Best stock to invest in – Green Plains Nabs 3 Ethanol Plants On The Cheap



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Jim Lane

In Nebraska, word has arrived from Green Plains (GPRE)
that it will purchase the Madison, Ill., Mount Vernon, Ind. and
York, Neb. ethanol facilities from Abengoa (ABGOY)
Bioenergy with combined annual production capacity of 236 million
gallons per year, for approximately $237 million in cash, plus
certain working capital adjustments.

The company said it was the successful bidder on three ethanol
plants for sale conducted under the provisions of the U.S.
Bankruptcy Code.

Upon completion of the acquisitions, Green Plains will own and
operate 17 dry mill ethanol facilities with combined production
capacity of nearly 1.5 billion gallons per year. With ADM (ADM)
putting US ethanol assets on the sale block, the acquisition
leaves Green Plains and POET alone at the top in terms of US
production capacity.

It was less than five years ago in 2011 that we reported:

“Green Plains Renewables says
that the days
of snapping up cheap ethanol assets are over
, as all
opportunities for buying up the right equipment at the right
location for under $1 per gallon of installed capacity have been
bought up.”


Yet, the acquisitions in this case came at that magic $1 per
gallon figure. According to CARD, the return over operating costs
for ethanol plants, currently, is hovering between $0.40 and
$0.50, suggesting that the payback time for this investment will
be between 2 and 2.5 years.

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A note on CARD operating profit forecasts. CARD says, “This
return is calculated as the difference between the revenues from
ethanol plant outputs (ethanol and dried distillers grains with
solubles [DDGS]) and the costs of variable production inputs
(corn, natural gas, and other costs such as enzymes, labor,
electricity and water).” More
about those projections and assumptions here.

The road to 1.5 billion gallons

2010: Green Plains acquired Global
Ethanol’s two operating ethanol plants
located in Lakota, IA
and Riga, MI with a combined annual production capacity of
approximately 157 MGy. The acquisition increased Green Plains’
capacity by 31% to approximately 657 Mgy. The company paid
approximately $169.2 million, including approximately $147.6
million for the ethanol production facilities and the balance in
working capital.

2011: The company’s round of expansion closed with
the purchase of the 55 million gallon per year
Fergus Falls
ethanol plant for $55 million, which at the time confirmed its
status as the fourth-largest ethanol producer behind POET, ADM and
Valero.

2013. Green Plains acquired
two ethanol plants
of BioFuel Energy Corp. for approximately
$101 million, plus working capital at closing, from an entity
composed of its lender group. Green Plains intended to fund the
purchase with approximately $77 million in term debt and the
balance in cash. The ethanol plants are located in Wood River, NE
and Fairmont, MN. The two facilities have a combined annual
production capacity of approximately 220 million gallons.

2015. Green Plains acquired
Hereford Renewable Energy, LLC
for approximately $93.8
million. The transaction value included $78.5 million for the
ethanol production facility with the balance for working capital.
The transaction is expected to close this month subject to
customary closing conditions and regulatory approvals. The
facility is a Lurgi-designed, ICM-modified ethanol plant with
approximately 100 million gallons per year of production capacity,
a corn oil extraction system and other related assets.

2015. Green
Plains acquired an idled ethanol production facility in
Hopewell, Virginia
, located approximately 20 miles south of
Richmond, from Future Fuels LLP. The company paid $18.25M for the
capacity. Operating at full capacity, the facility’s dry mill
ethanol plant will increase the company’s annual production
capacity by approximately 60 million gallons to nearly 1.1 billion
gallons per year. Production is expected to resume by the end of
the year and corn oil processing is expected to be operational
during the second quarter of 2016.

2016. Still on the hunt. Green
Plains is taking advantage of low investor interest in biofuels
,
we reported, thanks to depressed crushing margins. The company is
on the hunt to acquire new assets as well as expand production
capacity organically, we reported, despite its own weak
performance and rising supplies. Even with weak oil prices, CEO
Todd Becker said that international demand for US ethanol has not
slumped off and instead expects total exports this year to surpass
last year, perhaps even reaching 1 billion gallons.

Consolidation

There’s continuing consolidation in the corn ethanol space. Last
year, Aventine merged into Pacific Ethanol. The previous
September, Flint Hills Resources acquired Southwest Georgia
Ethanol’s plant in Camilla, Georgia, the company’s fourth
acquisition in a one year period. The company purchased an Iowa
plant from Platinum Ethanol. Since then it had begun retrofitting
a Southeast Nebraska plant and bought out Petrologistics.

More Consolidation on the Way?

Yes, ADM has put US-based ethanol assets on the block.

We reported earlier this month that ADM
now expects to receive bids by the end of August following
presentations to seven potential buyers. Half of the company’s 1.8
billion gallons of ethanol production occurs at its three dry
mills. Weak ethanol margins were among the reasons for the company
failing it hit analysts’ expectations for Q2 in its reporting this
week. But we are not expecting the assets to be sold at the $1 per
gallon mark and, given that Green Plains is going to be absorbing
this set of plants, we’re doubtful that they will be paying top
dollar in an auction for ADM’s assets.

Get strong, the Green Plains way

We looked at the Green Plains growth story in November 2015,
here, and wrote of “lessons learned”:

1. Get a lead product that’s a platform for a company.
Green Plains began as a one-horse ethanol producer with two
products, corn ethanol and distillers grains. There were
unanswered questions at the time about the market acceptance of
the products, the viability of the sector, and whether Green
Plains could scale to industry-leading size, and when. They chose,
in corn ethanol, a product that can support a company, rather than
ease a burn rate and provide some hope to investors. There are $1
million lead products and $100 million lead products and $1
billion lead products. The first provides hope and not much more,
the second eases a burn rate, the latter

2. Gain strength by applying advanced technologies to advance
the business proposition.
Today, Green Plains has more than
a billion gallons in ethanol production capacity, and is making
money even in a tough ethanol market; it has spun off Green Plains
Partners (GPP)
into a successful IPO and reported its first dividend to
shareholders in that venture this week; it has diversified into
corn oil and is working hard on monetizing its CO2 production. It
is acquiring terminal capacity as well as production capacity.

Reaction from Planet Green Plains

“We continue to focus on making strategic investments in high
quality assets as we expand our production footprint,” said Todd
Becker, president and chief executive officer at Green Plains.
“The Madison and Mount Vernon plants will give us access to the
Mississippi River, supporting our new export terminal planned in
Beaumont, Texas. In addition, we will broaden our product offering
globally with industrial alcohol production at the York plant.
These acquisitions further our commitment to deliver long-term
value for both Green Plains Inc. and Green Plains Partners
shareholders.”

Closing details

The company’s acquisition agreements are subject to review and
approval by the U.S. Bankruptcy Court for the Eastern District of
Missouri at a hearing currently scheduled for Aug. 29, 2016. The
acquisitions are expected to be complete no later than Sept. 30,
2016, subject to regulatory approval and customary closing
conditions, at which time the ethanol storage and transportation
assets will be offered to Green Plains Partners.

Green Plains Inc. is a diversified commodity-processing business
with operations related to ethanol, distillers grains and corn oil
production; grain handling and storage; a cattle feedlot; and
commodity marketing and distribution services. The company
processes 12 million tons of corn annually, producing over 1.2
billion gallons of ethanol, approximately 3.5 million tons of
livestock feed and 290 million pounds of industrial grade corn oil
at full capacity. Green Plains owns a 62.5% limited partner
interest and a 2.0% general partner interest in Green Plains
Partners LP (NASDAQ:GPP), a fee-based Delaware limited partnership
that provides fuel storage and transportation services by owning,
operating, developing and acquiring ethanol and fuel storage
tanks, terminals, transportation assets and other related assets
and businesses.

Jim Lane is editor and
publisher  of 
Biofuels Digest where this

article

was originally published.
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