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viewGevo Inc

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

Snapshot

The group has developed a breakthrough process that converts a high-octane fuel called isobutanol into clean, renewable diesel

Renewable energy

Quick facts: Gevo Inc

Price: 0.976 USD

NASDAQ:GEVO
Market: NASDAQ
Market Cap: $73.91 m
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  • 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.

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 is well-capitalized. As of August 2020, the company had banked at least $21.4 million in cash and cash equivalents to finance projects and operations. On top of that, the company recently reached an agreement to move forward with a direct at-the-market share offering worth roughly $50 million and is working with Citigroup on other financing plans. 

The company has also achieved its healthy financial runway despite widespread economic disruptions caused by the coronavirus (COVID-19) pandemic, which forced Gevo to stop ethanol and distiller grain production at its Minnesota facility. 

Nevertheless, Gevo has been riding some positive momentum lately.

It recently won the largest contract in its history after entering into a binding Renewable Hydrocarbons Purchase and Sale Agreement with Trafigura Trading LLC. Trafigura is one of the world’s leading independent commodity trading companies. The contract increases the company revenue pipeline to more than $1.5 billion.

Gevo will deliver 25 million gallons/year (MPGY) of renewable hydrocarbons, the majority of which is expected to be low-carbon premium gasoline with a smaller portion of the volume for sustainable aviation fuel (SAF), starting in 2023. Trafigura hopes to supply SAF to both US and international customers interested in low-carbon jet fuel.

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.

Another big deal was announced in December 2019 when Delta Air Lines Inc said it would purchase 10 million gallons of its advanced renewable biofuels per year once Gevo has completed expansions at its Luverne facility.

The deals have kept rolling in through 2020, with the company having contracted three dairies to provide manure that it will convert into pipeline quality biogas (renewable natural gas). Also, the company has been awarded part of The Queensland Waste to Biofutures (W2B) Fund to support the development of waste-to-biofutures projects in Australia's second-largest state.

Gevo recently increased its footprint in India via a technology-licensing deal with bio-based technologies and engineering firm Praj Industries Ltd to commercialize low carbon Sustainable Aviation Fuel (SAF) and renewable premium gasoline in the South Asian nation and neighboring countries. Gevo hopes to find customers in commercial aviation and the defense sector in India for its SAF product. The company is currently working with the Indian Air Force on fuel tests. 

The company is also practicing what it preaches in terms of low carbon energy, announcing plans to bring two wind turbines online at the production facility in Luverne, Minnesota owned by its subsidiary Agri-Energy. 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.

Inflection points:

  • Further news on renewables jet fuel and diesel adopters
  • Progress in expansion of agri-energy plant at Luverne
  • Advance SAF commercialization in South Asia

What the broker says:

Noble Capital Markets has doubled its target price and maintained an Outperform rating on Gevo after the company won the Trafigura account, the largest contract in its history.  The research-driven investment bank increased its 12-month target to $2.40 share from $1.20.

As a result of the Trafigura news on August 20, Gevo stock closed up by a whopping 233% to $1.82 in New York on trading volume of more than 991 million shares. 

“Not only does the supply portfolio more than double to 42 MPGY, it moves the revenue potential above $1.5 billion. Trafigura's leading position as a global commodity trader validates the technology and business strategy,” Noble analysts wrote in a note.

Analysts added: “While we would not be surprised if the stock pulled back over the near term, we believe the risk profile has improved. Not only does the refinancing risk appear lower, but the prospects for a successful financial closing in 1H2021 also improve, in our view. As a result, we are moving our 12-month price target to $2.40/share and believe that the high risk/high reward profile is attractive."

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 told investors in a recent update.

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Gevo take a step towards carbon neutrality with two wind towers operating at...

Gevo (NASDAQ: GEVO) Dr Patrick Gruber joined Steve Darling from Proactive Vancouver with news the company now has two wind turbines churning that will supply up to 5.0 MW of fully renewable electricity to Gevo’s production facility located in Luverne.  Gruber talks about how this fits...

on 1/5/20

6 min read