On October 14, 2014, West Mountain Environmental Corp. (TSXV: WMT) announced that they have negotiated with M-I L.L.C., and Schlumberger Canada Limited (NYSE: SLB), to expand the scope of their licensing agreement for the application of TPS technology. According to the revised agreement, WMT now has a nonexclusive license to use TPS technology for any application. Previously, they were restricted from using the technology in the treatment of drill cuttings and waste associated with refinery operations and pipeline operations. The territory of use has also been expanded to include China, the Philippines, Indonesia, Malaysia, Singapore, Vietnam, Myanmar, Laos, Cambodia, Thailand, Brunei and East Timor.
WMT has agreed to pay US$1.5 million to SLB for these amendments, and US$120,000 for each new TPS unit that it uses in Canada, the U.S., and Iraq, and US$100,000 for each new unit in China, the Philippines, Indonesia, Malaysia, Singapore, Vietnam, Myanmar, Laos, Cambodia, Thailand, Brunei and East Timor. The agreement also requires WMT to make not less than two new units per year for the next five years.
Upon signing the above, WM went on to sign a non-exclusive sub-licensing agreement with Jereh Energy Services Corporation. Jereh has agreed to pay US$1.5 million to WMT, and a fee of US$105,000 for each new TPS unit. Jereh is also required to pay 30% of its net profit from use of the sub-license.
WMT’s shares are up 20% since this new development. We believe this is a significant milestone for WMT, especially considering Jereh’s significant track record in oilfield engineering, technology services and environmental services. Jereh is wholly owned by Yantai Jereh Oilfield Services Group, a public company listed on the Shenzhen Stock Exchange (Shenzhen: 002353, Market Capitalization: US$5.58 billion). We also believe that this is a positive signal as Jereh would not enter into such a transaction unless there was foreseeable demand on the horizon.
WMT is expected to release their Q3-2014 results next month. The company had reported revenues of $0.42 million in the first six months of 2014. Our revenue forecast for FY2014 is $1.73 million. Our net loss forecast for the year is $3.41 million (EPS: -$0.06). We have a BUY rating, with a fair value estimate of $0.56 per share (Risk 4).
WMT is on the list of FRC top picks.
Sid Rajeev, B.Tech, MBA, CFA
Head of Research