We interrupt the current discussion of oven hygiene for two important financial announcements:


The company held another conference call yesterday. The good news: First quarter revenue rose to $2.3 million. The bad news: the company lost $25.9 million in those 12 weeks. It now expects full-year revenues to be $20 million, against full year expenses of $100 million or so. The stock fell $2.65 to $5.96.

For those of you who (wisely, as it turns out) failed to take some of the profit on your puts last month, now there’s more profit to take. But as before, I’m holding much of my position. It’s hard to see why this company, losing $25 million a quarter, is worth the $215 million at which it is currently valued.


As long-suffering readers will recall, I’ve long thought the respective market caps of these two speculations should be reversed – that Nitromed should be valued at more like the $60 million (if that!) that Borealis is, and that Borealis should be valued at more like $675 million that Nitromed was when we started this thread in July ($500 million is the number I actually suggested).

Under that scenario, NTMD shares would be selling at more like $2 (if that!) than the $22.50 or so they sold for last July; and BOREF shares would today be more like $100 than $12.

Let me hasten to say that at $100 – or at $12, or that matter – Borealis is highly, highly . . . nay, wackily . . . speculative. Okay? I’ve been describing it as a lottery ticket where you have a two-thirds chance of losing all your money but a one-third chance of making a real fistful. A terrific bet to take – but still a two-thirds chance of losing your money.

Something happened yesterday that makes me hope the chance of total loss may now be less than two-thirds (though it’s still, unquestionably, there).

By way of a very quick recap . . .

Nearly a year ago, ‘the plane moved.’ That is to say, a Borealis subsidiary (Chorus Motors) has a subsidiary (WheelTug) that has a motor the size of a watermelon that moved a fully loaded jumbojet around a tarmac as if it were a golf cart.

All of us who own shares have been disappointed with the lack of any visible progress since then (‘it apparently did not move far enough,’ one of you recently wrote me), though the company’s communications remain relentlessly upbeat. (And even at $12, the stock is nearly quadruple where we started buying it six years ago, so it could be worse.)

Well . . .

For those of us desperate for a little encouragement, it may have come from one of its subsidiaries yesterday.

As you know, Borealis owns a whole collection of subsidiaries, mostly ultra-high-tech, from which who knows whether anything commercial or profitable will ever result.

But Borealis also owns a couple of natural resource subsidiaries. (Borealis was originally, decades ago – one winces at the scruffiness of the pedigree – a Canadian mining stock.)

One of those subsidiaries is Roche Bay, plc, which claims leases on ‘one of the largest known magnetite iron ore bodies in the world.’

Its holdings are above the Arctic Circle, which can’t make mining fun; but right on the coast, by deep water (think Siberia by the Sea), so it could be relatively cheap to get the iron ore onto ships headed for Europe. Here’s a FAQ the company offers.

Borealis owns just over 5 million shares of this subsidiary, and Borealis is itself divided into 5 million shares . . . so you in effect own slightly more than one Roche Bay share for each share of Borealis.

Yesterday, Roche Bay announced a deal with a large British steel company, chosen, one can’t help but speculate, just to make this story even more confusing: the Corus Group.

(Corus Steel has absolutely zero to do with Chorus Motors, the subsidiary of Borealis that owns WheelTug, which made the watermelon that moved the plane.*)

* ‘That Jack built,’ I am tempted to add.

According to the press release, Corus and Roche Bay ‘have signed a memorandum of agreement regarding the development of part of Roche Bay’s magnetite deposits in northern Canada [under which] Corus has an option to buy between 2 and 3.5 million tonnes annually of iron ore concentrate/pellets from Roche Bay on a 10 year contract starting in 2010. The option is contingent on Roche Bay’s feasibility plan and ore quality meeting specified levels. In terms of the agreement, Corus also has an option to acquire an interest in the project pending the results of the pre-feasibility and feasibility studies. Roche Bay expects to deliver the pre-feasibility study by spring of 2007.’

One can only begin to imagine the potential snags: the possibility of poor results from the feasibility studies; the difficulty of getting folks to move to the Arctic to dig magnetite; the challenges of environmental permitting.

Still, Corus is a large, serious steel company that seems to think we may have something.

A service called the Steel Business Briefing reported that:

Steelmaker Corus has signed an offtake agreement with Roche Bay plc which should help the Canadian company advance its iron ore mining and pelletizing project. In addition, Corus may also take an interest in the project, subject to the results of feasibility studies. A pre-feasibility study is due to be completed in the early part of 2007. . .

Corus tells Steel Business Briefing that it has an option to buy between 2m and 3.5m tonnes/year of concentrates and pellets from Roche Bay on a ten-year contract starting in 2010. The option is contingent on the quality of the ore and other conditions.

Last year Corus bought 25m tonnes of iron ore, mostly from Australia, Canada, South Africa and South America. . . .

Roche Bay says the company hopes to have a mine producing 8 million tons a year (and then eventually maybe more, for 30 years) . . . and iron ore seems to be worth something these days.

If a few years from now they could be clearing a profit of ten dollars on each ton, that could be $80 million a year . . . or about $8 a year for each Borealis share.

If they could clear twenty bucks a ton after the cost of all those drill bits and tankersful of hot coffee (it’s like 40 below zero up there!), then . . . well, you can do the math.

Wildly speculative, a zillion caveats, and all that. But there was one more interesting tidbit in the company press release:

On 28 April 2006, Roche Bay plc closed a £1.5 million investment round at 300 pence per new ordinary share with RAB Capital, the London-based investment management firm. Roche Bay expects to float on the AIM Market in the second half of 2006.

This means that some outfit actually gave Roche Bay cash money – about $2.75 million – to buy half a million shares of its stock at $5.50 or so a share.

And that means there are now two active jackpots to hope for down the road . . . a dramatic new electric motor technology that could someday find all manner of applications; and a gigantic mineral deposit. (Is iron a mineral? I know it’s not an animal or a vegetable.)

To RAB Capital, with $3 billion under management, this is a trivial bet. But it still gives me heart that they have made it. And that Corus has signed this “offtake agreement” for what could be many hundreds of millions of dollars of iron ore.

In the wake of all this news, Roche Bay – which shows up very occasionally on the pink sheets – traded 100 shares yesterday at $8.75 a share. Borealis traded 979 shares, closing at $11.70.

If the plane moved and the iron ore is attracting interest, might the company’s other subsidiaries someday show promise as well?

Who knows. But if I were given $215 million and the choice of using it to buy either all of NTMD (36 million shares at $5.96 each) or all of BOREF (5 million shares at $43 each), I’d go for the BOREF. Which is how I know that, to me, anyway, either NTMD shares are too expensive at $5.96 or BOREF shares are too cheap at $12 – or both.


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