Syntroleum Corporation (Nasdaq: SYNM) offers the Fischer-Tropsch technology that allows converting biomass, coal, natural gas, and other carbon-based feedstocks into synthetic diesel and jet fuel. The company also targets the renewable energy market with their other technology called Bio-Synfining. The latter technology will be used for the production of renewable synthetic fuels from fats, oils and greases.

In their latest SEC filing Syntroleum reported a net loss of $2.2 million which was mostly due SG&A and engineering expenses. This however didn’t have much effect on the company’s share price as the stock keeps rallying up. Syntroleum’s stock has been on an uptrend since the end of March, 2008. There are currently no technical indications of trend reversal.

The company is in a stable financial position having nearly $24 million in cash. Capital was raised through equity and debt financing, and from the sale of certain assets. The company’s expenditures should decline somewhat, as Syntroleum has implemented a program of overhead expense reduction. The company has also completed their research and development activities and claims to be concentrating on the commercial deployment of its technology.

The company has enough cash to support current operating activities and thus negate a loss from operations for at least another year. Our concern is whether the company will be able to raise the estimated $158.5 million needed for the construction of a plant which would allow using the Bio-Synfining technology. The company has stated that it is actively seeking financing alternatives, including joint ventures and strategic alliances.
If the company fails to raise the funds needed they will be forced to consider either a business combination or a sale of assets. It is clear the company cannot go on for long with continuing losses from operations. If their plans for plant construction fail, we will probably see the company’s stock hitting the bottom. Meanwhile investors can enjoy a continuing rally up in this rather risky stock.

The government is encouraging companies to research on alternative fuels and backing companies up financially. Also, the U.S. military, the worlds largest consumer of oil has signed an agreement with Syntroleum to build a synthetic oil refinery for supply. As long as oil prices keep going up, the interest in synthetic fuel will only keep rising with it. However, I’ve not initiated a position in SYNM and am waiting for a clear resistance point to open up a small position in this risky stock. Below is a chart on Synthroleum’s recent price movement.

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