When Hurricane Floyd ripped down the walls of North Carolina's main hog-manure reservoir and triggered a pollution overflow, Renewable Energy Corp saw an opportunity.
It bid for the right to help Smithfield Food Inc dispose of the waste by using heat treatment to extract gases from manure for use in electricity generation, recycling the burnt gas solids as fertilizer. Now the technology is under trial at four Smithfield farms with a US$100 million contract to service all the biggest pork producer's 1,200 farms in the US up for grabs.
Renewable's push for a bigger slice of a waste conversion market that analysts value at US$256 billion was buffeted by last week's terrorist attack on the US. While its shares fell 30 percent since the strikes as investors sold riskier equities, they rebounded this week on expectations US retaliation may disrupt Middle East oil supply and boost alternative energy demand.
Renewable's technology "seems to solve the problem and in doing so becomes economically viable," said David Fleming, who holds the stock as part of his small companies portfolio at Rothschild Australia Asset Management Ltd. Still, renewable energy stocks are "not without risk."
The potential of the company's technology has also won the Melbourne-based company contracts with Arkansas-based Tyson Foods Inc, the biggest chicken producer, and Charlotte-based Duke Energy Corp, the biggest US utility owner.
Investors are more cautious. Melbourne-based Renewable's stock rose 50 percent in the first half and then lost 60 percent of its value in the third quarter. Renewable trades at 23 times forecast fiscal 2002 earnings. Shares of rival Energy Developments Ltd, which trades at 40 times earnings, fell 32 percent. This compares with a 12 percent drop in the benchmark index for the quarter.
Renewable energy companies in the US developing devices such as fuel cells have fallen as much as 70 percent over the past few months, after surging during power shortages in California in January and March, analysts said.
"The key issue affecting the stock at the moment is negative sentiment toward speculative investments," said Ed Prendergast, an emerging companies analyst at Salomon Smith Barney Australia in Melbourne. "The path to profitability is probably pushed out a little further than originally expected." Smithfield Foods runs the world's largest hog-farming operation, with 600,000 sows producing 12 million piglets a year, from its farms in North Carolina, where there are two hogs per head of population. Smithfield's problems with waste predated Hurricane Floyd and in 1997 the company was ordered to pay a US$12.6 million fine for alleged violations of the Clean Water Act.
Disposing of the waste from the 13 million hogs farmed annually is difficult because the manure is too toxic to be used as fertilizer without treatment. Renewable won Smithfield's tender in April from 96 contenders.
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