KiOR: The Inside True Story of a Company Gone Wrong. Part 4, the Year of Living Disingenuously

O’Connor wrote:

I would like to repeat myself by starting to congratulate Fred Cannon and the KiOR team, in particular Ed Smith for the timely and on budget completion of the first cellulosic biomass conversion plant in Columbus.

During my time at Akzo Nobel Fred and Ed delivered similar achievements in construction and commissioning of chemical plants, amongst other in Houston with the completion of the “CRUSADE” (Cost Reduction USA Damn Exciting) project, which saved Akzo’s FCC catalyst business in the USA. So once again: Congratulations!

Up to the completion of Columbus KiOR has been on time and budget with the delivery of her milestones, however unfortunately since then the success ratio has not been so dramatic, resulting in the following delays and shifts in performance targets:

A. The Columbus plant is not yet on-stream, and the suggestion is that it may take up to nine-months before the plant is completely on-stream and ramped up to its capacity…and product yields.

B. The product yields are not at the Gallons per bone dry wood [level] as estimated at the IPO, and in fact the suggestion is that the GPBD will only be reached in the larger (and modified?) Natchez plant.

C. The catalyst being used at Columbus is based on large quantities of an expensive…(apparently public knowledge!) and the rumor is that no substantial costs reductions are to be expected.

E. Based on A, B and C the overall economics and cash flow of KiOR will be substantially less positive than estimated at the IPO etc. While KiOR management is holding the info on A, B and C confidential, the overall financial result is and will become more clearly visible.

D. Because of A, financing of Natchez plant has been delayed and so also start-up of Natchez has been shifted at least one quarter from 4Q 2014 to 1Q 2015.

The result of the foregoing has been a dramatic drop in the KiOR share value, hurting the interests of all it’s shareholders.

While I still fully believe in the benefits and the potentials of further development of KiOR’s technology, I am very concerned about the way the technology is being implemented. My strong impression is that KiOR’s management although very competent and successful in the construction and commissioning phase, lacks the people with experience, vision and leadership to move forward with necessary improvements of the technology (yield improvement and catalyst cost reduction) and operations (capacity, ramp-up and time on stream). This is hurting KiOR now and could in worst case even turn a potential success into a failure if no appropriate corrective action is taken.