Friday, October 12, 2007

D1 Oils: The Only Pure Jatropha Stock in the World?

Not long ago, we added a little British biofuels company called D1 Oils to the Evergreen Portfolio here at Green Investments. We decided to do so after looking at the company's fundamentals... and careful consideration of its new 50/50 joint venture with British Petroleum.

Under this partnership agreement, the two companies will plant 172,000 hectares (about 425,000 acres) of jatropha curcas (the oil-bearing plant) in parts of India, southern Africa and Southeast Asia... and up to 1 million hectares over the next 5 years.

http://www.bp.com/genericarticle.do?categoryId=2012968&contentId=7034453

http://www.bp.com/sectiongenericarticle.do?categoryId=9019010&contentId=7034405

So why are we bullish on D1 Oils and jatropha in general?

Let me count the ways...

1) It is the ONLY pure play on jatropha right now... and appears miles ahead of all competitors when it comes to planting programs, partnerships and aggressive growth planning... Whenever you see a major publication covering jatropha, you almost always see one company mentioned: D1 Oils. The New York Times piece is one example:

http://www.nytimes.com/2007/09/09/world/africa/09biofuel.html?_r=1&oref=slogin

2) Jatropha plants, like any other species, vary from strain to strain in terms of hardiness and productivity... and D1 Oils not only is a producer... It's a seed bank and runs an entire program designed to identify and refine the best jatropha seed stocks in the world... (In this way, D1 Oils is similar to Bunge, another Evergreen Portfolio pick.)

3) Jatropha can grow where foodcrops cannot... in arid, poorly irrigated soils... Already massive planting projects are underway in places like China, India, Africa and Southeast Asia... Poor African farmers have long used Jatropha bushes as natural fences for their animals...

Jatropha oil can be extracted right from the fruits that grow from these bushes (the fruits are about the size of a golf ball)... And it can then be added to diesel and burned almost directly, without excessive processing.

This has led to stories of poor farmers growing small patches of jatropha, trying to make money with "liquid gold." But since the infrastructure and markets are not yet robust enough to absorb their harvest, they've had trouble making money.

Jatropha: A Major Biofuel Revolution in the Making?

Another problem is the inconsistent quality of the crops. But this is a little-understood facet of the jatropha story... and D1 Oils' seed-development program makes this company perfectly positioned, right in the center of what could be a major biofuel revolution in the making.

I anticipate this being a long-term holding, so let's be patient and I think we'll see this one bear major fruit down the road.

Good day,

James

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