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Microcap & Penny Stocks : Rentech(RTK) - gas-to-liquids and cleaner fuel -- Ignore unavailable to you. Want to Upgrade?

To: chirodoc who wrote (8652)	9/13/1998 7:55:00 AM
From: S.C. Barnard	Read Replies (1) \| Respond to of 14347

More of why people might want to stay long from Yahoo... Important new information BrianB_Australia Sep 13 1998 6:31AM EDT I have recently un-earthed new information (for me) relating to world-wide refinery capacity. I never had this particular number before and, armed with the info, I can now generate a valuation for Rentech that will cross validate the prior assumptions. At face value, my lower level $3 figure may look a tad conservative (assuming the Tx deal is signed). I will crunch the numbers and post the results within a couple of days I also discovered a significant inaccuracy in the original financial model. Cougar had developed a model which assumed capital requirements of US$15,000 per barrel per day. I now believe this number to be less - around $5,000 /bpd. Needless to say, this is a highly significant difference, but only applies to refineries that already have gasification. Nevertheless, for the 60 or so Texaco refineries that do have gasification, the capital commitment has just dropped by 2/3, and the IRR on the incremental investment has just sky-rocketed from 20% p.a. to 61% p.a. Bottom line: The probability of Texaco commiting to GTL technology just went up (in my thought processes) to a virtual certainty. Where else can anyone get a 60% p.a. return on their investment? Outstanding questions from Texaco's perspective: 1. Does RNTK's GTL technology work? 2. Can it do the job we need? (There may be technical problems in handling refinery bottoms that go beyond gasification, eg: How do you get the gunk out of the tank? It can't be pumped all that easily) 3. Can we do it without Rentech - i.e. break their patents and bypass them? My guess is that 1-3 are all addressable, but from Texaco's perspective they presumably need to be validated fully before any contract is signed. It is conceivable that Texaco could be looking at other technologies for reclaiming refinery bottoms that do not involve GTL at all - eg Microwave or Ultrasonic separation. In the event that the capital costs of these technolpogies is lower than GTL, and assuming they work, an IRR of greater than 60% may be possible. This issue may turn out to be a wild card that could blind side the Rentech/Texaco negotiations, but one important fact is that Rentech has actually built a commercial scale working plant. To my knowledge, the other new technologies are still in the emerging stage. I remain relaxed.