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Special Situation Report: May 13, 2000 HotStockNews.Com
The following report was written by the Research Investment Group and is a paid advertisement for Stansbury Holdings Corp. (OTC BB: STBY) "the Company". With the permission of the Research Investment Group, we are presenting this report to our HotStockNews.com subscribers. The Research Investment Group conducted due diligence on the Company and provided its findings in this report. This report reflects only the opinions of the Company by the Research Investment Group. HotStockNews.Com acts as a distributor of this information to its subscriber database and is featuring the report on its web site to provide marketing exposure of the Company for a disclosed fee as provided in the disclaimer of this report. Please read and understand the contents of our disclaimer. HotStockNews.Com presents to you the following report:
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Research Investment Group Initiates Investment Coverage Of Stansbury Holdings Corp.
(OTC BB: STBY) With A Twelve Month Price Target of $5
Stansbury Holdings Corp.
(OTC BB: STBY)
Stock Price: $0.33 (bid) - $0.36 (ask)
Date: May 12, 2000
Introduction
Seldom do we come across an investment situation with so many compelling reasons to buy a particular stock and "put it away." Stansbury Holdings Corp. (OTC BB: STBY) is one of these rare finds that offers an exceptional opportunity for significant long-term capital gains.
In the midst of the current market correction, as investors are rushing to find stocks with real assets and strong fundamentals, STBY offers five solid reasons for being a core holding in everyone's portfolio:
STBY will achieve a dominant position in the U.S. vermiculite industry within the next few years, and over the longer term, should be a major player in the world markets as well;
The markets for its products are established, growing, and suffer from pent-up demand - every ton of product that STBY can produce will be bought;
Margins on its products are significant (300% to 600%);
STBY's U.S. competitors will fade away over the next several years; and,
The stock is supported by real assets (vermiculite reserves), and, at current levels, is greatly undervalued based on future earnings potential.
The Two Major U.S. Vermiculite Producers are Just About Out of Reserves
Currently, two companies (W.R. Grace and Virginia Vermiculite) produce about 95% of the vermiculite mined each year in the United States. Each company currently sells every ton of vermiculite that they produce - their customers are on allocation, and would take more product if they could get it.
W.R. Grace, for years, the dominant U.S. producer, currently produces vermiculite from a number of small ore deposits in South Carolina, hauling ores up to 20 miles to a central mill facility for processing.
The nature of vermiculite deposits is that the highest grades of ore are at / near the surface, and that grades decrease with depth. With diesel fuel approaching $1.50 per gallon, W.R. Grace is facing the double-whammy of declining grades and higher costs (as the waste material needs to be back-hauled to the minesites for reclamation). Word on the street is that W.R. Grace has, at best, three, maybe four years of profitable ores left to mine.
On a corporate level, W.R. Grace is undergoing some major changes, including a decision to sell or shut down non-core operations. The company is also rumored to be facing major Super Fund liabilities and probable asbestos-related litigation over prior mining operations.
The other major domestic producer, Virginia Vermiculite, is land-locked and has less than two years of reserves left, as its only operating mine is surrounded by a state-owned conservation land trust which covers the extension of the vermiculite deposit that it is mining. There are rumors that W.R. Grace was involved in assembling the original conservation trust, which could spell further legal troubles (anti-trust actions for restraint of trade) for the largest U.S. vermiculite producer.
Vermiculite is not rare mineral, but commercial deposits are.
There are no economic deposits in Canada or Mexico, and Stansbury Holdings owns two of the three potentially commercial vermiculite deposits in the United States.
As Virginia Vermiculite depletes its reserves and W.R. Grace eventually exits the business, STBY will, for all intents and purposes, "inherit" about 200,000 ST / year of vermiculite business. Stansbury Holdings mines will be developed to meet this demand, and within a few years, STBY should be supplying a significant majority of U.S. vermiculite demand.
Producing Vermiculte is a Very, Very Profitable Business!
Knowing that STBY will soon be the dominant U.S. vermiculite producer, supplying an estimated 200,000 ST per year of product, you might wonder "what sort of margins can Stansbury Holdings expect to earn?"
In a word, staggering.
Vermiculite is mined just like sand and gravel. Waste and ore are mined, screened, dried, and sorted by size of particles. The waste goes back into the pit ("reclamation as you go"), and what's left is a "concentrate" that contains 90% vermiculite by volume.
All-in costs to a vermiculite producer generally run about $25 to $30 per ton of concentrate.
Vermiculite is sold as sized products, with the value (market price) of the product being greatest for the largest-sized products. Values decline with decreasing particle size. Currently, prices range from $100 to $160 per ton at the minesite (up 35% in less than two years).
Vermiculite, like most industrial minerals, is a freight-sensitive commodity. Vermiculite is sold by the ton and shipped F.O.B. either by railcars, which hold 90 to 100 tons, or by trucks, which generally haul 10 to 20 tons. Given their proximity to rail lines, STBY's mines will be able to supply vermiculite throughout the United States at competitive prices (right now, vermiculite from STBY's Dillon mine can be profitably shipped and sold everywhere between the Pacific coast and the western edge of the Appalachians).
The demand for vermiculite is well-established. It's also a known fact that W.R. Grace's customers are on allocation. The fact that vermiculite is currently being imported into the United States from China and South Africa suggests to us that current production from South Carolina and Virginia is insufficient to satisfy U.S. demand for vermiculite, especially in the larger-sized (higher-priced) products that can be produced from STBY's properties in Montana.
Downstream processing of vermiculite is even more lucrative, and STBY is expanding into this side of the business as well.
Exfoliation plants take the vermiculite concentrates and treat them in a high-temperature furnace; the heat causes the vermiculite to expand its size approximately 11x to 20x the volume of the untreated ore. As treated, exfoliated vermiculite brings about $400 to $500 per ton. For a producer that owns its own exfoliation plants, margins of $300 to $400 per ton are easily achievable&and if you can mine and process 50,000 or 100,000 tons per year at these kind of margins, then you are generating earnings that Wall St. analysts will sit up and take notice of!
To enter the downstream segment of the industry, Stansbury Holdings is acquiring a small, operating exfoliation plant in Los Banos, CA that will treat concentrates shipped from STBY's vermiculite mine in Dillon, MT. This plant currently supplies about 5,000 tons of expanded vermiculite (@ $450 / ton) to agribusiness greenhouses and the horticulture industry on the west coast. As mine production at Dillon increases, STBY plans to boost the capacity of the Los Banos plant to serve the regional market.
Commercial Deposits of Vermiculite are Few and Far Between
Vermiculite deposits of an economically-significant size and commercial quality are geological rarities throughout the world. The United States and the Republic of South Africa produce most of the world's vermiculite (about 200,000 ST/year each); China is a fairly significant producer; lesser quantities are also mined in Brazil, Zimbabwe and Australia.
In the United States, vermiculite production peaked in the 1970s, and has since slowly declined, with the difference between mine supply and consumer demand being fulfilled by imports (about 50,000 to 80,000 ST/year), principally from South Africa and China, and priced at approximately $300/ST.
All of the vermiculite that is now being mined in the United States (roughly 200,000 ST) comes from mines in Virginia and South Carolina that have nearly depleted their economic reserves. In the U.S., vermiculite prices have risen 35% in the last two years, based on increasing demand and tight supplies.
Vermiculite is a mica-like mineral which exfoliates (expands or "pops" upon rapid heating) to produce an inert, low-density material with significant thermal qualities - it does not burn and provides excellent heat resistance. Vermiculite is sold as sized particles, with the larger-sized concentrates yielding higher prices
Untreated vermiculite is commonly used as an active component of wall plasterboard. The exfoliated product is used extensively as a lightweight aggregate in fireproofing, thermal insulation, acoustical plasters, horticultural growth media (potting soils), and as a fertilizer carrier. A major use is in cement coatings used to protect structural steel in commercial buildings. Ground vermiculite is used as a filler for brake linings. New uses for vermiculite include high performance automotive seals and catalytic converter mats.
More information regarding vermiculite can be found at: mcn.net
Each Share of STBY Represents $2.80 to $4.48 Worth of Vermiculite
One way of placing a value on Stansbury Holdings is to think of STBY shares as a "proxy" for vermiculite in the ground, and a call on the future revenues that STBY will generate as it mines, processes and sells the material.
Reserves and resources of vermiculite at STBY's 100%-owned Hamilton and Dillon projects in Montana total 2,505,768 tons or 5,011,536,000 pounds of vermiculite in the ground.
To be conservative, let's assume that just two-thirds of the vermiculite in the ground might ultimately be recoverable. This brings down STBY's vermiculite reserves and resources to 3,341,024,000 pounds.
With 60 million shares outstanding, that's about 56 pounds of vermiculite per share.
Based on the grade (size) of the vermiculite, buyers will pay $100 to $160 per ton (5 to 8 cents per pound) at the minesite for something that costs no more than $25 to $30 per ton (1.25 to 1.5 cents per pound) to produce.
Therefore, based on Stansbury Holdings current reserves and resources at its two Montana projects, each share of STBY represents somewhere between $2.80 and $4.48 worth (market value) of vermiculite. The projected margin (future earnings) on each share's 56 pounds equivalent worth of vermiculite is expected to be somewhere between $1.96 and $3.64 per share.
Applying a conservative P/E multiple of 2x projected future total earnings would suggest a long term target market price of between $3.90 and $7.20 per share.
Too high?
We think not.
Several years down the road, when Stansbury Holdings has taken over the market share currently supplied by Virginia Vermiculite and W.R. Grace, we expect that STBY's mines will be producing about 200,000 ST (400 million pounds) of vermiculite per year. Assuming that a six cent per pound margin can be realized, that's $24 million per year in earnings ($0.40/share) for Stansbury Holdings - just from its two Montana vermiculite mines.
Add in the profits from a scaled-up Los Banos exfoliation plant and a few other downstream processing operations, and Stansbury could potentially be generating $30 million or more in annual net earnings ($0.50/share)&.and justifying a 10x or 15x multiple on its earnings.
Lastly, investors should note that Stansbury Holdings Corp. has a minimum net asset valuation (NAV) of $17.6 million based just on the Hamilton and Dillon vermiculite projects, and no significant debt. Based on 60 million shares outstanding, that gives a valuation of $0.29 per share (just a little under the current price), with no consideration for the value of the Mica Peak project in Nevada, the Los Banos exfoliation plant, or any other deals that Stansbury Holdings might have in the works.
STBY Share Structure & Recent Trading Range
Total Outstanding Shares Estimated @ ~ 60 million
Public Float Shares 26 million*
52-week Trading Range $0.095 (low) - $0.47 (high)
Recent Price $0.33 (bid) - $0.36 (ask)
*(16.6 million shares held by long-term investors)
Stansbury Holdings is a fully-reporting company with a very informative and frequently-updated web site at stansburyholdings.com For investors seeking independent information on STBY, there is a very active discussion thread on RagingBull at ragingbull.com
Why We Believe STBY Should be a Core, Long-Term Holding in Your Portfolio
During 1999, Stansbury Holdings achieved a number of corporate milestones, including a return to fully-reporting status, the acquisition of the Dillon mine and mill, elimination of over $4 million in debt, and entering into the International Vermiculite joint venture, which will provide 100% of all capital and equipment for developing and operating STBY's vermiculite mines.
While the Stansbury Holdings story is not about exciting new technology, STBY's intrinsic value ($0.29 / share NAV) is much greater and far more tangible than most companies traded publicly on the OTCBB or NASDAQ small cap markets.
Stansbury Holdings is positioned to gain a dominant position in the U.S. vermiculite markets over the next few years as it transitions from a development-stage company to a revenue-generating firm. We expect that STBY will assume W.R. Grace's market-leading position, and that Stansbury Holdings will dominate the U.S. vermiculite industry for 20 years or more. The company will be experiencing tremendous growth over the next few years (bringing two, possibly three vermiculite mines on-line), and investors who get in now and stick around for the long haul should be well-rewarded for their patience.
Right now, the Dillon mine is just starting operations, and over the next several months, will be ramped up to 30,000 ST/yr. STBY should have no trouble at all selling every ton of vermiculite that the Dillon mine can produce, at margins of $70 to $130 per ton. Permitting is underway to expand the Dillon mine to 100,000 ST/yr. The nearby Hamilton project is fully-permitted as well, and over the next year or so, will be brought on line as well. Longer term, we anticipate that STBY's Mica Peak project in Nevada will be developed to serve the lucrative west coast markets that are presently the domain of costly ($300/ST) Chinese imports.
We are extremely impressed with the loyal support of STBY shareholders over the company's 30+ year history as a public company.
Presently, there are about 3,500 shareholders of record, and no single person or group owns more than 3% of the stock. During 1Q 2000, existing long-term shareholders subscribed for nearly $500,000 in private placement financings. Lastly, STBY has about a dozen wholesale market makers, something that's virtually unheard of in a small OTC-BB stock.
Research Investment Group anticipates release of an updated investment opinion on Stansbury Holdings prior to May 31, 2000.
For additional information, please contact:
Brian McCarty, Director of Investor Relations
Tel: (215) 928-9630
E-mail: bmccarty@netreach.net
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Disclaimer of Research Investment Group - "PLEASE READ"
Research Investment Group is not a Registered Investment Advisor or a Broker / Dealer. Readers are advised that this report is issued solely for information purposes and is not to be construed as an offer to sell or the solicitation of an offer to buy. Reproduction of this report, in whole or in part, by any means, electronic or otherwise, including via the Internet, without prior written permission, is strictly prohibited.
Research Investment Group has independently prepared this report, drawing upon a range of public news and information sources, as well as data and opinions provided by Stansbury Holdings Corp. ("STBY" or the "Company"). Prior to publication of this report, the Company reviewed and approved the contents hereof. Research Investment Group has not independently verified the Company 's representations. Any opinions expressed in this report are statements of judgment as of the date of publication (25 April 2000) and are subject to change without further notice, and may not necessarily be reprinted in future publications or elsewhere. Neither Research Investment Group nor its owners, employees or consultants accept any liability whatsoever for any direct or consequential loss arising from any use of this report or its contents.
The information contained herein is not intended to be used as the sole basis of any investment decisions, nor should it be construed as advice designed to meet the investment needs of any particular investor. The opinions and analysis included herein are based on sources believed by Research Investment Group to be reliable and in good faith but no representation or warranty, expressed or implied, is made as to their accuracy, completeness or correctness. The foregoing discussion also contains forward-looking statements that are based on current expectations and differences can be expected. The information and opinions contained herein is not intended to be a complete discussion of information regarding some of the current and/or intended business activities of the Company, and all information contained in this report should be independently verified with the Company. Readers are urged to consult with independent financial advisors with respect to an investment in the shares mentioned herein. Investors should review a complete information package on the Company which should include, but not be limited to, the Company's annual report, quarterly report, press releases, as well as all regulatory filings.
In order to be in full compliance with the Securities Act of 1933, Section 17(b), Research Investment Group advises readers of this report that it has received a fee of 50,000 restricted (144) common shares of STBY from Stansbury Holdings for its efforts in researching, writing and disseminating the information contained herein. Research Investment Group, its owners, employees and consultants may profit in the event the shares of the Company increase in value. These positions may be liquidated from time to time even after Publisher, its owners, employees and consultants have made positive comments regarding the Company.
THE READER SHOULD VERIFY ALL CLAIMS AND DO THEIR OWN DUE DILIGENCE BEFORE INVESTING IN ANY SECURITIES MENTIONED. INVESTING IN SECURITIES IS SPECULATIVE AND CARRIES A HIGH DEGREE OF RISK. INVESTORS MUST ALSO INDEPENDENTLY VERIFY THE "BLUE SKY" ELIGIBILITY OF THE SECURITY MENTIONED IN THIS REPORT BEFORE MAKING ANY INVESTMENT DECISIONS. TIMING OF, AND ANY BUYING OR SELLING DECISIONS, ARE THE SOLE RESPONSIBILITY OF THE READER.
Research Investment Group encourages readers to review the investing information available from the Securities and Exchange Commission ("SEC") at sec.gov and/or the National Association of Securities Dealers ("NASD") at nasdr.com The NASD has published information on how to invest carefully at its website. STBY is a fully-reporting company with the SEC. The company's recent SEC Filings may be accessed through the Company's website (http://www.stansburyholdings.com/business_profile/sec_filings.htm) and selecting a specific filing (10-K or 10-Q). Readers may access and review all of Stansbury Holdings SEC filings at freeedgar.com and searching the EDGAR database.
¸ 2000 Research Investment Group
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THE READER SHOULD VERIFY ALL CLAIMS AND DO THEIR OWN DUE DILIGENCE BEFORE INVESTING IN ANY SECURITIES MENTIONED. INVESTING IN SECURITIES IS SPECULATIVE AND CARRIES A HIGH DEGREE OF RISK.
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