CNBC: KiOR ‘bleeding cash’

Update: Today (Jan. 27) KiOR announced that it has closed a $75 million four-year term loan with a lender group comprised of an affiliate of Vinod Khosla and two Canadian corporations owned by certain pension fund clients of Alberta Investment Management Corporation (AIMCo).

KiOR is listed along with Achillion Pharmaceuticals, Sears Holdings and Rite Aid as companies that “are expected to lose gobs of money in 2012.”

KiOR plans to convert wood chips into crude oil and is building its first plant, with a projected $110 million price tag, in Columbus. The Mississippi Legislature awarded KiOR a $75 million loan in August 2010 in exchange for the promise to invest $500 million in Mississippi with a total of five manufacturing plants and a benefit of 1,000 direct and indirect jobs. As of October 2011, KiOR had $39 million of its Mississippi funds.

The CNBC Stock Blog says although the companies “may not be in deep distress in the next quarter or two, the long-term outlook will weaken further as cash balances drop,” the blog predicts. It warns that clean energy investors need to watch out for potential bankruptcies.

Exerpt:

When it comes to corporate America, it’s “survival of the fittest.” Sure enough, a handful of companies get culled from the herd every year, finding their way into bankruptcy court after a brutal run of losses.

Author’s note: Everyone knows investors make money by buying stocks that they think will go up. But those not terribly familiar with the stock market may not know that investors can also make money by betting against stocks they think will go down. This risky process is called “shorting.” To do this, an investor must buy stock from someone else who owns it and then immediately sell that stock they don’t even own. Sound confusing? It is. The point is that shorting means betting on stock that one predicts will go down.

For investors looking for stocks to short, it always pays to focus on these companies. If their balance sheets keep getting weaker and weaker in the face of open-ended losses, investors tire of pouring fresh funds into them and eventually the well runs dry.

Here’s a closer look at four companies that are expected to lose gobs of money in 2012. Though they may not be in deep distress in the next quarter or two, the long-term outlook will weaken further as cash balances drop. …

4. KiOR

Clean energy is another area that investors need to watch out for potential bankruptcies. Several publicly traded and private solar firms have gone belly up recently, led by the high-profile blow-up of government-backed Solyndra.

One clean energy stock that short sellers are ogling is KiOR [KIOR 10.95 0.26 (+2.43%) ], which aims to convert biomass into fuel oil. To make that happen, KiOR is pouring huge sums of money into its facilities to generate meaningful production.

The company’s technology is said to be very promising, which is why shares rose from their mid-teens IPO last summer to above $20 by late September. Shares are now below $10 and could be headed even lower as investors start to realize that more money will be needed to see this company through to eventual profitability.

KiOR’s first plant will likely come on line this summer, and a second plant is expected to be running by the end of 2013. Meanwhile, cash flies out the door. KiOR likely lost around $50 million in 2011, and analysts think losses could reach $100 million in 2012 and 2013, thanks to heavy spending on new plants. The company currently has $150 million in cash and the well could run dry by the end of this year unless KiOR can raise a lot more money. It needs upwards of $100 million more just to get its two plants going and to reach profitability, and that assumes no glitches.

KiOR’s survival will hinge on oil prices. Its technology is uncompetitive when oil trades below $76 a barrel. So the company needs to see the current lofty prices for oil (which were recently just above $100 a barrel) to stay in place for the company to attract fresh investors. If KiOR waits too long, and oil prices pull back, it may find it impossible to raise cash.

These companies aren’t in deep distress now, but their balance sheets are weakening and more troubling times may lie right around the corner.

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