Glacial Lakes Pulling Out of Venture

By Terry O'Keefe, Staff Writer of the Public Opinion
Monday, 10:07 AM CST

January 8, 2007 - Glacial Lakes Corn Processors, the local cooperative that owns the Glacial Lakes Energy ethanol plant in Watertown and its subsidiary interests, is pulling away from one of its recent ventures.

In 2004 and 2005, Glacial Lakes oversaw the construction of an ethanol plant in Granite Falls, Minn. Granite Falls Energy has been operating for just over one year and is producing more than 50 million gallons of ethanol.

Glacial Lakes invested in the new Minnesota plant and also entered into a management agreement to operate the plant, with GLE General Manager Tom Branhan and other Glacial Lakes officials providing management services.

Papers filed with the federal Securities Exchange Commission at the end of December indicate a reorganization of management taking place within the Granite Falls operation, including the resignation of Branhan as chief executive officer, along with Michael Nealon, one of two chief financial officers.

The papers also indicate that two members appointed by GLE to the Granite Falls Energy board of directors - Terry Little and Doyle Thompson - resigned at the same time.

The management agreement called for GLE to be paid $35,000 per month, plus receiving an annual bonus of 3 percent of the net income from the Granite Falls plant.

But the papers filed with the SEC say that, with the acceptance of the resignations, Granite Falls Energy has effectively terminated the management agreement with GLE.

Branhan told the Public Opinion Friday that the changes reflect the growth of the Minnesota ethanol plant and that group's desire to take a new direction.

“What's going on is, the Granite Falls board decided they felt comfortable running their own operation,” Branhan said. “We said OK and they are negotiating our exit.

“There is no smoking gun here. They want to run on their own. They've grown up and we're OK with that.”

Glacial Lakes holds over 20 percent ownership in the Granite Falls operation and Branhan said that stock will be sold.

“Our position on it is, we made a significant investment, that is true,” he said. “But, we feel we're going to get a substantial return on that investment.”

Along with the Glacial Lakes Energy plant in Watertown, the co-op is also involved in the construction of ethanol plants at Redfield, Meckling and west of Aberdeen and is also in the process of beginning construction of another ethanol facility at Madison, Minn.

The Watertown plant is also being expanded from a 50-million gallon capacity to 100-million gallons.

“Selling our investment in Granite Falls gives us the capital, without going to the bank, to build these projects,” Branhan said.

Branhan said the split was not caused by any friction between management and the Granite Falls board and the plant is running above expectations.

“The plant is producing up to the permitted level and could produce more. It's running very well,” Branhan said. “It's currently running about 53 million gallons a year and could do more if the permits can be worked out.”

He said he feels the GLE management team did its job in getting the Granite Falls plant up and running.

“The plant came on line ahead of schedule, under (construction) budget and profits have been triple what the (GFE) board expected,” Branhan said.

But, he adds, without the management contract GLE isn't interested in retaining its stock in the Granite Falls plant.

“I'm not sure we want to have ownership in a plant we aren't managing,” Branhan said. “I think that's where the (GLE) board is at.”

He said after just nine months of production, the Granite Falls ethanol plant was able to pay out dividends of 30 percent to investors.

“That's almost unheard of in the industry,” Branhan said.

Branhan said he expects the exit negotiations with Granite Falls to be completed by the end of the month.

In the meantime, GLE continues to pursue its other expansion projects, including a proposed merger with the new plant at Redfield. Designed to produce 50-million gallons of ethanol a year, Redfield Energy is expected to be completely up and running within two months, Branhan said.

GLE has a similar management contract with Redfield as it did with GFE.

A meeting of investors had been planned for Jan. 15 where company officials hoped to finalize the merger. But that was postponed when Redfield Energy board members stepped back and called for a financial assessment of the deal.

Branhan said he still feels the merger will happen.

“The merger between Redfield Energy and GLE is still progressing,” Branhan said. “I'm still hopeful it will go forward because it will strengthen the businesses.”

Branhan said Glacial Lakes Corn Processors will hold its annual meeting Jan. 30 at the Watertown Event Center and he hopes to be able to tell investors more on the merger proposal at that time.

He said GLCP now has 3,810 investor/owners, with about 95 percent of those being South Dakota residents.