MetalStorm (MTSX)Recs1 FollowShareReport February 05, 2008 –...

MetalStorm (MTSX)
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Report February 05, 2008 – Comments (1)



Since MetalStorm does not meet the 1.50/100mil cap requirements, thought I would pitch it here. Disclosure: I am long Metal Storm.



The Good: MetalStorm develops electrically initiated stacked munition weapons. This is quite a bit different than any other weapon on the market as all the ammunition is in the barrel which eliminates the need for a belt/magazine and a mechanism to chamber and extract the ammunition. This provides a significant advantage for certain applications as it cuts down on the weight of an equivalent weapon system as it does not employ a mechanical feed system. Less moving parts should equal greater reliability which is good for any weapon system but of greater importance for unattended or "leave behind" or area denial weapon systems. I believe MTSX is currently focusing on the two most practical applications for their technologies-- the 3GL and the Redback system. When MTSX first started out they were pitching all sorts of crazy applications that did not seem practical but rather a demonstration of the capabilities of the technology (i.e. the box o' bullets that is capable of firing a million rounds a minute). I believe the 3GL and Redback provide significant advantages that hopefully major militaries will latch on to. 3GL is either a standalone or underbarrel mounted 3-shot semi automatic 40mm grenade launcher. The current M203 grenade launcher is a single shot weapon, so this triples the firepower before reloading. It would be impractical to equal the 3GL's firepower with conventional technology as it would add significant weight and girth to the weapon. (this was tried briefly in Vietnam where SEALs employed a prototype three shot pump action 40mm launcher-- it was heavy) The other technology MTSX is developing is Redback a four barrelled 40mm grenade launcher with a sensor array, which it designed to be mounted to vehicles, unmanned ground vehicles (UGVs) or robots. MTSX has signed an MOU with IRBT to develop military robots employing this system. This is another good application for MTSX's technology as it allows good firepower/weight ratio as it would probably impractical to have a small robot carry a large, conventional 40mm launcher. It seems that the US Military is moving towards using robots to do alot more to reduce risk to soldiers. A robot mounted with Redback would seem a good way to get at an entrenched enemy in an urban environment without risking the lives of soldiers.

The Bad: Admittedly MTSX is a speculative play and may be a tough sell in the current market. MTSX has been public for eight years and has not inked a major contract with any military for its weapon systems. They have delivered several 1-2 unit R&D contracts could pay off. The contract cycle for major military acquisitions is loooooong and sometimes secretive so it could be difficult to get a sense of when and scale on any potential contracts. MTSX employs proprietary ammunition which is a double edged sword. Militaries crave uniformity so they have to buy in whole hog to MTSX to replace a given technology. For example, if the US Army sought to replace the m203 underbarrel mounted grenade launcher with 3GL, it would likely be an all or none proposition as they would want interoperability between soldiers' weapons and would not want to procure and distribute two types of ammo (though I think MTSX says that existing 40mm ammo can be retrofitted to fire out of the 3gl. On the plus side, if a military does commit to the weapon, they are on the hook to buy ammo from MTSX or MTSX stands to get a cut from another ammo supplier to produce it.



Bottomline: Its a speculative play but the payoff could be huge. MTSX traded in the 20s when it was IPO'd but has obviously fallen from grace because they have not sealed contracts yet. I'd like to think that they can reach this level again if they can ink a good size contract with a military customer. I don't think there is much downside risk. I think the technology is sound for certain applications and these are the applications that MTSX is currently focusing on. There is no street coverage on MTSX and we are probably not aware of all the military customers who may be looking at this, so this one could sneak up on everyone.