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Investment Extra
2005-07-16
Daily Mail; London (UK)

TIPPING small companies which have yet to make a profit is tricky.

Prospects may be promising but converting them to orders is hard going.

While governments and corporate giants take their time deciding, the little guy can run out of money or be forced to raise more by giving away shares at bargain prices.

Virotec, the former Aussie tin miner reborn as an environmental cleanup group, hashad a long battle to convert the potential of its Bauxsol technology into big orders.

Bauxsol, a compound of the red mud left over when bauxite is refined, is both ingenious and cheap. But so far, sales are small brokers expect Pounds 1.25m for the year to June 2005.

Now, at last, Virotec appears set to break through to a bigger league.

At Skytop mountain in Pennsylvania, huge piles of rock cleared for the Interstate-99 highway have leaked sulphuric acid into a trout-fishing river.

The Department of Environmental Protection has given the go- ahead to use Bauxsol to clean up the first pile. This order could be worth Pounds 700,000.

If the test succeeds and Virotec is asked to treat the whole site, this could be worth Pounds 10m enough to deliver group trading profits for the first time in 2005/6.

Success could open the way to other road sites in Pennsylvania and around the US.

Turning potential into cash has been a long haul. Winning clearance from the US Environmental Protection Agency took an age.

At the Gilt Edge mine in South Dakota, EPA trials are in their fourth year and the next step is a 'pre-feasibility study'. The hope is eventually to win a share of the huge EPA 'Superfund' for cleanups, but patience is clearly needed.

Virotec was first tipped here at 9p. It is now 323/4p, and this week broker Numis raised Pounds 9m in a placing at 30p.

Viro formed a promising new alliance with the Al-Othman family in Saudi Arabia, whose trading company has Pounds 170m annual sales. They will sell Bauxsol for water treatment in the desert kingdom, with target sales of Pounds 2m in 18 months. If they fall short, they pay an Pounds 85,000 fee.

A separate contract with Hyundai in South Korea should chip in Pounds 230,000. Another useful order has been won in Laos. But the big play now is the US.

Virotec expects its first ever profit, about Pounds 1.5m, in the year just ended. But this is due to a 'one-off' gain of Pounds 8.5m on the sale of water treatment technology to HydroDec, the Aim company formerly called Vert-Eco.

Viro got 60m HydroDec shares worth Pounds 14m, a handy nest egg. The crucial issue is to achieve real sales. Confidence is growing. Broker Evolution reckons this year's sales could be Pounds 9.5m.

Big investors who took up the placing heard talk of Pounds 13m, with Pounds 5m profits, for earnings per share of perhaps 1.7p. Experience suggests revenues will come through in lumps, and may take longer than hoped.

Virotec needs to spend money on marketing and distribution.

It is scrambling to meet the US demand it anticipates. It is already valued at Pounds 77m.

But the potential of Bauxsol to bring in rapidly rising revenue in future years is exciting. Evolution recently valued the shares at 40p, Durlacher suggested 50p.

If the potential can be realised, they should have further to go.