Today in Biofuels: VeraSun and US BioEnergy to merge; stocks soar on news; Brazil’s Cosan eyes US expansion

November 30, 2007

Top Story:

VeraSun Energy (VSE) and US BioEnergy (USBE) yesterday announced they have entered into a definitive merger agreement. The merger is expected to close during the first quarter of 2008, pending approvals. The deal, in which USBE shareholders will receive approximately $680 million of VeraSun stock, will create the world’s largest ethanol producer, with a planned capacity of 1.6 billion gallons by the end of 2008, based on scheduled plant openings. The combined companies will benefit from economies of scale in operations and finance, and bring access to VeraSun’s advanced investments and technologies to US BioEnergy’s shareholders. The combined entity will retain the VeraSun name and trade under VeraSunâ€™s existing NYSE ticker symbol, VSE.

Producer News:

In Minnesota, the Granite Falls Energy ethanol plant has been fined $300,000 for environmental violations by the Minnesota Pollution Control Agency said Thursday. The violations have been corrected, according to the agency, which related to over-production and water discharge quality among other issues. It is the largest environmental fine ever given to an ethanol plant.

In Montana, Big Horn Basin Ethanol announced a lease agreement with Bronte Renewable of Ontario to provided $45 million in financing. Under the agreement, BHBE will lease and operate the plant, which will be owned by Bronte. The 25 Mgy plant is scheduled to open in September 2009. He said the plant would produce up to 25 million gallons of ethanol a year.

International News:

In Brazil, the CFO of Cosan said that the is seeking acquisitions to add to its portfolio of 17 ethanol plants, and included a focus on investment in the US. He said the company’s $1 billion IPO, completed last year, provided the necessary growth capital for the company, which derives 33 percent of its revenue from ethanol production.

In Finland, Neste Oil announced a plan to construct the largest biodiesel plant in the world, in Singapore. The 430 Mgy plant would be completed by the end of 2010. The plant would use palm oil certified by the Roundtable on Sustainable Palm Oil (RSPO). Estimated project cost is $814 million.

In Burkina Faso, officials of theÂ Economic Community of West African States (ECOWAS) completed three days of meetings that coordinated biofuels policy prior to the commencement of the 13th UN Conference on Climate Change which will be held in Bali next week. African ministers are expected to push for the inclusion of Reduced Emissions from Deforestation and Degradation (REDD) credit for nations that institute sustainable forest management practices. The credit would produce earnings of up to $119 per rural household.

In the Czech Republic, the mandatory blending of biofuels, scheduled for January 1, will be delayed because the controlling legislation on air emissions has not yet been passed by the national legislature. Although companies such as Ceska rafinerska and the state-run Cepro could implement the 2 percent biofuels mandate on a voluntary basis, they have said that reporting and accounting procedures have not yet been established to support compliance.

Research News:

A new cost-benefit analysis by researcher John Graham at the Pardee Rand Graduate School found that E85 scored the worst among all fuel options. Diesels performed the best, saving $2300 over a vehicle’s lifetime compared to regular gasoline. Hybrids were a close second, while E85 cost $1600 for fuel over vehicle lifespan. The study’s authors did not disclose the mileage standards used in the study, or the vehicles studied.

In North Carolina, North Carolina State University researchers announced that they have developed a sweet potato with a higher starch content by weight than corn. However, high production costs will prevent the new potato from enjoying large-scale cultivation for the time being.

Policy and Policymakers:

In Washington, more details emerged regarding the 2007 Energy Bill, which is now said to be be ready before December 7. Among items still under negotiating, a dispute between the House and Senate over administration of the ethanol mandate. The House prefers the EPA while the Senate wants the Department of Energy. Currently under negotiation are restrictions on feedstocks and fuels to ensure they produce at least a 50 percent carbon dioxide reduction. The balance of corn ethanol and cellulosic ethanol in the mandate is still under negotiation.Â Sen. John Thune (R-South Dakota) said that Senate Majority Leader Harry Reid told him there wouldÂ be an energy bill this year that would contain a 15 billion gallon ethanol mandate by 2015.

Consumer and Fleet News:

In Pennsylvania, the state legislature is considering a bill to provide support for more rail infrastructure to move biofuels more affordably to consumers and fleets. Rail improvements are considered essential for safety, cost and road maintenance reasons. However, in the last budget cycle the state received $91 million in requests for its $20 million earmarked for rail infrastructure improvement.

Financial News:

The Biofuels Digest Indexâ„¢, a basket of public biofuel stocks, rose 1.06 percent yesterday, buoyed by news of the VeraSun (VSE) merger with US BioEnergy (USBE). VeraSun (VSE) was up 3.10 percent to close at $10.97, while US BioEnergy (USBE) rose 4.86 percent to finish at $8.42 after rising throughout the week. Pacific Ethanol (PEIX), which would be the industry’s next consolidation candidate owing to its low stock price, rose 41.15 percent to close at $6.62, and Aventine (AVR) rose 5.59 percent to close at $9.26. Winners led losers 2 to 1 for the day as small caps general gained on the news, led by Xethanol (XNL), up 20 percent to $0.36 on the news.