Debra Fiakas'  Instablog

Debra Fiakas
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Ms. Fiakas is an experienced investment professional with a diversified and successful track record as a research analyst and as an investment banker. Her career includes experience in all aspects of the equity capital markets with particular emphasis on emerging growth companies operating in... More
My company:
Crystal Equity Research
My blog:
Small Cap Strategist
  • A Better Mouse Trap 0 comments
    Aug 19, 2010 1:49 PM | about stocks: VLO

    You would be wrong, if you thought after over a dozen posts in this series on the Department of Energy grants for renewable fuels projects that the DOE would eventually get its fill of ethanol.  The DOE spread some of the “green” joy in to ZeaChem, Inc., a private ethanol producer in Boardman, Oregon.  The DOE offered a $25.0 million grant, which must be matched by $48.4 million from Zeachem.

     

    The company plans to build a cellulosic-based “biorefinery” to turn hybrid poplar trees into fuel-grade ethanol.  They will test some agriculture residues and other energy crops.

     

    Before getting too critical of yet another ethanol project on public welfare, it is worthwhile looking at the technology that underlies ZeaChem’s proprietary platform.  It is a dual process that puts the feedstock through both biochemical and thermochemical steps. 

     

    In the biochemical step, instead of using yeast to induce fermentation, ZeaChem uses a microorganism called acetogen that generates acetate in its natural anaerobic or no oxygen respiration.  The acetogens are content to work in harsh environments (it freezes in Oregon) and produce no carbon dioxide.  That alone should get investors holding shares of corn-based ethanol producers to sit up and take notice.  

     

    In the ZeaChem biorefinery platform the acetogens produce acetic acid and have been achieving 50% higher fermentation yields than corn-based process.  Investors could even stand and applaud if that claim is fulfilled. Acetogens are so successful compared to yeast used in the fermentation process because acetogens can ferment xylose.  This is why most other cellulosic ethanol platforms have a step to convert the xylose (wood sugar) in cellulosic feedstocks like corncobs and straw.

     

    This high efficiency rate is part of what is allowing ZeaChem to use the unlikely poplar tree as feedstock.  Of course, these are not just any poplar.  ZeaChem plans to use a hybrid poplar that is planted especially for use in renewable fuel.  A leading tree producer GreenWood Resources has been contracted to supply residual fibers from its tree crop.

     

    Given the localized nature of renewable fuel production, having a viable non-fossil fuel source in the northwest U.S. makes a great deal of sense.  Oregon’s climate is not friendly for corn, sugar cane or jatropha.  A few years ago Oregon State University published its economic analysis for biofuel production in the state and warned that under current technologies the net energy of biofuel produced in Oregon might be expensive.  The report recommended wood cellulose could produce the greatest net energy after fuel product and transport costs were considered.

     

    No investment is possible here even for accredited investors as it seems ZeaChem is generously supported by a group of hedge funds and Valero Energy (VLO:  NYSE).  That said, with success in this project, it seems a public offering is a likely exit strategy.  As a company that appears to have come up with a better mouse trap  -  or is it a better mouse?  -  Zeachem is a company worth watching.

     

     

     

    Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein. 

     



    Disclosure: None
    Stocks: VLO
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