So you want to be a biofuels investing Rock Star? Who's Got Game, and Who's Got Claim.

April 28, 2011 |

In this episode of “So you want to be a biofuels investing Rock Star?” we look at fifteen of the Biofuels Digest Index stocks. What are they up to? What’s the outlook?

Who’s got game, who’s got claim? Tomorrow, we continue with the other fifteen BDI equities.

Archer-Daniels-Midland (ADM) First gen ethanol and bioplastics

One of the largest ethanol producers, active in the US and Brazil. Currently (cautiously) adding capacity in both ethanol and bio-based plastics, they are an investor and strategic partner in biomaterials – opening their Mirel PHA bioplastic plant with Metabolix last year in Clinton, Iowa.

This week, ADM has agreed to buy the remaining 51% of Limeira do Oeste ethanol mill in Minas Gerais from its current partner Canaa Participacoes. Limeira crushes 3 million metric tons of cane annually. The JV formed in 2008 had intended to build two mills with investments expected around $500 million but construction on the second mill hasn’t started.

Outlook: Quietly, cautiously adding capacity, moving into advanced biofuels.

Algae.Tec (AEB.AX) Advanced biofuels

A newcomer to the public markets and to the BDI, Algae.Tec raised capital recently in a flotation on the Sydney and Frankfurt exchanges. In January, Algae.Tec announced that it will construct a demonstration facility, co-located with the  Manildra ethanol plant in Nowra, New South Wales. The company said that it expects to complete the facility and commence production of algal biofuels in 2012. In addition, the company announced that it had signed an MOU with China’s Pacific Minerals, and Australia’s RKD International, to form a joint venture that would bring the Algae.Tec technology to China.

Outlook: We’ll know a lot more after the demonstration plant opens.

Amyris (AMRS) Advanced biofuels and renewable chemicals

Joined the BDI following its IPO. Has been a high-flyer ever since, and is building out a gigantic pipeline of demand, and contracting, constructing, and JVing for capacity in a hurry. Earlier this month, Raymond James analyst Pavel Molchanov upraded Amyris’ stock from Market Perform to Outperform with a share price target of $31, Molchanov wrote that “this won’t be an earnings story until the second half of 2012 or even 2013…here are the catalysts we would expect this year. First, 2Q11 should be the first full quarter of commercial farnesene production…Second, as has been continually visible over the past six months, Amyris continues to add offtake partners in both fuel and chemical end markets…third, we expect to hear project status updates on the company’s first large-scale production plant in Brazil – the joint venture with Grupo São Martinho – which should drive positive companywide EBITDA upon start-up in 2Q12.”

Outlook: The highest of flyers.

The Andersons (ANDE) First gen ethanol

A mainstay of the BDI since 2007 and a player in RFA, last August The Andersons joined other ethanol companies reporting strong second quarter earnings when it announced second quarter net income of $25.2 million, on revenues of $811 million. The company’s Grain & Ethanol Group’s Q2 operating income of $19.6 million compares to $8.99 million in 2009, and The Andersons characterized it as “record second quarter results.” The Grain & Ethanol Group’s operating income through the first six months was a record $40.3 million in 2010 and $14.7 million in 2009. Total revenues through June 2010 and 2009 were $995 million and $981 million, respectively.

Outlook: A player in first gen, not looking to add capacity or move into advanced at this time.

Aventine Renewables (AVRW) First gen ethanol

Joined the BDI in 2007, and fell out during its reorganization during the global financial crisis, rejoining last year. First gen ethanol producer Aventine marked the grand opening of its Mount Vernon Ethanol Plant earlier this month. The Mount Vernon Ethanol Plant was completed in November 2010, with the first grind date being December 1st. It has been gradually increasing production and will have an annual capacity of 110 million gallons.

Outlook: Recovering from the GFC, adding capacity, still in first gen.

Bluefire Renewables (BFRE.OB) Advanced biofuels and renewable chemicals

Joined the BDI in 2007, BlueFire has been raising money for its Mississippi renewable fuels and chemicals plant of late. Last year, the company repositioned as BlueFire Renewables, from BlueFire Ethanol. “It shows more capability,” CEO Arnie Klann told the Digest at the time regarding the new branding. “The biggest issue, ethanol has a negative connotation for many people, going back to the food versus fuel issue. We have to explain all the time that we are not corn-based. The upside is that many of the fuels that Amyris proposes to make, we can make, that new generation of advanced biofuels. We did a lot of that in 95-96 at our pilot plant. We can do biojet, alkanes, fuel additives for clean diesel, and did back in 95.”

Outlook: In the Valley of Death between pilot and player – when it hops across, will be a formidable competitor.

Biofuel Energy (BIOF) First gen ethanol … and maybe some advanced biofuels

Joined the BDI in 2007 as a mid-capacity first gen ethanol producer. Earlier this month, CEO Scott Pearce told us, “in this market, we’ll look carefully at opportunities for consolidation and expanding capacity, but its hard to say what the market will bear. But, in terms of our milestones, we’re solid about the opportunities with advanced biofuels.”

Outlook: Heading into advanced biofuels.

British Petroleum (BP) First gen ethanol, and advanced biofuels

Joined the BDI several years back. Biofuels likely don’t move the share price a heck of a lot, but BP’s presence in the sector, through BP Biofuels, involves so many companies and investments that we are loathe to leave them out. They are invested in Qteros, Vercipia, Vivergo, Butamax, and Tropical Bioenergia. Lately, the company has been on the march in Brazil, last month announcing that it has agreed to acquire majority control of the Brazilian ethanol and sugar producer Companhia Nacional de Açúcar e Álcool (CNAA), from Açúcar e Álcool Fundo de Investimento em Participações and Açúcar e Álcool II Fundo de Investimento em Participações. When CNAA’s assets are fully developed, this is expected to increase BP’s overall annual Brazilian production capacity to 370 million gallons (1.4 billion litres of ethanol equivalent per year, nine million barrels).

Outlook: BP’s Phil new likes to talk about advantaged biofuels, not advanced biofuels. They have both.

Biox (BX.TO) First gen biodiesel

Biox joined the BDI this past year, and in February swung into the profit zone in the first quarter as sales more than doubled over the corresponding period for last year. Overall, operating income was $2,291,000 in Q1 2011 compared to a loss of $765,000 in Q1 2010. Sales were $27.0 million for the three-month period ended December 31, 2010 compared with $11.6 million for the corresponding period last year. BIOX sold 20.9 million litres of biodiesel during the period, including 4.9 million litres acquired from third parties.”

Outlook: Will rise and fall with Canadian biodiesel mandates, and that outlook is strong.

Codexis (CDXS) Technologies for advanced biofuels and renewable chemicals – including low-cost cellulosic sugars

Codexis joined the BDI last year after completing its IPO. In February, the company announced a stunning 29% increase in revenue,  to $107.1 million, driven by a 77% increase in sales of pharmaceutical products, from $18.6 million in 2009 to $32.8 million in 2010, and increases in collaborative R&D and government grants. With operating expenses growing by only 2 percent, the company swung from a $7.3 adjusted EBITDA loss in 2009 to $9.9 million in adjusted EBITDA for 2010.

What’s driving the numbers in Redwood City?  ”We achieved our technical milestones with Shell, we made our first shipments of two important enzymes to Merck and we saw substantial progress in our efforts in carbon capture and chemicals,” said CEO Alan Shaw.

The company also announced its first product move into the world of renewable chemicals and bio-based products, where it can capitalize on the technologies which it has developed in its fuels partnership with Shell. The target? The $4 billion detergent alcohols field – with demonstration of its technology expected this year and a rapid drive towards commercialization underway before year end.

Outlook: The core of Shell’s advanced biofuels strategy, Codexis will rise and fall in fuels as Shell amps up its game. The renewable chemicals business is fascinating, and will be important in the near term – but if Shell goes for scale, watch out.

CleanTech Biofuels (CLTH.OB) Systems for advanced biofuels

CleanTech Biofuels joined the BDI last year, about the time it received a patent for its process and apparatus for converting MSW into cellulosic biomass feedstock, known collectively as the Biomass Recovery Process. The Biomass Recovery Process is carried out by the angled reaction vessel, which uses steam and pressure to clean and separate MSW into recyclables and lignocellulosic biomass feedstock. The company recently announced participation in the Fiberight cellulosic ethanol pilot project for the system it expects to commercialize with municipalities, solid waste haulers, and operators of solid waste landfills and transfer stations.

Outlook: Tied to the advancement of MSW-to-fuels in general, and Fiberight in particular. If Fiberight succeeds in its capital raise and completes its project – that’s a very bullish sign.

Cosan (CZZ) First generation sugarcane ethanol, sugar, and renewable chemicals.

Joined the BDI in 2008. The hige news revolves around the binding agreements signed by Shell and Cosan to form a $12 billion joint venture for the production and commercialization of ethanol and power from sugar cane. The resulting joint venture, if completed, will be the 3rd largest ethanol producer in the world with 4,500 retail stations and annual production capacity of 2 billion liters (440 million gallons). But there are Cosan operations outside the JV – like Codexis, Cosan has interests in bio-based products, and is JVd with Amyris in lubricants and oils, with operations slated for 2013-14 commencement.

Outlook: The Shell-Cosan JV is the monster of Brazil, and the Amyris tie-up offers some upside beyond ethanol. One to watch very, very closely.

Danisco (DAY.F) Enzymes and advanced bio-products

Joined the BDI last year, and may exit if the $6B Dupont-Danisco merger goes through. Landed our product of the year award for 2010 for bioisoprene, as well as launching Accellerase Duet in 2010. When we say bioisoprene, think synthetic rubber – but only for a start. Think “platform” for renewable diesel, jet fuel, renewable gasoline, and synthetic adhesives. It replaces fossil-based oils, can make money now, and can be made from oilseed wastes in a world gone mad in the search for cheap sugars. It takes about seven gallons of crude oil to make a gallon of fossil-based isoprene, so Goodyear and Genencor partnered to develop a low-cost, biomass-based bioisoprene that would provide a strategic raw material for synthetic polyisoprene runner, stabilize costs, decrease dependence on fossil oils and natural rubber sourcing, and improve the environmental footprint of the tire business. They believe that they have cracked it.

Outlook: Will be a division of Dupont, post-merger.

Dupont (DD) Advanced biofuels and bio-based materials

Like BP, a giant too big to have its stock price much affected by its biofuels interests, but somewhat more closely tied than other conglomerates to the bio-based revolution. As former CEO Chad Holliday told us, “we think bio will be bigger for us than polymers.” It’s invested in Vivergo, Butamax, Dupont Danisco Cellulosic Ethanol and a JV with BAL in biobutanol from seaweed.

We looked at the series of relationships between BP, Verenium, DuPont, Danisco, Bio Architecture Lab, DDCE, Genencor, Qteros, Statoil and British Sugar in our survey, “Stickwitu”: “this promise ring revolves around the series of investments and JVs established by BP with Verenium (which it now has fully acquired), the JV with Dupont to form Butamax, a JV with British Sugar to make ethanol in the UK, and its investment in Qteros. In turn, DuPont has partnered with Genencor in Dupont Danisco Cellulosic Ethanol as well as with Bio Architecture Lab in a macroalgae project. In turn, Statoil has lately invested in BAL.

Outlook: Going deep on advanced biofuels, and will go deeper.

Gevo (GEVO) Isobutanol and its derivatives in advanced biofuels, renewable chemicals and renewable jet fuels.

Earlier this month, we wrote in “Gevo: The Owner’s Manual”: “The bulls continue to run on Gevo. Is the rampaging stock price a function of high interest in advanced biofuels and scarce opportunities for investment, or because of its inherent elegance as a business? Well, a bit of both, but as time goes on, definitely more of the latter. Gevo is a pretty easy business to describe. “We make isobutanol, a known molecule with a known market, and at a lower cost than you can make it from petroleum,” says CEO Pat Gruber, who not too long ago picked up the Carver Award for Lifetime Achievement from BIO. So far, the “less expensive” part is not yet proven at scale – we’ll have to wait until Q1 of next year, when Gevo’s newly-acquired biorefinery in Luverne, Minnesota switches over from producing feed grains and ethanol, to feed grains and isobutanol. But the rest of the claim is…well, it’s all true.”

Piper Jaffray writes: “Gevo, Inc. (GEVO) – Overweight / $31 Price Target. Our $31 price target is based on an EV/FY2014E revenue multiple of 1.6x. Risk factors include: Supply/demand of ethanol assets, commodity prices, material increase in global C4 supply, technology scale-up, retrofit project delays or cost over-runs.”

Outlook: The stock is bound to be volatile for a while, but some time in Q2 2012, when the switch is thrown in Luverne…if Gevo proves out at scale, especially at fuel-friendly costs, lookie here.

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