Saturday, April 25, 2009

Run Silent, Run Deep

That is, of course, the title of one of the classic submarine movies1, but it's also a fitting description of the current investor relations tack of Alloy Steel International (OTC BB: AYSI.OB): as the company's stock price has dived, the company has refrained from releasing any information since its last 10-Q. Over the last few weeks, I tried contacting the company's CEO (who has designated himself the investor relations contact) via the company's website and then via his company e-mail address. After no luck, I trying calling him. Alloy Steel's receptionist in Malaga mentioned he was traveling overseas and, assuming he hadn't had a chance to check his company e-mail address, gave me his personal e-mail address and suggested I try him there. Again, no response. This week, after calling the company's headquarters again and learning that the CEO was again traveling overseas, I sent him the following message:

I understand from Melanie in your Malaga office that you are traveling overseas again. Given your heavy travel schedule and extensive responsibilities, I imagine you must have little time to answer questions from investors. Nevertheless, you have designated yourself as the investor relations contact for your company. Have you considered delegating this role to someone who might have the time to respond to an occasional investor e-mail or phone call?

And received the following response:

Dear Dave.
As a result of the market volatility and the short sellers that have been short selling our stock the board has decided to only release information through the normal reporting channels there will be no separate reports to any investor who we have no record of in our share register.

Kind Regards.
Gene Kostecki
CEO Alloy Steel Int.

Sent via BlackBerry® from Vodafone

This response didn't inspire a lot of confidence in the company's current situation. I can understand the reluctance to communicate with an individual shareholder on Reg FD grounds, but if Mr. Kostecki believes that the market's opinion of his company's prospects is unjustly negative, the best way to counter that would be to release information through "normal reporting channels" proving it wrong. For example, if the company picked up a major order recently, or an order in a new market, it could announce that via an 8-K (as it has done in the past). Since Alloy Steel hasn't released any such updates this year, it's rational for market participants to assume that it has no good news to report.

Judging from the CEO's e-mail above, the break-even numbers it reported last quarter, and its high inventory levels over the last two quarters, my guess is that it will post a loss for the quarter that ended on March 31st.

I was going to end this post on a positive note, by including a link to Goldman Sachs chief economist Jim O'Neil's column in the Financial Times Thursday, in which he mentioned he had revised upward his growth estimates for China's economy this year and next. If O'Neil's estimates come to pass, that would be good news going forward for mining companies, and, by extension, for Alloy Steel. Unfortunately, after 20 minutes of trying, I was unable to find a link to O'Neil's column using the Financial Times website's search feature.

1The all time champ of submarine movies is Das Boot, in my opinion.


JK said...

A company that worries about or scapegoats short sellers is usually in dire straits.

DaveinHackensack said...

It's usually not a good sign. In partial defense of Kostecki though, he just expressed this complaint to me, as far as I know, and hasn't been broadcasting conspiracy theories like that CEO of Still, I didn't expect to hear this from Kostecki. Not because this isn't a difficult time for a small company levered to the mining industry -- I'm sure it is (though from the little I gleaned from the home office, the company is getting some orders, how big or how many I have no idea) -- but because he has done so little to promote his stock in the past (e.g., he still hasn't set up the investor relations link on his website). You figure a guy that worried about his share price might have put more of an effort into shareholder communication.

My guess is that some decent-sized order Kostecki anticipated around the beginning of the year got put on hold or cancelled and he's frustrated about it. In an 8-k on December 11th, he had written,

"The Company is very cognizant of the possible effects of the economic downturn on the world mining market but believes that, with its positioning in the market place, it will not be adversely affected by the possible change in market conditions."And then in the last 10-Q file two months later, the language wasn't as confident.

Billy Tickets said...

Better to sell this one and put it all into Canadian Zinc mining start-ups that can't miss.

DaveinHackensack said...

In the interest of full disclosure, I'll note here that a small limit buy order I had open for sometime filled at about 23 cents per share last week.

Anonymous said...

Kostecki was right to focus on the big picture that is to build a company that generated respect amongst its mining clients,the company today is stronger than ever it had a dip in production but is now running at full capacity this company in my opinion well managed and still debt free not bad in today's climate clearly Dave Hackensack should not expect inside information before any news in relation to AYSI is made public to be fair to all.

DaveinHackensack said...

Thanks for your comment Anon. I certainly don't expect inside information, and indicated in my post that Reg FD, which prohibits that, may have been a concern for Alloy Steel. But given that the company does not hold conference calls, it would be reasonable to offer some additional channels of communications to investors, to clarify and elaborate on the companies filings. The company's comments to me in the past, which I immediately disseminated here and elsewhere, were examples of that; its recent press release was another example.

I agree with your bullishness about Alloy Steel's prospects, and regular readers will note that I continued to add to my position in the company throughout the last year, including buying at 23 cents as I indicated in an earlier message.