Thursday, October 4, 2007

Add D1 Oils to Our Portfolio at $4.15

After some intensive research on jatropha, I've decided to add D1 Oils to our Evergreen Portfolio at $4.15 per share.

D1 Oils has the rights to more than 198,000 hectares of jatropha worldwide already, across arid parts of India, Africa and Southeast Asia... and is in the process of planting and acquiring more every day. Its recent joint venture with British Petroleum marked a turning point for the company...

Here's what D1's Chairman had to say recently:

The establishment of D1-BP Fuel Crops Limited [the joint venture] is a transforming event for D1. BP’s decision to join us in this new venture is a significant endorsement of our feedstock strategy. The joint venture will enable us to speed up the development of jatropha for the production of sustainable biodiesel and to deliver commercial volumes of jatropha oil at competitive prices, benefiting both the economies of developing countries that will grow the crop and the rural communities where planting will be based.

D1-BP Fuel Crops will commence operations on 1 October. The new joint venture also represents a turning point for biodiesel globally. Although biodiesel is a young industry, it has rapidly become not only an established part of the global renewable energy landscape, but also a commercial and strategic requirement in the global transport fuel market. BP’s decision, as a major global supplier of transport fuels, to focus on jatropha as the source of sustainable biodiesel is a recognition of the pressing need to base more biofuels on inedible crops that are not subject to the same demand pressures as food oils and that are grown on marginal land.

Indeed, while the company is not yet turning a profit, it's got plenty of cash on the books and appears poised to catch lightning in a bottle, so to speak.

The Most Direct Way to Play the Coming Jatropha Boom

This is the most direct play on jatropha available in the world today. You could look to invest through Brazil's Renova... or perhaps China's CNOOC... or even British Petroleum, D1's partner in Swaziland.

CNOOC is particularly tempting, because of its recent agreement to Panzhihua Municipal Government to cultivate the plant and process jatropha. However, oil is looking toppy right now, and so is China.

I also sense that the general professional trading community and, to some degree, the markets, are becoming a bit more careful about China. And they're flat-out preparing to run from biofuels... so even stepping into this arena right now is a calculated risk.

In addition, CNOOC is a massive oil producer. And I just have a hard time adding a major oil company to this portfolio, although I am not against it entirely.

I'll file a complete report on D1 Oils shortly, which lists on the London Stock Exchange. Till then, let's get on the jatropha bus and see how far it takes us.

Action: Add D1 Oils (DOOIF.PK) to the portfolio at $4.15. We won't use a Trailing Stop on this position because I expect heavy, heavy volatility to precede an eventual momentum burst upward.

Good trading,


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