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$146 million boost for ethanol plant?

Al-Corn Clean Fuel ethanol plant that's based in Claremont, Minn. is hoping for a vote to expand its plant size and increasing shares. The ballot is due Oct. 15 from the co-op members.
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CLAREMONT — The Al-Corn Clean Fuel cooperative hopes to build a $146 million expansion of its Claremont ethanol plant, but some members oppose a plan to devalue its shares to help finance it.

Al-Corn Clean Fuel — a farmer-owned cooperative — held a shareholder meeting on Sept. 15 to seek member approval of a proposal to increase the number of shares of common stock that Al-Corn is authorized to issue and to reduce the par value of the co-op's shares.

The proposal would lower the par value from $2.50 to 50 cents per share.

"If we do this project, we're required to have at least half of the shares come from our members," said Randall Doyal, CEO of Al-Corn. "We don't have enough. We need additional commitments."

The drop to a more affordable price would increase the number of shares that the farmers would be able to purchase for the plant's potential expansion, according to plant officials.


"We thought it'd be a price that'd be attractive to our members, and they can buy as many shares as possible," Doyal said. "We need to raise a little bit more equity, and we hope the share sales will do that for us."

The plant processes 17.5 million bushels of corn into 50 million gallons of ethanol fuel. The proposed expansion would increase that amount to 42 million bushels of corn, producing 120 million gallons a year. That would be among the state's largest.

The cooperative has 13.5 million shares of bushel commitments from its members as of now.

The total cost of the expansion project would be an estimated $146 million, Doyal said.

Al-Corn's business model runs on the investments of its members through finances but also through the agreement to deliver a certain quantity of corn determined by their investment.

"It's not a normal business; it's not a Wall Street business," Doyal said. "It's trying to get more value for (the farmers') corn as a commodity."

The expansion seeks to modernize existing equipment, change current processes to become more efficient in producing ethanol and to become more competitive in the local ethanol fuel industry while increasing demand for corn and its value.

"Our business is going to be extremely competitive with the advantage going to low-cost ethanol producers," said Rod Jorgenson, president of Al-Corn Clean Fuel, in a news release. "Expansion allows us to reduce our operating cost per gallon, to update and modernize certain areas of our existing plant and moves us toward lower cost ethanol production."


However, several members of the co-op are wary of the potential vote and are concerned about not receiving the value of their corn with the proposed increase for shares.

"Why would we sell 30 million shares for 50 cents when we have considerable more equity and cash today than we had nine years ago?" asked John Steele, a Hayfield farmer and member of Al-Corn. "I would urge members to vote against increasing the number of shares and devaluing the shares until our board comes up with an exit plan."

As of Sept. 30, 2014, the total patron's equities and partner's capital was more than $70.9 million, with $10 million disbursed to members.

"Today, with $60 million of cash in the bank, and no debt, just the cash in the bank is a value of $4 a share. Counting owner equity in the plant and other plants, our total equity value is over $9 a share," Steele said.

From Doyal's perspective, the decreasing value of the shares will grant members the ability to purchase more shares at a lower cost and receive more revenue and value from their shares in the long run.

"If you want to add value to your corn, then you have to buy a share," Doyal said. "You have to consider that cost of membership as well as what you anticipate from added value from processing your corn here.

"There's never been an exit strategy — that's up to the individual member. But, from my perspective, the best exit strategy is if we can continue to make this a strong viable business, and there's a market for the shares."

Ballots for the resolution must be sent in by noon Oct. 15 to Al-Corn.

Related Topics: FINANCE
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