Gevo Rises as Production Plans Spur ‘Relief Rally,’ Analyst Says
Gevo Inc. (GEVO), the U.S. biotechnology company backed by oil refiner Total SA (FP) and specialty chemicals maker Lanxess AG (LXS), rose the most in two weeks after saying it expects to begin shipments in July, on schedule, from a plant it’s completing in Minnesota.
The surge is “a classic relief rally” as investors’ concerns have been quells that Gevo isn’t facing expansion issues similar to those that have beset rival Amyris Inc. (AMRS), Pavel Molchanov, an analyst at Raymond James & Associates Inc., said today by e-mail.
“The Amyris blowup raised questions about the entire space, and the fact that the other companies aren’t reporting the same problems indicates that this was more of an Amyris- specific issue,” Molchanov said.
Amyris fell to a record low yesterday as its fourth-quarter loss surpassed analysts’ estimates and the company reiterated plans to delay expanding a plant in Spain to fine-tune volume production at its three existing facilities. The Emeryville, California-based company converts plant sugars into farnesene, which can be processed into specialty chemicals and fuels.
Shares of Solazyme Inc., a developer of specialty chemicals and fuels from algae oil, rose 9.5 percent Feb. 22, a day after saying it was on track to expand its commercial production capacity this year.
Gevo is retrofitting two corn-based ethanol plants in Minnesota and South Dakota to produce isobutanol, a four-carbon alcohol that can be used to make plastics, fibers, rubber, paints, jet fuel, and other products typically derived from petroleum.
Pat Gruber, Gevo’s chief executive officer, said on a conference call yesterday that the company expects to complete the Minnesota plant and begin deliveries in July to Sasol Chemical Industries Ltd., which will use the isobutanol to make paint, ink, coatings, and other products. Sasol will buy the majority of production from Gevo’s first two plants, which will have a combined capacity of 56 million gallons a year.
Another potential customer may buy as much as 70 percent of the Gevo’s expected 350 million gallons of production in 2015, Gruber said.
That deal would equate to three 100 million gallon plants, according to Mike Ritzenthaler, an analyst at Piper Jaffray Cos.
“Provided they can raise the capital needed to implement their technology, this is a very positive sign that they can hit their goals,” Ritzenthaler said by e-mail.
Gevo would expand capacity by buying other facilities or entering into joint ventures with ethanol producers, and it expects to raise $75 million this year to fund expansion, Gruber said.
“Even going back to the IPO, we told everybody that we need about $75 million,” Gruber said.
“That hasn’t changed,” he said. “We’re going to do the thing that causes the least amount of dilution and gets the job done effectively.”
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