Gevo Inc (GEVO) 2011 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second quarter 2011 Gevo, Inc. earnings conference call. My name is Jonathan, and I am your operator for today. At this time, all participants are in a listen only mode. We will be conducting a question and answer session after the prepared remarks.

(Operator Instructions)

And, as a reminder, this conference call is being recorded for replay purposes. I'd now like to hand the call off to Mr. Mark Smith, Chief Financial Officer. You may proceed, sir.

Thank you, Jonathan. Good afternoon, and thank you for joining Gevo's second quarter 2011 conference call. I'm Mark Smith, Gevo's CFO. With me today are Pat Gruber, our Chief Executive Officer, Brant DeMuth, our EVP of Strategy and Public Affairs, and Chris Ryan, our President and Chief Operating Officer.

Earlier this afternoon, we issued a press release, which outlines the topics that we plan to discuss today. A copy of this release is available on our website at www.gevo.com. I would like to remind our listeners that this conference call is open to the media, and we are providing a simultaneous webcast for the public. A replay of our discussion will be available on our website later today.

We want to advise you the discussion will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical fact, are statements that could be deemed forward-looking statements. These forward-looking statements are made on the basis of current beliefs, expectations, and assumptions about management and are subject to significant risks and uncertainties. Investors are cautioned not to place undue reliance on any such forward-looking statements.

All such forward-looking statements speak only as of August 1, 2011, and we undertake no obligation to update or revise these statements, whether as a result of new information, future events, or otherwise. For a discussion of risks and uncertainties that could cause actual results to differ from these -- from those expressed in these forward-looking statements, as well as risks relating to our business in general, see the risk disclosures in our annual report on Form 10-K for the year ended December 31, 2010, and in subsequent reports on Forms 10-Q and 8-K and other filings made with the SEC.

This conference call will also include a discussion of non-GAAP financial measures as that term is defined in Regulation G, including EBITDA contributed by our Gevo development segment. We believe this information is useful to investors, because it provides a basis for measuring the operating performance of the Company's business and the Company's cash flow. Our management uses these non-GAAP financial measures, along with the most directly comparable GAAP financial measures, in evaluating our operating performance and cash flow.

Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information presented in accordance with GAAP, and non-GAAP financial measures presented by us may not be comparable to similarly titled amounts reported by other companies. As appropriate, the most directly comparable GAAP financial measures and information reconciling these non-GAAP financial measures to our financial results prepared in accordance with GAAP are included in the earnings release, which is posted on our website.

In today's call, Pat will begin with a review of our recent accomplishments and update our progress toward commercialization of isobutanol. Following Pat's presentation, I will give our financial results for the second quarter. Following the presentation, we will open the call up for questions. Chris and Brant will also be available for the question and answer section of today's call. I will now turn the call over to Pat Gruber, Gevo's CEO.

Thank you, Mark. I'd like to welcome you all to Gevo's quarterly call. Thanks for joining us. Now, for those of you who don't know Gevo well, let me recap as to what we're about. We developed a proprietary technology to produce an important platform molecule that is called isobutanol. This -- that is expected to allow us to compete favorably and directly against petroleum based products' lower cost. Isobutanol specialty markets are important, particularly in the early years of our business, as we expect them to provide margin opportunity while we develop our full scale business.

But I'll tell you what really gets us excited is that we believe our technology can produce isobutanol at such a low cost that it's transformational, enabling new applications and markets. We believe our technology and cost structure can enable our isobutanol to be used as a building block for conventional hydrocarbon fuels and petrochemicals. Not in-kind substitutions or drop-in like properties. No. We mean the same. The same hydrocarbon fuels, the same chemical products that are made from oil, except ours would be made from renewable carbon instead.

Now, of course, we designed our technology to be below capital cost, using a retrofit of existing fermentation plants. That's not easy to do. That's all about the technology design. The retrofit approach benefits us in two ways. One, the capital cost be lower than if we were to build new fermentation capacity, and two, it -- we believe it requires a shorter timeline to deploy large scale assets. In other words, the business can be scaled up quicker, without so much capital. So, we have proprietary technology that we expect enables low cost CapEx and OpEx, thus enabling the replacement of hydrocarbon fuels and petrochemicals. That is what we are about.

Now, our immediate mission is to scale up to actually full commercialization. Make the whole thing real, with meaningful production volumes and meaningful customers. We've been making great progress. First, our Luverne, Minnesota, plant is on track. For those of you who are new to Gevo, we bought a 22 million gallon ethanol plant in Luverne, Minnesota, last year. On May 31, we broke ground and began the retrofit. We've completed the engineering, ordered the equipment, and it's on schedule for a first half of 2012 startup.

Second, I'm really pleased to tell you that we have our first commercial take-or-pay agreement. Sasol wants our renewable isobutanol for solvents and specialty chemical companies. Sasol is a $32 billion South African based chemical company. They play all across the globe.

Here are the highlights of the agreement. It's take-or-pay, three years it can be renewed. The required off take volume minimums increase as we build our capacity. In fact, it's expected that Sasol will utilize majority of our capacity over the next several years. It's an index contract -- index to corn, that is, and it gives us great visibility to expected margins. The expected economics are favorable compared to our initial expectations. We're very, very pleased to have Sasol as our first customer, and that solvent market will be a great starting opportunity for us.

Third, we completed our first joint venture. Our partner is Redfield Energy. They're an excellent, profitable ethanol producer. The owners of Redfield -- they're a co-op -- recognize that there are good profit opportunities beyond ethanol. They believe in replacing hydrocarbons and changing the game what can be achieved from renewable resources. They believe the same as us here at Gevo.

Here's the highlights of the deal. Okay. First JV. We entered into it on June 15th. This relationship serves to validate our joint venture model. They contribute their plan. We bring technology and retrofit capital. Now, we gain access to their modern ICM plant. It has a strong management team, strong operating team. This is a very well run plant and profitable. That shows the strength of the team. The potential cash flow split is incrementally better than the expectations we have previously set. Gevo, in this model, doesn't take the ethanol risk. The risk in profit share only occur after the JV produces isobutanol.

A couple more key points about this deal. Redfield has a secure feedstock supply, and the co-op is obligated to deliver over half of the plant's required feedstock. Now, Redfield has been doing great in the production of ethanol, and, in fact, if we translated their economics into producing isobutanol, that would be a $0.10 to $0.15 per gallon better cost projection than what we showed in our IPO projections. And I'll have to tell you. These people are great, and I'm really pleased to be working with them.

Next, we're continuing to strengthen our intellectual property position and our portfolio. Now, there are several hundred patent applications in our portfolio. Ten, so far, have been accepted into the US patent office green technology program. This program is interesting. It's designed to accelerate examination issuance of applications. Now, the patent office has given us notice of allowance for two important patent applications. We pay the issuance fee and expect that these will be issued in the coming weeks.

We're protecting what we believe are the low cost routes to isobutanol. If we continue to be confident in our IP position, we'll create significant barriers to entry for anyone looking to make bio based isobutanol. Now, as our patents become fully issued and public, we'll be able to speak to them and explain their importance more fully.

Another important milestone that we achieved this last quarter was the production of fully renewable PET. There's been lots of speculation out in the marketplace as to where someone could get fully renewable PET. It's not that hard when you have fully renewable xylene. It turns out that it's quite straightforward to make renewable xylene from renewable isobutanol. In April of 2010, we announced an LOI with Toray. They're one of the world's leading producers of PET fibrous plastics, and this was all about converting the isobutanol to paraxylene and then, to make fully renewable PET.

On June 27, we announced the successful conversion of our isobutanol into renewable PET via paraxylene. Toray was able to show this at a recent trade show in New York, and what is interesting about this is this is PET. It is exactly the same kind of material that would be in a bottle or in a film or a fiber. The only way to tell the difference would be to do carbon dating, comparing the renewable to the petrochemical version. Now, we're very excited about the opportunity that this opens up. PET is one of the best used, most versatile plastics out there, so it's future potential.

Now, last week we announced our agreement with South Hampton Resources. That's to build a hydrocarbon demonstration plant. South Hampton will build the demonstration plant for us. This will give us the ability -- capability to remove any doubt about the fact that fully renewable hydrocarbons for jet gasoline and chemical intermediates can be made effectively, with relatively low capital cost, from our isobutanol.

This demonstration plant is at their facility near Houston. We intend to produce jet fuel, octanes, octenes, paraxylene, and other hydrocarbons. It's important for our jet certification work, important for our renewable PET work. I also look forward to making fully renewable real gasoline. Regarding our capital needs, we've come to preliminary terms with TriplePoint Capital to fund the retrofit at Luverne. It's a better deal than we had previously, and Mark will address this in his commentary.

Finally, we made an important strategic decision to incorporate an enhanced seed train at Luverne. Now we've come to realize that our yeasts are very, very advanced. People are trying to catch us, and we continue to improve on our yeasts. It's coming along quite well. We think it's possible to improve the yeast productivity, which could increase the capacity of the plant. We want to be able to implement these advanced strains in our timeline under our full control rather than be dependent upon third party vendors.

Now, also, our yeasts are the embodiment of our intellectual property. All said, then, we decided it's better to control our seed production tightly rather than using third parties, particularly in the early years of our business. The additional capital cost for this improvement is estimated to be less than $10 million.

Now, realizing that the potential of the improved productivity, we also decided to increase the size of our GIFT system at Luverne, this was a proactive decision in anticipation of our ability to increase the nameplate capacity. Yeast productivity improvements would mean a bigger GIFT system is required. We don't want GIFT to be the limitation in capacity. We have to make this capital investment now or never. We couldn't do it later. We'd have to tear everything out. We also like the additional gallons that would come from Luverne, our wholly owned asset. I'll now turn the call back over to Mark, and he'll take you through the rest.

Thank you, Pat. For the second quarter of 2011, we reported revenues of $14.5 million, compared to $462,000 in the second quarter of 2010, due to 2011 revenue included $14.3 million of ethanol and related revenue, reflecting our acquisition of Agri-Energy that was completed in September of 2010.

Cost of goods sold of $13.6 million in Q2 2011, wholly related to Agri-Energy's operations. Overall, we generated a gross margin of $896,000 for the quarter, of which $684,000 was generated from the Luverne operations. We pay close attention to our operations at Agri-Energy, notwithstanding our strategic interest to retrofit the plant to isobutanol production. Agri-Energy results since its inception -- its -- since its acquisition in September, 2010, have contributed positive EBITDA from operations, while allowing us to establish relations with local farmers and maintain strong operations. During the second quarter of 2011, EBITDA from Gevo Development, which includes the operations of Agri-Energy, was $326,000.

Research and development expense increased $5.3 million in the second quarter of 2011 from $3.2 million for the same period in 2010. The increase primarily represents use of our demonstration plant in St. Joseph, Missouri, during the current quarter to support ongoing product development work and to generate samples for future customers.

Selling, general, and administrative expense for the second quarter of 2011 increased to $7.2 million from $4.9 million for the same period in 2010. The increase is primarily due to increased personnel costs, including noncash compensation of $800,000, due to increased headcount and support of commercialization objectives and compliance activities as a public Company, and $1 million of increased legal, accounting, and other outside services related to initial commercialization activities. These costs included costs to complete our joint venture with Redfield Energy and initial costs for our ongoing litigation with Butamax. SG&A expense also includes administrative costs at Agri-Energy. Noncash compensation within SG&A expense in the second quarter was $1.5 million.

Other expense in the second quarter of 2011 includes $851,000 of interest expense, compared to $361,000 in 2010, due to interest on borrowing for the acquisition of Agri-Energy. Other expense in the second quarter of 2010 included $660,000 from the change in fair value of warrants, this noncash charge related to warrants for preferred stock. Once the warrants converted to common stock warrants upon our IPO, they were no longer revalued for accounting purposes.

For the second quarter of 2011, we reported a net loss before deemed dividend of $12.5 million, compared to $8.6 million for the second quarter of 2010. Deemed dividend reported in Q2 2010 was a noncash accounting charge related to the issuance of Series D1 preferred stock when we were a private Company that contained a beneficial conversion feature. All outstanding preferred stock, including Series D1, was converted to common stock upon the IPO, and no further amounts are reported as a deemed dividend.

Our balance sheet remains strong, post our IPO. We finished the second quarter with $105.2 million of cash on hand. Based on results of operations year-to-date, combined with our operations -- or, our projections for the balance of 2011, we project a negative EBITDA in the range of $30 million to $34 million for 2011. This projection includes the following operations update. In connection with bringing our plant in Luverne online, we plan further runs at our demonstration plant in St. Joseph, Missouri, in the second half of the year. These expenses are reported within R&D expense.

We have made the strategic decision to move forward with a hydrocarbon demonstration plant at South Hampton Resources' facility in Texas under a [tolling] arrangement. Development of this plant, plus initial runs, is planned in the second half of this year, with the demonstration unit being constructed in the third quarter.

The business conditions facing the ethanol industry have been difficult in the first half of 2011. This has impacted our operations at Luverne. We project operating conditions to improve during the balance of 2011. To remind you, our strategic interest in acquiring Agri-Energy of Luverne was to retrofit the plant to isobutanol production. Many of the operating conditions faced at Luverne this year -- local commodity pricing for ethanol and significant exposure to feedstock cost fluctuations -- are addressed by our future business model for isobutanol production.

Pat addressed our current plans for capital deployment at Luverne, including the strategic decision to construct an enhanced yeast train asset. Clearly, this increases the capital expenditure projections for Luverne. We now have two projects, the installation of the GIFT retrofit and an enhanced yeast seed train. At this time, our forecast for the retrofit will increase by a few million dollars from the -- our initial estimate of $22 million to allow for the increased plant capacity. This increase relates directly to increasing the potential isobutanol nameplate capacity at the plant following retrofit. Our estimates for the enhanced seed train capital are up to $10 million.

Our lenders remain supportive. We have a term sheet for up to 50% of this CapEx. The [tee] proposed terms are in over -- are overall consistent with debt terms for a first of its kind facility and meet our expectations. With agreements such as Sasol, with defined pricing and contract terms, we fully expect our cost of capital will come down as we begin commercial production. I'll now turn the call back to Pat.

Thanks, Mark. We'll be pleased to take questions at this time. Operator?

(Operator Instructions)

And our first question is coming from the line of Michael Cox with Piper Jaffray. You may proceed.

Good afternoon, guys. Thanks for taking my question.

Hey, Michael.

My first one is on the expansion to Luverne or the investments you're making -- the incremental investments you're making in Luverne. Could you quantify what sort of nameplate capacity expansion you would expect to achieve from these investments, and will they be brought online commensurate with the retrofit that you've talked about -- the timeline you've already talked about?

The GIFT system would be installed in the same timeline. The expected capacity would be putting it back up to the original nameplate capacity of the plant, or even bigger. And that will take time as we develop the book, but we didn't want to do this -- I like the idea of being able to get more out of that -- more volume out of that plant.

And I guess -- by -- when you say it will take time, are you talking about in the matter of quarters or years or -- I mean, could you just frame up -- I know there's -- obviously, uncertainty around the science behind it, but just to frame up what your expectations might be there.

Well, we've already got line of sight to productivity improvements, and we know that we can do the next generation yeasts. We can see that already. And so, I'd expect it to develop pretty quickly.

Okay. And you had mentioned that the yeast train is up to $10 million. Can you quantify what the incremental cost will be for the larger GIFT system?

That would be -- it's, like, a few million dollars.

A few million. Okay.

Yes.

Shifting gears a little bit, on the joint venture pipeline, could you talk a little bit about how those discussions are progressing for the next wave of JVs and how the -- I guess, the recent spike in ethanol production -- your margins might impact co-op or commercial owners in their timeline of decision making?

Well, there's been a lot of interest in our joint venture model from the get-go, and that interest has increased. We have -- we're in discussions with a number of parties around term sheets. The game for us is to make sure that we have a couple term sheets on the table before we push anyone ahead.

Now, I've pointed out in the past that, for us, the timeline is a little bit flexible for bringing a -- getting a third joint venture term sheet done -- or getting the definitive agreements done, because we don't need that plant until 2013, and it only takes 12 months to do a retrofit. And that -- we can get a better deal, I think, even after Luverne starts up. We'd leave money on the table by doing it too early. So we're playing all those variables together, but with the uncertainty in the ethanol market, that -- people are looking for ways out of ethanol.

And then, if I could ask a question. I guess, first, congratulations on the Sasol contract. You said in your prepared remarks that you're receiving more favorable economics. I was wondering if you could, perhaps, quantify that. I think you've talked about selling to Sasol at about a 20% discount to -- or, where it works out to isobutanol, but maybe if you could talk a little bit about those favorable economics.

And then, on the volume side of that contract, should you fall short of your targets, would you have a penalty that you would have to -- to be incurred, or -- and, I guess, on the flip side, if your volume levels exceed your current expectations, how flexible is the contract to increase the volume levels?

Chris is going to answer this one. He did the contract.

Okay. In terms of the economics being more favorable, Sasol does not believe that we need to discount our isobutanol, as much as we had planned in the past, in order to achieve the volume that we have set forth in the contract. Therefore, the pricing is more favorable for us at a higher margin.

In terms of out into the future, there are -- it's a take-or-pay contract, so it does work both ways, but we have mechanisms in place, such that will make sure that we don't accept any orders we can't meet. So, don't -- won't have to pay any penalties. In terms of the flexibility, yes, it's the intent of both parties to maximize the volume without sacrificing margin on that opportunity, and so, we will maintain some ability to ramp up faster than what that contract lays out.

This is Brant. Just to concur with that thought, we're also maintaining some marginal capacity going forward, so that we can make sure that we strategically can supply other potential customers going forward.

We need to seed some of those other opportunities still, so we're reserving a little bit of volume for them.

Great. Well, thanks a lot, guys.

Thank you.

And your next question is coming from the line of Jeff Birnbaum with UBS. You may proceed, sir.

Good afternoon. How you guys doing?

Good. How you doing, Jeff?

Good. Good. So, you just mentioned, I guess, that Sasol doesn't believe they need to discount the solvents as much as maybe they thought in the past, and that's kind of where some of the better economics are coming from. I guess -- first, what changed for them to think that?

I think that they've been doing some business development and testing the market for renewable and doing the missionary work already. And so, what we found is that there just wasn't this price sensitive -- well, we'll still put it out there at a discount. There's no question, compared to the petroleum based stuff. That is happening. But remember, the dynamics -- the petroleum based stuff has been going up in value, and I think you take it all into consideration, turns out that the margins are more favorable. And you remember where the margins for solvents were, from the IPO road show. They were at the high end of our range.

Right. Right.

These exceeded.

Okay. And just kind of as a refresher, I guess, where do you, as well as Stasol, see, maybe, geographically, perhaps, the initial target market for the solvents they'll be producing?

Well, you know what, this is going to be, basically, a global opportunity.

Okay. So, any -- I mean -- wherever the economics demand it, I guess.

Go ahead, Chris. You want to -- he -- I think you're -- let me just paraphrase Jeff. You're asking about is there any particular region that has better economics than another?

Yes. Yes.

So, as Pat says, it's a global opportunity. We would -- typically, Asia is quicker to adopt a new product like this, so it could just be from that historical adoption rate that we enter Asia first. But Europe and the US both were seeing good demand for this kind of a product.

Okay, I'll pass it on. Hop on again, if I need to. Thank you.

Thanks.

Thanks, Jeff.

Your next question is coming from the line of Timothy Arcuri with Citi. You may proceed, sir.

Hi. Hi. Thanks a lot. Pat, in the last, say, two months, the corn-oil spread has sort of widened a little bit, and I'm wondering whether, sort of, in your future negotiations with customers, whether there's any reluctance on their part to take corn pricing risk. I know that Sasol doesn't seem like they're that worried about it, but I'm sort of wondering, on your current negotiations, whether it's become a -- an issue or a topic of discussion, at least.

Well, you know what, it was interesting about this, when corn went up high earlier in the year, that led -- remember, all of our LOIs originally were -- they were all indexed to corn. And we didn't like that as much as being partially indexed to oil, because we happen to be in the camp of believers that think oil is going to rise faster. So, having a mix of the two is our ideal situation. It's a more fair split. I was a little surprised where Sasol came out. They seemed to be perfectly comfortable with this. And I can say this, that, overall, the customers have a very long-term view. They are focused on fairness. They know that we -- they're very pragmatic. These all contemplate long-term contracts. They know that we have to be in business and profitable. We also have to be fair with them. And they also all believe that oil is going up in price, more than the carbohydrate cost. So, the corn to oil spreads should increase.

Yes. Okay. Also, I'm -- Mark, I'm just trying to get to the EBITDA guidance for the year, and SG&A was up a lot higher than I thought it would be, so is that sort of a permanently new level, as you go to the back half of the year, or was that sort of a onetime spike?

Some of that is a onetime spike. The -- pertaining to the transaction we just completed with Redfield. There's also a couple of things pertaining to our initial compliance from an SEC perspective that jumped that up. And remember, some of that spike, too, pertains to noncash compensation expense, which is, as you well appreciate, one of the hardest pieces to project. Most of the guidance that I mentioned will be fulfilled by our spending and our focus in R&D and the investment in running the demonstration plants. But the demonstration plant in Missouri is getting ready for bringing that online next year and also, working on the hydrocarbon plant that we worked at South Hampton Resources. And I tried to sort of pinpoint those in my remarks a little bit.

Got it. Okay, so, development costs will go up, but SG&A probably goes down, as you look to the back half of the year.

Provided we don't do any more transactions, yes.

Right. Of course. Okay. And then, I guess, last question. Do you have any update on, sort of, your progress on Gen 2 feedstocks and sort of what is going on there?

Yes, we have a couple of things. One of them is we continue to make progress on the cellulosic yeast organism. That's the one that we in licensed from Cargill that we're installing our isobutanol pathways into that organism. That organism is special, in that it utilizes, for those of you who are in this game, the five and six carbon sugars. So that one is making progress. We would expect to be testing that, at larger scale, in demo plants in first half of next year.

To that end, we also hired Bob Wooley. Bob Wooley is this senior -- this expert of -- he has worked in the cellulosic field for decades. He was at NREL, then he was at Abengoa most recently. Strong player. He's in charge of the project. It's time to start focusing on that and pushing it ahead. And finally, this is one of the reasons why we did the seed plant at Luverne. We can try stuff in the real sense at a real scale. So we can jump up right away to a bigger scale with those proprietary yeasts.

Got it. And then, just maybe one last question from me. Is there any potential IP risk you -- because I had heard about him getting hired away from Abengoa, and I'm wondering, is there any IP risk there, because I know that they're also working on Gen 2 stuff.

Yes, they don't view us as a competitor. They're more of colleagues, and we have a good friendly relationship with them.

Got it. Okay, thanks.

Your next question is coming from the line of Brian Gamble with Simmons & Company. You may proceed.

Afternoon, guys.

Hey, Brian.

Question on the increased capital spend at Luverne and, obviously, the increased capacity, which is nice to see. Is this going to be kind of the MO, moving forward with future plans, or is just -- this just the plan at Luverne to enable some additional short-term volumes?

One of the things that happens in a fermentation business like this is that by improving the product to [be a bug], you can improve the plant capacity. So, we aren't scheduled to start doing the engineering for the Redfield plant, for example, until the -- really, in December, and it will be interesting to take our view of where the bug is and where the next generation of bug is and start to project it. But I would think that this would be more of the modus operandi is get -- we're trying to maximize the bang for the buck, frankly. We want more volume, less capital, and that will be what we're focused on.

That's a good plan. I agree with that one completely. The deal with Sasol obviously seems like great economics above the -- above your expectations and Sasol, clearly, a good partner to have. Does this deal in any way -- and you mentioned that -- the volumes that you're keeping to seed other relationships, but does this, in any way, prevent you from developing other relationships in the short-term, as you wait for additional commercial volume availability?

No, it doesn't.

That's what I wanted you to say. Thanks, guys. Appreciate it.

You bet.

Thanks, Brian.

Your next question is coming from the line of Chris Kovacs with Robert W. Baird. You may proceed, sir.

Hi, everybody. Thanks for taking my question. Can you maybe talk about -- and I know -- and you've mentioned that you want to have multiple term sheets on the table before you move forward with any JV LOIs. Can you maybe give us an update on how many plant owners you could be talking to at this time, when you're working towards that third plant?

I would say that, overall, still over a billion gallons of plant owners, and if you broke them down further, I'd say that there's probably -- of the ones we're in -- bantering back and forth and trading terms is on the order of about [600 million] or so.

Okay.

But -- as a ballpark guidance.

Yes. For sure. And then, kind of following up on the previous question that was just asked about, I guess, the large volumes for Sasol [and PD&E and] other relationships, I think Lanxess has been viewed as one of your first primary customers. I mean, is this going to impact the state of negotiations with them, in terms of -- I mean, obviously, probably timing, maybe, but pricing and such from what you've been able to accomplish with Sasol?

Well, you know what, the relationship with Lanxess is going along very well. In fact, at their annual shareholder meeting -- I think it was in June or late May, they introduced the whole concept of renewable resource based synthetic rubber to their whole big -- there at the [Cologne Dome] in Cologne, Germany. It was full. And introduced it to them all, and they talk about it now, openly and stuff, in [Sarnia]. That relationship is going along just fine and making progress on the contracts.

Great. So, most of my questions have been answered. Congratulations, guys. Thank you.

Thank you.

Thanks, Chris.

Your next question is coming from the line of Stephen Share with Morgan Joseph. You may proceed.

Good afternoon.

Hi there.

Say, I wanted to get back to the statement about how the Sasol agreement is indexed to corn. Is that a -- is it bands, or is it a real tight -- so, for example, if corn goes down a bushel, does the price you receive go down $0.50?

How is it indexed to corn? That -- I don't think we've exposed the details.

Okay. It's indexed to corn, though. Correct?

Yes.

Yes.

Okay. And so, I guess my question is you had the range of [$3.20] to [$3.50] for your selling price. If we assume corn is going to be around [$6.50] a bushel, will you -- will the price that you receive from Sasol exceed the high end of that range or be in that range?

I'm looking at you, Chris.

Yes.

He says yes.

Yes, it will exceed the [$3.50]?

Yes, it will exceed the [$3.50]. It'll be higher.

Okay. Great.

Not exposing what it is exactly.

And then, along those lines, the plant -- just so I'm clear, you said the plant in Luverne, now, with the larger GIFT system, that will be above the 18 million gallons you were previously projecting for that plant?

Correct.

Okay. Will that go -- when you said nameplate capacity, do you mean it will go to the ethanol nameplate capacity of 22?

That would be what I'm going to make my guys shoot for, and of course -- shoot for and exceed, without promising anything yet, but that's the idea.

Okay. Okay, great. So -- and then, just the final one for me. The funding from -- how much money did you borrow in the quarter? How much --?

We borrowed $12.5 million from TriplePoint for the acquisition.

Okay.

Of Luverne.

And is that a fixed note?

That particular note is a fixed note. We also have borrowed -- we have also assumed working capital from a prior lender. So, in aggregate, we have $17.5 million borrowed from TriplePoint. As Pat mentioned in his remarks, though, they -- we've received a term sheet that strongly suggests their support for full lending against the retrofit as well.

Okay.

On slight -- on somewhat better terms, although still terms consistent with the first [acquired] plant.

I see. Do you care to disclose what that interest rate was? The fixed note -- on the fixed?

Oh, certainly. It's a 13% note, with an 8% term payment, and it had warrants on -- attached to it. Those are all fully disclosed in our -- with our financial statements.

Okay.

And this one -- for the retrofit, that we just did the term sheet with these guys, is better.

Okay. I think those are all my questions for now. Thank you.

(Operator Instructions)

Your next question is coming from the line of Pavel Molchanov with Raymond James. You may proceed.

Thanks for taking my question.

Hey, how are you.

A couple of things. You've talked before that the typical growth margin we should think about is $0.50 to $0.80 a gallon, and you mentioned that Sasol exceeded your expectations. Is $0.50 to $0.80 the right number to expect, going forward, or would you guide us, maybe, to kind of the high end of that range or even above that range?

No, we're -- these guys are all looking at me, warning me to be careful in what I say to don't screw up our contract with Sasol. They're all looking at me right now, telling me that. And so, high -- higher is the answer.

High -- so, okay. So, upside to that range?

That's what I think, and the more we mix in fuels, it'll start to go down a little bit. But even that, I'm not so sure yet as to whether it will land at the $0.50. I don't think so, but I don't know that for sure yet.

Okay, great. And then, as my second one, I just want to give you guys a chance to kind of set the record straight on this, because there -- I think there is some misunderstanding in the industry. If the corn-ethanol tax credit goes away --

Oh, yes.

What will -- well, just talk about how that will affect your business.

Okay. There's two ways it can affect our business. There's one -- because we do have a very small plant in Luverne, Minnesota, if there becomes pressure on the overall industry, it could impact us for a short term. The weak plants are going to have a problem, and they're going to go down. Now, when that happens, ethanol supply tightens up. Remember, ethanol is still a mandated product. It is the only oxygenated product that's available. Okay? So, the net effect -- that's at the operational level at Luverne. So, I think, we could see a spike, where the margins might decrease for a bit, but in the end, it will equal out, and it'll be back to business.

The tariffs going away at the same time presents a little bit of a problem, because this depends upon the price of corn and what is going on in Brazil or other places where you could import ethanol. That presents a bit of a problem for ethanol production. It doesn't take a whole lot of production to tip the balance of value. That will, again, put pressure on the weak players, who are noneconomical.

All of that together -- oh, there's one other point, and that is the blend wall itself. The blend wall is -- it's E10 gasoline -- 10%, and at a 3.7% oxygen content. Currently estimated to be at about 14 billion gallons. We're at the blend wall. So, anything that adds capacity is -- to ethanol -- or, adds supply is a problem. All of it, then, in the grand scheme, is good for Gevo, because we're interested in changing the game, right, to isobutanol, and so, when guys are under pressure, it makes them want to look to the future, away from ethanol. So that's good for us. Translated, I'd expect that to be a better deal on plants. And more opportunities.

Perfect. Thanks very much.

And with no further questions in queue, I'd like to hand the call back to Mr. Patrick Gruber, CEO, for closing remarks.

Well, like to thank you all for joining us in this call. We look forward to updating you in the coming months on our progress, and I wish you a good evening. Thank you much.

Ladies and gentlemen, thank you for your participation in today's conference call. The meeting has ended. You may now disconnect. Have a good day.