The signing of a tentative agreement for the supply of alcohol-to-jet fuel with Lufthansa AG appears to have bolstered investor confidence on Biofuel manufacturer Gevo, Inc. (NASDAQ:GEVO). The agreement could not have come at a better time, given that the company is fresh from posting a $0.44 a share net loss, in the recent quarter.
The agreement with Lufthansa is for the supply of up to 8 million gallons a year. Over the next five years, the airline should have purchased 40 million gallons of the biofuel in question. Gevo stands to benefit a great deal from the agreement given that return on capital from the agreement is expected finance the company’s first commercial-scale hydrocarbons facility.
Gevo is making a push into the airline industry with its line of Biofuel as it continues to look for new opportunities for growth. Last month it powered its first commercial flight when Alaska Airlines used its product. Even on powering its first commercial airplane Gevo appears to be hitting some obstacles as it moves to ramp up production.
Production Delays
Installation of some distillation system equipment needed to ramp up production is taking longer than expected. Given the setbacks, the company expects its 2016 annual production to be much lower than initially projected. The company expects production at the Luverne production facility to range between 500,000 and 650,000 this year.
Amidst the setbacks, the company remains confident of reducing the variable cost of producing isobutanol by between $3 and $3.50 a gallon, which should lead to better margins. Gevo is also eyeing increased sales for isobutanol as it moves into new markets such as the renewable ATJ fuel marina and solvent markets. While production optimization at the Luverne facility is a core objective, the company is planning to expand production.
Separately the renewable chemical and next generation biofuels company has tapped into the debt market with the pricing if a $15.6 million public offering of its common stock. Gevo, Inc. (NASDAQ:GEVO) intends to use proceeds from the offering as working capital and for other general corporate purposes.
