So you want to be a biofuels investing Rock Star? Part 3 The rookies, minor leaguers, majors and MVPs

April 29, 2011 |

In this episode of “So you want to be a biofuels investing Rock Star?” we look at the final fifteen of the Biofuels Digest Index stocks. 

Who’s Got Game, Who’s Got Claim? Who’s in the rookie leagues, moving up in the minors, now in the majors, or an MVP candidate?

 

Green Plains Renewable Energy (GPRE)

A growing force in first generation ethanol, and host and partner in Shenandoah, Iowa to the BioProcess algae demonstration that attracted a visit from Secretary of Agriculture Tom Vilsack last week.

In February, Green Plains Renewable Energy acquired the 55 million gallon per year Fergus Falls ethanol plant for $55 million, which brought the GPRE total US capacity up to 715 million gallons per year at nine locations in  Nebraska, Iowa, Indiana, Michigan and Tennessee and now Minnesota. The company, which confirmed its status as the fourth-largest ethanol producer behind POET, ADM and Valero. The Fergus Falls plant was formerly owned and operated by Otter Tail Ag Enterprises, which went bankrupt in 2009.

Outlook: Moved up to majors from Triple A, has a nasty new slider that is MVP material. Generally tied to the rollercoaster fortunes of US corn ethanol, but its algal fuel venture provides a breakout opportunity for value-add. In a year, we’ll know a lot about the extent to which this will transform GPRE’s already impressive growth rates.

GreenHunter (GRH)

Once the owner of one of the largest biodiesel plants in the US, a 100 Mgy facility near Galveston in Texas, the company suffered in the global financial crisis and from a Texas hurricane. After unsuccessfully marketing the shutdown plant, GreenHunter Energy contributed its ownership in the nation’s largest biodiesel refinery to a trust for debt-holders. The company had previously defaulted on the notes, which were collateralized by the refinery, and had been in danger of a potential delisting from the New York Stock Exchange.

According to reports, the shift of refinery asset to the trust would increase the company’s shareholder equity to more than the minimum threshold of $6 million required by the NYSE, as well as satisfy the bond default. The refinery has not fully reopened in full production since damaged by Hurricane Ike, as well as being affected by the loss of the biodiesel tax credit and loss of its European markets.

Outlook: Injured reserve, retiring. The company will be exiting the BDI grouping after the completion of Solazyme’s IPO.

Gushan Environmental Energy (GU)

The only publicly-traded biofuels pureplay in China, Gushan had endured a rocky road, based on the changing availabilities of feedstock as Chinese biofuels policy evolves. In January, Gushan announced that it intended to resume biodiesel production at Fujian Gushan, to commence production at Chongqing Gushan, in the second quarter of 2011 following a clarification by the Ministry of Finance of the People’s Republic of China, or the Ministry of Finance, and the State Administration of Taxation of the People’s Republic of China, or the SAT, that pure biodiesel made from waste animal fat or vegetable oil is exempt from consumption tax in China.

In December, the Ministry of Finance and the SAT issued the exemption on condition that waste animal fats or vegetable oils make up at least 70% of the raw materials.

Outlook: Player in the China League, may move to majors. Tough to predict China’s feedstock availabilities, but as China biodiesel goes, so will grow Gushan as the leading provider. Expect continued volatility as China policies searches for stabilization on food-vs-fuel and emissions issues.

Lignol (LEC.V)

After spending 2010 largely in “stealth mode” on its technology development and advancement on commercialization, the Canadian advanced biofuels pioneer has become highly active over the past six months. This month, Lignol has begun shipping tonnage quantities of its proprietary High Performance Lignin to development partners for industrial production trials.

Also this month, the company announced the development and trials of its first renewable chemical product, a resin adhesive formulation, and completed an engineering design package for a commercial-scale biorefinery that would produce up to 80 million litres of cellulosic ethanol (approximately 20 million US Gallons) and 55,000 tonnes of High Performance Lignin derivatives annually.

Outlook: Double A – working on a new pitch that may win a spot in the majors. Gaining momentum, strong management team. Financing of commercial-scale remains, as for many cellulosic ethanol pioneers, a question mark.

Mission New Energy (MNEL)

Joined the Biofuels Digest Index this month after completing a share issue and listing on NASDAQ. The jatropha and advanced biofuels developer has also in recent weeks established an Advisory Board and a presence in the United States with an office in San Antonio. James Garton, President of Mission NewEnergy USA, has announced the appointment of Major General Wilbert D. Pearson (USAF-Ret) as board chairman, and as board members has tapped Roger Frizzell, Vice President of Corporate Communications at American Airlines, and Brian Tippens, HP’s lead of that company’s Global Supplier Diversity & Development Programs.

Outlook: Double A – major league prospect. Jatropha has grown slowly, but remains the oilseed of choice and hope for many companies that can’t afford soybean oil and avoid palm oil on sustainability grounds. Long-term, the market will develop and Mission NewEnergy is one of the companies with first-mover advantage.

Monsanto (MON)

Joined the BDI last year – already a long-established monster in first generation feedstocks such as corn and soybeans, news filtered out from the New York Times in March that “Agriculture and genetics giant Monsanto has made its bet on algae. On Tuesday Monsanto announced that it has made an equity investment in, and developed a partnership with, algae startup Sapphire Energy.”After its dramatic lead, the Times added that “Monsanto’s CTO Robb Fraley said in a release that algae is an “excellent discovery tool,” for agricultural genetic research, and that Monsanto wants access to Sapphire’s genetic research technology to use it for its own agricultural development.

Nevertheless, the deal, while less about algae and more about corn, demonstrates the continuing and increasing engagement of Monsanto in the biofuels side of industrial biotech.

Outlook: Major leaguer, distracted by second career in another related sport. As corn and soy fare, so fares Monsanto, in so many ways, as far as bioenergy goeth. But keep a lookout on advanced biofuels feedstocks, for as they begin to develop opportunities for scale, Monsanto is bound to take a strong interest in advancing yields and playing a strong role in the upstream side of the bio-based movement.

Novozymes (NZMB)

A long-time player in industrial biotech and enzymes, highly active in the development of cellulosic ethanol, Novozymes reported 16% sales growth in Q1 2011 and stronger operational performance allowed the company to maintain its EBIT growth forecast of 8–11% and an EBIT margin of around 22%. With a maintained EBIT growth expectation, and main currencies hedged, net profit is now expected to grow 10–13%. Bioenergy Enzymes sales were up by 8% compared to the first quarter of 2010.

Outlook: Major leaguer, needs pitching. Still tied to first generation biofuels – its guidance on advanced ethanol has pushed back to commercialization in 2013-2015, after hopes that commercialization would arrive en masse in 2012 were dashed by the financing outlook. Still, Novozymes has such broad opportunities in foods and other categories that it should prove just a blip in its overall story.

OriginOil (OOIL.OB)

A pioneering developer of algae-to-energy systems and systems integration, OriginOil has lately focused its efforts on extraction. In January, the company announced it has received its first commercial order to deploy its algae oil extraction system in an industrial setting.  MBD Energy (MBD) recently committed to purchase an initial OriginOil extraction unit for piloting at one of Australia’s three largest coal-fired power plants. MBD Energy expects OriginOil technology to support a pilot Bio-CCS (Bio-based Carbon Capture and Storage) algal synthesizer system at Queensland’s Tarong Power Station.

Outlook: Rookie league, great arm, big prospect. OOIL has all the attributes of a first-mover in a volatile technology space – hard to predict, but possessing a material lead in key technologies in what is expected to be a monster feedstock for advanced biofuels. Much will depend on the results of its developments with MBD.

Pacific Ethanol (PEIX)

A first-generation ethanol producer in California, hit hard by the global financial crisis in 2008, but it managed to avoid bankruptcy in its main unit (although several of its subsidiaries re-organized). Slowly, the company has been returning towards full production.

Last month, Neil Koehler, CEO of Pacific Ethanol said “For weeks, we as a nation have watched as chaos has spread across the Middle East, and we have also watched as it costs more and more to fill up our cars.   America should have broken from its dependence on oil in the 1970s during the OPEC Oil Crisis.  What oil companies and the oil lobby are trying to keep under the rug and swirling in misinformation is the fact that there is an alternative, there is a solution and it has been here for a while.”

Outlook: Aging but still respected major leaguer, needs a new pitch. California’s hesitations over corn ethanol notwithstanding, the company will continue to recover so long as it maintains its crush margins between the price of corn and the price of ethanol.

Shell (RDS-A)

Deeply diving into biofuels, with a goal of raising ethanol output in Brazil in its Raizen JV with Cosan to 1.6 billion gallons by 2016. Also invested in Codexis, Iogen and Virent, with an eye on producing advanced ethanol as well as drop-in biofuels.

In Washington, Marvin Odom, president of Shell Oil in the US and director of the company’s Upstream Americas business, said he expects biofuels to be “the most practical solution” for GHG emission reductions in transport during the next 20 years and called on governments to give more subsidies in order to speed up production. “We all know that me must go beyond corn, with a combination of performance and CO2 reductions,” he said. “Our JV with Cosan will produce 2 billion liters of ethanol this year, but we see this as just a starting point. We have considerable aspirations for growth.”

Outlook: Major leaguer, franchise player. Shell is moving on advanced biofuels with speed and determination. Expect is to go big in development in this decade, and go big on scaling towards the latter part of the 2010s. We covered some of this in “Resistance is futile:Codexis and the chase for low-cost cellulosic sugars”  and “Shell exits algae“.

Rentech (RTK)

Rentech is moving on advanced biofuels, though financing for scale has proven tough for all players. Its Fischer-tropsch system produces renewable diesel and jet fuel, and the company has signed an impressive array of offtake agreements in the reneable jet sphere.

Last week, Rentech announced that it has given notice of exercise of its option to acquire a substantial majority of the equity of ClearFuels Technology, with existing ClearFuels investors retaining a minority interest. The transaction will be accomplished through the merger of a subsidiary of Rentech into ClearFuels, with ClearFuels continuing as the surviving company in the merger. Consideration for the shares of ClearFuels to be acquired by Rentech consists of the obligations taken on by Rentech in the Project Support Agreement to support the construction of the ClearFuels technology at Rentech’s PDU.

Outlook:Triple A, expected in the majors soon. The Rentech PDU is expected to open in 202 or 2013, and if it meets its cost and yield targets, the company is poised to go far.

SunOpta (STKL)

Last September, Mascoma announced the acquisition of SunOpta BioProcess, a division of SunOpta Inc. The combination brought together the world-leading fiber preparation and pretreatment technologies of SBI and the world-leading consolidated bioprocessing technology of Mascoma, to create a company with comprehensive capabilities for converting non-food cellulose (wood chips, energy crops and organic solid waste) into ethanol and high value co-products. SBI operates as Mascoma Canada, a wholly-owned Canadian subsidiary of Mascoma, and SunOpta Chairman Jeremy Kendall will join Mascoma’s Board of Directors.

Outlook: Exiting the league, players sold to Mascoma. To the extent that this was a share transaction, STKL is to some extent a proxy for privately-held Mascoma, but the company will exit the BDI later this year as more companies complete their IPOs.

Syngenta (SYBF.OB)

In February, the USDA approved a variety of genetically engineered corn created by Syngenta Seeds, called Amylase corn, for use in ethanol production. Syngenta submitted a petition in 2005 to deregulate the variety of corn which produces a common enzyme that breaks down starch into sugar, thereby facilitating the ethanol production process. Syngenta says it is preparing to trial its new GMO energy corn on 20,000 acres in a contracted growing arrangement this spring.

Outlook: Major leaguer, utility infielder. Energy corn is the subject of some controversy as environmental groups claim its traits will go wild. But its success or failure will likely depend more on the results from the growing trials. Syngenta is tied to corn and cane, and its prospects are bright as the move to biofuels adds demand pressure, and pressure on yield enhancement, to both crops.

Valero (VLO)

Of all refiners, by far the deepest in ethanol, and its ethanol division outperformed conventional oil refining in 2009, in a surprise. Its holding include more than 700 million gallons of corn ethanol capacity, which it bought for pennies on the dollar out of the VeraSun bankruptcy, and investments in Terrabon, Solix, Mascoma, and ZeaChem, and has a major offtake agreement with Mission NewEnergy.

Earlier this year, Diamond Green Diesel, the proposed joint venture between Valero and Darling International,  secured a $241 million DOE loan guarantee conditional commitment.  The loan guarantee will support the construction of a 137-million gallon per year renewable diesel facility in Norco, Louisiana, about 20 miles west of New Orleans.

Outlook. Major leaguer, MVP candidate. Valero’s investments are moving forward swiftly – primarily in cellulosic ethanol. 2012 will be a big inflection point on ZeaChem, and 2013 for Mascoma. terrabon may well come along even faster.

Verenium (VRNM)

Last year, Verenium sold off its ownership interest in Vercipia, a JV with BP Biofuels developing cellulosic ethanol projects in Louisiana and Florida. But the company remains an enzyme supplier to the venture. In December, the company projected that it would reach $55 million to $60 million in revenues and product gross margins of $21 million to $24 million. At the time, it highlighted its 2010 achievements in launching Launched Deltazym Gluco-Amylase enzymes for corn ethanol, and Xylathin for wheat ethanol. The company also touted marketing partnerships with Alfa Laval and Desmet Ballestra to market its Purifine line of enzymes for degumming edible oils.

Outlook: Downshifted to the minors. Taking a far lower profile in biofuels following the exit from the BP joint venture, but still tied to the sector in a supplier role.

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