Lima Energy official talking new project

LIMA — The man at the center of a decade-long plan for a clean energy plant at the former Lima Locomotive Works wants to break ground this year on a new project at the location: a research and development center.

The announcement by Harry Graves were a surprise to Mayor David Berger, who has worked closely with Graves to develop the site. Graves is chairman of USA Synthetic Fuel Corp. and Lima Energy.

His remarks came during an interview with The Lima News about recent Securities and Exchange Commission filings by USA Synthetic. Among the highlights:

• As of Sept. 30, 2011, USA Synthetic Fuel had $720 in cash and receives operating money from stockholders' advances, according to the filing.

• During the interview, Graves said he believes this year will be the year the synthetic natural gas plant's financing comes together.

• Graves also said construction on the research and development building could begin without the stock offering.

“We'd like to be functioning in a year, put a shovel in the ground soon,” Graves said. “I don't want to predict anything; I'd put it in the category of a dream. My dream would be in the first quarter of this year.”

Berger was not aware of a plan for a groundbreaking.

“That's not a timetable that I've been advised of,” Berger said.

USA Synthetic Fuel Corp., developer of what it now calls a $2 billion Lima Energy project, filed in January with the Securities and Exchange Commission to raise $100 million with a public offering of stock. The SEC must approve the massive document (now at 186 pages) before USA Synthetic can set a date for the sale.

In the filing, USA Synthetic estimates Lima Energy would be operational two to three years from getting approval for the stock sale.

“We're hoping to be on the early side of that,” Graves said. “That's a good estimate.”

Public skepticism

Berger and Graves face a public more than skeptical about the project coming to fruition. It began as a $500 million project in 1999. After the company poured a giant concrete slab at the site, it has made no more physical progress. In June 2007, the company, formerly Global Energy, filed to become a public company and make an initial offering of $350 million in stock. Soon after, the floor fell out of the national economy and the deal never went through.

The technology is working around the world, Berger said. China has 35 such plants either running or in production and the United States has none. And, USA Synthetic is working on funding in a very difficult economy.

“I know they are working on multiple funding streams. They continue to have hopes about one or more of those coming to fruition,” Berger said. “They continue to aggressively pursue them and I'm glad for that. If the economy is really on the mend, we'll see some advantage gained and momentum from that.”

In March 2010, a series of complex moves created a new public company, USA Synthetic Fuel. USA Synthetic merged with an existing public company, film firm Big Star Entertainment; the move made USA Synthetic a publicly traded company but didn't raise any revenue.

In May, USA Synthetic Fuel filed another public offering of stock to raise $20 million, but couldn't get it approved by the SEC. On Jan. 18, before the company filed the $100 million offering, it withdrew the May filing.

Funding issues

The company faces multiple significant challenges. At the end of 2011, its stock was trading at 27 cents, after a high of $9 earlier in the year. It was 38 cents at the close of business Wednesday. The company lost a $10 million commitment from New York-based firm Socius Capital Group, because the funding was contingent on USA Synthetic Fuel trading on the Nasdaq market — and Nasdaq requires stock trading above $4. USA Synthetic also lost a deal it had with RBC Capital Markets to help raise $600 million in bonds.

As of Sept. 30, according to its filing with the SEC, it had $720 in cash and receives operating money from stockholders' advances.

USA Synthetic is still holding onto two pieces of financing, $20 million from New York-based equity investor Kodiak Capital Group and $50 million in reserve equity financing from AGS Capital Group LLC, a United States-based investor group. The company is also using coal reserves it owns as collateral and is trying to achieve a $350 million transaction based on those reserves.

Graves said he is motivated by a belief that the company's technology will help many people by providing cheaper, clean and native energy.

“We're an old school manufacturing, high-tech company,” Graves said. “We're looking at 10 years of dedication, trying to be extremely helpful to a large population, making an impact on helping America make the best use of its energy.”

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