Gevo goes public to fund ethanol purchases

By Kris Bevill | July 15, 2010
Posted Aug. 17, 2010

On Aug. 12, isobutanol technology developer Gevo Inc. filed an initial public offering with the U.S. Securities and Exchange Commission in an effort to raise $150 million to fund the company's acquisition of ethanol facilities. Earlier this month, Gevo announced it had signed an agreement to purchase the 22 MMgy Agri-Energy LLC plant in Luverne, Minn. In its S-1 filing with the SEC, Gevo said it does not have any other agreements or commitments for ethanol acquisitions at this time, but is in discussions with "several ethanol plant owners," representing 1.8 billion gallons of ethanol capacity, who have expressed interest in either selling to Gevo or partnering to retrofit their facilities to produce isobutanol.

According to Gevo's S-1 filing, the company will pay $20.7 million for the Agri-Energy plant, plus an additional $3.7 million for working capital. Based on a commercial engineering study completed in May by ICM Inc., retrofits to the plant are expected to cost an additional $22 million. Commercial production of isobutanol is estimated to commence in the first half of 2012. Following commercialization of isobutanol production at Agri-Energy, Gevo said it intends to expand its production capacity to other facilities and has a goal of producing more than 500 million gallons of isobutanol in 2014.

Gevo's aggressive production goal is not without risks. The company admits that it has yet to produce isobutanol at a commercial scale, has never sourced large quantities of feedstocks, and has no experience in storing or distributing large volumes of isobutanol. "The technological and logistical challenges associated with each of the processes involved in production, sale and distribution of isobutanol are extraordinary, and we may not be able to resolve any difficulties that arise in a timely or cost effective manner, if at all," the company stated in its filing. Neither Gevo nor ICM, its strategic partner, has built or operated a commercial-scale isobutanol production facility and assumed commercial operational characteristics are based on experience gained at ICM's 1 MMgy demonstration plant in St. Joseph, Mo.

Access to ethanol facilities is crucial to Gevo's scale-up plan, and if partners cannot be found or acquisitions finalized, Gevo may not be able to continue its commercialization process. Of particular concern to Gevo is the cost of ethanol. "If the profitability of ethanol production increases, plant owners may be less likely to consider modifying their production, and thus may be less willing to negotiate with us or agree to allow us to retrofit their facilities for isobutanol production," the company stated. While Gevo expects plants to be capable of producing both isobutanol and ethanol in batch processes following its technology retrofits, it has yet to test the process at a commercial scale. "We may be unable to successfully revert to ethanol production after we begin retrofit of an ethanol facility, or the facility may produce ethanol less efficiently or in lower volumes than it did before the retrofit," the company stated in its filing. "Thus, if we fail to achieve commercial levels of isobutanol production at a retrofitted facility, we may be unable to rely on ethanol production as an alternative revenue source."

Gevo's future success also hinges on its continued partnership with ICM. The companies signed an agreement in October 2008 which established ICM as Gevo's exclusive engineering, procurement and construction contractor for ICM-designed ethanol plants and allows Gevo to test its equipment at ICM's demonstration facility in St. Joseph. Gevo is currently using ICM's demonstration plant to test a second-generation biocatalyst, which uses a yeast platform and can produce isobutanol from any ethanol feedstock, including corn, wheat, sorghum, barley and sugarcane. In addition, the company has an exclusive arrangement with Cargill Inc., to develop a future-generation yeast biocatalyst which will be used to produce isobutanol from cellulosic feedstocks, including switchgrass, forest residues and municipal green waste.

According to its S-1 filing, Gevo has reached tentative supply arrangements with various companies, including specialty chemical company Lanxess Inc., Total Petrochemicals USA Inc., and United Airlines. A non-binding letter of intent signed in July with United Airlines calls for Gevo to supply the airline's Chicago hub with renewable jet fuel derived from its isobutanol beginning in the fourth quarter of 2012. Gevo estimates it will need to produce approximately 205 MMgy of isobutanol to satisfy the initial supply of 10,000 barrels per day of jet fuel to United. The non-binding agreement anticipates a ramp-up in demand to 30,000 barrels per day of renewable jet fuel by 2015.