Struggling Heron Lake ethanol plant being sold for $55 million

  • Article by: DAVID SHAFFER , Star Tribune
  • Updated: January 24, 2013 - 9:06 PM

Owners of the Heron Lake plant are unlikely to recoup much of their investment.

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Fagen Inc. construction workers pieced together a giant fermenting tank when the Heron Lake BioEnergy plant was under construction in Heron Lake, Minn., in 2007.

Photo: David Joles, Star Tribune

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A struggling ethanol plant in Heron Lake, Minn., is being sold to a group of financially stronger producers for $55 million.

Heron Lake BioEnergy, 20 miles northeast of Worthington, opened in 2007 and is one of the state's larger ethanol plants with an annual production capacity of 55 million gallons. It has 33 employees, and is owned by 1,100 investors, many of them farmers.

But the plant, which has $45 million in debt, had negative operating margins for the past five quarters, according to regulatory filings.

Under a deal signed Tuesday and expected to close next month, the plant will be acquired by Guardian Energy Heron Lake LLC, a company formed by four ethanol producers that also were part of a group that purchased the Janesville, Minn., ethanol plant in 2009.

The deal underscores the challenges facing the ethanol industry, where high corn prices have squeezed margins, hurting producers with higher debt. Six other Minnesota-affiliated ethanol companies also reported losses in the most recent financial quarter, and one of them, Advanced BioEnergy, based in Bloomington, sold off a Nebraska ethanol plant in October.

"They have been struggling for some time," said Larry Johnson, a Cologne, Minn.-based ethanol consultant to the Heron Lake plant. He said he doubted that investors will be getting much of their money back, given the company's high level of debt.

"The plants with poor balance sheets are getting taken over by those with better balance sheets," said Johnson, who helped raise investment capital for many early Minnesota ethanol ventures, but not Heron Lake.

He said Heron Lake, like other ethanol ventures launched after the mid-2000s, missed the industry's boom earlier in the last decade and faced higher capital costs to build the plant.

The buyer group includes Al-Corn Clean Fuel Cooperative, Claremont, Minn.; Chippewa Valley Ethanol Co., Benson, Minn.; Heartland Corn Products, Winthrop, Minn.; and KAAPA Ethanol LLC, Minden, Neb.

Guardian Energy Management, which runs the Janesville plant, will manage the Heron Lake plant, said Don Gales, CEO of the management company. All Heron Lake employees, except for top managers, are expected to be retained, he said.

"Our intention is to maintain operations like they have been," Gales said.

Guardian won't acquire the Lakefield Farmers Elevator owned by Heron Lake BioEnergy. In a deal announced earlier this month, the elevator is being acquired by the farmer-owned FCA Co-op, based in Jackson, Minn., for $3.7 million.

A majority of Heron Lake partnership unit holders must approve the sale. An SEC filing said the deal is supported by the largest Heron Lake investor, Project Viking, a partnership owned by Ron Fagen, CEO of ethanol and renewable energy contractor Fagen Inc., and his spouse, Diane Fagen, who also is an executive with the Granite Falls, Minn., company. They control nearly 45 percent of the outstanding partnership units.

Gales said Guardian is owned by farmers, and they wish to keep it that way even as the industry consolidates.

"We have a strong desire to maintain a farmer-owned and controlled system and bring value back to them," Gales said in an interview.

David Shaffer • 612-673-7090 Twitter: @ShafferStrib

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