Gevo: Biofuels Digest’s 2015 5-Minute Guide

Gevo has two proprietary technologies that combine to make it possible to retrofit existing ethanol plants to produce isobutanol, a four carbon alcohol which serves as a hydrocarbon platform molecule. We have developed a robust industrial scale yeast biocatalyst to produce isobutanol without typical byproducts operating at parameters equivalent to commercial ethanol producers. The second piece of technology is a separations unit that operates continuously and removes isobutanol during fermentation.

This helps reduce distillation requirements, thereby reducing process energy consumption. With its exclusive engineering partner, ICM, Gevo completed its first commercial retrofit of a 22 MGPY corn ethanol plant in Luverne, MN and started producing isobutanol in early 2012.

The Situation

There’s been quite a mix of good things and not so good in Gevo land this year.

First, the not so good. The stock price has remaijned at anemic levels, making it more difficult for the company to raise affordable capital.

Most recently, this month Gevo announced that it received a positive determination from the Listing Qualifications department of The Nasdaq Stock Market on December 30, 2014, granting approval of the Company’s request to transfer its listing to The Nasdaq Capital Market from The Nasdaq Global Market. Nasdaq notified the Company that, upon the transfer to Capital Market, the Company is granted its second grace period of 180 calendar days, or until June 29, 2015 to regain compliance with Nasdaq. Gevo will monitor the bid price for its securities between now and June 29, 2015, and will consider available options to meet the Nasdaq minimum bid price requirement.

On the good news front, progress continues on its march towards steady state operations with its isolbutanol technology.

As of last month, Gevo has met its isobutanol production goal at its Luverne, Minnesota plant using the the Side-by-Side operation mode. The company had hoped to reach production levels of 50-100 thousand gallons per month by the end of 2014. The plant commenced the co-production of isobutanol and ethanol in June of 2014, with one fermenter dedicated to isobutanol production and three fermenters dedicated to ethanol production.

Customers have been coming in. First, in December 2014, the US Navy’s Naval Air Systems Command (NAVAIR) has announced its first successful alcohol-to-jet (ATJ) supersonic flight, fueled by Gevo’s renewable isobutanol. This military specification would allow for commercial supply of ATJ fuel to the Navy and Marines Corps.

Second, the company confirmed this month that it has launched sales of renewable isobutanol to Brenntag Canada Inc., a member of the Brenntag group companies for distribution into the solvents, oil and gas, mining and specialty chemicals markets. The initial market entry is focused on Canada. Brenntag Canada has purchased truckload quantities of isobutanol from Gevo for distribution to targeted customers. Gevo is also selling isobutanol to Gulf Racing Fuels for marine and off-road uses.

The trouble for the company stems back to 2012-13, when Gevo had been forced by low yields induced by higher-than-desired levels of bacterial contamination in its fermenters to switch back from isobutanol to ethanol production. Then, as the US drought caused corn prices to soar into the $8 range, Gevo all-but-halted production entirely as it improved its isobutanol process, shored up its cash position, and dealt with litigation.

The perfect storm of poor conditions in feedstock costs, processing yields and a cloudy picture on the “freedom to operate” front caused a number of investors to declare “there goes the neighborhood” and the stock has eventually run down into the sub-$1 range. Today, the company’s market cap is roughly the cost of acquiring and retrofitting its first commercial facility in Luverne, MN.

Rankings

#20, 2014-15 50 Hottest Companies in Bioenergy

#14, 2014-15 30 Hottest Companies in Renewable Chemicals

Biofuels Digest Awards

2012 Best Project (pilot) Award: Gevo, Virent, Avantium — renewable paraxylene

Fuel type

Gevo produces ethanol, and isobutanol. The latter is a four carbon alcohol that can be dehydrated using well known technology to isobutylene, a C4 hydrocarbon. Isobutanol has 30% more energy content than ethanol and can be blended into gasoline without modifying automobile engines. Isobutanol is a low RVP blendstock and less soluble in water than ethanol. It can be transported in pipelines and be dispensed in existing retail pumps. Isobutanol is a biofuel that carries a RIN value of 1.3 and It can be an advanced biofuel from corn if it achieves a 50% GHG reduction.

Isobutanol also has a market as a chemical solvent. The opportunity for isobutylene spans many C4 markets in jet fuel, paraxylene, PET and other multi-billion dollar applications in fuels, synthetic rubber, chemicals and plastics.

Gevo has a number of off-take agreements and has announced non-binding letters of intent to supply Total for gasoline blendstock; United Airlines for biojet; Lanxess for butyl rubber; and, Toray industries for p-xylene.

Major investors

Khosla Ventures, Burrill & Company, Virgin Green Fund, Malaysian Life Science Fund, Total SA & LANXESS

Top Past Milestones

This month, the U.S. Supreme Court ruled in Gevo’s favor and overturned an earlier Federal Circuit Court of Appeals ruling on the interpretation of key patent claims.

On April 11, 2013, the Delaware District Court (District Court) entered a final judgment of non-infringement in Gevo’s favor following the acknowledgment by Butamax Advanced Biofuels LLC (Butamax) that Gevo does not infringe Butamax’s asserted patents under the District Court’s construction of a key claim term in Butamax’s Patent Nos. 7,851,188 and 7,993,889.

At the time, Butamax appealed Gevo’s victory, and a US Court of Appeals in February 2014 vacated the District Court’s prior rulings, and ordered the District Court to reconsider issues related to infringement and invalidity.

In turn, Gevo asked the Supreme Court to vacate the Appeals Court’s de novo nterpretation of a disputed claim term. Today, the Supreme Court granted Gevo’s petition and vacated the decision of the Appeals Court.

According to Gevo: “The result is that Gevo’s victory in the Delaware District Court is reinstated, and that the case has been remanded back to the Appeals Court for consideration in light of the new standard of appellate review that was decided in the Teva Pharmaceuticals USA, Inc., v. Sandoz, Inc. (Teva) case last week.”

In November 2014, Gevo announced that Highlands EnviroFuels has signed a letter of intent to become a Gevo licensee to produce renewable isobutanol. Highlands will build a commercial-scale “Brazilian-style” syrup mill in Highlands County, Florida, which would have a production capacity of approximately 200,000 metric tons of fermentable sugar per year. The facility will process locally grown sugar cane and sweet sorghum to a high quality syrup as a clean sugar stream for fermentation and recovery of isobutanol. The isobutanol plant would be bolted on to the back-end of the syrup mill and have a nameplate capacity of approximately 20-25 million gallons per yea

Gevo successfully commissioned its 1MGPY demonstration plant in late September, 2009 in St. Joseph, MO in cooperation with ICM.

In September of 2010, Gevo completed acquisition of the 22 MPGY ethanol plant owned by Agri Energy in Luverne, MN. Gevo started commercial production in summer 2012 in Luverne, MN.

In August 2013, Gevo announced that it has brought its second million liter fermenter and GIFT system online at its Luverne, Minn. facility. “We have been successful in operating full-scale fermentations using our GIFT system – which separates the isobutanol from the fermentation broth – on a second million-liter fermenter and GIFT system,” noted Patrick Gruber, Gevo’s chief executive officer. “This serves to further validate our technology and plant know-how. We plan to bring the final fermenters and GIFT system online at Luverne later this year, testing run rates, then ramping up production and sales over the balance of 2013 and in 2014.”

Gevo said at the time it would sell the isobutanol it produces in the specialty chemicals and specialty oxygenated fuel blendstock markets, and use it as a building block to make jet fuel and chemical products, such as paraxylene, which is converted into PET and used in the production of bottles and fibers.

In December 2013, Gevo said that the Army has successfully trialed the company’s isobutanol in a 50/50 blend in a Black Hawk helicopter in Alabama last month. The announcement was delayed due to a $23 million fundraising round. The isobutanol was produced at the Gevo facility in Lucerne and converted into jet fuel at the company’s facility in Silsbee, Texas.

3 major milestone goals (2015-17)

Above all, stabilized, nameplate production of isobutanol at the Luverne, MN plant.

In June 2013, energy analysts wrote:

“After a 5-6 month hiatus to combat contamination-related production issues,” wrote Piper Jaffray’s Mike Ritzenthaler, ” the phased re-start of Luverne has surpassed its most difficult and important hurdle in our view – reliability of production. While we had fully anticipated this restart, we continue to view today’s announcement, along with significant wins in court with respect to their IP position, as unequivocal positives for the stock, and opens the door for a meaningful volume ramp over the next 12 months.

“We are evaluating the implications to our model. We are in the process of evaluating the restart timing and potential volume ramp on our model. We do believe that Gevo will sell the in-spec production through their existing offtake agreements and use modest volumes to continue market seeding. We believe that a single train is capable of a run-rate of 3-5 million gallons per year, with the full rate of 18 million gallons coming with all four fermenters running.”

At Cowen and Company, Rob Stone and James Medvedeff wrote: “Still a Long Way to Go. We believe only a few runs have been completed, and operating metrics and production cost are likely far from optimal at this point. Additional financing should be needed within a year. Yield, productivity, cycle time, and purity levels were not disclosed, but we believe that one fermentation train produced enough isobutanol to test one GIFT separation system at full scale (which was not the case last summer).

Business model

Gevo has developed its technology to retrofit ethanol plants to produce isobutanol. Gevo has a flexible business model, i.e., it will own and operate production capacity or align with others in joint venture or lease arrangements. Gevo will also license its technology. We plan to partner with cellulosic conversion companies to develop and commercialize cellulosic isobutanol for the gasoline and jet fuel markets.

Fuel cost

Gevo’s isobutanol should be competitively priced with C4 petrochemical streams and low RVP gasoline blendstock components.

Competitive edge

Gevo’s proprietary retrofit technology is a cost efficient (approx. $0.40/gallon) and rapid (12 months) retrofit of first generation ethanol capacity to make isobutanol. Gevo’s exclusive collaboration with ICM, the premier engineering services company in the ethanol industry with over 60% of the installed capacity, is another competitive advantage. Finally, our flexible business model enables us to work with investor owned and farmer owned ethanol producers through acquisitions, joint ventures or lease arrangements. Gevo will be able to deploy cellulosic butanol technology as soon as conversion technology is available for biomass refineries.

Alliances and Partnerships

Gevo has an exclusive collaboration with ICM for the retrofit of ethanol plants in North America. Gevo also has an exclusive technology alliance with Cargill to develop a yeast biocatalyst for cellulosic isobutanol.

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