Yahoo Finance
Filing
Jan. 17, 2020
2019 Q3 Data
Price: $9.00 Shares:1.2m, Cap: $11m
1.Business Information
(1) History
The company was originally called Bioteq environmental technologies. It was found in 1997 by Bradley Marchant and some others. It mainly focuses on wastewater processing for the mining company. In 2000, it IPOed through a reverse merger. For the next 10 years, it had raised over $60m to build main projects in different places globally. However, it went pretty bad with heave losses and some customers withdrew from the contract with the company. In 2011, Jonathan Wilkinson, another major shareholder replaced Brad as CEO for a brief time. He wasn't able to turn things around.
In early 2014, the company brought back its formal CTO David Kratochvil as the new CEO and elected Peter Gleeson as executive chairman. From 2014 to 2019, they worked together and gradually improved the business. The company exited many problematic projects and leave only 2 major projects which both generate recurring revenue. Also, it was able to cut costs through the years. Lately, they started new projects again intending to generate recurring revenue.
(2) Major business.
Bioteq-JCC joint venture:
JCC is the largest copper mine in China with a $40B annual revenue. JCC and Bioteq formed a joint venture which both owns 50% in 2006. The first water processing plant was starting operation since 2008. The plant generates copper from raw material that contains less than 0.3% of copper. Gradually it built 3 other plants. In 2010, it generates over $3.2m proportion revenue for Bioteq and $1.3m in income. From 2010 to 2018, the joint venture generated $6.4 profit for the company and distributed $6.9m cash to the company.
It seems the profit of the JCC joint venture is highly attached to the copper price. For the last 20 years, copper prices fluctuated quite a bit. From 2006 to now, it was traded between $2/lb to $4/lb with an average of around $3. The JCC Joint venture was profitable since 2010. When the copper price is below $2.5/lb in 2015 and 2016, the company was barely profitable. When it is trading around $2.8/lb, it generates over $1m profit for the company. Currently, it is around $2.8/lb.
Raglan mine project:
Mining water processing project for Glencore Canada. Starting operation since 2003. Mainly to reduce nickel and other metal before discharge. It usually processing close to 1m cubic meters of water/year. The company generates recurring service revenue based on water quantity. The revenue has been pretty stable over the years. The current operating contract will expire at the end of 2020.
(3) Debt and Credit Facility.
As of Q3 2019, no debt and $1m in cash $3m cash in China joint venture. As stated in the Q3 statement, it has received the 2019 distribution from China in Nov. I guess it should be over $1m.
(4) Industry comparison.
(5) Major events
2. Management
(1) Key person
David Kratochvil:
David was with the company since 2001. Beginning as manager of engineering. Later promoted to COO in 2008. In July 2011, with the retirement of Bradley Marchant, he assumed the CEO role briefly until Oct. 2011, when Jonathan Wilkinson was selected as the new CEO instead of him. Soon in Feb. 2012, David's title was changed from COO to CTO. In Oct. 2013, he left the company but soon was back in Mar 2014 as intern-CEO. At the same time, Jonathan stepped down from the CEO role. It seems had quite some stories there.
David has a chemical education background and is a doctor of philosophy.
(2) Insider ownership & Compensation
David Kratochvil : 13k shares +14k options. 2018 compensation $280k.
Peter Gleeson: 44k shares +6k options. 2018 compensation $144k.
3. Financial data.
4. Valuation and comments
(1) The JCC joint venture is its main cash generator. Currently, it is expected to generate over $1m/year in profit. That alone would put the company $12m to $15m in value. Also, it seems more stable and profitable than in the early year.
(2) Besides the JCC joint venture, the company has clearly shown improvement in cost control which should be close to profitable in 2019. It was able to do so with overall the downturn of the mining industry since 2015.
(3) Currently, the company should have 2m in cash and other 2m cash in JCC joint venture. There are several ongoing projects which are likely been able to fuel future growth if doing correctly.
5. Risk
(1)The profitability of the JCC joint venture is highly attached to copper prices. It was estimated that when the copper price dropped by 10%, it will affect the company's before-tax income around $550k.
(2) The mining industry has been suffered a downturn for the past several years. It is a very circular industry that is very unpredictable.
Overall, the current management did a great job of turning around the company for the last 6 years. Also, there is a very high growth potential. The current price is quite cheap as just the fair value of the JCC joint venture while the rest is valued as zero. Although not making money yet. It is very likely to be able to do well in the near future.
7.Links
https://www.youtube.com/watch?v=Ec5Q6cvrWHI
http://wsw.com/webcast/gateway/bqe.v/index.aspx
