September 18, 2016

The Graphite Hustle

by Debra Fiakas CFA

The Klondike Gold Rush of the 1800s has given way to the Canada Graphite Hustle of the 21st Century.  In what may seem to many an interminable series on graphite resources developers we have made note of over a half dozen companies in Canada attempting to bring new supplies of graphite ore out of the earth.  The action is not limited to Canada.  There are at least a dozen other aspirants with plots in Canada and the rest of North America as well as in Australia and Africa.

Piecing together disclosures by the North America group alone there is at least 250 million metric tons of inferred resources under development.   Planned graphite production in North America is estimated at as much as 214,000 metric tons per year  -  all of it natural flake graphite  -   that could come online over the next few years.  Is the additional capacity needed?

North America Graphite Resource Developers
Alabama Graphite Corp.  (ALP:  V or ABGPF:  OTC/QB)
Canada Carbon, Inc.  (CCB:  V or BRUZF:  OTC/QB)
Canada Strategic Metals, Inc.  (CJC:  V or CJCFF:  OTC/QB)
Focus Graphite, Inc.  (FMS:  TSX-V or FSCMF:  OTC/QB)
Graphite One Resources, Inc.  (GPH:  V or GPHOF:  OTC/QB)
Great Lakes Graphite  (GLK:  V or GLKIF:  OTC/QB)
Lomiko Metals, Inc.  (LMR:  V)
Mason Graphite, Inc.  (LLG: V or MGPHF:  OTC/QB)
Northern Graphite, Inc.  (NGC.V or NGPHF:  OTC/QB)
Nouveau Monde Mining Enterprise  (NOU:  V or NMGRF:  OTC)
Ontario Graphite  (private)
Zenyatta Ventures Ltd.  (ZEN:  V or ZENYF:  OTC/QB)

According to the U.S. Geological Survey in 2014, natural flake graphite production was approximately 1.2 million metric tons.  Approximately 67% originated from producers in China with the balance coming from a mix of resource companies in India, Brazil, Canada, North Korea and Sri Lanka.  Planned North American production would increase total production by 18%, bringing total annual production to 1.4 million metric tons.  More importantly, the successful start-up of all the currently planned production in North America would propel the region into the number two spot among leading producing regions.

As noted in the first article in this series, the widespread adoption of electric vehicles for both commercial and personal use is driving demand for lithium ion batteries that need graphite for make the anode component.  According, to Avicenne Energy, a consulting firm focused on supply chain economics, the battery sector  -  transportation as well as storage batteries  -  is expected to require as much as 290,000 metric tons of flake graphite by the year 2025.  This compares 118,000 metric tons of graphite used in 2014 for batteries.

It may appear to be a significant increase in production capacity, but given the additional graphite supply needed to satisfy hungry battery manufacturers, the planned North American production may be needed.  However, when the other resource developers around the world are considered the math could be different.  Unfortunately, the data points are not as reliable for resources developers with patches in Australia, South America and Africa.  For five that have revealed details, estimated indicated resources and planned annual production are 138.9 million metric tons and 162,000 metric tons per year, respectively. 

Rest of World Graphite Resource Developers
Bora Bora Resources, Ltd.  (BBR:  ASX)
Sri Lanka
CKR Carbon  (CKR:  TSX.V)
Elcora Advanced Materials  (ERA:  TSX.V or ECORF:  OTC/QB)
Energizer Resources Ltd.  (EGZ:  TSX.V or ENZR:  OTC/QX)
Graphex Mining Ltd.  (GPX:  ASX)
Extrativa Metal Quimica  (private)
Hexagon Resources, Ltd.  (HXG:  ASX)
Kibaran Resources, Ltd.  (KNL:  ASX)
Nacional de Grafite  (private)
Saint Jean Carbon  (SJL:  TSX.V or TORVF:  OTC/QB)
Sri Lanka
Talga Resources, Ltd.  (TLG:  ASX)
Valence Industries, Inc.  (VLQCF:  OTC/QB)

Some of the existing graphite producers have had difficulty keeping bills paid and several have shut down production due to low graphite selling prices.  Statistica reports that flake graphite prices declined approximately 49% from 2011 to 2014, predicted a further decline of 10% through the current year 2016.  Bringing on new production in the current price dynamic may sound the death knell for companies that are not able to produce at a low price.  Any investor looking at the graphite market should look carefully at the business model and proposed operating structure before taking a long position.

This may be one reason the stocks of the companies listed above are trading more like options on management’s ability to execute on strategic plans than on the present value of future cash flows from the sale of graphite.  That said, some might consider the current share prices as  modest premiums to play the sector’s future.

Debra Fiakas is the Managing Director of Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

September 13, 2016

Can Public Equity Investing Have Impact?

by Garvin Jabusch

There’s an argument in the world of impact investing that goes something like, "impact happens only through private investments; there is no real impact, apart from shareholder engagement efforts, in public equity investing." An associated perception is that investment impact means capitalizing an enterprise beyond what would happen otherwise, meaning private equity alone has the power to provide real impact. But is this true?

Publicly traded corporations are the largest and most visible social and environmental bellwethers of the global economy, and the high allocation to public equities in most investor portfolios means public equity investing is and must remain one of our key opportunities for impact. To cause a positive impact, families, institutions, and individuals can invest in public companies whose primary businesses activities address pressing social, economic, and environmental challenges at scale. This does not mean companies with a pretty sustainability report or that are incrementally making their operations less carbon-intensive, but firms that have made it their purpose to enable a better world with an indefinitely sustainable economy. Skipping traditional investment practices to focus on buying these companies sends the clear signals that markets do value solutions, and that markets will devalue businesses that are the leading causes of our most pressing risks. In addition, flexible, go-anywhere public equities strategies may invest in micro and small cap firms where there may be limited liquidity, and we can have meaningful impact just by being there.

Clearly, how we invest in public equities matters.

A growing number of public markets strategies are being developed to meet investor demand for solutions-focused investing. These strategies (including Green Alpha’s own) are pushing boundaries in terms of how managers define risk, and are challenging preconceptions from traditional portfolio theory in order to invest in the best solutions to the dangers presented by the business-as-usual economy. Public equity portfolios can have real impact, and yet we must acknowledge that the perception that they do not exists. But why is that?

The Index Trap for Impact

Most investment managers have been trained to think about risk-adjusted returns in the same way, and in the case of equity strategies, that means making sure to exhibit correlation with your self-identified and/or assigned benchmark, usually the S&P 500 or other broad-market index. A competitive absolute return can still be considered a poor risk-adjusted return if you have more volatility along the way than your underlying benchmark. This can be traced back to the near-universal indoctrination into Markowitzian modern portfolio and efficient-markets theories, popularized by Jack Bogle and etc.

Bogle’s saying, "Why look for the needle when you can buy the haystack," has come to mean "if you vary from the haystack, you may be punished." This index-supremacy has been institutionalized to the point that rating agencies have a hard time imagining risk defined any other way than relative benchmark correlation, or how much a portfolio looks like the broad market. Morningstar, for example, determines its star ratings for equity funds on the basis of absolute return vs. the peer group bench, less any deduction for higher volatility than the peer group. In this way, some funds can and do beat their peer group's performance over time, yet receive a rating of two or three stars (out of five) despite overall superior returns. Thus, fund managers, fearing for their retail sales, try very hard to mimic their benchmark, ideally outperforming it by a little but not enough to be considered "volatile."

The overall result of all this is too many dollars chasing the same benchmark constituent companies, leading to unintended consequences such as, for example, the average S&P 500 firm right now having negative 12 month forward earnings per share (EPS) growth rate, yet at a high average price-to-book value near 3. Not great, from a value point of view, which to me shows this culture of index-homogeneity is causing market distortions. Moreover, indexing and index-mimicking generally ignore a lot of interesting innovation that occurs outside of index constituent companies, which is unfortunate because this innovation is where a lot of economic growth occurs, and also where we confront and solve the realities our most pressing systemic risks.

Thus, to have impact, we must recognize that equity investing can actually involve companies not found within traditional benchmarks, and, with some financial analysis, interesting portfolios can be constructed and opportunities can emerge. So it is imperative to look as closely at our public equity holdings as we do at our private equity investments, and also, equally, to stop concerning ourselves with correlation to traditional indexes.

Real impact depends upon voting with your dollars for the future economy, for the actual catalysts of change, for the viable growth areas where we can reasonably expect to earn good equity growth in this era of rapid change. This means a higher level of due diligence that avoids the trap of thinking public equities are “set it and forget it.” Even when selecting funds that market themselves as sustainable, it is key to do your homework. Many green public equity funds correlate very closely with the S&P 500, meaning they are still largely invested in the legacy economy, which of course is a lousy way to have impact with your public equity dollars. In fact, the prevalence of investment funds that hug their benchmark first and think about impact second is why it is so commonly assumed that public equity investing can’t have impact.

Well, it’s not that public equity portfolios can’t have impact, it’s just that they usually don’t. But if we can change the way we think about risk and indexing in public equities, we can and will see real impact ripple around the world.

So, where to invest?

Next Economy, Innovation Economy

If economic history shows us nothing else, it is that innovation and better products and systems that perform better and cost less always win in the marketplace. And this is what sustainability is -- innovation-led gains in efficiency that mean we can have a thriving economy while lessening our footprint on our required yet delicate earth systems. It’s imperative to direct capital into the future that you in fact see coming, in part through public equity investing. That investment represents real impact and also positions your stock portfolio to grow as that future emerges and grows, supplanting the old fossil-fuels based economy.

For investors, the best Next Economy solutions simply outperform their old economy counterparts and predecessors, all while circumventing our most daunting long-term risks. In addition, there’s now a growing demographic demand from women and millennials for solutions-oriented investments that growing in size and wealth as part of the $40 trillion wealth transfer that is occurring in the U.S. In short, we’re at the early stage of share price appreciation for meaningful, scalable solutions.

In this light, we view investments through a holistic lens, and therefore deploy impact on the world across asset classes of private equity, public equity, and debt. In other words, if you have a commitment to impact, it’s not just a private equity hobby, it’s across all classes. Again, strategies dedicated to seeking equities that are solving big risks by investing in solutions amplify powerful market signals that firms with proven business models addressing challenges around climate and resource scarcity are now highly valued.

In the case of public equities, this does mean letting go of the idea that high correlation to the old indexes is somehow safer or even a good way to measure risk. Investing in public equities that are addressing looming systemic risks means looking for companies where financial return drivers and impact are inextricably linked, without regard to how well this tracks the S&P 500 or any other old index.

Public equity is a core component of a diversified investment portfolio -- why would we not seek maximum impact from this key piece of our total assets? Next Economics, focusing on what the de-risked economy will look like, and building portfolios that reflect that economy now, is compelling both in terms of affecting change and also in terms of financially benefiting from that change: Impact.

Garvin Jabusch is cofounder and chief investment officer of Green Alpha®Advisors, LLC. He is co-manager of the Shelton Green Alpha Fund (NEXTX), of the Green Alpha Next Economy Index, and of the Sierra Club Green Alpha Portfolio. He also authors the Sierra Club's economics blog, "Green Alpha's Next Economy."

September 12, 2016

Gevo To Supply Lufhansa With Renewable Jet Fuel

Jim Lane
In Colorado, Gevo (GEVO) has entered into a heads of agreement with Lufthansa to supply Gevo’s alcohol-to-jet fuel from its first commercial hydrocarbon facility, intended to be built in Luverne, MN. The terms of the agreement contemplate Lufthansa purchasing up to 8 million gallons per year of ATJ from Gevo, or up to 40 million gallons over the 5 year life of the off-take agreement.

Gevo utilized the enthusiasm generated in financial markets yesterday to raise $15.6M in cash and to convert $11M in debt to equity.

What the deal means in the short term

Here’s what it means in a practical sense. Expect Gevo to wind down ethanol production and convert the entire Luverne facility over to isobutanol, now that demand is ramping up. There will be a hydrocarbon upgrading technology added, which will give Gevo the option to produce up to 10 million gallons of hydrocarbon fuel from 13 million gallons of isobutanol.

That’s a mix of isooctene and kerosene – that mix can be dialed in to an 80/20 ratio either way, depending on market conditions. The kerosene will be blended by a third party to Lufthansa’s preferred blend. Could be a low percentage, could be high, that’s Lufthansa’s call.

About the agreement

The heads of agreement establishes a selling price that is expected to allow for an appropriate level of return on the capital required to build-out Gevo’s first commercial scale hydrocarbons facility. The heads of agreement is non-binding and is subject to completion of a binding off-take agreement and other definitive documentation between Gevo and Lufthansa, expected to be completed in the next few months.

Then comes the engineering, the financing, the construction. Stand by for 24 months. Mark fall 2018 on your calendar.

And so, Gulliver escapes from the land of the Lilliputians, formerly tied down by the Butamax litigation and the slow-to-emerge though shiningly profitable world of marine fuels. Into the big time of delivering solar fuels to hungry airlines.

Can Gevo go Big?

“We want to get to big scale,” Gevo CEO Pat Gruber told The Digest. “50 million 100 million gallons, where you really start to get economies of scale. We’re sitting here with 75,000 gallons in Silsbee, so how do we get to there from here. We’re going to do this in an intermediate step. We’re going to build out Luverne for isobutanol, we have good traction with Musket and the rest, and there’s a good value proposition based on really high performance. It’s high energy, high octane, lower carbon, lower cost. The pricing and margins are good. But it’s truly a niche not a commodity market, so it will take time to develop that niche.

“So, we have this opportunity to divert more into jet and isooctane, at the same time as Lufthansa wants to see alternatives develop.

“That’s their strategic interest. What they want is to self-regulate on carbon emissions, and avoid a patchwork of regulations everywhere they take off, land or fly over. The cost of compliance would be too great. But what none of us know is exactly what the cost of compliance will be, or the cost of oil, or the cost of alternative fuels in that long-term. So, everyone is moving cautiously although steadily.

“Meanwhile, it’s attractive to the investor community, too. They see the massive market, and they see the obvious need and the airlines actively developing. They understand there’s no electric plane any time soon, so there’s aren’t that many options, and this is one of the last sectors to be addressed in terms of lowering carbon emissions. Investors also see that some of the alternatives are more expensive, or are more expensive to scale.

The background news you can use

The agreement follows the completion of the first commercial flights using Gevo’s renewable alcohol by Alaska Airlines. The airlines used a 20 percent blend. Gevo said at the time that it “believes that its renewable ATJ has the potential to offer the most optimized operating cost, capital cost, feedstock availability, scalability, and translation across geographies.”

Gevo’s alcohol to jet synthetic paraffinic kerosene process turns its bio-based isobutanol into jet fuel that meets the requirements of the recently revised ASTM D7566 (Standard Specification for Aviation Turbine Fuel Containing Synthesized Hydrocarbons) for up to a 30 percent fuel blend.

In March, we reported that ASTM International Committee D02 on Petroleum Products, Liquid Fuels, and Lubricants and Subcommittee D02.J on Aviation Fuel passed a concurrent ballot approving the revision of ASTM D7566 (Standard Specification for Aviation Turbine Fuel Containing Synthesized Hydrocarbons) to include alcohol to jet synthetic paraffinic kerosene derived from renewable isobutanol. That’s now done, done and done.

So, now there are 4 approved alternative fuel specs. F/T fuels, which no one is making. Farnesene, up to a 10% blend, which TOTAL-Amyris makes but is expensive at the moment based on sugar and jet fuel prices. There’s HEFA, which is in wide use but also has waste oil / jet fuel price issues at the moment that have limited the production. Now, there’s the isobutanol-to-jet fuel pathway, which essentially is all Gevo’s right now.

Why would anyone make jet fuel from alcohol, anyway?

So, here’s the critique of jet fuels made from alcohol. Aside from the technical hurdles, why would anyone convert $3.50 corn into $1.20 aviation fuel when the yields are something like 1.3 gallons of hydrocarbon fuel per bushel? Isn’t that $1.56 worth of fuel from $3.50 in feedstock?

Well, yes and no.

First, Gevo is producing its own distillers grains, worth roughly $1.15 per bushel in normal market conditions. And, we believe the fuel will qualify for the biomass-based diesel tax credit of $1.01 per gallon, relying on this from

Biomass-based diesel is defined as a renewable transportation fuel, transportation fuel additive, heating oil, or jet fuel, such as biodiesel or non-ester renewable diesel, and achieves a 50% GHG emissions reduction.

And there’s roughly $1.00 in RIN value.

So, putting that together, you have $4.72 in value from that $3.50 corn. That’s before considering the fact that the Lufthansa deal is “expected to allow for an appropriate level of return on the capital required to build-out Gevo’s first commercial scale hydrocarbons facility.”

So that’s why you can make money making jet fuels from alcohols.

A Big Deal?

Yes, big. Monster.

Why? Combination of two factors. One, it’s Lufthansa stepping up, big time, despite the low-price oil environment. Second, it’s a multi-year offtake deal with a credit worthy partner. The kind that can get a plant built, as Gevo continues to foster an escape from near-certain death that wouldn’t be out of place in outtakes from Deliverance.

Lufthansa’s progress

In February, we reported that low fuel prices aren’t deterring Lufthansa from continuing to develop aviation biofuels, some it describes as a long-term strategy and not one that is swayed but a tough year or two. The company began looking for fuel alternatives in 2011 and has launched a number of trial flights and commercial flights with different blends of aviation biofuel with fossil jet fuel.

The relationship between Lufthansa and Gevo dates to spring 2014, as we reported here.

Back in 2012, the airlines said that believed that A1 jet fuel will remain the main aviation fuel for the next 20 years but expected renewable jet fuel to replace up to 5% of the market by 2019. With the European economic climate no longer interesting for investors, the airline believes that agricultural investments—for feedstock for aviation biofuel, for example—is an area not yet fully exploited.

Jim Lane is editor and publisher  of Biofuels Digest where  this article was originally published. Biofuels Digest is the most widely read  Biofuels daily read by 14,000+ organizations. Subscribe here.

September 07, 2016

Solar Module Prices: The Trend Is Down

by Paula Mints

Buckle up, another module price war is afoot – or maybe it’s dumping or maybe it’s panicked selling or maybe it is the result of overcapacity and softening demand or maybe it is China’s government saying NO MORE to it’s out of control market and effectively stranding a whole lot of overcapacity or maybe it is all of the aforementioned. Pricing is always a complex subject.

The average price for modules from China is currently $0.60/Wp (and dropping) and the average price for smaller buyers is $0.66/Wp (and dropping). These are averages and there are prices for inventory as low as $0.33/Wp. There are non-inventory modules available in the $0.49/Wp to $0.60/Wp range. The current trend in module prices is down, pressured by strong production levels in China during the first half of 2016 and a slowdown of deployment.

Comment: Module prices will be tumbling potentially through the end of the year. Look out for quality issues. Manufacturers in China have overproduced and with the Chinese government looking to control deployment many are looking to rid inventory of overproduction.

Lesson: Anyone who things that prices will stay down, think again. Anyone who thinks that prices will tick up to consistent margin recovery level...think again. Module sales in the solar industry are historically an unpleasant competitive area in which to do business as many failed
companies would attest.

module price history 2006-16.png

Paula Mints is founder of SPV Market Research, a classic solar market research practice focused on gathering data through primary research and providing analyses of the global solar industry.  You can find her on Twitter @PaulaMints1 and read her blog here.

This article was originally published in the August 31st issue of  SolarFlare, a bimonthly executive report on the solar industry, and is republished with permission.

September 04, 2016

Ten Clean Energy Stocks For 2016: August Earnings

Tom Konrad, Ph.D., CFA

My Ten Clean Energy Stocks for 2016 model portfolio continued to coast upward in August after five months of blistering performance since February, while clean energy sector benchmarks and real managed portfolio, the Green Global Equity Income Portfolio (GGEIP), pulled back slightly.  The following chart shows the performance of the model portfolio and its sub-portfolios against their benchmarks.

10 for 16 Aug composites.png

The portfolio, its growth and income subportfolios, and GGEIP all remain far ahead of their benchmarks.  Second quarter earnings announced this month were neutral or positive for the income stocks, but somewhat disappointing for the growth companies, causing the income group to pull farther ahead of its benchmark, and the growth group to lose a little ground. 

See the May update for a description of the benchmarks.

Opportunity to invest in GGEIP strategy

Last month, I mentioned that I was in advanced talks with a mutual fund company to bring the Green Global Equity Income strategy to the public as a mutual fund. I met with them for the fourth time last month, but they decided to pass, in large part because my emphasis on small and relatively illiquid stocks may put a limit on how large (and hence profitable) such a mutual fund can become.

Fortunately, I've been working on alternatives, two of which are now available for small investors.  My friend and colleague Jan Schalkwijk, CFA at investment advisor JPS Global Investments is now offering a version of the GGEIP strategy to his clients (new or existing) clients.  If you are interested, you can contact him here.  There is a also stripped-down but free version of GGEIP I launched on the Motif platform in June.

Or you can just continue to follow the income stocks in this annual model portfolio.  Although this group of seven is outperforming most other versions of the strategy this year, I think that difference is mostly luck.  The strategy had an excellent year in 2015 as well:  The six income stocks were up 24% and GGEIP was up 12% even though their income benchmark fell 30% because of the bursting of the Yieldco bubble.
10 for 16 Aug.png

The chart above gives detailed performance for the individual stocks.  Selected news driving individual stocks is discussed below.

Income Stocks

Pattern Energy Group (NASD:PEGI)

12/31/15 Price: $20.91.  Dec 31st Annual Dividend: $1.488 (7.1%).  Beta: 1.22.  Low Target: $18.  High Target: $35. 
8/31/16 Price:  $23.80.  YTD Dividend: $1.161. 
Expected 2016 Dividend:$1.58 (6.6%) YTD Total Return: 20.2%

Wind Yieldco Pattern Energy's revenues were at the low end of the company's projections due to generally low wind speeds, but earnings and cash available for distribution (CAFD) were strong due to good cost management and performance of the company's wind farms.

The company also announced the sale of 10 million shares of stock at $23.90, with an additional 1.5 million share underwriter's option.  It intends to use the cash to fund the purchase of the 180 MW Armow Wind power facility in Ontario from its sponsor.  I expect the acquisition to increase CAFD and dividends per share even after the dilutive effects of the share issue.

Enviva Partners, LP (NYSE:EVA)

12/31/15 Price: $18.15.  Dec 31st Annual Dividend: $1.76 (9.7%).  Low Target: $13.  High Target: $26. 
8/31/16 Price:  $25.47.  YTD Dividend: $1.495  Expected 2016 Dividend: $2.10 (8.2%) YTD Total Return: 49.9%

Wood pellet focused Master Limited Partnership (MLP) and Yieldco Enviva Partners increased its distribution to $0.525, and increased its full  distributable cash flow guidance from $67-$71 million to $70-$72 million.  The company reaffirmed full year distribution guidance of at least $2.10 per unit.  The new guidance increases the likelihood that Enviva will distribute more than that.

The market seems to have gotten the message that this wood pellet manufacturer has fuel to burn: The stock was up 19% for the month.

Green Plains Partners, LP (NYSE:GPP)

12/31/15 Price: $16.25. 
Dec 31st Annual Dividend: $1.60 (9.8%).  Low Target: $12.  High Target: $22. 
8/31/16 Price:  $18.42.  YTD Dividend: $1.218.  Expected 2016 Dividend: $1.64 (8.9%) YTD Total Return: 21.4%

Ethanol production Yieldco Green Plains Partners increased its quarterly distribution to $0.41 per unit, and reported $0.43 in per unit income for the quarter.  It's parent company, Green Plains (GPRE) produced a record volume of ethanol in the second quarter.  In the first quarter, the partnership relied on minimum volume guarantees from its parent to support revenues.  The recovery in ethanol volumes means that GPRE no longer needs to rely on these guarantees.

NRG Yield, A shares (NYSE:NYLD/A)

12/31/15 Price: $13.91.  Dec 31st Annual Dividend: $0.86 (6.2%). Beta: 1.02.  Low Target: $11.  High Target: $25. 
8/31/16 Price:  $16.09.  YTD Dividend: $0.695.  Expected 2016 Dividend: $0.96 (6.0%) YTD Total Return: 27.8%

Yieldco NRG Yield (NYLD and NYLD/A) increased its quarterly dividend to $0.24 and reaffirmed its guidance that the dividend would continue to grow by 15% annually through 2018.

The Yieldco entered an agreement to acquire the 51% of the California Valley Solar Ranch Holdco it does not already own from its parent.  The transaction was financed with $200 million of senior secured debt financed with a 4.68% interest rate.

Terraform Global (NASD: GLBL)

12/31/15 Price: $5.59.  Dec 31st Annual Dividend: $1.10 (19.7%). Beta: 1.22.  Low Target: $4.  High Target: $15. 
8/31/16 Price:  $3.62.  YTD Dividend: $0.275.  Expected 2016 Dividend: $0.60 (17.2%). YTD Total Return: -27.8%

Yieldco Terraform Global's delayed financial filings due to the bankruptcy of its former sponsor, SunEdison (SUNEQ), put it into technical default with some of its bondholders.  The company successfully negotiated a waiver extending the deadline for filing the delayed reports until December 6th. 

It was also reported that Indian company Greenko would pay $100 million for SunEdison's Indian assets along with the assumption of outstanding debt, including some nonoperational assets which SunEdison had agreed to transfer to Terraform Global upon completion in exchange for an advance payment prior to its bankruptcy.  It is not clear how the continuing dispute between the Yieldco and SunEdison over the use of the advance payment will affect this deal.

Hannon Armstrong Sustainable Infrastructure (NYSE:HASI).

12/31/15 Price: $18.92.  Dec 31st Annual Dividend: $1.20 (6.3%).  Beta: 1.22.  Low Target: $17.  High Target: $27. 
8/31/16 Price:  $23.98.  YTD Dividend: $0.60.  Expected 2016 Dividend: $1.25  (5.2%). YTD Total Return: 30.4%

Clean energy financier and REIT Hannon Armstrong reported increased second quarter core earnings to $0.32 per share, easily enough to continue to support the current dividend of $0.30 per share and an expected increase to at least $0.34  per share in December.

Hannon Armstrong has a target of paying out 100% of core earnings in dividends and a policy of increasing the dividend once per year in the fourth quarter.  Since Core Earnings have historically always increased or held constant from quarter to quarter, they typically lag the dividend in the first two quarters, but exceed them in the second half of the year. 

I expect this year to be different.  Results in the first half of the year were boosted by a larger securitizations (selling assets to third parties rather than keeping them on the books.)  While producing strong earnings in the quarter when they happen, securitizations produce no ongoing income.  After raising $91 million in equity in June, the company will again return to placing more transactions on the balance sheet, a change which I expect to reduce core earnings in the third quarter before returning to growth in the fourth quarter. 

I expect my anticipated decline in third quarter earnings in early November to catch some investors by surprise.  Investors looking to buy the stock should wait until then.  Investors considering taking some gains may want to sell before the November announcement.

TransAlta Renewables Inc. (TSX:RNW, OTC:TRSWF)
12/31/15 Price: C$10.37.  Dec 31st Annual Dividend: C$0.84 (8.1%).   Low Target: C$10.  High Target: C$15. 
8/31/16 Price:  C$14.08.  YTD Dividend: C$0.586  Expected 2016 Dividend: C$0.88 (6.3%) YTD Total Return (US$): 50.4%

Canadian listed Yieldco TransAlta Renewables reported results "tracking toward the upper end of the guidance we provided for 2016."  The company's major South Hedland project continues on budget and on schedule for completion in mid-2017.  The company anticipates a further dividend increase when it is delivered.

Growth Stocks

Renewable Energy Group (NASD:REGI)

12/31/15 Price: $9.29.  Annual Dividend: $0. Beta: 1.01.  Low Target: $7.  High Target: $25. 
8/31/16 Price:  $8.97.    YTD Total Return: -3.4%

Advanced biofuel producer Renewable Energy Group reported strong market demand for biomass based diesel and increased sales, which were limited only by production capacity.  But per share earnings of $0.16 fell short of analyst's expectations, causing the stock to pull back.

Federal and state support remains strong, and analysts have been raising current year earnings estimates.  I believe the current pullback provides an excellent opportunity for short term gains before the end of the year.

MiX Telematics Limited (NASD:MIXT; JSE:MIX).
12/31/15 Price: $4.22 / R2.80. Dec 31st Annual Dividend: R0.08 (2.9%).  Beta:  -0.13.  Low Target: $4.  High Target: $15.
8/31/16 Price:  $4.99 / R2.90.  YTD Dividend: R0.06/$0.101  Expected 2016 Dividend: R0.08 (2.8%)  YTD Total Return: 21.0%

Software as a service fleet management provider MiX Telematics rose in its native currency, the South African Rand, but these gains were erased by the strong dollar.

Ameresco, Inc. (NASD:AMRC).
Current Price: $6.25
Annual Dividend: $0.  Beta: 1.1.  Low Target: $5.  High Target: $15. 
8/31/16 Price:  $4.78.  YTD Total Return: -19.2%

Energy service contractor Ameresco continued to report strong growth in revenue, earnings, and cash flow.   While the past few years have been disappointing, I believe that the company has returned to sustainable growth and expect the stock to continue to recover.

Final Thoughts

The broad stock market been very strong this year despite continued and increasing global uncertainty.  This is likely because US economy has appeared to be a lone bright spot.  Indications of future growth have been mixed however, and I believe a defensive stance is warranted.  While none of these stocks is the screaming bargain they were in the first quarter, the income stocks remain inexpensive and good defensive plays going forward.

While more sensitive to a weakening economy, the three growth stocks remain extremely cheap, especially REGI and MIXT.  These low valuations limit their downside should the broad market fall, while allowing for large gains if they catch investors' attention.


DISCLAIMER: Past performance is not a guarantee or a reliable indicator of future results.  This article contains the current opinions of the author and such opinions are subject to change without notice.  This article has been distributed for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product.  Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.

September 02, 2016

The Low Cow-bon e-Cow-nomy

Jim Lane

This month in Finland, a team of intrepid researchers herded one thousand European cows one-by-one into a glass “metabolic chamber” to measure their methane emissions, digestion, production characteristics, energy-efficiency, metabolism, and the microbial make-up of their rumens.

The Project is known as RuminOmics, but if it had been titled The Truman Show II: When the Cows Come Home, we wouldn’t have been a bit surprised.

The Cow Emission Crisis. No Kidding Around.

The ultimate aim of the study was to find an optimal, low-emission, high-yield cow, and the team noted in its premise that of all greenhouse gases produced by humans, five percent comes from cattle.

By most conventional measures, that’s more than the global aviation industry. So, when we consider the cost and intensity of the effort to develop sustainable aviation fuels, it adds perspective to this laudable effort to produce a Low Carbon Cow.

Specifically, 16 percent of greenhouse gas impact consists of methane, of which one third originates in cattle production: more than one billion cattle graze the planet, and each of them emit around 500 liters of methane every day.

The Research team

RuminOmics is led by the University of Aberdeen and funded by the EU; in all, ten other European research institutes, investigated the interaction between a ruminant’s genotype, feed, and the microbial make-up of the rumen, examining the role these factors played in the energy-efficiency of dairy cattle and their methane emissions. Cows’ daily feed consumption and milk production is measured and recorded, and the manure and urine produced is collected.

Food creates fuel

The researchers expected that that Finnish and Swedish cows would produce more methane than cows in other countries. “This is attributable to their feed which is dominated by silage, not by the climate.” Yet, results from the study indicate that “many cows with low methane emissions are inefficient due to the fact that they are unable to make use [of the energy] contained in fodder.”

So, it’s not simply a case of selecting cows with low emissions compared to the rest, or varying the diet.

Older and more productive cows emit less

Practice may make perfect, in this case. The researchers found that “relative methane emissions of a cow per production unit, kilo of milk or beef are reduced if the production level or production age are increased.” So, longer lives and better production conditions play a role. Lucky for the cows.

The genetics of low-carbon cows

The study identified areas in the cow’s genotype, the variation of which was linked to the amount of methane produced per kilo of milk produced. So, can a Super Low-Carb cow be identified and can this genotype be bred for.

Consider that noble alternative to the Holstein, the Jersey or the Thai Milking Zebu. For your consideration, the Carbonfree. Researchers are optimistic.

“We will investigate” said their report, “whether these genes affect the variation in the microbial make-up of cows’ rumen or other characteristics of cows such as the size of their rumen, production level of capability to use fodder.”

Making healthier milk

One other impact area of the study? How microbes in the cow’s intestine and rumen on their part play a key role in the functioning of the cow’s entire biological system.

Earlier this week in the Digest we looked at the impact of gut flora (the micro-biome) on human health and the relationship of nutrition and gut health, here.

But there might be a combination of nutritional advantage and progress on greenhouse gas emissions from this work. For example, researchers were targeting microbes to better understand how and why microbes in the cow’s intestine and rumen transform unsaturated fatty acids in fodder into saturated fatty acids in milk. 70 percent of the fats in milk comprises solid fats.

The Low Carbon Cow Standard

If researchers find impactful opportunities, we may find ourselves with the opportunity for a global Low Carbon Cow Standard. Well, it’s silly of course. But not completely.

Consider the climate advantages from, say, reducing cow emissions by half in 2050 compared aa baseline of say, 2005. That would be equivalent to the impact of the entire Sustainable Aviation movement around the world through 2050. And, we might well in addition see a healthier milk in terms of fat profile and nutritional content, or even taste and human digestibility.

So bring on those herds of Carbonfrees.

Jim Lane is editor and publisher  of Biofuels Digest where this article was originally published. Biofuels Digest is the most widely read  Biofuels daily read by 14,000+ organizations. Subscribe here.

September 01, 2016

US Solar: Lawsuits, A Quiet Exit, and Grand Plans But Fewer Results

Lessons From SunEdison, First Solar, and SolarCity

by Paula Mints

SunEdison (SUNEQ)

Currently SunEdison faces at least 15 lawsuits. SunEdison, Terraform (TERP) and other defendants asked to have the cases against them consolidated.

Along with the lawsuits, from October 2015 through May 26 at least 20 security class actions have been filed against SunEdison its subsidiaries, officials and underwriters. Many of these actions relate to claims that investors were misled about the liquidity of SunEdison, et al. Meanwhile, GCL-Poly wants to buy SunEdison’s (MEMC) polysilicon business for $150-million and those in charge of selling off the company bit by bit are eager to nail this bid down.

Comment: Potential buyers aren’t just circling overhead they are diving swiftly in. Meanwhile, future investors in renewable funds should learn to think very carefully before investing the retirement funds of groups such as the Municipal Employee Retirement System of Michigan.

The solar industry remains volatile and despite ongoing growth is still subject to heartbreaking, dream shattering and retirement income depleting crashes.

Lesson: SunEdison stands as a stark lesson in solar industry bad behavior. Hubris encouraged Icarus to fly too close to the sun. Overtime too many solar companies have followed his path up and unfortunately met the same fate.

First Solar (FSLR)

In July First Solar finally pulled the plug on its crystalline ambitions by announcing it would shutter TetraSun and convert the manufacturing facility in Malaysia to CdTe production.

Comment: Well ... First Solar tried CIGS and quietly pulled the plug following at least two unsuccessful years and now it has less quietly exited crystalline manufacturing after a couple of years of assuring everyone that it would be very successful in this regard. As a-Si production
is almost nonexistent hopefully the company will now focus 100% on CdTe and continue with its world leadership in this regard.

Lesson: Hopefully First Solar has learned that shifting focus from its core technology focus just results in a shifted focus because it certainly has not resulted in revenue.

SolarCity (SCTY)

In SolarCity’s August earning call the company, meaning proud new parent/owner Elon Musk spoke enthusiastically about Silevo’s new custom BIPV product and basically ignored offering any details about manufacturing delays and manufacturing cost. SolarCity announced a gross  profit of $118.8-million for 2015, operating losses of $647.8-million and net losses of $768.8-million. SolarCity also lowered its installation guidance for 2016.

Comment: Hmmm. So, SolarCity’s Silevo acquisition has shipped nothing from its 1-GWp manufacturing facility and though it has produced nothing and shipped nothing is announcing a new custom BIPV product that will be more expensive to manufacture than the panels it has yet to produce. SolarCity loses money on its sales business. Daily there is an article or blog either announcing the SolarCity/Tesla merger as evidence of the genius of Elon Musk or, well, something entirely different from genius. Perhaps the genius is to continue announcing grand plans followed by delays in grand plans and to continue losing money while piling on the debt and expanding.

Lesson: The lesson is that the market loves a unicorn and will embrace one even if it is an illusion. Sometimes all one can do is watch in fascination.

Paula Mints is founder of SPV Market Research, a classic solar market research practice focused on gathering data through primary research and providing analyses of the global solar industry.  You can find her on Twitter @PaulaMints1 and read her blog here.

This article was originally published in the August 31st issue of  SolarFlare, a bimonthly executive report on the solar industry, and is republished with permission.

August 28, 2016

Why Only Ethanol?

Where are butanol and other substitutes for gasoline?

Jim Lane

A reader writes:

I’d hoped that the biofuels crowd would have gotten beyond ethanol by now.

The industry has made progress creating all kinds of specialty chemicals from renewable sources and more or less successfully brought them to market. There’s jet and diesel in commercial use whether or not they’re yet profitable.

However they have made zero commercial progress on anything other than ethanol for gasoline. All the major advances have involved better and better ways to crank out ethanol. I don’t see the auto industry co-operating by switching to E85 or E100 technologies, particularly when we’re in the midst of a very long term bear market for oil.

Is there some fundamental reason that the automotive biofuels people haven’t shifted to butanol or iso-butanol or some other compound that would be more compatible with gasoline and the present highly evolved gasoline engines? Is there some fundamental thermodynamic barrier that makes conversion of biomass to butanol impossible?

So, what happened?

For sure, the quick answer is “new fuels are on the way” — Gevo is producing in small quantities, but it is producing at a commercial-scale facility and selling fuels. Butamax has been less visible in terms of timelines, but they also produce isobutanol from corn sugars. And Global Bioenergies is making progress with a renewable gasoline made from isobutene.

Why so few technologies, why so little commercial progress on gasoline substitution, excepting ethanol?

The chemistry of value

The answer lies to some extent in what we might term “the chemistry of value”. Theoretical yields for making isobutanol from sugars, for example, hover in the 41 percent range, while theoretical ethanol yields are in the 51 percent range. Yields for making isoalkanes and aromatics from sugar— typical components of gasoline — are in the low 40s, too.

Right now, the September ethanol contract at CBOT is pricing at $1.46 while the RBOB gasoline price is pricing at $1.49.

So, there’s a 2 percent gain in the price to compensate for a 20 percent drop in the yield.

Now, you probably at this stage would mention the higher RIN values associated with advanced biofuels. Right now, D5 advanced biofuel RINs are selling for roughly the same price as D6 corn ethanol RINs. Absolutely, you get 1.3 RINs for a gallon if isobutanol vs 1.0 RINs for a gallon of ethanol, because of the higher energy density of butanol, but it washes out when you take into account the lower yield in gallons.

So, right now, the market is not rewarding isobutanol makers with a premium price in the road transport market. Sadly, not in the jet fuel market, either.

The two bright spots

Areas of opportunity?

One is the cellulosic fuel market. There is a substantial set of premiums relating to carbon incentives available for cellulosic feedstocks. But, the processes to produce substitutes for gasoline, besides ethanol, from cellulose are still in the R&D phase.

Another is the marine market. There, boat owners, for a variety of reasons generally going back to boat construction materials, prefer an ethanol-free product. In this case, isobutanol is not competing against E10 ethanol-gasoline blends. Rather, they are competing against straight gasoline.

The marine opportunity for isobutanol

We have direct evidence that isobutanol is selling in 12.5 percent blends for a “more than 50% premium” compared to E10 fuel (we reported on this here).

Right now, that’s around $3.23 per gallon.

Now, one of the attractive uses of an isobutanol fuel in the marine sector is that marinas are not obligated parties under the Renewable Fuel Standard, but isobutanol is a qualifying fuel. Hence, a marina owner can blend a gallon of renewable fuel and detach the RIN that comes with every gallon of renewable fuel, and sell it into the marketplace.

Those RINs are selling today at $0.89 each, and you get 1.3 of them for every gallon, as we mentioned above. That’s another $1.16 in value.

Total value created, $4.39 per gallon. That’s excluding value created from a bushel of corn with the distiller’s grains — that’s just the fuel fraction.

Gevo’s production price?

Gevo (GEVO) recently affirmed that they remain on track to reach a production cost of $3.00-$3.50 per gallon for isobutanol by the end of the year — as long as corn doesn’t get more expensive.

How much of that retail value goes to the producer?

Now, remember that the ExpressLube value we mentioned is the retail value, and the retailer gets that RIN, as well, although its value contributes to the price a wholesaler will pay for the product. Gevo says that it a net market price of $3.50-$4.00 per gallon for isobutanol, so long as distiller’s grains do not lose value.

The Bottom Line

The marine market is where its at, for isobutanol, in the near-term. The economics on road transport furls have to improve a bit before we are going to see more substitutes for gasoline, besides ethanol.

Jim Lane is editor and publisher  of Biofuels Digest where this article was originally published. Biofuels Digest is the most widely read  Biofuels daily read by 14,000+ organizations. Subscribe here.

August 27, 2016

Green Plains Nabs 3 Ethanol Plants On The Cheap

Jim Lane

In Nebraska, word has arrived from Green Plains (GPRE) that it will purchase the Madison, Ill., Mount Vernon, Ind. and York, Neb. ethanol facilities from Abengoa (ABGOY) Bioenergy with combined annual production capacity of 236 million gallons per year, for approximately $237 million in cash, plus certain working capital adjustments.

The company said it was the successful bidder on three ethanol plants for sale conducted under the provisions of the U.S. Bankruptcy Code.

Upon completion of the acquisitions, Green Plains will own and operate 17 dry mill ethanol facilities with combined production capacity of nearly 1.5 billion gallons per year. With ADM (ADM) putting US ethanol assets on the sale block, the acquisition leaves Green Plains and POET alone at the top in terms of US production capacity.

It was less than five years ago in 2011 that we reported:

“Green Plains Renewables says that the days of snapping up cheap ethanol assets are over, as all opportunities for buying up the right equipment at the right location for under $1 per gallon of installed capacity have been bought up.”

Yet, the acquisitions in this case came at that magic $1 per gallon figure. According to CARD, the return over operating costs for ethanol plants, currently, is hovering between $0.40 and $0.50, suggesting that the payback time for this investment will be between 2 and 2.5 years.

BD Green Plains CARD 082416

A note on CARD operating profit forecasts. CARD says, “This return is calculated as the difference between the revenues from ethanol plant outputs (ethanol and dried distillers grains with solubles [DDGS]) and the costs of variable production inputs (corn, natural gas, and other costs such as enzymes, labor, electricity and water).” More about those projections and assumptions here.

The road to 1.5 billion gallons

2010: Green Plains acquired Global Ethanol’s two operating ethanol plants located in Lakota, IA and Riga, MI with a combined annual production capacity of approximately 157 MGy. The acquisition increased Green Plains’ capacity by 31% to approximately 657 Mgy. The company paid approximately $169.2 million, including approximately $147.6 million for the ethanol production facilities and the balance in working capital.

2011: The company’s round of expansion closed with the purchase of the 55 million gallon per year Fergus Falls ethanol plant for $55 million, which at the time confirmed its status as the fourth-largest ethanol producer behind POET, ADM and Valero.

2013. Green Plains acquired two ethanol plants of BioFuel Energy Corp. for approximately $101 million, plus working capital at closing, from an entity composed of its lender group. Green Plains intended to fund the purchase with approximately $77 million in term debt and the balance in cash. The ethanol plants are located in Wood River, NE and Fairmont, MN. The two facilities have a combined annual production capacity of approximately 220 million gallons.

2015. Green Plains acquired Hereford Renewable Energy, LLC for approximately $93.8 million. The transaction value included $78.5 million for the ethanol production facility with the balance for working capital. The transaction is expected to close this month subject to customary closing conditions and regulatory approvals. The facility is a Lurgi-designed, ICM-modified ethanol plant with approximately 100 million gallons per year of production capacity, a corn oil extraction system and other related assets.

2015. Green Plains acquired an idled ethanol production facility in Hopewell, Virginia, located approximately 20 miles south of Richmond, from Future Fuels LLP. The company paid $18.25M for the capacity. Operating at full capacity, the facility’s dry mill ethanol plant will increase the company’s annual production capacity by approximately 60 million gallons to nearly 1.1 billion gallons per year. Production is expected to resume by the end of the year and corn oil processing is expected to be operational during the second quarter of 2016.

2016. Still on the hunt. Green Plains is taking advantage of low investor interest in biofuels, we reported, thanks to depressed crushing margins. The company is on the hunt to acquire new assets as well as expand production capacity organically, we reported, despite its own weak performance and rising supplies. Even with weak oil prices, CEO Todd Becker said that international demand for US ethanol has not slumped off and instead expects total exports this year to surpass last year, perhaps even reaching 1 billion gallons.


There’s continuing consolidation in the corn ethanol space. Last year, Aventine merged into Pacific Ethanol. The previous September, Flint Hills Resources acquired Southwest Georgia Ethanol’s plant in Camilla, Georgia, the company’s fourth acquisition in a one year period. The company purchased an Iowa plant from Platinum Ethanol. Since then it had begun retrofitting a Southeast Nebraska plant and bought out Petrologistics.

More Consolidation on the Way?

Yes, ADM has put US-based ethanol assets on the block.

We reported earlier this month that ADM now expects to receive bids by the end of August following presentations to seven potential buyers. Half of the company’s 1.8 billion gallons of ethanol production occurs at its three dry mills. Weak ethanol margins were among the reasons for the company failing it hit analysts’ expectations for Q2 in its reporting this week. But we are not expecting the assets to be sold at the $1 per gallon mark and, given that Green Plains is going to be absorbing this set of plants, we’re doubtful that they will be paying top dollar in an auction for ADM’s assets.

Get strong, the Green Plains way

We looked at the Green Plains growth story in November 2015, here, and wrote of “lessons learned”:

1. Get a lead product that’s a platform for a company. Green Plains began as a one-horse ethanol producer with two products, corn ethanol and distillers grains. There were unanswered questions at the time about the market acceptance of the products, the viability of the sector, and whether Green Plains could scale to industry-leading size, and when. They chose, in corn ethanol, a product that can support a company, rather than ease a burn rate and provide some hope to investors. There are $1 million lead products and $100 million lead products and $1 billion lead products. The first provides hope and not much more, the second eases a burn rate, the latter

2. Gain strength by applying advanced technologies to advance the business proposition. Today, Green Plains has more than a billion gallons in ethanol production capacity, and is making money even in a tough ethanol market; it has spun off Green Plains Partners (GPP) into a successful IPO and reported its first dividend to shareholders in that venture this week; it has diversified into corn oil and is working hard on monetizing its CO2 production. It is acquiring terminal capacity as well as production capacity.

Reaction from Planet Green Plains

“We continue to focus on making strategic investments in high quality assets as we expand our production footprint,” said Todd Becker, president and chief executive officer at Green Plains. “The Madison and Mount Vernon plants will give us access to the Mississippi River, supporting our new export terminal planned in Beaumont, Texas. In addition, we will broaden our product offering globally with industrial alcohol production at the York plant. These acquisitions further our commitment to deliver long-term value for both Green Plains Inc. and Green Plains Partners shareholders.”

Closing details

The company’s acquisition agreements are subject to review and approval by the U.S. Bankruptcy Court for the Eastern District of Missouri at a hearing currently scheduled for Aug. 29, 2016. The acquisitions are expected to be complete no later than Sept. 30, 2016, subject to regulatory approval and customary closing conditions, at which time the ethanol storage and transportation assets will be offered to Green Plains Partners.

Green Plains Inc. is a diversified commodity-processing business with operations related to ethanol, distillers grains and corn oil production; grain handling and storage; a cattle feedlot; and commodity marketing and distribution services. The company processes 12 million tons of corn annually, producing over 1.2 billion gallons of ethanol, approximately 3.5 million tons of livestock feed and 290 million pounds of industrial grade corn oil at full capacity. Green Plains owns a 62.5% limited partner interest and a 2.0% general partner interest in Green Plains Partners LP (NASDAQ:GPP), a fee-based Delaware limited partnership that provides fuel storage and transportation services by owning, operating, developing and acquiring ethanol and fuel storage tanks, terminals, transportation assets and other related assets and businesses.

Jim Lane is editor and publisher  of Biofuels Digest where this article was originally published. Biofuels Digest is the most widely read  Biofuels daily read by 14,000+ organizations. Subscribe here.

August 19, 2016

Amber Means Caution But BioAmber Means Go

Jim Lane

In Canada, BioAmber (BIOA) recorded net income of $4.8M for Q2 2016 and an operating loss of $1.0M on revenues of $2.5M. Revenues were up 73 percent over Q1 and 637 percent compared to Q2 2015.

For those less familiar with the company, it produces succinic acid from sugar at a first commercial-scale plant which opened recently in Sarnia, Ontario. Succinic acid has a small existing global market but can be converted into a variety of chemical building blocks used to produce a range of plastics, paints, textiles, food additives and personal care products.

If for some this relatively small venture is “the hope for the renewable chemicals movement”, the reason lies in oxygen. Which is to say, sugar has it, succinic acid has it, but petroleum doesn’t. That means that any effort to make succinic acid from petroleum involves at least one extra process step — the add-back of oxygen. It also means that the yield of succinic acid from sugar is inherently higher, on a percentage basis than, say, the production of hydrocarbons used as diesel or jet fuel, or chemicals such as ethylene.

That lowers the threshold at which renewables can compete on cost with petroleum-based molecules — and that’s no small matter when fossil fuel prices have tumbled to 10-year lows. Combine that with the usefulness of succinic acid as a building block, and you have a powerful combination.

So, many eyes — beyond the usual collection of employees, investors, and supply chain partners — have been on the Succinic Sultans of Sarnia.

The 5 Key Trends

Let’s look at five key BioAmber trends, and measure’s the venture’s progress.

1. Product cost.

Aside from product acceptance — already assured via a transformative offtake deal with Vinmar that we covered here, there’s nothing more important than product cost. It’s the fatal problem for most early stage advanced bioeconomy ventures. It’s the difference between being stuck in small, high-margin niche markets, possibly forever and certainly while the cash runs out — and a breakout into larger volume markets where the growth lies.

There’s good news here. “The cost per ton of bio-succinic acid sold continued to decrease, with a 30% reduction relative to the previous quarter,” said the Company in its earnings report. In the context of overall goals? “Sarnia variable costs were lowered to the Company’s 2016 target.”

2. Up-time.

If you’ve been following the travails of various cellulosic ethanol ventures, you know that they have excellent product prices at the moment and mandated markets. Production plant up-time has been a huge headache.

On that note, it’s excellent news to read that “Sarnia achieved an uptime rate of over 80% in the month of June 2016, having increased steadily during the second quarter.” The Q3 uptime rates will be critical to understanding if BioAmber has cracked the operational puzzle, but the progress if highly encouraging.

3. In-spec production.

One of the ventures key performance indicators has been the production of in-spec chemicals. It’s fermentation regime has shown a tendency to wobble off course in the early days — the result, 37% of the product was off-spec in Q1. Could be that the corner was already turned here. Less than 7% of total Q2 production of bio-succinic acid was off-spec.

4. Cash and inventory on hand.

The miseries imposed by a cash drain need no great emphasis here, for readers who have worked on early-stage ventures in the cash- burn phase. Suffice to say, if there’s one type of burning sensation in the Valley of Death more painful than the others, it’s usually the cash burn. Cash is a little light in BioAmber world — but the burn rate is low. There’s $5.5M on hand as of June 30, compared to cash on hand of $6.9M on December 31, 2015. The company added in its quarterly earnings call that it closed on an additional $7.6M from the previously disclosed BDC Capital loan. So, liquidity is assured for now, but a dilutive capital raise may be in the cards before the venture breaks even at Sarnia. We’ll keep an eye on that one.

Another item to note is that the company has 1,200 metric tons of product inventory on hand as of Q2. The plant has a rated capacity of 30,000 tons — so, it’s not a big pile-up, but worth watching as both a source of future cash and as a sign that BioAmber’s deliveries are timing well with its production.

5. Overheads.

Project watchers have been keeping an eye on R&D expense, which had ballooned to $5.0M in Q2 2015 as the company readied to launch the new commercial plant. Happily, that’s tumbled to $1.5M.

Interestingly for a company going through a ramp-up, sales expense is dropping. In Q2 2015 the figure hit $1.1M for the quarter, but dropped to $584K in Q2 2016. The company noted that stock option value has dropped as the value of the company’s stock has declined. If the stock begins to rise, that’s go up again. But it’s also a sign that the company’s embrace of a big offtake relationship with selected partners such as Vinmar is going to keep that expense lower than at projects that opt to sell direct to customers.

Reaction from Planet BioAmber

“BioAmber continues to meet ramp-up expectations at its Sarnia plant. We have made excellent progress in the plant’s reliability and performance, while continuing to increase production levels and drive down unit costs,” said BioAmber CEO Jean-Francois Huc. “Second quarter sales were on track, generating a 73% increase in sales over Q1, while Q2 operations improved throughout the quarter, culminating in a June uptime rate of over 80%. The team is now entrenching its operating routines as our Sarnia facility moves towards full production levels,” he added.

The Bottom Line

Progress? Excellent. One more quarter of results is probably all that is needed to assure observers that BioAmber’s start-up period is essentially over. Then, of course, the questions will be the more usual ones of price and production volume. And in the world of renewables, the rate of adoption by customers and the rate of application development.

Which brings us to formulations. We raised this issue with coverage of TerraVia last week. One of the real advantages of succinic acid is that it can be used as a chemical building block. We noted in a review here that “Bio-succinic acid forms the basis for many high-value replacement products, including phthalic anhydride, adipic acid, and maleic anhydride. Fumaric acid is commonly used as a preservative in food and beverages, in the production of paints and coatings, as well as in the production of paper. It is the chemical equivalent of maleic anhydride (MAN) and water, and therefore can be used as a replacement for MAN.”

So, we’ll be keeping a sharp look-out for evidence that formulators are switching from petroleum-based feedstocks to biosuccinic as a source for any or all of those. It will be a huge demand driver, ultimately, not only for BioAmber but for Reverdia, the joint venture between DSM and Roquette Frères, which in 2012 commenced operations in Cassano Spinola, Italy, at a 10K/yr biosuccinic acid plant. And somewhere out there is the mysterious Myriant venture, which opened its plant in Louisiana and drew a thick iron curtain around the project’s progress.

Jim Lane is editor and publisher  of Biofuels Digest where this article was originally published. Biofuels Digest is the most widely read  Biofuels daily read by 14,000+ organizations. Subscribe here.

August 17, 2016

Amyris: The New Colossus Aims To Unlock Its Golden Door

Jim Lane

In California, Amyris (AMRS) reported a Q2 net loss of $13.8M on revenues of $9,6M, up from $7.8M in Q2 2015. Revenues rose 27% from the corresponding period in 2015 primarily driven by the shipment of a new novel fragrance product, as well as Neossance Squalane sales. At the same time, Amyris, which has recorded $18.4M in revenues for the first half, re-affirmed guidance for the year that it would reach $90M in annual sales and positive cash flow from operations in 2017.

With that, Amyris would have increased revenues by 400% in the second half, compared to the first half — so, a breakout for the company which was ranked last year as the #1 Hottest Company in the sector by the Digets’s readers and international selectors.

The Seven Rays lighting Amyris’ Golden Lamp

Let’s look at the 7 factors that have the company poised for a revenue transformation in the second half.

1. Gingko. Entered into an Initial Strategic Partnership Agreement with Ginkgo Bioworks to accelerate commercialization of bio-based ingredients and establish clear leadership in industrial biotechnology with a combined offering that we consider unparalleled. In connection with the agreement, a license fee of $15 million was paid on July 25, 2016, to Amyris in exchange for use of certain Amyris technology and the parties agreed to pursue the negotiation and execution of a definitive partnership agreement that includes significant value sharing. The partnership is expected to deliver more new ingredients into the global market over the next three years than the entire industry has achieved in the last 10 years.

Melo pointed to the company’s DARPA collaboration which has identified 400 different molecules, “all of which we can commercialize at our discretion.” Also, 5th. Additional with Gingko, “we are already collaborating to align R&D and take 70 products to the world’s leading brands.”

Melo said that critical to Amyris growth will be “more capacity” and the Amyris potential to “accelerate products”. Meanwhile, “the Brotas plant is running flat-out with farnesene production”, the North Carolina facility too. The company has plans to double capacity at Brotas and is speaking with potential collaborators about potential expansions to increase capacity for 2017.

2. Cosmetics and personal care. Announced multi-year, multi-million-dollar collaboration in cosmetic active ingredients with Givaudan to engineer and produce cosmetic active targets for global commercialization by Givaudan. Amyris sees this partnership delivering an annual run rate $50M per year

3. Fragrance & flavors. Began commercialization of novel fragrance product with Takasago International Corporation. The company said that it had greatly expanded in F&F inovel fragrance ingredients, partnered with 4 of the top 5 companies, and is “on track to become one of key suppliers.”

4. Jet fuel. Jointly announced with Cathay Pacific a two-year biojet agreement supporting continued strong farnesene demand and the future of sustainable air travel; initial flight on May 12, 2016 using the biojet blend was the longest flight using a renewable jet fuel to date. This fuel is supplied through the Amyris Total partnership that is dedicated to making BioJet an industrial reality.

5. Novvi. Announced American Refining Group’s 33.3% equity investment in Novvi LLC, a joint venture of Amyris and Cosan S.A., enabling market access and acceleration in revenue growth of Novvi’s high performance, sustainably sourced, renewable lubricants.

6. Janssen. Entered into research agreement with commercial license option with Janssen Biotech, facilitated by Johnson & Johnson Innovation, to use Amyris’s µPharm platform for rapid integrated discovery and production of therapeutic compounds thereby opening a new area of compounds previously not accessible for new drug discovery. “We expect to sign one more collaboration by the end of the year, ending at the high-end of our range, to develop a library of natural and natural like of therapeutic compounds, which nature has the potential to provide and we have the ability to produce.”

7. Biogen. Amyris nnounced partnership with Biogen, Inc. to develop alternative cell lines supporting production of therapeutics, marking second major partnership in biopharma market, which is now positioned to become Amyris’s largest opportunity for collaborations. The Biogen partenrship is the most exciting of all,” CEO John Melo said,. With it, Amyris he said would make “ a transformative change to biopharma where partner would be able to employ [Amyris biotechnology] instead of using cells from mammals. Others have attempted and failed, but we are positioned to deliver life saving therapeutics and make them more widely available. This could be game changing for biopharmaceuticals, and Biogen will fully fund the development.”

Reaction from the Street

Jeffrey Osborne at Cowen & Company wrote:

Amyris reported revenues of $9.6 mn, coming in below both Cowen and Street estimates of $10.6 mn and $15.22 mn respectively due to timing of product shipments and collaboration payments. About 90% of its revenue for 2016 and about 70% of its revenue for 2017 [is] committed.

Finally, the company expects continued growth from personal care as well as a significant ramp up in health and industrial segments in the second half, with ~33% coming from health, ~40% coming from personal care, and the rest coming from industrials. We are taking a wait and see approach given the uncertain pace of cost reductions. $1.25 price target.

The Bottom Line

Amyris started out in so many ways as a biopharma technology with the potential to radically transform, through synthetic biology, the potential to produce at radically lowered cost, and much bigger volume, a range of life-saving molecules. First was artemisinin, that has now been manufactured at commercial volumes for a couple of years now (primarily by Sanofi to date) as a low-cost malarial treatment. It was this aspect of Amyris technology that originally attracted the Bill & Melinda Gates Foundation.

Now, Amyris is back to the future, as it were. After a long tour through the potential for its technology to produce industrials, which has had spotty success due to price point, and a nascent effort to expand into personal care, which is small but promising — the company now sees 33% of its immediate growth coming from the health care sector.

Next in importance is personal care — but we also are fascinated by the company potential in flavors & fragrances. In short, a diversified portfolio — although the company is sharpening its portfolio and selling off “non-core assets”, it is truly delivering on its original vision to have a balanced and broad product portfolio. Just farther up on the cost curve — generally excluding much of the expected fuels volume – for now. That may change as oil prices rebound.

The company says that with Gingko it will “take 70 products to the world’s leading brands” — and the time is nigh for that to unfold. Indeed, then the New Colossus will lift its lamp beside the Golden Door.

Jim Lane is editor and publisher  of Biofuels Digest where  this article was originally published. Biofuels Digest is the most widely read  Biofuels daily read by 14,000+ organizations. Subscribe here.

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