SUMMER 2010 ISSUE


A Rebound for Cloverdale



After losing its new ethanol biorefinery at the start of a worldwide recession, this small Indiana town gets a second chance to participate in the biofuels revolution.




In the 1980′s movie Hoosiers, the mythical 1950′s small-town Hickory High School defeats big-city power South Bend Central to win the state boys basketball championship. Based on a true story, the film accurately captures the spirit of the “Hoosier Hysteria” of those days, when Indiana’s one-class state basketball tournament gave the state’s “Davids” the chance to occasionally knock off a Goliath.


One of those Davids was from the Indiana town of Cloverdale, which lies about 40 miles southwest of Indianapolis. Located in the rich, gently rolling farm country reminiscent of the movie, Cloverdale never won the actual state championship, but in 1966 did play its way into the state’s Final Four . Folks around town still talk about how their beloved “Clovers” did them proud, competing very respectably in a field that included perennial mega-school powers from Michigan City, East Chicago and Indianapolis.


Fast forward about four decades. Cloverdale (population 2,200), like many other Midwestern communities, has found it challenging to hold its own in the current economic climate. Then in 2008, it got a great opportunity to take a big self-help step with the opening of a new 88-million gallon ethanol biorefinery a half-mile north of town. But quicker than a great-looking jump shot getting swatted into the tenth row, the facility closed — a scant eight months after commencing production. And many of the community’s hopes and dreams for a brighter future went with it.


“People here were really sad and disappointed that the biorefinery wasn’t able to continue,” says Bill Dory, Executive Director of the Greencastle-Putnam County Economic Development Center. “It appeared the facility was off to a good start. They [the facility ownership and management] were very gracious to the community, good neighbors and good community citizens. They were buying a lot of corn locally, which was really helping our farmers.”


TOUGH TIMES FOR ETHANOL


Things started out on a promising note for Altra, Indiana, LLC, a wholly-owned subsidiary of Los Angeles-based Altra, Inc. The ethanol industry was profitable and moving aggressively forward, the overall economy was on an upswing, and Altra, Inc. had ambitious plans.


The Cloverdale facility was announced by Altra, Inc. in October of 2006, and construction started immediately. Production commenced in April of 2008, and things appeared to be off to a good start.


“There were some minor glitches, but the management team was very pleased overall,” recalls Dory.


But as the general economy began to crumble, the ethanol industry encountered its own unique set of troubles.


“In the spring of 2006 corn was $2 per bushel, ethanol was $3.50 per gallon, and total payback on an ethanol facility was about six months,” recalls Dr. Chris Hurt, Purdue University Agricultural Economist. “By the end of 2008, corn had moved steadily up to $6 or $7 per bushel, ethanol was around $2 per gallon, the cost of building an ethanol plant had doubled, and there was a serious oversupply of ethanol on the market.”


In December, Altra officials announced that the plant would be closing. An official company statement cited in Biofuels Digest listed the falling price of ethanol (due to the falling price of oil) and the credit crunch as the critical factors. Some of the biggest and best-known companies in the ethanol industry went into bankruptcy. Media headlines across the nation openly questioned whether biofuels were still an economically viable alternative, with one article bluntly calling ethanol “No Field of Dreams.”


But while it was a difficult time for the entire industry, some companies were in a better position to weather the storm, including industry leader POET.


“We’ve been fortunate,” says Larry Ward, POET Senior Vice President of Project Development. “Over our twenty-plus years, we’ve been through hard times on a number of occasions and have learned from that. But for a new company just getting started, it’s really difficult.”


MAKING THE SWITCH


The recent announcement that POET has agreed to acquire the plant and facilities at Cloverdale and retrofit them to be consistent with other POET biorefineries was made easier by some of Altra’s earlier decisions.


“They did a nice job of picking this location,” says Ward. “It has a great corn supply and doesn’t have as many competing plants as other areas. There is also a good backbone of facilities and equipment in place to begin our modifications.”


While the Cloverdale retrofit is different than anything the company has done recently, it is hardly without precedent.


“That’s our roots. In our very early history, that’s how we got started, purchasing an idled facility and figuring out how to make it work,” explains Ward. “That’s how what is now our Scotland, S.D. biorefinery was started, and it began even earlier on the Broin family’s farm.”


Since those days, however, all other POET plants have been new construction. In order to turn the Cloverdale facility into a POET biorefinery, POET begins construction in July on a retrofitting project that will cost about $30 million and take nine months to complete.


With a nameplate capacity of 90 million gallons, it will be one of POET’s larger biorefineries. It will consume 31 million bushels of corn per year and produce 246,500 tons of Dakota Gold Brand distillers dried grains (DDGs). The 40 to 45 employees will take home $2 to $2.5 million annually in pay and benefits.


Among the technologies installed at Cloverdale will be POET’s proprietary process technology, as well as improvements in the original plant design. Some of those upgrades will include BPX, POET’s patent-pending fermentation process which uses enzymes instead of heat, reducing energy use by 10 to 15 percent.


In addition, POET will also install new pollution control equipment and a new technology set known as Total Water Recovery, in which virtually no liquid is discharged from the plant. All process water is either re-used or recycled within the facility. The only water consumed in the entire facility will be what evaporates from the co-product (DDGS).


“Total Water Recovery is a very new technology that we’re really excited about,” says Ward. “A number of our newer plants have it, and it’s being deployed throughout our other plants.”


A number of other processes could potentially be installed at the facility in the future, including cellulosic ethanol production from corn cobs. POET’s biorefinery in Emmetsburg, Iowa is currently preparing to undergo renovation to become one of the first in the world to commercially produce cellulosic ethanol.


“The Cloverdale facility has all the ingredients we need to put together a top operation — a steady corn supply, rail access, a great workforce and productive farmers,” states POET CEO Jeff Broin. “The ample corn supply in the area includes significant quantities of agricultural waste, making the plant a likely location for cellulosic ethanol production in the future.”


ANOTHER OPPORTUNITY


For the Cloverdale community, POET’s acquisition represents a second chance to benefit significantly from today’s green industrial growth.


“When POET contacted us that they were the successful bidder for the facilities, we were quite pleased,” says Dory. “It will be great to get those jobs back in place, and the ag community will also be very pleased. Some of our area farmers are already familiar with POET. They’ve already been hauling their corn a few hours away to other POET facilities in the state, then back-hauling the distillers grains.”


Dory himself had become familiar with POET a few years back when an ethanol plant first became a possibility for the Cloverdale community.


“As I researched biofuels, I became aware of POET and their national reputation as a top operator in the ethanol industry,” says Dory. “They have a reputation for being great neighbors, and they will fit in with the community very well.”


For POET, acquiring an existing biorefinery in the area represents not only an attractive opportunity, but also a chance to “grow the family” in a relatively new region for the company.


“Indiana is also where three of our newer biorefineries are located, and this facility will complement them very well and create some nice synergistic effects,” says Ward. “We’re also excited to be able to welcome Cloverdale as the newest member of our family of 27 biorefineries. The people in all of our facilities build relationships, and we all learn from each other.”


Ward has also been impressed with the business climate of the area.


“In Cloverdale and Greencastle, we’ve found a very progressive, welcoming group of local leaders,” says Ward. “They also really understand the potential of the ethanol industry and the 40-plus jobs coming into town. We already have a very good relationship for starting up a new business.”


For Ward, the new facility also represents the resurgence and resilience of the ethanol industry as it and the American economy emerge from recession.


“Over a period of years most industries run into difficulties from time to time, and this industry is no different,” says Ward. “Ethanol has shown itself to be a very good fuel that lowers the cost of gasoline at the pump, as well as the environmental benefits. It also provides jobs, like in the Cloverdale community, that can’t be outsourced, and has done a tremendous job of revitalizing communities across the Corn Belt. Things like this keep us excited. We’re not surprised that there continues to be opportunity. It’s a great story.”


Does that mean that POET will continue to seek similar opportunities?


“We have been, and will continue to look for opportunities across the whole industry,” says Ward. “But we’re not looking for just any opportunities, we’re looking for the right opportunities.”


Sounds kinda like a Cloverdale high school hoopster looking for another good jump shot, doesn’t it?


Acquisition Strategy:
What does POET look for in an existing biorefinery?


How was POET’s acquisition of the Cloverdale facility different than their process from starting a biorefinery from scratch? Not as much as you might think, according to Larry Ward, POET Senior Vice President for Project Development.


“Any existing biorefinery we consider has to meet the same criteria as one of our greenfield developments,” says Ward. “In the case of Cloverdale, there were a lot of other similarities to our other developments, except that this one already had a plant on it.”


Some of those criteria that made Cloverdale look like a potential winner include:


- A great corn supply.


- Compatible facility infrastructure. Needs to be capable of readily and cost-effectively being retrofitted to POET’s proprietary production technologies.


- Transportation logistics. The Cloverdale biorefinery is on a mainline rail (CSX), and has a good utility structure already in place.


- Good community and business leadership, that understands the benefits of and has a vision for the future of the ethanol industry.


- Other POET biorefineries in the region. This allows for synergistic possibilities, which in this case includes capitalizing on some of the extensive market development that’s already been done with the other POET biorefineries in the state.


- Immediately surrounding area not overpopulated with competing ethanol facilities.


- A good work force. As POET prepares to re-start the Cloverdale facility, the company will do a thorough search for top-notch talent, including all previous biorefinery employees who would like to be considered.
Other site-specific considerations, such as how this site fits into overall company vision, future cellulosic potential, POET’s desire to expand into a particular area, among others.


One thing was significantly different about the Cloverdale acquisition.


“In this one, we were dealing with a court-appointed receiver and Altra’s senior lender, AgStar, to purchase the assets of the company rather than dealing directly with the company,” says Ward. “It was a competitive bidding process initially, where we didn’t know who, or how many others, were also bidding and it ultimately was acquired through a foreclosure auction. In the case of a new site, we simply purchase the land from individuals.”





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