Just had a phone chat yesterday with Levine. The outcome and some of my analyses and observations follow:
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Notes from 10/16/96 phone conversation with Gerald Levine of CEC Industries:
SilentRadio
Today SRDO announced that discussions regarding the stock-swap deal with CECN have broken off. Upon mentioning this news, Levine shared his insights. SRDO initially had about 16.6 million shares, but decided to issue 10 million more at the same time as they announced in the press that all was well in the detail-negotiation process. Including warrants and options (about 9.7 million), Levine expected SRDO to have almost 40 million shares outstanding by the time a stock-swap would go through. A larger SRDO would mean that CECN would need to offer more of the company to get SRDO, which Levine regards as poorly run but full of potential due to its positioning in the market. All along, CECN investors disliked the SRDO deal, he says. In the end, Levine was unwilling to give up more than 25% of CECN to acquire SRDO, so the two parties went their own ways. SRDO did not announce the circumstances surrounding this breakdown in its press release.
NASDAQ
There will be another hearing in the next three or four weeks. Basically, the company will be relisted, says Levine. It's just a matter of time. While in New York over the past few days, Levine had opportunity to confer with his NASDAQ lawyer. Among other things, it appears NASDAQ is asking for research reports produced by CECN on the properties it owns.
Tennessee Coal
Levine mentioned a $90 million offer in cash for the rights to the coal. It seems he is leaning against this deal in favor of a South African company which is offering the following: $25 million cash over the next three years ($8.33 million/year) and a 50% share of profits on the mined coal. It is expected that 10 million tons would be mined per year over five years to harvest the 52 million tons of low-sulfur coal residing on the Grundy County, Tennessee property. Coal prices in the range of $32-43/ton (he suggested we assume $37/ton in our conversation) and all-in mining costs of about $20/ton, which he considers a pretty good estimate, yields about $12-23/ton in profits. CECN's share would be $6-12/ton or about $300-600 million over five years. This essentially explains why Levine is leaving the $90 million cash offer on the table. It sounded like there is currently a letter of intent between CECN and this South African company, but nothing contractual.
Alabama Gas
While in New York, Levine talked to a guy from Dreyfus who have very significant natural gas reserves (I believe he said 900 billion cubic feet). This guy informed him that CECN's reserves of 31 billion cubic feet are probably worth about $38-45 million rather than the $15-25 million Levine had believed. Right now he's more concerned with the coal and doesn't plan to sell the gas until next year.
So why is the stock at 50 cents?
Levine believes the financial community does not like CECN a whole lot because of the dealings of the past management. The "old company" had about 1,500 small shareholders who invested in a company which sought to develop land in Nevada; these investors understood this development business. Now that the company has changed directions, these investors of the "old company" have either left or shown no interest. But the fundamental reason for the severely undervalued stock is that the message hasn't been proclaimed. Only FutureSuperstock and their (10,000?) subscribers and a guy named Kostic (?) and his (1,500?) report recipients know about CECN. When asked about stock buyback potential, Levine said that he'd do that in a second if he had some cash.
The coal alone could yield $60-120 million in profits before taxes in each of the next five years. With 16 million shares outstanding, that's about $4-8 per share of annual pre-tax profits just from the coal. Even at five times after-tax (coal) earnings, CECN could be worth about $12-24 per share. It seems grossly undervalued if all information is correct. Even if Levine got the first year's cash payment of $8.33 million for the coal he could buy back all his stock at its current price!
Observations
I found Gerald Levine to be straightforward and direct in answering all of my questions. He appears honest as he describes the properties, their values, and his own learning process in the negotiation of their sale.
Do your own due diligence. CEC may be contacted as follows:
(702) 893-4747
cec@mclv.net |
