The folks at Active Control Technologies (ACT-TSXV) are probably waking up this morning with slight hangovers after popping the champagne corks last night. The Company has finally won certification by the Mine Safety and Health Adminstration (MSHA) to deploy its 802.11 WiFi mesh network, branded ActiveMine, in all underground mines in the United States, including coal mines.
From submission to certification, the entire process has taken nearly two years of fairly intense engagement with the U.S. federal body to get the technology approved. Many times through that process, Management has come within a hair's breadth of certification, only to experience another time-sucking setback. But, it's done. And here are the implications:
> It is only one of two approved and deployable technologies that actually meets the requirements of the the Mine Improvement and New Emergency Response Act of 2006 (MINER Act). According to the MINER Act, mine operators are required to deploy wireless tracking and communications systems that can operate before, during, and after mine emergencies. It is legislated that mine operators must deploy the technology by July 31, 2009 (although one could expect that deadline to be relaxed). The enforcement of the deadline is supported by substantial financial penalties, and recently, tax incentives. Coal mine operators are compelled to deploy, and this greatly benefits ACT.
> Apparently, the only other wireless network technology with MSHA certification is a solution developed by L3 (LLL-NYSE), although for lower data rates at 900MHZ, inferring limited capacity.
> ActiveMine can potentially bring U.S. mine production into the 21st century. With the ActiveMine mesh network acting as a robust data network, mine operators can monitor production in real-time, operate machinery remotely, and improve efficiencies simply with better communications. Enhanced production efficiencies could reduce production costs and help preserve margins as coal prices decline. Current clients such as Patriot Coal (PCX-NYSE) understand the potential competitive advantages.
> ACT has a current backlog of $6 million, which should be deployed and recognized before the Company's fiscal year-end of July 31, 2009. It should be receiving deposits almost immediately, so it could have enough cash to execute, although there may be a need for a further raise of working capital for deployment if the pipeline converts quickly.
> Although not confirmed by Management, it is widely believed that the Company has a 12-month sales pipeline of approximately $60 million. With MSHA approval, we may see the pipeline increase, and we could see accelerated conversions as the MINER Act deadlines loom.
> There are several technology Companies such as Rockwell, Motorola, and L3 that provide some elements of technology that may find ActiveMine to be a compelling certified solution in the future.
The share prices peaked as high as $0.69 in late 2007 as Management believed that it was close to MSHA approval at that point. Since that time, the stock has declined in price, bottoming at $0.045 in November and now sitting at $0.085 per share. My 12-month target at the end of 2007 and during the beginning of 2008 was $0.80. Based on the current situation and current markets, I would expect that analysts would put a 12-month target on the stock in the $0.40 to $0.60 range, depending on their assumptions regarding backlog deployment, pipeline conversion, and breakeven margins. Notwithstanding, with federal certification, impending legislation, happy reference customers, a backlog with a significant pipeline, there is a lot of potential for upside in the stock.
The stock is widely held and has surprising liquidity for a microcap technology story. With such a major milestone announcement today, we should see brisk trading throughout the day.
I own shares in ACT, but do not own shares in any of the other Companies mentioned.