10Q Highlights & Analysis
We learned a lot yesterday from that 10Q and Collins' letter to shareholders:
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Collins made it clear, in no uncertain terms, that the reason they held up the 10Q for the past week is that they had hoped to announce their first deal in conjunction with the release of the 10Q. Clearly they ran out of time and HAD to file the 10Q, but they still believe a new plant deal is VERY close at hand.
The other big news is that their Buckeye mining subsidiary is doing great. This business looks like it will provide Evergreen with sufficient cash flow for an indefinite period of time. Buying that coal mining company was one of the smartest moves this company ever made. Not only is Buckeye providing a significant source of revenue, but they also have a good marketing team that has allowed Evergreen to successfully test burn their K-fuel product in a number of large utility boilers.
Personally I was a bit surprised to see Buckeye selling most of their coal under long term contracts. They used to sell a lot of their coal on the spot market, which would have netted them higher profits in the short term. It seems like they now have adopted a more conservative strategy, providing a more stable business.
It seems clear they're getting ready to shut down Ft. Union permanently, though I don't see them throwing the gate key away just yet. Just a couple weeks ago they were advertising for positions to upgrade the plant. Now it sounds like they will be shutting it down for good, and even terminating their transloading facility lease. The lends credibility to the theory that they'll eventually be shipping those heavy metal processors to a new plant somewhere else, presumably to help reduce the initial construction costs for a new plant.
So what has been going on at the Ft. Union plant since it was supposedly "idled" back in March? We've seen photographic evidence of significant activity out there earlier this past summer:
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The new 10Q we have clearly states that the plant will be decommissioned in the near future. I do however suspect they have still been producing test burn samples there as recently as this past June, given that K-fuel sales are still showing up on the corporate balance sheet.. That was probably necessary to get some offtake agreements, a necessary step for new plant financing.
We did learn that the Indonesia deal is still moving forward. That's good news, although they seem to have added some kind of additional "Phase 3" to their still evolving business development process. Well, at least they're still on track. Given all the time and effort that Sumitomo has put into these big deals, I seriously doubt if Sumitomo is going to easily walk away from any of them anytime soon.
It sounds like BHP Billiton is still siting on the sidelines, perhaps with Arch, waiting for somebody else to build the first successful plant.. Evergreen did however seem to acknowledge that somebody out there had a license to produce K-fuel, specifically stating: "Effective May 1, 2007, the licensing agreement was assigned to a third party", though they declined to mention any names. (But we know who's out there!)
With regards to C-Lock, it sounds like they've finished developing the basic software product, and are now looking for "real" customers beyond their initial beta sites. Along the way they also realized that they need new partners to enhance their products - consultants, suppliers of emission measuring gizmos, data collection services, etc.. They also stopped paying EIM, which was an interesting new development. I suppose it is normal for most new products in brand new markets to have some serious growing pains along the way, and C-Lock is no exception. Still, the potential for this new business is huge.
Did you notice that Collins now refers to Sumitomo as their "equity partner"? Make no mistake about it, that's where the new plant money is coming from. The Japanese investment banks just take it slow and easy in their business dealings.- it's a cultural thing.
It sounds like the new river port plant will be first to the finish line. Perhaps that will be the new home of those existing Lurgi processor modules currently at the Ft. Union plant. Evergreen sure goes to great lengths to explain why their new river port plant is such a vastly superior concept (as compared to a stand-alone PRB plant.) The Evergreen gang has learned a lot of important lessons along the way. (New Evergreen investors now have the opportunity to leverage the money that many previous investors walked away from!)
The boiler story is as interesting as it is mysterious. It sounds like they're getting ready to sell it, but I can't help but to wonder if it will be a "contribution" to a new plant, along with those processors from Ft. Union. Anyway you look at it though, the boiler and processor vessels are still valuable assets that could help new plant deals move forward.
Overall it sounds like William Walker, the new Chairman of the Board, is taking a little more flexible approach to the business. The company doesn't seem to be as hard-nosed as it was just last year. Maybe that's a good thing, especially considering the old tactic of playing hard-ball didn't yield any new plant deals. They also seemed to have backed away from any further plan of trying to fix the Ft. Union plant. The new thinking seems to be: "We've proven K-fuel product quality beyond a reasonable doubt, so let's building new Bechtel plants worldwide to produce it."
The important take-away here is that Evergreen is VERY close to a big deal, so I definitely wouldn't be betting against these guys. As coal burning environmental regulations tighten up worldwide, the demand for clean coal only increases. These guys are in the right business, at the right time. With 22 million shares short, this stock is going to squeeze north very quickly when that first new plant deal is announced very soon. |
