BofA-Latam Agribusiness The economics of a corn ethanol project-20251117

Assessing corn ethanol project’s potential returns

Following our efforts to better understand the corn ethanol market and the potentialimpacts for the agribusiness and sugarcane sectors; we built a model to assess thepotential returns of a corn ethanol plant with crushing capacity of 1mn tons. Weestimate an enterprise value of R$1.7bn and IRR of 17%, considering WACC of 11.5%and long-term growth rate of 3.5%. However, returns can be undermined depending onlong term margins we assume for the project. Our base case assumes LT EBITDAmargins of 25%, but higher corn prices and/or a more challenging outlook for prices ofDDG (dried distillery grain), biomass, and a weaker price environment for ethanol, candrag down margins (see sensitivity analysis on page 2). In our view, first movers willmore likely be able to capture higher returns, but we see risks to the industry’s long-term, as we see risks to margins and ethanol prices.