Dot Corn Boom : Vera Sun IPO soars

Yesterday VeraSun Energy Corporation (NYSE: VSE) announced today the pricing of its initial public offering of 18,250,000 shares of its common stock at $23 per share (before underwriting discounts and commissions). VeraSun is selling 11,000,000 shares and some shareholders are selling 7,250,000 shares. In addition, certain of the selling shareholders have granted the underwriters a 30-day option to purchase up to an additional 2,737,500 shares of common stock at the initial public offering price.On first days trading the shares soared to US$30 a rise of 30%. (pic a mixed ethanol / gas pump)

This puts a value on the company of 200 times its annualized earnings from the March quarter 2006. Compare that with (say) 50 for Google.

The company has 2 ethanol production facilities, a 120 million gallon per year ethanol plant in Aurora, South Dakota, and a 110 million gallon per year ethanol plant in Fort Dodge, Iowa. VeraSun is the nation's second-largest ethanol producer. A third plant is already being built in Charles City, Iowa. Net sales proceeds will finance a portion of the construction costs of two additional ethanol production facilities in the upper Midwest, with the balance expected to come from cash-on-hand and cash generated from operations during the construction period.

The Charles City plant will make 110 million gallons per year of ethanol . VeraSun estimates the plant will employ 50 skilled workers with $2 million in annual salaries. The plant will also increase tax revenue for the community, which will result in additional monies for community projects such as schools, parks and infrastructure projects.

VeraSun has begun site preparation and plans to complete construction of the plant by late summer 2007. The plant is being engineered by ICM Inc., of Colwich, Kan., and the general contractor is Fagen Inc., of Granite Falls, Minn.

Nationwide USA There are 32 ethanol plants being built, and six of the 101 already operating are being expanded currently producing 4.8 Mn gallons , says the Renewable Fuels Association.

The US market price of a gallon (3.8litres ) of ethanol hit $2.30 on March 31.. That's up 43% from a year earlier and double from 2002.Corn prices remain stagnant - The average US price per bushel was $2.22 in March, up 8% from a year earlier and down 5% from 2002 which makes ethanol competitive/ Hoever it costs more to make ethanol that it can be sold for although the Energy Act 2005l requires increasing amounts of ethanol (The renewable Fuel element) in fuel every year through 2012.

Hawkeye Holdings and Aventine Renewable Energy, the No. 3 and No. 4 producers of ethanol, are planning IPOs - Archer Daniels Midland Co. (ADM) the nations biggest ethanol producer (25%) will double its capital spending to between $3.5 billion and $4 billion over the next few years on investments in new ethanol and biodiesel plants, as well as other projects, which will be profitable even if oil drops below the current $70 or so per barrel. ADM have also announced the formation of an ethanol marketing agreement to market all ethanol produced by Millennium Ethanol at its forthcoming 100 million gallon Marion, South Dakota facility. (Just remember in all this frenzy ADM stock has skyrocketed 73% this year through late May, an incredible run for a company that posted 0.6% lower revenue of $35.9 billion in the fiscal year ended June 2005.)

Over on the West Coast the recently launched Pacific Ethanol, (which has yet to produce any ethanol) saw shares rise , rose $1.50, or 7.5 percent, to $21.64. They peaked in May at $42.39 after Microsoft Corp. founder Bill Gates had invested $84 million in the company through his Cascade Investment LLC.(Bill told me today he has retired from MS and is concentrating on this charities).

Fresno, California-based Pacific Ethanol is building a 35 million gallon-a-year plant near Fresno that will make it the biggest ethanol producer in the state. Pacific Ethanol plans four more distilleries on the West Coast by the end of 2008.

Ethanol is of course also sourced in Brazil and elsewher from sugar cane and is being imported, but the U.S. is unlikely to drop the current 54-cent-a-gallon tariff on imported ethanol, one of the few issues that had bipartisan support in a divided Congress.

More information at the national Corn Growers Association.