KiOR IPO: One Year Later

by Debra Fiakas CFA

One year ago biofuel developer KiOR, Inc. (KIOR:  Nasdaq) raised $150 million in through its initial public offering.  The anniversary seems like an appropriate time to revisit the company’s progress  –  and valuation of KiOR shares.

KiOR’s claims its demonstration plant proves its proprietary catalysts dramatically accelerate the conversion of biomass into hydrocarbons.  KiOR’s bio-crude can then be put through conventional “cracking” processes to transform the bio-crude to gasoline and other petroleum products.  The company claims yields of 67 gallons of fuel per bone dry ton of biomass such as wood chips.

Management indicates they expect to incur losses through the end of next year.  This is a tough situation to be in with only $152.2 million in the bank and a cash burn rate of about $4.0 million per month.  KiOR also needs another $40 million to complete construction of a commercial-scale plant in Mississippi and $16 million to launch operations there.  They are apparently still optimistic the company can realize initial revenue in the second half of 2012, which means the cash burn rate should begin to decline.  Nonetheless, positive cash flows are not expected until the end of next year.

A bit of math reveals that KiOR management must watch their budget if they expect to deliver on promises without raising additional capital.  One of the company’s major investors, Khosla Ventures already lent KiOR $76.5 million and I do not expect that fountain to bubble up additional cash.

The tightening cash situation might be one of the reasons KIOR is trading nearer its 52-week low than the high in the same period.  Even that price might be too high given mounting losses  –  $147.2 million since inception  –  and dwindling capital strength.  However, when crude begins to flow in Mississippi, the depressed share price might seem more compelling.  A positive fundamental development could trigger a buy-in by bears who have bet against KiOR’s success.  Investors have already shorted over a quarter of the float.

Debra Fiakas is the Managing Director of Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.