Bion Environmental Technologies, Inc. (OTCQX: BNET)

Bion Environmental Technologies Inc. (OTCQB: BNET) provides waste stream remediation for animal operations, primarily for large dairy, beef cattle and hog farms. To reduce pollution caused by animal waste, BNET uses its patented technology which relies on a combination of mechanical processes and naturally-occurring microbes to treat the waste before disposal. The treatment substantially reduces runoff of excess nutrients, nitrogen and phosphorus, as well as pathogens and antibiotics, and ammonia and greenhouse gas emissions.  Livestock waste has been recently acknowledged by the United Nations (and others) as one of the greatest environmental problems we have in the world today.

Using BNET’s patented processes, the livestock ‘waste’ nutrients are stabilized and captured to produce organic soil and fertilizer products and cellulosic biomass is collected for production of renewable energy. The company is working closely with federal and state agencies in Pennsylvania to address the major problem of animal waste run-off from farms into the Chesapeake Bay and other U.S. waters. BNET has provided solutions to the livestock industry since 1990, its next generation technology is the result of $65 million and more than 20 years of R&D.

In our opinion, BNET is a company whose time has come. With the growing understanding of the serious environmental impacts from livestock waste, Bion is now uniquely positioned to monetize its technology and expertise.  We also believe investors who buy the stock here have the potential to make multiples on their money.  BNET has the potential to generate millions of dollars in revenue from the sale of nutrient credits from its most recent project, alone, which we anticipate to be the first of many more. Not only will investors benefit, but the environment will benefit as well, since nitrogen runoff from animal waste will be reduced and that runoff is now being viewed by the US EPA as one of the most difficult environmental problems we face in the 21^st century.

The opportunity for BNET is so compelling that just last year Ed Schafer, former Governor of North Dakota and former Secretary of the U.S. Department of Agriculture, joined BNET’s management team and became its Executive Vice Chairman. Mr. Schafer was the U.S. Secretary of Agriculture from 2008 to 2009 and Governor of North Dakota from 1992 to 2000. In addition to his public sector experience, he has successfully led a multi-national consumer products business and several entrepreneurial start-up companies. It is our opinion that men of Mr. Schafer’s caliber generally do not devote their time and risk their reputation on a commercial enterprise unless it has a tremendous chance of success. You can see from BNET’s SEC filings that Mr. Schafer is so convinced of BNET’s success, he plans to make the bulk of his compensation by exercising stock options at much higher prices.

In our opinion, the near term pay on BNET is going to come from the nutrient credit trading program, which is based on federally EPA mandated reductions of nitrogen and phosphorus flowing into the Chesapeake Bay from sewage treatment plants and other sources. This program gives municipalities the option of buying credits from farmers rather than spending millions to upgrade their facilities to meet the mandate. The idea behind this is that the farmer can provide nitrogen reductions at their source that will benefit the environment equally, but at a far lower cost than the downstream municipality that has to process substantially more water in order to remove the now-diluted nitrogen.

The best explanation is to describe the Company’s new project:
Bion just held the Grand Opening of its showcase project at Kreider Farms in Lancaster County, Pennsylvania (in the Chesapeake Bay Watershed).  Not only will the system have a substantial positive impact on the Chesapeake Bay, as well as local waters, it will be a model to help establish and define policies and strategies that will be used to deal with livestock waste pollution in the Bay, and ultimately, the Mississippi River Basin, the Central Valley in California, and many other locations in the U.S.

Kreider Farms

Kreider Farms is a 3,500 acre dairy farm near Manheim, Pa. with around 2,000 cows. It is also home to BNET's $7.5 million installation that reduces nutrients and other pollutants that now find their way into the area’s streams and watersheds, provides nutrient credit offsets and will generate renewable energy to power up to 2,700 homes from the Phase 2 renewable energy project utilizing Kreider’s dairy and poultry waste streams.
The initial Kreider project was funded with a low-interest $7.5 million loan from the Pennsylvania Infrastructure Investment Authority (PENNVEST). PENNVEST is the state agency tasked with financing water infrastructure projects for the Pennsylvania.  PENNVEST is a big proponent of developing and enhancing the State’s existing nutrient credit trading program to allow it to provide cost-effective solutions to Pennsylvania’s obligations to reduce nitrogen to the Chesapeake Bay.

In our opinion, the key to success at Kreider Farms and future Bion systems is BNET’s unique ability to provide low cost treatment and removal of livestock waste nutrients on-site at their source, rather than substantially more expensive treatment downstream.

BNET’s system at Kreider Farms will reduce nitrogen and phosphorus runoff, thereby generating verified long-term nitrogen and phosphorus credits that Pennsylvania, and ultimately we believe, other Chesapeake Bay states, can use to offset their obligations to reduce nitrogen to the Bay and avoid expensive infrastructure projects. The BNET system at Kreider Farms is initially treating the waste from the dairy farm’s 1,200-cow active milking herd only and will generate approximately 140,000 nitrogen credits annually that can be used to offset Pennsylvania’s nitrogen reduction requirements under the Chesapeake Bay Tributary Strategy. The rest of the herd will be added to Phase 1 at a later date; but BNET is already working on Phase 2 of the project that will treat the waste from five million chickens from Kreider’s poultry operations.  They expect the final numbers from the Kreider operations and a couple other poultry facilities in the vicinity will be somewhere around three million credits by the end of 2012 and they clearly expect to receive $8 to $10 per credit annually.

As previously mentioned, these nutrient credits can be used by municipal wastewater and regional storm water facilities as qualified offsets for the U.S. Environmental Protection Agency's (EPA) Chesapeake Bay initiative. It is anticipated that municipalities in other states in the Chesapeake Bay watershed area will also be able to purchase credits produced in Pennsylvania from BNET.

The downstream treatment alternative: In the Chesapeake Bay basin, average nitrogen and phosphorous remediation costs (including both municipal treatment and storm water facilities) exceeds $40 per pound of nitrogen removed annually when operating and capital costs are included (many municipalities face much higher removal costs). Based on the generation of credits (at $10 per pound), the BNET-Kreider Project and others could save Pennsylvania taxpayers approximately $30 million annually per million pounds of nitrogen reduced. If used primarily to offset storm water treatment inventories, the savings could be substantially higher. Pennsylvania’s livestock industry has the potential to produce reductions in excess of the 25 million pounds of nitrogen projected in the PA DEP Watershed Implementation Plan, with the result being the ability to export cost effective nitrogen and phosphorous reduction credits to adjoining Chesapeake Bay basin states.

By the way, there is a very interesting video available from BNET’s homepage (look for New Video in red www.biontech.com) from the Grand Opening.  We have posted a link t=in the right column. It has part of the Harrisburg TV coverage and then quotes from representatives of some of the biggest stakeholders in the Chesapeake Bay: PA Secretary of Agriculture, Secretary of Department of Enviro Protection, Exec Director of PENNVEST.

The benefit for BNET shareholders is that a significant amount of revenue can be generated from the sale of these credits. BNET has publicly stated it is now verifying the initial credits on its project at Kreider Farms; Bion anticipates that it will ultimately produce around 3 million credits from Kreider projects alone. The program has seen only a handful of trades since it began six years ago, but current EPA mandates are pushing municipalities to clean up, purchase credits, or face stiff fines; reductions have to begin in 2012.  In our opinion, this is the catalyst that has been necessary to move BNET to the next level. In an 8-k filing last year, BNET disclosed it expected to sell these credits for $8 to $10 per pound and still make a profit.

New investors have the advantage of coming into BNET after almost two decades of R&D that has led to a proven solution with good IP coverage, and at a price that is less than the technology cost.  In our opinion, now that BNET is transitioning from R&D to commercial operations and should begin generating revenue soon, this could be the most opportune time to buy the stock.  And the last chance to buy it at these low levels. At this time, BNET’s market capitalization is still less than the accumulated investment in the technology.  But BNET is right in the middle of verifying its initial credits, as well certifying its Phase 2 credits; once these are accomplished, things could happen quickly.  With an initial inventory of credits, BNET can begin selling them.  With the certification of Phase 2, BNET can begin the permitting and construction that leads to higher revenues in mid-2012 with the eventual sale of those credits.  Much like a pharmaceutical company with a long period of R&D, then after final approvals a quick ramp up in revenue, we think that BNET stock could spike higher in price and move very rapidly. The icing on the cake is that BNET is years ahead of the competition in both its technology and relationships with environmental and agricultural agencies.

Scope of Opportunity and Profit Potential

BNET anticipates that the Kreider System and Kreider Renewable Energy Facility, as well as future projects, will generate revenue from the sale of nutrient Credits, renewable energy (and related credits), nutrient sales (fertilizer/feed products) and potentially credits for the reduction of greenhouse gas emissions and phosphorus to the local watershed.

BNET estimates that the overall market opportunity for credits in the Chesapeake Bay watershed is large and of long duration. Most (if not all) of the publicly proposed new (or upgraded) municipal waste water and storm water treatment facilities in the Chesapeake Bay watershed in Pennsylvania, Maryland, Virginia and Washington, DC have projected costs (capital and operating) far in excess of the costs involved in reducing nutrients using BNET’s Systems to treat CAFO wastes at the source. While regulatory and enforcement policy is still evolving and, therefore, the impact of those future policies upon BNET's operations cannot be precisely predicted and/or fully quantified, BNET believes that the tremendous difference between its cost to remove nutrients from a concentrated livestock manure waste stream and the cost required for reduction of nutrients from diluted conventional waste water and storm water treatment technologies makes it reasonable to believe that BNET's potential profitability from projects in the Chesapeake Bay watershed should be significant.

Based on the aggregate size of livestock operations in the Chesapeake Bay watershed, BNET believes that the potential market for reductions in nitrogen loadings to the Chesapeake Bay watershed from livestock can be reasonably anticipated to increase tenfold (or more) to total in excess of 65 million (or more) pounds annually (including airborne ammonia) over the next decade with certified tradable nutrient credits potentially generated equaling 50% to 60% of that aggregate required nitrogen reduction. BNET hopes that some significant portion of the nutrient reductions related to this clean-up mandate will be made by BNET Systems (which portion cannot be reasonably estimated at this time).

How Bad is the Livestock Waste Problem?

The impact of livestock waste has been identified by the U.N. as one of the greatest environmental threats facing the world today. U.S. livestock produce more than 1.4 billion tons of organic waste that is essentially untreated. Much of the waste is now produced on large scale farms or CAFOs. According to the U.S. Environmental Protection Agency, there are more than 20,000 CAFOs in the U.S. alone. The current method of disposal of animal waste on these CAFOs is to temporarily store it in ‘lagoons’ or in piles on the ground and spray it on fields as fertilizer. The problem is that spraying animal waste on fields can overwhelm the surrounding watershed’s natural ability to cope with it. Excess nutrients – nitrogen and phosphorus – are in a water-soluble form that often runs-off to contaminate downstream waters and significant amounts of ammonia, greenhouse and other harmful gases volatilize from the waste. Ammonia from the manure moves downwind where it re-deposits, adding significantly more nitrogen back into the watershed. There is no way to paint a pretty picture of this process, however, you should start to see the need for a better solution, like the one BNET provides.

Runoff of excess nitrogen from agricultural activities, municipal waste treatment plants and an assortment of urban/suburban activities cause algal blooms in downstream coastal waters. When the runoff and the nitrogen it supplies subsides, the algae dies, leading to hypoxic zones where dissolved oxygen levels fall below levels necessary to sustain most animal life, such as the ‘Dead Zone’ at the mouth of the Mississippi River in the Gulf of Mexico. According to a recent task group made up of U.S. EPA staff and state regulators, “nitrogen and phosphorus pollution has the potential to become one of the costliest, most difficult environmental problems we face in the 21st century.” Livestock waste has been identified as one of the primary contributors of excess nitrogen to the Chesapeake Bay, Gulf of Mexico, and many other water basins.

To date, efforts to control excess nutrients have largely relied on expensive downstream treatment provided by municipal wastewater plants and storm water treatment of nutrients that have already entered the water supply. Higher cost treatment from these facilities results from them having to remove nutrients that have been diluted, requiring the processing of significantly greater volumes of water to capture the nutrients. To comply with the need to make further nutrient reductions to protect our waterways, EPA has pushed for additional upgrades to these wastewater plants and the development of new storm water treatment infrastructure – both are very expensive alternatives.

BNET’s unique technology treats the waste at a much lower cost by capturing and stabilizing the nitrogen on-site at its source, before it has a chance to disperse into the watershed. When considering the Chesapeake Bay, as well as the Gulf of Mexico, Great Lakes and other waters, this more cost-effective strategy could result in a potential savings to taxpayers of billions of dollars annually. The ‘treat locally’ strategy also provides benefits to the local community and environment that include reduction of nitrogen to underground aquifers and local waterways.

We realize that some investors may hold their nose and make a funny face when they read how BNET makes money. But now that the perception has become reality, BNET is an eco-friendly, environmental services company whose time has come. The large-scale, industrial type farms are here to stay. A system made up of family farms with free-range chickens and beef A) simply cannot produce enough protein to sustain our current population, much less the several billion more expected by 2025, and B) would result in a substantially greater environmental problem than we face today.  The key is to produce this protein in the most environmentally AND economically sustainable manner possible.  BNET’s unique technology provides that bridge between economic efficiency and environmental sustainability that has been lacking.

Summary

The State of Pennsylvania has taken the lead by recognizing that airborne livestock nitrogen is a significant contributor to destroying the environment, and for enabling technology providers, such as BNET, to receive credits for those reductions based upon approved nutrient reduction verification plans.

According to the EPA, excess nitrogen loadings in the Mississippi River basin are estimated to be more than ten times that of the Chesapeake Bay. Livestock waste is a major source of nutrients in the Mississippi River Basin, as well.

In our opinion, and that of BNET management,  the strategies developed in the Chesapeake Bay Program can be duplicated and utilized to deal with the much larger nutrient pollution problems of the Mississippi River Basin that are a primary cause of the 'Dead Zone' in the Gulf of Mexico and similar problems in the Great Lakes and elsewhere. The US EPA has stated the intention that the strategies being developed for the Chesapeake Bay will be utilized in the Mississippi River Basin and other watersheds in the U.S. The Mississippi River Basin alone has been estimated to require more than 1 billion pounds of annual nitrogen reduction to remediate the ‘dead zone’ in the Gulf of Mexico.

Applying the same metrics as above (BNET’s ability to profitably provide nitrogen reductions at a cost of $8-10 per pound per year compared to municipal wastewater and storm water removal costs of $40 or higher per pound per year), using BNET-type solutions would represent a potential benefit in excess of $30 billion annually to tax- and rate-payers of the 31 Mississippi River Basin states and the federal government.

It is difficult to quantify with any kind of accuracy just how big the opportunity in front of BNET really is; after all, it is truly an ‘emerging market’ of its own.  But, in our opinion, BNET could go from being a small company to a large company in a matter of months as large business opportunities for utilization of its technology as efforts to clean up such polluted areas develop. As many of you know, the stock market always trades on anticipated results. In our opinion, as BNET sells its first long-term nitrogen and phosphorus credits, the stock is going to be hitting the radar screens of some of the larger players.

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OTC Symbol: BNET

Current Price: $2.74

Shares Outstanding: 15.73 million

Market Cap: $43.11 million


52 Week Range:

52-Week Low: $1.30

52-Week High: $3.66

Corporate Offices:

Box 566 / 1774 Summitview Way

Crestone, CO 81131

Website:

www.biontech.com

Phone: (212) 758-6622

Email: info@biontech.com

Here are a few of the accolades BNET has received in recent months.

·         Video: Bion-Kreider Project Grand Opening

·         Press Release - Bion Unveils Groundbreaking Technology

Media Coverage

·         American Agriculturist Article - 07/25/2011

·         Harrisburg Patriot-News Article - 7/25/2011

·         ABC 27 - Harrisburg: Evening News Report (video)

·         Philadelphia Inquirer Article - 7/21/2011

·         LancasterOnline: Kicking off the Cleantech project - 07/21/2011 (Video link below article)

·         York Daily Record: Kreider Farms opens multimillion-dollar livestock waste treatment system - 07/21/2011

WHTM (ABC - Harrisburg): Manheim farm's cow manure processed to be enviro-friendly - 07/21/2011 (Video link above article)

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Dairy cows at Kreider Farms have a lot to offer the demonstration project that aims to turn waste into safe fertilizer and renewable energy. (DAVID SWANSON / Philadelphia Enquirer Staff Photographer)

 

Once funneled through a machine that separates out cellulose, waste turns mulchlike and could someday be used as fuel. (DAVID SWANSON / Philadelphia Enquirer Staff Photographer)