The strange tale of TNRO.OB
I'm wondering if anyone has any info on this stock Terra Nostra Resources. It seems to be a bizarre reverse take over (RTO), which may potentially be quite undervalued. As I'll detail below, it seems that a crummy story stock is being RTO'ed by a very large and profitable copper and stainless steel producer in China. Because this RTO seems to be happening under the radar, you might be able to get ahold of a large Chinese metal company at a reasonable price.
Until a few days ago, this stock was listed as TNRL.OB, Terra Nostra Technology. The original Terra Nostra was a crummy story stock that was trying to develop a "natural" fungal pesticide for the Colorado potato beetle. It's clear from looking through their press releases that this company never had a prayer, and was way overreaching. They had marginal technology, and the potential market was puny. They also ran out of cash.
By the end of the 3rd quarter 2005, they only had $100 dollars cash on hand in the entire company!
http://edgar.sec.gov/Archives/edgar/data/1167370/000104476404000213/sept0410qcurrentdraft.htm
Then something bizzare happened in December, 2004. They announced a joint venture with with a group of Chinese companies (Shandong Jinpeng Copper Co. Ltd and its affiliate companies Shandong Jinwang Copper Co., Shandong Quanxin Stainless Steel Co., Zouping Jinwang Copper Co. and Zouping Regenerated Resources Co. Ltd). Terra Nostra was to put in $1,000,000 to get 51% ownership of the joint venture:
http://edgar.sec.gov/Archives/edgar/data/1167370/000104476404000226/form8kdec112004jvcontract.htm
How the heck was a company with $100 in cash going to come up with that kind of money, and get 51% ownership of a major copper and stainless production facility in China?
Reading further into the press release/8K one finds a shadowy company called "RTO Investments Corp." in the Bahamas that seems to be brokering the reverse takeover of this stock by the Chinese companies. In effect, the Chinese companies, brokered through RTO, are paying off the TNRL management to vacate the stock symbol.
If this is in fact a RTO by Shandong Jinpeng Copper (SJC), then here is the value proposition.
In 2003, SJC had sales of $263.6 million, and a profit of $24.26 million. In their merger documents, they suggest that in 2005 they predict sales of $324,000,000 and sales of $430,000,000 in 2006. Hence, if their profit margin and tax rates stay roughly the same, in 2005 they might have profit of nearly $30,000,000. Put a 10 P/E on that, given that they are growing fast, and that stainless and copper are in high demand in China. Hence, the company might be valued at $300,000,000 by end of 2005.
Here's the tricky part. Before the RTO (and an associated 1:10 reverse split), it appears that there were roughly 49,000,000 shares outstanding (including stock owned by management). After the R/S, there would be 5,000,000 shares. According to their 14C filing
http://edgar.sec.gov/Archives/edgar/data/1167370/000104476404000230/reversesplitrtoapprovalmerge.htm
after the RTO, there will be 100,000,000 shares authorized. 38,000,000 of these post-split shares will be given to the Bahamian RTO company. In one way of interpreting this issue, only 43,000,000 shares would be outstanding at the end of the reverse split and reverse takeover (5,000,000 shares to the original holders, and 38,000,000 to RTO), and the remaining 57,000,000 would be on the shelf.
If my interpretation is correct, then as of close friday, when the new stock TNRO.OB closed at $3/share, the company is valued at $129,000,000, which would be a bargain given that it is likely to earn $30,000,000 this year.
If I'm wrong, and all 100,000,000 shares will actually be issued, then the stock is about fairly valued.
There is also one other big unknown. In all of the bizarre language so far of the related press releases and filings, it isn't clear if new "joint venture" will include all of Shandong Jinpeng Copper's assets (a complete reverse takeover), or if the resulting company will only have title to part of SJC's assets.
There are obviously a huge number of risks and unknowns here. One thing did impress me. In their Dec. press release, the company suggested that the reverse split and approval by Chinese authorities would be done by Jan. 15. Sure enough, by Jan. 20 they had completed everthing.
Does anyone have any additional information, or opinions they would like to share?
Thanks in advance.
JWB
Disclosure: I currently do not own any TNRO.OB.