Gevo said it had flipped the switch on the plant, which will produce isobutanol from corn starch, on Wednesday and it expects to ship the first rail cars of the chemical to its customer Sasol around the end of June.

Sasol will use the isobutanol as a feedstock in its chemical products, although the organic compound can also be used as an alternative to gasoline.

Chief Executive Officer Patrick Gruber told Reuters the company would begin production slowly at the new facility located in Luverne, Minnesota and planned to increase output to about 1 million gallons per month around the end of the year.

In addition to the isobutanol sales, Gevo will sell the corn by-products into the animal feed market.

Gevo retrofitted the ethanol plant to use its own yeast and fermentation technology to produce isobutanol. The company is currently engaged in a legal dispute with Butamax, a joint venture of BP Plc and DuPont over the technology.

The company is planning to start another larger facility in Redfield, South Dakota next year.

Investors, who have been wary of shares in the new advanced biofuels makers, welcomed the news pushing its share price up 9.5 percent to $5.86 per share on the Nasdaq.

Analysts have attributed some of that market wariness to the company's plan to raise an estimated $75 million to $100 million around mid-year.

"We still have to raise money this year, and it's question of when we pull that trigger," Gruber said.

(Reporting By Matt Daily; Editing by Leslie Gevirtz)

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