Fortress Global Enterprises Announces Acquisition of S2G Biochemicals Inc. and New Xylitol Project

Fortress Global Enterprises Inc. (“Fortress Global” or the “Company”) (TSX:FGE) (OTCQX:FTPLF) is pleased to announce that it has signed a share purchase agreement (the “SPA”) with S2G Biochemicals Inc. (“S2G”) and its shareholders, whereby the Company will acquire all of the issued and outstanding common shares of S2G for a purchase price of $2,500,000, payable by the issuance of 666,652 common shares of the Company at a deemed price of $3.75 per Fortress Global share.

Upon completion of the transaction, Fortress Global, through a newly formed special purpose company, intends to commission the construction of a demonstration plant to produce xylitol at its Fortress Specialty Cellulose (“FSC”) Mill, utilizing proprietary process technologies, know-how and expertise developed by S2G and Mondelez International, Inc. (NASDAQ:MDLZ), one of the world’s largest snacks companies. 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. 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% fewer calories. In addition, based on third-party research, the Company believes that xylitol is currently the best nutritive sugar substitute with respect to the prevention of dental cavities. Xylitol is used extensively 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% through 2024. Current spot prices for xylitol vary by region and are in the US$3,500 – US$4,500/tonne range.

Today, the majority of xylitol is produced in China using corn cobs as the feedstock and employing outdated process technologies. This manufacturing process has a high cost structure, is inefficient and is environmentally unfriendly. Based on FSC’s low cost, high quality, non-GMO feedstock for xylitol production and the higher conversion efficiencies from the S2G process, the Company 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, Inc. have jointly developed. In connection with the acquisition of S2G, Fortress Global and S2G have entered into a non-binding term sheet (the “Term Sheet”) with Mondelez International, Inc. which sets out a framework to modify certain terms of the license and to provide for certain commitments from Mondelez International, Inc. 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.

Chadwick Wasilenkoff, President and Chief Executive Officer of Fortress Global, commented: “The acquisition of S2G and the expansion of our dissolving pulp operation into the sugar substitutes business is in line with our corporate strategy of pursuing innovative and value enhancing opportunities. We believe that the production of xylitol will further optimize the utilization of our wood fibre and also provide us with the added benefit of offloading the recovery boiler which will provide a separate measurable economic benefit. With the expertise and know-how of the S2G team, who have dedicated over eight years to the development of this technology in partnership with Mondelez International, Inc., Fortress Global is well positioned to become a global low-cost producer of a product with an attractive growth profile. We are pleased with the positive feedback and funding opportunities provided by the federal and provincial funding agencies and look forward to finalizing all necessary arrangements in a timely manner.”

Mark Kirby, President and Chief Executive Officer of S2G, commented: “We are very excited to become part of the Fortress team. It is the perfect partnership to commercialize the proprietary xylitol process technology which we have developed with Mondelez International, Inc. Fortress brings proven operational capabilities, strong Canadian and Quebec government relationships, and a large and stable source of hemicellulose sugars that our research has shown are a preferred and cost-effective feedstock for xylitol production due to their high xylose and low ash content.”
http://fortresspaper.com/wp-content/uploads/2018/03/Fortress-Global-Enterprises-Announces-acquistion-of-S2G-March-15-2018.pdf

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