http://www.stockpatrol.com/article/key/silverado2 April 2001
http://www.stockpatrol.com/article/key/energycrisis
http://www.stockpatrol.com/article/key/silverado1
With other companies, agencies and research facilities exploring uses for LRCWF, where does Silverado stand? Are the Company’s plans up and running, or just running in place? Although the proliferation of “newsletter” reports is apparently recent, Silverado has been talking about LRCWF for at least a year. On May 4, 2000, it announced plans to establish a “production facility” for “a new, low-cost, environmentally friendly liquid fuel” which could serve as a “replacement for oil in areas such as the Pacific Rim.” According to that press release, the fuel had been “validated in pilot plants in Australia, Japan and the United States.” The Company indicated that it would be working with The University of Alaska’s Mineral Industry Research Laboratory; Great Northern Energy; and Coal Water Fuel Services, a company founded by Silverado’s Dr. Willson in 1994.
The Company did not describe the nature of its relationships with The University of Alaska or Great Northern Energy. Would it be participating in the “Clean Coal Demonstration Project?” As best we can determine, the University’s web site does not identify Silverado as a member of that project’s “team.” Does that mean Silverado is working with the University in some other capacity? These details are not included in the Company’s press releases or public filings.
The May 4th press release boldly predicted that the fuel would position the Company “as a world leader in the commercial development of such fossil fuels not only in Alaska but in other areas of the world.” How does Silverado’s LRCWF differ from low-rank coal-water fuels being developed by its competitors? At the time, Silverado didn’t say. The Company did, however, take the opportunity to remind investors that its gold mining division continued to have “an ever-growing significant gold presence with a current estimated value of close to ($500 million).” That estimate stands in stark contrast to the Company’s Form 10-K Annual Report for the year ended November 30, 2000. In that report, auditors valued the Company’s mineral properties at $1.2 million, and all of its assets at about $2.3 million.
Just days later, on May 8, 2000, the Company issued a press release describing the process for producing LRCWF and explaining that the fuel would be used in industrial and utility boilers and furnaces. According to Silverado, the new fuel would “decrease the cost of world heat and electrical energy generation in a safe and environmentally friendly fashion from production through end use.”
What was the basis for such lofty expectations? The Company did not elaborate on its earlier statement that the process had been tested in pilot plants in Australia, Japan and the U.S. Who conducted those tests? What were the results? What standards were used? Was an independent third-party involved in the testing? The press release did not provide such details.
As Time Goes By
Silverado continued to promote the new enterprise. On August 2, 2000, a Company press release declared that “the discovery of a revolutionary, new clean-burning fuel that replaces many of the industrial applications for oil at a fraction of the cost could make a major contribution towards resolving future oil shortages and protecting the environment.” Silverado went on to say that it was moving “as quickly as possible” toward commercialization of the new fuel process that could be produced for costs as low as $7 per barrel.
This time, Silverado said it was working with the United States Government and the State of Alaska to complete funding requirements for conversion of one of the Company’s gold mines to a fuel production facility. It did not, however, specify the government agencies involved, the possible sources of that funding or how much the plant conversion was likely to cost. The Company has not indicated whether any funding resulted from those discussions.
Money, it seems, has posed a recurring problem for Silverado. On November 27, 2000, the Company announced that its gold and fuel projects were close to being funded. It said that $15 million in private funding could be announced by the end of 2000. Those funds, the Company said, would be used to retrofit its Fairbanks, Alaska gold mill into a LRCWF production facility, a process that would take twelve to sixteen months.
How “close” was that funding? As best we can determine that $15 million private placement was not consummated before the end of 2000, and still has not come to pass. The source of future funds for the project remains something of a mystery.
From time to time, Silverado has suggested that some funding might come from foreign sources. The August 2nd press release said that the Company was working with other countries “interested in the development of commercial plants for the new fuel.” According to the Company, the government of Malaysia wanted to become the world’s first producer of the fuel. Almost nine months later, the Company’s press releases and public filings have provided no significant details of any relationship with the government of Malaysia or any other foreign countries.
That does not mean that Silverado has stopped talking about potential foreign alliances. On March 9, 2001, the Company issued a press release stating that “[n]egotiations with three foreign countries to finance and develop the world’s first commercial industrial oil fuel substitute that is environmentally friendly are now in the final stages and a major announcement is expected within the next 90 days or sooner.” What countries are involved? Is Malaysia still in that picture? The Company says that confidentiality agreements prevent it from disclosing the identities of its potential foreign partners at this time.
Still, on March 26th Silverado said that it expected to announce shortly a joint venture with the government of an unidentified South East Asian country which would finance the $100 million cost of the Company’s “first low rank coal plant in Southeast Asia.” It also maintained that discussions were continuing with a second country in that region. What are the details of those plans? Silverado revealed only that it would receive a royalty from fuel sales. What are the terms of that royalty? What role would Silverado play in development of the facilities? Those details were not provided.
Searching For Nuggets
What makes Silverado’s process unique? Does the Company own a patented technology? The Company says that Dr. Warrack Willson, Vice President of its Fuel Technology Division is the inventor of the “proprietary process.” But what portion of the process is proprietary – and controlled by Silverado? In a recent telephone conference call with investors and analysts, Silverado President Gary Anselmo suggested that while most aspects of the fuel production process are publicly available, key elements of the Silverado approach are controlled by Dr. Willson. Are those “unique” aspects protected by patents?
The records of the U.S. Patent & Trademark Office list a Warrack G. Willson among the inventor of two patented technologies. The first, in 1982, was for a “continuing process for the conversion of coal.” It lists Dr. Willson as one of five inventors of the patent, and reveals that the patent was assigned to the United States of America. It would appear, therefore, that neither Dr. Willson nor Silverado controls that patent today – so it would not constitute the Company’s proprietary knowledge.
The second patent, dated April 25, 2000, lists Dr. Willson as one of seven inventors of a patent for “methods to enhance the characteristics of hydrothermally prepared slurry fuels.” That patent has been assigned to Energy & Environmental Research Center (EERC) of Grand Forks, North, Dakota. Where does that leave Silverado? Does the Company’s technology employ this patented approach? If so, does Silverado have an arrangement with EERC that would permit it to use the patented methods?
In any event, it would not appear that this patent represents a “proprietary process” controlled by Dr. Willson. Does that mean that he has developed other proprietary processes that are to be used exclusively by Silverado? And if that is the case, why hasn’t either Dr. Willson or Silverado sought patent protection? If the “proprietary” portions of the process cannot be patented, how can Silverado protect itself against larger, better financed competitors?
Fuel Ore What?
Investors continue to await such details. In the interim, the Company continues to promote prospects for the new fuel. On March 26th, Silverado announced plans to develop a commercial production plant in Alaska “with federal sponsored assistance” and said that talks with foreign governments were proceeding.” But Silverado did not identify the federal agency to which it was referring or identify those “foreign governments.”
Still, the Company maintained that the low-rank coal would be processed in a “proprietary” manner “which involves the crushing and fine grinding of sub-bituminous coal followed by a hydrothermal treatment.” How would this differ from the patented process assigned to EERC in April 2000? Silverado did not say.
The Company did say that it “expected to receive federal government financial and political support shortly.” Silverado has yet to announce any federal funding for its project, but some political support has materialized. On March 28th the Company announced that it had received a letter from U.S. Senator Frank H. Murkowski of Alaska endorsing “Silverado’s low-cost, clean burning energy fuel oil substitute.” According to the Company, the letter from Senator Murkowski, who serves as Chairman of the Senate Energy and Natural Resources Committee, said that the alternative fuel project “could satisfy a considerable portion of the United States energy requirements in an inexpensive, environmentally friendly, and timely manner.” The letter also pointed out that the “ability to transform the low-rank coal into a liquid fuel will enhance the handling and shipping of the fuel to new markets in the U.S. and overseas.”
A spokesperson for the Senate Energy and Natural Resources Committee confirmed to us that Senator Murkowski had written the letter. The Senator’s enthusiasm is understandable. Any solution to the fuel crisis would be welcome. And a process that is both environmentally friendly and economical would satisfy a variety of needs.
Will the Senator’s faith be justified? Is Silverado on the brink of something special? On April 12th Silverado filed its Form 10-Q report for the quarter ended February 28, 2001. The Company continues to face financial challenges. At the end of February, Silverado’s had just $1,058 in cash – which is only a positive sign when you consider the fact that it had no cash at the end of its last fiscal year in November 2000. And although the Company recently described itself as a “major gold producer in Alaska, the 10-Q reported gold inventory worth only $17,179 (down from November 2000). Revenues from gold sales for the quarter were a meager $1,655, while the costs associated with those sales were $40,000, while additional expenses totaled almost $298,000. This includes about $40,000 paid for “management services” to a group of companies – Tri-Con Mining Ltd., Tri-Con Mining Inc., Tri-Con Mining Alaska Inc. and Anselmo Holdings Ltd. - all of which are controlled by Silverado’s President and CEO Gary Anselmo. At the same time, liabilities have continued to increase, from about $3.7 million last November to $3.9 million in February.
The Form 10-Q does not paint a pretty financial picture – a fact that was not lost on the Company’s auditors. Indeed, according to those auditors, current uncertainties about Silverado’s ability to obtain necessary financing and operate profitably, “raises substantial doubt about the Company’s ability to continue as a going concern.”
Can Silverado address these financial challenges? Since the end of February, the Company has raised $495,000 through private placements and warrant exercises, but that would put only a small debt in its outstanding liabilities. Is there more funding on the horizon, and will it be sufficient to meet the Company’s current financial needs as well as to satisfy those past due debts?
Then, of course, there is the matter of funding those proposed fuel facilities. The Form 10-Q makes only a brief reference to Silverado’s plans to develop an alternative fuel. First, it states that “[t]he Company plans to retrofit” one of its gold mills “as part of a program to create the world’s first commercial low-rank coal-water fuel demonstration facility.” Then it says that “the Company is exploring other business opportunities including the development of low-rank coal-water fuel as replacement fuel for oil fired industrial boilers and fuel generators.”
That’s it. Silverado’s lofty plans encapsulated in two brief sentences. The Form 10-Q makes no mention of any proprietary process, the potential sources of funding for the project, or joint ventures with any government, domestic or foreign. After a year of press releases, telephone conference calls and “newsletters,” the Company has little to say about the enterprise in its public filings.
Now there’s a nugget that merits consideration.
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