Canadian Zeolite Corp (CNZ.V) is focused on the exploration, development and production of zeolite.
Known for its absorption capacities, zeolites have numerous industrial applications.
- Agriculture: Odor control in composting, fertilizer in greenhouse, animal health and hygiene, as well as, feed supplements. - Aquaculture: Fish farming, aquariums, and transport, removing nitrates, nitrites, and phosphate to maintain water quality. - Water treatment: Filtration, minimizing runoff, removing micro-organism (ammonia) and heavy metals (Cu, Zn, Ni, Pb). - Industrial: Road salt replacement, absorbent for oil spills and radioactive waste containment, and gas separation.
We previously made the case for CNZ.V (July 31) based on its resources (Bromley Creek), partnership (Absorbent Products Ltd), management (Ray Paquette's 20 years plus tenure with the organization), demand (Canada import nearly 100% from abroad), and timing (demand is expected to grow).
Since the last note, the company communicated the following releases.
Aug. 25 - Announced U.S. supplier agreement with KMI Zeolite Inc. The intent of the agreement is to purchase and market zeolite products for its growing U.S. customer base which could not be serviced from its Bromley Creek. KMI Zeolite Inc. is located in Nevada and is privately owned and has been mining, milling and distributing zeolite in the U.S. and into international markets for several decades.
Sep. 5 - Retained Renmark Financial Communications Inc. for a fee of up to $8,000 per month for 6 months. Sep. 19 -Provided a corporate update: "Achieves Repeat Sales in Ontario and Western Canada". Noting, foothold in Ontario's multiple vertical (i.e. animal feed, bedding and composting) as well as, repeat orders for Bromley Creek. The company also reported to be transporting crushed zeolite from the mine site to APL’s mill in Kamloops for processing and packaging. They also claimed that the mid-October inventory will be increased at the mine to meet the demands for the upcoming season. Finally, CNZ.V also reported sales through it's own sales-force, distributors, and national and international sales networks. However, no numbers were provided.
Sep. 25 - Insiders purchase by the CEO Ray Paquette (7.5K) at roughly $0.42 cents.
As displayed by the charts, since the Sept. 19 release, CNZ.V has entered into a severe sell-off resulting in more than 30% of loss of value. This culminated to a low of ($0.325) both yesterday and today - 52 week low here is $0.315. A look at the last financial on Sedar indicated that the company did not have any revenue for the nine month period ending March 31, 2017.
"The Company incurred a net loss of $1,067,341 during the nine months ended March 31, 2017 and as of that date, the Company’s deficit was $13,594,932. As of March 31, 2017, the Company has cash resources of $402,084 to settle its current liabilities of $64,080 representing a surplus of $338,004".
While this certainly is not a great fiscal position, the net loss and deficit amount is not unreasonable for a company at such a early stage. However, it looks like the company would possibly need financing since the Sept. 19 release did not have any financial information related to it.
The current situation is puzzling because the company recently engaged a communication firm (Sep. 5) and failed to communicate details such as revenue on the last update (Sep.19)! In addition, while CNZ.V did not disclosed the identity of its customers (for confidentiality reason we speculate). It has reported specific entities in past releases such as: 1) Orange Hill Farms of South West Ontario (Mar. 2) b) Piller Poultry Ltd. of Southern Ontario (Mar. 6); and c) Ross Enterprises Ltd. (July 10). Hence, there should not be any issues in reporting revenue at least from certain customers.
With option granted at $0.485 cents and 20% insider ownership, we are still long with CNZ.V. The company is in a niche segment which is expected to grow. However, we do believe that the lack of details in the Sept 19 release along with the low liquidity (30M shares) is a factor in the last movement.
In fact, large swing (>30%) in stock price is not new to the company. In the last six months, this has occurred on more than three occasions. Moreover, the chart shows that CNZ.V is currently oversold (28). While it certainly can stay that way for sometime, we do not believe that it will be the case. A possible indicator is that the sell-off was started before Sep. 19. Looking back to the week of August 8, both MACD and CMF initiated negative values which suggest an earlier start.
In addition, the forecast for the last two weeks suggests that the acuteness of this episode started last Friday where the volume exceeded the top 25% percentile threshold (234,878) in the last three months. In fact, today's volume was 451K which is second highest for the period. after the August 25 announcement. Also, in the last five trading days, CNZ.V broke both S1 and S2, Finally, today's closing price ($0.36) exceeded the forecast for the day ($0.336). Nothing can be guaranteed but we're hoping that the stock trace back above S1 ($0.44) in the next week. Time will tell.
Next financials are expected by October 28, it will be interesting to see how the stock behaves until then. We certainly will be monitoring the situation. We did mention that CNZ.V was a story in the making but we did not expect such a dramatic episode.
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