Gushan Environmental (GU) Sinks After Temporary Plant Suspension

Gushan Environmental (GU) plunged about 20% this morning, but well off the lows and getting back above the 50 day moving average after the company announced it was temporarily suspending production at Fujian Gushan Biodiesel Energy Co because of a dispute with local government over consumption tax issues.  Gushan claims that its biodiesel which is produced from used cooking, vegetable and jatropha oil should not be subject to biodiesel taxes implemented Jan 1st 2009.  The company has yet to pay the taxes, but they may owe back taxes once a ruling is announced with future taxes possibly resulting in negative operating cash flow.  With the Fujian plant accounting for about a 1/3 of total production and revenues, this is a fairly serious issue for the company.

They are currently trying to arrange for workers here to move to other plants and working with suppliers and customers on alternative solutions.  The company is saying it has no idea when the plant will come back online and can’t assure that it will happen soon.  They have indicated they will only return if they are exempt from the tax and/or if biodiesel prices increase sufficiently for positive cash flow.

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