KIOR — The April 30 2012 O’Connor memo

September 9, 2014 |

In today’s Digest, we publish a series of six documents that were filed in the past week with the SEC, relating to KiOR, and a growing dispute between the company’s Board — and an individual director, Paul O’Connor.

It is important to note KiOR’s response:

“The Company intends to continue to vigorously respond to allegations by Mr. O’Connor that it considers to be false, misleading or inappropriate and is currently considering all of its options, including the possibility of legal action against Mr. O’Connor.” As KiOR’s response becomes public, The Digest will publish it.

At the same time, it would be unfair to dismiss O’Connor’s assessment without a fair hearing, either. As O’Connor notes on his Board resignation letter:

“The KiOR technology to convert waste biomass into fuels and chemicals via catalytic pyrolysis (or cracking) originated from a Dutch company called BIOeCON, which invented and explored this concept in 2006 and 2007. I am one of the principal inventors of this technology. Other key inventors are Prof’s Avelino Corma, Jacob Moulijn, Dr. Dennis Stamires, Dr. Igor Babich and Sjoerd Daamen B.Sc. all working and cooperating with BIOeCON since early 2006.

“During the first two years of KiOR 2008-2009, I worked as CTO with Fred in building up the organization, proving the concept in a modified FCC pilot plant and leading the research into improved catalysts.”

[Note to readers: On account of length, we are publishing each of the documents separately and sequentially. We have added appropriate illustrations in the form of plant photos and logos — but none of these were a part of the original documents. Where you see a (**) symbol, this represents information withheld from the public and filed separately with the SEC.]


Towards a prosperous future for KiOR

By Paul O’Connor – April 30 th 2012

I would like to repeat myself by starting to congratulate Fred Cannon and the KiOR team, in particular Ed Smith for the timely and on budget completion of the first cellulosic biomass conversion plant in Columbus.

During my time at Akzo Nobel Fred and Ed delivered similar achievements in construction and commissioning of chemical plants, amongst other in Houston with the completion of the “CRUSADE” (Cost Reduction USA Damn Exciting) project, which saved Akzo’s FCC catalyst business in the USA. So once again: Congratulations!

Up to the completion of Columbus KiOR has been on time and budget with the delivery of her milestones, however unfortunately since then the success ratio has not been so dramatic, resulting in the following delays and shifts in performance targets:

A. The Columbus plant is not yet on-stream, and the suggestion is that it may take up to nine-months before the plant is completely on-stream and ramped up to its capacity at [**]% utilization and product yields ( = x? GPDB).

B. The product yields are not at the [**] Gallons per bone dry wood as estimated at the IPO, and in fact the suggestion is that the [**] GPBD will only be reached in the larger (and modified?) Natchez plant.

C. The catalyst being used at Columbus is based on large quantities of an expensive [**] (apparently public knowledge!) and the rumor is that no substantial costs reductions are to be expected.

E. Based on A, B and C the overall economics and cash flow of KiOR will be substantially less positive than estimated at the IPO etc. While KiOR management is holding the info on A, B and C confidential, the overall financial result is and will become more clearly visible.

D. Because of A, financing of Natchez plant has been delayed and so also start-up of Natchez has been shifted at least one quarter from 4Q 2014 to 1Q 2015.

The result of the foregoing has been a dramatic drop in the KiOR share value, hurting the interests of all it’s shareholders.

While I still fully believe in the benefits and the potentials of further development of KiOR’s technology, I am very concerned about the way the technology is being implemented. My strong impression is that KiOR’s management although very competent and successful in the construction and commissioning phase, lacks the people with experience, vision and leadership to move forward with necessary improvements of the technology (yield improvement and catalyst cost reduction) and operations (capacity, ramp-up and time on stream). This is hurting KiOR now and could in worst case even turn a potential success into a failure if no appropriate corrective action is taken.

More documents in this set

The March 15 2012 O’Connor email memo
The March 22 2012 O’Connor technology assessment
The April 21 2012 O’Connor technology assessment
The Spring 2013 O’Connor note
The August 31 2014 O’Connor resignation letter

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