must not be confused with product price. While theproduct value is calculated based on production cost and expected ROCE, the product price is the actual value

49

practiced in market transactions.

Estimates Limitation

The cost estimates presented in Industrial Processes Economics reports refer to a process technology based on astandardized design practice, typical of major chemical companies. The specific design standards employed canhave a significant impact on capital and production costs. In this context, cost estimates calculated by Intratecteam naturally have limitations.

In fact, the accuracy range for production cost estimated in the present study is -10% to -20% on the low side and+10% to +20% on the high side, depending on the maturity level of the process examined. The presented accuracyconsiders a confidence level of 90%, which is consistent with the type of conceptual evaluation that this studyaims to provide.

Also, it is to be noted that the basis for capital and production costs estimation is that the plant is considered to bebuilt in a clear field with a typical large single-line capacity. In comparing the cost estimates presented with actualplant costs and/or contractor's estimate, the following must be considered:

* Minor differences or details (many times, unnoticed) between similar processes can noticeably affect cost.

* The omission of process areas in the design considered may invalidate comparisons with the estimated costpresented.

* Industrial plants may be overdesigned for particular objectives and situations.

* Rapid fluctuation of equipment or construction costs may invalidate cost estimate.

* Market price fluctuations may invalidate production cost estimate.

* Equipment vendors or engineering companies may provide goods or services below profit margins duringeconomic downturns.

* Specific locations may impose higher taxes and fees, which can impact costs considerably.

Furthermore, no matter how much time and effort are devoted to accurately estimating costs, errors may occurdue to the aforementioned factors, as well as cost and labor changes, construction problems, weather-relatedissues, strikes, or other unforeseen situations. This is partially considered in the project contingency. Finally, itmust always be remembered that an estimated project cost is not an exact number, but is rather a projection ofthe probable cost.

50

ABOUT INTRATEC

Intratec is an independent research and leading advisory firm, recognized for excellence in the evaluation ofchemical markets and the economics of industrial process. We are a mix of process engineers, market researchersand cost estimators with extensive industry experience.

Since 2002, the reports and databases we provide have increased the early recognition of promising research andcapital investment opportunities in the chemical, petrochemical, oil, plastic, renewable and allied sectors. Ourproducts have been used by our clients in multiple ways, such as:

* To understand chemical market size, dynamics and attractiveness

* To understand the feasibility of competitors’ technologies and developments

* To obtain estimates of ventures’ profitability, capital and operating costs

* To assess the economic potential of R&D breakthroughs

* To ascertain the economic aspects and risks of their competitors’ research

* To screen and assess industrial investment options

* To define consistent business cases for investments

* To evaluate / select independent licensors

Our Business

Our Reports

Intratec has an extensive portfolio of reports targeting chemical markets and process economics. With more than900 up-to-date reports for the chemical, petrochemical, oil, energy, plastic, renewables and allied sectors, theIntratec portfolio is constantly growing.

Intratec offers the following types of reports:

* Production Pathways Reports: Reports presenting paths to producing chemical and preliminary economiccomparisons of those paths. From these reports, you can learn the ways in which changes in feedstocks andlocation can affect chemical production economics.

* Industrial Process Reports: Techno-economic evaluations of chemical production processes. Each reportprovides an up-to-date economic assessment, including required capital costs in several locations and operatingcosts.

51

Find below the chemicals covered in Intratec reports. For a more complete and updated list, the reader isencouraged to visit www.intratec.us.

3-Hydroxypropionic Acid

Acetone

Acetylene

Acetyls

Acrylic Acid and Derivatives

Acrylic/Maleic Copolymer

Acrylonitrile

Adipic Acid

Aldehydes

Alkylbenzenes

Amino Acids

Ammonia

Aniline

Biodiesel

Bisphenol A

BTX

Butadiene and C4's

C6's

Caprolactam

Carbon Monoxide

Chlorine and Derivatives

Chloroprene

Citric Acid

Cosmetics

Cumene

Detergents

Dicyclopentadiene

Diesel

Dimethyl Carbonate (DMC)

Dimethyl Terephthalate

Diols

Diphenyl Carbonate

Dyes & Pigments

Electricity

Epichlorohydrin

Ethanol

Ethylene

Ethylene Oxide

Fertilizers

Fibers

Fire Retardants

Food Additives

Furans and Derivatives

Glycerol

Glycols

Hydrogen

Hydrogen Cyanide

Hydrogen Peroxide

Industrial Gases

Insecticides

Isocyanates

Isophthalic Acid

Isoprene

Lactic Acid

Linear Alpha Olefins

Methacrylic Acid and Derivatives

Methanol

MTBE

Nitric Acid

Nitro Aromatics

Nylon

Oxalic Acid

Oxo Alcohols

Pentaerythritol

PET

Pharmaceuticals

Phenol

Phosgene

Phthalic Anhydride

Polyacrylate

Polyacrylonitrile

Polyalphaolefins

Polycarbonates

Polyesters

Polyethers

Polyethylenes

Polylactic Acid (PLA)

Polypropylene

Polyurethanes

Propanol and Isopropanol

Propylene

Propylene Oxide

PVC

Reformate

Resins

Silanes

Silicones

Siloxanes

Sodium Hydroxide

Speciality Polymers

Styrenics

Succinic Acid

Sulfuric Acid

Synhetic Rubbers

Synthesis Gas

Vitamins

Terephthalic Acid

Trimethylolpropane

Urea

Vinyls

52

Obviously, the fixed capital required to erect an industrial unit is highly impacted by local conditions. By way ofillustration, several country-specific factors can largely influence construction costs, such as local productivity,labor costs, local steel prices, equipment imports needs, freight, taxes and duties on imports, regional businessenvironments, local availability of sparing equipment, and so on.

In this context, this appendix shows how much the fixed capital of the plant examined would be in differentlocations. Considering the same industrial plant previously described, this analysis compares fixed capital acrossthe following countries:

APPENDIX 1: FIXED CAPITAL REGIONAL COMPARISON

Fixed Capital per Region (USD Million)

As an example, the following figure compares the fixed capital in the aforementioned countries.

Regional fixed capital figures presented were directly obtained from the fixed capital originally calculated (UnitedStates-based plant), according to Intratec’s chemical plant location factors. These factors are calculated based onhigh volumes of local data of different locations, relating to productivity, labor costs, steel and energy prices,equipment import needs, freight, taxes and duties on imported and domestic materials and regional businessenvironment, among others.

- United States

- Germany

- China

- Japan

- Saudi Arabia

- Brazil

- Singapore

53

APPENDIX 2: INTRATEC CHEMICAL PLANT CONSTRUCTION INDEX

The IC Index stands for Intratec Chemical Plant Construction Index, an indicator published monthly by Intratec toscale capital costs from one time period to another. By way of illustration, to update a plant construction costfrom 2009 to 2015, is necessary to multiply the cost at 2009 by the ratio of 2015’s index over 2009’s index,according to the following equation:

Cost at 2015 = Cost at 2009 * (IC Index at 2015) / (IC Index at 2009)

This index reconciles price trends of fundamental components of chemical plant construction such as labor,material and energy, providing meaningful historical and forecast data for our readers and clients.

Covering historical figures and near term forecasts of up to twelve months, the IC Index is already a recognizedcost-escalation index, widely used by the chemical industry community. It is a handy tool for a series of purposes,like procurement budgeting, capital project estimation and feasibility assessments.

Readers can access Intratec construction cost-escalation index for free, at www.intratec.us. It is the only indexavailable in the market that presents forecast and historical data.

Figure. Intratec Chemical Plant Construction Index

54

www.intratec.us