China Clean Energy: Meeting Deadlines Is Not Necessarily Good

After briefly touching $2.81 last November, China Clean Energy (CCGY.OB) has now lost almost 75% of its value, trading at approx. $0.75 per share currently. This is a sorry tale and has less to do with the management of the company than with where commodity prices are headed. After all, if it is no longer viable to profitably make biodiesel, then a great part of the reason why CCGY exists goes out of the window.

But that is not the whole story. As touched upon in a previous entry on the company, we are still waiting for clarification from management as to how they plan to convert the still-being-built biodiesel facilities in Jiangyin for the manufacture of other chemicals. This has never been clear to me and CCGY never supplied details. And while the company insisted that production will start on January 1st, 2009 (as promised), what exactly is being manufactured? Will there be additional costs in re-outfitting the site? How does the company expect to line up customers for these chemicals if they still don't know what they're making?

It is important to note that the date of 1/1/09 is just six months away, and indeed, it is part of the make-good provision for which CCGY insiders had set aside 1.5 million shares to the investors (in a PIPE deal) for putting money into Jiangyin. My question is: is sticking to the date ultimately a win-win for management and the PIPE investors? Even if it is, by rushing to complete the build-out of Jiangyu, are we focusing on short-term goals and forgetting the long-term strategy (whatever that may be) of CCGY? Is this ultimately good for CCGY's investors? I don't really think so.

After all, business conditions have changed dramatically, and management need to respond. Perhaps CCGY should renegotiate with the PIPE investors to vary the make-good provisions, and these investors should be smart enough to focus on the long term.

The worst case scenario here is if the facilities are completed on time (so that the insiders don't lose their 1.5 million shares), but there is no proper plan of action as to how Jiangyin should be run. This could really derail the company. I hope that doesn't happen.

My Position: None.

Comments

[Jerry Dill]

This company is doomed. Nothing is falling in their lap and they need something short of a miracle to keep the boat afloat.