Tuesday, December 22, 2009

All Fired Up

Our series on the companies that won Department of Energy “venture capital” begins with BlueFire Ethanol Fuels, Inc. (BFRE: OTC/BB), one of just two public companies to receive DOE funds from the 2008 federal stimulus program.

BlueFire already has a biorefinery in the works in Fulton, Mississippi. The Company is trying to produce ethanol from woody biomass such as mill residue using a process licensed from Arkenol, Inc. They may even try some municipal solid waste if sorting of wood-based materials proves practical. The aim is to construct a plant with capacity to produce 19 million gallons of ethanol per year.

The DOE gave BlueFire $81.1 million for the project, to which BlueFire must ante in an additional $223.2 million. Can 19 million gallons per year support a $304 million investment?

This is the question private investors will be asking as BlueFire goes out to the capital market to find its share of the funding. With only $1.3 million in the bank both the DOE grant and additional financing are necessary.

BlueFire is trading near a buck, making the stock more or less an option on the biorefinery and investors confidence that ethanol will have market share in the emerging green fuel economy. Production costs and transportation issues still present problems for ethanol even when non-food feedstock is used. BFRE share represent a highly speculative position, but from the current share price we expect appreciation in the BFRE stock price even if the ethanol business proves to have shorter than expect legs.

We will come back to BlueFire in the coming weeks as we continue to monitor Venture USA.

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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