Issue 1 2011
Free 8 Page investor Opportunity Lift out
IT’S WHAT SUCCESS LOOKS LIKE
Evaluating
Rare Earth
Mining Projects What on Earth…?
Micro Cap Option Pricing – A Black Art?
Understand & Quantify!
Estate Planning With a Heart
Alaska
The Last (Golden) Frontier
What is
most important to you...
An Exclusive Group of Networked Investors and Issuers
...as you consider investing in micro caps and small caps in the future?
Innovation? Sustainability? Profitability?
Competitive Advantage? Energy and Focus? Strong Management?
DON’T DECIDE without first-hand contact with these companies! Join us for our next forum to hear directly from a range of micro cap and small cap companies from multiple industries. DECIDE for yourself based on personal conversations with company management and executives. VIEW their presentations and ASK the difficult questions. NETWORK with peer investors to evaluate opportunities and SHARE experiences.
Who should attend? Fund managers, angel groups, individual accredited investors, investment bankers, family offices, wealth managers, etc.
Accredited Members Spring Small/Micro Cap Conference
JW Marriott Starr Pass Resort, Tucson features breathtaking views, direct access to the Tucson Country Club, and is only minutes away from some of Arizona’s finest golf courses. To find out more about the conference resort, visit www.jwmarriottstarrpass.com For more details, and to reserve your place, visit www.theamiexperience.com or call the number below. Places are limited, so act now!
March 7 & 8 (877) 265-5821
www. AccreditedMembers.com
2011
Sign-Up or Call Today to Buy and Sell Restricted Securities
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editor’s letter
Vicki McGee
Keating Capital, Inc. Offering Terms 10 million shares of common stock $10 per share Maximum of $100 million
Accredited Members, Inc.
Hello & Welcome We have created a new look and feel for the AMI magazine in conjunction with our new publishing company, Gore Creek Publishing, right here in sunny Colorado Springs. We’re very pleased and excited about this new relationship and look forward to producing a dynamic, interesting and above all useful quarterly read for you throughout 2011. It’s always intriguing at the start of a New Year to consider new investment opportunities — perhaps some you’ve never heard of before — and to that end we’ve included a new section to give you insight into diverse, emerging and topical sectors. Called IndustryInsider, you’ll find this starting on p.37. From algae to zinc, we’ll be profiling assorted industries in every issue. Who knows, today’s micro cap may be tomorrow’s Microsoft! A recurring theme in this issue is “doing well by doing good.” Whether it’s wealth planning or green energy, it’s certainly an aspirational target for today’s investor, and there’s aspirations aplenty to be found in these pages. If you’re interested in mining the main metal — or what it takes to manage/finance a mining operation — read about Murphy and Terra in this issue — two very different mining companies operating in dissimilar environments. From Cripple Creek, Colorado to the wilds of Alaska, “thar’s GOLD in them thar hills!!” Fascinating stuff. Of course, our focus remains solidly on the micro cap sector and we’ve included several insights and wisdom from those at the leading edge of the investor fray in our MemberInvestor section, starting on p.14. Be sure to read this section if you have a hands-on interest in investing in micro cap stocks or understanding micro cap companies. And definitely don’t miss our next Accredited Members conference on March 7th and 8th where you will get a first-class, upfront and in-person view of several micro cap investment opportunities. Enjoy, and let us know your suggestions for improvement, and even ideas for articles for the next issue. Contributions welcome! Vicki McGee, Editor amieditor@accreditedmembers.com
Keating Capital, Inc. is a closed-end fund that specializes in making pre-IPO investments in innovative, high growth companies that are committed to becoming public.
(720) 489-4908 www.keatingcapital.com Keating Capital, Inc. (“Keating Capital”) is a Maryland corporation that has elected to be regulated as a business development company under the Investment Company Act of 1940. This advertisement does not constitute an offer to sell or a solicitation of an offer to buy the securities described herein, nor shall there be any sale of these securities in any state in which such an offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state. Investors are advised to carefully consider the investment objectives, risks and charges and expenses of Keating Capital before investing. This offering may be made only by means of a prospectus, copies of which may be obtained from Keating Capital.
contents
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40 16 Micro Cap Option Pricing Can a micro cap’s stock volatility be understood and quantified for the options investor?
38 Alaskan Gold
What makes Alaska so attractive for today’s mineral mining companies?
48 Rare Earth Elements
A Beginner’s Guide to evaluating opportunities in this sector.
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8 InsideInformation
21 Regulars
8 Gold Is It! Micro Cap Funding for Privately Held Junior Mining Companies
MembersWorld
12 Human Capital Assets: How to Make the Most of This Valuable Resource
32 Estate Planning with a Heart
14 MemberInvestor 14 Betting on the Jockey 18 Macro Matters
21 Finishing First? Notes on Company Funding 34 Bases Loaded...but Learning a New Perspective IndustryInsider 40 Do Well While Doing Good 43 Industrializing Algae
23 Investor Opportunity
Pullout
45 Information Security
48
chairman’s letter
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Ac c r e d i t e d m e m b e r s i n c .
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ince our last magazine, Accredited Members has made marked progress on a couple of major initiatives. The first of these initiatives was the formation of our new business unit, AMI Managed Services, and the second, which as it turned out was an adjunct of the first, the launch of our wholly owned subsidiary, World Wide Premium Packers (“WWPP”). We formed AMI Managed Services to address the future growth of the public holding company. In our view, the new division is a highly synergistic expansion of some of the business we generate at Accredited Members, Inc. Succinctly, our platform attracts a variety of small companies looking for exposure to applicable investors. Initially, we recognized the value of the platform for small public companies, however, as we launched the business we discovered that it was also quite attractive to private companies looking for the types of investors represented by our membership base and at our conferences. Our conclusion was that there might be significant opportunity in the establishment of a management company that could assist certain private companies with the advancement of their business plans. In short, what we discovered was that many small private companies were formed by entrepreneurs with deep aptitudes in the technical aspects of their relevant businesses, but with limited expertise in other aspects of the business, which would include things like access to potential marketing relationships, various outsourcing opportunities, management and reporting infrastructure/controls, capital formation and structure and a host of others. Our experience has been that many small
private companies indeed develop products, services or other viable business opportunities with considerable promise, yet they ultimately fail because they lack certain key components necessary to advance their plans to the point of success. Our view was that our own aptitudes in many of those areas, as well as our considerable relationships with both our members and others enterprises operating in various other relevant areas, put us in a position where we believe we can provide marked value to certain private companies who lack some of those critical components. Moreover, we tend to know many of our members very well and many of them possess expertise in industries relevant to the private companies who seek our services. The managed services approach allows us to leverage and monetize those relationships by engaging some of those members or others we may know to help us execute the portions of the business that the private company operators may not be able to execute on their own. We believe this new unit has measurable promise and could provide us with some of the scalability we seek in terms of enhancing the value of the holding company. We also believe that our legacy platform provides a considerable source of potential deal flow to support the management services model. While our new business made perfect sense to us, we also recognized that in order to launch the managed service business, we would likely need to demonstrate its value with a real/tangible example, rather than trying to sell the “concept”. The managed service arrangement requires a substantial economic commitment from the issuers we are attempting to contract, so in our
view, the best sales tool we could develop was a successful client. In short, we wanted a successful reference customer to demonstrate the value of the service. Our efforts/help to develop and launch WWPP, in conjunction with the management services contract therein, were in essence our attempt to establish that first reference customer. We started WWPP by first commissioning a business plan for our concept. That plan was developed by Denver, Colorado based Ascendant Partners, a boutique consulting firm with deep experience in the agricultural theatre, and another contact we had developed over the years. Secondly, we again looked to our network to identify a high profile individual around whom we felt we could develop a strong and lasting brand. Through those efforts, we were able to convince Pat Boone to allow us to create the Pat Boone’s All American Meat brand through our WWPP business plan. We believe that Mr. Boone’s profound successes over 50+ years in various aspects of the entertainment business, as well as his tireless dedication to a wide variety of humanitarian causes, made him the perfect brand name/spokesperson for our concept. After spending the past several months working with Pat towards the launch of the business, we are convinced that we simply could not have found a more recognized, iconic and frankly gracious individual around whom we could build our particular business. To reiterate, the WWPP/Pat Boone’s AllAmerican Meats concept was developed out of our new managed service division, and we believe its ultimate success will provide a powerful reference for the viability of that business going forward. Given our roots as a provider/distributor
Editorial Office & Company HQ:
Accredited Members, Inc. 2 North Cascade Avenue, Suite 1400 Colorado Springs, CO 80903 Tel 877 265 5821 www.AccreditedMembers.com Editor:
Looking ahead, we are excited about our prospects for 2011. We have implemented some new approaches in our core business that we think will improve our platform for our members and the issuers looking to utilize it. Enhancing our membership base will be another high priority in 2011. We also look to build on the foundation we have laid for our new managed services segment and we anticipate that the launch of WWPP/ Pat Boone in November 2010 could prove to be a critical milestone for the company. Again, we approach 2011 with optimism based on what we think is a good plan, and we hope our shareholders, members and other associates will continue to support us in those endeavors.
Contributing writers:
Jim Baughman, Ian Cassel, Dave Dravecky, Riggs Eckelberry, Steve Goodbarn, Dan Gorski, David Houle, RJ Kelly, Dave Lavigne, Malcolm McGuire, Shannon Murphy, Doug Tucker, Darin Zaruba. Errata & Omissions:
We omitted to attribute David Skriloff and Daryl Nagel who contributed excellent articles to our previous issue. Apologies to both. Editorial or advertising enquiries: Dave Lavigne
amieditor@accreditedmembers.com
CFO & CO-Chairman, Accredited Members, Inc.
Contributors may be reached individually where contact details are given, or via the editor at amieditor@accreditedmembers.com
“...the new
Publisher:
division is a highly synergistic expansion…”
Gore Creek Publishing, Inc. 12295 Oracle Blvd., Suite 340 Colorado Springs, CO 80921 Josh Cates, CEO, (940) 231-2220 Josh@GoreCreekPublishing.com Graphic Design & Production:
Vicki Kipp Studio, Inc. vickikipp@hotmail.com
Disclaimer: This publication is not investment advice. The views, propositions and opinions contained herein are solely those of the contributing authors or advertisers, and Accredited Members, Inc. (AMI) takes no responsibility for the statements expressed or advice offered. AMI is a publisher of research and information regarding small/ micro cap companies, and provides an online social networking website (www.accreditedmembers.com) intended for high net-worth investors and corporate clients. AMI also holds conferences for investors to meet and build relationships with small/micro cap companies. AMI is a wholly-owned subsidiary of Accredited Members Holding Corporation, a publicly-traded company listed on the OTC BB (Symbol: ACCM.OB). Subscriptions & Circulation: The AMI Magazine is published quarterly and distributed free of charge to c. 13,000 readers. It is aimed at an investor audience including individuals, institutional investors, private equity firms, Family Offices, wealth managers, and investment bankers — all with a specific interest in small caps/micro caps. Requests for additional subscriptions, reprints, offprints, other reproductions, or extra copies should be sent to amieditor@accreditedmembers.com.
ac c r e d i t e d m e m b e r s . c o m
CEO & CO-Chairman, Accredited Members, Inc.
Ac c r e d i t e d m e m b e r s i n c .
JW Roth
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Vicki McGee
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of financial information, it is probably fair to say that we never really intended to be in the meat business, however, we anticipate that through AMI Managed Services, on one level or another, we may have our hands in a variety industries going forward. Our opportunities in that regard are wide open.
Micro cap funding for the privately held junior Mining companies
Gold Is It!
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This precious metal combined with other gemstones has adorned kings and queens, global leaders, and almost every person with a passion for wearable beauty. Gold is used in pharmaceutical products, food & beverages, computers & technology, bullion & coins, interior & exterior decorations, and of course is a univeral expression of love. Gold is mined and recovered in many forms, shapes, colors and sizes, on the surface and from underground. The most commonly known forms of gold are massive quartz reefs, disseminated veins, scales, wire gold, placer, and nuggets. All gold has a crystalline structure, hence the metal is found in quartz reefs, along basalt contacts, granite, in fissures, vugs, rivers, lakes and in softer type minerals such as iron oxides. Gold can be associated with pyrite (fools gold), silver, copper, arsenopyrite, sulphides of lead, zinc, antimony and others. In certain areas (including Cripple Creek, Colorado) Calaverite, an uncommon telluride of gold, represents a minor ore of gold and tellurium with the chemical formula AuTe2 and adds complexity, value and intrigue. The difference between the various types of gold and the karat weight is measured by its purity. A reference to 24 karat gold would be the purest form at .999%, 18 karat is the equivalent of 18/24ths or 75% pure, and diminishing to 10 karat which is equal to 10/24ths or 41.6% pure.
Getting started: The early challenges a small mine operator or junior mining company faces are not unlike those of a large mining venture. These typically include building investor confidence in management, complete understanding of the mining method and recovery process, understanding the geographical location of the deposit, the nature, size and extent of the deposit, exploration dynamics, yield versus mining costs per ton, access, reticulation, land lease/ownership, permitting, remediation plan, and the like. The “cumulative value assessment” of the factors listed above will directly impact the developer’s ability to achieve the most critical item—funding the venture—which involves the due diligence validation process, into production, and then qualifying the potential of long-term return on investment versus the risk profile. Based on past experience, a confident approach to reaching your goals and milestones as a private exploration company moving into sustained production is to remain patient when there is little light on the horizon. Sounds easy, but it’s not. There will always be numerous options available to the developer, some of which I have included here. Undoubtedly you will meet individuals and companies who will strongly promote the concept of
Owners need to ensure that they have competent management on the ground and that they are sharing all of the pertinent facts with potential investors when looking for new equity. Instruct your attorneys to prepare a binding Non Disclosure Non-Circumvention Agreement, as the early disclosure and potentially unnerving negotiations may leave you feeling vulnerable and expo sed. However, transparency throughout the process will stand you in good stead and it helps all parties to process the information without being considered overly biased. >>
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Gold! — Has managed to maintain not only its amazing pizzazz, beauty and power, but has been the reliable yardstick to establishing intrinsic value for thousands of years.
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Gold! — Identified by the symbol Au, is the amazing “WOW” metal that enjoys global recognition and attention.
a joint venture with “claws” to suit their M/O, or others who will pressurize you to consider an IPO based on the merits of the project. Each offer will have its own list of “options, warrants and other performance clauses,” and could be a reasonable and successful alternative. However be sure to understand what the IPO commitment entails. There is also the real possibility of offers from savvy “shark” investors who can provide quick funding for heavy up-front discounting to include larger equity positions for them, which is apparently motivated by their ability to supply additional funding as needed, all in support of a great project with huge potential. These offers are typically made based on a combination of influencing and discounting factors, including management’s need for cash, and the high risk “gray area” regarding the ability of the operator to deliver the mined product to market in a guaranteed time frame (ensuring a rapid and high return to the investor), or be penalized.
Ac c r e d i t e d m e m b e r s i n c .
Gold! — Is a solid investment.
During the past 35 years, gold has experienced volatility with varying levels of support in an ever changing tide of global markets and events, with values ranging from approximately $200/oz to more than $1,400/oz — with no end in sight as to the maximum upside potential of the metal. With a weak and struggling US dollar, rising deficits, seemingly uncontrolled printing of the greenback, growing dependence on foreign oil, increased global volatility and instability, and with China’s total export dominance as well their brilliantly executed scheme to buy control of the world’s known “Rare Earth Minerals in situ,” we need a solid long term option to support the global currency vulnerability. GOLD IS IT!
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old! — Not only finding the metal and mining it, but also understanding gold and its importance creates challenges for smaller mine operators.
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Lack of disclosure by the operator will create distrust and uncertainty between the parties in the long term. As the leader of your management team, you need to recognize that discounting the operation for the early round dollars is an option that could turn you inside out if you do not have a solid plan and/or are doubtful about meeting certain milestones. All too often we read and hear about a great mining opportunity that has failed. In almost every instance the operator had to go back to the funding trough too many times, and then became disillusioned as their ownership evaporated due to continued dilution. Funding and developing a small gold mine today is a lot easier to accomplish than it was 24 months ago, particularly with continued global demand for the metal supported by a steady growth in value. In 2008 certain market makers and financial institutions were somewhat critical and nervous to support mining projects, particularly privately held companies and smaller mining operations, for several reasons including under capitalization, track record, exit strategy, liquidity, time to get into production, and ROI. They were directing investments to gold ETF’s as opposed to promoting the ownership of physical gold. This trend seems to be slowly shifting in direct support of the producers and promoting the awareness and advantages of owning physical gold bullion and coins.
We strongly support the philosophy and management of Accredited Members, Inc. who provide a platform for start-up operations and for successful private and public companies who are seeking to expand their product and investment base through knowledge transfer, open dialog and sophisticated promotion. We attribute part of our fund raising success during 2010 to the quality individuals that we met at the various forums and presentations hosted by AMI and thank each one of the investors who included our company in their investment portfolio. In 2004 Shannon Murphy, a third-generation miner, established Murphy Mining & Exploration, LLC (“MM&E”) based on the obvious potential that the historical District of Cripple Creek offered. This opportunity was a challenge filled with great excitement and marked with a series of significant accomplishments built on a strong plan. MM&E is in the process of upgrading the Providence Mine infra-structure, raise boring two ventilation shafts, installing flotation circuits in the mill, and completing an additional exploration phase on Tenderfoot Hill. MM&E and its associated Companies will become a sustained producer in 2011, after 6 years of effort, committed planning, and investment. MM&E has qualified certain proven, probable and inferred reserves and resources to support its plan and become a reliable, efficient, safe and profitable exploration, mining and processing Company, truly offering the complete mining package. The Company and its owners have invested almost $10MM to date in the operations of Providence Mining, LLC, Caldera Rim Mining Company, LLC, and Gold States Mining Corporation, Inc. Management projects that the group operations will yield a plus 50% IRR over a 7-year period, assuming the Company can achieve the projections listed in the business plan and that the price of gold will remain at $1200/oz or higher for the foreseeable future. At the time of writing, the Company anticipates closing $3.0MM of its $6.0MM Private Placement by the end of 2010.
Shannon Murphy President & CEO Murphy Mining & Exploration, LLC
Shannon was born in the heart of the Witwatersrand goldfields of South Africa in 1958. He is married to Sandra and they have 6 children. He is the President and CEO of MM&E, and its affiliated companies in the U.S. He was born and educated in South Africa and is a 13-year accomplished military veteran having seen active duty in Angola, Namibia, Zimbabwe and South Africa. Shannon was employed by Goldfields of S.A. for 8 years in hard rock mining and management. He was previously an Executive Director of Subroc Holdings Limited (listed on the Johannesburg Stock Exchange in 1987), and was an Executive Director of the KNJ Group of Companies (listed in the Industrial Sector of the JSE in 1989.) He was the Managing Director of Terra Support Systems (Pty) Ltd, a specialized mining contractor and mine services development company in South Africa between 1991 & 1997. We believe in the “Power of Positive Mining” and making a difference one ounce at a time. For more information about this unique Colorado mining opportunity, its management and operations, kindly visit the website at www.murphyminingexploration.com or e-mail directly to murphymininggw@ccvnet.net.
Whether A Company Is On Wall Street or Main Street… Human Capital Is The #1 Investment and #1 Risk!
Helping Organizations To Improve The Predictability of Their Human Capital Decisions… Streamline Operational Efficiencies Mitigate Human Capital Risks Reduce Unnecessary Financial Expenditures Empower Performance-Based Leaders
Human Capital Solutions For Achieving Critical Business Results!
To learn more, register today for a free MERIT Integrated Solutions™ webinar. www.futureachievement.com/miswebinar
Doug Tucker President/CEO Phone: 951.303.1611 dougtucker@futureachievement.com www.futureachievement.com
Maximizing Employee Resources…Implementing Transformation
Issue 1 2011 ac c r e d i t e d m e m b e r s . c o m 12 Ac c r e d i t e d m e m b e r s i n c .
Every organization’s success or failure depends upon people — “human capital assets.” How do you capitalize on this most important facet of your business in the face of today’s myriad of unprecedented challenges?
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egardless of what product, program or service an organization sells on Wall Street or Main Street, it needs viable, cost-effective solutions that: Streamline operational human capital efficiencies Mitigate human capital risks Reduce human capital expenses Maximize leadership capabilities
Both private and public sector organizations are told by industry-wide experts that future trends, such as: 1) recent financial failures and ethical decay of many organizations; 2) demise of overall trust and confidence in leadership; 3) baby boomer exodus; 4) examination of executive compensation under the microscope; 5) overall budget cut backs; and 6) governance and legal issue changes are all driving human resource costs up exponentially. What’s a business owner to do? Understanding Human Capital Business success today is dramatically more dependent upon human capital than at any time in history. By some estimates, traditional “book assets” may now account for as little as 20%-30% of a company’s “value” in the market. These are the assets that are primarily physical in nature that could be sold if the company ceased to exist. The remaining 70%-80% of a company’s value is in the form of its less tangible, yet real assets, tied to the knowledge, skills and abilities of its human capital. We have moved from an industrial economy to a service economy, where competitive advantage is tied to information technology in the hands of people, who make a difference through the skilled use of that technology. In contrast to a mere generation ago where market value was tied primarily to the exchange of products, today’s economic activities revolve around the rapid growth in the sale or exchange of knowledge and information. This means that leveraging human capital has never been more critical to competitiveness. Organizations that recognize this reality are therefore
investing in human capital with the same level of expectation for a return on that investment as a company would extract from its physical assets. If human capital is so important to business success, what, exactly, is it anyway? Simply stated, human capital is the sum of an organization’s character competencies, skills, experience, potential, and capacity to achieve its business goals. It essentially captures all of the people-oriented capabilities needed for a business to be successful. Like monetary capital, it can be invested, spent wisely, or wasted. Common Definition of Organizational Culture A common definition1 of organizational culture is, “a system of shared values and norms that define appropriate attitudes and behaviors for organizational members.” The values define what is important. The norms define how to feel and behave. In particular, the performance benefits of a strong corporate culture are thought to derive from the consequences of: 1) Having widely shared and strongly held norms and values. 2) Enhanced coordination and control within the firm, and improved goal alignment between the firm and its members. 3) Increased employee effort. One of the key consequences of a strong corporate culture is that it increases character and behavioral consistency across individuals in a firm. Job Performance & Sustainment Applying a measurement process to human capital assets will strengthen an organization in the same way balanced score cards do for production, and financials do for the capital assets. The most cost-effective decision an organization can make regarding its hiring, employee development, and succession planning practices is to determine the measurable and quantifiable success factors required for every specific job position. Once specific performance standards are identified, the primary business objective is
Once the culture foundation is put in place properly, an organization’s leadership team needs to have integrated and cost-effective processes to help improve the predictability of their human capital decisions regarding talent acquisition, employee development and future succession planning initiatives. Outlined below are critical areas that need to be successfully implemented over a sustained period of time.
Succession Planning Benefits Reliable evaluation process to determine an individual’s career path to a new position within the company. Predictable analytics for identifying “gaps” that may be needed to fill the void of a senior worker’s departure (baby-boomer exodus). Sustainable process to engage senior workers to remain part-time to provide leadership and coaching support, and for the purpose of mentoring newly recruited employees regarding their job skills and the organization’s character values. 1 Harvard Business Review, 2005 2 IBM Global Human Capital Study 2008
By Doug Tucker, President/CEO & Co-Founder
Future Achievement International®, is a company dedicated to providing unique, timely and cost-effective human capital solutions. To learn more, email dougtucker@futureachievement.com or visit www.futureachievement.com.
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Employee Development Benefits Integrated development process for leaders and employees. Enhanced trust and confidence regarding direction and leadership of the company. Increased retention of key employees, which will result in lower turnovers. Strengthened communications between leadership and employees (fewer conflicts). Empowered workforce leveraging their strength areas and improving upon identified personal development needs (enhancing an individual personal leadership coefficient).
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Success Factors To Achieve Maximum Performance, Productivity & Profit A successful business strategy starts with having the ability to improve the overall predictability of your organization’s human capital decisions. It is vital to have a process/methodology that maps character competencies to the values that underline the culture of your organization and empowers decision-makers to: Assess, evaluate, and understand the core values of the organization’s existing culture Align the corporate culture with the corporate values to bring the vision into focus and motivate human capital to achieve the corporate mission Measure the “compatibility” of any individual in reference to the company values including the board of directors, the leadership team, and/or any number of other individuals, such as managers, supervisors, and other team members Manage human capital with proactive interventions that minimize interpersonal conflict, reduce turnover, increase productivity, and improve overall performance
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In a study by IBM with over 2,000 international corporations, only a small minority (13%) believed that they are very capable of identifying individuals with specific expertise or values within the organization2.
Talent Acquisition Benefits Streamlined interviewing process (enhanced accuracy for selection equals less time/cost). Improved turnover ratios (minimize wrong hires due to lack of compatibility and fit). Minimized disruptions (extraneous communications / conflicts that arise with new hires). Mitigated hiring risks (avoid frivolous employee lawsuits for unexpected terminations).
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to align the right person that not only has the “can do” (job skills) but has the “will do” (character competencies / behavioral traits) to achieve the desired business objectives.
Betting on the Jockey Qualitative personal considerations versus
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quantitative measurements are all important for the micro cap investor.
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he big difference in investing in micro cap (<$400m market cap) as opposed to mid-large cap ($5b+ market cap) companies is that qualitative attributes have a far greater impact on ROI. A mid-large cap fund manager may be able to do purely quantitative analysis (historical ratio analysis, cash flow analysis, etc.) and a screening mechanism will spit out a bunch of stocks that fit his criteria. This same fund manager may be able to get away with investing in those securities mainly due to that fact that Company A’s 5 year EPS growth warrants a higher stock price. He places the bet that the market will eventually revalue Company A given this disconnect to its peer group. The fund manager doesn’t care about the CEO, his background, where he graduated from, if he is an empty suit, or brings some value to the company. The reason the fund manager doesn’t place a lot of emphasis on qualitative measures like management is because Company A is a $5 billion market cap company and surely a company of this size wouldn’t have an idiot at the helm…..
are looking at is at some sort of inflection point, whether it be a new product launch, a new drug hitting the market, a new mine getting into production, etc. You don’t have business history to be your guide, and you’re making a bet that the CEO has investors’ best interests at heart and can get the company from point A to point B. In most micro cap cases, the CEO is the person that started the company, and you have to take these qualitative components into consideration. For example: What is the CEO’s background? How was the company set up? How is the company funded? How is the company structured? Who is on the Board? Are all 4 of the CEO’s kids on the payroll doing nothing but collecting a paycheck? How many shares are outstanding on a fully diluted basis? Does the CEO have too much control? Does (s)he have too little control? Why is the CEO driving a brand new Mercedes but also looking to raise $5 million? Why is the company office in the most expensive part of the city? Why does the company office have a $50k painting in every room? Why is the CEO paying him(her)self $350k/year while the company hasn’t made a dime? Did the CEO hire managers to be “yes men” or do they actually have a backbone? Don’t you wish, in hindsight, that you had asked some of these questions before now? I’ve made over 250 company visits over the last 8-10 years and I have some stories! As a micro cap investor, you have to take many intangible aspects into consideration. Few are measurable.
This might be a bit of a generalization but it’s reality! In micro-small cap, due diligence is much harder because in most cases you don’t have a plethora of historical financial data to draw any type of conclusion. The company you
This is why you “Bet on Management” when you look to invest in a micro cap company. Management has the most control over your return. Once you find a business, or company, or product you like, management is the most important part of due diligence. This isn’t easy when you are weighing the pros and cons of numerous qualitative attributes. After you visit a few companies you begin to just get a feel for
Buying a stock in increments with each increment representing an increased conviction level with management is a winning strategy that works for me. This could mean giving up some gains in the beginning, but it can save some losses if you decide to throw in the towel. My conclusion about making multiple investments in the same company/stock:
When you find a winning jockey riding Secretariat, you bet big or go home. Unlike traders, I’m making a bet for dollars to the upside, not cents. That’s not a knock against traders — I’m a terrible one — but I’m half decent at investing. I’m willing to wait 6 months or even 4 years depending on the velocity of the inflection point in which I’m investing. I’m not always right by any stretch, but finding good companies, betting on management, and averaging up increases my batting average. I hope this article helps you to increase yours too.
By Ian Cassel, Individual Investor in Micro & Small Cap companies
More about Ian’s unique investment strategy and views can be found at www.iancassel.com.
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I’ve made a total of 10 investments over the course of 2½ years in a private company called Intezyne Technologies. The CEO is one of the brightest and best. I believe in 3-4 years looking back, Intezyne will be my best performing investment ever. My conclusion isn’t one that I reached after a quick visit to their Tampa HQ, but one that has developed over months and even years.
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In most of my losing investments, I’ve averaged down several times.
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For example, I met Quepasa Corp (QPSA) management in January 2010 and bought an initial position around $2.75. I came away very impressed with my first meeting. I was top ticking the market (stock making a new high) to get my initial position which I hate doing. I was very cautious, since I thought QPSA management would certainly do a big financing (dilution) thus putting a cap on the stock for a few months, and I’d probably be able to buy more shares lower. So I waited and waited. Management kept executing and executing. They did everything they said they were going to do, and didn’t do anything they said they weren’t going to do. I was impressed, and bought more stock at $3.50, and top ticked the market for the remainder of my position at $4.00. It took me several months before I was comfortable enough to take the plunge and make QPSA a large position. It didn’t happen overnight. Management proved itself to me by “doing” not “saying.” Eleven months after initially meeting the management team, QPSA management continues to do what they say they will do, and the stock is now ready to go through $8.00. I don’t know what the future holds for QPSA shares but if management keeps executing, so will the stock price. As long as management keeps executing, I will keep owning QPSA.
In most of my winning investments, I’ve averaged up several times.
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what looks right, feels right, etc. It’s 50% a mathematical equation where you are adding 1 point for certain things and subtracting 1 point for others, but the other 50% is more about feel. And this is not instant. It takes time for a company’s management to prove to me they will do the right thing, and it can take up to 12 months to reach that comfort level.
The Black Art of Option Pricing in the Micro Cap Space
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Can a micro cap’s stock volatility be understood and quantified for the options investor? Dave Lavigne investigates.
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ne of the challenging things about being a public company is that you have to prepare and file quarter reports (10Q’s) as well as audited year end financials (10K’s), which means spending inordinate amounts of time and money with auditors discussing accounting issues which can be overwhelming. On the other hand, I am the first to admit that when it comes to equity research, you probably can’t know too much about accounting. Even if you think you know everything there is to know, the industry has a tendency to change the rules enough so that what you used to know is no longer applicable. So, in order to really know everything, you have to keep learning. Admittedly, it’s a bit exhausting, and some would suggest that the industry flux has something to do with the job security of its inhabitants — CPA’s, attorneys, CFO’s et al. Personally, I think that some of the issues they debate and then create new rules to address often involve some variables that are truly difficult to reconcile.
One of the more recent audit/filing issues we addressed at Accredited Members dealt with the difficulties both issuers and investment professionals have trying to create valuations with respect to the assets they are buying or selling. For investment professionals, that valuation often manifests itself in terms of the value of equities for which there is restricted or at least limited liquidity, while
for the executives and/or directors of an issuer, it may involve trying to figure out how much they are willing to pay for an acquisition, or how much capital they are willing to commit to a given project. As an extension, those issues may be complicated further when the purchase or sale involves derivative instruments with valuations that can be elusive. Today, options are typically priced using the Black and Scholes Option Pricing Model.1 From that starting point, a quick overview of the inputs to Black Scholes might be appropriate. There are five main components to the pricing of an option, as well as some additional adjustments that are required if the stock pays a dividend. Here is a brief description of each variable. Stock Price- This is easy enough. It’s the current price of the underlying stock for which you are trying to value the option. Strike Price- This is the stock price at which the option gives you the right to sell (put) or buy (call) in the future. Annual Risk Free Interest Rate- This is the prevailing annual rate in the market for debt instruments for which there is generally considered to be no default risk. U.S. Government obligations are pretty much the standard here. Days to Expiration- The number of days before the term of the option runs out. Volatility- A measure of the degree to which the price of the underlying stock fluctuates over a period of time. Obviously, of the variables listed here, this is the tricky one. Once we know the value of each of these components, we can plug them into the complex math equation and crunch the numbers, or we can go to any number of sites online with calculators that do the math for us. That being said, here is a brief overview of the things to know with respect to each of the above variables.
On the face, “volatility” seems pretty straightforward — the more volatile the stock, the more expensive its corresponding options. Why? Because if the stock has a tendency to trade in a wider range over shorter periods of time (it’s more volatile by definition) then it has a better chance of reaching prices beyond the current price within the specified time frame. At the same time, generally the degree to which volatility affects the option price decreases the longer the time to expiration. Why? Because with more days to get there, even a less volatile stock has a better chance of reaching prices beyond the current price, so in that case, the volatility becomes a less critical component on a relative basis. So, how do you figure out a stock’s volatility? On the face, volatility is measured exactly the way one might expect. That is, it typically involves at least some derivation of finding a stock’s standard deviation around its mean. However, here’s the basic problem. Much of the goal of option valuation centers on where the underlying stock is going tomorrow. The trouble is, much of the analysis around volatility focuses at least in part on where the stock has been. While
From a slightly more technical perspective, Black Scholes is a theoretical framework — that is, its validity depends on certain assumptions, one of which is that “markets are efficient.” That is how the model addresses some of the problems I alluded to above, which essentially suggest that in some instances (at least) the markets may not be efficient. This notion is the focus of some debate in our industry, but I think most can agree that if there is a portion of the equity markets that is inefficient, it is probably in the micro caps. Going full circle, one needs to be careful about the assessments made regarding the value of derivative instruments in the micro cap space. By the way, this notion extends to the financial statements of issuers where those sorts of calculations may have a material impact on financial results over given periods of time. I am not suggesting that attempts to quantify the value of, and account for, the impact of things like option grants (for example) are not appropriate. However, investors should be aware that the valuation techniques used to create that accounting may be derived from some inexact science. 1 A relatively complex equation developed by Fischer Black and Myron Scholes in the early 1970’s.
Dave Lavigne is a co-founder and co-chairman of Accredited Members, Inc. (“AMI”), a membership-based community of micro cap and small cap investors. Mr. Lavigne also founded and operated AMI’s predecessor company, EdgeWater Research Partners LLC, which provided subscription based independent micro cap and small cap equity research. Mr. Lavigne worked on the sell side for nearly 20 years before forming EdgeWater in 2002. He has provided micro cap and small cap equity research in various capacities for over 16 years.
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Dave Lavigne Co-founder & Co-chairman Accredited Members, Inc.
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To segue a bit, for those less versed in option pricing, there are a few things that are important to keep in mind in terms of how these variables relate to one another. First, the larger the spread between the current stock price and the strike price, the cheaper the option will be. Second, the longer the number of days to expiration, the more expensive the option will be. While it is important to understand the relationship that these variables have to the option’s fair value, these too are known variables that there is not much guessing to do. The volatility component, on the other hand, is the tricky part.
that may make sense for some stocks over certain periods of time, for others it may lead to some erroneous assumptions about the future. That can be especially true for many micro cap stocks. Specifically, past standard deviations may be less applicable to stocks that are going through extraordinary changes in their fundamental growth rates (either accelerating or decelerating), which in turn may be the result of systematic or unsystematic variables. Further, the illiquid nature of many micro caps also complicates the approach. The fact is that there are a number of issues which can change the very nature of companies and their valuations, and consequently, the trading of their shares and volatility of their stock prices over given periods of time.
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First, the current stock price and the annual risk free rate of return are firm variables. You can turn on the computer, find their values, and plug them in. Second, the same is true of the strike price and the days to expiration.
MACRO MATTERS
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the world do not target returns; they focus on risk.” - Seth Klarman
Unforeseen macro events can trump even the most airtight company-specific analysis, so maintaining a top-down view is essential for effective risk management. One factor that has been especially influential in capital markets and the economy recently is government intervention…
Monetary stimulus is a different animal completely. While fiscal policy is orchestrated from within the halls of Congress, monetary policy is dictated from the board room of the Federal Reserve where Chairman Bernanke and the Federal Open Market Committee set interest rate and liquidity targets. In addition to setting short-term interest rates at zero, the Federal Reserve also responded in 2009 by more than tripling the size of its balance sheet (to the tune of nearly $2 trillion). They did this through a process called “quantitative easing” (QE) in which new money is created to purchase assets (typically bonds) in the open market. In doing so, bond prices are propped up, interest rates are crammed down, and the banking system is left with cash in lieu of securities (aka “liquidity”).
Public is the New Private We have never seen public policy dictate investor sentiment and capital market behavior as it has over the past two years. Beginning with the various “alphabet soup” bailouts in 2008 and early 2009, policy efforts culminated roughly 18 months ago with fiscal stimulus of nearly a trillion dollars and a highly conflicted FASB accounting rule change granting banks more control over the valuation of distressed assets on financial statements. Fiscal stimulus has been driven by a school of economic thought referred to as “Keynesianism”, after the late John Maynard Keynes. A core tenant of this philosophy is that deficit spending should be utilized in periods of private sector contraction as a stopgap for spending and investment, thus smoothing out the economic cycle and avoiding extremes. We don’t necessarily disagree with this line of thought if executed properly and in the right circumstances, but there are exceptions to the rule which we believe Keynes himself would advocate if he were alive today. One important context that must be considered is the overall deficit and public debt as a percentage of the economy, as measured by GDP. These two factors have to be monitored and kept in check during the good times so that during periods when policy intervention is needed excessive imbalances in debt and deficits do not give rise to longer-term structural problems. This is fairly intuitive; if the government is going to spend more money than it makes (read “collects”) during the bad times, shouldn’t
But apparently the combined fiscal and monetary “stimulus” of roughly $3 trillion didn’t do the trick, as the Fed recently announced its intention to inject another $900 billion into the system through mid2011 (referred to as “QE II”). While most agree that the Fed’s proactive intervention in the marketplace in 2009 prevented a credit crisis from becoming an all-out credit crash, the longer-term impact of these policies is yet to be seen, and in particular the question of how the Fed will unwind all of this without inflicting its own damage is a tough one to answer. Let’s not mince words, the Fed is in the “mood management” business and is targeting asset bubbles as a means of making consumers feel richer. Quantitative easing trashes the dollar and drives prices higher for everything priced in those dollars. Higher commodity prices flow through to consumer inflation and stave off the expectation of a deflationary spiral taking hold. Meanwhile, higher 401k balances and housing prices make the consumer >>
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it be a net saver, or at least a prudent manager of its spending and debt, during the good times? Unfortunately this has not occurred in most of the developed world, and going forward it will be much harder for Washington to push through additional spending.
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“The best
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n addition to the rigorous “bottoms up” analysis that readers of this magazine are accustomed to performing on small and micro-cap investments, staying in tune with the macro environment can be just as important to your overall investment strategy.
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Macro Matters
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feel better about spending money, and lower interest rates incentivize debt and consumption. Bernanke recently referred to this cycle as a “virtuous circle.” Apparently the only way to combat a popped bubble is by creating new ones, unless you’re willing to endure the time and pain required to allow the problem to be fixed rather than compounded. But that’s not a message likely to get you re-elected. Deleveraging Our firm has written on the topic of deleveraging extensively over the past three years, but while it’s no longer fresh enough to retain any media relevance, it’s an issue that continues to dominate our outlook. Much has been made of the incremental private sector deleveraging that has already occurred. Debt levels relative to assets and income have begun to creep down, but are still far above historical averages. What’s still troubling, however, is the “quality” of underlying income and asset values in light of the direct influence government stimulus has had on propping both of those two areas up. Furthermore, when the government sector is included in the analysis our economy continues to become more and more leveraged, and the net national savings rate is still solidly negative. A tighter focus on fiscal discipline will likely result in a big push towards national deleveraging in which the household, corporate and government sectors all attempt to rein in spending and retire debt in order to re-establish health on their balance sheets — simultaneously. This will not feel good in the short-term, but is a much needed pruning process in order to “prepare the soil” for sustainable growth long-term. Binding Constraints Historically, economic recoveries have been led by private lending and debt creation while core consumption has actually remained relatively stable over the cyclical peaks and troughs in the economy. This is what makes a financial crisis and deleveraging cycle so much different…there is no capacity or mechanism for private debt to expand, thus monetary policy is rendered ineffective. Private debt is not expanding for a couple reasons: 1) households are deleveraging (the exact opposite of borrowing more money) and 2) banks are managing risk by purchasing Treasury bonds instead of making private loans. Put another way, supply and demand for private sector debt are both contracting simultaneously. These two factors are the “binding constraints”, or the bottlenecks preventing the Fed’s accommodative policies from translating
into any sort of debt and consumption expansion. Thus, as fund manager John Hussman pointed out in a recent commentary, another round of QE will only serve to increase liquidity and lower interest rates — two things that we already have plenty of! Loosening a constraint that is “non-binding” gets you nowhere. First Risk, Then Return “The best investors in the world do not target returns; they focus on risk.” - Seth Klarman Given the threat to the global economy of household deleveraging, government spending retrenchment, deflating housing prices, rising unemployment, commodity price inflation and sovereign debt defaults, investor’s immediate focus should be to preserve capital and liquidity. Risk management must be paramount, and the conventional buy-and-hold mantra of maintaining broad exposure to stocks and bonds while “thinking long-term” is setting investors up for major disappointment in the years ahead. So what is an investor to do in the current environment? Rather than broad indexing to major asset classes, individual investments should be made on a highly selective basis, taking into account the context of the macro backdrop. There are still plenty of lucrative opportunities if you’re willing to do your homework! Additionally, hedged strategies that target Absolute Returns (ie, long/short equity, managed futures and global macro) are well positioned to deliver results that meet objectives, regardless of the direction of the stock market and interest rates. The ability to invest on both the long and short side within any and all asset classes is essential to the risk management process, and ultimately to the delivery of consistent returns in this environment. While conventional portfolio theory would typically relegate such allocations to a small corner of the portfolio called alternatives, it makes far more sense to emphasize Absolute Return strategies as core holdings, with tactical allocations to the most attractive individual opportunities rounding out the portfolio. Uncertainty over government policy is only one of many risk factors threatening conventional buy-and-hold strategies in the coming years. Macro matters as much today as it ever has, and navigating the waters ahead will require an emphasis on risk management, non-directional Absolute Return strategies, and carefully chosen investments in those pockets of the market where risk/return opportunities are the ripest.
David Houle, CFA Partner Huntley Thatcher Ellsworth, Ltd.
David Houle is a partner at Huntley Thatcher Ellsworth (“HTE”), an investment advisory firm specializing in Absolute Return portfolio management. As Director of Research, David helps oversee strategy development, implementation and risk management for client portfolios. David earned a BA in Finance from the University of Colorado in 2003 and holds the Chartered Financial Analyst designation. Created in 1997, HTE provides highly customized asset management and advisory services for affluent individuals, families and private foundations. The firm creates and manages truly diversified portfolios designed to produce consistent, positive returns regardless of the direction of stocks or interest rates. This is accomplished by investing broadly across multiple asset classes and through an emphasis on Absolute Return strategies. For more information visit www.hteadvisers.com.
in the final analysis, winning is what counts. When they put a “W” by your team, they rarely ask how you won.
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The point is this — that if a company is going to excel and reach its ultimate potential, it must be equipped to reach the finish line. Over the last 23 years, I have seen some notable successes among my client companies and I have also witnessed a fair number of failures. Strangely enough, the failures were rarely attributable to bad product, inadequate technology, or poor concepts. Many, in fact, had great technologies and wonderful strategies. On a number of occasions, client companies did fail because of poor management. Great technology or the best of ideas in the hands of inadequate management will fail. Most often, however, companies failed because they ran out of money. Capital fuels the growth of young companies and when you are out of capital, you are out of luck. Young companies, when raising capital, concern themselves with issues like the cost of raising capital; commissions or fees that they pay; valuation; dilution; and various approaches and avenues to raising capital. They debate private placements, IPO’s, and reverse mergers. While these are legitimate questions and areas of concern, let me be clear: the overriding mandate for a young emerging company is to have adequate capital to fully fund your business plan, or nothing else matters. The dream of most entrepreneurs, founders, and engineers is to bring their product or technology to market, create measurable revenues, and then do an IPO at a very big price. On paper and conceptually, this looks really good, but in the world that I live and work in, there is significant competition for investor dollars. In funding companies, I >>
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fumbles and interceptions, but
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Emerging Companies
Some games are just messy with
f you want to finish first, you must first finish. This is a motto that I created for a client company. That company was ultimately sold for $3 billion dollars.
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Nota Bene “NB” for
It is much like a football game.
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Do You Want to Finish First? You Have to First Finish!
have to necessarily raise money in the avenues that are available to me. And have a flexibility of strategies. It is much like a football game. Some games are just messy with fumbles and interceptions, but in the final analysis, winning is what counts. When they put a “W” by your team, they rarely ask how you won.
In the final analysis, the companies who succeed, achieve their fullest potential, and significantly impact their industry are the companies that were fully funded. Access to capital is critical.
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Malcolm McGuire Consultant
Mr. McGuire began his career in four major wall street firms — Boettcher & Co, E. F. Hutton, Kidder Peabody, and Pru-Bache, covering the roles of large producer, partner, manager, sales manager, product manager, regional coordinator, and the founder of new offices. For the last 23 years he has been a nationally known consultant to young emerging technology companies. Many of his clients have progressed to lead and define their industries. Former client companies like Air Methods and Whiting Petroleum trade at half billion dollar market caps. Others like ID Biomedical, Miramar Mining, and Simula have sold at similar market values. In his consultant’s role, Mr. McGuire has overseen reverse mergers, orchestrated IPO’s, secured vital capital for client companies, provided high profile board members, facilitated acquisitions, and counseled management in virtually every area of corporate life. His national and international network of relationships encompasses a wide range of professionals within the investment community. For more information please visit www.malcolmmcguire.com.
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Board/Key Management Profile
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Harold Halman, President and CEO 20 years of strategic planning & business development experience. Proven track record for leading high performance companies & achieving operational and financial goals. Ran $70MM capital equipment business for a public company.
Private
Deal Summary Company Name:
Sector: Durable Medical Equipment
Alexander Schaap, CFO Practiced financial executive & operational leader with 30 years experience guiding companies in overall profitability & financial efficiency. Spearheaded audit preparations, ISO 9001 implementations, and establishment of financial controls. Fully versed in creating planning and budget forecasting models.
Location:
Phoenix, Arizona
Requirements:
$2MM funding for acquisitions, expansion and IPO fees.
Business Summary
The Company’s mission is to sell its patented, market-changing Durable Medical Equipment (DME) and Home Medical Equipment (HME) technological solutions through company owned and operated retail and wholesale distribution. GMEA aims to bring forward better equipment and better service to improve the quality of life for consumers across the globe via enhanced patient outcomes.
Randy Evans, VP-Sales & Marketing Business manager, developer & executive with significant professional experience in project/function design & execution, including development & marketing of Consumer Products in medical, pharmaceutical and food industries.
GMEA operates through four distribution channels — Medicare/Medicaid licensed retail locations; wholesale distribution centers; exclusive rights for distribution of cutting-edge medical products; and international distribution opportunities. Innovative products include Antimicrobial Wrap Barrier System & Hemostatic Gauze (helps control bleeding from open wounds for Burn and Wound Care Management); Neuromuscular Rehabilitation System for victims of Stroke and Traumatic Brain Injury (TBI); Fully-Supported Exercise and Rehabilitation Device for Individuals with Restricted Basic Motion; and Urinary Incontinence Device that serves as an alternative to external catheterization.
Dr. David Greene, Strategic Advisory Board Medical entrepreneur and executive. Orthopedic surgery residency at Brown University & subsequent spine surgery fellowship at Beth Israel Spine Institute in NYC. CEO of Preferred Pain Center in Phoenix.
Competitive Advantages
Strong demographic retail strategy with hub & spoke design with the wholesale distribution plan including a Services Disabled Veteran Owned Small Business with projected revenues $3MM. Complete recognition & acceptance of the existing consolidation occurring in the industry that without our product/service focus will result in less than targeted results. We are implementing an adaptable plan with a firm grasp of the uncertainty in the marketplace. Solid & growing IP base with stringent & focused selection criteria for inclusion into our portfolio.
Growth Strategy Acquisition of existing distribution opportunities/licensing rights. Retail via industry certified and accredited operations. Wholesale via 3 established distribution centers.
Global Medical Equipment of America, Inc
Fully vertical set of products that truly are focused on patient outcomes, cost reduction and improving quality of life for consumers. International agent is pursuing us to do Europe, added to already requested Australia. Revenues projected at $1MM.
Key Investment Highlights Insight Diagnostics, OSHA related remote treatment device.
Further Information
Green Medical with a portfolio of 8 products including proprietary surgical units that they want to feed through our wholesale division.
Alexander Schaap – CFO aschaap@gmeatoday.com www.gmeatoday.com www.medi-temp.com www.aamedsupplies.com
Tele-medicine distribution agreement signed.
Mobile basal cell cancer treatment technology under IP consideration.
Best Energy Services Inc
Sector: Oil & Gas Location:
Kansas & Texas
Business Summary
The Company operates primarily through its subsidiary, Best Well Services (“BWS”), a leading provider of workover (oil & gas) drilling services to the Hugoton Basin, Kansas. Recently expanded their reach to include the Central Kansas Uplift. A South Texas division will open to service the emerging Eagle Ford and Buda trends. BWS was established in 1991 in Liberal, KS. With 25 workover rigs Best is pushing for full utilization through continued penetration of its legacy Kansas market(s), plus expansion into other basins including South Texas. As a result of past missteps, new management has been executing a complex turnaround since late 2008. In that regard, reaching full utilization will mark a considerable achievement.
Competitive Advantages
Safety First — An aggressive in-house HSE and employee-training program. Full compliance with all OSHA standards. Ranks in top percentiles on Safe Land USA and IS Net metrics. Best’s standards extend beyond customer expectations (customer-reported). Customer-Focused — Value pricing in a Safety First environment. Pricing 25%+ below competitors at market peaks, amongst the most favorable in market bottoms. Customers first — always. Market share growth from approx 38% in 2008 to over 80% now. World class customers: Anadarko, Arena, Cleary, Devon, EnerVest, Merit, Pioneer & many others. Depth of Talent — Considerable expertise at every level of management and field-level execution. Successful programs produce employee-retention rate over 80%. Best ranks at the top of peer group.
Key Investment Highlights
Completed considerable restructuring including both operating and capital issues. Now in position to focus on building the business, which includes the addition of new markets/basins. Revenue expansion of 85% (most recently reported quarter — 3Q fiscal 2010, ended 9/30/10) vs same period in 2009. Revenues increase from $855k to $1.6m reflects efforts to increase market share in Hugoton basin, & expansion into Central Kansas Uplift. For same period, cash earnings before interest, taxes and depreciation from continuing operations were $127k vs net cash loss of $453k in Q3/2009. Financial performance continues to improve, including the pay down of debt via both organically generated cash and the sale of non-essential assets. Utilization continues to improve — approximately 14.4 rigs in Oct 2010. Positive operating income should be achievable at a 20 rig utilization, & $5 million of EBITDA at full (25 rigs) utilization. Given the new markets, full utilization in 2011 is achievable. In that event, current valuations could prove compelling.
Edward “JR” Flores, Jr. President and Chief Operating Officer 24 years experience in the workover well servicing business. Employed by Key Energy Services for 18 years. Completed Key’s “Rising Star Program” as well as its Global Well Control School. Joined Best in 2009 with responsibilities for handling Best’s largest customers.
Growth Strategy Build market share in legacy KS markets. Expand into new geographic markets/basins. Develop initiatives to increase access to new business.
Further Information Dennis Irwin, Chief Financial Officer dirwin@beysinc.com (713) 933-2600 Ext. 2 www.beysinc.com
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Company Name:
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Deal Summary
Mark G. Harrington Chairman of the Board, CEO Founding Board member. Chairman and CEO since 2008. Cultivating highly transparent, performancedriven culture within Best Energy & its business units. 30 years in energy business. Authored 20 publications. Featured on CNBC, Canada AM, Dow Jones News & Bloomberg. Served as Chairman, President, CEO and COO of 8 separate public and private energy companies and private equity groups, including Chipco Energy, Pforzheimer’s in-house investment arm. Creator of Energy Vulture Funds through Harrington & Co-pursued distressed opportunities in energy and incubated emerging energy companies, including Calgary-based HCO Canada & Houston-based HarCor Energy. Vice Chairman of the Board of Rock Energy Resources (RCKE). BBA and MBA in Finance, University of Texas.
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Board/Key Management Profile
Board/Key Management Profile
Founder and President Minex Exploration & Selkirk Environmental. President and Director Silver Verde May Mining Company. James Baughman Director & Chief Operating Officer 25 years gold mineral exploration and development experience. BSc Geology & “Qualified Person.” Co-founder of High Plains Uranium, successful TSX IPO (2005) Mike Lavigne, Advisory Board CEO, Silver Verde May Mining Company Mark Holden, Advisory Board Structural Mine Geologist High Grade Veins Art Campo, Advisory Board Investment Banking and Compliance Specialist
Ticker: *WMTN
Deal Summary Company Name: Terra Mining Corporation Sector:
Mining (base & precious metals)
Location:
Offices in Colorado; Operations in Alaska
Requirements:
$10MM to fund next season’s drilling
Business Summary
Terra Mining Corporation is an exploration and development company that explores, acquires, and develops advanced stage properties. The company’s objective is to be a leader in the exploration and development of U.S. base and precious metals. Their goal is to elevate standards of responsible practices for the Resource Industry while building a profitable business and to maximize shareholder value.
* Terra Mining Corporation is completing a reverse merger with West Mountain Index Advisors (WMTN) and expects this transaction to close in January 2011.
Competitive Advantages Permits in place — drill ready 168,000 ounce gold resource Alaska “Bonanza Gold” project — high grade deposit
Key Investment Highlights
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Greg Schifrin Director, President & CEO 27 years working in mineral exploration, BSc in Geology, Graduate Study in Water Resources.
60 mi land package
Growth Strategy Asset Purchase via West Mountain Advisors
Further Information 1256 W Elmira Rd. Sandpoint, ID 83864 Tel: 208.265.5858 2186 S. Holly St., Suite 104 Denver, CO 80222 Tel: 303.396.9056 www.terraminingcorp.com
$4 MM 2011 drill program Poised for growth Alaska — mining friendly state Reverse merger
Business Summary
Laser Energetics, Inc. (“LEI”) was founded in 1991. LEI is capitalizing on its patented & patent pending IP pertaining to its leading edge laser technologies aimed at fulfilling many of the emerging needs of the Military, Homeland Security, Industry and the Medical/Dental Community. LEI is poised for large growth with a new non lethal laser weapon called the Dazer Laser® (shown above). New technologies include laser marking processes, and biomedical ophthalmic devices produced by lasers we classify as Laser Produced Products™!
Competitive Advantages
LEI has the largest IP (patent) positions on Alexandrite Lasers, which are uniquely suited for medical, military remote sensing, laser marking, and materials processing applications. LEI has developed the best non lethal laser weapon in the world called the Dazer Laser® — Light Fighting Technologies. Two models (Guardian & Defender) are available. Classified as optical distractors, they temporarily impair the vision of the threat. They are the only technologies in the world that can be operated eye safe from 1-2,400 meters (model dependent). There are 4 patents pending on this new technology with a third model coming, which will be announced shortly. LEI has a new patent pending on a new Laser Produced Product™ called a Compound Micro Lens Array. This product will cover 4 areas of Ophthalmic devices ie: an advanced intraocular lens implant for cataract patients, a corneal implant, a new type of contact lens, and new eyeglasses. In all cases, this technology will improve vision — peripherally, depth of focus, range, and brightness. LEI has a new patent on an Alexandrite Laser that is unique to a new pill laser marking process. This process allows for the marking of Pills and other devices in clear plastic blister packs. This process ties the marking of the Pill to the package, making it impossible for counterfeiting. This huge application could save tens of billions of dollars for the Pharmaceutical Industry.
Key Investment Highlights
Large portfolio of Patented Technology that has a sustainable competitive advantage in all areas of business focus. The Dazer Laser® — Light Fighting Technologies recently showed as the best technology in the world at a recent demonstration at Nellis Air Force Base. The product is produced for LEI by General Dynamics in Charlotte North Carolina. The sales are now in full swing with orders from Israel and the US, and orders pending in many countries around the world. LEI’s vision, management, creativity, connections, reputation, and technology will make us a recognized world leader in Laser Technology. High net margin profitability will be achieved in 2011 driven by our patented laser technology.
Wayne Armstrong, M.S. EE – Sr. VP Operations Mr. Armstrong has been associated with LEI since 1997. Prior to joining LEI, he held numerous technical/management positions at major defense contractors; ITT, Loral, Ford Aerospace and Hughes. He is experienced in R&D and LRIP production. He holds many US & PCT patents and an MS in Electrical Engineering from UCLA. Dr. John Magno, PhD Physics – VP Research & Development Dr. Magno has over 18 years of experience in R&D and technology management. While at Honeywell International, he was Director of R&D and managed 27 scientists. He holds over 20 U.S. patents and has won 3 technical achievement and 2 IP awards with a PhD in Physics from Lehigh.
Growth Strategy Enhance shareholder value by expanding and fully commercializing Dazer Laser® product line, and Alexandrite based laser technologies (expanding already strong IP position.) Commercialize & license/sell non-laser related technologies e.g. TRT. Stock buy back of severely undervalued shares. Up-list the company to larger tech based S.E., preferably NASDAQ.
Further Information Dan Schall, Investor Relations, phone 609-610-4095, e: dschall@laserenergetics.com www.laserenergetics.com
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Laser Energetics, Inc. Laser Technology for Military, Homeland Security, Medical and Industrial Applications Princeton New Jersey area $20MM in three installments
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Deal Summary Company Name: Sector: Location: Requirements:
Robert D. Battis, BS Chemistry – Founder, President, CEO, COB Mr. Battis has 23 years of Laser Industry experience. Prior to founding LEI, he was the National Sales Manager of Industrial & OEM Lasers for Lambda Physik. He has worked with US Government and Fortune 500 Labs and made major contributions in the field of Laser Marking, Micro Lithography, and Laser Processing of MCM’s for IBM. He holds many US & PCT patents with a BS in Chemistry from Seton Hall.
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Ticker: LNGT
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Board/Key Management Profile
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Board/Key Management Profile Ike Sutton, CEO of GoIP Global Ike is a media-wise strategic marketing executive. He combines in-depth global marketing experience with practical business knowledge. His business experience includes founding positions at Aprica Juvenile Products, Fusen Usagi, Inc., Exus Networks, Inc., StarInvest Group, Inc., and currently GoIP Global, Inc. Converging various technologies have enabled his companies to be in the forefront in his product launches with a goal of being first to market.
Further Information GoIP Global, Inc. 475 Park Ave South, 30th Floor New York, New York 10016 Tel 877-730-0191 or Text GO to 46800 (Go800) info@goipglobal.com For more information visit www.goipglobal.com, www.go800corp.com or www.facebook.com/go800. The GO800 video can be viewed and shared on iPhone, BlackBerry, or Android from this URL: http:// go800.delivr.com/1194v. To hear GoIP’s weekly recorded update TEXT GOIG to 46800.
Ticker: GOIG
Deal Summary Company Name:
GoIP Global, Inc.
Sector:
Media — Communications
Location:
New York, New York
Requirements:
$2MM convertible 2 year Note
Business Summary
New York-based GoIP Global, Inc. is a mobile media, mobile entertainment, and mobile marketing solutions company. GoIP offers a range of mobile marketing services, solutions and tools for brands, agencies, content providers, online portals, entertainment and media companies. GoIP offers brand and content customers great flexibility in creating mobile marketing campaigns and applications. Through its subsidiary GO800TM, a new patent pending text messaging service, which launched in 2010, enables advertisers to incorporate a text prompt in their advertisements, prompting consumers to contact them through a text message rather than calling a 1-800 toll free number. Voice Keywords by Go800 is a powerful new direct response marketing method. It immediately connects you with customers that are ready to buy. The Go800 platform and service enables consumers to initiate toll free calls to advertisers via text messaging. From their cell phone, the consumer texts a “KEYWORD” to Go800 (46800). Seconds later, their cell phone rings “Please hold on while Go800 connects your call.” Go800 proceeds to call the targeted advertiser and connects the live call. Go800 Platform is convenient for consumers to connect to companies around the world. Go800 is a Vanity name for 46800, which is a short code. Short Codes are propelling the next wave in the meteoric rise of text messaging in the United States. Short Codes are easy for wireless subscribers to use and remember, and they represent the first time that application providers such as Go800 will have a common addressing scheme for their mobile application — which will boost adoption rates and increase interactivity with end users.
Competitive Advantages
Pending patent for the Voice KeywordTM technology. First to market — connected with over 160 wireless carries in the USA and Canada. Database of over 7,000 keywords which connect consumers to advertisers.
Medical Care Technologies Inc.
Sector:
Healthcare
Location:
Beijing, People’s Republic of China
Requirements:
$750,000
Business Summary
Medical Care Technologies Inc. is a development stage company with 3 business segments: i)
Children’s health clinics, developed through a Chinese subsidiary, providing a network of western-style children’s health facilities in larger urban areas throughout China. Services geared to advancing economic middle- and upper-class families. ii) Telehealth services providing affordable, standardized and secure software information systems to electronically connect health care providers, academic institutions, pharmaceutical companies, alternative health industries, and individual consumers with health care information, and iii) Distribution of a diverse range of industry-leading medical/health product lines (medical devices, pharmaceuticals and nutriceuticals). Products will be distributed through the children’s health clinics or through the internet.
Competitive Advantages
Early market entrant — provides first-mover advantage in currently relatively untapped market. Focus on children highly significant, given the Chinese emphasis on their children’s health and well-being and next generation. Complementary system of call centres provides value-added service to base healthcare operation. Cross section of healthcare services — clinical, retail and communication— positions the company to be a leader in China’s private sector healthcare industry. Promotion of advertising and marketing through secured portals to clinical users and patients of physician approved/recommended medical and wellness products.
Key Investment Highlights
Massive Opportunity: Chinese Government announced major reforms in health care system in 2009 which includes expending 850 billion renminbi (US$125B) over the next three years. (US$100/person). They have already spent $10B and enrolled 5% of the 900 million rural citizens in a ‘health archive’ program and target 30% by 2011. If only $1/person goes to telehealth, this creates a $1B very near term opportunity. Company is targeting this medical records and telehealth market segment. Company has lined up access to China-wide distribution of health care products Med-Suite™ and Tele-Health™ will be functionally integrated, providing consumers and their own private children’s health clinics with timely, efficient and high quality delivery of health care information. Excellent scalabity of children’s clinic template will provide rapid roll-out and consistency of delivery in many different areas in China An envisioned telehealth service will be low cost, massively scalable, and capable of serving large populations
Hui Liu – Treasurer & Director 20 years with 5 multinationals in procurement, purchasing, s&m support, office admin, and HR. Based in Shanghai, supports HR strategies & organizational development. Created Global Shero, a private company forum promoting active dialogue to empower women to make ‘balanced’ choices. Senior HR manager at Richemont, a luxury goods company with near-global distribution and service networks. Senior HR manager for Honeywell, supporting 4 major corporate functions across 13 countries. Led national SmithKline Beecham HR team in merger to become GlaxoSmithKline in 2002. BA International Trade. Sean Lee Heung – CTO & Director Over 15 years in IT. Specialisms software & infrastructure in healthcare industry. Expertise in reselling into healthcare industry & government authorization and approvals procurement. BA (Hons) Human Geography.
Growth Strategy Purchase of minority investment by private equity firm after State approval received.
Further Information Corporate Communications China: (8610) 6407 0580 contact@medicaretechinc.com U.S.A.: Ms. G. Moy, (647) 448 6399 g.moy@medicaretechinc.com
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Company Name:
Ac c r e d i t e d m e m b e r s i n c .
Deal Summary
Ning C. Wu, CEO, President & Director Experienced in public, private & govt sectors. Founding partner & previous CEO at Open Planet Enterprise (Toronto) delivering business advice, solutions and management services to Chinabased companies establishing N. American markets & N. America-based companies marketing to China. Expertise includes strategic direction and management, business development, sales, product & business concept development and management, network building with industry and organizations, client relations management, business process analysis, & IT project management.
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Ticker: MDCE
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Board/Key Management Profile
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Estate Planning With a Heart Family Wealth Counseling
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combines social and financial objectives, and leverages an estate’s value
W
hether it’s buying Girl Scout cookies or making a modest donation to their favorite charity, Americans love to give to a worthy cause. But serious philanthropy has long been considered the exclusive domain of the very wealthy — until now that is. Despite the economic ravages of the last few years, a new era of prosperity has created a new class of “wealthy” Americans. There are over 1.1 million families with estates worth more than $5 million in the U.S. today. And it is estimated that over the next 20 years, they and others will leave estates of in excess of $10 trillion in accumulated wealth. Unfortunately, without careful planning, the tax bite on many of these estates will be devastating — especially for those with highly appreciated assets. And, while Congress has given us a brief respite for the next two years, the transfer tax rate will be at 35% on every dollar going to a non-spouse above the new $5 million lifetime exemption from federal death taxes (called the Federal Estate Tax.) Most of the wealthy and affluent in America feel a sense of obligation to support the social well-being of our country in some way. What most wealthy and affluent Americans do not realize is that the government gives us a choice in how we do that. If we do not choose, they will choose for us. The government will not send a thank you note, or, as the charitable planning consultant Jay Link puts it, will not “name a missile system or post office after us.” Further, depending upon which report you read, as much as 86% of the money paid into the system as taxes gets spent on salaries and bureaucracy before any of it comes out as a benefit. This “forced” charity Jay refers to as “involuntary philanthropy.” The Federal Government has designed tax laws so that no matter how creative your financial planning, you cannot keep everything you accumulate for yourself and your heirs
Family Wealth Counseling entails far more than simply reviewing a net worth statement, looking at an estate tax table, and running the numbers. Instead, it focuses first on a virtues-based approach to family financial planning, and it starts with deeply personal and decidedly non-financial questions: “How will my descendents, and the world, remember me when I’m gone?” “Has my life counted in some way, left any trace that it had some meaning?” “What can I do to make a meaningful and lasting
The rewards are emotional and spiritual, of course, but they can be financial as well. Once gifting choices have been made, the process can provide current benefits to families and their heirs — often increasing the value of the family’s financial resources. It sounds unlikely, but it’s actually possible to grow wealthier giving your assets away! Indeed, opportunities for giving are numerous. A quick check on Wikipedia asserts there are more than 1.6 million non-profit organizations in the U.S. alone, many of which have assets of less than $1 million. Not only that, but studies have shown that gifts under $100,000 can actually have the greatest impact, which means even smaller estates can make a significant difference in their community.
Wealth Legacy Group’s Founder and President, R. J. Kelly, first completed his training in Family Wealth Counseling twenty years ago, when it was estimated that Family Wealth Counselors had even that long ago recovered over $2 billion in taxes for clients, and converted those dollars back into income plus current or deferred gifts. Today that number is in the tens of billions. Kelly himself is responsible for creating nearly $100 million in current and deferred gifts, with a life-time goal of raising $500 million. RJ’s full bio can be found at http://www. wealthlegacyseries.org/r-j-kelly. A final note from the authors: Don’t expect this kind of counsel from most attorneys, CPA’s, bankers, insurance or investment people. If they do not utilize philanthropy in their personal planning, they are unlikely to bring up the use of these tools, techniques and strategies for you — if they are even aware of them, and how they can be integrated with traditional planning tools. Ask, “Who is the most accomplished planner around who integrates the use of philanthropy into their planning process?” Ask your advisor for referrals of others they have helped. While confidentiality is important, the author has a number of clients that are willing to chat with an individual and help provide them peace of mind. Be intentional in your life — and in how you will positively impact your world!
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By not simply accepting taxes as a foregone conclusion, but embracing the concept of creating social capital, Family Wealth Counselors help families direct that portion of their wealth they would not be able to keep normally, and redirecting this towards worthy charities and other tax-exempt organizations — which could even include their own family foundations.
R.J. Kelly Founder & President Wealth Legacy Group
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For Family Wealth Counselors, the introduction of achieving socially positive impact into the traditional estate planning process produces exciting planning options. If the focus is on life planning, not just financial or ‘death planning,’ the result balances excellent financial sense with the profound joy of ‘doing well by doing good.’
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The idea of tax-favored giving is not new. However, a lot of families don’t consider philanthropy because they don’t consider themselves wealthy enough to give a portion of their wealth away... or they’re afraid of reducing their current lifestyle... or they don’t want to diminish inheritances to their heirs. All that is required is a new way of thinking. Unfortunately, many estate planners work within a very traditional planning framework and consequently only achieve limited success in accomplishing all of their clients’ financial goals. For example, buying life insurance to pay estate taxes is a good idea to a point — it can reduce the cost of paying the tax, but it doesn’t eliminate the tax. That is nothing more than damage control. Estate taxes are a voluntary tax — something that is not being explained to most wealthy clients — and can be eliminated completely upon death as long as the family is willing to pre-plan for ways of giving back while they are still alive.
difference in the lives of my family — my community — the causes I believe in?”
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without giving something back. But not all of this “social capital” has to be paid to the IRS — there is a small but growing number of financial advisors who take a new approach to estate planning known as Family Wealth Counseling. This approach allows for individuals to reorganize family wealth to maintain adequate retirement income, transfer more wealth to heirs in a manner that is protected against creditors and divorce, but ultimately redirects taxes to supporting philanthropy. This kind of philanthropy is voluntary — and more importantly — self-directed.
BASES LOADED/ FULL COUNT!
A personal story about keeping going when the going gets tough â&#x20AC;&#x201C; very tough.
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Before my surgery, I looked forward to the amputation. My arm had become useless and was a source of great pain. I wanted to be rid of it. But I had no idea what the consequences would be. Ultimately, I had to give up a part of myself, in order to find myself. After the amputation, I put on a brave face and “sucked it up.” I adjusted to my new “normal” life, but inside — even though I was not aware — I struggled with denial and anger, resulting in depression. Depression is defined as anger turned inward. Depression defined me as a man. Everything familiar had been washed away, and I was face to face with what I had really lost. So much of my identity and worth was wrapped up in that arm and what it had been capable of doing. It had brought me joy. It had brought me financial security. It had brought me the fulfillment of my boyhood dream. My questions could not be held at bay: “Who am I? Why am I here? And now what am I supposed to do with my life?” Individuals and caregivers who deal with long-term illness or disability realize that everyone will inevitably face life-changing losses — often including relationships,
Over a period of 18 months of counseling, I began to understand my feelings and, for the first time in my life, learned how to express them — and that wasn’t easy for a jock like me. I also found encouragement and motivation through my personal relationship with God. Even as a person of growing faith, I sometimes wanted to crawl into a corner, paralyzed by fear. But I learned to trust that no tragedy or trauma could ever diminish my worth. My worth is not in what I did, but in who I am — a child of God. I finally distinguished the difference between a human doing and a human being. Ultimately, who you are is so much more important that what you do. It took many years for me to experience this reality. With this true perspective of myself, I gained the ability to endure the changes and challenges of living without my left arm. And I laid down my ball and glove. IS THAT ALL THERE IS? Many of you have battled with the challenges imposed by the economic downturn and the stock market and real estate roller coaster over the last few years. Does that thing have an “off button?” The game of baseball is a metaphor for the game of life. You have a series of ups and downs, wins and losses, good and bad press. You just hope that you end up with more in the win column when it’s time to put away the cleats for the last time. >>
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PROVISION THROUGH PERSPECTIVE The wake-up call for me came through the counseling that my wife, Jan, sought during her recovery from depression. As I listened to Jan pour out her heart, I thought, “Hey, what she’s going through is similar to what’s happening to me.”
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ENDURANCE THROUGH IDENTITY LOSS All I had ever done was play baseball, so when I lost my pitching arm, I lost a lot more too — my career, my position and my sense of identity. Who was I, if I was not a pro baseball player? It was a long and difficult journey to identify the real Dave Dravecky.
skills and resources — that have been an essential part of who we are and that have given us joy and purpose in living.
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e is known to baseball fans around the world for his dramatic comeback in 1989, following cancer surgery. Just as dramatic was Dave’s departure from baseball, after the return of the cancer and the amputation of his left arm.
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Dave Dravecky was in his seventh year of playing Major League Baseball, pitching for the San Francisco Giants, when a cancerous desmoid tumor was discovered in his pitching arm.
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What will that benchmark look like for you? You might be a corporate head, an independent investor, a team player, or a serial entrepreneur. You’ve achieved your economic goals, but perhaps you are now considering what it means to move from success to significance. Your focus on achievement, on becoming #1, likely caused you to sacrifice family, friends, sports, hobbies, travel or other meaningful pursuits. And now you’re reassessing what really matters and where you might go from here. The potential you have to give back has never been greater and neither has the need. Perhaps you are considering volunteerism, as expressed in a commitment of time, talent and resources, to those who are less fortunate. Or maybe you’re looking for ways to instill values, virtues and perspective in those who are following in your footsteps. I believe that the secret of living is giving, and the rewards of giving back to others, through endurance.org has allowed me to experience a sense of satisfaction and a feeling of accomplishment that I never experienced on the ball diamond. I was able to turn my scars into stars and reinvent myself, for the greater good. Today could be the time when you take an honest look inside, evaluate your priorities, minimize your losses, embrace who you are and identify ways to add value to the lives of others, going forward. THE JOURNEY CONTINUES Living life with this perspective hasn’t always been easy. In some respects, I’ve continued to struggle with my identity. I’ve learned that once you’ve arrived at a certain Truth, living it out becomes the greater challenge! That’s why the journey is so important. I’ve learned so much over these past 20 years about God, myself and the importance of relationships with others, as I pursue a life of peace and contentment. The truth that my worth is not in what I do, but in who I am, is more relevant than ever before. These days, I enjoy traveling the country and sharing my story in a number of different settings. My wife Jan and I are also privileged to walk alongside people experiencing pain, loss and depression. We do this by offering comfort, encouragement and hope, through our story and the stories of others. Our outreach is Endurance with Jan and Dave Dravecky. Knowing that cancer, in
some form, visits one in three Americans, I’m certain many of you reading this article are facing a personal challenge and may not have the resources to face this issue confidently. I invite you to reach out to us at endurance.org, so that we can hear your story, share ours and offer direction and tools to assist you in these trying times. Recently, we all enjoyed watching the San Francisco Giants win the World Series. Jan and I had the unique privilege of being at games 1 and 2. Man, did we have fun! While there, I was again reminded of the special gift I was given to play at that level, for that great team, some 20 years ago. But even more importantly, I experienced the realization that “baseball was just a stepping stone” to something so much greater! Baseball provided the platform for what we do and for that, I am eternally grateful. But one thing is certain — what I do today and who I am — as a result of the pain and suffering — I wouldn’t trade in for anything — not even a glove and baseball!
Dave Dravecky Founder of Endurance with Jan & Dave Dravecky
In addition to overseeing Endurance (www.endurance.org), Dave is a prolific author, writer and inspirational speaker.
industryinsider
Insight into today’s emerging & topical sectors 38 North to Alaska —
43 What Will it Take to
the Last Frontier
What makes Alaska so attractive for today’s mineral mining companies?
40 Do Well While
Doing Good
The double return of green and renewable energy investments
Industrialize Algae? Algae has a chance to save us from our growing CO2 burden
45 Information Security
An investment, a hidden tax we all pay, or both?
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Evaluation of Rare Earth Mining Projects What are rare earth elements, and
how do you evaluate an investment opportunity in this sector?
North to Alaska – the Last Frontier What makes Alaska so attractive for
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today’s mineral mining companies?
A
laska is in the midst of a gold rush! Mining companies are locating mining claims on State of Alaska land to explore for gold, silver, copper, and base metals. This bodes well for a state with an unemployment rate well below the national average (7.3% vs. 9.6%). This is in part because Alaska is mining-friendly, and the state government works with industry to develop resource projects. Alaska’s Minerals Industry I recently attended the Alaska Miners Convention in Anchorage where mining companies, government agencies, and suppliers made exciting plans for next years work program and mining development projects across Alaska. The conference saw project presentations from over twenty companies and there were over 100 vendor booths in the trade show offering their services to the mining industry. The State of Alaska has created a friendly work environment for companies which has translated into capital coming to Alaska to develop natural resources. Alaska currently has five major producing hard-rock mining operations: Fort Knox (Au), Green Creek (Ag), Pogo (Au), Kensington (Au), and Red Dog (Zn). In addition, three very large mining development projects — Livengood (Au), Donlin Creek (Au) and Pebble (Cu, Au) — are
working toward a production decision. And the Whistler (Cu, Au) project is showing promising drill results as is the Niblack (Cu, Au) project. The value of Alaska’s mineral industry was nearly $3 billion dollars in 2009 according to the State of Alaska’s Mineral Industry Summary. Exploration and development expenditures were nearly $500 million dollars on the projects listed above and others. The Alaska mining industry directly employs nearly 3,000 people. Alaska State — Land and Tax The engine of economic development in Alaska is the Alaska state land. Passed in 1958, the Alaska Statehood Act granted Alaska the right to select 104 million acres for state ownership. Alaska now has successfully selected and has had title transfer of approximately 100 million acres. The mandate from the State is that this land is for development, and the State has a framework of laws and agencies to facilitate this, providing a two tiered claim system for acquiring State land for mineral development. A citizen of the United States can stake a 40 acre claim (1,320 feet on a side) or a 160 acre claim (2,640 feet on a side). The cost to hold the ground is an annual rental fee that starts at $0.88 cents an acre and rises every 5 years. By contrast, US federal claims are 20 acres in size with holding costs of $7 per acre per year. Alaska then requires the claimholders to perform minimum work commitments (“assessment work”) on the land. This requirement begins in year 2 and escalates with time. The work requirement per 160 acre claim is $400 ($2.50 per acre) of physical reportable work. The physical work is drilling, sampling, road building — work related to mineral development. (There is no assessment requirement on US Federal land.) Alaska has aided the mineral developer by mapping the geology of state lands and acquiring high quality geophysical data
Alaska is truly the last frontier when it comes to allowing a person to stake their claim and have a legal framework to facilitate the development of their project.
Glossary of metal symbols used in this article: Ag: Silver Au: Gold Cu: Copper Zn: Zinc
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In addition to being COO for Terra Mining Corporation, Mr. Baughman is currently assisting several private mining development companies and is on the Advisory Board of a Canadian exploration company. He has provided corporate leadership & project management for a number of mining companies, including being co-founder and President & CEO of High Plains Uranium Corp which completed a TSX IPO. He has a B.Sc. in Geology from the University of Wyoming and is a registered professional geologist in that State.
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Alaska has specific environmental and reclamation laws that govern development of Alaska lands. The advantage to the mineral developer is that there is one reporting agency to deal with. This is in stark contrast to the federal land reporting requirements where there is a number of agencies requiring reports for environmental and reclamation compliance.
James Baughman COO Terra Mining Corporation
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Finally, Alaska aids the mineral developer by allowing mining companies to accrue exploration and development expenditures with the State that can then be used to offset production income and the state royalty calculation (severance taxes).
Terra Mining Corporation Terra Mining Corporation (â&#x20AC;&#x153;TMCâ&#x20AC;?) is working in Alaska to develop the Terra Bonanza gold project in the beautiful Alaska Range. TMC has signed a Definitive Agreement to acquire 80% of the project from Corvus Gold Inc. The Terra project has a NI 43-101 inferred resource of 168,000 ounces. TMC plans to advance the project with an aggressive 2011 drill program to expand the identified resource. The project has had over $6MM dollars spent on exploration by ITH, AngloGold Ashanti (USA) Exploration Inc. and Kennecott.
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over large areas of state lands with good mineral potential.
Do Well While Doing Good:
The Double Return of Green and Renewable Energy Investments
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industyinsider
Operating Officer of Rubicon Alliance, LLC, explains…
We relate to that sentiment in our organization. As a private equity company, we are on the receiving end of a large volume of potential opportunities in multiple categories. Even better, we are able to vet out similar seeming “juicy targets” side-by-side. The number of deals focusing on “green” and “renewable energy” opportunities has increased dramatically over the past few years. It’s an exciting and growing trend. Naturally, the vetting process reveals that most don’t meet the face-value expectation. Some prove decent, a few fantastic, and some just plain outrageous. (Take, for example, a $5MM offering that recently crossed my desk on medical marijuana offices. It’s certainly “green,” and “renewable,” but this mosquito will pass up that politically volatile target). The Eco Trend Unless you have been living under a rock, you already know that green funds and other renewable investment opportunities are popping up all over the place. New companies, new technologies, new ideas abound. Marketing, politics, and public sentiment are all pushing us towards green and renewable options. Take the example of manufacturer Kimberly-Clark. In October 2010, they announced a “roll-out” of tube-free toilet
Renewable Energy I would argue that renewable energy is the hottest and most important green trend today. There hasn’t been a more volatile investment topic in the past few years than energy. From oil embargos, gulf wars, the BP well disaster, brown-outs, increasing costs of lighting your home, and the “drill baby drill” mantra, the topic of energy can be divisive and political because it hits every person close to home. Oil companies are spending billions of dollars to research and join the renewable trend. Renewable energy investments are coming into their own, and have quickly moved from speculative investments to the mainstream. There is an abundance of opportunities on which to focus such as solar, wind, tidal, and geothermal — just to name a few. There’s no denying that there are bona-fide beneficial options to creating mass amounts of renewable energy from alternative sources. According to the projections from the United States Energy Information Administration in their International Energy Outlook published in 2010, world energy consumption will increase by 49%, or 1.4% per year, from 495 quadrillion Btu in 2007, to 739 quadrillion Btu in 2035. In the same report, world net electricity generation is projected to increase by 87% >>
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Juicy Targets American investor and philanthropist Warren Buffet recently wrote in reference to the market upheaval that the current opportunities make him feel like “hungry mosquitoes in a nudist camp. Juicy targets are everywhere.”
paper to save waste — a lot of waste.160 million pounds of trash per year — enough tubes to stretch to the moon and back. Twice! Cute, I think, until I dive in deeper and discover that this is a $9 billion market that has been stagnant for years. Wow. A simple idea should bring them into the market forefront by riding an initial marketing trend, while saving millions on materials and waste. I’m certain competitors will follow suit, since I don’t know how you could patent the non-use of something. One thing is clear: the trend is set. Kimberly-Clark has found a way to gain new market share through a growing consumer demand and profit from it. No doubt about it — they have found a way to do well while doing good.
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Darin Zaruba, Chief
T
he upheaval in today’s financial markets requires investors to look past traditional ingrained market philosophies. Yet, if you adjust your lens accordingly, you’ll find an abundance of quality opportunities in private businesses, start-ups, and micro cap companies. Nowhere is this truer than in the green and renewable energy sector.
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The number of deals focusing on “green” and “renewable energy” opportunities has increased dramatically over the past few years, and it’s an exciting and growing trend.
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from 2007 to 2035 with renewable energy generation growing by an average of 3.0% per year, and the renewable share of world electricity generation increasing from 18% in 2007 to 23% in 2035. According to the Renewable Energy Policy Network for the 21st Century, investment in renewable power generation in 2008 was around $250 billion globally, and investment in all forms of renewable generation in the same year was $140 billion globally. In total, 56% of all new generation investment was renewable. In the United States, just over 50% of the new energy installations were in the form of renewable energy, while in Europe that percentage surpassed 60% during 2009. Currently 100 countries now have renewable energy policies compared to only 55 in 2005. America lags behind The challenge lies in trying to monetize the hype, which is the key to long-term market sustainability. No matter how you look at it, the invisible hand is at work, and without government subsidies many renewable energy companies and projects will fall by the wayside. Take America. We are roughly five years behind the European Union in the push for renewable energy, in part by our failure to adopt the Kyoto Protocol in 1997. The bottom line is that our pain is just not to the point where demand catches up. A strategic focus of our company in 2010 was to find opportunities that would capitalize on the double return of doing well while doing good. We wanted to continue to make that an important part of our ongoing corporate culture, so we specifically focused on one of the renewable energy sectors — “waste-to-energy.” In our simple estimation, human population will continue to grow and those people will continue to produce trash and consume energy, causing stress and creating demand on the market. Waste-to-energy is a great opportunity to capitalize on both of those issues, solving two major problems at the same time — a great example of doing well while you are doing good.
We placed waste-to-energy opportunities in two categories (1) technology development companies - those trying to build the better mousetrap, or (2) project implementation companies — those putting mousetraps to work. We started our research by focusing on new technologies. Just in this sector alone, there is an abundance of potential options: plasma reduction, microwave, incineration, gasification, algae, methane capture, and even emerging nano-technologies. In the end, we focused our efforts on actual project implementation utilizing existing and proven technology. We found that certain “mousetraps” work quite well already, and the best opportunity really lies on project development. We will begin placing gasification projects in high-waste stress and high-energy demand markets in Italy in 2011. Why overseas? The market forces and project economics move us there. Selling energy at roughly $0.26 per kilowatt hour is better than $0.05 in the US. And receiving roughly $100 in waste disposal “tipping” fees per ton is certainly better than $20 in the US. We are putting the mousetrap to work. We are doing well, while we are doing good, even if we have to focus overseas initially to do it. No matter what area of green or renewable energy, there is an abundance of, as Buffet said, “juicy targets.” Now is prime time to do well while you are doing good. I hope America catches up soon, and when it does, we will be ready to capitalize on it. For now, I’m off to do good by stocking up on a new Kimberly-Clark product.
Darin Zaruba COO Rubicon Alliance, LLC
Darin Zaruba is the Chief Operating Officer for Rubicon Alliance, LLC, a member of Accredited Members, and an investor and businessman with executive level experience in various capital markets. Darin manages Rubicon’s private investments in the renewable energy sector, currently focusing on waste-to-energy projects in Italy through a development company called Renewable Power Holdings. Rubicon Alliance is a private financial services and investment firm based in Colorado Springs, Colorado. The Principals at Rubicon are client advocates for life and wealth, educating investors in wealth maximization techniques. Rubicon develops alternative investment opportunities, with holdings in oil and gas, mining and minerals, real estate, and renewable energy projects. Editor’s note: For more details about a specific renewable industry, see OriginOil’s algae industrialization article on the following page.
doing well by doing good — by industrializing it and capitalizing on it.
The Distribution Component “Now there are companies who are going to have increasing importance because they’re already out there building biodiesel refineries or whatever. There’s also going to be a network of geographic distributors of these solutions. We anticipate having an OriginOil Japan, OriginOil Thailand, etc. And we wouldn’t restrict these people to OriginOil only. They’d be able to leverage the best of breed technologies to deliver algae production. In addition we’re looking at service networks, so there’d be Schlumberger-type service networks out there that would have to be empowered to operate these sites worldwide. And, of course, there’d be the specific application guys who know all about waste water, or ethanol and so forth, who would engage specific vertical expertise. I mean, this is the Internet all over again. And so this whole matrix of industry does not exist today, and will have to come about. “The most aggressive people from oil will want to jump in, though most people will want to protect their existing revenue lines and they’ll be focused on what they do best. Then we’ll see emerging operators coming out that have been doing ethanol, biodiesel and so forth, who are already tooled up. And then there’ll be completely fresh operators. “The challenge for [these new operators] is that they’re not tooled up, they need financing, and today we see an algae financing gap where established companies are getting financing and the low level startups are not rising to the level of suspending disbelief enough for the financiers. So today I think we really need to mature this over the next 12-18 months from a financing point of view to where companies can actually catch up.” >>
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CO2 burden. OriginOil is
“Essentially CO2 is a feedstock. It is a fuel. It’s a very low-grade fuel and needs lots of energy to turn it into usable fuel, but it is the most plentiful carbon available to us. So nobody is going to pipe the CO2 to one place, it’s too cheap. The answer is obviously to put the [algae] production facilities at all the CO2 emission points, which means a highly distributed industry from Day 1. We’re saying every single cement plant, brewer, power plant, factory of any kind, feed lot, all these places are going to have to have their own algae box, be it micro or macro or anything in between. But now those people are not in the business of making algae, so there will have to be system operators that will operate
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save us from our growing
“If you’re looking at making industrial output of algae, first you need lots of CO2.
virtual networks of energy facilities. So this is a whole new paradigm that hasn’t even happened, which is people operating highly distributed energy sites, and so what do we need for that? We need to stimulate the creation of a whole new industry.”
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Algae has a chance to
The Carbon Dioxide Component
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What Will it Take to Industrialize Algae?
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The Financing Component “Financing is going to be the big gating factor. In the dotcom boom we saw all of a sudden everybody was blindly putting money into it. Until that happened, it was hard to get anything done, and I think we’re at that pre-stage. And that’s because we are pre-business model. We are at 1992. I remember my friend Sky Dayton back then. He was a very young man, still in his late teens, and he was trying to start EarthLink. He started with angels, and he was with angels for a long, long time. And even as EarthLink grew and started making money, they still had investors doubt the future of what he was doing. Well, he proved them wrong and it was a huge win. But back then in 1992,93,94 it was very hard to get financing, and that is the number one thing that has to mature. “To back that up, we need really good ROI models. We put a lot of effort behind that. We have a prominent modeling firm that is helping us to create these highly usable financial and production models that can be focused on applications, like wastewater, ethanol support, or the waste industry. We presented this model this past year at the National Algae Association. It was very crude at the time, but we showed them what we had and some of our conclusions which, for example, said that you’ve got to go vertical. And we showed something like a 22% increase in the bottom line just from going from a standalone to a wastewater environment. We’ve continued building that and we’ve said, for now, we’ll give people access to it. Come under NDA and we’ll give you the run of the model. Ultimately we want to find a host for that model and to start to share it more widely. “The key to financing is that if Wells Fargo believes your business plan, behind your business plan, besides you mortgaging your house, has got to be a working production model that shows them that algae can do what you are claiming. So, we’ve spent a lot of energy on that and it’s probably the single most important thing that is going to reinforce the financing of those systems.” The Upside to Algae “The saving grace for algae, unlike switchgrass or canola or whatever, is that it has a lot of uses. Up until algae, somebody like a biodiesel refiner had been stuck with only a fuel model. Well if he now has a captive algae plant, then he can start creating a mix, supplying it for plastics, for solvents,
shellacs, functional proteins, and fuel. It right-sizes the biodiesel refiner’s model. It helps the ethanol manufacturer’s model tremendously. So I think people will discover that algae has this versatility.” The Opportunity “Entrepreneurs are going to enter this space and go, “Hmmm, I can actually have an algae plant in this town and produce biodiesel for this community right here.” So, a lot of the early consumers of green energy are going to be targeted by these early entrepreneurs. Another thing that is going to happen is that algae is going to grow behind the scenes. A lot of it is not going to go into people’s cars, it’s going to be attached to big industrial polluters, and so their flue gas is sucked up by the algae, the algae gets gasified right back into the kiln. It never leaves. That fuel is never even refined, really. It’s just gasified in the lowest possible carbon chain, CH4 and burned. That kind of thing is going to happen a lot, where it’s going to be behind the scenes, helping waste energy, manure feed lots, and so forth. All these things are going to be really invisible, but that’s where most industrial applications of algae will take place. “The next five years will be really, really exciting, as the industry scales up. Algae does have a chance to save us from our growing CO2 burden and that’s not even talking about its opportunity to help feed the world. We’re very happy to be part of the process.” EXCERPTED FROM ORIGINOIL’S RIGGS ECKELBERRY INTERVIEW, ALGAE INDUSTRY MAGAZINE http://www.algaeindustrymagazine.com/ riggs-eckelberry-part-1/ http://www.algaeindustrymagazine.com/ riggs-eckelberry-part-2/ http://www.algaeindustrymagazine.com/ riggs-eckelberry-part-3/ AlgaeIndustryMagazine.com copyright ©2010 by The Biofuel Media Group LLC. All rights reserved.
Riggs Eckelberry President & CEO OriginOil
One of the inventors of OriginOil’s breakthrough technology, and now President & CEO, Riggs Eckelberry brings a wealth of technology management skills to the alternative energy sector. As President and COO of CyberDefender Corporation from 2005 to 2006, he was instrumental in building the company, achieving initial funding, and a public company filing (CYDE.OB). From 2001 to mid-2005, he helped launch and turn around technology companies as founder and President of TechTransform, a technology consulting firm. In 2004, he was a key member of the team that commercialized YellowPages.com, resulting in its sale for $100 million to SBC/BellSouth. Riggs’ full bio and background can be found at http://www.originoil.com/about-us/ company/management.html. Editor’s Note: Read about other renewable and green technologies in Rubicon’s article on p 40.
“critical” software updates, exploits seem to be growing. Is there a solution in sight?
But how secure and reliable is this infrastructure? How much are we paying for security that might not be reliable? Is information security improving, staying static, or getting worse? The IT security industry is thriving. The market capitalization of just four IT security companies — Checkpoint (firewalls), Symantec (antivirus and SSL), McAfee (ditto and about to be bought by Intel for $48/share), and VeriSign (DNS and authentication) is $35 billion. Most of the value in IT security has been rolled up into Cisco, Hewlett Packard and others who have been active acquirers. IT security consulting is a major revenue driver for defense contractors, IBM, the big accounting firms and many other smaller and private companies. It is big business, it is recession proof, and it is growing.
Bank and credit card theft is not a huge threat to individual consumers because laws require the financial institution to cover the loss. No such protections exist for businesses and not-for-profit entities, although Senator Schumer of New York has introduced legislation to extend these protections to churches and school districts. Why can’t we stop these threats? There are several reasons, including the fact that most of the software and hardware driving the internet was not designed with security in mind. But fundamentally there is no way to authenticate who is who. A consumer cannot know for sure if they are visiting their bank site and the bank cannot know for sure if it is the customer. When an email arrives it may >>
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A less ominous but real threat is increasingly organized hacking of bank and brokerage accounts. The money is wired abroad. (A very good blog reports these attacks, krebsonsecurity.com, from Brian Krebs, a former Washington Post reporter, if you are interested in learning more.)
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expensive. Despite frequent
Information technology lowers costs and risks and makes life easier for everyone. For example, the combination of GPS mapping services, mobile computing and search means you are never lost (and in many cases never need to think about directions) and never out of reach of a hot latte or a gas station — as long as you can get a signal.
There is a war with hackers constantly developing new methods of attack. It is an endless cycle of vulnerability — exploitation — patch — that anyone with a PC understands all too well. Historically hackers have been profiled as nerdy teenagers out to cause mischief. But the real threat today is from nation states and nation-supported companies/industries conducting industrial espionage.
Ac c r e d i t e d m e m b e r s i n c .
Information security is
V
ery few of us could function in the manner to which we are accustomed without access to the internet and its services. Business and finance would grind to a halt without the secure flow of information afforded by the internet and secure IT infrastructures.
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Information Security: An Investment Opportunity, a Hidden Tax We All Pay, or Both?
not be from the person identified as the sender. If you can’t authenticate the party at the other end, you cannot say a system is secure.
46 Ac c r e d i t e d m e m b e r s i n c .
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In addition, the security “perimeter” around corporate networks no longer exists due to the advent of mobile computing. Cloud computing, putting corporate or consumer data and applications on a service provider site (Google, Amazon and many others offer these services, for example) is not a complete answer — even if the site is completely secure — because you still have to grant access to the site to many individuals and each one represents an attack vector. So where are we trending with regard to information security? Security patches from major software vendors have grown larger, more critical and more frequent with each passing year — that battle is being lost. But help is on the way. A significant change to the internet is in process that will greatly enhance security and it won’t cost you a penny. This change is DNS security extensions or “DNSSEC.” DNS stands for Domain Name Services. It is a hierarchical, distributed database that translates internet names we use and understand, like amazon.com, or accreditedmembers.com, into the numbers (IP addresses) that computers understand, that direct you to the proper internet site. DNS is the internet switchboard. It is worldwide and is unique. All internet communications, including email and voice over IP, depend upon DNS. It is critical to communications. The problem with DNS is that it is not authenticated. Meaning you have no way of knowing that the site you landed on is the real one, or more insidiously, that you landed at the real site but a “man in the middle” is spying on you and perhaps stealing your credit card number or other personal data. Without DNSSEC, neither SSL sessions nor VPN tunneling can be fully trusted. This lack of authentication in the DNS also affects email. There is no way of knowing if the email came from the sender or from someone else. Lack of authentication allows spam to thrive and requires everyone to have some form of email filter. About a year ago, the founder of a well known email filtering company told me they monitor billions of emails a day and filter
88% of it as spam. Of the remainder that they send on a further 88% is spam. That is a lot of traffic. Spam today is increasingly targeted at specific victims, sometimes using a friend’s name mined from a social networking site. This technique, known as spear phishing, is very likely to result in the victim clicking on a link or simply opening the email that downloads malware. As these attacks move to smart phones and tablets, the threat becomes untenable. What DNSSEC does is add a digital signature to the DNS response that is used to validate that the response came from the domain’s authorized server, and not an attacker. It also guarantees denial of existence of a specific site. An example of this happens when you mistype an address. With DNSSEC you can be sure you have hit the correct web site and that there is no site between you and the one you were seeking. DNSSEC was deployed in July 2010 in the internet’s root servers, which are the starting point for DNS addresses. To be effective, DNSSEC requires deployment in the top level domains (.com, .org, .edu, .net, .uk, .au, .gov, etc.) and then by individual domain owners or their service providers. Most of these top level domains have already deployed DNSSEC and it was just announced that .com will deploy in March of 2011; .com is the last of the big top level domains to adopt DNSSEC. The final step is for individual sites to adopt DNSSEC. For banks and brokers this should be a no-brainer since they want customers to know they have arrived at their site and not at a fake one. In the future, it may be possible for a web site (e.g. a bank) to authenticate that the web site user is who he says he is by using information stored in the DNS and secured with DNSSEC. Universal authentication — that’s the holy grail of IT security. DNSSEC can also be used to authenticate email, which will virtually eliminate spam and
enable users to know where their emails came from. I believe this is one of the “killer applications” for DNSSEC because it can show an immediate and tangible benefit for users, for employers and for service providers. Expect to see these applications early in 2011. Sadly, there seems to be a huge lack of preparation for DNSSEC. The Federal Government required DNSSEC adoption by all agencies in 2009, yet there is still less than 50% compliance. Few businesses have adopted or have developed plans to do so. Among service providers only Comcast among the majors has adoption underway. One reason DNSSEC has proceeded so slowly is that it needs a critical mass to be truly beneficial. We could hit this critical mass by mid 2011. DNSSEC software is not expensive, and with automated solutions it is not difficult or time consuming to deploy. So it is possible that we could see widespread adoption very quickly. That would result in a safer internet at almost no cost to the consumer. One final note: Potential investment opportunities with companies who will use these technologies to fuel their growth include publicly traded VeriSign (VRSN), NeuStar (NSR), Symantec (SYMC), and Angel funded Secure64 Software Corporation (contact details in column at right).
Glossary of IT terms used in this article
Cloud computing
Internet-based computing relying on sharing computing resources rather than local servers handling applications. It networks large groups of servers with specialized connections to spread data-processing chores and contains large pools of systems that are linked together.
DNS
Stands for Domain Name System (or Service or Server). An Internet service that translates (alphabetical) domain names into (numerical) IP addresses.
Firewall
An electronic barrier system designed to prevent unauthorized access to or from a private network.
GPS
Stands for Global Positioning System. A worldwide satellite navigational system.
Hackers (& crackers)
A slang term for people who enjoy learning programming languages and computer systems and can often be considered experts on the subject. Hacker is developing an increasingly derogatory connotation to denote those who gain unauthorized access to computer systems to steal and corrupt data. Hackers, themselves, maintain that the proper term for such individuals is â&#x20AC;&#x153;cracker.â&#x20AC;?
IP address
Stands for Internet Protocol address. An identifier for a specific computer or device.
Malware
Generic term for software designed specifically to damage or disrupt a system. Includes viruses.
Mobile computing
Using the internet and other applications on mobile or portable devices such as smartphones.
Phishing
E-mails falsely claiming to be from an established legitimate enterprise and attempts to scam the recipient into giving out private information that will be used for identity theft.
Security patch
A piece of code that is inserted into a program to fix a bug or problem.
Spear phishing
A type of phishing attack that focuses on a single user or department within an organization, addressed from someone within the company in a position of trust and requesting information such as login IDs and passwords.
SSL
Stands for Secure Sockets Layer. A system for securing private documents and information during transmission via the Internet. Usually shows up as a padlock onscreen.
Voiceover IP or VOIP
Stands for Voice Over Internet Protocol. The use of the internet to transmit telephone calls.
VPN tunneling
Stands for Virtual Private Network. Used to access email and corporate databases remotely and also securely.
Steve Goodbarn Founder & CEO Secure64 Software Corporation
The author is a founder and CEO of Secure64 Software Corporation, an angel funded software developer providing secure high-performance DNS and DNSSEC solutions to global tier 1 communications carriers, government agencies, and internet service providers. He is also a member of the board of directors of DISH Network (DISH) and is the former CFO of Janus Capital. Steve can be contacted at Secure64 Software Corp, 5600 South Quebec Street, Suite 320D, Greenwood Village, CO 80111-2228. Tel: 303-242-5902. Read his blog at http://www.stevegoodbarn.com/ Protect your DNS with DNSSEC: http://www.secure64.com/how-todnssec-information
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The process of identifying a device on the internet.
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Authentication
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A program or utility that searches a hard disk for viruses and removes any that are found.
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Antivirus
Evaluation of Rare Earth Mining Projects What are Rare Earth you evaluate investment opportunity in this sector?
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Elements, and how do
48 Ac c r e d i t e d m e m b e r s i n c .
A Beginner’s Guide…
T
he Department of Defense (DOD) has sounded an alarm about the United States’ access to a strategically vital group of metals called rare earth elements (REEs). A General Accounting Office (GAO) report concludes that the Chinese now control the production, processing and manufacturing of final products and many of the patents related to these metals. The worries of the DOD are well-justified: missile guidance systems, smart bombs, night vision gear, unmanned aircraft, and much more are in some way dependent on rare earth elements. Without these metals, U.S. weapons technology would be at the same level it was during the Korean War. Battery-powered tools, hybrid vehicles, wind turbines and almost everything else electric cannot get by without them. Rare earth elements have been described as the vitamins of modern technology. It took Beijing approximately twenty years to strip this technology from its birthplace in the United States and move it to China. Until 2009 China had been willing to supply the world’s basic rare earth metals in oxide form. China’s strategic ability to overproduce discouraged development in other countries. The country was concurrently developing downstream technology and building the facilities to manufacture all the final products.
Fig. 1
This is changing. This year China has slashed exports around 40% from 2009 levels, saying it must protect reserves and safeguard its future domestic supply. Further cuts are expected. Internal supply and demand factors are mostly causing this shift. China produced about 140,000 tons of rare earth oxide in 2008, or about 97% of world consumption. China’s reserves themselves are finite — 10 to 20 years for the vital heavy rare earths, depending on to whom you talk. Of the 140,000 tons produced, China consumed about half of it internally and exported the rest. By 2015 world demand is now expected to increase to around 225,000 tons. Rare Earth Basics The rare earth metals, shown in Fig. 1 with blue highlight, were discovered and isolated by researchers during the 19th and early 20th centuries. This group of 14 elements are so similar in atomic and molecular properties that it is called the “lanthanide series” and are crowded into one square, La, in the Periodic Table. These elements are almost always found together in nature, although in varying proportions. The single most important characteristic that some of these elements have is the ability, when alloyed with other elements, to make very high strength permanent
Periodic Table of the Elements H
He
Hydrogen
Helium
Li
Be
B
C
N
O
F
Ne
Lithium
Beryllium
Boron
Carbon
Nitrogen
Oxygen
Fluorine
Neon
Na
Mg
Al
Si
P
S
Cl
Ar
Sodium
Magnesium
Aluminum
Silicon
Phosphrous
Sulfur
Chlorine
Argon
K
Ca
Sc
Ti
V
Cr
Mn
Fe
Co
Ni
Cu
Zn
Ga
Ge
As
Se
Br
Kr
Potassium
Calcium
Scandium
Titanium
Vanadium
Chromium
Manganese
Iron
Cobalt
Nickel
Copper
Zinc
Gallium
Germanium
Arsenic
Selenium
Bromine
Krypton
Mo
Tc
Ru
Rb
Sr
Y
Zr
Nb
Rubidium
Strontium
Yttrium
Zirconium
Niobium
Molybdenu Technetium Ruthenium
Rh
Pd
Ag
Cd
In
Sn
Sb
Te
I
Xe
Rhodium
Palladium
Silver
Cadmium
Indium
Tin
Antimony
Tellurium
Iodine
Xenon
Cs
Ba
La
Hf
Ta
W
Re
Os
Ir
Pt
Au
Hg
Tl
Pb
Bi
Po
At
Rn
Cesium
Barium
Lanthanum
Hafnium
Tantalum
Tungsten
Rhenium
Osmium
Irridium
Platinum
Gold
Mercury
Thallium
Lead
Bismuth
Polonium
Astatine
Radon
Nd
Sm
Fr
Ra
Ac
Francium
Radium
Actinium
Lanthanide Series Actinide Series
Ce
Pr
Cerium
Praseodymium
Neodymium Samarium
Th
Pa
U
Thorium
Proactinium
Uranium
Eu
Gd
Tb
Dy
Ho
Er
Tm
Yb
Lu
Europium
Gadolinium
Terbium
Dysprosium
Holmium
Erbium
Thulium
Ytterbium
Lutetium
Tons and grade of the deposit Because of the exorbitantly high capital costs of rare earth projects (capital expenditures of $500 to $900 million are the norm), the deposit must be large enough to have a relatively long mine life. There will not be many “small” rare earth mines.
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Proportions of the rare earth elements Fig. 2 shows the rare earth elements as they are arranged in the periodic table. Atomic weight increases from left to right. This is the basis of the heavy to light identity. Rare earth metals were originally grouped into three classes; light, medium and heavy. Yttrium, although a lighter >>
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Public attention has been primarily focused on “green energy” applications, with wind turbines and small hybrid vehicles perceived as growth leaders. However, high power permanent magnet motors and generators are more efficient regardless of the propulsion system or end use.
industryinsider
magnets. Using these magnets it is possible to make small but powerful and efficient electric motors and generators. Hybrid vehicles are one of the top consumers of REEs both in their batteries and electric drives. A single Toyota Prius, for example, uses 30 to 40 kg of rare earth oxides. One 2.5 megawatt wind turbine uses about one half metric ton of REE magnets.
49 Ac c r e d i t e d m e m b e r s i n c .
Diesel powered vehicles and equipment play a vital role in almost all stages of the economy. The world will beat a path to any technology that can materially cut diesel costs. Large mine haul trucks already are hybrid. Thus, the bookends of the existing transportation system — small eco-cars on one end and 400-ton mine trucks on the other— use this technology. This market is being grossly underestimated. Once the technology cat is out of the bag there is no putting her back. Ask the people who used to make steam engines. Evaluation of Rare Earth Mining “Deals” Because of their importance and projected short supply rare earth projects are popular in the Junior Mining Company sector. As always in a “boom” environment, they come in a very wide range of quality and potential. Because rare earth mines can be thought of as chemical plants with a mine attached, the traditional “tons and grade” approach to evaluating a project must be modified. There are four factors that influence the economic viability of a rare earth deposit. They are almost equal in importance: Fig. 2 Light or 'Ceric' Lanthanum
Cerium
La
Ce
PraseodymNeodymium Samarium ium Pr
Nd
Sm
Medium
Heavy or 'Yttric'
Europium
Gadolinium
Terbium
Dysprosium
Holmium
Erbium
Thulium
Ytterbium
Lutetium
Yttrium
Eu
Gd
Tb
Dy
Ho
Er
Tm
Yb
Lu
Y
element and not technically a rare earth, has chemical and physical properties that allow it to be grouped with the heavies. It now has become convention to divide these elements into heavy and light and drop the medium class. The dividing line is placed to the left of Europium, Gadolinium or Terbium, depending on the outlook of the author.
50 Ac c r e d i t e d m e m b e r s i n c .
ac c r e d i t e d m e m b e r s . c o m
I s s u e 1 2 011
A lot is made of the heavy to light ratio by the various companies developing these deposits. Deposits that are “heavy” command a premium. Fig. 3 divides the lights and the heavies at terbium, but also shows the relative economic importance of the individual elements.
Location and infrastructure Approximately 30% to 40% of the operating costs of rare earth mines are going to be energy. Mines that have access to relatively cheap energy have a very large advantage. Because of the extravagant chemical needs, transportation is also an important economic factor. Summary Large size, high percentage of the magnet metals and Yttrium, favorable mineralogy and relatively low energy costs will be the determining factors for these projects. There is also a geopolitical imperative. If supplies of these metals are not secured the United States days as a superpower will soon be over.
Mr. Gorski began his career in the mining business in 1968 with Vitro Minerals Corp. which merged into Earth Resource Corp. He was a consulting geologist based in Denver from 1974 until mid 1979, working principally in uranium. He was the mine manager of the Tripp gold mine in western Utah from1979 through 1982 then worked as an exploration geologist principally in Mexico. Mr. Gorski has managed three underground mining operations in Mexico.
In evaluating these “deals” take note of where the company is placing the boundary between light and heavy, and remember that the higher the percentage of the magnet metals and Yttrium, the better. Mineralogy The type of mineral that hosts the rare earth is one of the important factors affecting the economics of a deposit. Most of the mining deals seen in the market today will fail because of the mineralogy of the deposit. All rare earth minerals have to be chemically processed in order to separate the 15 different elements into individual oxides. The most difficult and costly step is breaking down the primary mineral. The ease or difficulty of processing the primary mineral is the key in the processing chain. Minerals that respond to conventional concentration processes such as, floatation, gravity, magnetic, etc., are desirable. Minerals that can be dissolved in relatively common reagents are also desirable. Minerals that require relatively less energy to process are very desirable.
In 1996 Mr. Gorski co-founded Metalline Mining Co. and managed their Sierra Mojada, Coahuila operation until 2004. He was part of the founding group of High Plains Uranium which was later merged into Energy Metals Corp. and later Uranium One. Mr. Gorski became President and CEO of Standard Silver Corp, now renamed Texas Rare Earth Resources, in March of 2007.
Again, when evaluating a company, take note of the mineral being produced. If the mineralogy is not stated, there is generally a problem. Fig. 3 REE's with Highest Growth Potential
Lanthanum La
Cerium Ce
Light
Praseodynium
Pr
Neodymium Samarium Nd Sm
Critical REE's, magnet metals plus yttrium Increased use limited to general economic growth Potential oversupply
Europium Gadolinium Eu Gd
Terbium Tb
Dan Gorski President & CEO Texas Rare Earth Resources
Dysprosium Holmium Dy Ho
Heavy
Erbium Er
Thulium Tm
Ytterbium Yb
Lutetium Lu
Yttrium Y
Mr. Gorski received a BS degree in geology from Sul Ross State College (1960) and an MA degree in geology from the University of Texas at Austin (1970). He can be reached at Texas Rare Earth Resources, 7 Copano Pt., Rockport, Texas 78382. Email: dgorski@texasrareearth.com; webpage: texasrareearth.com
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