realrobross'  Instablog

Although it may sound like it was ripped from the pages of an Isaac Asimov novel, asteroid mining could be a huge step forward for mankind. The concept has been around for over a century, with Russian scientist Konstantin Tsiolkovsky first postulating the idea in 1903. At the moment, the trek into the great asteroid-laden unknown is being led by one company -Planetary Resources.

One thing Mr. Tsiolkovsky didn't have was connections, something that Planetary Resources has in droves. With a lineup of investors and board members that includes various Google (NASDAQ: GOOG) executives - including founder and CEO Larry Page and former CEO Eric Schmidt - acclaimed film director James Cameron, former Microsoft (NASDAQ: MSFT) executive Charles Simonyi, and Ross Perot Jr., son of former presidential candidate Ross Perot. Seed funding shouldn't be an issue.

Nor did Tsiolkovsky have the vision. Planetary Resources has a three-step plan, with an aim to mine asteroids for water and precious metals. More specifically, the company intends to create a swarm of robotic spacecraft that can use artificial intelligence to coordinate complex mining operations without a human presence.

The whole thing may seem like a bunch of eccentric billionaires getting together to throw hoards of money at a project with little possibility of success. But it's not. According to the company's president and chief engineer Chris Lewicki, Planetary Resources is already cash-flow positive:

"When we started the company, one of the first things we did was to identify the roadmap that would get us from now until we got to the asteroids. That way, we could identify who would be interested in the things we'd be developing along the way. We already have contracts with NASA, some private companies, and even a few private individuals."

That roadmap starts with the Arkyd series 100, also known as the Leo Space Telescope. By designing and selling this "low-cost" telescope, the company believes it will be able to gain the necessary experience to develop more complex models, while generating cold, hard cash in the meantime.

The Leo Space Telescope is designed to track and analyze the size and orbital patterns of near-Earth asteroids. But, in order to generate cash in the short term, the company plans to point some of the telescopes down at Earth. The satellites will gather vast amounts of data which can then be sold to universities, businesses, and governments. Planetary Resources claims the Leo Space Telescope will be sold on private markets at a price "in the single-digit millions," making the Leo the first private space telescope on the market.

The company plans to build on what it learns during the development and launch of the Leo Telescope to get to the next phase, the Arkyd Series 200 - Interceptor. The new fleet of satellites will have added propulsion capabilities, which will be used to hitch a ride on asteroids crossing through Earth's neighborhood.

According to Planetary Resources, two or more Interceptors can work in tandem to identify, track, and "fly by" near-Earth asteroids, capturing high-resolution data in the process.

The new technology will also create an opportunity for the company to update our deep-space communication network. According to Lewicki, who has experience working on the Mars rover projects, the deep-space communication network currently in use is 50 years old and is based on primitive, Earth-based antennae. To improve upon this, the company seeks to develop small, low-power optical communications technologies to couple with the Interceptor, which would offer better communications than the limited bandwidth available on NASA's network.

The third phase of the project will expand upon the Interceptor design. By augmenting it with deep space laser communication capability, the Arkyd Series 300 - Rendezvous Prospector will allow the characterization of an asteroid's value prior to mining operations, collecting data on the asteroid's shape, rotation, density, and surface and subsurface composition. In short, the satellite will serve as a tool to establish which asteroids hold the most valuable resources and which are the most feasible to mine.

The final phase is to actually mine these asteroids. Planetary Resources claims that the initial space-resource development projects will focus on water-rich asteroids. By focusing on water - which can be used in space for hydration, breathable air, radiation shielding, and formulating rocket fuel - the company hopes to enable large-scale exploration of the solar system.

The company has a few ideas on how the actual mining operations will take place. One advanced technique mentioned by Lewicki is to harness the energy generated by the heat and cold differential on an asteroid; this is generated by sunlight hitting part of the asteroid while the rest is in shadow.. In theory, this should provide the energy needed to extract the targeted resources.

Apart from making science-fiction fans cheer, mining asteroids has many implications for life inside and outside our atmosphere. It could make long-term space travel more feasible, since astronauts would not have to return to Earth to resupply certain essential resources, such as water, gas, oxygen, etc.

Another attractive opportunity is the plethora of rare-earth metals - such as scandium, cerium, and gadolinium - contained in certain near-Earth asteroids. It's speculated that a relatively small, 1.6-km diameter asteroid with the right physical characteristics could contain more than $20 trillion worth of industrial and precious metals. For example, near-Earth asteroid 16 Psyche is believed to contain 1.7x10¹⁹ kg of nickel-iron, which would be enough to supply current world production requirements for several million years. Not too shabby.

Basic economics informs us that doubling or tripling the supply of anything while keeping demand constant will certainly drive down its price. If a Planetary Resources fleet returned from a voyage that increased the amount of gold on Earth by 100 times, the price of gold would certainly plummet.

In step, by extending the reach of potential mining operations to space, Planetary Resources could potentially alter the way we currently conceptualize scarcity. It also has the potential to ruin the company's return on investment.

But Lewicki isn't fazed:

"Of course, it's all about supply and demand, and we're subject to those risks as much as any other company. But if we as engineers had materials that were best for a job and could use those materials all the time without thinking of the costs, it would change the world. It's not about scarcity, it's about access. Fundamentally, that's what we're focused on. We want to take opportunities and deliver value just like any other business. Only our business will extend the economic sphere into the solar system.

Although this could leave some BIG GOLD subscribers shaking in their boots, don't expect any of this to come to fruition any time soon. The company plans on launching its first Leo Space Telescope in 18-24 months, and it will probably be decades before any actual space mining takes place.

Of course, the scientific community is not without skeptics. Former NASA aerospace engineer Louis Friedman says it would take "hundreds of millions of dollars" to get started. This shouldn't be a problem considering Planetary Resource's wealthy stakeholders and friends, not to mention the private sector's ability to innovate and cut costs.

It's also worth noting that upcoming NASA mission OSIRIS-Rex will be engaging in some asteroid mining of its own. The mission's goal is to harvest two ounces of material from an asteroid and return to Earth at a cost of about $1 billion. But we all know how efficient government-funded projects are.

Private versus public arguments aside, there are some other fundamental issues related to asteroid mining. Friedman states that the company would have difficulty transferring raw materials extracted from asteroids back to Earth, given the cost of going in and out of Earth's gravity well. So hang on to your gold.

There's also some competition, although it's taking a different approach. Moon Express, led by Intelius founder Naveen Jain, seeks to mine the moon, and he's already secured a $10-million NASA contract. But, considering the legal wrangling that would be involved with strip-mining the moon, I would be skeptical of the company's outlook.

In my opinion, both are interesting concepts that could have far-reaching implications for us here on Mother Earth. Could this technology allow humans to travel millions of miles into space, harvesting water and other nutrients from asteroids along the way?

The science-fiction fan inside of me sure hopes so.

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

Ever since I booked my first flight to attend a photography seminar at Stanford, I remember my father's advice to avoid getting fleeced on airline tickets: "Always book your flight over a month in advance." Following this adage has helped me save hundreds - if not thousands - of dollars, since most airlines typically raise prices as the departure day looms.

These words of wisdom apply to most travel situations, but the occasional unexpected event - like a death in the family - makes it a maxim with a few limitations.

One of those limitations sprang up this past weekend: after a long battle with heart disease and following a bad fall, my grandfather, Ronald Fox, passed away at the age of 82. As soon as I heard the news, I knew that I would attend the funeral, since Cleveland is a short four-hour drive from Flint, MI. But my sister, who works as a nurse and an actress in Los Angeles, was contemplating whether or not to foot the bill for a plane ticket in excess of $1,000.

In the end, she bit the bullet and bought the cheapest direct flight available on a small carrier called Spirit Airlines (NASDAQ:SAVE). She seemed rather perturbed that the airline had few of the amenities she was used to: instead, she was dinged $30 per carry-on bag, $5 for a boarding pass, and even $3 for a bottle of water. To cap it off, she had nearly no leg room and her seat didn't recline!

Needless to say, she and most of the other passengers spent the red-eye flight from Los Angeles to Detroit with their heads resting against the seat in front of them, as the seat space was too small to rest on the tray table. But even after the fees and uncomfortable ride, she said it was worth it because the flight - which cost her $500 - was less than half the price of competing airlines.

This got me thinking: I wonder how much this airline earns by stripping out all expendable costs and charging for everything from boarding passes to bottled water? Surely Spirit would make a good chunk of sales nickel-and-diming its customers, but would it cover the lost revenue from halved ticket prices?

I'll admit that I severely underestimated the effectiveness of the low-cost model, as Spirit Airlines is actually the most profitable airline in the world. This small, 40-jet airline - which counts Greyhound Lines Inc. as a competitor - has reinvented itself after nearly filing for bankruptcy in 2007. Spirit has found its niche: customers who want to get to their destinations as cheaply as possible.

The big move for Spirit came in 2007. Faced with mounting debt, stagnating sales, and possible bankruptcy, the airline announced that it would now switch its focus to become the airline industry's low-cost leader.

To start, Spirit took away the freebies: no more free drinks or free food. Oh, you want complimentary water? You can buy a bottle for $3. Then it became the first US airline in decades to charge for checked luggage - a move soon copied by other major US carriers - and eventually started charging for carry-on luggage to the tune of $30 to $45 a pop. According to the company, fees for carry-on luggage could surpass $100 later this year, but it'll still allow flyers to store carry-on bags that can fit under their seat for free.

After the success of the checked-bags fee, the airline then started experimenting with other revenue streams: Spirit became the first airline to charge different prices for aisle and window seats, as well as embarking on the first "air billboards" campaign - whereby advertisers pay to put ads on everything from the plane's fuselage to tray tables and overhead bins.

These extra fees and other revenue streams now account for nearly a third of Spirit's sales, compared with an industry average of 6%. On a profit-per-plane basis, Spirit is well ahead of the competition: the low-cost leader generated $2.06 million per plane in 2011, well ahead of number-two Delta Airlines (NYSE:DAL). Only two airlines have earned more than Spirit since 2011: Southwest (NYSE:LUV) at $1 billion with nearly 700 planes; and Alaska Air Group Inc. (NYSE:ALK) at $522 million with 165 planes.

A business strategy professor of mine once said, "If your business model depends solely on offering lower prices, you're going to lose." However, Spirit saw what was happening with low-cost carriers like the Irish Ryanair (NYSE:RYAAY) and Air Asia, and felt that it could offer something similar to the American market.

Spirit's entry into the market couldn't have come at a better time. Skyrocketing unemployment and a slowing global economy pushed consumers to choose the cheapest option possible from everything from food to airline tickets. Even though fewer people would travel by air during this period, if they did and they weren't a business-class customer, Spirit would be a novel alternative.

But this low-cost model has some consequences, both internally and externally. In May 2009, Spirit pilots overwhelmingly (98% of votes) decided to strike due to contractual disputes related to compensation and benefits. Spirit pilots went on strike again in 2010 for similar reasons, and ended the strike with its pilots' compensation in line with industry averages.

On the consumer side, a 2008 Bureau of Transportation Statistics report stated that Spirit had the highest number of complaints per passenger among US airlines that carry more than five million passengers. It was also fined $375,000 in 2009 by the US Department of Transportation for failing to compensate passengers it bumped from an oversold flight. It's also known for having one of the industry's worst on-time performance records.

Even with all the internal and external wrangling, Spirit is trudging on. Since its rebranding in 2007, sales are up nearly 50%, while, as of its most recent filing, Spirit's year-over-year profit rose 20.4%.

So, for those - like my sister - who are willing to accept the tradeoff between losing the typical airline amenities for a fare that runs about half of its competitors, you'd fit right in on one of Spirit's 40 planes.

Just don't get too comfortable… actually, that shouldn't be a problem.

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