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Gold/Mining/Energy : Solv Ex (SOLVD)

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To: bigtoe who wrote (5961)	8/21/1998 4:32:00 AM
From: Larry Ricker	Read Replies (2) of 6735

OK class, let's see if you can get this one. I'll try to make it really simple for you... Company A and Company B both develop a process for bitumen extraction in lab scale. Each claims that its process "works." Company A then builds a full-scale production facility for $100 million, their whole wad, promising it will be running and gushing profits "any day now." Unfortunately, it can't handle the real feedstock and they don't have any resources left to fix it. The company goes bankrupt. Company B spends $10 million on a pilot-scale test plant. It has startup problems too, but that was expected and they have budgeted for a series of design upgrades. They haven't made any wild promises as to a production start-up date, so their investors aren't complaining (any more than usual, at least). If the price for crude goes down the tubes, they can put the project on the back burner for a while, and they're not out too much cash. They have a plan for putting in a pipeline to run the bitumen to a refinery, but they haven't started construction on that yet (and don't have to if things look bad). Their total expenses to date are $10 million. Which company would you say is in better shape at this point?

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