Libra Natural Resources

Buy Libra Natural Resources* at 14p
Says Conrad Windham of Watshot.com
AIM-listed Libra Natural Resources* (LNR) trades at 14p, capitalising it at 17.63 million pounds. This is a company that I originally tipped on Watshot.com at 8.25p back in October and in which I own shares myself such is my confidence in it. The national news in the early part of 2006 has been dominated by Russia's flexing of its muscles through reducing its supply of gas to the Ukraine, which has in turn affected the supplies of fellow European members such as Germany. With the North Sea supplies of gas fast declining it will not be long before the sight of huge liquefied natural gas (LNG) vessels becomes a familiar site in ports around the UK. LNG is six hundred times smaller in volume than natural gas is at normal room temperature, becoming liquid at a temperature of between -120 to -170 degrees Celsius.

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LNG is one of the principal activities of Libra Natural Resources. The company has invested $2.5 million by way of a convertible loan note into Prometheus Energy Company, located in Seattle, Washington. Prometheus designs, develops and sells small scale cryogenic fuel processing equipment for the extraction and recovery of methane from disused coal mines, landfill sites and stranded wells (worked out oil wells). Its products covert the methane into high-value Liquefied Natural Gas ("LNG") and compressed natural gas for vehicular and industrial energy supply markets.

As well as selling its own equipment Prometheus is also developing a number of its own projects utilising its equipment. It is Prometheus' intention to become the leading early provider of systems for use in the distributed LNG and Liquefied Compressed Natural Gas supply infrastructure to wholesale and retail customers.




The $2.5 million convertible interest-bearing loan note invested by Libra into Prometheus, gives the company, at its option, the conversion option into equity of LNG projects which meet certain minimum requirements. Libra's house-broker, Ambrian, has estimated that the investment into Prometheus will generate revenues from the first quarter of 2006, producing a profit of around $500,000 during the year on turnover of $1.8 million, giving a 27% return. Libra believes that the LNG market offers attractive investment characteristics, and Prometheus is its preferred entry point into the market.

Libra's second major activity is combing coal from slag heaps in America with biomass to create briquettes. The technology combines standard coal washing techniques to extract the coal dust from the slurry, which when combined with biomass, can produce briquettes with a sufficient heat output for use in existing coal powered fire stations.

The technology is standard, but the key to the process is the binder which is used to hold the coal and biomass together to form briquettes. Libra is planning on using wood shavings and sawdust from saw mills as the biomass, which, due to the fact that it would have to be put in landfill sites by the sawmill owners, means Libra can acquire the biomass for next to nothing. Libra has already entered into detailed discussions with several major US utilities to agree long-term, off take contracts. One potential major client has tested the briquettes in its boilers and has confirmed that they satisfy all the criteria in terms of calorific value and ease of use. Furthermore, independent third-party consultants to Libra have confirmed the efficacy of the patented technology along with the quality and usability of the output

For 2006 Ambrian has forecast the company to make a pre-tax profit of 3.6 million pounds worth 2.8 p per share in earnings. In 2007 it expects pre-tax profits to rise to 9.6 million pounds, worth 5.3p per share in earnings. Such forecasts put the company on a current PE of 5, falling to 2.6 in 2007. I believe that the forecasts could well prove to be conservative. Buy.

*Conrad owns shares in Libra Natural Resources.

Key Data

EPIC: LNR
Price: 13.5 - 14.5p
Market : AIM