Tyson’s bio-fuel venture burning cash

Tyson Foods' bio-fuels plant in Geismar, La., has been idle for six months, as the company continues to mull its operational feasibility, according to Jim Lochner, chief operating officer for Tyson Foods Inc.

The Dynamic Fuels plant is a joint venture between Springdale-based Tyson Foods and Tulsa-based Syntroleum. The plant was to take chicken fat and other lower value animal byproducts and convert them into renewable fuel. But the venture has failed to live up to its original production goals — 75 million gallons of renewable fuels per year.

During the quarter ended March 31, Tyson and its partner Syntroleum each made additional equity contributions of $1.7 million and working capital loans of $4 million to Dynamic Fuels to fund operations to maintain the Geismar plant in standby mode.

Lochner said the company continues to access the situation but gave no indication of when or if the plant will be resume operations. Syntroleum will discuss the venture in its earnings call on May 8.

Dynamic Fuels is the first and only plant of its kind, but the companies have had ongoing difficulties since coming online in November 2010. Last fall the plant stopped production for economic reasons, and has not been restarted since that time. The Dynamic Fuels plant has fixed costs of around $2.5 million, $2.1 million of which are cash expenses. The other $400,000 is depreciation. That means the partners each absorb losses of about $1 million per month on this venture.

Late last year as production margins were negative and the passage of the tax credit extension was uncertain, analysts said it made economic sense to idle the plant.

The $1 per gallon tax credit was recently extended and the partners were paid retroactively. Just last month Syntroleum reported it had received $8.986 million from the Internal Revenue Service for its portion of the 2012 reinstated $1 per gallon tax credit for the production of renewable diesel. Tyson, a 50% partner in the venture, got the same amount.

The biggest concern for investors of Syntroleum is the ongoing cash burn as the Dynamic Fuels plant fails to live up to its original goals. Analysts say the plant still has the opportunity to succeed if past performance results can be duplicated.

During September and October of 2012, the plant produced 8.8 million gallons of renewable fuel – running at roughly 71% capacity levels.

Analysts said now that operating margins are near $1 per gallon, it will be interesting to see how long the plant remains idle.

Each of the partners committed $75 million toward the $150 million renewable fuels plant venture. They secured $100 million in low interest (1.3%) government bonds provided to ventures that created jobs in Louisiana. At the plant peak it was to employ 75 workers. The balance of the $150 million was contributed equally between the two partners.