GEVO, Inc. (NASDAQ:GEVO) – Something Better Than Alcohol
Gevo is based on the promise of isobutanol, a solvent with a higher energy density than alcohol, but whose value as a chemical feedstock is even greater. As Seeking Alpha’s Tristan Brown wrote last year, isobutanol is commonly derived from oil and goes for more than twice the price of gasoline, and nearly four times the price of ethanol.
Unlike KiOR, which is mainly backed by venture capital, Gevo has some deep-pocketed backers, namely Total of France, a petroleum producer, and Lanxess, a German chemical company. This gives the company some legs, some room to manuever, and some hope of eventual success, although whether it will be with your money or someone else’s – after a recapitalization – is the question.
As is the case of KiOR, this deal is all about the catalyst, in this case a proprietary version of yeast that turns sugars directly into isobutanol, along with a separator that can be bolted-onto existing ethanol plants to separate the isobutanol from the water the yeast is fermented with.
Investors had hope last year, when the technology was placed with a Minnesota ethanol plant, but that plant was converted back to ethanol in September. CEO Patrick Gruber admitted at that time that his yields weren’t what they were looking for, and said he hoped that by running the plant for ethanol he could make some cash flow.
At this point, Scooby Doo would be saying “ruh-roo.”
German scientists say they have a better yeast, created through a Swiss company. MIT researchers said more recently they also have a better yeast, one that increases production by 260% over other approaches, presumably including GEVO’s.
The result was predictable, yet-another fall in the stock’s price even after it promised to resume production in Minnesota. The first trade on this stock, back in 2011, was at $16.69, but you can now get it for $2.52.
Frankly, I’d say thanks but no thanks on this one. Isobutanol may work, and it may be possible to produce it at competitive costs with new catalysts. But unless Gevo has the rights to use a profitable catalyst, you’re wasting your money.
Final Thoughts
Unlike solar and wind, which can sell unprofitable power while they develop technology, biofuels are in a binary position. They either succeed or they fail in competing with alternate sources of supply.
The biofuels business is now undergoing a serious transition; from the use of food-based feedstocks like corn and sugar cane into a new era of “cellulosic” feedstocks, things like pine that don’t compete with food crops. Making that happen will require invention, and while that invention is ongoing, it’s too early to say that any approach has yet found economic success.
Some will, and when it does some investors will get rich. Just understand that in biofuels you’re wildcatting, not investing. And good luck.
The article Is There Hope in Biofuels originally appeared on Fool.com and is written by Dana Blankenhorn.
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