For Love and Money
"We must continue investing in new methods of producing ethanol -- using everything from wood chips to grasses, to agricultural wastes.” - President George Bush, 2007 State of the Union address.
With high corn prices holding US ethanol producers captive, the race is on to find an alternative way to produce ethanol to meet the ever increasing energy demand for alternative fuels. To this end there are several companies that are looking into commercialization of various ethanol producing technology. One such company, BlueFire Ethanol Inc is seeking to take the lead in the cellulose to ethanol production process. BFRE, which currently trades on the the pink sheets, uses Arkenol Inc patented process to convert post sorted municipal waste, wood waste, rice and wheat straws and other agricultural residues to produce ethanol.
Arkenol's process separates the biomass from waste into cellulose and hemi-cellulose (the main building blocks of plant life) and lignin (the "glue" that holds the building blocks together), converts the cellulose and hemi-cellulose to sugars, ferments them and purifies the fermentation liquids into ethanol and other end-products. This novel process has not been commercialized but has been tested in bio-refinery pilot plants in Japan and California. To this end BFRE has identified El Sobrante Landfill, located in California, where it intends to build its first bio-refinery. The commercial plant is expected to start producing ethanol in 2009 and the company is not expected turn any profits before then. Once BFRE opens its bio-refinery, its profitabilty will depend on the cost of inputs and price of ethanol produced conventionally from corn or sugar cane.
On the other hand, BFRE's licence with Arkenol allows for its CEO to have his cake and eat it. Arnold Klann, BFRE's CEO, is also the owner of Arkenol Inc. This relationship allows him to profit from BFRE even if it does not make any profits while he collects payments, royalties and fees associated with the commercialization and production of ethanol using Arkenol's technology. Although he has invested a lot of equity into both BFRE and Arkenol, he stands to gain the most from the exclusive licencing agreement between the two companies.
The fact that BFRE is a development stage company and it trades on the pink sheets makes it a speculative investment. As such, the stock price will experience a lot of volatility as it continues with the construction and subsequent commercialization of its cellulose to ethanol bio-refinery.