I haven’t rushed in to cover this teaser pitch over the past few days, partly because I’ve already written about so many of the overhyped Money Map Press ads recently and partly because Gumshoe readers have already discussed it a little bit (and identified the stock) …
… but a lot of you have been asking me about it, so I thought I better give it a look-see.
The ad is for Micro Energy Trader from Dr. Kent Moors, which would run you $3,500 if you subscribed — he’s got several newsletters, this is one of the “upgrade” one that they try to funnel folks up to in their marketing (Energy Advantage is about $200, Energy Inner Circle is $4,000).
We last wrote about him a few weeks ago when he was pitching Energy Advantage using that solar “free energy forever” teaser (here and here) — this time he’s talking about combustion (“hotter than the sun” instead of solar power).
So what’s the big idea?
Well, the spiel sounds like lots of his (and other) ads — a tiny company, a miraculous invention, perfect timing. Oh, if only claims like these were always (or even often) true. We’d all be rich.
This is the opening:
“This Tiny $50mm Company Has Invented…
“A New Gas Molecule That Burns Hotter than the Sun”
And Dr. Moors says that “I’ve been tracking this Radical Invention for 17 years… and the time is NOW.”
So what is it? More from the email I got about this ad:
“Their technology produces a unique new hydrogen-based gas molecule…
“A hyper-flammable molecule that literally didn’t exist before this company created it.
“It quickly produces large quantities of a gas that burns hotter than any other gas known to man – up to 10,500° Fahrenheit.
“That’s more than five times as hot as molten lava…
“And it’s actually hotter than the surface of the sun!”
And here’s the big picture from Dr. Moors that reinforces that timing, market size and “immediacy” argument:
“In fact, there’s never been a moneymaking situation quite like this in the entire history of energy!
“It’s nothing less than a game-changing breakthrough that’ll completely transform the $1 trillion-a-year global coal sector in very short order…
“And it’ll start by immediately bringing America’s coal-fired electricity industry back
“The key to this opportunity is a radical invention I’ve been tracking ever since the first rumors of it began to swirl in scientific circles back in 1998.
“Throughout this period, I’ve kept very close tabs on this invention – and the American micro-cap company that developed it.Are you getting our free Daily Update
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“Everything from their original idea, their string of patent applications, their prototyping, refinement, and testing…
“And mere weeks from now, we could finally see this world-changing invention take the global marketplace by storm.”
So what’s this “radical invention” that he’s hinting at as he tries to get us to sign up for his Micro Energy Trader? Here’s how he sums it up:
“… it uses liquid or semi-liquid waste from just about ANY source…
“Including used motor oil and industrial fluids, antifreeze, paint thinner, human sewage, manure and poultry litter, contaminated water, and more…
“To quickly produce large quantities of a gas that burns hotter than any other gas known to man – up to 10,500° Fahrenheit”
And the silly “secret” stuff:
“Of course, the invention I’m talking about has an official name. So does the gas it produces…
“However, I can’t reveal those names in a public forum like this without tipping off every hedge fund on Wall Street to this tiny $1-per-share company….
“for ‘camouflage’ purposes…
“In this presentation, I’m going to refer to this invention as the ‘H-Arc Generator.’
“And I’m going to call the clean, ultra-hot-burning gas it produces ‘plasmalene.'”
This is really why Stock Gumshoe started — many, many years ago, I got sick of these “secrets” and “camouflage” names and started researching them. So I guess it’s good that they still do this, it gives me a reason to jump into work each morning with renewed vigor — even if 90% of the “secrets” we uncover aren’t actually that interesting once you find out the reality, at least we’ll hopefully help some folks avoid making expensive mistakes. Subscribing to newsletters isn’t always a mistake, of course, we can learn a lot from plenty of them… but putting real capital at risk in some microcap idea because you believe the wild promises of the hype-filled ad is very often going to lead to disappointment (or worse).
The argument he puts forth, though it’s very long and I won’t go into the whole thing here, is that the government is regulating coal and requiring lower emissions, and that they don’t want to do away with coal entirely because of jobs and low cost and because the other baseload option, natural gas, is easier to export (I don’t know if that’s true or not — coal is heavy, so it is expensive to ship… but LNG will still be pretty expensive to ship as well, even when US LNG exports reach critical mass in five or ten years). Here’s some more from the ad:
“… everyone in Washington – Republican or Democrat – wants the same thing for Christmas this year…
“A technological miracle that’ll instantly make America’s vast reserves of dirt-cheap coal 30% less carbon-emissive.
And as I’m going to show you, the H-Arc Generator is that miracle….
“… the catch is that everybody is going to know this by January 2016, just a few short weeks from now.
“If you’re holding shares of this company, that’s when I’m predicting you could see an immediate pop of up to 542%.”
So you can see why folks are asking about this one, right? He says that 146,000% profits are his “low end” expectation, and that he thinks there could be an “immediate pop” of 542% next month when “everybody” will know about this.
He says this will happen because the company and it’s “H-Arc Generator” will make it possible to move toward “coal co-combustion” globally… here’s how he explains it:
“Instead of simply diluting the CO2 and other pollutants from coal combustion with slightly less carbon-dense exhaust…
“Plasmalene’s 10,500-degree flame temperature almost completely consumes the carbon (also sulphur and nitrogen) in the coal base fuel.
“In simplest terms, the more ultra-hot combustion of plasmalene gas actually turns the pollutants themselves into a sort of ‘secondary fuel.’….
“The proof of this is now a matter of record. Not only is the testing showing a 30-40% reduction in CO2 from plasmalene co-combustion…
“But they’re already seeing up to a 90% decrease in nitrous oxide and carbon monoxide…
“Plus virtually no residual particulate matter (like soot, etc.).
“Now as I said before, this information is NOT highly publicized….”
So yes, as several Gumshoe readers have jumped in to note, this must be a little company called MagneGas (MNGA). They went public seven or eight years ago, they’ve never generated any meaningful revenue… though they have, at least, grown revenue a bit faster than operating expenses in the last few years.
They do indeed manufacture a gas that burns hotter, and they do use liquid waste to produce it — they essentially zap the waste with electricity (that arc), capture the gases produced, and turn those gases into a fuel that they call (naturally) MagneGas. The prime use of the fuel right now seems to be as a replacement for acetylene in metal cutting applications, since it burns hotter and cuts better and the production of the fuel is apparently “greener” than producing aceytlene. I don’t know how they produce acetylene, or if those claims about MagneGas being better are true, you can see one of the company’s presentations here if you want to see what they claim in more detail.
That acetylene replacement seems to have been the core revenue-generating focus of the company for quite a while, though they’re still trying to build that business up to becoming self-sustaining — they’re trying to sell the little refineries (fit on a flatbed truck) that can create this MagneGas from a liquid waste stream (plus lots of electricity, presumably). They say the production of the gas generates no pollution, and that the by-products are heat, solid carbon, and purified “nutrient rich” but sterile water that can be used in fertilizers.
Dr. Kent Moors says he got his first college degree, in Physics, at the age of 16, so I’m sure he knows more about this process than I do — I don’t get how the gas they produce can have more energy than the electricity they use to produce the gas, but that’s probably just me. And even if it does consume a lot of energy to produce this gas, perhaps it’s worthwhile to create an acetylene alternative that burns hotter and cleaner, I don’t know.
The co-generation stuff Moors talks about is the next wave of what the company is trying to do, they have indeed tested it and shown the results that Moors talks about, they say, with reductions of 20-30-40% in C02 and more significant reductions in other pollutants, but it seems to me like they’re still pretty early on in testing it. I don’t know how the energy business works in terms of adopting new technologies, but here’s what they say on their website:
“MagneGas is currently developing and verifying a Co-Combustion technology that results in unique combustion characteristics, namely burning MagneGas with less efficient fuels and wastes results in improved emissions, improved efficiency and a dramatic reduction in CO2. These combustion improvements are related to the extremely high flame temperature of the MagneGas fuel as independently verified by the City College of New York.
“Working with one of the largest US power company’s independent laboratories MagneGas Corp and it’s partners have been verifying these claims since early 2014 and is nearing conclusion.”
We’ll give them a pass on the odd grammar there, but it does seem like they expect to be announcing some sort of results about their co-combustion testing in the US in the relatively near future — and they are quite “press-release happy” whenever anything of potential positive impact happens, so I’m sure investors will hear about it if there is good news.
Whether that means it would be worthwhile for lots of companies to suddenly jump in as MagneGas customers or not, I have absolutely no idea. They have a 50/50 joint venture with an unnamed electrical power generation company of some sort to explore and test the technology in the US, and they say that so far the testing is confirming the 20%+ CO2 reduction — though I’d guess that this is a ways from saying that it’s economically viable, or that it’s practical to convert lots of old coal plants or build that potential part of the business, and I don’t know enough about the power business to have any idea what other technologies might show similar (or better) promise for reducing emissions from coal.
The US is apparently a little ways behind the rest of the world in this “MagneGas for Co-Combustion” research — there’s a press release from their Australian partner here that reiterates a lot of the enthusiasm Moors shares, but, well, it’s a press release. Those are supposed to be full of enthusiasm.
MagneGas has presented at the LD Micro conference for two years in a row, and that conference tends to produce a lot of microcap stocks that get favorable writeups from newsletters (and sometimes teaser campaigns) — so that, frankly, gives me a little moment of pause on this one. And it has also been a “paid promotion” stock in the last year or so, which is usually a red flag for me — I haven’t looked deep enough to be sure whether the promotion is being paid for by the company or by outside pump-and-dump investors, but that usually turns me off a stock either way.
The stock has been quite volatile this year as they had a death at their plant in Florida (a big deal for a company with only a couple million dollars in the bank), then got a delisting warning from Nasdaq, then announced a few orders for their MagneGas as an acetylene replacement and saw their stock recover sharply higher. It’s still way below where it peaked in 2012, when they uplisted to the Nasdaq, but it’s been a positive few months for the stock.
And you’d have to be a wiser person than I to understand why. Maybe it’s all based on a reasonable speculation, as Moors seems to be suggesting, that this co-combustion testing in coal power plants will result in positive press coverage and a flurry of new orders in the new year, or maybe it’s all just driven by marketing fluff — I don’t know enough to tell you which is more likely.
The revenue from MagneGas sales as an acetylene replacement have been growing, and growing fairly steadily, but are nowhere near large enough for a $70 million company and show no signs of getting there in the near future — and it’s hard to take them seriously as an R&D-focused company pioneering the development of this technology when they spend only $300,000 a year on R&D. When I feel myself getting infected by the optimism these companies evince, or when the newsletters or stock promoters seem to be making a strong case, I try to take my eyes straight back to the financials to get a little reality check: Over the past two years they have grown the annual run rate of revenues from about $500,000 to about $2.25 million… that’s pretty good growth, but increasing sales by $1.75 million has effectively cost them $3 million in increased selling, general and administrative costs.
Something has to shift for that to start making sense.
Their MagneGas sales seem to pretty consistently come at a cost of about 2/3 of revenues, so if that gross margin stays consistent in the 30-35% range (meaning the direct cost of creating and delivering $1 of gas is about 35 cents, before you account for sales, marketing, or overhead costs), then they will have to increase their revenues tenfold to cover the current level of selling, general and administrative expenses… if revenues were $25 million (instead of $2.2 million), then gross profit would be about $8 million, and that would mean they’d (roughly) break even today with their $8 million of SG&A expenses. And that assumes that the selling expenses wouldn’t rise as sales rise, which is just silly. The only way to get out of this math problem that I can see is if they could suddenly convince a much larger company to expand the business dramatically by licensing MagneGas’s technology or patents and paying royalties, which would mean MagneGas would have much lower operating costs… perhaps their joint venture exploring co-combustion could be the first step in moving toward that possibility, but even typing that makes me squint up my face a bit. Seems awfully future-y.
The fact that they’ve been saying much the same thing about the future potential for several years without meaningful (to me) financial results is a turnoff for me, as is the stock promotion, but I like to keep a little optimism on board: maybe there’s something real underneath it all and this technology really will become commercially viable someday. If so, I suspect it will take far, far longer than a couple months for it to bring 500% returns for any fundamental reason (like big increases in revenue, etc.), but you never know what a lot of attention or press releases or promotion can do to a tiny little stock… so I can’t promise that Moors will be wrong about it rising 542% by January. I’ll just tell you that I wouldn’t bet on it personally, and there would have to be a strong belief in the merits of the technology to justify a valuation anywhere near the $70 million market cap the company carries today.
I’ll leave it to you to make your call on that, I’m not interested in betting on or against this particular stock. Have an opinion on what the next few months or years will bring for MagneGas? Want to explain the technology better than I did? That’s what the friendly little comment box below is for, throw your thoughts on the wall and we can see if they stick.