New Corn Ethanol Producer Acquires Cellulosic Ethanol Technology
11 August 2006
Alternative Energy Sources, a newly-formed corn ethanol producer led by former executives from Archer Daniels Midland, has entered into a letter of intent to acquire all of the outstanding capital stock of Flex Fuels USA—a developer of cellulosic ethanol technology—and its affiliate ACN Energy Consulting Inc. in a stock-for-stock merger. The parties expect to sign the merger agreement on or before Sept. 15, 2006.
Total consideration for the acquisition is up to 11.5 million shares of Alternative Energy Sources’s common stock, 8 million shares being issued upon execution of the merger agreement and 3.5 million shares being issued upon completion of certain milestones related to Flex Fuels USA’s cellulosic ethanol technology.
Alternative Energy is excited about adding cellulosic ethanol into our aggregate ethanol portfolio. We have had an intense period of carbohydrate-based ethanol evaluation of sites, and are in the process of optioning land in cornbelt states for greenfield plants. Adding cellulosic ethanol will provide tremendous diversification to our future ethanol production base.—Mark Beemer, CEO of Alternative Energy Sources
Flex Fuels, based in of Huntsville, Ala., has developed technology to produce cellulosic ethanol using biomass and other forms of waste rather than corn or sugar. Alternative Energy and Flex Fuels USA estimate four to five months of design and engineering, with an anticipated construction beginning in the second quarter of 2007. Once processes are finalized, he said the company anticipates building one of the first cellulosic ethanol facilities in the Eastern United States.
Formed on 12 June 2006, Alternative Energy Services is engaged in the development of greenfield sites, including constructing, owning and operating fuel-grade ethanol plants. Both Mark Beemer, CEO, and Lee Blank, COO, worked at Archer Daniels Midland.
On 20 June, Alternative Energy Sources merged with Beemer Energy, a privately held Delaware corporation engaged in the development of green-field ethanol sites, the conversion of existing industrial facilities to ethanol production and the management of ethanol businesses. The merger resulted in Beemer Energy becoming a publicly traded company, and Beemer’s management (Beemer and Blank) and board of directors have assumed operational control of Alternative Energy.
Concurrent with the closing of the merger, Alternative Energy Sources completed a $12 million private placement financing of common stock and warrants to a group of institutional and accredited investors. Initially targeting a $5 million financing, the private placement was significantly oversubscribed. The net proceeds from the financing will be used for general working capital purposes.
The company is developing two corn-based ethanol plants in Iowa. Both are expected to be in commercial production in 2008. Each plant is expected to produce approximately 110 million gallons of ethanol per year and more than than 500,000 tons of Dried Distillers Grains (DDGs) per year.
The company intends on lowering the cost of ethanol production via several mechanisms:
Coal-fired plants. The company projects that by using low-sulfur Powder River Basin Wyoming Coal for energy generation at the plants, it can reduce its costs per MMBTU by 70% compared to natural gas.
Economies of Scale. The company’s executives project that by building identical, large-capacity plants they can minimize repair and maintenance inventory. Management furthermore plans to use technology to reduce its labor requirements to those of smaller facilities producing 40 million gallons per year.
Unit Train Economics. Railroad economies of scale would be maximized by outbound 100-car unit-trains of ethanol and outbound 75- to 100-car DDG unit-trains. 100-car ethanol loading is intended to be accomplished in merely one day. The company plans to direct the ethanol shipments and DDG by-products into premium destination markets away from the saturated Midwest markets.
Lowest-Cost Producer Status. The ethanol plants are located in the Cornbelt on mainline railroads where cheap basis corn is grown. Droughts in these areas are minimized by the extensive deep prairie soils and truck sourcing of corn is available and plentiful.
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