Last month, I emailed the list of questions below to Alloy Steel’s CFO, Barry Woodhouse (disregard the emoticon; that should be the numeral “8″). I told Woodhouse I was planning to write a Seeking Alpha article about the company’s Q3 and was hoping to include answers to those questions in the article. After speaking with the company’s board, Woodhouse said they’d prefer if I waited until the company released its annual results. He didn’t say whether they would answer the questions then. That’s the update on that.
The company previously announced its annual meeting would be held this Friday. Whether it’s related to that or not, volume in the company’s shares was about 40x higher than normal today. As I mentioned in this post in October, I had added a few shares at $0.75. That was the first time I had added shares since the company was trading in the .40s last year. I haven’t bought our sold any shares since October.
Shareholder Questions for AYSI Management, 4 November 2011
1) At the beginning of the year, the company announced the hiring of a new CEO, and the addition of new board members, including a new chairman. That chairman, CEO, and an additional director have since departed. Can you offer any elaboration on why they departed, particularly after so little time? Is the company looking for new CEO, chairman or director candidates currently, or is it content with the current management/board structure?
2) In responses to shareholder questions in August of last year, the company said,
We are dealing with new technology that has required numerous adjustments to our manufacturing process (to improve efficiencies and quality) which has led to downtime, limiting our capacity.
Was this new technology related to the company’s thicker Super Arcoplate? Has the number of adjustments required diminished, or is this still limiting your capacity?
3) Can you offer any clarification or update on the company’s previously announced plans to expand its manufacturing capacity? Initially, the company discussed building additional mills in Western Australia, beyond the current two; later, the company announced it was purchasing a much larger property in Indonesia. The company announced at the beginning of this year that the Indonesian purchase had been completed. Has the company started building new manufacturing capacity there? If not, why?
4) The fixed asset balance continues to grow. Is this related to developments in Indonesia?
5) Operating expenses were significantly higher in this third quarter than previously, approximately 3 times as high as last year and $300,000 higher than last quarter. It’s mentioned in the release that it’s “due to increasing administration resources and associated costs”. Does the company anticipate operating at these elevated levels going forward? Are these expenses related to Indonesia at all (or just Australia)? Any one-time items related to the departed executives?
6) Inventory balances continue to grow. Are these finished goods inventories? Are they related to specific orders that will be shipped?
7) Has the company explored a sale? Bradken has shown it is willing to consolidate smaller players in the industry and is willing to pay a healthy multiple to do so. At 2.5x sales, or approximately what Bradken paid in its last 2 acquisitions, the company is valued at $60.0 million, or 4x the company’s current valuation.
8) In the article announcing he was awarded Entrepreneur of the Year by Ernst & Young, Gene Kostecki said he wanted to list the company on the Australian Stock Exchange at some point. Does the company have a time frame in mind for this? Would it also keep a US listing of some kind (whether on the Pink Sheets, or elsewhere)?
9) Is the company concerned about the political situation in Australia (such as calls for a carbon tax)?
10) Is the company concerned about the possibility of a “hard landing” in China in the near term leading to a drop-off in demand for iron ore? Is the company hedging against this possibility in some way?