Saturday, October 11, 2008

A Message From The Greenshift CEO

A Message From Mr. Kreisler

A comprehensive update will be provided when we file our next quarterly report. In the meantime, the following is in response to some of your questions.

Yes, the activity in the financial and commodity markets has taken its toll. While this and the derivative impact on our operations will be discussed in greater detail in our next quarterly report, the bottom line for now is that some of this activity decreased our access to previously planned short-term sources of liquidity.

We would have solved these issues by completing convertible debt financing with the pre-cash flow structures we used in the past were it not for the potential of our biofuel production operations to produce near-term positive cash flows. We have not issued any new convertible debt since 2007 and we have no intention of doing so here despite the fact that these options have been and remain quite available to us.

Instead, we stayed the course and marshaled our resources around the commissioning process of COES#3 (Marion), COES#4 (Riga) and COES#5 (Albion), and covering the needs of our biodiesel refinery (which we have been intentionally operating at a fraction of capacity since July due to the prohibitively high cost of conventional feedstocks). COES#3 is operating today at slightly less than our 1.5MMGY nameplate (without the upgrade), COES#4 is currently being commissioned and is expected to produce oil later this month, and COES#5 is on schedule for a December commissioning. Importantly, these facilities alone can be expected to produce transparent, hedged, recurring cash flows at levels more than sufficient to service all of our current obligations.

While none of this would have been possible without the relentless and heroic efforts of our design, manufacturing, commissioning and production teams, or the extraordinary support of our vendors and clients, we owe the reliability of these cash flows, and our ability to push through despite the market volatility, to the structure of our business model.

Our business model is also an important part of what distinguishes GreenShift from other biodiesel producers. As you correctly noted, financing for producers refining soy or another conventional feedstock has dried up. This is mostly because conventional producers are subject to significant commodity risk.

Our hedged margins give us the ability to remain profitable (at throughput levels above our break-even point) in the face of market movement that would be fatal to a conventional producer. Our value proposition to a prospective financing source is thus different from that of a conventional producer: with our extraction technology, process know-how, internalization of refining, and long-term hedged feedstock ownership, we have insulated GreenShift from the risks a conventional producer faces and demonstrated our ability to service debt, generate returns on capital and produce significant surplus cash flows.

We are staying the course and will continue to execute on the strategy outlined in our second quarter report. Responses to some of your other specific questions follow:

1. COES#6 and COES#7 are delayed and are now scheduled for commissioning in Q1 2009.

2. We are not selling the COES technology in the sense your question implies. The ‘purchase option’ version of our business model allows an ethanol client to purchase the COES equipment and pay us to build the COES facility at their plant while we retain the long term right to buy the extracted oil at a higher percentage of diesel spot. This is a sale of equipment and construction services only and it does not include any sale of technology. We only have one of these contracts today. There will be no sale of our intellectual property.

3. We are not in discussions to merge with or to acquire or to be acquired by any company.

4. We have no plans to reverse split the stock.

5. YA Global and Stillwater have been exceptional partners. Given the probability and imminence of our production cash flows, the best and most cost-effective path forward for all of our stakeholders is to facilitate the completion of our current and contracted construction projects.
 
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