KiOR: Too Early to Jump In

by Debra Fiakas CFA

Kior’s Columbus Facility

Last week cellulosic ethanol producer Kior, Inc. (KIOR:  Nasdaq)reported its strongest quarter production and financial results since the company first started commercial operations at its Columbus, Mississippi facility.  Kior turned out 323,841 gallons of ethanol fuel in the three months ending September 2013, bringing total production for the year to 508,975 gallons.  Along with the third quarter report, management did a bit of boasting over record production of 167,087 gallons in the month of October.  That represents a 2.0 million gallon per year run rate, but management is guiding for a more modest 1.0 million gallons.

All that good news was not enough to cover up a record net loss for the quarter of $43.1 million.  Cash production costs are still higher than revenue.  Granted some costs in the most recently reported quarter might be one-time in nature as the company settles into what they call ‘steady state’ production.  Still management has a big job ahead to ramp production level that will generate even breakeven results.

Kior has made a point of the scalability of its production technology  –  fluid catalytic cracking.  Granted it is a proven process perfected in the oil refining industry.  Management has also made a point of its wood chip feedstock  –  Southern Yellow Pine.  We have to concede the Southern Yellow Pine is available in abundance and it is priced accordingly.  Management is so confident in its production technology the company is planning a second production facility near Columbus.

Even with the $100 million Kior is getting from long-time fan Vinod Khosla and a few close friends, there is much for KIOR shareholders to worry about before production scales to breakeven in both its plants.  The company has been using about $25 million in cash per quarter to support operations in just one facility.

Since Kior went public in June 20111, the share price has been on a long-term grind downward.  There have been many more opportunities to collect shares at low levels than there have been chances to sell at peak prices.  The stock has recovered from a dramatic sell off and record low in September, but it still may be too early to jump into KIOR. 
 
Debra Fiakas is the Managing Director of Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.