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Rentech, Inc. (NASDAQ:RTK)

Wall Street Analyst Forum Presentation

March 26, 2008 9:50 am ET

Executives

I. Merrick Kerr – Chief Financial Officer, Executive Vice President & Treasurer

Facilitator

In our ongoing attempt to adhere to the published schedule I’d like to introduce the next company in this morning’s alternative energy and clean technology conference. Rentech, incorporated in 1981, provides clean energy solutions. The company has developed and patented the Rentech process which transforms underutilized domestic energy resources into valuable and clean alternative fuels and chemicals. These energy resources include coal, petroleum coke, biomass and municipal solid waste.

Rentech trades on the American Stock Exchange under the symbol RTK. The Rentech process produces a diverse and high value set of products just as JP8 and jet fuel, specialty chemicals and ultra low sulfur diesel fuel. The resulting greenhouse gas footprint of fuels from the Rentech process is significantly below that of petroleum derived fuels. Rentech is currently constructing the first fully integrated coal and biomass product demonstration unit in the United States which will produce approximately 10 barrels a day of ultraclean synthetic fuels beginning in the spring of 2008.

Rentech has many projects in its pipeline among which is the US first commercial scaled synthetic fuels facility scheduled to produce up to 1,600 barrels a day of ultraclean synthetic fuels by the year 2011.

Without any further introduction I’d like to introduce Merrick Kerr, Executive Vice President and Chief Financial Officer of the company.

I. Merrick Kerr

Good morning everybody I had a chance to watch the last presenter and while I was sitting here they actually did some of the work for me. You’ve already heard about some of the advantages of the technology. The technology which Rentech has is effectively the part mentioned in the middle where they said gas to liquids, that’s effectively the part that Rentech has. A similar Safe Harbor statement to what you just saw.

Rentech itself has been a leader in synthetic fuels technology for some time. The distinction here between Rentech of today and Rentech two years ago is that we’re now looking to take what was basically a technology research and development company, take it through to the next phase of commercialization and actually get the technology out there in the marketplace. [Inaudible] the same technology, its CO2 capture ready and we also have significant reductions in the regulated emissions which you see from traditional petroleum derived diesel and jet fuel. Technology has 25 plus years of development. We have several partners around the technology. We’ve demonstrated the technology in the past at pilot plants but at each phase they’ve been kind of batch operated plants and individual parts of the technology have been proven out. What we’re doing now is doing the first fully integrated where you have feedstock coming in at one end and product effectively going into tanks at the other end.

We have a clear strategy and a new management team that’s been in place for 18 to 20 months now and moving forward with those plans. [Inaudible] fuels in the market you heard some of this earlier, the global demand trend, the instability in the Middle East and Africa, the supply limitations, the environmental awareness, the political consensus and agreement around global warming and the impact of CO2, the tightening EPA restrictions and then the actual national policy objectives as well is to enhance self sufficiency here in the US, increase national security, creation of jobs in the US, we’re just a trade and budget deficit. $1 billion a day going overseas for the imported oil really doesn’t help with your balanced payments.

So, the opportunities remain, you heard some of the problems talked about with ethanol on the prior slide, Rentech actually owns a fertilizer company which supplies fertilizer for the corn industry so I’m not going to knock it and hope that the corn business continues to boom in the way that it has. But, I think even under the current views of how much corn ethanol can get done it’s about 7 billion gallons right now. The new mandate for 15 billion gallons, maybe it can be done, maybe it can’t.

There are a lot of people working on cellulosic ethanol, the latest suggestions are potentially 5 billion by 2022. There’s maybe a couple of billion that you could get to in first generation biodiesel but even if you believe all of them that still leaves a big gap about 14 billion gallons a year. We believe that XTL as we call it which could be coal to liquids, municipal waste to liquids, biomass to liquids or a combination thereof can fill that gap.

The market opportunity specifically for the fuels that we produce the first place you would go is JP8 which is effectively the jet fuel that’s used by the Air Force. The volume of the fuels that we produce specifically for the Department of Defense they have some unique benefits, they call it single battlefield fuel. They can use this fuel on the ground equipment, they can use it in their jets, they have even used it in their supersonic jets, the ones that kind of go out of the atmosphere and come back in. So the fuel is very, very useful for them in terms of its characteristics, its cleanliness and its ability to be used in a wide variety of areas. It also has the benefit that it’s actually lighter on a BTU per pound basis. The Air Force will spend millions of dollars to shave an extra pound off the weight of their jet fighters so they can fly further, out of their bombers so they can carrier a higher payload so they get significant advantage as well just on the fact that they can either take a higher payload or fly further on the same amount of weight, so a lot of advantages. Some of the advantages obviously play across into commercial aviation too. If you fly and you don’t get blankets and pillows on your airplanes anymore that’s about saving weight. So again, having a fuel that’s lighter gives them advantages as well.

The product that we make, we’ll go into the process a little later but we very much clean up on the way through. The syn gas gets cleaned so it’s a very pure – syn gas is a mixture of hydrogen and carbon monoxide, it’s very pure when it goes through so the product that you make at the back end is very, very clean so it’s ideal for some of those specialty chemicals that you heard about earlier, the detergents, the biodegradable soaps, that Proctor & Gamble and others make. Because, when they get food products they have to spend a lot of time cleaning up before they can use it, the product they get from us is very, very pure. Then, eventually the ultra low sulfur diesel market itself.

The Pentagon has suggested that they want to purchase 50% of its aviation fuel needs from domestic synthetic sources by 2016. That’s a ready market of around 135 to 150,000 barrels a day depending on whether the synthetic fuels is a pure blend or a 50/50 blend. Then, the FAA is working to certify these fuels for use. The process itself as I mentioned you start with petro waste product from the refining industry. You can use coal, you can also use coal [inaudible] or waste coal, biomass again, a variety of different biomasses you could get wood waste, forestry waste, you could do fast throw away [inaudible] trees, algae, all of the things that are being talked about as potential feedstock in a carbon constrained world.

And then, you heard about the last group talking about municipal waste and the volume of the BTU content that basically we bury in the ground right now and then it turns into methane and it releases into the air and methane 30 times worse for global warming than CO2 is so utilizing that in an efficient way clearly brings value in many ways.

The products get gasified. At the petro coal level there are numerous well proven gasification technologies out there by very large companies GE, Shell, Seimans, Conical Philips, technologies that are very well proven. On the biomass and municipal waste site there are a lot of people out there who have done gasification of municipal waste and biomass to power, the challenge from moving municipal waste and biomass power to fuels is the quality of the syn gas that you require when you move into the Rentech process or [inaudible] process. The gas needs to be significantly cleaner, the carbon dioxide needs to be removed, you have to remove a lot of the inert gases that when you go into power that doesn’t matter so much. We’ve been working with several gasification companies in that area to demonstrate the production of what we call chemical grade syn gas so that we can move it through into the Rentech process.

We capture the CO2 at that point after gasification. We also remove all of the base metals as well and sulfur as well, sulfur, mercury etcetera are all taken out and they’re taking out in the raw source so with the sulfur you can sell it. Sulfur you can upgrade it into sulfuric acid and then the syn gas that is left then goes through the Rentech process and it creates a very long chain hydrocarbon wax, that hydrocarbon wax is then upgraded to diesel and jet fuel using traditional hydrocracking and hydrotreating so it just looks like a traditional refiner once you get to that last part. The think to note is that this is a chemical process it’s not a power plant so you’re not burning the coal or the municipal waste and letting a stack of pollutants go up. You gasify it, you collect the gas, the gas is then utilized.

The technology has some unique advantages. We have an iron based slurry reactor, the alternative ways of doing Fischer-Tropsch is to use cobalt catalyst rather than iron and then also you can either use fixed-bed reactor or a slurry reactor. Basically I like to think of the difference between slurry and fixed-bed is like a rechargeable battery versus a use and dispose. Fixed-bed you put it in, you use it up, you remove it and you replace it. With a slurry reactor we are able to constantly regenerate the catalyst by injecting new catalyst all of the time as we go through the process so hence the ability to keep the higher online [inaudible].

The feedstock flexibility really comes around based on the ratio of hydrogen to carbon monoxide required in the syn gas. For an iron based catalyst you’re looking for a ratio of about one-to-one between carbon monoxide and that’s pretty much what you get from coals, peat coal, municipal waste, biomass type products once they are through gasification. Natural gas is a little higher and actually lends itself better to cobalt catalyst rather than iron. But, the area where we are focused is the coal, the peat coal, the municipal waste and the biomass technologies are a very good fit. Iron catalyst also gives you more of the diesel or jet fuel production. The off product that you make at the back end is naphtha its end put ethylene cracking used by the petro chemical industry. Again, very high quality naphtha that’s produced but it’s lower volume, trades about the same value as crude as opposed to diesel and jet fuel which trade at premium. It’s lower cost and simple disposal.

The actual fuel itself that we produce you can see what it looks like in a glass here. That is not what you would imagine diesel to look like and certainly not the diesel you would have traditionally seen. It’s very high performing, it’s very high cetane rating, the equivalent of octane rating in gasoline which you’re use to which means it burns much cleaner and much purer. The other thing is it works in today’s pipelines and today’s engines so no need for new infrastructure, a big change from the ethanol which we know is a problem for today’s pipelines. It’s an environmentally superior fuel, you’ll see in the next slide some emissions reductions as it burns in the engines and then it also exceeds our global sulfur and out-of-market requirement. Ultra low sulfur diesel in the US right now is 15 parts per million on the sulfur, our fuels the sulfur is effectively trace amounts that’s in the parts per billion. Then storage ability as well, this is very important, it’s an ideal fuel to be used for emergency force responders. During Hurricane Katrina they ran out of diesel fuel because diesel is not an ideal fuel to store. It settles or sediments, it needs to be turned on a regular basis whereas this can be put in a tank and left for years and will be there when required. It’s also biodegradable which is obviously a good thing, hopefully, there never would be any spills but if there were.

So those are lower regulated emissions that I talked about. The unburned hydrocarbons coming out the tailpipes are reduced by 60 to 70% because it burns so cleanly. Significant 40 to 50% reductions in carbon monoxide, nitrogen monoxide notes reductions in 10 to 15%. And the particulate matter, if you’ve every followed a diesel truck on the highways and you see the stuff spewing out of the back of the exhaust where you can see it or when you see jets taking off and you can see everything coming out the back that’s effectively the particulate matter or soot which is effectively what it is. We can reduce that by 40 to 50%. When the Air Force did its testing on these fuels and they flew one of eight engines on this it was great and credible when you saw from behind you could see seven engines spewing out all the soot and then the one engine you could hardly see anything at all so real significant improvements there.

So if any of you follow Fischer-Tropsch and coal to liquid type industries you’d have heard that the challenge that we get from the environmentalist is that effectively on a carbon dioxide basis we basically spew out twice the CO2 of traditional crude based diesel products when you do it on a well head to wells basis. Rentech does not dispute that, if you simply do gasification of coal and allow the CO2 to vent into the atmosphere. What the environmentalist haven’t recognized is that Rentech has no intention to build a plant that looks like that. Never have had and do not want to do that. We’re going to implement and commercialize this technology in an environmentally sound way and the way that you do that initially and the way that we would have believed would be enough for this technology to get the support was to effectively do sequestration. We actually pull out between 70 to 80% of the CO2 that’s produced in the manufacturing process and when you sequester that CO2 as we will be doing in our first plant in Mississippi well head to well CO2 footprint actually becomes slightly less than that of the imported bottle. And I’ve [inaudible] as an example of the margin value coming into the US, it’s probably the one we’d cut first if we were able to reduce our consumption. If I compare it to some of the other marginal ones, Canada’s tar sands for example we would be significantly better. In fact, even without sequestration I’m probably better than tar sands on a CO2 basis.

That’s where we wanted to go. We got push back from both the environmentalist and Washington as a result of the environmentalist that said they really only wanted to support alternative fuels that have a CO2 footprint that was better than what they were replacing. They don’t really want to support alternative fuels, they weren’t going to have a problem with us implementing the technology in this way but if we wanted government support to help back the process then we needed to reduce our CO2 footprint even lower. So that was effectively the challenge that was set us. So what we looked out was how could you achieve that and the way to do that at these large scale plants where we would use petroleum coal or coal waste would be to take a blend of the feedstock so rather than doing 100% peat coal or 100 coal or coal waste you would put a percentage of your feedstock coming through from biomass and we will be testing that in our demonstration unit and then introduce that in our plant.

Our plan at the first plant is to put 5% of the BTU content to come from biomass and in Natchez, Mississippi where that plant is, it’s initially likely to be some municipal sludge type waste and then also paper waste as well. There’s a significant amount of paper manufacturing in the area. When you do that with a 5% BTU content plus the sequestration we can take that CO2 footprint down to about 20% or so less than that of the traditional diesel from crude. That’s about where the ethanol industry claims that it is so it puts us right there with the other alternative fuels. Then similarly if we were to take it to the next phase on the smaller scale plants where you would use municipal waste to jet fuel or diesel, in those circumstances the carbon footprint becomes even lower because effectively the CO2 that you use in biomass or municipal waste plant somebody has already produced that CO2. Just to back up what we said here, there was a DOE study that also was effectively looking at the same issue and they have said with the right blend of carbon biomass then you can get that 20% goal that we were talking about. That’s just some independent evidence to back up.

Our strategy for execution we’re going to accelerate deployment of the process so effectively get the demonstration unit up and running, prove out the technology then take that scale up opportunity to Natchez, Mississippi and then just look to build more of these plants at scale around the country focusing on initially waste products so peat coal, municipal waste, biomass waste and coal waste as well as available. Then, as an infrastructure develops around carbon sequestration part of what we’re doing at our first site is using the carbon not only for enhanced oil recovery but also to test [deep saline aquifer] as a way to store CO2 for sequestration. It looks very promising the scientist like it but we do have to test it and we’ll be doing that as part of that first plant we’re doing with Denbury Resources to actually buy all of the CO2 from us for that plant and the other enhanced oil recovery field in Cranfield, very close to our facility in Natchez, Mississippi.

Alongside the demonstration unit in Denver we’ve also built a research and development lab so we can maintain our technology leadership in the area and then we will expand the reach of the process by doing domestic and international licensing. Once the PDU is up and running we are at the current time be having what I would class as interest and discussions from people from similar geographic than what you saw from the previous investors. Australia, China, India, Russia, all areas where they have coal for coal to liquids and then in the far east Africa and Russia where they have gas, gas to liquids. Then western Europe where the biomass to liquids and second generation biodiesel is becoming very important. I think they recognize that importing palm oil for biodiesel which is generated by burning rain forestry grown palm trees really wasn’t environmentally sound so they’re looking as quickly as they can for the second generation biodiesel in Europe.

Our belief is that once the demonstration unit is up and running and we’re able to show people the product and the technology that we’ll be very quickly able to turn those interest and discussions into commercial agreements. What about the competitiveness of a lot of the fuels? We talk a lot about how to get AR, that’s all well and good but if we don’t make any money it’s probably not going to interest the people in this room. So, here’s looking at effectively our first facility built at scale. You’re looking at a cash course to meet FDDs of about $62 a barrel. If you look at the traditional crack spread between FDDs or diesel and crude that takes you about to about $50 in crude equivalent. So, at $100 crude it’s very economical. This includes blending in biomass, it does assume that I’m able to sell CO2 from housed oil recovery so there is a bit of an offset there to achieving that 20% less than conventional fuels. But still, highly competitive in today’s market. These numbers assume no government support. Currently there is a $0.50 per gallon support for these fuels which is about $21 a barrel so it would take that $62 down to $41. But, given that that runs out currently in 2009 and our first plant are later than that I did not include it in the economics. But, important to note is these fuels work at today’s numbers with no government support.

The product demonstration unit I talked about here’s a picture of it, it’s in Sand Creek just outside of Denver, Colorado. As the first plant we will use it to do a variety of feedstocks. Initially we will run it on natural gas and then we’ll quickly move to use other feedstocks as well. It’s also an ideal training center for the operators. We have very much built a small scale fully operating plant. It actually has more controls on it then you would have on a full scale plant because we will be doing online gas testing, etcetera. But, the control center and everything has been built as if we’re building a full scale commercial plant.

The first commercial plant I talked about is in Adams County, Mississippi just outside of Natchez. We’re going to look to build it in two phases. It’s about a 1,600 barrel per day plant initially. It’s fair to note that at 1,600 barrels a day and $450 million this is not the scale you would want to build it at, the economics are not particularly strong at this point. It’s very much seen as a stepping stone, as a first phase to get to phase two. Once you get to phase two that’s kind of 2,500 plus barrels per day is the scale you want to get to on this type of technology in order to take advantages of the economies of scale. The site is ideally located for product distribution, feedstock access and of course, most importantly it has the CO2 solution. The site purchase we’re looking at having that done in the near future, not necessarily April 1st but certainly soon. We do have exclusive right to the site right now. The carbon and coal feed to peat coal with the biomass as I mentioned, we have the CO2 and we also have an inducement to $2,725,000 billion of bonds from the State of Mississippi, a mixture of tax exempt and taxable bonds to help finance the project.

So, the economics when you combine phase one and phase two again, this assumes no government support, it assumes that I sell jet fuel to mostly the Air Force but at today’s prices jet fuel sells for over $130 a barrel and in those economics you can see we’ve assumed $125 a barrel. I’ve assumed that I sell naphtha at crude and I’ve used $70 a barrel for crude and again, no government support based on these numbers. That throws off an EBITDA number north of $700 million. Obviously you’re going to ask how much does it cost to build, and it’s probably somewhere between the $4 to $4.5 billion range including financing costs and capitalized interest which is a big part of the cost of these plants. Probably two and half to three years construction time and obviously with that type of money invested you have a fairly large capitalized interest over the period. This assumes peat coal at about $60 per ton and biomass at $35 per ton.

We have some other projects that we are working on as well. In Mingo County West Virginia, this one is a mixture of wood waste and coal waste in the location. Again, we look to do it in two phases starting with 3,000 barrels per day growing it to 27. The issue with this one right now is there is no contract solution for CO2 right now. There are promising opportunities in the area for coal bed methane recovery there are a lot of coal beds in the area that can’t be mine and with a CO2 injection you can actually produce methane from the coal and we are looking at that. There’s also potentially CO2 pipelines that could be built in the area to take the CO2 to [inaudible] oil fields for [inaudible] oil recovery.

We have two projects that we’re looking at with Peabody Energy on straight coal to liquid plants. 10,000 to 30,000 barrels a day plants in Montana and Kentucky. Those plants are effectively, they’re not on hold is probably the wrong word but being slow paced while we solve the CO2 solution. There are no obvious CO2 solutions in the area for these two plants. We continue to look at them obviously if [deep saline aquifer] proves out on plant number one then these plants would very quickly be ready to move forward again but as of right now there’s no obvious CO2 solution in those locations.

In northern California we have a joint development agreement with the Solena Group who has a municipal waste gasification system. They are leaving the development on this project. They are in site evaluation for a site. They use plasma arc gasification so they use plasma gasifiers to break it down. We think this would be the first commercial biomass to jet fuel production facility probably in the 1,500 to 3,000 barrel per day. Our involvement in that right now is we are sharing our technology with them and giving them the requirements that we require on the syn gas in order to be able to insure that they can produce syn gas of the quality required to then go on and make the jet fuel needed. Once they demonstrate the success of that and allocation to site we would then join them on a 50/50 basis to develop that project through.

As I mentioned earlier we actually own a fertilizer company right now. This effectively gives us the cash flow to support the business. It does 830 tons per day. Originally we were going to convert it from natural gas to coal gasification and build our first synthetic fuels plant there. Unfortunately, this plant does not have a CO2 solution big enough. There was a CO2 solution, we were selling some of the CO2 to coal and [inaudible] for the bottling industry. We were also utilizing some of the CO2 to make some of the fertilizers that we make. However, there was no solution for all of the CO2 and therefore we have put that project on hold for now until we get a CO2 solution. In the meantime we continue to run the plant on natural gas and this year our fiscal year ends in September and we are forecasting that we would do EBTIDA of about $45 million so that helps effectively fund the business on the cash flow from the fertilizer plant as we look to commercialize our synthetic fuels technology.

Legislative impact, as I mentioned we don’t need government support to get this done but I think where government support is really important is in getting a large fuel commercial facility financed. As I mentioned it’s $4 to $4.5 billion, that’s a large investment for anybody to do where the end product is a commodity and has all the risks that go along with a commodity. It’s crude based, crude related the product that we make so very important for ever who is investing in that whether it’s the banks or the equity to recognize if crude goes back to $30 or $40 they haven’t invested $4.5 billion for something that is worthless. So, some of the ways that that can be done is one would be an Air Force contract. Right now the Air Force loves the fuels, wants to buy them but we’d need an act of Congress in order for them to be able to sign up long term contracts for the fuels. We continue to work with the Air Force and in Washington to demonstrate the value to the Air Force of having that and the value to the country of having 50% of its requirements for the Air Force domestically sourced on this high quality fuel.

Another way that we’d be able to do that would be a proposition that was put forward where effectively if crude fell below a certainly number say $50 or $60 then the government would keep us whole up to that $60 level in terms of a loan and then if crude went above say $110 then we would repay that loan. Personally, I think that’s also a good way to do this. Most people’s forward views is that crude is going to stay above $50 to $60 so it really shouldn’t cost the federal government anything but if it does think about the other benefits the economy could receive with crude being below $50. So having to pay a small amount to the synthetic fuels manufacturers to keep them whole and to keep those fuels being produced for the next time oil runs up, it looks like a good insurance policy and, when oil does run up then the money would get repaid. So, there are other supports that are out there including the $0.50 a gallon, right now it looks like that’s going to get extended via the Farm Bill. Don’t get me wrong I like getting $0.50 a gallon as well, it’s a good support but I think the things that really can make a difference are those things, those long term supports that take the commodity risk out of the very large plants and would encourage people to then invest that scale of $4 to $4.5 billion.

So, the investment summary really is that we have a proven technology. The fuels that we make are environmentally sound, a clear path to commercialization, an experienced management team. To support the political environment I have to take that out for a few months, we had support a political environment to start with, the environmentalist did a very good job at making out that CTL was twice as bad on a CO2 footprint as I mentioned. I think as we have solved that problem with sequestration and blending in the biomass which we spent a lot of time back in Washington and explaining to people that the way we plan to implement this technology utilizing initially waste streams with those other two ways that we can do this in an environmentally friendly way and therefore the political environment is coming around again. Then of course, the cash flow coming from the fertilizer plant helps support the business at this time. With that, I’ll open up to questions.

Question-and-Answer Session

Unidentified Analyst

Can you describe in your licensing talk, I don’t know anything about licensing but typically is there an upfront payment if you’re successful? Or, do you have to wait for the project build to get some sort of sizeable [Inaudible – no microphone].

I. Merrick Kerr

The question was in our licensing discussions basically how are we going to get paid from our licensing. Really, it will depend on the type of license that we have. There are two ways that we can do this, we can look for project specific type licenses and the way it would work there is effectively we would sell engineering services to the company while they go through the engineering process of the plant. Then, at the point where they decided, “Yes, this makes sense we’re going to move forward with the plant.” We would do a license with them at that time which could at that point we would present them the alternatives which could be cash up front, some amount of cash up front and then a royalty per barrel, or simply a royalty per barrel. We are happy with any of those. The other way that we can do it and we would be selective about who we would do this with but would be to sell a master license agreement where there would be an upfront fee right at the beginning where you would give somebody the right to use the technology for a large number of plants and then you would simply work on each individual project at it came along. So, two options that we’re in discussions about right now.

Unidentified Analyst

[Inaudible – no microphone]

I. Merrick Kerr

The question is what’s our principle business risk and what keeps me awake? Really, the challenge for us as you can imagine we’re $150 million market cap company. The challenge for us with anybody with this is scale up. Right, you demonstrate the technology, you prove how well it works at the 10 barrel per day size and then even for us to do that 1,600 barrel per day plant where we are prepared to take fairly modest returns in order to demonstrated it, it’s still $450 million or a little more. So, the challenge for us is finding the backers to enable that to get done and then on the larger scale plants it’s basically find the very large multinationals who’ll stand behind us to get those plants done. There was a time where I wasn’t sure that crude was going to stay about the $60 to $70 number we need, I’m less concerned about that now. The challenge now is scaling up.

Unidentified Analyst

Can I ask you for your refinement economic scale? In other words you mentioned this prior to crude but you’re really talking in terms of [inaudible] as spread yes? So the spread between peat coal and your inputs, am I right?

I. Merrick Kerr

In this instance.

Unidentified Analyst

[Inaudible – no microphone] relating to the supply and demand and price of peat coal. Then you have refined products at the other end. Can you discuss those dynamics?

I. Merrick Kerr

I can. The question is the dynamic between really what I am doing is conversion technology so not to dissimilar to what they would call the heat rate of a power plant where you convert natural gas into electricity. That’s effectively what we do. Really, you get from one peat coal you get two barrels of fuel. You get a little less probably about 1.7 for coal depending on the BTU content of the coal. When you get down into the biomass realm, good quality biomass is maybe just over one barrel per ton. You get into the municipal waste and you’re probably less than a barrel per ton just because of the BTU content. So, if you look at that $60 a ton peat coal effectively means your $30 per barrel of feedstock so 50% of your costs is coming from that feedstock. The good news is particularly with peat coal there is some correlation between the value of your input and the value of our output unlike some of the other industries where you’ve got your non corrulated inputs and outputs. Peat coal tends to go up in volume when other BTU values go up as well like crude.

Unidentified Analyst

[Inaudible – no microphone]

I. Merrick Kerr

But, my end product becomes worth more as well. If you think of the problem that the ethanol people have right now as the corn is pushed up but the value of the ethanol has gone down so they get squeezed in the middle. What is likely to happen to be is as peat coal goes up fuel goes up as well because they are both correlated back to crude. So I have more – the products moved again. Also, when we build one of these large scale plants unless the partner we have has its own feedstock and is able to supply it, we would hedge out the feedstock in the same way people buy – when people construction natural gas to power plants they’ll hedge out their natural gas and they’ll sell the power. So, we’ll actually look for at least five to 10 years depending on what the debt requirements are we’ll actually lock in the margin. Did that answer it? You look like you’re not 100% convinced yet?

Unidentified Analyst

[Inaudible – no microphone]

I. Merrick Kerr

Well, we put out RFP and I can’t disclose too much but we have the ability to get peat coal related to something that is hedgeable. So we get a price that is not based on peat coal but based on something else which you can then hedge. Any other questions? Thank you.

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