Applied Minerals: National Distribution Coverage, Ramping Development Heading Into Annual Shareholder Meeting

Dallas Salazar profile picture
Dallas Salazar
5.23K Followers

Summary

  • Applied Minerals has secured national distribution coverage via its third distribution partnership in as many weeks.
  • With the coverage Applied Minerals now appears ready to access a deep roster of verticals that should have financials looking good into 2016 exit.
  • I believe management will follow up recent developments with a comprehensive description of the go-forward strategy at the annual shareholder meeting.

In the least surprising microcap news I've reported in a while - and that's saying something incredible about the turnaround taking place at Applied Minerals (OTCPK:AMNL) - Applied Minerals is out with news that it has secured its third distribution agreement in as many weeks. With its newly inked partnership with KODA Distribution Group, Applied Minerals now has complete domestic distribution coverage and customer base saturation from a geographical standpoint. If you're new to this story, that's an absolutely unbelievable statement considering that just roughly 45 days ago the stock was trading at an all-time low of sixteen cents ($0.16) and the company was appearing as if it was descending into Dante's Inferno. No longer is that the case. At least that's how things are appearing with Applied Minerals having pulled forward years of development in the last 45 days. Let's breakout the most recent announcement and touch a bit on the seemingly night and day changes taking place at the company.

First, what does the KODA partnership do? Well, it does what we've touched on the last few weeks during the running, real-time narrative taking shape at Applied Minerals. As Applied Minerals has been in development fast-forward mode it's been acquiring distribution capacity for the continental US from what has been a "left to right" cadence. Applied Minerals first announced a West Coast to Midwest distribution agreement which was quickly followed by a Midwest to Appalachian-area distribution agreement. I noted in my most recent coverage update that the only gap in coverage was the Eastern Seaboard - especially with density of coverage. I also noted that my guess was that hot-handed new Director of Sales Brian Newsome would be able to secure a distribution partner to cover this region in having had early success dipping into his former-BASF contact list. It appears Newsome was eager to execute. Now, with KODA, Applied Minerals is covered in all regions of the U.S.

But coverage isn't all that the halloysite clay and iron oxide producer adds by fitting the final distribution-puzzle-piece together with its other two. Applied Minerals now has a comprehensive end-market exposure and a comprehensive, collective model overlay in which to leverage. That's going to matter in a big, big way for a company under immense shareholder pressure to deliver revenue growth. To be more specific, with KODA, Horn, and Brandt (its other two distributors) Applied Minerals has CASE (coatings, adhesives, sealants and elastomers), paints, graphic arts, rubber, concrete, construction, personal care, lubricants/metalworking, agriculture, and pharma and urethanes vertical entry. While that list might seem a bit long in description, quite literally every vertical is one in which Applied Minerals could have a substantial market share capture. I would point those new to the story to Applied Minerals investor deck which I think does a great job encapsulating the potential vertical exposure that the company could leverage into meaningful revenue growth. The company just has to execute - something that has been inconsistent at best dating back a decade or so.

But it's in this execution and in the seemingly changed narrative regarding execution at the company that I believe those familiar with investing in microcaps should take a deeper look into Applied Minerals. It's appearing more and more with each new development that the company has finally reached an inflection point of maturation. When coupled with recently announced strategic restructuring initiatives that should have the total cash burn down to manageable levels - levels that won't see the company diluting shareholders to raise capital - Applied Minerals is a compelling microcap. I also have to believe that management will be presenting a comprehensive breakout of full year 2016 product development, market seeding, and monetization roadmaps at the upcoming annual shareholder meeting. That too should act as a catalyst for shares and hopefully for development as it's my guess that management will lay out a clear, accountable milestone-timeline roadmap that will help with overall visibility and shareholder communication - two areas that I've personally heard shareholders opine that could be optimized. Again, this story is really coming together from several directions at once.

Without getting too excited - Applied Minerals does still have its risks (outlined below) - I do think that picking up shares here at this pricing, this cash burn level (based on modeling expectations that factor in execution of strategic restructuring initiatives), and based on what has been a newly-consistent execution could be a way to add "CALL options" on the company's longer-term development. I don't think that's too bad an idea based on the potential of the disruptive "technology" that the company is developing. I view Applied Minerals as a microcap that could deliver multiples from a return standpoint over the next 6-8 quarters. I also view the company as having limited downside risk.

Risks

  • AMNL is a microcap with shares traded Over the Counter, where liquidity is often light. Low liquidity is one of the reasons the stock is so cheap. You can buy the stock well below fair value, but that also means you may have a problem selling at fair value, or at all, in the future. Because of the illiquidity in AMNL shares, you should only enter a position if you won't need the money in the near term.
  • Secondly, there is competition. The overall sector in which AMNL competes is competitive, and substantially, all the competitors in AMNL's space are much better funded, have longer track records of operations, and are in better position to access the credit markets.
  • Third, there is execution risk. If management does try to significantly grow the business and increase market share organically by increasing expenses, the plan could suffer setbacks and the company could be forced to raise capital at inferior terms, if it can raise capital at all.
  • Please take all risks into account when deciding whether or not an investment in AMNL is suitable.

Good luck everybody.

Editor's Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.

This article was written by

Dallas Salazar profile picture
5.23K Followers
Dallas Salazar is the CEO an Austin-based consulting firm that specializes in private company lifecycle management, up to and including taking companies public, and in helping consult publicly traded companies. Mr. Salazar is also a venture investor in a portfolio of energy and commodity startups, including startups extracting oil, natural gas, helium, and carbon dioxide, as well as engaged in the business of large scale carbon sequestration. Mr. Salazar has recently had large exits in Comstock Resources, Eclipse Resources, Torchlight Energy, as well as numerous privately held natural resource and commodity extraction ventures.

Disclosure: I am/we are long AMNL. 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.

Recommended For You

Comments (2)

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.