Should I pile into Velocys plc, up 8% today?

Over the past three years, the share price of Velocys (LSE: VLS) shrivelled more than 80% for good reason. The company made a loss the whole time. In fact, over the more than 10 years the firm has been on the stock market it has raised funds several times to keep the operation going.

However, the shares are up around 8% today on news from the company. So what's changed and is the stock worth buying?

A good story

Most lossmaking firms have a good story and Velocys is no different. The firm is involved in plant that converts "low-value feedstocks," such as natural gas, landfill gas or biomass, into premium products such as renewable diesel, jet fuel and waxes. It says its technology is protected by "several hundred" patents in more than 30 countries and is designed for smaller scales, combining super-active catalysts with intensified reactor systems.

Velocys tends to partner with other firms to establish standardised modular plants where the energy source exists and reckons its capabilities and extensive experience deliver a proven route to operation.

Today's news is exciting. It signed a site option agreement with Adams County in Mississippi for its first US biorefinery to be located in Natchez, Mississippi. The firm says Adams County has offered economic development incentives estimated at the equivalent of $42m with the potential for additional incentives worth up to $15m via Mississippi's Advantage Jobs Act and other statutory tax incentives. Adams County has also committed to pay around $4m relating to the land and upgrades to the site and local utility suppliers look set to bung in $1m to upgrade the site. On the face of it, the project looks well supported.

Ticking the boxes

Velocys says it chose the location for the new biorefinery because of an attractive regulatory and tax regime plus the availability of an abundant local supply of low cost forestry residue that will form the feedstock for the plant and transportation infrastructure that includes barge, rail and road. It also has accessible utilities, land that meets the criteria to support an industrial development such as space and terrain, and the presence of a local workforce skilled in servicing the forestry industry. Meanwhile the local community has facilities and amenities that will attract additional skilled personnel during construction and ongoing plant operations.

The 100-acre Natchez site became the preferred location after Velocys looked at operational, tax and incentive considerations relating to 12 locations over four states in the Southeast United States. None of that effort is wasted though because the directors reckon their analysis of the other locations "lays the foundation for future biorefineries."

A route to profitability?

Meanwhile, the company says today's announcement completes one of the work packages required for the US Department of Agriculture (USDA) loan guarantee application announced in June and the firm has started site permitting activities for the Natchez site. Chief executive David Pummell said in the announcement: "We look forward to updating our stakeholders on the progress of this transformational project in Mississippi."

If this progress truly does prove to be transformational, we could see Velocys finally moving closer to profitability, so the firm could be worth your research time.

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Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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