RPT-UPDATE 2-Bunge ethanol plant sale reflects doubt over EPA mandate

Fri Jan 3, 2014 10:13am EST

By Michael Hirtzer

Jan 2 (Reuters) - Bunge North America Inc, a division of Bunge Ltd, has sold its stake in a Mississippi ethanol plant in what is likely to be the first a spate of industry deals amid uncertainty over biofuel use in the United States, analysts said on Thursday.

Ethanol makers are turning big profits now, but the future is cloudy with the U.S. Environmental Protection agency expected early this year to reduce the mandate to mix biofuels with gasoline in what would be the first cut in the 2007 Renewable Fuel Standard, or RFS.

"In my view, it's a good time to sell and reinforces Bunge's focus on value creation," said Ann Duigan, an analyst at JP Morgan Chase. "More deals (are) likely if RFS declines."

Privately held Ergon Inc purchased Bunge's share of what had been a 2007 joint venture for a 54-million-gallon per year ethanol plant in Vicksburg, the only facility that produced corn-based ethanol in Mississippi.

The financial terms were not disclosed, and Ergon did not say what percentage of the venture Bunge owned.

"This transaction allows us to look at alternative feedstocks, as well as how the plant may be used for products beyond traditional ethanol production," Don Davis, president of Ergon's refining and marketing division, said in a statement.

Spokesmen for Ergon and Bunge North America did not respond to requests for further comment.

The Mississippi facility has been idled since December 2012 after the worst U.S. drought in 50 years decimated corn supplies. Industry experts said it could also produce ethanol with sugar or sorghum.

"The ethanol sector is doing well lately, which is probably helping deals get done; valuations on plants are pretty high right now," said Darin Friedrichs, an analyst at AgTraderTalk, citing ample U.S. corn stocks after a record large 2013 harvest and a 30 percent drop in corn prices in the past six months.

Margins for U.S. ethanol makers rose to their highest in at least five years recently as corn prices plunged.

But if the Obama administration moves to cut mandated biofuel use in the United States, further expansion is unlikely, even as the industry consolidates, analysts said.

The EPA recommended reducing the biofuels mandate in November and the proposal now is under final review. For corn-based ethanol, the agency proposed to cut the mandate to about 13 billion gallons a year from around 14.4 billion.

With the deal for the Mississippi plant, Bunge North America's sole holdings in the U.S. biofuel industry is now a minority stake in a facility in Council Bluffs, Iowa. Bunge Ltd's chief executive said last year that the company also planned to shed its Brazilian sugar-ethanol holdings.

Also on Thursday, the owners of a 125-million-gallon per year plant in Rochelle, Illinois, announced that it was for sale. The facility in the northern part of Illinois started production in 2006 and is operated by GTL Resources and Illinois River Energy, according to a release.