KiOR’s IPO Fizzles; Forisk Analysis “Nailed It!”

27 06 2011

Last month, our team published a project-by-project study of the US biofuels sector called “Transportation Fuels from Wood: Investment and Market Implications of Current Projects and Technologies.”  One of the 36 projects evaluated in the study is KiOR, which went public on Friday (June 24, 2011) at $15 per share, nearly 30% below the top of the expected range.  The IPO proved uneventful, with shares closing where they started at $15.

An investor and buyer of our research contacted me over the weekend.  “You guys nailed it!” he said.

So far, that appears to be the case.  Our technology assessment of KiOR indicates a high level of technology risk and that commercialization could be at least eight years into the future. In addition, the firm produces end products that require additional refining; these are not drop-in fuels.

KiOR, which lost $45.9 million in 2010, remains unprofitable and has yet to produce at commercial scale.  While KiOR has the potential to be a successful biofuels company, the IPO simply gets KiOR closer to the capital it must have to give the commercial scale facilities any chance of completion, regardless of whether or not the technology functions and yields materialize as planned.

In addition, the bedrock support for biofuel tax credits has cracked.  On June 16th, the U.S. Senate voted 73 to 27 to repeal the 45 cent per gallon tax credit on biofuel and the 54 cent per gallon tariff on imported ethanol.  While the House is expected to reject the measure, it received broad bipartisan support.  This signals another red flag for investments in wood biofuel projects dependent on government-based subsidies.

For more information about this study, please click here.

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