Aventine Renewable Energy liquidity improves; has cash to complete construction; ethanol/corn spread stable

In Illinois, Aventine Renewable Energy released its second quarter results, showing that the company’s cost of corn has increased to $5.38 per bushel from $3.99 in the corresponding period of 2007; however, the company said that ethanol prices increased by a corresponding amount, and that with the liquidation of its auction rate securities and $42 million in cash flow from operations, the company’s liquidity had improved substantially and it had cash on hand to complete more than $190 million in planned construction.

Aventine background

Aventine applied to state authorities to expand production from 56 Mgy to 63.5 Mgy at its corn ethanol plant in Pekin. The state EPA has given a preliminary approval to the plan, after the company made improvements to its thermal oxidizer to cap emissions at their present level, with the expanded production capacity. The application is subject to a comments period and a possible hearing, which will delay a final decision until at least the end of the summer.

Aventine reported sales of 211 million gallons for the first quarter, up 20% over 2007 and is on track to achieve an ethanol marketing capacity of 1.2 Bgy by the end of 2008.

Raymond James analyst Pavel Molchanov commented: “Aventine posted operating earnings of $0.26 per diluted share in 1Q08, well above our estimate of $0.01 and consensus of $0.08. The company has reached the halfway mark on the construction of its two new ethanol facilities – Aurora West (Nebraska) and Mount Vernon (Indiana) – scheduled to be brought online during 1Q09. Despite the sharp rise in corn prices during the quarter, the company’s active hedging strategy tempered the pressure on its crush spread ($0.60/gal vs. the benchmark average of $0.55). Additionally, the overall commodity boom has led to higher co-product pricing (41% of corn cost), providing another hedge against the current elevated corn price environment. While only slightly increasing our gross margin assumption by 0.5% for 2008, we are significantly raising our EPS estimates (shown below), showing the power of operating leverage.”

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