Below is an interesting post from the Yahoo board (poster "Rottenbelly") on JADA. With COGS fixed for the next several years, JADA's challenge really is just moving the Jade - securing customers and maximizing their output to the allowed limit.
What to do with a mountain of Jade... 15-Feb-10 10:17 pm First...I am long on JADA and convinced it can be a huge gainer..the following is my assesment of the JADA situation and possibly why the stock price is struggling
According to the agreement with XiKai Mining, JADA has exclusive rights to distribute up to 90% of their jade production (estimated at 40,000 tons annually) for 50 years. At estimated price of $2750 per ton, that is equivalent to $100MM revenues per year. I think if they had somewhere to sell it, that is what they would happily do.
According to the last 10Q the gross margin on the sale of raw jade is about 92%. The last quarter they had about $10MM in sales (3600 tons), apparently about 40% of quarterly capacity (9000 tons). In order to sell that much they had to offer special credit terms to customers, basically resulting in an increase in accounts receivable for the quarter of over $5MM.
At that rate, 60% of the capacity is not being exploited. I think since they felt the need to offer incentives to customers to make sales, that the restriction in capacity use is not mining challenges, but sales challenges. I also fear that they were able to "over-sell" to some customers with the special terms and those customers filled their inventory and will not be placing orders until those inventories are used up. I think that is the same fear that is sending this stock price down. The problem with JADA is that it cannot seem to put together a few really good quarters....and I am afraid that the next report will flesh out my concerns.
More than anything, this company needs to sell raw jade. They need to expand the sales force dramatically. If they went from sales of 40% production to sales of 65% for a full year they will earn .50 per share and we will have a 10 bagger.
That is why they are offereng special credit terms as they need to sell as much of their quota of that mountain every year as they can. In recovery years that is probably a big challenge...maybe even negatively affecting jade prices.
(A personal note: I worked as a marble and granite buyer for construction projects in Texas in the early 80´s when oil and S & L money was building ornate office buildings everywhere. There was not enough natural stone to go around. I see that possibly happening with the China and developing market boom in the next years. That would put JADA in position to sell out capacity each year and command premium prices)
AI
