In a new strategy to weather the financial credit crisis and build up its cash flow, Alter NRG Corp. (ANRGF.PK) is changing course, putting on the back burner two of the company's main engineering and construction projects, the Bruderheim IGCC power and Fox Creek coal-to-liquid facilities.
Fraser Mackenzie Ltd. analyst John Safrance wrote in a research note:
The projects are very capital intensive and will ultimately require material amounts of debt – something not easily executed given current market conditions.
While it waits for financial markets to stabilize, the company will refocus on making technology sales. In doing so, it will reduce some of the cash drag associated with a 'full-steam ahead' development approach on Bruderheim and Fox Creek.
Mr. Safrance noted that completion of Bruderheim is now delayed from early 2010 to late 2011, while the timeliine of Fox Creek has been pushed out a year and a half to late 2015.
Alter NRG will still spend between the two projects about C$5-million by the end of 2009 to continue the engineering process, pursue government grants and start up a strategic partner selection process. To put that in perspective, Bruderheim alone was expected to eat up C$15-million over the same period before the change in focus.
The analyst lowered his price target on the stock from C$7.15 to C$4.40, but maintained his "strong buy" recommendation.
Trading as high as C$6.75 in May of this year, Alter NRG shares have been decimated in the global sell off over the past few months. So much so that after losing another C$0.10 in trading Wednesday morning, the stock now valued at C$0.90 is trading below Mr. Safrance's estimated cash value for the company of approximately C$56-million or C$1 per share.
Importantly, Mr. Safrance told clients that Alter NRG's existing cash plus its new focus on technology sales to enhance its cash flow position, should be ample to keep the company going until capital markets return to form.
The analyst wrote:
As it realizes additional revenues from customer projects nearing completion, monetizes its existing sales funnel and adds new opportunities, cash burn will likely be minimized. If the previous quarter's results are the status quo looking forward, the company has enough cash to last another six years.
