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The Department of Energy has the solution for the nation’s corn-ethanol hangover and it is not the “hair off the dogs back.” In December 2009, the DOE awarded $25.0 million to ICM, Inc. (private) to modify an existing corn-ethanol facility to cellulosic ethanol from switchgrass or energy sorghum. Kansas-based ICM is matching the grant with $6.3 million of its own cash.

ICM was founded in 1995 as to produce ethanol from corn, but appears to have quickly caught on to dangers of inserting fuel demand into a fragile food chain. The company says it has developed a six-step technology package that eliminates the friction between food and fuel. ICM calls its process “dry fractionation” and claims it enables the production of cellulosic ethanol from corn fiber, leaving the food source intact.

ICM partners with ethanol producers to design and build plants using ICM technology. The corporate website lists dozens of plants principally in the upper mid-west where ICM has worked, including several facilities owned by Green Plains Renewable Energy (NASDAQ:GPRE) and Verasun facilities now owned by Valero, Inc (NYSE:VLO).

The DOE grant will be used at one of ICM’s plants in St. Joseph, Missouri. The plant is owned jointly with Lifeline Foods, a producer of corn-based foods such as cry-corn milled products and masa flour products. Lifeline touts its ablity to extract maximum value from the corn kernel.

Yet here we are spending tax dollars to convert a corn-ethanol facility to alternative non-food feed stocks. Maybe even the stalwarts are finally getting the message that using valuable food sources to make fuel is just not economically feasible.

There is no way for a minority investor to take a position in ICM or its ethanol partner Lifeline Foods. However, ICM make an overture to investors on its corporate web site, suggesting that it may be out passing the hat among accredited investors.

Disclosure: Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.