Friday, February 10, 2012

KiOR Taps Capital Market...Again

Affiliates of Khosla Ventures and two Canadian pension funds have fronted KiOR, Inc. (KIOR:  Nasdaq) another $75 million through a four-year loan.  The renewable fuel developer had as recently as June 2011 taken in $162 million in capital through an initial public offering of common stock.  Earlier in the year KiOR had taken in $55 million from the sale of 11.2 million shares of preferred stock, which was converted to common when the IPO was completed.

By all measures, this is a serious capital accumulation for a company that guides for continued losses through 2013.

KiOR touts its two-step proprietary platform for turning biomass such as pine chips into so-called drop-in transportation fuel.  A commercial scale facility is planned in Columbus, Mississippi and most of the proceeds from the stock sales are needed for construction.  KiOR management wants the extra dollars to complete engineering studies on a second plant that is also planned for location in Mississippi. 

Mississippi is in the heart of pine country and the yellow pine is growing in popularity for flooring and furniture.  The industry creates a fair amount of wood chips, which for the most part go to waste.  KiOR plans to source wood chips for its “biomass fluid catalytic cracking process.  Unnamed catalysts from third parties are used in KiOR’s furnace.

The lack of transparency on the process is a bit troubling.  However, what really has me wondering about KiOR is the Company’s yield data.  During the IPO process, KiOR cited yields of 67 gallons of fuel per ton of bone dry feedstock.  In my view, this is not an impressive figure.  I cannot help wonder if the wood chip resource could not be put to higher use.  Investors at the time of the IPO were somewhat mollified by the Company’s profession of a 92 gallons per ton of bone dry feedstock.  That would be an impressive yield if it can be achieved.  Achievement of such yields is dependent upon significant improvement in KiOR’s process.  The Company has no timetable.

KiOR is now in our Beach Boys Index in the Waste-to-Energy Group.  KIOR failed to take off following the public offering in June 2011.  However, in the fall the stock soared.  No doubt there were celebrations in at Khosla Ventures, which has been KiOR’s primary financial backer.   Unfortunately the stock fell sharply in December 2011 and has only partially recovered.  It is going to take some substantive news from KiOR to break the spell on KIOR shares.  The stock has lost much of its luster and trading volume as gone with it.  New debt on the balance sheet is not likely to impress.

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. KIOR is included in the Waste-to-Energy Group of Crystal Equity Research’s Beach Boys Index.


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