agreed that their are not enough details to make any solid assumptions but i think there is one thing worth noting from their recent annual report. for the employees performance rights to be rewarded there were 3 tranches
fin9/10 cash flow positive
fin10/11 6c eps
fin 11/12 15c eps
management always sets these performance criteria on the conservative side and i think this could be a good indication of conservatively what type of margin is involved in the valero deal as the jatropha crop starts coming through.
valero hasnt got the options for nothing, it is part of vertically integrating the business. the deal had the potential to make the company and valero were happy to do it but as long as they got some of the action. excellent incentive going forward with the usa mandatory renewable fuels programe. there is regulated demand for this product in europe and th US and you have a huge company with growing regulated demand incentivised to do it through mbt. valero also has 15% of jet fuel market in north america and jatropha is the only biofuel which can be used or blended with jet fuel and no modification for aircraft.
the big risk with this is the crop, if the crop comes through on time this will be worth $$s. if there are problems with the jatropha then it will struggle and i think the margins on palm oil will be negligible. this is becoming a vertically integrated business where the guy who builds the refineries has bought 30%, the off take customer has the potential to buy 25% and mbt is now a jatropha grower. dont under estimate the size of their plantation. if they get the feedstock coming through to plan then the eps requirements for the perfomance rights i think will be a conservative estimate for earnings going frward. fingers crossed the crop is on target and this could be a great story.
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