Velocys and Yield10 need financing fast

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Everyone agrees that demand for Sustainable Aviation Fuel (SAF) is strong. But two companies involved in the SAF production chain have said they will run out of cash if they don’t raise financing by the end of 2023.

Both Velocys and Yield10 have multiple agreements with major aviation stakeholders but don’t have enough funds to continue their operations.

Velocys, a carbon-negative technology provider, is facing financial challenges due to its inability to secure funding to scale up its business. At the start of this month it said that a planned financing with Carbon Direct Capital had fallen apart (we covered this here).

Now private equity firm Lightrock and Carbon Direct Capital have offered to buy the listed company. The £0.25 per share takeover offer, announced by Velocys on November 20th, values the company at about £4.1m ($5.14m). It is trading at £0.24 today, down from £4.50 a year ago.

Velocys said this offer is at “a substantial discount to the company’s current share price”. Accepting the offer would result in company no longer being floated on the UK AIM exchange.

Velocys received two grants from the UK government’s Advanced Fuels Fund last year.

It was awarded £27m to develop a commercial scale plant in Lincolnshire user gasification and Fischer-Tropsch technology to convert black bin bag waste into SAF. The plant was expected to be operational in 2028 and produce up to 37.4 kilotons a year of SAF.

Velocys also received a £2.5m grant for its e-Alto project to build a demonstration plant to convert carbon dioxide from a fossil gas-powered electricity plant and hydrogen made from renewable electricity into SAF.

The UK government recently announced another nine grants, but Velocys was not included in the 2023 awards.

Velocys board says it will consider the offer especially in view of its very near-term funding requirements and significant long-term funding needs. But if fails to reach an agreement on terms, the company’s operations are likely to come to a halt.

On other side of the Atlantic, US biotech company Yield10 in its third-quarter earnings call warned investors that there is substantial doubt about the company’s ability to continue as a going concern.

Things were looking good for Yield10 earlier this year. In January, the company signed an agreement with Mitsubishi Corporation to supply, offtake and market Camelina oilseed as the low-carbon feedstock for biofuels. Then in March, the company signed a similar agreement with the American Airlines to produce SAF from Camelina oilseed.

Camelina is an oilseed from the mustard family with a high level (43%) of naturally occurring fats, making it an ideal candidate to use as a feedstock for renewable fuels. With the massive planned increase in SAF production capacity, the need for diverse feedstocks meant every sustainable feedstock was welcome.

In August, another positive development was shared by the management in second-quarter results investor call. Marathon Petroleum and Japan’s oil refiner Eneos were interested to acquire Yield10’s Camelina oilseed for SAF production.

In the meantime, the company was burning through an average of $2.8m during the last few quarters. Nearly 20% of it was on stock-based compensation.

Now, the company doesn’t have funds to go on. In the earnings call held last week, Yield10’s management said the company’s “cash and cash equivalents of $2.8m as of September 30th 2023, will only fund its operations into early December 2023″.

Yield10 said it is evaluating and pursuing different funding strategies. But if it is unable to obtain funds by early December 2023 on acceptable terms, it may have to curtail or even terminate its operations. This could involve seeking Chapter 11 bankruptcy protection.

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