Tuesday, June 05, 2012

Iogen Trims Energy Plans

It seemed so promising.  The unwelcome encroachment of ethanol production on the world’s supply of corn could be avoided by using otherwise inedible plants.  Unfortunately, successful volume production of cellulosic ethanol has eluded developers. 

Iogen Corporation is the most recent to fold a potentially losing hand.  In April 2012, the company announced that plans have changed for its joint venture with Shell Oil called Iogen Energy.  Iogen Energy had been producing cellulosic ethanol since 2004 at its Ottawa-based test facility using wheat straw as feedstock and a cocktail of Iogen’s enzymes to convert all that fiber to a fermentable stew.  The demonstration plant is now idle and Iogen trimmed 150 jobs from teh payroll and reassigned some of the 110 employees it has left.  Plans to scale up ethanol production have been scrapped for now in favor of a "refocusing" effort that may keep production limited to the test facility...or not. 

Iogen suggests no final decisions have been made and all options are on the table.  The company maintains its cellulosic ethanol process using Iogen's designer enzymes were proven and that there is no technological impediment to scaling up to volume ethanol production.  Apparently, there were viewpoints in the Iogen-Shell conversation that a large-scale production facility might not be the only way to monetize the joint venture's development accomplishments.  Yet Iogen offers no specifics and no timeline for a decision, so we are left wondering why something so promising is left on the drawing board.

Shell Oil’s plans to source ethanol from the Iogen joint venture appear to be nixed for the time being anyway.  It will have to rely instead on ethanol produced at its joint venture with Cosan S.A. (CSAN3).  Called Raizen, the Brazil-based joint venture produces ethanol from sugar cane.  Cosan has had no trouble scaling up production to high volume levels using conventional ethanol production processes.  Ultimatley, Raízen is expected to produce over 2.2 billion liters of ethanol per year to supply the Brazil and world markets.

With the energy operation downsized, Iogen apparently plans to refocus the majority of its  efforts on its industrial enzyme business.  Its enzymes may not be in use for ethanol production, but the company has had success in other processes.  Iogen produces enzymes used in four main markets:  pulp and paper, textile, grain processing and animal feed.  For example, Iogen’s enzymes are used in the bleaching of pulp to decrease the need for chlorinated chemicals, reduce cost and improve quality.  Enzymes are also used to improve and increase the efficiency of animal feeds and to improve yields and quality, maximize throughput in the brewing and grain processing industries.

Iogen is a private company so we can only speculate on the company’s financial success.  My guess is that Iogen’s industrial enzymes business is profitable.  Pulling back the cellulosic ethanol plans probably improves Iogen’s cash flow picture.  However, it would be highly speculative to suggest Iogen would bring the industrial enzyme segment public so the rest of us could get a taste.

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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