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VeraSun Energy (VSE)
had a pair of news releases that I would categorize under good news, or
at least neutral, and the napkin rings was beaten up pretty good. First, the
merger with U.S. BioEnergy (USBE) was approved. (See press release) . The dollar value of the merger has definitely fallen, but VeraSun picks up some significant assets.
U.S.
Bioenergy had fallen to negative profitability (i.e. losses) by the
last quarter results. VeraSun is still generating profits and I expect
them to improve the efficiency and assets of the acquired plants.
The other press release announces the completion of an ethanol plant in Ohio that
brings VeraSunβs annual production capacity over 1 billion gallons. For
comparison, VSE shipped 353 million gallons in 2007. The company is
still in a strong growth mode as far as production goes.
I also
have a few points concerning the ongoing viability of corn ethanol as
an alternative fuel. There has been a lot of press lately concerning
the value of corn ethanol. In my opinion it is the only significant
quantity, U.S. produced, non-oil, vehicle fuel that will be available
for several years if not longer. On to my points:
- Almost all
of the cars currently on the road, all built since 1999, are certified
to run on ethanol blends of up to 10% (E10). Ethanol is the only
current way to significantly reduce petroleum use for vehicles
currently on the road.
- Many cities mandate E10
gasoline to lower carbon monoxide emissions to meet federal clean air
standards. Since it was discovered that MTBE loves ground water,
ethanol is currently the only gas additive that reduces emissions.
- Three
states have mandated E10 minimum for all gasoline and others are
considering similar regulations. In 2007 the California Air Resource
Board [CARB] passed regulations that all gas sold in California will be
E10 or greater by 2010. California will require at least 1.7 billion
gallons of ethanol per year to meet the mandate.
I have
written in the past that I believe VeraSun Energy will become a major
producer of ethanol on a profitable basis. Their low cost structure
allows them to be profitable even when crush spreads are tight and they
will make a lot of money if/when the crush spread spreads.
Note: I currently do not have a position in VSE.
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