Biofuels Share Discussion Threads

[magpie59] 28/6/2007 23:28

Paul - thanks for your comment.

Having established that BFT pretty much gets to carry all of the assets and debt of what we call BFC we have:

Assets £37m
Debt £102m

Net £65m negative

Knock off £40m of forgiven debt = £25m negative aka negative £15m-£30M.

QED

nfranks - come on. You've been beating that drum for too long, Yes it could happen. But so could BP going up 50% in 5years, or a FTSE tracker or a horse winning, or a good game of poker, or buying a flat, or investing in a sound unit trust.
Split that lot into two groups. On one side you have BP, FTSE, a flat and Unit Trust.
On the other, a horse, a game of poker...........and BFC.

Come on, think.

[original03] 28/6/2007 22:41

What a way for this story to end! For inspite of a few optomists, it has to all intents and pruposes ended.

My lesson from all this is simple:

When the returns on your initial investment look good at least recover that investment.

Look very closely at the experience of the board.

The initial BFC board had no public company expertise, nor were they suitably qualified although deGrussa did claim a Batchelor of Economics Degree (A Lie).

Whilst I do not believe (with the benefit of hindsight) that Sutcliffe and Buzzacot were the right people for the job, the mess they inherited from the previous board made it almost impossible for them to ever succeed.

Had there been anyone on that original board with suitable commercial expertise then maybe the hedge fund would not have happened, had deGrussa not leapt into bed with Energea, although Nicholas and Walton all supported this, inspite of the warning from one of the original (Pre listing) board members not to use Energea, of course he was only an highly qualified engineer. CM2 Energea is Austrian, not Canadian there is Canadian company but they are even more strange:-)

Well sorry everybody, it should have worked and with reliable plant commissioned on time I am sure it would have. Good luck and I hope your losses are survivable.

I wonder if the chartists can see a cross? Look closer and it has RIP written on it.

[nfranks] 28/6/2007 21:02

or perhaps not!!!! Interesting article

Why Biofuels Won't Work
by Nick Louth

Biofuels won't work. Whether the question is offsetting
climate change, cutting reliance on Middle East oil or
simply finding a profitable new investment, those who put
their faith in biofuels are likely to be disappointed.

There are all sorts of reasons for this, but the
underlying one, as so often, is economics. We're not
talking PhD economics either, most of this stuff is GCSE-
level supply and demand, plus substitution effects. Here
are the facts. Most biofuels compete with food supplies.
That is either in terms of the land they use, or because
they are actually made of food crops. Most absorb more
fossil fuels in their cultivation than they save in their
end use, so they obviously cannot begin to compete with
oil without subsidies. Where the basic economics are
attractive, in tropical countries, that is because the
land resource is 'free'. The failure to price the
carbon value of tropical forest is leading to the loss
of an irreplaceable store many times more effective than
the cash crop which will replace it. Finally, a few
promising biofuel techniques, using agricultural waste
products or seawater, are under development but have
attracted only a fraction of the capital of the current
crop of useless schemes.

Here's the best kind of scheme, as used in Brazil for
several decades. Take a bus, get it to run on ethanol
from sugar cane waste instead of on diesel, and you get
cheaper fuel and one in which the carbon emitted from the
burning of the fuel is balanced by that absorbed when the
sugar cane was growing. This cuts the amount of carbon
released per mile travelled by 90%. For third world
countries, this can boost rural incomes, build a local
technology base, and provide a useful export product too.

Here's the worst kind of scheme, which also happens to be
the biggest. Spend $10bn a year subsidising American mid-
West grain farmers to grow more maize (corn) which can
then be turned into bio-ethanol for mixing with petrol.
Ignore the fact that scientists have proved that growing
enough corn in a temperate climate to make a gallon of
ethanol actually requires more than a gallon of oil in
fertilisers, insecticide, agricultural machinery use,
processing and transport. Ignore the fact that the energy
efficiency of ethanol, gallon-for-gallon is lower than
that of the fuel it replaces, so more is needed to drive
a mile. Ignore the fact that the rush to grow corn is
causing U.S. farmers, those whose surpluses normally feed
the developed world, to switch away from every other kind
of grain. Combine with a year in which Australian drought
and a wet American harvest season are already restricting
supply, and then express surprise when prices of all soft
commodities shoot to record highs. Oh yes, and one final
lunatic twist. Make sure you impose high import tariffs
on the only really environmentally effective biofuel,
Brazilian ethanol, to protect the market you have so
expensively created.

We are already a long way up this blind alley. The U.S.
is currently considering extending existing subsidies on
biofuel production, which including the 51-cent-per-
gallon ethanol tax credit, would cost American taxpayers
$140bn over the next 15 years. Congressional lawmakers
are considering adding extra subsidies which would raise
this total to $205bn. The EU, not to be outdone, has
mandated that by 2010 5.75% of transport fuel within its
borders should be derived from biofuels, and by 2020 10%.
The International Energy Agency has predicted crops grown
for biofuels will soar from 41.5m tonnes of oil
equivalent in 2010 to 92.4m by 2030 without subsidies, or
up to 146.7m tonnes by 2030 with them.

Let's get back to first principles. The carbon in the
atmosphere, which causes climate change, isn't made or
destroyed but liberated or captured by physical
processes. It is absorbed by plants during their growth
and released when they die and rot. During their lifetime
it is stored within them. We humans, like all animals,
take in carbon with our food and exhale it as we breathe.
The carbon in our cells grows as we do and is released
when we die. Carbon in fossil fuel is also stored, but
for millennia rather than years, from the ancient algae
and bacteria from which it is made. When we use our cars
we liberate this ancient carbon, and do so in a
microscopic fraction of the hundreds of millions of years
that it took to accumulate.

Now the economic underpinning behind biofuels can be
expressed like a household budget. The idea is to avoid
drawing on our inherited carbon savings (from fossil fuel
reserves ) but use our carbon 'income' from growing crops
to fund our carbon 'spending', e.g. motoring, aviation
and industry. Clearly that only works when there is a new
source of income, i.e. new crops grown, to fund the new
carbon expenditure incurred since the industrial
revolution. If you merely divert existing crops into
biofuels, you do not add anything to the carbon income
side of the account. We have merely been raiding the
kitchen kitty.

Leaving the world short of grain is merely causing food
stocks (a different form of carbon store) to be run
down and prices to rise. The US Department of Agriculture
says that world grain stocks have already dropped 5%
this year.

The amount of U.S. corn being turned into bio-ethanol for
vehicles has tripled in five years to 50m tonnes in 2006.
Corn prices earlier this year reached ten year highs, and
at $4 a bushel are 70% above year-ago levels. Wheat
prices have now followed suit, reaching an 11-year high
in recent days, fanned by bad weather. Because
agricultural land can be switched from one crop to
another, the demand for corn bio-ethanol has fed
inflation right the way through the grains complex.
Soaring animal feed prices are already feeding through to
higher prices for meat and milk. The same is beginning to
happen in Europe, where edible oils such as rape seed for
bio-diesel are the crop of choice. Brewer Heineken has
already warned that acreage switched away from barley to
oils is causing prices to rise.

But surely, for all the expense, we are lowering our
reliance on Middle Eastern oils? Not really, because
there isn't enough land to allow us to do so. The OECD
has calculated that it would take 70% of Europe's
farmland to supply enough biofuels to save 10% of the oil
currently used in transport. The 146.7m tonnes of oil
equivalent the IEA expects to be drawn from biofuels by
2030 (on the big subsidy assumption) is just 3.8% of
annual global oil consumption of 3,809m tonnes, barely
enough to satisfy a single year's incremental growth in
oil demand.

So what about in the tropics? The United Nations has
already warned that the clearing of rain forest has
accelerated in Asia because of the soaring price of palm
oil, which can be used as biofuel. According to
Greenpeace, each acre of cleared lost rain forest
liberates 20 times the carbon that can be saved by
growing palm oil on it for biofuels.

In the shadow of all this, there are some promising
technologies. Using food waste that is not either eaten
by humans or livestock could add to the net carbon gain,
though what pigs and goats are already capable of eating
is much underestimated. Electricity generation through
burning short-rotation coppice of elephant grass and
willow is already a well-established niche in Britain,
though it adds to carbon saving only because, unlike food
crops, it is allowed to be grown on EU set-aside land.
The Seawater Foundation in Mexico has used a combination
of shrimp farm waste and seawater to grow carbon-
absorbing and salt tolerant plants. This is promising,
but small scale so far. Perhaps the simplest biofuel of
all is closest to home. We can burn household vegetable
waste that otherwise often rots in landfill and releases
methane, which is an even more damaging greenhouse gas
than carbon dioxide. However, these possibilities so far
lack the scale and development needed to push them to the
forefront of official thinking.

There are two conclusions to draw. One is that you are
better off riding what looks likely to be an enduring
price rise in soft commodities than trying to pick
winners among the crop of biofuel minnows on AIM. The
subsidy regime, which underpins the economics of too many
biofuel ideas, could easily change once the penny begins
to drop at the EU on how few are really cost effective.

As for the U.S., if they really wanted to help save the
planet (as opposed to enriching some well-placed
agricultural interests) they could have used the tools of
Adam Smith. A decent-sized tax on gasoline (whose average
price per litre even now translates as just 35p) would be
a great start. It really is just GCSE stuff.

Regards

Nick Louth
For The Daily Reckoning

[nfranks] 28/6/2007 20:40

magpie59 - "In other words, a decision to not sell now at 4.25p is a gamble that BFT may one day be sold for at least £34m."

I reckon that should be a achieveable, assuming a few things happen
1. The US B99 loophole allowing cheap US biodiesel to be exported to Europe is stopped. Even The NBB (National Biodiesel Board) believe it should be, but it's got to go through congress so will take some time.
2. All the remaining technical issues get sorted.
3. Oil price will keep high or go even higher.
4. Feedstock prices level out and stabilise. (this is the tricky one) but who can afford these high prices at the moment?
5. The UK RFTO kicks in and works, offering another 15p of buy-out subsidy. Not sure how much the biodiesel producers will get though but hopefully enough to provide positive margins.

Barclays must have a view that the situation will get better given time, otherwise they wouldn't be offering this as a solution would they?

Got to be worth a punt, hasn't it?????

[paul e] 28/6/2007 17:53

magpie, I concur with all that you have written except I cannot work out how you have got to BFT having debts of only £15m to £30m.

Sorry if I'm being thick here.

Paul

[volsung] 28/6/2007 17:24

jkershaw - Indonesia is the 3rd largest emitter of CO2 according to the World Bank:

Every year south-east Asia is blanketed by a huge cloud of smoke from fires in Indonesia. These are partly caused by burning off rainforest for palm-oil plantations. Palm oil is used for biofuel among other uses. You are correct insaying that the new vegetation will pull in a certain amount of CO2 during growth but this will be re-emitted when it is used as fuel. Burning the initial forest and the peatland on which much of it grows produces many more times the CO2 than the biofuel crop takes up. It also creates a monoculture as Hyper Al has pointed out basically a green desert.

[hyper al] 28/6/2007 17:14

jkershaw

How the heck does destroying native vegetation (mainly by burning it) and replacing it with a monoculture save the planet?

volsung

Well said!

[jkershaw] 28/6/2007 17:14

Im sceptical of your reasoning volsung, rainforest is cleared for logging used in furniture, housing etc, not simply burnt. And even if the remaining vegetation is burnt to clear, the palm plantation will pull that co2 back in during growth. Do you have evidence they are the biggest carbon producer and that its due to deforestation? USA and China have always been identified as the planets biggest. I agree with you on the combustion engine but it cannot simply be replaced. It will be phased out along with the infrastucture that supports it over a period of time. Biofuel is an evolutionary step to take it in that direction.

[volsung] 28/6/2007 17:01

jkershaw - co2 is produced when the rainforest is burnt for biofuel plantations. That is why Indonesia is one of the biggest carbon emitters on the planet. So planting biofuel crop is not saving on emissions. What is needed is less dependence on the internal combustion engine. Its about time we developed something new anyway. Its been around for well over a century now. Biofuel is a green red herring.

[magpie59] 28/6/2007 16:54

I couldn't quite work out what is happening to the remaining £60m debt if Barclays is only forgiving £40m.

I've now been through the whole thing, yet again and I believe I've got it now.
Some facts:

1 The "Existing Debt" lies with BFT not BFC.
2 Only £40m of that is being forgiven in exchange for the Barclays wholly owned Newco gaining a 94% stake in BFT.
3 BFC is being released from X-gurantees, which means BFC is in no way responsible for the remaining BFT debt of £60m. This is important and the bit I didn't get but do now. The current 100% of shares in BFC will remain just that, the 100% owners of BFC. But BFC will only own 6% of BFT, to whom all the assets of BFC are being transferred. The removal of the X-guarantee means BFC will become debt free. However, the remaining £60m debt will still be in BFT, but since Newco own 94% of BFT and BFC own 6% of BFT, then effectively Barclays own 94% of their own debt and indirectly BFC own 6% of the £60m debt, but only indirectly through their 6% stake in BFT.
So the "thing" (i.e BFC) that shareholders have a stake in has lost all of its debt, but indirectly, BFC shareholders are still responsible for £3.6m of debt, calculated as 6% of £60m. Having said that they also own 6% of the assets of BFT, maybe 6% 0f £50m, say £3.0m. BFT are still a technically insolvent company then.
So the £60m debt hasn't disappeared, its just that it is entirely in the hands of BFT.
4 BFC is relieving BFT of the responsibility to pay the "Inter-company loan". We don't know what this amounts to but I think insignificant as the £100m external debt definitely lies in BFT. Also, it states the only asset of BFC will be the investment in BFT plus the rights to any Energea claim. I think this inter-company debt disappears inthe process of transferring assets to BFT.
5 BFT must pay BFC annually the admin costs relating to company formalities. This has been written in since the new structure requires BFC to continue as the vehicle for the existing 49m shares in it to survive, and yet it has no income whatsoever to even cover a £20 Companies Filing Fee. Hence this requires BFT to sub BFC.
6 BFT must also pay BFC costs relating to any Energea claim, but...........critically the advancement of any such claim is NOT BFC's decision but BFT's - so Barclays, via its wholly owned subsidiary, Newco.
7 There will be no public market for the 49m shares in BFC. This is critical. Those 49m shares aren't going anywhere. They will all still be in place post restructure. It's just they'll be with a private company with no income.

Where does this leave shareholders going forward?

Their only chance of value is if Barclays/Newco either elect for BFT to pay a dividend or if they sell BFT. In either case the 49m BFC shareholders will only get 6% of any distribution by BFT.
I estimate BFT to have a negative balance sheet to the tune of around £15-£30m. It would be a brave man who would project profits in the next five years sufficient to wipe that out and build up reserves sufficient to make Barclays confident enough to allow a dividend be paid by BFT. I would rule out a dividend from BFT then, in the very long term, and certainly not before Barcalys have their £60m back.
In summary then, I believe the only chance of BFC shareholders getting anything once the company delists is if BFT is one day sold. At 1p per each currently traded share the collective worth of the 49m shares is £490K. To just get that value, BFT would have to be sold for £8.167m (£8.167m x 6% = £490K). So roughly speaking, each penny perceived value of the share, needs £8m worth of future BFT sales consideration.
In other words, a decision to not sell now at 4.25p is a gamle that BFT may one day be sold for at least £34m.

[jkershaw] 28/6/2007 14:21

It may not be "nice" to clear rainforest but its replaced with vegitation non the less. Makes for a boring planet as we lose diversity but saves it, unless you are planning of building an ark

[jkershaw] 28/6/2007 14:19

asparks, biodiesel is not green...how so? We pull mineral oil out the ground and burn it 100% carbon. Humans strip rainforest and replace it with palm plantations. Extract palm oil, burn palm oil, carbon absorbed back to palm plantation = carbon nuetral

[ricartonl] 28/6/2007 13:23

asparks - 28 Jun'07 - 11:33 - 37002 of 37008

i WAS being ironic, of course.

All Biofuels (except cellulistsic ethanol) are a pile of XXXX


Research/testing is being done on using glucose/fructose- i.e. simple sugars, which is supposedly 40% more efficient than bioethanol

[powlo] 28/6/2007 13:21

If they consolidate 10,000 to one then perhaps.

[magpie59] 28/6/2007 11:59

Fyb has made all sorts of extravagant calls on DOO most of which have not materialised, at least not in timing or extent. His latest is that it will be 350p next week!
Having said that I don't disagree with his overall long term confidence.

[spanishomlette] 28/6/2007 11:39

what a pile of terd, why is this still even listed?

[barefoot1] 28/6/2007 11:36

Fyb called it right with Bfc all along...he has tried to warn people for over a year now.....he is in Doo so i for one am also happy to be there....hoping he can call it right twice!!!! ;O)

[volsung] 28/6/2007 11:33

Well true to form the bounce is on.

[asparks] 28/6/2007 11:33

i WAS being ironic, of course.

All Biofuels (except cellulistsic ethanol) are a pile of XXXX

[magpie59] 28/6/2007 11:00

That's not the point gerrit12. Value and trading activity don't always correlate.

[gerrit12] 28/6/2007 10:53

Biofuels worth 0p, no way this can have any value.

[magpie59] 28/6/2007 10:25

It may well bounce as shorters close. Personally I'd love to see 7p again.

[volsung] 28/6/2007 10:24

This is due a bounce I think.

[magpie59] 28/6/2007 10:23

Surely, surely, surely ("stop calling me Shirley") asparks was being ironic?

Surely?