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David Riedel is the founder and President of Riedel Research Group, which provides independent equity research focusing on emerging markets Asia, Latin America, and Europe. Prior to founding this firm, David worked as an analyst at Salomon Smith Barney in New York and Bangkok. While overseas, he... More
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  • American Sands (AMSE) - Unique Play On Oil Sands - Proprietary Technology Provides Cost Advantage
    • American Sands OTCQB:AMSE is a development stage company focused on oil sands deposits in Utah. The company has licensed technology to process oil sands without using any water and at a cost well below competitive approaches.
    • AMSE is raising capital to build out a 5,000 barrel per day facility in Eastern Utah to process sands from mining claims that they own or partly own. The company currently has 150 mn barrels of likely reserves that they control and is confident they could add 500 mn barrels of reserves in the area quite easily.
    • 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 uses no water 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 2015 the plant will be at break-even at oil prices of $45/barrel (WTI crude is currently at $106 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 escape and be 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 uses no water and creates no tailings or other waste that requires containment or permits.
    • Management is very experienced in oil sands and in this region in particular
    • Risks include permitting risk, processing plant scale risks, considerable related party transactions and exposure to a commodity market.
    • The company is currently loss making and has a market cap of $10 mn. The company estimates that their total capital requirements are $70 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 $58.8 mn or $1.56 per share. We believe American Sands is significantly undervalued and represents a unique way to play alternative 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.

    Jul 30 6:57 PM | Link | Comment!
  • Sysorex - A Growing Play On China Cyber-Attacks And Govn't IT Spend

    The headlines provide daily reminders of the growing threat of cyber-attacks on government, business and individuals. The US government is becoming increasingly concerned about state-sponsored cyber-attacks and more often than not the fingers point to China. A recent Pentagon report drives this point home.

    Many of the businesses that will benefit from increased spending on protection from cyber-attacks are part of larger companies. Often earnings (and share prices) at these companies are driven by broader business lines rather than "pure play" exposure to cyber-defense.

    We have been interested in this theme of government spending on IT in general and cyber-security in particular. We believe that a little company with very strong management and a big vision for delivering cyber-security and other IT services to government is an interesting place to find exposure to these trends.

    Sysorex (OTC:SYRX) is a US IT solutions and services company focused on serving government customers. The company has a strategy of acquiring existing profitable companies with unique offerings and intellectual property to fuel growth into these markets largest single spender on IT in the world.

    Federal spending on cyber-security is growing faster than overall IT spend - Industry analysts estimate that the cumulative market value of cyber-security spending will be $65.5 billion (2013 - 2018), with a CAGR of 6.2% over that period.

    Growing focus on cyber security, cloud-based applications, big data/analytics and 'Bring Your Own Device' (BYOD) challenges provides considerable opportunity.

    The current Sysorex management team is repeating a business model that they implemented successfully in the 1990's - building a business with substantial revenue with a focus on providing IT solutions and services to government and enterprise and position the company for sale. In the 1990's the company built a business with $180 mn in revenue and sold it in 1997. This time the company is aiming to build a company with over $200 mn in revenue, considerable intellectual property and high-margin services revenue and create value both through a public listing as well as positioning the company for sale.

    Current multiples in the IT services space for companies with considerable intellectual property indicate that a $100 mn revenue company could represent value of $7.50 - $8.50 per share.

    The company recently acquired Lilien Systems, Inc., a 30 year-old, profitable California-based company that provides IT services and consulting to enterprises. The company had revenue of $43 mn in 2012. The combined company will have revenue of $50 mn in 2013.

    The company is continuing to identify companies and technologies for acquisition that will build the business towards $300 mn in annual revenue. More detail is available in this research report on the company.

    Detractors of the SYRX approach might point to concerns over cutbacks in government spending or the impact of the sequester on spending growth. This is a valid concern for overall spending but we think that the very real threat of cyber-attacks will ensure that spending in this area remains a focus.

    Disclosure: I am long OTC:SYRX.

    Business relationship disclosure: I did write this article and did not receive compensation to write this article. I do have a business relationship with the company mentioned in this article.

    Tags: long-ideas
    Jun 04 9:26 AM | Link | Comment!
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