Gevo targets marine market, cuts to isobutanol production cost 

In Colorado, Gevo announced revenues for Q3 2015 of $8.0M compared with $10.1M for Q3 2014.During the third quarter of 2015, revenues derived at the Luverne plant were $7.6 million, a decrease of $1.6 million from the same period in 2014. This decrease was primarily a result of lower ethanol prices.

The company also highlighted the settlement of its long-running patent dispute with Butamax, which removed uncertainty in the business by eliminating all lawsuits and patent office conflicts between Butamax and Gevo. Gevo retained the right to access all markets, and the settlement is expected to result in more than $7.5 million in SG&A savings annually for the company. The settlement did not involve any transfer of money.

Based on the clarity provided by the resolution of the lawsuits, and based on the most recent results of the isobutanol fermentation campaigns conducted at the company’s production plant in Luverne, Minn, Gevo announced its near-term plan to deploy capital in an effort to significantly lower the cost of production of isobutanol at the Luverne plant. This is expected to enable Gevo to produce isobutanol at a positive contribution margin, allowing Gevo to boost isobutanol production without increasing Gevo’s cash burn rate. Gevo expects to be able to produce isobutanol on a continuous basis in 2016 at approximately a 1.5 million gallon per year rate, while concurrently producing ethanol at a rate of over 15 million gallons per year. This capital project is anticipated to be complete in the first or second quarter of 2016.

In New York, Cowen & Company’s Jeffrey Osborne writes: “Gevo reported a quarter largely in line with our/consensus expectations. Having reached an amicable resolution with Butamax, the company continues to pursue its capex initiative at its Luverne facility. This will improve isobutanol product & economics, which will be important in light of Gevo’s recently signed agreement with ValvTect. This agreement should begin to generate revenue in late 2Q16.

“The Butamax settlement terms allow Gevo to continue to pursue the Specialty Chemical & Solvents, Marine, Off-road, AJT, and Iso-octane markets, while Butamax will focus on on-road uses of isobutanol. The terms of the agreement also allow each company to annually sell 30 million gallons of isobutanol to sell into any market. Any amount beyond 30 million will be subject to royalties. Management believes that this could represent ~$100 million in revenue annually. Importantly, sales will be done through the party that is operating in the market. We are constructive on these terms and the effect the resolved litigation will have for Gevo. Not only does management estimate annual SG&A savings of ~$7.5 million, but with the risk of lawsuits removed it should allows for easier customer acquisition.

“ Management noted that it continues to work through the ASTM process to gain approval for its ATJ product. Gevo has delivered all of the necessary technical data to the committee and is on the ballot. After committee’s approval the company’s proposal will go before the full ASTM body and a final vote will be taken sometime in early 2016. We continue to believe that ATJ will be a long term positive for Gevo as environmental regulations are expected to continue to tighten over time.”

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