Tuesday, May 03, 2016

Shiny Metals

If charm and gleaming military credentials can lubricate the wheels of success at IBC Advanced Alloys (IB:  TSX or IAALF:  OTC/QB), the company is destined for greatness and its stock should be a home run.  The company’s chief operating officer, David Heinz, appeared in New York City last week at the Murdock Capital Clean Technology Symposium to lay out the merits of its product line of specialty materials.  IBC’s shiny copper and beryllium aluminum alloys appear almost dull compared to the luster of Heinz’s military service that started at the U.S. Naval Academy and culminated as a major general in the U.S. Marine Corps.  To be fair Heinz is more than a well decorated front man.  His experience includes a stint at iRobot (IRBT:  Nasdaq) where he worked on developing underwater robots and a turn at Middlebury Asset Advisors.

What is Beryllium?There is no shortage of talent at IBC.  The firm’s chief executive officer, Anthony Dutton, has a long history or corporate finance and investment banking.  There is also a deep pool of engineering talent at the company, most of which was fed by Fortune 500 aerospace, automotive and mining houses.  The head of IBC Engineered Materials, Chris Husskamp, is an alum of Boeing and is recognized as an expert in materials performance for automotive applications.  IBC Copper Alloys division is led by Mark Wolma, who has extensive experience in manufacturing and was trusted by Scherer Industrial Group for operations leadership.  Then there is the board of directors, which as a group has decades of experience in metal mining, manufacturing and engineering.  There are more people in this ‘talent’ lode  -  sales, business development, and executive leadership.

With all that knowhow in the house, some investors might wonder why IBC still struggles to deliver a profit.  The Company has accumulated losses of $45.9 million since inception.  In the twelve months ending December 2015,  IBC reported $15.6 million in total sales, resulting in a net loss of $4.1 million or $0.05 per share.  Worse still the company had to use $4.1 million in cash to support operations. 

To be fair IBC recently signed a four-year supply pact with a manufacturer of semiconductor assembly equipment, suggesting that there is some momentum building.  The contract is valued at $4.8 million or about $1.2 million per year for the company’s Beralcast  cast components.  Beralcast is an alloy of beryllium and aluminum that is light weight like aluminum and durable like beryllium.  Most importantly it can be cast rather than just machined into the right proportions.  Beralcast has appeal in the aerospace, automotive and semiconductor industries where light weight, durable precision components are an integral part of both production equipment and final goods.

The Beralcast order may do more to help raise capital than it will to propel the company to profitability.  Based on a gross profit margin near 10% and operating expenses near $4.0 million per year, IBC Advanced Alloys needs to pump the top-line up to $40 million to reach break even.  Of course, it is reasonable to expect at least some economies of scale as additional orders are received, which could mean a faster ramp to breakeven.

The news has been helpful in the company’s recent capital raise.  IBC is raising $4.2 million (CAD 5.5 million) through the sale of common stock and warrants at $0.30 per share (CAD 0.375) per unit.  Simultaneous with the capital raise the company is “reorganizing,” with Heinz taking over as CEO. 

As if the company lacked knowhow, two consultants are coming in lend a hand.  The former CEO of now bankrupt rare earths miner Molycorp (MCPIQ:  OTC/PK), Mark Smith, is advising the company on restructuring and operations management.  Smith is presently the CEO of NioCorp Developments Ltd., a producer of alloy materials located in Nebraska.

The stock of IBC Advanced Alloys is priced as an option  -  a bargain option at that  -  on management’s ability to execute on strategic plans.  Odds on the payoff should become more apparent yet in 2016, if the company can win additional orders for its alloy materials.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

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