Beatrice Biodiesel to resume construction with new cash infusion By Sarah Smith
Web exclusive posted April 2, 2008 at 3:24 p.m. CST
After a few weeks of stalled construction on a Nebraska biodiesel plant, Beatrice Biodiesel LLC will resume construction on the project – which is within weeks of completion. Work at the plant near Beatrice, Neb., was abruptly stopped in mid-February due to construction cost overruns and mechanics liens filed against the project. U.S. Canadian Biofuels, the parent company of Beatrice Biodiesel, scrambled to find new investors. One group looked promising, but was unable to obtain financing. On March 24, Beatrice Biodiesel announced the construction lender had agreed to release some collateral, allowing plant construction to resume. U.S. Canadian Biofuels still has problems and is now for sale, facing nearly $4 million in liens and a tough economic downturn.
U.S. Canadian Biofuels Chief Executive Officer Bud Cummins said a combination of factors undermined Beatrice Biodiesel. “We had some delays caused by contractors and manufacturers, many change orders and then we started hitting bad winter weather so we ran into some significant cost overruns, in the millions,” he said. “We sat down with our lender in November-December and had a heart-to-heart with them about our abilities to absorb all these blows ands frankly our abilities were pretty limited at that point since we’d expended most of our available capital.”
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U.S. Canadian Biofuels, which is owned by Agri Energy Ltd., was formed in 2004 to expand the Australian parent company’s reach into North America. “Our parent company had also had some significant problems with an ethanol project in Australia that had eaten up the balance of their available capital so we knew we were going to be short on capital to meet both the cost overruns with the project and the rising capital demands caused by the high cost of soybean oil,” Cummins said.
He estimated the Beatrice Biodiesel plant was approximately 98 percent completed when work was stopped. To pay Beatrice Biodiesel’s creditors, Cummins said U.S. Canadian Biofuels will be sold. “We reluctantly entered into an agreement to sell U.S. Canadian Biofuels, at least a significant share of the company if not the whole company, and we’ve been diligently pursuing that since mid-February” said Cummins, noting he regrets that workers representing 20 different lienholders have outstanding debts associated with the project.
Beatrice Biodiesel, which has entered into a deal with Home Federal Savings Bank, will not be lent additional money. “They’re agreeing to release some collateral, which is some cash, and some soybean oil we had in our tanks,” Cummins said. “They’re allowing us to sell the soybean oil, take the cash and convert it to construction money. It just makes the plant more attractive to a buyer and it’ll maximize the value for all our creditors who are now dependent on the sale of the plant to have their debts satisfied.” The deal specifies that a broker will be retained to sell the plant before the loan agreement expires on June 30.
Construction on the 50 MMgy soy plant began in 2006, and even though the biodiesel economy has turned sour, Cummins said there’s no lack of interest in buying the refinery. “Every time the price of soybean oil comes down a penny our phone rings some more,” he said. “This plant is generally viewed as one of the most technologically advanced in the country – with lowest cost operations and highest quality of glycerin, which has a significant value that goes to the bottom line.”
Although many buyers may be interested, cautious lenders aren’t. “We talk to potential investors all the time but they’re all facing the same problems we are. The credit market is incredibly tight right now and it’s very difficult to finance,” Cummins said. “We’re just having trouble finding somebody that can put all the pieces together.”
The plant has the capability to diversify its feedstock but has entered into a three-year soy oil supply agreement, Cummins said. Agri Energy officials recently said the feedstock-starved biodiesel economy in the United States was hindering Beatrice Biodiesel’s success. “The company has pursued alternative feedstock options,” Agri Energy’s CEO wrote to the Australian Stock Exchange. While using low-grade feedstocks such as tallow and animal fat might be attractive, “there is a capital cost requirement which would add further investment pressure to the project,” he wrote.
Construction work on Beatrice Biodiesel, which resumed April 1, is expected to be completed around May 31.
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