OLD TOWN, Maine — The heavy, moist smell of chemical and paper dominates the air as decades-old machinery churns out hundreds of tons of pulp at the Fuel & Fiber mill.

In another part of the mill campus, where tissue paper machines once roared, relatively new machinery hums along. There’s a sugary smell in the air, reminiscent of a maple sugar shack.

It’s the past and the future tied inexorably together in the mill.

The old is the wood pulp process, which is producing 600 tons a day, a historically high amount, destined for markets across the United States and the globe. As part of that process, researchers have been extracting byproducts from the pulp, testing them in the on-site prototype biorefinery, making, among other things, fuel-grade biobutenol — a biofuel distilled out of wood pulp extract.

That’s the new and advanced markets and intellectual property that Fuel & Fiber is forging into.

Next month, the mill will begin construction on a production-sized biorefinery, capable of producing industrial levels of chemicals distilled out of the pulp process, including high-grade biofuels. The current model is about two stories tall, roughly 100 by 130 feet square. The next one will be about five to 10 times bigger, and should be complete within a year and a half or two years, said Daniel Bird, director of Old Town Fuel & Fiber.

“That’s the future of our company, the diversification of our revenue base,” said Bird.

When that operation is up and running, he expects to hire another 30 to 40 employees, Bird said, adding to the 205-person work force.

The new construction will be the latest step in what has been a staircase of recent events for the company. The mill has been around in various incarnations since it opened in 1860 as a sawmill. Georgia-Pacific closed the mill in March 2006, dismantling and removing the paper machines. Red Shield Environmental took over the mill later that year with the goal of aiming it at pulp and biofuel production.

Red Shield went bankrupt in June 2008, laying off about 160 workers. Later that year, it was purchased by Patriarch Partners, whose owner, Lynn Tilton, specializes in turning around failed manufacturing operations.

Patriarch Partners recently purchased a shuttered paper mill in Gorham, N.H., getting a paper towel-making paper machine up and running on Wednesday after eight months out of operation.

The Gorham mill will buy pulp from the Old Town operation, as it had in the past. It also shares top management with Old Town, including Bird, President Dick Arnold and an incoming chief financial officer. Old Town may tweak its pulp process to better match Gorham’s needs, Bird said. And there’s the possibility of driving down costs on bulk purchases of chemicals used by both mills. Every bit of savings helps, Bird said.

“You have to go after everything if you’re going to survive,” said Bird. “Both of these facilities are turnarounds.”

Patriarch plans to buy a tissue paper machine for the Gorham mill as well, with Tilton quoted in the media as saying she’d like to see one in operation there within about a year.

There have been rumors around Old Town that Fuel & Fiber planned to install a new tissue-making operation there, as well. When G-P sold the mill in 2006, it included a provision blocking any owners from making tissue there for five years. That prohibition ends this fall. Bird said there was no “hard-and-fast” plan to put a new machine in the mill but it was an option for the future.

“The possibility certainly exists, and we’re going to preserve that as a possibility as long as we can,” said Bird.

Generally, the mill is making sure it keeps enough open room to house a machine in the future, with access to services such as steam and air hookups, he said.

Robert Rice, a wood science professor at the University of Maine, said bringing back papermaking to the mill potentially could work.

“They spent many years making tissue, they know how to make tissue, and tissue is a market that uses good quality fibers, and they have the ability of making good quality fiber at that mill,” said Rice. “I think integrating forward into the manufacturing again would be a win-win deal for both the area and the company.”

It is very expensive to install a tissue-making operation, he noted, more than $200 million. But there are other factors that would balance that challenge.

“You’ve got a skilled work force in the area, and you’ve got a management that understands the paper industry,” said Rice. “I think it will work, but it is expensive.”

Tissue is an understandably attractive market, said Lloyd Irland, a Winthrop-based paper analyst and president of The Irland Group.

“Tissue’s been the only major grade increasing in tonnage around the country,” said Irland. “It sort of naturally draws your eye.”

Bird said he thought Patriarch could succeed at tissue where G-P didn’t because the management structure is much more flat and nimble. For example, he does work that used to be handled by six managers under G-P.

As the Gorham mill starts producing tissue and breaking into markets, the company may want to expand production, he said, and it was only logical to think that additional capacity in Old Town may be the answer.

The resumption of papermaking is a rumor heard around the work force, said Scott Willette of Alton, who has worked at the Old Town mill for 25 years. But that rumor has been around almost since G-P took the machines out, he added.

“It would be nice, put a lot more people back to work,” said Willette. “They have the space and the resources to do it.”

The bigger cause for hope among workers, said Willette, was the biorefinery operation.

“It’s looking good now, promising, anyway,” said Willette.

Without the biorefinery, “I don’t know what we’d do,” said Rick McLaughlin of Glenburn.

“I think it’s great — extra work, extra jobs,” he said.