Gevo - Earnings Call - Q4 2020

Transcript

Speaker 0

Welcome to Gevo's Fourth Quarter twenty twenty Earnings Conference Call. My name is Carmen, and I'll be your operator for today's call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session. Please note that today's conference is being recorded.

I'll now turn the call over to Jeff Williams, Gevo's Vice President, General Counsel and Secretary. Please go ahead, Mr. Williams.

Speaker 1

Good afternoon, everyone, and thank you for joining fourth quarter twenty twenty earnings conference call. I would like to start by introducing today's participants from the company. With us today is Patrick Gruber, Gevo's Chief Executive Officer and Carolyn Romero, Gevo's Chief Accounting Officer. Earlier today, we issued a press release that outlines the topics we plan to discuss today. A copy of this press release is available on our website at www.gevo.com.

I would like to remind our listeners that this conference call is open to the media and that we are providing a simultaneous webcast of this call to the public. A replay of today's call will be available on Geva's website. On the call today and on this webcast, you will hear discussions of certain non GAAP financial measures. Non GAAP financial measures should not be considered in isolation from or as a substitute for financial information presented in accordance with GAAP. Reconciliation of these non GAAP financial measures to the most directly comparable GAAP financial measures is contained in the press release distributed today, which is posted on our website.

We will also make certain forward looking statements about events and circumstances that have not yet occurred, including but not limited to projections about Gevo's business development plans and operating activities for 2021 and beyond. These forward looking statements are based on management's current beliefs, expectations and assumptions and are subject to significant risks and uncertainty, including those disclosed in Gevo's Form 10 ks for the year ended 12/31/2020, that was filed with the U. S. Securities and Exchange Commission and in subsequent reports and other filings made with the SEC by Gevo, including Gevo's quarterly reports on Form 10 Q. Investors are cautioned not to place undue reliance on any such forward looking statements.

Such forward looking statements speak only as of today's date and Gevo disclaims any obligation to update information contained in these forward looking statements whether as a result of new information, future events or otherwise. On today's call, Pat will begin with a discussion of business developments and then Carolyn will review Gevo's financial results for the fourth quarter of twenty twenty. Following the presentation, we will open up the call for questions. I'll now turn the call over to Pat.

Speaker 2

Thanks, Jeff. Hello, everyone. I'm going to keep this relatively short today because tomorrow we're doing another fireside chat. Those who join us will hear Lynn and I discuss more information around the financing, projects, how to think about them, etcetera. But back to reporting on this here.

We've had quite a change from a year ago, so I'm going to run through a partial list. Now we sold out the capacity to a large commercial plant using take or pay contracts that are suitable for use in backing of project debt financings. Now these contracts add up to more than 45,000,000 gallons per year of hydrocarbons. That offtake caused us to think bigger sooner. We also paid off all of the white box debt.

We advanced of our renewable natural gas project. We figured how to make net zero hydrocarbon products by using a mix of renewable energy with our process. And of course, that's targeted for our net zero plant in targeted for Lake Preston, South Dakota. We have $530,000,000 of cash on the balance sheet and no material debt. That money should enable us to develop multiple plans and make the full equity investment in our Net Zero One plant rather than being dependent upon a third party.

We also have the cash balance sheet that should allow us to sponsor significant equity investments in future net zero plants such as Net Zero two or Net Zero three projects. We've worked with Citigroup to figure out, and they have figured out and vetted a potential bond offering that we may use to finance our debt for the Net Zero One project. That's taken a lot of work to actually work through that, and they have a really attractive solution in line. We have work to do to get ready for it still. Now we shut down our ethanol plant.

It lost money given that the market wasn't very good and it wasn't a strategic focus for us. We've been told by some new investors that they now understand that we aren't an ethanol company. Well, that's good. That eliminates confusion. We aren't an ethanol company.

We're all about the renewable energy into energy dense liquids, hydrocarbons, net zero footprint. We developed our customer pipeline. It's grown quite a lot from last year, and it's grown even more since. Importantly, we proved that we can establish pricing in take or pay contracts that works for our customers and ourselves and results in meaningful take or pay contracts. These take or pay contracts are backed by the balance sheets or letters of credit from our customers.

Accomplishment. We announced our Net Zero One project. This project slated for Lake Preston, South Dakota, would produce roughly 400,000,000 pounds per year of value added protein rich animal feed, roughly 30,000,000 pounds of corn oil, 45,000,000 gallons per year of energy dense liquid hydrocarbons. These hydrocarbons are dropping gasoline and jet fuel products that when burned have a net zero greenhouse gas emission across the whole of their life cycle, measuring all the way from capturing the CO2 from the atmosphere, accounting for the farming and agriculture, accounting for all the energy sources, the transportation of the products. The hydrocarbon products produced at our plant are expected to be more than minus 70 in their carbon footprint score.

But when burned as a fuel for transportation, the whole cycle would be net zero according to the leading science based life cycle model called GREET that's been developed by Argonne National Lab. So how does it get to net zero? It's all about two things: paying attention to how things are grown, that is the growing practices such as low till and no till, along with precision agricultural techniques where farmers only apply the chemicals that are needed, not excess and two, eliminating dirty electricity and fossil based natural gas from our production processes. Net zero is being designed to be off the grid from dependence on fossil based energy. We are putting in a water treatment plant that is expected to generate enough biogas to meet the thermal demands of plant and provide enough excess gas so we can generate about 30% of our own electricity with a combined heat and power unit.

We plan on meeting the need for the other 70% of our electricity from a related wind project that we are developing with JUUL Energy. We don't want dirty electricity that's typical of the grid in this country. We don't want it. We also expect to use our green electricity to generate green hydrogen for our production processes. We haven't decided yet if we'll make excess hydrogen to take to the marketplace.

Our negotiating power has strengthened as well. This means that strategics approach us differently now. We expect that if and when we work with strategics, we'll be able to make a more balanced deal. That's a major change from our previous position when we had our hat in our hands. Yes, several parties are in discussion with us.

No, we can't give more detail at this point. So what's going to happen this coming year in 2021? We expect to sign more take or pay customer contracts in support of NETZERO2 and NETZERO3. We already have attractive production sites chosen and optioned for under LOI. We expect to announce the specifics for these sites after we announce the next set of offtake contracts.

We expect that Net 0.2 and Net 0.3 would look a lot like Net 0.1. We expect to start construction of our renewable natural gas project with a size of 355,000 BTUs. This project would take manure from more than 20,000 dairy cows and convert it to renewable natural gas. This project will cost about $75,000,000 and we project return of more than 30% IRR using conservative estimates. The project is expected to come online and start generating profit in the fourth quarter of next year.

In the near term, the gas will be sold to the California market. Once net zero point one starts up, we may take a portion of that gas up there to drive the carbon scores even lower or maybe we just keep on supplying the California market. That's a future economic optimization question. In order to close the project finance deal for Net Zero One, we need to have the capital cost estimates to the plus or minus 10% or so level. This engineering work and design work is underway.

Our engineering partners have upwards of 50 people working on our design and capital cost. We are grateful to have the money to do it properly. The capital cost of NETZERO ONE is currently expected to be about $650,000,000 inclusive of production plants, water treatment plants and energy complex. On a fully installed project finance basis, the project total would be roughly $800,000,000 because of the interest during construction and the reserves and such that are required to do a debt financing. The IRR for this $800,000,000 project is expected to be better than about 20%.

We need to get the engineering design work done and pin down the capital cost to the appropriate precision to enable the debt financing of MedZero one. That's a prerequisite. We have to know what it is, plus or minus 10%, before we could do a debt deal. This will take to the 2021 to complete and get it right. We expect to close a bond deal in the first half of twenty twenty two.

It's possible that the capital cost of net zero one project could go up or down depending upon adjustments to scope of equipment costs or what we work through in the design of that plant. Well, that's what all this design work is about right now, pinning down the capital cost to the very best optimal processes that deliver the returns we want. Net 0.1 is expected to take about two years to build. This is normal. It's a big capital deployment.

One good thing is that the engineering and design cycle for Net 0.23 would be much, much shorter. We expect that those plans will be based upon NETZERO1. It shouldn't be lost on anyone that our business is significantly derisked. We have money to execute our plans in a real sense. Yes, it's quite a change from last year.

Last year, we had to raise money to keep the lights on. Our team did well, developing the business, advancing the technology. Now if we raise more money, the purpose will be to take more of the large cash flow streams we expect from our net zero projects or from an RNG project. Tomorrow, Lynn Small and I will be doing a fireside chat with Wartar Research, where we will be discussing project economics and financing for both Net Zero One project and the RNG project. We will be answering a whole bunch of investor questions.

Information on registration can be found in the Investors section of our website, investors.gevo.com. Now I will turn the call over to Carolyn, who will take us through the financials. Carolyn?

Speaker 3

Thank you, Pat. Gevo reported revenue in the 2020 of $500,000 as compared to $6,900,000 in the same period in 2019. During the fourth quarter of twenty twenty, hydrocarbon revenue was $400,000 compared with $1,000,000 in the same period in 2019. Hydrocarbon sales decreased because of the lower shipments of finished products from our demonstration plant at the Southampton Resources Inc. Facility in Silsbee, Texas.

During the fourth quarter of twenty twenty, revenue derived at the Luverne facility from ethanol sales and related products was $5,000 compared to $5,900,000 during the same period in 2019. As a result of COVID-nineteen and in response to unfavorable commodity environment, we terminated our production of ethanol and distillers grain back in March, which resulted in lower sales for the fourth quarter. Cost of goods sold was $2,000,000 in the 2020 versus $9,400,000 in the same period in 2019. Cost of goods sold included approximately $900,000 associated with production of IBA and related products and maintenance of the Luverne facility and approximately $1,100,000 in depreciation expense. Gross loss was $1,400,000 for the 2020 versus $2,500,000 for the fourth quarter of twenty nineteen.

Research and development expense increased by 1,700,000 during the 2020 compared with the same period in 2019, due primarily to an increase in consulting and personnel expenses. Selling, general and administrative expense increased by $200,000 during the 2020 compared with the same period in 2019, due primarily to an increase in consulting and personnel costs, offset by a decrease in investor relations and marketing costs. For the fourth quarter twenty twenty, we reported a loss from operations of $7,000,000 compared to $6,200,000 for the same period in 2019. In the fourth quarter of twenty twenty, cash EBITDA loss, a non GAAP measure that is calculated by adding back depreciation and non cash stock based compensation to GAAP loss from operations was $5,100,000 compared to $4,000,000 in the same quarter of 2019. Interest expense for the 2020 was $500,000 a slight decrease compared to the same period in 2019 as a result of lower amortization of original issue discounts and debt issuance costs and the conversion of $2,000,000 of twenty twenty-twenty twenty one notes to common stock during July.

During December 2020, we converted the remaining $12,700,000 of twenty twenty-twenty twenty one notes into common stock. For the fourth quarter of twenty twenty, we reported a net loss of $18,100,000 or a loss of $0.15 per share based on a weighted average shares outstanding of 120,017,120. This compares to a loss of $6,800,000 in the 2019 or a loss of $0.50 per share based on weighted average shares outstanding of 13,659,944. During the fourth quarter of twenty twenty, we incurred a 1,400,000 noncash loss related to the conversion of $12,700,000 of 2021 notes into common stock. During the three months ended 12/31/2020, we recognized a noncash loss totaling $8,600,000 due to changes in the fair value of our 2021 notes embedded derivative liability, resulting from the increase in the price of our common stock prior to the conversion of the $12,700,000 of the 2021 notes.

Adding back these noncash losses resulted in a non GAAP adjusted net loss of $8,100,000 in the 2020 or a non GAAP adjusted net loss per share of $07 based on a weighted average shares outstanding of 120,017,120. This compares to a non GAAP adjusted net loss of $6,800,000 in the 2019 or a non GAAP adjusted net loss per share of $0.50 per share based on a weighted average shares outstanding of 13,659,944. Now I will turn it back over to Pat to wrap things up.

Speaker 2

Thanks, Carolyn. Let's open up the call for questions. Operator?

Speaker 0

Thank Our first question is from Amit Dayal with H. C. Wainwright. Your question please.

Speaker 4

Thank you. Hi, Pat. Good afternoon everyone. Appreciate you taking Hi, your Pat. Good.

Thank you, Pat. So I'll save some of my questions around the project for the call tomorrow. But just in terms of the timeline you've provided, one the 2022 for the financial close of NETZERO ONE, is this sort of a typical timeline for something like this? And could this potentially be accelerated if things fall in place for you as you expect?

Speaker 2

I would say that the critical time line runs through getting the engineering estimates done. We got to know what the capital cost is and what we're asking for in terms of debt support. You got to have that pinned down or you can't do debt financing. We also have to have a bunch of the permitting stuff done and all kinds of things. That time frame to get that stuff done, we're working on getting it done by the end of this year.

And in which case, then we should be able to do the bond offering in the early part of next year. But because that's talking about a year from now or it's actually could be less than a year from now, right? But there's because it's so far out, there's uncertainty around it. So the lawyers advised me to give it a wide range first half of the year. Boom, that's the answer.

I would do I want it sooner? Hell, yes, want it sooner. I want it done. And, I'm the most impatient person on earth when it comes to

Speaker 4

Understood, Pat. Thank you for that. And then our model currently for Net Zero One has some level of utilization coming online by 2024. Is that reasonable assumption?

Speaker 2

Amit, say that again. I missed the first part of the question.

Speaker 4

Yes. I was just saying our financial model right now that is published publicly, we have you doing some level of utilization from Net Zero One coming online by 2024. Is that still a reasonable assumption?

Speaker 2

It is. That's the right assumption.

Speaker 4

Okay, perfect.

Speaker 2

Yes. So in other words, even if we finance in the first half of the year, we still plan on getting the plant online in 2024. We've obviously built ourselves some slack in there. And this is one of these things where you'd say you got to do the design right and get it right that allows you to plan right, secure equipment properly. It could be that we could build things in modules, which shortens up the construction time lines.

That's the sort of stuff we're figuring out. But yes, we are aiming at that first part of 2024 like you have in your model.

Speaker 4

Okay. Understood. And then with respect to Net zero two and Net zero three, I mean, you're obviously considering those options right now. But is this clarity on this probably comes in 2022? Or could we see more clarity on progress around these efforts earlier than 2022?

Speaker 2

I would expect that we have progress in 2021 on those things. So we'll get the contract signed. We'll have the sites. And I would expect to have the Net Zero two site and customers announced in 2021. You know?

And do I think we can get a net zero three in that time frame? I think it's pretty much probable. Now we all heard Tim Siceric talk a few weeks ago in the fireside chat. He threw out the number of he can see us doing six plants in short order. Well, that's true, but we got to go through the work and duties.

So I can see us having multiple plants in play at the same time. That's not a the firms we're working with on the engineering constructing side, they're capable of execution on that kind of scale. The trick is you've got to get that design right because it leverages over into the net 0.2 and net 0.3. We can't be changing things or messing around with things. People will often ask me, Why not just take over an ethanol plant?

Anybody know where the pipe diagrams are for that plant? And it's like we got to go learn that. Are you kidding me? That's each one is individual and different. What we want to do is make it as cookie cutting as possible so we can accelerate these time lines.

That's what we're shooting for. And we're pretty stubborn about it because we think it is the best way to generate the most cash for the company over the long run because we want those cash flow streams. They're worth a lot of money.

Speaker 4

Understood. And just looking at the burn rate for 2021, what should we expect in terms of all these efforts that you're putting in place to get the permitting and engineering, etcetera, done? Like what should be the burn rate for 2021 that we should think about?

Speaker 2

I think for the burn rate for Gevo Inc. Is in $25,000,000 ish range, something like that. And then we'll have project stuff that's capitalized, and that will show up differently as a cash number. We'll have to give guidance on that, I suppose, at some point, but it's kinda your normal project stuff. It's in that kind of a bucket.

But of cash burn to do the development or, you know, the resources to add we're adding we're adding staff, for example, and more people to go do things. That would show up. We wind up with probably $25,000,000 $26,000,000 of burn at the corporate level. So that's the GSA, r and d, including the engineering stuff, the actual corporate engineering. Project stuff, permitting, project focused work, that's all going be in a capitalization bucket for the project expense.

Understood.

Speaker 4

Yes. And just one last one for me, Pat. On the renewable natural gas opportunity, the initial effort seems to be just for your upcoming facility and your own consumption, etcetera, to lower your carbon intensity. Could this develop into a larger sort of ambition for the company in terms of actual revenue scaling beyond what your initial efforts are?

Speaker 2

That's a very interesting question, very insightful question actually. Because what's happened is that we started working on the RNG project in Northwest Iowa because we were thinking about putting that RNG over to Luverne. But the demand for our products outgrew the scale of Luverne, and we would have to redo a whole bunch of permits in Minnesota and all kinds of stuff that would have dragged out our time lines. So we started thinking about that greenfield plant in NETZERO-one. And as we started thinking it through, we realized we could make NETZERO-one energy sufficient, generate our own biogas on-site.

Well, that diminished the need for that Northwest Iowa RNG. On the other hand, we had already done a whole bunch of the development work. The way we think of it is this. We already we learned how to so in this last eighteen months, we learned how to be developers for renewable natural gas. We are going in renewable natural gas business.

That's just a fact. We're going to be doing that. This 355,000 BTUs is initially going to go to California. That's where we're going to sell it. There'll be a time in the future once the net zero plant starts up or maybe when we start Luverne back up or maybe when we add to our net zero two or three site, we can use that natural gas there too, if we need to.

So it gives us optionality that I kind of like. But it shouldn't be lost on anybody that we do in fact have the capability to develop projects when not everyone can. And we see how to get it done and how to monetize it. If we sell to California, in which we plan on doing in early days, good. The plants pay back right quick.

That's really attractive. And then that's a good thing. So it's one of these very interesting games. When I think of Gevo, I think of renewable energy transformed to energy dense liquids. That's no joke.

We are wiping out the fossil based footprint by displacing fossil based natural gas. More of it's better. We could actually drive our if we took that gas up to net 0.1, we could make a large negative greenhouse gas emission liquid transportation fuel. That's kind of astounding.

Speaker 4

All right. Understood. That's all I have. Thank you so much. I'll see you on the call tomorrow.

Speaker 2

Sure.

Speaker 0

Thank you. Our next question comes from Paul Fratt with NOBLE Capital Markets. Your question please.

Speaker 5

Yes. Good afternoon, Pat.

Speaker 4

Hey, Paul.

Speaker 5

Hey, if I just get one quick one out of the way. What's your current share count right now?

Speaker 2

I believe it's 198,000,000 shares.

Speaker 5

Okay. So it hasn't changed much since the January. Then No,

Speaker 2

it hasn't changed at all since the January.

Speaker 5

Yes. No, I was thinking maybe of the warrants might have exercised because I think you still had some warrants out there. Right?

Speaker 2

Yes. You know what? The number that I have is still the same old number on my slides that show up, Carolyn. Yes, okay. Yes,

Speaker 3

the Okay.

Speaker 5

This one. Then on the RNG pad, you said 70,000,000 to $75,000,000 as far as CapEx. Have you and you're working on the financing. Have you figured out is it seventy-thirty as far as debt equity? And how much equity are you going to end up putting into that plan?

Speaker 2

Okay. We're going to talk about this tomorrow at the fireside chat, but here's the previews. We don't have to put any more cash into it. We already did the development work. In fact, we're gonna get a rebate, so to speak, in that, when we close that deal, we'll get money back.

So it's already kind of a done deal, and the financing's arranged. And we'll be talking more about that tomorrow when Lynn's on here. He's the guy who did a great job getting it all organized and getting it financed. And so that cash flow should be we should be seeing that it will be meaningful cash flow by the fourth quarter. We'll start seeing some of it early next year.

But construction starts like we're going to break ground like it's getting organized right now, getting organized. So it's soon, we'll be breaking around. We'll do an announcement and what to see what kind of ribbon cutting ceremony and stuff like that or a groundbreaking ceremony and things like that. It's a Lynn's done a great job of getting it all organized. Chris Ryan has done a great job at figuring how to do development of RNG and get it done.

Speaker 6

It's good.

Speaker 2

It creates a different business opportunity for us.

Speaker 5

Yes. Just two quick ones. Do you have an estimate on how much cash you might be able to get out of that once the financing is done? And then also the start up, is it 2022 or fourth quarter of twenty twenty two? It will start up it will hello, who is that?

Speaker 6

Oh, that's Lynn, sorry.

Speaker 2

Oh, Lynn, okay. Ahead.

Speaker 6

Yes, We'll start up in first quarter, but the cash is a little bit back end loaded because of the way the LCFS credit system works. But we're expecting cash distributions out of the project in the order of $10,000,000 on very conservative assumptions around CarbonScore and the cost to complete. We think we can do a lot better on the capital cost.

Speaker 2

What's the range of outcomes do you think? I know we took a really conservative approach as we did it for ourselves because we're thinking about really long term and how to use it with net zero plants. But if we just sold to California and it all worked well, what's that $10,000,000 turn into?

Speaker 6

Well, really the range is about $9,000,000 to $16,000,000 depending on the carbon intensity score. And the returns can vary from 30,000,000 to the high 60s depending on those things as well as the CapEx.

Speaker 2

Does that help you Paul? Yes.

Speaker 5

No, and I think you'd had like $20,000,000 in it or you'd had about $20,000,000 outlays before We

Speaker 6

don't need to put any more cash into it because we've already spent about $8,000,000 on the development, including equipment and engineering and such. And we'll pull that back out. And the only we have zero net cash coming off of the balance sheet to complete the construction of the RNG project.

Speaker 5

Okay, great. And then can you give me a budget for your FEED work, either a cost estimate or a budgeting on how much you're going to spend on the FEED work?

Speaker 6

For net 100,000.0 that's $15,000,000

Speaker 5

Okay. And then Pat, it was helpful you gave sort of the soft cost and the hard cost. The hard cost of NETZERO-one are $650,000,000 and then soft costs are about 150,000,000 as it stands right now.

Speaker 2

Right.

Speaker 5

And you need to get that cost estimate to plus or minus 10%. Are you currently at plus or minus 50%? I saw a footnote on your presentation that said it was plus or minus 50%. Can you help me reconcile that goal versus where you are now?

Speaker 2

Yes. So we're doing it's different parts of the process or different statuses. So, you know, we we changed as we started thinking about how to build out NetZero one and get ourselves off the dirty fossil footprint of energy, we, you know, realizing, gosh, we should throw a water treatment plant Well, we got to go do that and figure that out. So that's got and then how do you integrate it? Where do we what's the best way to maximize the protein and oil?

So we've worked on a deal there with a partner, we'll announce later, and had to figure that out. And so what we do is we say things like that as plus 50%. Some parts of the process are already they're pretty well nailed down. Other parts, we're still going, is it this chunk like this? And where does it lay out?

And how does it interact with the rest of it? So it's the putting of the pieces together that creates the uncertainty and to get it right. But we also the real we have to this is actually the work entails actually getting bids on equipment and figuring out the real cost. That's a non trivial thing. This is a giant plant.

So, that has to be done as well. So it's a mixed it's a mixed bag is what we got here. And, the trick of it is that we want to keep we pin down the scope. That's good. That's extremely helpful.

We have inside our battery limits. Inside our battery limits, for everybody listening, means that's inside our think of it inside our fence lines, under our control, part of the plant, part of the build. Things that are outside the battery limits would be things external to us. We could there still might be some costs we have to pay attention to. For instance, we'll be doing a wind farm in partnership with JUUL Energy.

But that's separate with different financing. The inside our battery limits, well, we got a water treatment plant, we got a protein plant, we got we're going to be taking out vegetable oil, large amounts of it. We want all that stuff because that offsets the acquisition cost of corn, right? It's correlated. It's an internal hedge kind of a thing.

It's worth a lot of money. And then, we got the hydrocarbon stuff. We're partnered with Axon on much of that because they've built a whole bunch of these kind of plants where you take the petrochemical based butylene into, hydrocarbons. Well, that's real similar to what we're doing, except for we're starting with isobutanol. You got to make isobutanol and isobutylene.

And once you go from there, then it works. Well, great. They've done 120 of these plants before. Sorry, 25 of these plants before, so that's all good. So it's all about putting all the big pieces together and figuring it out.

And it just takes time, and that's where we're at. So it's not a, oh, we're at this part is it's not it's a big bag, different parts, different places working through.

Speaker 5

Okay. And maybe I'll ask the cash burn question a little bit differently and just what have you determined how much actual equity you're going to put into Net Zero what that figure is actually going to be? Or is it still a moving target because of the capital cost estimates have been completely finalized?

Speaker 2

We just at the CEO level, I just simplify it and say we're doing 100% of the equity in net 0.1% unless someone makes us one hell of a sweet deal, and then in which case we'd share that cash flow stream. Now remember, we're greedy. We view that cash flow stream as roughly $100,000,000 a year of EBITDA at the project level. And so why would we share it? Oh, and I get that people, oh, a strategic would add value.

Well, yes and no. It depends on what the deal is. And so I liken it like this. I live in Colorado, and I'm a baker. I'm baking a cake at high altitude.

It's tricky. I got all my ingredients. I don't need extra cooks in my baking kitchen right now helping me bake. You wanna put frosting on it after the thing is baked? Hey.

Welcome to it. We'll look at it, see what the deal is at that time. And so it could be that we do add additional people into the mix of equity prior to close. It could be that we do, and we're going to want to look at that very, very carefully. But you get them in too early, then you got too many cooks in the kitchen.

And that's not that's how you ruin time lines. So I like where we're at on that front. Now Lynn, you can give a little more, example of what you're thinking about and what you've modeled.

Speaker 6

Sure. The debt work that we've done with Citi has been pretty exhaustive to confirm that we can qualify for a private activity bonds issuance. That's a tax exempt bond issuance. Those markets are very attractive for the types of projects that we're sponsoring the Net Zero One. We expect to be somewhere around two thirds leverage.

At the end of the day, we're expecting that we could be putting in somewhere in the neighborhood of $250,000,000 of equity if we invest 100% of the equity in that project. And I'd also note that the returns that Pat cites are oftentimes not giving credit to a range of fee that we would not charge to the project if we're 100% equity. If we're partial equity, we'll charge for licensing fees, operations and maintenance fees, project management, certain overhead recoveries. If we're 100% equity consolidated, those fees only come to Gevo and add to the IRRs that are being cited.

Speaker 5

Great. That's helpful, Lynn. And that is that $250,000,000 equity, is a 2022 event, right? So it's do you have an idea sort of where you think you'll end the year 2021 from a cash perspective? You have $531,000,000 now.

Do you have an idea of sort of what you think your cash on hand or on the balance sheet will be at the end of this year?

Speaker 6

That I'll just say that we're budgeting the development of Net Zero One as though we're going to complete it and close financing at the end of twenty twenty one. That won't happen, but that's the way we're it. And it's including long lead equipment deposits to maintain that completion schedule that Pat cited earlier in 2024, we're going to probably have about $45,000,000 out the door that will recover when we close the financing of Net Zero One.

Speaker 5

Okay. And

Speaker 2

then So if you're doing our cash then, you'd add it up and say, what you told you was going to be $15,000,000 to do the FEED engineering, right? He told you we'd lay out probably we budgeted for $45,000,000 outlay, which we may or may not do, but that's we budgeted for capital equipment long lead items. And then we told you that it's like $2,526,000,000 dollars of corporate bird related expenses and all the other work. So that's the kind of number subtracted off of $530,000,000 That's kind of the number you'd wind up with.

Speaker 5

That's really helpful. What, Pat, is it $15,000,000 on the feed or 50,000,000 sorry?

Speaker 2

$15,000,000

Speaker 5

15,000,000 one-five million right? One-five million Yes.

Speaker 2

One clarification I want to make that you asked about the phase and stuff and design is that, of course, this design, when we're talking about it this way, it's about our process is designed. It's about going through the details, the mass and energy balances. These are engineering exercises to figure it out. We're optimizing the process along the way, right? Because we want to minimize the carbon footprints, we maximize the carbon score that we get.

That's how we make the most money. So you go through and look at in the design phase, you go through and look at every single unit operation, ask, is it the right one? Does it have the right horsepower on that engine or that on that motor? Is it the right pipe size? Is it the right detail detail?

And put it all together. And then you got to source the equipment and come up with it. That's why it takes so much work. And so when we talk about it, we talked about it as engineers to each other here a few minutes ago, but other people listening might not grasp that, of course, it's we have a process designed. It's about pinning down the exact detail so we can spend money to go buy it.

This stuff doesn't come off a shelf.

Speaker 5

Okay, great. And then, I think Pat before you on the RNG project, had been, sort of saying that the offtake customer might be somebody would be recognizable and that would be sort of a significant move. Are you prepared at this point to talk about that? Or is it are you will we have to wait until the financing is finalized?

Speaker 2

Yes, that'll be a we got to finalize that contract. So selling renewable natural gas is worth a lot of money in California right now. So that gives us the confidence to just move ahead on the project anyway. And then we'll announce that customer partner when we're ready here.

Speaker 5

Okay. And then just a couple more, if you wouldn't mind. It looks like you've identified sites for NETZERO two and three and then along the lines. Intriguing thing to me was that you added a site on your map in Florida. Can you talk about Florida from the standpoint of

Speaker 2

Yes, sure. Yes. So what's happening to us is that as our demand increases, now remember, we're dealing with people under confidentiality agreements, right? So our customers all talk to us under confidentiality agreements And then other partners talk about us talk to us under confidentiality agreements. We're always restricted in what we can say.

However, corn in the Midwest is a sustainable, low cost way to get these carbohydrate residuals that we can turn into our hydrocarbon products. And we also have good wind resources up there. We got good biogas resources up there. It makes sense. Stuff makes sense up in the Midwest.

In Florida, there's several feedstocks that have potential interest. There's molasses type things, and there's, sugar residues from various types down there. And so people have approached us with sites. And so we have we're going through the work to evaluate them. You'll see them in other places that popped up on our map too, where same kind of thing, where people are saying, hey, we could supply you with carbohydrates.

Would you want to build a site? And you say, yeah, you show me the sustainability, you show me the cost, you show me the risk associated with that acquisition of that carbohydrate source, and we'll look at it. But the one in Florida has risen to the rank of we got to evaluate it, so it shows up on our ramp.

Speaker 5

Okay, great. And then could you help me understand the significance of the MOU that you signed with HCS and how that fits into the overall plan?

Speaker 2

Yes. So okay, so yes, with HCS, that's Halterman Carless. Halterman Carless is a specialty fuel manufacturer. We announced a deal with them where we would be licensing our technology to them for production of hydrocarbons in Speier, Germany and using it'd be leveraging their site. Now we will work with them to arrange the isobutanol production in Germany or somewhere along the Rhine River presumably or somewhere in Europe.

We still have to go do that work. They you'll notice in that press release that it talked about jet fuel in Germany, okay? And it talked about the size of the project. We'll co market it to them because we're real particular about how you place the stuff in the market and hold it sustainable and all the rest. So think net zero concept in Europe.

The difference in Europe is that you don't have to have the isobutanol plant next to the hydrocarbon plant. They could for instance, you can float the stuff down the Rhine River. In The U. S, you can't do that, of course, because you don't get the credits for it. The EPA requires the plants to be integrated in order to get the RFS credits, the RINs.

So there, we can do stuff like that and separate it. Maybe someday here, can separate things. But there it seems to be economical and it work and it's jet fuel aimed at Germany.

Speaker 5

Great. You just mentioned one thing that actually I wanted to bring up. Wind prices are going through the roof, seems like. Can you help me understand whether that impacts any of your development plans?

Speaker 2

Impacts or development? Oh, yes, development plans, you mean broadly?

Speaker 5

Yes, plans just broadly or does it have any impact on your strategic What

Speaker 2

we do is we tend to do like averages and futures types calculations when we're looking at our own economic projections. But RIN price goes up, that's good for us. So the way to think of our business is we win if anything green goes up in value RINs, LCFS, tax credits, we win. That's just more margin to us, right? And oil price goes up, we win.

If corn price goes up, what's interesting about that is protein price goes up and so does the oil price. And so that's one, it isn't such a clear cut. It's not a loss, and it might even be a win depending upon exactly how it happened and under what circumstance. So it's one of these very interesting dynamics that we have. We've tried to derisk the project on all those fronts.

But on the RINs, we get 1.6x the RINs. I mean, this is, again, one of the nuances of making an energy dense liquid. We get 1.6x, ethanol gets one. Why? We're energy dense, so we get 1.6x.

So that matters. So when you see these RIN prices going up through the roof, now multiply by 1.6, that's what we would get credited to us. So it matters. Sure.

Speaker 0

Thank you. And I don't have any further questions in the queue. I would like to turn it back to Pat for his final remarks.

Speaker 2

Thank you all for listening to us. These are and join us for the fireside chat tomorrow. We'll be asking Lynn a bunch of questions, and Sean Sieverson will be moderating, but I can't help myself, and I'll jump in. Know Thank you for, your support in the company. We appreciate it.

We are off to a good start of this year. The things are working and making progress. It's actually, it's a change and a blessing from last year. And now we are driving to get this done and get this plant online, net zero one, and I want net zero two, and I want net zero three as well. So and I want that RNG done, and we're gonna be evaluating whether whether to make it even bigger.

So that's what we're focused on. Thanks for listening today. Bye.

Speaker 0

Thank you, ladies and gentlemen, for your participation in today's program, and you may now disconnect. Have a great day.