VTI a STAR IN 2005

On the face of it the slide in share price is a result of two factors.

First the negative noises surrounding I-99. Despite what the company has said (RNS’s 2-12-05 and 15-12-05 which merely state the obvious) the indications emerging have cast doubts on VTI winning the contract. David McConchie’s “could do better” remark is far from reassuring. When was the last time a parent was delighted to read that on a school report? If they could do better then the treatment is clearly less than perfect. If I may expand on Muckshifter’s comments above, the dynamic of this situation is that the people who have to make the decision are looking for certainty. If they decide to proceed with Bauxsol and it does not provide the water quality required they will attract intense criticism. If they decide to move the rock no-one will ever be able say they took the wrong decision. Unless they have results from the Bauxsol treatment of near perfection to provide irrefutable justification for using Bauxsol, they will not use it. Would you? Further delay to facilitate more Bauxsol tests does not appear to be a runner.

I have spent a little time digging among the reports from the Gilt Edge trials. There three types of trial appear to have been used. A low volume trial in drums, larger scale trials in tanks and tests involving a trench of Bauxsol intercepting contaminated water. I can find no reference to drilling and injecting into piles of waste. If this is correct then the I-99 trials and pilot are of what appears to be an experimental technique.

Now I happily acknowledge that I know absolutely nothing about drilling/injecting into rock piles however I see similarities with something I do know about. My background is property and I have been involved in many renovations of old buildings with stone walls. The normal technique for inserting a damp proof course into a wall is to drill/inject silicon compound to form an impervious barrier. This works fine with brick but is impractical with stone or rubble walls. The existence of voids means that vast quantities can be pumped into a wall and still not achieve a satisfactory result as it needs to be at pressure to spread the compound thoroughly. It is likely that similar voids exist in the rock pile together with inconsistencies in density and other spoil (a great lump of clay in the wrong place would surely cause problems). I have expressed reservations before about injecting rock piles and have greater confidence in treating water where the process is in a controlled situation and nothing emerging from I-99 has done other than strengthen that view.

Of course it is not inconceivable that VTI will win the contract but I would suggest that the prudent investor should be prepared for a disappointing I-99 announcement, probably within the next six weeks.

The second factor is the lack of other news. Failure at I-99 would not be as damaging if VTI was winning contracts elsewhere. However news is slow coming. Goodness knows I have on occasion urged patience on those who felt things would happen more quickly. Life, and certainly not business, just isn’t like that. Selling new ideas into existing markets dominated by government bodies is always going to be a long haul. Nonetheless time has passed since when the market could reasonably have expected news following on from, for example:-

* RNS 30-9-04 “and in the UK and USA … trials are being planned with major water companies over the next six months”.
* RNS 22-2-05 ElectroBind success at electroplating facility in Boston; “currently formulating an expansion plan”.
* RNS 4-10-05 WRC trial completed – final report expected within the next few months

Consider that at 26p VTI’s cap is some £60M; its interest in Hydrodec is worth £14M and it has say £10M cash.

And year end 30-6-05 £1.3M revenue (excluding one off Hydrodec sale) v £8.6M expenses. Ooops! However a strong increase in revenue is assured.

So what to do? IMHO the short term investor/trader should probably get out as it seems more likely as time goes on that bad news will precede good. For long term holders the picture is much as before – a highly speculative investment. Do the rewards outweigh the risk? Do you feel VTI will land sufficient contracts? There should at least be more news re Geoenvirotec and Al-Othman. For my part I will hang in. In view of the number and variety of areas to which the Bauxsol derived products can be applied verified by contracts (albeit small) already won and the potential for Hydrodec and other possible spin-offs hinted at in the RNS of 30-11-05 (should be some word on the 15 month Viroconcrete testing - RNS 22-2-05 - this year with possible JV commercialisation) I consider (for which read guess!) it an even chance that VTI will generate sufficient revenue to produce profits in say three years time to justify its present price, even if a higher share price proves unachievable. On that timescale the downside is hopefully limited. A 50/50 chance of a worst of 25p against a, say, 1 in 5 chance of 100p?

How our perceptions change. A couple of months ago I was speaking of a 2005 year end share price of 50p – now I’m considering a 2008 year end price of 25p!