Catalyzing Transformative Wealth as Mexico’s Leading Pine ...

Catalyzing Transformative Wealth as Mexico’s Leading Pine Resin Supplier

November 2018

Ejido Verde Building Transformative Wealth

Ejido Verde is a triple bottom line, sustainable pine resin company positioned to become a lead supplier in the 10B USD global pine chemicals industry. As the newest company of The Pinosa Industry Group, Mexico’s largest pine chemicals company, Ejido Verde increases the constrained Mexican pine resin supply with strategic guaranteed buyers to meet unsatisfied global customer demand. As a mission-driven company, Ejido Verde is equally committed to climate-smart solutions and creating transformative wealth for rural and indigenous communities.

Ejido Verde’s unique business model includes commercial agroforestry plantation design, community lending, and community building with rural and indigenous communities. Ejidos are community-owned rural lands which cover 51% of Mexico’s geography. Ejido Verde has community loans with formal purchase agreements that range from 175,000 USD to 3.5M USD. The loans finance establishing and maintaining commercial agroforestry plantations by covering labor and material costs. The community building program provides training and education to enhance effective community decision-making and forestry management practices.

Three primary revenue streams contribute to Ejido Verde’s business model. The Pinosa Industry Group pays Ejido Verde a 12% surcharge over the market purchase price of resin with a 30-year purchase agreement. Secondly, 3,500 kg (10% of the resin), is delivered over a long term payback to Ejido Verde for loan repayment from the ejidos. Thirdly, Ejido Verde receives a government subsidy of 600 USD per hectare of reforested land.

Executive Summary

Since 2009, Ejido Verde has received a total investment of 10.9M USD. Primary capital sources include The Pinosa Industry Group, Mexico’s National Forestry Commission (CONAFOR), and crowdfunding platform, Kiva. Ejido Verde has planted and currently manages 3,148 hectares (over 7,500 acres, an area equivalent to half of Manhattan) of commercial agroforestry plantations on 480 family farms in collaboration with 11 ejidos. By 2022, Ejido Verde will plant a total of 12,000 hectares (30,000 acres). Ejido Verde seeks 20M USD in outside investment in equity, debt and structured debt that provide annualized returns varying up to 16%. The total investment of 30M USD will be fully invested by 2028 and generate 140M USD positive cash flow by the year 2038. Additionally, the investment creates 1B++ USD of wealth for resin tappers and their communities over the next 30 years.

2

Community Lending: In exchange for providing land and reliable labor, Ejido Verde provides zero-interest loans and technical assistance to ejidos. Loans of 3,500 USD per hectare range from 175,000 USD to 3.5M USD and are repaid with 10% of the resin production until the interest-free loan is refunded.

With an exclusive purchase agreement, Ejido Verde purchases 90% of the resin production and pays the ejidos cash-on-delivery at the market rate.

Community Building: A key risk mitigation strategy of Ejido Verde is to strengthen the community governance and land use management. Ejido Verde staff provide training and education to assure community decision-making and

Community Lending. Community Building. Commercial Agroforestry. Plantation Design.

3

forestry management practices conform to the loan agreement, Mexican agrarian law, and international protocols to ensure free, prior, and informed consent. By forging reciprocal, community relationships, Ejido Verde ensures new healthy forests and cost efficiency.

Commercial Agroforestry Plantation Design: Tailored for Mexico’s forests, Ejido Verde’s adaptive reforestation model seeks to maximize long-term resin yields without harming the trees. The commercial agroforestry plantation design applies best-in-class technologies that include improving forest genetics, mechanized site preparation, and maintaining plantations. The final density is 800 trees per hectare with each tree producing about four kilograms of resin by the 9th year. The current purchase price of crude resin is 1.05 USD per kilo.

The Economics of One Hectare

Raw Resin

90% of resin is soldat full market price

10% of resin is usedfor loan repayment

• 3500 USD Loan• 1100 Seedlings• Labor, Maintenance and Security

• 600 USD in Government Subsidies

Capital Inputs

• Genetic Selection for High-Yielding Trees• Commercial Agroforestry Plantation Design• Technical Tree Tapping Training• Community Building • Risk Mitigation Strategies

Technical Inputs


The Impact of Ejido Verde

4

Current Impact Includes • 3,148 hectares of reforested lands

• 32,248 tons of sequestered CO2

• 480 family farms

• 722 commercial agroforestry plantations

• 240 full-time, year-to-date jobs earning 3.5 times

more than the minimum livable wage

• 11 rural and indigenous communities with strengthened

environmental and social governance

Impact by 2030• 12,000 hectares of reforested lands

• 6 million tons of sequestered CO2

• Over 2,000 family farms

• Thousands of commercial agroforestry plantations

• 6,000 full-time jobs earning four times above the

minimum livable wage, propelling families into the

middle class

Current Impact Numbers and Where We Are Going

Deforestation continues to contribute to a dramatic annual loss of Mexico’s forests. In addition to meeting the supply demands of pine resin in the Mexican market, Ejido Verde reforests degraded lands caused by decades of illegal logging, and convertsunproductive agricultural lands into forests.

TOTAL 3,566,544 2,231,485 1,335,059 37.5% 66,762

Annual Loss of 60,000 Hectares

Deforestation in Michoacán from 1990 to 2010

Vegetation Inventory 1990 (ha) Inventory 2010 (ha) Decrease (ha) Decrease (%) Av. Yearly Decrease (ha)


Ejido Verde is the newest company of Mexico’s pine resin leader, The Pinosa Industry Group with a 90-year legacy. The Pinosa Industry Group is a family-owned, vertically-integrated supply chain which represents 50% of the Mexican pine resin market, the fifth largest market globally. The Pinosa Industry Group purchases crude resin, distills it into gum rosin and turpentine, and converts these commodities into 50 specialty ingredients which are sold to 12 industries in 22 countries. However, decades of deforestation has resulted in a loss of two-thirds of Mexico’s annual production. Consequently, The Pinosa Industry Group distilleries operate at 30% of their capacity and regularly decline purchase requests from existing and potential customers. In search of a supply chain solution, The Pinosa Industry Group launched Ejido Verde as an experimental social reforestation initiative in 2009 and formalized the business in 2016 when they hired full-time staff including Shaun Paul, the CEO. To date, The Pinosa Industry Group has deployed an additional 7M USD. To help capacity, Ejido Verde adopted a Community Lending model which began through a strategic partnership with crowdfunding platform, Kiva. 6,234 lenders from 66 countries invested 280,000 USD.

A 10 Billion USD Global Pine Chemicals Industry

Global revenues from the pine chemicals industry are valued at more than 10B USD. The pine chemicals industry is a raw resin, market-driven industry which represents sustainable income for hundreds of thousands of rural families in about 20 countries. The relationship with these families is symbiotic, as they preserve the forests to gain a stable income. The global industry directly employs over 14,000 professionals including scientists, engineers, plant operations personnel, and other technically trained personnel as well as over 200,000 tree tappers and farmers; at least 800,000 people derive at least 30% of their income from

Maximizing the Capacity ofThe Pinosa Industry Group

5

resin tapping worldwide. The industry produces essential ingredients for hundreds of consumer-packaged goods such as inks, adhesives, pharmaceutical medicines, and food and beverage products. Until 2017, China represented 80% of the global exports but has now drastically reduced pine forests and resin production and shifted to a net importer, creating a significant global market opportunity. As of 2018, China is still the leading producer of pine resin with Brazil now closely following in total production. Mexico leads as the fifth largest producer of raw Resin, with 24,000 yearly tons. By 2050, Ejido Verde will triple the size of the Mexican market propelling Mexico to become a top three lead exporter of the pine chemical industry.

Regenerate. Steward. Thrive.

Rooted in the 90-year legacy of The Pinosa Industry Group and their relationship with the rural and indigenous communities, Ejido Verde offers a long-term, economically valuable partnership with the ejidos. Ejido Verde is committed to affirming the cultural heritage and economic growth for rural and indigenous communities that provide the basis for the industry’s prosperity. Ejido Verde incorporates Environmental, Social & Governance (ESG) principles by following Forest Stewardship Council (FSC) guidelines, complying with Inter-American Development Bank safeguard policies, and applying regenerative principles into operations and decision-making. Climate change solutions, job creation, livable wages, gender equity, and decentralized governance structures are intentional ESG and triple bottom line outcomes of Ejido Verde’s business model.

Risks

Significant risks include tree health and survival; fires; site control of lands; long production cycles; public security and political corruption, and the startup risks associated with an early stage company. (See the overview for more detail on risks and mitigation strategies).


THE FINANCIALS Ejido Verde is a Sociedad Anónima Promotora de Inversión (SAPI), an attractive and flexible investment vehicle. The business model requires the maturation of the trees, nine years after planting, before they are tapped and begin providing revenue.

RevenuesUntil 2025, only modest revenues are generated from resin production. These revenues come from the hectares planted before 2015, totaling 1.4M USD generated between 2019 to 2024 period. Those revenues progressively increase and are expected to reach 475,000 USD in 2024. From 2025 onward, expected annual revenues exceed 1M USD and cover all costs from 2027 onward, when they reach 2.5M USD and break-even. At that point, Ejido Verde will have accumulated over 26M USD in negative EBITDA (over the 2019-2026 period).

From then on, expected annual revenues quickly scale from 5.3M USD in 2028 and exceed 10M USD per year from 2031 onward, until they plateau at around 20M USD in 2034 and subsequent years. Payback is expected by 2031 while accumulated EBITDA will reach 140M USD by

6

30 Million USD Over 5 Years

Revenue Streams• Loan Repayment: After trees start producing resin in year

10, the ejidos payback the loan with 10% of the harvested resin until they reach a cap of 3,500 kg of resin per hectare. The ejidos repay the capital investment in years 11-20. The remaining 90% of resin is purchased in cash by Ejido Verde at market price.

• Contractual Payment Obligation: The pine chemical industry pays Ejido Verde 12% over the market price for the increased resin supply on a 30-year purchase agreement.

• Government Subsidies: Ejido Verde receives one-time payments of 600 USD per reforested hectare of land.

Ejido Verde anticipates the growth of secondary revenue sources that include: • Tapping Natural Forests: Ejido Verde is assessing the

potential to buy the resin of existing natural forests.• Intercropping & Animal Grazing: Selling agricultural

products grown among the pine trees, intentionally designed in each commercial agroforestry plantation with free-range livestock.

• Carbon Credits: CO2 captured by pine resin trees may be sold as carbon credits in national or global markets.

ExpensesBetween 2019 and 2023, Ejido Verde accumulates negative EBITDA, but government subsidies of 6.5M USD will pay some of the direct costs. Most costs are associated with the labor costs for the development and maintenance of the commercial agroforestry plantations. Administrative costs stabilize at about 1M USD annually. In 2019, total costs start at 3.5M USD and increase as Ejido Verde scales and plants

as the trees mature, reducing maintenance and technical assistance expenses.


thousands of hectares. Costs significantly decrease in 2022

The total investment offering is 30M USD over five years.The Pinosa Industry Group invested over 7M USD and committed another 3M USD in equity to cover future expenses to maintain established commercial agroforestry plantations. Kiva increased their credit line from 200,000 USD to 400,000 USD and the Inter-American Development Bank is closing on a 2M USD loan by the first quarter in 2019. Ejido Verde seeks an additional 20M USD in outside investment. The blended finance strategy offers a range of equity debt, and structured debt. Expected annualized returns are up to 18%, depending on the instrument and timeframe.

year 20 of business and 400M USD by year 30.

THE TEAM

Fredo Arias-King, Executive ChairFredo leads The Pinosa Industry Group and is President of Texas-based, T&R Chemicals, and a board member of Morelia-based, Pinosa and Resinas Sinteticas. He recently

became the owner and publisher of Pine Chemicals Review, a 128-year-old industry journal founded by the global Pine Chemicals Association.

Shaun brings 25 years of highly entrepreneurial experience in philanthropy,

companies primarily with indigenous communities in Latin America. Shaun founded and directed the EcoLogic Development Fund for 20 years that included overseeing forestry management with indigenous communities and establishing agroforestry plantations in Mexico, Guatemala, Honduras, and Belize. Additionally, Shaun led the incubation of Root Capital that has lent over 1B USD to small and growing businesses in Latin America and Africa and founded Reinventure Capital, an impact venture fund.

Renato Satta, Forestry DirectorWith more than 30 years’ experience in the forestry industry, Renato led the formation of a variety of forestry companies in Chile, Uruguay, and Colombia. As the General

Manager of Agrícola de la Sierra SA Colombia, Renato established over 30,000 hectares of pine plantations in Colombia and Uruguay.

Pine Chemical Industry, Agroforestry& Indigenous Experts

7

Osvaldo Farias Blanco, Manager of Finance and Administration

Osvaldo excels at building scalable business systems and accounting practices that comply

with national and international standards. From 1997 to 2014, he served in management positions of increasing responsibility throughout Latin American in FEMSA, the largest global franchise of Coca-Cola.

Antoine Cocle, Interim CFO

large-scale external investment from the Inter-American Development Bank, Antoine

since 2015. He is also the CEO and founder of Kaya Impacto,

American social entrepreneurs, impact investors, and impact accelerators.

ADVISORS• Todd Farrington, Impact Debt Advisor, Formerly

Symbiotics S.A. • Sebastian Carducci, Impact Equity Advisor, Gray

Matters Capital • Gerardo Napolitano, Partner, Muñoz Manzo y Ocampo, S.C.,

Mexican Fiscal Advisor • David Shoch, Forest Carbon Advisor, Principal, TerraCarbon• Kevin Jones, Social Capital Advisor, Founder SOCAP, ReGen,

Good Capital, Communications Advisor • Peter Strugatz, Strugatz Ventures, Senior Advisor • Silvia Murillo, Mexican Government Relations Advisor

LEGAL TEAM• America Barcenas, Attorney, General Counsel, QB Asesores

Fiscales SA de CV• Alejandro Huerta Ramos, Agrarian Legal Attorney • Jose L. Carbonell, ScottHulse PC, US Corporate & Investment

Attorney


Contact Us

For more information: Shaun Paul, CEO [email protected] M +1-617-515-0070 | O +52-443-312-0448

8

Antoine Cocle, Interim CFO [email protected]+52 1 (55) 3556 8013


Catalyzing Transformative Wealth as Mexico’s Leading Pine ...

Documents