Monday, February 12, 2007

Speculative Long

NVBF - $3.55

Nova Biosource Fuels, Inc. is a development stage energy company with the goal of refining and marketing ASTM standard biodiesel and glycerin. Currently, Nova is involved with the initial stages of pre-construction for 2 out of 3 planned wholly owned biodiesel refineries with an expected capacity of between 160 to 240 million gallons annually. Despite being a rather small company with a market capitalization of only $412 million, Nova has been busy signing feed stock supply agreements with Conagra Trade Group, courting prestigious board members and finalizing the construction of 3 independently owned biodiesel refineries.

What makes Nova desirable is the types of feed stocks the refineries will utilize. Current commercial scale biodiesel operations use crude oils such as those derived from soy beans. Inversely, Nova intends to use 21 different feed stocks including those rendered from fats such as brown and yellow grease. Why the importance of proper feed stock selection? Since 60-75% of the cost to produce biodiesel is tied to the various feed stocks used, it is essential for producers to use inexpensive feed stocks. Given that soy bean oil is roughly $.25 per pound compared to the paltry $.12 and $.05 for the same quantity of yellow and brown grease it doesn't take a mathematician to determine the more economically attractive feedstock.

The catch here is can Nova successfully commercialize the production of biodiesel using difficult to process, lower cost feed stocks? Interestingly, the company has been producing 80,000 gallons annually at their pilot facility in Butte, Montana for the past 4 years. If former oil executives from Texaco, Halliburton Energy Services and and Mobil have faith in this technology, then maybe Nova might be on to verge of something huge. Commercially viable production of biodiesel from waste streams? Sounds good to me.

On December 19, 2006 the company raised $47 Million through placement of common stock and warrants. Nova intends to use these funds as working capital for operating expenditures.

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