Green Hunter Energy: A Highly Speculative Stock Pick

Sep. 1.08 | About: GreenHunter Resources, (GRH)

I have a strong interest in the renewable energy sector and believe this is a strong growth area for the next 20-40 years as renewables increase their percentage of world wide energy consumption. Green Hunter Energy (NYSEMKT:GRH) flew across my radar a few months ago and I added it to my Watch List. A recent news item caused me to take a closer look at the company and what I found is quite appealing.

First a disclaimer: I usually look for stocks with strong earnings that are under-appreciated by the market. Green Hunter does not meet this criteria. This is a start-up company burning cash and may be some time away from generating profits. Also, I can find very little information about the company besides what is offered on the Green Hunter Energy’s website. I consider this a very, very speculative stock.

That said, let me outline the items about the company that draw my interest. Green Hunter Energy was started by an experienced oil executive, CEO Gary Evans, who made excellent profits for himself and stock holders building up and selling a conventional energy exploration company. He has entered the renewable energy sector by investing in several different forms of renewable energy with a goal to buy cheap and generate profits quickly. Currently GRH is pursuing opportunities in biofuels, biomass electricity generation and wind energy. At this point, the company has acquired several facilities or contracts that point towards significant future profitability. Here is an outline of these opportunities:

Biodiesel Processing: Green Hunter Energy has acquired a refinery on the Houston ship channel with the capability to produce 100 million gallons of biodiesel per year. The refinery will be able to produce biodiesel from almost any feedstock. The facility has the capability to process its own methane, required in the biodiesel refining process and will also produce high grade glycerin for an additional income stream. The facility also includes 700,000 barrels of storage.

The location and storage allow the company to ship biodiesel to international markets where prices are significantly higher than in the U.S. The refinery recently reached 50% of its production capacity and is producing biodiesel using animal fats as a feed stock. Recent comments by Mr. Evans indicate the company will make about 80¢ profit per gallon with animal fat feedstock and over $2.00 when the have access to Jatropha oil. See below.

Bio-Electric Power: Green Hunter has acquired a biomass fueled power plant in El Centro, California. After upgrade and refurbishment the plant will be able to produce 25MW on a $20 million investment. To build a similar plant from scratch would cost well over $100 million. The plant will be fueled by cattle manure and wood waste. The plant is scheduled to be up and running by mid 2009. California has mandated that 20% of electric power be from renewable sources by 2010, so this appears to be a timely investment.

Wind Power: Green Hunter energy is developing wind energy projects in Montana, California, Texas and New Mexico. It has signed a turbine supply agreement for 900 MW of 1.5 MW turbines with MingYang Wind Power Technology of China. MingYang will be building turbines of German design and is ramping up for large scale production. Green Hunter has exclusive rights to any turbines MingYang wishes to export through 2012 and MingYang is the only Chinese company licensed to export wind turbines. Current Chinese policy is for the retention of wind resources to grow domestic power production giving GRH exclusive rights to a valuable resource.

Biofuel Feedstock Production: Green Hunter Energy is in the process of acquiring land to grow Jatropha Curcas for its oil. Jatropha is considered the best option for a plant based oil source. It will grow on land not suitable for food crops and has high production as soon as one year after planting. GRH is developing plantations in Argentina, Paraguay, Mexico and China. Owning the source of the feedstock for its biodiesel production will significantly enhance the profitability of the company in the next 2 to 3 years.

You can see the company is putting the infrastructure in place to be a serious alternative energy provider. The next step is to start generating some significant revenues, followed by profits. With the biodiesel refinery reaching 50% production capacity, revenues should start showing soon. As noted above, I consider this a highly speculative stock until revenues are proven but I will be very interested if the stock falls to lower levels. At this time I am adding the stock to this site’s Special Opportunities Portfolio to help me keep an eye on the stock price.

Disclosure: None