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   Non-Tech$2 or higher gas - Can ethanol make a comeback?


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From: Glenn Petersen4/1/2006 1:18:42 AM
   of 2800
 
Some highlights from the Verasun Energy Corporation S-1:

Anticipated gross proceeds: $150 million
Underwrites: Morgan Stanley, Lehman Brothers, and A.G. Edwards

Overview

VeraSun Energy Corporation is the second largest ethanol producer in the U.S. We are also the largest “pure-play” ethanol producer, focusing primarily on the production and sale of ethanol and its co-products. This focus has enabled us to significantly grow our ethanol production capacity and to work with automakers, fuel distributors, trade associations and consumers to increase the demand for ethanol. As an industry leader, we play an active role in developments within the renewable fuels industry.

Ethanol is a type of alcohol, produced in the U.S. principally from corn. Ethanol is primarily used as a blend component in the U.S. gasoline fuel market. Refiners and marketers have historically blended ethanol with gasoline to increase octane and reduce tailpipe emissions. The ethanol industry has grown significantly over the last few years, expanding production capacity at a compounded annual growth rate of approximately 20% from 2000 to 2005. We believe the ethanol market will continue to grow as a result of its favorable production economics relative to gasoline, ethanol’s clean burning characteristics, a shortage of domestic petroleum refining capacity, geopolitical concerns, and federally mandated renewable fuel usage. We also believe that E85, a fuel blend composed primarily of ethanol, will become increasingly important over time as an alternative to unleaded gasoline.

We own and operate two of the largest ethanol production facilities in the U.S., with a combined ethanol production capacity of 230 million gallons per year, or MMGY. As of January 1, 2006, our ethanol production capacity represented approximately 5% of the total ethanol production capacity in the U.S., according to the RFA. In addition to producing ethanol, we produce and sell wet and dry distillers grains as ethanol co-products, which serve to partially offset our corn costs. We expect to operate three facilities with an aggregate production capacity of 340 MMGY by the end of August 2007 and five facilities with an aggregate production capacity of 560 MMGY by the end of the first quarter of 2008.

In addition, we plan to construct two 110 MMGY ethanol production facilities in Iowa and Minnesota, which we expect to be operational by the end of the first quarter of 2008. We refer to these additional production facilities as the Northwestern Iowa Facility and the Welcome Facility, respectively. We expect to commence construction of these facilities in the latter half of 2006 and to finance the construction costs with the net proceeds we receive from this offering and from our cash flow from operations. We intend to replicate our successful construction and production processes at these additional facilities.


Summary results for three-year period ending December 31, 2005:

Revenues
2005: $235.4 million
2004: $186.0 million
2003: $10.9 million

Net income
2005: $253,000
2004: $14.8 million
2003: $592,000

EBITDA
2005: $29.9 million
2004: $37.8 million
2003: $2.4 million

Gallons of ethanol sold
2005: 126.3 million
2004: 101.4 million
2003: 6.5 million

Average gross price per gallon
2005: $1.59
2004: $1.50
2003: $1.28

Over 50% of the Verasun Energy shares are currently owned by the CEO, Donald Endres:

Donald L. Endres. Mr. Endres has served as our Chief Executive Officer and director since 2001. He has more than 20 years of experience in investing in, building, operating and managing successful businesses. In 1985, Mr. Endres founded Special Teams, Inc. and served as its president and general manager until it was sold to the American Express Company in 1995. Special Teams was recognized by Inc. magazine as one of the fastest growing privately held companies in the U.S. on the annual Inc. 500 List for both 1994 and 1995. Mr. Endres subsequently served for two years as president of American Express Special Teams.

In 1999, Mr. Endres became a principal investor and board member of CoEv, Inc., which merged with Tyco International Ltd. in 2000. Mr. Endres also co-founded and served as principal investor and chief executive officer of ExpressGold.com, Inc., an internet payments system company, which merged with CyberSource Corporation in January 2000.

He also served as co-founder and vice-chairman of Glacial Lakes Energy, an ethanol production facility in Watertown, South Dakota, and he is an investor in and board member of Badger State Ethanol, an ethanol producer in Monroe, Wisconsin. Mr. Endres serves on the board of directors and on the executive committee of the Renewable Fuels Association and was recently awarded the 2005 Ernst & Young Entrepreneur of the Year Award for the Minnesota, South Dakota and North Dakota region.

Mr. Endres earned a bachelor of science degree in animal science with minors in computer science and economics from South Dakota State University. He was recognized by South Dakota State University’s College of Engineering as “Entrepreneur of the Year” in 2000.


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From: Glenn Petersen4/1/2006 1:53:48 AM
   of 2800
 
Some highlights from the Aventine Renewable Energy Holdings, Inc. S-1:

Business Overview

We are a leading producer and marketer of ethanol in the United States. Through our production facilities, marketing alliances with other producers and purchase and resale operations, we marketed and distributed 529.8 million gallons of ethanol in 2005. For the year ended December 31, 2005, we sold approximately 13.4% of the total ethanol volume in the United States. We market and distribute ethanol to many of the leading energy companies in the United States, including BP Products North America, Inc., ConocoPhillips Company, Chevron Corporation, Royal Dutch Shell, Marathon Oil and Valero Marketing and Supply Company. We have strong national distribution capabilities and lease space where our ethanol is blended with our customers' gasoline. In addition to producing ethanol, our facilities also produce several co-products, such as corn gluten feed and corn germ and bio-products, such as brewers' yeast, which generate incremental revenue and offset a portion of our corn costs. Our revenue and operating income for the year ended December 31, 2005 were $935.5 million and $65.9 million, respectively.


Summary results for three-year period ending December 31, 2005:

Revenues
2005: $935.5 million
2004: $858.9 million
2003: $404.4 million

Net income
2005: $32.2 million
2004: $29.4 million
2003: $11.0 million

EBITDA
2005: $67.6 million
2004: $51.3 million
2003: $19.7 million

Gallons of ethanol sold
2005: 547.4 million
2004: 499.5 million
2003: 458.8 million

Average gross price per gallon
2005: $1.87
2004: $1.54
2003: $1.35

Approximately 39.6% of the stock is controlled by Aventine Holdings LLC, an affiliate of Morgan Stanley. Note that Morgan Stanley is one of the underwriters for Verasun Energy.

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To: Glenn Petersen who wrote (934)4/1/2006 2:00:58 AM
From: Glenn Petersen
   of 2800
 
Funds affiliated with Morgan Stanley purchased 21,179,025 shares of Aventine, equal to a 39.6% interest, at $13.00 per share on December 30, 2005. On March 30, 2006, the shares were being quoted at $21.25 per share on the PORTAL Market. Not a bad return for a three-month period.

On December 30, 2005, we completed a private offering of 21,179,025 shares of our common stock exempt from registration under the Securities Act for $13.00 per share. We received net proceeds from that sale of approximately $256.1 million after deducting the initial purchasers' discount of approximately $19.3 million. We used all of the net proceeds of the offering to repurchase an equal number of shares of our common stock from our existing stockholders. Of the $1.8 million of offering expenses, $1.5 million were reimbursed by Metalmark and $0.3 million were paid and expensed by the Company.

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To: Glenn Petersen who wrote (935)4/1/2006 2:05:17 AM
From: Glenn Petersen
   of 2800
 
United States Ethanol Production Capacity—Top Ten Producers

Annual Capacity (mil. gallons)

Archer-Daniels-Midland: 1070
VeraSun Energy Corporation: 230
Aventine Renewable Energy, LLC: 150
Cargill, Inc.: 120
Abengoa Bioenergy Corp.: 110
New Energy Corp.: 102
Midwest Grain Processors: 95
MGP Ingredients, Inc.: 78
Tate & Lyle: 67
Chief Ethanol: 62

TOTAL: 2,084

Source: RFA, as of February 2006.

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To: Glenn Petersen who wrote (936)4/1/2006 12:37:19 PM
From: elmatador
   of 2800
 
GREEN EFFICIENCY

Usina MB is a model of environmental efficiency. During crushing, fibers are stripped from cane stalks and burned to create steam that generates electricity. The plant's 15 megawatts of capacity is enough to power all its industrial facilities, offices and laboratories. There is an 8 MW surplus to sell to the grid, enough to light some 29,000 homes.

Excess fiber, known as bagass, can be used to feed cattle and fertilize cane fields.

Vinhaca, the swill left over from the fermentation process, was once dumped in rivers, where its potassium content killed fish. Now it is used as a potent fertilizer for cane.

"Every time I find something wrong, I see people working out a solution," said Nastari.

The traditional method of manual harvesting after burning cane takes a toll on field labor. Much of the cane observed around MB was neatly cut by machines looking something like the large combines common in the U.S. farming areas.

A state law requires 5 percent annual growth in mechanical harvesting. In 15 years all manual cutting will be phased out in Sao Paulo.

Social policy must deal with displaced cutters, who are poor with limited skills and education and depend on the $600 or so they earn per month in the fields during harvest.

Work at the mills can be dangerous. Last year ten workers were killed when a boiler exploded at nearby Vale do Rosario, one of the largest mills in the country.

Nastari viewed the field burning as less an environmental issue than a missed opportunity to use the cane tops, leaves and fibers more efficiently to produce energy and reduce the cost of production.

Production of ethanol and sugar consumes more carbon than it produces, and by selling carbon credits to polluters in the emission markets, mills can further cut sugar costs.

"Brazil is serving as a demonstration for undeveloped or less developed countries that are producing sugar cane," Nastari said.

Brazil cane brings sweet smell of ethanol profits
Fri Mar 31, 2006 2:48 PM ET
Printer Friendly | Email Article | Reprints | RSS

By Alden Bentley

MORRO AGUDO, Brazil (Reuters) - Soiled workmen in orange construction helmets slapped fresh paint on narrow catwalks and noisy machinery as the Usina MB sugar and ethanol plant prepared to process the cane.

Reuters toured the mill on Wednesday during final cleanup and mechanical testing before trailers piled with newly harvested nine-foot stalks start arriving on Monday.

Much of this year's crop will be distilled into fuel for motor vehicles instead of made into a sweetener for biscuits, soft drinks and coffee.

Production at this plant starts in April from the new sugar cane crop in Brazil's Sao Paulo state, the kingdom of cane in the world's top producer of sugar and the clean-burning ethyl alcohol fuel. Other plants in the state are already running.

The air, dampened by heavy rains, hung with a cloying aroma like burned molasses. Towering smokestacks belched thick clouds into the gray sky. Yet the look and smell of heavy industry was deceiving.

The funnels emitted steam, not hydrocarbons. And the mill, surrounded horizon to horizon by rolling fields of grassy cane, is producing 160,000,000 liters a year of a renewable fuel to help Brazil break its reliance on imported petroleum products.

ETHANOL COMES FIRST NOW

Initially, Usina MB and neighboring plants will produce mostly ethanol, to meet demand pent up from the off season. Operations will gradually adjust to perhaps 50-50 ethanol and sugar crystals, then tip toward sugar.

"Until April 30 the proportion will be 62-65 percent ethanol and the balance sugar," said analyst Plinio Mario Nastari, president of Datagro in the city of Sao Paulo.

With Brazil using more ethanol to power vehicles, directly or blended with gasoline, processors like MB are prepared to produce sugar and ethanol simultaneously.

Depending on market prices and projected commercial needs, concentrated cane juice can be piped after crushing either to the sugar factory or to fermentation vats.

At the sugar factory, cane is crystallized into raw sugar. In the fermentation vats, yeast will be added to create "wine" that is diverted into 60 foot high tanks, or columns, for final distilling into ethanol.

"The mill is always watching the trends of the market," said Cicero Junqueira Franco, a board member at the mill and a director at Vale do Rosario, which owns 50 percent of the plant.

A silver haired patriarch of one of Brazil's close knit sugar families, Junqueira was an architect of the national craze for ethanol in the 1970s. Demand ebbed by the end of the '80s when oil prices were low and sugar growers were saddled with debt.

"According to the trends they make some deals before the harvest and plan how the production will be," he said through a Reuters translator. "Many times this anticipated sale brings money to finance the harvest."

Raw sugar futures in New York reached a 25-year high last month at almost 20 cents a lb. In 2005, Nastari estimated, 51.1 percent of the cane went toward ethanol in Brazil. This year's prices are an incentive to produce more sugar.

He predicted that by 2013, the proportion of Brazil's sucrose going to sugar would fall to 41 percent. Domestic ethanol prices reached a record 1.50 real per liter in the beginning of March.

Brazil blends domestic gasoline with 20 percent ethanol. Last month the government reduced the ethanol content from 25 percent in an effort to keep domestic prices from rising due mainly to the strong sales of flexfuel cars.

Three quarters of new cars now sold in Brazil are flexfuel, meaning they can run on any combination of ethanol and gasoline.

"Ethanol can replace oil and Brazil still imports oil," Junqueira said.

"The great opportunity for growth is the international market for two reasons. One is ethanol replacing oil ... and the other is the environmental issue," he explained.

GREEN EFFICIENCY

Usina MB is a model of environmental efficiency. During crushing, fibers are stripped from cane stalks and burned to create steam that generates electricity. The plant's 15 megawatts of capacity is enough to power all its industrial facilities, offices and laboratories. There is an 8 MW surplus to sell to the grid, enough to light some 29,000 homes.

Excess fiber, known as bagass, can be used to feed cattle and fertilize cane fields.

Vinhaca, the swill left over from the fermentation process, was once dumped in rivers, where its potassium content killed fish. Now it is used as a potent fertilizer for cane.

"Every time I find something wrong, I see people working out a solution," said Nastari.

The traditional method of manual harvesting after burning cane takes a toll on field labor. Much of the cane observed around MB was neatly cut by machines looking something like the large combines common in the U.S. farming areas.

A state law requires 5 percent annual growth in mechanical harvesting. In 15 years all manual cutting will be phased out in Sao Paulo.

Social policy must deal with displaced cutters, who are poor with limited skills and education and depend on the $600 or so they earn per month in the fields during harvest.

Work at the mills can be dangerous. Last year ten workers were killed when a boiler exploded at nearby Vale do Rosario, one of the largest mills in the country.

Nastari viewed the field burning as less an environmental issue than a missed opportunity to use the cane tops, leaves and fibers more efficiently to produce energy and reduce the cost of production.

Production of ethanol and sugar consumes more carbon than it produces, and by selling carbon credits to polluters in the emission markets, mills can further cut sugar costs.

"Brazil is serving as a demonstration for undeveloped or less developed countries that are producing sugar cane," Nastari said.

(Additional reporting by Inae Riveras)

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To: Glenn Petersen who wrote (933)4/2/2006 10:48:19 AM
From: richardred
   of 2800
 
Glen: Thanks for all the great information. I suspect Verasun will come to be a timely market favorite. PEIX, already is, and will not be profitable for some time. It should be good market weather to bring more private ethanol companies public.

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To: richardred who wrote (938)4/2/2006 11:29:21 AM
From: Glenn Petersen
   of 2800
 
I think that both issues will be well received, particularly as there are not a lot of pure play companies currently trading. I would not be surprised if Archer Daniels Midland is considering spinning out its ethanol operations.

The registration statements for Verasun and Aventine were filed within three minutes of each other. Credit the Morgan Stanley influence.

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To: Glenn Petersen who wrote (939)4/2/2006 11:34:39 AM
From: richardred
   of 2800
 
I think that's a distinct possibility. A way to get more value out of the company.

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To: whynag who wrote (932)4/2/2006 11:51:46 AM
From: richardred
   of 2800
 
I have it in the header now. I can't keep track of it in a ethanol portfolio though (No ADR's).

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From: whynag4/2/2006 11:55:51 AM
   of 2800
 
Nice to see gtlresources.com in your header
Richard.......it's a point of contact for all our shy
British readers here......
You can also see the latest progress in the construction of
the plant by looking up IRE.....which is owned by GTL
illinoisriverenergy.com

There are message boards for all UK companies
involved in the biofuels business on
advfn.co.uk

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