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Ethanol-from-corn producer Renova Energy (RUA:AIM) returned from suspension on Monday and crashed 62% to an all-time low of 13p, valuing the company at just £4 million compared with £80 million in 2006.
Renova is fighting for survival as it needs to raise the best part of £10 million for working capital and fund the completion of its second ethanol plant at Heyburn, Idaho. Construction, and the shares, were suspended last month after the contractor said it would cost an extra £6 million, or 25% more than budgeted.
‘The budget was being manipulated by the contractor,’ says chairman Chris Thomas. Renova might take legal action to recover some of the over-run.
Interim results early December showed no problem so the announcement a fortnight later was a bolt from the blue, especially as the contractor provided monthly progress reports indicating all was on schedule.
A review is now taking place which will decide how
to proceed.
Hopefully, the banks will agree to provide more finance as long as Renova can raise an additional £5 million equity.
This seems the most likely outcome with work on the Heyburn plant recommencing in March and finishing late summer. The terrible margin squeeze on ethanol producers is easing with new legislation mandating that ethanol usage in petrol production should more than double.
Shares says: The good news is that at current corn and ethanol prices Renova could make a pre-tax profit of almost £4 million in 2009.
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by: Timon Day