Analysts at Water Tower Research issued a note Tuesday on Gevo Inc (NASDAQ:GEVO) (FRA:ZGV3) that pointed out it has secured a series of off-take agreements that now total 49 MGPY, which is a “critical milestone,” that puts the company in the position to need plants that will require key project financing to construct.
In April this year, Colorado-based Gevo which is developing renewable alternatives to petrol, hired investment giant Citigroup Inc (NYSE:C) to lead the process to procure the capital needed to build up to three production facilities. Gevo estimates the project capital cost would be around $700 million, including $200 million of equity and $500 million of debt.
“The key takeaway of this is that If Gevo can secure financing, it should be able to move ahead with plant construction. Then the delivery of product and hence revenue, keeping in mind the construction and delivery will take up to two years,” said Shawn Severson, head of ClimateTech & ESG Research at Water Tower.
“Nonetheless, this would be the validation of GEVO's hydrocarbons as a commercial product and create revenue. We also review the potential for GEVO to invest capital at the plant level to enable shareholders to participate in the IRRs generated by investing at the plant level,” he added.
Gevo believes that based on the take-or-pay contracts that project financing can be obtained. Gevo recently raised capital and now has approximately $80 million on its balance sheet.
“This capital infusion substantially improves Gevo's ability to execute on strategic plans,” said Severson.
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