Small Talk: Future of Biofuels is in the hands of Barclays

For a while now Small Talk has been warning about the perilous state of Biofuels Corporation's finances. Last week's update from the company showed that this column was right to be concerned.

Simply put, Wednesday's statement from Biofuels admitted that the company's future is now totally in the hands of its bankers at Barclays. What's to blame for its current predicament is the massive debt that the group has racked up over the years. Biofuels' borrowings stand at £95m, and it will need a further £16m to £25m to keep it going until the end of the year.

The company says it is investigating a range of options to restructure this debt burden in order to keep itself afloat. However, it really faces only two possibilities. Barclays can either put the group into administration, whereby shareholders will lose everything, or it can call for a debt-for-equity swap. Under the latter option, shareholders will lose control of the company to Barclays and will be left with only a tiny stake in Biofuels post a restructuring.

Either way it leaves Biofuels shares, which are listed on AIM, looking significantly overvalued despite their recent collapse. On Friday the stock closed at 17.75p, valuing the group at £8.5m. However, even in the best-case scenario - a debt for equity swap - there is little hope that Barclays will allow shareholders to retain £8.5m of value following a restructuring. They will most probably leave just enough value so as to make it worth while for shareholders to back the swap. But it will not be much.

So why haven't Biofuels shares fallen further? Brokers suggest that one reason may be hope that the company will be taken over. Not so long ago rumours circulating in dealing rooms indicated that the Swiss-based Biopetrol Industries might be interested in buying the group. Given the current state of the AIM-listed company, this scenario is very unlikely to come to pass. It simply does not make commercial sense. Analysts estimated that it would be far cheaper for the Swiss company to build its own bio-diesel plant from scratch than acquire Biofuels in order to get control of its Teesside facility.

Biofuels specialises in turning vegetable oil into diesel, which can them be used either as a pure substitute for conventional diesel or, more commonly, is blended with regular diesel. The exciting thing about this formula is that it is an environmentally friendly source of energy. Nevertheless, the AIM group has failed to make any money from it. Persistent technical problems are among a number of reasons for its failure to become a viable commercial concern.

Happy Jack boosts Vane

Readers would do well to keep an eye out for Vane Minerals today. The AIM-listed group is expected to put out an upbeat statement about its uranium prospects in Utah. Among them is the Happy Jack Mine, which was once in production but had to close in 1982 after the low price of uranium made it uneconomic.

Vane believes it can get the site back up and running in the not too distant future, and once operational it should prove to be a major money spinner for the group given the recent jump in the uranium price. The value of the commodity has soared 14-fold over the past seven years, and is tipped to rise further. Analysts believe it could gain another 50 per cent in the next two years due to a shortage of supply.

With a market capitalisation of £32m, Vane believes investors have overlooked its shares. The company may well have a point. Rivals in Canada and Australia, with similar assets, boast significantly higher valuations.

Chip pioneer ClearSpeed seeks cash for campaign

A little bird tells Small Talk that ClearSpeed Technology, the AIM-listed chip developer, was over the weekend putting the finishing touches to a £20m equity fundraising. News of the deal could come today alongside the group's annual results.

ClearSpeed has developed a revolutionary computer chip, the CSX600, which dramatically increases computing speed with little need for extra electrical power. This is becoming increasingly important in the computer industry as it struggles to keep a lid on a typical computer's appetite for power.

The AIM-listed group will used the new money to help market and develop the CSX600. It expects the product to be popular in sectors of the economy that require high performance computers, such as the financial services industry, scientific research and engineering.

ClearSpeed, whose biggest shareholder is the entrepreneur Richard Farleigh , a panellist on the BBC's Dragons' Den programme who has a 19 per cent stake, addresses a massive market with its CSX600 processor. Analysts estimate the market was worth £4.5bn in 2005, and will grow to £7bn by 2010.

Other investors on ClearSpeed's shareholder register include heavyweight institutional players such as Fidelity, New Star Asset Management and JO Hambro.

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