KiOR: The Inside True Story of a Company Gone Wrong. Part 5, The Collapse 

Stamires whistle-blows directly to a KiOR board member

In late December 2013, Stamires’ contract had not been renewed and he began e-mailing board member Will Roach with allegations regarding the true state of KiOR’s yields and alleging that Cannon and Artzer has attempted to “to purchase his silence” as one source put it. Stamires detailed in his email that KiOR’s executive team had been fully advised of technical problems and the true state of yields but had “refused since 2010 to undertake adequate efforts to increase oil yields”.

Following his submission of emails to Will Roach, the state of Mississippi reports that little immediately came of his efforts:

Stamires attended a meeting that was also attended by Roach and two attorneys, Peter Buckland and Paul Coggins. Buckland had served as counsel for KiOR for several years, whereas Coggins had been hired by the outside directors of the Board of Directors to conduct an internal investigation of KiOR. Stamires recounted in the meeting the circumstances and complaints he had been making since 2010. Stamires thereafter provided copies of his file materials to Coggins in conjunction with Coggins’ securities fraud investigation of KiOR.”

But the company did not make a public correction of its yield claims at this time.

Columbus shuts down

In early spring 2014, KiOR reported again on its progress to the SEC. This time, there was not much sugar-coating on the state of operations at Columbus II:

Until recently, we have focused our efforts on research and development and the construction and operation of our initial-scale commercial production facility in Columbus, Mississippi, or our Columbus facility. We did not reach “steady state” operations at our Columbus facility nor were we able to achieve the throughput and yield targets for the facility because of structural bottlenecks, reliability and mechanical issues, and catalyst performance.

The problems were legion. According toi KiOR, there were issues with process and with the catalyst. In catalytic pyrolysis, that’s essentially the whole she-bang.

KiOR stated:

In January 2014, we elected to temporarily discontinue operations at our Columbus facility in order to attempt to complete a series of optimization projects and upgrades that are intended to help achieve operational targets that we believe are attainable based on the design of the facility. While we have completed some of these projects and upgrades, we have elected to suspend further optimization work and bring the Columbus facility to a safe, idle state, which we believe will enable us to restart the facility upon the achievement of additional research and development milestones, consisting of process improvements and catalyst design, financing and completion of the optimization work.

But the blame was shifted to the front-end of the process, where biomass was delivered into the reactor — rather than to the catalyst performance and reactor design identified by its scientific team as the primary issue.

Rather, KiOR claimed:

In terms of throughput, we have experienced issues with structural design bottlenecks and reliability that have limited the amount of wood that we can introduce to our BFCC system. These issues have caused the Columbus facility to run significantly below its nameplate capacity for biomass of 500 bone dry tons per day and limited our ability to produce cellulosic gasoline and diesel. We have identified and intend to implement changes to the BFCC, hydrotreater and wood yard that we believe will alleviate these issues. 

The company blamed the slow delivery of a new catalyst, and “mechanical problems”.

In terms of yield, we have identified additional enhancements that we believe will improve the overall yield of transportation fuels from each ton of biomass from the Columbus facility, which has been lower than expected due to a delay introducing our new generation of catalyst to the facility and mechanical failures impeding desired chemical reactions in the BFCC reactor. In terms of overall process efficiency and reliability, we have previously generated products with an unfavorable mix that includes higher percentages of fuel oil and off specification product.

The fixes were in hand, said KiOR, but money had run out? The company stated: “We do not expect to complete these optimization projects until we achieve additional research and development milestones and receive additional financing.”

Raising the question, of course, as to why the company could not raise money just when all the fixes had been identified to make a $600 million project perform as designed. As KiOR stated:

Since inception, the Company has generated significant losses. As of March 31, 2014, the Company had an accumulated deficit of $604.9 million, and it expects to continue to incur operating losses until it has constructed its first standard commercial production facility and it is operational. 

With that kind of capital invested in the project, there would be equity investors at significant risk should the company collapse. Why the troubles raising cash, if the fixes were really fixes.

Were the fixes really fixes? Had investors lost confidence in the executive team’s claims?