Solazyme Inc. reached its highest price since April 16 on expectations that the company will meet its planned targets in a joint venture with Bunge Ltd. to build a facility in Brazil capable of producing 100,000 metric tons of oil from sugar.
Solazyme, which makes oil products from genetically modified algae, rose 8.9 percent to close at $12.10 a share in New York. The South San Francisco, California-based firm first sold stock to the public in May 2011 at $18 a share.
“It’s a matter of execution and hitting milestones, contracting out volume and scaling up,” Michael Klein, analyst at Sidoti & Co. in New York, said in a telephone interview. “There is an element of risk in the early stage nature of these companies in the space. But compared with the general global economic outlook, they are focused on bringing their first plant up online.”
Solazyme trading volume was 1.08 million shares. That’s more than double the full-day average of 433,000 for the past year. When 2.5 million shares changed hands on April 3, it was the most since 7.9 million on the company’s first day of trading.
Solazyme shares have dropped 17 percent this quarter. While the company is working to complete its commercial production plants, Chief Financial Officer Tyler Painter said during the first-quarter earnings conference call in May that he didn’t expect to be cash-flow positive until the end of 2013.
Solazyme uses a technology to convert organic material such as algae, a plant-like organism, into biofuels and specialty chemicals. Klein has a buy rating on Solazyme, with a target price of $21 a share.
“It’s a volatile space and there is lack of news flow, or at least a delay,” he said.
Earlier this year, Solazyme and Bunge said their facility in Brazil will be built next to Bunge’s Moema sugar-cane mill and begin operating in the second half of 2013. The plant will use Bunge’s sugar-cane supply and technology developed by Solazyme to produce oil that may be sold to the fuel and chemicals industry.
Solazyme has reduced risks associated with feedstock supply, Patrick Jobin, an analyst at Credit Suisse, wrote in a note last month to clients, when he initiated coverage of the stock with an outperform rating and a target price of $17 a share.
Solazyme has signed an agreement with joint venture partner Bunge for the first 100,000-ton plant in Brazil, he wrote. Solazyme has also signed three memoranda of understanding with other suppliers for 350,000 tons, thereby meeting 90 percent of its 2015 estimated production capacity target of 500,000 tons.
Some events that may affect Solazyme include news flow on the first large-scale plant in Brazil as construction begins, securing financing for the first chemical plant and government fuel programs certification, particularly for the U.S. Navy, he wrote.
Genet Garamendi, a spokesman for Solazyme, didn’t immediately return a telephone call seeking comment.