Syntroleum Corporation Needs Capital Infusion
Last updated Wednesday, March 5, 2008 5:33 PM CST in Business
By Kim Souza
The Morning News
nwaonline.net
Tulsa-based Syntroleum Corporation faces potential delisting from the Nasdaq Stock Exchange due to its failure to meet the $50 million market capital requirements as its share price has fallen below $1.
In a recent filing with the federal Securities and Exchange Commission, Syntroleum officials requested a hearing scheduled in the next 45 days. The panel could grant the company's request for continued listing or it will fall to a lower level exchange - the Nasdaq Capital Market.
Either way, Morningstar analyst Catharina Milostan said the company faces certain funding and operating challenges in the coming months raising its share of venture capital - $75 million - for the Dynamic Fuels joint venture with Springdale-based Tyson Foods Inc. and still keep its lights on.
Tyson Foods and Syntroleum are attempting to build a commercial bio-fuels plant in Geismer, La. with a price tag of about $150 million. The plant will have an annual capacity to produce roughly 75 million gallons of fuel from animal fat once it comes online in 2010. The unblended fuel can be used as a premium fuel in existing diesel engines with no engine modifications required and can also be upgraded to jet fuel.
Tyson Foods officials recently said the company is committed to its 50/50 joint-venture partnership with Syntroleum and looks for a 2010 start-up. The company projects annual operating profits from the venture to range between $35 and $60 million.
Each partner contributed $4.25 million in seed money last summer. Syntroleum tapped into a $40 million line of credit for its share of start-up capital. Syntroleum officials recently said the project is on schedule and budget with start-up slated for the first quarter of 2010.
Analyst worry that Syntroleum may not survive long enough to see the plant to fruition.
Officials at Syntroleum did not return calls made on Wednesday.
In a detailed call to investors in November, Syntroleum officials outlined a survival plan which would cut operating costs from $24 million to $6.5 million by 2009.
The company said it was focused solely on stopping the cash drain and trimmed staff from 144 to 22, including the departure of two top executives - founder Ken Agee and CEO Jack Holmes. The company put its building up for sale and idled its Catoosa, Okla., demonstration plant and its Tulsa pilot plant as part of the cost-savings plan.
Milostan said it would take the lower operating costs to help the company keep the lights on until 2010. She said with the cash balance of $26 million the company reported in September, there is little margin for error.
Syntroleum collected Monday on $5.76 million the company was owed from the sale of its Nigerian business to African Energy Equity Resources Limited. Milostan said the collection could buy the company more breathing room.
Gary Roth, CEO of Syntroleum, said recently the company is looking forward to the successful execution of the Dynamic Fuels venture with Tyson Foods.
However, there is about $58 million and three long years standing between Syntroleum and a pay day from the Dynamic Fuels project.
Turmoil amid financial markets in recent months and the delisting notice raise more concerns among analysts about the company's ability to secure the necessary money to build the plant.
Fletcher Asset Management committed $12 million to the project last fall, but Jake Dollarhide, CEO of Longbow Investments of Tulsa, said as the stock continues to fall below $1, the financial audience becomes more limited.
The delisting notice is not the company's biggest concern, Dollarhide said. The company's inability to turn a profit in its 20-year history and a string of disappointments from past failed promises have taken the company's fan base to a low level in recent years, he said.
Tyson Foods, under terms of the joint venture, can cover Syntroleum's obligated investment in exchange for a larger percentage of ownership.
This would likely not be Syntroleum's choice option because it is relying heavily on its full share of the potential profits, Dollarhide said.
Tyson Foods Inc. did not comment on partnership funding prior to press time.
Milostan said the company has put all of its focus into the Dynamic Fuels project which makes it an all-or-nothing outcome.
With respect to the much-needed investors the company is seeking, Milostan said, if the Dynamic Fuels plant is built on time and can run efficiently the upside in five years or so is $3 per share for Syntroleum. But if the company burns through its cash reserves before it can generate revenue from the 2010 project, bankruptcy is the likely outcome.
Shares of Syntroleum (Nasdaq: SYNM) closed Wednesday at 69 cents, unchanged. For the past 52 weeks the share price has ranged from a $3.74 high to a 46 cents low. |
