Water Tower Research says Gevo has clear path to ‘significant cash flow’ by building off of the Net-Zero concept

Analysts at Water Tower said this is “no longer just an idea but is being validated” by Gevo inking around $1.6 billion in offtake agreements, as part of an approximately $20 billion pipeline of contract negotiations.
Analysts at Water Tower Research said Gevo is approaching the “tipping point” in terms of the commercialization of its renewable hydrocarbon technology and is poised to enjoy strong cash flow thanks to its significant offtake agreements.
“Building off of the Net-Zero concept, the company believes it has a clear pathway to significant cash flow. This is no longer just an idea but is being validated by the company’s inking of approximately $1.6 billion in offtake agreements as part of an approximately $20 billion pipeline of contract negotiations,” said analysts at Water Tower Research.
On August 20, 2021, Gevo said that it has entered into a binding Renewable Hydrocarbons Purchase and Sale Agreement with Trafigura Trading LLC, a wholly owned subsidiary of Trafigura Group Pte Ltd. The agreement is a long-term, take or pay contract and is the largest contract in Gevo’s history.
Under the contract, Trafigura is expected to take delivery of 25MPGY of renewable hydrocarbons, the majority of which is expected to be low-carbon premium gasoline with a smaller portion of the volume for sustainable aviation fuel (SAF), starting in 2023.
“Facilitating even part of this pipeline would require multiple Net-Zero plants with each producing an estimated $150-160 million in EBITDA per year at the plant level based on the company’s current assumptions,” noted Water Tower Research.
“This is backed by over $550 million in cash, cash equivalents, restricted cash, and marketable securities on the company’s balance sheet. The company also expects its RNG plant to begin generating cash flow in late 2022 providing a near-term source of cash.”
Gevo’s first Net-Zero production facility is expected to begin production in 2024 in Lake Preston, South Dakota. It will produce energy-dense liquid hydrocarbons that should have a net-zero greenhouse gas footprint across the whole of the life cycle when burned as transportation fuels.
The company’s Net-Zero 1 endeavor is progressing with initial engineering work well underway, and the next phase of engineering work expected to be completed by year-end, said Water Tower. The closing of debt financing and commencement of construction is expected to occur in the first half of 2022.
According to Water Tower, Gevo estimates annual plant capacity at 340 million pounds of high-value nutritional products, 30 million pounds of corn oil, and 46 million gallons per year (MGPY) of hydrocarbons for jet fuel and gasoline.

Uttara Choudhury @uttaraProactive