5 Reasons JBI May Rise Again, Like A Phoenix From The Ashes
January 24, 2013 | 1 comment | about: JBII.PK
Disclosure: I am long JBII.PK. (More...)
Anyone can build plastic and steel. Only a few can put intelligence in it. That's where the money is.
-- John Bordynuik, Founder and Chief of Technology, JBI, Inc.
JBI, Inc. (JBII.PK) announced on Wednesday, January 23 that the SEC
approved a settlement over legacy accounting issues stemming from 2009.
The company agreed to a $150,000 civil penalty, a proverbial slap on
the wrist considering the legal expenses that would likely come from a
trial, especially considering a fine of this small size is typical of
the type of for filing errors as opposed to fraud (which start at $250k
per incident). JBII was trading over $4.00 per share in the month that
the Wells Notice hit in 2011. With this dark cloud now lifted, JBII is
now in a position to focus solely on is technologically disruptive
operations.
JBII has developed a patent-pending process
called "Plastic2Oil" (or P2O) that takes unsorted, unwashed waste
plastic and turns it into consumer-ready in-spec fuel. Its process
utilizes a proprietary trade secret catalyst to crack the long
hydrocarbon chains in plastic similar to the way oil refineries crack
long hydrocarbon chains in oil.
The process runs on its own
off-gas and is mostly automated leaving very little labor and energy
costs to run. JBII's process has been validated as economically viable
by SAIC (SAI), Rock-Tenn (RKT) and a host of others. JBII is currently
operating two P2O processors with a 3rd in construction/assembly.
Production and sales are expected and forecasted to be consistently
ramping up significantly and will allow them to achieve cash flow
positive results during the first quarter of 2013.
Why is this a big deal?
The never-ending quest to find alternative sources of energy that can
cleanly be made and still are economically viable has failed and will
continue to fail according to the US Energy Information Administration
(see table below). The goal of any alternative energy concept is (or at
least should be) to produce energy that cost less to make than
traditional means. Nuclear, incineration, hydro, geothermal, wind,
solar, etc. -- all are still too expensive despite trillions of dollars
having been poured into these technologies over the years. The reason
for their failures is either prohibitively high up front capital costs
that bare fair too little energy return (e.g. - solar and wind), have
high energy costs themselves (e.g. - biomass incineration), or high
labor cost (e.g. - ethanol and other biofuels).
If JBII
achieves cash-flow positive operational status as quickly as it
forecasts, such achievement with such a low capital cost alternative
energy process will be the first of its kind. Succeeding in this goal
would be a first across the green energy spectrum in North America and
would be considered a significant victory for the green energy
movement.
5 Reasons To Be Excited About JBII Now:
1. Cash Flow Positive Forecast
As previously mentioned, JBII forecasts a large ramp up in sales and
cash flow positive operations in Q1 2013. Q4 numbers still aren't out
yet, but JBII did volunteer that the month of October was a record
month for production. JBII's CEO Kevin Rauber left his previous company
and current JBII partner Rock-Tenn where he headed the division that
won Business Unit of the Year. He took a big pay cut to come work at
JBII. Kevin stated in November 2012:
"As we continue to
make progress in executing our business plan, we anticipate achieving
increases in production and revenue that we expect will allow us to
achieve cash flow positive results during the first quarter of 2013"
This statement was repeated in the latest 10Q filing that was prepared and signed by CFO Matt Ingham.
2. Valuation
Pyrolysis-catalyst company KiOR, Inc. (KIOR) uses wood feedstock
instead of plastic. The executives there seem rather excited: they hope
to have any gross profit from making fuel from waste in the year 2015,
over 2 years later than JBII.
"With scale-up, total cost
per gallon drops to $5.95 by 2013, $3.73 per gallon in 2014, and the
magic sub-$3.00 figure in 2015 when it is expected to reach $2.62 per
gallon at full-scale."
As I type this, investors continue
to embrace KIOR's future so highly, they continue to award it a market
cap of around $650 million. JBII would be over $7.00 per share with a
similar market cap. How would the market embrace a cash flow positive
JBII in 2013 while KIOR hopes to achieve it by maybe 2015? (and with
massive capital costs for KIOR no less)
3. Key Partner Rock-Tenn
JBII's current operations are in Niagara Falls, NY where JBII expects
that single location alone will make them cash flow positive. For
expansion, JBII and Rock-Tenn Company have signed a exclusive 10 year
agreement. According to the agreement, "RockTenn's paper mills and MRFs
currently produce thousands of tons of plastic per day. To handle the
plastic waste stream, RockTenn has been storing this by-product in
company-owned plastic-only monofill sites for several years. The
agreement gives JBI the exclusive rights to mine plastic from these
sites.....RockTenn has the industrial relationship and feedstock to
support hundreds of Plastic2Oil(TM) processors."
RKT as a
partner gives JBII the potential to expand rapidly and cheaply at their
locations that have many permits, security, parking lots, and other
infrastructure at no cost to JBII. In return, RKT is offered a first
right to purchase fuel from JBII at a 20% discount to rack prices. This
is a mutually beneficial relationship as not only does RKT pride itself
as a green company but they spend hundreds of millions in fuel every
year so the cost savings on discounted fuel could be very significant
as it would all fall directly to RKT's bottom line as an extremely
profitable revenue stream for them. This is the type of relationship
that could get JBII positive exposure fast to RKT's institutional
investors as JBII expands and word of mouth flows about what JBII is
doing on how RKT is saving so much money on fuel.
The first RKT location was recently revealed that it will be in Jacksonville, Florida.
4. Backers
JBII has some serious muscle backing them up. Not very often do you see
any prominent investors backing OTC microcap stocks let alone a large
list of them including billionaire Meyer Luskin, CEO of Scope
Industries, who recently came back and made another large investment in
JBII. Also of particular note is Michael Dorrell & Trent Vichie of
Blackstone (BX) fame among many others. Also the Chairman of the Board,
John Wesson, made a 6 figure investment in JBII in 2012 (on top of
other large investments in previous years).
5. Media
Media coverage of a company can often have a dramatic effect on stock
prices, especially for microcaps. JBII already has a history of some
positive media coverage (which sometimes sent the stock up hundreds of
percent). If and when JBII achieves cash flow positive, perhaps it
should be expected there will be more forthcoming and could have a
stronger story being one of success rather than hope.
Four Examples:
Discovery Channel:
From non-recycled plastics to liquid gold, it's a beautiful thing.
Plastics industry is paying very close attention to what JBI is doing.
This is a big deal. This could be the final piece of the sustainability
puzzle for plastics.
-- Greg Wilkenson, Plastic Industry Consultant & former President and CEO at Canadian Plastics Industry Association
Local Televsion:
Every waste hauler in the United States, Canada, and a lot of other
places, is going to have one of these units located on site, because
now they can take plastic they would otherwise pay to landfill, and
they can convert it into fuel to run their vehicles.
-- Paul Dyster, mayor of Niagara Falls, N.Y.
National Public Radio:
They're getting value from something that would otherwise go to the
landfill because the plastics most of them are looking for, the
plastics that are not easily recycled, they're of low quality or
mixed-plastic types, or they're dirty - things that wouldn't be
accepted into a recycler. -- Carson Maxted of Resource Recycling. And
because there's no lack of waste-plastic supply, and no lack of demand
for oil, Maxted says the technology has the potential to transform both
industries.
Local News
Our ultimate goal is to
try to lure the company, JBI, to set up an operation at our
agricultural renewable energy park at the landfill site and hopefully,
that will open it up to the entire region to help solve this problem.
-- Jim Zecca, director of the Madison County Solid Waste and Sanitation Department.
Thanks to Brigg!
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