Velocys (LON: VLS) is a producer and developer of sustainable fuels made from waste materials, for use in the heavy goods transportation and aviation sectors. Velocys’ product helps to lower the production of carbon-based emissions and consumption of carbon-related products, whilst also reducing the risk of landfill sites overflowing.
For almost two decades, Velocys have developed and demonstrated proprietary Fischer-Tropsch technology that enables the production of drop-in fuels from a variety of waste materials. The company is currently developing projects in the US and the UK to produce fuels that reduce greenhouse gas emissions for aviation and road transport.
Highlights of Velocys’ Agreement with Foresight Group
Last week, Velocys announced that Altalto Immingham sold its 100% interest in Rula Developments. Rula Developments owns the site for the proposed Altalto waste-to-sustainable-fuel project, which is being developed in collaboration with British Airways. It has been sold to funds managed by Foresight Group for £9.75 million, with a call option for Altalto to re-purchase it within three years. The call option will require Altalto, and any new project partners, to pay up to £12.95 million in aggregate over the option period.
In addition, and subject to exercise of the call option, Altalto has agreed to grant Foresight Group a right of first refusal to invest up to £100 million in the project, alongside British Airways and other future investors, once the full funding is required. This agreement follows on from the Velocys’ prior announcement, when Altalto exercised an option to acquire a 100% interest in Rula Developments with an initial part-payment of £2.5 million and deferred consideration worth £7.25 million.
Speaking on the recent agreement, Henrik Wareborn, CEO of Velocys, said: “Velocys is pleased to have Foresight involved in the Altalto project, alongside British Airways. This is a further step in bringing our SAF enabling technology solution to market.”
What are Velocys’ Investment Prospects?
Velocys’ main sources of revenue come from licensing their technology and supplying their reactors and catalysts with technical and project services based on unique expertise. The company is focused on deploying end-to-end technology solutions through partners, site owners and third-party developers worldwide.On announcement of the aforementioned agreement, Velocys’ share price experienced a 14% increase, reflecting the positive reaction of retail and institutional investors. Encouragingly, Velocys has agreed other significant contracts in recent months which authenticates the commercial potential of its technology. In November 2021, for instance, it signed multi-year agreements with British Airways owner IAG and Southwest Airlines to supply a cumulative 767 million gallons of blended sustainable aviation fuel. Velocys say they have the potential to generate “multi-billion revenues” and widespread use of its sustainable fuels can help to avoid almost 9 million tonnes of carbon emissions.
There is, however, some risk attached to investing in Velocys and this must also be considered. Some of the company’s projects, such as the Bayou Fuels bio-refinery project in Mississippi, USA, are yet to be built. As such, any unforeseen development issues may threaten planned first production in 2026 and decimate earnings forecasts, together with prompting Velocys to tap shareholders for cash, or increase indebtedness levels to finance the project.
