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Fortress Global acquires S2G Biochemicals and new xylitol project

Mar. 16, 2018 – Fortress Global Enterprises Inc. has signed a share purchase agreement with S2G Biochemicals Inc. and its shareholders.

Upon completion of the transaction, Fortress Global, through a newly formed special purpose company, says it intends to commission the construction of a demonstration plant to produce xylitol at its Fortress Specialty Cellulose (FSC) Mill in Quebec, utilizing proprietary process technologies, know-how and expertise developed by S2G and Mondelez International, a snack company.

The demonstration plant will use C5 sugars extracted from hemicellulose, which is a residue from the FSC Mill, to produce xylitol. The extraction and conversion of this residue will also further debottleneck the FSC Mill and increase its annual production capacity of dissolving pulp, explains Fortress Global. The demonstration plant is expected to commence operation in 2020 and have a production capacity of up to 2,000 tonnes per year of xylitol.

The FSC Mill is expected to produce sufficient C5 sugars annually to provide the feedstock for up to an additional 20,000 tonnes per year of xylitol production which Fortress intends to utilize by constructing an approximately $150 million full-scale plant following successful completion of the demonstration plant. When complete, the full-scale plant would be expected to generate up to $40 million of EBITDA annually.

Xylitol is a naturally occurring sugar polyol that has a sweetening property matching that of cane sugar but with 40 per cent fewer calories. In addition, based on third-party research, Fortress believes that xylitol is currently the best nutritive sugar substitute with respect to the prevention of dental cavities. Xylitol is used in a variety of confectionary products such as gums and candies with estimated annual global xylitol sales volumes in 2017 of approximately 200,000 tonnes and an expected annual growth rate of 6.5% per cent through 2024.

Today, the majority of xylitol is produced in China using corn cobs as the feedstock and employing outdated process technologies, says Fortress, explaining that this manufacturing process has a high cost structure, is inefficient and is environmentally unfriendly. Based on FSC’s non-GMO feedstock for xylitol production and the higher conversion efficiencies from the S2G process, it says it believes that a full-scale plant at the FSC Mill will be one of the lowest cost producers of xylitol globally.

S2G is the exclusive global licensee of the xylitol process technology that S2G and Mondelez International have jointly developed. In connection with the acquisition of S2G, Fortress Global and S2G have entered into a non-binding term sheet with Mondelez International, which sets out a framework to modify certain terms of the license and to provide for certain commitments from Mondelez International with respect to the demonstration plant and any future full scale plant.

The construction, commissioning and optimization of the demonstration plant is budgeted at approximately $33 million. It is anticipated that Fortress Global will provide $5.0 million in funding for the special purpose company in cash or in-kind. Fortress Global is in the process of securing the balance of the required funding through various non-dilutive sources, including federal and provincial grants, other non-recourse financing and consortium partners.

Closing of the SPA is expected to occur on or before May 31, 2018.