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Ethanol start-up gets critical cash boost
Parent company BioFuel Energy extended a $20 million credit to its new Fairmont plant.
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Two months after opening an ethanol plant in Fairmont, Minn., Buffalo Lake Energy on Friday gained access to a $20 million line of credit from its parent firm to keep its furnaces burning.
The stock of the parent company, Denver-based BioFuel Energy Corp., soared 16 percent on the news. BioFuel shares on Friday closed at $1.44 a share, up 20 cents. The stock sold at $6.98 at the start of this year.
In a government filing Friday, BioFuel revealed it had lost $39 million on hedging and related financial agreements with Minnetonka-based Cargill, Inc.
"Cargill has not yet been paid for approximately $22 million of these amounts," BioFuel said in a report to the Securities and Exchange Commission.
"The parent company currently does not have sufficient liquidity to retire these obligations," said BioFuel, whose subsidiaries operate the Fairmont ethanol plant and another in Wood River, Neb.
"The operating subsidiaries have received approximately $25 million of parent company corn inventory that it has not been reimbursed for," the company disclosed.
BioFuel said talks with Cargill aim to find a solution to the problem. "However, there can be no assurances that these efforts will prove successful," it said.
BioFuel is not the only company to face disappointment in making ethanol, once thought to be a golden product for investors.
Brookings, S.D.-based VeraSun, another ethanol producer, has been plagued by rising debt, narrowing profit margins and negative cash flow. Its stock closed at $5.76 on Friday, up 7 cents. But VeraSun shares started the year at $15.20.
Volatile corn prices and other inputs, together with tightening credit, have unbalanced many in the industry, including BioFuel.
The price of corn, at nearly $6 a bushel, is more than 2 1/2 times higher than when the Buffalo Lake Energy plant was announced in 2005. It has an annual production capacity of 115 million gallons of ethanol.
"They've been running at partial capacity. Corn is still fairly high in price," said state Rep. Bob Gunther, R-Fairmont. "It's not as profitable a business as it was a year ago."
As of the end of June, BioFuel Energy had spent $306 million to build its subsidiaries' two plants, according to the company's latest financial report.
To help them through troubled waters, the company granted the subsidiaries access to $20 million in capital, up from their previous credit limits of $5 million, BioFuel said in a news release.
Neither BioFuel nor Buffalo Lake Energy officials were available for comment Friday about the line of credit extension.
Jim Zarling, Fairmont city commissioner, said one problem facing BioFuel is that the company signed contracts to buy more corn than the Fairmont plant can profitably process at current prices.
"They didn't need as much corn as they thought they did," Zarling said.
But he said the community is happy to have more than 55 new jobs at the Fairmont plant. He said the current financial pinch should be seen as growing pains.
"Based on the information we have, it's a start-up that needed that additional money to help with the start-up process," Zarling said.
Mike Meyers • 612-673-1746
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