Is Wall Street ready to bet $100 million on a clean-burning fuel that comes from a plant called sweet sorghum?
That’s the question Ceres Inc. in Thousand Oaks will ask as it plans an initial public offering disclosed in a prospectus last week.
Investors will have to decide the likelihood of ever harvesting a profit from the company’s biofuel technology. The risks include market acceptance of sorghum and the economics of farming once the company’s seeds move out of the lab.
Ceres, founded in 1997 to develop genetically engineered seeds, has two commercial products: saw grass seed that it sells to farmers in the United States, and sweet sorghum seed for sale in the United States and Brazil. Both seeds produce crops that can be turned into ethanol, a fuel used in auto mobiles and electricity generation plants.
The company recently completed its first commercial planting of genetically modified sweet sorghum in Brazil. The South American nation is a leader in using ethanol fuel derived from sugarcane. However, seasonal weather limits the sugarcane crop to about 200 days a year. As a result, Brazil’s ethanol-based electricity plants run out of fuel and shut down for about five months of the year. By using Ceres’ sorghum, the electric plants could produce for several additional months because the plant is hardier and grows faster than sugar.
“Our largest immediate commercial opportunity is the Brazilian ethanol market,” the prospectus states. “The seed-based propagation, shorter growing cycle and lower water and fertilizer requirements of sweet sorghum relative to sugarcane will serve as the basis for expanded adoption of this product line.”
Ceres plans to expand its sales in Brazil to prove the economic viability of sorghum for ethanol production. Then the company hopes to convince electricity and gasoline producers in the United States and elsewhere to adopt the Brazilian model.
Seth Zalkin, managing partner at merger and acquisition advisory firm Astor Group in Rio de Janiero, Brazil, and an expert on clean energy investments, said Ceres has interesting technology but limited sales. However, he thinks the IPO should proceed successfully because Wall Street likes clean energy.
“The market is very receptive to this right now with the high price of oil and high hopes for biofuels,” he said. “There have been a number of IPOs announced. Now is a great window to get into the market.”
Riggs Eckelberry, Chief Executive of OriginOil Inc. in Los Angeles, an alternative energy company that went public in 2008, said the timing is right for Ceres’ IPO.
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