Analyst Richard Geist, who publishes the newsletter Strategic Investing, disagreed hotly with the Times assessment.
"Contrary to the New York Times," he wrote in late November, "Solv-Ex is alive and well, and it remains on its way toward a potentially major increase in shareholder value."
If the Solv-Ex pilot plant is successful, he said, the share value could rise to US$50.
But Geist added a thought that is in the minds of many Solv-Ex observers: "You should be aware that there are major risks to this investment, and complete loss of capital is possible."
Oilpatch has doubts about a very promising firm.
(Solv-Ex Corp.)
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Solv-Ex Corp.
CEO: John Rendall Ticker symbol: SOLV Listed: Nasdaq Head office: Albuquerque
Data supplied by company reports
If shares in Solv-Ex Corp. were a Canadian province, they would probably be Alberta - a long expanse of mainly flat prairie, interrupted suddenly by a foothill and then a startling peak.
A year ago, Albuquerque N.M.-based Solv-Ex (SOLV/NASDAQ) was trading near US$4 a share. A steady rise brought it to US$10 by December. And then the peak: This week, Solv-Ex traded as high as US$38 before starting to fall almost as sharply.
It's quite a performance for a company that hasn't turned a profit in a single year since it began doing business in 1980, losing US$19 million in that period. It comes on a pair of promises many in the oil business find unlikely - or at least unproven.
Solv-Ex's promises are, quite literally, earth-moving. If they pan out, this little company, with 22.2 million shares outstanding, could set the petroleum industry on its ear.
First, Solv-Ex says its patented technology will enable it to extract bitumen from Alberta's tar sands for less than $7 a barrel.
Canada's two successful oil sands producers - Syncrude Canada Ltd. and Suncor Inc. - currently upgrade their bitumen into high-quality, high-value, light sweet oil at a unit cost of about $13.75 a barrel.
Solv-Ex says it will sell the lower-valued bitumen without the upgrading. On top of that comes the company's second pledge: That it can extract valuable minerals, especially alumina, from the huge pools of toxic wastes, called tailings, left by the operations of Suncor and Syncrude.
After developing this technology since 1980, Solv-Ex now claims to be close to a real-world test of its promises. The company plans to build a US$125-million oil-extraction plant on its lease near Fort McMurray, said to contain about four billion barrels of reserves.
There are also plans for a US$35-million test plant to mine alumina, and perhaps some gold and titanium, from the waste sand of synthetic oil producers.
In the process, Solv-Ex says, the tailings would be rendered non-toxic, providing an environmental solution to a growing problem.
Syncrude and Suncor together create more than 10 billion tonnes of tailings a year. Suncor keeps them in four ponds, while Syncrude has a locally famous "lake" with a shoreline measuring 29 kilometres. Both companies are actively exploring ways, with some success, to turn the tailings into dry land.
Any company that could extract value from the sludge while rendering it harmless would accomplish the industry equivalent of alchemy, an early form of chemistry which sought to turn base metals into gold.
Although the Solv-Ex test plant will use Suncor's tailings, the company does not exactly exude enthusiasm.
"We are not endorsing or denying the process," said Suncor spokesman John Rogers. "We just haven't been supplied enough information to evaluate it."
Suncor has made a point of saying it isn't putting up any money for the plant, and that Solv-Ex must pick up the tailings itself, either by truck or pipeline.
Solv-Ex says that once the technology is proven, it will be licensed to other producers. But at this point the industry remains skeptical.
Solv-Ex has had problems financing the Alberta projects. In 1993, it announced a US$19.1-million borrowing, but the deal didn't materialize.
Last year, Solv-Ex said it had reached a US$10-million agreement with Glencore Ltd., a Swiss company that is a huge trader of metallurgical-grade alumina. That deal also lapsed without any money arriving on the Solv-Ex balance sheet.
Solv-Ex spokesman Dean Gardy now promises a financing announcement within three weeks.
"We're in the process of finalizing our finance package and it's going extremely well," he said.
In spite of the doubters, Solv-Ex has all the provincial and municipal approvals it needs to proceed with the plants.
One oilsands observer notes: "They've had some false starts in the past, but it looks like they're going to move some dirt, dig a hole, and build a plant. Assuming they have the financing in place, they can start digging tomorrow."
Solv-Ex management has extensive experience in the oil industry. Board chairman and chief executive John Rendall invented the company's unique technology. President Jack Butler worked for Mobil Oil Corp. for 35 years, and was chairman of several Mobil companies.
Another board member, Thompson MacDonald, is president of his own strategic communications consulting firm in Calgary, serves as a director of the Canadian Broadcasting Corp., and has excellent contacts with the Alberta government.
Gordon Lamb of Smith Barney Inc. in New York says he has "a feeling of wonder at the speed of the stock price movement. The company is ridiculously priced relative to its current earnings."
Current earnings, in fact, don't exist. Solv-Ex lost US$1.07 million (US5[cents] a share) in the year ended June 30, 1995, and US$2.4 million (US13[cents]) in 1994. Since inception in 1980, the loss is US$1.37 a share.
The losses continued in the quarter after June 30, 1995, with a shortfall of US$744,704. Until production and sales begin, Solv-Ex will have few sources of revenue apart from stock issues and borrowing.
Charles Maxwell, a New York analyst who owns 100,000 Solv-Ex shares on his own account, warns that the stock has risen so fast, short-sellers could quickly knock it off the ladder.
That may already have started. Solv-Ex shares have dropped sharply since Tuesday, closing yesterday at US$24 7/8, down US$4 5/8.
"They've run it up to a degree that has nothing to do with the intrinsic merits of the situation," he said. "But for the company, it's gangbusters if the premise works."
A New York Times writer was much tougher on Solv-Ex in an article written last November. He compared the company to a teenage moocher who uses other people's money and never leaves home.
Analyst Richard Geist, who publishes the newsletter Strategic Investing, disagreed hotly with the Times assessment.
"Contrary to the New York Times," he wrote in late November, "Solv-Ex is alive and well, and it remains on its way toward a potentially major increase in shareholder value."
If the Solv-Ex pilot plant is successful, he said, the share value could rise to US$50.
But Geist added a thought that is in the minds of many Solv-Ex observers: "You should be aware that there are major risks to this investment, and complete loss of capital is possible."
COPYRIGHT 1996 Financial Post
COPYRIGHT 1996 Information Access Company |
