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BioNitrogen Holdings Corp (BION) Just Might Disrupt A Global Industry

  • April 24th, 2015

BioNitrogen Holdings Corp (BION) Just Might Disrupt A Global Industry
Timothy Fletcher’s Instablog on BION

Full Disclosure First:
In my portfolio management system, I stick with three “old school” trading strategies and pursue those strategies by following a risk-allocation model.
I allocate 75% of the portfolio to high-quality, long term growth & value investments.
I allocate 20% to higher-risk-higher-reward, near term, trend trading opportunities.
Only 5% is allocated to speculative startup companies like BioNitrogen (OTCPK:BION) and the risk is typically spread over 6 to 12 different companies.
Within the confines of this 5% allocation, I’m “backing-up-the-truck” for this very-high-risk, but potentially, very-high-reward startup company.
I own BION shares and I regularly accumulate more.
Exercise your own due diligence before purchasing BION.
The Demand for Fertilizer is Growing.
Available arable land is being diminished, due to urban/suburban sprawl, as property developers consume farmland to provide for growing cities.
Population growth is pushing the demand for agricultural products higher.
The global farming community must provide more food with less land.
Fertilizer is the answer to this challenge.
Globally, more than 140 million tons of “urea” fertilizer are consumed by farmers each year.
With demand forecasted to grow 3.2% annually, according to United Suppliers, Inc., the global urea market is expected to exceed $95 billion by 2019.
Approximately 17% of the present global production of urea fertilizer is consumed by farmers in the Americas and about 40% of that must be imported.
BioNitrogen will find a comfortable niche as a new US fertilizer manufacturer, replacing only a portion of the presently imported volume.
As the demand for fertilizer grows, so too, will BioNitrogen.
The BioNitrogen Management Team is Strong.
Carlos Contreras, BioNitrogen Board Chairman and CEO, has a deep background in executive management and international business development in the industrial production space.
Before joining BioNitrogen, he was a vice-minister in the Bolivian government and head of Energy & Hydro-carbons (1999-2001.)
His service to Bolivia followed a senior executive career with Occidental Oil and Gas Corp which included positions as President of Occidental Philippines; General Manager, Occidental Asia; Vice-President International Coordination, Occidental International Exploration and Production; Vice-President, Corporate Affairs and Administration, Occidental de Colombia.
Mr. Contreras has assembled an exceptional management team. Biographies on most of them, as well as biographies on the Board Members, can be found at www.bionitrogen.com.

BioNitrogen is Still “Below the Radar.”
The company’s patented new technology was developed by a collaboration of university professors with backgrounds in renewable fuels technology, industrial engineering & manufacturing, and commercial agricultural production.
They turned to Carlos Contreras to bring their invention to market. Mr. Contreras has been quietly building his management team while securing the necessary capital to construct BioNitrogen’s first 10 fertilizer manufacturing plants.
The engineering and final construction plans for the first plant are near completion. Construction is expected to begin within 12 months. Future plants will be duplicates of the first plant.
As a startup, there has been little data for stock analysts to report. Most of the news has been localized within the communities where they have purchased plant sites in Florida and Louisiana.
I expect the stock price to remain a bargain until the final construction plans are approved and news of the ground-breaking catches the attention of the broader stock trading community.
Presently, BION is a very-high-risk stock. It does, however, provide an opportunity for massive gains for those who have an appetite for speculation.
If you too see BioNitrogen as an opportunity, take the time to further investigate each element of the following SWOT analysis.

The Company has Key Strengths.
1. BioNitrogen has a rock-solid management team of industrialists and capital finance experts. All of them have distinguished themselves before joining the BioNitrogen team. They are quite prepared and qualified to operate the manufacturing plants that are in the pipeline.
2. The company’s manufacturing process is high-tech AND clean-tech with no dependency on fossil fuels and no carbon-emission concerns.
BioNitrogen’s “newly patented green technology” isn’t really new. It is a new and proprietary combination of two proven technologies; A) the gasification of biomass waste material from tree clippings/debris, agriculture & lumber industry waste, etc. and, B) the traditional process of producing urea from gas.
Conventional fertilizer plants must purchase natural gas as their feedstock.
BioNitrogen will be producing their own synthetic gas from biomass waste materials – instead of purchasing natural gas.
This provides not only a cost/price advantage over conventional fertilizer plants, but also a stable feedstock cost as opposed to coping with the price volatility of natural gas. Locating the first plants in Florida and Louisiana (where there is a readily available supply of wood-waste) ensures a consistent supply of biomass material as the feedstock.
BioNitrogen has a 25 year agreement with BioResource Management to manage the feedstock supply. Admittedly, there’s nothing sexy about manufacturing fertilizer for farmers. Within the industrial production universe, however, BioNitrogen is “the new Tesla” of fertilizer manufacturing.
3. Following the completion of the FEL2 (Front-End-Loading Phase 2) feasibility study, BioNitrogen announced in December, 2014 that it had signed an EPC (Engineering, Procurement, Construction) contract with Italy-based Saipem S.p.A.
Saipem is the preeminent construction firm in this industry, having built 130 conventional urea fertilizer manufacturing plants around the world. The EPC contract locks in a firm price for plant construction costs and eliminates the complexities of supervising the work of numerous sub-contractors.
BioNitrogen’s strategic plan includes constructing the first 5 plants within 3 to 5 years.
4. The total production from the first 5 plants has been sold to United Suppliers, Inc. under a long term contract. This Iowa-based company is owned by 735 Agricultural Retailers.
Essentially, United Suppliers functions as a procurement cooperative for its owners who, in turn, provide fertilizer and other supplies to large farming operations in 20 US states and 3 western Canadian provinces. United Suppliers is a dependable long term customer with a long track record of success. It has more than 400 employees and annual sales of more than $2 billion.
5. BioNitrogen has been awarded municipal bond allocations – totaling $1.9 billion – by both Florida and Louisiana.

The underwriter handling the bond sale is Stifel Nicolaus.
Annual sales revenues are estimated to be $99 million per plant. EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) are estimated to be $57 million per plant.
BioNitrogen is confident that the municipal bonds will be sold soon after the construction plans and EPC contract are finalized.

There are Very Few Weaknesses in BioNitrogen’s Business Model.
1. It is, however, a startup company with no track record. Until the company is in operation and delivering the product, share price growth will be dependent upon Trader Sentiment.
2. BioNitrogen’s strategic plan includes being up-listed to a major stock exchange, requiring a share price of one dollar or more. Presently, BION is a “penny stock” traded over-the-counter on the Pink Sheets. This factor may influence most institutional investors to wait for the company to be up-listed to one of the major stock exchanges before taking positions in BION.
3. Additional financing needs – beyond the bond sale proceeds – could necessitate equity financing that would temporarily dilute the value of the existing outstanding shares.

There are Opportunities for Growth
1. Beyond the North American market, there are many countries that must import 100% of the fertilizer used by farmers. The demand in these countries is typically too weak to justify the construction of a massive conventional fertilizer plant. Furthermore, there would have to be an inexpensive supply of natural gas.
BioNitrogen’s relatively small, modular plant design can meet the needs of a small market and can be profitably operated wherever there is a supply of biomass feedstock. Numerous Asian, Central American and South American countries fit this profile.
2. Urea is not limited to use as a fertilizer. Its use is evolving globally within industries such as automobile manufacturing, chemical manufacturing, bioscience, cosmetics, etc.. Continuing research and development in a number of industries will boost the demand. As the use of urea grows within other industries, BioNitrogen’s long term growth potential will expand.
3. BioNitrogen’s modular plant design facilitates the centralized construction of components that can be shipped and assembled on site, anywhere in the world.
Conventional fertilizer plants are massive, can take years to construct, and can cost well over one billion dollars each.
As existing conventional facilities wear out and are decommissioned, there will be many operators who will consider purchasing multiple BioNitrogen plants that can be established closer to their markets at lower construction costs, lower product-transportation costs, and lower operating costs from eliminating the need for natural gas.
If BioNitrogen so chooses, it could fabricate and ship plant components to operators in numerous existing markets. This industry-disruptive, product-development strategy could be done through outright sales and/or licensing agreements.

There are Two Immediate Threats
1. A collapse in the bond market could hinder the municipal bond sale and/or add substantial interest expense to BioNitrogen’s operating cost.
2. A collapse in natural gas prices could (at least temporarily) reduce BioNitrogen’s cost/price advantage over conventional fertilizer manufacturing plants.

Summary:
Contingent upon a successful municipal bond sale, BioNitrogen has a prosperous future.
The demand for the product is growing.
The management team is eminently qualified and prepared to start and grow the company.
A simple SWOT analysis reveals that BioNitrogen has significant key strengths; has few weaknesses in its business model; enjoys substantial opportunities for growth; and is threatened only by outside capital market forces.
Again, BioNitrogen Holdings Corp just might disrupt a global industry.

http://seekingalpha.com/user/37807526/instablog

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