Velocys (LON: VLS) (OTCPK: OXFCF) shares are down 70% today. VLS shares have fallen on the basis that the company really doesn’t have much money. Well, that’s OK - except at the same time the investors seem to be running for the hills. That is, the money pot doesn’t look like it’s going to get filled up anytime soon. We tend to think this is a pity as we like the underlying business idea. We think it’s an obvious part of dealing with climate change. But something that’s sensible more generally doesn’t - as Velocys is proving - have to be profitable in and of itself.
The basic idea: “Velocys plc operates as a renewable fuels company. It designs, develops, and licenses its Fischer-Tropsch technology for the generation of clean, low carbon, and synthetic drop-in aviation and road transport fuel from municipal solid waste and residual woody biomass plants. It has operations in the Americas and the Asia Pacific. The company was formerly known as Oxford Catalysts Group PLC and changed its name to Velocys plc in September 2013.”
The technical background here is that renewables (and from biogas) generated hydrogen and CH4 can be reformulated up to the much easier to store and transport petrol and even jet fuel. This is something that Porsche is doing with its wind farm in Patagonia. It really is possible - chemically possible, not necessarily economically so - to use this route to power cars and planes in a net zero manner. We think that would be a great idea too.
Velocys share price from Google Finance
But as announced today: “Velocys continues to be in active funding discussions with all strategic investors who have been undertaking due diligence for some months with a view to obtaining long term funding for the Company. It has become clear that any investment into the Company resulting from these discussions is unlikely to be on the same terms as the previously announced CLN, accordingly there will be no further extension to the CLN longstop date. There are no binding arrangements for funding at this stage. As detailed in its recent Interim Results, Velocys still anticipates that funding will be required before the end of this calendar year and therefore the Board is prudently exploring near term funding options as discussions with the strategic investors continue. Further updates will be provided in due course.”
Given that the market capitalisation is now down to £5 million or so we think that any significant recapitalistion - which then leaves value for the equity - is unlikely. So we tend to think that the outcome here is nice idea, no cigar.
