Financing the Biofuels Industry Mike Bryan CEO BBI International 300 Union Blvd., Suite 325 Denver, CO USA

Introduction to BBI

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

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

Financing the Biofuels Industry

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?

What does it take to Attract Financing? The Five “C’s” of Credit: CapacityRepayment ability CapitalFinancial condition CharacterManagement CollateralQuality and value ConditionsMarket & Economics

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

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)

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

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

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

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

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

Financial Structures Covenants  Liquidity  Repayment Capacity  Leverage Risk Management Conditions for Ensuring Success

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

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)

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

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

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 Types of Construction Contracts

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

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

Operational Risk Price Risk Supply and Demand Risk Transportation Risk Performance – plant operation

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)

Feasibility Study Evaluating the Potential for Success!

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

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

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

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

BBI Feasibility Study Executive Summary Site Assessments and Recommendation Feedstock Analysis Ethanol Market Analysis DDG & CO 2 Market Analysis Detailed Financial Analysis with Sensitivity Study & 10-year Pro Forma Competitive Analysis Summary and Recommendations

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

For More Information Contact Fundación E Misión Lic. Isabel Gómez Macías Presidenta Tel: (33) Fax: (33)