If things haven't improved by the time the merger is supposed to close, that $10/share clause might end up protecting PEIX shareholders more than Aventine. Both operations could rack up significant losses this quarter if things don't reverse soon.
The PEIX margin hit $0.172 yesterday according to my numbers, and the differential between the Nebraska Plant and California Terminal price is only $0.07. If I let the Nebraska price lag by 1 week to account for shipping time, it's $(0.13). That's all before adding in anything for shipping costs, etc. On the slightly brighter side, the Nebraska margin reported by the USDA averaged at $0.55 last week (but I expect it to have dropped to around $0.30 this week). Can Aventine pay off their loan interest obligations and still turn anything resembling a profit at those numbers? I don't know, but I suspect not.
About 2 months ago I figured we'd dip below $40 before oil reverses. I guess we'll find out whether that mark is too high or too low soon enough. I do know the layoffs have started here in the oil business. I don't know how it's affecting the frackers, but I don't see how they can escape.
I don't expect PEIX to meet analyst predictions for Q4. That in itself isn't the end of the world though as far as I'm concerned. I think overall though, the market is reacting to PEIX taking on considerable debt and expending precious funds at a time when the ethanol industry is taking it on the chin. It's certainly an optimistic approach to the current situation. We'll know soon enough whether it's a wise approach, I suppose. I'd hate to see the situation revert back to one of being saddled with high-interest debt and up to the ears in warrants again. And that, I think, it what the market is waiting to find out. Does PEIX management really have what it takes? Or did they just get lucky?
We'll know soon enough, I suppose.
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