Just because a particular market is in a volatile place at the moment, it does not make it a lesser investment opportunity. In past posts, a case has been made for looking at “where the market will be, instead of where it is.” Market, balance sheet, and a solid management are generally what identify an investment in this regard. Investors who continued to look at the next quarter were, more than likely, the one’s that got into the most hot water over the last 1 1/2 years. An investor that has a bit longer time horizon, and a good eye for strategic moves in a solid market, is an investor that will profit.
Arabian American Development Company, a specialty chemicals and mining company, works to manufacture specialty solvents and develop mining interests in Saudi Arabia and Nevada. The company has also recently begun a transloading operation of natural gas for shipment to Canada.
With principle offices in Dallas Texas, the company operates its specialty chemicals and transloading operations near Silsbee Texas. Here, the facility operates a specialty solvents facility for a variety of end-uses. Although gasoline generally receives a majority of attention in today’s economy, petrochemical lubricants and solvents comprise a large portion of the petrochemical marketplace and will always be a solid market – relatively speaking. Because of this, the company needs to manage inventories and hedging operations closely to not become over-exposed. Its smaller size and nimbleness, however, allows it a certain ability to maneuver through commodity issues where others may have a more difficult time. In an overall sense, it is this flexibility that makes the company attractive.
To take advantage of this flexibility, the company has recently bought out its April to December 2009 puts with a $1.9 million premium. It has also reworked its current line of credit with the Bank of America to a $25 million level. Refinancing of plant expansion, pipeline construction and dropping hedging considerations to eliminate margin calls were also accomplished.
According to the company, these moves, taken as a whole, will eliminate exposure to the nature of its material costs - accepting the natural variations and added natural gas transloading inventory costs one might expect. Ultimately, the company now appears ready to continue its expansion plans and be ready for the eventual expansion of the market in general.
The company also has interests in the mining arena. It owns mining leases - of various patents - in Nevada and mine development land in Saudi Arabia. Through financial negotiations and discussions with the Kingdom of Saudi Arabia, the mining development operation will be transferred to a new company with Arabian American paying retirement costs of workers as dictated by Kingdom law. The company indicates it is fully capable of paying these costs.
There are several issues that surround the company’s Nevada property. Among the issues facing the Nevada leases are surface and sub-surface rights (with BLM) and costs to develop the leases. The company has few plans for the properties at this time. From all appearances, it looks as if the management of Arabian American has been working diligently to navigate a very volatile materials marketplace. Its past hedging exposure has been mitigated and its capital requirements addressed for future expansion. A well managed company is always a company to keep an eye on, and Arabian American seems to be just that.
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