Gevo is a “low-carbon” company developing and commercializing renewable diesel, jet fuel alternatives

• Nasdaq-listed next generation “low-carbon” fuel company
• Developing and commercializing renewable alternative jet fuel and diesel
• Uses feedstocks that have the potential to lower greenhouse gas emissions

What Gevo does:

Gevo, Inc. (NASDAQ: GEVO) is a next generation “low-carbon” fuel company focused on the development and commercialization of renewable alternatives to petroleum-based products.

The Englewood, Colorado-based company is developing gasoline and jet fuel using renewable feedstocks that have the potential to lower greenhouse gas emissions at a meaningful scale and enhance agricultural production, including food and other related products.

The group has developed a breakthrough process that converts a high-octane fuel called isobutanol into clean, renewable diesel. The green diesel can also be made from fusel oils, a mixture of several alcohols produced as a by-product of fermentation.

Renewable diesel is expected to compete head-to-head on price with natural and petroleum-based equivalents, while reducing particulates and CO2 emissions, according to Gevo’s CEO Patrick R Gruber.

Low-carbon fuels reduce the carbon intensity, or the level of greenhouse gas emissions, compared to standard fossil-based fuels across their lifecycle.

Demand has increased since California’s Low Carbon Fuel Standard came into effect, which is designed to decrease the carbon intensity of California’s transportation fuel pool and provide an increasing range of low-carbon and renewable alternatives, which reduce petroleum dependency and achieve air quality benefits.

The marine sector is also looking to reduce sulphur emissions after new international water regulations came into effect on January 1, 2020.

In addition to serving the low-carbon fuel markets, Gevo’s technology can also serve markets for the production of chemical intermediate products for solvents, plastics, and building block chemicals.

The group’s stated strategy is to commercialize bio-based alternatives to petroleum-based products to allow for the optimization of fermentation facilities’ assets, with the ultimate goal of maximizing cash flows from the operation of those assets.

How it is doing:

Gevo ended 2019 on a strong note, reporting fourth-quarter revenues of $6.9 million, up 4.5% from $6.6 million a year earlier while its gross loss narrowed by 16% year-over-year from $3 million to $2.5 million.

The revenue growth was due in part to a bump in hydrocarbon production at the company’s South Hampton facility. In the year-ago quarter, the company said, production was down due to facility upgrades.

Meanwhile, hydrocarbon sales, which include its sustainable alcohol-to-jet fuel and isooctane, a fuel additive, improved to $1 million in the quarter from $100,000 in the same period in 2018.

In December of last year, the firm announced that Delta Air Lines Inc will purchase 10 million gallons of its advanced renewable biofuels per year once the company has completed expansions at its Luverne facility.

In response to growing demand for its products, Gevo has also said it is planning to operate more as a developer, licensor and plant operator rather than a majority owner. As the public becomes increasingly concerned about greenhouse gas emissions and climate change, Gevo said it expects to attract equity and debt financing partners.

Into 2020, the firm is making efforts to fund an expansion of its operations. In early April, the group hired Citigroup Global Markets Inc to secure financing and construct one or more expanded production facilities to produce its low-carbon hydrocarbon products for Delta and others.

All told, Gevo has roughly $500 million worth of take-or-pay-offtake agreements in place for a combination of renewable jet fuel and renewable isooctane for gasoline.

The deals have kept rolling in the early part of the year, with the company having contracted three dairies in January to provide manure that it will convert into pipeline quality biogas (renewable natural gas).

Additional strides have been made in Australia, with the company announcing in February that it has been awarded part of The Queensland Waste to Biofutures (W2B) Fund to support the development of waste-to-biofutures projects in the country’s second-largest state.

The company is also practising what it preaches in terms of low carbon energy, announcing in late April that it will bring two wind turbines online at the production facility in Luverne, Minnesota owned by its subsidiary Agri-Energy, having installed them in March.

The turbines will generate up to 5 megawatts of renewable energy and allow the facility to produce fuel with a lower carbon intensity score, a metric used under the Low Carbon Fuel Standard in California.

While the coronavirus pandemic did force the company to suspend operations at the Luverne facility at the end of March, it is now preparing to re-open its doors. It also has a strong balance sheet to cope with the pandemic ending its first quarter with $9.3 million in cash and cash equivalents.

Inflection points

• Further news on renewables jet fuel and diesel adopters
• Progress in expansion of agri-energy plant at Luverne
• Securing financing for expansion projects with help from Citigroup Global Markets

What the boss says

“We are focused on building our business for the long run. We continue to make and sell renewable premium gasoline and jet fuel. We’ve cut expenses, cut the burn. We are pleased to be working with Citigroup on our project financings. We are moving forward, and look forward to completing them,” Gevo chief executive Patrick R. Gruber said in a recent update.

What the broker says

In a note issued on 13 May, analysts at Noble Capital maintained their ‘outperform’ rating and 12-month price target of $3.00 on Gevo, saying the company’s lower cash burn was a “positive development” and highlighted potential catalysts including “the signing of additional off-take contracts, progress on project financing and the addition of industry partners”.

“Supply agreements of 17 million gallons/year in place (valued at $600 million) and potential supply agreements in the up to 70 million gallons/year range (~$1.5 billion of added value) are ongoing despite the current turmoil in the airline/refining industries. Interest in commercializing the concept remains high and industry partners could be added shortly”, Nobel added.

Story by ProactiveInvestors