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Industry Growth Curve The accelerated demand for ethanol has created an “inflection” point ….. Bio-Fuel Energy Industry Potential Traditional Growth 2003 2005 2008 2010 and a window of opportunity that requires a acting NOW to actualize maximum profitability Corn Disposal Business 2.5B Gallons 8B Gallons 30+B Gallons ?
Bio-Refining Facilities - 2/06 in operation and projected
No Longer “Where is the Corn … Where are the Markets? Given where the markets are, the grain locations alone cannot support the growing demand
Historical Industry Strategy vs. What Strengths Are NOW Available?
Locate near low cost grain
A saturated strategy; this time is quickly passing
Locate near concentrated fuel gasoline markets
Reasonable grain pricing and origination, coupled with attractive EtOH accessibility as well as DDG and CO 2 markets
Rely on Cutting Production Costs (Energy), and create a multiple plant strategy , properly sized and aligned to mitigate risk
Position for feedstock use OTHER THAN traditional corn/milo
~ 1.4 Billion gallons of EtOH per year Our Market/Business Strategy
UP Mainline Unit Train Shuttle Abundant water Nevada Opportunities Geothermal Overlay
50 MMGPY EtOH Plant Electrical and hot water lines from power and geothermal plant to EtOH facility Mainline UP Rail and rail spur for unit train unloading Existing wells Green lines trace existing and proven fault lines PARTIAL VIEW OF 3800 ACRES OWNED & CONTROLLED BY PERSHING
Traditional Ethanol Dry Milling Process Grain Receiving Mash Preparation Fermentation Distillation Centrifugation Evaporation 64.2% of cost Corn Meal Corn Mash Beer 6% of cost CO2 Dehydration Dryer Ethanol Storage DGS Storage 190 Proof Ethanol 200 Proof Ethanol Wet Grains DGS Ethanol Distillers’ Grain Production costs Grain – 64.2% Utilities – 20.5% Enzymes – 6% Labor – 2.8% Denaturant – 6.6% Water – .2% Total – 100% Revenue 132% – Fuel Ethanol 19% – DGS 0% – CO2 151.1% - Total Bottom Line – 51+% Gross Margin Corn Enzymes & Yeast 132% 19% 0%
Pershing Geo-Ethanol Dry Milling Process Grain Receiving Mash Preparation Fermentation Distillation Centrifugation Evaporation 83% of cost Corn Meal Corn Mash Beer 5.5% of cost CO2 Dehydration Dryer Ethanol Storage DGS Storage 190 Proof Ethanol 200 Proof Ethanol Wet Grains DGS Ethanol Distillers’ Grain Production costs Grain – 83.0% Utilities – 3.1% Enzymes – 5.5% Labor – 1.9% Denaturant – 5.9% Water – .2% Total – 100% Revenue 127.6% – Fuel Ethanol 24.5% – DGS 6.1% – CO2 158.2% - Total Bottom Line – 58+% Gross Margin Corn Enzymes & Yeast 127.6% 24.5% 6.1%
The Financial Impact of Geothermal Renewable Energy in Dry Mill Production
The traditional cost of production for energy in a 50 MMGPY dry mill facility (March, 2006)
Electrical cost @ $0.04 per kWh $ 1,910,000
Natural gas cost @ $9.25 per MMBTU $ 16,470,817
$0.368 per EtOH gallon for energy
Pershing’s cost of production for energy in its 50 MMGPY facility
Electrical & thermal needs $ 2,568,766
$0.0513 per EtOH gallon for energy
… and Pershing also processes all of its CO 2 co-product to food grade …
Saving $0.3167 per EtOH gallon in energy use
Why Pershing’s “Destination Plant” Model Works
Using unit train rail to bring in corn will set the maximum price of corn as the cost of corn at any origination point plus $0.85 per bushel, or $0.304 per EtOH gallon produced
The savings in energy cost overcomes the extra grain transport cost and results in gives Pershing a $0.0127 per EtOH gallon sustained advantage which adds $635,000 over a facility located at the corn origination point … even before competitive shopping for grain and before adding in any benefit obtained from co-products sales from a “destination plant”, i.e.:
If DDGS sells at 100% to price of corn in both places, CRE’s DDGS will have a higher net price over DDGS sold at the origination point location $16,998,395 versus $12,035,514, which adds an additional $4,962,881 ;
Pershing has an active and broad CO 2 market not available in most origination point locations and free from competition for such products … and the cost of refining to food grade is already accommodated, which adds at least $3,673,597 (i.e., $35 per ton versus $6 per ton) ;
Pershing ethanol sales will have a transportation advantage for the eastern ethanol markets which Pershing will exploit, at $.07 per gallon, which adds $4,200,000.
ETHANOL $1.143 $.427 $.42 $.15 $2.77 $2.14 Crude Oil Refining Taxes Retail Margins Key Equation Geo-EtOH Oil $ .427 $ .49 $1.143 $1.67 $ 1.57 $2.16 $ .23* $ 1.80 $2.16 Comparing Gasoline versus Ethanol * Gross margin in ethanol in pro forma PLUS, the fuel blender gets a $.51 tax credit for using ethanol!
What Price of Oil Creates $0 Cash Flow for Pershing?
Due to the co-product sales of DDGS and CO2, the entire business is not entirely contingent on ethanol for its revenue and profits.
As currently configured, (i.e., with no change in corn prices, the same correlation of DDGS price to corn and consistent CO2 pricing), Pershing would have to sell its ethanol at or below $.96 per gallon gross ($0.8275 per gallon net to the facility) to not be able to meet its debt obligations.
Using the prior comparison for the other distribution and refining costs, no oil price would allow the current distribution system to create negative cash flow for Pershing.
Even with reduced costs of production, distribution and taxes, and oil consistently at $15 per barrel, with ethanol equally priced at this level (ignoring the blenders’ credit of $.51 available to the EtOH user), this facility returns >$20 MM in EBITDA).