Gambling Greenie  August 14, 2019


A serious profit and giant gamble

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The Gambling Greenies portfolio as of August 14, 2019

AT LEAST ONE COMPANY is making serious money by cleaning up the environment.

Phoslock Environmental Technologies, fondly known on the ASX as PET, likes to tootle around lakes and reservoirs in tinnies or rafts, killing algae.

It seems it is very good at it.

It is far and away the star of the Gambling Greenie’s groaning portfolio. He bought them for 35c in January and sold a third of his holding this week at $1.455 each.

Cash flow was actually down in the latest three months – from $6 mln in the first quarter to $4.7 mln.

But the company is on track for its full year forecast of sales of $27 - $30 mln, and net profit before tax of $6 - $8 mln, roughly double the previous year’s profit. Thanks to the soaring sales it has plenty of cash – around $18 mln – to fund its expansion.

YOU HAVE BEEN WARNED

THE GAMBLING GREENIE  is licensed by the South Australian government to drive a moter vehicle. He is not an adviser and has no links to the financial services industry. If he finds a guaranteed way of making serious money on the stock market, he won’t tell anyone.

He may at times own shares mentioned in the column, but does not trade in any such shares for at least two working days before or after publication.

The big boost has come from China, where it has been officially recognised by the Ministry of Water Resources. It has already cleaned up a Beijing canal, secured contracts for 17 years of maintenance, and has won approval to work on the 371 sq. km. Xingyun Lake catchment, comprising the 34 sq.km. Xingyun lake and 14 rivers, waterways and reservoirs.

It has other trials, or projects, under way around the world.

Its key product is Phoslock, invented by the CSIRO (Australia’s government-funded Commonwealth Scientific and Industrial Research Organisation) in the 1990s. Essentially a mixture of bentonite and the rare earth lanthanum, it permanently “locks up” the excess phosphorous in waterways caused mainly by agricultural and urban run-off.

Safe for fish and aquatic plants, it has been certified as safe for use in drinking water reservoirs.

The danger with any technology company is that some geek in a garage might tweak your magic formula or find a much cheaper way to achieve the same result. However there is no sign of that happening, and Phoslock is already developing other products. It has almost finished constructing its first wetland, again in China, and has added bacterial water treatment to its armoury.

So the Gambling Greenie is happy to hang on to the remainder of his PET shares. His decision to take some profit has been largely influenced by the shaky state of the stock market since it reached a record high last month.

His sale has brought in $1,450, an overall profit of $455. He retains 2,000 PET worth $2,910, which have effectively cost him nothing.

THE WOBBLES in the market are making it extremely difficult to decide whether or not to throw more money into the sea off Western Australia.

Carnegie Clean Energy, (ASX code CCE), is attempting to come back from the dead by selling millions of shares to investors who have already lost everything they put into the company.

Carnegie logo

Carnegie went bust not because its technology was a complete failure but because it tried to become a more broadly based alternative energy company by buying Energy Made Clean (EMC). EMC’s solar business would generate cash flow while Carnegie could continue developing its massive buoys.

It seemed like a good idea at the time.

EMC turned out to be a lemon. Carnegie tried to sell it to the investment group TAG Pacific, but at the last minute TAG reneged and took only part of EMC, which it merged with its existing Mpower subsidiary. (TAG has since been renamed Mpower).

It was a shares-exchange deal – no cash changed hands – and didn’t save the CCE group. Within months Carnegie CEO Dr Michael Ottaviano was out and the receivers were in.

However, the buoys haven’t sunk yet. EMC has been liquidated, Carnegie’s costs have been slashed and the company has changed course dramatically. It now has a plan to abandon the heavy-engineering approach of building multimillion dollar prototypes and will instead design and simulate the next generation of buoys using supercomputers and the latest machine learning techniques.

They reckon it will take two years to design and test small-scale models of the new buoys. It will then need to find a partner or partners with deep pockets to take them to commercialisation.

The Carnegie system uses large buoys tethered offshore which wave to and fro, pumping seawater ashore at high pressure. This is then used to drive electricity turbines and/or to force seawater though the salt-filtering membranes of a desalination plant, producing fresh water without the need for high pressure electrical pumps.

The company has been refining the design and building ever larger buoys for more than 10 years, helped by millions of dollars in state and federal funding. A prototype is already operating off Garden Island, in WA.

The hope now is that trading in CCE shares will be able to resume as early as September 12.

This depends, however, on raising at least $5.5 million and preferably up to $11.5 million from shareholders.

The offer is one new share, costing a tenth of a cent each, for every four shares held. The GG has 75,000 shares and is entitled to buy 18,750 shares at a cost of $18.75.

If he takes up the offer, he will be tempted to apply for additional shares, which will be available if other shareholders decide not to throw more of their money into Carnegie’s hat.

A thousand dollars’ worth of new shares would cut the average cost of his shares from 3.6c now to just 0.34c. Assuming he gets all his shortfall shares, and assuming Carnegie does raise at least $5.5 mln, the shares would have to rise tenfold on the stock market before he showed an overall profit. Hmmm.

The prospectus rightly warns that investing in the shares is “highly speculative”.

The company made a comprehensive loss for the year of $63.4 mln. Its total assets are just $19.9 mln, but $15 mln of that is frankly little more than an educated guess of what its intangibles, mainly its intellectual property, might be worth.

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The Plan:  Graphic extracted from Carnegie’s recent presentation to encourage shareholders to cough up more cash.

The offer does not close until September 4 (unless extended). The Gambling Greenie has decided not to make a decision, at least until after digesting the investor webinar which Carnegie is holding next Monday, August 19.


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