Gevo IPO at $15/share

Bio-isobutanol producer Gevo finally announced the pricing of its initial public offering (IPO) of 7.15m shares at $15/share for a total of $95.7m after deduction of underwriting and other expenses . The common stock will trade on the NASDAQ global market under the symbol GEVO.

As of this writing, shares of the company are up at $16.75/share.

The company previously hoped to get $150m when it filed in August last year but has since then scaled back to between targeted price range of $13-$15/share. Gevo’s goal is to deploy their isobutanol technology by using a “capital light” business model, which involves retrofitting existing ethanol manufacturing plants.

“We currently intend to use all or a portion of the net proceeds of this offering, together with existing cash and cash equivalents, to acquire access to ethanol facilities through direct acquisition and joint ventures, and retrofit those facilities to produce isobutanol.” – Gevo

The projected retrofit cost for a 100 million gallon per year capacity plant is $40-$45 million, according to industry analysts. Gevo plans to expand production capacity to produce and sell over 500 million gallons of isobutanol in 2014.

According to analysis from the Gerson Lehrman Group (GLG), Gevo projected a $40bn market for their products, approximately the size of today’s corn ethanol market based on the price of oil at $90/bbl and corn at $6/bushel. Gevo forecastes that their products – which include solvents, specialty lubricants and fuel blendstocks – could sell for $3.20-$3.50/gal in 2012, and $2.95-$3.40/gal in 2015.

“Economics are often the most challenging aspects of commodity producers’ business models. It seems that Gevo’s business model depends on high oil and low corn prices for their products to be economically viable.” – GLG

Another risk to the company, if readers recalled, is when the blog also recently mentioned a lawsuit filed against Gevo by another bio-butanol player, Butamax Advanced Biofuels – a joint venture company between DuPont and BP. Butamax accused Gevo of infringing its patent 7851188, which covers biocatalysts developed by the company to produce isobutanol.

With activities (and challenges) like these, the field of advanced biofuels and renewable chemicals is definitely getting to be more interesting this year!

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