Friday, September 25, 2009

Jack and the Beanstalk

"Ah! You don't know what these beans are," said the man. "If you plant them overnight, by morning they grow right up to the sky."

Stranger Offering to Trade Beans for Jack’s Cow

The story of the hapless Jack and his adventures with the bean seeds is familiar to us all. Jack and his mother needed a quick solution to their food shortage problem and decided to sell the cow. This is something like the U.S. consumer needing a quick replacement for fossil fuel and deciding to sell their corn for gas. Could we too run across a miraculous seed and find salvation in giant plants before we starve?

The good folks at Mendel Biotechnologies (private) think they are on the right track to do just that. Only their seeds for giant plants are grounded more in scientific method than magic. Mendel is an early stage developer of plant gene technologies for food and energy crops. The company got its start developing improved gene traits for food crops and has licensed certain of its technology to Monsanto Company (MON: NYSE). Monsanto is about three years away from introducing a new, drought resistant corn plant using Mendel’s gene traits.

As exciting as super corn might be, Mendel’s more recent foray into the renewable energy field is even more interesting. The company has hung out its shingle to help biofuel producers find energy crops with high biomass yields, low input needs, and sustainable cropping requirements. Mendel’s early work has focused on miscanthus plant sometimes called elephant grass.

Found commonly in Asia and popular in Japan for landscaping, the miscanthus is already a promising feedstock plant that upstages even the widely touted jatropha in terms of energy yield. Unfortunately, Jack could not just throw a few seeds on the ground and find a huge miscanthus the next morning. It is a perennial and propogation is a challenge. This is where Mendel’s scientists come in. Mendel has already partnered with BP (BP: NYSE) working on improving the miscanthus seed, but is free to work with any other refiner or producer that wants its own “giant beanstalk.”

Investors might be disappointed to learn that Mendel has completed a series of private placements that has put plenty of cash on the balance sheet. Management appears confident cash resources are adequate to support operations and scientific pursuits until the company starts receiving royalty revenue. First payments are likely to come from the Monsanto license for corn gene traits. Bookmark Mendel Biotechnologies and watch for an initial public offering at some point as the venture capital firms with major holdings look to monetize their investments.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

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