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GEVO: Rocket To The Moon (Part 2)

|Includes:Gevo, Inc. (GEVO)

This research paper was not easily findable in normal google searches.

In fact it was not easily findable at all. While it is a somewhat dated document much of it is still relevant.

I decided to do some DD to see if I can punch holes in the authors negative criticisms about GEVO.

This is what I came up with.

One fact the author does not address at all is the value of GEVO's patents. It is presumable that should they continue doing as well in court as they have been that at some point they will prevail. Some of their patents are not even in dispute. Should we not assume GEVO will at some point benefit from a revenue stream from the licensing of their patents to other companies? Let us not forget that GEVO is the first company of its kind. If their business model works other companies will want to use their technology and process.

An additional oversight the author made in my opinion was his allegation of cronyism because three of GEVO's executives are from Cargill. It appears the author was not aware of the facts below. The entire scientific technology GEVO is using rests upon Cargill's microorganism know how.

Cargill: Cargill is an international producer and marketer of food, agricultural, financial and industrial products and services. Cargill has granted Gevo exclusive rights to integrate Cargill's world class microorganisms into its GIFT® process for the production of butanols from cellulosic sugars that are derived from biomass such as corn stover, switchgrass, forest residues and other sustainable feedstocks.

Simply put without Cargill there would be no GEVO.

CEO Patrick Gruber knows how difficult it is to get traditional industry to buy a "green" product. He learned that while running a unit of Cargill that made a plastic from corn, called PLA. Now, as chief executive of renewable chemical company Gevo, he's heeding the lessons from his Cargill days. "The big lesson we walked away with: Never do another new molecule," says Gruber.

Instead, Gevo is creating an existing molecule but doing so with a different (renewable) feedstock. Isobutanol, a chemical used for solvents that has an addressable market of about 1 billion gallons a year, is currently made from petroleum. (That market estimate includes butanols for which it doesn't matter if it is isobutanol or n-butanol, Gruber says.) Gevo has been making isobutanol from corn starch in a demonstration plant; when its commercial plant goes on line in the first half of next year, Gruber says Gevo's corn-based isobutanol will be 36%-40% cheaper than the oil-based version.

Peel back Gevo, and under the hood you find a lot of Cargill, the giant ag trading and processing company that forms the "C" in the "ABCDs" that dominate global agricultural commodity trading and corn and soybean processing. That's Archer Daniels Midland, Bunge, Cargill and Louis Dreyfus.

Another point the author made had to do with GEVO's growth and their seeming inability to finance it. The author completely overlooked the likely expansion model GEVO plans to use. That being collaboration with existing mills that already have the working infrastructure up and running making building additional facilities from the ground up unnecessary.

The Gevo GIFT system - three innovations in one

First, its magic bug (from Cargill) that indeed, produces isobutanol at a far higher rate, yield and concentration than traditional yeasts. Second, an extraction system that gets the isobutanol out of the broth before the alcohol levels kill off the yeast. Third, a bolt-on system, utilizing almost all of the systems of existing dry mill biorefineries that were producing feed grains and ethanol.

For owners of existing mills - a higher value, lower volatility revenue stream for mill owners. For Gevo, a means of getting into business at a fraction of the cost of developing a factory from the ground up.

Disclosure: I am long GEVO.

Stocks: GEVO