Seeking Alpha
, IPOpremium (1,106 clicks)
Value, IPOs, long only
Profile| Send Message|
( followers)  

Based in Montreal, Canada, Enerkem (NRKM) scheduled a $131 million IPO with a market capitalization of $508 million at a price range mid-point of $18 for Wednesday, April 4, 2012. Managers and Joint Managers are Goldman, Sachs; Credit Suisse; BMO Capital.

NRKM is one of four IPOs scheduled to price this week. You can see the full IPO calendar here.

This NRKM IPO report is based on a reading and analysis of NRKM's S-1 filing, which can be found here, and a separate, independent analysis by IPOdesktop.com. There are no unattributed direct quotes in this article.

SUMMARY
NRKM's technology can turn municipal solid waster into ethanol. Other renewable companies that have IPO'd in the last 18 months include Amyris (AMRS), Gevo (GEVO), KiOR (KIOR), Solazyme (SZYM) and Renewable Energy Group (REGI). Luca Technologies (LUCA) is also scheduled for the week of April 2, 2012.

But ethanol prices are tanking. "Ethanol Falls to Eight-Week Low on Signs of Cheaper Output Costs" March 29, 2012…read more

Also, NRKM's business seems to be built on US mandates and tax credits, both of which are not reliable going forward.

CONCLUSION
Pass on the NRKM IPO.

BUSINESS
Intends to convert municipal solid waste into cellulosic ethanol, a second-generation biofuel.

TECHNOLOGY VALIDATED
NRKM says it has validated its technology over a period of 10 years using MSW (municipal solid wastes) from numerous municipalities, as well as a broad variety of other feedstock, such as wood and agricultural residues.

NRKM's pilot facility in Sherbrooke, Canada, has been in operation since 2003 and has a throughput capacity of 4.8 metric tons per day. Throughput capacity refers to the volume of feedstock that can be processed by a facility.

NRKM has successfully increased, or scaled-up, throughput capacity tenfold, or 10x, to 48 metric tons per day in a commercial demonstration facility in Westbury, Canada. The Westbury facility has a production capacity of 1.3 million gallons per year, or MMGPY.

NRKM's first standard 10MMGPY commercial facility is currently under construction in Edmonton, Canada. The Edmonton facility will entail a further 7x scale-up in throughput capacity from the Westbury facility with only a 2x increase in gasification and gas conditioning equipment size.

US MANDATES
"The U.S. Renewable Fuel Standards Program, or RFS2, mandates that 16 billion gallons per year of cellulosic biofuels, which include cellulosic ethanol, be blended in the national transportation fuel supply by 2022." S-1, page 2

From IPOdesktop's perspective, however, US government mandates cannot be taken to the bank in the current economic/political climate.

US TAX CREDIT
"Cellulosic biofuel producers in the United States are eligible for a production tax credit, or PTC, equal to $1.01 per gallon. Credits are earned by producers and can only be used to offset income taxes. The credit, which was part of the Food, Conservation and Energy Act (Farm Bill) of 2008, is available through December 31, 2012." (S-1 , page 110)

From IPOdesktop's perspective, however, US tax credits cannot be taken to the bank in the current economic/political climate. For example "Wind tax credit bites dust again" March 30, 2012…read more
www.chieftain.com/news/region/wind-tax-c....html

USE OF PROCEEDS
NRKM expects to net $117 million from its IPO. Proceeds are allocated for the construction and development of planned facilities, as well as research and development activities, working capital requirements and other general corporate purposes.

Source: IPO Preview: Enerkem

Additional disclosure: Enerkem (NRKM) is scheduled to price Tuesday for trading Wednesday.