Massive Tanac pellet mill to supply Drax

Construction of the 400,000 tonnes a year plant commenced in October
[2014] and is scheduled to complete in early 2016, with the first
pellets due for export in mid-2016. A long term agreement for the supply
of wood pellets has been entered into with Drax Power Limited (Drax),
part of the UK-based Drax Group.

TANAC’s US$60 million investment will strengthen the company’s
operations and create jobs, directly and indirectly, within the forestry
supply chain, forest management and industrial operations sectors of
Rio Grande do Sul.

TANAC’s primary product is vegetable tannin, a high value-added
product mainly used by the leather industry, and in water and wastewater
treatment. Tannin is extracted from the bark of Acacia mearnsii
(also known as Black Acacia or Black Wattle). After removing the bark,
the remaining wood is chipped at TANAC’s woodchip mill, a proportion of
these woodchips will provide the feedstock for the new pellet mill.

The move to wood pellet production is a natural step for TANAC. The
Company has a long-standing and strong tradition in sustainable forest
management as well as local sourcing. All of TANAC’s own plantations are
FSC Forest Management certified and local sourcing operations all carry
FSC Controlled Wood certification. Further, an important requirement
under the Drax agreement is for an independent, carbon stock assessment
to be conducted on the plantation area in the Rio Grande do Sul State
every two years to ensure carbon stock levels are being maintained.

As well as managing its own plantations, TANAC manages a considerable
outgrower program comprising a community of 40,000 families farming in
Rio Grande do Sul State. Acacia mearnsii has been cultivated by farmers in the State since the early 1900s. The new pellet mill will ensure a market for the Acacia mearnsii plantations of small and medium size farmers, helping local rural communities through job creation and revenue certainty.

TANAC’s wood pellet mill is strategically located in the southern
part of Brazil and will be the largest plant in Latin America. The
operation will broaden TANAC’s product portfolio offering, customer base
and geographic markets.

About TANAC S.A.

TANAC is the world largest tannin extract manufacturer from Acacia mearnsii
bark with production capacity of 36,000 tons a year and also
manufactures wood chips from the wood of these trees. Its products are
exported to over 75 countries world-wide.

Tannins are used in a variety of applications, such as leather
production, water and wastewater treatment, adhesives for
plywood/MDF/particleboard panels, petroleum drilling mud conditioners,
among others.

Wood and wood chips are used as fiber source for pulp & paper
manufacturing, as well as raw material for wood panel industry and
charcoal production.

TANAC S.A. was founded in 1948 in Montenegro city, Rio Grande do Sul
State, Brazil and works exclusively with the renewable forests of Acacia
mearnsii.

About Acacia mearnsii

Acacia mearnsii has an average tree rotation of seven years
and owing to its fast growth and the high calorific value of its wood it
has been, for many years, an ideal source of fuel for people living in
the local countryside. As a leguminous species, Acacia mearnsii
can grow easily on poor sites, protecting the soil and water
efficiently and improving the soil properties, to a certain extent
rehabilitating degraded lands. These attributes result from several
characteristic features, including the capacity to fix atmospheric
nitrogen and a well-developed, not deep, root system.

In the first year of growing, Acacia mearnsii plantations
allow farmers to intercrop with agricultural cash crops such as
watermelon and maize. Later in the rotation cattle can be introduced.
This agro-forestry element makes Acacia mearnsii an important component of agricultural rotation systems within Rio Grande do Sul State.

About Drax Group plc

Drax Group (Drax) is principally a power generation business
responsible for meeting around 7-8% of the UK’s electricity demand.
Upstream, the Company has a presence in the US focused on developing and
operating wood pellet plants. Downstream, Haven Power serves the
electricity needs of UK business customers.

Drax is currently well underway with its plans to convert three of
its six generating units to burn sustainable biomass in place of coal.
Two units have already been converted and the third will be converted in
2015/16. Through converting to biomass, Drax will cut it emissions of
carbon dioxide by around 12 million tonnes a year compared to burning
coal.

Through transforming the business into a predominantly
biomass-fuelled generator, Drax aims to provide low carbon, cost
effective and reliable renewable power well into the future.