CNAM: Doing More With More

Just yesterday, the Jaded Consumer recognized that CNAM's stock price had weathered admirably the slam of an additional couple million shares of stock overhanging the market following renewal of an expired registration of shares covered by warrants issued in connection with the private offering that funded CNAM's new recycling plant. The prediction made yesterday was that the selloff toward $7 would get reversed on the next contract announcement.

But the Jaded Consumer, while silently thinking about the cash CNAM would collect in conjunction with the $5/sh warrant exercise, didn't take the additional step of speculating on its use to the company. Today, however, we have some news. CNAM's wholly-owned subsidiary entered a 16-month contract to take delivery of 749,000 metric tons of Brazilian manganese ore – enhancing CNAM's capacity to import and deliver ores, and ensuring CNAM stood in a position to supply ores to major customers seeking to make steel. While the press release mentions that CNAM stands to pull in over $10m/month over the contract, it's interesting to note that CNAM needs some capital to pull this off. Interestingly, CNAM's receipts from the warrant exercise should be a bit over $10m – plenty to capitalize the first shipment and offer security against the risk CNAM wants to take a little time to make the most favorable possible sales.

While this is more of an import/export business than an opportunity to leverage the new recycling plant, the fact that CNAM is in a position now to fund this kind of exercise shows that the company now enjoys a level of solvency that didn't exist a few years ago (the $5/sh CNAM just realized on warrant exercise exceeds the entire proceeds from the private placement that funded the recycling facility, which yielded $3/sh less fees; since the warrants were issued with the shares on a 1:1 basis, this exercise – which likely resulted in payment directly to the company and without middle-man fees – in theory yielded over 66% more than the earlier private offering). Growing the scale of CNAM's importation and distribution business will allow CNAM to leverage its per-deal overhead into much larger volumes, as accesses an increased ability to finance larger transactions unaided.

The future of CNAM won't look much like its past.

UPDATE: Although up over $1 this morning, CNAM is now just up 30¢ or so. As volatile as this name is, I'm suspicious that it will attract attention from folks running in and out as the price oscillates. Imagine what the covered-call premiums would be like if standard options were available ....