RE:RE:RE:CORRECTIONMy calculation of book value is correct according to the balance sheet that Nordex filed as of April 28 2015.
Total shareholders' equity was $8,909,477. (pg1 of the balance sheet).
The number of shares outstanding at year end was 20,413,435 (page 2).
You and I may question what Jim O'Reilly and Joseph Hunnisett consider to be assets. Perhaps there are still other ghosts in the closet that they have not revealed to us lowly shareholders. Perhaps there will be another disasterous year in 2015. These financial statements have been audited by a reputable firm BDO. An auditing firm is required by law to make certain tests in regards sales, receivables, inventory etc. If they fail to do their job properly they can be sued. Personally I trust the auditors have done their job.
The assets shown on the balance sheet are what is left after they have been put to use. Perhaps some could have been used up more than what has been claimed. For exalmple, the mobile fleet which is stated at $3,340,681 and is worth $0.1636 per share could have more wear and tear than what is normal for the simple age of the vehicles. Some of the vehicles Nordex uses are proprietary. An Orica would not have a use for those vehicles. The auditors would not necessarily know how well or poorly these vehicles were treated nor perhaps the net resale value. They use standard depreciation tables to calculate net equity as long as the company in question is a going concern. I believe that Nordex is still a going concern.
The next biggest item on the balance sheet is equipment which was stated as $ 2,187,620 net of depreciation. Of this $2,241,308 was added in 2013 and 2014. This amounts to $0.107 per share of value. Can this equipment be sold for what was paid for it? Can the output from this equipment provide quality products today? Can it compete in a hostile environment? Those are all questions that auditors and shareholders have to ask. The remaining items on the balance sheet are:
Emulsion plant $ 1,312,382
Buildings $ 1,233,957
Magazines $ 774,099
Land $ 55,056
These items all appear on page 14 of the Annual Report. How much is an emulsion plant worth today on the open market? If you are a large competitor you probably have something similar with which you service your clients so would you need 2 of them? Would you be able to get a licence to use the process? Certainly the buildings would be worth something. There is definitely a market for magazines in the mining business. The land is in good shape as far as I know. I have not heard of any major diesel spills.
Accounts receivable and inventory were $3,418,582 and $5,224,960 respectively. Do you question these two items? They balance out accounts payable, not by a huge margin of safety mind you but they do balance.
I am not pumping, or at present dumping. I have bought shares recently because they have sunk to severely depressed value. I do believe that the Zucker Family Trust will be beneficial as to providing strategic direction. I will be supporting their choices for new board members.
You mention 2 major powder companies walked away without making an offer. Could you tell us if this was recent as in the 2013 or was it back in 2010? As far as it goes some of Nordex' licencing agreements may preclude a direct purchase by a competitor but there is value for the major if it solely buys up the company for the market share of sales, then at a later date shuts the operation down. Johnex products in Australia continue to sell well.
Finally Jim Taylor hints that the 2nd quarter of 2015 will show improvement.
"Management has addressed these cost factors through a combination of initiatives which are expected to yield immediate positive results starting in Q2 of 2015."
"A revised raw material surcharge structure was adopted early in 2015 that will more accurately align raw material cost fluctuations with our product pricing. The strategic placement of inventory and resources in our satellite sites is also under review to ensure alignment with market and client requirements in their respective areas."
Last but not least the press release of Feb 27 2015 which detailed RBC improved offer of credit to Nordex. They expanded credit and they lowered the rate charged. If I remember correctly annual savings for interest charges were $80,000. This is probably the most solid endorsement of all. Banks do not extend credit when you are down and out. Bank managers do not keep their jobs is they lose money on their loans. RBC had a very good look at Nordex' books before they signed this commitment to them.
I believe that the 1st quarter will not be all that pretty, but the second will show vast improvement. I believe that some sales will begin to occur to the Pacific Group of Companies. This process has been very slow to come about, but I think it will happen. I believe that the Zucker participation will add value. So all in all I think the book value of $0.436 is justified which makes Nordex hugely undervalued.
B&D