Mark Wong describes how this ethanol production company plans to go from zero to $1 billion in revenue potential by 2009.

Formed in 2005, Renewable Agricultural Energy (RAE) is a 12-person start-up with big aspirations. According to CEO Mark Wong, the plan is to build three 139 million- gallon-per-year ethanol plants at the cost of $180 million each by 2009. Up and running, each plant will generate more than $300 million in revenue. Impossible? Perhaps for another company without the expertise found at RAE.

To obtain the necessary capital, RAE is busy raising $230 million in equity, and it plans to borrow another $410 million. For a company currently generating zero revenue, getting investors on board may seem like a hard task, but Wong and his team have track records that speak for themselves.

Wong began his 30-year career as an engineer for Rohm and Hass, Foster Wheeler, and Chemical Construction Corporation. He later moved on to found and manage 12 agriculture and biotechnology companies, including Agrigenetics Corporation, which was sold to Lubrizol for $200 million in 1985; Agracetus Corporation, sold to Monsanto for $150 million in 1994; and Emergent Genetics, Inc. “By building and selling companies over the past 25 years, I’ve helped earn shareholders more than $750 million. Investors have a hard time saying no to that kind of track record,” said Wong.

Mark Wong

Investors are also attracted to Wong’s working relationship with present CFO, Dale Keller; VP of strategy and planning, Todd Gander; and VP of technology, Dr. Don Panter. The group worked together at Emergent Genetics, an international corn, soy, and cotton seed company that was divided and sold to Monsanto and Syngenta for $370 million in 2005. Over the past year and a half, the team at RAE has grown to include Dr. Martha Schlicher, former director of the National Corn-to-Ethanol Research Center; Neal Jakel, who has more than 14 years experience in the ethanol industry; and Eric Lee, a 15-year veteran in the food, chemical, and renewable energy fields.

The perfect site, explained Wong, is accessible by train to transport raw materials in and finished products out. It also has an ample supply of water, electricity, natural gas, and, of course, corn. Gothenburg, Neb.; Gibsonburg, Ohio; Cayuga, Ind.; and Sullivan, Ind. meet all of these requirements, and the company will soon choose three of the four sites for its initial phase of development.

Each site has its own strategic advantage. For starters, the Gothenburg site is smack in the middle of cattle country. Wong explained that to make ethanol, starch is extracted from the corn and converted to sugar, which is then fermented into alcohol (ethanol). The leftover protein and fiber is made into distiller’s grain, which can be sold as a feedstuff ration, primarily for beef and dairy cattle, as well as swine, poultry, and aquaculture. In addition, the Nebraska site can easily serve West Coast markets. Cayuga and Sullivan, Ind. have the advantage of serving the East Coast, while the Gibsonburg, Ohio site is located near several large cities.

RAE plans to build three plants in its initial phase but has its eye on other sites, such as one in Tennessee along the Mississippi River. “The ability to ship ethanol by barge could be a great advantage,” said Wong. “It takes a year or more to develop these sites so you have to keep the pipeline full with potential locations.” The CEO noted that the company could build as many as seven plants in the near future.

Unlike past ventures that were sold off, Wong and his team plan to keep skin in the game for the long haul. At present, the US burns 140 billion gallons of liquid fuels, a number that is expected to grow more than 1% per year over the next decade. The ethanol industry manufactures about 5 billion gallons per year and is building capacity for another 5 billion gallons. By 2009, the country will consume 10 billion gallons of ethanol, and that will still constitute less than 8% of the total liquid fuel market. “There is plenty of potential, and we’d like to bring this company into the future,” said Wong.

According to Wong, the typical ethanol plant costs $180 million to build, but RAE may invest an additional $50 million to $75 million each to add fractionation and anaerobic digestion—two technologies that are leading the industry into the future.

Fractionation is the process of separating the components of the corn kernel prior to the fermenting process. With the germ free of the kernel, protein and oil can be extracted and sold for a high market value on a per-pound basis. The technology will allow the company to squeeze additional revenue out of its byproducts and increase the capacity of its plants.

During anaerobic digestion, water, protein, and other waste created by the ethanol production process are collected and “digested” using microbes in an oxygen-free environment. The resulting methane is used as fuel to operate the plant. “Most ethanol plants use natural gas, but a plant that burns its own methane can save anywhere from 50% to 75% on fuel costs. It’s an environmentally friendly source of fuel that few companies have taken advantage of,” said Wong, adding that anaerobic digestion technology isn’t cheap to install. However, these two technologies have a high rate of return on investment and can save significant money in the long run, “which makes them well worth the upfront capital.”