OK, you’re probably as sick of the “miracle materials” as I am, yes?
But your friendly neighborhood Stock Gumshoe is nothing if not stubborn, and we got through the first two of Byron King’s Energy and Scarcity Investor teaser picks so now, dangit, we’re going to clear the slate and get that third one, too.
For this teaser, which is about a company that does both mining and manufacturing, it’s all about beryllium. Here’s how King gets us interested:
“How to Grab Explosive Mining and Manufacturing Gains All in One Shot
“I’ll cut straight to the chase: It’s beryllium.
“Why is beryllium a key player in the mix of breakthroughs set to trigger America’s new wave of industrial revolution?
“Three reasons: It’s 30% lighter than aluminum. It’s six times stiffer than steel. And it is both nonmagnetic and nonsparking.
“Because of this unique blend of properties, beryllium alloys have become vital in the manufacture of everything from CAT scanners and medical lasers… to airbag sensors… to the battery contacts in mobile phones and portable electronics.”
We’ve heard beryllium teasers before, most of which have focused on its potential for aerospace or advanced nuclear power generation. His pitch for beryllium is one that we haven’t heard at the forefront for this metal before — that it’s vital for oil and gas production:
“Beryllium alloys offer the perfect solution: They’re strong enough to withstand the pressure. They’re durable enough to withstand the heat. They easily conduct electrical signals. And they don’t spark.Are you getting our free Daily Update
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“As the shale boom continues to grow, you can bet your bottom dollar that beryllium will become a hotter and hotter commodity…
“…particularly as it’s combined with the electronic and battery breakthroughs being spurred by graphene and vanadium.”
So which company is he teasing? Here’s the last of the clues:
“And I’ve found a company that lets you take advantage of beryllium’s mining growth and manufacturing growth all in one shot!
“With beryllium deposits in Utah and Colorado – and manufacturing divisions in Indiana, Pennsylvania and Missouri – it gives you the final key to unlocking every major profit opportunity America’s new technology resource boom has to offer.
“It too can currently be had for less than $1 a share…
“It too could go mainstream at any moment – especially considering that it will be releasing results from drill tests on its Utah deposits any week now…”
So … yes, sez the Thinkolator, this is the very same beryllium stock that we’ve seen teased several times over the years, IBC Advanced Alloys (IB in Canada, IAALF on the pink sheets).
And yes, they do have manufacturing divisions in Indiana, Pennsylvania and Missouri — those are their lognstanding operations producing copper alloys, including some copper-beryllium alloys. Their “next generation” stuff, including their new proprietary aluminum-beryllium alloys that they call Beralcast, is done by their Engineered Materials division here in Massachusetts, where they just opened a new facility last year. And they are pretty rare among microcaps in that they’re trying to create a vertically integrated beryllium empire — with mining, R&D, and manufacturing all under the auspices of this one teensy weensy company with a market capitalization of only about $20 million.
They’re not mining yet, to be clear, but they are exploring for beryllium — not terribly successfully so far, with their last result from their Utah drilling not offering any promising signs of a big ore body that could be turned into an open pit mine. That’s my interpretation, at least — this is the quote from the release, which sounds pretty bad: “The results to date have not encountered ore-grade Be mineralization.”
I don’t know what the long-term plans are for how much exploration they’re going to do — their land is next to the world’s major beryllium mine, Spor Mountain, and they have been finding beryllium in their drilling … just not “ore grade” beryllium. The release of data was not complete, they are still waiting for more results to come from the lab, so there may be some hope from those additional results, I have no idea. Their other properties are in Colorado and Brazil, but neither is getting the attention that the Utah property is getting right now. The Colorado property is a major past-producing mine that they’re studying, and the Brazil property has been written off (if it hosts beryllium, it’s the relatively harder to produce and process variety) but they are still holding it. They don’t spend a huge amount of money on the exploration — they would also be unprofitable if we ignored the exploration costs — but it has so far been a bit of a drag, and the bad results seem to have been part of the reason for the stock’s decline since the late July data release.
IBC is a real company, with real manufacturing — they say they have good beryllium supply agreements in place, both with the US government and with Kazatomprom, the major world supplier, so they have enough of the stuff to make what they want to make. And they have been generating revenue over the past few years, with roughly $20 million in sales per year over the last two years. They’re not growing sales particularly quickly, and they’re not profitable yet, but they are a real company that’s doing real business. Whether that turns into a profitable or seriously growing business probably depends on their ability to build new business through their Engineered Materials business — getting their proprietary Beralcast into more products — but that’s just my supposition. Most of their revenue currently comes in through the Copper Alloys division, but they do see the Engineered Materials division growing faster. Much of their R&D of late has been in the nuclear fuels area, where they’ve sponsored research at several Universities, most recently MIT, to advance and test their next generation fuels — which are built, more or less, on the concept that lacing uranium with beryllium makes it more efficient and safer. They do have corporate partners in this research, too, including big nuclear companies like GE and Toshiba, but my impression of the nuclear power industry is that change is very slow in developing, and new technologies face dramatic resistance — nuclear power at existing plants, after all, is already extremely profitable and predictable, and adding a new element to the equation adds at least a little bit of uncertainty and risk. If their specific beryllium-uranium fuel gets adopted by a major supplier or plant, that would certainly be good news for the company — but I have absolutely no idea whether that might ever happen, or when.
As with many tiny companies, IBC does a pretty good job of selling itself, and they know that they depend heavily on small investors — so their releases are pretty clear and explanatory (like this one from last quarter), and they do have a nice, shiny corporate presentation that lays out their investment argument quite nicely if you’d like to get more background.
Oh, and yes, they are well under a dollar a share — the stock is at nine cents as I type, and though they have gotten shareholder approval for a share consolidation (perhaps 10:1), they haven’t actually gone through with it yet. Unfortunately, this kind of consolidation where you try to turn a penny stock into a dollar stock is often taken as a sign of weakness — perhaps one reason why they haven’t done it yet, back when they first got it approved by shareholders it would have put the shares well over a dollar, if they did it now they would still be at 90 cents … and probably, truth be told, would be falling from there. At some point with little companies like this you have to wonder why on earth they’re public — if their beryllium aluminum casting expertise and their proprietary product are particularly valuable to aerospace or defense companies, it seems silly for them to have not been taken over by now. There are hundreds of companies who could easily absorb a $20 million firm without even putting much of a dent in their petty cash, including major manufacturers and industrial conglomerates who routinely buy up small firms, so why haven’t they made a run at IBC? It’s possible that this is really a hidden gem with a product that will become markedly more valuable in the next several years, but there does not appear to currently be any investor lust for the idea of a vertically integrated beryllium company.
On the positive side, they are at least saying that they’re being attentive to managing costs and trying to incrementally grow their manufacturing business, which tells you that they’re being rational and know that they have to become profitable pretty soon. They do have positive gross margins, so they’re at least not being forced to sell their manufactured goods for less than it costs to make them, it’s the SG&A expenses that would have to be managed — and it’s not just R&D that’s sucking the profit, they spend less on R&D than they do on investor relations, and their salaries and professional fees have both also been on a rising path over the last year or so, going up more quickly than revenues.
They expect sales growth to pick up a bit later this year, as the impact of their Engineered Materials move gets into the books (there was a spike in orders last year as folks pre-ordered to anticipate their shutdown as they moved, and then the dormant time for the move and retooling), but they’re going to have to be quite a bit more aggressive on the cost cutting side if they’re going to turn a profit without major sales growth — as it stands now, if everything else stays roughly the same as it was in previous quarters, they’d need to double their gross profit to become cash flow positive, and do so without also doubling their corporate expenses. Which would mean, assuming that their cost of goods doesn’t change dramatically, that they’d have to double revenues. I don’t think they can do that in a year or two, which means they’d have to do some fundraising that would be badly dilutive at the current low prices, but I might just be a skeptic.
So that’s IBC Advanced Alloys for you — an appealing story, an incredibly tiny and shrinking stock, and, frankly, a story that looks better from a distance than it does when you look at their actual numbers close up. At least to me.
This one has been teased in the past by Byron King, and also by Nick Hodge over the past two or three years … at each of those times, the story was more or less the same … with the exception being that the stock was about 100% higher each time it was teased previously, generally in the 15-20 cent neighborhood.
Will it become more than a good story in the months to come? Well, probably not based on the Utah drilling results unless the rest of the drill cores are a lot better than what we’ve seen so far, but you never know — given the fact that we’ve covered this one a few times since 2010 I bet we’ve got some folks out there in Gumshoedom who have traded the stock or who are far more expert in it than I, so if you’ve got an IBC opinion for us or you think I’m wrong to be cynical on this one, by all means, shout it out with a comment below.