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SoundView conducts research and analysis on emerging technologies and companies for investors. The director of research, Kris Tuttle, has over 32 years of hands-on work in technology, business and markets. Early in his career Kris was an AI researcher at Carnegie Mellon University and spent 8... More
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  • The Insiders Are Perfect On Innodata Stock

    First of all anyone interested in this story has to read an excellent analysis right here: Innodata - Cheap and Forgotten. The article is bullish but lays out both sides of the case completely.

    The first thing I looked at was the long-term history of this INOD stock and the management team. For a decade there have been a few periods of excitement and higher prices, followed by a lack of results and share prices back in the trough.

    (click to enlarge)

    But rather than just relegate the name to the watch list and move on I pinged an insider share service (Insidercow) and was very surprised at all the insider buying. Going further the insiders have had an uncanny history of timing their purchases and sales very well. As the table below boldly shows they've taken millions off the table very deftly near peaks and bought back in after.

    (click to enlarge)

    The transaction detail behind this summary are available in a Google spreadsheet here. We did eliminate two small transactions in the recent period from one insider who did a sell and a buy.

    It's also important to note that management actually didn't sell on the 2012 spike. Either they didn't get the chance or were genuinely surprised. They did add to positions post the 2012 spike though.

    So in view of this track record and the analysis already provided I'd say it tips the scales in favor of a long here. Management may still disappoint and they are not ones to rush but history suggests that recent (heavier) insider buying. Essentially management doubled down post the 2012 drop and probably expect $6-$7 prices to be achieved again.

    We're not long now and see the stock today has given back the gains it received yesterday on the bullish article. But our inclination now is to take a chance on this one.

    Tags: INOD, long-ideas
    Jan 30 2:31 PM | Link | Comment!
  • An Emerging Growth Company In Cloud Security

    It's only been seven months since we first started covering Viscount Systems (VSYS) but things have moved quickly as seemingly everyone is waking up to the inevitability of using the cloud, software and mobile devices to replace old approaches to handling access control specifically, and physical security in general. This is a major shift in the security segment and one that is at a very early stage of evolution, with Viscount leading the way.

    Viscount stock has performed well since our initial report (up 60%) but still well below our near-term IV (Intrinsic Value) estimate of $0.26. Reported results have remained on track in terms of expanded distribution, ramped up channel partners and large pipeline of new business to close. The company recently attracted an additional direct investment of $675K via a private placement at the current valuation to accelerate their plans.

    Viscount has had success in cultivating a relationship with Microsoft (MSFT), and is now partnered with the Microsoft Global Security Operations Center, which handles security for all of Microsoft's facilities and people around the globe - encompassing 700 sites worldwide with 183,000 active personal access control accounts. Viscount's Freedom access control technology is now deployed in a facility at the Microsoft Redmond, WA campus. For more information click

    Viscount recently announced new contracts for Freedom with a diverse set of end users, including the U.S. Government, school districts, financial institutions and real estate properties. These wins not only demonstrate Viscount's compelling value proposition, but also a "dual use" market opportunity in the government and private sector.

    The market for security software is developing faster than we thought a few months ago. Investors have recognized the need for "next generation" IT security software technologies like those from Imperva (IMPV) and Palo Alto Networks (PANW) but there is a similar set of developments around people and access control as well.

    Near-term business trends are encouraging. Here are a few snippets we pulled out of the company conference call in March discussing 2012 results and progress in 2013:

    · The company has a pipeline of new business opportunities of over $12M, which means that substantive YoY growth depends only upon their ability to execute and close business.

    · The company is expanding their sales force and opening strategic field offices in North America with the first now up and running in Washington, DC. Channel partners are being brought on board. Recent financing is boosting their sales and channel expansion.

    · Viscount is maintaining a strong edge over competition with no losses of business to competitors so far in the expanding sales process. Their technology solution is unique compared to what the other large vendors are offering.

    · Technology leadership is being actively protected with an active IP development program. Viscount has filed 60 patent claims in the past two years and is adding more to ensure that the innovations they have brought to market will not be adopted without returns to shareholders.

    Viscount is the only public investment vehicle in this space and has the potential to reward investors with large returns. The shares are trading at less than half of our base case intrinsic value (IV) estimate of $0.26. Based on the potential acceleration of adoption led by companies like Microsoft we would reach an IV of $0.84 in one year.

    We encourage investors to refer to our full original report for more background and the IV model.

    About Viscount Systems

    Viscount Systems Inc., designs unified IT and physical security software platforms for building security and emergency planning. Recent awards include the 2012 Microsoft "Be What's Next" award, SIA Convergence Solution of the Year 2011 and Homeland Security Platinum Award for Emergency Response and Gold Award for Access Control at GOVSEC 2011.

    About Viscount's Freedom Encryption Bridge Solution

    Freedom Encryption Bridge is the first and only access control system that allows entry devices (ID cards, RFID readers, biometrics etc.) to be connected to standard building IT networks without requiring expensive control panels that are programmed from a PC. Freedom changes the paradigm of IT friendly access control. It eliminates up to 80% of the cost of traditional systems that require the installation of control panels. And, it utilizes existing logical IT security software (LDAP) to replace both the control panel component and the software component of traditional systems. Freedom drastically reduces system costs while providing a much more secure software solution.

    Jul 03 8:52 AM | Link | Comment!
  • White Mountain Will Be The New King Of Titanium

    Capsule Summary

    White Mountain (OTCQB:WMTM) is developing a unique, very high value titanium asset that will emerge as one of the largest and highest grade sources over the next few years. They are also testing and commercializing a new refining process for titanium that could accelerate overall demand for the metal; the Cerro Blanco project has access to the patented Chinuka process. Using conservative price and cost assumptions our intrinsic value estimate for WMTM is $2.28/share. Due to the step function in future production volumes and profitability in subsequent years, a price target to just over $5 by 2015 is possible. These figures don't include the potential of their new titanium technology process.


    Titanium (NYSE:TI) is a vital metal element that is used for TiO2, or "the white," in everything from paint to paper. In addition, Ti metal is increasingly being used in industrial and aerospace applications since it has the best strength to weight ratio of any metal and doesn't corrode. Titanium is relatively expensive, though, since high-grade forms are not in abundance and the refining process is inefficient. Demand for Ti and TiO2 will keep growing and will even accelerate if the refining process can be improved.

    White Mountain Titanium Corporation (OTCQB:WMTM) has two advantages in this market:

    1. Ownership of what will be one of the world's largest (165 mm tonnes) and highest grade deposits of natural rutile for the production of both Ti metal and TiO2 that, when fully developed, would generate at least 100,000 tonnes per year for up to 20 years.
    2. Exclusive rights to a patented new method of producing Ti metal that could dramatically lower costs versus the current 80-year-old "Kroll" process. This so-called "Chinuka" initiative is in the process of moving from the halls of academia to commercial development.

    Realizing the value of the mine (Cerro Blanco) will be the main driver of enterprise value over the next few years, but behind that is the potential for the Chinuka technology to generate additional substantial returns for WMTM shareholders over the long-term.

    Investors have a well-established, publicly-traded comparable company in Sierra Rutile (LSEAIM:SRX) which owns what is currently the largest natural rutile operating mine and generates $180M in revenue and $83M in net income. Their valuation of just under $500M is discounted in part because they are based in Sierra Leone, which is perceived by some investors as a risky base of operations. WMTM will be very similar to Sierra Rutile in a few years with some additional advantages, especially in terms of location.

    White Mountain has been actively developing this property since 2004 and is now at the point where the potential can begin to be realized as upcoming milestones are achieved. For example, we expect the submitted Environmental Impact Study (NYSEARCA:EIS) to be approved this year, additional infill drilling to expand mine life from 7 years to over 20, the initiation and completion of the Bankable Feasibility Study (NYSE:BFS), new financing resources and partners and even demonstrated improvements and new initiatives around the Chinuka process.

    Led by an experienced management team, the company has made significant progress over the past decade since it was founded. That said, there is much work to be done on both the operational and financing side in the year ahead - work that is key to create a strong foundation for commercialization of the titanium mine asset and continued development of the Chinuka's metal processing technology.

    Surveying the titanium landscape and underlying fundamentals of WMTM, we see the potential for significant value creation in the near future. The successful achievement of key milestones in the next 6-12 months would put White Mountain Titanium in a position to become one of the world's leading rutile producers, with a market capitalization rivaling Sierra Rutile's $400 mm value today.

    The Mine and the Market

    White Mountain is a development stage titanium company that was formed in 2003 and became a publicly traded stock via reverse merger the following year. The company's main strategic asset is the Cerro Blanco Project in southern Chile, which ranks among the largest natural rutile deposits in the world. Chile ranks high in the world as a mining-friendly jurisdiction due to its relative political and economic stability.

    Geological research and drilling activity associated with the Cerro Blanco Project thus far has been concentrated in the Las Carolinas area. At Las Carolinas, the company has identified 165m tonnes of total resource with some 33m tonnes @ 2.1% TiO2 measured and indicated resource. This amount is sufficient for a mine life of 6-7 years producing an estimated 120,000 tonnes/year.

    One of the key attributes of WMTM's Cerro Blanco Project - an attribute that deserves wide appreciation by prospective strategic partners and investors - is the nature of the titanium. Los Carolinas is not your typical titanium property. It is rife with rutile, a pure form of titanium that is the highest-grade feedstock used for the production of TiO2 and titanium metal. Of the total supply of titanium feedstock today, less than 10% comes from rutile. Rutile is the preferred feedstock for environmental and production reasons. Cerro Blanco's rutile will be used in chloride pigment processing technology, as opposed to the less environmentally friendly sulfate processing that is used with lower grade ilmenite.

    The lion's share of TiO2 feedstock today comes from ilmenite, which is a combination of iron and titanium (i.e., FeTiO3). The process of extracting the iron from the ilmenite to create synthetic TiO2, is very power intensive, and therefore elevates the cost of production of this feedstock before it can be used in the pigment production process. While more abundant, the impurity of ilmenite presents economic challenges not associated with rutile. WMTM's Chinuka technology has the potential to play a role in being able to accept lower grades of feedstock - a subject we will have more to say on below.

    Titanium is $18 bn industry today, with pigment accounting for two-thirds ($12 bn) and titanium metal the other third ($6 bn). Other primary uses include feedstock for plastics, printing inks, cosmetics, welding flux, pharmaceuticals, food additives, and catalysts. Titanium metal has become a bigger part of the construction of jumbo airliners today. Some 15% of Boeing's Dreamliner aircraft is made with titanium metal, compared to only 5% in Boeing's 767 jet.

    Overall demand for titanium in all forms has been growing at a rate of 7% per annum, with that pace of growth expected to continue in the foreseeable future. The housing recovery in the U.S. is a positive factor in the outlook for feedstock used for pigment. Additionally, there is strong underlying demand for high-grade feedstock from downstream producers such as DuPont, Tronox, and Huntsman who have or are migrating to chloride processing for cost efficiencies and environment reasons.

    In terms of supply there are several key factors that are likely to keep conditions firm relative to demand. These include long supply response, limited near-term expansion potential and limited material rutile expansion. The production of rutile entails long development times and sizable financing requirements. In terms of near term supply, Sierra Rutile is the only producing asset capable of significant expansion potential along with WMTM.

    Rutile prices have more than doubled over the past several years, from $500/tonne to around $1,200/tonne in 2011 to recently reported contract prices of $2,500/tonne or higher. The medium-to-long term outlook for rutile remains robust due to growing demand. That said, we would not be surprised to see some softening in rutile prices back toward a $1600/tonne level or even lower in the months ahead. Recent softness in rutile prices reflects increased availability of cheaper pigment from Asia as well as destocking by downstream producers. The destocking process will eventually run its course and demand is likely to firm again as downstream producers restock. In our valuation work below, we assume rutile contract prices of $1,200/tonne, which is well below current analyst forecasts of $1,700-$2,000/tonne we have seen in other research.

    Key Milestones Ahead

    WMTM has spent the past decade laying the foundation to become one of the world's leading titanium feesdstock producers, achieving key milestones along the way. In the next 6-12 months, WMTM has an opportunity to hurdle two major milestones that would pave the way for building out the requisite production facilities and capacity to commence production of TiO2.

    The first is an epic Environmental Impact Study . The study is required by the Chilean regulatory authorities prior to development of the WMTM property. Feedback to date from the authorities on the EIS has been positive. The company expects regulatory approval by the end of 2013.

    Successful completion of the EIS paves the way for the next major milestone - completing a Bankable Feasible Study . WMTM is seeking to complete the BFS by no later than the first half of 2014. Completion of the BFS clears the way for project financing that would give WMTM the requisite capital to begin the mining and development process. If all goes as planned the company would be shipping titanium in 2016.

    Assuming the BFS confirms the figures outlined above the basic math demonstrates that there is a great deal of potential value in WMTM not reflected in the company's market capitalization today. The Cerro Blanco Project has the potential to churn out a substantial amount of rutile during its lifetime. Based on current projections from management, rutile production from Los Carolinas will average 100,000 tonnes per annum (100 Ktpa) over the first seven years following commencement of production. Assuming a conservative average rutile contact price of $1,200 tonne, Cerro Blanco has the potential to generate an average of $120 mm in revenue per annum for WMTM.

    WMTM has signed two off-take agreements with international pigment producers and five signed letters of intent with other parties. Given the company's planned production schedule for rutile, there is the potential for many more off-take agreements in the months ahead.

    There are other revenue generating prospects associated with the WMTM property in Chile that increase the attractiveness as an investment opportunity. These include the identification of additional rutile target areas (Hippo Ear, Algodon, Quartz Creek, and Chascones). Early geological research in these areas has given management reason to believe that there could be large amounts of additional rutile far beyond the 165 mm tonnes identified with Los Carolinas. Further geological work is required to more accurately assess the full potential of the WMTM property, of which management has indicated plans to pursue in the future. Furthermore, the Company has recently announced the discovery of a new, Cerro Blanco-sized prospect, La Martina, which is less than 10 miles south from the existing facilities.

    Additionally, WMTM is planning on selling feldspar - a by-product of the rutile recovery - with potential to enter production of titanium sponge at some stage down the road. There are also plans to build and operate a water plant nearby to facilitate titanium production. There is a shortage of water in the area and WMTM's water plant will have the potential to generate far more than it will need for production of titanium. Taken together, the sale of feldspar and water could amount to another $10-$20 mm of revenue annually. Factoring in titanium sponge sales would increase the revenue generation potential of WMTM even further.

    Chinuka Titanium Refining Process Innovation

    White Mountain's titanium mine in Chile is one of the company's two strategic assets. The other asset is a technology called the Chinuka Process. World-renowned metallurgist Derek Fray, who is the Director of Research and Emeritus Professor of Materials Chemistry at the University of Cambridge, developed and patented the Chinuka technology in 2005. The Chinuka Process is an advanced electrochemical technology that allows impure metal oxides to be reduced and electro-refined to high purity metals in a single process.

    Professor Fray and WMTM see Chinuka as having the potential to become a disruptive titanium purification technology, challenging the conventional 80-year old Kroll process. The Kroll process is a complex, multistage batch process that requires very high heat and specialized equipment. Chinuka is a simpler, more cost-effective process that would enable the use of cheaper feedstock and simple refining technology, thereby expanding the reach of titanium-based applications and the overall market for titanium products.

    WMTM has an exclusive license agreement for the use of the Chinuka Process. During the past several years, the company has sponsored research on the technology for possible application to its Cerro Blanco project. Initial work has focused on refining natural rutile concentrates derived from the Las Carolina prospect. Results to date in Chile have been encouraging, giving WMTM several other commercial options to consider going forward.

    Professor Fray and WMTM are exploring additional commercial options this year by expanding the focus of the Chinuka Process for possible application to other metal oxides. Additionally, further testing at Cambridge will be performed on titanium ores and/or concentrates which are considered to have little if any economic value as feedstock for paints and pigments, due either to particle size or inherent impurities.

    Gauging the commercial feasibility of Chinuka for WMTM at this juncture is difficult. The timing of commercialization seems propitious. It is noteworthy that DARPA unveiled a Titanium Initiative last year focused on driving down production costs of titanium to clear the way for its widespread use in construction of U.S. Department of Defense (NYSEARCA:DOD) platforms. The DoD has long recognized titanium as a superior material for components of military systems due to its high strength, excellent corrosion resistance and good ballistic characteristics. The DARPA Titanium Initiative strives to produce titanium ore at less than $4 per pound in unmelted billet form. Whether Chinuka could help meet the DoD's goal is unclear, but its Titanium Initiative does make clear there is demand for such a technology.

    More generally, the Chinuka Process is capturing interest in the academic world. Last year Dr. Daniel Jewell, main post-Doctoral researcher from Chinuka, won the Best Paper Prize at Titanium 2012 in Atlanta, Georgia for his paper "The Chinuka Process: Electroextraction-refining.1" Also notable is growing interest in Chinuka from corporations, which further expands potential commercial options down the road for WMTM with the technology.

    Given the still relatively early stage of the research and development, it is difficult to assess the future value of Chinuka at the present time. At this point, the technology is probably best viewed by investors as a free out-of-the-money call option on White Mountain's stock. We plan on doing more in-depth analysis of the Chinuka Process in the future to better assess its disruptive potential, commercial viability and intrinsic value.


    We have put together a base case intrinsic valuation (IV) model for WMTM based on our best current expectations for the production ramp over the next several years. We expect that the asset will prove to offer additional reserves for longer and expanded rates of production and will reflect more of that in our model once the BFS is complete.

    This model also leaves out any quantification of the potential from Chinuka. We will revisit that as the possibility of commercial scale operations is better defined.

    We've used lower-than-expected prices for rutile and kept production volumes within the limits of current reserves. We expect that additional testing and exploration will add to the amount of indicated deposits. This will add further to the asset value.

    WMTM will use traditional project financing for the development of Cerro Blanco. We've built the debt and interest cost into the model starting in 2015 and assumed a 10% interest rate. Our estimates for SG&A are based on existing financials of comparable companies at scale like Sierra Rutile. We're assuming a 20% tax rate and a P/E multiple of 10x.

    In addition to rutile production WMTM will be able to generate some ancillary revenue streams by selling off the mining byproduct feldspar and their excess water. We've factored in about 80% of that opportunity into the model.

    Using the IV model for a mining company is valid but one aspect of applying it to a developing mine is that there are step functions in valuation that are tied to higher production volumes. In the case of WMTM the current IV of $2.28 is already 3x the current stock price. As production ramps up and cash balances grow the IV takes a major leap in 2015 to over $5/share.

    Because we expect WMTM to raise some additional equity financing to fund the completion of the BFS we have factored in a fair amount of dilution. Management is keenly focused on achieving the next two big milestones - final acceptance of the EIS and completion of the BFS - on time and on budget. Success with these two milestones in the months ahead creates the foundation for a favorable dynamic that should begin to more fairly reflect the valuation potential of WMTM.

    There is much work to be done in the year ahead to get WMTM in a position to begin supplying the market with high-grade rutile and commercializing the Chinuka Process technology. The current share price is at a substantial discount to our own IV estimates for the company based on the existing reserves and production plans - both of which we expect to expand further.

    We think investors should think about WMTM as offering venture-type returns for patient money. At current prices investors would see a 5x+ return by 2015 if the company stays on their current track to deliver.

    Although we wouldn't ever forecast it or expect it, as the proven potential production of the property expands it will attract the interest of larger players in the mining business that might be willing to put a deal together to purchase the assets in the ground. Sometimes it's more productive to "dig on the floor of the stock exchange" rather than out in the mountains of the Chilean desert.

    It is not uncommon for developmental stage companies to encounter investor skepticism at various points in time. Our experience in following and analyzing emerging companies shows that a high level of operational execution by management is one of the keys to success. WMTM's management team has taken the company a long way over the past decade. There is a great deal of experience and leadership at WMTM today. As the company continues to grow and mature, we expect to see additional executive and operational talent added to complement and augment the existing staff.

    Due to massive industry consolidation investors in the metals and resources area don't see many small companies with high growth prospects and technology innovation. Most of the smaller companies have been "rolled up" in to the likes of Freeport (NYSE:FCX), Rio Tinto (NYSE:RIO) or even a Precision Castparts (NYSE:PCP).

    Management Team

    As shown below the management team of the company has been on board for many years and each member has substantial, in many cases more than three decades, of related experience. The exhibit here provides some highlights for the current team.

    Investors today are getting the benefit of the past eight years of continuous investment and effort in developing this asset without paying a premium (at least at current stock prices.)

    In addition to the corporate management team WMTM has an experienced engineering management team which is essential to efforts like the EIS and the BFS. This part of the team is shown below.

    1 See

    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 (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    Tags: PCP, RIO, SRX, FCX, long-ideas
    Jun 13 7:08 AM | Link | Comment!
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