Algarrobo Property Being Advanced More Quickly Than Expected by Swingplane Ventures

Zacks Small Cap Research

By Steven Ralston, CFA

The stock price of Swingplane Ventures (OTC BB:SWVI) continued to rally this week as more information about the potential of the Algarrobo property has been released, since our previous article. The project is advancing more quickly than expected with near-term production having been pursued more aggressively than previously indicated. 

Over the last two months, test shipments of low-grade ore were delivered, some of which already have been graded and processed by ENAMI (with payments having been issued). In addition, further descriptions of drift development in the press releases have clarified the extent of vein discovery and development on two of the 32 tenures controlled by Swingplane’s option.

Swingplane Ventures is focusing currently on the discovery of high-grade copper ore to the south of the past producing Estaca and Viuda mines, predominately in the tenures of Ruble 5B and Ruble 5. However, while exposing the high-grade veins through drifting (using heavy machinery to make a horizontal cut to access a mineralized vein), haloes of low-grade ore have been encountered. Management decided to test the economic viability of the fringe ore by shipping 500 tonnes to the ENAMI facility at Copiapo for leach processing.

To date, payments totaling $30,845 have been received for 130 tonnes of material grading between 1.88% and 4.28% Cu from the Veta Gruesa vein. Payment has not yet been received for the ore from the Descubridora vein, which graded significantly higher (between 7.75% and 8.8% Cu). Utilizing the information released, we calculate that if all 500 tonnes are comparable in grade and composition to the ore thus far graded and sold, approximately $200,000 should be received from this test of low-grade-ore.

&lnd $443k (+33%) internationally, compared to our $2.3 million and $357k estimates.  We now model 27% growth in international sales in fiscal 2013 which we think is fueled by new product launches, entry into new geographic markets (including China with AspirinWorks) and an ongoing ramp up in activity by ELITech with deeper penetration in existing markets. 

Revenue from the domestic business, while up 17% yoy missed our estimate by about 12%.  Management noted on the call that a reduction in AspirinWorks sales to a large lab customer in the U.S. resulted from a planned temporary slowdown from that customer - which likely largely reflects the difference between our estimated and actual North American sales for the quarter.  Management expects this will not recur in 2H and is still shooting for AspirinWorks sales to at least double in the current fiscal year.  

Net Income / EPS

Q2 net income and EPS came in at $50k and $0.00, compared to our $24k and $0.00 estimates.  Lower than modeled operating expenses ($1,013k A vs $1,105k E) along with slightly better than modeled gross margin (43.1% A vs 42.6% E) contributed to the beat on the bottom line.  We continue to expect to see additional operating leverage with revenue growth and GM to maintain near 43% in 2013 (and slightly widening in future years with economies of scale).  

Cash

Corgenix exited Q2 with $1.2 million in cash and equivalents, roughly flat from the end of Q1 (9/30/2012).  Cash flow from operating activities was an inflow of $141k but stripping out changes in working capital (which is more indicative of cash from operations) it was an inflow of $158k.  Debt remained relatively insignificant at quarter end.   

Maintaining Outlook / Price Target

While maybe still a little too early to call this a definitive inflection point for consistent improvement in financial performance, we think the recent financial and operational trends, coupled with meaningful and tangible progress on pipeline products, recent product introductions, collaborations, and entry into additional geographical territories bodes well as support for that to happen.  We remain big believers in Corgenix and management's ability to deliver ever-improving financial results and build long-term shareholder value.   

We have made only relatively insignificant adjustments to our model following Q2 results.  We continue to value CONX based on our comp valuation methodology (below) which values the shares at approximately $0.60/share.  We maintaining our Outperform rating on the stock.   


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