Company sees local opportunities and can benefit from economies of scale
Samus Prasla | Green Investing and Sustainability Writer | June 3, 2016: It seems almost too good to be true. Take certain types of discarded food and convert it into diesel fuel. BIOX Corporation (TSE:BX) has been doing this successfully since 2007. So why, then, is its stock price trading at 52-week lows?
BIOX Corporation (TSE:BX) produces about 67 million litres per annum of biodiesel through its biodiesel production facility in Hamilton, Ontario. With the use of biodiesel, its customers can enjoy the similar performance of petroleum diesel along with the added benefit of reducing greenhouse gas emissions.
As we all know, petroleum diesel is produced by extracting non-renewable resources from the Earth’s crust, which has huge amounts of carbon embedded in it, from the production process until its end use.
BIOX sources its raw materials from a variety of feedstocks, such as pure seed oils, animal fats and recovered vegetable oils, making its biodiesel a high-quality, renewable, clean burning and biodegradable fuel.
Customers can use this biodiesel as a replacement for, or additive to, petroleum diesel, without making any modifications in today’s diesel combustion engines.
BIOX’s product is currently competing with petroleum diesel in the marketplace.
Both the renewable and non-renewable fuel industries are heavily regulated in North America. The EPA and the Ontario government set Renewable Volume Obligations (RVO) and Ontario’s Green Diesel requirements each year, respectively. The increase in RVO and Green Diesel requirements for 2016 and 2017 gives a positive outlook to the renewable fuel industry. Furthermore, the recent climate change and carbon reduction initiatives will strengthen the future of renewable energy in North America.
BIOX has historically sold most of its product in the United States, but has been hurt by the expiration of the $1.00 per gallon U.S. Biodiesel Tax Incentive in December 2014. However, the implementation of a renewable diesel mandate in Ontario on April 1, 2014, provides BIOX with market certainty in its local region, which supports the significant capital investment that it made in its Hamilton facility.
Once fully implemented, the regulation requires the use of an estimated 240 million litres of bio-based diesel per annum on an average GHG adjusted volume basis.
Currently, BIOX has a market cap of $23 million based on about 46.1 million shares outstanding. In its recent Q2/2016 financial and operating results, BIOX saw an increase of 33.4% in revenues from biodiesel, bioheavies and technical grade glycerin sales to $21.42 million as compared to Q2/2015. During Q2/2016, BIOX’s operations resulted in a net loss of $5.6 million compared with a $2.0 million loss during the same period last year.
This larger net loss was due to a decrease in the average price per liter of biodiesel sold and an increase in the cost of feedstock. As part of the management’s plan to control and distribute more products, BIOX purchased biodiesel produced by third parties, which has resulted an increase in the company’s overall direct expenses.
Any opportunity to scale up its operations will go a long way in ensuring consistent profitability in the future.
Biodiesel is the only commercial scale biofuel that can help companies reduce their carbon emissions instantly without initial infrastructure or process improvement costs. Also, any new regulations and standards in favour of renewable energy can enhance the future of the biofuel industry. BIOX’s stock price, meanwhile, is trading near a 52- week low of $0.50 per share.