buy recommendation from flaherty, page-2

Perth, West Australia-based Mission NewEnergy Limited (ASX: MBT) has an ambitious goal to become an integrated global provider of new alternative energy, especially biofuel, from sustainable low cost captive jatropha oil feedstock.
In North American biofuel has a bad name as biodiesel refiners have tanked and many have gone into bankruptcy. The problem is the industry is easy to enter but profits get squeezed as the prices of feedstock commodities escalate from the competing demands of food versus fuel.
How have the Australians turned the North American model upside down?
The answer is Mission's integrated business model for long run sustainable profitability and growth.
James Garton, Mission's head of corporate finance, mergers and acquisitions, notes that competition for food crops to use as feedstock has had a dramatic impact on the financial position of many North American biodiesel producers, causing many refineries to go out of business. What's the difference with Mission? "We have our own captive feedstock, and it's a non-food crop so we can avoid all of the challenges and debates around food versus fuel," he says. It also has the potential, if successful, to make his company one of the lowest cost producers on the planet.
In developing its business model, Mission recognized early on that in order to gain a competitive edge to be substituted for oil in diesel, their feedstock had to be in a low cost position. To do this, the company has been heavily focused on generating sustainable profitability from its byproducts in hopes of eventually achieving zero cost for its feedstock, or jatropha oil. "If we have the lowest cost of feedstock , that means we can compete regardless of where the price of oil sits and regardless of whether subsidies are in place or not," says Garton.
"We have 30 years of captive feedstock contracted at a price equivalent to $40 a barrel," he adds. "If we focus on our byproducts and drive those down the way we're consistently doing, that $40 number can consistently be reduced. We think maybe we can get it down to $20, or maybe lower." Right now, Mission is a 30-year-call on the price of oil at $40. That is what is special here.
This is a remarkable classic special situation. The minimum investing goal of each new Flaherty Special Situation is to achieve a gain of 50% to 100% within two years.