Good evening all, looking to move the discussion about LWP.....well back to the fundamentals of LWP and not who said what, when and why, i have created this thread to focus the attention on the next 3-6 months.
I will outline at a high level the key upsides of LWP, as well as cover off the downsides.
It is my intention that this thread have tangible contributions from members who have a constructive perspective.
FYI, I will be reporting any posts that are obstructively off-topic, in an effort to clear up 'the noise'.
And yes, it will be biased towards the inevitable success of LWP.
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1. Let us start with the financials.
Please note that the below information is taken directly from the annual report 2015, and where appropriate, the 'market update' from 22-02-2016.
Assets: $5.5M Cash @ Feb 2016. An increase from $3.1 Cash @ June 2015.
Liabilities: None according to the market update. Note that the $550k in loans is listed as neither an asset or liability. It is my understanding that repayment of these loans will add to the cash position.
BAU Operating expenses: If we look at the annual report 2015, it lists BAU expenses as ~3.7M per year. These are outgoing expenses.
BAU Operating revenue: Whilst LWP does receive an amount of income from secondary income sources (loans, interest, asset sales, capital contributions), i am not including them here as i wish to simply outline the expected remaining time LWP can remain in business without a sales income stream.
Interim understanding of LWP's financial viability:
- Current Cash: $5.5M
- Current Expenses: $3.7M per year or $310k per month.
- # Months in which LWP can operate without an income stream: 17 months
- revenue per month required to maintain financial viability: $450k (with tax of 30% = $315k
Final understanding of LWP's financial viability:
However we need to add in the future cash deposits from both the ATO and the Australian government.
- Current Cash: 5.5 + .74 + 1.6 + 1 = $8.84M
- Current Expenses: $3.7M per year or $310k per month.
- # Months in which LWP can operate without an income stream: 28 months
- revenue per month required to maintain financial viability: $450k (with tax of 30% = $315k
Financial Summary:
Given the above, we can see that LWP can survive for more than 2 years without an income stream, and only need to secure revenue of more than $450k per month to become profitable.
For those whom are not familiar with the fracking industry, a JV or sub-licensing deal with a proppant manufacturer would deliver $Ms per month in revenue, at the very least. More on this over the coming weeks.
Financial Notes:
-Whilst there are other incomes and expenses, they are relatively small and should cancel each other out.
-The legal action against LWP by their neighbor over noise complaints has concluded. LWP will look to have their court costs covered by the neighbor, resulting in a slight increase to the cash position.
-Before anyone jumps up and down over these figures, please read the annual report and note that the $1.7M expenses was for the pilot plant which has now been fully built and commissioned. This is not a recurring costs, and neither are any of the other once off costs that have already been incurred and hence left out of the monthly operating costs.
Ok, now we know that LWP have at least another 2 years to operate without further capital injection or revenue streams, let us have a look at what they might be doing with their time.
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2. Short term focus for LWP.
As we all should be aware, LWP has begun to market their product and have received interested responses from USA, Saudi Arabia, further states in India, Australia and New Zealand. This is confirmed in the market update.
As LWP management have mentioned (both on-record and verbally), they are evaluating their next steps regarding either a JV or Licensing arrangement. Note this excluded their plant in India, for which they are awaiting a higher price-of-oil.
As confirmed by LWP, the oil industry is focusing on cost reduction, and have approached LWP regarding this. It would not be improper to envisage an announcement regarding a JV or like arrangement between LWP and a company over the coming 2-4 months.
It should be noted that LWP do not actually have to sell a product, rather license the technology, IP, processes and methodologies required to retro-fit out existing plants which can then produce the proppants.
This means that there are a number of potential revenue types for LWP:
1. Direct manufacturing and selling on-market. This option would require the India Plant to be in operation, although some proppants can be made and sold from the pilot plant.
2. JV with a manufacturer. This option would involve LWP and a company which owns plants capable of manufacturing proppants to share the risk and reward. LWP would most likely obtain a % share of revenue for proppants sold.
3. Licensing deal with manufacturer. LWP would not invest any time, materials or resources in this deal, simply 'sell the license' for a company to use their manufacturing techniques. Think of this as Microsoft selling a Windows copy - you didn't help create the product, but you can use it how you like. LWP in this case would also likely receive a % share of revenue for proppants sold.
4. Professional services. LWP would contract consultancy services to existing manufacturers to simplify or enhance their proppant manufacturing. This option is unlikely as it would devalue their value proposition.
Ultimately LWPs short term focus is to establish a partnership with compatible companies. Expected time frame is 2-4 months for market announcement of this activity.
It is also of note that the POO has been steadily increasing over the last few weeks, and may have found a bottom. We await confirmation on this.
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3. Long term focus for LWP.
As mentioned in their market update, LWP are looking to their India Plant to produce revenue within the next 18 months. This will be taking some of their attention however is in good hands.
The exciting future (6-18 month time frame) prospects above what i've already covered is the notice of existing development at the pilot plant on fly ash from prospective licensee areas including Australia and Texas.
LWP have mentioned that an area of high interest is to develop proppants with a lower crush strength (circa 8,000 Psi) using minimal bauxite (a high cost input item) to compete in markets where mined frac sand is imported.
The high transport and logistics costs of importing frac sand to Australia from the US provides an excellent potential opportunity for an Australian LWP licensee to manufacture and sell a far superior product at a similar price point to mined frac sand.To that end the R&D team has been testing local Queensland flyash at the pilot plant, and the initial in-house laboratory test results show excellent promise.
Detailed manufacturing cost estimates are underway. Until now, LWP has been primarily focused on competing in the ceramic proppant market, however, the ability to deliver a superior product and compete on price with imported mined frac sand allows LWP access to a large portion of the proppants market not previously envisaged.
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4. A kindly reminder.
Don't forget that LWPs technology and products have been certified. There is no more speculation on will they / wont they pass. LWP have already communicated they are committed to bettering their already great product. It is estimated to save existing companies 40% of their proppant costs, with a higher oil output per proppant used.
5. Final words.
There is every possibility for LWP to change the game here. The industry is crying out for cost reductions. They are also looking to 'be green'. LWP delivers these in spades. For LWP to be trading below $0.01 is an absolute steal and if holders are OK to sell for such a discount, then I and others will be happy to lap up your shares.
I own 6.5M shares (at a cost of $50k, currently sitting on a loss of ~50%). But i have no doubt that i will be making 10 bags still, if not more.
Finally, i would encourage all holders to read this post as it covers some of the other positive aspects that i have left out:
http://hotcopper.com.au/posts/17082748/single
** DISCLAIMER **
All of the above is my research and may contain irregularities or erroneous representations of fact. However, all figures, statements, conclusions and speculations are presented in the most accurate and reasonable interpretation that I am able to make.
