American Sands - Undervalued Play On Unconventional Energy In Utah

May.29.14 | About: American Sands (AMSE)


American Sands - Unique Unconventional Oil Play in Utah.

Water-free processing eliminates environmental concerns. Permit application submitted and likely to be approved.

Reserves support 20 - 30 years of production.Shares worth $1.92 (more than triple current price).

American Sands (OTCPK:AMSE) is a development stage company focused on unconventional oil deposits in Utah. The company has a water-free technology to process oil sands at a cost well below competitive approaches.

The company recently filed their mining permit application which is an important accomplishment. We expect that the permit will be issued later this year and investors will reward this important milestone with a higher valuation.

AMSE is raising capital to build out a 5,000 barrel per day facility in Central Utah to process oil sands from leases they have acquired. The company currently has 150 mn barrels of likely reserves that they control and is confident they can add 500 mn barrels of reserves in the area.

The company has licensed technology from Universal Oil Recovery Corp, which has a proprietary solvent and process that allows for a very clean, low energy process that is water-free and results in no emissions or waste products.

The technology has been tested on a pilot plant for the past two years and has proven to work efficiently.

Once up and running in 2016 the plant will be at break-even at oil prices of $45/barrel (WTI crude is currently at $101 per barrel).

The company's unique process mixes a proprietary solvent with the oil sands that separates the oil (in the form of bitumen) from the sand. The sand is then re-heated allowing the solvent to be recaptured and recycled for reuse.

The process results in clean dry sand, that can be sold or used in mining operations, and bitumen, which can be used as is in road paving operations or processed into other products.

·AMSE's process is water-free and creates no tailings or other waste that require containment or disposal permits. This is a critical reason that we expect AMSE's permit to be approved.

Management is very experienced in oil sands and in this region in particular.

As with all such energy projects the investment is exposed to commodity price fluctuation.

The company is currently loss making and has a market cap of $18 mn. The company estimates that their total capital requirements are $75 mn to put all of their properties into production. We have estimated the company's value using three popular methods for valuing development stage oil companies. Averaging these three estimates and adjusting for CAPEX and time to reach production provides a value of $95 mn or $1.92 per share. We believe American Sands is significantly undervalued and represents a unique way to play unconventional energy sources in the US.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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