If you are looking for the cause of the sharp slide in Gevo, Inc. (NASDAQ: GEVO)’s share price in the last session, look no further than a planned equity offering. The company has priced securities offering worth $15.6 million.
Gevo, Inc. (NASDAQ: GEVO) intends to spend the proceeds from the securities offering to finance working capital and other general corporate purposes. The securities offering consist of common stock shares and warrants to purchase a certain amount of common the company’s common shares.
Though the fundraiser will give Gevo the working capital it needs without getting into potentially expensive borrowing, the transaction is set to dilute the investment of existing shareholders. That explains the backlash in the stock that saw shares nosedive nearly 30%.
Multiyear biofuel deal
However, the selloff in the stock of Gevo could be short-lived as investors digest the recent multiyear biofuel supply agreement that the company signed with German airline company Deutsche Lufthansa AG.
Lufthansa has contracted Gevo, Inc. (NASDAQ:GEVO) to supply it with millions of biofuel derived from corn that it will use to power its aircrafts. The airline has placed an order for 8 million gallons of Gevo’s renewable jet fuel. As such, given that the initial phase of the contract will run for five years, Gevo will supply Lufthansa with 40 million gallons by the end of the current agreement.
Gevo didn’t disclose the financial terms of the agreement, but the company hinted that the price it has negotiated with Lufthansa would allow for some appropriate return on investment.
The renewal jet fuel that Gevo, Inc. (NASDAQ:GEVO) will supply to Lufthansa will be produced at the company’s new facility to be constructed in Luverne, Minnesota. What to keep in mind is that the agreement between Gevo and Lufthansa is non-binding.
Alaska Airline trials Gevo, Inc. (NASDAQ: GEVO)’s biofuel
Lufthansa’s order for Gevo, Inc. (NASDAQ: GEVO)’s jet biofuel follows a successful first commercial flight powered by the fuel. Alaska Air Group, Inc. (NYSE:ALK) became the first airline company to use Gevo’s renewable fuel to power its commercial jet and that development has generated interest in the product.