Hi, Dave. From their Q3 report (bolds by me): Company will soon close the wet plant for the winter season. The stockpiles are now full allowing the Company to maintain shipments throughout the winter months until the wet plant restarts in the spring of 2000.
sedar.com
The "frac sand exceeds the requirements of the API standard for shallow gas and oil applications and has been accepted
enthusiastically by our customers. We expect to sell in excess of $1,000,000 of frac sand in the fourth quarter and over $5,000,000 in the year 2000. Sales to the iron and steel foundry industry in western Canada are starting now and we expect this product line to increase throughout the coming years."
The first two years of operations are a "pilot plant operation". I imagine to sort out any operational issues, such as you alluded to, before ramping up to full scale production (after receiving gov't approval). I think the real prospects are long term - bringing production up to full scale, developing all of the potential markets for the sand, and the potential of the roofing shakes.
The plant itself was actually planned to be developed in two stages. From their prospectus:
"The Corporation intends to begin silica sand extraction in the East Block and to develop the Deposit in two stages. The first stage is a pilot operation for a two-year period during which the processing plant has been installed and 150,000 metric tonnes/year of raw silica sand will be processed. This will be followed by full-scale processing of approximately 1,000,000 metric tonnes/year of raw silica sand subject to market demands." "No material additional capital costs are anticipated to be necessary to proceed to full-scale production since the plant built during pilot operations will be capable of handling full-scale operations." I must say, their cost estimates for building the processing plant were way low - it cost twice as much as they thought it would, so I'm not sure I'd rely on the second statement above.
As far as the op costs go, I can't comment on difficulties running at full production. The stockpiles were noted as being full, so it doesn't appear that they had a lot of difficulties <ggg>. I don't know what the economies of scale are - for example, what portion of operating costs reported in Q3 were fixed and variable, how much margins will improve when the plant is ramped up to 1 million tonnes. The inventory on the balance sheet at Sept 30 of $673,362 is probably comprised of op costs related to the stockpiles. So, if at Sept 30 the company's stockpiles are full (or are at Oct 27 - date of the report) and the stockpiles last for the winter (Q4 and Q1 2000), then op costs of at least $673,362/2 or $336,681 for each quarter would be booked. Then add in freight, G&A, marketing, interest (total $420k last quarter). Total costs approximate $756,000, anticipated sales are $1 million in Q4(don't know if they'll meet it) - so it would appear they're going to generate cash flows, which is positive (net income may be low due to depreciation of the plant). I also don't know what sort of royalty rate the gov't is charging them.
I would like to phone the company myself but have been just way too busy lately.
Nontheless, taking a look at their balance sheet, they may need to do another small financing. Close call on that though - they may be OK. The last financing was done at an effective issue price of $.40 per common share and was dilutive, UIS is currently trading slightly under that, so I don't know how easy it would be to do another financing. They might end up doing a private placement if they need some cash. As of right now, I'm not too concerned about the number of shares out - don't foresee a requirement for another big financing soon (unless the silica shakes need a separate manufacturing facility built - that's a whole new ball of wax). They've got about $1 million left in the line of credit (unless the limit has been raised since the last annual).
At any rate, I think the company has real potential but I'm sure there'll be little bugs along the way. I'm very curious to see what will be the outcome of the roofing shakes - positive results may take the stock out of its doldrums. The oil & gas sector is drilling a lot right now -bodes well for frac sand sales. Also if UIS develops some overseas markets - since Asia/Europe appear to be starting the road to recovery (steel, roofing shakes).
Sorry about the long (and somewhat scattered) post. As you can see, I have some questions (but I definitely still like the company).
Regards, t. |
