INRB from my site on 4/30/07...
Congrats to everyone in INRB - just beautiful..
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[04/30/2007] INRB - Laying a pipeline of profits to the Oilsands...
9:55:17pm
2007-04-29
Well, well - what do we have here? Believe it or not, we've got a profitable, growing pink sheet name with a patented product and deals inked with multi-billion dollar industry heavyweights. Seems hard to believe, I know, but Industrial Rubber (INRB.pk) sure looks like the real deal based on their albeit unaudited financials from Q1 and some background information I've dug up for support.
First let's talk about Canada's Athabasca Oilsands...
~~~Tidbits from Wikipedia~~~
The Athabasca Oil Sands are a large deposit of oil-rich bitumen located in northern Alberta, Canada. These oil sands consist of a mixture of crude bitumen (a semi-solid form of crude oil), silica sand, clay minerals, and water. The Athabasca deposit is the largest of three oil sands deposits in Alberta, along with the Peace River and Cold Lake deposits. Together, these oil sand deposits cover about 141 000 km² of sparsely populated boreal forest and muskeg (peat bogs).
Alberta Government calculates that about 28 billion cubic metres (174 billion barrels) of crude bitumen are economically recoverable from the three Alberta oil sands areas at current prices using current technology.
This volume places Canadian proven oil reserves second in the world behind those of Saudi Arabia.
At rate of production projected for 2015, about 3 million barrels per day, the Athabasca oil sands reserves would last over 400 years.
Capital expenditures in the oil sands announced for the period 2006 to 2015 exceed $100 billion, which is twice the amount projected as recently as 2004. However, due to an acute labour shortage which has developed in Alberta, it is not likely that all these projects can be completed.
Major producing or planned developments in the Athabasca Oil Sands include the following projects:
Suncor Energy's Steepbank and millennium mines currently produce 263,000 barrels per day and its Firebag in-situ project produces 35,000 bpd. It intends to spend $3.2 billion to expand its mining operations to 400,000 bpd and its in-situ production to 140,000 bpd by 2008.
Syncrude's Mildred Lake and Aurora mines currently produce 250,000 bpd. It intends to spend $8 billion to expand them to 350,000 bpd during 2006.
Here's a chart that illustrates the impending ramp in millions of barrels per day (MPD) that's coming between now and 2015...
What does INRB have to do with Oilsands?
By this point most folks would probably assume that the Minnesota based INRB's link to Canadian oilsands would be some sort of land claim in oil-rich Alberta. That's generally a pretty safe guess when talking about petroleum related pink sheet names, but not in this case.
Industrial Rubber is a full service designer and producer of specialty rubber and elastomer products that sells into the mining, aerospace, and automotive markets. The firm went public in 1999 just in time for the bubble to burst in virtually every market they sell into. In the meantime, not only have they fallen off of the major traded exchanges, they've streamlined operations, jettisoned underperforming units and placed themselves firmly on the track to profitability.
In fact, INRB grew revenues by 50% in 2006 vs. 2005 to just over $25million and boosted EPS by 300% to $.12 (fully taxed) from $.03. They've also managed to significantly draw down their bank debt, and open a new plant and they've done it all without issuing new stock. The outstanding stock has stayed static at 5.5 million shares fully diluted, most of which is held by insiders.
Certainly at first glance INRB doesn't seem all that compelling based on the fact that it's trading at roughly 5x sales and a trailing price/earnings ratio of 34. It's INRB's unique postition to capitalize on the enormous capital equipment build-out in the Oilsands that compels us to look closer.
The link to the oilsands lies with an INRB unit known as Irathane Systems based in Hibbing, Minnesota. Specifically, a patent pending pipeline product is attracting the interest of Suncor and Syncrude, two of the Oilsands biggest players. Why are these giants interested in the technology of a little known plastics company? To put it simply, bitumen is some nasty, nasty stuff and it beats the hell out of pipes. You see, when the bitumen is pumped from underground it comes up in a slurry of sand, rock, tar, and other large particle organic matter that is often 200 degrees warmer than the outside of the pipe its being forced through. The heat and friction of this slurry corrodes and eats away at pipelines very quickly. In fact, it's estimated that most oilsands pipeline has a life expectancy of about 2 years.
Needless to say, oilsands operators spend a great deal of capital not only replacing pipe, but lose countless more dollars due to downtime while sections are repaired and face environmental costs when components leak due to corrosion. This is why Irathane Systems patented IRACORE pipe is being shipped to Canada as I type. Witness these deals INRB inked in just the last few months...
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Hibbing, MN - January 31st 2007 - Iracore International Inc., a wholly-owned subsidiary of Industrial Rubber Products Inc., announces today that it has received an addition to it’s long-term supply contract with Suncor Energy Inc. This entails an additional 43,700 feet of Iracore pipe and pipe components with delivery starting in the 2nd quarter of 2007 and receipt of a purchase order related to this addition with an approximate value of $24,000,000.
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Hibbing, MN - December 18th 2006 - Iracore International Inc., a wholly-owned subsidiary of Industrial Rubber Products Inc., announces today that it began receiving purchase orders according to the 3 year supply contract between Suncor Energy Inc. and IRACORE Int’l Inc.. These purchase orders amount to $9,793,150 for IRACORE pipe and pipe components to be delivered in the 4th quarter of 2006 and the 1st quarter of 2007.
The results of these pipeline orders to Suncor and Syncrude are having a dramatic impact on INRB's earnings picture. For Q1, revenues leaped to over $14mm meaning that INRB booked in Q1 alone over half of total revenue for 2006, putting them on a run-rate of $56million this year. Earnings per share was a staggering $.44 for Q1 which is enormous considering the $.12 EPS of 2006.
Let's take a look at the IRACORE product and what differentiates it...
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*Developed a lining material specifically designed for the oil sand industry to improve the wear resistance over other rubber, urethane, chromium carbide overlay, stainless steel and all other miscellaneous wear materials.
*The wear material is resistant to petroleum degradation.
*The wear material is resistant to large particle impingement.
*Improved wear performance in fast velocities.
*Eliminated the cold wall effect of previously tested elastomeric linings when used in the severe environments.
*Developed a material that resists degradation from high temperatures (180°F to 200°F).
*Developed a welded end system that is used with an elastomeric liner that allows field welding, installation, and rotation of long lengths of pipe.
*Improved the pipe joint alignment and eliminated the radial welds.
*Insulating properties of the material and design reduced heating costs of slurry water.
*The material's surface reduces friction loss, saving pumping costs.
*The material's surface reduces and/ or eliminates sandfills.
*Designed a liner that allows the use of alternative types of pipes (such as thin spiral weld) to provide significant cost savings in steel.
*Provides a piping system that results in overall cost savings to operations and maintenance.
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Dan Burkes’ business year is off to a great start. On January 10, semi-trucks left IRACORE Int’l Inc.’s production facility in Hibbing, Minn., with the first load of Iracore-lined steel pipe destined for Fort McMurray, Alberta, Canada, about 1,000 miles to the northwest.
The shipment capped more than three years of product development and testing, and marked IRACORE’s entry into the Athabascan oil sands, a lucrative new market that has the potential to grow the company more than three-fold in the next few years.
IRACORE is a subsidiary of Industrial Rubber Products, an $18 million company headquartered in Hibbing, Minn., that has for decades served area taconite mines, as well as copper, gold and nickel mines worldwide. It currently employs about 145 total at facilities in Minnesota, Utah and Sudbury, Ontario.
Though entering the petroleum industry may seem a stretch for a company deeply entrenched in minerals mining, the oil sands industry actually bears remarkable similarity to other types of mining.
Athabascan oil sands are typically extracted using open-pit mining methods; the oil sands are removed with large shovels and transported to a processing facility via large production trucks. In oil-sands processing, sand or gravel encased in water and oil are crushed to less than six inches in size and combined with hot water and steam to make a 180-degree Fahrenheit slurry, which is then pumped from the crusher — called a breaker — to the extraction plant. After the oil has been separated from the sand and water, the latter are pumped to tailings basins.
Unlike other minerals, oil sands have only been economically mined in Canada for about 40 years, and the market potential is impressive. The Athabascan oil sands in northern Alberta and Saskatchewan are estimated to hold 177 billion barrels of oil recoverable with current technology. That represents an exceptional opportunity, particularly for a company that has created and makes Iracore lined pipe, a patent-pending specialty elastomer-lined pipe that is critical piece of equipment needed to recover the oil.
Pipe systems used to move oil sands must hold up in harsh environments – the temperature gradient between the slurry temperature inside the pipe and the air temperature outside the pipe is sometimes more than 200 degrees Fahrenheit. In addition, the sand and hydrocarbons in the oil are exceptionally abrasive and corrosive. Most operations use steel pipe with very thick walls, or pipe lined with a chrome - carbide overlay. These options cost between $200 and $1,200 a linear foot, and last at most two years.
Developing a better oil sands pipe was a tall order: the product needed to be large enough to move high volumes of product, durable enough to withstand harsh environments so it lasts longer, and made of cost-effective materials. Dan Burkes thrives on creating solutions to problems like these.
Using technology first developed by another Industrial Rubber subsidiary, Irathane Systems, as a basis, Burkes focused his talented, Hibbing-based team on the problem in 2003. By August 2005, Burkes had his solution: steel pipe segments 30 inches in diameter, 50 feet long lined with a patented Iracore liner, field-tested, with a life expectancy of 10 years.
By July 2006, IRACORE International was formed to handle IRACORE’s first customer, Suncor Energy, the first company to commercially develop the oil sands, provided test sites, and has designated IRACORE its product of choice, an important distinction that allows Suncor to order product from IRACORE without soliciting bids.
Under an agreement signed in 2006, Suncor will take delivery of more than 124,000 feet — 23 miles — of pipe over the next three years. Suncor also weighed in on Burkes’ plans for the location of the IRACORE manufacturing plant. Burkes had settled on Edmonton, Alberta, or Great Falls, Mont., both much closer to West Coast ports and thus to steel pipe arriving from the Pacific Rim. Suncor, however, saw advantages in not uprooting one of IRACORE’s most valuable resources: its people. “They said, ‘all your talented people are here [in Hibbing]. Why train people at a different location when you’ve already got them here producing the pipe we need?’,” Burkes said.
IRACORE changed course and found suppliers throughout the United States. The steel pipe arrives from West Virginia, the rubber is made in Ohio. Urethane is shipped up from Louisiana, while pipe couplings come from Texas. A Wisconsin company handles fabrication.
“We gave them [suppliers] tight specifications, and they met them,” Burkes said. The components come together at IRACORE’s new 50,000 squarefoot manufacturing facility in Hibbing, Minn., completed in November 2006. The $6.0 million expansion project included purchase of the former Noble Industries building, located next to Industrial Rubber’s existing plant, and equipment installation.
Regional economic development entities, including the Hibbing Economic Development Agency and Iron Range Resources —which provided a $1.5 million bank participation loan package — helped bring the project together. “Dave Hart from Iron Range Resources deserves credit for the work he did on this. It was a complex package, and he pulled it together fast,” Burkes said.
Since bringing the new facility on line, IRACORE has added 26 employees, all local hires, from production-line to engineering positions. With the technical challenge solved, Burkes is defining success in terms of customer acceptance. As many as seven other companies have expressed interest in IRACORE’s new product; meeting their projected demand could mean growth to $60 million and could require several additional production facilities the size of the new Hibbing facility in the next 10 years.
“If we can get all seven [possible customers] under contract, that would be success,” Burkes said.
~~~PASTE~~~
Innovative Entrepreneur Award
Daniel O. Burkes, Iracore International, Inc., Hibbing
Since June 2006, Iracore, a subsidiary of Industrial Rubber Products, Inc., has developed solutions for the petroleum industry with their Iracore Hydrotransportation & Tailings Piping System, an innovative liner for pipelines that transport bitumen from oil sand mines. This system prevents pipeline leaks and the environmental consequences therein. Iracore's success can be measured in a number of ways: it has no equivalent competitor; it is replacing imported products with American-made products; its Northeastern Minnesota workforce receives above-average wages and benefits; and it is poised to become a multi-billion dollar company.
~~~PASTE~~~
08 April 2007 15:07
Rubber-lined pipes for oil sands industry
Industrial Rubber Company, Ltd., Bathurst, New Brunswick, Canada, opened a new plant that produces rubber-lined pipes designed for the Canadian oil sands industry in Athabasca Basin containing world’s largest petroleum reserves. The oil sand is highly abrasive material that wears out pipes in a matter of two years. Industrial Rubber Company’s “Iracore “ rubber-lined pipes cost two- to three-time as much as conventional carbon steel pipes but last five times longer
INRB is ultra-thinly traded, in fact, some days it doesn't trade at all. The translation here is of course that if you don't have a stomach for volatility, don't put capital to work in INRB's direction. However, if you're willing to ride out low volume pullbacks and capitalize on them by being an advantageous buyer, INRB sure looks like a story that will be working for some time to come.
There seems to be little doubt now that we'll soon be seeing crude over $70 barrel again, and gasoline prices will be pushing $4.00/gallon in much of the country when the summer driving season reaches it's peak. As a result, investors will start looking for oilsands plays that are 'undiscovered' and INRB certainly fits that bill. As is usually the case, Insighter's will be patiently waiting for the 'herd' to arrive.
Related Industries: Energy - Long Term - New Pick - Overlooked Potential -
Initial Stock Price: $4.15
Related Industries: New Pick -
Initial Stock Price: $4.15
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