Usually I avoid penny stocks. If an investment is sound, what's it doing priced below $1/share?
There are lots of bad reasons for this. A company could be a classic "pump and dump," a scam run by someone who will publicize a "discovery," get the price up, then dump their own insider shares for a fast profit. Penny stocks live in a sort of investment purgatory, many of them based in Canada, with investment advisors who are sketchy at best.
The stock presently trades near 70 cents/share. That price looks solid, given that $2.5 million has just been placed in the company, with investors holding shares at that price and warrants offering additional shares at CD$1 each.
American Vanadium has spent most of its corporate life blowing through cash, as its December 2012 and March 2013 statements show. Most of the managers are old mining hands, with the exception of President Bill Radvak, although Radvak also claims a mining degree.
Radvak's bio on the company Web site says he raised $50 million for Response Biomedical, a Toronto stock (TSE: RBM) which last traded at C$2.30/share. Response makes diagnostics tests for clinical and environmental applications. The company is presently worth $15.4 million and seems to average $3 million in revenue each year.
Radvak has been busy talking up American Vanadium to anyone who would listen. Here he is with a contributor to TheStreet, here he is blogging at The HuffingtonPost, and here he is making an InvestmentPitch printed at Reuters' site.
American Vanadium sells what it calls a "vanadium redox" battery, dubbed the CellCube, made by a German outfit called Gildemeister, which can scale its storage and power levels independently, an important advantage in this market. More important for investors, American Vanadium has a mining operation in Nevada, the Gibellini Prospect, which leaches the metal out of of ore and could become the world's low-cost producer, although it presently has just 5% of the world's output.
There are other vanadium redox makers other than Gildemeister, like Prudent Energy, which was also profiled by the IEEE. If the capabilities of these batteries are proven, it could dramatically hike the demand for vanadium, and thus the value of American Vanadium's mine.
Now here is the thing. I've studied renewable energy extensively over the last few years. They're right. Vanadium does have unique properties. Grid storage is an immense opportunity, with a ready business model. There is huge untapped demand, and maybe vanadium can tap it.
This is a sweet spot in the smart grid market. For every Gigawatt of energy throughput, the Department of Energy figures it really needs 200 Megawatts of storage, both to handle renewable energy inputs and to deliver cleaner, more reliable power to computers. The DoE estimates that outages cost customers $79 billion/year, in a $250 billion market, and the agency has been tweaking its rules, most recently in the form of FERC 890, to make certain storage has a business model. The market potential in 2014 has been estimated at $5 billion in 2014.
So you have a company worth $22 million, with an inside track at an opportunity that will be worth $5 billion next year, and should grow quickly from there.
If it can tap this market in a meaningful way American Vanadium skyrockets in value. The company has hired Scarsdale Equities as its investment advisor, a sort of Broadway Danny Rose among investment bankers with a half-dozen other clients, all of them penny stocks. But I could find no obvious ties to crooks or fraudsters or criminal records of financial crimes when looking at this company, just a guy who thinks he can make a market in a metal, with assets in place to take advantage of it, and a serious shot at doing just that.
Want to take a flyer?
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.