The ad I’m looking at today is from Jimmy Mengel, who we last covered when he was touting the “IRM(72) Retirement Plan” a few months ago — his The Crow’s Nest newsletter has been around for a year or so, touting a wide variety of things from the “next Warren Buffett” (Loews, which hasn’t worked out well thanks to the collapse at their subsidiaries Diamond Offshore and Boardwalk Pipeline) to uranium to silver… which, now that I look at that list, means his teaser picks have had a pretty rough year.
Now, that doesn’t mean the newsletter has necessarily done badly — we just go by the teaser pitches we see and respond to, we don’t know when he might have suggested buys or sells to his actual subscribers. And to be fair, he wasn’t the only one who was convinced that silver and uranium were ready to catch fire last Fall, those were probably near-consensus opinions among the hard-asset newsletter pundits — and uranium has at least recovered from its Spring and Summer swoon to get back to where it was a year ago.
So what’s he teasing now? His widely distributed ad pitches something he calls the “God Complex” — a place “hidden among the farms and fields of America’s heartland” … here’s how he gets the juices flowing:
“On the 2nd floor of… America’s ‘God Complex’
“A small team of scientists takes only three days…
“to create what takes nature 300 million years!
“The result is a $3 TRILLION technology
“Prepare yourself now for a $107,000 windfall…
“But only if you move BEFORE this company’s next big announcement”
Catches your attention, right?
“… a small team of elite scientists works around the clock, monitoring a process it’s spent more than a decade perfecting.
“The scientists work in a dull and nondescript building, mostly in rooms 205, 207, and 209 — rooms that are always kept dark.
“They’re the only people with access to these rooms, and they must clear three security checkpoints before they can enter.
“So it’s no wonder that few residents of Galva, Illinois realize what’s actually happening in their own backyards.”
And that’s actually enough for us to have an awfully good guess about what they’re pitching, but we don’t like to do guesses — so let’s check out some more clues from the ad.
Mengel says that investors are “clamoring” to get in on this stock, and that the scientists at the “God Complex” have perfected a way to create in three days what it took nature 300 million years to make — something he likens to being able to “control the weather”. More from the ad:
“The nature of these scientists’ work is SO extraordinary that it’s difficult to determine just how much you can stand to make from an early investment in their tiny company…
“About as tough as it is to compare this one-of-a-kind technology to any that came before it.
“It promises breakthroughs affecting everything from the food we put in our mouths and the soap we use to wash our skin to oil exploration and how we power military fleets.
“The impact has been felt 7,000 feet underground and 29,029 feet in the air.
“Long story short, this technology is one for the history books, and the profit potential is absolutely unheard of.”
So the hyperbole is pretty thick on the ground. But what are these scientists actually making, and what’s the company? Well, as is usual for a teaser pitch, they buried the lead:
“… inside the “God Complex,” they take one of the most abundant species on earth — algae — and convert it into something far more valuable: oil….
“Aside from fuel use, oil is necessary to manufacture plastic, medicine, clothing, soap, lotion, cosmetics, and countless other products… which is to say nothing of food.Are you getting our free Daily Update
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“And our tiny company is taking all of these markets by storm.
“Its tailored oils can replace virtually any other oil known to man.”
So yes, as you can probably guess now, Mengel is teasing the algae oil standard-bearer Solazyme (SZYM), which has been touted several times before largely as a biofuels company but is being pitched more broadly here as a specialty oils company by Jimmy Mengel.
Which makes sense — biofuels from algae are the headline-getter, but Solazyme can’t really make any money on that other than with their strategic deals with airlines and the US Military, who are willing to lose money to seed investments in renewable fuels that might eventually pay off. What they can make money with, at least theoretically, is highly customized oils for foods and nutraceuticals, industrial applications, or cosmetics.
They do this with algae, as teased — or microalgae, as they call them. The company’s work has largely been in developing and breeding very specific strains of algae that produce oils with specific characteristics that can be extracted from the algae and purified for pretty much any end-use, from processed foods to lubricants.
And I say they can “theoretically” make money with more specialized and value-added oils because, of course, they have never made money. The stock IPO’d in 2011 and has bounced up and down quite a bit, but has to this point never regained the promise of those early days when the initial public offering was a huge hit with investors. Their investments in new plants and products has meant that both R&D costs and operating expenses have continued to grow pretty dramatically, but revenue has not scaled up to match those increasing expens