Gevo in the Wind

Gevo Wind Towers

Renewable energy purists can look more favorably on Gevo, Inc. (GEVO:  Nasdaq) after this week as the company reduces its own carbon footprint with wind technology.   On May 1st Gevo will commission two wind generation towers at its Luverne, Minnesota renewable fuel production complex.  Up to this point Gevo had been buying electricity from the grid in Minnesota, which means a coal-fired power supply.  Gevo turned to another Minnesota company, Juhl Energy (JUHL:  Nasdaq), to build and operate the wind power installation. 

The two wind turbines will have a combined capacity to supply up to 5.0 megawatts of electricity to Gevo’s isobutanol plant in Luverne.  The new electricity supply source will earn Gevo a lower carbon intensity score under California’s Carbon Fuel Standard.  Excess output will be sold to Missouri River Energy Services, the local electric utility.

Arbor Day: Virtual Tree Planting

The low rolling hills of Nebraska stretch for miles, treeless and punctuated only by a few Pawnee Buttes sand cherry shrubs.  In the 1805s when Julius Sterling Morton reached the Nebraska plains with his bride Caroline, he was driven to begin planting fruit orchards and wind breaks.  A newspaper publisher and later politician, Julius used his bully pulpits to encourage tree planting.  He made such an impression on his Nebraska neighbors that Arbor Day was declared a state holiday for the planting of forest and fruit trees.  Within twenty years all but one of the other states had followed suit.  Schools took the day a step further by adding dedications for special people to each tree planting.

Morton was onto something…and so were the children.  In 2020, the wrinkle of social distancing to stamp out the coronavirus gives Arbor Day new relevance.  Habitat destruction and global warming are two environmental concerns that have led to changes in distribution of viral disease and the transfer of disease from wild animals to humans.  Besides offering a diversion compatible with social distancing, tree planting provides a long-term solution to the underlying environmental problem. 

It is also an interesting proposition for the investor with a green stripe down their back .

Earth Day at a Social Distance

Five decades ago a few college students and a U.S. Congressman started what has become an annual nationwide event dedicated to promoting environmental protection.  It should be a big party for Earth Day’s fiftieth birthday.  Instead it will be a muted acknowledgement with a global virus pandemic still in full force and governments around the world strictly enforcing business shutdown and stay-at-home policies.  Yet no day could be more relevant as people around the world languish in their homes.  Some are suffering from the coronavirus itself and many of the others worried about paying rent and buying groceries.  Everyone is wondering how a little virus could cause so much damage.

The question is especially appropriate for Earth Day.  Disease is inextricably linked to the environment.  In 2006, the World Health Organization (WHO) report reported that as much as a quarter of global disease is caused by environmental factors.  Investors would be well advised to understand the disease-environment dynamic as the world risks the economic upheaval of more pandemics.

Ouch! Covanta Cuts Dividend

The coronavirus pandemic claims one of its first dividend victims.  Waste handler Covanta Holding (CVA:  NYSE) is making several changes its cash management and capital structure in light of adversity in its operating environment.  Policies such as work stoppages and social distancing aimed at the health threat of the virus have led to shifts in waste generation patterns and added costs for worker protection.  Looking ahead to the unknown Covanta management appears to have acted quickly for the sake of conserving capital that might be needed under worst case scenarios.

First, Covanta is cutting its dividend from $1.00 to $0.32 per share.  The move is expected to save $90 million annually.  That will be a big boost to company’s cash kitty.  Investors may not be so enthusiastic about seeing the money there and not in their own bank account.  At the new payout level and the current stock price, the dividend yield is 4.3%.  This yield is still appealing for many investors interested in current income given comparatively low interest rates.  Thus while current shareholders may feel the loss, new investors could still see CVA as an attractive stock.

Mineral Asset Immunity

Considerable uncertainty has been injected into the energy mineral market by the emergence of a novel coronavirus first in China and then nearly every other country in the world.  China has extensive deposits of coal, which is a critical energy source at home.  The rest of the world is probably more interested in the materials China produces that are needed in sustainable devices and vehicles.  In 2018, China produced 8,000 metric tons of lithium needed for the lithium ion batteries that have become the ubiquitous component of sustainable devices.  This puts China at number three in the world for lithium production.   It is also a top producer of aluminum, magnesium, antimony, rare earths, and graphite. 

China’s influence in energy minerals does not end with mining.  The Red Dragon is also busy with graphite processing, another key material in lithium ion batteries.  In field work related to the coverage of Westwater Resources (WWR:  Nasdaq), an energy minerals developer in our coverage group,  the most recent developments in the graphite market were a central line of scrutiny.

Easter Wishes

May the renewal of life 

that is the inspiration of Easter

bring new blessing of love, hope, peace and 

good health to you and your loved ones.

Lights Out at Fuel System Manufacturing Facilities

In mid March 2020, in response to a government directive Westport Fuel Systems (WPRT:  Nasdaq) has shut down production at facilities in three different communities in Italy.  The Italian government has ordered the entire country into home quarantine along with full stop to commercial activity as well as public gatherings.  The company’s announcement of the shutdown suggested that the suspension was only through April 3^rd, but that it could be extended to comply with government orders if necessary.  Indeed, the Italian prime minister has extended the lockdown through at least Easter, leaving the country’s 60 million citizens sequestered at home.

Of course, Westport is among many having to turn the lights off at otherwise busy facilities.  Lights are off on the company's stock price as well.  The question for investors is not unlike the conundrum that many face:  is the stock a tempting bargain or smelly baggage?

Methanex Budget Cut

Initially investors were worried about a few delayed orders as a consequence of the coronavirus outbreak in China.  The global supply chain, of which China is a critical link, would be temporarily interrupted by work stoppages in that country.  As the virus jumped to other countries it became clear that businesses all over the world could experience business interruption and that could mean significant earnings erosion. 

Investor alarm spiked as denial and dysfunctional appeared to be the main themes in the U.S. policy response to the situation.  Panic ensued destroying billions in the U.S. capital base.  Bank of America estimates the U.S. economy could shrink by 12% in the second quarter ending June and that for the full year 2020 the U.S. gross domestic product could shrink by 0.8%.  As many as 3.5 million jobs will be eliminated. 

Public spending has had to take the place of private capital to stabilize the economy by creating near-term liquidity.  While that might help the unemployed for a period of time, it will not support capital spending in the long term.  Caput will go the projects that investors might have been counting on to drive growth in the years to come.