Tuesday, April 03, 2012

BlueFire Raises New Capital

Last week BlueFire Renewables (BFRE:  OTC/BB) set up an equity facility to access new capital.  Through the agreement an offshore fund has agreed to purchase up to $2.0 million in common stock over the next two years.  The price will be determined based on recent trading when the company chooses to tap the fund.  At the current price level near $0.40 per share that means BlueFire could issue around 14.0 million new shares, representing 45% dilution.  It is the second equity line of credit for BlueFire in less than a year.

The company will need some strong fundamental accomplishments to break the bonds that much erosion in shareholder position.  I suspect BlueFire management is either quite desperate or believe they have a good view on commercial production.  The conundrum for investors is whether at $0.40 per share, BFRE shares are sufficiently discounted to take on the risk of desperation.

To BlueFire’s credit management has been working feverishly on completing construction of a biofuel plant at Fulton, Mississippi.  The company had been faithfully updating a pictorial progress report on the plant’s construction until about June 2011.  In November 2011, the company entered into an “understanding” with one of China’s largest electric utilities, China Huadian Engineering, to finance the Fulton plant and four others in the U.S.  Still no word on whether he Memorandum of Understanding between the two has been taken to the next level.  China investors are notorious for negotiating even after signing on the dotted line.

The company is also going to need capital to execute on an agreement signed in February 2012 with GS Caltex, a Korean petroleum company.  BlueFire has teamed up with GS Caltex to build a biorefinery in Korea.  The plan is to turn two tons of construction and demolition debris per day into cellulosic sugar that will in turn be processed with BlueFire’s proprietary technology into high-value chemicals such as biobutanol and ethanol.

BlueFire has a lot on its plate and having adequate capital in the near-term is critical.  As unpalatable as the dilutive effects of the two equity lines of credit might be, the opportunity cost in the form of foregone projects appears very high.  We expect trading in BFRE shares to reflect for several months the overhang from the lines of credit.  Any news short of production announcement is likely to support the stock price, but not drive valuation higher.  If you are a current shareholder of BFRE you are in to a long wait.

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.  BFRE is included in the BioFuel Group of Crystal Equity Research’s Beach Boys Index.

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