Tyson Foods, Syntroleum burning through cash with Dynamic Fuels plant

The $150 million Dynamic Fuels plant in Geismar, La., jointly owned by Tyson Foods and Syntroleum Fuels came online in November 2010, but has failed to live up to its original production goals of 75 million gallons of renewable fuel per year.

The idea of turning low grade chicken fat into renewable fuel was heralded news by Tyson Foods and its partner Syntroleum in 2009. Now the clock is ticking for Syntroleum and its financial future hinges on a shareholder vote on June 3 to sell all of its assets, including its 50% interest in Dynamic Fuels to Renewable Energy Group. Without approval to merge with REG, Syntroleum noted in its recent proxy statement that it’s likely looking at bankruptcy liquidation given it has run through its cash while the Geismar plant sits idle.

The plant has been idle since November 2012, costing each partner $1 million per month to keep the facility in standby mode. Aside from the $1 million cash burn per month, Ron Stinebaugh, executive with Tulsa-based Syntroleum, estimated in December the plant had lost out on roughly $20 million in potential sales as the partners could not agree on the restart terms.

The venture, despite all its potential, has been a money pit for thinly capitalized Syntroleum. For the quarter ended Sept. 30, 2013, Syntroleum reported a loss from Dynamic Fuels of $3.5 million. This compares to a loss of $3.3 million for the quarter ended June 30, 2013, while the plant has been on standby mode. There is a three month lag in the Dynamic Fuels report compared to Syntroleum’s regular reporting.

Syntroleum notes that it had reported income of $6.7 million from Dynamic Fuels in the December quarter resulting from its portion of a reinstated $1 per gallon tax credit from 2012. This income was offset by losses of $5.9 million in the quarter ending Dec. 31. Syntroleum said the equity loss of Dynamic Fuels for the quarter ended Mar. 31, 2014 was $3.4 million. 

Tyson Foods had no comment on restart plans when asked recently during a May 5 earnings call with the media. In a previous call Tyson Foods CEO Donnie Smith told The City Wire the plant would stay idle while its partner was shopping for a buyer. He said Tyson would be willing work with another partner if Syntroleum’s interest was sold.

The partners said the cost to restart the plant is an estimated $20 million, based on feedstock prices. As of March 31, Syntroleum's available cash position was $7.8 million, down from $11.4 million at the end of 2013.

Dynamic Fuels was idled in November 2012 because of deteriorating market conditions. The partners anted up $7.3 million in the spring of 2013 to replace a catalyst in the facility that is supposed to increase production efficiency. That catalyst was installed on June 28 and the plant was not started on the scheduled date of July 30, 2013.

Syntroleum encourages its shareholders to approve the sale to REG, stating that it was the best offer on the table and provides the greatest potential for shareholders to see more value in their investment.

“If the asset sale or another similar transaction is not approved and consummated on a timely basis, the Geismar Facility does not return to operational status on a timely basis, and/or Syntroleum does not obtain substantial new debt or equity financing on a timely basis, Syntroleum would not likely have sufficient resources to continue operations and may be required to seek protection under the U.S. Bankruptcy Code or similar relief. In such an event, it is possible that there would not be significant assets, or any assets, available for distribution to Syntroleum’s stockholders,” Syntroleum noted in its recent proxy statement with the federal Securities and Exchange Commission.

Syntroleum investors are already voting with their feet, as the stock price tumbled nearly 2% to $3.36 on Tuesday, May 13. Shares (NASDAQ: SYNM) were trading as high as $7.55 last July on hope the Geismar plant would soon reopen. Shares were trading slightly higher at $3.38 in mid-day trading on Wednesday.

Syntroleum has a market cap of roughly $33.4 million with 10 million outstanding shares. Renewable Energy Group (NASDAQ: REGI) has a market cap of $395.64 million with 37 million shares outstanding. Shares closed Tuesday, May 13 at $10.20 up 7 cents. Shares were trading down to $10.13 in mid-day trading on Wednesday.

Analysts with Raymond James & Associates said the deal between Syntroleum and Renewable Energy Group is a rare instance of corporate M&A in the U.S. biofuel industry. Buying individual plants and strategic partnerships have been far more common.

Analysts at Cannacord Genuity called the deal “positive, but risky.” The all-stock deal would diversify Renewable Energy into the “next generation” of renewable diesel. They noted the joint venture with Tyson, has been hampered by feedstock, catalyst and equipment failures.