Friday File articles, like “Idea of the Month” writeups, are generally password-protected for our paying members — this commentary was made available to all readers on October 7, 2011 but the content not been edited or revised since the original publication date.
The author continues to not have any personal interest in the stocks mentioned and will not trade in those investments for at least three days.
The promise of Byron King’s new teaser is a hot and heavy one — it starts like this:
“Tiny Ottawa Company Discovers Revolutionary ‘New Silicon’ Replacement… That’s 200 Times Stronger than Steel
“And starting today, you could get in on this incredible $2.5 billion discovery that could literally change the world we live in…”
And there’s a quote that backs up the claims, from a respected newspaper:
“‘It’s not often that a new substance comes along that is so useful it defines an era’ (UK Telegraph)”
The ad is one of those irritating presentations that doesn’t default to a transcript when you get sick of it, so here’s the gist:
Apparently this “new silicon” is a candidate to replace silicon in chips and bio sensors. The silicon chip changed the world when it was introduced in 1961, revolutionizing the electronics industry when it made vacuum tubes obsolete.
Silicon’s reign might be ending — King quotes PC World as saying that “new silicon” has transistor speeds up to 10,000 times faster than “old silicon” and is cheaper to produce and is only one atom thick.
And the New York Times is quoted as saying that …
“it is not only the thinnest material in the world, but also the strongest: a sheet of it stretched over a coffee cup could support the weight of a truck bearing down on a pencil point”
That’s a cool image!
This stuff is apparently thinner and stronger than steel, and conducts electricity better than anything else known. Potential includes lighter aircraft and satellites, replacing silicon in transistors, improving batteries with “new silicon” powder, stronger turbines, stronger implants, advancements in pretty much any cool gee-whiz products you can imagine.
King proposes almost limitless possibilities — crash-proof cars, buildings that wouldn’t have fallen in the latest Japanese earthquake, and then we get into the tease about a company that controls a huge supply of this “new silicon” …
“…this explosive Ottowa penny stock, priced under $1 per share, has exclusive rights to over $2.5 billion of this valuable “new silicon” material.
“…discovery is in safe, mining-friendly Canada….
“… in the hands of a tiny, unknown $58 million company.”
Did people actually become millionaires because of silicon?
Could soar 30-fold and still be grossly undervalued. And you don’t have to “send your money out of the U.S.”
And of course, if word gets out on Wall Street it will start a “feeding frenzy” and the gains of 4,510% that he expects could turn your $50,000 into $2.25 million starting “just days from now”
And the ultimate promise that is behind pretty much every penny stock teaser, and which catches most of us right in the gut:
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“If just this ONE penny stock takes off … you could retire rich — without worrying about your future financial security.”
Which is pretty much the same thing the lottery ads say. Though I will stipulate that the odds of a penny stock performing very well are certainly better than the odds of winning the lottery.
So who is he touting in his new FREE (ifyousubscribetohispaidnewsletter) report, “How to Make 4,510% Gains from a Tiny Ottawa Company’s ‘New Silicon’ Discovery?”
Must be … Focus Metals (FMS on the Venture exchange in Canada, FCSMF on the pink sheets)
This one is very tiny, which helps to make it a more reasonable one to look at on a Friday for the relatively small number of Irregulars (that’s you! And yes, we love you). The market cap is indeed about $58 million — currently C$56 million and trading at 99 cents at the moment.
And that magical “new silicon?” That’s graphene … the great promise of it was described pretty well in the article King quotes from the Telegraph, though that article also closes with the more sober assessment that graphene might replace silicon in chips … in 20 years.
After all, the Nobel Prize in Physics given for the groundbreaking research on graphene by two scientists at Manchester University was awarded just last Fall. Companies are certainly experimenting with it in batteries, touch screens, and lots of other applications, but it’s early days. The NY Times article that he also quotes, by the way, is about the Nobel award and you can find it here.
And interestingly, we learn that the scientists who won that Nobel originally got their thin sheets of graphene from the graphite in pencils … by peeling off thin pieces with tape and folding them over and over again until they got to the thinness of one atom. Other scientists have since synthesized graphene from sugar. So what’s with this “controlling $2.5 billion worth” of this vital breakthough compound?
Well, Focus Metals holds a major flake graphite deposit — in a presentation given by the CEO back in January he described it thus:
“Lac Knife, large flake graphite property near Fermont, Quebec. It holds the best economic concentrations of technology grade graphite in the world.”
After that presentation — and perhaps after King’s initial recommendation that probably also came a few months back — the stock jumped like crazy, going from about 50 cents to, briefly almost $1.80 per share. It fell back pretty quickly after that jump and is now trading right around a buck again.
And yes, it is an “Ottawa stock” — that’s where their headquarters are … but all of their assets are in Quebec. In addition to this “new silicon” flake graphite deposit they also have a rare earths and copper deposit, also in Quebec — that project is not nearly as far along, largely because the graphite deposit has been known and studied several times over the past 20 years (but never mined).
King says that “a ton of pure 99.99% ‘new silicon’ will set you back over $20,000,” and that demand should boom and help this stock boom from 95 cents to $43 per share.
So, will that happen? The “road show” from the company certainly got investors excited, and their plan sounds pretty impressive — though it will be based largely on demand for graphite for lithium ion batteries in the near term, not on next-generation graphene products that may or may not take over the world — graphite is used in technology products now, largely in batteries but also in heat sinks and as a thin conductor, but graphene is more of a nanoscale product (like buckyballs, or nanotubes) and it’s not going to take off instantly, it was really discovered only about six or seven years ago.
And if graphene does become the most revolutionary product and define an era with its many critical uses, the critical factor won’t necessarily be the supply of graphite — I assume that most of the cost would probably come from processing graphite into graphene. Somewhat akin to the fact that the raw material silicon is cheap and no one talks about huge bonanza silicon discoveries, but processing it into polysilicon for semiconductors and solar panels can, depending on production capacity, be a lucrative business). It’s also worth noting that roughly half of the graphite business now (according to the CEO of Focus) is in synthetic graphite, which is made of coal — I have no idea if there’s also likely to be a synthetic source for the graphene nanomaterials, or if natural flake graphite will be a critical source.
The company’s presentation indicates that they need only a $10 million additional plant investment (beyond the basic mine infrastructure and plant they’re already planning) to get from 97% purity to 99.99% — 99.99% is the benchmark for lithium ion battery use, and apparently the price difference between 97% and 99.99% is at least 1,000% ($2,000/ton vs. $20,000+/ton). So they seem to have plenty of things to spend money on that ought, assuming that the graphite market doesn’t collapse, increase their margins considerably once they get up and running in a few years.
Graphite is largely sourced