Enerkem Inc. filed a registration statement to go public this week. Enerkem expects to offer 7.25 million shares at a price between $17.00 and $19.00 per share and they forecast the shares to begin trading on or about 4/4/2012 under the ticker symbol NRKM. Enerkem Inc. offering is underwritten by Goldman Sachs, Credit Suisse, and BMO Capital Markets. The Co Managers are Baird, Canaccord Genuity, and CIBC.
Enerkem’s primary business is a propietary technology to thermo-chemically convert municipal solid waste into usable fuel. Currently most of the worlds ethanol is produced from fermenting corn, wheat and other grains. Enerkem’s process uses a chemical reaction to generate chemical-grade syngas from waste feedstocks, which contain a a mix of textiles, plastics, and fibers. Along with biological feedstocks consisting of construction and demolition wood. The syngas is then converted through catalytic reactions into biofuels like ethanol and chemicals such as methanol.
The resulting chemicals are further identified into two product families: alcohols and acrylates. Some of the applications for the produced alcohols are transportation fuels, pharmaceuticals, polymers, cosmetic products, plastics and textiles. And the acrylates can be used for architectural and industrial coatings, plastics and adhesives.
Enerkem has established close strategic partnerships with both Waste Management Inc. and Valero Inc. Waste Management is a principal shareholder of Enerkem and a Waste Management vice president serves on Enerkem’s board of directors. The partnership also allows Enerkem to
sell and develop up to six systems using their proprietary technology platform to Waste Management.
Enerkem’s relationship with Valero allows them to sell up to six stand alone production facilities to Valero and allow those facilities to be located in existing Valero facilities. In addition there is a letter of intent with terms for Valero to have the first opportunity to buy ethanol at a price less than market from future facilities developed in a number of states.
Enerkem has an offtake agreement with Methanex Corporation to sell methanol created at their Edmonton facility. The president and CEO of Methanex Corp. is also a director at Enerkem Inc. In addition there is an offtake agreement to sell ethanol generated at the Westbury, Canada facility to GreenField Ethanol.
One of Enerkems main competitors is Syntec Biofuel, a publicly traded company on the over the counter market under the ticker symbol SYBF. Future Fuel is listed on the NYSE under the symbol FF and manufactors and sells chemical and biofuel products. KiOR has developed a platform to convert biomass into crude oil to be further processed into gasoline, diesel and other fuels. A couple other companies with similar businesses are Solazyme (SZYM) and Renewable Energy Group (REGI).
Another hindrance to Enerkem business is the recent decline in energy stocks as a sector. A lot of the decline is being fueled by a drop in natural gas prices and a steep decline in ethanol prices. A major cause of distress especially for alternative energy companies is pending legislation by the U.S. government to reduce or eliminate government tax subsidies.
One of the positive aspects of Enerkem’s business is the government subsidizes the clean production of Ethanol to the tune of $1.01 per gallon. A negative for U.S. investors is that because Enerkem is a Canadian company their reporting rules are not as stringent as they are for U.S. companies. Therefore, U.S. investors may have trouble acquiring a lot of information about the company. And lastly, Enerkem has not yet built a full scale production and commercially capable facility and such a facility may not be permitted by local governments which could hurt the business.
Of course one of the first ways Enerkem intends to use the money is to begin production on a facility capable of producing enough chemicals and biofuels to be commercially viable. This also includes spending money on production equipment and in addition they may invest in complementary businesses and products. Finally they may purchase short term interest bearing investment grade securities. Like many IPOs they have broad discretion over how to spend the proceeds.