Ron Amundson’s Political Blog

Reviewing Minnergys SEC filings

This looks to be a deal not unlike the VC world of 10 years ago, ie throw money at anything with a dotcom. Granted, had this business been proposed some years back, I think they may well have been onto something big… but alas, at this point, the corn ethanol economy will die. Its not a matter of if, but a matter of when… and the when part, being mostly politically, but also tech driven, makes it pretty hard to put any decent projections in place. Then again, with the current state of investments, it might be ok for a 3-5 year deal, but a clear exit strategy to bow out fast would be an absolute must.

The end result, apart from the potential for environmental damage, major decreases in property values for the city of Eyota, and likely significant health concerns fot its citizens while the plant remains viable, is that some years down the road… it becomes an albatross, and considering the size, it could become a real bear of a remediation nightmare. (yep, years ago, I consulted at Rocky Flats, so well aware of remediation nightmares) I just would hate to see such occur in Southeast MN.

The list of SEC filings for Minnergy:

http://us1.institutionalriskanalytics.com/SEC/SEC_Listing.asp?b=&yr=all&qtr=all&cik=1366512

In 2006, perhaps it made some business sense, but today…. the business plan parallels many of the dotcom bomb business plans, albeit SarOx does require more disclosure of risk than back then.

Some interesting snippets.

We have little to no experience in the ethanol industry, which increases the risk of our inability to build and operate the ethanol plant.

Ouch!

None of our governors has expertise in the ethanol industry. See “GOVERNORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.” In addition, certain governors on our board are presently engaged in business and other activities which impose substantial demand on the time and attention of such governors.

Triple ouch!!!

Our governors and officers have other business and management responsibilities which may cause conflicts of interest in the allocation of their time and services to our project.

Warning…. usually an automatic no on the part of tech venture funding, albeit alternative energy is different.

We expect to be heavily dependent on rail as our primary mode of transporting our product to distribution terminals.

Understandable… but thats hazmat transfer of a substantial magnitude, plus with the CP/DME purchase, the emphasis will be on coal transport. Will there be capacity for ethanol at the proposed speeds and density they want to run?

Competition from the advancement of alternative fuels may lessen the demand for ethanol and negatively impact our profitability, which could reduce the value of your investment.

Alternative fuels, gasoline oxygenates and ethanol production methods are continually under development. Although currently in the experimental stage, future large-scale biobutanol production may increase competition for agricultural feedstocks or provide a competitive advantage to pipeline owners, Additionally, a number of automotive, industrial and power generation manufacturers are developing alternative clean power systems using fuel cells or clean burning gaseous fuels. Like ethanol, the emerging fuel cell industry offers a technological option to address increasing worldwide energy costs, the long-term availability of petroleum reserves and environmental concerns.

This could be a concern, although fuel cell, biobutanol, and hydrogen tech are likely quite a ways off from consumer commercializtion. Not a factor in the short term, but 10-20 years… could be a factor. The biggest threat may well be CNG or electric.

Corn-based ethanol may compete with cellulose-based ethanol in the future, which could make it more difficult for us to produce ethanol on a cost-effective basis….

The current trend in ethanol production research is to develop an efficient method of producing ethanol from cellulose-based biomass, such as agricultural waste, forest residue, municipal solid waste, and energy crops. This trend is driven by the fact that cellulose-based biomass is generally cheaper than corn….

Add in biomass is much greener, cheaper overall, and has greater consumer acceptance, and this is a huge threat.

If an efficient method of producing ethanol from cellulose-based biomass is developed, we may not be able to compete effectively. We do not believe it will be cost-effective to convert the ethanol plant we are proposing into a plant which will use cellulose-based biomass to produce ethanol. If we are unable to produce ethanol as cost-effectively as cellulose-based producers, our ability to generate revenue will be negatively impacted…

Huge warning!!!

Consumer resistance to the use of ethanol based on the belief that ethanol is expensive, adds to air pollution, harms engines, reduces fuel efficiency, takes more energy to produce than it contributes and leads to increased food prices which may affect the demand for ethanol and could affect our ability to market our product, reducing the value of your investment.
Media reports in the popular press indicate that some consumers believe that use of ethanol will have a negative impact on gasoline prices at the pump. Many also believe that ethanol adds to air pollution and harms car and truck engines. It is also widely reported that ethanol products such as E85 significantly reduce fuel economy and cause overall fuel costs to substantially increase. E85 fuel is a blend of 85% ethanol and 15% gasoline. Researchers have published studies reporting that the production of ethanol actually uses more fossil energy, such as oil and natural gas, than the amount of ethanol that is produced. In addition, recent high corn prices have added to consumer backlash against ethanol, as many consumers blame ethanol for high food prices.

Research overwhelmingly supports the bolded sections, albeit there are ethanol industry sponsored studies in the minority which dispute the greater scientific evidence.

Government incentives for ethanol production, including federal tax incentives, may be eliminated in the future, which could hinder our ability to operate at a profit and reduce the value of your investment in us.

A business dependent upon incentives is a scary one indeed, esp in 4th qtr 2008 – 2010 economy.

The ethanol industry and our business depend upon continuation of the federal ethanol supports discussed above. These incentives have supported a market for ethanol that might disappear without the incentives.

This would seem to be a deal killer,not so much in 2000, but after the 2008 energy bill and the general refocusing on cellulosic ethanol, it would seem that in a few short years, corn based ethanol will go the way of the buggy whip.

On April 11, 2008 we entered into a Negative Pledge Agreement and note for the sum of $2,040,000 in favor of Winona National Bank to purchase real estate owned by Gary, Linda and Dana Allen near Eyota. In June 2008 we replaced the Negative Pledge Agreement and note with a conventional mortgage and note with Winona National Bank. Pursuant to the renegotiated note, interest shall be payable on a monthly basis at a fixed rate of 4.1%. The entire balance of principal and interest accruing on the note will come due on October 6, 2009. Winona National Bank required personal guaranties in the amount of $1,950,000 for the issuance of the loan.

Hmmm…. too bad they didnt wait, it likely would be a lot cheaper in a few months, albeit 2 of the aforementioned individuals are members of the company. It must be some good land… $2.2 million for 175 acres plus buildings… where as another parcel is $1.45million for 145 acres, albeit the 145 acres is not a purchase, but an option. Either way, likely was a real good deal for those who sold the land. Real estate purchases before the ducks are in a row doesnt seem too prudent, but alas its water over the dam at this point.