Energy Business

Biofuels Maker Collapsing on Secondary Offering (GEVO, DD, BP, CDXS, AMRS, SZYM, KIOR, BG)

Chemical and biofuels maker Gevo Inc. (NASDAQ: GEVO) announced this morning that it “intends to offer and sell, subject to market and other conditions, shares of its common stock and convertible senior notes due 2022.” The company did not specify any numbers, but did say how the net proceeds would be used:

[Gevo will use the proceeds] to repay a portion of its outstanding long-term debt obligations, to fund the cash consideration payable to complete the retrofit of its Luverne, Minn. plant, and to partially fund the Redfield Energy retrofit. To the extent that the net proceeds are not used for these purposes, the Company intends to use them to fund working capital and for other general corporate purposes.

Shares are getting pummeled on the news, down about -20%. Just last week Gevo shares soared about 35% following a favorable ruling in a patent dispute with Butamax Advanced Biofuels LLC, a joint venture of E.I. du Pont de Nemours & Co. (NYSE: DD) and BP plc (NYSE: BP).

At one time biofuel makers had replaced ethanol and solar panel makers as the “next big thing.” Codexis Inc. (NASDAQ: CDXS), Amyris Inc. (NASDAQ: AMRS), Solazyme Inc. (NASDAQ: SZYM), and KiOr Corp. (NASDAQ: KIOR). Today all trade at least -50% lower than their 52-week highs, and some have already gotten into the boutique chemicals business, while a couple of others are trying.

Gevo is converting existing ethanol plants into biorefineries “to make renewable building block products for the chemical and fuel industries.” Isobutanol, the company’s drop-in substitute for petroleum-based fuels. KiOR plans to have its first cellulosic fuels plant operating by the end of this year. Codexis is focused on the cosmetics business, Amyris is working a drop-in substitute for jet fuel, and Solazyme recently broke ground on a renewable oil plant in Brazil that the company owns in a joint venture with food giant Bunge Ltd. (NYSE: BG).

It’s not that these companies aren’t doing anything. The problem is that any significant volumes of new fuel products are still years away. The US Congress in 2007 mandated that 500 million gallons of cellulosic ethanol be added to the nation’s fuel supply by 2013. The revised mandate for 2012 calls for just 8.5 million gallons and there’s not much likelihood that that total will be reached. Even 500 million gallons is barely equivalent to 12 million barrels of crude oil, less than one day’s US consumption of crude.

Gevo’s shares are down -20% at $7.01 in a 52-week range of $4.84-$18.75.

Paul Ausick

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