Shares of Rentech, Inc. (AMEX: RTK) hit a three month high of 2.18 on Wednesday, two days before the clean energy technology company is scheduled to release their second quarter 2012 earnings report. While shares of RTK dipped slightly to 2.15 by the end of yesterday’s trading session they remain ahead of their 50-day moving average of 1.94 as well as their 200-day moving average of 1.81.
There has been considerable attention paid to RTK over the past few months as many investors are intrigued by the company’s potential. That potential is based largely on a shift towards natural gas feedstock in the biomass gasification industry, a shift brought on by the fuels affordability.
This shift could produce favorable results for RTK as the company’s patented Rentech Process, based on Fischer-Tropsch chemistry, can convert syngas (synthesis gas) from their own or other gasification technologies into complex hydrocarbons that can then be upgraded into fuels or chemicals using refining technology that they license.
Converting natural gas into a transportation fuel, producing what is known as synthetic fuel, has a considerably higher margin than petroleum given the low price level of natural gas. While these margins are stronger than petroleum synthetic fuels don’t currently qualify under the Renewable Fuels Standard’s RFS2 mandate, a government initiative that “lays the foundation for achieving significant reductions of greenhouse gas emissions from the use of renewable fuels, for reducing imported petroleum, and encouraging the development and expansion of our nation’s renewable fuels sector.”
What this means is that synthetic fuels cannot receive Renewable Identification Numbers (RINs), considered “the basic currency for the RFS program for credits, trading and use by obligated parties and renewable fuel exporters to demonstrate compliance, as well as track the volumes of renewable fuels.” The sting of not qualifying for RINs is lessened due to the margin gained with synfuels but there is also a chance that the RFS2 could be expanded to include transportation fuels derived from fossil fuels other than petroleum.
If that scenario plays out then it could be a great day for RTK as they would still be capable of benefiting from the low cost of natural gas while enjoying additional income in the form of RINs.
Aside from their patented Rentech Process, the company also has a clean energy technology portfolio that includes the Rentech-SilvaGas biomass gasification technology and the Rentech-ClearFuels biomass gasification technology, both of which can produce synthesis gas from biomass and waste materials for production of renewable power and fuels. The Rentech-ClearFuels Gasifier can also produce renewable hydrogen as a product.
While things appear to be coming together for RTK the company’s history has been anything but pretty for longtime shareholders. RTK has yet to turn a profit, this despite being in business since 1981. Part of RTK’s problem has always been finding a market that will produce those elusive profits but if a few things go their way then that highly anticipated day may not be that far off in the distance.
RTK has said they would be more focused on creating shareholder value, something they anticipate doing by cutting costs and repurchasing shares. While the costs have been reduced shareholders are still waiting to see the company buy back shares.
They would also like to see RTK mirror the success of Rentech Nitrogen Partners, an NYSE traded company that RTK carries a general partner interest and approximately 61% of the common units representing limited partner interests. Rentech Nitrogen Partners manufactures and sells nitrogen fertilizer products including ammonia, urea ammonia nitrate, granular urea and urea liquor in the Mid Corn Belt region of the United States and that 61% stake RTK holds is worth about $610 million.
We’ll see how RTK swings when the company releases their second quarter earnings report tomorrow, if they have some positive figures they could be in a good position to challenge their 52-week high of 2.40 set back in late April.