Danke kleinlieschen mit Deiner Hilfe hat es ja nicht lange gedauert... ;)
Old King Coal and a Pot of Gold
Silverado Gold Mines is listed on the following exchange:
OTCBB: SLGLF
Frankfurt: SLGL
Berlin: SLGL
Stock Quote: finance.yahoo.com/q?s=SLGLF.OB
Website: www.silverado.com/
SEC Filings: finance.yahoo.com/q/sec?s=SLGLF.OB
Share Price (3/9/06): $.118
Outstanding Shares (2/22/06): 438 million
Fully Diluted Share Count (2/22/06): 532 million (estimate)
Fully Diluted Market Capitalization: $62.8 million
Coal: It's Important Stuff
Surprisingly enough, it was coal that energized the development of America as a young nation. Coal did this by warming homes, fueling factories, and powering mighty trains and ships which in turn served to transform American into an economic giant. And this is precisely why coal earned its nickname of the 19th century, "King Coal".
But times have changed, and with them perceptions. Coal is seen as a dirty form of energy that should be limited in its use in industrialized nations who are able to effectively utilize oil, natural gas, solar energy, etc.
No doubt these perceptions pose a very formidable obstacle for coal’s reemergence as a more significant* source of America’s energy, but all this is steadily changing with the advent of coal liquification technology. Amazingly, recent developments have been made that can turn solid, dark and dirty coal into a clean, liquid fuel very similar in form to crude oil. Called “Green Fuel” by Silverado, it could help tremendously in solving the problem of US dependency on foreign oil imports.
*Currently over 50% of US electricity is generated by the direct burning of coal.
Coal is America’s only fossil energy resource abundant enough to be considered a strategic fuel, but in order to fully qualify it must exist in a liquid form as it can then be used in a wider variety of applications with minimal environmental effects.
Currently the United States is home to over 25% of the world’s coal reserves. In fact, the United States possesses some 275 billion tons of estimated recoverable coal reserves, an amount equal to all the world’s proved oil reserves! As you can observe from the chart below, this is the largest coal reserve in the world.
Above Source: www.affordable-energy.org/key_points/dependence.asp
World Recoverable Coal Resources Pie Chart
Above Source: www.ultracleanfuels.com/html/about.htm
Furthermore, the US has 475 billion tons of coal in its demonstrated reserve base, an amazing 1,600 billion tons of identified resources, and an additional 1,600 billion tons of postulated resources!
It seems foolish not to better exploit this cheap and prolific energy source, if only it were possible to do so while causing minimal harm to the environment. Silverado’s Green Fuel project may have the answer. By converting coal into its liquid form, it can then be used in existing oil infrastructure, for handling, storage and transportation, such as pipelines.
For every ton of coal processed in this manner, Silverado can produce about 2.53 barrels of oil equivalent, and it may be possible to further refine the process and bring this conversion number higher. Remember that the US has about 275 billion tons of recoverable coal reserves. If we multiply this number by 2.53, we arrive at a phenomenal amount of oil equivalent, 695.75 billion barrels!
An elephant field, in oil tycoon jargon, is equivalent to 1-2 billion barrels. Finds like these are phenomenal, and they make men and companies rich. Well, here we have almost potential 700 elephants sitting right under our noses, seriously challenging the OPEC cartel.
The US currently imports about 10 million barrels of oil per day. With 696.75 billion barrels of oil equivalent using estimated recoverable coal reserves, the US by itself could fuel its economic machine for over 190 years without the need to import any oil, assuming consumption levels remain constant (this calculation is not meant to be taken literally, but merely as an illustration of coal’s unrealized potential). I won’t do the math, but if coal resources are in excess of 1.6 trillion tons as is estimated by the US Geological Survey reports, and if these coal resources can be mined feasibly even if it takes a higher price environment, then even with energy demand on the rise the US would be able to supply her energy needs without the need for significant foreign imports for quite a long time.
Above Source: worldenergy.org/wecgeis/publications/reports/ser/coal/coal.asp
Silverado has determined that they can produce this same liquefied coal at an average cost of about $15/barrel of oil equivalent. This is dirt cheap at today’s oil prices, but the idea didn’t really start to gain momentum until last year. Remember that the average price for crude in 1999 was just $12/barrel, in 2001 just $23/barrel, in 2003 just $28/barrel. It wasn’t until 2004 that the average price rose above $30/barrel, standing at $37/barrel for the year. Now with prices upwards of $60/barrel there is finally enough incentive to pursue alternative sources, that is, to justify the cost of research, development, and infrastructure changes. This leads me to believe that the government funding sought by Silverado for some time now will arrive shortly, or perhaps even from individual state governments themselves who are anxious to further exploit their large coal deposits.
Of course, this $15/barrel of oil equivalent figure does not tack on administrative expenses which might add on another $5-$10/barrel. Furthermore, the price of liquid coal will need to undercut the market price of crude by 10-20% in order to stimulate demand. Even so, with crude oil trading at about $65/barrel the margin of profit on Silverado’s green fuel would still range between $27-$39/barrel.
With all this in mind, it seems to me that Silverado’s Green Fuel division could someday (perhaps sooner than we think) be bought out by a major like Exxon or Chevron who are over eager to replenish their diminishing oil reserves. With China and others bidding up oil projects all over the world and old oil deposits drying up, Silverado appears to be in the catbird seat as long as this trend continues.
And Silverado isn’t a newcomer when it comes to management. Dr. Wilson, the Vice President of Silverado Green Fuel has over 30 years of experience in energy-related fuel consulting having written hundred of scientific papers on the subject (click here to read his impressive resume www.silverado.com/warrack/). In addition, Garry Anselmo, the Chairman, CEO, and President of the Silverado Gold Mines, has been with the company since its inception over 30 years ago. He’s holding on to his shares (mostly options) in anticipation of 33 years of hard work finally paying off. With the company having to live through a 20 year bear market in the commodities sector, namely gold, this gives the new investor some idea of this company’s tenacious character.
Currently, all executives and directors of Silverado hold about 13.3% of the company, or in other words about 64 million shares (this includes options and warrants). The benefits of insider ownership are somewhat obvious in any company, since failure to succeed translates into significant negative financial consequences for both the shareholders and executives/directors.
Progress, Slowly but Surely
In a news release dated November 17, 2005, Silverado reported the following:
“On August 8th the President signed into law the Energy Bill which contains language authorizing the Denali Commission to utilize its funding for the Low-Rank Coal-Water Fuel Project proposed by Silverado. Specifically, section 356 states that the ‘Commission shall use amounts made available...to carry out energy programs, including...projects using coal as a fuel, including coal gasification projects.’”
Included in the bill was $50 million for the Alaska Denali Commission. This was a wonderful surprise to Silverado since hurricane Katrina and Rita resulted in expenditure cuts of several billion dollars in thousands of other business pursuits. Quotes from this same news release follow:
"We look forward to working with the leadership of the Denali Commission to move the LRCWF project ahead,…Anselmo continued, "In addition, we have been in discussions with leaders in a number of states who have expressed interest in placing our demonstration plants in their states as well. We are excited about the prospect of making several important announcements in the near future once the details are finalized."
Green Fuel and the Demonstration Plant
“Silverado's Green Fuel Demonstration Project will show the economic feasibility and environmental superiority, of converting Low Rank Coals into a stable liquid fuel that can be used efficiently…”
“Silverado’s Green Fuel is not a new fuel, but a new fuel form…[one that] eliminates all of the utilization and environmental problems associated with bulk coal handling and use.”
“The technical feasibility of producing and utilizing Silverado’s Green Fuel…has been demonstrated on a pilot plant-scale. This fuel performed excellent in combustion tests...”
“Just outside of Fairbanks, Alaska, Silverado Green Fuel Inc., has an idled gold recovery plant on location with nearly half of the equipment necessary for a demonstration plant. Adjacent buildings surrounding the main structure have ample space to accommodate the remaining equipment. The estimated cost for a three-year production and utilization demonstration of Silverado’s Green Fuel is $20 MM.”
www.silverado.com/fueloverview.htm
Silverado Green Fuel intends to generate revenue primarily from sales of its green fuel to utility and industrial oil users and sales of equipment and instrumentation made to developing nations, particularly Asia and Eastern Europe.
“The last step required to commercialize this promising technology is to complete Silverado’s Demonstration Facility.”
For an in-depth review of the coal liquification process see: www.silverado.com/fuelprocess.htm
How Long? How Long?
Once funding of $10-$20 million is received, within days Silverado can begin building the demonstration plant. It is impossible to know when funding will arrive, but I hypothesize that it will arrive within a few months time.
Once the demonstration plant is completed (estimated 3-6 months), it will run for 1 year in order to fine tune, optimize, and adjust the Low-Rank Coal-Water Fuel process. At this point, plans can drawn up for the construction of a commercial plant. This commercial plant could start being constructed (3-5 years to build), while the demonstration plant enters into its second year of operation (on a small commercial scale).
Thus, it appears that a commercial plant could be fully built and ready for use just 4 years after the necessary funds arrive to fund the demonstration plant.
This commercial plant would be built to produce an estimated 50 million barrels of oil equivalent per year. At a profit margin of $30/barrel, that equates to $1.5 billion. Though it isn’t very likely at this point that Silverado itself will own the commercial plant, Silverado will likely receive both a construction fee and royalty fees for fuel and services. Furthermore, plants like this could multiply across the nation and perhaps even the world if they prove to be as successful as Silverado expects. If this happens, the royalties alone could prove enormous; especially when considering that the current market capitalization of Silverado is only about $63 million fully diluted.
In any event, the royalties from Silverado’s green fuel project would prove more than adequate to further develop their Alaskan mineral properties which are thought to hold the potential for several million ounces of gold, if not more.
Regarding Competition
It is thought that too much expertise and capital would be required for competitors to initially take away the business from Silverado. And if Silverado penetrates the market first, then they would likely become the ‘Standard Oil’ of ‘liquid coal’.
WARNING: The Dilution Trap
In order to be honest in my coverage, I must comment on what I see as a dangerous dilution habit. Excessive amounts of shares have been issued since 2000 after the 1:10 reverse split in 1999. Though a large share does tend to attract institutional investors because of increased liquidity, it is nonetheless a sometimes subtle form of inflation that eats away shareholder value.
(The following numbers are not fully diluted unless stated otherwise)
* Share count 03/08/00 - 16 million
o Market Value $3.5 million
* Share count 11/30/01 – 42 million
o Estimated Market Value of $5.5 million (using $.13/share)
* Share count 11/30/02 – 98 million
o Estimated Market Value of 12.7 million (using $.13/share)
* Share count 11/30/03 – 146 million
o Estimated Market Value of $29.0 million (using $.20/share)
* Share count 11/30/04 – 224 million
o Estimated Market Value of $15.7 million (using $.07/share)
* Share count 11/30/05 – 355 million
o Estimated Market Value of $14.2 million (using $.04/share)
* Share count 02/22/06 – 438 million
o Market Value of $70.0 million (using $.16/share)
Today’s market value using the fully diluted share count of 532 million* is about $62 million.
*This number includes 94 million options and warrants, most of which are exercisable for several years at $.05/share (meaning they are extremely likely to be exercised even if the share price remains stagnant).
From the above we can see that the share count was diluted by a factor of about 27 in the period 2000-2006, and that at the same time the market value of Silverado grew by a factor of about 17.
I must stress that these numbers concern me.
However, if we realize that in the year 2000 the Green Fuel division of Silverado was just launched, gold was under $300/ounce, and oil was under $20/barrel, it becomes somewhat more acceptable to expect the market value of the company to increase by such a large multiple. Remember also that Silverado Gold in the year 2000 seemed to be significantly undervalued (like so many other junior companies at the time), having a market capitalization of just $3.5 million.
With significant revenues from Silverado’s Nolan Gold Project expected to be realized in the second half of this year as the gold nuggets are washed, and the expectation that government funding will soon be realized, the value of this company could easily go ‘exponential’ once again. Hopefully the revenues from the increased gold operations will be significant enough to avoid more significant dilution in the future. If dilution can be avoided, then the increase in market value will actually be reflected in the share price, imagine that!
But if dilution continues and the $20 million funding for the demonstration plant becomes a long and tortuous waiting game, then I think it is reasonable to expect that Silverado’s share price will slip back into the $.04-$.05/share trading range for however long it takes, a 60% retrenchment from these levels.
Please realize that I am not invested in Silverado for its gold potential. I believe there are much better opportunities out there for gold explorers. Progress on the green fuel project is what I am interested in seeing. Any news related to significant gold discovery is just icing on the cake, and will hopefully generate further interest in this company from the on looking investment community as the green fuel project progresses.
A Naked Shorts Paradise?
It is estimated that there may be as many as 1 billion shares short on Silverado stock, a result of the long bear market and a well disciplined attempt by the market makers to bankrupt this company. This means that downward pressure in the past will become rocket power in the future if positive developments are in the cards.
In short: keep your eyes peeled on Silverado in the coming months, but as always, don’t bet the farm.
See the following: Important Update on Silverado Gold Mines
Disclaimer:
I DO own shares in Silverado. The company has NOT paid me to write this report. This is NOT to be construed as investment advice. ALWAYS conduct your own due diligence before investing in any stock. I am NOT an investment advisor, and your trading decisions are NOT my responsibility.
Disclaimer
Information contained on the Silver In Scripture web site and published in both View My Portfolio and the Silver Stock Investment Newsletter is obtained from sources believed to be reliable, but its accuracy cannot be guaranteed. The information contained from these sources is not intended to constitute individual investment advice and is not designed to meet your personal financial situation. The opinions expressed therein are those of the publisher and are subject to change without notice. The information therein may become outdated and there is no obligation to update any such information. David Zurbuchen, entities in which he has an interest, employees, officers, family, and associates may from time to time have positions in the securities or commodities covered in these publications or web site. PLEASE SEEK THE ADVICE OF PROFESSIONALS, AS APPROPRIATE, REGARDING THE EVALUATION OF ANY SPECIFIC SECURITY, REPORT, OPINION, ADVICE, OR OTHER CONTENT. We do not in any way warrant or guarantee the success of any action you take in reliance on the statements of the designated subsidiary.
Zurück
