D1 Oils in the UK is planning its IPO next month, and hopes to raise £20m on an assessed value for the company of £50m. In June, another biodiesel firm, Biofuels Corporation (BFC), raised £15m in its IPO, with a company valuation of £22m.
Bankers are having a tough time putting a value on these companies. The Business Telegraph puts it:
Bankers say that placing a value on D1’s assets is difficult, given the emerging nature of the market, but some believe the company could have a market capitalization of anything between £50m and £100m.
Nevertheless, given the projected demand for biodiesel in Europe (2.8 billion gallons per year by 2010), the investment money will come. Biofuels has actually done quite well over the past few months. (See chart at right.)
(As the market for biofuels grows, investors and public funding agencies will need to be cautious. Given the relatively low cost of entry for producers, the increasing amount of grant and subsidy money emerging, and growing public enthusiasm, there inevitably will emerge some operations that are more concerned with making a quick buck than in creating a valuable company with a great product for the long term. This is what happened with the dot-com bubble.)
BFC is building Europe’s biggest biodiesel plant, capable of producing 250,000 metric tons (1.875 million barrels) of the fuel every year.
D1 is taking a different approach. D1 has developed small refineries, about the size of a large shipping container, which can be used in remote sites to process plant oil into biodiesel. It has secured rights over 37,000 hectares (91,429 acres or 142.9 square miles) of land in Africa, India and South East Asia to cultivate jatropha, a hardy shrub that grows in difficult conditions, as the feedstock. (India together with DaimlerChrysler have been working with jatropha-based biodiesel in the Mercedes biodiesel demonstrations (earlier post).)
D1 estimates that each hectare could produce around 793 gallons of fuel (equivalent to approximately 18.9 petroleum barrels) of fuel, for a total capacity of some 700,000 barrels.
The company also has options for plantation rights over a further 6m hectares, a land area three times the size of Wales. If the company took those options, at the currently projected rate of production, it would add another 113 million barrels of production.