On Tuesday, shares of Gevo Inc. (GEVO), a renewable chemicals and advanced biofuels company, surged more than 17%, extending its gains for the year. GEVO shares have gained more than 50% so far this year. The rally comes after the stock tumbled more than 53% between September 24, 2012 and December 31, 2012.
So what has sparked the rally in GEVO shares in recent weeks? A number of positive developments.
The Sell-Off in September
As I said, GEVO shares have rebounded after seeing a sharp decline in the last three months of 2012. The sell-off in September was sparked after the Englewood, Colorado-based company announced that it is suspending plans to produce isobutanol from corn at its plant in Luverne, Minnesota. The company said that it will shift to ethanol production in the near-term at the Minnesota plant in order to maximize cash flow. While the move made sense, it didn't go down well with investors.
However, recent developments suggest that the company may be well on its way to resume production of isobutanol at its Minnesota plant.
On a Hiring Spree
Speculation over the resumption of production of isobutanol at the Minnesota plant has been fuelled after the company announced some job openings earlier in the month. On January 9, 2013, the company announced that it is looking to hire a Process Engineer for its Luverne, Minnesota plant. GEVO also announced job openings at its Englewood, Colorado headquarters. The company is looking to hire Molecular Biologist, Strain Development Scientist, Scientist-Metabolic Engineering and Biocatalyst Development-R&D Leader.
Back in September, Gevo CEO Patrick Gruber had said that the company decided to optimize certain specific parts of its technology to further enhance isobutanol production rates, however, implementing these adjustments while trying to produce product in a plant the size of Luverne makes no sense from a business or technical point of view. This was the reason why the company switched temporarily to ethanol production. However, the company's plans to hire scientists and engineers suggest that it may be close to resuming production of isobutanol at the Minnesota plant.
Earlier this month, Gevo also announced a stock buyback program. The company said that its Board of Directors approved a stock buyback program.
Under the stock repurchase program, the company has been authorized to repurchase up to $15 million of its common stock over a one-year period. This is nearly 20% of the company's market capitalization. The repurchase program is another sign that the company is moving forward in its efforts to resume production of isobutanol. CEO Gruber noted that the stock repurchase program reflects the management's confidence in the company's future.
Fiscal Cliff Deal Gives a Boost
The two major developments this month certainly suggest that the company has made significant progress in its efforts to resume production of isobutanol at the Minnesota plant.
Meanwhile, the company received another major boost this month after lawmakers reached an agreement to avert the fiscal cliff. The last minute fiscal cliff deal sealed by lawmakers earlier this month included the extension of tax credits for renewable energy and alternative fuels, which should provide support to the industry.
Strong Cash Position
At the end of the third quarter of 2012, Gevo had cash and cash equivalents of $92 million. The company's cash position is strong and the fact that the company plans to repurchase $15 million worth of its common stock suggests that it expects to generate substantial cash flow in the future.
Gevo will release its fourth-quarter results on February 25, 2013. In the third quarter of 2012, Gevo had reported revenue of $0.6 million, down from $17.5 million reported in the same period in 2011. The decline in the third-quarter revenue was mainly due to the fact that the company was engaged in startup operations for the production of isobutanol at the Minnesota plant. Once the company resumes commercial scale production of isobutanol, revenue is likely to rise sharply.
While Gevo has not said when exactly it will resume production of isobutanol, the developments this month suggest that production could be resumed within the first half of this year. If that happens then the company could see significant revenue growth in the second half of 2013.