Sale of New Operational Brazilian Sugar Mill

Initial growth (first revenues) investment project in Brazil

https://www.merar.com/investors/investment-projects/agriculture/brazil/sale-of-new-operational-brazilian-sugar-mill/



Country: Brazil
Industry: Agriculture
Stage: Initial growth (first revenues)
Project tags: Sugar Mill For Sale,Investment In Agriculture, Sugar Mill,Ethanol, Investment In Brazil, Sugar
Required Investment: $100,000,000
Minimum Investment: $16,000,000
Date submitted: 09 May 2012
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I am looking for investors willing to buy partially or in total a 3 year old sugar mill located in the
Central East part of Brazil or to purchase sugar in advance.
We understand that buying sugar in advance involves some risks. It is our goal to minimize these
risks as much as we can. We can do so by providing good guarantees to the Investor/Buyer and
giving all the support the Investor/Buyer may need for doing business in Brazil because we also
have interest in maintaining good business relationships with the new proprietor.
Proposed Guarantees:
- We can provide a Bank Guarantee over the sugar production.
- We can offer the very own sugar mill (if this is Buyers interest) as a guarantee.
The buyer can run the sugar mill for a period sufficient to obtain return on the investment
(approximately 3 years). The Seller gives the option to the Investor/Buyer to acquire 51% - 70% -
100%.
Important: We would like to know if the Buyer is interested in a medium or long-term investment.
Concerns:
Sugar production is a very peculiar industry. As an illustration, Louis Dreyfus and Abengoa came to
Brazil and bought sugar mills but applied a model of management and administration that does not
work in this business in Brazil.
Managing and supervising a sugar mill requires specialized professionals. The Industrial Director of
the mill is a widely recognized professional in the industry who has a complete administrative and
management team already in place.
The choice of the region, where the mill was built, was chosen after extensive study of fertility of
soil, amount hours of sunlight, rainfall indices, availability of water for irrigation, availability of land
to plant sugar cane and low prices of the land. These are among the main reasons that make this
mill a good business.
The Sugar Mill is new - 3 year old and was never built to be sold.
The sugar mill is on its second crop. In 2012 it will grind 700.000 tons of sugar cane and will
produce 45.000 ton of sugar IC 150 or VHP and 36 million/litter of ethanol 97%.

Today, the sugar mill installed has the capacity to grind 1.200.000 tons of sugar cane.

In 2012 it is not producing in full capacity due to the shortage of raw material. The sugar cane is
not sufficient because there is no capital to plant it and the agricultural project is in final phase of
implantation.
Competitive advantage:


Location advantages in comparison with other main sugar mills in Sao Paulo region:
Lower cost of production
Dry climate (Therefore sugar cane can be produced all the year round)
Already installed irrigation system
Restricted competition (Sao Paulo State has limitation on production because of land limitation -
there is no more land to be explored, purchased or leased)
Land price is about 70% less than in the South, especially compared with Sao Paulo State
Land lease costs much less than in the South
Human resources cost much less (about 50% less) than in the Southern States of Brazil
Raw material (sugar cane) in the region where the mill is installed is considered the best in terms
of productivity = 160kg/sugar/ton (State of Goias)
Proximity to Brazilia International Airport
Furthermore:
The Sugar Mill is new and well built (not built to be sold but to be a model)
The Mill already has net billing (faturamento liquido)/turnover and liquidity
Rationale for the deal:


Next steps in the negotiation process:
1. If an investor/buyer is interested in the plant a NDA (non-disclosure agreement) or
confidentiality contract will be signed. The investors or their agents will thereafter visit the plant. If
interested in proceeding with the negotiations, the Investor/Buyer should contract an independent
third party company with unblemished reputation to perform Due Diligence.
3. Due Diligence will be formed by three (3) teams responsible for the following parts:
3.1. Agricultural Data analysis
3.2. Industrial analysis
3.3. Financial and Legal environmental liabilities
Use of financing:


Costs to be considered:
Custo do Plantio/Planting costs. ................................... R$ 3.500,00/hct
US$1,950.00/hct
Custo de Irrigao/Irrigation cost................................... R$ 560,00/hct
US$ 315.00/hct
Lease of land from a third part cost...................8 to 10/tons/sugar cane/planted/hct or + 10% to
12% of the production. When compared with Sao Paulo state sugar mills; 20 to 50 tons/sugar
cane/planted/hct
Productivity average/cycle........................... 80 Tons per sugar cane/hct
ATR Average.....................160kg/sugar/ton, consider 120kg/sugar/ton Sao Paulo State
Average distance from the farm to the mill ......................................... 16km
Cost Sugar Cane transport ..........................R$ 20.00/TC or US$ 11.00/TC
Cost Ethanol/liter/produced/without tax............R$ 0,48/liter or US$ 0,27/liter
Cost sugar produced per ton....................R$ 305,00/ton or US$ 162,00/ton
Price:
100% = 195 million
70% = 136 million (acquire 70% of a Sugar Mill free of debt and maintenance)
51% = 100 million
ROI = Three crops productions = US$ 150 million
(without planting more sugar cane or making any other changes)
The production has the capability to almost double the ROI if more sugar cane is planted.
Opportunity for the investor:


CROP - GRIND SUGAR - ETHANOL USD PROJECTION
2012 - 700.000 tons of sugar cane 45.000 MT* SUGAR
36 MILLIONS OF LITTERS ** US$ 50.000.000.00
2013 - 1.200.000 tons of sugar cane 75.600MT* SUGAR
58 MILLIONS OF LITTERS ** US$ 82.000.000.00
2014*** - 2.000.000 tons of sugar cane 126.000MT* SUGAR
108 MILLIONS OF LITTERS ** US$148.000.000.00
Obs.:
* The sugar Mill can produce IC 150 or VHP. If you want to produce IC 45 an investment of 5,5
millions US dollars would be necessary.
** The sugar Mill produces ethanol 97%.
*** The sugar Mill will can grind 2.000.000 tons if 16,5 millions US dollars are invested.
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