AmerAlia: sodium bicarbonate miner, but potentially much more

AmerAlia (OTCBB: AALA) currently owns an interest in Natural Soda Holdings Inc. that operates a natural sodium bicarbonate resources and production facility owned in turn by NSHI’S wholly owned Subsidiary  Natural Soda, Inc. (“NSI”). The Company’s business is to produce and sell natural sodium bicarbonate, commonly called  baking soda, for use in a wide variety of products and activities. NSI is a supplier to the animal feed, human food, pharmaceutical, personal products, and industrial markets.
The products are sold through distributors in the U.S., Canada, and Mexico. NSI’s immediate objectives are:

1.    To be a low cost producer of sodium bicarbonate, and to leverage that low cost advantage to achieve superior profit margins; and

2.    To profitably utilize its water assets in the Colorado River System.

The largest shareholder in AmerAlia is Sentient USA Resources Fund, LP. .The Company was founded in 1982. NSI’s operations are near Rifle, Colorado and have approximately 39 employees.
Natural Soda Products (www.naturalsoda.com)

AmerAlia, through its Natural Soda brand, is one of the largest producers of sodium bicarbonate in North America. The operation in western Colorado has provided sodium bicarbonate (baking soda) to the food, animal feed, industrial, and specialty markets in North America for over 16 years.  The Company’s unique advantage is its sophisticated, reliable, and efficient process for recovering pure, naturally-occurring sodium bicarbonate from the largest known nahcolite deposits (sodium bicarbonate) in the world. Natural Soda maintains strict quality standards and is currently accredited by International and U.S. standards organizations including ISO 9001, U.S. Pharmacopeia (USP), American Institute of Baking (AIB), and others.

In the food and pharmaceutical industries, sodium bicarbonate uses include baking products and baking product premixes, personal care products, including dental products, toothpaste, and antacid tablets.  Household product applications include deodorizers, cleaning products, detergents, carpet cleaners, and bath salts. Industrial uses include , fire retardation, soda blast media, waste water treatment, and flue gas emission control (flue gas desulphurization and hydrogen chloride reduction).

For more than a decade, research has been done at the University of Arizona, exploring bicarbonate as a potential treatment for cancer. Sodium bicarbonate is a world class anti-fungal but its use is not limited to that effect.
Sodium bicarbonate also dramatically slows the progress of chronic kidney disease. Sodium bicarbonate can be used safely at home orally and transdermally but should always be used with magnesium chloride for greatest effect in both cancer and kidney disease as well with asthma and diabetes.

The Natural Soda Process - Natural Soda recovers sodium bicarbonate using a  environmentaly friendly process known as solution mining,  This involves pumping hot water approximately 1900 feet underground to dissolve the underlying nahcolite beds and return the saturated liquor to the surface.  By reducing the temperature of the liquor, sodium bicarbonate is crystallized.  Excess water is then removed by high speed centrifuging (spin drying).
The resultant damp crystal mass is further dried, screened and packed in accordance with industry designated specifications, while maintaining stringent quality accreditation standards.  Product is packaged in 50 lb./25kg bags, 1 ton/metric ton "supersacks," or in bulk, and is transported to customers by truck or rail.  At the present facility, Natural Soda is capable of reliably producing 125,000 tons of sodium bicarbonate per year.

Properties

AmerAlia has interest in leases in northwest Colorado and has ownership in reservoir and water rights in the Colorado River drainage system. This draws up to a maximum of 108,812 acre feet (35.46 million gallons) annually and stores up to 7,980 acre feet of water. AmerAlia  owns leases in the Piceance Creek Basin in Colorado covering very large deposits of naturally occurring sodium bicarbonate (baking soda). Management believes these deposits are unique and capable of producing sodium bicarbonate and related sodium products for many generations. Ameralia also owns over 10,000 acres of renewable federal mineral mining leases that are very large proven deposits.

Oil Shale - Deposits of oil shale lie below, above and are interspersed within the nahcolite contained in the sodium leases.  AmerAlia does not have any current rights and has applied with the US Department of Interior for an expirimental lease to recover oil shale  to exploit  part of this oil shale..  Shell Frontier Oil & Gas Co. has three research, development, and demonstration leases adjacent to NSI’s sodium leases on which it is trying to prove up the commercial feasibility of its oil shale extraction technology.

Restructuring

On September 25, 2008, AmerAlia announced its restructuring with the Sentient Entities. AmerAlia’s ownership in NSHI was reduced from 100% to 18%, and Sentient converted its loans into additional common stock of AmerAlia.  All debts previously owed to were cancelled. 
AmerAlia also:

1.    Received $10 million in cash;
2.    Settled approximately $12 million of debt;
3.    Terminated indemnification rights relating to the extinguishment of a $9.9 million bank loan; and
4.    Extinguished other obligations in exchange for the issue of shares of its common stock.

After repaying debts and other obligations, AmerAlia had approximately $4.3 million in cash, $37.1 million in assets and $32.2 million in equity at June 30, 2009.  Sentient now owns 72.4% of AmerAlia’s common stock. Sentient also has a limited right to purchase up to a total of 5,500,000 additional shares of AmerAlia's common stock at $0.36 per share until October 31, 2011.


Current Financial Performance

Fiscal year 2004 was the first complete fiscal year of AmerAlia's ownership of its processing plant. Annual sales in tonnages and gross revenues are shown in the following tables:

FYE    Sales (tons)    % Change                    
2004      84,103
2005       85,038            +1.1
2006    88,910               + 4.6
2007    101,970            +14.7
2008    101,614            - 0.4
2009    97,729             -3.8

FYE    Revenues      % Change
2004      12,609,041
2005      14,141,500    +12.2
2006      15,293,688    +8.1
2007      16,951,997    +10.8
2008      17,947,800    +5.9
2009      19,835,160     +10.5

Quarter ended 9/30/09 - Even during a difficult economic climate, the NSHI reported $5.1 million in sales for the three months ended 9/30/09 compared with $4.8 million during the same period in 2008. Income from operations was $871,972 for 9/30/09 compared to $317,290, a 174.8% increase. This was due to the restructuring completed in October 2008. Debt has been almost entirely replaced by equity so that interest expense for the three months was $68,639 compared with $5,186,802 incurred in the comparable period last year. The net income for the three months ended September 30, 2009 was $803,629 compared with the loss of $5,004,406 in the comparable period last year.
AmerAlia’s equity interest in NSHI is currently 18% so its share of this income was $144,653.  Otherwise, AmerAlia’s general and administrative expenses were $266,258, a 7% reduction on those same costs for the same period last year.  The resulting net loss was $121,605 for the three months compared with $3,706,193 for the same period last year.

Six months ended 12/31/09 – For the six month period NSHI’s revenues increased by 5.9% to $10,428,949 over the same period in the prior period due to increased selling prices per ton. Meanwhile, the total cost of sales was 9.7% lower than for the same period last year, equivalent to a reduction of 5.8% on a cost per ton basis.  This reduced cost was primarily due to lower energy costs.  The resulting gross profit of $3,430,134 was 63% higher than the same period last year or an increase of 70% per ton.
NSHI’s general & administrative expenses increased to $1,127,239 from $148,977, an increase of 656.7% because NSHI had engaged geologists and other consultants to examine further the geology and natural resources of its lease areas and for advice developing its water assets and developing is research lease application.  These expenses include $790,847 NSHI paid Sentient for providing management consultancy services related to NSHI’s business development activities and to reimburse Sentient for additional technical and legal services and for travel expenses.
NSHI has no remaining obligations to Sentient for outstanding obligations except for an estimated $85,000 for reimbursement of expenses incurred since December 2009.  Depreciation and amortization expense was 6.8% lower this year than the comparable period last year and 2.8% lower on a per ton basis.

NSHI’s resulting income from operations was $1,076,747, a 68.5% increase on the comparable period last year.  A consequence of the restructuring completed in October last year is that debt has been almost entirely replaced by equity so that interest expense for the six months was $109,756 compared with $7,017,725 incurred in the comparable period last year.  The net income for the six months ended December 31, 2009 was $967,581 compared with the loss of $6,534,242 in the comparable period last year, a result that also included a loss of $168,274 attributable to the minority interest in NSI at that time.

AmerAlia’s 18% share of NSHI’s net income of $967,581 for the six months was $174,165.  Otherwise, its general and administrative expenses were $520,500 a 9% reduction on these costs for the same period last year.  The resulting net loss was $346,335 for the six months compared with $5,525,745 for the same period last year.

Prospects for the Future

The  prices received for sodium bicarbonate increase despite a recessed economy in the USA

Buyers signing new contracts, however, can expect to pay more, as major bicarbonate suppliers have begun to seek increases. Over the past few months, for example, FMC Corp. announced $20/ton hikes in its feed-grade, USP and industrial grades of sodium bicarbonate. Another leading player, Church & Dwight, also is raising prices for bicarbonate.

The recent hikes "are needed to offset announced price increases for soda ash," says Pat Fiedler, vice president for specialty products at Church & Dwight, the largest U.S. sodium bicarbonate manufacturer. (Soda ash is a key raw material for other manufacturers of sodium bicarbonate.) Demand for sodium bicarbonate has held up.

A promising future outlet for sodium bicarbonate is in cleaning stack gas emissions. Lower cost materials like lime and ground trona are preferred agents for neutralizing sulfur oxides (SOx) from power plants and factories. But stricter federal and state air quality rules, anticipated in the next few years, could boost demand for bicarbonate, which he says is more effective than standard SOx removal agents. Meanwhile, demand for sodium bicarbonate will show gains in 2010 recovering back to 2008 levels.

http://www.proactiveinvestors.com.au/companies/news/6230/ameralia-sodium-bicarbonate-miner-but-potentially-much-more-6230.html