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Friday, May 19, 2006

Misc Thoughts on ETLT, CXTI, and Strathmore


So ETLT continues to be late. Every week the investor relations makes it seem like the 10-K is almost done. What's going on?

I've spent well over 15 years in startup companies and startup operations within existing companies. It was a very educational experience. The first lesson I've learned is that things take a lot longer than expected. That's party due to the optimism during planning and partly because things are just a lot more complicated than we're willing to admit. People have this systematic bias for what is probably an evolutionary reason: groups of humans and pre-humans which were somewhat optimistic about plans for new things (expansion into new territories, putting effort into tools and technology, stuff like that) probably did better than groups that were somewhat pessimistic or neutral. So the people here today would nearly all be descendents of the optimistic entrepreneurs and not the pessimistic status-quo tribes. And they definitely seem to have those traits.

I can't even begin to count the number of reports of insufficient progress I've seen. And this includes some of the most remarkably high-performing teams you'll find anywhere. Success is just around the corner. We just need to climb over this one big obstacle and we'll be done. Some people call it happy talk.

The existence of "happy talk" doesn't say anything about progress. Success might be just around the corner or it may prove impossible. But I would view the absence of any happy talk to be a bad sign.

It doesn't surprise me that ETLT is having problems with accounting issues. Just look at the E-Sea financial statements I looked at here. They were a total mess. Chinese reverse mergers in general have all sorts of accounting problems.

I bailed out of YaSheng Group because of a number of factors, the big factor was that a huge amount of cash apparently simply disappeared. YaSheng is a very different animal than ETLT and nothing I've seen so far would lead me to the same conclusion.

When will ETLT release financial statements? I have no idea. I suspect they're dealing with a number of issues right now.


According to Warren Buffett, when great management attempts to deal with a lousy business environment (such as textile mills), it's the business environment that keeps its reputation. On the other hand, I've seen that when adequate management is in a great business environment, it takes a lot of work and ingenuity to not succeed.

It would make me very happy if CXTI has great management which can adapt quickly and effectively, and which recognizes and handles big issues correctly. If that turned out to be true, then CXTI could become a massively successful business as China continues along the path it seems quite resolved to follow. But really, all they need is adequate management and it seems like they've got at least that much.

China is a bureaucratic country with a lot of people (the official census could easily have failed to count a population the size of the US). Setting up municipal data networks is an unavoidably high priority for them. There is an enormous amount of work to be done and CXTI seems to be winning it. An excellent quote is this one found here:
Amongst 83 cities and counties in Fujian province, only 7 of them have started their e-government construction and we have signed contracts with 6 of them.
The real question I have about CXTI is how big they can get and how rapidly they can do it. There are two limiting factors for the business: 1) cash, since the business cycles are very long and cash intensive, and 2) trained people to do the actual IT work.

Strathmore Minerals

Once again, the spot price of uranium continue to climb. It's now $43.00. The news on growing future demand continues to be excellent, current supply continues to be far less than current demand, and Strathmore continues to do the work to move the properties forward. They hired two people, which is better than none, but it would be far better if they could get a lot more work done on a lot more properties.

I figured a reasonable totally diluted share count would be 100 million shares. I made a pessimistic guess about the number of extractable pounds of uranium at 110 million pounds. So that means they'd have about 1 pound of uranium in the ground per share. The last time they showed how they might monetize the uranium properties, it seems like they would give up a 50% interest in the property to whoever would do the operations. So that would mean a net half-pound of uranium per share. If you figure it takes $25 on average (fully burdened) to get a pound out of the ground, and if you figure it will eventually be sold on contract for $45 (which seems like a fairly pessimistic assumption since spot prices are lower than contract prices and the supply/demand situation is so extreme). That would make the shares worth $10, but my hunch is that it's likely to be worth more than that (more uranium per share and a higher selling price).

In your post of May of last year about Strathmore Minerals, you stated, "...that would make the shares worth $10, but my hunch is that it's likely to be worth more than that (more uranium per share and a higher selling price)."

Do you still feel it's worth at least $10/share?
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