Seeking Alpha

Ray Dirks'  Instablog

Ray Dirks
Send Message
Ray Dirks has been a respected analyst on Wall Street for decades. Ray has written two books,” The Great Wall Street Scandal” and “Heads You Win, Tails You Win”, published by McGraw-Hill and Bantam Books respectively. Dirks opened his own securities analysis firm after gaining much attention in... More
My blog:
My book:
The Great Wall Street Scandal
View Ray Dirks' Instablogs on:
  • Blue Sphere Gets Equal Ownership Stake In Waste-To-Energy Projects Financed By Caterpillar

    Companies in the global waste-to-energy market earned revenues of $18 billion in 2012 and research firm Frost & Sullivan estimates revenues in the sector will skyrocket to $29 billion by 2016. Driven by the demand for renewable sources of energy and growing mounds of trash in the industrialized world, this is clearly a growth market. Private venture capital and clean tech funds, as well as billion dollar giants like Caterpillar (CAT) are investing. The World Energy Council reported that between 2011 and 2012, the increase of venture capital and private equity investment into the waste-to-energy sector increased by 186% to a total investment of $1 billion. Blue chip players and large VC and hedge fund typically have access to ground floor investment opportunities that would not be available to public investors.

    Blue Sphere (BLSP) an Israel-based energy company builds facilities that turn organic waste into electricity and it offers public investors a rare opportunity to invest in and co-own property with the Caterpillars and private funds of the world. Blue Sphere has just entered the U.S. waste-to-energy market. In 2014 the company will break ground on it first 5.2 megawatt waste-to-energy facility in North Carolina.

    Deep pocked investors are funding the build out of the facility, which already has guaranteed long-term revenue contracts. Caterpillar is providing $17.8 million in project financing. A leading green tech fund is investing an additional $6 million in project financing. This $23.8 million is non-dilutive funding for the public investors of Blue Sphere because the funding comes in the form of project financing that goes directly into the facility build out. It is not money in exchange for Blue Sphere stock.

    Blue Sphere itself does not invest millions into the facility like Caterpillar and the clean tech fund. However, it earned a 36% ownership stake in this first facility in exchange for the world-class expertise it brings to the table as project manager. This North Carolina facility is a model for how Blue Sphere will build out a large portfolio of waste-to-energy facilities across the U.S., all funded by others, with Blue Sphere keeping a growing equity stake in each one. Blue Sphere is already developing its second U.S. facility in Rhode Island and the company reports that by 2018 they plan to have 11 facilities built with 6 more under construction and development.

    This presents a very unique public company situation. Companies typically go public to raise money from public investors in exchange for stock, and then reinvest this money into growing their business, which hopefully increases the value of the company for public investors. Blue Sphere is getting its growth capital not from public investors, but from the likes of Caterpillar and private investment funds. Public investors who become Blue Sphere shareholders in effect become co-owners of the facilities alongside Caterpillar.

    North Carolina is just one project and Blue Sphere is looking to build many more. Building them becomes easier when you have guaranteed long term revenues contracts from some of the largest utility companies in the world. Major utilities including Duke Energy (DUK) and National Grid (NGG) have both signed 15 year contracts to purchase electricity produced by Blue Sphere. In building out the rest of its portfolio of facilities, Blue Sphere plans to have similar financing and contracts from companies of similar caliber.

    The U.S. market is ripe with opportunity now for waste-to-energy. Blue Sphere's focus on converting food waste into energy is a $6 billion global market and one of the fastest growing segments in renewable energy and waste-to-energy. There are only 202 anaerobic facilities where organic waste is turned into electricity in the entire U.S., whereas there are 7,000 in Germany alone. U.S. states are mandating that organic waste no longer be disposed of in landfills and that electric utilities buy a certain percentage of their electricity from renewable generated sources.

    This is an opportunity for investors looking to take a position in the booming waste-to-energy market. Looking at other public companies that are active in the space, Waste Management (WM), the waste industry giant, reports it is engaged in some waste-to-energy projects. However, that only accounts for a small portion of its revenues. Covanta (CVA) has a $2.3 billion market cap and specializes in the conversion of waste to energy. However, Covanta is primarily engaged in solid waste like metal and plastic, not organic food waste. Covanta recently announced in October that through a partnership, it will start to offer organics to waste services in response to demand from municipalities.

    Blue Sphere, with its $2 million market cap has a great opportunity to grow into a $2 billion market cap like Covanta. It is a rare occasion when public investors can participate in this kind of potential upside, starting at the ground level alongside billion dollar players that are providing non-dilutive growth capital.

    Caterpillar, Duke, and National Grid have very likely done extensive due diligence into Blue Sphere before signing these high-value, long term contracts with the company. The fact that Blue Sphere locks in revenues with the largest utilities like Duke and National Grid through long-term power purchase agreements, even before the waste-to-energy facility has broken ground, creates low risk, high return projects, and the enables fast growth of Blue Sphere's portfolio.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Jan 27 11:27 PM | Link | Comment!
  • Pluristem's New Data Proves Potency For Its Clinical Platform

    Readers of journalism, dependent on a daily diet of current news expect objectivity, clarity and at least some degree of intelligence. This did not happen in a recent piece printed in Globes, an Israeli news outlet. The Globes author, Gali Weinreb, made the mistake of trying to interpret upcoming clinical trial information surrounding one of the hottest biotech firms in her nation - Pluristem Therapeutics (PSTI) - who just recently revealed astounding news of efficacy in muscle injury after hip surgery, with their PLX-PAD cells showing 500% improvement over placebo in the change of maximal contraction force of the gluteal muscle.

    From an article posted last Sunday, Ms. Weinreb failed to grasp the important fact that no one in the cell therapy industry but Pluristem can manufacture product at such low cost while keeping up quality and securing regulatory blessing. This will go a long way toward future commercialization. An uncomplimentary comparison between Pluristem and its Australian competitor Mesoblast, Ltd. is not warranted, as Ms. Weinreb likes to think, because in reality the acquisition of stem cells by both companies vastly differs, favoring Pluristem. Their patents for harvesting cells, younger and more vigorous and granted in Mesoblast's own backyard, should result in proof that Pluristem technology is superior.

    Ms. Weinreb then makes the point that Pluristem's early phase muscle injury studies showing non-toxicity are not so critical when in reality they are. And yes, they are "interesting", and then some. Regulators view safety data very carefully. It is essential to continuing along a clinical path.

    Volatility in biotech shares is not a reason to point fingers. Nor is the fact that companies may want to reach out to the public with results of a clinical study. This is what they do. Why Ms. Weinreb cannot grasp that is beyond logic, if she indeed covers her journalistic subjects with any degree of diligence and professional concern.

    Pluristem's CEO, Zami Aberman, had the courage to state that if results of the muscle injury study went south, so would other trials. This did not happen. Efficacy was shown and millions of people will benefit. Contrary to Ms. Weinreb's misguided musings, Pluristem will give to the world not just interesting but also valuable work that has the ability to change the course of medicine.

    Disclosure: I am long PSTI, .

    Jan 21 11:53 PM | Link | Comment!
  • Borneo's Profitable Gold Mining Hedged With Promising Coal Properties Is An Obvious Opportunity

    Borneo Resource Investments Ltd. (OTCQB:BRNE) is a profitable mining company that mines gold and develops producing gold mines as well as coal mining properties in the Republic of Indonesia. Borneo's current assets include three gold properties, two of which are now producing gold, and one coal mining asset.

    In my view and along with my team of security analysts and money managers, Borneo Investment Resources common stock is currently undervalued - as it's under-followed by the investment community due to a combination of three factors. First, in the past few years there has been a general, and in our opinion temporary and soon-to-change, downward sentiment towards gold mining stocks in the market which has left BRNE unnoticed as a new producing miner in the market. Second, in addition to BRNE being a producing and profitable gold miner, it also has coal mining assets that are not yet recognized by the market and therefore are not priced into the stock, while the coal mining assets also serve to reduce and minimize any perceived risk associated with gold. Third, during the 4th quarter of 2013 BRNE has issued some very positive news that has transformed the company and fundamentally increased its value, and because the market has not yet priced this into the stock, BRNE is huge opportunity for investors.

    Currently priced at $0.50 per share on December 30, 2013, RAYDIRKS Research believes investors could benefit from adding BRNE to their portfolios. The 12-month price target for the stock is $3.00 per share based on BRNE's current assets. This price target could go higher if the company acquires additional gold and coal assets.

    I will first lay out the broader trends in gold and coal which create this immediate opportunity for BRNE, a company that has both gold and coal assets.

    During 2013, as the price of gold has gone from about $1700 per ounce to approximately $1200 per ounce, many gold mining stocks have taken a hit. Many investors looking for tax loss selling have seen their gold mining stock as assets to sell, putting further downward pressure on these stocks. The result was an overall down trend in gold mining stocks at the end of 2013. In general gold prices tend to increase when economies are weak because investors look for a safe haven.

    Borneo's timing couldn't be better. It has just started mining gold in June of 2013, and the company's operating expenses are appropriately geared to current gold prices, resulting in profitability for the company in Q3 of 2013, the company's first full quarter of mining. This is in contrast to so many gold miners that geared their operating costs to higher gold prices which neared $2000 per ounce in 2011.

    In contrast to gold, coal, which is used to power 40% of the world's electricity generation, tends to be in higher demand when the economy is on the upswing. Today, as the global economy has recovered from the 2008 recession and the world is seeing stable growth, gold is likely to remain stable or go higher from current levels. Coal, meanwhile is expected to continue to increase in price as global demand, particularly in Asia, namely China and India drive demand. According to a recent report by energy consultancy firm Wood Mackenzie, coal will surpass oil as the key fuel for the global economy by 2020. And where is most of the demand coming from? It's coming from China and India which get much of their coal from Indonesian imports. BRNE's coal asset is ideally located to meet demand.

    Against this backdrop of global economic conditions and the drivers for gold and coal, BRNE has unique attributes and recent news triggers that drive its movement.

    BRNE has made several key announcements during the fourth quarter of 2013 that make it clear this is a mining company with upside, growing cash flows, increasing asset values and potentially set to up-list in 2014. All of these triggers set the stock for significant appreciation in 2014.

    Profitable in Q3 of 2013

    Based on mining just 1 of its 3 gold mines in Q3 of 2013, Borneo is profitable. This is a testament to how effectively the company manages its assets, its efficient operations, and how strategic the company has been in acquiring gold mining properties with surface mining that offer low operating costs. The company just started mining operations in June of 2013. In Q3 of 2013, the first full quarter of mining, BRNE reported revenues of $507,771 and net income of $41,201. I point out that this profitability is based on initial mining at only one property, Talawaan. BRNE reports it expects to significantly increase mining capacity of Talawaan. Add to this the Company has just started mining at its newly acquired mine Ratatotok South in December 2013 and reports it will mine at its third mine, Ratatotok in 2014.

    Brilliant Move by Management to Purchase New Mine: Ratatotok South

    On December 12, 2013, BRNE announced it acquired a producing gold mine for just $250,000. The acquired property, Ratatotok South, is adjacent to the southern border of one of BRNE's other gold mining properties, Ratatotok. Ratatotok South comes with assets including a stockpile of ore on site ready for processing, as well as significant infrastructure and equipment. BRNE reports that the acquisition will further boost its gold production levels, revenues and contribute to gross profits. The ore at this site may produce 99% pure gold and the structure and quality of the ore body on the property means that the extraction process used at Ratatotok South will be significantly less labor intensive and at a lower cost than the extraction method employed at BRNE's Talawaan property, the company reported. With this acquisition, BRNE says it has just reduced its expense and accelerated its timeline for mining at Ratatotok.

    Gold Generates Cash for Investments

    BRNE is now cash flow positive with just one mine. It appears to be set to increase these cash flows and profitability through: a) further increasing mining at Talawaan; b) the addition of mining at Ratatotok South at the end of 2013; and c) adding mining at Ratatotok later in 2014. With cash thrown off from current gold production, BRNE can invest in yet more producing gold mines as well as investing in the development of coal assets which can really produce huge gains in the future. Cash flow also means the company has less need to raise capital from outside sources and new share issuance can be minimized, taking out a large portion of risk for investors.

    Gold Assets Worth More Than $240 Million

    As of December 30, 2013, BRNE owns three gold properties, Talawaan which it began mining in June 2013, Ratatotok South which it began mining in December 2013, and Ratatotok which it plans to mine in 2014. The company current has estimates of gold reserves at Talawaan alone of $240 million. The company has not yet reported what the reserves are at the other two properties. However, $240 million at one mine alone, relative to BRNE's current market cap of just under $40 million seems like a value to us.

    Beyond Gold and Into Coal

    BRNE is building its gold assets while generating cash flows. However, investors looking at the company's gold assets and revenues may easily overlook the fact that the company also has coal assets. BRNE develops 'coal concessions' which means they acquire the coal mining rights to properties. Because coal mining requires larger scale investments, the company has a smart strategy to monetize its coal assets through joint ventures with larger mining companies. BRNE's strategy is to survey properties through geological tests to prove feasibility of mining and then partner with other mining companies to mine and monetize the best properties on a larger scale. Coal is a huge opportunity for the company that is not currently priced into the stock. Buying this stock is like owning an undervalued gold company with huge upside and in addition, having an option on a major coal play.

    Coal Asset Worth $1.5 Billion

    BRNE now has one coal concession which has estimated coal reserves worth $1.5 billion. If this one coal concession alone were moved forward into development and mining, BRNE's current market cap of under $40 million would be dwarfed by the potential worth of the company in the future. Additionally the company reports it has signed letters of intent and memorandums of understanding with more coal concession holders.

    Indonesia: Location, Location, Location

    Both in terms of gold and coal, Indonesia offers huge advantages in location. Indonesia was the 8th largest gold producing nation in 2012, producing 95 metric tons that year. The mines acquired by BRNE are properties where the company can 'surface mine' which means the costs of production are lower than other forms of mining where the gold is not as easy to reach and extract. For coal, Indonesia is a major world player. Indonesia is the world's largest exporter of coal, with $25 Billion exported in 2012. Its geographic proximity to China and India make it the largest exporter of coal to these countries. 77% of China's and 57% of India's economy is powered by thermal coal. The costs of transporting coal are high and therefore the proximity of Indonesia to China and India is a huge advantage.

    Management & Relationships

    BRNE's quick path to profitability based on its first full quarter of mining at just one property is a huge testament to the talent of its management team. My team and I also point out that one key executive, BRNE's Chief Operating Officer and Director, and another of its Directors, are both Indonesian nationals. This is a key. Strong relationships with local asset owners, business people, and the government are very important in any foreign nation. BRNE appears to have solid relationships which create unique opportunities for them in Indonesia. BRNE's CEO has a solid track record in resource financing and experience in Indonesia.

    Look for More Triggers 2014

    Beyond what the company has recently announced in Q4 of 2013, look for these key triggers which may move the stock into the levels of our $3.00 per share 12-month price target.

    Q4 Results - The Company reported profitability in Q3 2013 and they may do it again in Q4 2013 and into the future.

    More Gold Acquisitions - BRNE is actively looking for more acquisition opportunities. More smart buys like the one they just made with Ratatotok South will add further value.

    Developments on Coal Concessions - As gold mining provides more cash flow look for BRNE to make investments in coal concessions that can unlock billion-dollar-plus opportunities for the company.

    Up-listing - BRNE may have the shareholder equity and price to up-list to a major exchange in 2014. Based on BRNE's December 19, 2013 press release, on a pro-forma basis the company had stockholders' equity of $1.9 million for its Q3 ended September 30, 2013. An uplisting would add further value by opening the stock for purchase by numerous institutions that may be restricted from buying the stock now while it's listed on the OTCQB.

    As with any small cap stock, investors should be aware of risks associated with the investment. Risks specific to Borneo include some political risk involved with doing business in a foreign country. Although Indonesia has been business friendly, and numerous major and junior mining companies have done business there for years, doing business in foreign countries carries some degree of risk. Borneo is cash flow positive, however, it may still need to raise money through issuance of stock to fund larger mining projects. Therefore, dilution is a potential risk factor. Two of Borneo's three gold properties are already producing gold, however, there is the risk that gold prices may decline and/or that the estimated gold reserves are less than currently expected.

    This is my initial report on Borneo Investment Resources Ltd., BRNE and I suggest that readers/investors do their due diligence, consult their investment advisers, and then consider taking a position in the common shares of BRNE at current prices for what I believe the possibility of capital appreciation of several times on their investment over the Short Term (6 to 12 months) and over the Long Term (1 to 3 years).

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Tags: BRNE
    Jan 07 12:46 AM | Link | Comment!
Full index of posts »
Latest Followers

StockTalks

More »
Posts by Themes
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.