Rentech Looks Ready for a Sizable Rally

Dec. 8.10 | About: Rentech, Inc (RTK)
I wrote an article about Rentech (NASDAQ:RTK) on March 03, 2010, suggesting investors buy the stock at a $1.05 per share. I then updated investors to sell the stock when it traded above $1.40 on May 4th 2010. via a stocktalk on Seeking Alpha.

I now believe Rentech is due for a sizable rally given the key developments and news below.

Rentech is developing and licensing clean energy technologies for ultra-clean synthetic fuels, chemicals and power production. Rentech is pursuing the worldwide deployment of their patented and proprietary Rentech-SilvaGas biomass gasification technology as well as their patented Rentech Process. Together with gasification and upgrading technologies, the Rentech Process can economically produce ultra-clean synthetic fuels such as military and commercial jet fuels and ultra low sulfur diesel as well as specialty waxes and chemicals from a wide variety of waste, biomass and fossil resources.

Rentech also owns one of the few remaining U.S. ammonia fertilizer production facilities, Rentech Energy Midwest Corporation (REMC). REMC is a major supplier of nitrogen products to the agricultural and industrial markets in the upper Midwest.

Their process produces biodegradable RenJet® and RenDiesel® transportation fuels that are cleaner burning than petroleum-derived fuels and either meet or exceed all applicable fuels and environmental standards. In addition, with carbon capture and sequestration, the carbon dioxide emissions from the production of synthetic fuels from the Rentech Process are substantially lower than those generated in the production of petroleum-derived fuels. Therefore, fuels produced from their process are among the most greenhouse gas friendly transportation fuels available.

Unlike some other alternative fuels, fuels produced from their process can be used and distributed without modifications to existing diesel or jet engines or pipelines. In addition, fuels produced from the Fischer-Tropsch process, on which their technology is based, are currently the only synthetic fuel type certified for use by the United States Air Force and in commercial aircraft.

The renewable power produced using the Rentech-SilvaGas biomass gasification process is expected to qualify under the Renewable Portfolio Standard (RPS) program, which requires utilities to increase the amount of electric power they sell from qualified renewable-energy resources. According to the Energy Information Administration (EIA), as of November 2008, twenty-eight states and the District of Columbia had legislatively mandated RPS programs. The EIA estimates that electricity generation from biomass will comprise nearly 30 percent or 243 billion Kilowatt-hours of renewable electricity in 2030.

During their nearly 30-year history, Rentech, along with their licensees have successfully applied the Rentech Process in facilities ranging in size from pilot scale to approximately 250 barrels per day of synthetic fuels and chemicals production. Their first renewable facility was built in 1992 and used landfill gas to produce alternative fuels. The Rentech-SilvaGas biomass gasifier is one of only a handful of biomass gasifiers that have operated on a commercial scale. Today Rentech is working on waste-to-energy projects, including a facility in Rialto, California that would produce approximately 640 daily barrels of renewable synthetic fuels and 35 megawatts of renewable power. Rentech is also working on commercial-scale fossil projects, including a facility contemplating total production of 30,000 barrels per day of synthetic fuels and chemicals in Adams County, Mississippi.

Rentech believes their Product Demonstration Unit (PDU) located in Commerce City, Colorado is the only operating synthetic transportation fuels facility in the United States. At the PDU, they have produced thousands of gallons of ultra-clean synthetic fuels including military jet fuel, commercial Jet A and Jet A-1 and ultra low sulfur diesel, and have shipped samples of our products for testing to potential customers, including the United States Air Force.

Rentech continues to advance their technology, with a goal of reducing operating and capital costs. Rentech is also working on next generation technologies with significant possibilities to reduce cost and increase efficiency of the Rentech Process.

REMC, Rentech's wholly-owned subsidiary, supplies domestically produced fertilizer to the farming industry, which not only helps farmers and the food industry, but also aids the biofuels industry that uses plants and crops as feedstocks.

News and key developments: Yesterday on December 7, 2010. Rentech was named one of 50 hottest companies in bioenergy 2010-11

Commenting on the award, D. Hunt Ramsbottom, Rentech President and CEO, said,

We are honored to be recognized by the industry for our demonstrated renewable synthetic fuels and power technologies and the high value renewable products they produce. This award reinforces Rentech’s leadership position within the bioenergy industry. The renewable fuels and power projects we are developing will play an important role in our world’s clean energy future.

Biofuels Digest editor Jim Lane stated,

For the second year in a row, the voters have been getting more excited about Rentech. This year, they've leapfrogged a lot of great companies in reaching #25 in the world, out of more than 1,000 eligible companies. Drop-in renewable fuels have been big all year, and Rentech continues to be a leader in that evolving story.

Rentech’s suite of technologies includes patented and proprietary biomass gasification, syngas clean-up and Fischer-Tropsch technologies. The Company has a worldwide alliance with UOP, a Honeywell (NYSE:HON) Company, for syngas conditioning and product upgrading.

On November 29, 2010:
Rentech Inc. announced that Rentech Energy Midwest Corporation (REMC), its wholly-owned nitrogen fertilizer operation, has entered into a $52 million incremental loan agreement and amended its existing term loan (the Second Amendment). The total principal amount of outstanding term loans to REMC after the incremental loan agreement and Second Amendment was approximately $95.3 million. All of the net proceeds from the $52 million incremental loan will be available to Rentech for general corporate purposes, including development of the Company's technology and synthetic fuels and power projects. The incremental term loan will mature in 2014 on the same schedule as the existing term loan, and is expected to be repaid from cash flows generated by REMC. The Second Amendment provides for an early payment of $20 million of principal, made from cash at REMC that had been held for that purpose. The $20 million will reduce the payment of principal from excess cash flow required by the loan agreement after the end of fiscal year 2010, with any excess amount paid beyond the required prepayment to be credited against the prepayment requirement for fiscal year 2011. This loan reflects zero dilution for common stock holders.

On November 9, 2010:

Solena Group, Inc. announced that it has signed a letter of intent with Rentech, Inc. for the use of Rentech's proprietary Fischer-Tropsch (FT) synthetic fuel technology in Solena's sustainable BioJetFuel project – GreenSky - in the United Kingdom. The facility will convert more than 500,000 metric tonnes of waste biomass feedstock into synthesis gas every year, using Solena's plasma gasification technology (BioSynGas). The BioSynGas will then be processed by Rentech's Fischer-Tropsch technology into 16 million gallons of sustainable synthetic jet fuel (BioJetFuel) and nine million gallons of BioNaphtha. The facility will also export more than 20 megawatts of baseload renewable power to the grid after powering the entire facility with clean electricity. Rentech has already completed a preliminary engineering study to help facilitate the integration of the Rentech FT Process into the project.

On October 25, 2010. two Audi A3 TDI models running on Rentech synthetic RenDiesel® fuel flawlessly completed the 1,000-mile ‘Eureka! Diesel Drives the Future’ tour spanning the length of California.

The endurance drive, part of the ‘2010 Green Car of the Year Tour’, started in Eureka, California on Monday, October 18 with the intent of demonstrating that today’s diesel technology and advanced synthetic fuels each offer significant green advantages. Clean diesel engines can make significant contributions in the push to reduce greenhouse gas emissions and fuel consumption to make America less reliant on imported oil. Combining clean diesel technology with ultra-clean synthetic fuels can further reduce both greenhouse gases and tailpipe emissions.
Currently available in the market, the Audi A3 TDI provides environmental benefits by producing about 30% less greenhouse gas than a car powered by a comparable gasoline engine, with up to 50% better fuel economy.

The potential of clean-burning synthetic diesel, such as RenDiesel, to produce even less emissions, indeed points to a bright future ahead for Audi TDI technology as a viable green solution.

“The benefits of modern clean diesels like the Audi A3 TDI are apparent on many levels, from improved environmental performance to providing the kind of driving performance people expect,” said Ron Cogan, editor and publisher of Green Car Journal and editor of GreenCar.com. “Operating on advanced, clean burning fuels like synthetic RenDiesel simply makes the diesel equation even more compelling.”.

The results of the drive were impressive. The two Audi A3 TDIs averaged 40 and 43 mpg, which is in line with its average highway fuel economy of 42mpg. The results demonstrated that RenDiesel® can perform on par with traditional diesel, for a substantial period of time but with significantly less pollutants.

I would watch for Rentech to start a possible rally to the $1.50 area ahead of earnings due on December 14th 2010. Strong money flow has been moving into the stock. Watch for a test of the 52 week high of $1.78 soon. I expect the earnings conference call will provide some exciting details. I think it is clear Rentech has a bright future. I believe the stock will see $3 by this time next year. Watch for possible analysts to upgrades.

Analyst coverage on Rentech:

Firm Analyst
Brean Murray Carret & Co. Jeremy Sussman BUY $2.50 PT
Credit Suisse Mark Flannery
HSBC Bank plc Robert Clover
Imperial Capital, LLC Matthew Farwell, CFA (Equity)
Randy Laufman, CFA (Convertibles)
Johnson Rice & Company LLC Dr. William Burns, CFA
JP Morgan Chase & Co. John Bridges, CFA, ACSM
Raymond James & Associates, Inc. Pavel Molchanov
Click to enlarge

I recently sold 1/2 of my position in Energy Conversion Devices (NASDAQ:ENER) In order to purchase a new position in Rentech. Green investors who own Tesla Motors (NASDAQ:TSLA) might want to consider investing in Rentech.

Here is a video worth watching from Automotive digest: Dr. Robert Freerks, Director of Product Development at Rentech, explains the technology used in the Green Car of the Year award winning Audi A3 TDI thousand mile road trip on the west coast testing synthetic diesel.

Disclosure: I am Long RTK, ENER, TSLA.