Financing the Biofuels Industry

1. Financing the Biofuels Industry Mike Bryan CEO BBI International 300 Union Blvd., Suite 325 Denver, CO USA 80228 mbryan@bbibiofuels.com

2. Introduction to BBI

3. BBI International • BBI International founded in 1995 by Mike and Kathy Bryan • Over 130 full-time employees • Three Divisions: • Conference Division • Media Division • Project Development Division • An independent source of information and data for owners, lenders and policy makers

4. BBI International • Leading biofuels consulting company in the US with more than 200 renewable energy projects completed in the last seven years • Expertise in ethanol and biodiesel production from starch, sugar, cellulose and oilseed/animal fat based feedstocks • Expertise in emerging technologies for the production of ethanol and chemicals from lignocellulosic feedstocks • Expertise in ethanol and biodiesel project development

5. Financing the Biofuels Industry

6. Key Concerns Faced Today • Construction • Unproven builders or lack of time • Performance guarantees • Demand Economics • Determine volumes consumed & pricing cycles • What is the maximum biofuels market for Mexico? • World Demand • Crush Margin (feedstock prices in relation to ethanol) • Risk management • Lack of long term contracts for ethanol • Plant Management…who will manage the facility?

7. What does it take to Attract Financing? The Five “C’s” of Credit: • Capacity Repayment ability • Capital Financial condition • Character Management • Collateral Quality and value • Conditions Market & Economics

8. Have an Understanding of: • Markets • Inputs • Outputs • Management • Board Direction • Plant Operations • Money – (Cash flow available) • Debt Payments • Dividend Payments • Tax Payments • Future Capital Expenditures

9. Project Finance We define project finance as the ability to raise funds to finance an economically viable project. • Debt Capital • Equity Capital The providers of these funds look to the cash flow • Not the Income Statement • Cash flows needed: • To service debt (loan payments) • To pay a return on invested capital (dividends)

10. Risk Management • Risk management by definition has to do with “maximizing the areas where we have some control over the outcome while minimizing the areas where we have absolutely no control over the outcome and linkage between effect and cause is hidden from us.” Against the Gods – Peter Bernstein

11. Types of Legal Structures • Sole Proprietorship • General & Limited Partnership • Corporation (C or S corp.) • Limited Liability Companies (LLC) • Farm / Agricultural Cooperatives (Coop)

12. Decisions For Legal Structure • Taxation • Liability • Risk and control • Continuity of existence & transferability of ownership • Expense and Formality

13. Financial Structures The providers of capital look to the cash flow for payment on their contributions. • All Equity • Senior Debt and Equity • Senior Debt, Sub Debt, and Equity • Lease Buy Back • Bonds • Securities instrument

14. Rich Dad’s Guide To Investing The most important issue here is not return ON investment. The most important issue is return OF investment. Security of capital is very important. By Robert T. Kiyosaki

15. Financial Structures Conditions for Ensuring Success • Covenants • Liquidity • Repayment Capacity • Leverage • Risk Management

16. Liquidity Working Capital: • $0.04 per liter • At start up of the plant • Depending on the time of year • Varies depending on inventory carrying cost • Feedstock • Ethanol • Energy costs

17. Debt & Equity Ratio • Total cost of plant, property and equipment • All pre-production, organizational and general operating funds through the end of construction • Beginning working capital, (cash to cover outflow of funds so you do not over draw your bank account)

18. Base Loan Criteria in USA • Debt to Equity • 40% to 60% Equity for Producer Owned • 25% to 50% Equity for Investor Owned or • $.21 to $.26 per liter of total debt per project

19. Construction Risks • Risk of design and construction of the project • Risk of the project meeting the performance specification • Risk of completion and by a fixed date • Risk of performance of contractors consultants, subcontractors and suppliers • Risk on Contractor insolvency

20. Types of Construction Contracts • Turnkey, Lump Sum Fixed Price, or Guaranteed Max Price • Date Certain • Full Wrap to hold Contractor Liable • Draw down (payment) schedule • Milestone payments and construction schedule

21. Mitigating Risk in Construction • Performance Bonds or other Insurance type products • 10% retained on each construction invoice • Date Certain for mechanical, substantial final completion for Liquidated Damages

22. Mitigating Risk in Construction • Liquidated Damages is payment for loss revenue • Performance guarantee • Emissions compliance • Capacity • Energy Utilization • Production • Yield • Best on set times for Measurement

23. Clearly Define the Scope • Owners Scope of work & budget • Site • Working Capital • Financing • Other • Contractor Scope of Work & budget • Technology • Equipment plans • Site layout • Permitting • Other

24. Operational Risk • Price Risk • Supply and Demand Risk • Transportation Risk • Performance – plant operation

25. Ethanol Crush Margin • Revenue from Ethanol, DDGS and CO2 Minus • The total cost of feedstock plus the usage of energy needed to turn corn into ethanol (natural gas or coal)

26. Feasibility StudyEvaluating the Potential for Success!

27. Key Elements of an Ethanol Feasibility Study • Site selection • Feedstock analysis • Market analysis • Ethanol • DDGS • CO2 • Financial analysis • Construction costs • Owner’s costs • Operating costs • Projected profitability and sensitivity studies

28. Site Selection • Typically 16 hectares in a rural area with: • Low cost feedstock • Good rail access • Good road access • Adequate utilities at reasonable cost • Close proximity to co-product markets • Access to ethanol markets • Access to labor

29. Financial Analysis • Use conservative assumptions – 10 year pricing for corn and ethanol • Use ROI or IRR for profitability • Assume 50% equity • 25% minimum ROI, 30% for better projects • Returns are most sensitive to feedstock and ethanol pricing

30. Owner’s Costs • Land, roads, rail & site development • Administration building/furnishings • Utilities, water treatment, fire water • Permits • Startup costs and training • Construction interest and loan fees • Inventory costs • Owner’s Costs add 8-10¢ per liter to the overall project cost

31. BBI Feasibility Study • Executive Summary • Site Assessments and Recommendation • Feedstock Analysis • Ethanol Market Analysis • DDG & CO2 Market Analysis • Detailed Financial Analysis with Sensitivity Study & 10-year Pro Forma • Competitive Analysis • Summary and Recommendations

32. Commercialization Strategy • The successful model • Site with adequate feedstock supply, utilities, transportation and markets • Utilize successful design/build firms • Hire experienced ethanol marketing and risk management firms • Assemble first rate management team • Raise 50% equity • Projected Return on Equity should be 30% or higher

33. For More Information Contact • Fundación E MisiónLic. Isabel Gómez MacíasPresidentaTel: (33) 3678-9153Fax: (33) 3678-9200 [emision.org@gmail.com]