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. 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. 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.  Gevo is seeing increasing demand for its hydrocarbon products. In its second-quarter ended June 30, 2020, the company reported hydrocarbon-product sales that jumped to $900,000, up from $100,000 in the same period in 2019. Gevo’s hydrocarbon revenue consists of sales of alcohol-to-jet fuel, isooctane, and isooctene. In response to growing demand, 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. 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. One of the biggest deals 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 by teaming up 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: In a note issued following the group's 1Q results, on May 13, 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”, the Noble analysts added. 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.