Best stock to invest in – Water Gleaner Stocks: Value In Sludge



Best stock to invest in

by Debra Fiakas CFA

There are well over 3,000 companies around the world that are
involved in some element of wastewater treatment, providing a broad
mix of technology, equipment or engineering services to generators
and collectors of fouled water.  A small group in this wide
field is gaining visibility  –  the ‘water
gleaners.’  Like the peasant women picking up stray grains of
wheat left behind in the empty field of Millets famous painting,
some see value in effluents, sewage and run-off.  In this post
we look at three small-companies with novel technologies to harvest
water.

New Sky Energy is a
private company based in Boulder, Colorado, has developed several
waste recycling processes, including carbon dioxide capture, sour
natural gas sweetening.  The company’s ‘SaltCycle’ process
converts industrial and agricultural brines into useful chemicals
that have economic value.  It is an appealing alternative to
having to pay for disposal.

The SaltCycle process involves two steps.  In the first step
brines are concentrated and purified to produce useful salts such as
sodium chloride or sodium sulfate.  Then in step two, the salts
are put into a chemical or electrochemical reactor to produce acid,
base and sulfate.  Soda ash or bicarbonate can be produced from
the base.  Sales of the end products can be used to pay for
upstream water treatment or as a power source for the SaltCycle
reactor.

 New Sky has focused on the water waste streams of the oil and
gas industry.  However, the company has also been calling on
mining companies, landfill operations, agriculture, and other
manufacturers.  One element that helps the New Sky pitch is the
scalability of its systems and the availability of engineering
services to help optimize operations. Patents protect the technology
behind its three primary waste converting systems.

With all that going for New Sky Energy, there is little for
investors.  Management holds its cards fairly close to the
corporate vest, making only a few customer announcements and saying
little about partners or investors.  Still New Sky Energy is an
interesting company to watch for future developments in this
expanding market for sustainable industrial processes.


MagneGas Corporaton (MNGA: 

Nasdaq) has been a topic of past articles.  The November

2015 post outlined how the company is using its plasma arc
technology to gasify carbon-rich liquids such as municipal
wastewater to produce hydrogen gas.  The company markets the
gas for industrial applications such as metal cutting.  It
widely seen as a replacement for acetylene and has been adopted by
fire departments emergency situations requiring safer metal cutting
tools.  MagneGas2 is being used by two subcontractors in the
expansion of the Vehicle Assembly Building at NASA’s Kennedy Space
Center.    Most recently the company received an
order from a major gas company in Mexico for industrial metal
cutting.

As a public company MagneGas provides investors a pure play on
wastewater reclamation and reuse.  Unfortunately, ‘industrial
sustainability’ is also a ‘small play.’  In the twelve months
ending December 2015, the company reported $2.3 million in total
sales, resulting in a net loss of $8.8 million.  MagneGas is
also still using cash resources to support operations  – 
$5.6 million in that same twelve-month period.  With only $2.2
million in cash remaining in the bank at the end of December 2015, a
ramp in sales cannot come fast enough for MagneGas.

OriginClear (OOIL: 

OTC) was the focus of an October

2015 post.  The company has developed an ‘electro

water separation’ process that uses electricity to collect oil
and suspended solids in waste water.  The solids are removed
with ‘advanced oxidation’ to return clean, decontaminated water back
to the industrial system.  OriginClear markets its system has
application in settings where oil contaminates water such as in
hydraulic fracturing of oil and gas wells.  However, it also
has application in the production of algae for fish feed.  Both
industries are large water users and benefit from being able to
recycle and reuse water rather than having to pay for both water
replenishment and wastewater disposal.

Through the acquisition of Progressive Water Treatment based in
Dallas, Texas, OriginClear took its first step in the reclamation of
foul water.  Progressive brought with it a portfolio of water
treatment systems for municipal and industrial waters using reverse
osmosis technologies.  More recently the company launched a
joint venture with a Malaysian engineering firm, Osmocell Malaysia,
which has successfully deployed twenty filtration and reverse
osmosis systems for water purification.  The joint venture
claims over $1.0 million in proposals and bids in its business
pipeline.  Malaysia is the world center for rubber glove
manufacturing, which uses water-intensive processes that leave
organics and ammonia in process water. 

OriginClear has yet to record significant revenue and still requires
cash resources to support operations.  Consequently, its stock
is priced in the pennies as an option on management’s ability to
conserve cash resources long enough to get the revenue pump primed
and generating higher numbers at the top-line.  Cash totaled
$695,295 at the end of December 2015.  With a cash usage rate
near $250,000 per month, there is some concern about how long
OriginClear can last without a dramatic increase in revenue. 
That said, the company did have $1.0 million in contracts receivable
on the balance sheet, so collections could save the day. 
Furthermore, the Progressive Water Treatment operation acquired in
October 2015, is expect to add $6.5 million to the top-line in
2016.  

Management of OriginClear is also actively in the hunt for
additional acquisition and joint venture partners.  While we
expect that large group of over 3,000 companies to consolidate, it
is tough to see OriginClear, with it barebones balance sheet, as a
consolidator.

Debra Fiakas is the Managing
Director of
Crystal Equity
Research
, an alternative
research resource on small capitalization companies in selected
industries.

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

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