Has the Gevo hour come?

May 3, 2012 |

In Colorado, Gevo reported first quarter revenues of  $14.9 million compared to $15.3 million in the same period in 2011 reflecting an increase in grant and research and development program revenue and a decrease in ethanol sales. The net loss for the first quarter of 2012 was $19.3 million compared to $9.3 million for the first quarter of 2011. The company is now expected to raise additional capital this month to support the conversion of Redfield.

Cut over from ethanol to isobutanol

The company’s ethanol plant in Luverne, Minnesota will be shut down in the next few weeks for the final cut over to isobutanol within two weeks. Inventory build will push initial shipments of isobutanol into July, and it is expected to produce 1 million gallons per month before reaching full nameplate capacity by mid-2013.

The Redfield plant in South Dakota – second to transition over to isobutanol – is in the engineering phase, with construction expected to start in the second half of the year, to take advantage of operational lessons from Luverne are available and will take 12 months.  Initial capacity may reach higher than the 38 million gallons currently expected by the company.

Initial isobutanol capacity for Redfield had been estimated at 38 million gallons, but management sees possible upside to this figure.

In recent news, a new JDA with Land O’ Lakes will engineer value-add distillers grains. Also, Gevo and VP Racing Fuels announced a JDA to develop specialty fuels for the small engine market.

Butamax litigation ruling imminent

On the Butamax litigation front, the judge’s decision on an injunction should be announced imminently.

Overall, analysts greeted the second quarter as The Gevo hour. “Everything Is falling Into place,” write Rob Stone and James Medvedeff at Cowen and Company, who add “Three new deals bring new technology, an extension of an existing relationship, and a new offtaker. We are impressed by management’s experience and careful approach to ramping the first plant. We recommend investors wait for the outcome of the injunction hearing or a pull back in the stock.”

Raymond James equity analyst Pavel Molchanov writes, “While fully recognizing the inherent execution risks in an early-stage story such as this, we believe Gevo is well positioned in the Gen2 biofuel space, with a capital-efficient and highly scalable business model, rapid access to numerous chemical and fuel end markets, and a wide range of industry partners.  We reiterate our Outperform rating with an $11.50 price target.”

Mike Ritzenthaler at Piper Jaffray adds, “We maintain our Overweight rating and $17 price target on shares of GEVO following a 1Q12 print that reflected weak ethanol margins…importantly, all of Gevo’s production facilities are progressing as planned. In terms of the on-going IP dispute with Butamax, we continue to fully believe that Gevo is unencumbered, and we expect a positive ruling on the preliminary injunction any day.”

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Category: Fuels

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