425: XCF Global Capital and Focus Impact BH3 Acquisition Co. Discuss Proposed Business Combination in SAF Investor Podcast

XCF Global Capital and Focus Impact BH3 Acquisition Co. discuss their proposed business combination and the future of sustainable aviation fuel (SAF) in a recent SAF Investor Podcast interview.

Summary

• Mihir Dange, CEO of XCF Global Capital, and Wray Thorn, CIO and Director of Focus Impact BH3 Acquisition Co., discussed the proposed business combination between their companies.
• XCF is a 12-month-old Holdco with a pipeline of sustainable aviation fuel (SAF) projects at the DevCo level.
• Focus Impact Partners is a private investment firm focused on socially forward companies, seeking opportunities where impact drives financial returns.
• The merger aims to bring XCF to the public capital markets, leveraging Focus Impact's experience and capital.
• XCF has four SAF production facilities in its pipeline, with the first, New Rise Renewables, expected to start production in summer/fall 2024 at a 38 million gallon run rate per annum.
• A second facility adjacent to New Rise is projected to come online in 2026, leveraging existing infrastructure to reduce costs.
• Two additional facilities in Wilson, North Carolina, and Fort Myers, Florida, are construction imminent and projected to come online in 2028.
• XCF is using HEFA-based technology, a proven pathway, and a modular design that can be replicated.
• The company has a design patent pending on its modular design.
• The SAF market is experiencing significant tailwinds due to the need for decarbonization in the aviation industry, with demand expected to outstrip supply for years to come.
• XCF aims to be a first-mover in the SAF space, distinguishing itself from peers and tapping into private, public, and government markets for funding.
• The company is in the process of converting its facility from a productional facility into sustainable aviation fuel in under six months.
• XCF has a license agreement in place with Axens North America for hydro-treating technology and is in the process of getting a production policy guarantee.
• The company has a versatile feedstock base, allowing it to use non-food feedstocks and mitigate supply costs.
• The Reno, Nevada facilities are strategically located for permitting and LCFS credits, while the North Carolina and Florida facilities are near major rail and airports.

Sentiment

Score: 8

Explanation: The document conveys a positive outlook on the business combination and the future of XCF in the SAF market. The management expresses confidence in the company's strategy, technology, and market position, highlighting the significant growth potential and positive impact of SAF.

Positives

• XCF has a pipeline of projects that gradually come online but with production coming on early.
• XCF is using existing technology, HEFA-based technology, which is a very proven pathway.
• The modular design provides a tremendous amount of flexibility.
• XCF has already created renewable diesel out of this facility and has opportunistically moved into sustainable aviation fuel.
• XCF has a versatile feedstock base, allowing it to use non-food feedstocks.
• XCF is in the process of getting a production policy guarantee.
• XCF is strategically located around obtaining permitting and near major rail and airports.

Negatives

• The company is only 12 months old.
• The company is not yet producing SAF at commercial scale.
• The company is reliant on government financing, private financing, and potentially public financing.

Risks

• The SAF space is new, and investors are also feeling out the space as well.
• The company is subject to risks and uncertainties, which could cause actual results to differ materially from those expressed or implied by forward-looking statements.
• The company is subject to extensive regulation, compliance obligations and rigorous enforcement by federal, state, and non-U.S. governmental authorities.
• The company may be adversely affected by other economic, business, and/or competitive factors.
• The company is subject to risks relating to XCF's and New Rise's key intellectual property rights.
• The company is subject to various factors beyond management's control, including general economic conditions.

Future Outlook

XCF aims to expand and scale its SAF production to meet the growing demand, targeting 3 billion gallons domestically by 2030 and 30-40 billion gallons by 2050 to achieve carbon neutrality.

Management Comments

• Mihir Dange: 'We see a market where demand is going to far outstrip supply for many years to come. XCF is seeking to address the industry's growing demand.'
• Wray Thorn: 'We're excited to be partnering with Mihir and XCF Global, being part of building a leader in the SAF sector.'
• Mihir Dange: 'Bold is where Alpha is.'
• Wray Thorn: 'XCF is a company that's focused on doing well. Not only doing well, but also doing good while doing well, and which is a great fit for our impact investment strategy.'

Industry Context

The announcement comes amid growing interest and investment in the sustainable aviation fuel sector, driven by increasing pressure on the aviation industry to reduce its carbon footprint. The partnership between XCF and Focus Impact aims to capitalize on the expected surge in SAF demand and establish a leading position in the market.

Comparison to Industry Standards

• Gevo is mentioned as one of the few publicly listed SAF producers, highlighting the relative scarcity of pure-play SAF companies in the public markets.
• The discussion references the broader challenges in the renewables sector, with the S&P Global Clean Energy Index underperforming the market, suggesting that SAF may offer a more compelling investment opportunity due to its unique supply-demand dynamics.
• The modular approach and use of existing HEFA technology are presented as advantages compared to larger, more complex projects that often face delays in reaching FID (Final Investment Decision).
• The discussion of feedstock flexibility and long-term offtake agreements aligns with industry best practices for ensuring the economic viability and sustainability of SAF projects.

Stakeholder Impact

• Shareholders: Potential for increased shareholder value through the growth and expansion of XCF in the SAF market.
• Employees: Opportunities for career growth and development within a rapidly growing company.
• Customers: Access to a sustainable aviation fuel supply, helping them reduce their carbon footprint.
• Suppliers: Potential for long-term partnerships and increased demand for feedstocks.
• Creditors: Opportunities to provide financing for XCF's expansion projects.

Next Steps

• Consummation of the business combination between XCF Global Capital and Focus Impact BH3 Acquisition Co.
• Acquisition of New Rise Renewables, LLC and New Rise SAF Renewables Limited Liability Company.
• Commencement of SAF production at New Rise Renewables in summer/fall 2024.
• Development and construction of additional SAF production facilities in the pipeline.
• Continued efforts to secure long-term feedstock supply and offtake agreements.
• Pursuit of government financing, private financing, and public financing opportunities.

Key Dates