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Tristan R. Brown

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  • The Dangers Of Relying On Next-Gen Biofuel Cost Estimates [View article]
    It's worth noting that this website is geared more towards investments rather than trades, which is why you won't see much technical analysis here. My analyses are therefore geared toward investors rather than traders. Also, while it's great that you personally haven't lost money on Gevo, keep in mind that most of the people on the other side of your sales are losing their shirts (as a quick glance at the company's post-IPO chart shows). Those people are my target audience.

    Perhaps you're correct that Gevo shares have hit a price floor. I've been studying the company since its IPO and covering it here at SA for more than a year. For what it's worth, my previous articles on it were also met with statements from Gevo bulls expressing very similar sentiments regarding a "market consensus" on a contemporary price floor as you have expressed here, yet its share price has declined by 66% since my first article and 24% since my most recent one. You can say what you like about intangibles such as the value of a patent portfolio for a technology that has yet to be successful, or production cost point estimates reported by the CEO. However, I'm much more concerned with the data and the company's track record, as these tend to be better predictors of future stock performance in my experience. To each their own, though.
    Nov 8, 2013. 11:02 PM | 1 Like Like |Link to Comment
  • The Dangers Of Relying On Next-Gen Biofuel Cost Estimates [View article]
    Thanks for the comment. However, isn't it rather incongruous to state that "I don't recall ever arguing GEVO was a sure thing. Of course it is a gamble. The stock market is a casino" and then say a few sentences later that " the current depressed level of the PPS it is pretty hard to justify Gevo being much of a risk (if any) at all." I've always viewed "no-risk" and "sure thing" as being very similar.

    Regarding the patents, keep in mind that these only have value so long as the technology is proven to be both technically and economically feasible. In Gevo's case I have yet to see much evidence of either. If the company demonstrates their feasibility at scale then they will have value; otherwise, they'll be worthless. And if they're worthless, then what you describe as "little downside" will be pennies on the dollar to shareholders (at most).

    Finally, if my articles on the subject are "one dimensional", as you put it (in which case I presume you haven't read many of them), that's only because the sector as a whole has a rather one dimensional track record. If anything, I would argue that Luverne's lengthy delay and the market's response to Gevo's Q3 earnings release only makes articles such as this one even more relevant. And until a company such as Gevo patents a process for overcoming the widely recognized and time-honored pioneer plant limitations (and it obviously has not), this will continue to be the case.

    The only "little downside" investments that will guarantee you a high return are scams. All other such investments have much higher risks in reality, which is the point of this article.
    Nov 8, 2013. 06:40 PM | Likes Like |Link to Comment
  • Biofuel Energy Exits The Corn Ethanol Business [View article]
    According to a press release made public after I'd submitted this article for publication, the sale was actually made to GPRE by BIOF's lenders, as opposed to by BIOF itself:
    Nov 5, 2013. 03:59 PM | 1 Like Like |Link to Comment
  • BioFuel Energy soars as it sells ethanol plants to Green Plains [View news story]
    Donald, if I had to guess I'd say its because the company's largest shareholders (see Einhorn link below) have yet to sell.
    Nov 5, 2013. 01:44 PM | Likes Like |Link to Comment
  • Green Plains Renewable Energy Rides The Crush Spread To Yet Another Earnings Beat [View article]
    A few thoughts:

    1. With all due respect to Mr. Becker, corn ethanol's production environment has faltered so far in Q4. This is clearly shown in corn and ethanol prices for the month of October.

    2. Conference calls rarely provide new information to investors. Most investors know that microalgal fuels are extremely uncompetitive even with subsidies, in which case GPRE's only viable option for its microalgae production route is to produce the nutraceuticals et al. that you mention. This has been widely known information for more than a year now. In my case, I've been aware of the progress at GPRE's first microalgae facility for multiple quarters and, as someone very familiar with microalgae's production costs, have long assumed that it would follow the non-fuel algal product route. Again, conference calls rarely provide new information to those investors who have completed their own due diligence.

    4. There is nothing "lame and childish", as you put it, in tracking stock performance post-report. In fact, some might say that such tracking is the only reason for investors to publicly discuss stocks. You are correct in pointing out that REGI has not done well in recent months, and that my original price target underestimated the likelihood that the EPA would revise the RFS2 and was therefore incorrect. However, I quickly publicized this information. Why would I only publicize my incorrect calls?

    5. Finally, all investors know that a well-managed company can be overvalued. Fortunately, most investors don't take it as a personal slight when someone identifies such a company as being overvalued. I appreciate the fact that you are long GPRE, but that's no reason to respond so defensively.
    Nov 4, 2013. 12:14 AM | Likes Like |Link to Comment
  • REGI And The Dangers Of Making Regulatory Assumptions [View article]
    The original RFS (e.g., the "RFS1") focused entirely on U.S. energy security. After the Democrats took control of Congress in 2006, however, they decided to revise the program (e.g., the "RFS2") by removing the energy security motivation and replacing it with an environmental security motivation. Specifically, biofuel qualification under the program depended on feedstock and GHG emission reduction threshold relative to petroleum. As drafted, the "advanced biofuel" category covers any biofuel produced from a feedstock other than corn starch that achieves a 50% GHG emission reduction. That's why cane ethanol qualifies as an advanced biofuel under the RFS2 despite being considered a "first-generation" biofuel in the literature due to its use of a food feedstock to produce ethanol (as opposed to butanol or hydrocarbons).

    Simply put, Congress doesn't use the same definition of "advanced biofuel" as everyone else.

    Regarding the "other" subcategory of the "advanced biofuel" category, roughly 67% of that category is attributed to the biomass-based diesel subcategory, with the rest going to cane ethanol.
    Nov 2, 2013. 08:16 PM | Likes Like |Link to Comment
  • REGI And The Dangers Of Making Regulatory Assumptions [View article]
    Kirby, the biomass-based diesel category is unfortunately affected by the EPA's ethanol outlook in general, and the advanced biofuel category in particular. The advanced biofuel category includes sugarcane ethanol as well as biomass-based diesel, so its reduction recognizes the blend wall but indirectly impacts the latter. Furthermore, the biomass-based diesel category does not have set volumes beyond a 1 billion gallon floor in the RFS2, so the EPA is under no obligation to increase it (some would even call its proposal to keep the volume steady at 1.28 billion gallons to be a victory for producers). While I assumed that the EPA would use biomass-based diesel's large GHG reductions versus diesel to influence the 2014 RFS2 volumes, it may have decided that the pressure from the API was simply too much to do so. We'll have to see the finalized volumes to say for sure, however.
    Nov 2, 2013. 08:10 PM | Likes Like |Link to Comment
  • Green Plains Renewable Energy Rides The Crush Spread To Yet Another Earnings Beat [View article]
    I'm well aware of the company's actions regarding microalgae and storage expansion. I was aware of them before the conference call. I will consider changing my investment thesis when they meaningfully contribute on a sustainable basis to the company's net income. Until then, I will continue to consider the expected conditions of the corn ethanol market to be the biggest contributor to the company's valuation. Similarly, the notion that exports will take the place of RFS2 growth is a canard that has been dispelled multiple times over the last several years.

    Every time I write a bearish article on GPRE due to expected future market conditions, you state that my conclusions are incorrect due to initial diversification steps taken by the company. Yet, the company's share price is down 15% since my first article from three months ago and 9% since my most recent one from a few days ago. I see no reason to change my methodology at present.
    Nov 2, 2013. 08:02 PM | Likes Like |Link to Comment
  • Did The EPA Wave The White Flag On The Biofuels Mandate? [View article]
    dancing diva - I'm afraid that you miss my point. The original ILUC study (Searchinger et al. 2008) predicted that U.S. corn ethanol production would cause the mass destruction of rainforest in Brazil. The EPA initially used this study as justification for penalizing U.S. corn ethanol production, as if that was the only available option for preventing deforestation. The entire Brazilian ILUC "theory" was predicated on the extremely arrogant assumption that Brazilian deforestation could only be prevented by changing U.S. conditions. Brazil easily proved this assumption wrong by engaging in basic monitoring and policing of its own territory, resulting in an 80% drop in deforestation within its borders even as corn ethanol production tripled over the same time period. Searchinger's ILUC theory was deeply flawed in that it assumed that Brazil was the Western Hemisphere's version of Somalia. This assumption was obviously grossly incorrect, making the EPA's initial methodology for preventing ILUC equally flawed. Simply put, based on what we now know about the causes and preventative measures surrounding Brazilian deforestation, limiting corn ethanol production would have had only minimal impact on its rate. So when I say that the EPA "corrected" its original flawed ILUC methodology, what I really mean is that it recognized and accounted for this simple fact. Seven years of granular data have born this out. There is simply no available data suggesting that corn ethanol is a primary driver of Brazilian deforestation. It certainly is not disingenuous to state as much.
    Nov 2, 2013. 07:48 PM | 2 Likes Like |Link to Comment
  • REGI And The Dangers Of Making Regulatory Assumptions [View article]
    Thanks for the comment. I agree that B100 and E100 sell at a steep premium to their petroleum counterparts (although that of the latter has fallen sharply in recent months). This in turn limits their maximum consumption potential, as you point out. I don't consider that fact here, however, because it has no impact on my short-term investment outlook. For example, I've expressed a negative outlook on the corn ethanol sector here on SA for more than a year now due to the fuel's continued lack of consumer acceptance, without which it cannot overcome the ethanol blend wall. While 2013 has shown that this thesis was very accurate, it also caused me (and readers who took my advice) to miss out on gains of up to 200% on dedicated ethanol producers in the first 8 months of the year as the crush spread strongly rebounded. My original thesis is even more relevant today than it was 15 months ago now that the EPA is proposing to incorporate the blend wall into the future RFS2 volumes, but that doesn't change the fact that it caused me to miss out on large gains.
    Oct 27, 2013. 11:00 AM | 1 Like Like |Link to Comment
  • REGI And The Dangers Of Making Regulatory Assumptions [View article]
    Thanks for the comment. I'll make an announcement when the proposed rule leaves the White House.
    Oct 27, 2013. 10:43 AM | Likes Like |Link to Comment
  • Renewable Energy Group Has 150%+ Upside On Higher Capacity And The Blend Wall [View article]
    I agree that we'll likely see a maximum use of capacity in Q4 as biodiesel producers qualify for the largest number of credits before its expiration on Dec. 31, which should continue to push all three RIN category prices down (since they are nested). I think the most apt comparison for 2014 will be H1 2012, before the tax credit had been reauthorized and before the drought pushed lipid prices up. REGI's performance wasn't great during that half, but it was certainly better than the folks at Stifel are predicting for 2014.

    I still have a difficult time understanding the motivation behind the EPA's proposed rule. As you mention, it would make more sense to either increase the biomass-based diesel category by an amount equal to the cut to the advanced biofuel category, or leave both unchanged and allow biomass-based diesel to overcome the effect of the ethanol blend wall on the advanced biofuel category. Any reduction to the advanced biofuel volume at this point is simply a windfall to the refining industry.
    Oct 26, 2013. 11:34 AM | 1 Like Like |Link to Comment
  • Renewable Energy Group Has 150%+ Upside On Higher Capacity And The Blend Wall [View article]
    Thanks for the numbers, Robert. I've submitted an article on the subject to SA, but my main concern is that the EPA's proposed volumetric mandates for 2014 will cause the expiration of the biodiesel tax credit in December to negatively impact the company's earnings growth potential in 2014. Under the original volumes the expiration of the tax credit would have been offset by an increase to D5 and D6 RIN prices. Any overproduction due to a volumetric mandate reduction will remove this offset capability, however. That said, I think the new Stifel price target is too pessimistic even assuming that the mandate is reduced and added to my REGI position at $10.76.
    Oct 25, 2013. 06:03 PM | 1 Like Like |Link to Comment
  • KiOR Wins A Stay Of Execution But RFS2 Uncertainty Will Still Hurt [View article]
    You are correct that KiOR has received Part 79 registration for its blendstocks and I apologize for the oversight; I have asked SA to include that word in the referenced sentence. However, your statement that "it's the difference between an oil painting and a single tube of paint" is incorrect. The hydrocarbon blending process represents both a tiny and incredibly well known step of the overall biorefining process. It would be more accurate to say that the hydrocarbon blending step is equivalent to putting the finishing touches on an oil painting. The biomass is the single tube of paint.
    Oct 25, 2013. 05:00 PM | Likes Like |Link to Comment
  • Renewable Energy Group Has 150%+ Upside On Higher Capacity And The Blend Wall [View article]
    Stifel Nicolaus downgrade is the only headline I've seen. I suspect this is in response to the EPA's proposal to reduce the advanced biofuels mandate in 2014 and 2015 and the consequent collapse of RIN prices.
    Oct 25, 2013. 10:23 AM | Likes Like |Link to Comment